SUMR Brands ("SUMR Brands" or the "Company") (NASDAQ: SUMR), a
global leader in premium infant and juvenile products, today
announced financial results for the second quarter ended June 29,
2019.
Recent Highlights
- Net sales were $46.4 million in the second quarter versus $42.5
million in the first quarter of 2019 and $47.7 million in the
prior-year second quarter, as growth continued across the Company’s
leading channel partners and key product categories, offset by the
impact from tariffs versus the 2018 second quarter
- G&A declined 9% year-over-year, reflecting cost-reduction
initiatives
- Debt and inventory both declined sequentially from first
quarter levels, reflecting ongoing working capital improvement;
inventory turns increased to 3.9 times
- SUMR’s distribution center in China became fully operational
during the quarter, servicing international markets targeted for
expansion
“SUMR Brands continued to take decisive action
during the quarter to enhance long-term operating results, and we
were pleased to see improvement across a number of fronts,” said
Mark Messner, President and CEO. “Revenue grew 9% sequentially from
the first quarter – even with higher tariffs on goods from China –
while we reduced G&A by a similar amount year-over-year due to
our ongoing focus on cost-reduction initiatives. We also generated
$2.4 million of cash during the period, paid down over $2.0 million
of debt, and increased inventory turns to 3.9 times. We remain
committed to further reducing working capital and de-levering the
Company, while investing in new product introductions, hiring
select staff to drive revenue growth, and using advertising dollars
strategically to enhance consumer demand. Overall, we are pleased
with our second quarter achievements as steps toward our goals of
top line acceleration and sustained profitability, and we believe
the Company is well positioned heading into the second half of
2019.”
Second Quarter Results
Net sales for the three months ended June 29,
2019 were $46.4 million, up 9.1% compared with $42.5 million for
the three months ended March 31, 2019 but down 2.6% from the 2018
fiscal second quarter. The Company saw significant growth both
sequentially and year-over-year at its top three customers but was
negatively impacted by the 25% tariff on goods imported into the
United States from China and posted a decline in revenue with
international and mid-tier/specialty customers. Sales of gates,
potties, strollers, monitors, bathers, and positioners were among
the product categories that increased year-over-year.
Gross profit for the second quarter of 2019 was
$14.8 million versus $15.4 million in 2018, while gross margin was
32.0% in 2019 versus 32.3% last year. The margin decline was
primarily due to product mix and the impact from tariffs on goods
imported from China, along with additional demurrage expense.
Selling expense was $4.0 million in the second
quarter of 2019 versus $3.1 million in the prior-year period, and
selling expense as a percent of net sales was 8.7% in 2019 versus
6.5% last year. The increase in expense was primarily due to higher
advertising costs this year – tied to product launches and online
marketing initiatives – as compared to the three months ended June
30, 2018, which also included a larger component of direct import
sales.
General and administrative expenses (G&A)
were $8.5 million in the second quarter of 2019 versus $9.4 million
last year, decreasing to 18.4% of net sales in 2019 from 19.7% in
2018. The decline in dollars and as a percent of revenue was
attributable to lower labor and other expenses as a result of cost
reduction actions taken during the first quarter and the past
fiscal year.
Interest expense was $1.3 million in the second
quarter of 2019 versus $1.4 million last year. Expense for the
three months ended June 30, 2018 included a write-off of $0.5
million of previously-unamortized finance fees associated with the
repayment of debt tied to the Company’s June 2018 refinancing.
The Company reported a net loss of $0.2 million,
or $(0.01) per share, in the second quarter of 2019 compared with
net income of $0.3 million, or $0.02 per share, in the prior-year
period.
Adjusted EBITDA, as defined in the Company’s
credit agreements, for the second quarter of 2019 was $2.4 million
versus $3.3 million for the second quarter of 2018, and Adjusted
EBITDA as a percent of net sales was 5.3% in the second quarter of
2019 versus 7.0% last year. Adjusted EBITDA in 2019 included $0.1
million in bank permitted add-back charges compared with $0.2
million during the prior-year period. Adjusted EBITDA, adjusted net
loss, and adjusted loss per share are non-GAAP metrics. An
explanation is included under the heading below "Use of Non-GAAP
Financial Information," and reconciliations to GAAP measures can be
found in the tables at the end of this release.
Balance Sheet Highlights
As of June 29, 2019, the Company had
approximately $0.6 million of cash and $54.6 million of bank debt
compared with $0.7 million of cash and $47.9 million of bank debt
as of December 29, 2018. Debt was reduced $2.0 million versus the
first quarter of fiscal 2019, as the Company generated
approximately $2.4 million in cash from operations during the three
months ended June 29, 2019.
Inventory as of June 29, 2019 was $32.6 million
compared with $36.1 million as of December 29, 2018, with both
periods including certain purchases made ahead of higher tariffs on
China-sourced goods. Inventory is expected to return to more normal
levels in the third quarter of 2019. Trade receivables at the end
of the second quarter were $36.0 million compared with $31.2
million at the end of fiscal 2018, with the increase reflecting
higher product shipment. Accounts payable and accrued expenses were
$32.4 million as of June 29, 2019 compared with $37.1 million at
the beginning of the fiscal year.
Conference Call Information
Management will host a conference call to
discuss the financial results tomorrow, August 8, at 9:00 a.m.
Eastern. To listen to the live call, visit the Investor Relations
section of the Company's website at www.sumrbrands.com or dial
844-834-0642 or 412-317-5188. An archive of the webcast will be
available on the Company's website.
About SUMR Brands, Inc.
Based in Woonsocket, Rhode Island, the Company
is a global leader of premium juvenile brands driven by a
commitment to people, products, and purpose. The Company is made up
of a diverse group of experts with a passion to make family life
better by selling proprietary, innovative products across several
core categories. For more information about the Company, please
visit www.sumrbrands.com.
Use of Non-GAAP Financial
Information
This release and the referenced webcast include
presentations of non-GAAP financial measures, including Adjusted
EBITDA, adjusted net income/loss and adjusted earnings/loss per
diluted share. Adjusted EBITDA means earnings before interest
and taxes plus depreciation, amortization, non-cash stock-based
compensation expenses and other items added back as detailed in the
reconciliation table included in this release. Non-GAAP adjusted
net income/loss and adjusted earnings/loss per diluted share
exclude unamortized financing write off, a nonrecurring tax charge
and other items, and the tax impact of these items, as detailed in
the reconciliation table included in this release. Such information
is supplemental to information presented in accordance with GAAP
and is not intended to represent a presentation in accordance with
GAAP. The Company believes that these non-GAAP financial measures
provide useful information to investors to better understand, on a
period-to-period comparable basis, financial amounts both including
and excluding these identified items, as they indicate more clearly
the Company’s operations and its ability to meet capital
expenditure and working capital requirements. These non-GAAP
measures should not be considered in isolation or as an alternative
to such GAAP measures as net income, cash flows provided by or used
in operating, investing or financing activities or other financial
statement data presented in the Company’s consolidated financial
statements as an indicator of financial performance or
liquidity. The Company provides reconciliations of these
non-GAAP measures in its press releases of historical
performance. Because these measures are not determined in
accordance with GAAP and are susceptible to varying calculations,
these non-GAAP measures, as presented, may not be comparable to
other similarly titled measures of other companies.
Forward-Looking Statements
Certain statements in this release that are not
historical fact may be deemed “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, and the Company
intends that such forward-looking statements be subject to the safe
harbor created thereby. These statements are accompanied by
words such as “anticipate,” “expect,” “project,” “will,”
“believes,” “estimate” and similar expressions, and include
statements regarding the Company’s expectations with respect to
improved results and operating performance in the second half of
2019, including reducing working capital, de-levering the Company,
investing in new products, hiring select staff and enhancing
consumer demand. The Company cautions that these statements are
qualified by important factors that could cause actual results to
differ materially from those reflected by such forward-looking
statements. Such factors include the impact of recently imposed
tariffs or new tariffs on the cost and pricing of the Company’s
products; the Company’s ability to meet its liquidity requirements;
the concentration of the Company’s business with retail customers;
the ability of the Company to compete in its industry; the
Company’s ability to continue to control costs and expenses; the
Company’s dependence on key personnel; the Company’s reliance on
foreign suppliers; the Company’s ability to develop, market and
launch new products; the Company’s ability to manage inventory
levels and meet customer demand; the Company’s ability to grow
sales with existing and new customers and in new channels; the
Company’s ability to maintain availability under its loan
agreements; and other risks as detailed in the Company’s most
recent Annual Report on Form 10-K, its Quarterly Reports on Form
10-Q and other filings with the Securities and Exchange
Commission. The Company assumes no obligation to update the
information contained in this release.
Company Contact:Chris WittyInvestor
Relations646-438-9385cwitty@darrowir.com
Tables to Follow
|
|
Summer Infant, Inc. |
Consolidated Statements of
Operations |
(amounts in thousands of US dollars, except share and per
share data) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 29, 2019 |
|
June 30, 2018 |
|
June 29, 2019 |
|
June 30, 2018 |
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
46,425 |
|
|
$ |
47,678 |
|
|
$ |
88,963 |
|
|
$ |
89,733 |
|
Cost of goods sold |
|
|
31,583 |
|
|
|
32,284 |
|
|
|
60,671 |
|
|
|
60,747 |
|
Gross profit |
|
$ |
14,842 |
|
|
$ |
15,394 |
|
|
$ |
28,292 |
|
|
$ |
28,986 |
|
General and administrative expenses(1) |
|
|
8,523 |
|
|
|
9,376 |
|
|
|
17,902 |
|
|
|
21,964 |
|
Selling expenses |
|
|
4,031 |
|
|
|
3,091 |
|
|
|
7,384 |
|
|
|
5,769 |
|
Depreciation and
amortization |
|
|
952 |
|
|
|
1,074 |
|
|
|
1,889 |
|
|
|
2,075 |
|
Operating income/(loss) |
|
$ |
1,336 |
|
|
$ |
1,853 |
|
|
$ |
1,117 |
|
|
$ |
(822 |
) |
Interest expense |
|
|
1,293 |
|
|
|
1,409 |
|
|
|
2,542 |
|
|
|
2,182 |
|
Income/(loss) before
taxes |
|
$ |
43 |
|
|
$ |
444 |
|
|
$ |
(1,425 |
) |
|
$ |
(3,004 |
) |
Income tax
provision/(benefit) |
|
|
267 |
|
|
|
146 |
|
|
|
197 |
|
|
|
(595 |
) |
Net (loss)/income |
|
$ |
(224 |
) |
|
$ |
298 |
|
|
$ |
(1,622 |
) |
|
$ |
(2,409 |
) |
(Loss)/income per diluted share |
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
$ |
(0.09 |
) |
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
Shares used in fully diluted EPS |
|
|
18,899,340 |
|
|
|
18,735,858 |
|
|
|
18,866,100 |
|
|
|
18,690,711 |
|
|
|
|
|
|
|
|
|
|
(1) Includes stock based
compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP to Non-GAAP Financial
Measures |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 29, 2019 |
|
June 30, 2018 |
|
June 29, 2019 |
|
June 30, 2018 |
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted
EBITDA |
|
|
|
|
|
|
|
|
Net (loss)/income (GAAP) |
|
$ |
(224 |
) |
|
$ |
298 |
|
|
$ |
(1,622 |
) |
|
$ |
(2,409 |
) |
Plus: interest expense |
|
|
1,293 |
|
|
|
1,409 |
|
|
|
2,542 |
|
|
|
2,182 |
|
Plus: provision/(benefit) for income taxes |
|
|
267 |
|
|
|
146 |
|
|
|
197 |
|
|
|
(595 |
) |
Plus: depreciation and amortization |
|
|
952 |
|
|
|
1,074 |
|
|
|
1,889 |
|
|
|
2,075 |
|
Plus: non-cash stock based
compensation expense |
|
|
104 |
|
|
|
216 |
|
|
|
152 |
|
|
|
314 |
|
Plus: permitted add-backs
(a) |
|
|
54 |
|
|
|
183 |
|
|
|
738 |
|
|
|
3,114 |
|
Adjusted EBITDA (Non-GAAP) |
|
$ |
2,446 |
|
|
$ |
3,326 |
|
|
$ |
3,896 |
|
|
$ |
4,681 |
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted EPS |
|
|
|
|
|
|
|
|
Net (loss)/income (GAAP) |
|
$ |
(224 |
) |
|
$ |
298 |
|
|
$ |
(1,622 |
) |
|
$ |
(2,409 |
) |
Plus: permitted add-backs(a) |
|
|
54 |
|
|
|
183 |
|
|
|
738 |
|
|
|
3,114 |
|
Plus: unamortized financing fees(b) |
|
|
- |
|
|
|
518 |
|
|
|
- |
|
|
|
518 |
|
Tax impact of items impacting comparability(c) |
|
|
(15 |
) |
|
|
(196 |
) |
|
|
(207 |
) |
|
|
(1,017 |
) |
Adjusted net (loss)/income (Non-GAAP) |
|
$ |
(185 |
) |
|
$ |
803 |
|
|
$ |
(1,091 |
) |
|
$ |
206 |
|
Adjusted (loss)/earnings per diluted share (Non-GAAP) |
|
$ |
(0.01 |
) |
|
$ |
0.04 |
|
|
$ |
(0.06 |
) |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Permitted add-backs consist of items that the Company is
permitted to add-back to the calculation of consolidated EBITDA
under its credit agreements. Permitted add-backs for the
three months ended June 29, 2019 include board fees $101 ($28 tax
impact), special projects $5 ($2 tax impact), less a credit to
severance ($52) ($15 tax impact). Permitted add-backs for the
three months ended June 30, 2018 include board fees $96 ($27 tax
impact), special projects $67 ($19 tax impact), and severance
related costs $20 ($5 tax impact). Permitted add-backs for
the six months ended June 29, 2019 include severance $511 ($144 tax
impact), board fees $201 ($56 tax impact) and special projects $26
($7 tax impact). Permitted add-backs for the six months ended
June 30, 2018 include bad debt $2,340 ($655 tax impact), severance
related costs $441 ($124 tax impact), board fees $193 ($54 tax
impact) and special projects $140 ($39 tax impact). |
(b) Write off of unamortized financing costs and termination fees
associated with the Company's old credit facility, reflecting a
$518 ($145 tax impact) charge for the three and six months ending
June 30, 2018. |
(c) Represents the aggregate tax impact of the adjusted items set
forth above based on the statutory tax rate for the periods
presented relevant to their jurisdictions. |
|
|
|
|
|
|
|
|
|
Summer Infant, Inc |
Consolidated Balance Sheet |
(amounts in thousands of US dollars) |
|
|
|
|
|
|
|
|
|
|
June 29, 2019 |
|
|
December 29, 2018 |
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
580 |
|
$ |
721 |
Trade receivables, net |
|
|
35,975 |
|
|
31,223 |
Inventory, net |
|
|
32,599 |
|
|
36,066 |
Property and equipment, net |
|
|
9,621 |
|
|
9,685 |
Intangible assets, net |
|
|
13,044 |
|
|
13,300 |
Other assets(1) |
|
|
8,858 |
|
|
3,221 |
Total assets |
|
$ |
100,677 |
|
$ |
94,216 |
|
|
|
|
|
|
|
Accounts payable |
|
$ |
24,679 |
|
$ |
28,120 |
Accrued expenses |
|
|
7,745 |
|
|
8,939 |
Current portion of long-term debt |
|
|
875 |
|
|
875 |
Long term debt, less current portion (2) |
|
|
51,249 |
|
|
44,641 |
Other liabilities(1) |
|
|
8,116 |
|
|
2,371 |
Total liabilities |
|
|
92,664 |
|
|
84,946 |
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
8,013 |
|
|
9,270 |
Total liabilities and stockholders’ equity |
|
$ |
100,677 |
|
$ |
94,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes the effect of the new lease accounting guidance under
U.S. GAAP for June 29, 2019 capitalizing Right of Return Assets and
Lease Liabilities relative to the company’s operating leases. |
(2) Under U.S. GAAP, long term debt is reported net of unamortized
financing fees. As a result, reported long term debt is
reduced by $2,432 and $2,395 of unamortized financing fees in the
periods ending June 29, 2019 and December 29, 2018,
respectively. |
|
|
|
|
|
|
|
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