Frederick’s of Hollywood Group Inc. overcame a large dent in its wholesale business to match its year-ago third-quarter loss. But comments from chief executive officer Thomas Lynch on the company’s future funding sent the stock tumbling more than 20 percent Wednesday.
For the three months ended April 25, the New York-based lingerie maker said it recorded a loss of $2 million, or 8 cents a diluted share, equaling the loss posted in the year-ago period.
Sales in the three months fell 23.1 percent to $46.8 million from $60.8 million in fiscal 2008. The company said the decline was primarily caused by a $13.1 million drop in wholesale orders.
Frederick’s was able to make up for some of the lost sales by cutting costs and lifting margins. It trimmed selling, general and administrative expenses in the quarter by $3.9 million, or 16.7 percent, to $19.5 million. Gross margin, meanwhile, rose 230 basis points to 38.2 percent from 35.9 percent.
“While we are disappointed with the significant reduction in wholesale business, we have implemented aggressive cost-saving measures and are collaborating with our customers to develop new products with broad consumer appeal,” Lynch said. “However, we cannot be assured that our wholesale sales will return to historic levels.”
Lynch warned investors the company will need additional financing to meet operational needs beyond 2010. “If we cannot raise funds on acceptable terms, we may be required to curtail our operations significantly, which could aversely affect our business,” he said.
On Wednesday, the first day of trading after his comments, shares of Frederick’s fell 17 cents, or 20.9 percent, to close at 57 cents.
In addition to 130 stores, catalogues and a Web site, Frederick’s includes wholesale operations that functioned as Movie Star Inc. prior to a 2008 merger.
For the nine months ended April 25, the company’s losses totaled $27.2 million, or $1.05 a share, compared with $8.3 million, or 51 cents a share, in 2008. Sales in the three quarters rose 1.2 percent to $141.9 million from $140.1 million a year ago.
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