Q4 2019 Earnings Call

Okay, great. And may I have your first and last name, please?

You said Brown?

Okay, great. And what company are you with?

Okay, great. I'm going to move you into the car right now. Thank you very much.

Dead dead dead.

Thursday

Metal gates for example from the terrorists effective immediately in importantly the rule was retroactive to September 2018 as a result of refund of one point eight million is Ojos Brands as Paul will review momentarily. These funds will be paid back over the coming quarters and just as a significantly the 25% tariffs are no longer on summer best selling products metal gate, which should positively impact both sales and gross margins moving forward in addition the companies monitor, especially blankets and suck another call. It should benefit from the reduced list for a terrorist that became affected the middle of February.

While the mentioned changes will help bottom-line results. We also have enacted a broad swath of restructuring measures to further streamline the company and drive us back profitability saving approximately 7.5 million in the annualized expenses in addition to headcount savings and supplier costs concessions already implemented the company expects to sublease a portion of its warehousing facility in Riverside, California vacated shook a distribution center and potentially suddenly suck of the space here rate in our Woonsocket headquarters and Rhode Island. The UK closure is on track to be completed by the end of March after which all International product distribution outside North America will be handled by our existing third-party facility in China the subleasing of Riverside the Riverside Warehouse wage.

Should be concluded in the second quarter in both courses of action and you came California designed to both cut costs and improve our operating effectiveness of the seven point five million of anticipated annual savings. Approximately 6 million is expected to be in this year 2020 in the implementation plans have so far exceeded our expectations cash flow and margin expansion will be primary goals for the remainder of twenty-twenty. We expect to turn the corner on profitability in the very near future and will use available cash to pay down debt and deliver to company suffice it to say that we are doing everything possible to improve Returns on Capital and drive value for a share home from a product perspective. I increase to announce that our new for our car seat and travel system two models are now available at Buy Buy Baby stores as well as on Amazon dead.

While the impact to the first quarter will likely be minimal the products have been reviewed favorably and we are optimistic about potential growth for this year. In addition 1G noteworthy event quarter one is that we now have a new stroller the 3D go in Walmart locations across North America. This is the first time you've had a stroke or the actual Walmart stores versus just online opening up the large Market opportunity for the company the strollers and Innovative convenient model for the price conscious consumer.

Before turning the call over to Paul. Let me comment briefly on the coronavirus epidemic now sweeping the globe it goes without saying that this pandemic is created. Ayni Zaman consumers off uncertainly in the financial markets. We clearly hope that the government scientific resources can address the situation as rapidly as possible to limit the loss of life and bring us up ademic to a month. And in the meantime, I'd like to like to let our investors know that summer Brands. It's already taken steps to mitigate the impact of shipments cause by disruptions in China's Supply base wage first, we had as an ordinary course of business already stocked up on inventory in preparation for the Lunar New Year holiday during which production in China Club crimes to a halt. This is something we do every year like many folks in so I had Goods on hand when suppliers began being impacted by the virus in addition off.

Previous efforts to diversify production out of China helped to some extent reduced product.

Two options have you said that are Chinese partners are currently still operating at reduced run rates. Although they are ramping up production as a situation there comes under control. We get updates from them daily and most are not back at capacity due to shortages labor or raw materials. We expect such delays to possibly impact our second-quarter results. But as I noted earlier, we already have the inventory place to meet first-quarter demand the Chinese government strong a approach to quarantining and testing individuals has resolved many fewer new cases than just a month ago in the situation does appear that stabilized and China we watch ugh developments closely, but are cautiously optimistic about production returning to more normal levels in the near future and closing on please to say that the company is benefiting from actions taken across the board as well as from a stable job.

environment

and I am remaining on the on board to ensure continuity of Summer brands executes on many strategic initiatives. I'm expecting that 6 million a cost savings this year from home is already underway and are also upbeat about several product introductions. I believe Summers managing its supplier base effectively during the current Corona virus outbreak. We are taking all steps necessary to ensure improved profitability higher cash flow and stronger balance sheet this year. The company has gained traction across the number fonts that set the stage for increased operating performance for 220 and Beyond with that I'll turn turned over to Paul to review our financial results month.

Thanks Stewart, and good morning. Everyone has a reminder or 10K in related press release was issued last night in addition to listening to this conference call. I encourage you to review our filings.

What quarter net sales for forty two point seven million compared with forty million for the fourth quarter of fiscal 2018 as Stuart mentioned the company storage strong double-digit growth, of course many of its key product categories even in the face of ongoing tariffs on Goods imported from China.

Just the end of 2019. The terrorist environment has stabilized in this February of fifty percent reduction in list or a tariffs were reduced from 15% to 7.5% becoming effective which will favorably impact or monitors specialty blank in the certain other products going forward.

We are also restructuring or overseas activities is Stewart discussed to streamline the distribution process.

Gross profit was fourteen million for the fourth quarter of fiscal 2019 vs 12.5 million and 2018 and our gross margin as a percent of sales was 32.8% in 2019 versus 31.3% last year.

The company was able to largely dedicate the related negative impact on margins through higher prices supplier cost concessions in the transfer production to other countries in addition in December 2019 the office of the US trade representative announced the exclusion of tariffs on metal baby gates will be retroactive to September 2018. And as a result the company recorded a 1.5 billion benefit-to-cost a sales in the fourth quarter off the remaining point three million reduction in cost of sales sold will impact first quarter of 2020.

The only expense was three point six million in the fourth quarter of 2019 versus three million last year.

As a percent of net sales selling expense was 8.3% in fiscal 2019 versus 7.5% in 2018. The increase year-over-year was primarily due to different customer program terms and higher consumer advertising for new product launches as well as a greater online marketing initiatives versus fiscal 2018.

General and administrative expenses were eight point six million in the fourth quarter versus nine point three million in the prior year. And g n a as a percent of sales tax was 20.1% this year versus 23.2% in 2018.

A year-over-year change reflects lower labor and other costs due to streamlining actions taken by the company interest expense was 1.1 million in the fourth quarter of 2019 and 2018.

The company reported in that loss of nine million of 42 cents per share in the fourth quarter of 2019 compared with a net loss of 2 million / 94 cents per share in the prior-year.

Per share amounts reflect the recently-completed 149 reverse stock split.

Adjusted ebitda for the fourth quarter of 2019 with 2.4 million vs. 8 million for the fourth quarter a 2018. Just leave it in 2019 included a million and Bank permitted charges compared with five million in the prior year. And adjusted ebitda as a percent of net sales was five point six billion this fiscal 2019 versus two point 1 million last year.

Now turning to the balance sheet as of December 28th, nineteen as of December 28th, 2019 at approximately 400048.6 million of Bank debt compared to seven million of cash and 47.9 million of bank that at the beginning of fiscal 2019 month given the restructuring initiatives now underway the lower cost structure of the company and refunds we believe the summer is in a good position to reduce that and deliver the balance sheet this year.

A new amended credit agreements also provide increased Financial flexibility as we execute our strategic turnaround plans this year.

inventory at the end of fourth quarter was 28.1 Million compared with 36.1 million as of December 29th, 2018 reflecting on Thursday working Capital Management in inventory turns were for

while inventory levels Rose slightly in the first quarter before Lunar New Year. We remain committed to having inventory levels narrow below 30 million during 2020.

The large inventory purchases in q1 a normal seasonal occurrence actually helped us given the slowdown in China from the Corona virus as well as the Lunar New Year off.

Stuart mentioned we believe the situation China has stabilized in as production comes back online. Do not currently anticipate any material impact on our import requirements this year.

Trade receivables at the end of December with 32.8 million compared with Thirty one point two million at the beginning of fiscal 2019.

Day sales outstanding or DSL with 70 up slightly from 64 at the end of the third quarter. We expect to receive one point eight million in refunds off the fighters other assets on the balance sheet over the coming year.

Accounts payable and accrued expenses with 32.7 million as of December 28th, 2019 compared with thirty seven point 1 million at the beginning of the fiscal year.

The company generated approximately 1.5 million in cash from operations during the full year and at the end of December we had approximately 6.9 million of availability under our line of credit.

As I said a moment ago, we expect more robust cash flow in 2020 and currently a reduction in debt levels going forth.

With that, I'll turn the call over to the operator and open it up to questions.

Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you were using the speaker phone. We asked you pull up your handset before pressing the keys. So we try your question, please press * then two at this time. We will pause momentarily to assemble our roster.

And today is the first question comes from a private investor, please go ahead sir.

Yes Stewart. Can you can you hear me? Yes I can.

Yes Stewart. I got a number of questions.

You know, you were brought onto the company obviously to enact some to restructure the company and and obviously you've done a good job in terms of Iraq, you know, some of the cost initiatives that you you've undertaken. Is it is it your intention that that you can you give me an idea how long you intend to to stay with the company and and is the company in a position where they're potentially going to look for a full-time CEO. Yeah look at us. If you're not what we're having discussions with the board about that now, I think we're the board ended up and you know was we were right in the middle of a lot of these restructuring initiatives and they wanted to you know have some continuity for the for the short-term here dead.

Over the next you know few months and we'll revisit it again, but to get some of this behind us and then obviously with the turmoil we see out there now with Corona and everything is thrown even a another kick in that so, you know, we'll come back you on that. But for the foreseeable future right now just to hold some consistency across the board, you know, it asked me to stay on. Okay, and in terms of the you know, in terms of the Six Million in life savings that you you're talking about for the year what what time when I look at the income statement, what line items do you guys going to impact the most and then and then how do you think it's going to kind of lay out in terms of the impact on the quarters? Is it more more first-half? Yep.

Impactful versus the second half how's it going to lay out? Yeah, look, you know when we put it all together and and and had the meeting in the first quarter. We went into action on many of these initiatives, you know, as early as February, you know, and there was some you know, reduction-in-force some negotiations with our vendor community. So we're starting to see those benefits now and then some were working on. You know, Paul will will will address a little earlier on some of the subleasing and all that. Those just take a little bit more time. So we think you know better than fifty percent of that has already been implemented. It is starting, you know, we're going to see benefits here moving forward and then the rest wage shipping out every day and look some of the is normal block and tackle, you know, that that you've got to work on like eight dollars and things like that that's changing month-to-month that we're keeping wage.

scorecard internally to make sure

Or were managing to our numbers or like a temp labor number things like that.

Okay, and if I could just ask a couple more, you know, I've been around the company for a number of years store and and it seems like four years when they reported a quarter. We're typically in that Revenue range of say forty to forty-five million a company is just been stuck at that level maybe in a in a seasonally better second quarter, you know, maybe they've they've they've they've been able to exchange it slightly when you look at the prospects for this company going forward. You think that there's a chance to company can break out of that range on the outside in terms of the revenues. I do I think look the world's changing as we see brick-and-mortar and.com and all that. Of course our Focus initially here was to get a a nice.

Stable profitable business as well as protect the business we have so, you know the numbers you're talking about and then start to drive strategically and profit life towards that growth but we look at that every day. Look we had a call this morning with all the sales folks and everything and we're looking at those types of you know, smart decisions that can drive profitable growth. Um, but first, you know was to get our our cost structure in our overhead structure in line so we could drive profitable business. Look that's a good Nevada. The one that way I look at it is it's a pretty darn stable business right that that can deliver on and on quarter after quarter that that bulk of business which look in a lot of situations. I've been in the years that is not the case that fluctuates way up and down and then you've got other things you got to manage. So, you know, you know, you know there hasn't been a lot of birth.

Should I've Been On Through The Years where the CEO is actually at summer actually talked about a chance an opportunity. I don't know whatever you want to call a belief. Let's say that you expressed on the call in your prepared remarks that you think this company can get to profitability.

Do you think you can get this company to profitability? Yes. Yes.

I mean, is it something that you think that you can achieve?

This year that is the plan and we've got to stick to the plan and stay the course and continue to you know, do the fundamental things that you know, the management team challenged with but look besides the marketplace just turmoil right now. I mean, I feel like we're making good strides towards everything you're asking at.

Okay, I appreciate it. Good luck. Thank you.

Gentlemen, as a reminder. If you'd like to ask a question, please press star than the one at this time. Once again will pause momentarily to assemble our roster.

And ladies and gentlemen as a final reminder. If you'd like to ask a question, please press star than the one at this time.

There's no further questions appeared to be in Q. I'll turn the call back over to mr. Noise for any closing remarks. Thank you very much. See everybody. Thank you all for joining us on today's call, and we look forward to speaking with you again in the next quarter. Thank you. And thank you, sir. Today's conference has not concluded. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.