Phoenix Footwear Reports Third Quarter 2016 Results

Phoenix Footwear Group, Inc. (OTCMarkets.com: PXFG) today reported results for the Third Quarter and First Nine months ended October 1, 2016.

Third Quarter and First Nine Months of Fiscal 2016
  • Operating income for the third quarter of fiscal 2016 increased to $145,000 compared to $96,000 for the third quarter of fiscal 2015.
  • Operating income for the third quarter included the failure of a large retail customer resulting in the recognition of $272,000 of bad debt. Excluding this write off, adjusted operating income for the third quarter was $417,000.
  • During the quarter, the Company took steps to realign its operating structure. These measures are expected to provide an annualized savings of $722,000. Of these, approximately $100,000 was realized in the third quarter of 2016.
  • Gross margins as a percentage of net sales increased 540 basis points to 38.6% for the quarter, compared to 33.2% for the third quarter of fiscal 2015. For the first nine months of fiscal 2016, gross margins improved by 500 basis points to 37.9% compared to 32.9% for the first nine months of fiscal 2015.
  • For the periods ended August 27, 2016 and October 1, 2016, the Company was not in compliance with its Minimum Free Cash Flow Covenant. On November 3, 2016, the Company received a waiver of covenant default from Sterling Business Credit, LLC for the period ended August 27, 2016 and October 1, 2016.

THIRD QUARTER AND FIRST NINE MONTHS OF FISCAL 2016

For the quarter ended October 1, 2016, net sales decreased by $50,000, or 1.0%, to $5.77 million compared to $5.82 million for the third quarter of fiscal 2015.

Net sales for the first nine months of fiscal 2016 decreased $1.0 million, or 6.3%, to $15.5 million compared to $16.6 million for the first nine months of fiscal 2015. The decrease in net sales for the period was primarily driven by lower sales in the catalog, online and national retail channels that were partly offset by increases in the Company's e-commerce and other internet based accounts.

Gross profit for the third quarter of fiscal 2016 increased $291,000, or 15.0%, to $2.2 million from $1.9 million when compared to the third quarter of fiscal 2015. Gross profit as a percentage of net sales for the third quarter of fiscal 2016 increased to 38.6% compared to 33.2% for the third quarter of fiscal 2015. The increase in the gross profit as a percentage of net sales for the quarter was the result of a reduction in air freight and other negative purchase price variances when compared to the third quarter of fiscal 2015.

Gross profit increased $427,000, or 7.8%, to $5.9 million in the first nine months of fiscal 2016 compared to $5.5 million for the first nine months of fiscal 2015. Gross profit as a percentage of net sales for the first nine months of fiscal 2016 improved to 37.9% compared to 32.9% for the first nine months of fiscal 2015. The improvement in the gross margin as a percentage of net income for the first nine months of fiscal 2016 was primarily associated with a reduction in air freight and other negative purchase price variances when compared to the first nine months of fiscal 2015.

SG&A for the third quarter of fiscal 2016 increased to $2.1 million or 13.2% compared to $1.8 million for the third quarter of fiscal 2015. SG&A as a percentage of net sales increased to 36.0% for the third quarter of fiscal 2016 from 31.6% when compared to the same period of fiscal 2015. Included in SG&A in the third quarter of fiscal 2016 was $272,000 of bad debt expense resulting from the failure of a large retail customer that was partly offset by a decrease in selling and other marketing expenditures during the period.

SG&A for the first nine months of fiscal 2016 increased to $6.2 million or 10.8% compared to $5.6 million for the first nine months of fiscal 2015. SG&A as a percentage of net sales increased to 39.7% from 33.6% when compared to the same period of fiscal 2015. Included in the increase in SG&A was $272,000 of bad debt as a result of the failure of a large retail customer during the third quarter and an increase in headcount in sales, marketing and the Company's warehouse, along with an increase in other planned spending in support of the Company's e-commerce direct to consumer channel and other marketing and tradeshow activities. During the third quarter, the Company took steps to realign its operating structure. These measures are expected to provide an annualized reduction in operating expenses of $722,000, $100,000 of which were realized in the third quarter.

The Company reported a break-even result from continuing operations or $0.00 per share for the third quarter, compared to a net operating loss from continuing operations of $45,000 or $0.00 per share during the third quarter of fiscal 2015.

For the first nine months of fiscal 2016, the Company reported a net loss from continuing operations of $737,000 or $0.06 per share, compared to net loss from continuing operations of $735,000 or $0.07 per share for the first nine months of fiscal 2015.

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 836 customers in over 1,395 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 2016 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.
Condensed Consolidated Balance Sheets
(In thousands)
   
(Unaudited)
October 1, 2016 January 2, 2016
ASSETS
 
Current assets:
Cash and cash equivalents $ 226 $ 283
Accounts receivable, net 3,703 2,812
Inventories, net 9,983 10,363
Other current assets   278   407
Total current assets 14,190 13,865
 
Property, plant and equipment, net 38 54
Capital leased asset 459 515
Other assets   122   161
TOTAL ASSETS $ 14,809 $ 14,595
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Notes payable, current $ 6,362 $ 5,156
Accounts payable 3,010 2,974
Accrued expenses 812 805
Current portion of long term debt   429   446
Total current liabilities 10,613 9,381
 
Convertible notes payable 1,350 1,350
Term notes payable 163 444
Capital lease obligation 465 502
Other non-current liabilities   181   198
Total liabilities 12,772 11,875
 
Stockholders' equity   2,037   2,720
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,809 $ 14,595
 
Phoenix Footwear Group, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
 
    (Unaudited)
Three Months Ended
         
October 1, 2016 October 3, 2015
Net sales $ 5,774 100 % $ 5,824 100 %
Cost of goods sold   3,548 61 %   3,889   67 %
 
Gross profit 2,226 38.6 % 1,935 33.2 %
 
Operating expenses:
Selling, general and administrative expenses 2,081 36 % 1,839 32 %
Goodwill and intangible impairment charges   - - %   -   0 %
Total operating expenses   2,081 36 %   1,839   32 %
 
Operating income 145 3 % 96 2 %
 
Interest expense, net   145 3 %   141   2 %
 
Earnings (loss) before income taxes - 0 % (45 ) -1 %
 
Income tax (benefit) expense   - 0 %   -   - %
 
Net earnings (loss) $ - 0 % $ (45 ) -1 %
 
Earnings per share:
Basic
Continuing operations $ - $ -
Discontinued operations   -   -  
Net Earnings $ - $ -  
Diluted
Continuing operations $ - $ -
Discontinued operations   -   -  
Net Earnings $ - $ -  
 
Weighted-average shares outstanding:
Basic 12,488 11,085
Diluted 12,488 11,085
 
Phoenix Footwear Group, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
             
(Unaudited)
Nine Months Ended
 
October 1, 2016 October 3, 2015
Net sales $ 15,518 100 % $ 16,554 100 %
Cost of goods sold   9,643   62 %   11,106   67 %
 
Gross profit 5,875 38 % 5,448 33 %
 
Operating expenses:
Selling, general and administrative expenses   6,165   40 %   5,563   34 %
Total operating expenses   6,165   40 %   5,563   34 %
 
Operating loss (290 ) -2 % (115 ) -1 %
 
Interest expense, net   447   3 %   620   4 %
 
Loss before income taxes and discontinued operations (737 ) -5 % (735 ) -4 %
 
Income tax (benefit) expense   -   0 %   -   - %
 
Loss from continuing operations (737 ) -5 % (735 ) -4 %
 
Loss from discontinued operations, net of tax   -   0 %   -   0 %
 
Net loss $ (737 ) -5 % $ (735 ) -4 %
 
 

Loss per share:
 
Basic and diluted
Continuing operations $ (0.06 ) $ (0.07 )
Discontinued operations   -     -  
Net loss $ (0.06 ) $ (0.07 )
 
Diluted
Continuing operations $ (0.06 ) $ (0.07 )
Discontinued operations   -     -  
Net loss $ (0.06 ) $ (0.07 )
 
Weighted-average shares outstanding:
Basic 12,465 11,158
Diluted 12,465 11,158

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