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Moody’s Rates Perry Ellis ‘Negative’

Outlook lowered from “stable” based on declining operating performance.

Moody’s Investors Service has lowered the rating outlook for Perry Ellis International Inc. to “negative” from “stable” because of erosion in its financial performance.

The company’s credit ratings, including its corporate credit rating of “B1,” were affirmed. Ratings in the “B” family are considered speculative and subject to high credit risk.

In the third quarter ended Nov. 2, the Miami-based sportswear and golfwear firm registered a net loss of $3 million, or 20 cents a diluted share, versus net income of $3.2 million, or 21 cents, in the 2012 quarter. Revenues tracked down 6 percent to $222.1 million.

The company cited disappointing performances in its direct-to-consumer and midtier businesses as it reported the results.

“Margins have declined during 2012 and 2013 as Perry spent on advertising, promotions, e-commerce and realignment activities in an effort to turn around its operating performance,” wrote Moody’s analyst Raya Sokolyanska. “At the same time, Perry’s portfolio of well-known brands and wide range of price points partially mitigate its fashion risk by targeting multiple demographics through diversified distribution channels.”

Perry Ellis’s portfolio of brands includes Rafaella, Laundry by Shelli Segal, Perry Ellis and Original Penguin.

Moody’s said the outlook could be switched back to “stable” if the company “returns to revenue growth, improves its profitability meaningfully and reduces leverage to below 4.5 times sustainably, while maintaining a good liquidity profile.” Leverage refers to the ratio of debt to earnings before interest, taxes, depreciation and amortization, which is currently above 4.5.

Shares of Perry Ellis rallied on Friday, rising 5.6 percent to $15.92.