FOR IMMEDIATE RELEASE:
Frederick’s of Hollywood Group Inc. Reports
Fiscal 2008 Third-Quarter and Nine Months Financial Results
The merger
was accounted for as a reverse acquisition in which the Company was treated as
the acquired company and FOH Holdings was treated as the acquiring
company. The historical financial
information presented for the periods and dates prior to January 28, 2008, the
closing date of the merger, is that of FOH Holdings and its subsidiaries, and
for periods subsequent to January 28, 2008 is that of the merged company.
Net sales
for the fiscal 2008 third quarter were $60,526,000, compared to $42,835,000 for
the similar period in the prior year. Gross
margin, as a percentage of sales, was 35.8% for the fiscal 2008 third quarter,
compared to 45.6% in the fiscal 2007 third quarter. The Company recorded a net
loss of $1,985,000, or $(0.08) per diluted share, for the fiscal 2008 third
quarter, as compared to net income of $1,113,000, or $0.09 per diluted share,
for the fiscal 2007 third quarter.
Net sales
for the nine months ended April 26, 2008 were $139,253,000, compared to
$122,409,000 for the similar period in the prior year. For the first nine months of fiscal 2008, the
gross margin was 38.4%, compared to 43.5% in the comparable period of fiscal
2007. For the fiscal 2008 first nine
months, the Company recorded a net loss of $8,333,000, or $(0.51) per share, compared
to net income $3,012,000, or $0.25 per diluted share, in the comparable period
of fiscal 2007.
Although net
sales for the three and nine-month periods increased due to the addition of
$20,292,000 of net sales generated by the Movie Star wholesale division, we
experienced decreased retail sales as a result of the challenging retail environment.
Gross margin for the three and nine months also decreased due to the
addition of the Movie Star wholesale division, which operates on a lower gross
margin than the retail division. The
gross margin for the Movie Star wholesale division for the three-month period
was 28.4%. In addition, included
in selling, general and administrative expenses for the three and nine months
ended April 26, 2008 were one-time non-recurring merger related expenses that
totaled $1,651,000 and $2,241,000, respectively. These consisted of stock compensation
expense, audit fees in excess of normal audit costs, bonuses and insurance
policies purchased as a requirement of the merger.
Peter Cole,
Executive Chairman of the Company, stated, “As our business is dependent upon
consumer demand for our products, the weakened U.S. economy and the resulting
decline in consumer discretionary spending since late 2007 has negatively
affected our operating results. In
particular, our retail store sales have been impacted by reduced mall traffic
brought on by high gasoline prices and our wholesale division has experienced
additional margin pressure. While
economic conditions have also contributed to a decline in retail Internet
sales, the decreases that we have experienced in this area have been primarily
due to an unsuccessful transition to a new web platform. We are currently reviewing alternatives to replace
and improve our legacy Internet platform, which we believe we will be able to
implement during fiscal 2009.”
Mr. Cole
continued, “While the macroeconomic environment continues to pose challenges to
both our wholesale and retail channels, we have taken a number of actions
following the consummation of the merger to reduce operating expenses. We expect that the positive impact of these
cost-reduction measures, coupled with the operating cost savings and other synergies
realized in the merger, will become apparent in future reporting periods. We are confident that we are building a
company that will be a prominent player in the intimate apparel business for
many years to come. I look forward to
reporting to you on our future results.”
Non-GAAP
Financial Measures
EBITDA is a “non-GAAP financial measure” which
represents earnings before depreciation and amortization, interest and income
tax expense. EBITDA is being presented
as a supplemental disclosure because management believes that it is a common
measure of operating performance in our industry. EBITDA should not be construed as an
alternative to net income as an indicator of the Company’s operating
performance, or as an alternative to cash flows from operating activities as a
measure of the Company’s liquidity, as determined in accordance with generally
accepted accounting principles (“GAAP”).
A reconciliation of EBITDA, a non-GAAP financial measure, to GAAP is
provided in the following table:
|
|
Three Months Ended |
|
Nine Months Ended |
||
|
($ in thousands) |
April 26, 2008 |
April 28, 2007 |
|
April 26, 2008 |
April 28, 2007 |
|
EBITDA, as
defined |
$(227) |
$
2,921 |
|
$(3,344) |
$
8,405 |
|
Depreciation
and amortization |
1,463 |
876
|
|
3,427 |
2,577 |
|
Interest |
436 |
462 |
|
1,703 |
1,558 |
|
Income tax
expense |
- |
470 |
|
- |
1,258 |
|
Net income
(loss) available to common shareholders |
$ (2,126) |
$1,113 |
|
$(8,474) |
$
3,012 |
Forward
Looking Statement
Certain of the matters set forth in this press
release are forward-looking and involve a number of risks and
uncertainties. Among the factors that
could cause actual results to differ materially are the following: competition;
business conditions and industry growth; rapidly changing consumer preferences
and trends; general economic conditions; large variations in sales volume with
significant customers; addition or loss of significant customers; continued
compliance with government regulations; loss of key personnel; labor practices;
product development; management of growth, increases in costs of operations or
inability to meet efficiency or cost reduction objectives; timing of orders and
deliveries of products; foreign government regulations and risks of doing
business abroad; and the other risks that are described from time to time in
Frederick’s of Hollywood Group Inc.’s SEC reports.
About
Frederick’s of Hollywood Group Inc.
About the
Through “
About the Movie Star Wholesale Division
Through “Movie Star,” we design, manufacture, import,
market and distribute women’s intimate apparel, including sleepwear, robes,
leisurewear and daywear, to mass merchandisers, specialty and department
stores, discount retailers, national and regional chains and direct mail
catalog marketers throughout the United States.
Current collections include the Cinema Etoile premium line of intimate
apparel and the Movie Star line of apparel sold as private label programs.
CONTACT:
Thomas Rende, CFO
(212) 798-4700
CONSOLIDATED
CONDENSED BALANCE SHEETS
(In Thousands,
Except Share Data)
|
April 26, |
July 28, |
|
2008 * (Unaudited) |
2007
(Audited) |
Assets
|
Current Assets |
|
|
|
Cash and
equivalents |
$ 1,913 |
$ 1,898 |
|
Accounts receivable |
10,113 |
739 |
|
Income tax receivable |
207 |
119 |
|
Merchandise inventories |
26,720 |
16,683 |
|
Prepaid expenses and other current assets |
2,608 |
6,458 |
|
Deferred income tax assets |
1,133 |
1,133 |
|
Total current assets |
42,694 |
27,030 |
|
|
|
|
|
Property and equipment, net |
23,241 |
17,365 |
|
Goodwill |
19,100 |
6,678 |
|
Intangibles and other assets |
27,729 |
19,452 |
|
|
|
|
|
Total Assets |
$112,764 |
$70,525 |
Liabilities and Shareholders’ Equity
|
Current Liabilities |
|
|
|
Revolving credit facility and term loans |
$8,975 |
$ 6,740 |
|
Current portion of long term debt |
59 |
4,343 |
|
Accounts payable and other accrued expenses |
22,955 |
20,585 |
|
Total current liabilities |
31,989 |
31,668 |
|
|
|
|
|
Deferred rent |
3,721 |
2,744 |
|
Long-term debt – related party |
12,459 |
15,086 |
|
Other |
- |
17 |
|
Deferred income tax liabilities |
10,169 |
8,369 |
|
Total
Liabilities |
58,338 |
57,884 |
|
|
|
|
|
Preferred stock, $.01 par value
– authorized, 10,000,000 shares at |
7,500 |
- |
|
April 26, 2008 and 250,000 shares at July 28, 2007; issued and
outstanding 3,629,325 shares of Series A preferred stock at April 26, 2008
and no shares at July 28, 2007 |
|
|
|
|
|
|
|
Shareholders’ Equity: |
|
|
|
Common stock,
$.01 par value – authorized 200,000,000 shares at |
261 |
13 |
|
April 26, 2008 and 20,037,840
shares at July 28, 2007; issued and outstanding 26,134,759 shares at April
26, 2008 and 11,844,591 at July 28, 2007 |
|
|
|
Additional paid-in capital |
59,224 |
16,708 |
|
Accumulated deficit |
(12,554) |
(4,080) |
|
Accumulated other comprehensive loss |
(5) |
- |
|
Total Shareholders’ Equity |
46,926 |
12,641 |
|
|
|
|
|
Total Liabilities and Shareholders’
equity |
$112,764 |
$70,525 |
* Reflects the merged entity as
of January 28, 2008.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
(In Thousands, Except Per Share
Amounts)
Three Months Ended Nine
Months Ended
April 26,
April 28, April 26, April 28,
2008 * 2007 2008 * 2007
|
Net sales |
$60,526 |
$42,835 |
|
$139,253 |
$122,409 |
|
Cost of goods sold, buying and occupancy |
38,845 |
23,322 |
|
85,829 |
69,123 |
|
Gross profit |
21,681 |
19,513 |
|
53,424 |
53,286 |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
23,230 |
17,482 |
|
60,054 |
47,534 |
|
Income (loss) from continuing operations |
(1,549) |
2,031 |
|
(6,630) |
5,752 |
|
|
|
|
|
|
|
|
Interest expense, net |
436 |
462 |
|
1,703 |
1,558 |
|
|
|
|
|
|
|
|
Income (loss) before income taxes and discontinued
operations |
(1,985) |
1,569 |
|
(8,333) |
4,194 |
|
Income tax expense |
- |
470 |
|
- |
1,258 |
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
(1,985) |
1,099 |
|
(8,333) |
2,936 |
|
|
|
|
|
|
|
|
Discontinued operations, net of tax provision of $7 and $33 for the
three and nine months ended April 28, 2007 |
- |
14 |
|
- |
76 |
|
Net income (loss) |
(1,985) |
1,113 |
|
(8,333) |
3,012 |
|
Less: Preferred stock dividends |
(141) |
- |
|
(141) |
- |
|
Net Income (loss) available to
common shareholders |
$(2,126) |
$ 1,113 |
|
$(8,474) |
$ 3,012 |
|
|
|
|
|
|
|
|
Basic net income (loss) per share from continuing operations |
$(.08) |
$.09 |
|
$(.51) |
$.24 |
|
Basic net income per share from discontinued operations |
- |
- |
|
- |
.01 |
|
Basic net income (loss) per share |
$(.08) |
$.09 |
|
$(.51) |
$.25 |
|
|
|
|
|
|
|
|
Diluted net income (loss) per share from continuing operations |
$(.08) |
$.09 |
|
$(.51) |
$.24 |
|
Diluted net income per share from discontinued operations |
- |
- |
|
- |
.01 |
|
Diluted net income (loss) per share |
$(.08) |
$.09 |
|
$(.51) |
$.25 |
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding – basic |
25,981 |
11,845 |
|
16,592 |
11,845 |
|
Weighted average number of shares outstanding – diluted |
25,981 |
12,251 |
|
16,592 |
12,063 |
|
|
|
|
|
|
|
* Reflects the merged entity as of January 28,
2008.