Summer Infant, Inc. ("Summer Infant" or the "Company")
(NASDAQ:SUMR), a global leader in premium infant and juvenile
products, today announced financial results for the fiscal second
quarter ended July 2, 2016.
“Although having joined Summer Infant just a few
short weeks ago, I am already amazed by the depth of talent and
great potential for growth within this organization,” said Mark
Messner, President and CEO. “Recent achievements reflect the hard
work done this past year to execute a strategy which we now intend
to take to the next level, leveraging the steps already taken to
invest in core product categories, reduce expenses, strengthen the
balance sheet and expand margins. So while I personally can’t take
credit for the greatly improved results this quarter – including
solid gross profit, lower G&A, reduced interest expense and our
first positive EPS in over a year – I am proud to be part of such
an incredible company in the juvenile space. I look forward to
working with our team and the board to focus on new product
development initiatives while strengthening our retail customer
relationships as well as our direct connection with the parents who
use and love our products. We will continue to transform Summer
Infant into a responsive, nimble, profitable innovator with brands
that inspire millennial parents and bring passion to our
investors.”
Second Quarter Results
Net sales for the three months ended July 2,
2016 were $50.6 million compared with $51.8 million for the three
months ended July 4, 2015. Excluding $1.1 million of sales related
to the Company’s inventory reduction plan in 2015, core branded
revenue was flat year-over-year.
Gross profit for the second quarter of 2016 was
$16.2 million compared with $13.8 million for the second quarter of
2015, and gross margin was 32.0% in 2016 versus 26.6% in the
prior-year period. The fiscal 2015 second quarter included $1.8
million in losses on the sale of $2.9 million of inventory below
cost related to Summer’s inventory reduction plan and $0.7 million
of inventory charges tied to exiting the furniture category.
Excluding the impact of these charges (which did not occur in the
fiscal 2016 second quarter), gross margin for the prior-year period
would have been 32.1%.
Selling expenses were $3.9 million in the second
quarter of 2016 compared with $4.3 million in the second quarter of
2015. General and administrative expenses (G&A) were $10.0
million in 2016 versus $12.0 million last year; the second quarter
of 2016 included $0.8 million of legal expenses, versus $1.4
million in the first quarter of 2016 and $1.7 million in the second
quarter of 2015. Excluding litigation costs, G&A in the second
quarter of fiscal 2016 would have been $9.2 million, down 10.5%
from the prior-year period (also excluding legal expenses). The
lower G&A reflects cost-reduction strategies and other
operational initiatives, and the Company remains on track to
achieve $4.0 million in annualized savings this year.
Interest expense decreased to $0.6 million in
the second quarter of 2016 from $1.3 million last year, reflecting
reduced debt levels and lower interest rates on the Company’s
credit facility. In addition, the second quarter of 2015 included a
$0.6 million write-off of unamortized financing fees and
termination fees associated with the Company’s April 2015
refinancing.
The Company reported net income of $0.3 million,
or $0.01 per share, in the second quarter of 2016 compared with a
net loss of $3.5 million, or $(0.19) per share, in the second
quarter of 2015. Adjusted EBITDA for the second quarter of 2016
rose to $3.4 million versus $2.2 million for the second quarter of
2015. Adjusted EBITDA in the second quarter of 2016 includes $1.0
million in bank permitted add-back charges compared with $4.4
million in the second quarter of 2015.
Adjusted EBITDA is a non-GAAP metric.
Adjusted EBITDA excludes various items that are detailed in the
financial tables and accompanying footnotes reconciling GAAP to
non-GAAP results contained in this release. An explanation of these
measures also is included under the heading below "Use of Non-GAAP
Financial Information."
Balance Sheet Highlights
As of July 2, 2016, Summer Infant had
approximately $1.1 million of cash and $51.7 million of debt
compared with $0.9 million of cash and $53.6 million of debt as of
January 2, 2016. Given the debt reduction and improved
Adjusted EBITDA levels, the Company’s bank leverage ratio was 4.5
times the trailing twelve months’ Adjusted EBITDA at quarter
end.
Inventory as of July 2, 2016 was $36.6 million
compared with $36.8 million as of January 2, 2016. Trade
receivables at the end of the second quarter were $38.3 million
compared with $40.5 million as of January 2, 2016. Accounts payable
and accrued expenses were $37.9 million as of July 2, 2016 compared
with $39.1 million at the beginning of the fiscal year.
Conference Call Information
Management will host a conference call to
discuss the financial results tomorrow, August 3, at 9:00 a.m. ET.
To listen to the live call, visit the Investor Relations section of
the Company's website at www.summerinfant.com or dial
866-652-5200 or 412-317-6060. An archive of the webcast will be
available on the Company's website.
About Summer Infant, Inc.Based
in Woonsocket, Rhode Island, the Company is a global leader of
premium infant and juvenile products for ages 0-3 years which are
sold principally to large North American and international
retailers. The Company currently sells proprietary products in a
number of different categories including nursery audio/video
monitors, safety gates, durable bath products, bed rails, nursery
products, strollers, booster and potty seats, swaddling blankets,
bouncers, travel accessories, highchairs, swings, and infant
feeding products. For more information about the Company, please
visit www.summerinfant.com.
Use of Non-GAAP Financial
Information This release and the referenced webcast
include presentations of non-GAAP financial measures, including
Adjusted EBITDA, constant currency, adjusted net income and
adjusted earnings per share. Adjusted EBITDA means earnings
before interest and taxes plus depreciation, amortization, non-cash
stock-based compensation expenses and other items added back as
detailed in the reconciliation table included in this
release. Constant currency sales are determined by applying a
fixed exchange rate, calculated as the 12-month average in 2015, to
the current local currency sales amounts, with the difference in
reported sales being attributable to currency. Adjusted net income
and adjusted earnings per share mean net income excluding certain
items, and the tax impact of these items, as detailed in the
reconciliation table included in this release. Such
information is supplemental to information presented in accordance
with GAAP and is not intended to represent a presentation in
accordance with GAAP. The Company believes that the presentation of
these non-GAAP financial measures provide useful information to
investors to better understand, on a period-to-period comparable
basis, financial amounts both including and excluding these
identified items, and they indicate more clearly the ability of the
Company's assets to generate cash sufficient to repay its
indebtedness, meet capital expenditure and working capital
requirements, comply with the financial covenants of its loan
agreements and otherwise meet its obligations as they become
due. These non-GAAP measures should not be considered in
isolation or as an alternative to such GAAP measures as net income,
cash flows provided by or used in operating, investing or financing
activities or other financial statement data presented in the
Company’s consolidated financial statements as an indicator of
financial performance or liquidity. The Company provides
reconciliations of these non-GAAP measures in its press releases of
historical performance. Because these measures are not
determined in accordance with GAAP and are susceptible to varying
calculations, these non-GAAP measures, as presented, may not be
comparable to other similarly titled measures of other
companies.
Forward-Looking
StatementsCertain statements in this release that are not
historical fact may be deemed “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, and the Company
intends that such forward-looking statements be subject to the safe
harbor created thereby. These statements are accompanied by
words such as “anticipate,” “expect,” “project,” “will,”
“believes,” “estimate” and similar expressions, and include
statements regarding the Company’s expectations regarding new
product introductions, top-line growth and improved operating
results.. The Company cautions that these statements are qualified
by important factors that could cause actual results to differ
materially from those reflected by such forward-looking
statements. Such factors include the concentration of the
Company’s business with retail customers; the ability of the
Company to compete in its industry; the Company’s ability to
continue to control costs and expenses, including legal expenses;
the Company’s dependence on key personnel; the Company’s reliance
on foreign suppliers; the Company’s ability to develop, market and
launch new products; the Company’s ability to grow sales with
existing and new customers and in new channels; the Company’s
ability to meet required financial covenants under its loan
agreements; and other risks as detailed in the Company’s Annual
Report on Form 10-K for the fiscal year ended January 2, 2016, and
subsequent filings with the Securities and Exchange
Commission. The Company assumes no obligation to update the
information contained in this release.
Tables to Follow
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Summer Infant, Inc. |
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Consolidated Statements of
Operations |
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(amounts in thousands of US dollars, except
share and per share data) |
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(unaudited) |
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Three Months Ended |
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Six Months Ended |
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July 2, 2016 |
|
July 4, 2015 |
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July 2, 2016 |
|
July 4, 2015 |
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Net
sales |
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$ |
50,575 |
|
|
$ |
51,807 |
|
|
|
$ |
100,245 |
|
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$ |
104,820 |
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|
Cost of
goods sold |
|
|
34,374 |
|
|
|
38,036 |
|
|
|
|
68,318 |
|
|
|
74,074 |
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|
Gross profit |
|
$ |
16,201 |
|
|
$ |
13,771 |
|
|
|
$ |
31,927 |
|
|
$ |
30,746 |
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|
General and
administrative expenses(1) |
|
|
9,981 |
|
|
|
11,972 |
|
|
|
|
20,734 |
|
|
|
22,282 |
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|
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Selling expense |
|
|
3,901 |
|
|
|
4,308 |
|
|
|
|
7,817 |
|
|
|
9,176 |
|
|
|
|
Depreciation and
amortization |
|
|
1,160 |
|
|
|
1,318 |
|
|
|
|
2,316 |
|
|
|
2,652 |
|
|
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Operating
income/(loss) |
|
$ |
1,159 |
|
|
$ |
(3,827 |
) |
|
|
$ |
1,060 |
|
|
$ |
(3,364 |
) |
|
|
|
Interest expense |
|
|
628 |
|
|
|
1,318 |
|
|
|
|
1,268 |
|
|
|
2,164 |
|
|
|
|
Income/(loss) before
taxes |
|
$ |
531 |
|
|
$ |
(5,145 |
) |
|
|
$ |
(208 |
) |
|
$ |
(5,528 |
) |
|
|
|
Income tax
expense/(benefit) |
|
|
275 |
|
|
|
(1,672 |
) |
|
|
|
(131 |
) |
|
|
(1,813 |
) |
|
|
|
Net
income/(loss) |
|
$ |
256 |
|
|
$ |
(3,473 |
) |
|
|
$ |
(77 |
) |
|
$ |
(3,715 |
) |
|
|
|
Income/(loss) per diluted share |
|
$ |
0.01 |
|
|
$ |
(0.19 |
) |
|
|
$ |
(0.00 |
) |
|
$ |
(0.20 |
) |
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|
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|
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Shares
used in fully diluted EPS |
|
|
18,421,955 |
|
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|
18,230,893 |
|
|
|
|
18,403,852 |
|
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|
18,204,545 |
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(1) Includes stock
based compensation expense |
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Reconciliation of GAAP to Non-GAAP Financial
Measures |
|
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Reconciliation of Adjusted
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
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Net
income/(loss) (GAAP) |
|
$ |
256 |
|
|
$ |
(3,473 |
) |
|
|
$ |
(77 |
) |
|
$ |
(3,715 |
) |
|
|
|
Plus:
interest expense |
|
|
628 |
|
|
|
1,318 |
|
|
|
|
1,268 |
|
|
|
2,164 |
|
|
|
|
Plus:
expense/(benefit) for income taxes |
|
|
275 |
|
|
|
(1,672 |
) |
|
|
|
(131 |
) |
|
|
(1,813 |
) |
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Plus:
depreciation and amortization |
|
|
1,160 |
|
|
|
1,318 |
|
|
|
|
2,316 |
|
|
|
2,652 |
|
|
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|
Plus: non-cash stock based
compensation expense |
|
|
91 |
|
|
|
246 |
|
|
|
|
218 |
|
|
|
419 |
|
|
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Plus: permitted add-backs
(a) |
|
|
977 |
|
|
|
4,416 |
|
|
|
|
2,866 |
|
|
|
5,015 |
|
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|
Adjusted
EBITDA (Non-GAAP) |
|
$ |
3,387 |
|
|
$ |
2,153 |
|
|
|
$ |
6,460 |
|
|
$ |
4,722 |
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Reconciliation of Adjusted EPS |
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Net
income/(loss) (GAAP) |
|
$ |
256 |
|
|
$ |
(3,473 |
) |
|
|
|
(77 |
) |
|
|
(3,715 |
) |
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Plus:
permitted add-backs(a) |
|
|
977 |
|
|
|
4,416 |
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|
|
|
2,866 |
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|
|
5,015 |
|
|
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Plus:
unamortized financing costs (b) |
|
|
- |
|
|
|
685 |
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|
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- |
|
|
|
685 |
|
|
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Tax
impact of items impacting comparability(c) |
|
|
(342 |
) |
|
|
(1,658 |
) |
|
|
|
(1,003 |
) |
|
|
(1,870 |
) |
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Adjusted Net
income/(loss) (Non-GAAP) |
|
$ |
891 |
|
|
$ |
(30 |
) |
|
|
$ |
1,786 |
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|
$ |
115 |
|
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Adjusted
Earnings per diluted share (Non-GAAP) |
|
$ |
0.05 |
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|
$ |
(0.00 |
) |
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$ |
0.10 |
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$ |
0.01 |
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(a) Permitted add-backs consist of items that the Company is
permitted to add-back to the calculation of consolidated EBITDA
under its credit agreements. Permitted add-backs for the
three months ended July 2, 2016 consisted of $838 in litigation
fees ($293 tax impact) and $139 in board fees ($49 tax
impact). Permitted add-backs for the three months ended July
4, 2015 consisted of $1,762 in litigation fees ($573 tax
impact), $1,775 in losses from the inventory liquidation plan ($577
tax impact), $734 in losses from exiting the furniture category
($239 tax impact), and $145 in board fees ($47 tax impact).
Permitted add-backs for the six months ended July 2, 2016 consisted
of $2,276 in litigation fees ($797 tax impact), $267 in board fees
($93 tax impact), $224 in restructure fees ($78 tax impact), and
$99 in severance related costs ($35 tax impact). Permitted
add-backs for the six months ended July 4, 2015 consisted of $2,196
in litigation fees ($720 tax impact), $1,775 in losses from the
inventory liquidation plan ($582 tax impact), $734 in losses from
exiting the furniture category ($241 tax impact), and $310 in board
fees ($102 tax impact). |
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(b) Write off of unamortized deferred
financing costs and termination fees associated with the Company's
old credit facility, reflecting a $223 tax impact for the three
months ending July 4, 2015 and $225 tax impact for the six months
ending July 4, 2015. |
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(c)
Represents the aggregate tax impact of the adjusted items set forth
above based on the applicable tax rate for the periods
presented relevant to their jurisdictions and the nature of
the adjustments. |
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Summer Infant, Inc. |
|
Consolidated Balance Sheet |
|
(amounts in thousands of US
dollars) |
|
|
|
|
|
|
|
|
|
|
July 2, 2016 |
|
|
January 2, 2016 |
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
$ |
1,147 |
|
$ |
923 |
|
Trade
receivables, net |
|
38,329 |
|
|
40,514 |
|
Inventory, net |
|
36,633 |
|
|
36,846 |
|
Property
and equipment, net |
|
11,311 |
|
|
12,007 |
|
Other intangible assets,
net |
|
18,159 |
|
|
18,512 |
|
Other assets |
|
4,612 |
|
|
4,336 |
|
Total
assets |
$ |
110,191 |
|
$ |
113,138 |
|
|
|
|
|
|
|
|
Accounts
payable |
$ |
28,898 |
|
$ |
29,541 |
|
Accrued
expenses |
|
8,975 |
|
|
9,584 |
|
Current
portion of long-term debt |
|
4,519 |
|
|
3,318 |
|
Long
term debt, less current portion (1) |
|
45,788 |
|
|
48,767 |
|
Other
long term liabilities |
|
2,768 |
|
|
2,962 |
|
Total
liabilities |
|
90,948 |
|
|
94,172 |
|
|
|
|
|
|
|
|
Total
stockholders’ equity |
|
19,243 |
|
|
18,966 |
|
Total
liabilities and stockholders’ equity |
$ |
110,191 |
|
$ |
113,138 |
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(1) Under new U.S. GAAP, long term debt is reported net of
unamortized financing fees. As a result, reported long term
debt is reduced by $1,415 and $1,489 of unamortized financing fees
in the periods ending July 2, 2016 and January 2, 2016,
respectively. |
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Company Contact:
Chris Witty
Investor Relations
646-438-9385
cwitty@darrowir.com
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