Rio Garment segment drives Hampshire Group Q2 sales

Second Quarter 2012 Highlights

• Net sales increase driven by Rio Garment manufacturing subsidiary;
• Company posts gross profit of $4.3 million;
• Significant decrease in SG&A to 46% of sales;
• Order backlog grows 40% year-over-year to $82.2 million;
• Continued growth in scott james business including, a significant increase in Spring average order size and opened a shop-in-shop in a premier men’s specialty store in Birmingham, Alabama;
• Sequential capacity growth and margin improvement at Rio Garment from 1Q12; and
• First shipment of Panama Jack to Wal-Mart stores marks company expansion into mass market.

Net sales for the second quarter of 2012 were $18.1 million, as compared with $3.5 million for the second quarter of 2011. The $14.6 million improvement in net sales was primarily due to the inclusion of Rio Garment’s net sales of $15.4 million for the quarter which was partially offset by a $0.8 million decline in Hampshire Brands net sales due to the wind down of the JOE Joseph Abboud licensing agreement. Gross profit for the second quarter was $4.3 million versus a gross loss of less than $0.1 million a year ago.

The improvement in gross profit resulted from a combination of increases in net sales from Rio Garment, increases in the average selling price per unit for Hampshire and increases in both volume and average selling price per unit for scott james.

Selling, general and administrative expenses were $8.3 million for the second quarter of 2012, an increase of $2.6 million over the previous year as a result of the inclusion of Rio Garment, which was not part of the Company in last year’s second quarter. SG&A as a percent of sales declined to 46% versus 172% a year ago.

The Company announced a cost savings plan during this year’s second quarter, which is expected to provide annualized savings of approximately $1.0 million in compensation costs.

The Company reported a loss from continuing operations per share of $0.56 for the second quarter of 2012, an improvement compared to a loss per share of $1.30 for the same period last year.

The Company ended the quarter with $13.1 million in cash, compared with $25.8 million at December 31, 2011. The results for the current year reflect the use of cash to fund the Company’s historical inventory build in advance of its peak shipping months.

At June 30, 2012, the Company had nothing drawn under its $50 million revolving credit facility.

“Over the past 18 months, we have been aggressively repositioning Hampshire Group to become a profitable, vertically integrated sportswear manufacturer and marketer, moving away from our former business model as an unsustainable, seasonal sweater business.

“As part of this transition, we sharpened the focus of the business by divesting non-core operations and acquiring a manufacturing operation, Rio Garment, which is allowing us to diversify our product lines, expand our distribution channels, broaden our customer base and leverage our design talent and existing relationships.