Differential Brands Group Inc. (the “Company”) (NASDAQ: DFBG), a
branded portfolio of operating companies in the apparel, footwear
and accessories sectors comprised of Hudson Jeans, Robert Graham
and SWIMS, today announced EBITDA of $1.5 million driven by a 12%
jump in Consumer Direct sales for the three months ended March 31,
2018.
Total Company net sales for the first quarter of 2018 decreased
by 3% from the same period last year to $38.8 million. Comparable
retail stores net sales at both Robert Graham and SWIMS increased
16% as both full price and outlet stores contributed strong double
digit sales gains across the brands which helped drive the 12%
improvement at Consumer Direct. Wholesale segment sales declined 8%
as improvements at Robert Graham were offset by reductions at
Hudson and SWIMS.
Michael Buckley, Chief Executive Officer, commented, “Our stores
at both Robert Graham and SWIMS outperformed during the first
quarter by posting significant comparable store sales gains. The
Consumer Direct segment produces margins that are on average 27
points better than Wholesale, thus we did not see as much margin
erosion from the Wholesale segment decline. Department store brick
and mortar shoppers continue to slowly migrate toward ecommerce
channels. This ecommerce migration has had some impact on Hudson’s
channel distribution. Our SWIMS wholesale business was impacted by
a timing difference related to outgoing shipments in early Q2 that
were scheduled for late Q1.”
Mr. Buckley continued, “We remain committed to test a retail
store in the U.S. for Hudson, and Hudson’s roll-out of sportswear
is on schedule for Fall 18’. Robert Graham has revitalized its
Women’s offering in Spring 18’ and is poised to invest in this
category as a major avenue of future growth. Robert Graham also
executed a new license for tailored clothing during the quarter.
Lastly, at SWIMS, our Spring 18’ expanded assortment has been met
with high regard from the market, and we expect to see a favorable
impact in the second quarter of 2018. The assortment expansion
augers well for the Fall 18’ season. SWIMS' first company-owned
full price retail store location, in Oslo, Norway, is on schedule
to open in the Fall of 2018.”
Segment net sales and adjusted EBITDA results were as
follows:
Three months ended March 31, 2018
2017 (unaudited, in thousands) Net sales: Wholesale $ 28,670
$ 31,144 Consumer Direct 9,364 8,346 Corporate and other 784
613 Total Company net sales $ 38,818 $
40,103 Adjusted EBITDA Operating income (loss):
Wholesale $ 6,156 $ 8,357 Consumer Direct (143 ) (1,213 ) Corporate
and other (6,569 ) (7,449 ) Adjustments* 2,100
2,847 Total Company Adjusted EBITDA $ 1,544 $ 2,542
*See “Adjusted EBITDA” below for reconciliation with GAAP.
First Quarter Financial Review
Total Company net sales for the three months ended March 31,
2018, decreased 3% to $38.8 million, reflecting a 12% increase in
Consumer Direct segment sales and an 8% decrease in Wholesale
segment sales. The Consumer Direct increase was driven by a 16%
comparable stores net sales increase. At Robert Graham and SWIMS,
both full price and outlet stores performed double digit ‘comps’.
In regard to the Wholesale segment, Robert Graham improved its
business to mid-single digit growth versus the same quarter last
year. However, Robert Graham’s Wholesale sales improvement was
offset by declines at Hudson and SWIMS. SWIMS decrease related to
delayed receipt flow that shifted some revenue into early second
quarter while Hudson booked less sales volume as a product of its
customers continuing to have some difficulty navigating the
consumer shift to the on-line distribution channel. Hudson is
working with certain retailers to help navigate this shift, such as
offering a drop shipment service for major retail customers, as
well as developing new relationships with meaningful emerging
premium on-line retailers.
Gross profit was $16.3 million this quarter, compared to $18.6
million in the first quarter of fiscal 2017. Last year’s gross
profit was impacted by a benefit of $1.4 million related to a
one-time accounting change of the valuation of inventory (refer to
Form 10-K for the year ended December 31, 2017 for details). On a
comparable basis, gross profit last year was $17.2 million or $0.9
million over the first quarter 2018. This reduction primarily
relates to the Wholesale net sales decline this quarter which more
than offset Consumer Direct margin gains. Gross profit margin on a
comparable basis was 41.9% compared to 42.9% last year.
Selling, general and administrative expenses for the quarter
ended March 31, 2018, were $15.3 million compared to $17.4 million
in the same quarter of the prior year. Selling, general and
administrative expenses as a percentage of net sales decreased to
39.5% from 43.4% in the first quarter of 2017. These improvements
relate to the permanent re-structure of certain Wholesale selling
commissions and efficiencies gained by consolidating certain
administrative functions.
Adjusted EBITDA for the first quarter of 2018 was $1.5 million
as compared to $2.5 million for the same quarter last year. Last
year’s adjusted EBITDA included the one-time $1.4 million
accounting adjustment for inventory valuation that benefited gross
profit. Without the adjustment, first quarter 2018 adjusted EBITDA
would have exceeded last year by $0.4 million.
For the first quarter of 2018 and 2017, net loss and loss per
share were $4.1 million and $0.43 per share compared to $2.4
million and $0.28 per share, respectively.
About Differential Brands Group
Differential Brands Group Inc. (NASDAQ: DFBG) is a platform that
focuses on branded operating companies in the premium apparel,
footwear and accessories sectors. Our focus is on organically
growing our brands through a global, omni-channel distribution
strategy while continuing to seek opportunities to acquire
accretive, complementary premium brands.
Our current brands are Hudson®, a designer and marketer of
women’s and men’s premium, branded denim and apparel, Robert
Graham®, a sophisticated, eclectic apparel and accessories brand
seeking to inspire a global movement, and SWIMS®, a Scandinavian
lifestyle brand best known for its range of fashion-forward,
water-friendly footwear, apparel and accessories. For more
information, please visit Differential's website at:
www.differentialbrandsgroup.com.
Forward-Looking Statements
This release contains forward-looking statements within the
meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, as amended, Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The matters discussed
in this release involve estimates, projections, goals, forecasts,
assumptions, risks and uncertainties that could cause actual
results or outcomes to differ materially from those expressed in
the forward-looking statements. All statements in this release that
are not purely historical facts are forward-looking statements,
including statements containing the words “may,” “will,” “expect,”
“anticipate,” “intend,” “estimate,” “continue,” “believe,” “plan,”
“project,” “will be,” “will continue,” “will likely result” or
similar expressions. Any forward-looking statement inherently
involves risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. Factors that
would cause or contribute to such differences include, but are not
limited to: the risk of intense competition in the denim and
premium lifestyle apparel industries; the risk that the Company’s
substantial indebtedness could adversely affect the Company’s
financial performance and impact the Company’s ability to service
its indebtedness; the risks associated with the Company’s foreign
sourcing of its products and the implementation of foreign
production for Hudson’s products, including in light of potential
changes in international trade relations brought on by the current
U.S. presidential administration; risks associated with the
Company’s third-party distribution system; the risk that the
Company will be unsuccessful in gauging fashion trends and changing
customer preferences; the risk that changes in general economic
conditions, consumer confidence or consumer spending patterns,
including consumer demand for denim and premium lifestyle apparel,
will have a negative impact on the Company’s financial performance
or strategies and the Company’s ability to generate cash flows from
its operations to service its indebtedness; risks related to the
Company’s ability to respond to the business environment and
fashion trends; risks related to continued acceptance of the
Company’s brands in the marketplace; risks related to the Company’s
reliance on a small number of large customers; risks related to the
Company’s ability to implement successfully any growth or strategic
plans; risks related to the Company’s ability to manage the
Company’s inventory effectively; the risk of cyber-attacks and
other system risks; risks related to the Company’s ability to
continue to have access on favorable terms to sufficient sources of
liquidity necessary to fund ongoing cash requirements of the
Company’s operations or new acquisitions; risks related to the
Company’s ability to continue to have access on favorable terms to
sufficient sources of liquidity necessary to fund ongoing cash
requirements of its operations or new acquisitions; risks related
to the Company’s pledge of all its tangible and intangible assets
as collateral under its financing agreements; risks related to the
Company’s ability to generate positive cash flow from operations;
risks related to a possible oversupply of denim in the marketplace;
and other risk. The Company discusses certain of these factors more
fully in its additional filings with the SEC, including its annual
report on Form 10-K for the fiscal year ended December 31, 2017 and
subsequent reports filed with the SEC, and this release should be
read in conjunction with those reports through the date of this
release. The Company urges you to consider all of these risks,
uncertainties and other factors carefully in evaluating the
forward-looking statements contained in this release.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
Since the Company operates in a rapidly changing environment, new
risk factors can arise and it is not possible for the Company’s
management to predict all such risk factors, nor can the Company’s
management assess the impact of all such risk factors on the
Company’s business or the extent to which any factor, or
combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
The Company’s future results, performance or achievements could
differ materially from those expressed or implied in these
forward-looking statements. The Company does not undertake any
obligation to publicly revise these forward-looking statements to
reflect events or circumstances occurring after the date hereof or
to reflect the occurrence of unanticipated events, except as may be
required by law.
DIFFERENTIAL BRANDS GROUP INC. CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except
per share data) Three months ended
March 31, 2018 2017 (unaudited) Net sales $
38,818 $ 40,103 Cost of goods sold 22,563
21,499 Gross profit 16,255 18,604 Operating expenses
Selling, general and administrative 15,348 17,411 Depreciation and
amortization 1,463 1,498 Total
operating expenses 16,811 18,909
Operating loss (556 ) (305 ) Interest expense 2,215 2,047 Other
(income) expense, net (1 ) 24 Loss before
income taxes (2,770 ) (2,376 ) Income tax provision (benefit)
1,315 (26 ) Net loss $ (4,085 ) $ (2,350 )
Loss per common share - basic and diluted $ (0.43 ) $ (0.28
) Weighted average shares outstanding Basic 13,550 13,287
Diluted 13,550 13,287
As a Percent of Sales
Three months ended March 31, 2018 2017
(unaudited) Net sales 100.0 % 100.0 % Cost of goods sold
58.1 % 53.6 % Gross profit 41.9 % 46.4 % Operating expenses
Selling, general and administrative 39.5 % 43.4 % Depreciation and
amortization 3.8 % 3.7 % Total operating expenses
43.3 % 47.2 % Operating loss (1.4 %) (0.8 %) Interest
expense 5.7 % 5.1 % Other (income) expense, net (0.0 %)
0.1 % Loss before income taxes (7.1 %) (5.9 %) Income tax
provision (benefit) 3.4 % (0.1 %) Net loss
(10.5 %) (5.9 %)
Adjusted EBITDA
Three months ended March 31, 2018 2017
(unaudited, in thousands) Reconciliation of GAAP net loss to
Adjusted EBITDA: GAAP net loss $ (4,085 ) $ (2,350 )
Adjustments: Provision (benefit) for income taxes 1,315 (26 )
Interest expense 2,215 2,047 Non-cash stock compensation (a) 637
439 Depreciation and amortization 1,463 1,498 Restructuring (b) —
843 Store closure costs (c) — 67 Foreign currency (gain) loss
(1 ) 24 Total Adjustments 5,629 4,892
Adjusted EBITDA (1) $ 1,544 $ 2,542
_________________________
(1) Adjusted EBITDA is defined as net loss excluding: income
taxes, interest expense, non-cash stock compensation, depreciation
and amortization, restructuring costs, store closure costs, and
gain or loss related to foreign currency transactions. Management
uses Adjusted EBITDA as a measure of operating performance to
assist in comparing performance from period to period on a
consistent basis and to identify business trends relating to the
Company’s financial condition and results of operations. The
Company believes Adjusted EBITDA provides additional information
for determining its ability to meet future debt service
requirements and capital expenditures. (a) Represents stock
compensation expense related to the grant of restricted stock units
and stock options. (b) Represents restructuring charges for
severance and recruiting costs related to a change in management,
and additional costs incurred related to launching the new Hudson
e-commerce website and moving e-commerce distribution in house. (c)
Represents the write-off of assets related to one store in which
the lease was cancelled during the first quarter of fiscal 2017.
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures.
Generally, a non-GAAP financial measure is a numerical measure of a
company’s historical or future financial performance, financial
position, or cash flows that either excludes or includes amounts
which are not normally excluded or included in the most directly
comparable measure calculated and presented in accordance with
generally accepted accounting principles generally accepted in the
United States (GAAP). Management uses these non-GAAP financial
measures to evaluate the performance of the business over time on a
consistent basis, identify business trends relating to the
financial condition and results of operations and make business
decisions. The Company believes that providing non-GAAP measures is
useful to provide a consistent basis for investors to understand
the Company’s financial performance in comparison to historical
periods and to allow investors to evaluate the performance using
the same methodology and information as that used by management.
However, investors need to be aware that non-GAAP measures are
subject to inherent limitations because they do not include all of
the expenses included under GAAP and they involve the exercise of
judgment of which charges are excluded from the non-GAAP financial
measure. Investors should consider these non-GAAP financial
measures in addition to, and not as substitutes for or superior to,
the Company’s other measures of the Company’s financial performance
that the Company prepares in accordance with GAAP. Further,
non-GAAP information may be different from the non-GAAP information
provided by other companies.
DIFFERENTIAL BRANDS GROUP INC. CONDENSED
CONSOLIDATED BALANCE SHEETS (amounts in thousands)
March 31, December 31, March
31, 2018 2017 2017 (unaudited) (unaudited)
ASSETS Current assets Cash and cash equivalents $ 4,331 $
8,250 $ 4,038 Accounts receivable, net 24,513 22,246 22,723
Inventories 33,921 31,733 28,490 Prepaid expenses and other current
assets 6,170 4,832 3,708
Total current assets 68,935 67,061 58,959 Property and equipment,
net 8,120 8,417 10,170 Goodwill 8,536 8,380 8,284 Intangible
assets, net 89,162 89,332 91,199 Other assets 1,914
484 467 Total assets $ 176,667 $
173,674 $ 169,079
LIABILITIES AND
EQUITY Current liabilities Accounts payable and accrued
expenses $ 24,939 $ 22,204 $ 20,810 Short-term convertible note —
13,694 13,308 Current portion of long-term debt 2,813
2,813 1,875 Total current liabilities
27,752 38,711 35,993 Line of credit 22,915 21,254 16,287
Convertible notes 14,189 13,866 12,947 Long-term debt, net of
current portion 44,035 44,896 46,538 Deferred income taxes, net
7,308 6,650 11,054 Other liabilities 3,924
3,554 3,619 Total liabilities 120,123
128,931 126,438 Equity
Series A convertible preferred stock 5 5 5 Series A-1 convertible
preferred stock 459 — — Common stock 1,360 1,349 1,330 Additional
paid-in capital 75,192 61,314 59,531 Accumulated other
comprehensive income (loss) 1,034 271 (137 ) Accumulated deficit
(21,506 ) (18,196 ) (18,088 ) Total equity
56,544 44,743 42,641
Total liabilities and equity $ 176,667 $ 173,674 $
169,079
DIFFERENTIAL BRANDS GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in
thousands) Three months ended March 31,
2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES Net
loss $ (4,085 ) $ (2,350 ) Adjustments to reconcile net loss to net
cash used in operating activities: Depreciation and amortization
1,463 1,498 Amortization of deferred financing costs 110 103
Amortization of convertible notes discount 179 194 Paid-in-kind
interest 437 425 Stock-based compensation 637 439 Provision for bad
debts 94 187 Loss on disposal of assets 4 — Deferred taxes 523 8
Changes in operating assets and liabilities: Accounts receivable
(145 ) (2,685 ) Inventories (2,365 ) (4,510 ) Prepaid expenses and
other assets (628 ) 547 Accounts payable and accrued expenses (416
) 2,785 Other liabilities 317 (10 ) Net cash
used in operating activities (3,875 ) (3,369 )
CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and
equipment (439 ) (337 ) Net cash used in investing
activities (439 ) (337 ) CASH FLOWS FROM
FINANCING ACTIVITIES Repayment of long-term debt (938 ) — Proceeds
from line of credit, net 1,379 3,350 Payment of deferred financing
costs — (124 ) Repayment of customer cash advances — (1,707 ) Taxes
paid in lieu of shares issued for stock-based compensation
(53 ) (223 ) Net cash provided by financing activities
388 1,296 Effect of exchange
rate changes on cash and cash equivalents 7
(28 ) NET CHANGE IN CASH AND CASH EQUIVALENTS (3,919 )
(2,438 ) CASH AND CASH EQUIVALENTS, at beginning of period
8,250 6,476 CASH AND CASH EQUIVALENTS,
at end of period $ 4,331 $ 4,038
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Investor RelationsDifferential Brands Group Inc.Bob Ross, Chief
Financial Officer323.558.5115
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