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 third
quarter ended October 1, 2016.
“Summer Infant’s third quarter played out
largely as expected, with strong underlying operating performance –
including earnings of $0.01 per share – even as revenue was flat
year-over-year,” said Mark Messner, President and CEO. “Our gross
margins remain on track, G&A expenses fell 25% versus 2015, and
sound working capital management left our inventory at the lowest
level in recent memory – down 26% from this time last year. Our
balance sheet is in the best shape we’ve seen in many quarters, and
the Company is well positioned for improved bottom line results
going forward. “At the same time, we are focusing on initiatives to
better utilize our intellectual property to drive further brand
recognition and channel development. As part of this effort,
certain core products, including RF monitors, are being overhauled
to increase consumer acceptance at a variety of price points, while
we also work to strengthen the Company’s bond with retailers
through tailored promotional strategies and less reliance on
third-party wholesalers. The steps we are taking today, we believe,
will set the stage for higher growth, margin expansion, and
increased brand loyalty in 2017 and beyond.”
Third Quarter Results
Net sales for the three months ended October 1,
2016 were $48.6 million compared with $50.2 million for the three
months ended October 3, 2015. Excluding $1.7 million of sales
related to the Company’s bank-approved inventory reduction plan and
furniture exit in 2015, revenue was relatively flat year-over-year.
The three months ended October 1, 2016 also included $0.5 million
of unfavorable foreign exchange on a constant currency basis,
primarily due to the decline in the value of the British pound.
Gross profit for the third quarter of 2016 was
$15.5 million compared with $15.6 million for the third quarter of
2015, and gross margin was 32.0% in 2016 versus 31.1% in the
prior-year period. The three months ended October 1, 2016 included
$0.1 million of unfavorable foreign exchange on a constant currency
basis, primarily due to the decline in the value of the British
pound, and $0.3 million in cost overages for certain product
introductions, without which gross margin would have been 32.5%.
The fiscal 2015 third quarter included $0.1 million in losses on
the sale of inventory below cost (related to the aforementioned
inventory reduction plan), $0.2 million of inventory charges tied
to exiting the furniture business, and $0.3 million in temporary
costs related to a West Coast distribution center; excluding such
items, gross margin for the three months ending October 3, 2015
would have been 33.0%.
Selling expenses were $3.7 million in the third
quarter of 2016 compared with $4.1 million in the third quarter of
2015. General and administrative expenses (G&A) were $9.7
million in 2016 versus $13.0 million last year – a decline of 25%;
the third quarter of 2016 included $0.1 million of legal expenses
versus $3.7 million in the third quarter of 2015. G&A as a
percent of sales fell to 20.0% in 2016 from 25.8% last year.
Interest expense was $0.6 million in the third quarter of 2016,
flat with 2015.
The Company reported net income of $0.2 million,
or $0.01 per share, in the third quarter of 2016 compared with a
net loss of $1.8 million, or $(0.10) per share, in the third
quarter of 2015. Adjusted EBITDA for the third quarter of 2016 was
$2.6 million versus $3.1 million for the third quarter of 2015.
Adjusted EBITDA in the third quarter of 2016 includes $0.3 million
in bank permitted add-back charges compared with $4.3 million in
the prior-year period (including the aforementioned $3.7 million of
litigation expenses).
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 October 1, 2016, Summer Infant had
approximately $1.0 million of cash and $49.7 million of debt
compared with $0.9 million of cash and $53.6 million of debt as of
January 2, 2016. The Company’s bank leverage ratio was 4.6
times the trailing twelve months’ Adjusted EBITDA at quarter end,
as compared with 5.5 at the beginning of the fiscal year.
Inventory as of October 1, 2016 was $32.3
million compared with $36.8 million as of January 2, 2016. Trade
receivables at the end of the third quarter were $37.3 million
compared with $40.5 million as of January 2, 2016. Accounts payable
and accrued expenses were $33.1 million as of October 1, 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, November 3, at 9:00 a.m.
Eastern. 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
InformationThis 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, improved bottom-line results, anticipated
higher growth, margin expansion, and increased brand recognition in
2017 and beyond. 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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Nine Months Ended |
|
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|
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|
October 1, 2016 |
|
October 3, 2015 |
|
October 1, 2016 |
|
October 3, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales |
|
$ |
48,552 |
|
|
$ |
50,205 |
|
|
$ |
148,797 |
|
|
$ |
155,025 |
|
|
|
|
Cost of
goods sold |
|
|
33,026 |
|
|
|
34,600 |
|
|
|
101,344 |
|
|
|
108,674 |
|
|
|
|
Gross profit |
|
$ |
15,526 |
|
|
$ |
15,605 |
|
|
$ |
47,453 |
|
|
$ |
46,351 |
|
|
|
|
General and
administrative expenses(1) |
|
|
9,735 |
|
|
|
12,953 |
|
|
|
30,469 |
|
|
|
35,235 |
|
|
|
|
Selling expense |
|
|
3,667 |
|
|
|
4,119 |
|
|
|
11,484 |
|
|
|
13,295 |
|
|
|
|
Depreciation and
amortization |
|
|
1,127 |
|
|
|
1,275 |
|
|
|
3,443 |
|
|
|
3,927 |
|
|
|
|
Operating
income/(loss) |
|
$ |
997 |
|
|
$ |
(2,742 |
) |
|
$ |
2,057 |
|
|
$ |
(6,106 |
) |
|
|
|
Interest expense |
|
|
633 |
|
|
|
589 |
|
|
|
1,901 |
|
|
|
2,753 |
|
|
|
|
Income/(loss) before
taxes |
|
$ |
364 |
|
|
$ |
(3,331 |
) |
|
$ |
156 |
|
|
$ |
(8,859 |
) |
|
|
|
Income tax
expense/(benefit) |
|
|
131 |
|
|
|
(1,500 |
) |
|
|
- |
|
|
|
(3,313 |
) |
|
|
|
Net
income/(loss) |
|
$ |
233 |
|
|
$ |
(1,831 |
) |
|
$ |
156 |
|
|
$ |
(5,546 |
) |
|
|
|
Income/(loss) per diluted share |
|
$ |
0.01 |
|
|
$ |
(0.10 |
) |
|
$ |
0.01 |
|
|
$ |
(0.30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in fully diluted EPS |
|
|
18,581,824 |
|
|
|
18,309,381 |
|
|
|
18,454,926 |
|
|
|
18,239,490 |
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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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|
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|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
|
|
October 1, 2016 |
|
October 3, 2015 |
|
October 1, 2016 |
|
October 3, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Reconciliation of Adjusted
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss) (GAAP) |
|
$ |
233 |
|
|
$ |
(1,831 |
) |
|
$ |
156 |
|
|
$ |
(5,546 |
) |
|
|
|
Plus:
interest expense |
|
|
633 |
|
|
|
589 |
|
|
|
1,901 |
|
|
|
2,753 |
|
|
|
|
Plus:
expense/(benefit) for income taxes |
|
|
131 |
|
|
|
(1,500 |
) |
|
|
- |
|
|
|
(3,313 |
) |
|
|
|
Plus:
depreciation and amortization |
|
|
1,127 |
|
|
|
1,275 |
|
|
|
3,443 |
|
|
|
3,927 |
|
|
|
|
Plus: non-cash stock based
compensation expense |
|
|
176 |
|
|
|
280 |
|
|
|
394 |
|
|
|
700 |
|
|
|
|
Plus: permitted add-backs
(a) |
|
|
327 |
|
|
|
4,324 |
|
|
|
3,193 |
|
|
|
9,339 |
|
|
|
|
Adjusted
EBITDA (Non-GAAP) |
|
$ |
2,627 |
|
|
$ |
3,137 |
|
|
$ |
9,087 |
|
|
$ |
7,860 |
|
|
|
|
|
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|
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|
|
|
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|
Reconciliation of Adjusted EPS |
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss) (GAAP) |
|
$ |
233 |
|
|
$ |
(1,831 |
) |
|
$ |
156 |
|
|
$ |
(5,546 |
) |
|
|
|
Plus:
permitted add-backs(a) |
|
|
327 |
|
|
|
4,324 |
|
|
|
3,193 |
|
|
|
9,339 |
|
|
|
|
Plus:
unamortized financing costs (b) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
428 |
|
|
|
|
Tax
impact of items impacting comparability(c) |
|
|
(118 |
) |
|
|
(1,946 |
) |
|
|
(1,149 |
) |
|
|
(3,493 |
) |
|
|
|
Adjusted Net
income/(loss) (Non-GAAP) |
|
$ |
442 |
|
|
$ |
547 |
|
|
$ |
2,200 |
|
|
$ |
728 |
|
|
|
|
Adjusted
Earnings per diluted share (Non-GAAP) |
|
$ |
0.02 |
|
|
$ |
0.03 |
|
|
$ |
0.12 |
|
|
$ |
0.04 |
|
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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 October 1, 2016 consisted of special projects,
primarily litigation fees $132 ($48 tax impact), board fees
$101 ($36 tax impact), and restructuring fees $94 ($34 tax impact).
Permitted add-backs for the three months ended October 3, 2015
consisted of special projects, primarily litigation fees $3,825
($1,721 tax impact), losses from exiting the furniture category
$215 ($97 tax impact), losses from the inventory liquidation plan
$103 ($46 tax impact), board fees $131 ($59 tax impact) and
severance costs $50 ($23 tax impact). Permitted add-backs for
the nine months ended October 1, 2016 consisted of special
projects, primarily litigation fees $2,408 ($867 tax impact), board
fees $368 ($132 tax impact), restructuring fees $318 ($114 tax
impact) and severance related costs $99 ($36 tax impact).
Permitted add-backs for the nine months ended October 3, 2015
consisted of special projects, primarily litigation fees $6,021
($2,252 tax impact), losses from the inventory liquidation plan
$1,878 ($702 tax impact), losses from exiting the furniture
category $949 ($355 tax impact), board fees $441 ($165 tax impact),
and severance related costs $50 ($19 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 $428 tax impact for the nine months ending October 3,
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) |
|
|
|
|
|
|
|
|
|
|
October 1, 2016 |
|
|
January 2, 2016 |
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
$ |
1,011 |
|
$ |
923 |
|
Trade
receivables, net |
|
37,295 |
|
|
40,514 |
|
Inventory, net |
|
32,285 |
|
|
36,846 |
|
Property
and equipment, net |
|
10,673 |
|
|
12,007 |
|
Other intangible assets,
net |
|
17,983 |
|
|
18,512 |
|
Other assets |
|
4,470 |
|
|
4,336 |
|
Total
assets |
$ |
103,717 |
|
$ |
113,138 |
|
|
|
|
|
|
|
|
Accounts
payable |
$ |
25,550 |
|
$ |
29,541 |
|
Accrued
expenses |
|
7,579 |
|
|
9,584 |
|
Current
portion of long-term debt |
|
4,500 |
|
|
3,318 |
|
Long
term debt, less current portion (1) |
|
43,921 |
|
|
48,767 |
|
Other
long term liabilities |
|
2,666 |
|
|
2,962 |
|
Total
liabilities |
|
84,216 |
|
|
94,172 |
|
|
|
|
|
|
|
|
Total
stockholders’ equity |
|
19,501 |
|
|
18,966 |
|
Total
liabilities and stockholders’ equity |
$ |
103,717 |
|
$ |
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 $1,320 and $1,489 of unamortized financing fees
in the periods ending October 1, 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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