Phoenix Footwear has reported a 14.9 percent drop in sales to $16.5 million in the fourth quarter ended Jan. 3. The quarter’s final net loss was $14.9 million, up from a loss of $11.89 million for the same period a year earlier. Net losses from continuing operations were $14.2 million, against losses of $12.8 million the year before.
The fourth-quarter net loss included $10.8 million in non-cash impairment charges. The same period for 2007 had $6.0 million in such charges.
For the full year, Phoenix suffered from the weak retail environment in the U.S. as some major customers worked to reduce inventories. Net sales were down by 9.4 percent to $75.1 million. This included drops in both footwear and accessories: Footwear fell by 8.7 percent to $37.7 million, while accessories were down by 9.9 percent to $37.4 million. Shoe revenues fell in all sales channels, including independent retailers, department stores and catalogs.
For the full year, the gross margin grew by 2 percentage points to 33 percent as a result of fewer closeout sales. It was also helped by a restructuring of sourcing operations that took place in the second half of 2007. Net inventories were 10 percent below the full-year figure from 2007 to $18.0 million.
Phoenix has been in continued default on its bank debt since last September, and this, combined with two straight years of losses, spurred the company’s independent registered public accountants to issue a going concern explanatory paragraph in their report.
Phoenix is working to right its ship. In February it ended its Tommy Bahama business, which had a loss of $2.4 million for the 2008 fiscal year. It plans to monetize the associated working capital and use the proceeds to cut its debt by $2.5 million. For the first quarter 2009, Phoenix will report a pre-tax charge of $680,000 to $830,000 for this action.
In addition, Phoenix eliminated 13 positions during the first quarter, and this should result in annualized savings of more than $2.0 million for this restructuring.
Finally, the company has agreed to sell its Chambers Belt Company division. A large percentage of the division’s revenues came from licensing fees for Wrangler products, but Wrangler announced that once they expired – Dec. 31, 2009 for the mass market, Dec. 31, 2010 for the Western market – it would take that business back in-house, taking with it the majority of Chambers operations. Tandy Brands Accessories is the buyer for Chambers, and will pay $500,000 plus acquired inventory costs in immediately available funds at closing, as well as a percentage of the revenues generated by this business in the year after closing.
Phoenix estimates that the transaction, once completed, will leave it with $14 million in cash, and that plus the money from Tommy Bahama will eliminate its debt by the end of the current fiscal year.