Phoenix Footwear Reports Fiscal Year 2012 Results

Phoenix Footwear Group, Inc. (OTCMarkets.com: PXFG) today reported results for the fiscal year ended December 29, 2012.

Fiscal Year 2012
  • Operating income for the year totaled $513,000 compared to an operating loss of $1.0 million for the prior year.
  • Net sales increased $834,000 or 5.2% to $16.7 million from $15.9 million
  • Gross margin as a percentage of net sales improved to 37.5% or 240 basis points from 35.1%
  • Net loss from continuing operations decreased to $437,000 or $0.06 per share compared to net loss of $1.7 million or $0.21 per share in fiscal 2011.

For the year ended December 29, 2012 (or “fiscal 2012”), net sales increased to $16.7 million or 5.2% compared to $15.9 million for the year ended December 31, 2011 (or “fiscal 2011”). Net sales for the Company’s SoftWalk® and Trotters® brands grew by 11.6% and 2.0% in fiscal 2012. The improvement in net sales for the year was achieved with a 9.7% increase in the average unit wholesale price on an increased unit sales volume of full priced goods of 2.9%, together with a 27% decrease in the sales volume of closed-out goods.

The gross margin improved 240 basis points to 37.5% from 35.1% when compared to the prior fiscal year. The enhanced gross margin was produced on a higher unit sales volume of full priced goods coupled with an increase in the average unit wholesale of 9.7% and a decrease in the sales volume of closed-out inventory reduced by an increase in the average standard cost per unit.

Selling, general and administrative expenses or SG&A, decreased $835,000 or 12.7% to $5.8 million in fiscal 2012 compared to $6.6 million in fiscal 2011. SG&A as a percentage of net sales for fiscal 2012 was 34.4% compared to 41.4% for fiscal 2011. The decrease in SG&A was mostly due to the reduction in legal, rent and other public company costs incurred during the first quarter of fiscal 2011 associated with the completion of a restructuring plan initiated during the second half of fiscal 2010 and an overall lower operating cost structure.

Interest expense for fiscal 2012 totaled $927,000 compared to $720,000 for fiscal 2011. On July 30, 2012, the Company refinanced its credit facilities reducing its borrowing costs and increasing the facilities’ size. As a result of the refinancing, the Company incurred $220,900 of additional expenses associated with the accelerated expensing of prepaid financing costs and other fees paid with the early termination of the prior loan agreement.

The Company reported a loss from continuing operations of $437,000 or $0.06 per share for the fiscal year ended December 29, 2012, compared to loss from continuing operations of $1.7 million or $0.21 per share for the fiscal year ended December 31, 2011.

Waiver and Amendment of Lender Covenants

On July 30, 2012, the Company entered into a new Loan and Security Agreement (the “Loan Agreement”) with AloStar Bank of Commerce (“AloStar”) and Subordinated Loan Agreement with Gibraltar Business Capital, LLC (“Gibraltar”). The Loan Agreement and Subordinated Loan Agreement include various financial and other covenants, with which the Company has to comply in order to maintain borrowing availability and avoid penalties including maintaining required minimum EBITDA amounts.

As of December 29, 2012, the Company’s rolling 12 month EBITDA of $771,000 was not in compliance with the minimum EBITDA covenant of $850,000 required in the Loan Agreement and Subordinated Loan Agreement.

On February 27, 2013 and March 4, 2013, the Company entered into the First Amendment to the Subordinated Loan Agreement with Gibraltar and the First Amendment to the Loan Agreement with AloStar, waiving the Company’s non-compliance with the required minimum EBITDA covenant of those agreements as of December 29, 2012 and amending the required minimum EBITDA covenant for each of the first, second and third quarters of fiscal 2013.

About Phoenix Footwear Group, Inc.

Phoenix Footwear Group, Inc., headquartered in Carlsbad, California, specializes in quality comfort women’s and men’s footwear with a design focus on fitting features. Phoenix Footwear designs, develops, markets and sells footwear in a wide range of sizes and widths under the brands Trotters® and SoftWalk®, These brands are primarily sold through department stores, leading specialty and independent retail stores, mail order catalogues and internet retailers and are carried by approximately 659 customers in over 997 retail locations throughout the U.S. Phoenix Footwear has been engaged in the manufacture or importation and sale of quality footwear since 1882.

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These forward-looking statements include, but are not limited to, statements regarding Phoenix Footwear’s ability to repay its bank debt in a timely manner, future growth and performance of its individual brands, expected financial performance and condition for fiscal 2012 and/or statements preceded by, followed by or that include the words “believes,” “could,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “projects,” “seeks,” “exploring,” or similar expressions. Although Phoenix Footwear believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by Phoenix Footwear or any other person that the objectives and plans of Phoenix Footwear will be achieved. All forward-looking statements included in this press release speak only as of the date of this press release and are based on Phoenix Footwear's current expectations and projections about future events, based on information available at the time of the release, and Phoenix Footwear expressly disclaims any obligation to release publicly any update or revision to any forward-looking statement contained herein if there are changes in Phoenix Footwear’s expectations or if any events, conditions or circumstances on which any such forward-looking statement is based.
Phoenix Footwear Group, Inc.
Consolidated Balance Sheets
(In thousands)
         
 
 
December 29, 2012 December 31, 2011
ASSETS
 
Current assets:
Cash and cash equivalents $ 43 $ 41
Accounts receivable, net 1,768 2,020
Inventories, net 6,974 6,733
Other current assets 1,039 1,451
Income taxes receivable   149   146
Total current assets 9,973 10,391
 
Property, plant and equipment, net 418 556
Other assets   204   51
TOTAL ASSETS $ 10,595 $ 10,998
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Notes payable, current $ 3,506 $ 3,784
Accounts payable 2,574 3,200
Accrued expenses 592 902
Other current liabilities 208 205
Current liabilities of discontinued operations   -   174
Total current liabilities 6,880 8,265
 
Notes payable 936 -
Convertible notes payable 1,350 1,000
Other non-current liabilities   164   154
Total liabilities 9,330 9,419
 
Stockholders' equity   1,265   1,579
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 10,595 $ 10,998
- -
 
Phoenix Footwear Group, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
                   
 
Fiscal Years Ended
 
December 29, 2012 December 31, 2011
Net sales $ 16,738 100 % $ 15,904 100 %
Cost of goods sold   10,464   63 %   10,319   65 %
 
Gross profit 6,274 38 % 5,585 35 %
 
Operating expenses:
Selling, general and administrative expenses   5,761   34 %   6,596   41 %
Total operating expenses   5,761   34 %   6,596   41 %
 
Operating Income (loss) 513 3 % (1,011 ) -6 %
 
Interest expense, net   927   6 %   720   5 %
 
Loss before income taxes and discontinued operations (414 ) -3 % (1,731 ) -11 %
 
Income tax (benefit) expense   23   0 %   11   - %
 
Loss from continuing operations (437 ) -3 % (1,742 ) -11 %
 
(Loss) earnings from discontinued operations, net of tax   (47 ) 0 %   481   3 %
 
Net loss $ (484 ) -3 % $ (1,261 ) -8 %
 
 
 
Earnings (loss) per share:
 
Basic and diluted
Continuing operations $ (0.06 ) $ (0.21 )
Discontinued operations   (0.01 )   0.06  
Net loss $ (0.07 ) $ (0.15 )
 
Weighted-average shares outstanding:
Basic 8,223 8,179
Diluted 8,223 8,179
 

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