Swank, Inc. Reports Net Sales and Operating Results for the Quarter and Six Months Ended June 30, 2008
SOURCE:
Swank, Inc.
2008-08-13 09:23:00
NEW YORK, NY–(EMWNews – August 13, 2008) – John Tulin, Chairman of the Board and Chief
Executive Officer of SWANK, INC., (
sales and operating results for the Company’s second quarter and six months
ended June 30, 2008:
Second Quarter Results
Net sales for the quarter ended June 30, 2008 totaled $25,755,000, a
decrease of $3,501,000, or 12.0%, compared to the quarter ended June 30,
2007. Net sales of our personal leather goods increased 24.5% for the
quarter compared to the same period in 2007, due principally to shipments
of our new Tumi merchandise, which began shipping during the third quarter
of 2007 and sales of which remained strong during the current fiscal year.
Net sales of our men’s belt merchandise, however, decreased 20.4% for the
quarter compared to the same period in 2007, during which we made
significant shipments in connection with the expansion of a private label
program, and net sales of men’s jewelry decreased 25.2% over the same
period last year due to lower branded and private label sales, which
together more than offset the gains in our small leather goods division.
Net sales were negatively impacted overall during the quarter by a 52.6%
increase in in-store markdown expenses compared to the same period last
year, as several of our customers substantially increased their promotional
expenditures in response to a much more difficult retail environment.
Gross profit margin for the quarter ended June 30, 2008 improved by 150
basis point to 33.0% compared to 31.5% in the year-ago period, primarily
due to a successful effort to create efficiencies in our supply chain. This
improvement was achieved despite the 52.6% increase in in-store markdown
expense noted above. Gross profit dollars decreased by $695,000, or 7.5%,
during this period primarily as a result of the decrease in net sales,
offset, in part, by reductions in certain of inventory and product-related
expenses (primarily reduced display expenditures and markdowns incurred on
returns of merchandise).
Selling and administrative expenses for the quarter increased $788,000, or
10.2%, and, as a percentage of sales, increased by .6% to 33.1% compared to
32.5% in the same period in 2007.
Selling expenses increased by $107,000, or 1.8%, during the quarter
compared to last year, primarily due to our continued investment in product
development and sourcing, as well as a small increase in compensation in
our Luxury Division, which was established early in 2007. These expenses
were only partially offset by reductions in variable sales-related expenses
associated with lower net sales. Expenditures for advertising and
promotion, including cooperative advertising (which is accounted for as a
reduction to net sales), totaled $907,000 or 3.6% percent of net sales
compared to $959,000 or 3.3% of net sales last year.
Administrative expenses increased $681,000, or 37.0%, during the quarter
compared to last year’s first quarter. Administrative expenses expressed
as a percentage of net sales was 9.8% for the quarter compared to 6.3%
during the same period in 2007. The increase in administrative expenses
was mainly due to an increase in bad debt expense associated with reserves
we recorded during the second quarter in connection with the bankruptcy
filings of two of our department store customers, as well as slightly
higher employee benefits costs as a result of our investment in product
development and sourcing and our Luxury Division noted above, offset in
part by a reduction in travel and certain other expenses.
The Company recorded a net loss for the quarter ended June 30, 2008 of
$128,000, or $(0.02) per fully diluted share, compared to net income in the
comparable prior year’s period of $571,000, or $0.09 per fully diluted
share.
Six-Month Results
Net sales for the six-month period ended June 30, 2008 totaled $50,473,000,
a decrease of $3,771,000, or 7.0%, compared to the corresponding period in
2007. Net sales of our personal leather goods increased 24.0% compared to
the same six-month period in 2007, due principally to shipments of Tumi
merchandise. Net sales of our men’s belt merchandise, however, decreased
13.2% for the 2008 six-month period, and net sales of men’s jewelry
decreased 22.1% over the same period last year due, in each case for the
same reasons described above with regard to our quarterly results. Net
sales were negatively impacted overall during the six-month period by a
53.3% increase in in-store markdowns expenses compared to the same period
last year, mainly due to an increase in promotional expenditures by certain
of our accounts in response to a more difficult retail environment.
Gross profit margin for the six months ended June 30, 2008 declined by .4%
to 31.6% compared to 32.0% in the year-ago period. Gross profit dollars
decreased $1,383,000, or 8.0% compared to the same period in 2007. The
decreases in gross profit margin and overall gross profit were the result
of lower net sales this year, offset, in part, by the reductions in certain
of inventory and product-related expenses described above.
Selling and administrative expenses for the six months ended June 30, 2008
increased by $1,026,000, or 6.7%, and as a percentage of net sales,
increased to 32.5% compared to 28.4% in the same period in 2007.
Selling expenses increased by $356,000, or 3.1%, during the six-month
period compared to last year, primarily due to our continued investment in
product development and sourcing, as well as a small increase in
compensation in our Luxury Division, as noted above, partially offset by
reductions in variable sales-related expenses associated with lower net
sales. Expenditures for advertising and promotion, including cooperative
advertising (which is accounted for as a reduction to net sales), totaled
$1,738,000 or 3.5% of net sales compared to $1,721,000, or 3.2%, of net
sales last year.
Administrative expenses increased $670,000, or 17.9%, during the six months
ended June 30, 2008 compared to last year. Administrative expenses
expressed as a percentage of net sales was 8.8% for the quarter compared to
6.9% during the same period in 2007. The increase in administrative
expenses was mainly due to an increase in bad debt expense associated with
reserves we recorded during the second quarter in connection with the
bankruptcy filings of two of our department store customers, as well as
increased product development and sourcing costs and slightly higher
employee benefits costs in our Luxury Division, offset in part by a
reduction in travel and certain other expenses.
The Company recorded a net loss for the six months ended June 30, 2008 of
$539,000, or $(0.09) per fully diluted share, compared to net income in the
comparable prior year’s period of $664,000, or $0.11 per fully diluted
share.
Annual Return Adjustments
Included in net sales for the quarter and six months ended June 30, 2008
and 2007, are annual second quarter adjustments to record the variance
between customer returns of prior year shipments actually received in the
current year and the allowance for customer returns which was established
at the end of the preceding fiscal year. This adjustment increased net
sales by $872,000 for the three-month and six-month periods ended June 30,
2008, compared to an increase of $637,000 for the comparable periods in
2007. The favorable adjustments result from actual returns experience
during both the spring 2008 and spring 2007 seasons being better than
anticipated compared to the reserves established at December 31, 2007 and
December 31, 2006. The reserves at December 31, 2007 and 2006 were
established in consideration of shipments made during the fall 2007 and
2006 seasons, respectively, generally associated with the holiday selling
seasons. During the spring 2008 and 2007 seasons, customer returns of all
men’s merchandise were lower than expected. During the past few seasons,
the Company has reduced its level of customer returns by assisting
retailers in promoting excess and discontinued merchandise following the
holiday season to accelerate retail sales of these goods.
Included in gross profit for the quarter and six months ended June 30, 2008
and 2007, are annual second quarter adjustments to record the variance
between customer returns of prior year shipments actually received in the
current year and the allowance for customer returns which was established
at the end of the preceding fiscal year. The adjustment to net sales
recorded in the second quarter described above resulted in a favorable
adjustment to gross profit of $682,000 and $783,000 for the quarter and
six-month periods ended June 30, 2008 and June 30, 2007, respectively. As
discussed above, customer returns were lower than anticipated during both
the spring 2008 and spring 2007 seasons due mainly to our efforts to more
aggressively promote excess and discontinued merchandise to stimulate
retail sales and minimize returns.
Commenting on the results, John Tulin, Chairman of the Board and Chief
Executive Officer, said, “We continue to experience one of the more
challenging retail environments in recent memory. The combined effects of
the downturn in the real estate market along with rising energy prices has
impacted consumer spending which, in turn, has led to disappointing retail
sales, particularly for a number of our department and chain store
customers. Although the decrease in net sales reduced our gross profit
dollars during the quarter compared to last year, we have been successful
in achieving efficiencies in our supply chain which helped to increase our
gross margin expressed as a percentage of net sales during the second
quarter of 2008. We recognize, however, that we have more work to do in
this area and hope to continue to build on this progress in the coming
months.”
Mr. Tulin continued, “We have aggressively increased our promotional
activity in response to the lackluster demand from budget-conscious
consumers in order to stimulate sales and maintain or build market share.
Still, we expect sales over the next several months to remain under
pressure and understand the importance of controlling costs and inventory
during this uncertain time. One thing that will not change, however, is our
commitment to our customers. We believe that we are well positioned to
weather the current economic downturn and look forward to the upcoming
holiday season.”
Forward-Looking Statements
Certain of the preceding paragraphs contain forward-looking statements,
which are based upon current expectations and involve certain risks and
uncertainties. Under the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, readers should note that these statements
may be impacted by, and the Company’s actual performance and results may
vary as a result of, a number of factors including general economic and
business conditions, continuing sales patterns, pricing, competition,
consumer preferences, and other factors.
Swank designs and markets men’s jewelry, belts and personal leather goods.
The Company distributes its products to retail outlets throughout the
United States and in numerous foreign countries. These products, which are
known throughout the world, are distributed under the names “Kenneth Cole”,
“Tommy Hilfiger”, “Nautica”, “Geoffrey Beene”, “Claiborne”, “Guess?”,
“Tumi”, “Chaps”, “Donald Trump”, “Ted Baker”, “Steve Harvey”, “Pierre
Cardin”, “US Polo Association”, and “Swank”. Swank also distributes men’s
jewelry and leather items to retailers under private labels.
SWANK, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE QUARTERS ENDED JUNE 30, 2008 AND 2007
(Dollars in thousands except share and per share data)
2008 2007
--------- ----------
Net sales $ 25,755 $ 29,256
Cost of goods sold 17,243 20,049
--------- ----------
Gross profit 8,512 9,207
Selling and administrative expenses 8,518 7,730
--------- ----------
(Loss) income from operations (6) 1,477
Interest expense 199 453
--------- ----------
(Loss) income before income taxes (205) 1,024
Income tax (benefit) provision (77) 453
--------- ----------
Net (loss) income $ (128) $ 571
========= ==========
Share and per share information:
Basic net (loss) income per weighted average common
share outstanding $ (.02) $ .09
Basic weighted average common shares outstanding 6,011,805 6,074,699
Diluted net (loss) income per weighted average
common share outstanding $ (.02) $ .09
Diluted weighted average common shares outstanding 6,011,805 6,082,440
SWANK, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(Dollars in thousands except share and per share data)
2008 2007
--------- ----------
Net sales $ 50,473 $ 54,244
Cost of goods sold 34,514 36,902
--------- ----------
Gross profit 15,959 17,342
Selling and administrative expenses 16,404 15,378
--------- ----------
(Loss) income from operations (445) 1,964
Interest expense 420 790
--------- ----------
(Loss) income before income taxes (865) 1,174
Income tax (benefit) provision (326) 510
--------- ----------
Net (loss) income $ (539) $ 664
========= ==========
Share and per share information:
Basic net (loss) income per weighted average common
share outstanding $ (.09) $ .11
Basic weighted average common shares outstanding 6,011,805 6,074,699
Diluted net (loss) income per weighted average
common share outstanding $ (.09) $ .11
Diluted weighted average common shares outstanding 6,011,805 6,082,427
SWANK, INC.
CONDENSED BALANCE SHEETS
(Dollars in thousands except share data)
(Unaudited)
June 30, 2008 December 31, 2007
------------------- -------------------
ASSETS
Current:
Cash and cash equivalents $ 784 $ 2,339
Accounts receivable, less
allowances of $4,790 and $5,052,
respectively 15,375 18,327
Inventories, net:
Work in process 1,175 1,054
Finished goods 22,393 25,611
--------- ---------
23,568 26,665
Deferred taxes, current 2,929 2,929
Prepaid and other current assets 1,302 1,075
-------- --------
Total current assets 43,958 51,335
Property, plant and equipment, net
of accumulated depreciation 1,303 1,117
Deferred taxes, noncurrent 2,106 2,106
Other assets 3,606 3,601
-------- --------
Total assets $ 50,973 $ 58,159
======== ========
LIABILITIES
Current:
Note payable to bank $ 11,932 $ 13,199
Current portion of long-term
obligations 624 632
Accounts payable 5,031 7,057
Accrued employee compensation 804 1,752
Other current liabilities 325 2,917
-------- --------
Total current liabilities 18,716 25,557
Long-term obligations 6,430 6,321
-------- --------
Total liabilities 25,146 31,878
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00:
Authorized - 1,000,000 shares - -
Common stock, par value $.10:
Authorized - 43,000,000 shares:
Issued -- 6,385,379 shares 639 639
Capital in excess of par value 1,911 1,826
Retained earnings 24,847 25,386
Accumulated other comprehensive
(loss), net of tax (469) (469)
Treasury stock, at cost, 373,574 shares (1,101) (1,101)
-------- --------
Total stockholders' equity 25,827 26,281
-------- --------
Total liabilities and stockholders'
equity $ 50,973 $ 58,159
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