Perry Ellis International, Inc. F2Q09 (Qtr End 07/31/08) Earnings Call Transcript

| About: Perry Ellis (PERY)

Perry Ellis International, Inc. (NASDAQ:PERY)

F2Q09 Earnings Call

August 22, 2008 11:00 am ET


Francisco Hoffmann - Investor Relations and Strategy

George Feldenkreis - Chairman and Chief Executive Office

Oscar Feldenkreis - Vice Chairman, President and Chief Operating Officer

Thomas D’Ambrosio - Interim Chief Financial Officer


Eric Beder - Brean Murray

Jody Kane - Sidoti & Company

Robin Murchison - Suntrust

Jeff Mintz - Wedbush


Welcome to Perry Ellis second quarter and fiscal 2009 earnings conference call. (Operator Instructions) At this time, for opening remarks and introductions, I would like to turn the conference over to Francisco Hoffmann, Investor Relations and Strategy.

Francisco Hoffman

Welcome to the Perry Ellis International second quarter 2009 conference call. You should have received a copy of the press release that went out this morning including the income statement and balance sheet. If you have not received a copy of this release it can be found on our website at

Before we begin, I would like to remind you that some of the comments made on the call, either as part of the prepared remarks or in response to your questions, may contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such information is subject to risks and uncertainties as described in the press release and in documents that we have filed with the SEC.

Joining us today for this call from Perry Ellis, are from Beijing, China our Chairman and CEO, George Feldenkreis; from Los Angeles, California, Oscar Feldenkreis, Vice Chairman, President and COO; and from Miami, Tom D’Ambrosio, Interim Chief Financial Officer.

I would now like to turn the call to Mr. George Feldenkreis, Chairman and CEO.

George Feldenkreis

Good morning ladies and gentlemen, we just finished the most challenging quarter in becoming a public company. During the first few of the quarter we were essentially on track with our expectation. The combination of issues resulted in losses that we could not have projected and particularly impacted the end of the quarter. Let me review the five key issues that impacted our performance.

Number one, we close our Winnsboro warehouse in March to increase logistics efficiencies by transferring more shipments to the West Coast and using a third-party logistics component. Although, we carefully planned this transition, this move unfortunately was not properly executed by our designated warehouse vendors.

We originally estimated distribution cost savings in excess of $2 million per year, but instead this became a major of disruption and we estimated it’s responsive more than $6 million in last revenues, which is a combination of the $3 million in loss sale because of the late deliveries and $3 million which were already shipped in August.

We estimate disruptions are responsible for at least $2 million in operating losses during Q2. Second, our accountants suggested that we take at this time a non-cash impairment charge of $0.08 per share due to the losses of common stock of other public companies we acquired in conjunction with merger negotiations.

Three, our retail business experienced decline in revenues and profit commenced with the rest of the industry. With the current slowdown on retail and after identify some under perform legacy door from the southern acquisition. We have decided to slowdown the opening of new doors and we focus our efforts on the underperforming stores and improving our retail management to increase profitability.

Four, in light of the challenges we faced with our European management team to grow beyond the U.K. and into the continent, we decided to the revamp the top of the organization. The expenses related to the repositioning of our European division resulted in a significant decrease in profitability in comparison to last year. We are being encouraged by the plans and initial results of our new team in the United Kingdom and we see a strong bounce back towards Q4 in this major area of growth for Perry Ellis International.

Five, as retail of some of our product slowdown in the last two quarters, we granted increased amounts compared to last year of margin support to our retail partners. Our continued emphasis on reducing our private brand pant business resulted in a revenue drop of over $9 million. While the disruption created by retailers such as Mervyn's, Boscov's and Goody's seeking Chapter 11 protection accounted for almost $6 million in revenues in Q2. It should be noted, for many months before a company goes bankrupt you have to get them approved by the Factor or other insurance company. So shipment are curtailed, belayed or cancelled by the party. At this point we have resumed shipment to this customer under the DIP financing lines.

As to the positive, our license income at $6.3 million is flat to last year. There was a drop of revenues due to the termination of our Gotcha license in Europe with Quicksilver which was offset by the growth in sales of our new licensees in multiple categories. Going forward we are confident that our license and income for the rest of the year will increase versus last year. Some of our new licensees products start to sell at retail including Perry Ellis dress shirts, suits, outerwear, home etc as well as international licensing.

We’re also glad to welcome [Ann Boquin] as our new President of Licensing, Ann brings the wealth of experience and knowledge in the licensing arena that will allow us to maximize the potential of our portfolio brands worldwide.

Our financial condition is great as of the end of this quarter our borrowings were only $22 million with inline of a $175 million. We continue to explore acquisitions in a market where the prices of many assets at the lowest, they have been in many year. We believe that as retailers continue to disappear and consolidate the same process will accelerate in the wholesale arena.

We believe that only components with strong infrastructure in design, sourcing, marketing and brands will be able to survive on prospect in an environmental of only a few large retailers and the tsunami of demographic changes occurring in the United States. While we are very disappointed with this last quarter when we were hit with several one-time occurrences, many of our lines did extremely well. Oscar will talk in detail about this business, but just to give you an example Golf, Hispanic and swim business continue to perform extremely well across all channel of distributions and are on track for a record year.

Despite multiple issues within a poor retailer and consumer environment our diversified strategy of selling to all channel of distribution, different brands has shown it’s relevance as a business model and even with flat sales compared to last year. The successful implementation of our branded strategy has allowed us to improve our gross margin by over 50 basis points.

We also have made a deliberate decision to continue funding our many growth opportunities. First; our women’s brand, after owning the brand for a few months we found it necessary to bring new talent on Board revamp several organizational areas of Laundry by Shelli Segal.

We believe our efforts will be rewarded as the reaction of our retail partner has assured us that we are on the right track. We feel strongly that both C&C California and Laundry by Shelli Segal are going to have explosive growth in the immediate future. As contemporary women’s continue to be the only segment of the women business that is actually growing.

We have also continued our marketing and advertising plans for Perry Ellis during the quarter in order to continue to strengthen the brand. Our boy’ business in Penguin Cubavera and Perry Ellis America are off it a great start.

As expected they required investments of a couple million dollars even before starting to ship products. We continue to invest in e-commerce, which we all know is extremely important for the future. International we continue to expand our opportunities and while visiting for the Olympics in China, I am meeting with different possible partners to distribute our brands in Asia.

We continue to improve our inventory management and increase terms while focusing on cost saving measure within the company. We are reviewing the business unit, which are not returning the profit that we expect and we are making the necessary adjustment and will continue to make the necessary adjustment to reverse that course. We believe that with the one-time issue behind us, we are optimistic about the rest of the year and the future of our business for years to come.

At this point however, we have to update our guidance from the original $1.95 to $2, to the $1.67 to $1.72 range to reflect the issues we have faced during this second quarter. At this point we are confident that we will be able to achieve this numbers and we are hope that we will be in a position to update this guidance as we move forward with Q3 and Q4.

It is a very difficult year. However, we have many businesses growing. We’re extremely optimistic about our prospect, although we realize that until November 1, we will be navigating with an uncertain economy. We believe in one way or the other the election of a new administration will send a clear signal to the domestic and worldwide investors about the immediate future. Obviously, until some of the banks expose all of their potential liability in the real estate market we are going to be living through a period of uncertainty.

However, having said that it’s amazing and reassuring that despite everything that has happened during this year with oil prices, commodities and the collapse of the real estate market banks and other financial institutions. The American economy have been amazingly resilient and in many ways shirked off a lot of the problem. We are committed to continue to work hard for our stockholders with our associates to get back to a highly profitable past.

I thank you for you patients and I thank you for your support.

Oscar Feldenkreis

This was unquestionably challenging quarter. We are not satisfied with our results as George mentioned, we faced issues in some of our growth areas such as Europe and Perry Ellis retail, plus shipping issue related to our move into a third-party logistics company. However, when assessing our results it is important to look into the quality of our revenues, our ability to find new opportunity, that also revenues from both private label and underperforming business and the success of our branded strategy.

At $193.7 million our revenues were flat to our second quarter last year, which by itself in a difficult retail environment can be considered an accomplishment; however, to have an apples-to-apples comparison we need to consider the factors that George previously mentioned. We added a $9 million reduction in bottoms private label business, back the $6 million of loss businesses by retailers that had cleared bankruptcy and a $3 million in delayed shipments and attribute it to our third-party logistics partners. Our revenues would have been over $210 million representing a 7.5% growth for the quarter.

Within our bottoms division, the increased focus by retailers to control inventory and react to the challenge in retail environment has further impacted our replenishment business particularly in the casual bottoms area. Our strong controls have allowed us to further reduce our inventory by approximately 5% compared to last year.

There are two bright spots worth pointing out. First, our dress pants are doing extremely well and we continue to find additional opportunities by offering better product such as wool-blends and other performance dress fabrics. The bright spot is our Denim business; as the category grew over 60% versus last year and we believe that the current trend is for Denim and direct to become the dominant look for men’s wardrobe.

We are also adding a modern fit for our bottoms, which is another trend seen not only in pants but in multiple product categories. We expect our bottoms business to stabilize as we go into the fall in holiday season, as we launch various new programs and opportunities that we are offering on the branded side.

Turning to our performance and growing platforms; our Swim businesses continue to exceed plan and had the strongest second quarter in its history. We are positioned for another outstanding swim year as we are taking market share and floor space from others. We finished the Swim Show at the end of July in Miami, which marks the opening of the swim season with outstanding reviews across all brands, Nike, Jantzen, JAG and Perry Ellis.

In particular, our effort over the last 12 months to revitalize the Jantzen brand is paying off. As we start the New Year, Jantzen will be available in over 1,400 department stores compared to 1001 last one year. Also within Jantzen, we have also focused our efforts and expanding the beach lifestyle that the Jantzen brand portraits.

Products expansion will include cover-ups, which should represent between 20% to 25% of the brand and sales and we’ve can also pursue licensing opportunities in other beach lifestyle categories such as accessories beach towel, sunglasses and other related products that are relevant to the Jantzen brand.

Finally, we will be offering a new contemporary swim line starting in March or April of 2009 under the Laundry by Shelli Segal, C&C of California and the Original Penguin brands.

Turning to our women's contemporary business, we continue to make all necessary investments to achieve the potential of both brands this year and into the future. Since we’ve found them in the worst shape than expected, we needed to rebuild several support functions to be able to fulfill the requirements of our retail partners. Besides, the relocation of the design senses from Laundry to Los Angeles the reception of the new lines of market in New York and Intermezzo show has been extremely strong.

Many of the customers that Laundry have lost over the last 24 months have comeback to us to thank the new direction of the brand. For C&C of California; we have expanded our design team to include a men's collection, which will be available during our spring ’09 as a lifestyle. We see the future of C&C of California beyond the current women’s business as a lifestyle brand encompassing men’s, ladies, kids, swim as well as multiple licensing opportunities.

Our Golf business with PING, Champion Tour, PGA TOUR, Grand Slam and other retail specific brands keep growing. During Q2, we grew revenues over 20%. This is a testament to our belief that the product and newness are king. We are offering performance knit products to updated men's wardrobe and we expect this trend to continue also into next year.

Our Hispanic brand’s Cubavera, Havanera and Centro keep delivering strong results, with double-digit sales over last year. This quarter Centro particularly delivered strong growth as the most important collection in the men's department at Kohl’s. We expect to grow this business up to 400 doors next quarter and expect it to be one of our major growth initiatives.

Another niche that keeps growing above expectations is action sports with our Gotcha, Redsand and MCD. Gotcha currently for spring ’08 was at about a 150 stores in Kohl. Going into the fall season; we will be expanding this into 250 stores.

While, Perry Ellis collection, sales increased by nearly 17% during the second quarter and advances the continuous market share gains in retailer such as Dillard's, Belk’s and Macy's. These market share gains are a direct consequences of our targeted assortment, for which we partnered with retailers to customize product for different regions and demographics.

We are confident that our new Oracle planning software implemented over the last two years will keep improving this targeting process and contribute to initiatives such as My Macy's, which aims to tailor assortments by regions. Finally, another positive consequences of Perry Ellis strength as a brand is the performance of our licensing partners such as in outerwear, home fashions, dress shirts, fragrance and others.

Original Penguin sales were below last year because of the economic slowdown. A large number of our small specialty store customers are delaying shipments to suppliers and it is becoming increasingly difficult to approve new shipments to them. We have refocused our efforts to identify customers because the economy is strong and to serve them proactively. We’re also working to increase our penetration at better department stores such as Saks, Neiman Marcus, Lord and Taylor.

In order to improve our Original Penguin ladies business, we have decided to move the design for spring ’09 to our contemporary infrastructure that houses C&C of California, Laundry by Shelli Segal in Los Angeles. This will be a great opportunity for the brand to a chance to evolve the Original Penguin concept.

As to Original Penguin retail, we currently operate six doors with a very successful opening in July of our Chicago store and Michigan Avenue. This new store is beating plan and is trending to become a number two store this year. We’re also pleased to announce that the opening in Q4 of our first European store in Covent Garden’s in London, the equivalent of Soho in New York. We are an excellent location that will allow us to showcase the entire lifestyle brand in Europe.

In summary, as management and shareholders we have the responsibility to manage the Perry Ellis International for the long-term. We were affected this quarter by multiple external and internal factors that have tested both our ability to deliver strong result in a difficult macroeconomic environment and to keep focus of the long-term prospects of the company.

We believe we have taken the decisive actions to correct weaknesses and we have made thoughtful decisions to achieve the potential of our brands. Most importantly, we have been flexible and proactive in correcting the underperforming areas. We are very optimistic about our growth business such as Perry Ellis, golf, Hispanic, swim, women's contemporary and licensing, all of which will remain on track for a record year and will provide the next growth platform for the remaining of this fiscal year and beyond.

Now, I would like to turn the call over to Tom D'Ambrosio, who will discuss our financials.

Tom D'Ambrosio

Our second quarter fiscal 2009 revenues were relatively flat to last year with $193.7 million versus fiscal year ’08, $195.3 a slight decrease of 0.8%. A slight decrease in total revenue due to reductions in our bottoms replenishment business of approximately $9 million, the loss of approximately $6 million of multiple retailers to clear on bankruptcy and shipping issues for the third-party logistics provider, which effected deliveries for our Perry Ellis brand of approximately $3 million, these were subsequently shipped in the third quarter.

Year-to-date fiscal 2009 revenues grew to 437.2 from 424.1, a 3.1% increase of the same six month period last year. Second quarter fiscal year 2009 gross profit margins were 32.1%; that represents an increase of 52 basis points over the second quarter of fiscal 2008, 31.6%. Second quarter gross margins were positively impacted by the reduction of our bottoms private label replenishment programs, the focus on our branded businesses and the addition of our new women’s contemporary lines.

On a year-to-date day basis our gross profit margins for the fiscal 2009 were 33.6, an increase of 68 basis points over the first half of fiscal year 2008, 32.9%. During the second quarter the company has determined that certain marketable securities which were classified as available for sale were deemed to be other than temporarily impaired. The company has recognized a $2 million impairment pre-tax or negative $0.08 per share on EPS on these marketable securities.

As mentioned earlier, we have made substantial management changes in the U.K. and are in the process of repositioning our European business. The net effects to these changes on operating income were approximately $2 million or about $0.11 per share in the second quarter of fiscal year 2009.

Overall total SG&A expenses for the second quarter were approximately $60.3 million compared to the second quarter of fiscal year 2008, $53.4 million which is higher on an absolute dollar and rate basis from fiscal 2008. This was primarily driven by our continued investment in our boys division, our expansion of retail doors, further investment in e-commerce and the expenses related to our women’s contemporary business along with the European businesses repositioning as previously discussed.

As a consequence of these SG&A increases our second quarter fiscal 2009 EBITDA before the non-cash impairment of marketable securities declined by $6.4 million to $1.9 million. We continue to apply a disciplined approach to cash and inventory management coupled with lower interest rates. Our interest costs were $4.3 million during the second quarter of fiscal year ’09. That represents a $300,000 reduction compared to the second quarter of last year.

Year-to-date our interest costs were $8.8 million, a $1 million reduction on the first half of last year. Our loss per fully diluted shares was $0.36 that includes the negative $0.08 effect due to the impairment; this is the 38% increase compared to the second quarter of last year. Year-to-date our EPS for fiscal year ’09 is $0.24 compared to the first half of ’08, $0.61.

We ended the second quarter of fiscal year 2009 in excellent shape from a liquidity perspective with $22.3 million of borrowing on our $175 million facility and $14.2 million of cash on our balance sheet. Overall debt at the end of the quarter was $197 million this year versus $176.1 million as of January 31 last year. Although, our overall debt increased by $20.9 million it includes the $33.1 million for our acquisition made in the first quarter.

Our tight controls in inventory planning resulted in inventories at January 31, 2008 of $133.1 million, that’s a 2.5% decrease compared to the $136.5 million at January 31 last year. Accounts receivable were $115 million as of January 31, that’s a $15 million increase over the last year level of $100 million. Receivable levels continue to be well managed and our DSO as of January 31 is approximately 64 days, a slight increase of less than one day from last years level at the end of the second quarter.

We’ve been closely monitoring the financial position of our customers and I’ve taken actions such as ensuring higher risk accounts that has minimized bad debt, despite the reason retailers’ filings for bankruptcy.

During the first half of fiscal year 2009 we incurred approximately $5 million of capital expenditures in technology and systems, retail stores and other expenditures and anticipate our total expenditure for the year to be about $14 million.

Our depreciation expense for the second quarter 2009 was $3.7 million versus $3.2 million for fiscal year 2008. The increase in depreciation over the last year was primarily driven by our Retek inventory systems coming online and our continued expansion in retail.

With respect to our view on the fiscal 2009 performance, as indicated in our release, we are confirming our revenue guidance at $910 million to $925 million; however, based on the onetime events and increases in ongoing expense we have updated our earnings per share guidance in the 167 to 172 range, which includes the $0.08 impairment charge.

In summary, despite the challenges we have faced in the second quarter of fiscal 2009 we believe in our strategy of focus on our branded business and feel that the investments we are making now will have us further positioned for growth in the future.

With that we will open up the call to questions.

Question and Answer Session


(Operator Instruction) Your first question comes from Eric Beder - Brean Murray.

Eric Beder - Brean Murray

I’d like a little more granularity on some of these charges. You talked a little bit about, what the changes in Europe are going to do and the second thing I think is kind of the Laundry and C&C acquisitions. The additional $4 million, is that just a further ramp up of what you expected or is that more expenses than you expected and when can we kind of expect that to kind of even off.

George Feldenkreis

Well, I can answer the one on Europe, Oscar will answer the other one. What has happened in the U.K is that the previous management and the top three people in the company are gone. They did not proactively try to grow the Farah brand and the business in the U.K on one side; on the other side we have had this agreement that we have to develop the Penguin brand in Europe.

Frankly we felt that they weren’t being aggressive and often they were too optimistic in the results, which is what happened and we felt it was time to change and we changed mange and we brought in David Water, a new management team and we feel they are much more in sync with what needs to happen and there is one top exactly from Miami that has been assigned to work with London and she was in London this last two weeks and will continue to go there on a regular basis.

We feel very good about this situation going forward. We made last year $3 million in the U.K. business and this year during the first half was maybe 250,000, so it’s still making money, obviously not were we need them and on the other side it’s a tremendous growth opportunity both for Farah, for Penguin and for bringing all our other brands. The other issue was the Gotcha license that Quicksilver was paying us $1 million and they terminated it as it expired last October.

We hired a group of their Ex-executives and tried to do it ourselves. In the meantime we found the license either we think is going to be better at this point than what we can do directly and they were closely involved in all that launching of or semi-launch of Quicksilver in Europe. So, that’s the situation that’s all behind us and we have a no licensee on Gotcha, which is going to start shipping late this year and I think that we are very confident at this point that we have found the right partner and Gotcha is going to be growing in the future. I think the UK issues are behind us and going forward they’re going to contribute to the component.

Oscar, can talk about the Laundry.

Oscar Feldenkreis

The C&C Laundry on the expense side is we feel that the expenses that we have incurred for the first half of this year are pretty much going forward under control. I do not see a big spike in expenses anymore going forward.

The big spike in the first half of this year in expenses is because when we acquired the brand based on the design side and more on the Laundry side that was designed out of New York; I went ahead and we cancelled the entire fall and holiday development and started from scratch within a six week period. So, we had to rush around a lot and hire a whole new organization and team.

The people that we have put in place are very, very good and I feel very, very comfortable that we should not see additional incremental expenses like we saw in the first half. Going forward we’ve hired a new person to develop sales that comes from a very well known person in the industry. So, I feel very, very comfortable with the expenses going into the second half that they should not be as dramatic as they were in the first half.

Eric Beder - Brean Murray

I know the boys ramp just started up. How is that going and how excited are you about that?

Oscar Feldenkreis

The original Penguin boys’ ramp up has been very, very strong. As matter of fact we’ve sold out already our first delivery for back-to-school and we are now bringing in deliveries earlier to see if we can get back into stock. The product has done very, very good. I was at the kids show most recently in New York and that business is very vibrant and growing.

I think at one-time we could probably be as big as our men’s business going forward because the contemporary kids business is a very, very fast growing business, not only in the kids’ side but also in the infant side which we are doing now; we are developing a girls line as well. So we are very, very excited about it.

The team that we have put in place has done an excellent job and the prospect with that business continues to do very strong. As a matter of fact in our own retail store its performing extremely well and we’ve actually added additional space within our own stores, dedicated to the Penguin business.

So, currently today we’re in Bloomingdale's, we are in Barney’s and we are all in better, better departments stores with the kids line and in terms of Perry Ellis, America we are showing that product now going into the holiday season. So we’re just as excited, we feel there is a void in the market for that type of product and Cubavera on the Hispanic side is very, very strong because Hispanic’s when they do shop, they shop as families, so we feel that Cubavera concept and we can take down this same concept in Havanera and CENTRO at Kohl. We feel that’s an added opportunity for us going forward.


Your next question comes from Jody Kane - Sidoti & Company

Jody Kane - Sidoti & Company

Can you talk a little bit about how the retailers are responding to competitive bankruptcies just in terms of the amount of inventory they’re willing to take on and their views for the sort of holiday season?

George Feldenkreis

The inventory side and the retailer side, those that are doing well or taking their shipments in as one would be on the fashion side and whatever they had projected to take in. On the accounts that we have had issue or experienced with either bankruptcy or credit issues, we’re working with them. Currently today those that are in bankruptcy we’ve actually started shipping them again, based on their DIP numbers, but being very, very cautious on how much we ship them.

Those that have credit issues we’re working with their CFO and buying staff to ship them. We’re very, very cautious; I mean this is not something that happens overnight. We see this over the timeframe and we have a very strong planning organization where we do strong plans by door and as well as there are retail plants to ensure that we’re not over inventoried on their side and our side as well. So, we are managing our inventories and their inventories very, very cautiously.

Jody Kane - Sidoti & Company

And then just in terms of the growth in Europe within your management changes, do you see that improving and expanding throughout Europe or is it still a matter of getting it back on track and kind of that you are in.

George Feldenkreis

No, no. We actually should have a big improvement in the U.K business because they have been selling Farah mostly through a customer that’s over 50 years old, maybe 60 actually, but actually it’s great; everybody in the U.K knows the brand. So, I think the brand has a lot of potentially if we can get to a younger consumer.

On the other side they came up with a line called Farah vintage, which if you go to London you will see in Selfridges and actually in the better stores there. So, I think there is a potential younger customer that has been buying vintage and the other customer with Farah with more products -- I think its going to be great. We have different ideas about how to approach Penguin in the continent and now that there are not circles on that, I think we’re going to implement our ideas.

We continue to be very bullish on the opportunities that we have with our brands in Europe, although it’s obvious that have been a slowdown in the economies of the U.K. and going into the continent.

Jody Kane - Sidoti & Company

And just finally on the buyback, can you just remind us how big the buyback is and whether you bought back any shares during the quarter.

George Feldenkreis

No, we did not buy Perry shares during the quarter.


Your next question comes from Robin Murchison - Suntrust.

Robin Murchison - Suntrust

I just wanted to see if there was any additional color you could provide just in terms of the customer base and how they are feeling with the second half of the year. I mean it seems to me that clearly a lot of these retailers came into the year, somewhat defensive and not really knowing, what to think about the second half and it would appear that they are been more defensive; are you seeing any sort of change in terms -- if you could talk to what changes you might have seen with the customer base from the first quarter to the second quarter with respect to the second half.

George Feldenkreis

I see that everybody is very, very cautious. I believe and I’m feeling that anything that’s newness in fashion is definitely selling extremely well. Golf continues to do very, very well. Wherever we have vest as an example as a key item in Perry it’s doing extremely well.

I think that on a macro level, yes there is an issue there and everybody is planning their businesses either flat or down, but I think that there are other areas in the business that are still doing extremely well. Men’s continues to and especially in the collections world continue to outpace the majority of every retailer store. So, we feel very, very strong about the men’s business and we’re seeing that and as I mentioned before we are definitely experiencing positive sell throughs like in our Hispanic business.

We had a great Father’s Day at first half of the year. Our result currently today on our new swim deliveries, this is the first time we’ve every delivered new swim product in the month of June, July and August under Jantzen and that business continues to grow and as we know MPD most recently announced that men’s as a category of business grew over 2% while women’s who on the Macy’s side did not grow it; it actually decline by 3% with the exception of contemporary where it grew over 6%.

So I think that we have a lot of ammunitions and our general business today with our customers is strong. In the bottoms businesses, the casual bottoms business is very, very, very tough. There is nothing really new out there in terms of performance, exciting etc and what’s really driving the business today is really denim and as well as new Fit Models on the dress side, which eventually are going to flow into the casual side, which hopefully we’ll start seeing some of that momentum taking hold on the fourth quarter.

Robin Murchison - Suntrust

Oscar if I can also ask you, just talking about the U.K. and maybe Europe in general international markets, I understand you have or have had some issues with the former management team over there, but how much of it or is there anything related just of the general U.K. economy. Obviously we hear things about U.K., about Germany, about Spain and also if you could comment on if we should be thinking about the currency impact?

George Feldenkreis

Let’s start by saying that our U.K. business is about 5% of our business. So the current impact would be very small probably weaker than it was a few months ago, but it was an issue more on our side than the economy because when the economy was flourishing they weren’t growing either. So we feel that with a stronger management, more hardworking management we are going to be able to get better results. I don’t think it has to do with the macro, which I agree with you, it’s slowing down according to all the reports and there is nothing anybody can do about it at this point.

Robin Murchison - Suntrust

And any currency impacts you want to discuss or…?

George Feldenkreis

No, I don’t think that they buying dollars really -- so in that sense it has been better for them during the last two years, paying in dollars and selling in pounds and I think the pound is 190, 185, so it’s a 5% impact on the pound. I mean it’s not really that material at this point to us. We have not quantified the possibility of what would be the reduction profit frankly, but we don’t think it’s a big deal at this point. It might be a few hundred thousand dollars, yes.

Robin Murchison - Suntrust

C&C and Laundry and this is just a last question. I think previously, for the year we were looking at about $50 million in revenue, is that still the number or it’s down a little bit?

Oscar Feldenkreis

The revenue that we expect for this year on total between both of them should be about $42 million and there is a lot of upside on the fourth quarter which we’re banking on, so that could definitely improve also depending on how the show start. In that business you do a lot of your business very, very quickly and the first real major, major shows starts next week on Project Las Vegas and that’s a projected inventory business.

So very little upfront business and it’s very, very quick turn business. So we are very excited, so a lot of it is domestically made. So we feel that we have the opportunities. Also we’ll be launching our men’s line, which is not even factored into the number that I just gave you. It’s really just looking at it on a high level from where we thought we were going to be getting the business and also remember we cancelled the lot of the sportswear from Shelli Segal and also some of the dresses that were originally booked because I felt that the product later in the end was going to be bad for us.

So, there is a lot of upside on the fourth quarter based on the shows that we just recently attended in New York, plus some of the market appointments that I had. So, as we’ve said we’ll have a better vision right after September, which is really after August and now in the beginning of September where you have the majority of the shows.


Your last question comes from Jeff Mintz - Wedbush.

Jeff Mintz – Wedbush

Oscar can you talk a little bit about what's going on at the retail stores, the outlet stores and what kind of the plans are to improve that business?

Oscar Feldenkreis

We have a total of about 47 stores currently today. We have about eight doors that are underperforming and these were doors that were acquired when we bought Salant Corporation back in 2003. We’re looking at those eight doors. So for example, there is two doors in South Carolina. Perry Ellis really doesn’t do that well in that area, so should that store be converted into a multi-branded store or should it be converted into a golf store where it’s a very, very strong golf community.

So we’re analyzing the actual locations and we’re seeing what we can convert those stores to. We have done that in several of our locations, like in Orlando we have a multiple branded store and that store has definitely turned around, because of the shopping center and also where the actual demographics are for those specific stores.

The balance of our stores are doing very, very well and producing a very strong four wall profit. It’s really those eight doors, which are taking down our total business and we’re analyzing that and we’ll make changes before the fourth quarter and we’re analyzing them as we speak right now.

Jeff Mintz – Wedbush

When you do same stores to multi-branded or when you have in the past, are they still labeled Perry Ellis stores or you’re actually changing the names on those stores?

Oscar Feldenkreis

We would change the names to -- I think the one in Tampa is Perry Ellis International company stores or something like that and it has all the names of the brands that we carry in the stores. We’re also talking with the landlord to see, if we can do some flipping around of locations.

Jeff Mintz – Wedbush

Obviously, we’ve talked before and we also hear about the price increases coming out of the sourcing. Have you started to increase prices of your products to your retailers and what have the reactions been and then correspondingly, have the consumer started to see the price increases and how have they reacted?

Oscar Feldenkreis

Yes, the answers are yes on both, we’ve also raised the MSRP’s, which is the retail prices on our product that need to go out the door and the costing has definitely gone up, but you can’t rise the costs, you have make sure that the product is substantially better than what you had in the past. So it’s not just going in and saying “well this cash you’re paying $10 for this year, you’re just going to go and increase it 10%.” You have to basically make changes to the product and add different bells and whistles which we have.

The performance has been very strong and we’re constantly evolving our businesses and our products and our brands as well as we have been very flexible and being able to move our sourcing, where in the past China maybe represented 30%, China represents 21% today, we move to other countries and the backbone and the foundation of the company has always been sourcing so we know how a move very, very quickly in these times.

Jeff Mintz – Wedbush

And then finally, you talked before about the Perry Ellis boys business, are we going to see that in the stores this fall or is it going to be there for holiday?

Oscar Feldenkreis

Holiday seasons and hopefully when I see you at Magic I’ll show you the product.


At this time I’ll turn the conference back to management for any additional remarks.

George Feldenkreis

Now, I would like to thank you very much for your patience. We are very disappointed with the quarter, but we are very optimistic about the rest of the year and about the future of the company. I think that talking about higher price etc we still managed to increase our gross profit this quarter and going forward, we have strengthened our focus on expense control and we continue to look at opportunities for acquisitions which I think now are the best turning point that has been in a few years. So, thank you all for your support.


And that concludes today’s conference call. We thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!