Perry Ellis Swings to Profit

| About: Perry Ellis (PERY)

Perry Ellis International Inc. (NASDAQ:PERY) swung to a fiscal 2010 fourth-quarter net income of $8.5 million from a net loss of $21.6 million in the prior-year quarter. Excluding special items, adjusted earnings per share came in at 67 cents, which topped the Zacks Consensus Estimate by 8 cents or 13.6%.

Perry Ellis is a designer, distributor and licensor of a broad line of high quality men's and women's apparel, accessories, and fragrances. The company's collection of dress and casual shirts, golf sportswear, sweaters, dress and casual pants and shorts, jeans wear and active wear is available through all major levels of retail distribution. The company owns a portfolio of brands, such as Perry Ellis, Jantzen, Laundry by Shelli Segal, C&C California, Cubavera and Munsingwear as well as licenses brands from third parties, such as Pierre Cardin and Callaway.

During the quarter, Perry Ellis posted a 2.7% growth in total revenue to $196.4 million from $191.2 million in the year-ago period. The increase was primarily attributable to improved performance of Perry Ellis brand at department stores and initial shipments of Callaway and Top-Flite brands. Sales were also positively impacted by better results at Perry Ellis and Original Penguin retail stores. However, the revenue growth was partially offset by the company’s planned exit from certain mass merchant programs and licenses.

Gross profit recorded a strong 25.4% year-over-year growth to $69.7 million, while gross margin rose by 640 basis points (bps) to 35.5%. The growth was mainly driven by lower markdowns, compared to last year coupled with strength in branded businesses. Selling, general and administrative expenses dipped by 8.7% year over year to $49.6 million mainly due to strict cost control initiatives undertaken by the management. Consequently, Perry Ellis swung to an operating income of $16.5 million, from an operating loss of $24.9 million in the year-ago period.

At the end of the quarter, Perry Ellis had cash and cash equivalents of $18.3 million, compared to $8.8 million in the prior-year quarter. Prudent inventory management by the company led to a 19.2% decrease in inventories to $112.3 million. During the fiscal, the company generated $88.8 million of cash from operating activities and a free cash flow of $85.1 million.

Moving forward, Perry Ellis anticipates earnings per share of $1.25 - $1.40 on revenues of $770 - $790 million for the fiscal year ending Jan 31, 2011. The guidance is line with the Zacks Consensus Estimate of $1.39 per share, which increased 4 cents over the past month as 2 out of 4 analysts covering the stock raised expectations.