Zacks_Analysts' Blog : Perry Ellis Swings Back to Profits - Analyst Blog

Perry Ellis International Inc. (PERY) posted adjusted earnings per share of 11 cents in the second quarter of fiscal 2012, breezing past the Zacks Consensus Estimate of 4 cents and the year-ago loss of 11 cents. GAAP net earnings also came in at 11 cents per share, improving significantly from a loss of 15 cents in the year-earlier period.

Perry Ellis' total revenue surged 33% year over year in the quarter to $214.4 million. Sales growth was aided by improved performances at men’s Golf, dresses under Laundry by Shelli Segal, International business in the U.K. and Mexico as well as solid increases in direct to consumer. Organic revenue grew 18%, excluding the recently acquired Rafaella business. The Rafaella business injected $22.8 million to the total revenue.

During the quarter, Perry Ellis' gross profit leaped 24.2% year over year to $72.3 million. However, gross margin was 33.7% of total revenue compared to 36.0% in the comparable prior-year quarter. The decline was due to higher revenues from lower margin products, converting licenses for small leather goods and dress shirts into wholesale businesses and a decrease in higher margin licensing business. The Rafaella business (acquired in late January) also contributed less to the margin. 

Financials

At quarter end, Perry Ellis had cash and cash equivalents of $34.1 million. Long-term debt was $220.3 million.

Outlook

Perry Ellis expects earnings per share in the range of $2.45–$2.52 for fiscal 2012, compared to $2.40–$2.50 guided earlier. The earnings guidance was also raised from the $2.30–$2.40 range last quarter. The expectation for revenue was reiterated at $1 billion.

Our Take

Perry Ellis, the designer, distributor and licensor of a broad line of men's and women's apparel, accessories, and fragrances, remains optimistic about the performance of Rafaella as well as current business trends. Management remains committed to integrate its niche businesses such as Golf and Hispanic as well as the Perry Ellis Collection with Rafaella’s women’s sportswear. We believe this is a positive step toward the strength of Perry Ellis’ market share gain. Additionally, consecutive raise in the earnings guidance affirms the strength in the company’s fundamentals.

Concerns for the near term include the inflationary commodity environment, struggling margins and high amount of debt in the company’s balance sheet.

Perry Ellis currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. Perry Ellis' peers include Polo Ralph Lauren Corp. (RL) and CROCS Inc. (CROX).