Latest 10Q
THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THREE MONTHS ENDED JUNE 30, 2005
Net sales
Net sales for the three months ended June 30, 2006 were $292.2 million, an increase of $28.3 million, or 10.7%, over net sales of $263.9 million for the three months ended June 30, 2005. The increase in net sales was primarily due to acceptance of new designs and styles for our in-season product, increased wholesale sales and growth within the domestic retail segment from an increased store base as well as positive domestic and international comparative store sales increases (i.e. stores open for at least one year). Our domestic wholesale net sales increased $14.7 million to $195.5 million for the three months ended June 30, 2006, from $180.8 million for the three months ended June 30, 2005. The average selling price per pair within the domestic wholesale segment increased to $19.53 per pair for the three months ended June 30, 2006 from $18.75 per pair in the same period last year. The increase in domestic wholesale segment net sales came on a 4.6% unit sales volume increase to 10.1 million pairs from 9.6 million pairs for the same period in 2005. The increase in average selling price per pair was due to stronger sales of in-season denim friendly sport fusion and casual products and broader acceptance of our fashion and street brands. This higher level of net sales was achieved by redeveloping many of our existing lines, focusing on updating proven styles as well as developing new styles, and the previous launch of three new brands, including the Mark Ecko Footwear and 310 Motoring lines, which have continued to experience increased door counts and strong sales growth impacting overall net sales. We saw the strongest improvements in our Women's Active line and our Women's USA line.
Our retail segment net sales increased $9.5 million to $57.1 million for the three months ended June 30, 2006, a 19.8% increase over sales of $47.6 million for the same period in 2005. Our domestic retail sales increased $8.4 million to $51.9 million for the three months ended June 30, 2006, from $43.5 million for the three months ended June 30, 2005. The increase in retail sales was due to positive domestic and international comparable store sales across all three store formats and an increased domestic store base of 11 stores over the prior year period. We opened three domestic concept stores and one domestic outlet store and closed one domestic concept store and one domestic outlet store during the three months ended June 30, 2006. For the three months ended June 30, 2006, we realized substantial comparable store sales increases ranging from an increase of 8.3% in our domestic concept stores comparable sales to an increase of 16.73% in our domestic warehouse stores comparable sales. Our international retail sales increased $1.0 million, or 25.4% for the three months ended June 30, 2006 compared to the same period last year primarily due to increased comparable sales.
Our international wholesale segment net sales increased $2.9 million, or 8.8%, to $36.8 million for the three months ended June 30, 2006, compared to $33.9 million for the three months ended June 30, 2005. Our international wholesale sales consist of direct subsidiary sales - those we make to department stores and specialty retailers - and sales to our distributors who in turn sell to department stores and specialty retailers in various international regions where we do not sell direct. Our international distributor sales increased $1.6 million to $20.3 million for the three months ended June 30, 2006, an 8.2% increase over sales of $18.7 million for the three months ended June 30, 2005. Our international direct subsidiary sales, which are in Western Europe and Canada, increased $1.4 million to $16.6 million for the three months ended June 30, 2006, a 9.5% increase over sales of $15.2 million for the three months ended June 30, 2005.
Our e-commerce sales were $2.8 million for the three months ended June 30, 2006 compared to sales of $1.6 million for the same period in 2005. Our e-commerce sales made up less than 1% of our consolidated net sales in both the three months ended June 30, 2006 and June 30, 2005.
We currently anticipate that net sales for the three months ending September 30, 2006 will be in the range of $310.0 million to $320.0 million. Gross profit
Gross profit for the three months ended June 30, 2006 increased $19.2 million to $130.7 million as compared to $111.5 million for the three months ended June 30, 2005. Gross profit as a percentage of net sales, or gross margin, increased to 44.7% for the three months ended June 30, 2006, compared to 42.3% for the same three months in 2005. The gross margin increase was the result of increased domestic wholesale margins, increased retail margins and increased international wholesale subsidiary margins.
Domestic wholesale gross margins increased to 40.4% for the three months ended June 30, 2006, compared to 37.9% for the same period last year, which was primarily due to broader acceptance of our existing designs and styles as well as a lower volume of markdown merchandise. Domestic wholesale gross profit increased $10.5 million, or 15.4%, to $79.0 million for the three months ended June 30, 2006 compared to $68.5 million in the same period in 2005. We realized higher margins within our Women's Active, Women's USA, Mark Ecko, Rhino Red, and 310 Motoring lines during the second quarter of 2006 as compared to the same period last year.
Gross profit for our retail segment increased $6.8 million, or 22.2%, to $37.2 million for the three months ended June 30, 2006 as compared to $30.4 million for the same period last year. This increase in gross profit was due to increased margins and positive comparable store sales and an increased store count of 11 stores from the same period a year ago. Gross margins increased to 65.2% for the three months ended June 30, 2006 as compared to 63.9% for the same period in 2005. The increase in gross margins was primarily due to better acceptance of our existing designs and styles.
Gross profit for our international wholesale segment for the three months ended June 30, 2006 was $13.1 million, an increase of $1.3 million compared to $11.8 million for the same period in 2005. Gross margins were 35.6% for the three months ended June 30, 2006 compared to 34.9% for the same period in 2005. The increase in gross margins for our international wholesale sales was primarily due to increased distributor margins due to better acceptance of our existing designs and styles. Gross margins for our foreign distributor sales increased to 30.1% for the three months ended June 30, 2006 compared to 28.9% for the same period in 2005. Gross margins for our foreign direct subsidiary sales were 42.4% for both the three months ended June 30, 2006 and three months ended June 30, 2005.
Licensing
For the three months ended June 30, 2006, we recognized royalty income of $0.6 million compared to $2.0 million during the same period in 2005. The decrease in royalty income was the result of lower sales of our licensed products with our existing licensing agreements.
Selling expenses
Selling expenses for the three months ended June 30, 2006 were $31.1 million, an increase of $10.1 million or 48.1%, compared to $21.0 million for the same period in 2005. As a percentage of net sales, selling expenses were 10.6% and 7.9% for the three months ended June 30, 2006 and 2005, respectively. The increase in selling expenses was primarily due to increased advertising expenses of $8.1 million relating to increased television and media advertising, higher sales commissions of $1.2 million due to higher sales and increased trade show expenses of $0.9 million.
We anticipate our advertising and related expenses to be approximately 8% to 10% of sales in 2006 as we are increasing our marketing efforts with product intensive ads, new campaigns and celebrity endorsements. We currently anticipate that trade show expenses for the three months ending September 30, 2006 will be higher than those incurred during the three months ended June 30, 2006 because the largest trade shows where we exhibit, WSA in Las Vegas as well as certain international trade shows, take place during the third quarter. General and administrative expenses
General and administrative expenses for the three months ended June 30, 2006 were $72.8 million, an increase of $7.5 million, or 11.5%, compared to $65.3 million for the same period in 2005. General and administrative expenses as a percent of sales increased to 24.9% for the three months ended June 30, 2006 from 24.8% for the same period last year. The increase in general and administrative expenses was primarily due to increased salaries and wages of $3.8 million, increased stock compensation costs of $0.6 million following the adoption of SFAS 123(R) in January 2006, and increased outside services of $1.3 million. The increase in salaries and wages was due to increased personnel necessary to support increased sales volumes, new product lines, and the opening of 11 additional retail stores from the same period a year ago. Expenses related to our distribution network, including the functions of purchasing, receiving, inspecting, allocating, warehousing and packaging our products, totaled $18.6 million for the three months ended June 30, 2006 as compared to $17.5 million for the same period last year. Interest income
Interest income for the three months ended June 30, 2006 increased $2.1 million to $2.3 million compared to $0.2 million for the same period in 2005. The increase in interest income resulted from higher interest rates and higher average cash investment balances during the second quarter of 2006 when compared to the same period in 2005.
Interest expense
Interest expense for the three months ended June 30, 2006 increased $0.5 million to $2.3 million compared to $1.8 million for the same period in 2005. Interest expense is incurred on our convertible notes, mortgages on our distribution center and our corporate office located in Manhattan Beach, California, our capital lease obligations, and interest on amounts owed to our foreign manufacturers. The increase in interest expense was primarily due to increased purchases from our foreign manufacturers.
Other income (expense)
Other income, net increased $0.3 million to $0.1 million for three months ended June 30, 2006 compared to expense of $0.2 million for the three months ended June 30, 2005. The increase in other income was due to foreign exchange gains.
Income taxes
The effective tax rate for the three months ended June 30, 2006 was 35.7% compared to 37.4% for the same period in 2005. Income tax expense for the three months ended June 30, 2006 was $9.8 million compared to $9.5 million for the same period in 2005. The tax provision for the three months ended June 30, 2006 was computed using the estimated effective tax rates applicable to each of the domestic and international taxable jurisdictions for the full year. The rate for the three months ended June 30, 2006 was lower than the expected domestic rate of approximately 40%, due to our non-U.S. subsidiary earnings in lower tax rate jurisdictions and our planned permanent reinvestment of undistributed earnings from our non-U.S. subsidiaries, thereby indefinitely postponing their repatriation to the United States. As such, we did not provide for deferred income taxes on accumulated undistributed earnings of our non-U.S. subsidiaries.
SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO SIX MONTHS ENDED JUNE 30, 2005 Net sales
Net sales for the six months ended June 30, 2006 were $569.7 million, an increase of $59.6 million, or 11.7%, over net sales of $510.1 million for the six months ended June 30, 2005. The increase in net sales was primarily due to acceptance of new designs and styles for our in-season product, increased wholesale sales, and growth within the domestic retail segment from an increased store base as well as positive domestic and international comparative store sales increases (i.e. stores open for at least one year). Our domestic wholesale net sales increased $38.9 million to $374.3 million for the six months ended June 30, 2006, from $335.4 million for the six months ended June 30, 2005. The average selling price per pair within the domestic wholesale segment increased to $18.52 per pair for the six months ended June 30, 2006 from $17.70 per pair in the same period last year. The increase in domestic wholesale segment net sales came on a 7.3% unit sales volume increase to 20.3 million pairs from 18.9 million pairs for the same period in 2005. The increase in average selling price per pair was due to stronger sales of in-season denim friendly sport fusion and casual products and broader acceptance of our fashion and street brands. This higher level of net sales was achieved by redeveloping many of our existing lines, focusing on updating proven styles as well as developing new styles, and the previous launch of three new brands, including the Mark Ecko Footwear and 310 Motoring lines, which have continued to experience increased door counts and strong sales growth impacting overall net sales. We saw the strongest improvements in our Women's Active line, Women's USA line and Men's USA lines.
Our retail segment net sales increased $14.2 million to $104.9 million for the six months ended June 30, 2006, a 15.8% increase over sales of $90.7 million for the same period in 2005. Our domestic retail sales increased $13.3 million to $96.5 million for the six months ended June 30, 2006, from $83.2 million for the six months ended June 30, 2005. The increase in retail sales was due to positive domestic comparable store sales across all three store formats and an increased domestic store base of 11 stores over the prior year period. We opened three domestic concept stores and two domestic outlet stores and closed one domestic concept store and one domestic outlet store during the six months ended June 30, 2006. For the six months ended June 30, 2006, we realized substantial comparable store sales increases ranging from an increase of 6.8% in our domestic concept stores comparable sales to an increase of 13.0% in our domestic outlet stores comparable sales. Our international retail sales increased $0.9 million, or 12.7% for the six months ended June 30, 2006 compared to the same period last year primarily due to increased comparable sales.
Our international wholesale segment net sales increased $3.9 million, or 4.9%, to $85.2 million for the six months ended June 30, 2006, compared to $81.3 million for the six months ended June 30, 2005. Our international distributor sales increased $3.5 million to $37.7 million for the six months ended June 30, 2006, a 10.2% increase over sales of $34.2 million for the six months ended June 30, 2005.
This was primarily due to increased sales into Israel, Russia, and Philippines. Our international direct subsidiary sales increased $0.4 million to $47.5 million for the six months ended June 30, 2006, from $47.1 million for the six months ended June 30, 2005. The increase in direct subsidiary sales was primarily due to increased sales in Canada, partially offset by decreased sales in the United Kingdom.
Our e-commerce sales were $5.3 million for the six months ended June 30, 2006 compared to sales of $2.8 million for the same period in 2005. Our e-commerce sales made up less than 1% of our consolidated net sales in both the six months ended June 30, 2006 and June 30, 2005.
Gross profit
Gross profit for the six months ended June 30, 2006 increased $37.1 million to $249.1 million as compared to $212.0 million for the six months ended June 30, 2005. Gross margins increased to 43.7% for the six months ended June 30, 2006, compared to 41.6% for the same six months in 2005. The gross margins increase was the result of increased domestic wholesale margins and increased retail margins, partially offset by reduced international wholesale distributor margins. Domestic wholesale gross margins increased to 39.5% for the six months ended June 30, 2006, compared to 36.7% for the same period last year, which was primarily due to broader acceptance of our existing designs and styles as well as a lower volume of markdown merchandise. Domestic wholesale gross profit increased $24.6 million, or 20.0%, to $147.8 million for the six months ended June 30, 2006 compared to $123.2 million in the same period in 2005.
Source: 10Q
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