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Charge Expands Frederick’s Quarterly Loss

Merged company moves to EBITDA profit from loss.

Frederick’s of Hollywood Group Inc. posted widened losses for the second quarter and six months due mostly to a goodwill impairment charge.

For the three months ended Jan. 24, the loss was $20.2 million, or 77 cents a share, compared with a loss of $2.4 million, or 20 cents, in the year-ago period. Excluding a $19.1 million noncash impairment charge, the loss would have narrowed to $1.1 million, or 4 cents a share.

Frederick’s of Hollywood Group merged in January 2008 with FOH Holdings Inc., the parent company of Frederick’s of Hollywood, which simultaneously merged with Movie Star Inc. Results from a year ago are from FOH Holdings only and don’t include those of Movie Star.

With the addition of Movie Star’s wholesale operations, sales jumped 24.7 percent to $52.5 million from $42.1 million. Wholesale contributed $14.2 million to revenues, partially offset by a $3.8 million decrease in retail sales. Thomas Rende, chief financial officer, said comparable-store sales fell 7.2 percent in the quarter.
Gross profits in the quarter were up 9.3 percent to $18.3 million from $16.7 million. Gross margins, as a percentage of sales, fell to 34.8 percent from 39.7 percent last year, hurt in part by lower gross margin in the wholesale division.

Selling, general and administrative expenses grew to $18.8 million in the quarter from $18.5 million a year ago, with $14.2 million in costs attributable to the retail component and $4.6 million allocated to the wholesale operation and corporate office following the merger. The retail segment’s SG&A decreased by over 20 percent, said Rende.

When viewed on an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) basis, the company posted a profit in the quarter of $1.3 million against a loss of $590,000 in the year-ago quarter.
For the six months, the loss rose to $25.5 million, or 97 cents a share, from a loss of $6.3 million, or 54 cents, a year ago. Excluding the impairment charge, the loss was $6.4 million, or 24 cents a share. Sales gained 19.9 percent to $95.1 million from $79.3 million.