SUNRISE, Fla., June 6, 2008 (PRIME NEWSWIRE) -- E Com Ventures, Inc. (Nasdaq:ECMV) announced today the results of operations for its 2007 fiscal year ended February 2, 2008.
Fiscal 2007 Results
Total revenues for fiscal year 2007 were $301.8 million, an increase of 23.9% over the $243.6 million reported for the prior year. Retail sales for fiscal year 2007 were $244.0 million, a 6.2% increase over the prior year. The Company's 2007 fiscal year had 52 weeks while the 2006 fiscal year had 53 weeks. Excluding the 53rd week of fiscal year 2006, comparable store retail sales increased 2.9% in fiscal year 2007 versus fiscal year 2006. The Company operated 303 retail stores as of the end of fiscal year 2007 compared with 267 stores at the end of fiscal year 2006. Wholesale sales increased by $44.0 million to $57.8 million in fiscal year 2007. Almost all wholesale sales are to an affiliate, Model Reorg, Inc. ("Model").
Gross profit for fiscal year 2007 was $111.9 million, a 7.6% increase over the prior year amount of $103.9 million. The increase in gross profit was due to improvements in both retail and wholesale sales volume.
During fiscal year 2007, operating expenses increased by $12.4 million to $106.2 million and represented 35.2% of net sales as compared to 38.5% of net sales for fiscal year 2006. Included in operating expenses in fiscal year 2007 are approximately $1.2 million of costs related to the Company's previously announced merger with Model. These costs consist primarily of financial advisory, legal and due diligence fees. In addition, as discussed below, the Company has restated its prior year financial statements to correct certain errors related to its retail store operating lease accounting and amortization of store leasehold improvements. These changes in accounting for retail store leases and amortization of store leasehold improvements resulted in an increase to operating expenses in fiscal year 2007 of approximately $0.8 million. The remaining increase in operating expenses of $10.4 million is primarily occupancy cost and personnel costs attributable in large measure to 39 new stores opened in fiscal year 2007 and the 36 new stores opened during fiscal year 2006 that were open for a full year in 2007.
Income from operations decreased $4.4 million to $5.7 million in fiscal year 2007; $1.2 million of the decrease is attributable to the merger costs and $0.8 million to the changes in accounting discussed above. The remaining decrease in income from operations of $3.2 million resulted principally from the 75 new stores opened during fiscal years 2007 and 2006 needing on average 24 months to mature and appropriately contribute to income from operations. Also, during the fourth quarter holiday season of 2007, the Company increased the promotional activity in its retail stores in anticipation of weak mall traffic and as a result retail gross margins were lower than the prior year's fourth quarter holiday season.
The Company's effective tax rate in fiscal year 2007 is higher than the federal statutory rate due to non-deductible permanent items, primarily the $1.2 million of expenses related to the merger with Model.
As a result of the above, the Company realized net income of $5,730 in fiscal year 2007 compared with net income of $4.4 million in fiscal year 2006.
"In fiscal year 2007 we continued our store growth plan and opened 39 new stores," said Michael W. Katz, the Company's President and Chief Executive Officer. "Despite a difficult economic environment which impacted retail sales in the second half of 2007, we believe that the Company's expansion plans will enhance its long term sales growth and operating performance, and we plan to open approximately 45 stores in 2008. Thus far in 2008 we have opened 16 new stores and closed 1 store, and currently operate 318 stores." Year to date aggregate sales and comparative store sales for 2008 have been approximating our growth plan in spite of the difficult economic environment.
Restatement
As previously reported, the Company has restated its financial statements for fiscal years 2006 and 2005, the three interim quarters in fiscal year 2007, and the four quarters in fiscal year 2006 to correct certain errors related to the Company's retail store operating lease accounting and amortization of store leasehold improvements that were recently identified. The restatements do not affect the Company's cash flows or revenues. The restatement results in a decrease to net income of $0.1 million in fiscal year 2006, an increase in net income of $1.0 million in fiscal year 2005 and a decrease in net income of $2.7 million for all years prior to fiscal year 2005, with a corresponding increase to the accumulated deficit as of January 29, 2005. The restated financial statements are included in the Company's form 10-K for the year ended February 2, 2008, and a summary of the restatement is presented below.
Merger with Model Reorg, Inc.
As reported in the Company's Form 8-K filed with the SEC on December 21, 2007, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Model, a New York corporation controlled by the family of Glenn and Stephen Nussdorf, principal shareholders of the Company, on December 21, 2007. The consummation of the Merger is subject to certain conditions, including approval of the issuance of the shares and warrants under the Merger Agreement by a majority of the votes cast at a meeting of shareholders, and the availability of a new secured credit facility to replace the Company's and Model's existing third party credit facilities. A commitment for the new credit facility was obtained on May 16, 2008. On March 12, 2008, the Company filed a preliminary proxy statement with the SEC discussing the Merger Agreement and the related required shareholder approvals, including the issuance of the shares of the Company's common stock pursuant to the Merger Agreement and the related amendments to the Company's articles of incorporation. The Company has received comments from the SEC on the preliminary proxy and is presently working on a response.
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED
----------------------------------------
February 2, February 3, January 28,
2008 2007 2006
(as restated) (as restated)
------------ ------------ ------------
Net sales to:
Unrelated customers $244,119,470 $229,985,494 $215,849,482
Affiliates 57,715,160 13,623,604 17,844,599
------------ ------------ ------------
301,834,630 243,609,098 233,694,081
Cost of goods sold to:
Unrelated customers 135,507,782 126,983,531 120,490,161
Affiliates 54,461,686 12,695,946 16,702,761
------------ ------------ ------------
189,969,468 139,679,477 137,192,922
------------ ------------ ------------
Gross profit 111,865,162 103,929,621 96,501,159
------------ ------------ ------------
Operating expenses:
Selling, general and
administrative expenses 99,974,054 89,003,867 81,005,603
Depreciation and
amortization 6,196,880 4,796,947 4,830,371
------------ ------------ ------------
Total operating expenses 106,170,934 93,800,814 85,835,974
------------ ------------ ------------
Income from operations 5,694,228 10,128,807 10,665,185
------------ ------------ ------------
Other expenses:
Interest expense
Affiliates (451,354) (465,798) (371,458)
Other (4,277,077) (4,028,943) (3,506,018)
------------ ------------ ------------
(4,728,431) (4,494,741) (3,877,476)
------------ ------------ ------------
Income before income taxes 965,797 5,634,066 6,787,709
Income tax (provision)
benefit (960,067) (1,244,404) 8,471,308
------------ ------------ ------------
Net income $ 5,730 $ 4,389,662 $ 15,259,017
============ ============ ============
Basic net income per common
share $ -- $ 1.46 $ 5.17
============ ============ ============
Diluted net income per common
share $ -- $ 1.38 $ 4.51
============ ============ ============
Weighted average number of
shares outstanding:
Basic 3,058,797 3,000,471 2,949,146
============ ============ ============
Diluted 3,058,797 3,505,890 3,463,480
============ ============ ============
SEGMENT INFORMATION
----------------------------------------
FISCAL YEAR
----------------------------------------
2007 2006 2005
------------ ------------ ------------
Net sales:
Retail $244,019,763 $229,783,211 $215,841,101
Wholesale 57,814,867 13,825,887 $ 17,852,980
------------ ------------ ------------
$301,834,630 $243,609,098 $233,694,081
============ ============ ============
Gross profit
Retail $108,614,493 $102,975,498 $ 95,353,919
Wholesale 3,250,669 954,123 1,147,240
------------ ------------ ------------
$111,865,162 $103,929,621 $ 96,501,159
============ ============ ============
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 2, FEBRUARY 3,
2008 2007
ASSETS: (AS RESTATED)
------------ ------------
Current assets:
Cash $ 1,035,073 $ 1,282,546
Trade receivables, no allowance required 1,057,499 954,664
Deferred tax asset-current 2,261,856 2,821,584
Inventories, net 107,479,019 78,427,029
Prepaid expenses and other current assets 2,228,013 3,469,201
------------ ------------
Total current assets 114,061,460 86,955,024
Property and equipment, net 36,587,935 28,246,433
Goodwill 1,904,448 1,904,448
Deferred tax asset: non-current 6,980,518 7,228,179
Other assets, net 300,250 388,099
------------ ------------
Total assets $159,834,611 $124,722,183
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable- non affiliates $ 19,609,065 $ 16,748,142
Accounts payable- affiliates 48,650,294 24,110,130
Accrued expenses and other liabilities 10,327,794 8,304,225
Bank line of credit 32,840,872 26,919,115
Subordinated convertible note
payable-affiliate 5,000,000 --
Current portion of obligations under
capital leases 355,376 345,424
------------ ------------
Total current liabilities 116,783,401 76,427,036
Subordinated convertible note payable -
affiliate -- 5,000,000
Long-term portion of obligations under
capital leases 7,190,268 7,552,915
------------ ------------
Total liabilities 123,973,669 88,979,951
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.10 par value, 1,000,000
shares authorized, none issued -- --
Common stock, $.01 par value, 6,250,000
shares authorized; 3,957,290 and 3,950,664
shares issued at fiscal year-end 2007 and
2006, respectively 39,573 39,507
Additional paid-in capital 79,182,694 79,069,780
Accumulated deficit (34,784,381) (34,790,111)
Treasury stock, at cost, 898,249 shares (8,576,944) (8,576,944)
------------ ------------
Total shareholders' equity 35,860,942 35,742,232
------------ ------------
Total liabilities and shareholders'
equity $159,834,611 $124,722,183
============ ============
The following is a summary of the effects of the restatement discussed above to the Company's consolidated financial statements.
Consolidated Statements of Operations
-----------------------------------------
As previously Adjustments As restated
reported
------------- ------------ ------------
Fiscal year ended February 3,
2007
Selling general and
administrative expenses $ 88,699,388 $ 304,479 $ 89,003,867
Depreciation and amortization 4,863,319 (66,372) 4,796,947
Total operating expenses 93,562,707 238,107 93,800,814
Income from operations 10,366,914 (238,107) 10,128,807
Income before income taxes 5,872,173 (238,107) 5,634,066
Income tax (provision)
benefit (1,350,243) 105,839 (1,244,404)
Net income 4,521,930 (132,268) 4,389,662
Basic net income per common
share $ 1.51 $ (0.05) $ 1.46
Diluted net income per common
share $ 1.42 $ (0.04) $ 1.38
Fiscal year ended January 28,
2006
Selling general and
administrative expenses $ 80,839,776 $ 165,827 $ 81,005,603
Depreciation and amortization 5,155,645 (325,274) 4,830,371
Total operating expenses 85,995,421 (159,447) 85,835,974
Income from operations 10,505,738 159,447 10,665,185
Income before income taxes 6,628,262 159,447 6,787,709
Income tax (provision)
benefit 7,637,000 834,308 8,471,308
Net income 14,265,262 993,755 15,259,017
Basic net income per common
share $ 4.84 $ 0.33 $ 5.17
Diluted net income per common
share $ 4.23 $ 0.28 $ 4.51
Consolidated Balance Sheet
-----------------------------------------
As previously Adjustments As restated
reported
------------- ------------ ------------
February 3, 2007
Property and equipment, net $ 30,213,222 $ (1,966,789) $ 28,246,433
Deferred tax asset:
non-current 6,288,032 940,147 7,228,179
Total assets 125,748,825 (1,026,642) 124,722,183
Accrued expenses and other
liabilities 7,502,546 801,679 8,304,225
Total current liabilities 75,625,357 801,679 76,427,036
Total liabilities 88,178,272 801,679 88,979,951
Accumulated deficit (32,961,790) (1,828,321) (34,790,111)
Total shareholders' equity 37,570,553 (1,828,321) 35,742,232
Total liabilities and
shareholders' equity $125,748,825 $ (1,026,642) $124,722,183
The Company's fiscal year results are based on a fifty-two or fifty-three week retail calendar ending on the Saturday closest to January 31. All references herein to fiscal years are to the calendar year in which the fiscal year begins; for example, fiscal year 2007 refers to the fiscal year that began on February 4, 2007 and ended on February 2, 2008. With the exception of fiscal year 2006, all fiscal years presented contain fifty-two weeks. Fiscal year 2006 contains fifty-three weeks.
This press release may include information presented which contains forward-looking information, including statements regarding the strategic direction of the Company. Some of these statements, including those that contain the words "anticipate," "believe," "plan," "estimate," "expect," "should," "intend," and other similar expressions, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements of those of our industry to be materially different from any future results, performance or achievements expressed or implied by those forward-looking statements. Among the factors that could cause actual results, performance or achievement to differ materially from those described or implied in the forward-looking statements are our ability to service our obligations, our ability to comply with the covenants in our credit facility, general economic conditions including a decrease in discretionary spending by consumers, competition, changes in or the lack of anticipated changes in the regulatory environment in various countries, the consummation of the previously announced merger with Model Reorg, Inc., our ability to integrate the Model Reorg business and operations into ours, the ability to raise additional capital to finance expansion, the risks inherent in new product and service introductions and the entry into new geographic markets and other factors included in our filings with the SEC.
Where to Find Information About the Merger
In order to effectuate the vote of its shareholders, the Company will file an amendment to its preliminary proxy statement and other documents regarding the merger transaction with the SEC. The Company shareholders are urged to read the proxy statement when it becomes available because it will contain important information. Investors and shareholders may obtain a copy of the proxy statement (when it is available) and any other relevant documents filed by the Company with the SEC for free on the SEC's web site, www.sec.gov. They may also obtain copies from the Company -- Investor Relations at 251 International Parkway, Sunrise, Florida 33325.
Participants in the Proxy Solicitation
The Company and its directors (including Stephen Nussdorf) and executive officers may be deemed to be participants in any solicitation of proxies of the Company shareholders in connection with the transaction. Such individuals may have interests in the transaction. Current, detailed information about the affiliations and interests of the participants in the solicitation, by stock ownership or otherwise, can be found in any proxy statement relating to the transaction filed with the SEC in connection with the transaction and in the Company's public filings with the SEC.