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., (PINKSHEETS: SNKI), today reported net

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

                                              ========            ========

Contact:
Jerold R. Kassner
Swank, Inc.
Taunton, MA 02708
(508) 822-2527

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