Phoenix Footwear Group Inc (PXG) filed Quarterly Report for the period ended 2009-10-03.
Phoenix Footwear Group Inc has a market cap of $2.9 million; its shares were traded at around $0.35 .
Highlight of Business Operations:
In the first three quarters of fiscal 2009, we reported the results of our Tommy Bahama business as discontinued operations. The financial results of the Tommy Bahama business are reported separately as discontinued operations for all periods presented. In connection with ceasing the Tommy Bahama business operations, 3 positions were eliminated. In the first quarter of fiscal 2009, we incurred $286,000 of severance charges. We expect that all but $38,000 of cash expenditures relating to employee severance costs incurred as of October 3, 2009 will be paid by the end of fiscal 2009. The remaining amount is expected to be paid in the first quarter of fiscal 2010. In addition, we recorded non-cash charges of $363,000 of inventory and other write-offs and $36,000 of fixed assets and intangible impairment charges in the first quarter of fiscal 2009.
On July 9, 2009, Chambers sold to Tandy Brands Accessories, Inc. (“Tandy”) substantially all of its assets (excluding, among other assets, accounts receivable, cash and cash equivalents) used in the operation of its private label and Wrangler brand businesses. Chambers conducted the Wrangler brand business under a License Agreement dated January 1, 2007 between Chambers and Wrangler pursuant to which Chambers had the right to sell Wrangler branded products to the mass market (the “Mass License”) and a License Agreement dated January 1, 2008 between Chambers and Wrangler pursuant to which Chambers had the right to sell to the western store market (the “Western License”). Also Tandy assumed all of Chambers’ obligations arising after the closing under vendor and customer purchase orders, Chambers’ Maquiladora Agreement and certain leases. In partial payment of the purchase price due for the purchased assets, Tandy paid to Chambers, at the closing, approximately $3.5 million in immediately available funds, including approximately $2.6 million for inventory. As additional purchase price consideration, during the first 12 months after the closing, Tandy is obligated to pay Chambers on a monthly basis 21.5% of the net revenue that Tandy recognizes from sales during this period of Chambers former products. These generally include private label products previously sold by Chambers, Chambers trademark branded products and Wrangler branded products to the mass merchandise market. For the entire 12 month period, Tandy is obligated to pay to Chambers minimum earn-out payments that in the aggregate are not less than $2.0 million. As of October 3, 2009, the Company has received $1.1 million in Tandy earn-out payments. Chambers has collected substantially all of its accounts receivable and is in the process of settling its accounts payable.
For consolidated financial statement reporting purposes, commencing with the first quarter of the 2009 fiscal year (which ended April 4, 2009), we began reporting Chambers as discontinued operations. In connection with this discontinuance, we have incurred pre-tax charges of $2.5 million during the second and third quarters of fiscal 2009. Of this amount, during the second and third quarters of fiscal 2009, we recorded $822,000 of cash restructuring charges (related to severance payments and other costs associated with exiting the business) to be paid during the third and fourth quarters of fiscal 2009 and $1.7 million of non-cash restructuring charges (including write-offs of fixed assets and inventory). During the third quarter of fiscal 2009, the Company recorded a net gain on sale of $1.5 million, which included income resulting from the asset sale to Tandy of $2.0 million for the minimum earn-out payments, a $79,000 gain on sale of fixed assets, offset by a $228,000 write-off of inventory and fixed assets and $374,000 of other costs associated with exiting the business.
Gross profit for the third quarter of fiscal 2009 was $1.9 million compared to $3.5 million in gross profit from continuing operations for the comparable period of fiscal 2008. Gross margins were 35% and 43% for the third quarters of fiscal 2009 and fiscal 2008, respectively. The decrease in our gross margin was mostly due to several significant closeout sales during the third quarter of fiscal 2009 as we worked to generate cash flow and reduce our inventories to a level in line with our sales trends. Specifically, closeout sales accounted for $877,000 of the total $5.5 million in net sales during the third quarter of fiscal 2009. These closeout sales resulted in a gross profit of $17,000.
Selling, general and administrative expenses, or SG&A, were $2.6 million, or 48% of net sales, for the third quarter of fiscal 2009, compared to $4.7 million, or 59% of net sales from continuing operations, for the comparable period of fiscal 2008. The decrease is primarily attributable to a $960,000 decrease in compensation and employee benefits resulting from planned headcount reductions, a $378,000 decrease in professional fees and consulting costs, a $165,000 decrease in bad debt expenses as a result of improved collection efforts and decreased spending on brand expenses, including advertising expenses of $387,000 and travel costs of $127,000.
Earnings from discontinued operations, comprised primarily of the Chambers business, for the third quarter of fiscal 2009 was $1.1 million compared to a loss of $803,000 for the comparable period of fiscal 2008. Earnings per share from discontinued operations were $0.13 for the third quarter of fiscal 2009 compared to loss per share of $0.10 for the comparable period of fiscal 2008. The earnings from discontinued operations for the third quarter of fiscal 2009 is primarily due to $2.0 million of minimum earn-out payments resulting from the sale of Chambers, offset by non-cash write-offs of inventory and other assets of $157,000 resulting from the winding down of the Chambers businesses, $510,000 of other costs associated with exiting the Chambers business and $185,000 of royalty expenses accrued on certain Tandy sales.
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