May 04, 2012 at 13:05 PM EDT
Phoenix Footwear Reports First Quarter 2012 and 2011 Year End Results

Phoenix Footwear Group, Inc. (OTCMarkets.com: PXFG) today reported results for the First quarter ended March 31, 2012 and for the full year-ended December 31, 2011.

First Quarter 2012

  • Consolidated operating income from continuing operations of $261,000 or $0.03 per share compared to a loss from continuing operations of $436,000 or $0.05 per share
  • Generated positive EBITDA of $499,000 compared to negative EBITDA of $234,000 in the first quarter of fiscal 2011.
  • Net sales from continuing operations increased to $5.7 million or 18.4%

For the quarter ended March 31, 2012, net sales improved to $5.7 million or 18.4% compared to $4.8 million in the prior year comparative period. Net sales for Trotters increase 4.7%, while net sales for SoftWalk grew by more than 45% during the period. The increase in net sales for the quarter was primarily due to stronger customer demand for the Company’s Spring 2012 product offering together with improved supply-chain on time delivery of product from its third party manufacturers.

Gross profit was $2.1 million for the quarter, an increase of $426,000 compared to the prior year comparable quarter, as gross margin improved 200 basis points to 37.5%, compared to 35.5% in the first quarter of 2011. The improvement in gross margin in the quarter was the result of a 3.4% increase in the average unit net selling price that was partly offset by a 0.4% increase in the average unit cost on an increased unit volume of more than 18%.

Selling, general and administrative expenses, or SG&A, totaled $1.7 million, a decrease of 15% compared to $2.0 million in the first quarter of 2011. SG&A as a percentage of net sales was 30% for the first quarter of 2012 compared to 42% in the prior year comparative period. The improvement in SG&A for the period was primarily due to decreases in legal, audit and other professional fees of $183,000 incurred in the prior year period with the voluntary deregistration and delisting of the Company’s shares, together with lower rent and other operating expenses of $126,000 associated with the relocation of the Company’s headquarters in February of 2011.

In the first quarter, the Company reported earnings from continuing operations of $261,000 or $0.03 per share, compared to a loss from continuing operation of $436,000 or $0.05 per share for the same period of the prior year. Earnings before interest, taxes, depreciation and amortization (or “EBITDA”) from continuing operations for the quarter was $499,000 compared to negative EBITDA of $234,000 in the first quarter of 2011.

Fiscal Year 2011

  • Consolidated net loss decreased to $1.26 million or $0.15 per share from a net loss of $1.71 million or $0.21 per share
  • Consolidated operating loss from continuing operations improved to $1.7 million or $0.21 per share compared to an operating loss from continuing operations of $4.1 million or $0.50 per share
  • Net sales from continuing operations decreased to $15.9 million or 4% from net sales from continuing operations of $16.5 million
  • Gross margins improved to 35% or 700 basis points from 28%
  • As of December 31, 2011, the Company was in violation of the minimum EBITDA covenant of its Loan and Security Agreement.

For the year ended December 31, 2011 (or “fiscal 2011”), net sales decreased to $15.9 million or 4% compared to $16.5 million for the year ended January 1, 2011 (or “fiscal 2010”). Net sales for SoftWalk declined 12.3%, which was partially offset by an increase in net sales for Trotters of 1.4%. The decrease in net sales for SoftWalk was primarily due to significant production delays with one of its third party manufacturers during the first half of fiscal 2011 and to a lesser degree, poor sell through of the HealthGlide styles as the market for “toning” and similar footwear became highly promotional.

Gross profit for fiscal 2011 was $5.6 million an increase of $965,000 compared to fiscal 2010, as gross margin improved 700 basis points to 35%, compared to 28% in fiscal 2010. The increase in gross margin for the year was primarily the result of a lower average cost per unit together with a higher percentage of full margin sales compared to fiscal 2010.

Selling, general and administrative expenses, or SG&A, totaled $6.6 million, a decrease of $1.7 million or 21% compared to $8.3 million in fiscal 2010. SG&A as a percentage of net sales was 35% in fiscal 2011 compared to 51% in fiscal 2010. The improvement in SG&A for the year was primarily due to lower employee compensation and benefits, office rents, public company and other cost reduction measures taken during the second half of fiscal 2010.

For fiscal 2011, the Company reported a loss from continuing operations of 1.7 million or $0.21 per share, compared to a loss from continuing operation of $4.1 million or $0.50 per share for fiscal 2010.

As of December 31, 2011, the Company was not in compliance with Section 9.12 (Financial Covenant (minimum EBITDA)) of the Loan and Security Agreement. To date, the Company has not sought a waiver of the financial covenant breach under the Loan and Security Agreement, however is actively engaged in discussions to amend or replace all or part of its existing credit facility. If the Company is not able to refinance or replace any or all of its indebtedness, it could have a material adverse effect on the business, financial condition, liquidity and operations of the Company and raises significant uncertainty about the Company’s ability to continue as a going concern. There can be no assurance that the Company will be able to refinance or replace any or all of this indebtedness. As a result of the event of default, the Company has reclassified the $1.5 million term note with its lenders from a non-current to a current liability.

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 677 customers in over 905 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 2012 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)
March 31, 2012 December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents $ 30 $ 41
Accounts receivable, net 4,179 2,020
Inventories, net 6,367 6,733
Other current assets 1,320 1,451
Income taxes receivable 156 146
Total current assets 12,052 10,391
Property, plant and equipment, net 539 556
Other assets 30 51
TOTAL ASSETS $ 12,621 $ 10,998
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current $ 4,997 $ 3,784
Accounts payable 3,249 3,200
Accrued expenses 1,009 902
Other current liabilities 199 205
Current liabilities of discontinued operations 174 174
Total current liabilities 9,628 8,265
Convertible notes payable 1,000 1,000
Other non-current liabilities 154 154
Total liabilities 10,782 9,419
Stockholders' equity 1,839 1,579
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 12,621 $ 10,998

Phoenix Footwear Group, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31, 2012 April 2, 2011
Net sales $ 5,705 100 % $ 4,820 100 %
Cost of goods sold 3,568 63 % 3,109 65 %
Gross profit 2,137 37.5 % 1,711 35.5 %
Operating expenses:
Selling, general and administrative expenses 1,699 30 % 2,008 42 %
Goodwill and intangible impairment charges - - % - 0 %
Total operating expenses 1,699 30 % 2,008 42 %
Operating income (loss) 438 8 % (297 ) -6 %
Interest expense, net 177 3 % 179 4 %
Income (loss) before income taxes and discontinued operations 261 5 % (476 ) -10 %
Income tax (benefit) expense - 0 % (40 ) - %
Earnings (loss) from continuing operations 261 5 % (436 ) -9 %
Earnings (loss) from discontinued operations, net of tax (1 ) 0 % 97 2 %
Net earnings (loss) $ 260 5 % $ (339 ) -7 %
Earnings (loss) per share:
Basic
Continuing operations $ 0.03 $ (0.05 )
Discontinued operations - 0.01
$ 0.03 $ (0.04 )
Diluted
Continuing operations $ 0.02 $ (0.05 )
Discontinued operations - 0.01
Net earnings (loss) $ 0.02 $ (0.04 )
Weighted-average shares outstanding:
Basic 8,178 8,179
Diluted 11,227 8,179
Phoenix Footwear Group, Inc.
Consolidated Balance Sheets
(In thousands)
December 31, 2011 January 1, 2011
ASSETS
Current assets:
Cash and cash equivalents $ 41 $ 410
Accounts receivable, net 2,020 1,771
Inventories, net 6,733 5,213
Other current assets 1,451 1,471
Income taxes receivable 146 137
Current assets of discontinued operations - 913
Total current assets 10,391 9,915
Property, plant and equipment, net 556 742
Other assets 51 83
TOTAL ASSETS $ 10,998 $ 10,740
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current $ 3,784 $ 2,536
Accounts payable 3,200 1,638
Accrued expenses 902 1,281
Other current liabilities 205 206
Current liabilities of discontinued operations 174 561
Total current liabilities 8,265 6,222
Term note payable - 1,500
Convertible notes payable 1,000 -
Other non-current liabilities 154 177
Total liabilities 9,419 7,899
Stockholders' equity 1,579 2,841
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 10,998 $ 10,740

Phoenix Footwear Group, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
Fiscal Years Ended
December 31, 2011 January 1, 2011
Net sales $ 15,904 100 % $ 16,503 100 %
Cost of goods sold 10,319 65 % 11,883 72 %
Gross profit 5,585 35 % 4,620 28 %
Operating expenses:
Selling, general and administrative expenses 6,596 42 % 8,344 51 %
Total operating expenses 6,596 42 % 8,344 51 %
Operating loss (1,011 ) -6 % (3,724 ) -23 %
Interest expense, net 720 5 % 468 3 %
Loss before income taxes and discontinued operations (1,731 ) -11 % (4,192 ) -25 %
Income tax (benefit) expense 11 0 % (120 ) - %
Earnings (loss) from continuing operations (1,742 ) -11 % (4,072 ) -25 %
Earnings (loss) from discontinued operations, net of tax 481 3 % 2,367 14 %
Net earnings (loss) $ (1,261 ) -8 % $ (1,705 ) -10 %
Earnings (loss) per share:
Basic and diluted
Continuing operations $ (0.21 ) $ (0.50 )
Discontinued operations 0.06 0.29
Net earnings (loss) $ (0.15 ) $ (0.21 )
Weighted-average shares outstanding:
Basic and diluted 8,179 8,166

Contacts:

Phoenix Footwear Group, Inc.
Greg W. Slack
Chief Financial Officer
(760) 602-9688
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