PXFG Phoenix Footwear Group Inc (PK)

Phoenix Footwear Group, Inc. (OTCMarkets.com: PXFG) today reported results for the second quarter and first six months ended June 29, 2013.

Second Quarter and First Six Months of Fiscal 2013

• Net sales from continuing operations for the second quarter increased $290,000 or 9.2% to $3.44 million compared to $3.15 million for the second quarter of fiscal 2012.
• Consolidated net loss from continuing operations for the second quarter declined to $359,000 or $0.05 per share compared to a net loss of $470,000 or $0.06 per share during the second quarter of fiscal 2012.
• Net sales from continuing operations for the first six months increased 4.3% to $9.2 million compared to $8.9 million for the first six months of fiscal 2012.
• Consolidated net loss from continuing operations for the first six months of fiscal 2013 narrowed to $91,000 or $0.02 per share compared to a net loss of $209,000 or $0.03 per share for the first six months of fiscal 2012.
• On July 1, 2013, the Company completed the sale and leaseback of its Distribution Center located in Old Town, Maine for $620,000.

GREY’S ANATOMY LICENSING AGREEMENT

As announced on June 20, 2013, the Company has entered into a licensing agreement with Disney/ABC Studios to sell footwear to the medical community under the Grey’s Anatomy brand. Phoenix has developed performance footwear utilizing the unique comfort features found in SoftWalk® which is specifically designed for the medical professional. In addition, Phoenix will be jointly marketing this product through Barco Uniforms, an industry leading uniform company which for the past seven years has developed and manufactured medical scrubs bearing the Grey’s Anatomy label. This new performance product known as Meredith, will bear the label Grey’s Anatomy by SoftWalk and be available in stores in early 2014.

BRUCE R. KAPLAN HIRED AS EXECUTIVE VICE PRESIDENT

Also as announced on June 20, 2013, industry veteran Bruce R. Kaplan joined the Company on July 8, 2013 as its new Executive Vice President. Mr. Kaplan is replacing outgoing Executive Vice President, Robby L. Carter, who left the Company on June 30, 2013 to pursue other opportunities.

For the past 13 years, Mr. Kaplan has held various executive leadership roles with Ariat International, a privately held active outdoor footwear and apparel company, including that of National Sales and General Manager of its new Lifestyle division. Prior to obtaining that role, Mr. Kaplan was the Eastern and Core Regional Sales Manager and was instrumental in the rapid expansion of the Company’s brand as well as responsible for building and training the sales organization in these same regions contributing to Ariat’s present leadership position in the global equestrian market. From 1998 to 2000, Mr. Kaplan was the Eastern Region and New York Metro Majors Territory Sales Manager for Ecco North America and was primarily responsible for selling to Nordstrom, Macy’s and other national and high visibility retail accounts. Prior to Ecco North America, Mr. Kaplan was the Vice President of Sales and Customer Service for H.H. Brown, in charge of Soft Spots, Supremes and the launching of Born Footwear. In 1981, Mr. Kaplan began his career in retail with Milgram Kagan Corporation, a 208-store retail chain, where he held the position of General Manager until 1987.

Commented James Riedman, CEO: “Bruce is highly regarded within the industry and brings with him an unparalleled record of success. Bruce distinguishes himself by combining a solid history of building brands with operational excellence. I look forward to working with Bruce to grow the Company’s Trotters® and SoftWalk® brands.”

SECOND QUARTER AND FIRST SIX MONTHS OF FISCAL 2013

For the quarter ended June 29, 2013, net sales rose to $3.44 million or 9.2% from $3.15 million when compared to the second quarter of fiscal 2012. Net sales for the first six months of fiscal 2013 increased $382,000 or 4.3% to $9.2 million compared to $8.9 million for the first six months of fiscal 2012. The increase in net sales for the quarter and first six months of fiscal 2013 was primarily driven by a new style offering designed to appeal to the broader customer demographic of the Company’s internet-based accounts together with a 3.8% improvement in the average net unit selling price of the Company’s product offering.

Gross margins for the second quarter of fiscal 2013 improved to 37.1% compared to 36.2% for the second quarter of fiscal 2012, while the gross margin for the first six months of fiscal 2013 compared to the first six months of fiscal 2012 was 37.0%. The improved gross margin for the second quarter benefited from an increase in the average net unit price of 5.9% coupled with a 2.4% increase in the volume of full priced goods sold during the period and decrease in the volume of off-priced sales that was partially reduced by an increase in the average net unit cost of goods sold of 4.5%.

SG&A for the second quarter of fiscal 2013 increased to $1.45 million or 1.8% compared to $1.43 million for the second quarter of fiscal 2012. SG&A as a percentage of net sales decreased to 42.1% for the second quarter of fiscal 2013 from 45.2% when compared to the same period of fiscal 2012. SG&A for the first six months of fiscal 2013 decreased slightly to $3.13 million compared to $3.12 million for the first six months of fiscal 2012. SG&A as a percentage of net sales decreased to 33.8% from 35.2% when compared to the same period of fiscal 2012.

The Company reported a net operating loss from continuing operations of $359,000 or $0.05 per share for the second quarter compared to a net operating loss from continuing operations of $470,000 or $0.06 per share for the same period of the prior year.

For the first six months of fiscal 2013, the Company reported a net operating loss from continuing operations of $91,000 or $0.02 per share compared to a net operating loss from continuing operations of $209,000 or $0.03 per share for the first six months of fiscal 2012.

Earnings before interest, taxes, depreciation and amortization (or “EBITDA”) from continuing operations for the first six months of fiscal 2013 was $397,100 compared $252,300 for the first six months of fiscal 2012.

SALE AND LEASEBACK OF THE OLD TOWN, MAINE DISTRIBUTION CENTER

As announced on July 8, 2013, Penobscot Shoe Company (“Penobscot”), a Maine corporation and wholly owned subsidiary of Phoenix Footwear Group, Inc., a Delaware corporation (“Phoenix Footwear”), entered into a purchase and sale agreement (the “Agreement”) with Old Town Partners, LLC (“Buyer”) relating to transactions which include, among other things, the sale and leaseback of Phoenix Footwear's warehouse facility located in Old Town, Maine on July 1, 2013.

Under the terms set forth in the Agreement, Penobscot sold to Buyer an approximately 75,000-square-foot commercial building located on approximately 3.379 acres (collectively, the “Property”). Currently, Phoenix Footwear utilizes the Property as its warehouse for inventory. Under the Agreement, Penobscot is required to lease the Property back from the Buyer pursuant to the terms of a Commercial Lease (Net Lease) between the Buyer, as landlord, and Penobscot, as tenant, and guaranteed by Phoenix Footwear. The lease term is ten years. The purchase price under the Agreement is $620,000. The proceeds from the closing of the transaction were used by Phoenix Footwear to pay off its $250,000 term loan with AloStar Bank of Commerce, an Alabama bank (“AloStar”), and pay down its $700,000 subordinated term note with Gibraltar Business Capital, LLC, and its $7.0 million revolving credit facility with AloStar.

About Phoenix Footwear Group, Inc.

Phoenix Footwear Group, Inc., headquartered in Carlsbad, California, specializes in quality comfort women’s and men’s footwear with a design focus on fitting features. Phoenix Footwear designs, develops, markets and sells footwear in a wide range of sizes and widths under the brands Trotters® and SoftWalk®. These brands are primarily sold through department stores, leading specialty and independent retail stores, mail order catalogues and internet retailers and are carried by approximately 677 customers in over 905 retail locations throughout the U.S. Phoenix Footwear has been engaged in the manufacture or importation and sale of quality footwear since 1882.

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These forward-looking statements include, but are not limited to, statements regarding Phoenix Footwear’s ability to repay its bank debt in a timely manner, future growth and performance of its individual brands, expected financial performance and condition for fiscal 2013 and/or statements preceded by, followed by or that include the words “believes,” “could,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “projects,” “seeks,” “exploring,” or similar expressions. Although Phoenix Footwear believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by Phoenix Footwear or any other person that the objectives and plans of Phoenix Footwear will be achieved. All forward-looking statements included in this press release speak only as of the date of this press release and are based on Phoenix Footwear's current expectations and projections about future events, based on information available at the time of the release, and Phoenix Footwear expressly disclaims any obligation to release publicly any update or revision to any forward-looking statement contained herein if there are changes in Phoenix Footwear’s expectations or if any events, conditions or circumstances on which any such forward-looking statement is based.

                      Phoenix Footwear Group, Inc. Condensed Consolidated Balance Sheets (In thousands)   (Unaudited) June 29, 2013 December 29, 2012 ASSETS   Current assets: Cash and cash equivalents $ 170 $ 43 Accounts receivable, net 1,873 1,768 Inventories, net 7,404 6,974 Other current assets 1,061 1,039 Income taxes receivable   149   149 Total current assets 10,657 9,973   Property, plant and equipment, net 349 418 Other assets   142   204 TOTAL ASSETS $ 11,148 $ 10,595   LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities: Notes payable, current $ 3,695 $ 3,506 Accounts payable 3,019 2,574 Accrued expenses 653 592 Other current liabilities   177   208 Total current liabilities 7,544 6,880   Convertible notes payable 1,350 1,350 Term notes payable 920 936 Other non-current liabilities   164   164 Total liabilities 9,978 9,330   Stockholders' equity   1,170   1,265 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 11,148 $ 10,595                             Phoenix Footwear Group, Inc. Condensed Consolidated Statements of Operations (In thousands, except per share data)   (Unaudited) Three Months Ended June 29, 2013 June 30, 2012 Net sales $ 3,440 100 % $ 3,150 100 % Cost of goods sold   2,163   63 %   2,009   64 %   Gross profit 1,277 37.1 % 1,141 36.2 %   Operating expenses: Selling, general and administrative expenses 1,451 42 % 1,426 45 % Goodwill and intangible impairment charges   -   - %   -   0 % Total operating expenses   1,451   42 %   1,426   45 %   Operating loss (174 ) -5 % (285 ) -9 %   Interest expense, net   185   5 %   185   6 %   Loss before income taxes and discontinued operations (359 ) -10 % (470 ) -15 %   Income tax (benefit) expense   -   0 %   -   - %   Loss from continuing operations (359 ) -10 % (470 ) -15 %   Loss from discontinued operations, net of tax   (9 ) 0 %   -   0 %   Net loss $ (368 ) -11 % $ (470 ) -15 %   Loss per share: Basic Continuing operations $ (0.05 ) $ (0.06 ) Discontinued operations   -     -   $ (0.05 ) $ (0.06 ) Diluted Continuing operations $ (0.05 ) $ (0.06 ) Discontinued operations   -     -   Net loss $ (0.05 ) $ (0.06 )   Weighted-average shares outstanding: Basic 8,298 8,218 Diluted 8,298 8,218                             Phoenix Footwear Group, Inc. Consolidated Statements of Operations (In thousands, except per share data)   (Unaudited) Six Months Ended June 29, 2013 June 30, 2012 Net sales $ 9,237 100 % $ 8,855 100 % Cost of goods sold   5,822   63 %   5,578   63 %   Gross profit 3,415 37 % 3,277 37 %   Operating expenses: Selling, general and administrative expenses   3,129   34 %   3,124   35 % Total operating expenses   3,129   34 %   3,124   35 %  

Operating income

286 3 % 153 2 %   Interest expense, net   377   4 %   362   4 %   Loss before income taxes and discontinued operations (91 ) -1 % (209 ) -2 %   Income tax (benefit) expense   -   0 %   -   - %   Loss from continuing operations (91 ) -1 % (209 ) -2 %   Loss from discontinued operations, net of tax   (18 ) 0 %   (1 ) 0 %   Net loss $ (109 ) -1 % $ (210 ) -2 %   Loss per share: Basic and diluted Continuing operations $ (0.02 ) $ (0.03 ) Discontinued operations   -     -   Net loss $ (0.02 ) $ (0.03 )   Weighted-average shares outstanding: Basic and diluted 8,268 8,198