Industry News

Perry Ellis' Q3 Revenues Slip 2.1%

Surfersvillage Global Surf News, 20 November, 2008 : - - Perry Ellis International reported sales slid 2.1% to $222.8 million from $227.5 million a year ago.

Strong results for the Perry Ellis brand, denim, golf and Hispanic categories coupled with better than expected results in international and licensing businesses were offset by $4.0 million increase in markdowns and sales allowances to retail partners, a revenue decline during the quarter of $4.5 million related to Chapter 11 filings or liquidation from multiple retailers, and overall weakness in the specialty store distribution channel.

Net income for the third quarter was $5.0 million, or 33 cents per fully diluted share, compared to net income of $8.5 million, or 55 cents, a year ago, a decline of 41.2%.

Oscar Feldenkreis, president and COO, commented, “Several of our growth platforms continue to perform according to plan, despite the overall weakness at retail, demonstrating the strength of our brands and the resiliency of our diversified business model.

We continue to innovate and deliver newness at retail, which is driving consumer purchases and assisting us to mitigate the downturn in consumer spending. The positive performances posted by our denim, golf and Hispanic products are a testament to this.”

Gross margins improved by 25 basis points to 34.1% of net revenues compared to the third quarter of fiscal 2008, primarily driven by continued success in shifting from private label to branded business. Gross profit decreased by $1.0 million to $75.9 million compared to $76.9 million during the third quarter of fiscal 2008, due to increases in markdowns and sales allowances.

“Especially in these highly promotional times, it is essential to have the power of nationally recognized brands and the sophistication of technologically advanced planning systems that allow us to rapidly react to changes in the environment. The continuous improvement of our gross margins is a direct consequence of Perry Ellis International’s strategic shift towards branded product and the successful implementation of our planning platform,” Feldenkreis continued.

Compared to the third quarter of fiscal 2008, operating expenditures grew by $3.9 million. This increase includes the continuous investment in the company’s women’s contemporary business acquired in February of this year; $0.6 million in one-time expenses related to the strategic review previously announced and a pre-tax impairment of $0.6 million in marketable securities, which were previously classified as available for sale, and deemed to be other than temporarily impaired.

As a result EBITDA, as adjusted, was $16.0 million for the third quarter of fiscal 2009, compared to $20.8 million, representing a reduction of $4.8 million over the same period last year.

“We continue to believe that investing in our key growth opportunities – particularly women’s contemporary – will allow these businesses to contribute strongly in the future. However, in light of the macroeconomic changes we are all experiencing, we need to make adjustments to enhance our profitability. The primary objective of the strategic review launched late third quarter is to determine the correct allocation of resources across our business portfolio, to ensure that we fund those businesses with the most potential,” Feldenkreis concluded.

Balance Sheet and Liquidity review

The company remains in outstanding financial position. Its recently renewed credit facility provides a maximum of up to $200 million based on collateral, with an initial availability of $125 million today, against which it is currently borrowing $48.2 million. Its debt-to-capital ratio at 43% is equal to the debt-to-capital ratio for the same period last year.

Excluding the $33.1 million related to the acquisition of the women’s contemporary businesses, the company achieved its tenth consecutive quarter of improvement in its leverage ratios by reducing its debt-to-capital ratio from 43% to 41% and its debt-to-asset ratio from 34% to 32% at the end of the third quarter last year.

“From a liquidity and leverage standpoint, Perry Ellis International continues to strengthen its balance sheet and is in an excellent position not only to weather the current macroeconomic difficulties, but to take advantage of the multiple opportunities we believe will be available once the uncertainty in the environment subsides,” George Feldenkreis, chairman and CEO, commented.

Inventories at $126.3 million increased by 3% compared to $122.6 million as of October 31, 2007, in line with the expected growth in net sales during the fourth quarter of fiscal 2009. Accounts receivable, at $149.2 million, increased by $2.6 million compared to the same period last year, also in line with revenue increases of 1.3% during the first nine months of fiscal 2009.

Feldenkreis continued, “We are conservatively managing our working capital. Both inventories and accounts receivable are in excellent shape and in line with our projections.”

Nine months Operations Review

For the nine months ended on October 31, 2008 (“first nine months of fiscal 2009”), total revenues increased by 1.3% to $660.0 million from $651.5 million during the same period last year. The company also improved gross profit margins by 52 basis points compared to the first nine months ended on October 31, 2007 (“first nine months of fiscal 2008”).

Due to the continued investment in Perry Ellis’ growth platforms – primarily women’s contemporary, Europe, retail and e-commerce – the company increased operating expenses by $19.8 million to $193.4 from $173.7 million during the first nine months of fiscal 2008. Driven by these increases and the impairment of marketable securities, net income declined from $18.3 million to $8.7 million, a $9.6 million reduction compared to the first nine months of fiscal 2008.

Update on Strategic Review of Underperforming Businesses

As part of the recently announced Strategic Review process, the company reported that it has identified SG&A reductions in the $14.0 to $15.0 million range for fiscal 2010, up $9.0 million from the previously identified and reported savings of $5.0 to $6.0 million related to the consolidation of Tampa bottom’s production department, headcount reduction in men’s specialty store businesses and rationalization of real estate. The new identified initiatives include:

    * Restructuring of Perry Ellis Outlet operations
    * Hiring freeze and reduction of travel and other discretionary expenses
    * Annualization of distribution cost savings due to closing of Winnsboro distribution center
    * Further reduction in shared services cost structure and advertising and promotion budget for men’s specialty store business

Most of the identified expenses in connection with this strategic review are expected to be incurred during fourth quarter of fiscal 2009. Further savings initiatives within the Strategic Review framework are currently under evaluation.

“In light of the overall economic slowdown, we have taken decisive action to adjust our cost structure to a level adequately supporting our fiscal 2010 revenues. We are ensuring that our resources are allocated to those businesses that contribute superior returns to our shareholders,” Feldenkreis commented.

Fiscal 2009 Guidance

The company confirmed its previously announced fiscal 2009 earnings guidance in the range of 90 cents to $1.10 per fully diluted share, including one-time costs in the 10 cents to 15 cents range related to actions identified during the strategic review. The company also confirmed its revenue guidance for fiscal 2009 in the $875 - $900 million range.

View the Full Income Statement Data

www.perryellis.com

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