NEW YORK, April 27 /PRNewswire-FirstCall/ -- Everlast(R) Worldwide Inc. (Nasdaq: EVST), manufacturer, marketer and licensor of sporting goods, apparel, footwear and other active lifestyle products under the Everlast brand name, today announced its financial results for its fiscal 2006 first quarter ended March 31, 2006. For the first quarter ended March 31, 2006, net revenues increased 20% to $10 million, as compared to $8.3 million in the same period in 2005. Growth in net revenue resulted from a 33% increase in sporting goods sales to a record $7 million, the second consecutive quarter of more than 30% year-over-year sales growth. Net licensing revenues for the first quarter of 2006 were $3 million, as compared to $3.1 million in the same period a year ago. In the first quarter of fiscal 2006, Everlast's net licensing revenues were impacted by the Company's decision not to renew its previous footwear license that was allowed to expire in December 2005, as well as an increase in licensing commissions resulting from the litigation settlement which requires the Company to pay commissions to the former agent of Everlast during 2006. In the first quarter of 2006, the Company's gross margin was 44.5%, compared with 48.1% in the first quarter a year ago. The lower gross profit margin was primarily due to a change in revenue mix. This was driven by higher sporting goods sales, which have a lower gross margin than our revenue stream of licensing. However, the Company's sporting goods gross margins did improve 330 basis points over the 2005 comparable period due to lower product costs, improved operational efficiencies and cost reductions in labor and overhead. The Company achieved an 83% increase in operating income to $1.5 million, while earnings from continuing operations and before interest, taxes, depreciation and amortization ("EBITDA"), adjusted for non-cash stock based compensation and warrant issuance costs, improved 27% to $1.7 million, as compared with $1.3 million reported in the same period a year ago. The increase in operating income and EBITDA was largely a result of increased net revenues and resulting gross margin dollars, along with a reduction in our operating expense ratio of 30% compared with 38.6% in the 2005 comparable period. The operating expense decrease was primarily achieved by lower general and administrative expenses along with a reduction in non-cash equity awards and amortization expense. In the first quarter of 2006, the Company was required to adopt SFAS 123 (R), Stock-Based Compensation, which resulted in a non-cash expense of $84,000. In addition, the Company changed its accounting for the amortization of intangible assets and is no longer amortizing its trademark by $228,000 per quarter, based on the assessment that the Everlast trademark has an indefinite life. Reported net income from continuing operations available to common stockholders was $2.5 million, or $0.69 per basic share and $0.64 per diluted share, as compared to a net loss of $(94,000), or $(0.03) loss per basic and diluted share, in the 2005 comparable period. The 2006 first quarter results herein include the effects from the $2 million gain on the redemption of our Series A Preferred Stock and prepayment of related notes payable previously disclosed on February 8, 2006, that benefited our results of operations by $0.57 per basic share and $0.52 per diluted share. The 2005 comparable first quarter results include a loss from our discontinued components of $(320,000), or $(0.10) per basic share and $(0.09) per diluted share. Thus, from an ongoing continuing operations basis, the Company earned $0.12 per basic and diluted share in the 2006 period, as compared to $0.07 and $0.06 basic and diluted earnings per share respectively in the 2005 comparable period. Seth Horowitz, Chairman, President and Chief Executive of Everlast Worldwide Inc., said "Our first quarter operating results and balance sheet reflect the benefit from all of the strategic initiatives we have accomplished over the past eighteen months. I am pleased with the profitability we achieved for our stockholders, both with and without the $2 million gain on the redemption of our Series A Preferred Stock and prepayment of related notes. Our strong operating income and EBITDA were derived from a combination of record sporting goods revenues, improved gross margins on our sporting goods sales, and lower operating expenses. We have achieved these strong first quarter results, which met most of our internal goals and objectives, knowing our licensing revenues would be impacted by our decision to end sales of footwear with Footstar/Meldisco, we now have the opportunity to re-license this category for sales at a higher level of distribution in the months to come. In addition to partnering with the right footwear licensee, we continue to move forward into 2006 and beyond by gaining entry into two of the largest, emerging markets: India and China. While the retail infrastructure is limited in both countries, Everlast is looking for the right licensing partner in each country. Each licensee must be able to create its own retail environment, potentially creating Everlast concept shops, or have tremendous support from the existing retail infrastructure and the capability to build the brand in many product categories. We demand excellence in quality and a company dedicated to the success of Everlast." Mr. Horowitz continued, "Our first quarter sporting goods margins are already benefiting from the effects of our cost containment initiatives in the areas of manufacturing, importing and distributing our sporting goods products. Our gross margins will also continue to benefit from the strong top line growth we are experiencing. This quarter marks our second consecutive period of revenue growth greater than 30% year-over-year, a result of expanded distribution with our traditional sporting goods and mass retailers, along with new channels of distribution. One of the new distributors is Bed, Bath and Beyond, which will carry certain products in the Fall of 2006 for a holiday promotion offering. As we continue to monitor our cost structure and look at ways to reduce product costs, logistics and corporate overhead, our internally generated cash flows will continue to reduce our revolving line of credit and term facility debt service, which we have already benefited from in the first quarter of 2006. These benefits, in part, helped to achieve a working capital improvement of more than $4 million from December 2005." About Everlast Worldwide Inc. Everlast Worldwide Inc. manufactures, markets and licenses sporting goods, apparel, footwear and other active lifestyle products under the Everlast brand name. Since 1910, Everlast has been the preeminent brand in the world of boxing and is among the most dominant brands in the overall sporting goods and apparel industries. Over the past 96 years, Everlast products have become the "Choice of Champions(TM)", having been used for training and professional fights by many of the biggest names in the sport. Everlast is the market leader in nearly all of its product categories, responsible for leading eight of the top ten boxing equipment products in sales. In addition to producing and marketing the equipment and accessories, Everlast Worldwide Inc. licenses its brand to providers of men's and women's sportswear and active wear, children's wear, footwear, watches, cardiovascular exercise equipment, nutritional foods and gym/duffel bags to name just a few categories. At the retail level, Everlast's licensed products generate more than $700 million in revenues. The company's Web site can be found at http://www.everlast.com. Statements made in this Press Release that are estimates of past or future performance are based on a number of factors, some of which are outside of the Company's control. Statements made in this Press Release that state the intentions, beliefs, expectations or predictions of Everlast Worldwide, Inc. and its management for the future are forward-looking statements. It is important to note that actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in forward- looking statements is contained from time to time in filings of Everlast Worldwide with the U.S. Securities and Exchange Commission. Copies of these filings may be obtained by contacting Everlast Worldwide or the SEC. EVERLAST WORLDWIDE INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31, 2006 2005 (Unaudited) (Unaudited) Net sales $ 6,967,000 $ 5,224,000 Net license revenues 3,003,000 3,100,000 Net revenues 9,970,000 8,324,000 Cost of goods sold 5,529,000 4,320,000 Gross profit 4,441,000 4,004,000 Operating expenses: Selling and shipping 1,566,000 1,205,000 Stock based compensation and costs in connection with warrant issuance 84,000 182,000 General and administrative 1,337,000 1,596,000 Amortization - 228,000 2,987,000 3,211,000 Income from continuing operations 1,454,000 793,0000 Other income (expense): Gain on early extinguishment of preferred stock and prepayment of notes payable, net 2,032,000 - Interest expense and financing costs (668,000) (552,000) Investment income 9,000 4,000 1,373,000 (548,000) Income before provision for income taxes from continuing operations 2,827,000 245,000 Provision for income taxes 343,000 19,000 Net income from continuing operations $2,484,000 $226,000 Loss from discontinued component, net of tax - ($320,000) Net income (loss) available to common stockholders $2,484,000 ($94,000) Basic earnings per share from continuing operations $0.69 $0.07 Diluted earnings per share from continuing operations $0.64 $0.06 Basic loss per share from discontinued component - ($0.10) Diluted loss per share from discontinued component - ($0.09) Net basic earnings (loss) per share $0.69 ($0.03) Net diluted earnings (loss) per share $0.64 ($0.03) EVERLAST WORLDWIDE INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, December 31, 2006 2005 ASSETS Current assets: Cash and cash equivalents $232,000 $58,000 Accounts and licensing receivables - net 8,022,000 11,117,000 Inventories 5,295,000 6,997,000 Inventories of discontinued component - 940,000 Prepaid expenses and other current assets 1,211,000 2,761,000 Total current assets 14,760,000 21,873,000 Property and equipment, net 6,267,000 6,213,000 Goodwill 6,718,000 6,718,000 Trademarks, net 22,664,000 22,664,000 Restricted cash 1,071,000 1,059,000 Other assets 2,789,000 2,914,000 $54,269,000 $61,441,000 LIABILITIES, REDEEMABLE PARTICIPATING PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Due to factor 4,998,000 13,028,000 Accounts payable 1,863,000 3,159,000 Current maturities of long term debt 2,775,000 2,141,000 Accrued expenses and other liabilities 1,070,000 3,252,000 Total current liabilities 10,706,000 21,580,000 License deposits payable 438,000 465,000 Long term debt, net of current maturities 24,839,000 26,531,000 Total liabilities 35,983,000 48,576,000 Stockholders' equity: Common stock, par value $.002; 19,000,000 shares authorized, 3,870,471 and 3,378,743 outstanding 10,000 8,000 Class A common stock, par value $.01; 100,000 shares authorized; 100,000 shares issued and outstanding - 1,000 Paid-in capital 15,244,000 12,307,000 Retained earnings 3,759,000 1,276,000 19,013,000 13,592,000 Less treasury stock (727,000) (727,000) Total stockholders' equity 18,286,000 12,865,000 $54,269,000 $61,441,000 EVERLAST WORLDWIDE INC. & SUBSIDIARIES RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS TO EBITDA EXCLUDING CERTAIN NON-CASH CHARGES FROM CONTINUING OPERATIONS Three Months Ended March 31, 2006 2005 (Unaudited) (Unaudited) Income from continuing operations as reported GAAP basis $1,454,000 $793,000 Adjustments: Depreciation and amortization included in operating income 160,000 363,000 Non-cash stock based compensation and non-cash costs in connection with warrant issuance 84,000 182,000 Adjusted EBITDA (Earnings excluding certain costs before interest, taxes, depreciation and amortization) $1,698,000 $1,338,000 Note: To supplement its financial statements presented on a GAAP basis, the Company uses non-GAAP additional measures of EBITDA adjusted to exclude certain non-cash costs in connection with stock based compensation and warrant issuance costs. The Company believes that the use of these additional measures is appropriate to enhance an overall understanding of its past financial performance. These adjustments to the Company's GAAP results are made with the intent of providing both management and investors with a more complete understanding of the underlying operational results and trends and its marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net earnings or earnings per share prepared in accordance with generally accepted accounting principles in the United States.
SOURCE Everlast Worldwide Inc.