Phoenix Footwear Reports Fourth Quarter and Fiscal Year 2014 Results

March 10, 2015 | By Business Wire News

CARLSBAD, Calif.

Phoenix Footwear Group, Inc. (OTCMarkets.com: PXFG) today reported results for the fourth quarter and year ended January 3, 2015.

Fourth Quarter and Fiscal Year 2014

Net sales for the fourth quarter of fiscal 2014 increased 28.0% to $5.6 million compared to $4.4 million for the fourth quarter of fiscal 2013.
Operating Income for the fourth quarter was $216,000 compared to a loss of $26,000 for the fourth quarter of fiscal 2013.
Net sales for the fiscal year of 2014 increased 14.5% to $22.0 million compared to $19.2 million for the fiscal year of 2013.
Reported net income of $327,000 or $0.04 per share for the twelve months of fiscal 2014 compared to net income of $70,000 or $0.01 per share for the twelve months of fiscal 2013. Included in net income for 2013 was a gain of $121,000 from the settlement of the Company’s litigation against Tandy Corporation.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for fiscal year 2014 improved 14.8% to $1.32 million compared to $1.15 million for fiscal year 2013.

Fiscal 2014

For the fiscal year ended January 3, 2015, net sales increased $2.8 million or 14.5% to $22.0 million from $19.2 million when compared to the fiscal year ended December 28, 2013. The increase in net sales for fiscal year 2014 was primarily driven by new product introductions designed to appeal to the broader customer demographic of the Company’s internet-based accounts, the on-time delivery of spring and fall goods, together with an improvement in the customer reorder volume of the Company’s fall product offering.

Gross profit for fiscal 2014 increased $960,000 or 13.5% to $8.1 million from $7.1 million when compared to fiscal 2013. Gross profit as a percentage of net sales declined 40 basis points to 36.7% from 37.1% when compared to fiscal 2013. The decrease in the gross profit as a percentage of net sales was primarily due to an increase in sales of lower margin goods and licensed footwear during the period.

Selling, general and administrative expenses or SG&A increased to $6.9 million during fiscal 2014 compared to $6.3 million for fiscal 2013. SG&A as a percentage of net sales decreased to 31.6% for fiscal 2014 compared to 32.8% for fiscal 2013. The majority of the $650,000 increase in SG&A for fiscal 2014 was associated with investments in new product development, advertising, marketing and other selling activities driving the 14.5% increase in net sales during the year.

The Company reported earnings from continuing operations of $341,000 or $0.04 per share for the fiscal year ended January 3, 2015, compared to earnings from continuing operations of $143,000 or $0.02 per share for the fiscal year ended December 28, 2013.

Earnings before interest, taxes, depreciation and amortization (or “EBITDA”) from continuing operations for fiscal 2014 improved 14.8% to $1.32 million compared to $1.15 million for fiscal 2013.

Bank Refinancing

As previously announced on February 2, 2015, the Company entered into a Loan and Security Agreement with NewStar Business Credit, LLC. The Loan Agreement provides for up to $9.0 million in borrowing capacity consisting up to $8.0 million (subject to a borrowing base as defined in the Loan Agreement) with a five-year maturity (the “Revolving Credit Facility”) and a term loan of $1,000,000 (the “Term Loan”). The principal amount of the Term Loan is payable in 36 equal monthly installments of $27,777.77, plus accrued interest, on the first day of each calendar month beginning March 1, 2015.

Interest accrues on the principal amount outstanding under the Revolving Credit Facility at the rate equal to the greater of (i) the rate per annum published on each Business Day in the “Money Rates” table of The Wall Street Journal as the one-month LIBOR rate, adjusted daily, and (ii) 1.0% (such greater amount, the “LIBOR Rate”) plus 3.75%. Interest accrues on the principal amount outstanding under the Term Loan at the rate equal to the LIBOR Rate plus 5.0%.

This new Revolving and Term facility offers the Company additional working capital at a substantially reduced cost. Commenting on the new loan agreements, James Riedman, President and CEO of Phoenix Footwear, added: “We have grown for three consecutive years, the last two of which have been at four times the industry average. We are especially pleased to be able to secure this additional capacity to fund our continued growth, while at the same time, reduce our capital costs.”

The Loan Agreement includes various financial and other covenants with which the Company has to comply in order to maintain borrowing availability and avoid penalties, including maintaining minimum tangible net worth and minimum fixed charge coverage ratios.

At the closing under the Loan Agreement, the Company used proceeds from the Term Loan and the Revolving Credit Facility to pay in full the obligations outstanding under that Loan and Security Agreement dated July 30, 2012 between the Company and Alostar Bank of Commerce, which carried an annual interest rate of 6.5% plus a monthly fee of $2,000, and that Loan and Security Agreement dated July 30, 2012 between the Company and Gibraltar Business Capital which carried an annual interest rate of 18%. Those agreements were terminated.

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 588 customers in over 1,417 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 2015 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.
Consolidated Balance Sheets
(In thousands)

	January 3, 2015		December 28, 2013
ASSETS

Current assets:
Cash and cash equivalents	$	328	$	141
Accounts receivable, net		2,449		2,671
Inventories, net		8,150		7,646
Other current assets		514		753
Income taxes receivable		–		30
Total current assets		11,441		11,241

Property, plant and equipment, net		71		73
Capital leased assets		527		589
Other assets		50		75
TOTAL ASSETS	$	12,089	$	11,978

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Notes payable, current	$	3,831	$	4,169
Accounts payable		2,601		2,733
Accrued expenses		1,137		646
Current portion of long term debt		534		220
Total current liabilities		8,103		7,768

Notes payable, net of current portion		124		618
Capital lease obligation, net of current portion		543		577
Convertible notes payable		1,350		1,350
Other non-current liabilities		230		286
Total liabilities		10,350		10,599

Stockholders’ equity		1,739		1,379
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	12,089	$	11,978


Phoenix Footwear Group, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)

	(Unaudited)
	Three Months Ended

	January 3, 2015					December 28, 2013
Net sales	$	5,650		100	%	$	4,415		100	%
Cost of goods sold		3,524		62	%		2,892		66	%

Gross profit		2,126		38	%		1,523		34	%

Operating expenses:
Selling, general and administrative expenses		1,910		34	%		1,549		35	%
Total operating expenses		1,910		34	%		1,549		35	%

Operating earnings (loss)		216		4	%		(26	)	-1	%
Other income, net		–		0	%		(121	)	-3	%
Interest expense, net		215		4	%		195		4	%

Earnings (loss) before income taxes and discontinued operations		1		0	%		(100	)	-2	%

Income tax expense		18		0	%		28		1	%

Loss from continuing operations		(17	)	0	%		(128	)	-3	%

Loss from discontinued operations, net of tax		–		0	%		(12	)	0	%

Net loss	$	(17	)	0	%	$	(140	)	-3	%


Loss per share:

Basic:
Continuing operations	$	–				$	(0.02	)
Discontinued operations		–					–
Net earnings	$	–				$	(0.02	)

Weighted-average shares outstanding:
Basic		8,358					8,238


Phoenix Footwear Group, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)

	Fiscal Years Ended

	January 3, 2015					December 28, 2013
Net sales	$	21,995		100	%	$	19,218		100	%
Cost of goods sold		13,914		63	%		12,097		63	%

Gross profit		8,081		37	%		7,121		37	%

Operating expenses:
Selling, general and administrative expenses		6,949		32	%		6,299		33	%
Total operating expenses		6,949		32	%		6,299		33	%

Operating income		1,132		5	%		822		4	%

Other (income)/expense, net		–		0	%		(121	)	-1	%
Interest expense, net		773		4	%		772		4	%

Earnings before income taxes and discontinued operations		359		2	%		171		1	%

Income tax expense		18		0	%		28		0	%

Earnings from continuing operations		341		2	%		143		1	%

Loss from discontinued operations, net of tax		(14	)	0	%		(73	)	0	%

Net earnings	$	327		2	%	$	70		0	%

Earnings (loss) per share:

Basic:
Continuing operations	$	0.04				$	0.02
Discontinued operations		–					(0.01	)
Net earnings	$	0.04				$	0.01

Diluted:
Continuing operations	$	0.02				$	0.00
Discontinued operations		–					–
Net earnings	$	0.02				$	0.00

Weighted-average shares outstanding:
Basic		8,343					8,283
Diluted		14,726					14,826