Apparel company undertakes change
03/20/2010 11:56 AM
03/20/2010 11:59 AM
A difficult year ended with a strong finish for Perry Ellis, as the Miami apparel company realized the benefits of its turnaround strategy.
By getting out of unprofitable businesses, adding new areas for growth and improving profit margins, Perry Ellis on Friday reported fourth quarter results that exceeded analysts' expectations. The company reported net income for the fourth quarter ending Jan. 31 of $8.5 million, or 64 cents a share, compared with a loss of $21.6 million, or $1.58 a share, a year ago. Analysts were expecting earnings of 59 cents per share.
"The turnaround is in full swing," said Eric Beder, senior vice president with Brean Murray, Carret & Co. "They've done a great job of undertakes responding in a crisis and turning it into a better company. They really used the time to rethink who they were and what the stood for."
Perry Ellis ended the year with a profit of $13.2 million or $1.01 per fully diluted share. That compares to a net loss of $12.9 million or $.89 per fully diluted share, for the same period last year.
During 2009, Perry Ellis aggressively cut costs by getting out of non-performing businesses like men's specialty stores, private label and outerwear.
"When you're doing well you try to keep the weak sister and you try to cure her," Chairman George Feldenkreis said.
"We decided we had to have surgery."
By cutting costs and controlling expenses, Perry Ellis reduced selling, general and administrative expenses by $36 million, or 15 percent, for the fiscal year ending in January.
The turnaround was helped by a strong fourth quarter performance from the signature Perry Ellis brand, as well as the launch of new apparel contracts with Callaway Golf and a license for Pierre Cardin.
The Perry Ellis brand benefited from efforts to refocus its product assortment on an updated classic look, which the brand had gotten away from in 2008 and early 2009. The success of the new merchandise mix helped dramatically reduce the amount of markdown dollars Perry Ellis had to give back to Macy's and other retailers.
"As we reinvented the line with what Perry Ellis should be, it started to outsell everybody else," Feldenkreis said.
"Before, they were all dropping Perry Ellis. Now they are clamoring to get it back."
Feldenkreis also said he believes the company is benefiting as consumer spending returns, forcing retailers to start to increase inventory levels to meet demand.
Perry Ellis said that for Fiscal 2011 it anticipates earnings per fully diluted share of between $1.25 and $1.40. Revenues are predicted to be in the range of $770 million to $790 million, a low- to mid-single digit gain.
"They are offering a realistic plan to investors that they can beat," said Beder, who reaffirmed his "buy'' rating on the stock and raised the price target to $27 per share. ‘‘That's always good news for investors."
Perry Ellis' stock has gained about 40 percent over the last month.
Although the stock opened strong on Friday hitting a 52-week high of $23.44, it fell back during the day as it got impacted by the overall decline in the stock market. Perry Ellis ended the day at $20.90 per share, down $2.97.
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