Summer Infant, Inc. ("Summer Infant" or the "Company")
(NASDAQ:SUMR), global leader in premium infant and juvenile
products, today announced financial results for the third quarter
and nine months ended October 3, 2015.
"Summer Infant continued to focus on long-term fundamentals this
quarter, and in that regard we accomplished a great deal," said Bob
Stebenne, Chief Executive Officer. "Core branded revenue grew
slightly year-over-year, but this only tells part of the story.
Investments in new product development and category expansion have
laid the groundwork for accelerated growth expected in the quarters
to come. We saw a high amount of enthusiasm for our brand
extensions, new product introductions, and 'smart nursery' at
industry events in both Cologne, Germany and Las Vegas, at the ABC
Kids Expo, where we also received five awards for design and
innovation – more than any other company at the show. Retail
interest at these events exceeded our expectations and, we believe,
will serve to build momentum for order flow going forward.
"At the same time, we have continued our commitment to cost
reduction, inventory optimization, and exiting non-core businesses.
Our inventory levels are not yet in line with our goals but reflect
much higher-value investment in core products, including those
being rolled out this quarter; we've already cleared out about 85%
of targeted eliminations and most of our furniture line. We're also
benefiting from a stronger balance sheet, reduced interest expense,
and year-to-date operating cash flow of $8.5 million – versus a
$5.1 million use of cash last year. The headcount reductions and
other streamlining initiatives previously announced are already
underway and have had a positive impact this year. Overall, the
Company is executing a plan to improve margins, drive higher
growth, and become a stronger name in the juvenile space,
positioning us well for 2016 and beyond."
Third Quarter Results
Net sales for the three months ended October 3, 2015 were $50.2
million compared with $51.0 million for the three months ended
September 30, 2014. Excluding $1.5 million and $2.7 million of
sales related to non-core business in licensed, private label, and
furniture sales during the third quarter of fiscal 2015 and 2014,
respectively, as well as $0.8 million in unfavorable foreign
exchange effect on a constant currency basis in fiscal 2015, core
branded sales increased by 2.5%. In addition, the Company sold or
eliminated approximately $2.2 million of excess inventory during
the quarter, negatively impacting both sales and margins.
Gross profit for the third quarter of 2015 was $15.6 million
compared with $16.6 million in the third quarter of 2014, and gross
margin was 31.1% in fiscal 2015 versus 32.5% last year. The decline
in gross margin dollars and as a percent of sales in the quarter
was primarily due to $0.1 million of losses on the sale of aged
inventory below cost, $0.2 million of inventory charges taken
related to exiting the furniture category, $0.3 million of
temporary, additional costs tied to inventory mix changes at the
Company's west coast distribution center, and $0.5 million
unfavorable foreign exchange effect on a constant currency basis.
Excluding the impact of the aforementioned charges, gross margin
would have been 33.8% for the third quarter of 2015.
Selling expenses were $4.1 million in the third quarter of 2015
compared with $4.5 million in the third quarter of 2014, primarily
reflecting lower sales and cost controls. General and
administrative expenses rose to $13.0 million in fiscal 2015 from
$10.1 million in fiscal 2014, primarily due to $3.7 million of
legal expenses incurred in connection with ongoing litigation. The
Company continues to implement cost reduction actions that are
expected to reduce general and administrative expenses further
going forward.
Interest expense decreased to $0.6 million in the third quarter
of 2015 from $0.9 million last year, reflecting reduced debt levels
and lower interest rates on the Company's new credit facility.
The Company reported a net loss of $1.8 million, or $(0.10) per
share, in the third quarter of 2015 compared with a net loss of
$0.1 million, or $(0.01) per diluted share, in the third quarter of
2014.
Adjusted EBITDA for the third quarter of 2015 was $3.1 million
compared with $3.6 million for the third quarter of 2014. Adjusted
EBITDA for the third quarter of 2015 includes $4.3 million in bank
permitted add-back charges (including the aforementioned $3.7
million of litigation expenses) compared with $1.1 million in the
third quarter of 2014.
Adjusted EBITDA and constant currency sales are non-GAAP
metrics. Adjusted EBITDA excludes various items that are detailed
in the financial tables and accompanying footnotes reconciling GAAP
to non-GAAP results contained in this release. An explanation of
these measures also is included under the heading below "Use of
Non-GAAP Financial Information."
Balance Sheet Highlights
As of October 3, 2015, the Company had approximately $1.1
million of cash and $53.5 million of debt compared with $1.3
million of cash and $58.7 million of debt on January 3, 2015.
Inventory at October 3, 2015 was $43.6 million compared with
$44.0 million at January 3, 2015. The Company has sold or
eliminated approximately $8.9 million of excess inventory during
the first nine months of fiscal 2015 and offset those reductions
with inventory to support new product introductions.
Trade receivables at the end of the third quarter were $36.1
million compared with $38.8 million as of January 3, 2015. Accounts
payable and accrued expenses were $36.6 million as of October 3,
2015, compared with $30.5 million at the end of fiscal 2014.
Legal Matters
The Company reached a partial settlement of its outstanding
lawsuit against former employees of the Company and Dulcie Madden
and Carson Darling, principals of Rest Devices, Inc, a former
consultant to the Company, and as of November 1, 2015, the Company,
Ms. Madden and Mr. Darling entered into a confidential settlement
agreement. The settlement agreement did not resolve any claims
against the remaining defendants, and the Company intends to
continue to vigorously pursue the matter with respect to the
remaining defendants and to protect its confidential and
proprietary information.
Conference Call Information
Management will host a conference call to discuss the financial
results tomorrow, November 5, at 9:00 a.m. ET. To listen to the
live call, visit the Investor Relations section of the Company's
website at www.summerinfant.com or dial 877-270-2148 or
412-902-6510. An archive of the webcast will be available on the
Company's website.
About Summer Infant, Inc.
Based in Woonsocket, Rhode Island, the Company is a global
leader of premium infant and juvenile products for ages 0-3 years
which are sold principally to large North American and
international retailers. The Company currently sells proprietary
products in a number of different categories including nursery
audio/video monitors, safety gates, durable bath products, bed
rails, nursery products, strollers, booster and potty seats,
swaddling blankets, bouncers, travel accessories, highchairs,
swings, and infant feeding products. For more information about the
Company, please visit www.summerinfant.com.
Use of Non-GAAP Financial Information
This release and the referenced webcast include presentations of
non-GAAP financial measures, including Adjusted EBITDA, constant
currency, adjusted net income and adjusted earnings per share.
Adjusted EBITDA means earnings before interest and taxes plus
depreciation, amortization, non-cash stock-based compensation
expenses and other items added back as detailed in the
reconciliation table included in this release. Constant currency
sales are determined by applying a fixed exchange rate, calculated
as the 12-month average in 2015, to the current local currency
sales amounts, with the difference in reported sales being
attributable to currency. Adjusted net income and adjusted earnings
per share mean net income excluding certain items as detailed in
the reconciliation table included in this release. Such information
is supplemental to information presented in accordance with GAAP
and is not intended to represent a presentation in accordance with
GAAP. The Company believes that the presentation of these non-GAAP
financial measures provide useful information to investors to
better understand, on a period-to-period comparable basis,
financial amounts both including and excluding these identified
items, and they indicate more clearly the ability of the Company's
assets to generate cash sufficient to repay its indebtedness, meet
capital expenditure and working capital requirements, comply with
the financial covenants of its loan agreements and otherwise meet
its obligations as they become due. These non-GAAP measures
should not be considered in isolation or as an alternative to such
GAAP measures as net income, cash flows provided by or used in
operating, investing or financing activities or other financial
statement data presented in the Company's consolidated financial
statements as an indicator of financial performance or
liquidity. The Company provides reconciliations of these
non-GAAP measures in its press releases of historical
performance. Because these measures are not determined in
accordance with GAAP and are susceptible to varying calculations,
these non-GAAP measures, as presented, may not be comparable to
other similarly titled measures of other companies.
Forward-Looking Statements
Certain statements in this release that are not historical fact
may be deemed "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, and the Company intends that such
forward-looking statements be subject to the safe harbor created
thereby. These statements are accompanied by words such as
"anticipate," "expect," "project," "will," "believes," "estimate"
and similar expressions, and include statements regarding the
Company's expectations regarding future accelerated growth and
order flow, improved margins, stronger brand recognition and the
impact of cost reduction efforts. The Company cautions that these
statements are qualified by important factors that could cause
actual results to differ materially from those reflected by such
forward-looking statements. Such factors include the
concentration of the Company's business with retail customers; the
ability of the Company to compete in its industry; the Company's
ability to continue to control costs and expenses, including legal
expenses; the Company's dependence on key personnel; the Company's
reliance on foreign suppliers; the Company's ability to develop,
market and launch new products; the Company's ability to grow sales
with existing and new customers and in new channels; the Company's
ability to meet required financial covenants under its loan
agreements; and other risks as detailed in the Company's Annual
Report on Form 10-K for the fiscal year ended January 3, 2015, and
subsequent filings with the Securities and Exchange
Commission. The Company assumes no obligation to update the
information contained in this release.
Tables to Follow
Summer Infant,
Inc. |
Consolidated Statements
of Operations |
(amounts in thousands
of US dollars, except share and per share data) |
(unaudited) |
|
|
|
|
|
|
Three
Months Ended |
Nine
Months Ended |
|
October 3,
2015 |
September 30,
2014 |
October 3,
2015 |
September 30,
2014 |
|
|
|
|
|
Net sales |
$ 50,205 |
$ 51,020 |
$ 155,025 |
$ 154,390 |
Cost of goods sold |
34,600 |
34,420 |
108,674 |
103,897 |
Gross profit |
$ 15,605 |
$ 16,600 |
$ 46,351 |
$ 50,493 |
General and administrative expenses(1) |
12,953 |
10,107 |
35,235 |
29,503 |
Selling expense |
4,119 |
4,456 |
13,295 |
13,742 |
Depreciation and amortization |
1,275 |
1,369 |
3,927 |
4,132 |
Operating (loss) income |
$ (2,742) |
$ 668 |
$ (6,106) |
$ 3,116 |
Interest expense |
589 |
870 |
2,753 |
2,571 |
(Loss)/income before taxes |
$ (3,331) |
$ (202) |
$ (8,859) |
$ 545 |
Income tax (benefit)/expense |
(1,500) |
(64) |
(3,313) |
179 |
Net (loss)/income |
$ (1,831) |
$ (138) |
$ (5,546) |
$ 366 |
(Loss)/income per diluted share |
$ (0.10) |
$ (0.01) |
$ (0.30) |
$ 0.02 |
|
|
|
|
|
Shares used in fully diluted EPS |
18,309,381 |
18,086,441 |
18,239,490 |
18,196,470 |
|
|
|
|
|
Reconciliation of Non-GAAP
EBITDA |
|
|
|
|
|
|
|
|
|
Net (loss)/income |
$ (1,831) |
$ (138) |
$ (5,546) |
$ 366 |
Plus: interest expense |
589 |
870 |
2,753 |
2,571 |
Plus: (benefit)/expense for income taxes |
(1,500) |
(64) |
(3,313) |
179 |
Plus: depreciation and amortization |
1,275 |
1,369 |
3,927 |
4,132 |
Plus: non-cash stock based compensation
expense |
280 |
468 |
700 |
1,011 |
Plus: permitted add-backs (2) |
4,324 |
1,097 |
9,339 |
2,455 |
Adjusted
EBITDA |
$ 3,137 |
$ 3,602 |
$ 7,860 |
$ 10,714 |
|
|
|
|
|
Reconciliation of Adjusted
EPS |
|
|
|
|
Net (loss) Income |
$ (1,831) |
$ (138) |
(5,546) |
366 |
Plus: permitted add-backs(3) |
2,378 |
749 |
5,846 |
1,648 |
Plus: unamortized financing costs (4) |
-- |
$ -- |
428 |
-- |
Adjusted net
income |
$ 547 |
$ 611 |
$ 728 |
$ 2,014 |
Adjusted earnings per
diluted share |
$ 0.03 |
$ 0.03 |
$ 0.04 |
$ 0.11 |
|
|
|
|
|
(1) Includes stock option
expense |
|
|
|
|
|
(2) Permitted add-backs consist
of items that the Company is permitted to add-back to the
calculation of consolidated EBITDA under its credit
agreements. Permitted addbacks for the three months ended
October 3, 2015 consisted of special projects, primarily legal fees
($3,825), losses from exiting the furniture category ($215), losses
from the inventory liquidation plan ($103), board fees ($131) and
severance related costs ($50). Permitted add-backs for the
three months ended September 30, 2014 consisted of special projects
($323), severance costs ($246), close-out sales related to
furniture ($233), car-seat related scrap ($146), board fees ($129),
and Carter's related scrap ($20). Permitted add-backs for the
nine months ended October 3, 2015 consisted of special projects,
primarily legal fees ($6,021), losses from the inventory
liquidation plan ($1,878), losses from exiting the furniture
category ($949), board fees ($441) and severance related costs
($50). Permitted add-backs for the nine months ended September
30, 2014 consisted of special projects ($1,171), severance related
costs ($396), board fees ($271), close-out sales related to
furniture ($232), Carter's related scrap ($170), car-seat related
scrap ($146) and losses on Carter's related sales ($69). |
|
|
|
|
|
(3) Permitted add-backs consist
of items that the Company is permitted to add-back to the
calculation of consolidated EBITDA under its credit agreements, net
of taxes. Permitted addbacks for the three months ended
October 3, 2015 consisted of special projects, primarily legal fees
($2,104), losses from exiting the furniture category ($118), losses
from the inventory liquidation plan ($57), board fees ($72) and
severance related costs ($27). Permitted add-backs for the
three months ended September 30, 2014 consisted of special projects
($221), severance costs ($168), close-out sales related to
furniture ($159), car-seat related scrap ($99), board fees ($88),
and Carter's related scrap ($14). Permitted add-backs for the
nine months ended October 3, 2015 consisted of special projects,
primarily legal fees ($3,769), losses from the inventory
liquidation plan ($1,176), losses from exiting the furniture
category ($594), board fees ($276) and severance related costs
($31). Permitted add-backs for the nine months ended September
30, 2014 consisted of special projects ($786), severance related
costs ($266), board fees ($182), close-out sales related to
furniture ($156), Carter's related scrap ($114), car-seat related
scrap ($98) and losses on Carter's related sales ($46). |
|
|
|
|
|
(4) Write off of unamortized
deferred financing costs and termination fees associated with the
Company's old credit facility, net of taxes, for the nine
months ended October 3, 2015 ($428). |
|
|
|
|
|
Summer Infant,
Inc |
Consolidated Balance
Sheet |
(amounts in thousands
of US dollars) |
|
|
|
|
October 3,
2015 |
January 3,
2015 |
|
(unaudited) |
|
|
|
|
Cash and cash equivalents |
$ 1,104 |
$ 1,272 |
Trade receivables, net |
36,057 |
38,794 |
Inventory, net |
43,622 |
44,010 |
Property and equipment, net |
11,890 |
13,080 |
Other intangible assets, net |
20,326 |
20,679 |
Other assets |
4,533 |
4,632 |
Total assets |
$ 117,532 |
$ 122,467 |
|
|
|
Accounts payable |
$ 31,818 |
$ 21,878 |
Accrued expenses |
4,756 |
8,628 |
Current portion of long-term debt |
2,089 |
1,641 |
Long term debt, less current
portion |
51,436 |
57,097 |
Other long term liabilities |
2,726 |
2,994 |
Deferred tax liabilities |
2,418 |
2,378 |
Total liabilities |
$ 95,243 |
$ 94,616 |
|
|
|
Total stockholders' equity |
22,289 |
27,851 |
Total liabilities and stockholders' equity |
$ 117,532 |
$ 122,467 |
|
|
|
CONTACT: Company Contact:
Chris Witty
Investor Relations
646-438-9385
cwitty@darrowir.com
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