Randa Accessories Leather Goods LLC’s deal to acquire Swank Inc. boosted the target company’s professional fees, driving up expenses and depressing fourth-quarter profits despite a 4.3 percent sales gain.
Swank said Monday that, in the three months ended Dec. 31, net income fell 3.5 percent to $3.4 million, or 62 cents a diluted share, from $3.6 million, or 63 cents, in the 2010 quarter. Sales grew to $47 million, from $45 million in the year-ago period, while gross margin picked up 150 basis points to 35.7 percent of sales from 34.2 percent in the prior-year period.
However, with selling, general and administrative expenses, including professional fees, up 16.3 percent to $11 million, from $9.5 million a year ago, operating income fell 3.2 percent, to $5.7 million.
Randa and Swank disclosed their agreement for Randa to acquire Swank and take it private for $10 a share, or about $57.5 million, on Feb. 3. The deal is expected to close in the second quarter of 2012.
Last year’s fourth quarter was characterized by strong sales of personal leather goods and a reduction in allowances to customers, offset by a decline in belts and gift accessories. Leather goods benefited from a shift towards Swank’s luxury collections and strong business with a number of key department store customers. The decline in belts resulted from strong year-ago sales with wholesale club accounts, which weren’t repeated in 2011.
For the full year, net income was up 42.3 percent, to $5.9 million, or $1.06 a diluted share, from $4.2 million, or 74 cents. Sales rose 4.5 percent to $138.6 million from $132.7 million as gross margin escalated to 33.5 percent from 30.9 percent in 2010, aided in part by a $1.5 million in costs related to the termination of Swank’s relationship with Style 365 in 2010.