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Frederick’s of Hollywood Group Inc. Reports Financial Results for Fiscal 2011 Third Quarter

June 14, 2011

NEW YORK, June 14, 2011 /PRNewswire/ — Frederick’s of Hollywood Group Inc. (NYSE Amex: FOH) (“Company”) today announced financial results for its fiscal 2011 third quarter and nine months ended April 30, 2011.

Thomas Lynch, the Company’s Chairman and Chief Executive Officer, stated, “While we are disappointed by the fiscal third quarter results, our outlook for fiscal 2012 is positive. Inventory is approaching appropriate levels, and we remain focused on our ongoing operating initiatives that will help us grow in the long term. Most recently, we strategically reorganized our merchandising and design team to strengthen our core retail operations and to provide our customers with more trend-right fashions. We are beginning to see the impact of these efforts in the current quarter. We are also continuing to explore licensing opportunities, both domestically and internationally.”

Fiscal 2011 Third Quarter Compared to Fiscal 2010 Third Quarter:

  • Net loss applicable to common shareholders was $387,000 or $(0.01) per diluted share, compared to net income of $218,000 or $0.01 per diluted share.
    • Net loss from continuing operations was $367,000, compared to net income of $958,000.
    • Net loss from discontinued operations, net of tax, decreased to $20,000 from $608,000.
  • Adjusted EBITDA from continuing operations was $953,000 compared to $2,550,000. A reconciliation of GAAP results to Adjusted EBITDA from continuing operations, a non-GAAP measurement, is provided in the accompanying table.
  • Net sales decreased 11.6% to $32,599,000 from $36,883,000.
    • Total store sales decreased 12.7% to $19,610,000 while comparable store sales decreased 10.1%.
    • Direct sales (catalog and website operations) decreased 12.1% to $10,526,000.
    • Licensing revenue was $582,000 or 1.8% of total revenue.
    • Other revenue, consisting of shipping revenue and commissions earned on direct sell-through programs, decreased 23.3% to $1,881,000.
  • Gross margin, as a percentage of net sales, decreased to 38.3% from 41.5%.
  • Selling, general and administrative expenses decreased by 10.0% to $12,485,000, or 38.3% of sales, from $13,874,000 or 37.6% of sales.

Fiscal Nine Months Ended April 30, 2011 Compared to Fiscal Nine Months Ended April 24, 2010:

  • Net loss applicable to common shareholders was $4,871,000, or ($0.13) per diluted share, compared to a net loss of $9,097,000, or ($0.34) per diluted share.
    • Net loss from continuing operations decreased to $3,458,000 from $3,950,000.
    • Net loss from discontinued operations, net of tax, decreased to $1,413,000 from $4,754,000.
  • Adjusted EBITDA from continuing operations was $755,000 compared to $1,187,000. A reconciliation of GAAP results to Adjusted EBITDA from continuing operations, a non-GAAP measurement, is provided in the accompanying table.
  • Net sales decreased 10.4% to $93,798,000 from $104,740,000.
    • Total store sales decreased 14.2% to $56,287,000 while comparable store sales decreased 11.4%.
    • Direct sales (catalog and website operations) decreased 2.7% to 31,799,000.
    • Licensing revenue was $619,000 or 0.7% of total revenue.
    • Other revenue decreased 21.4% to $5,093,000.
  • Gross margin, as a percentage of net sales, decreased to 37.7% from 37.9%.
  • Selling, general and administrative expenses decreased by 10.8% to $37,677,000, or 40.2% of sales, from $42,228,000 or 40.3% of sales.

Non-GAAP Financial Measures

For purposes of evaluating our continuing operating performance, the Company uses an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) measurement, which is computed as the net income/(loss) from continuing operations appearing on the statement of operations plus depreciation and amortization, interest, income tax expense and non-cash stock compensation expense. Adjusted EBITDA from continuing operations is used by management to evaluate the operating performance of the Company’s business for comparable periods. Adjusted EBITDA from continuing operations should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items.

While Adjusted EBITDA from continuing operations is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:

  • Adjusted EBITDA from continuing operations excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs; and
  • other significant items, while periodically affecting the Company’s results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects the comparability of results.

                                       Three Months            Nine Months
                                          Ended                   Ended
                                       ------------           -----------
                                    April    April        April     April
    (in thousands)                    30,      24,           30,       24,
                                      2011     2010          2011      2010
    Net income (loss) from
     continuing operations           $(367)    $958       $(3,458)  $(3,950)
    Depreciation and amortization      761    1,017         2,372     3,181
    Interest                           361      447         1,104     1,397
    Income tax expense                  20       19            60        58
    Stock compensation expense         178      109           677       501
                                       ---      ---           ---       ---
    Adjusted EBITDA from
     continuing operations            $953   $2,550          $755    $1,187
                                      ====   ======          ====    ======

Forward Looking Statement

Certain of the matters set forth in this press release are forward-looking and involve a number of risks and uncertainties. These statements are based on management’s current expectations or beliefs. Actual results may vary materially from those expressed or implied by the statements herein. 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; working capital needs; 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. Frederick’s of Hollywood Group Inc. is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

About Frederick’s of Hollywood Group Inc.

Frederick’s of Hollywood Group Inc., through its subsidiaries, sells women’s intimate apparel, swimwear and related products under its proprietary Frederick’s of Hollywood(®) brand through 124 specialty retail stores, a world-famous catalog and an online shop at http://www.fredericks.com/. With its exclusive product offerings including Seduction by Frederick’s of Hollywood, the Hollywood Exxtreme Cleavage(®) bra and Hollywood Sizzle Pool Party Swim((TM)), Frederick’s of Hollywood is the Original Sex Symbol(®).

Our press releases and financial reports can be accessed on our corporate website at http://www.fohgroup.com.

This release is available on the KCSA Strategic Communications Web site at http://www.kcsa.com.

CONTACT:
Frederick’s of Hollywood Group Inc.
Thomas Rende, CFO
(212) 779-8300

Investor Contacts:
Todd Fromer / Garth Russell
KCSA Strategic Communications
212-896-1215 / 212-896-1250
tfromer@kcsa.com / grussell@kcsa.com

                    FREDERICK'S OF HOLLYWOOD GROUP INC.
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                              (In Thousands)

                                                   April 30,        July 31,
                                                         2011            2010
                                                  (Unaudited)      (Audited)
    ASSETS
    CURRENT ASSETS:
       Cash and cash equivalents                         $321            $536
       Restricted cash                                      -           4,660
       Accounts receivable                              1,031           1,127
       Income tax receivable                               85             127
       Merchandise inventories                         13,121          10,951
       Prepaid expenses and other current
        assets                                          1,588           2,298
       Deferred income tax assets                         333             875
       Current assets of discontinued
        operations                                          -           4,185
                                                          ---           -----
          Total current assets                         16,479          24,759
    PROPERTY AND EQUIPMENT, Net                        11,571          13,861
    INTANGIBLE AND OTHER ASSETS                        18,779          19,392
    LONG-TERM ASSETS OF DISCONTINUED
     OPERATIONS                                             -             960
                                                          ---             ---
             TOTAL ASSETS                             $46,829         $58,972
                                                      =======         =======

    LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT LIABILITIES:
       Revolving credit facility                       $3,711          $3,269
       Accounts payable and other accrued
        expenses                                       13,934          20,198
       Deferred revenue from gift cards                 1,958           1,781
       Current liabilities of discontinued
        operations                                        283           2,041
                                                          ---           -----
          Total current liabilities                    19,886          27,289

    DEFERRED RENT AND TENANT ALLOWANCES                 4,836           4,926
    TERM LOAN                                           7,321           7,002
    OTHER                                                  20              70
    DEFERRED INCOME TAX LIABILITIES                     7,569           8,377
                                                         ----            ----
          TOTAL LIABILITIES                            39,632          47,664
          SHAREHOLDERS' EQUITY                          7,197          11,308
                                                         ----          ------
             TOTAL LIABILITIES AND SHAREHOLDERS'
              EQUITY                                  $46,829         $58,972
                                                      =======         =======

                          FREDERICK'S OF HOLLYWOOD GROUP INC.
                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                      (Unaudited)
                        (In Thousands, Except Per Share Amounts)

                                                  Three Months Ended
                                                  ------------------
                                             April 30,       April 24,
                                                   2011            2010

    Net sales                                   $32,599         $36,883
    Cost of goods sold, buying
     and occupancy                               20,100          21,585
                                                 ------          ------
          Gross profit                           12,499          15,298
    Selling, general and
     administrative expenses                     12,485          13,874
                                                 ------          ------
    Operating income (loss)                          14           1,424
    Interest expense, net                           361             447
                                                    ---             ---
          Income (loss) from
           continuing operations
           before income tax provision             (347)            977
    Income tax provision                             20              19
                                                    ---             ---
    Net income (loss) from
     continuing operations                         (367)            958
    Net loss from discontinued
     operations                                     (20)           (608)
                                                    ---            ----
    Net income (loss)                              (387)            350
    Less: Preferred stock
     dividends                                        -             132
                                                    ---             ---
    Net income (loss) applicable
     to common shareholders                       $(387)           $218
                                                  =====            ====

                                                  $(.01)           $.03
    Basic and diluted net income
     (loss) per share from
     continuing operations
    Basic and diluted net loss
     per share from discontinued
     operations                                       -            (.02)
                                                    ---            ----
    Total basic and diluted net
     income (loss) per share
     applicable to common
     shareholders                                 $(.01)           $.01
                                                  =====            ====

    Weighted average shares
     outstanding - basic                         38,627          27,642
    Weighted average shares
     outstanding - diluted                       38,627          27,835


                                                 Nine Months Ended
                                                 -----------------
                                            April 30,      April 24,
                                                 2011            2010

    Net sales                                 $93,798        $104,740
    Cost of goods sold, buying
     and occupancy                             58,415          65,007
                                               ------          ------
          Gross profit                         35,383          39,733
    Selling, general and
     administrative expenses                   37,677          42,228
                                               ------          ------
    Operating income (loss)                    (2,294)         (2,495)
    Interest expense, net                       1,104           1,397
                                                -----           -----
          Income (loss) from
           continuing operations
           before income tax provision         (3,398)         (3,892)
    Income tax provision                           60              58
                                                  ---             ---
    Net income (loss) from
     continuing operations                     (3,458)         (3,950)
    Net loss from discontinued
     operations                                (1,413)         (4,754)
                                               ------          ------
    Net income (loss)                          (4,871)         (8,704)
    Less: Preferred stock
     dividends                                      -             393
                                                  ---             ---
    Net income (loss) applicable
     to common shareholders                   $(4,871)        $(9,097)
                                              =======         =======

                                                $(.09)          $(.16)
    Basic and diluted net income
     (loss) per share from
     continuing operations
    Basic and diluted net loss
     per share from discontinued
     operations                                  (.04)           (.18)
                                                 ----            ----
    Total basic and diluted net
     income (loss) per share
     applicable to common
     shareholders                               $(.13)          $(.34)
                                                =====           =====

    Weighted average shares
     outstanding - basic                       38,476          26,820
    Weighted average shares
     outstanding - diluted                     38,476          26,820

SOURCE Frederick’s of Hollywood Group Inc.


Source: newswire



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