Perfumania Holdings Reports Second Quarter Net Sales of $97 Million

BELLPORT, N.Y., Sept. 09, 2016 (GLOBE NEWSWIRE) — Perfumania Holdings, Inc. (NASDAQ:PERF) (“Perfumania” or the “Company”) a U.S. specialty retailer and distributor of fragrances and related beauty products, today reported operating results for the second fiscal quarter representing the thirteen weeks and twenty-six weeks ended July 30, 2016.

           
($ in thousands, except per share data & percentage)  Thirteen Weeks Ended
   Twenty-Six Weeks Ended
  July 30,   August 1,   July 30,   August 1,
    2016       2015       2016       2015  
Net sales retail $   54,351     $   68,653     $ 106,026     $ 137,323  
Net sales wholesale     42,669         40,653         96,133         100,193  
Total net sales $ 97,020     $   109,306     $ 202,159     $ 237,516  
               
Gross profit retail $   27,128     $   34,514     $ 53,457     $ 67,994  
Gross profit wholesale     17,896         16,542         43,336         45,540  
Total gross profit $ 45,024     $   51,056     $ 96,793     $ 113,534  
               
Gross profit margin   46.4 %     46.7 %       47.9 %     47.8 %
Loss from operations $ (9,342 )   $ (15,074 )   $ (14,044 )   $ (13,507 )
Net loss $ (11,016 )   $ (16,797 )   $ (17,425 )   $ (16,962 )
Net loss per basic and diluted common share $ (0.71 )   $ (1.08 )   $ (1.12 )   $ (1.10 )
                               

Michael Katz, President and Chief Executive Officer of Perfumania, commented, “The challenging consumer environment and the transition of our largest consignment account to a wholesale client continued to impact our retail and wholesale operations during the fiscal second quarter. Despite these challenges, we continue to make progress on several elements of our growth strategy, including evolving our brand portfolio, evaluating and executing on various retail and wholesale cost savings initiatives, further promoting our omni-channel capabilities and right sizing our retail footprint, and adding to our senior management team, as we seek to further leverage our scale and vertical integration.

“Following the launch of the Kenneth Cole fragrance, Mankind Hero, in the first quarter of fiscal 2016, during the second quarter we built upon the success of our well-established designer and celebrity brands with the introduction of three new fragrances, Vince Camuto Oud, Crush by Rihanna and Gold Rush by Paris Hilton. We also generated solid results across many of our brands, including Vince Camuto, Rihanna and Tommy Bahama. We continue to actively evolve our fragrance portfolio, and as previously disclosed, we recently partnered with a notable designer that we plan to announce shortly. Moving forward, we are targeting additional fashion-house license partners to expand our growing designer brand portfolio as this fragrance category has grown increasingly attractive to our consumer base.

“Earlier this fiscal year, we completed the first phase of our technology initiative, integrating new point-of-sale technology into our Perfumania retail stores, adapting new inventory management technologies for more efficient technology infrastructure and more appealing and accessible product merchandising for consumers, as well as expanding our omni-channel capabilities. These changes are leading to new operating efficiencies while allowing us to improve the customer experience at our retail locations. Utilizing our omni-channel platform, our retail associates can now cross-promote and cross-sell products while leveraging our e-commerce platform, which we expect will facilitate a superior, seamless consumer experience across all channels and ultimately drive sales growth.

“Customer traffic levels remain challenged as many of our retail locations experienced lower foot traffic during the second quarter, predominantly at store locations in B and C rated malls and tourist-dependent areas. In particular, our Florida Perfumania stores continued to be impacted by the devaluation of many major foreign currencies, including the Euro, while Perfumania locations in Puerto Rico continue to operate in an unstable economic environment. Reflecting these challenges, we remain active in strategically re-aligning our existing store footprint, and as such closed 18 under-performing stores during the first half of fiscal 2016. Although such store closures continue to impact retail net sales, we expect they will result in a more profitable overall revenue mix from our retail footprint going forward, as closing under-performing locations will allow us to better allocate our operating, marketing, merchandising and financial resources to better performing locations as well as  other growth initiatives.

“We recently announced the expansion of our management team with the appointments of Neal Montany as Chief Operating Officer of Perfumania Holdings, Inc. and Frank J. Furlan as Chief Executive Officer of Perfumania’s Retail Store and E-Commerce Operations. Over the course of his career, Neal has built a strong record of driving operational efficiencies and generating new, diversified revenue sources, resulting in increased sales and profit. A well-respected retail veteran, Frank has built and led high-performing sales teams, resulting in added consumer awareness and satisfaction, brand appreciation and revenue share growth. We are excited to welcome Neal and Frank to our team and are confident their industry knowledge and experience will prove valuable as we continue to execute various wholesale and retail growth initiatives.”

Mr. Katz, concluded, “Looking ahead, we plan to continue to review our operational practices and retail prospects to gain added efficiencies and identify new opportunities for growth that can drive shareholder value. We believe our experienced management team, scale, vertical integration platform and strong portfolio of brands positions us to better stabilize and strengthen the business in the second half of fiscal 2016 and beyond, while maintaining the healthy high gross margins we are currently generating.”

Operating Review
Net sales during the thirteen weeks ended July 30, 2016, decreased 11.2%, compared to the second quarter of fiscal 2015, due primarily to fewer stores in operation, as the average number of stores operated was 298, compared to 319 in the prior year period, as well as lower mall traffic.

Retail segment net sales decreased 20.8% to $54.4 million, compared with last year’s second quarter, due to the transition of Scents of Worth’s largest consignment account to a wholesale customer, fewer Perfumania stores compared with last year’s second quarter, as well as lower mall traffic at Perfumania stores.

Wholesale segment net sales increased by 5% to $42.7 million from the second quarter of fiscal 2015 due to higher consumer demand and a shift in Scent of Worth’s largest consignment account to a wholesale customer. This included increased sales for Quality Fragrance Group, from $28.3 million in the second quarter of fiscal 2015, to $31.7 million in the same period in fiscal 2016. Parlux sales decreased from $12.2 million in the second quarter of fiscal 2015 to $11 million in the same period in fiscal 2016, due to weaker consumer demand in department stores.

Reflecting the lower retail net sales, gross profit during the second quarter of fiscal 2016 was $45 million, a decrease of 11.8% compared to last year’s second quarter. Gross profit margin decreased by 30 basis points, from 46.7% to 46.4% in the second quarter of fiscal 2016.

Total operating expenses were $54.4 million during the second quarter, a decrease of 17.8% compared to last year’s second quarter.  The decline was attributable to lower sales related expenses, including commissions, a reduction in warehouse headcount and related costs, a reduction in store-related expenses as the Company had 21 fewer stores in operation this year as compared to the same period last year, and a reduction in expenses related to the point-of-sale technology rollout in the first quarter of fiscal 2016.

Interest expense remained flat at $1.7 million for the second quarter of fiscal 2016. The Company did not record a tax provision during the second quarter of fiscal 2016 or the comparable period in fiscal 2015 since we experienced operating losses for both periods. The Company recorded a full valuation allowance against all deferred tax assets, thus no income tax benefit was recorded during the second quarter of fiscal 2016 and fiscal 2015.

This led to net loss of $11 million during the second quarter of fiscal 2016, compared to net loss of $16.8 million during last year’s second quarter.

Balance Sheet and Liquidity
Net cash used in operating activities during the twenty-six weeks ended July 30, 2016 was approximately $12.3 million, compared with approximately $8.3 million provided by operating expenses during the prior year period. The increase in cash used in operations primarily reflected changes in working capital.

Net cash used in investing activities was approximately $1.3 million during the twenty-six weeks ended July 30, 2016 compared to $3.6 million during the prior year period as the result of decreased investment in information technology spending as well as fewer new store openings compared with the prior year.

Net cash provided by financing activities during the twenty-six weeks ended July 30, 2016 was approximately $10.3 million, compared with $4.0 million used in financing activities during the prior year period. The $14.3 million increase in cash provided by financing activities is due primarily to higher borrowings under our bank line of credit as a result of the timing of this year’s payments to trade vendors as compared to last year.

The Company has a $175 million revolving credit facility with a syndicate of banks, which is used for the Company’s general corporate purposes and those of its subsidiaries, including working capital. The Company and certain of its subsidiaries are co-borrowers under the Senior Credit Facility, and the Company’s other subsidiaries have guaranteed all of their obligations thereunder. The Company was in compliance with all financial and operating covenants under the Senior Credit facility as of July 30, 2016. The Company had $70.4 million available to borrow under the Senior Credit Facility which includes $25 million for letters of credit, based on the borrowing base at July 30, 2016.

Donna Dellomo, VP & Chief Financial Officer, commented, “During the second quarter we remained focused on various strategic operating initiatives and driving benefits from recent technology initiatives, including evaluating our organizational and cost structures, lowering operating costs, increasing operating productivity and better leveraging our vertically integrated retail and wholesale operations. As as a result, total operating expenses decreased 17.8%, largely reflecting a significant reduction in SG&A expenses.

“We continue to identify new ways to highlight and promote our portfolio of well-recognized fragrance brands and related beauty products to our customers, while simultaneously driving efficiencies in promotional spending and sales mix to emphasize a greater percentage of owned and licensed brands as well as higher gross profit margin offerings such as body sprays. In addition, as we continue to review our product mix, we expect to incorporate new products which complement our core fragrance offerings.

“Going forward, we remain confident in our ability to successfully implement the various strategic initiatives established over the last few quarters, including improving the consumer experience in our stores and online, launching new designer and fashion fragrances, adding additional offerings of portable fragrances and body sprays, enhancing our loyalty programs and leveraging our omni-channel platform. In addition, our management team remains focused on optimizing our retail footprint, closing marginal and underperforming Perfumania stores by negotiating early lease terminations with landlords, exercising lease termination options and not renewing or extending maturing leases at such locations.”

About Perfumania Holdings, Inc.
Perfumania Holdings, Inc. (NASDAQ:PERF) is the largest specialty retailer and distributor of fragrances and related beauty products across the United States. Perfumania has a 30 year history of innovative marketing and sales management, brand development, license sourcing and wholesale distribution making it the premier destination for fragrances and other beauty supplies. As of July 30, 2016 the Company operated 297 corporate-owned retail stores as well as e-commerce, specializing in the sale of fragrances and related products across the United States, Puerto Rico, and the U.S. Virgin Islands.  The Company also operates a wholesale distribution network, selling to mass retail, department stores as well as domestic and international distributors. For additional information please visit www.perfumaniaholdings.com or contact us at perf@jcir.com.

Forward-Looking Statements
This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as “may,” “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast,” “objective,” “assume,” “strategies” and other words and terms of similar meaning. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. Among the factors that could cause actual results, performance or achievement to differ materially from those described or implied in the forward-looking statements are our ability to service our obligations, our ability to comply with the covenants in our Senior Credit Facility, any deterioration of general economic conditions, including weaker than anticipated discretionary spending by consumers, competition, the ability to raise additional capital to finance our expansion and other factors included in our filings with the SEC. Copies of our SEC filings are available from the SEC or may be obtained upon request from us. You should also consider carefully the statements under “Risk Factors” in our Form 10-K which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results and financial condition. We cannot assess the impact of each factor on our 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 forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

– tables follow –

 
PERFUMANIA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands, except share and per share amounts)
       
  July 30, 2016   January 30, 2016
  (unaudited)   (audited)
ASSETS:      
Current assets:      
Cash and cash equivalents $ 2,284     $ 5,640  
Accounts receivable, net of allowances of $2,948 and $1,233 as of July 30, 2016   29,755       29,602  
and January 30, 2016, respectively
Inventories   220,635       221,336  
Prepaid expenses and other current assets   9,646       9,862  
Total current assets   262,320       266,440  
Property and equipment, net   23,832       25,892  
Goodwill   38,769       38,769  
Intangible and other assets, net   17,969       19,945  
Total assets $   342,890     $   351,046  
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 33,823     $ 32,175  
Accounts payable – affiliates   953       300  
Accrued expenses and other liabilities   27,159       33,205  
Current portion of obligations under capital leases   1,332       1,248  
Total current liabilities   63,267       66,928  
Revolving credit facility   23,927       13,078  
Notes payable – affiliates   125,366       125,366  
Long-term portion of obligations under capital leases   549       1,223  
Other long-term liabilities   63,189       60,474  
Total liabilities   276,298       267,069  
Commitments and contingencies      
Shareholders’ equity      
Preferred stock, $0.10 par value, 1,000,000 shares authorized; as of July 30, 2016              
and January 30, 2016, none issued          
Common stock, $0.01 par value, 35,000,000 shares authorized; 16,392,012 shares              
issued as of July 30, 2016 and January 30, 2016   164       164  
Additional paid-in capital   222,001       221,961  
Accumulated deficit   (146,996 )     (129,571 )
Treasury stock, at cost, 898,249 shares as of  July 30, 2016 and January 30, 2016   (8,577 )     (8,577 )
Total shareholders’ equity   66,592       83,977  
Total liabilities and shareholders’ equity $   342,890     $   351,046  
               

PERFUMANIA HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($ in thousands, except share and per share amounts)
               
  Thirteen
Weeks Ended
  Thirteen
Weeks Ended
  Twenty-Six
Weeks Ended
  Twenty-Six
Weeks Ended
  July 30, 2016   August 1, 2015   July 30, 2016   August 1, 2015
Net sales $ 97,020     $ 109,306     $ 202,159     $ 237,516  
Cost of goods sold   51,996       58,250       105,366       123,982  
Gross profit   45,024       51,056       96,793       113,534  
Operating expenses:              
Selling, general and administrative expenses   52,333       63,475       106,261       121,667  
Share-based compensation expense   8       74       40       174  
Depreciation and amortization   2,025       2,581       4,536       5,200  
Total operating expenses   54,366       66,130       110,837       127,041  
Loss from operations   (9,342 )     (15,074 )     (14,044 )     (13,507 )
Interest expense   (1,674 )     (1,723 )     (3,381 )     (3,455 )
Loss before income tax provision   (11,016 )     (16,797 )     (17,425 )     (16,962 )
Income tax provision                      
Net loss $ (11,016 )   $ (16,797 )   $ (17,425 )   $ (16,962 )
Net loss per common share:              
Basic and diluted $ (0.71 )   $ (1.08 )   $ (1.12 )   $ (1.10 )
               
Weighted average number of common shares outstanding:              
Basic and diluted   15,493,763       15,483,640       15,493,763       15,480,151  
                               

PERFUMANIA HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
       
  Twenty-Six   Twenty-Six
  Weeks Ended   Weeks Ended
  July 30, 2016   August 1, 2015
       
Cash flows from operating activities:      
Net loss $ (17,425 )   $ (16,962 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:      
Amortization of deferred financing costs   174       172  
Depreciation and amortization   4,536       5,200  
Provision (recovery) for losses on accounts receivable   1,721       (319 )
Share-based compensation   40       174  
Changes in operating assets and liabilities:      
Accounts receivable   (1,874 )     3,030  
Inventories   701       8,379  
Prepaid expenses and other assets   813       2,248  
Accounts payable   1,648       4,785  
Accounts payable-affiliates   653       844  
Accrued expenses and other liabilities and other long-term liabilities   (3,331 )     737  
Net cash (used in) provided by operating activities   (12,344 )     8,288  
Cash flows from investing activities:      
Additions to property and equipment   (1,271 )     (3,614 )
Net cash used in investing activities   (1,271 )     (3,614 )
Cash flows from financing activities:      
Net borrowings (repayments) under bank line of credit   10,849       (3,545 )
Principal payments under capital lease obligations   (590 )     (515 )
Proceeds from exercise of stock options         54  
Net cash provided by (used in) financing activities   10,259       (4,006 )
Net (decrease) increase in cash and cash equivalents   (3,356 )     668  
Cash and cash equivalents at beginning of period   5,640       1,533  
Cash and cash equivalents at end of period $ 2,284     $ 2,201  
       
Supplemental Information:      
Cash paid during the period for:      
Interest $ 447     $ 725  
Income taxes $ 193     $ 576  
               

 

CONTACT: Contact:
Perfumania Holdings, Inc.
Donna Dellomo
VP & Chief Financial Officer
(631) 866-4157

JCIR
Joseph Jaffoni / Norberto Aja / Nicole Briguet
(212) 835-8500
perf@jcir.com