Frederick's of Hollywood

Frederick’s of Hollywood Group Inc. Reports Financial Results for Fiscal 2011 Second Quarter

Monday 14 March 2011

- - -

New York, New York – March 14, 2011 —Frederick’s of Hollywood Group Inc. (NYSE Amex: FOH) (“Company”) today announced financial results for its fiscal 2011 second quarter ended January 29, 2011.

Thomas Lynch, the Company’s Chairman and Chief Executive Officer, stated, “Although we are disappointed with our lower retail store sales, we continue to make significant progress in improving our overall retail business.  We primarily attribute these lower sales to late deliveries of merchandise, which resulted from credit limits imposed by certain of our vendors prior to the sale of our wholesale division.  These late deliveries, coupled with our conservative expectations for the holiday season, resulted in lower than optimal inventory levels.  Due to our improved financial condition following the sale of the wholesale division, our vendors have increased the credit limits that they offer us, which we believe will result in timely product deliveries going forward.”

Mr. Lynch continued, “The product and design choices made by our merchandising and design team that was in place in fiscal year 2010 also contributed to the sales decrease.  In conjunction with our strategic decision to focus solely on our core retail operations, we reorganized our merchandising team, which is now led by our new Senior Vice President of Merchandising.  As merchandise is ordered well in advance of the applicable selling season, we believe that we will begin to see the new team’s impact on our product assortment commencing in the fourth quarter of fiscal year 2011.”

Fiscal 2011 Second Quarter Compared to Fiscal 2010 Second Quarter:

·         Net loss applicable to common shareholders was $3.3 million or $(0.08) per diluted share, compared to a net loss of $4.9 million or $(0.18) per diluted share.

o        Net loss from continuing operations increased to $2.8 million from $2.3 million.

o        Net loss from discontinued operations, net of tax, decreased to $460,000 from $2.4 million.

·         Adjusted EBITDA from continuing operations was a loss of $1.3 million compared to a loss of $0.4 million.  A reconciliation of GAAP results to Adjusted EBITDA from continuing operations, a non-GAAP measurement, is provided in the accompanying table.

·         Net sales decreased 11.3% to $32.6 million from $36.7 million.

o        Total store sales decreased 19.8% while comparable store sales decreased 16.5%.

o        Direct sales (catalog and website operations) increased 2.2%.

·         Gross margin, as a percentage of net sales, decreased to 35.0% from 36.7%.

·         Selling, general and administrative expenses decreased by 8.6% to $13.8 million, or 42.5% of sales, from $15.1 million or 41.2% of sales.

Fiscal Six Months Ended January 29, 2011 Compared to Fiscal Six Months Ended January 23, 2010:

·         Net loss applicable to common shareholders was $4.5 million, or ($0.12) per diluted share, compared to a net loss of $9.3 million, or ($0.35) per diluted share.

o        Net loss from continuing operations decreased to $3.1 million from $4.9 million.

o        Net loss from discontinued operations, net of tax, decreased to $1.4 million from $4.1 million.

·         Adjusted EBITDA from continuing operations was a loss of $0.2 million compared to a loss of $1.4 million.  A reconciliation of GAAP results to Adjusted EBITDA from continuing operations, a non-GAAP measurement, is provided in the accompanying table.

·         Net sales decreased 9.8% to $61.2 million from $67.9 million.

o        Total store sales decreased 15.0% while comparable store sales decreased 12.0%.

o        Direct sales (catalog and website operations) decreased 1.0%.

·         Gross margin, as a percentage of net sales, increased to 37.4% from 36.0%.

·         Selling, general and administrative expenses decreased by 11.2% to $25.2 million, or 41.2% of sales, from $28.4 million or 41.8% of sales.

“Looking ahead, we remain focused on continuing to implement changes in our business strategy through our various operating initiatives, including developing our brand into a sexy lifestyle brand, partnering with strategic product licensees, exploring opportunities with international partners and evolving our customer contact strategy through both print and ecommerce,” concluded Mr. Lynch.

Non-GAAP Financial Measures

For purposes of evaluating our continuing operating performance, the Company uses an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) measurement, which is computed as the net loss from continuing operations appearing on the statement of operations plus depreciation and amortization, interest, income tax expense and non-cash stock compensation expense.  Adjusted EBITDA from continuing operations is used by management to evaluate the operating performance of the Company’s business for comparable periods.  Adjusted EBITDA from continuing operations should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items.

While Adjusted EBITDA from continuing operations is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:

·         Adjusted EBITDA from continuing operations excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs; and

·         other significant items, while periodically affecting the Company’s results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects the comparability of results.

 

Three Months Ended

 

Six Months Ended

  

 

January 29, 2011

January 23, 2010

 

January 29, 2011

January 23, 2010

  
 

Net loss from continuing operations

 $(2,794)

 $(2,279)

 

 $(3,091)

 $(4,908)

  

Depreciation and amortization

 769

 1,080

 

 1,611

2,164

 

Interest

  344

 589

 

 743

  950

 

Income tax expense

  15

  23

 

    40

  39

 

Stock compensation expense

403

   189

 

  499

 392

 

Adjusted EBITDA

 $(1,263)

 $  (398)

 

 $   (198)

 $(1,363)

  

Forward Looking Statement

Certain of the matters set forth in this press release are forward-looking and involve a number of risks and uncertainties.  These statements are based on management’s current expectations or beliefs.  Actual results may vary materially from those expressed or implied by the statements herein.  Among the factors that could cause actual results to differ materially are the following: competition; business conditions and industry growth; rapidly changing consumer preferences and trends; general economic conditions; working capital needs; continued compliance with government regulations; loss of key personnel; labor practices; product development; management of growth, increases in costs of operations or inability to meet efficiency or cost reduction objectives; timing of orders and deliveries of products; foreign government regulations and risks of doing business abroad; and the other risks that are described from time to time in Frederick’s of Hollywood Group Inc.’s SEC reports.  Frederick’s of Hollywood Group Inc. is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

 

About Frederick’s of Hollywood Group Inc.

Frederick’s of Hollywood Group Inc., through its subsidiaries, sells women’s intimate apparel, swimwear and related products under its proprietary Frederick’s of Hollywood® brand through 126 specialty retail stores, a world-famous catalog and an online shop at http://www.fredericks.com/.  With its exclusive product offerings including Seduction by Frederick’s of Hollywood, the Hollywood Exxtreme Cleavage® bra and Hollywood Sizzle Pool Party Swim™, Frederick’s of Hollywood is the Original Sex Symbol®.

Our press releases and financial reports can be accessed on our corporate website at http://www.fohgroup.com.

This release is available on the KCSA Strategic Communications Web site at http://www.kcsa.com.

CONTACT:                                                      
Frederick’s of Hollywood Group Inc.                   
Thomas Rende, CFO                                                    
(212) 779-8300

Investor Contacts: 

Todd Fromer / Garth Russell 
KCSA Strategic Communications
212-896-1215 / 212-896-1250
tfromer@kcsa.com / grussell@kcsa.com




FREDERICK'S OF HOLLYWOOD GROUP INC.

  

CONDENSED CONSOLIDATED BALANCE SHEETS

  

(In Thousands)

  

January 29,

July 31,

  

2011

2010

  

(Unaudited)

(Audited)

  

ASSETS


 

CURRENT ASSETS:


 

Cash and cash equivalents

$   268

$    536

  

Restricted cash

-

4,660

  

Accounts receivable

1,260

1,127

  

Income tax receivable

85

127

  

Merchandise inventories

12,537

10,951

  

Prepaid expenses and other current assets

2,878

2,298

  

Deferred income tax assets

508

875

  

Current assets of discontinued operations

225

4,185

  

Total current assets

17,761

24,759

  




 

PROPERTY AND EQUIPMENT, Net

12,313

13,861

  

INTANGIBLE AND OTHER ASSETS

19,109

19,392

  

LONG-TERM ASSETS OF DISCONTINUED OPERATIONS

-

960

  

TOTAL ASSETS

$49,183

$ 58,972

  




 

LIABILITIES AND SHAREHOLDERS' EQUITY


 

CURRENT LIABILITIES:




 

Revolving credit facility

$  2,010

$  3,269

  

Accounts payable and other accrued expenses

17,272

20,198

  

Deferred revenue from gift cards

2,021

1,781

  

Current liabilities of discontinued operations

571

2,041

  

Total current liabilities

21,874

27,289

  




 

DEFERRED RENT AND TENANT ALLOWANCES

4,909

4,926

  

TERM LOAN

7,215

7,002

  

OTHER

35

70

  

DEFERRED INCOME TAX LIABILITIES

7,744

8,377

  

TOTAL LIABILITIES

41,777

47,664

  

SHAREHOLDERS' EQUITY

7,406

11,308

  

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$49,183

$58,972

  

 
       


FREDERICK'S OF HOLLYWOOD GROUP INC.

  

CONSOLIDATED STATEMENTS OF OPERATIONS

  

(Unaudited)

  

(In Thousands, Except Per Share Amounts)

  

 


Three Months Ended

Six Months Ended

  


January 29,

January 23,

January 29,

January 23,

  


2011

2010

2011

2010

  









 

Net sales

$32,582

$36,743

$61,199

$67,857

  

Cost of goods sold, buying and occupancy

21,167

23,266

38,315

43,422

  

  Gross profit


11,415

13,477

22,884

24,435

  

Selling, general and administrative expenses

13,850

15,144

25,192

28,354

  

Operating loss

(2,435)

(1,667)

(2,308)

(3,919)

  

Interest expense, net

344

589

743

950

  

  Loss from continuing operations before

  income tax provision

(2,779)

(2,256)

(3,051)

(4,869)

  

Income tax provision

15

23

40

39

  

Net loss from continuing operations

(2,794)

(2,279)

(3,091)

(4,908)

  

Net loss from discontinued operations


(460)

(2,439)  

(1,393)

(4,146)

  

Net loss

(3,254)

(4,718)

(4,484)

(9,054)

  

Less: Preferred stock dividends

   -

142

   -

261

  

Net loss applicable to common shareholders

$(3,254)

$(4,860)

$ (4,484)  


$(9,315)

  









 

Basic and diluted net loss per share from continuing operations

$(0.07)

$(0.09)

$(0.08)

$  (0.19)

  

Basic and diluted net loss per share from discontinued operations

(0.01)

   (0.09)

(0.04)

(0.16)

  

Total basic and diluted net loss per share applicable to common shareholders

$(0.08)

$(0.18)

$(0.12)

$(0.35)

  









 

Weighted average shares outstanding – basic and diluted

38,453

26,417

38,401

26,412