EBHI Eddie Bauer Holdings (MM)

SEATTLE, May 14 /PRNewswire-FirstCall/ -- Eddie Bauer Holdings, Inc. (NASDAQ:EBHI) today reported financial performance for the first quarter ended April 4, 2009. Operating loss increased by 11.0%, or $2.8 million to $28.2 million in the quarter, primarily due to lower net merchandise sales and gross margins, which were substantially offset by increased savings in selling, general and administrative (SG&A) expenses. Loss before interest expense, income taxes, depreciation and amortization (EBITDA), excluding the impacts associated with the amendment of the Company's senior term loan and severance charges in the first quarter, increased by $7.0 million to $19.5 million. "The first quarter was a difficult one, as the sharp downturn in the economy took its toll on our sales. We continued to focus on cost cutting and cash flow management, which helped mitigate the impact of lower sales," said Neil Fiske, President and Chief Executive Officer. FIRST QUARTER HIGHLIGHTS Revenue Total revenues for the quarter decreased by $33.4 million to $179.8 million, compared to $213.2 million in the first quarter of 2008. Combined comparable store sales fell 11.3% when excluding the effect of Canadian exchange rates. Comparable store sales continue to be impacted by the general economic conditions and reduced consumer retail spending. Direct revenue was down 10.7%. Catalog circulation pages were down approximately 22.6% for the quarter, while catalog productivity was up approximately 11.2% on a more targeted mailing strategy. Q1 2009(%) Comp Store Sales by Q1 2009 (%) (excl. CDN Q1 2008 (%) Channel impact) -------- ----------- -------- ----------- Combined (retail and outlet) (13.7) (11.3) 0.5 Retail (18.4) (14.7) 2.9 Outlet (5.8) (5.8) (3.1) Direct (10.7) (10.7) 0.3 Net merchandise sales, included within total revenues, decreased by $29.4 million as follows: Q1 2009 Q1 2008 ($in ($in % Change millions) millions) ---------- ---------- -------- Net Merchandise Sales 168.9 198.3 (14.8) Retail and Outlet 112.0 134.5 (16.8) Direct 56.9 63.7 (10.7) The Company operated 251 retail stores and 119 outlet stores at the end of the first quarter of 2009, compared with 247 and 118 stores, respectively, in 2008. Gross Margins Gross margin percentage declined to 24.5% in the first quarter from 27.6% in the year-ago quarter. Gross margin dollars decreased by $13.3 million to $41.4 million in the first quarter of 2009 compared to $54.7 million in the prior year quarter. The decreased gross margin percentage primarily resulted from a lower net merchandise sales base across which to spread fixed buying and occupancy costs. Selling, General and Administrative (SG&A) SG&A decreased by $14.7 million (15.4%) in the first quarter of 2009 and included approximately $1.2 million in severance costs associated with the January 2009 193-person reduction in workforce and a reduction in previously recorded severance amounts. EBITDA and Operating Loss EBITDA is an important non-GAAP financial measure used to measure operating performance. EBITDA loss increased by $7.0 million to a $19.5 million loss for the quarter when excluding the impacts associated with the April 2009 amendment of the Company's senior term loan and severance charges. The term loan impacts included a $10.3 million non-cash loss on the fair value of the Company's hedge on a portion of the senior term loan interest rate. The fair value accounting adjustment of the hedge does not affect the Company's cash flow or operating profit. "Loss before Income Tax Benefit" (shown below) is considered the comparable GAAP measure. (See the attached table, "Reconciliation of Non-GAAP Financial Measures," for a more complete description.) Operating loss was $28.2 million compared to $25.4 million in the year-ago period. The increased operating loss was primarily driven by lower net merchandise sales and gross margins, offset by a $14.7 million decrease in SG&A expenses as compared to the prior year quarter. Q1 2009 Q1 2008 ($in ($in $Change millions) millions) ---------- ---------- ------- Operating Loss (28.2) (25.4) (2.8) EBITDA (31.0) (15.1) (15.9) EBITDA excluding non-recurring and non-operational items (19.5) (12.5) (7.0) Loss before Income Tax Benefit (45.2) (31.0) (14.2) Net Loss (44.5) (19.3) (25.2) Net Loss Net loss for the first quarter increased by $25.2 million to $44.5 million, or $1.44 per share. The increased net loss was primarily attributable to two non-cash items: a non-cash $10.3 million accounting loss on the senior term loan interest rate hedge; and a lower non-cash income tax benefit of $11.0 million. Other Financial Highlights Inventories: Decreased to $139.0 million at 2009 first quarter end from $148.2 million a year earlier, a decrease of $9.2 million or 6.2% or 8.9% on a per store basis. Senior Term Loan: Principal amounts owed under the senior term loan decreased to $187.8 million at 2009 first quarter end from $194.5 million a year earlier, a reduction of $6.7 million. Reductions to the outstanding balance included $16.3 million of mandatory and excess cash flow payments, offset by a principal balance increase of $9.6 million in non-cash payment-in-kind fees resulting from the first quarter 2009 amendment. The senior term loan is recorded at $166.5 million on the Company's balance sheet, which is net of a $21.3 million discount to reflect the fair value of the amended loan and common stock warrants to be issued to the lenders. A deferred cash amendment fee of $3.8 million is due on November 30, 2009. Short Term Borrowings: Our $150 million revolving line of credit increased to $31.9 million at the end of the first quarter of 2009 from $9.3 million at first quarter end 2008, an increase of $22.6 million primarily due to a $14.7 million mandatory excess cash flow payment to the term loan and the timing of funds clearing for future period expenses during the quarter as compared to the prior year. Convertible Notes: Principal amounts owed under the convertible notes remained unchanged at $75 million. The Company was required to adopt a new accounting policy in the first quarter which required that the notes be split between the fair value of the debt without conversion features, with the residual carrying amount recorded within equity. Therefore, the notes are recorded at $21.4 million, net of a discount of $53.6 million as of the end of the quarter. Additionally, because the notes are no longer required to be settled in cash as of the beginning of fiscal 2009, the Company is no longer required to record the derivative liability associated with the conversion features at market value. Net Capital Expenditures: Decreased by $1.6 million to $1.5 million for the first three months of 2009 from $3.1 million for the comparable period in 2008, as a result of fewer store openings and decreased remodeling costs in 2009. Cash Taxes: Decreased by $4.1 million to $0.5 million for the first quarter of 2009 from $4.6 million for the prior year comparable period, primarily due to lower Canadian tax payments. Details of the Company's financial performance for the first quarter of 2009 are available in the Quarterly Report on Form 10-Q for the period ended April 4, 2009. Conference Call The Company will host a conference call on May 14, 2009, at 1:30 pm PDT (4:30 pm EDT) to discuss its financial results for the first quarter 2009. -- To access the live conference call, participants may dial 877-681-3378 or 719-325-4799. -- A simultaneous webcast will be available and can be accessed through the investors section of Eddie Bauer's website at http://investors.eddiebauer.com/events.cfm. -- Following the call, a recorded replay of the conference call may be accessed through the investors section of the Company's website. In addition, a telephonic replay will be available through May 21, 2009 by dialing 888-203-1112 or 719-457-0820 and entering the code 4574768. About Eddie Bauer Established in 1920 in Seattle, Eddie Bauer is a specialty retailer that sells outerwear, apparel and accessories for the active outdoor lifestyle. The Eddie Bauer brand is a nationally recognized brand that stands for high quality, innovation, style and customer service. Eddie Bauer products are available at 371 stores throughout the United States and Canada, through catalog sales and online at http://www.eddiebauer.com/. Eddie Bauer participates in a joint venture in Japan and has licensing agreements across a variety of product categories. SAFE HARBOR STATEMENTS This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as "may," "might," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "potential," qualifiers such as "preliminary", and similar expressions. Forward-looking statements are not guarantees of future events, and the Company can provide no assurance that such statements will be realized. The Company can provide no assurance that events in the future will not negatively impact the Company's liquidity through lender-imposed reserves or vendor demands for payment security, or require the Company to seek additional capital or further amendments to its financing arrangements or, if so required, that such capital will be on available on terms acceptable to the Company. Forward-looking statements contained in this press release are based on estimates and assumptions, which assumptions and estimates may prove to be inaccurate, and involve risks and uncertainties. Actual results may differ from those contemplated by such forward-looking statements as a result of a variety of factors, including a continued downturn in the national and global economies; the ability to meet the covenants contained in the Company's various credit facilities and to service the attendant debt load; changes in consumer confidence and consumer spending patterns; the Company's inability to effectuate the proposed turnaround of Eddie Bauer as a premium quality brand and improve profitability of its retail and outlet stores, catalogs and website operations; the inability to source goods on terms and conditions acceptable to the Company; disruptions in the supply of inventory as a result of concerns about general economic conditions or specific concerns related to the Company; the inability to hire, retain and train key personnel; risks associated with legal and regulatory matters; risks associated with rising energy costs; the volatility of foreign exchange rates as they impact results of operations; risks associated with reliance on information technology; increased levels of merchandise returns not estimated by management; the inability to source requirements from current sourcing agents; disruption in back-end operations; the inability of the Company's joint venture partner to operate the joint venture effectively; the inability to protect trademarks and other proprietary intellectual property rights; unseasonable or severe weather conditions; the Company's inability to use its federal net operating loss carryforwards, whether as a result of lack of future income from tax purposes or otherwise; and the other risks identified in our periodic reports filed pursuant to the Securities Exchange Act of 1934, as amended, including the Company's Annual Report on Form 10-K for the period ended January 3, 2009. The information contained in this release is as of May 14, 2009, and except as required by law, the Company undertakes no obligation to update any of these forward-looking statements. --Tables Follow-- Contacts: Investors and Media Eddie Bauer Holdings, Inc. Marv Toland, Chief Financial Officer 425-755-6310 EDDIE BAUER HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) ($ in thousands, except per share data) As of As of April 4, January 3, 2009 2009 -------- -------- Cash and cash equivalents $2,619 $60,425 Restricted cash 182 180 Accounts receivable, less allowances for doubtful accounts of $239 and $241, respectively 17,707 25,181 Inventories 138,988 136,423 Prepaid expenses 31,081 27,667 -------- -------- Total Current Assets 190,577 249,876 Property and equipment, net of accumulated depreciation of $116,406 and $109,452, respectively 156,861 163,498 Goodwill 43,174 43,174 Trademarks 105,110 105,065 Other intangible assets, net of accumulated amortization of $21,875 and $20,441, respectively 13,125 14,559 Other assets 16,377 20,748 -------- -------- Total Assets $525,224 $596,920 ======== ======== Trade accounts payable $30,081 $50,041 Bank overdraft 2,312 9,770 Accrued expenses 73,628 92,527 Deferred tax liabilities - current 8,267 6,408 Current liabilities to Spiegel Creditor Trust 182 180 Short-term borrowings 31,862 - Current portion of long-term debt - 14,693 -------- -------- Total Current Liabilities 146,332 173,619 Deferred rent obligations and unfavorable lease obligations, net 42,682 43,035 Deferred tax liabilities - noncurrent 32,868 34,707 Senior term loan, including "paid-in-kind" (PIK) loan, of $187,765 net of discount of $21,297 as of April 4, 2009 and $178,076 with no discount as of January 3, 2009 166,468 178,076 Convertible notes and embedded derivative liability as of January 3, 2009, net of discount of $53,583 and $17,284, respectively 21,417 59,418 Other long-term liabilities 16,415 12,617 Pension and other post-retirement benefit liabilities 22,725 22,638 -------- -------- Total Liabilities 448,907 524,110 Commitments and Contingencies Common stock: $0.01 par value, 100 million shares authorized; 30,829,530 and 30,824,275 shares issued and outstanding as of April 4, 2009 and January 3, 2009, respectively 308 308 Treasury stock, at cost (157) (157) Additional paid-in capital 632,058 593,621 Accumulated deficit (546,749) (502,288) Accumulated other comprehensive loss, net of taxes of $0 and $0, respectively (9,143) (18,674) -------- -------- Total Stockholders' Equity 76,317 72,810 -------- -------- Total Liabilities and Stockholders' Equity $525,224 $596,920 ======== ======== EDDIE BAUER HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) ($ in thousands) Three Three Months Months Ended Ended April 4, March 29, 2009 2008 -------- --------- Net sales and other revenues $179,776 $213,244 Costs of sales, including buying and occupancy 127,512 143,524 Selling, general and administrative expenses 80,477 95,131 ------ ------ Total operating expenses 207,989 238,655 Operating loss (28,213) (25,411) Interest expense (5,045) (5,474) Other income (expense), net (10,216) 4,222 Equity in losses of foreign joint ventures (1,697) (4,340) ------- ------- Loss before income tax benefit (45,171) (31,003) Income tax benefit (710) (11,704) ----- -------- Net loss $(44,461) $(19,299) ========= ========= EDDIE BAUER HOLDINGS, INC. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited) ($ in thousands) Three Three Months Months Ended Ended April 4, March 29, 2009 2008 -------- --------- Loss before income tax benefit $(45,171) $(31,003) Interest expense 5,045 5,474 Depreciation and amortization 9,159 10,446 ----- ------ EBITDA (30,967) (15,083) Severance charges 1,225 2,500 Gain on extinguishment of debt (24) - Loss on ineffective cash flow hedge 10,252 - Impairment of foreign joint venture - 3,922 Fair value adjustment of convertible note embedded derivative - (3,875) liability ----- ------- EBITDA, excluding non-recurring and non-operational items $(19,514) $(12,536) ============ ============ DATASOURCE: Eddie Bauer Holdings, Inc. CONTACT: Investors and Media, Marv Toland, Chief Financial Officer of Eddie Bauer Holdings, Inc., +1-425-755-6310 Web Site: http://www.eddiebauer.com/

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