Haggar (NASDAQ:HGGR)
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Haggar Corp. Reports an Increase of 26% in EPS for 2nd Quarter
2005 and Continues Strategic Sourcing Changes
DALLAS, May 2 /PRNewswire-FirstCall/ -- Haggar Corp. (NASDAQ:HGGR) announced
results for the second quarter ended March 31, 2005.
For the second quarter of fiscal 2005, Haggar reported net income of $3.4
million on net sales of $120.8 million, or income of $0.48 per diluted share.
This compares to the second quarter of fiscal 2004 when the Company reported
net income of $2.7 million on net sales of $132.0 million, or income of $0.38
per diluted share. The net sales decrease in the second quarter of fiscal 2005
related primarily to the weak performance of the Company's Forever New (TM)
product combined with reductions in net sales for seasonal sportswear.
The 26% increase in earnings per share is mainly due to selling, general and
administrative expense reductions in marketing costs, global headquarters
relocation expenses (which occurred in the second quarter of fiscal 2004),
incentive based compensation, and volume related costs due to the reduction in
net sales for the second quarter of fiscal 2005. The increase in earnings is
also due to an improved gross profit percentage of 28.9%, excluding
reorganization costs in the second quarter of fiscal 2005, as compared to 27.9%
in the second quarter of fiscal 2004. The increase in gross profit percentage
is attributable to an improved product mix and better sourcing of private
label, womenswear and licensed menswear products. Included in the results for
the second quarter of fiscal 2005 is a $0.8 million pre-tax charge to
reorganization costs related to the closure of two Company-operated sewing
facilities as discussed below. The after tax effect of this charge to
reorganization costs for the second quarter of fiscal 2005 is $0.5 million, or
$0.07 on a diluted per share basis. Also included in the results for the
second quarter of fiscal 2005 is a $0.3 million pre-tax ($0.2 million after
tax) charge to selling, general and administrative expenses related to a
wrongful termination lawsuit, or $0.03 on a diluted per share basis.
For the first six months ended March 31, 2005, Haggar reported net income of
$0.2 million on net sales of $221.3 million, or income of $0.02 per diluted
share. This compares to the first six months ended March 31, 2004, in which
the Company reported net income of $3.8 million on net sales of $239.8 million,
or income of $0.56 per diluted share. The decrease in earnings per share
during the first six months of fiscal 2005 is partly due to an increase in
selling, general and administrative expenses resulting from a $2.0 million
pre-tax charge ($1.2 million after tax) for a wrongful termination lawsuit, or
a loss of $0.18 per diluted share. That decrease is offset slightly by a
reversal of a prior legal reserve in reorganization costs due to a favorable
outcome, which resulted in $0.3 million pre-tax income ($0.2 million after
tax), or a gain of $0.03 per diluted share. Further, that decrease in earnings
per share relates to the selling results of the Company's ForeverNew(TM)
products, which resulted in higher customer allowances as the product did not
meet the customers' expectations, and an incremental $2.5 million in marketing
expense ($1.6 million after tax) related to the Company's ForeverNew(TM)
product introduction.
According to J.M. Haggar, III, Chairman and Chief Executive Officer, "We are
excited about our 26% increase in earnings per share for the second quarter of
fiscal 2005. We believe our efforts to improve our sourcing capabilities will
enable the Company to provide value to our customers and are essential to our
profitability."
The Company also announced that it is going to continue its strategic sourcing
changes by closing its manufacturing facilities that are operated by
subsidiaries in Leon, Mexico, and La Romana, Dominican Republic. Although the
Company will continue to source some of its apparel in the Western Hemisphere,
this move allows the Company to focus more of its sourcing efforts in the
Eastern Hemisphere.
Haggar's strategy over the last fifteen years has been to manufacture and
source goods based on several strategic factors, including abundant labor,
fabric development and availability, and superior apparel manufacturing
expertise. Frank Bracken, President and Chief Operating Officer, added, "Until
2005, the Eastern Hemisphere's advantages in connection with the strategic
factors have been restricted somewhat by worldwide quota. That restriction
has, in large part, disappeared. Until very recently, the use of domestic and
Mexican fabrics created a defined need for manufacturing in the Western
Hemisphere. Less dependence on those Western fabric sources has reduced the
current need for Western Hemisphere capacity."
John W. Feray, Senior Vice President of Finance and Chief Accounting Officer,
noted, "We will take charges to earnings to cover the costs of this
reorganization during each of the quarters ending March 31, 2005, and June 30,
2005. For the quarter ending March 31, 2005, the charge will be approximately
$0.8 million pre-tax or $0.5 million after tax, which is $0.07 on a diluted per
share basis, while for the quarter ending June 30, 2005, the charge will be an
estimated $0.6 million to $1.0 million pre-tax or $0.4 million to $0.6 million
after tax, which is $0.06 to $0.08 on a diluted per share basis. The total
charge for this shutdown relates primarily to severance payments and related
benefits for the 1,675 affected associates, and writedowns for facilities and
equipment." Feray added, "The future impact on the Company is estimated to be
a yearly pre-tax cost savings of $0.9 to $1.3 million, depending on the mix of
our products and sourcing efforts going forward. The impact of these savings
is not planned to take effect until fiscal 2006."
The Company is filing a Form 8-K with the Securities and Exchange Commission
with its updated quarterly financial projections for fiscal 2005. The Company
increased its net sales and net income projections for fiscal 2005. The
Company now projects net income for fiscal 2005 between $7.3 million and $8.4
million, with projected sales for the year between $456 and $468 million, and
earnings per diluted share for the year of $1.01 to $1.16. The increase is
mainly attributable to the performance by the Company during the second quarter
of fiscal 2005 as discussed above.
Haggar Clothing Co., a wholly-owned subsidiary of Haggar Corp., is a leading
marketer of men's casual and dress apparel and women's sportswear, with global
headquarters in Dallas, TX. Haggar markets in the United States, the Canada,
Mexico, and Indonesia. Haggar also holds exclusive licenses in the United
States to use the Claiborne(R) trademark, Kenneth Cole New York(R), and Kenneth
Cole Reaction(R) trademarks to manufacture, market, and sell men's shorts and
pants in men's classification pant departments. For more information visit the
Haggar website at http://www.haggar.com/.
The statements contained in this release that are not historical facts are
forward-looking statements. These forward-looking statements are subject to
known and unknown risks, uncertainties and assumptions that could cause actual
results to differ materially from those anticipated or implied by the forward-
looking statements; the results could be affected by, among other things,
general business conditions, the impact of competition, the seasonality of the
Company's business, labor relations, governmental regulations, unexpected
judicial decisions, and inflation. In addition, the financial results for the
quarter just ended do not necessarily indicate the results that may be expected
for any future quarters or for any fiscal year. Investors also should consider
other risks and uncertainties discussed in documents filed by the Company with
the Securities and Exchange Commission. Given these uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements. The
Company undertakes no obligation to update any such statements or publicly
announce any updates or revisions to any of the forward-looking statements
contained herein to reflect any change in the Company's expectations with
regard thereto or any changes in events, conditions, circumstances or
assumptions underlying such statements.
HAGGAR CORP.
Condensed Consolidated Three Months Ended Six Months Ended
Statements of Operation March 31, March 31,
(unaudited) (unaudited)
(In thousands, except per share amounts)
2005 2004 2005 2004
Net sales $120,798 $132,071 $221,341 $239,805
Cost of goods sold 85,942 95,168 158,699 171,580
Reorganization costs 795 - 474 -
Gross profit 34,061 36,903 62,168 68,225
Selling, general and
administrative
expenses (28,921) (32,492) (62,764) (62,067)
Royalty income 273 345 628 598
Other income (expense) (58) 26 205 399
Interest expense (232) (459) (441) (916)
Income (loss) before
provision (benefit)
for income taxes 5,123 4,323 (204) 6,239
Provision (benefit)
for income taxes 1,704 1,652 (357) 2,383
Net income $3,419 $2,671 $153 $3,856
Net income per common
share - Basic $0.49 $0.39 $0.02 $0.58
Net income per common
share - Diluted $0.48 $0.38 $0.02 $0.56
Weighted average shares
outstanding
-Basic 6,982 6,823 7,027 6,691
-Diluted 7,083 6,986 7,139 6,861
Condensed Consolidated
Balance Sheet March 31, September 30,
2005 2004
(unaudited)
Assets (In thousands)
Cash and cash equivalents $9,578 $30,667
Accounts receivable, net 64,093 56,132
Inventories, net 104,521 95,229
Deferred tax asset 11,021 11,021
Property held for sale 2,127 -
Other current assets 7,204 7,392
Total current assets 198,544 200,441
Property, plant and equipment, net 42,335 44,394
Goodwill, net 9,472 9,472
Other assets 9,624 7,165
Total assets $259,975 $261,472
Liabilities and Stockholders' Equity
Accounts payable $27,213 $30,621
Accrued liabilities 36,137 36,678
Accrued wages and other employee compensation 3,687 8,538
Current portion of long-term debt 2,000 100
Total current liabilities 69,037 75,937
Other non-current liabilities 12,724 12,760
Deferred tax liability 374 374
Long term debt 11,000 2,000
Stockholders' equity 166,840 170,401
Total liabilities and
stockholders' equity $259,975 $261,472
DATASOURCE: Haggar Corp.
CONTACT: John Feray, Senior Vice President and Chief Accounting Officer
of Haggar Corp., +1-214-956-4511, or fax, +1-214-956-4239
Web site: http://www.haggar.com/