FGX International Reports 113% Increase in Earnings from Continuing Operations; Gives Preliminary Guidance for 2010
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SMITHFIELD, R.I.--(BUSINESS WIRE)-- FGX International (NASDAQ: FGXI), a leading designer and marketer of non-prescription reading glasses and sunglasses, today announced financial results for its third fiscal quarter ended October 3, 2009 and preliminary guidance for 2010.
Highlights for the quarter include:
-- Net sales increased 14% to $60.6 million from $53.3 million in the third
quarter of 2008. The third quarter of 2009 included 13 weeks while the
third quarter of 2008 was a 14 week period.
-- Income from continuing operations increased 113% to $6.8 million, or
$0.30 per diluted share, compared to $3.2 million, or $0.15 per diluted
share, in the third quarter of 2008.
-- Earnings before interest, taxes, depreciation and amortization (EBITDA)
from continuing operations increased 49% to $16.3 million compared to
$11.0 million in the third quarter of 2008.
Net Sales by Segment:
Three Months Three Months
($ amounts in thousands) 2009 2008 $ Inc/(Dec) % Inc/(Dec)
Non-prescription Reading $ 32,242 $ 36,501 $ (4,259 ) (12 )%
Glasses
Sunglasses & Prescription 17,682 10,425 7,257 70
Frames
International 10,656 6,369 4,287 67
Total $ 60,580 $ 53,295 $ 7,285 14 %
CEO Alec Taylor commented, "We are pleased that revenues and earnings from continuing operations remained strong in the third quarter despite ongoing weakness in the economy. Sales of Dioptics products continued to drive growth in our sunglasses business, while our international segment benefited from expansion of a reading glasses program at a major Canadian chain. Reading glasses revenues in the third quarter of 2009 were down compared to the prior year period due to a shift in the timing of two large program updates that occurred in the second quarter of 2009 versus the third quarter of 2008. Improvement in gross margins and continued control of operating expenses further contributed to the healthy earnings increase."
Segment highlights:
-- Sales of non-prescription reading glasses decreased 12% in the third
quarter of 2009 compared to the year ago period. Revenues in the third
quarter of 2009 were negatively impacted by the discontinuation of an
opening price point program at Wal-Mart, which contributed approximately
$1.5 million to sales in the third quarter of 2008. Sales were also
lower due to a $5.4 million shift in timing of program updates at two
major retailers that in 2009 occurred in the second quarter while
occurring in the third quarter of 2008.
-- Sales in the sunglasses and prescription frames segment increased 70% in
the third quarter of 2009 compared to the third quarter of 2008,
including sales from Dioptics Medical Products, which was acquired in
November 2008. Sales of the sunglasses and prescription frames business
increased 3%, excluding sales from Dioptics.
-- Sales in the Company's international segment were up 67% in the third
quarter of 2009 compared to the year ago period, principally due to a
reading glass roll-out at a major Canadian chain. This increase was
partially offset by the impact of unfavorable foreign exchange rates
when compared to the corresponding year ago period.
Reconciliations of EBITDA, free cash flow and net debt, which are non-GAAP measures, are included in the Consolidated Statements of Operations and Other Selected Data, and related notes thereto, attached to this release. The Company believes that these non-GAAP measures are useful for an understanding of its ongoing business.
Additional Q3 Details:
-- In the third quarter of 2009, gross profit as a percentage of net sales
was 59.3%, compared to 58.0% in the third quarter of 2008. This
improvement was due to favorable product mix, lower product costs and
reduced freight rates.
-- In the third quarter of 2009, operating income increased to $12.1
million, or 20% of net sales, from $6.4 million, or 12% of net sales, in
the third quarter of 2008. The increase in operating income was driven
by increased sales and improved gross margins, partially offset by
higher operating costs from the addition of the Dioptics business.
-- Capital expenditures were $2.2 million in the third quarter of 2009,
compared to $3.6 million in the third quarter of 2008. This decrease
relates to fewer replacements of in-store display fixtures.
-- Days sales outstanding improved to 60 days in the current quarter from
78 days in the third quarter of 2008. Inventory days on hand were 114
days in the current quarter, compared to 145 days in the third quarter
of fiscal 2008. The improvement in both metrics was due to a continuing
focus on working capital management.
Acquisitions and New License
As previously announced, the Company completed the acquisition of Corinne McCormack, Inc. (CMI) on October 28, 2009. CMI is a designer and marketer of fashion eyewear and optical accessories marketed under the Corinne McCormack brand name, with distribution in such retailers as Lord & Taylor, Bloomingdale's and LensCrafters. The acquisition of CMI strengthens the Company's competitive position in the over-the-counter reading glasses category by opening up higher end channels and adding fashion-forward styling capabilities that have become in greater demand in the mass channels.
The Company continues to evaluate acquisition opportunities both inside and outside of the optical space that will leverage its supply chain, field service and marketing capabilities.
Separately, the Company has entered into a license agreement to sell sunglasses under the nationally recognized Rawlings brand. Rawlings branded products are expected to begin shipping in early 2010 and will increase the Company's distribution in the sporting goods channel.
Liquidity and Capital Resources
In the third quarter of 2009, the Company generated $14 million of free cash flow from continuing operations. At the end of the third quarter, the Company had $47 million of availability under its revolving credit facility, which matures in 2012. Net debt at the end of the third quarter was $103 million compared to $128 million at the end of fiscal 2008. The Company plans to continue to use its free cash flow to make accretive acquisitions and reduce indebtedness.
Outlook
For the fourth quarter of 2009, the Company currently expects net sales of $63 to $67 million, earnings per diluted share from continuing operations of $0.38 to $0.42 and EBITDA of $17 to $19 million. These ranges would yield full year results of net sales of $258 to $262 million, earnings per diluted share from continuing operations of $0.99 to $1.03 and EBITDA of $57 to $59 million.
For the full year 2010, excluding any unforeseen charges or events, the Company currently anticipates net sales to increase 4% to 8% over full year 2009 results with earnings per diluted share growth of 20% to 30%. The increase in earnings per share is expected to be driven by sales growth, improved gross margins, lower operating expenses as a percentage of sales, decreased borrowing costs and a lower tax rate. The Company expects to give more detailed financial guidance for 2010 in its fourth quarter and full year 2009 earnings release.
CEO Alec Taylor concluded, "We look forward to continued sales and earnings growth in 2010 resulting from the strength of our core reading glasses and sunglasses businesses. We continue to find many new opportunities for the sale of our products both at existing customers and in new channels. We also expect to derive a greater benefit from our second year of advertising reading glasses. With a modestly improving economy and better summertime weather, 2010 should be another outstanding year for FGX."
Actual results may differ materially from these estimates as a result of various factors, and we refer you to the cautionary language under the heading "Forward-Looking Statements" when considering this information.
Conference Call Information
The Company will host a conference call on Thursday, November 5, 2009 at 8:30AM ET to discuss its financial results. To access the conference call information, please visit www.fgxi.com under the tab "Investors". To participate by telephone please dial 1-888-727-7690. International callers please dial 1-913-312-1468. The access code is 9764883. Investors are advised to dial into the call at least ten minutes prior to the call.
A replay of the conference call will be available through Thursday, November 12, 2009. To access the replay by phone, the domestic dial-in number is 1-888-203-1112 and the international dial-in is 1-719-457-0820. The access code for the replay is 9764883. To access the replay via webcast, please visit www.fgxi.com under the tab "Investors".
About FGX International
FGX International Holdings Limited is a leading designer and marketer of non-prescription reading glasses and sunglasses with a portfolio of established, highly recognized eyewear brands including Foster Grant(R), Magnivision(R), Angel (TM) , Gargoyles(R), Anarchy(R), SolarShield(R), PolarEyes(R) and Corinne McCormack(R). FGXI also holds licenses for brands such as Ironman, Levi Strauss, Body Glove, Rawlings and C9 by Champion. Based in Smithfield, Rhode Island, FGXI has approximately 375 full time employees. Additional offices are located in San Luis Obispo, CA; New York, NY, Toronto, Canada; Stoke-on-Trent, England; Mexico City, Mexico; and Shenzhen, China.
Forward-Looking Statements
Statements in this press release that are not statements of historical fact or that express our confidence, expectations, objectives, intentions, plans, or strategies or otherwise anticipate the future, including, without limitation, statements regarding our future prospects, revenues, costs, results of operations and profitability contained in the Outlook section of this press release, are forward-looking statements. These forward-looking statements are not guarantees of future performance, and they are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. These risks and uncertainties include, but are not limited to: the Company's ability to successfully integrate acquired businesses including Corinne McCormack, Inc. and Eye-Bar Inc.; the effect of current adverse economic conditions and low levels of consumer confidence and the resulting adverse impact on consumer discretionary spending, which could reduce our sales; adverse changes in our customers' inventory and working capital policies; the bankruptcy or other lack of commercial success of one or more of our significant customers; the actual charges incurred for product returns and markdowns related to the divestiture of the costume jewelry business may be greater than expected; we or others may discover that our products must be recalled because of defects; unexpected product returns and related claims pertaining to current or prior periods; the concentration of manufacturing of our products in China, which increases our vulnerability to disruptions in that region; interruptions of supply from our Asian product manufacturers; political instability or changing conditions in manufacturing or transportation services in foreign countries; other risks associated with our international operations, including foreign currency exchange rate fluctuations and the impact of quotas, tariffs, or other restrictions on the importation or exportation of our products; a material reduction, cessation, or postponement of purchases by our customers; failure to comply with federal or state regulation of the distribution or sale of our products; the expense and uncertainty of the litigation process, including the risk of an unfavorable result in current or future litigation; adverse interest rate fluctuations; our credit insurance does not cover all of our outstanding accounts receivable; unknown potential effects of outbreaks of communicable diseases, including swine flu, on our business; and disruption due to weather, fire or other unforeseen circumstances in our principal distribution center.
These and other risks and uncertainties that could cause our actual results to differ from those contemplated by any forward-looking statement are discussed in more detail in Part I, Item 1A - Risk Factors in our Form 10-K for the year ended January 3, 2009, which we may update in Part II, Item 1A - Risk Factors in Quarterly Reports on Forms 10-Q that we have filed or will file thereafter. Forward-looking statements contained in this press release speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
FGX INTERNATIONAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER SELECTED DATA
(unaudited, in thousands, except per share data)
Three months ended
October 3, 2009 October 4, 2008
Net sales:
Non-prescription reading glasses $ 32,242 $ 36,501
Sunglasses and prescription frames 17,682 10,425
International 10,656 6,369
Total net sales 60,580 53,295
Cost of goods sold 24,646 22,395
Gross profit 35,934 30,900
Operating expenses:
Selling expenses 15,708 17,312
General and administrative expenses 6,910 5,879
Amortization of acquired intangibles 1,178 1,295
Total operating expenses 23,796 24,486
Operating income 12,138 6,414
Other income (expense):
Interest expense 1,086 1,478
Other income (expense), net 91 (198 )
Income from continuing operations before 11,143 4,738
income taxes
Income tax expense 4,234 1,460
Income from continuing operations 6,909 3,278
Discontinued operations, net of tax (78 ) 732
Net income 6,831 4,010
Less: Net income attributable to 131 103
noncontrolling interest
Net income attributable to FGX International $ 6,700 $ 3,907
Holdings Limited
Income from continuing operations attributable to FGX International Holdings
Limited
Income from continuing operations $ 6,909 $ 3,278
Less: Net income attributable to 131 103
noncontrolling interest
Income from continuing operations attributable
to FGX $ 6,778 $ 3,175
International Holdings Limited
Basic earnings per share:
Income from continuing operations attributable
to FGX $ 0.30 $ 0.15
International Holdings Limited
Discontinued operations, net of tax - 0.03
Basic earnings per share attributable to FGX
International $ 0.30 $ 0.18
Holdings Limited shareholders
Diluted earnings per share:
Income from continuing operations attributable
to FGX $ 0.30 $ 0.15
International Holdings Limited
Discontinued operations, net of tax - 0.03
Diluted earnings per share attributable to FGX
International $ 0.30 $ 0.18
Holdings Limited shareholders
Basic weighted average shares outstanding 22,123 21,171
Diluted weighted average shares outstanding 22,418 21,316
FGX INTERNATIONAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER SELECTED DATA
(unaudited, in thousands, except per share data)
Three months ended
October 3, 2009 October 4, 2008
Capital expenditures from continuing $ 2,161 $ 3,586
operations
The table below reconciles EBITDA from continuing operations to income from
continuing operations, the
most directly comparable GAAP measure.
Income from continuing operations attributable
to FGX International $ 6,778 $ 3,175
Holdings Limited
Income tax expense 4,234 1,460
Interest expense 1,086 1,478
Depreciation and amortization 4,192 4,845
EBITDA from continuing operations $ 16,290 $ 10,958
EBITDA margin (EBITDA / net sales) 26.9 % 20.6 %
The table below reconciles Free Cash Flow to the EBITDA table above.
EBITDA from continuing operations $ 16,290 $ 10,958
Less: Capital Expenditures (2,161 ) (3,586 )
Free Cash Flow from continuing operations $ 14,129 $ 7,372
See accompanying note to Consolidated Statements of Operations and Other
Selected Data.
FGX INTERNATIONAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER SELECTED DATA
(unaudited, in thousands, except per share data)
Nine months ended
October 3, 2009 October 4, 2008
Net sales:
Non-prescription reading glasses $ 91,631 $ 95,054
Sunglasses and prescription frames 79,128 54,219
International 23,782 26,056
Total net sales 194,541 175,329
Cost of goods sold 86,052 78,207
Gross profit 108,489 97,122
Operating expenses:
Selling expenses 58,033 54,580
General and administrative expenses 20,954 18,706
Amortization of acquired intangibles 3,534 3,886
Total operating expenses 82,521 77,172
Operating income 25,968 19,950
Other income (expense):
Interest expense 3,680 4,700
Other income (expense), net 179 (144 )
Income from continuing operations before 22,467 15,106
income taxes
Income tax expense 8,577 5,341
Income from continuing operations $ 13,890 9,765
Discontinued operations, net of tax (4,644 ) 788
Net income 9,246 10,553
Less: Net income attributable to 262 370
noncontrolling interest
Net income attributable to FGX International $ 8,984 $ 10,183
Holdings Limited
Income from continuing operations attributable to FGX International Holdings
Limited
Income from continuing operations $ 13,890 $ 9,765
Less: Net income attributable to 262 370
noncontrolling interest
Income from continuing operations attributable
to FGX International $ 13,628 $ 9,395
Holdings Limited
Basic earnings per share:
Income from continuing operations attributable
to FGX $ 0.62 $ 0.44
International Holdings Limited
Discontinued operations, net of tax (0.21 ) $ 0.04
Basic earnings per share attributable to FGX
International Holdings $ 0.41 $ 0.48
Limited shareholders
Diluted earnings per share:
Income from continuing operations attributable
to FGX $ 0.61 $ 0.44
International Holdings Limited
Discontinued operations, net of tax (0.21 ) 0.04
Diluted earnings per share attributable to FGX
International Holdings $ 0.40 $ 0.48
Limited shareholders
Basic weighted average shares outstanding 22,123 21,225
Diluted weighted average shares outstanding 22,337 21,361
FGX INTERNATIONAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER SELECTED DATA
(unaudited, in thousands, except per share data)
Nine months ended
October 3, 2009 October 4, 2008
Capital expenditures from continuing $ 6,175 $ 10,070
operations
The table below reconciles EBITDA from continuing operations to net income from
continuing operations, the most directly comparable GAAP measure.
Income from continuing operations attributable
to FGX $ 13,628 $ 9,395
International Holdings Limited
Income tax expense 8,577 5,341
Interest expense 3,680 4,700
Depreciation and amortization 13,654 14,918
EBITDA from continuing operations $ 39,539 $ 34,354
EBITDA margin (EBITDA / net sales) 20.3 % 19.6 %
The table below reconciles Free Cash Flow to the EBITDA table above.
EBITDA from continuing operations $ 39,539 $ 34,354
Less: Capital Expenditures (6,175 ) (10,070 )
Free Cash Flow from continuing operations $ 33,364 $ 24,284
The table below reconciles net debt to total debt, the most directly comparable
GAAP measure.
As of
October 3, 2009 January 3, 2009
Long-term obligations $ 64,815 $ 77,863
Current maturities of long-term obligations 17,016 15,199
Revolving line of credit 28,000 37,500
Total debt 109,831 130,562
Less: Cash (6,561 ) (2,097 )
Net debt $ 103,270 $ 128,465
See accompanying note to Consolidated Statements of Operations and Other
Selected Data.
FGX INTERNATIONAL HOLDINGS LIMITED
SELECTED CONSOLIDATED BALANCE SHEET DATA
(Unaudited, in thousands)
As of As of
October 3, 2009 January 3, 2009
Cash $ 6,561 $ 2,097
Accounts receivable, net 33,434 50,746
Inventories 28,125 35,543
Accounts payable 14,160 30,324
Revolving line of credit 28,000 37,500
Current maturities of long-term obligations 17,016 15,199
Long-term obligations less current maturities 64,815 77,863
FGX International Holdings Limited 53,105 41,665
shareholders' equity
FGX INTERNATIONAL HOLDINGS LIMITED
NOTE TO CONSOLIDATED STATEMENTS
OF OPERATIONS AND OTHER SELECTED DATA
(Unaudited)
1. EBITDA from continuing operations represents income from continuing
operations before interest, income taxes, depreciation and amortization.
Free cash flow represents EBITDA from continuing operations less capital
expenditures. Net debt represents long-term and revolving debt less cash.
We believe that EBITDA, free cash flow, and net debt are performance
measures that provide securities analysts, investors and other interested
parties with a measure of operating results unaffected by differences in
capital structures, capital investment cycles and ages of related assets
among otherwise comparable companies in our industry. We further believe
that EBITDA is frequently used by securities analysts, investors and other
interested parties in their evaluation of companies, many of which present
an EBITDA measure when reporting their results.
We believe EBITDA facilitates company-to-company operating performance
comparisons by adjusting for potential differences caused by variations in
capital structures (affecting net interest expense), taxation (such as the
impact of differences in effective tax rates or net operating losses) and
the age and book depreciation of facilities and equipment (affecting
relative depreciation expense), which may vary for different companies for
reasons unrelated to operating performance.
We believe net debt is helpful in analyzing leverage and use it as a
performance measure. Net debt should not be considered as an alternative to
total debt determined in accordance with GAAP.
EBITDA, free cash flow and net debt have limitations, including that they
are not necessarily comparable to other similarly titled financial measures
of other companies due to the potential inconsistencies in the method of
calculation. These measures should not be considered either in isolation or
as a substitute for analysis of our results as reported under U.S. GAAP.
Because of these limitations, neither EBITDA nor free cash flow should be
considered as a measure of discretionary cash available to us to invest in
the growth of our business. Net debt should not be considered as an
alternative to total debt determined in accordance with GAAP. We compensate
for these limitations by relying primarily on our results presented in
accordance with U.S. GAAP and using these measures only supplementally.
Source: FGX International
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