Perry Ellis International Announces Results for Third Quarter Fiscal Year 2010

* EPS, net income and EBITDA ahead of consensus – Earnings of $0.31 per fully diluted share, net income of $4.1 million and EBITDA of $12.3 million compared to consensus earnings per share of $0.21, net income of $2.6 million and EBITDA of $10.5 million, respectively
* Further operating expense reduction of $11.5 million – 18% below last year
* Strong controls drive inventory reduction of $28.5 million – 23% below last year
* Continued balance sheet strength and liquidity position – $25.5 million in cash and senior credit facility fully available with no borrowings at quarter’s end
* Company increases earnings per share range for full fiscal year to $0.80 to $0.95 from the previous range of $0.70 to $0.85

Perry Ellis International, Inc. (NASDAQ:PERY) reported results for the third quarter and nine months ended October 31, 2009.

Third Quarter Results from Operations

For the three months ended October 31, 2009 (“third quarter of fiscal 2010”), earnings per fully diluted share at $0.31 represented a decrease of $0.02 compared to $0.33 for the third quarter ended October 31, 2008 (“third quarter of fiscal 2009”). This compares positively to Thomson’s First Call consensus of earnings at $0.21 per fully diluted share for the Company during the third quarter of fiscal 2010. Earnings per fully diluted share were positively affected by a reduced number of shares outstanding and a tax benefit attributable to the reduction in unrecognized tax benefits related to the Company’s foreign operations. At $4.1 million, earnings for the third quarter of fiscal 2010 declined $0.9 million compared to $5.0 million for the same period last year.

The cost reduction initiatives launched at the end of fiscal year 2009 and strict expense controls during the third quarter of fiscal 2010 resulted in operating expense reductions of $11.5 million. Operating expenses at $52.0 million represented an 18% reduction compared to $63.5 million for the third quarter of fiscal 2009. These reductions contributed to earnings before interest, tax, depreciation and amortization (“EBITDA”) for the quarter of $12.3 million. A table showing the reconciliation of EBITDA to net income is attached.

As a result of strict inventory controls and reduced operational chargebacks, the Company’s gross margins for the third quarter of fiscal 2010 expanded to 34.2%, an improvement of 10 basis points compared to 34.1% for the same period the prior year.

Total revenues for the third quarter of fiscal 2010 were on plan at $178.5 million. These results represented a $44.3 million revenue decline compared to $222.8 million reported in the third quarter of fiscal 2009.

Compared to third quarter last year, the Company increased revenues in certain businesses including:

(i) Continued strong performance at Kohl’s with above plan sell-thru for GrandSlam and increased penetration of Hispanic brand Centro;

(ii) Increased door penetration at mid-tier for the re-launched John Henry brand;

(iii) Improved comps for same store sales at Perry Ellis and Original Penguin direct-to-consumer divisions;

(iv) Initial shipments for Callaway Fall ’09 product at department stores; and

(v) Above plan performance for Laundry by Shelli Segal and leather accessories under the Perry Ellis brand at the department store channel.

These results were offset by the overall weakness in the department store and luxury distribution channel, particularly for the swim category, plus the planned and previously announced reductions in the following businesses:

(i) Door count reduction for Perry Ellis Collection by exiting of unprofitable doors at the department store distribution channel, accounting for $14.2 million for the quarter;

(ii) Planned exit of mass merchant private label business accounting for approximately $11.8 million;

(iii) Anticipated exiting of PING golf business at the corporate channel of $4 million;

(iv) Departure of multiple retailers which filed for Chapter 11 during fiscal 2009, accounting for revenues of approximately $1.7 million;

(v) Exit of the Dockers outerwear license and men’s specialty store business of approximately $6.5 million for the same period last year.

Balance Sheet and Liquidity Review

For the third consecutive quarter, the Company improved its balance sheet and remains in an outstanding financial position. The continued discipline in working capital management allowed the Company to keep its senior credit facility unutilized, providing $125 million in availability at the end of the third quarter. Additionally, the Company reported $25.5 million in cash and cash equivalents.

Proactive retail planning and inventory discipline allowed the Company to reduce its inventories by $28.5 million, or 22.5%, compared to October 31, 2008, ending the quarter with total inventory of $97.9 million. Inventory turns increased to 4.52 times, compared to 4.28 times last year. Accounts receivable were reduced to $123.6 million, compared to $149.2 million as of October 31, 2008. This represents a $25.6 million or 17.1% reduction, in line with the net sales reduction for the quarter.

Nine Months Operations Review

For the nine months ended on October 31, 2009 (“first nine months of fiscal 2010”), total revenues decreased by 15.5% to $557.8 million from $660.1 million during the same period last year. This decrease includes lost revenues of approximately $82.5 million due to retailers filing for bankruptcy protection during fiscal 2009, the exit of the PING and Dockers licenses and the men’s specialty store distribution channel, the licensing out of the Perry Ellis dress shirts business and the exit of multiple private label programs, primarily at Wal-Mart. Due to the highly promotional environment pervasive in the consumer goods industry, coupled with inventory liquidation of exited businesses during the first nine months of fiscal 2010, the Company also reported a decrease in gross profit margins of 157 basis points compared to the first nine months ended on October 31, 2008 (“first nine months of fiscal 2009”).

Revenue and gross profit declines have been partially offset by the cost reduction process initiated during fiscal 2009 and continued throughout fiscal 2010. Compared to the first nine months of fiscal 2009, the Company reduced its operating expenses by $32.3 million, or 17%, to $161.1 million. Net income for the period declined from $8.7 million to $4.7 million, a $4.0 million reduction compared to the first nine months of fiscal 2009.

Fiscal 2010 Guidance

Better than expected results during the third quarter of fiscal 2010 have allowed the Company to increase its earnings guidance to the range of $0.80 to $0.95 per fully diluted share, from the previously announced $0.70 to $0.85 range, for fiscal year 2010.