Strength in golf, women’s contemporary merchandise and direct-to-consumer was not enough to keep Perry Ellis International out of the red in the second quarter — or to keep shareholders happy.
The company weathered underperformance in its Perry Ellis and Rafaella businesses, missed analysts’ estimates for the quarter, reduced its annual profit guidance and saw its stock drop 16.4 percent to $18.62 in late morning trading on Wall Street.
The Miami-based manufacturer’s net loss totaled $2.4 million, or 17 cents a diluted share, in the second-quarter ended July 28. This compared with a profit of $1.8 million, or 11 cents a share, in same period last year. Revenues dropped 2.3 percent to $209.4 million.
RELATED STORY: Casual Male’s Q2 Profits Decline >>
Excluding one-time charges for discontinued brands, severance costs and a closed facility, the company managed an adjusted profit of 1 cent a share — 2 cents below analysts’ expectations for the quarter.
PEI also cut its outlook for adjusted diluted earnings per share for fiscal 2013 to $1.75 to $1.80, primarily as a result of a transition to new distribution channels for its Callaway brand, as well as continued promotional activity in its collections business. In May, the company projected adjusted profits of $1.95 to $2 a share. However, Perry Ellis said it remained comfortable with its full-year sales estimate of $990 million to $1 billion.
Oscar Feldenkreis, president and chief operating officer, said: “We met our expectations for the second quarter and continue to make significant progress in our Perry Ellis and Rafaella collection businesses, which is encouraging as we move forward. We expect to see improved performance beginning with the holiday season and the new team’s full impact beginning in spring 2013.” In a conference call with analysts, he said slim fit continues to be a “key driver” for the Perry Ellis brand, and the company’s collaboration with Duckie Brown, set to debut next month during New York Fashion Week, “has continued to receive strong interest from retailers in both domestic and international markets.”
Gross margin for the second quarter decreased 60 basis points to 33.1 percent, compared with 33.7 percent last year, due to costs associated with the exit of underperforming brands and businesses, the closing of a sourcing office and increased promotional activity within the company’s collections businesses.
Selling, general and administrative expenses increased $2.7 million to $66.1 million compared with $63.4 million in the second quarter of fiscal 2012. This increase was attributed primarily to costs associated with the company’s voluntary early retirement program, exited brands and businesses, and the exit and relocation of a third-party logistics provider.
George Feldenkreis, chairman and chief executive officer, explained: “During the last two quarters we have consolidated distribution, grown the foreign sourcing office, streamlined our infrastructure by implementing a retirement plan and taken a strategic look at reducing some of our smaller brand businesses that will allow us to focus our attention on our power brands. We have been focused on a disciplined management of inventory. On a year-over-year basis during this quarter we reduced our total inventory position by 21 percent, and we expect for this positive trend to continue for the second half of the year.”
He said the company is working on several “growth opportunities,” including expanding in Canada and Mexico with its Nike, Perry Ellis, Savane and swimwear brands. The licensed business continues to be a bright spot, with royalty income rising 9 percent in the quarter due primarily to fragrances and footwear. The company’s retail business — it operates 65 Perry Ellis and Original Penguin full-line and outlet stores — posted a 12.5 percent comparable-store sales increase in the quarter. The e-commerce business had an even larger gain, with sales up 20 percent over last year, Feldenkreis said.
For the six months, net income fell to $7.2 million, or 47 cents a share, compared with $17.2 million, or $1.08, a share last year. Revenues dropped 5.5 percent to $475 million from $502.7 million last year as sales in the company’s collections brands continued to be challenged. Adjusted EBITDA was $30.3 million, or 6.4 percent of sales.