Q1 2020 Earnings Call
[music].
Good morning.
To the summer infant in fiscal 2021st quarter call.
All participants will be in listen only mode.
I need assistance, please ignore conference specialist I personally Gorky folate binding.
After todays presentation will be up 20 to ask questions.
Please note that this will that is being recorded.
The conference over.
Mr. Chris.
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After relations moderator. Please go ahead.
Hello, and welcome to their summer brands Twentytwenty first quarter conference call.
The call today is the company's interim CEO Stuart noise and CFO Paul frenzy.
I would now like to provide a brief safe Harbor statement.
This call May include forward looking statements that relate to sum up brand outlook for 2020 and beyond.
These forward looking statements are subject to various risks and uncertainties.
Could cause actual results events to differ materially from these statements.
Please refer to the risk factors contained in the company's annual report on form 10-K. Didier ended December 28, two that's 19 its quarterly reports on form 10-Q and in our other filings with the Securities and Exchange Commission.
During the call management may make references to adjusted EBITDA adjusted net income and adjusted earnings per share.
These metrics are non-GAAP financial measures, which the company believes help investors gain a meaningful understanding of changes in summer brands operations.
For more information on non-GAAP financial measures. Please see the table for a reconciliation of GAAP results to non-GAAP measures included in the Companys financial release issued yesterday evening.
With that I'd like to turn the call or what Stuart Stuart.
Thanks, Chris and good morning, everyone. We appreciate you joining our first quarter conference call today I'll start by providing an overview of the recent developments after which Paul will go through our financial results in detail.
So used to say that during a rather turbulent economic times in the onset of coal but 90.
Or brands continued its relentless drive to improved operating performance and bottom line results.
Well, taking all precautions appropriate safeguard their employees.
I've been fortunate that most of our leading retail customers.
Be it the big box change the re commerce sites have continued to operate through very challenging circumstances I'm sure. Many of our investors know that such changes Walmart home depot target and lowest continue to stay open well Amazon has seen a surge in demand at the same time, our suppliers in China.
Shop for the most park come back to near normal levels of production.
We reported net revenue of 40.3 million for the first quarter down from last year's 42.5 million due mainly to cope with 19 situation.
Paul will review further in a moment, we saw strength across many areas such as specialty blankets strollers boosters and play yards, but overall sales were negatively impacted by the closure certain specialty retailers here in the U.S. as well as toys R us in China.
Our products were available were often considered by consumers that's essential and this does remain the case in the current quarter.
Moms and dads require a variety of items to care for their young children. In some cases, such products may even be more necessary now with kids staying home rather than being at school or elsewhere. Overall I'm pleased with our topline performance given what has been a bills mall period for many.
Television product providers.
At the same time.
We're ahead of schedule with regard to the more than 7.5 million an annualized cost savings.
Recent streamlining initiatives, including over 6 million lives this year.
The company recently Subleased, a portion of its California warehouse saving over 1 million annually.
In adjusted its Weve sockets woonsocket lease to eliminate space, it's save an additional 300000 in annual expense.
As it were met reminder, we also closed our UK operations at the end of March cutting expenses in our international product distribution is now handled by third party facility in China.
Due to such efforts an aggressive management of working capital summer brands posted greatly improved cash flow from operations of a positive 4.9 million first quarter versus 7.5 million use of cash in 2019 during the same period.
We reduced our debt in tandem this year and we'll continue to do so.
I'm also pleased with how our products are trending thus far in quarter two.
Point of.
Sales indications are encouraging and we remain optimistic about the outlook for our core categories across the channels we serve.
We have not changed our thought process on attaining profitability later this year.
Before turning the call over to Paul I'd like to thank him for his dedication in many years of service it summer brands.
It was a CFO here from 2012 through 2014, and then he rejoined the company near the end of 2018.
Yes, yes face many unexpected challenges, including last year's trade escalation with China and more recently the onset of cold in 19, and I'm sure. That's added a few grey hairs, along the way to call.
He has decided to retire the ended the month, we certainly wish him all the best going forward.
He will be replaced by its Schwartz season financial professional well I've known for many years.
Yeah. It has had considerable experience in financial turnaround situations. In summary, you may recall that he was the interim CFO of summer infant in 2012, just before Paul's higher.
It'll be an excellent addition, as we execute our path to profitability.
Lastly, I wanted to match in the company has elected to hold its annual stockholders meeting later than normal this year on September nine.
2020. This is primarily due to the current restrictions on travel on social distancing, but we look forward to seeing you that.
In closing I'm pleased to say that summer brands is holding its own piece of it very unusual difficult.
They are difficult conditions worldwide, we applaud the efforts by government and medical professionals alike, and battling this pandemic and we believe the company is well positioned to manage its way through the store.
We are much leaner and innovative organization with products that parents appreciate perhaps now more than ever and are considered essential for the children even in challenging times such as this I'm proud of our products are people and the outlook for the company as we approach the midpoint of 2020.
With that I'll turn it over to Paul to review, our financial results in detail Qual.
Thanks, Stuart and good morning, everyone. As a reminder, our 10-Q and related press release was it should last night.
In addition to listening to this conference call I encourage you to review our filings.
First quarter net sales were 40.3 million compared to 42.5 million, but the same quarter fiscal 2019.
Stuart mentioned, the company's sort of growth across many product categories, such as specialty blankets strollers boosters and play yards.
Driven by double digit growth and our ecommerce channels, including Amazon.
However, we were negatively impacted.
With softness within certain markets, including Canada, and lowest failed to celebrate them water specialty retail is due to cope with 19 restrictions.
Gross profit was 12.5 million for the first quarter fiscal 2020 versus 13.5 million in 29 to <unk>.
Gross margin as a percentage of sales was 31% and 2020.
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The lower gross margin largely reflected product mix.
On the impact of closeout sales, including some related to a closure up a huge UK facility.
The only expense was 3.1 million in the first quarters about 2020 and 29 team.
And as a percent of net sales was 8.5% this year versus 7.9% and 29 team.
The increase year over year at the percentage of sales was primarily due to higher cooperative advertising digital marketing cost in freight costs.
General and administrative expenses were 8.1 million in the first quarter versus 9.4 million in the prior year period.
In January as a percentage of sales was 20.2% this year versus 22% and 2019.
The year over year change reflects lower labor and other cost due to the many streamlining initiatives and taken by the company.
As Stuart mentioned, we Subleased a portion of our California warehouse this quarter.
Which will save over 1 million annually and more recently adjusted the footprint of I will start at least let's say of an additional 300000 per year.
Well other cost savings initiatives are on track and we anticipate savings of approximately 6 million this year.
Interest expense was 1.4 million in the first quarter of 2020 versus 1.2 million last year.
The company reported a net loss of 1.2 million, what 57 cents per share in the first quarter of 2020 compared with a net loss of 1.4 million was 67 cents per share in the prior year period.
Adjusted EBITDA for the first quarter 2020 was 1.8 million versus 1.5 million for the first quarter 2019.
Adjusted EBITDA and 2020 included point Ninemillion and they committed at that charges compared with 8.7 million in the prior year period.
And adjusted EBITDA as a percent net sales was 4.6% fiscal twentytwenty versus 3.4% last year.
Now turning to the balance sheet.
As of March 28.
Once you Twentys summer infant had a profit point 7 million the cash.
And 44.7 million the bank debt compared with 8.4 million of cash and 48.6 million to think that at the beginning of the fiscal twentytwenty.
Oh, Thanks recently allowed for in additional amendment to provide flexibility if needed during the the cope it died team pandemic.
But which we are very grateful.
Inventory at the end of fiscal first quarter was 25.2 million compared with 28.1 billion as of December 28 2019.
Reflecting ongoing working capital management and inventory turns increased to 4.4.
Trade receivables at the end of March 30.5 million compared with 32.8 million at the beginning in fiscal 2020.
Day sales outstanding or D.S., So was 68.
Compared to 70 at the ended the fourth quarter.
Accounts payable and accrued expenses with 33 million as of March 28, 2020, compared to 32.7 million at the beginning of the fiscal year.
The company generated approximately 4.9 million of cash from operations during the first quarter.
That's due as Stuart indicated.
At the end of March we had approximately 5.6 million of availability under our line of credit.
We will continue with the pay down debt de lever the balance sheet as much as possible going forward.
Working capital management cash generation debt reduction will remain a key priority for us.
Before turning the call over for questions.
Let me just say that I feel the company is in good shape as they get ready for retirement in the coming weeks.
I will be working with at to ensure a smooth and orderly transition with my last day in the office being June Thirtyth.
I will be leaving summer brands, knowing that we've made a lot of progress streamlining our operations.
Investing in some great product categories, which will make summer brand a much more profitable company.
I've enjoyed working with the entire team.
The board.
And our investors through some very challenging times.
With that I'd like to turn the call over to the operator and open it up for questions.
Well I'll begin the question answer session to ask a question. You May proceed Star then one of your Touchtone phone.
Usually the speakerphone, please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then too.
This is Tom will pause momentarily to assemble our roster.
Our first question comes from Mr., Brett Reece private Investor. Please go ahead.
Yeah Stuart in a in Paul congratulations on the on the core great job doing a very difficult.
Period and Paul.
Just wanted to tell you good luck in in your retirement.
And.
Hi, I just a I just got a couple of questions to ask you guys. I know you know I know you clearly indicated that latter part of March obviously, you saw started to see the impact of cobot 19.
Stuart and Paul can you give us.
An idea how were seals trending you know say in January February before you started to see the impact and can you give us an indication kind of you indicated things have kind of been fairly strong here you know in <unk> and in April and ended the first half.
Hey, but if you could give us an update on the sales trends there that would be helpful.
Yeah, I can take that Paul and he can add but look good. Thank her for the questions and thanks for dialing in the we we see a very resilient business right now I think it surpassed our expectations to date.
You know we planned for I don't want to call. It the worse, but we plan very conservatively in the second quarter and we're outpacing you know what we thought what's going to happen as a management team.
You know obviously, our customer base is that we've been very fortunate to be with you know some of the majors that are open right now and as an essential products. That's really played well for us versus you know some of the real tough times that many a retail and suppliers are.
Facing out there right now so we feel you know.
Decently optimistic about the second quarter at this point.
Okay I appreciate yep Yep, and when you look at the a first quarter really was really two stories in the first quarter. One is that January February were rather a good months for us in March we saw a slow down but it was really really.
Focus on only certain categories and channels within our our business yeah. It was mostly accepting the Mitch your accounts the smaller towns in specialty accounts in our international accounts, but our other larger retailers I'm asking it will still continue to do very well.
And so we are going into the second quarter, rather optimistic about our revenue or top line no. It's kind of interesting Ed when you looked at our customers are top three customers make up 70, what percent of our business and those pops meet customers never close their stores.
And they they are you remember Amazon Walmart and target they've done really well during those pandemic their stores remains open or are we seeing their E. Com platforms, do very well as well as people move to a buying online so really.
Think about second quarter, or but I would say in the first quarter much definitely was an uncertain a uncertain month for us as we adjusted to help me tell is being impacted by the virus.
Okay, but that's a that's that's great to hear.
You guys had a big pain that kinda performance that just fantastic.
No the.
Another question I had is when you look at the 6 million of cost savings that you said that you will you know likely get this year.
How is that going out do we didn't need that that will carry over into the second half a year or is most of that going to be realized here in the park in the a in the first half of 2020.
No no look the second half will be better obviously, you know we didn't start some of this until you know February March the lease portion of Oh, some of the overhead flash staffing reductions things like that so we'll continue to see that in the SAP the.
Third and fourth quarters yet.
Okay. Okay.
Okay and what the last question I had is when Stuart when you. When you you you obviously come into the company and and you guys have done a fantastic job about managing working capital you know doing doing a lot of cost reduction efforts and.
When you when you look it kind of weird the company stands today, how much more can you do on on that front in terms of Oh getting more getting more cost out maybe continued work on working capital versus maybe at some point having to really see.
The topline start to up to grow.
Yeah look I feel comfortable that we still can find more and get more efficient a you know you see our inventory numbers come down maybe we can get better at that a better terms or maybe more direct import as a percent the total in the business.
So I do think we still have room there to.
Increase what I'll call you know positive working capital and we'll continue to work at that look go a lot a little things out up to big things and I think you know as we go through the business. We are laser focused on managing cash or for a few reasons one no being that's pandemic I mean, I think everybody.
Out there any business needed to focus on cash to make sure. They were set up to manage through what was a very you know it was an unknown time. So we feel good about that but we do feel good we continue to chip away at some of that I do not think it is affecting our growth I think we're just getting.
More efficient at what we're doing I think our product teams have done a great job you know really opting the what I'll call pressure on on new innovation and things like that that we're excited about right now and many of those are in front of retailers and being considered.
You know for sets going into late me your next year.
Okay I appreciate it and that's all for me and Stuart.
Good luck with everything and Paul Good luck to retire.
Okay. Thank you Ed.
Thank you. Our next question is from Scott Epstein private Investor. Please go ahead.
Good morning, Stewart, and Paul a I'd like to Echo Ed and offer my congratulations for a.
Great start to the year and also.
Wishing Paul's best doesn't move onto the next chapter so it's great to see a.
Great to see the sustained performance keep up or you know.
Since the end of last year, and obviously going forward into 2020, so that's great to hear thanks [noise].
Okay. So I guess my first question is I'm just.
On the sale side, you know the inventory is down to 25 million and so I guess.
And I had was.
Can you <unk> it seems like you're confident that you can run the business with inventory at that level or perhaps even lower and.
Given [noise].
You know the traffic in your and your top three customers. I mean did you did you see I you know I just stocked out any areas, where you feel like you're missing out on on some sales or do you feel like demand was pulled forward just because the traffic in those channels was so much higher than it had been.
You know basically year over year.
Yeah, what what are the and I appreciate the question to Scott the B.
The trick to any business I think, especially when you're importing is the whole by the forecast flash the demand right how good our yet and I think our teams you know with a renewed focus there between our operations team and our sales teams are you know they mean very frequently and they do deep dives by you.
What do we messed up of course, we do I think I'd be hitting your if I said, we get everything 100% and one of the things that did surprise us in this quarter and and moving ahead right now is the Pos data out there really [laughter] its green all over the place.
Many of our categories, which you know again going into the pandemic, we probably would have not gaps that we the thought things would have been tightened up so do we have to scramble now and then for product for sure. We do but I think the company has a whole the discipline on the demand in the forecasting now has become much better way.
Which help US right. It helps us try not to lose any sales or have lost sales, but we can get better at that to a I still a I don't think the inventory is too low I don't think you know that's just a a drain of cash if you've got stuff sitting around and.
You're not turning Oh, So we'll continue to review getting better at it pulling inventory when we need to but but we want to continue to up the turns here.
To a level that we can manage and manage it efficiently on the top line.
That's great well thought through several stuff. There's several things that we've done that that have allowed us to get our inventory turns up to 4.4 turns its it's really amazing when we look back a year ago. There were 3.4 at yearend. They were 4.1, another 4.4, but.
A lot of work went into getting us to this position I mean, one of the things to remembers that we ask you looked at our skews and we have cut back on number of skews we.
We have closed our UK warehouse, we had $2.5 million of inventory and that warehouse and we replaced with a threepl with only about half a million of inventory servicing our same customers and we're pushing more about ward is the Dion.
And I think we've improved our ability to forecast so when you collectively book at all that.
4.4 turns is what we've gotten to Stuart and I. Both think we can do better.
That we could probably get even a higher inventory turn number.
But a lot of work when to getting us where we are today and we think we could do a little bit better.
Okay, and that's that's great and obviously as a as a long time investor and hearing about things like this for I don't even know how many years, it's great to finally see or some of this you don't basically become reality such great. Next question was so you mentioned the UK warehouse in the drag on gross margin in Q1 or we pretty much.
Through that pain do you see a similar amount of closeouts happening.
In the balance of the year or should the gross margin picture improve a little bit I am I know mix plays a role here, but just in general in terms of the close out impact.
Paul if you want to take that sure yeah. No. We we believe a lot of well all the closeouts for the UK warehouse or certainly behind us.
That all of that inventory was sold off in the month of March So we felt that pain already.
Looking for as as we kind of a reduced our SKU count and as we've looked at better turns of our inventory. We did do a lot inventory cleansing. So I don't believe we'll see a very much closeouts in the future.
Also we are seeing the benefit as we talked about before or on the tariffs that we were burdened with last year, a we've been able to get exclusions for some of our items. So that will also improve our margins going forward as the exclusion of those items.
Go into effect.
So I believe that you'll see margins either stabilizer, even improve slightly as we get into the year.
Okay, and that's fantastic and then.
Looking at the at the Gionee and I'm just want to I don't know if I'm looking at this correctly or an Apple I basically.
Took the report them out and then I backed out basically all the EBITDA exclusions to come out for figure of like 7.2 million is that am I to over there and I guess it sounds like.
The bulk of the 6 million in savings is going to come you know in the balance of the year post Q1, and I know that some of that's going to hit in the gross margin line, but I'm I'm I'm, just trying to see if I'm, if I'm thinking about that correctly or if I've got it you know too low.
Yes, you want me to take that Stuart Yep Yep, Yes, Scott your numbers pretty close.
I think one of the earlier questions was whether or not we've seen a lot of the restructuring savings in the first quarter and the answer is that we only started seeing it in the first quarter.
Remember, we did our restructuring efforts in February and March so where you're going to see more improvement in DNA in the second and third quarter.
Right now, we're projecting that our DNA cost will be around 7 million going forward.
Okay.
So your number of I think you said 7.2, with where we're expecting around 7 million in DNA and so a lot of those savings will start occurring.
In our results starting in Q2.
Okay. I guess, that's that's all I've got for now and again, Congrats I guess is.
And this is just great to see and I'm really.
I'm really happy I'm really proud of the company. So thanks, a lot guys take care. Thanks.
Again, if you ever question. Please press Star then one.
This concludes our question and answer session.
I'm all like to turn the conference over to must noise for any closing remarks. Please go ahead.
I want to thank everybody for joining today's call and we look forward to speaking with you again next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.