Perry Ellis International will close 15 stores after posting a wider second-quarter loss.
For the three months ended July 30, the net loss was $3.6 million, or 24 cents a diluted share, compared with a net loss of $1.3 million, or 9 cents, in the year-ago quarter. On an adjusted basis, EPS was 15 cents, beating Wall Street’s estimate of 1 cent for the quarter. Total revenues fell 5.5 percent to $201.7 million from $213.3 million, which included a 5.5 decrease in net sales to $193.3 million from $204.6 million and a 4 percent decline in royalty income to $8.3 million from $8.7 million.
Perry Ellis said that the increase in sales across its core global brands were offset by 3 percent in planned business exits and 2 percent reductions in special market revenues.
Looking ahead, the company said it would close 15 underperforming retail doors over the next 18 months to focus more on e-commerce and improving retail performance. Perry Ellis also updated fiscal 2017 revenue guidance to $885 million to $890 million, but maintained fiscal 2017 adjusted EPS guidance at the $1.95 to $2.00 range.
During the call to Wall Street analysts, George Feldenkreis, executive chairman, said, “As you all know, the apparel and retail industry is going through very challenging times. We are facing strong headwinds that, generally speaking, have resulted in lower revenues for some distribution channels. Despite these challenges, our company’s main lifestyle brands including Perry Ellis, Original Penguin, Nike Swim and Golf brands, achieved organic growth in revenues and profit in the U.S. during the last quarter.”
The executive chairman said while the second quarter is traditionally its “smallest quarter, the restructuring effort implemented a couple of years ago is serving the company well. He explained further that the company was able to reduce inventory by $49 million, and that the strategic reduction allows Perry Ellis to “drive more profitable top-line sales and allows our company to enter the holiday season in a very healthy condition. Today our debt-to-equity ratio is smaller than we have had in over 10 years.”
He also noted that the international business has suffered in the quarter because of the impact of Brexit and currency devaluation, resulting in the company’s conclusion that the European business will not be profitable this year. “We feel that as the pound reaches a steady level, our business will increase and profitability would be restored,” the executive chairman said.
The company implemented new pricing strategies in its international market that is starting to take hold, and it continues to expand it licensing program. He also noted that business in Latin America remains challenging in countries such as Argentina, Venezuela, Brazil and Columbia.
Oscar Feldenkreis, chief executive officer, said, “Our results show the continued power behind our core lifestyle brands and the ongoing commitment to product innovation and digital marketing.”
On the 15 doors slated for closure, the ceo said they represent 20 percent of the firm’s total doors. “We remain committed to the direct-to-consumer business as well as continue to grow through both e-commerce and retail locations that are profitable and brand appropriate,” the ceo said.
Oscar Feldenkreis said retail sales for the Perry Ellis brand grew 4 percent on reduced inventory and faster turns. E-commerce in the quarter grew double-digits in both “our direct platform as well as our retail partners. During the quarter, we enhanced the efficiencies of our digital shopping campaigns, which led to a triple-digit improvement in both traffic and revenues in this emerging digital market channel. Updates to our product stories and investing in nonbranded marketing campaigns also drove this growth,” the ceo said.
He added that the Macy’s Herald Square shop delivered a 12 percent increase to last year, led by gains in higher average retail sales price. “We will continue to invest in updating our shops in our top doors to showcase the Perry Ellis experience and brand image with retail partners and expect this to further build sales productivity for the brand,” the ceo said.
The ceo also said its Original Penguin brand posted retail sales up 6 percent, driven by lower promotional levels as the company was able to drive more full-price selling on reduced stock levels. “We’re seeing a preference for wear-now product and have focused our product assortments towards classifications that have longer seasonalities,” he said.
In womens’ apparel, the ceo said the company is emphasizing soft dressing and casual lifestyle product through its weekend offering, which has helped to drive regular price sales. The company will introduce new fabrics in silhouettes and expand the weekend component for its Rafaella brand. The dress business was pressured by the cooler weather earlier in the summer, which impacted pricing, the ceo said.
Shares of Perry Ellis on Thursday fell 10.2 percent to close at $19.09 in Nasdaq trading.