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Frederick's of Hollywood Group Inc. Reports Fiscal 2012 Second Quarter Financial Results


News provided by

Frederick's of Hollywood Group Inc.

Mar 13, 2012, 04:52 ET

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HOLLYWOOD, Calif., March 13, 2012 /PRNewswire/ -- Frederick's of Hollywood Group Inc. (NYSE Amex: FOH) ("Company") today announced financial results for its fiscal 2012 second quarter ended January 28, 2012.

Thomas Lynch, the Company's Chairman and Chief Executive Officer, stated, "Although we are disappointed with our performance this quarter, we are making improvements to our products and operations across the business.  Our results were adversely affected by an increase in product promotions during the month of January 2012 to stimulate sales of clearance merchandise in a promotionally competitive environment, as well as an increase in shipping offers during the quarter."

Mr. Lynch continued, "We are working to expand our product categories and ensure that our products meet current trends.  We recently launched our new denim collection, which is now available for purchase in stores and online, and we expanded our dress offerings into all of our stores."

"We are also continuing to explore ways to improve our real estate portfolio through negotiations with our landlords.  During the second quarter of fiscal 2012, we successfully negotiated the termination of leases for three of our poorest performing stores.  One of these stores closed at the end of January and two closed at the end of February.  For fiscal year 2011, these three stores had an aggregate four wall cash flow loss of $630,000.  In addition, we are seeking ways to profitably expand our store base," concluded Mr. Lynch.

Fiscal 2012 Second Quarter Compared to Fiscal 2011 Second Quarter:

  • Net loss was $3.5 million or $(0.09) per diluted share, compared to a net loss of $3.3 million or $(0.08) per diluted share.
  • Adjusted EBITDA from continuing operations was a loss of $2.3 million compared to loss of $1.3 million.  A reconciliation of GAAP results to Adjusted EBITDA, a non-GAAP measurement, is provided in the accompanying table.
  • Net sales decreased less than 1% to $32.5 million from $32.6 million.
    • Total store sales increased 4.6% to $19.1 million, while comparable store sales increased 5.3% as compared to the three months ended January 29, 2011.
    • Direct sales (catalog and website operations) decreased 5.4% to $12.1 million.
    • Other revenue, consisting of shipping revenue, commissions earned on direct sell-through programs, breakage on gift cards and product sales to the Company's licensing partner in the Middle East, decreased 11.9% to $1.4 million.
  • Gross margin, as a percentage of net sales, was 31.2% compared to 35.0%.  This decrease was primarily attributable to an increase in shipping offers as well as product promotions during the month of January 2012 to stimulate sales of clearance merchandise in a promotionally competitive environment.
  • Selling, general and administrative expenses decreased by 4.5% to $13.2 million, or 40.7% of sales, from $13.9 million or 42.5% of sales.

Fiscal Six Months Ended January 28, 2012 Compared to Fiscal Six Months Ended January 29, 2011:

  • Net loss was $5.9 million, or $(0.15) per diluted share, compared to a net loss of $4.5 million, or $(0.12) per diluted share.
    • Net loss from continuing operations increased to $5.9 million from $3.1 million.
    • There was no activity related to discontinued operations compared to a net loss of $1.4 million, which included a gain of approximately $1.1 million resulting from the sale of the wholesale business in October 2010.
  • Adjusted EBITDA from continuing operations was a loss of $3.3 million compared to a loss of $0.2 million.  A reconciliation of GAAP results to Adjusted EBITDA from continuing operations, a non-GAAP measurement, is provided in the accompanying table.
  • Net sales decreased less than 1% to $60.9 million from $61.2 million.
    • Total store sales increased 4.2% to $38.2 million, while comparable store sales increased by 5.3% as compared to the six months ended January 29, 2011.
    • Direct sales decreased 5.5% to $20.1 million.
    • Other revenue decreased 20.9% to $2.6 million.
  • Gross margin, as a percentage of net sales, decreased to 32.4% from 37.4%.  This decrease was attributable to an increase in product and shipping promotional offers, and a $767,000 decrease in margin assistance from vendors.
  • Selling, general and administrative expenses decreased by 2.0% to $24.7 million, or 40.6% of sales, from $25.2 million or 41.2% of sales.

Non-GAAP Financial Measures

For purposes of evaluating operating performance, the Company uses an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") measurement, which is computed as the net loss appearing on the statement of operations plus depreciation and amortization, interest, income tax expense and stock compensation expense.  Adjusted EBITDA is used by management to evaluate the operating performance of the Company's business for comparable periods.  Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items.

While Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:

  • Adjusted EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs; and
  • Other significant items, while periodically affecting the Company's results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects the comparability of results.

(in thousands)

Three Months Ended

Six Months Ended

 

January 28,

2012

January 29,

2011

January 28,

2012

January 29,

2011

 

Net loss from continuing operations

$(3,538)

$(2,794)

$(5,870)

$(3,091)

 

Depreciation and amortization 

651

769

1,316

1,611

 

Interest

431

344

852

743

 

Income tax expense

17

15

34

40

 

Stock compensation expense

186

403

320

499

 

Adjusted EBITDA from continuing operations

$(2,253)

$(1,263)

$(3,348)

$   (198)

 

Forward Looking Statement

Certain of the matters set forth in this press release are forward-looking and involve a number of risks and uncertainties.  These statements are based on management's current expectations or beliefs.  Actual results may vary materially from those expressed or implied by the statements herein.  Among the factors that could cause actual results to differ materially are the following: competition; business conditions and industry growth; rapidly changing consumer preferences and trends; general economic conditions; working capital needs; continued compliance with government regulations; loss of key personnel; labor practices; product development; management of growth, increases in costs of operations or inability to meet efficiency or cost reduction objectives; timing of orders and deliveries of products; risks of doing business abroad; the ability to protect our intellectual property; and the other risks that are described from time to time in the Company's SEC reports.  The Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

About Frederick's of Hollywood Group Inc.

Frederick's of Hollywood Group Inc., through its subsidiaries, sells women's intimate apparel, swimwear and related products under its proprietary Frederick's of Hollywood® brand through 119 specialty retail stores, a world-famous catalog and an online shop at http://www.fredericks.com/.  With its exclusive product offerings including Seduction by Frederick's of Hollywood and the Hollywood Exxtreme Cleavage® bra, Frederick's of Hollywood is the Original Sex Symbol®.

Our press releases and financial reports can be accessed on our corporate website at http://www.fohgroup.com.

This release is available on the KCSA Strategic Communications Web site at http://www.kcsa.com.

CONTACT:           
Frederick's of Hollywood Group Inc.      
Thomas Rende, CFO
(212) 779-8300

Investor Contacts:
Todd Fromer / Garth Russell
KCSA Strategic Communications
212-896-1215 / 212-896-1250
[email protected] / [email protected]       


 

(Tables Below)

 

FREDERICK'S OF HOLLYWOOD GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

 

 

 

 

January 28,

 

July 30,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

(Audited)

 

 

 

 

 

 

ASSETS

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

$      322

 

$     448

 

Accounts receivable

1,107

 

1,214

 

Income tax receivable

51

 

51

 

Merchandise inventories

18,306

 

14,816

 

Prepaid expenses and other current assets

2,249

 

2,108

 

Deferred income tax assets

68

 

68

 

 

Total current assets

22,103

 

18,705

PROPERTY AND EQUIPMENT, Net

7,807

 

8,925

INTANGIBLE ASSETS

18,259

 

18,259

OTHER ASSETS

590

 

588

 

 

TOTAL ASSETS

$ 48,759

 

$ 46,477

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Revolving credit facility

$  9,189

 

$  5,415

 

Accounts payable and other accrued expenses

25,652

 

21,250

 

 

Total current liabilities

34,841

 

26,665

DEFERRED RENT AND TENANT ALLOWANCES

4,182

 

4,749

TERM LOAN

7,755

 

7,527

OTHER

-

 

5

DEFERRED INCOME TAX LIABILITIES

7,372

 

7,372

 

 

TOTAL LIABILITIES

54,150

 

46,318

 

 

TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY)

(5,391)

 

159

 

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

$ 48,759

 

$ 46,477

 

 

 

 

 

 

FREDERICK'S OF HOLLYWOOD GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In Thousands, Except Per Share Amounts)

 

 

Three Months Ended

 

Six Months Ended

 

January 28,

 

January 29,

 

January 28,

 

January 29,

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

Net sales

$32,520

 

$32,582

 

$60,883

 

$61,199

Cost of goods sold, buying and occupancy

22,381

 

21,167

 

41,184

 

38,315

   Gross profit

10,139

 

11,415

 

19,699

 

22,884

Selling, general and administrative expenses

13,229

 

13,850

 

24,683

 

25,192

Operating loss

(3,090)

 

(2,435)

 

(4,984)

 

(2,308)

Interest expense, net

431

 

344

 

852

 

743

   Loss before income tax provision

(3,521)

 

(2,779)

 

(5,836)

 

(3,051)

Income tax provision

17

 

15

 

34

 

40

Net loss from continuing operations

(3,538)

 

(2,794)

 

(5,870)

 

(3,091)

Net loss from discontinued operations, net of

   tax benefit of $0 and $266 for the three and

   six months ended January 29, 2011, respectively

-

 

(460)

 

-

 

(1,393)

Net loss

$(3,538)

 

$(3,254)

 

$(5,870)

 

$(4,484)

Basic and diluted net loss per share from continuing

   operations

$  (0.09)

 

$  (0.07)

 

$  (0.15)

 

$  (0.08)

Basic and diluted net loss per share from

 

 

 

 

 

 

 

   discontinued operations

-

 

(0.01)

 

-

 

(0.04)

Total basic and diluted net loss per share

$  (0.09)

 

$  (0.08)

 

$(0.15)

 

$  (0.12)

Weighted average shares outstanding – basic and

   diluted

38,790

 

38,453

 

38,742

 

38,401

SOURCE Frederick's of Hollywood Group Inc.

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