Phoenix Footwear makes very measurable progress

20 May '09

4 min read

Phoenix Footwear Group Inc reported its results of operations for the first quarter of fiscal 2009. For the first fiscal quarter ended April 4, 2009, the Company reported net sales from continuing operations of $6.1 million, down 35% compared to net sales from continuing operations of $9.4 million during the quarter ended March 29, 2008.

The Company recorded a loss from continuing operations during the first quarter of $2.7 million, or $0.33 per share, compared to a loss of $500,000, or $0.05 per share, for the first quarter of fiscal 2008. Included in the Company's first quarter loss for 2009 are severance charges totaling $1.0 million. During the first quarter of fiscal 2008, the Company recorded other income of $750,000 related to its divestiture of Altama Delta Corporation.

The loss from discontinued operations totaled $241,000 for the quarter ended April 4, 2009 compared to earnings of $199,000 for the quarter ended March 29, 2008. Included in discontinued operations are the Company's Tommy Bahama business unit and Chambers Belt Company.

As previously reported, on February 24, 2009, the Company entered into an Amendment to its License Agreement with Tommy Bahama that amended and terminated the License. In connection with ceasing the Tommy Bahama business operations, the Company has sold its entire Tommy Bahama product inventory and eliminated all related staff positions. In the first quarter of fiscal 2009, the Company incurred $286,000 of severance charges.

All but $38,000 of cash expenditures relating to employee severance costs incurred as of April 4, 2009 are expected to be paid by the end of fiscal 2009. In addition, the Company recorded non-cash charges in the first quarter of fiscal 2009 of $363,000 of inventory and other write-offs and $36,000 of fixed assets and intangible impairment charges.

Also, as previously reported on April 23, 2009, Chambers Belt Company (Chambers), a wholly owned subsidiary of the Company, entered into an Asset Purchase Agreement with Tandy Brands Accessories, Inc. (Tandy). Subject to the terms and conditions of the Asset Purchase Agreement, at closing, Tandy will purchase Chambers' manufacturing equipment, certain inventory at cost, certain intellectual property and customer relationships, and provide for payment at closing of the inventory costs, an additional $500,000 and a $430,000 advance payment against the earn-out payments which will be due.

The earn-out payments will be made on a monthly basis based on actual revenue and will equal 21.5% of the revenue of the acquired business during the first 12 months following closing, subject to a $2 million minimum. The sale of assets does not include the Company's accounts receivable, or Wrangler mass license or cash on hand. This transaction is expected to close during the second quarter.

The net proceeds of these two transactions together with the monetization and collection of Chambers' receivables following the closing and the collection of the earn-out payments, when fully collected, are expected to generate net cash in excess of $14 million, which would allow the Company to repay its bank indebtedness.

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