Company Announces Appointment of New Chief Merchandising Officer
PHILADELPHIA, Jan. 24 /PRNewswire-FirstCall/ -- Mothers Work, Inc.
(Nasdaq: MWRK), the world's leading maternity apparel retailer, today
announced operating results for the first quarter of fiscal 2008 ended
December 31, 2007 and announced the appointment of its new Chief
Merchandising Officer.
Net loss for the first quarter of fiscal 2008 was $(0.4) million, or
$(0.06) per common share (diluted), compared to net income for the first
quarter of fiscal 2007 of $1.4 million, or $0.23 per common share
(diluted). Net income before the debt repurchase charge for the first
quarter of fiscal 2007 was $2.7 million, or $0.43 per common share
(diluted). There was no debt repurchase charge in the first quarter of
fiscal 2008. The net loss for the first quarter of fiscal 2008 of $(0.06)
per share was consistent with the Company's updated first quarter earnings
per share guidance range of a loss of between $(0.04) and $(0.08) per share
provided in its January 10, 2008 press release, but was below its previous
diluted earnings per share guidance range of between $0.11 and $0.25 per
share provided in its November 20, 2007 press release.
Net sales for the first quarter of fiscal 2008 decreased 3.8% to $142.9
million from $148.5 million in the same quarter of the preceding year.
Comparable store sales decreased 4.1% during the first quarter of fiscal
2008 (based on 1,352 locations) versus a comparable store sales decrease of
2.1% during the first quarter of fiscal 2007 (based on 1,454 locations).
For the quarter ended December 31, 2007, the Company opened seven stores,
including two new multi-brand stores, which included the Company's 15th
Destination Maternity(R) superstore, and closed 16 stores, including eight
store closings related to multi-brand store openings. During the quarter,
the Company also closed 23 leased department locations within Sears(R)
stores, pursuant to mutual agreement with Sears. As of December 31, 2007,
the Company operates 478 leased departments within Sears stores and, as we
disclosed in September 2007, our relationship with Sears will end on June
20, 2008, resulting in the closure of our leased departments within Sears
stores. Adjusted EBITDA was $6.5 million for the first quarter of fiscal
2008, a significant decrease from the $12.0 million of Adjusted EBITDA for
the first quarter of fiscal 2007. Adjusted EBITDA is defined in the
financial tables at the end of this press release.
During December 2006, the Company redeemed $25 million principal amount
of its then outstanding 11-1/4% Senior Notes at a price of 105.625% of
principal amount, plus accrued interest, resulted in a "Loss on
extinguishment of debt" of $2.1 million on a pre-tax basis, or $0.21 per
share on an after-tax basis. In April 2007, the Company completed the
redemption of the remaining $90 million principal amount of its Senior
Notes through a new Term Loan financing, which the Company estimates is
resulting in a decrease in annualized pre-tax interest expense of
approximately $3.6 million, and an annualized benefit to earnings per share
of approximately $0.36 per share. This decrease in annualized interest
expense from the new Term Loan financing began to be recognized in the
Company's fiscal 2007 third quarter.
Mothers Work also today announced that Lisa Hendrickson, the Company's
current Vice President of Design and Acting Senior Vice President of
Merchandising, has been promoted to the position of Chief Merchandising
Officer. Ms. Hendrickson has over twenty years of apparel
design/merchandising experience and has served as Acting Senior Vice
President of Merchandising of the Company since November 2007, and as Vice
President of Design of the Company since June 2006. Ms. Hendrickson
previously served as the Design Director of the Company's Motherhood
Maternity(R) brand from February 1998 to May 2006. From July 1985 to
February 1998, Ms. Hendrickson served in a variety of apparel design
positions performing various merchandising activities including creating
private label product lines for several leading apparel retailers.
Rebecca Matthias, President and Chief Creative Officer of Mothers Work,
noted, "Our sales for the first quarter were significantly weaker than
planned, although we did see a significant improvement in our sales trend
late in December and continuing into January 2008. During October 2007
sales of Fall merchandise were significantly hurt by a continued pattern of
very unseasonably warm weather throughout most of the United States which
had begun in September 2007. Reports indicated that October 2007 was the
5th warmest October ever recorded in the United States overall, and the
warmest October on record for many metropolitan areas in the Northeast and
Mid-Atlantic regions of the U.S. Our sales during the first quarter of
fiscal 2008 also continued to reflect an increasingly difficult overall
economic and retail environment, as well as continued negative impact from
the popularity of certain styles in the non-maternity women's apparel
market which can more readily fit a pregnant woman early in her pregnancy
than typical non-maternity fashions. The weak sales trend we have seen in
recent months has also resulted in us taking some increased markdowns to
help manage our inventory level, which has resulted in somewhat lower than
planned gross margins. Our gross margins were also hurt due to spreading
fixed product overhead costs over a smaller than planned sales volume.
"Looking forward, we continue to feel very good about our product
lines, our inventory position and our overall business; however, we
recognize that we continue to be faced with a weak overall economic and
retail environment and are still seeing some negative impact from the more
pregnancy-friendly fit of certain non-maternity fashion trends, such as
trapeze and baby-doll dresses and tops, although we expect this fashion
trend to diminish as we move into the Spring 2008 selling season. We
continue to focus on developing great maternity product under each of our
brands and providing our customer with the very best and most innovative
products to address her maternity apparel needs. An example of this focus
is our new patent-pending product, The Secret Fit Belly(TM), which is made
of seamless super stretch fabric that can be utilized in all types of
bottoms (such as denim pants, other pants, shorts and skirts) to provide a
great, comfortable fit with a seamless look. We are very excited by the
initial sales results of our products using the Secret Fit Belly and we
plan to expand our use of this innovative garment feature. As part of this
renewed focus on product, we are thrilled to have Lisa Hendrickson assume
the role of Chief Merchandising Officer and believe she is the right person
to maintain and improve upon our position as the market leader in the
maternity apparel business. Having been with Mothers Work for the past ten
years, Lisa is intimately knowledgeable about our business and the needs of
the maternity apparel customer. For example, Lisa was the driving force
behind our new patent-pending Secret Fit Belly(TM) product.
"As of December 31, 2007, we have 41 two-brand Mimi combo stores, 3
triplex stores, and 15 Destination Maternity(R) Superstores. We believe
there is a significant opportunity to expand our multi-brand store
concepts, which we believe will generate higher sales per store and
improved store operating profit margins by reducing store expense
percentages through the efficiency of operating one larger store rather
than multiple smaller stores in a single market. In addition, in certain
cases, we believe our multi-brand store concepts will increase overall
sales in the geographical markets they serve. Opening these multi-brand
stores will typically involve closing two or more smaller stores and may
frequently result in one-time store closing costs resulting primarily from
early lease terminations. We opened two Destination Maternity Superstores
in fiscal 2007, and are targeting to open an additional six to eight
Superstores in fiscal 2008, including one location opened in November 2007
and four additional locations already identified and negotiated. We are the
only national retailer that is solely focused on maternity, and we are
further differentiating ourselves as the ultimate maternity destination
with these large, well-assorted, "must visit" multi-brand store concepts.
Based on our internal research, we believe that over the next several years
we have the potential to expand the Destination Maternity chain to 50 or
more total Destination Maternity Superstores in the United States and to
expand the Mimi combo store chain to 70 or more total Mimi combo stores in
the U.S.
"Over the past several years, we have increased the sales we generate
from our leased department and licensed relationships, and we are committed
to continuing this important part of our business and seeking ways to
profitably expand it over the long term. We are the exclusive maternity
apparel provider to Kohl's(R) through a licensed relationship, and have
leased department relationships with Macy's(R), Babies "R" Us(R),
Boscov's(R), Gordmans(R) and Sears(R). In September 2007, we announced that
our relationship with Sears will end in June 2008. While we are
disappointed about the end of our relationship with Sears, we feel the
decision not to proceed with a renewal was in the best interest of our
stockholders since we were unable to reach terms on a renewal which would
be favorable for Mothers Work and our stockholders. As we have previously
stated, we are focused on generating sales that also generate an adequate
return on investment and help us to increase shareholder value-we are not
interested in generating sales that do not help deliver shareholder value.
We believe that we continue to have the opportunity to profitably increase
the sales we generate from our leased department and licensed relationships
over time. We believe these growth opportunities include additional
maternity apparel department locations with our current partners as well as
developing relationships with new partners. Our continued commitment to
this strategy of expanding our leased department and licensed relationships
is also demonstrated by our new leased department relationships rolled out
during fiscal 2007 with Boscov's and Gordmans, two regional department
store chains. In addition, although we currently do not have any
international sales other than in Canada, we do believe there is a
significant opportunity to develop international sales beyond Canada, and
we are in the early stages of analyzing and evaluating some of these
opportunities. We anticipate that our initial international strategy would
include licensing or similar arrangements with foreign partners.
"We believe our customers, particularly first-time parents, are
entering a new life stage that drives widespread changes in purchasing
needs and behavior, thus making our maternity customer a highly-valued
demographic for a range of consumer products and services companies. We
have been able to leverage the relationship we have with our customers to
earn incremental revenues, and we expect to expand these revenues through a
variety of marketing partnership programs utilizing our extensive opt-in
customer database and various in-store marketing initiatives, which help
introduce our customers to various baby and parent-related products and
services offered by leading third-party consumer products and services
companies. Whereas our current revenues in this area have predominantly
been derived from the pre- natal portion of our customer database, we have
taken steps to update and manage our entire customer database so we can
actively market our full opt-in customer database to a much broader range
of consumer product and services companies that market to families with
children.
"Also, we continue to expand futuretrust(R), our MasterCard(R)-based
college savings program that we market through our stores and our internet
sites. The futuretrust program enables members to help save for their
child's (or grandchild's or any other relative's or friend's) college
education when they link their futuretrust MasterCard to a tax-advantaged
529 College Savings account. Members earn rebates on all purchases with
their futuretrust MasterCard that are automatically contributed to their
529 College Savings account and can also earn additional college savings at
merchants in the futuretrust Preferred Merchant Network. We have entered
into relationships with select providers of 529 savings programs, tax
preparation services, home mortgages and real estate services for our
futuretrust members and, in the future, we anticipate further developing
our futuretrust program into a full service financial services and
information resource for our members known as the Futuretrust Family
Financial Center(TM). We anticipate that additional potential services
offered through the Futuretrust Family Financial Center may include online
banking, life insurance and other financial services needed by families
with children. We plan to offer such services through relationships with
high-quality third-party providers of these services.
"As for our outlook for fiscal 2008, we are optimistic about delivering
stronger financial results for the remainder of fiscal 2008 and seeing an
improvement in our sales trend. We expect to see our sales trend improve as
we experience more seasonal temperatures compared to a year ago, begin to
anniversary weaker sales results from a year ago, and continue to refine
our merchandise assortments and our in-store merchandise presentation.
Based on our sales results thus far in January, we expect our comparable
store sales for the full month of January to be in the range of down 1% to
up 1%.
"For the second quarter of fiscal 2008, we are targeting net sales in
the $142.0 million to $146.0 million range, based on assumed comparable
store sales of up 1.0% to 3.5% for the quarter. Based on this targeted net
sales, we are targeting second quarter earnings per common share (diluted)
of between $0.19 and $0.35 per share, compared to the $0.41 diluted
earnings per share for the second quarter of fiscal 2007.
"We are targeting net sales for fiscal 2008 in the $574.0 million to
$585.5 million range, representing sales of approximately down 1% to up 1%
versus fiscal 2007, based on an assumed comparable store sales increase of
between 0.4% and 2.7% for the full fiscal year. This sales guidance
reflects the negative sales impact of the non-renewal of the Sears
relationship, which will end in the third quarter of fiscal 2008.
"Our targeted sales for fiscal 2008 reflect our plan to open
approximately 25 to 35 new stores during the year, including approximately
8 to 12 new multi-brand stores, and our plan to close approximately 40 to
55 stores, with approximately 15 to 25 of these planned store closings
related to openings of new multi-brand stores, including our Destination
Maternity Superstores. Excluding the expected closing of 501 Sears
locations that we operated on September 30, 2007, we plan to modestly
increase our leased department locations with our existing leased
department partners. In addition, we distribute our Oh Baby by
Motherhood(TM) collection through a licensed arrangement at Kohl's stores
throughout the United States and on Kohls.com. Kohl's currently operates
929 stores in 47 states, compared to 817 stores in 45 states a year ago.
"We project that our gross margin for fiscal 2008 will be approximately
50.8% of net sales, a decrease from our 51.6% gross margin in fiscal 2007.
We expect our operating expenses to decrease somewhat as a percentage of
net sales for fiscal 2008 versus fiscal 2007, primarily as a result of
reduced impairment charges for write-downs of store fixed assets, some
expense leverage from our planned comparable store sales increase and from
our multi- brand stores, as well as a continued sharp focus on expense
control.
"Based on these assumptions, we are targeting operating income for
fiscal 2008 in the $14.5 million to $19.3 million range, compared to our
fiscal 2007 operating income of $18.7 million, and we are targeting
Adjusted EBITDA in the $34.0 million to $38.8 million range, compared to
our fiscal 2007 Adjusted EBITDA of $38.6 million. Also, based on these
assumptions, we are targeting diluted earnings per common share of between
$0.72 and $1.20 per share, compared to our $0.87 diluted earnings per share
before debt repurchase charges for fiscal 2007. This earnings guidance
range is lower than our previous guidance range for fiscal 2008 diluted
earnings per share of between $1.00 and $1.50 per share provided in our
November 20, 2007 press release, primarily due to a decrease in our
projected fiscal 2008 gross margin compared to our projection in November
2007. Of course, our ability to achieve these targeted results will depend,
among other factors, on the overall retail, economic, political and
competitive environment as well as the results from our new initiatives.
"We are planning our fiscal 2008 capital expenditures to be between
$16.0 million and $18.5 million, compared to $15.4 million for fiscal 2007,
primarily for new store openings, expanding and relocating selected stores,
store remodelings, and some continued investment in our management
information systems and for continued distribution center automation. We
expect our inventory at fiscal 2008 year end to decrease modestly from
fiscal 2007 year end, as we continue to tightly plan our inventory levels
relative to sales and recognize the impact of the sell-off of the inventory
related to the Sears business due to the non-renewal of the Sears
relationship. Based on these targets and plans, we expect to generate
strong positive free cash flow during fiscal 2008. We are very pleased with
the reduction of our debt and ongoing interest expense during fiscal 2007.
During fiscal 2007, we reduced the Company's debt balance by approximately
$25 million and completed the redemption of the remaining $90 million
principal amount of our Senior Notes through a new, lower interest Term
Loan financing. The debt redemptions and refinancing also required cash
payments of $6.5 million for the debt redemption premium. At December 31,
2007, we had no direct borrowings under our credit facility, and we had
approximately $58 million of availability under our credit facility. We
have $89.3 million of outstanding Term Loan principal at December 31, 2007,
compared to the original $125 million principal amount of our Senior Notes
that was outstanding until we began our Senior Note debt repurchases in
August 2006. Although we expect to have modest credit line borrowings from
our $65 million credit facility at times during fiscal 2008, reflecting
seasonal and other timing variations in cash flow, we did not have any
outstanding credit line borrowings at the end of the first quarter of
fiscal 2008 and expect to have none at the end of fiscal 2008. Our average
level of borrowings under our credit facility was $4.3 million during the
first quarter of fiscal 2008.
"Looking forward to fiscal 2009, we expect to generate higher earnings
than fiscal 2008, while generating significant positive free cash flow."
As announced previously, the Company will hold a conference call today
at 9:00 a.m. Eastern Time, regarding the Company's first quarter fiscal
2008 earnings, future financial guidance, and certain business initiatives.
You can participate in this conference call by calling (210) 234-0026.
Please call ten minutes prior to 9:00 a.m. Eastern Time. The passcode for
the conference call is "Mothers Work." In the event that you are unable to
participate in the call, a replay will be available through Thursday,
February 7, 2008 by calling (800) 337-6572.
Mothers Work is the world's largest designer and retailer of maternity
apparel, using its custom TrendTrack(TM) merchandise analysis and planning
system as well as its quick response replenishment process to "give the
customer what she wants, when she wants it." As of December 31, 2007,
Mothers Work operates 1,544 maternity locations, including 772 stores,
predominantly under the tradenames Motherhood Maternity(R), A Pea in the
Pod(R), Mimi Maternity(R), and Destination Maternity(R), and sells on the
web through its DestinationMaternity.com and brand-specific websites. In
addition, Mothers Work distributes its Oh Baby by Motherhood(TM) collection
through a licensed arrangement at Kohl's(R) stores throughout the United
States and on Kohls.com.
The Company cautions that any forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995)
contained in this press release or made from time to time by management of
the Company, including those regarding expected results of operations,
liquidity and financial condition and various business initiatives, involve
risks and uncertainties, and are subject to change based on various
important factors. The following factors, among others, in some cases have
affected and in the future could affect the Company's financial performance
and actual results and could cause actual results to differ materially from
those expressed or implied in any such forward-looking statements: our
ability to successfully manage our various business initiatives, our
ability to successfully manage and retain our leased department and
licensed relationships and marketing partnerships, future sales trends in
our existing store base, weather, changes in consumer spending patterns,
raw material price increases, consumer preferences and overall economic
conditions, the impact of competition and pricing, availability of suitable
store locations, continued availability of capital and financing, ability
to hire and develop senior management and sales associates, ability to
develop and source merchandise, ability to receive production from foreign
sources on a timely basis, potential stock repurchases, potential debt
prepayments, changes in market interest rates, war or acts of terrorism,
and other factors set forth in the Company's periodic filings with the
Securities and Exchange Commission, or in materials incorporated therein by
reference.
MOTHERS WORK, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
First Quarter Ended
---------------------------
12/31/07 12/31/06
------------ ------------
Net sales $ 142,876 $ 148,484
Cost of goods sold 70,914 71,434
------------ ------------
Gross profit 71,962 77,050
Selling, general and administrative expenses 70,578 69,548
------------ ------------
Operating income 1,384 7,502
Interest expense, net 1,866 3,132
Loss on extinguishment of debt - 2,093
------------ ------------
Income (loss) before income taxes (482) 2,277
Income tax (benefit) provision (130) 888
------------ ------------
Net income (loss) $ (352) $ 1,389
============ ============
Net income (loss) per share - basic $ (0.06) $ 0.24
============ ============
Average shares outstanding - basic 5,852 5,705
============ ============
Net income (loss) per share - diluted $ (0.06) $ 0.23
============ ============
Average shares outstanding - diluted 5,852 6,138
============ ============
Supplemental information:
Net income (loss), as reported $ (352) $ 1,389
Add: loss on extinguishment of debt,
net of tax - 1,277
------------ ------------
Adjusted net income (loss), before loss
on extinguishment of debt (352) 2,666
Add: stock compensation expense, net of tax 340 287
------------ ------------
Adjusted net income (loss), before loss on
extinguishment of debt and stock
compensation expense $ (12) $ 2,953
============ ============
Adjusted net income (loss) per share
- diluted before loss on extinguishment
of debt $ (0.06) $ 0.43
============ ============
Adjusted net income (loss) per share
- diluted before loss on extinguishment
of debt and stock compensation expense
compensation expense $ (0.00) $ 0.48
============ ============
MOTHERS WORK, INC. AND SUBSIDIARIES
Selected Consolidated Balance Sheet Data
(in thousands)
(unaudited)
December 31, September 30, December 31,
2007 2007 2006
------------ ------------- ------------
Cash and cash equivalents $10,787 $10,130 $16,063
Inventories 96,789 100,485 89,486
Property, plant and equipment, net 68,186 68,651 71,344
Line of credit borrowings - - -
Long-term debt 91,377 91,646 92,632
Stockholders' equity 87,515 88,523 89,603
Supplemental Financial Information
Reconciliation of Operating Income to Adjusted EBITDA(1)
and Operating Income Margin to Adjusted EBITDA Margin
(in thousands, except percentages)
(unaudited)
First Quarter Ended
-------------------------------
12/31/07 12/31/06
--------------- --------------
Operating income $ 1,384 $ 7,502
Add: depreciation and amortization expense 4,002 3,877
Add: loss on impairment of long-lived assets 533 250
Add: loss (gain) on disposal of assets 46 (63)
Add: stock compensation expense 558 471
-------------- -------------
Adjusted EBITDA $ 6,523 $ 12,037
============== =============
Net sales $ 142,876 $ 148,484
============== =============
Operating income margin (operating
income as a percentage of net sales) 1.0% 5.1%
============== =============
Adjusted EBITDA margin (Adjusted EBITDA
as a percentage of net sales) 4.6% 8.1%
============== =============
(1) Adjusted EBITDA represents operating income before deduction for the
following non-cash charges: (i) depreciation and amortization expense;
(ii) loss on impairment of long-lived assets; (iii) loss (gain) on
disposal of assets; and (iv) stock compensation expense.
Reconciliation of Net Income (Loss) Per Share - Diluted
to Adjusted Net Income Per Share - Diluted,
Excluding Loss on Extinguishment of Debt and Stock Compensation Expense
(unaudited)
Projected for the Actual for the
Second Quarter Second Quarter
Ending Ended
3/31/08 3/31/07
-------------- -------------
Net income per share - diluted $ 0.19 to 0.35 $ 0.41
Add: per share effect of loss on
extinguishment of debt - -
-------------- -------------
Adjusted net income per share -
diluted, before loss on
extinguishment of debt 0.19 to 0.35 0.41
Add: per share effect of stock
compensation expense 0.07 0.05
-------------- -------------
Adjusted net income per share -
diluted, before loss on
extinguishment of debt and stock
compensation expense $ 0.26 to 0.42 $ 0.46
============== =============
Projected for the Actual for the
Year Ending Year Ended
9/30/08 9/30/07
-------------- -------------
Net income (loss) per share - diluted $ 0.72 to 1.20 $ (0.07)
Add: per share effect of loss on
extinguishment of debt - 0.94
-------------- -------------
Adjusted net income per share -
diluted, before loss on
extinguishment of debt 0.72 to 1.20 0.87
Add: per share effect of stock
compensation expense 0.27 0.21
-------------- -------------
Adjusted net income per share -
diluted, before loss on
extinguishment of debt and stock
compensation expense $ 0.99 to 1.47 $ 1.08
============== =============
Reconciliation of Operating Income to Adjusted EBITDA
(in millions, unaudited)
Projected for the Actual for the
Year Ending Year Ended
9/30/08 9/30/07
-------------- -------------
Operating income $ 14.5 to 19.3 $ 18.7
Add: depreciation and amortization
expense 15.9 16.4
Add: loss on impairment of long-lived
assets and loss on disposal of assets 1.1 1.4
Add: stock compensation expense 2.5 2.1
-------------- -------------
Adjusted EBITDA $ 34.0 to 38.8 $ 38.6
============== =============
Mothers Work press releases available through Company News On-Call at
http://www.prnewswire.com/comp/581877.html
SOURCE Mothers Work, Inc.
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Related links:
http://www.motherswork.com/
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CONTACT:
Edward M. Krell, Chief Operating Officer &
Chief Financial Officer of Mothers Work, Inc., +1-215-873-2220
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