PCFG News Phoenix Footwear Reports First Quarte

PCFG News

Phoenix Footwear Reports First Quarter 2012 and 2011 Year End Results

2012-05-04 13:05 ET - News Release

CARLSBAD, Calif. -- (Business Wire)

Phoenix Footwear Group, Inc. (OTCMarkets.com: PXFG) today reported results for the First quarter ended March 31, 2012 and for the full year-ended December 31, 2011.

First Quarter 2012

• Consolidated operating income from continuing operations of $261,000 or $0.03 per share compared to a loss from continuing operations of $436,000 or $0.05 per share


• Generated positive EBITDA of $499,000 compared to negative EBITDA of $234,000 in the first quarter of fiscal 2011.


• Net sales from continuing operations increased to $5.7 million or 18.4%

For the quarter ended March 31, 2012, net sales improved to $5.7 million or 18.4% compared to $4.8 million in the prior year comparative period. Net sales for Trotters increase 4.7%, while net sales for SoftWalk grew by more than 45% during the period. The increase in net sales for the quarter was primarily due to stronger customer demand for the Company’s Spring 2012 product offering together with improved supply-chain on time delivery of product from its third party manufacturers.

Gross profit was $2.1 million for the quarter, an increase of $426,000 compared to the prior year comparable quarter, as gross margin improved 200 basis points to 37.5%, compared to 35.5% in the first quarter of 2011. The improvement in gross margin in the quarter was the result of a 3.4% increase in the average unit net selling price that was partly offset by a 0.4% increase in the average unit cost on an increased unit volume of more than 18%.

Selling, general and administrative expenses, or SG&A, totaled $1.7 million, a decrease of 15% compared to $2.0 million in the first quarter of 2011. SG&A as a percentage of net sales was 30% for the first quarter of 2012 compared to 42% in the prior year comparative period. The improvement in SG&A for the period was primarily due to decreases in legal, audit and other professional fees of $183,000 incurred in the prior year period with the voluntary deregistration and delisting of the Company’s shares, together with lower rent and other operating expenses of $126,000 associated with the relocation of the Company’s headquarters in February of 2011.

In the first quarter, the Company reported earnings from continuing operations of $261,000 or $0.03 per share, compared to a loss from continuing operation of $436,000 or $0.05 per share for the same period of the prior year. Earnings before interest, taxes, depreciation and amortization (or “EBITDA&rdquo from continuing operations for the quarter was $499,000 compared to negative EBITDA of $234,000 in the first quarter of 2011.

Fiscal Year 2011

• Consolidated net loss decreased to $1.26 million or $0.15 per share from a net loss of $1.71 million or $0.21 per share


• Consolidated operating loss from continuing operations improved to $1.7 million or $0.21 per share compared to an operating loss from continuing operations of $4.1 million or $0.50 per share


• Net sales from continuing operations decreased to $15.9 million or 4% from net sales from continuing operations of $16.5 million


• Gross margins improved to 35% or 700 basis points from 28%


• As of December 31, 2011, the Company was in violation of the minimum EBITDA covenant of its Loan and Security Agreement.

For the year ended December 31, 2011 (or “fiscal 2011&rdquo, net sales decreased to $15.9 million or 4% compared to $16.5 million for the year ended January 1, 2011 (or “fiscal 2010&rdquo. Net sales for SoftWalk declined 12.3%, which was partially offset by an increase in net sales for Trotters of 1.4%. The decrease in net sales for SoftWalk was primarily due to significant production delays with one of its third party manufacturers during the first half of fiscal 2011 and to a lesser degree, poor sell through of the HealthGlide styles as the market for “toning” and similar footwear became highly promotional.

Gross profit for fiscal 2011 was $5.6 million an increase of $965,000 compared to fiscal 2010, as gross margin improved 700 basis points to 35%, compared to 28% in fiscal 2010. The increase in gross margin for the year was primarily the result of a lower average cost per unit together with a higher percentage of full margin sales compared to fiscal 2010.

Selling, general and administrative expenses, or SG&A, totaled $6.6 million, a decrease of $1.7 million or 21% compared to $8.3 million in fiscal 2010. SG&A as a percentage of net sales was 35% in fiscal 2011 compared to 51% in fiscal 2010. The improvement in SG&A for the year was primarily due to lower employee compensation and benefits, office rents, public company and other cost reduction measures taken during the second half of fiscal 2010.

For fiscal 2011, the Company reported a loss from continuing operations of 1.7 million or $0.21 per share, compared to a loss from continuing operation of $4.1 million or $0.50 per share for fiscal 2010.

As of December 31, 2011, the Company was not in compliance with Section 9.12 (Financial Covenant (minimum EBITDA)) of the Loan and Security Agreement. To date, the Company has not sought a waiver of the financial covenant breach under the Loan and Security Agreement, however is actively engaged in discussions to amend or replace all or part of its existing credit facility. If the Company is not able to refinance or replace any or all of its indebtedness, it could have a material adverse effect on the business, financial condition, liquidity and operations of the Company and raises significant uncertainty about the Company’s ability to continue as a going concern. There can be no assurance that the Company will be able to refinance or replace any or all of this indebtedness. As a result of the event of default, the Company has reclassified the $1.5 million term note with its lenders from a non-current to a current liability.