Second Quarter Net Sales were $32.4 million
Differential Brands Group Inc. (the “Company”)
(NASDAQ:DFBG) today announced financial results for the second
quarter ended June 30, 2016.
For the second quarter ended June 30, 2016:
- Consolidated net sales were $32.4
million;
- Net loss under GAAP was $3.6 million
and loss per share (basic and diluted) was $0.29. Net loss,
excluding transaction costs associated with the Robert Graham
(“RG”) Merger (as defined below) and the SWIMS® acquisition,
including certain costs to restructure, amortization of fair market
value step up to certain acquired inventory and terminated retail
store operating loss was $1.7 million and loss per share (basic and
diluted) was $0.13; and
- Adjusted EBITDA was $647,000.
Michael Buckley, Chief Executive Officer, commented, “We are
very pleased that we continued to improve our product offerings
across our portfolio of brands during the second quarter, as we
worked to implement our new branded platform approach. In our
Wholesale segment, we were pleased with the performance of Hudson,
which benefited from operational efficiencies put into place
following the closing of the RG Merger. In the Consumer Direct
segment, we have worked to remerchandise and revamp our Robert
Graham collection in our retail stores, which has resulted in
positive sell-throughs and an increase in sales. That said, organic
sales results in the quarter were impacted by continued challenges
across both our Wholesale and Consumer Direct segments as a result
of overall headwinds in the consumer retail environment.”
Mr. Buckley continued, “As we look ahead, we are focused on
growing our business organically and through acquisitions of
premium brands that are accretive and complementary to our
portfolio. To that end, we recently acquired SWIMS AS, a
Scandinavian lifestyle brand known for its range of
fashion-forward, water-resistant footwear and sportswear. This
marks the first acquisition under the Differential umbrella, and we
are very excited to continue expanding our portfolio with brands
that consumers are passionate about.”
For the three months ended June 30, 2016, the financial results
presented in this release reflect the consolidated operations of
Robert Graham and Hudson. For the three months ended June 30, 2015,
the financial results presented in this release solely reflect the
operations of Robert Graham.
For the second quarter ended June 30, 2016, overall net sales
were $32.4 million compared to $16.3 million in the same prior year
period. Sales results for the second quarter of fiscal 2016 include
$17.7 million from the addition of sales from Hudson.
Overall gross profit for the second quarter of fiscal 2016
increased to $17.1 million from $10.0 million in the same prior
year period. This increase in gross profit was primarily
attributable to the addition of $7.8 million in gross profit from
the addition of sales from the Hudson brand. Overall gross margin
in the second quarter of fiscal 2016 was 52.8% compared to 61.2% in
the second quarter of fiscal 2015, primarily as a result of the
addition of the Hudson Wholesale business which has historically
generated a lower gross margin than Robert Graham.
Operating expense in the second quarter of fiscal 2016 was $20.2
million compared to $10.2 million in the same prior year period.
Operating expense includes approximately $1.8 million in
transaction and other expenses associated with the Merger with
Robert Graham, the acquisition of SWIMS®, restructuring expenses
and expenses related to the lease termination for one Robert Graham
retail store that closed in June 2016. Excluding these expenses,
operating expense was $18.5 million for the second quarter of
fiscal 2016.
Adjusted EBITDA for the second quarter of fiscal 2016 was
$647,000 compared to $687,000 in the same prior year period.
Operating loss from continuing operations was $3.1 million
during the second quarter of fiscal 2016 compared to a loss of
$249,000 in the same prior year period. Operating loss, excluding
transaction expenses associated with the RG Merger and SWIMS®
acquisition, including certain costs to restructure, amortization
of fair market value step up to certain acquired inventory and
terminated retail store operating loss, was $1.2 million.
Net loss was $3.6 million and loss per share (basic and diluted)
was $0.29 for the second quarter of fiscal 2016. Net loss,
excluding transaction expenses associated with the RG Merger and
SWIMS® acquisition, including certain costs to restructure,
amortization of fair market value step up to certain acquired
inventory and terminated retail store operating loss, was $1.7
million and loss per share (basic and diluted) was $0.13. For the
second quarter of fiscal 2015, net loss was $488,000, and net loss
per share (basic and diluted) was $0.06.
Wholesale
Net sales in the Wholesale segment in the second quarter of
fiscal 2016 increased to $22.8 million compared to $8.5 million in
the same prior year period, primarily due to the addition of $16.8
million in net sales from Hudson, offset by a decrease in Wholesale
sales from Robert Graham during the same prior year period. Gross
profit was $9.7 million for the second quarter of fiscal 2016
compared to $3.9 million for the second quarter of fiscal 2015. The
increase was primarily driven by an additional $7.0 million in
gross profit from the Hudson Wholesale business. For the second
quarter, operating expense increased to $4.6 million compared to
$414,000 in the same prior year period. The increase was primarily
attributable to the addition of $3.6 million in operating expense
from Hudson’s Wholesale operations. Wholesale operating income
increased to $5.1 million in the second quarter of fiscal 2016
compared to $3.5 million in the same prior year period. The
increase was primarily due to the addition of operating income of
$3.4 million attributable to the Hudson business.
Consumer Direct
Net sales in the Consumer Direct segment in the second quarter
of 2016 increased to $9.1 million compared to $7.2 million in the
same prior year period. The increase was partially attributable to
the addition of $846,000 in sales from the Hudson ecommerce
business. The net sales increase was also due to the opening of
nine new stores during fiscal 2015 and one new store as of June 30,
2016. Gross margin in the retail segment was 76.0% compared to
76.6% in the same prior year period. Operating income in the
Consumer Direct segment decreased to $501,000 from $913,000 in the
same prior year period. Retail operating expense increased on a
year over year basis as a result of additional expenses associated
with the expansion of stores during fiscal 2015 and 2016.
Basis of Presentation of Information
As disclosed in the Company’s first quarter 2016 press release,
on January 28, 2016, the Company completed the acquisition (the
“RG Merger”) of all of the outstanding equity interests of
RG Parent LLC and its subsidiaries (“Robert Graham” or
“RG”), a business engaged in the design, development, sales
and licensing of apparel products and accessories that bear the
brand name Robert Graham®. Because RG members owned a majority of
the Company’s issued and outstanding equity after the Merger, under
the acquisition method, RG is deemed the accounting acquirer for
financial reporting purposes, with the Company, as the legal
acquirer, being viewed as the accounting acquiree. For the three
months and six months ended June 30, 2016, the Company’s
consolidated financial statements include: (i) from January 1, 2016
up to the day prior to the closing of the RG Merger on January 28,
2016, the results of operations and cash flows of RG; (ii) from and
after the RG Merger’s closing date on January 28, 2016, the results
of continuing operations, cash flows and as applicable, the assets
and liabilities of the combined company, comprising the Company’s
Hudson business and RG and (iii) from and after the RG Merger’s
closing date on January 28, 2016, the results of the discontinued
operations from the Joe’s brand retail stores that were closed as
of February 29, 2016.
In connection with the Company’s second quarter review process,
the Company has also filed an amendment to restate its financial
statements for the first quarter of fiscal 2016 (the “Q1
Financial Statements”) due to certain errors identified. Due to
a classification mischaracterization of operations disposed of from
the Company’s former Joe’s® business, the Q1 2016 Financial
Statements presented higher operating losses from continuing
operations than the Company had actually incurred for the first
quarter of fiscal 2016, overstating operating loss by $1.3 million
and loss from continuing operations by $0.3 million, accounts
payable and accrued expenses by $2.1 million, cost of goods sold by
$1.2 million and operating expenses by $1.3 million.
The Q1 2016 Financial Statements also overstated net sales from
continuing operations by $1.2 million, among misstating other
financial data. Details of this restatement can be found in the
Company’s Amendment No. 1 to its Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 2016, filed with the SEC on
August 16, 2016.
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-resistant 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 news 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
news 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
anticipated benefits of the RG Merger on the Company’s financial
results, business performance and product offerings; the use of
financial measures that are non-GAAP; risks associated with the
restatement of our unaudited condensed consolidated financial
statements as of and for the three months ended March 31, 2016; the
identification of a material weakness in our internal control over
financial reporting and our ability to maintain effective internal
control over financial reporting; the Company’s ability to
successfully integrate the Company’s brands and realize cost
savings and any other synergy; the risk that the credit ratings of
the combined company or its subsidiaries may be different from what
the Company expects; continued acceptance of our product, product
demand, competition, capital adequacy, general economic conditions
and the potential inability to raise additional capital if
required; 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 will have a negative impact on the
Company’s financial performance; the highly competitive nature of
the Company’s business in the United States and internationally and
its dependence on consumer spending patterns, which are influenced
by numerous other factors; the Company’s ability to respond to the
business environment and fashion trends; continued acceptance of
the Company’s brands in the marketplace; and other risks. 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 November 30, 2015 and
subsequent quarterly reports on Form 10-Q filed with the SEC, and
this release should be read in conjunction with those reports,
together with all of the Company’s other filings, including current
reports on Form 8-K, 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.
Any forward-looking statement is based on information current as
of the date of this document and speaks only as of the date on
which such statement is made, and the Company undertakes no
obligation to update these statements to reflect events or
circumstances after the date on which such statement is made.
Readers are cautioned not to place undue reliance on
forward-looking statements.
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures that
exclude the effect of transaction expenses associated with the RG
Merger and SWIMS® acquisition, including certain costs to
restructure, amortization of fair market value step up to certain
acquired inventory and retail store closure expenses. 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 that are not
normally excluded or included in the most directly comparable
measure calculated and presented in accordance with 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, our other
measures of our 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.
Below is a reconciliation of the non-GAAP measures to the
equivalent GAAP measure.
DIFFERENTIAL BRANDS GROUP INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands) Three
months ended June 30, 2016 June 30, 2015
(Unaudited) GAAP net loss $ (3,605) $ (488)
Transaction expenses associated with the
RG Merger and SWIMS® acquisition, including certain costs
torestructure, amortization of fair market value step up to certain
acquired inventory and terminated retail storeoperating loss, net
of tax
1,378 -
Non - GAAP net loss, excluding transaction
expenses associated with the RG Merger and SWIMS®acquisition,
including certain costs to restructure, amortization of fair market
value step up to certainacquired inventory and terminated retail
store operating loss
$ (2,227) $ (488)
Three months
ended (in thousands) June 30, 2016
June 30, 2015 (unaudited)
Reconciliation of
GAAP net loss to Adjusted EBITDA:
GAAP net loss $ (3,605) $ (488) Adjustments: Income tax
(benefit) provision (1,510) 105 Interest expense, net 1,995 134
Non-cash stock compensation (a) 312 - Depreciation and amortization
1,501 936 Terminated retail store operating loss (b) 21 -
Acquisition-related costs (c) 813 - Fair market value adjustments
to inventory (d) 192 Restructuring (e) 928 - Total
Adjustments 4,252 1,175 Adjusted EBITDA
(1) $ 647 $ 687 (1) Adjusted EBITDA is defined as net
(loss) income, excluding interest income or expense, income taxes,
depreciation and amortization, non-cash compensation, operating
loss associated with the closure of a retail store, acquisition
related costs, fair market value adjustments related to inventory
and restructuring costs. 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 to officers. (b) Represents the net
operating loss related to the lease termination for one Robert
Graham retail store that closed in June 2016. (c) Represents
acquisition-related costs related to legal, advisory and accounting
services in connection with the RG Merger and SWIMS® acquisition.
These costs are not representative of the Company’s day-to-day
business. (d) Represents a non-cash amortization of $192,000 of the
inventory stepped up to fair market value in connection with
Hudson’s inventory acquired in the RG Merger. (e) Represents
restructuring charges for severance and termination of consulting
arrangements related to the RG Merger.
DIFFERENTIAL BRANDS GROUP INC. AND SUBSIDIARIES NON-GAAP
OPERATING LOSS AND SEGMENT RESULTS (in thousands)
Three months ended June 30,
2016 June 30, 2015 (Unaudited) GAAP
operating loss $ (3,120) $ (249)
Transaction expenses associated with the
RG Merger and SWIMS® acquisition, including certain costs
torestructure, amortization of fair market value step up to certain
acquired inventory and terminated retail storeoperating loss
1,954 -
Non - GAAP operating loss, excluding
transaction expenses associated with the RG Merger and
SWIMS®acquisition, including certain costs to restructure,
amortization of fair market value step up to certain
acquiredinventory and terminated retail store operating loss
$ (1,166) $ (249) Non- GAAP operating income (loss):
Wholesale, excluding amortization of fair market value step up to
certain acquired inventory $ 5,300 $ 3,455 Consumer Direct,
excluding terminated retail store operating loss 522 913
Corporate and other, excluding transaction
expenses associated with the RG Merger and SWIMS®acquisition,
including certain costs to restructure
(6,988) (4,617)
Non - GAAP operating loss, excluding
transaction expenses associated with the RG Merger and
SWIMS®acquisition, including certain costs to restructure,
amortization of fair market value step up to certain
acquiredinventory and terminated retail store operating loss
$ (1,166) $ (249)
DIFFERENTIAL BRANDS GROUP INC.
AND SUBSIDIARIES NON-GAAP SEGMENT OPERATING EXPENSES
(in thousands) Three
months ended June 30, 2016 June 30, 2015
(Unaudited) GAAP operating expenses: Wholesale $
4,557 $ 414 Consumer Direct 6,412 4,636 Corporate and other
9,250 5,145 GAAP operating expenses $ 20,219 $ 10,195
Non- GAAP operating expenses: Wholesale $ 4,557 $ 414 Consumer
Direct 6,412 4,636
Corporate and other, excluding transaction
expenses associated with the RG Merger and SWIMS®acquisition,
including certain costs to restructure
7,509 5,145 Non - GAAP operating expenses $ 18,478 $
10,195
DIFFERENTIAL BRANDS GROUP INC. AND
SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (in thousands, except per share data)
Three months ended June 30,
2016 June 30, 2015 (Unaudited) Net sales $ 32,373
$ 16,256 Cost of goods sold 15,274 6,310 Gross profit
17,099 9,946 Operating expenses Selling, general and
administrative 18,718 9,259 Depreciation and amortization
1,501 936 20,219 10,195 Operating loss from
continuing operations (3,120) (249) Interest expense, net
1,995 134 Loss from continuing operations, before income tax
(benefit) provision (5,115) (383) Income tax (benefit) provision
(1,510) 105
Net loss $ (3,605) $ (488)
Loss per common share - basic $ (0.29) $ (0.06) Loss per
common share - diluted $ (0.29) $ (0.06) Weighted average
shares outstanding Basic 12,380 8,825 Diluted 12,380 8,825
See notes to unaudited condensed consolidated financial
statements filed with our periodic report on Form 10-Q with the SEC
that form an integral part of these financial statements.
The following table sets forth certain segment information for
the three months ended June 30, 2016 and 2015, respectively:
DIFFERENTIAL BRANDS GROUP INC. AND SUBSIDIARIES
SEGMENT RESULTS Three
months ended June 30, 2016 June 30, 2015 Net
sales:
(unaudited) Wholesale $ 22,755 $ 8,483 Consumer
Direct 9,097 7,245 Corporate and other 521 528 $
32,373 $ 16,256 Gross profit: Wholesale $ 9,665 $ 3,869
Consumer Direct 6,913 5,549 Corporate and other 521
528 $ 17,099 $ 9,946 Operating (loss) income: Wholesale $
5,108 $ 3,455 Consumer Direct 501 913 Corporate and other
(8,729) (4,617) $ (3,120) $ (249)
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Differential Brands Group Inc.Investor Relations:Hamish Sandhu,
323-558-5188
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