Third Quarter Net Sales were $41.2 million
Differential Brands Group Inc. (the “Company”) (NASDAQ:
DFBG) today announced financial results for the third quarter ended
September 30, 2016.
For the third quarter ended September 30, 2016:
- Consolidated net sales were $41.2
million;
- Net loss was $2.8 million and loss per
share was $0.22; and
- Adjusted EBITDA was $1.8 million.
Michael Buckley, Chief Executive Officer, commented, “We were
pleased with the progress we made in the strategic initiatives
associated with each of our brands. At Robert Graham, we saw strong
sell-through of our new fashion basics assortment in our retail
stores. We continue to evolve our product offering to deliver
distinctive fashion to our core customers and to expand our reach
to a broader consumer base. At Hudson, we remain focused on
building our Consumer Direct business as we bring our ecommerce
business in-house and plan for the opening of our first retail
location in the Spring of 2017. We believe that by building our
Consumer Direct presence, we can better engage our existing
customers as well as broaden our demographic reach. At SWIMS, we
remain on track with the integration process and expect to grow our
business in the North American and international markets. Overall,
we continue to make meaningful progress in positioning our brands
for long-term, profitable growth. Looking ahead, we remain focused
on growing our brands organically and acquiring new premium brands
that are accretive and complementary to our portfolio.”
For the three months ended September 30, 2016, the financial
results presented in this release reflect the consolidated
operations of the Company’s three brands, Robert Graham®, Hudson®,
and SWIMS®, which was acquired in July 2016. For the three months
ended September 30, 2015, the financial results presented in this
release solely reflect the operations of the Company’s brand,
Robert Graham®, due to the merger that was completed on January 28,
2016, as discussed below in “Basis of Presentation of
Information.”
For the third quarter of fiscal 2016, overall net sales were
$41.2 million compared to $17.6 million in the same prior year
period. The increase in net sales for the third quarter of fiscal
2016 was primarily driven by the inclusion of $19.5 million from
the addition of sales from Hudson and $3.5 million from the
addition of sales from SWIMS, which we acquired in 2016. Growth in
the Robert Graham business was driven by the opening of three new
retail stores since the prior year third quarter.
Overall gross profit for the third quarter of fiscal 2016
increased to $20.3 million from $11.0 million in the same prior
year period. This increase in gross profit was primarily
attributable to the addition of $10.3 million in gross profit from
the Hudson brand and $1.6 million in gross profit from the SWIMS
brand. This was partially offset by a $1.3 million non-cash
inventory expense related to the SWIMS inventory acquired and
stepped up to fair value that was sold in the third quarter of
fiscal 2016 and a markdown reserve of $650,000, which represents
the net realizable value of certain aged Robert Graham inventory.
Overall gross margin in the third quarter of fiscal 2016 was 49.4%
compared to 62.3% in the third quarter of fiscal 2015, primarily as
a result of the addition of the Hudson and SWIMS Wholesale
businesses, whose products generate lower gross margins than Robert
Graham. The decrease in gross margin was also the result of
increased markdowns for Robert Graham inventory associated with
slower-selling styles from the previous season.
Operating expense in the third quarter of fiscal 2016 was $22.7
million compared to $10.7 million in the same prior year period.
Operating expense includes approximately $915,000 in transaction
expenses associated with the merger with Robert Graham and the
acquisition of SWIMS. Excluding these expenses, operating expense
was $21.8 million for the third quarter of fiscal 2016.
Adjusted EBITDA for the third quarter of fiscal 2016 was $1.8
million compared to $1.2 million in the same prior year period.
Operating loss from continuing operations was $2.4 million
during the third quarter of fiscal 2016 compared to operating
income from continuing operations of $248,000 in the same prior
year period. Operating loss, excluding transaction and merger
related expenses associated with the merger with Robert Graham and
the acquisition of SWIMS and the non-cash inventory expense related
to the SWIMS inventory, as noted above, was $189,000 for the third
quarter of 2016.
Net loss was $2.8 million, or a loss per share of $0.22, for the
third quarter of fiscal 2016. This compares to net income of
$36,000, or net earnings per share of $0.00, for the third quarter
of fiscal 2015. Net loss, excluding transaction and merger related
expenses associated with the merger with Robert Graham and the
acquisition of SWIMS and the aforementioned non-cash inventory
expense related to the SWIMS inventory, was $1.5 million, or a loss
per share of $0.11, for the third quarter of fiscal 2016.
Basis of Presentation of Information
As previously disclosed in the Company’s first quarter 2016
press release, on January 28, 2016, the Company completed the
acquisition (the “RG Merger”) of all of the outstanding
equity interests of RG Parent LLC and its subsidiaries (“Robert
Graham” or “RG”), a business engaged in the design,
development, sales and licensing of apparel products and
accessories that bear the brand name Robert Graham®. Because RG
members owned a majority of the Company’s issued and outstanding
equity after the Merger, under the acquisition method, RG is deemed
the accounting acquirer for financial reporting purposes, with the
Company, as the legal acquirer, being viewed as the accounting
acquiree. For the nine months ended September 30, 2016, the
Company’s consolidated financial statements include: (i) from
January 1, 2016 up to the day prior to the closing of the RG Merger
on January 28, 2016, the results of operations and cash flows of
RG; (ii) from and after the RG Merger’s closing date on January 28,
2016, the results of continuing operations, cash flows and, as
applicable, the assets and liabilities of the combined company,
comprising the Company’s Hudson business and RG; and (iii) from and
after the RG Merger’s closing date on January 28, 2016, the results
of the discontinued operations from the Joe’s brand retail stores
that were closed as of February 29, 2016.
About Differential Brands Group
Differential Brands Group Inc. (NASDAQ: DFBG) is a platform that
focuses on branded operating companies in the premium apparel,
footwear and accessories sectors. Our focus is on organically
growing our brands through a global, omni-channel distribution
strategy while continuing to seek opportunities to acquire
accretive, complementary, premium brands.
Our current brands are Hudson®, a designer and marketer of
women’s and men’s premium, branded denim and apparel, Robert
Graham®, a sophisticated, eclectic apparel and accessories brand
seeking to inspire a global movement, and SWIMS®, a Scandinavian
lifestyle brand best known for its range of fashion-forward,
water-resistant footwear, apparel and accessories. For more
information, please visit Differential's website at:
www.differentialbrandsgroup.com.
Forward-Looking Statements
This release contains forward-looking statements within the
meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, as amended, Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The matters discussed
in this release involve estimates, projections, goals, forecasts,
assumptions, risks and uncertainties that could cause actual
results or outcomes to differ materially from those expressed in
the forward-looking statements. All statements in this release that
are not purely historical facts are forward-looking statements,
including statements containing the words “may,” “will,” “expect,”
“anticipate,” “intend,” “estimate,” “continue,” “believe,” “plan,”
“project,” “will be,” “will continue,” “will likely result” or
similar expressions. Any forward-looking statement inherently
involves risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. Factors that
would cause or contribute to such differences include, but are not
limited to: the risk that the Company incurred substantial
indebtedness in connection with the acquisition of RG, and, to a
lesser extent, SWIMS, and it may be necessary to refinance or
extend the Company’s indebtedness, which may decrease the Company’s
business flexibility and adversely affect its financial results;
the risk that the Company may default on the indebtedness it
incurred to finance the acquisition of RG; the risk that the
Company will be unsuccessful in integrating Hudson, RG and SWIMS
and achieving the Company’s intended results as a result of such
acquisitions, including cost savings and synergies; the risk that
the Company’s foreign sourcing of its products and the
implementation of foreign production for Hudson’s products may
adversely affect the Company’s business; the anticipated effects of
the RG Merger and acquisition of SWIMS on the Company’s financial
results, business performance and product offerings; the use of
financial measures that are non-GAAP; risks associated with the
restatement of the Company’s unaudited condensed consolidated
financial statements as of and for the three months ended March 31,
2016; the identification of material weaknesses in the Company’s
internal control over financial reporting and the Company’s ability
to remediate such material weaknesses and achieve and maintain
effective internal control over financial reporting; the risk that
the credit ratings of the combined company or its subsidiaries,
including the Hudson, RG and SWIMS businesses, may be different
from what the Company expects; the risk that the Company will be
unsuccessful in gauging fashion trends and changing customer
preferences; the risk that changes in general economic conditions,
consumer confidence, or consumer spending patterns, including
consumer demand for denim and premium lifestyle apparel, will have
a negative impact on the Company’s financial performance and the
Company’s ability to generate cash flows from operations to service
its indebtedness; risks associated with the Company leasing retail
space and operating its own retail stores; the highly competitive
nature of the Company’s business in the United States and
internationally and its dependence on consumer spending patterns,
which are influenced by numerous other factors; the Company’s
ability to respond to the business environment and fashion trends;
continued acceptance of the Company’s brands in the marketplace;
and other risks. The Company discusses certain of these factors
more fully in its additional filings with the SEC, including its
annual report on Form 10-K for the fiscal year ended November 30,
2015 and subsequent quarterly reports on Form 10-Q filed with the
SEC, and this release should be read in conjunction with those
reports, together with all of the Company’s other filings,
including current reports on Form 8-K, through the date of this
release. The Company urges you to consider all of these risks,
uncertainties and other factors carefully in evaluating the
forward-looking statements contained in this release.
Any forward-looking statement is based on information current as
of the date of this document and speaks only as of the date on
which such statement is made, and the Company undertakes no
obligation to update these statements to reflect events or
circumstances after the date on which such statement is made.
Readers are cautioned not to place undue reliance on
forward-looking statements.
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures that
exclude the effect of transaction expenses associated with the RG
Merger and SWIMS® acquisition, including acquisition costs and the
non-cash inventory expense of the SWIMS® inventory acquired and
stepped up to fair value that was sold in the third quarter of
fiscal 2016. Generally, a non-GAAP financial measure is a numerical
measure of a company’s historical or future financial performance,
financial position, or cash flows that either excludes or includes
amounts that are not normally excluded or included in the most
directly comparable measure calculated and presented in accordance
with accounting principles generally accepted in the United States
(GAAP). Management uses these non-GAAP financial measures to
evaluate the performance of the business over time on a consistent
basis, identify business trends relating to the financial condition
and results of operations and make business decisions. The Company
believes that providing non-GAAP measures is useful to provide a
consistent basis for investors to understand the Company’s
financial performance in comparison to historical periods and to
allow investors to evaluate the performance using the same
methodology and information as that used by management. However,
investors need to be aware that non-GAAP measures are subject to
inherent limitations because they do not include all of the
expenses included under GAAP and they involve the exercise of
judgment of which charges are excluded from the non-GAAP financial
measure. Investors should consider these non-GAAP financial
measures in addition to, and not as substitutes for, our other
measures of our financial performance that the Company prepares in
accordance with GAAP. Further, non-GAAP information may be
different from the non-GAAP information provided by other
companies.
Below is a reconciliation of the non-GAAP measures to the
equivalent GAAP measure.
DIFFERENTIAL BRANDS GROUP INC. AND
SUBSIDIARIES
NON-GAAP NET (LOSS) INCOME
(in thousands)
Three months ended September 30, 2016
September 30, 2015 (Unaudited) GAAP net (loss)
income $ (2,821 ) $ 36 Transaction expenses and non-cash inventory
expense 2,191 — Less: Tax expense effect 845 —
Non - GAAP net (loss) income, excluding transaction expenses and
non-cash inventory expense $ (1,475 ) $ 36
Three
months ended September 30, 2016 September 30,
2015 (in thousands)
Reconciliation of
GAAP net (loss) income to Adjusted EBITDA:
GAAP net (loss) income $ (2,821 ) $ 36 Adjustments:
(Benefit) provision for income taxes (1,770 ) 78 Interest expense,
net 2,090 134 Non-cash stock compensation (a) 333 — Depreciation
and amortization 1,593 915 Acquisition-related costs (b) 915 —
Restructuring 18 — Non-cash inventory expense (c) 1,276 — Foreign
currency loss 121 — Total Adjustments 4,576
1,127 Adjusted EBITDA (1) $ 1,755
$ 1,163 (1) Adjusted EBITDA is defined as net
(loss) income, excluding interest income or expense, income taxes,
non-cash stock compensation, depreciation and amortization,
acquisition related costs, restructuring costs, non-cash inventory
expenses and loss related to foreign currency transactions.
Management uses Adjusted EBITDA as a measure of operating
performance to assist in comparing performance from period to
period on a consistent basis and to identify business trends
relating to the Company’s financial condition and results of
operations. The Company believes Adjusted EBITDA provides
additional information for determining its ability to meet future
debt service requirements and capital expenditures. (a)
Represents stock compensation expense related to the grant of
restricted stock units to officers. (b) Represents
acquisition-related costs related to legal, advisory and accounting
services in connection with the RG Merger and SWIMS® acquisition.
These costs are not representative of the Company’s day-to-day
business. (c) Represents a non-cash inventory expense of $1,276,000
of SWIMS inventory acquired and stepped up to fair value that was
sold in the third quarter of fiscal 2016.
DIFFERENTIAL BRANDS GROUP INC. AND
SUBSIDIARIES
NON-GAAP OPERATING (LOSS)
INCOME
(in thousands)
Three months ended September 30, 2016
September 30, 2015 (Unaudited) GAAP operating (loss)
income $ (2,380 ) $ 248 Transaction expenses and non-cash inventory
expense 2,191 — Non - GAAP operating (loss)
income, excluding transaction expenses and non-cash inventory
expense $ (189 ) $ 248
DIFFERENTIAL BRANDS GROUP INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share
data)
Three months ended September 30, 2016
September 30, 2015 (Unaudited) Net sales $ 41,160 $
17,605 Cost of goods sold 20,832 6,634 Gross
profit 20,328 10,971 Operating expenses Selling, general and
administrative 21,115 9,808 Depreciation and amortization 1,593 915
22,708 10,723 Operating (loss) income (2,380 )
248 Interest expense, net 2,090 134 Other expense, net 121
— (Loss) income before income tax (4,591 ) 114 Income
tax (benefit) provision (1,770 ) 78 (Loss) income
from continuing operations $ (2,821 ) $ 36 Loss from discontinued
operations, net of tax — —
Net (loss)
income $ (2,821 ) $ 36
(Loss) earnings per common
share - basic (Loss) earnings from continuing operations $
(0.22 ) $ 0.00 Loss from discontinued operations —
— (Loss) earnings per common share - basic $ (0.22 ) $ 0.00
(Loss) earnings per common share - diluted (Loss)
earnings from continuing operations $ (0.22 ) $ 0.00 Loss from
discontinued operations — — (Loss) earnings
per common share - diluted $ (0.22 ) $ 0.00 Weighted average
shares outstanding Basic 12,953 8,825 Diluted 12,953 8,825
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version on businesswire.com: http://www.businesswire.com/news/home/20161114006294/en/
Differential Brands Group Inc.Investor Relations:Hamish Sandhu,
323-558-5188
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