EBHI Eddie Bauer Holdings (MM)

SEATTLE, March 18 /PRNewswire-FirstCall/ -- Eddie Bauer Holdings, Inc. (NASDAQ:EBHI) today reported unaudited financial results for the fourth quarter and fiscal year ended January 3, 2009. Adjusted EBITDA (earnings before interest expense, income taxes, depreciation and amortization), excluding the fair value adjustments on the Company's convertible debt and certain other non-recurring and non-operational items for the full year, increased by $10.8 million to $52.7 million from $41.9 million in the prior year. Adjusted EBITDA decreased by $5.9 million to $54.0 million for the fourth quarter of 2008. "Income (loss) before income tax expense" is the comparable GAAP measure to EBITDA. (See the attached tables for the Company's unaudited financial statements as of January 3, 2009 and a reconciliation of adjusted EBITDA to GAAP financial measurements.) "The swift and dramatic downturn in the economy had a major impact on us in the fourth quarter. The actions that we took throughout the year provided some buffer against the worsening recession, but not enough to protect us fully from the sharp pullback in consumer spending and a highly promotional retail environment. Still, for the year as a whole we were able to show a significant improvement in our EBITDA," said Neil Fiske, the Company's CEO. FOURTH QUARTER HIGHLIGHTS (UNAUDITED) Revenue Total revenues for the quarter decreased by $22.5 million (5.7%) to $369.9 million compared to $392.4 million in the fourth quarter of 2007. Comparable store sales fell 5.7% for the quarter excluding the effect of foreign exchange rates resulting from the sharp decline in the Canadian dollar. Comparable store sales were as follows: Q4 2008(%) Comp store sales Q4 2008 (%) (Excl. CDN impact) Q4 2007 (%) Combined (retail & outlet) (8.8) (5.7) 4.8 Retail (10.5) (5.9) 8.6 Outlet (5.4) (5.4) (1.9) Comparable store sales for the fourth quarter and fiscal year have been calculated to include the addition of the first week of fiscal 2008, to make fiscal and fourth quarter 2007 (a 52-week year and 13-week quarter, respectively) comparable to fiscal and fourth quarter 2008, which are a 53-week fiscal year and 14-week quarter, respectively. Net merchandise sales, included within total revenues, decreased by $21.6 million as follows: Q4 2008 Q4 2007 Net merchandise sales ($in millions) ($in millions) % Change Combined 356.0 377.6 (5.7) Retail & outlet 255.9 274.2 (6.7) Direct 100.1 103.4 (3.2) Comparisons for net merchandise sales are not adjusted for the 52- or 53-week period. The Company operated 255 retail stores and 121 outlet stores at the end of fiscal 2008, compared with 271 retail stores and 120 outlet stores at the end of fiscal 2007. Gross Margins Gross margin percentage for the fourth quarter declined to 40.9% from 43.8% in the year-ago quarter. Gross margin dollars declined by $19.7 million in the fourth quarter of 2008 compared to $165.2 million in the prior year quarter, as a result of higher markdowns spurred by the overall increase in promotional activity by our competitors during the holidays and higher costs related to increases in headcount and professional services for buying functions. Selling, General and Administrative (SG&A) SG&A expenses showed improvement as the Company maintained its focus on its key initiative of removing $25 to $30 million in total SG&A expenses in 2008. SG&A decreased by 7.0% ($9.3 million) in the fourth quarter of 2008. The decrease in SG&A expenses resulted primarily from lower compensation expenses, lower professional fees, and lower advertising and marketing costs. Partially offsetting the lower expenses was a non-cash $7.5 million impairment charge for store leasehold improvements. Adjusted EBITDA and Operating Income (Loss) Adjusted EBITDA decreased by $5.9 million to $54.0 million for the quarter when excluding certain non-operational and non-recurring adjustments. These non-cash items included the fair value adjustments on the Company's convertible notes, non-operational gains and impairment charges related to foreign investments and store leasehold improvements. The $155.8 million increase in operating loss was primarily driven by $144.6 million of non-cash impairment charges of trademarks ($80 million) and goodwill ($64.6 million) during the fourth quarter. The goodwill impairment charge is based on the Company's enterprise value, which was estimated using an income approach calculated from discounted cash flows, and was further supported by market comparables for other retail companies, as well as the indicated value based on the Company's common stock price. The downturn in the economy, which impacts the Company's and other retail companies' future expected sales and cash flows, was a primary contributor to the impairment charges. Q4 2008 Q4 2007 ($in millions) ($in millions) $Change Operating Income (Loss) (108.3) 47.5 (155.8) Income (Loss) before Income Tax Expense (99.7) 56.9 (156.6) EBITDA 61.3 74.4 (13.1) EBITDA excluding non-recurring and non-operational items 54.0 59.9 (5.9) Net Loss As a result of the $144.6 million non-cash impairment charges discussed above, which was partially offset by a lower provision for income taxes, net loss for the fourth quarter increased by $109.3 million to $127.5 million, or $4.13 per share compared to a net loss of $18.2 million, or $0.59 per share in the year-ago quarter. YEAR-TO-DATE RESULTS (UNAUDITED) Revenues Total revenues for the year decreased by 2.0% to $1,023.4 million compared to $1,044.4 million in 2007. Comparable store sales were as follows: Fiscal Fiscal 2008(%) Fiscal Comp store sales 2008 (%) (Excl. CDN impact) 2007 (%) Combined (retail & outlet) (1.8) (1.1) 4.4 Retail (2.0) (0.9) 8.9 Outlet (1.5) (1.5) (2.3) The Company opened 8 retail and 6 outlet stores, and closed 24 retail and 5 outlet stores during 2008. Net merchandise sales included within total revenues were as follows: Fiscal 2008 Fiscal 2007 Net merchandise sales ($in millions) ($in millions) % Change Combined 971.3 989.4 (1.8) Retail & outlet 697.1 711.5 (2.0) Direct 274.2 277.9 (1.3) Gross Margins Gross margin percentage decreased 0.9% to 35.3% during 2008 from 36.2% in the prior year. Gross margin dollars decreased to $343.1 million for the period from $358.5 million in the prior year, as a result of lower merchandise margins and increased buying costs, partially offset by lower occupancy costs. SG&A SG&A declined by $48.3 million to $393.6 million, or 40.5% of net merchandise sales for the year from $441.9 million, or 44.7% a year ago. This exceeded the upper end of the Company's original target of $25-30 million in SG&A reduction, and is primarily due to substantial savings from better cost management and lower revenue-related expenses. Adjusted EBITDA and Operating Loss For 2008 adjusted EBITDA, excluding certain non-operational and non-recurring items, improved by $10.8 million to $52.7 million from $41.9 million in 2007. Operating loss increased to $142.9 million during 2008, from $28.4 million for the prior year, primarily driven by the $144.6 million non-cash impairment charges of trademarks and goodwill. FY2008 FY2007 ($in millions) ($in millions) $Change Operating Loss (142.9) (28.4) (114.5) Loss Before Income Tax Expense (161.5) (32.5) (129.0) EBITDA 47.5 42.0 5.5 EBITDA excluding non-recurring and non-operational items 52.7 41.9 10.8 Net Loss As a result of the $144.6 million non-cash impairment charges discussed above, net loss for 2008 increased by $63.8 million to $165.5 million, or $5.38 per share compared to a net loss of $101.7 million, or $3.33 per share, in 2007. Unaudited Balance Sheet Highlights Year Over Year Debt: Short- and long-term debt remained substantially flat year-over-year. Inventories: Decreased to $136.4 million at 2008 year-end from $158.2 million a year earlier, a decrease of $21.8 million or 13.8%. On a per store basis, retail stores' inventories decreased by 4.7% and outlet stores' inventories decreased by 15.3% due to improved inventory management. Capital Expenditures: Decreased to $21.0 million for 2008 ($16.8 million net of landlord contributions) from $56.6 million in 2007, a reduction of $35.6 million, or 63%, as a result of the completion of the new corporate headquarters in 2007 and fewer store openings in 2008. The Company opened 14 stores and closed 29 stores during 2008, as compared to 29 stores opened and 32 closed during 2007. The Company has closed six stores to date in 2009, and expects to close one store and open two to three new stores in the remainder of 2009. Amendment to Term Loan Given the downturn in the U.S. and global economies, and the tightening in 2009 of certain ratios in the Company's covenants under its $225 million Amended and Restated Term Loan Agreement, on which approximately $193 million is outstanding, the Company faced significant risk of being in violation of its consolidated secured leverage ratio as early as the first half of fiscal 2009. In order to avoid a potential going concern opinion from the Company's independent registered public accountants, the Company is seeking an amendment to the Term Loan Agreement to provide covenant relief and flexibility to manage through a recessionary economy. The Company submitted two previous proposals to its Amended Term Loan lenders, both of which were not approved, before reaching an agreement in principle on the current amendment terms. The amendment terms currently being discussed include substantial upfront cash and payment-in-kind fees, a substantial increase in interest rates, as well as the issuance of warrants for the Company's common stock. Details of certain terms of the proposed amendment are contained in the Notification of Late Filing on Form 12b-25 filed by the Company on March 18, 2009. "We expect 2009 to be a very challenging, difficult year. While the amendment we are seeking is expensive, it will give us a new level of covenants with considerably more room on the downside through the first quarter of 2010," said Mr. Fiske. Since the disclosures to the Company's Annual Report on Form 10-K will be materially impacted by an amendment to the Term Loan Agreement, the Company is unable to file its Form 10-K until the amendment process is completed. The Company is filing a Notification of Late Filing on Form 12b-25 today for a 15-day extension to the time allowed for filing its Annual Report on Form 10-K. The Company was in compliance with all of its loan covenants as of January 3, 2009. In conjunction with the amendment to the Term Loan Agreement, the Company also intends to engage in efforts to reduce its total indebtedness, including a possible restructuring, conversion or modification of its 5.25% Convertible Senior Notes Due 2014 or obtaining new capital to be used to pay down existing debt. CONFERENCE CALL The Company will announce the time of its conference call to discuss its financial results for fourth quarter and fiscal year 2008 at such time as its Annual Report on Form 10-K is filed. ABOUT EDDIE BAUER Established in 1920 in Seattle, Eddie Bauer is a specialty retailer that sells outerwear, apparel and accessories for the active outdoor lifestyle. The Eddie Bauer brand is a nationally recognized brand that stands for high quality, innovation, style and customer service. Eddie Bauer products are available at 370 stores throughout the United States and Canada, through catalog sales and online at http://www.eddiebauer.com/. Eddie Bauer participates in a joint venture in Japan and has licensing agreements across a variety of product categories. SAFE HARBOR STATEMENTS All financial information related to fiscal 2008 in this release is preliminary in nature based on unaudited, internal information as of March 18, 2009. This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as "may," "might," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "potential", qualifiers such as "preliminary", and similar expressions. Forward-looking statements are not guarantees of future events, and the Company can provide no assurance that such statements will be realized. The Company can provide no assurance that an amendment to its Term Loan Agreement will be reached on acceptable terms, on a timely basis or at all. The Company can provide no assurance that an amendment will not contain additional terms which significantly increase the Company's interest expense, significantly dilute common stockholders or limit its ability to fund its operations or pay outstanding indebtedness. The Company can provide no assurance that if an amendment is reached, events in the future will not require the Company to seek additional capital or further amendments to its financing arrangements or, if so required, that such capital will be available on terms acceptable to the Company. Forward-looking statements contained in this press release are based on estimates and assumptions, which assumptions and estimates may prove to be inaccurate, and involve risks and uncertainties. Actual results may differ from those contemplated by such forward-looking statements as a result of a variety of factors, including a continued downturn in the national and global economies; the ability to meet the covenants contained in the Company's various credit facilities or the extent and nature of any relief that is obtained therefrom; changes in consumer confidence and consumer spending patterns; the Company's inability to effectuate the proposed turnaround of Eddie Bauer as a premium quality brand and improve profitability of retail and outlet stores, catalogs and website operations; the inability to hire, retain and train key personnel; risks associated with legal and regulatory matters; risks associated with rising energy costs; the volatility of foreign exchange rates as they impact results of operations; risks associated with reliance on information technology; increased levels of merchandise returns not estimated by management; the inability to source requirements from current sourcing agents; disruption in back-end operations; the inability to protect trademarks and other proprietary intellectual property rights; unseasonable or severe weather conditions; the Company's inability to use its federal net operating loss carryforwards, whether as a result of lack of future income from tax purposes or otherwise; and the other risks identified in the Company's periodic reports filed pursuant to the Securities Exchange Act of 1934, as amended, including the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2007 and Quarterly Reports on Form 10-Q for the periods ended March 29, 2008, June 28, 2008 and September 27, 2008. The information contained in this release is as of March 18, 2009 and is unaudited, and except as required by law, the Company undertakes no obligation to update any of these forward-looking statements. --Tables Follow-- Contacts: Investors and Media Eddie Bauer Holdings, Inc. Marv Toland, Chief Financial Officer (425)755-6226 EDDIE BAUER HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS ($ in thousands) (Unaudited) As of As of January 3, December 29, 2009 2007 Cash and cash equivalents $60,425 $27,596 Restricted cash 180 30,862 Accounts receivable, less allowances for doubtful accounts of $241 and $983, respectively 25,181 30,122 Inventories 136,423 158,223 Prepaid expenses 27,667 27,297 Total Current Assets 249,876 274,100 Property and equipment, net 163,498 195,103 Goodwill 43,174 107,748 Trademarks 105,065 185,000 Other intangible assets, net 14,559 21,668 Other assets 20,748 27,813 Total Assets $596,920 $811,432 Trade accounts payable $50,041 $45,102 Bank overdraft 9,770 12,915 Accrued expenses 92,527 107,036 Deferred tax liabilities - current 6,408 6,356 Current liabilities to Spiegel Creditor Trust 180 30,870 Current portion of long-term debt 14,693 - Total Current Liabilities 173,619 202,279 Deferred rent obligations and unfavorable lease obligations, net 43,035 42,811 Deferred tax liabilities - noncurrent 34,707 30,490 Senior term loan 178,076 196,162 Convertible note and embedded derivative liability, net of discount of $17,284 and $19,629, respectively 59,418 66,113 Other long-term liabilities 12,617 7,802 Pension and other post-retirement benefit liabilities 22,638 9,503 Total Liabilities 524,110 555,160 Commitments and Contingencies Common stock: $0.01 par value, 100 million shares authorized; 30,824,275 and 30,672,631 shares issued and outstanding as of January 3, 2009 and December 29, 2007, respectively 308 307 Treasury stock, at cost (157) (157) Additional paid-in capital 593,621 588,302 Accumulated deficit (502,288) (336,818) Accumulated other comprehensive (loss) income, net of taxes of $0 and $2,848, respectively (18,674) 4,638 Total Stockholders' Equity 72,810 256,272 Total Liabilities and Stockholders' Equity $596,920 $811,432 EDDIE BAUER HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands, except per share data) (Unaudited) Three Months Three Months Ended Ended January 3, December 29, 2009 2007 Fiscal 2008 Fiscal 2007 Net sales and other revenues $369,898 $392,430 $1,023,437 $1,044,353 Costs of sales, including buying and occupancy 210,436 212,394 628,191 630,853 Impairment of indefinite-lived intangible assets 144,574 - 144,574 - Selling, general and administrative expenses 123,235 132,517 393,585 441,875 Total operating expenses 478,245 344,911 1,166,350 1,072,728 Operating income (loss) (108,347) 47,519 (142,913) (28,375) Interest expense (6,193) (6,987) (22,800) (26,698) Other income (expense), net 18,422 16,376 13,385 23,695 Equity in losses of foreign joint ventures (3,610) (20) (9,134) (1,147) Income (loss) before income tax expense (99,728) 56,888 (161,462) (32,525) Income tax expense 27,802 75,137 4,067 69,193 Net loss $(127,530) $(18,249) $(165,529) $(101,718) Net loss per basic and diluted share $(4.13) $(0.59) $(5.38) $(3.33) Weighted average shares used to compute basic and diluted net loss per share 30,854,355 30,677,625 30,749,922 30,524,191 EDDIE BAUER HOLDINGS, INC. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES ($ in thousands) (Unaudited) Three Months Three Months Ended Ended January 3, December 29, 2009 2007 Fiscal 2008 Fiscal 2007 Income (loss) before income tax expense $(99,728) $56,888 $(161,462) $(32,525) Impairment of indefinite-lived intangible assets 144,574 - 144,574 - Interest expense 6,193 6,987 22,800 26,698 Depreciation and amortization 10,253 10,566 41,618 47,782 EBITDA 61,292 74,441 47,530 41,955 Fees and other costs related to terminated merger agreement - - - 6,396 Severance charges (2008-RIF/2007-CEO) - - 2,500 8,418 Litigation settlement - - - 1,600 Loss on extinguishment of debt - - - 3,284 Gain on sale of net financing receivables/payables - (9,303) - (9,303) Impairment of store leasehold improvements 7,453 - 7,453 - Curtailment gain (3,918) - (3,918) - Impairment of foreign joint ventures 3,678 - 7,600 - Write-off related to foreign joint venture - - 606 - Change in fair value of convertible note embedded derivative liability (14,487) (5,229) (9,040) (10,483) EBITDA, excluding certain non-operational and non-recurring items $54,018 $59,909 $52,731 $41,867 DATASOURCE: Eddie Bauer Holdings, Inc. CONTACT: Investors and Media, Marv Toland, Chief Financial Officer of Eddie Bauer Holdings, Inc., +1-425-755-6226 Web Site: http://www.eddiebauer.com/

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