FGXI Fgx International Holdings Lim (MM)

FGX International (NASDAQ: FGXI), a leading designer and marketer of non-prescription reading glasses and sunglasses, today announced financial results for its second fiscal quarter ended July 4, 2009.

Highlights for the quarter include:

• Net sales increased 12% to $75.1 million from $66.8 million in the second quarter of 2008.
• Net income from continuing operations increased 54% to $6.1 million, or $0.27 per diluted share, compared to $3.9 million, or $0.18 per diluted share, in the second quarter of 2008.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations increased 24% to $15.6 million compared to $12.6 million in the second quarter of 2008.

Net Sales by Segment:

 

 

 

 

 

 

 

 

($ amounts in thousands)

Three Months2009

 

Three Months2008

 

$ Inc / (Dec)

 

% Inc / (Dec)

Non-prescription Reading Glasses $ 33,215 $ 31,266 $ 1,949 6 % Sunglasses & Prescription Frames 35,213 25,675 9,538 37 International   6,643     9,809     (3,166 )   (32 ) Total $ 75,071   $ 66,750   $ 8,321     12 %  

CEO Alec Taylor commented, “We are pleased with the strong growth in revenue and earnings from continuing operations achieved in the second quarter, particularly in light of the weak economic environment. Our non-prescription reading glasses business showed particular strength, once again exhibiting the robust nature of this category and of our market-leading brands, Magnivision® and Foster Grant®. Revenues improved 37% in our sun segment, largely on the strength of our Dioptics business. Finally, we showed improvement in gross margins and control of operating expenses, which contributed to these excellent results.”

Segment highlights:

• Sales of non-prescription reading glasses increased 6% in the second quarter of 2009 compared to the year ago period. Revenues in 2009 were negatively impacted by the discontinuation of an opening price point program at Wal-Mart, which contributed approximately $2.3 million to net sales in the second quarter of 2008. Excluding the effect of this program, sales of non-prescription reading glasses increased 15% due to the benefit of an updated program at a major retailer and continuing organic growth at existing customers.
• Sales in the sunglasses and prescription frames segment increased 37% in the second quarter of 2009, including sales from the Dioptics product line, which was acquired in November 2008. The remainder of the sunglasses business declined due to a combination of adverse weather and the reduction in the current period of a promotional program commenced at a major retailer in 2008.
• Sales in the Company’s international segment were down 32% in the second quarter, while on a constant currency basis international sales declined 17% when compared to the corresponding year ago period. The decline on a constant currency basis was principally due to a non-anniversaried reading glass roll-out to major customers in the UK in the second quarter of 2008, partially offset by improved sunglasses sales in the UK.

Reconciliations of EBITDA and free cash flow, which are non-GAAP measures, are included in the Consolidated Statements of Operations and Other Selected Data, and related notes thereto, attached to this release. The Company believes that these non-GAAP measures are useful for an understanding of its ongoing business.

Additional Q2 Details:

• In the second quarter of 2009, gross profit as a percentage of net sales was 54.2%, compared to 53.1% in the second quarter of 2008. This improvement was principally due to the reduction of a low margin seasonal sunglass program at a major retailer and improved cost of goods sold in both optical segments.
• In the second quarter of 2009, operating income increased to $11.2 million, or 15% of net sales, from $7.6 million, or 11% of net sales, in the second quarter of 2008. The increase in operating income was driven by increased sales and improved gross margins, partially offset by increased operating costs from the addition of our Dioptics business and advertising campaigns that concluded in the current quarter.
• Capital expenditures were $1.8 million in the second quarter of 2009, compared to $2.7 million in the second quarter of 2008. The decrease relates to display fixtures placed at retailers in the second quarter of 2008 that were not anniversaried in the current period.
• Days sales outstanding improved to 50 days in the current quarter from 62 days in the second quarter of 2008. This improvement was due to a continuing focus on working capital management.
• Inventory days on hand were 94 days in the current quarter, compared to 95 days in the second quarter of fiscal 2008.

Disposal of Costume Jewelry Business

As previously disclosed, the Company completed the disposal of its costume jewelry business for approximately $1.3 million on July 23, 2009. As expected, the pre-tax loss relating to the divestiture of the jewelry business recorded in the second quarter was $5 million. Results for the costume jewelry business have been reported in the accompanying financial statements as discontinued operations for all periods presented.

New Account Update

The Company has been awarded expanded sunglasses and reading glasses programs at Kroger stores throughout North America. The programs are expected to begin shipping to over 700 stores during the fourth quarter of 2009 and contribute annual net revenues of $3 to $4 million.

Liquidity and Capital Resources

In the second quarter of 2009, the Company generated $14 million of free cash flow from continuing operations. At the end of the second quarter, the Company had $37 million of availability under its revolving credit facility, which matures in 2012. The Company plans to continue to use its free cash flow to make accretive acquisitions and reduce indebtedness, including $15 million of scheduled principal repayments in 2009.

Outlook

Management’s expectations for full year 2009 results from continuing operations, excluding the impact of the costume jewelry business, are unchanged from when the Company announced its 2009 outlook on February 25, 2009: net sales of $265 to $275 million, earnings per diluted share of $0.96 to $1.06 and EBITDA of $58 to $60 million.

For the third quarter of 2009, the Company currently expects the following results from continuing operations: net sales of $58 to $62 million, earnings per diluted share of $0.26 to $0.30 and EBITDA of $14 to $16 million.

Actual results may differ materially from these estimates as a result of various factors, and we refer you to the cautionary language under the heading “Forward-Looking Statements” when considering this information.

Conference Call Information

The Company will host a conference call on Thursday, August 6, 2009 at 8:30AM ET to discuss its financial results. To access the conference call information, please visit www.fgxi.com under the tab “Investors”. To participate by telephone please dial 1-888-747-4680. International callers please dial 1-913-981-5543. The access code is 2103439. Investors are advised to dial into the call at least ten minutes prior to the call.

A replay of the conference call will be available through Thursday, August 13, 2009. To access the replay by phone, the domestic dial-in number is 1-888-203-1112 and the international dial-in is 1-719-457-0820. The access code for the replay is 2103439. To access the replay via webcast, please visit www.fgxi.com under the tab "Investors".

About FGX International

FGX International Holdings Limited is a leading designer and marketer of non-prescription reading glasses and sunglasses with a portfolio of established, highly recognized eyewear brands including Foster Grant®, Magnivision®, Angel ™ , Gargoyles®, Anarchy®, SolarShield® and PolarEyes®. FGXI also holds licenses for brands such as Ironman, Levi Strauss, Body Glove and C9 by Champion. Based in Smithfield, Rhode Island, FGXI has approximately 375 full time employees. Additional offices are located in San Luis Obispo, CA; Toronto, Canada; Stoke-on-Trent, England; Mexico City, Mexico; and Shenzhen, China.

Forward-Looking Statements

Statements in this press release that are not statements of historical fact or that express our confidence, expectations, objectives, intentions, plans, or strategies or otherwise anticipate the future, including, without limitation, statements regarding our future prospects, revenues, costs, results of operations and profitability contained in the Outlook section of this press release, are forward-looking statements. These forward-looking statements are not guarantees of future performance, and they are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. These risks and uncertainties include, but are not limited to: adverse economic conditions and low levels of consumer confidence and the resulting adverse impact on consumer discretionary spending, which could reduce our sales; adverse changes in our customers’ inventory and working capital policies; the bankruptcy or other lack of commercial success of one or more of our significant customers; the actual charges incurred for product returns and markdowns related to the divestiture of the costume jewelry business may be greater than expected; we or others may discover that our products must be recalled because of defects; consumers, retailers, shareholders and/or others may bring litigation or other claims against us related to our products that may cause us to incur substantial costs to resolve; unexpected product returns and related claims pertaining to current or prior periods; the concentration of manufacturing of our products in China, which increases our vulnerability to disruption in that region; interruptions of supply from our Asian product manufacturers; political instability or changing conditions in manufacturing or transportation services in foreign countries; other risks associated with our international operations, including foreign currency exchange rate fluctuations and the impact of quotas, tariffs, or other restrictions on the importation or exportation of our products; a material reduction, cessation, or postponement of purchases by our customers; failure to comply with federal or state regulation of the distribution or sale of our products; the expense and uncertainty of the litigation process, including the risk of an unfavorable result in current or future litigation; adverse interest rate fluctuations; our credit insurance does not cover all of our outstanding accounts receivable; our advertising strategy may not have the anticipated impact; unknown potential effects of outbreaks of communicable diseases, including swine flu, on our business; and disruption due to weather, fire or other unforeseen circumstances in our principal distribution center.

These and other risks and uncertainties that could cause our actual results to differ from those contemplated by any forward-looking statement are discussed in more detail in Part I, Item 1A – Risk Factors in our Form 10-K for the year ended January 3, 2009, which we may update in Part II, Item 1A – Risk Factors in Quarterly Reports on Forms 10-Q that we have filed or will file thereafter. Forward-looking statements contained in this press release speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

FGX INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER SELECTED DATA (unaudited, in thousands, except per share data)     Three months ended July 4, 2009   June 28, 2008   Net sales: Non-prescription reading glasses $ 33,215 $ 31,266 Sunglasses and prescription frames 35,213 25,675 International   6,643     9,809 Total net sales 75,071 66,750 Cost of goods sold   34,395     31,273 Gross profit 40,676 35,477 Operating expenses: Selling expenses 21,242 20,195 General and administrative expenses 7,052 6,392 Amortization of acquired intangibles   1,178     1,296 Total operating expenses 29,472 27,883   Operating income 11,204 7,594 Other income (expense): Interest expense 1,278 1,450 Other income (expense), net   21     46 Income from continuing operations before income taxes 9,947 6,190 Income tax expense   3,780     2,179 Income from continuing operations 6,167 4,011 Discontinued operations, net of tax   (3,164 )   159 Net income 3,003 4,170 Less: Net income attributable to noncontrolling interest   82     80 Net income attributable to FGX International Holdings Limited $ 2,921   $ 4,090   Income from continuing operations attributable to FGX International Holdings Limited Income from continuing operations $ 6,167 $ 4,011 Less: Net income attributable to noncontrolling interest   82     80

Income from continuing operations attributable to FGX International Holdings Limited

$ 6,085   $ 3,931   Basic earnings per share:

Income from continuing operations attributable to FGX International Holdings Limited

$ 0.27 $ 0.18 Discontinued operations, net of tax $ (0.14 ) $ 0.01

Basic earnings per share attributable to FGX International Holdings Limited Shareholders

$ 0.13   $ 0.19   Diluted earnings per share:

Income from continuing operations attributable to FGX International Holdings Limited

$ 0.27 $ 0.18 Discontinued operations, net of tax   (0.14 )   0.01

Diluted earnings per share attributable to FGX International Holdings Limited Shareholders

$ 0.13   $ 0.19   Basic weighted average shares outstanding   22,123     21,218   Diluted weighted average shares outstanding   22,321     21,358 FGX INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER SELECTED DATA (unaudited, in thousands, except per share data)     Three months ended July 4, 2009   June 28, 2008   Capital expenditures from continuing operations $ 1,822 $ 2,650  

The table below reconciles EBITDA from continuing operations to income from continuing operations, the most directly comparable GAAP measure.

 

Income from continuing operations attributable to FGX International Holdings Limited

$ 6,085 $ 3,931 Income tax expense 3,780 2,179 Interest expense, net 1,278 1,450 Depreciation and amortization   4,478     4,989     EBITDA from continuing operations (1) $ 15,621   $ 12,549     EBITDA margin (EBITDA / net sales) 20.8 % 18.8 %   The table below reconciles Free Cash Flow to the EBITDA table above.   EBITDA from continuing operations $ 15,621 $ 12,549 Less: Capital Expenditures   (1,822 )   (2,650 )   Free Cash Flow (1) $ 13,799   $ 9,899    

See accompanying note to Consolidated Statements of Operations and Other Selected Data.

FGX INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER SELECTED DATA (unaudited, in thousands, except per share data)     Six months ended July 4, 2009   June 28, 2008   Net sales:

Non-prescription reading glasses

$ 59,389 $ 58,553 Sunglasses and prescription frames 61,446 43,794 International   13,126     19,687 Total net sales 133,961 122,034 Cost of goods sold   61,406     55,812 Gross profit 72,555 66,222 Operating expenses: Selling expenses 42,325 37,268 General and administrative expenses 14,044 12,827 Amortization of acquired intangibles   2,356     2,591 Total operating expenses 58,725 52,686   Operating income 13,830 13,536 Other income (expense): Interest expense 2,594 3,222 Other income (expense), net   88     54 Income from continuing operations before income taxes 11,324 10,368 Income tax expense   4,343     3,881 Income from continuing operations 6,981 6,487 Discontinued operations, net of tax   (4,566 )   57 Net income 2,415 6,544 Less: Net income attributable to noncontrolling interest   131     267 Net income attributable to FGX International Holdings Limited $ 2,284   $ 6,277   Income from continuing operations attributable to FGX International Holdings Limited Income from continuing operations $ 6,981 $ 6,487 Less: Net income attributable to noncontrolling interest   131     267

Income from continuing operations attributable to FGX International Holdings Limited

$ 6,850   $ 6,220   Basic earnings per share:

Income from continuing operations attributable to FGX International Holdings Limited

$ 0.31 $ 0.29 Discontinued operations, net of tax $ (0.21 )   0.01

Basic earnings per share attributable to FGX International Holdings Limited Shareholders

$ 0.10   $ 0.30   Diluted earnings per share:

Income from continuing operations attributable to FGX International Holdings Limited

$ 0.31 $ 0.29 Discontinued operations, net of tax $ (0.21 )   0.00

Diluted earnings per share attributable to FGX International Holdings Limited Shareholders

$ 0.10   $ 0.29   Basic weighted average shares outstanding   22,123     21,254   Diluted weighted average shares outstanding   22,305     21,404 FGX INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER SELECTED DATA (unaudited, in thousands, except per share data)     Six months ended July 4, 2009   June 28, 2008   Capital expenditures from continuing operations $ 4,014 $ 6,484   The table below reconciles EBITDA from continuing operations to net income from continuing operations, the most directly comparable GAAP measure.  

Income from continuing operations attributable to FGX International Holdings Limited

$ 6,850 $ 6,220

Income tax expense

4,343 3,881 Interest expense, net 2,594 3,222 Depreciation and amortization   9,462     10,073     EBITDA from continuing operations (1) $ 23,249   $ 23,396     EBITDA margin (EBITDA / net sales) 17.4 % 19.2 %   The table below reconciles Free Cash Flow to the EBITDA table above.   EBITDA from continuing operations $ 23,249 $ 23,396 Less: Capital Expenditures   (4,014 )   (6,484 )   Free Cash Flow from continuing operations (1) $ 19,235   $ 16,912    

See accompanying note to Consolidated Statements of Operations and Other Selected Data.

FGX INTERNATIONAL HOLDINGS LIMITED SELECTED CONSOLIDATED BALANCE SHEET DATA (Unaudited, in thousands)     As of   As of July 4, 2009 January 3, 2009     Cash $ 4,685 $ 2,097 Accounts receivable, net 46,611 50,746 Inventories 33,535 35,543 Accounts payable 28,559 30,324 Revolving line of credit 38,000 37,500 Current maturities of long-term obligations 16,419 15,199 Long-term obligations less current maturities 69,136 77,863 FGX International Holdings Limited shareholders’ equity 45,765 41,665 FGX INTERNATIONAL HOLDINGS LIMITED NOTE TO CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER SELECTED DATA (Unaudited)   1.   EBITDA from continuing operations represents income from continuing operations before interest, income taxes, depreciation and amortization. Free cash flow represents EBITDA less capital expenditures. We believe that EBITDA and free cash flow are performance measures that provide securities analysts, investors and other interested parties with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies in our industry. We further believe that EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an EBITDA measure when reporting their results.   We believe EBITDA facilitates company-to-company operating performance comparisons by adjusting for potential differences caused by variations in capital structures (affecting net interest expense), taxation (such as the impact of differences in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense), which may vary for different companies for reasons unrelated to operating performance.   EBITDA has limitations, including that it is not necessarily comparable to other similarly titled financial measures of other companies due to the potential inconsistencies in the method of calculation. It should not be considered either in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our results presented in accordance with U.S. GAAP and using EBITDA only supplementally.