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Swank, Inc. Reports Operating Results and Increased Net Sales for the Quarter Ended March 31, 2010

^{Published on 2010-05-11 10:55:14 - Market Wire}
 

NEW YORK, NY--(Marketwire - May 11, 2010) - John Tulin, Chairman of the Board and Chief Executive Officer of SWANK, INC. (PINKSHEETS: [ SNKI ]), today reported operating results and increased net sales for the Company's first quarter ended March 31, 2010.

First Quarter Results

Our net sales for the quarter ended March 31, 2010 increased 7.0% to $25,655,000 compared to $23,971,000 for the corresponding period last year. Our net loss for the quarter was $457,000 or $.08 per diluted share compared to a net loss of $279,000 or $.05 per diluted share last year. The results for the current quarter include a non-recurring pretax charge of $1,492,000 in connection with the termination of our relationship with Style 365, LLC ("Style 365"), a marketer of women's fashion belts and accessories (see below). Exclusive of that charge, the results for the quarter improved over last year as our loss before taxes decreased to $147,000 compared to a loss before taxes of $462,000 for the same period in 2009. The after-tax results for the current quarter also include an income tax benefit of $538,000 associated with the results of a recently completed state income tax audit.

As noted above, our net sales for the quarter ended March 31, 2010 increased 7.0% to $25,655,000 compared to $23,971,000 for the corresponding period last year. The increase was mainly due to higher net sales of our men's jewelry merchandise and belts offset in part by a decrease in small leather goods and increases in cooperative advertising and in-store markdown allowances. The increase in jewelry net sales is primarily due to higher gross shipments of certain branded merchandise while the increase in belts was mainly associated with higher shipping volumes to certain department store and labels for less customers. The increase in advertising and markdown allowances is associated with promotional activity in anticipation of certain new merchandise collections scheduled to be launched during the spring 2010 selling season.

Gross profit for the quarter was $6,773,000 reflecting a decrease of $720,000 or 9.6% compared to last year's $7,493,000. Gross profit expressed as a percentage of net sales decreased to 26.4% from 31.3% last year. Included in gross profit for the current quarter is the pretax charge of $1,492,000 associated with the termination of the Company's relationship with Style 365. This charge reflects management's current estimate of the costs associated with the termination but could change in future quarters depending on the proceeds realized, if any, upon the liquidation of certain inventory. We are licensed to manufacture, distribute and sell women's fashion accessories under certain of our license agreements, and continue to manufacture and sell women's fashion accessories directly to certain of our licensors. Exclusive of this charge, gross profit for the quarter increased $772,000 or 10.3% compared to last year. Gross profit as a percentage of net sales was 26.4% for the quarter but, exclusive of the Style 365 charge, improved to 32.2% compared to 31.3% last year. The increase in gross profit as a percentage of net sales (exclusive of the Style 365 charge) was due mainly to higher net sales, a favorable sales mix reflecting increased jewelry net sales and an improvement in jewelry and personal leather goods margins.

Selling and administrative expenses during the quarter increased $514,000 or 6.6% to $8,350,000 or 32.5% of net sales at March 31, 2010 from $7,836,000 or 32.7% of net sales at March 31, 2009.

Selling expenses during the current quarter increased $489,000 or 8.3% to $6,376,000 compared to $5,887,000 for the quarter ended March 31, 2009, and, expressed as a percentage of net sales, were 24.9% this year compared to 24.6% last year. The increase was due mainly to increases in a number of variable sales-related expenses including warehouse and distribution, sales compensation, and trade show costs as well as costs associated with the Company's former Style 365 women's accessories division. As previously described, the Company terminated its relationship with Style 365 during the quarter.

Administrative expenses increased $25,000 or 1.3% during the quarter ended March 31, 2010 to $1,974,000 compared to $1,949,000 last year. Administrative expenses as a percentage of net sales were 7.7% and 8.1% for the quarters ended March 31, 2010 and 2009, respectively. An increase in insurance and compensation costs during the quarter was largely offset by a decrease in bad debt expense.

Commenting on the results for the quarter, John Tulin, Chairman of the Board and Chief Executive Officer, said, "Our operating results, exclusive of the one-time charge of $1,492,000 associated with Style 365, improved during the quarter as our net sales increased 7.0% and our pretax loss narrowed to $147,000 before the Style 365 charge compared to $462,000 last year. Our margins also improved over last year, before the charge, reflecting a better sales mix featuring a relatively strong quarter for our men's jewelry and belts. While consumer sentiment is still guarded, our merchandise collections and attractive stable of brands continue to be very well-accepted by shoppers across a variety of retail channels."

Mr. Tulin continued, "We have been very busy this spring focusing on a number of exciting new business prospects as well as expansions of certain existing merchandise programs for this year and beyond. Our strong balance sheet will give us the flexibility to aggressively pursue these opportunities as retailers begin replenishing inventories following last year's downturn."

Forward-Looking Statements

Certain of the preceding paragraphs contain forward-looking statements, which are based upon current expectations and involve certain risks and uncertainties. Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, readers should note that these statements may be impacted by, and the Company's actual performance and results may vary as a result of, a number of factors including general economic and business conditions, continuing sales patterns, pricing, competition, consumer preferences, and other factors.

Swank designs and markets men's jewelry, belts and personal leather goods. The Company distributes its products to retail outlets throughout the United States and in numerous foreign countries. These products, which are known throughout the world, are distributed under the names "Kenneth Cole", "Tommy Hilfiger", "Nautica", "Geoffrey Beene", "Claiborne", "Guess?", "Tumi", "Chaps", "Donald Trump", "Pierre Cardin", "US Polo Association", and "Swank". Swank also distributes men's jewelry and leather items to retailers under private labels.

 SWANK, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE QUARTERS ENDED MARCH 31, 2010 AND 2009 (Dollars in thousands except share and per share data) 2010 2009 --------- --------- Net sales $ 25,655 $ 23,971 Cost of goods sold 17,390 16,478 Costs associated with termination of Style 365 agreement 1,492 - --------- --------- Total cost of goods sold 18,882 16,478 Gross profit 6,773 7,493 Selling and administrative expenses 8,350 7,836 --------- --------- (Loss) from operations (1,577) (343) Interest expense 62 119 --------- --------- (Loss) from operations before income taxes (1,639) (462) (Benefit) for income taxes (1,182) (183) --------- --------- Net (loss) $ (457) $ (279) ========= ========= Share and per share information: Basic and fully diluted net (loss) per weighted average common share outstanding $ (.08) $ (.05) Basic and fully diluted weighted average common share outstanding 5,669,735 5,659,517 SWANK, INC. CONDENSED BALANCE SHEETS (Dollars in thousands except share data) (Unaudited) March 31, 2010 December 31, 2009 ------------------- ------------------- ASSETS Current: Cash and cash equivalents $ 143 $ 571 Accounts receivable, less allowances of $4,372 and $6,137 respectively 18,324 16,324 Inventories, net: Work in process 848 872 Finished goods 21,164 22,872 --------- --------- 22,012 23,744 Deferred taxes, current 2,132 2,132 Prepaid and other current assets 2,830 1,293 -------- -------- Total current assets 45,441 44,064 Property, plant and equipment, net of accumulated depreciation 910 888 Deferred taxes, noncurrent 2,252 2,252 Other assets 3,457 3,479 -------- -------- Total assets $ 52,060 $ 50,683 ======== ======== LIABILITIES Current: Note payable to bank $ 7,890 $ - Current portion of long-term obligations 462 497 Accounts payable 5,100 9,456 Accrued employee compensation 717 2,016 Accrued royalties 811 1,132 Other current liabilities 1,314 1,566 -------- -------- Total current liabilities 16,294 14,667 Long-term obligations 6,546 6,432 -------- -------- Total liabilities 22,840 21,099 -------- -------- STOCKHOLDERS' EQUITY Preferred stock, par value $1.00: Authorized - 300,000 shares - - Common stock, par value $.10: Authorized - 43,000,000 shares: Issued -- 6,429,095 shares and 6,418,789 shares, respectively 643 642 Capital in excess of par value 2,414 2,322 Retained earnings 28,799 29,256 Accumulated other comprehensive (loss), net of tax (493) (493) Treasury stock, at cost, 752,489 shares (2,143) (2,143) -------- -------- Total stockholders' equity 29,220 29,584 -------- -------- Total liabilities and stockholders' equity $ 52,060 $ 50,683 ======== ========