Summer Infant, Inc. Reports First Quarter 2013 Results

Summer Infant, Inc. Reports First Quarter 2013 Results 
Focus on Operational Excellence and Effective Working Capital
Management Drive Improved Bottom-Line Performance; 
Cost Management Initiatives Drive 10% Improvement in G&A Expenses; 
Selling Expenses Reduced by 7% Year Over Year 
WOONSOCKET, RI -- (Marketwired) -- 05/13/13 --  Summer Infant, Inc.
("Summer Infant" or the "Company") (NASDAQ: SUMR), a global developer
and distributor of juvenile health, safety and wellness products,
today announced financial results for the first quarter ended March
31, 2013.  
Management Comments 
"We made good progress during the first quarter toward improving our
operations and bottom-line performance despite the soft retail
market," said Jason Macari, President and Chief Executive Officer.
"Revenue and gross margin increased from the fourth quarter, and we
lowered both selling and G&A expenses on a sequential and
year-over-year basis. As expected, revenues were down 6% year over
year as we discontinued several non-profitable or low-margin products
and began to exit licensing agreements. While most product categories
were slightly down to flat during the quarter, higher sales from the
Safety, Play and Nursery categories partially offset softness in
other categories. 
"During the quarter gross margins declined due to higher-than-usual
close-out sales related to the reduction of SKUs and the
discontinuation of license agreements. These close-out sales had a
1.5% dampening effect on the quarter's gross margin and we expect
this to continue in the second quarter. However, we anticipate these
actions will have a positive effect on our profitability during the
second half of 2013. The cost reductions and strict expense
management initiatives implemented in 2012 and in the first quarter
of 2013 have proven effective, resulting in 10% and 7% year-over-year
reductions in G&A and Selling expenses, respectively.  
"We also made good progress with other financial priorities, such as
effective working capital management. We continue to be successful in
reducing inventories, which declined 16% from the first quarter of
2012. At the end of February, as previously announced, we reached a
major milestone when we entered into a new, fully underwritten loan
and security agreement with
 Bank of America. We expect that as a
result of the refinancing, our interest expense will be reduced by
approximately $1.0 million in 2013 from our previous credit facility.
We also have reduced our debt level, net of cash by $4.5 million
since the end of Q3 2012. 
"During the first quarter we continued to innovate our product suite
across a number of core categories, and we are looking forward to new
product launches as we proceed throughout the year. We also are
focused on investing in marketing initiatives to build our own Summer
and Born Free branded products, which have gained good recognition
and acceptance in the marketplace. During the past year, we have
enhanced our product development efforts by focusing our team on a
fewer number of strategic categories that align with our plans to
deliver higher profitability and long-term growth. As a result of our
renewed focus on strategic categories, we have a number of new
product launches performing well at retail, including new versions of
our award winning SuperSeat, the 3D Lite stroller, Born Free Bottle
Warmer and Sterilizer, and the Baby Touch 2, Multi View, and Slim and
Secure 2 video monitors. 
"The progress we made during the first quarter gives us confidence
that 2013 will be a turnaround year for Summer as we execute on our
strategy to improve our overall performance. To execute this
strategy, we have invested in our management capabilitie
s across the
organization, including at the senior level. We believe we have the
right team and the right strategy in place to build long-term value
for our shareholders," concluded Macari. 
First Quarter 2013 Results 
Net revenues for the three months ended March 31, 2013 decreased 6%
to $59.1 million from $63.0 million for the three months ended March
31, 2012. The decrease in revenue was primarily driven by sales of
discontinued non-profitable and low margin product SKUs throughout
all product categories, as well as phasing out of licensing
arrangements.  
Gross profit for the first quarter of 2013 decreased to $18.6 million
from $21.1 million in the first quarter of 2012. Gross profit as a
percentage of net sales decreased to 31.4% for the three months ended
March 31, 2013 from 33.5% in the three months ended March 31, 2012.
The decline in gross margin was attributable to lower revenues, as
well as to a significant amount of close-out sales of discontinued
and low margin products in the first quarter of 2013, the phasing out
of licensing agreements, the participation in retail promotional
programs and a lower mix of higher-margin product sales. 
General and administrative expenses decreased approximately 10.0% to
$9.6 million for the first quarter of 2013 from $10.6 million a year
ago. The decline in general and administrative expenses is
attributable to the cost reductions initiated in 2012 and in the
first quarter of 2013, including worldwide headcount reductions, a
reduction of executive salaries, voluntary reduction in board of
director compensation, and lower professional service and other
outside service fees.  
Selling expenses decreased 7.0% from $6.0 million for the quarter
ended March 31, 2012 to $5.6 million for the quarter ended March 31,
2013. This decrease was primarily attributable to additional cost
controls implemented over retailer program costs such as promotions,
consumer advertising, cooperative advertising, as well as lower
royalty costs under discontinued licensing agreements. 
Interest expense for the three months ended March 31, 2013 was $1.3
million compared with $0.7 million for the three months ended March
31, 2012. The increase in the first quarter 2013 interest expense was
due to higher interest rates and the write off of unamortized fees in
the first quarter of 2013 attributable to the retirement of the
Company's 2010 credit agreement on February 28, 2013. 
The Company reported net income of $0.4 million, or $0.02 per diluted
share, in the first quarter of 2013, compared with net income of $1.3
million, or $0.07 per diluted share, in the first quarter of 2012.
Excluding permitted add-backs charges and other special items in the
2013 period, adjusted net income was $1.0 million, or $0.06 per
diluted share, in the first quarter of 2013. There were no
adjustmen
ts to net income for the first quarter of 2012. 
Adjusted EBITDA for the first quarter of 2013 was $3.9 million
compared with $4.7 million in adjusted EBITDA in the first quarter of
2012. Adjusted EBITDA for the first quarter of 2013 includes $0.4
million in permitted add back charges compared with no permitted add
back charges in the first quarter of 2012. Adjusted EBITDA, adjusted
net income and adjusted earnings per share are non-GAAP numbers that
exclude various items that are detailed in the financial tables and
accompanying footnotes reconciling GAAP to non-GAAP results contained
in this release. An explanation of these measures also is included
under the heading below "Use of Non-GAAP Financial Information."  
Balance Sheet 
As of March 31, 2013, the Company had approximately $2.6 million of
cash and $63.7 million of debt compared with $3.1 million of cash and
$65.5 million of debt on December 31, 2012. This represents a $1.8
million reduction of debt from December 31, 2012 and a $5.7 million
reduction in debt from March 31, 2012.  
The management of the Company's working capital has been a key focus.
Inventory as of March 31, 2013 was $40.2 million compared to $47.9
million as of March 31, 2012. The inventory reduction is the result
of the Company's efforts to transition some category sales to direct
import, improved forecasting capabilities, and reduction in SKUs.
Trade Receivables as of March 31, 2013 was $47.5 million compared to
$57.8 million as of March 31, 2012. The accounts receivable reduction
is the result of improved payment terms with customers, and
centralizing the collections function into Summer's Corporate office.
Accounts Payable and Accrued Expenses as of March 31, 2013 was $31.9
million compared to $40.6 million as of March 31, 2012. The Company
processes its inventory on credit terms and its current practice is
to submit payments weekly. These working capital improvements reduced
the Company's investment in working capital by $9.3 million year over
year, with inventory turns improving to 4.12 from 3.68 turns.  
Corporate Governance Enhancements  
In April, the Company announced that its board of directors had voted
to include in its proxy statement for its 2013 annual meeting of
stockholders a proposal to amend the Company's certificate of
incorporation to eliminate by 2016 its classified board structure and
to instead provide for the election of the Company's directors on an
annual basis. The Board considered best practices in good corporate
governance and received investor input in determining that the phase
out of the classified board structure is appropriate and in the best
interests of the Company and its stockholders. Additionally, in
January the Board voted to separate the Chairman and CEO positions to
further strengthen Summer Infant's corporate governance in a manner
consistent with board best practices. 
Conference Call Information 
Summer Infant, Inc. will host a conference call today, Monday, May
13, 2013 at 5:00 p.m. Eastern Time, to discuss financial results for
its first quarter ended March 31, 2013. This call is being webcast
and can be accessed by visiting the "Investor Relations" section of
the Company's website at www.summerinfant.com. Investors may also
listen to the call via telephone by dialing (877) 407-5790 or (201)
689-8328. For those unable to listen to the live call, an archive of
the webcast will be available on the Company's website for
approximately one year. 
About Summer Infant, Inc. 
Based in Woonsocket, Rhode Island, the Company is a global designer,
marketer and distributor of branded durable juvenile health, safety
and wellness products (for ages 0-3 years) that are sold principally
to large North American and European retailers. The Company currently
sells proprietary products in a number of different categories,
including nursery audio/video monitors, safety gates, durable bath
products, bed rails, nursery products, booster and potty seats,
swaddling blankets, bouncers, travel accessories, highchairs, swings,
nursery furniture, infant feeding products, and car seats. For more
information about the Company, please visit www.summerinfant.com.  
Use of Non-GAAP Financial Information  
This release includes presentations of Adjusted EBITDA, adjusted net
income and adjusted earnings per share, which are non-GAAP financial
measures. For purposes of this release, (i) adjusted EBITDA means
earnings before interest and taxes plus depreciation, amortization,
non-cash stock-based compensation expenses and other items added back
as detailed in the reconciliation table included in this release and
(ii) adjusted net income and adjusted earnings per share mean net
income excluding certain items as detailed in the reconciliation
table included in this release. Such information is supplemental to
information presented in accordance with GAAP and is not intended to
represent a presentation in accordance with GAAP. The Company
believes that the presentation of these non-GAAP financial measures
provide useful information to investors to better understand, on a
period-to-period comparable basis, financial amounts both including 
and excluding these identified items, and they indicate more clearly
the ability of the Company's assets to generate cash sufficient to
pay interest on its indebtedness, meet capital expenditure and
working capital requirements, comply with the financial covenants of
its loan agreements and otherwise meet its obligations as they become
due. These non-GAAP measures should not be considered in isolation or
as an alternative to such GAAP measures as net income, cash flows
provided by or used in operating, investing or financing activities
or other financial statement data presented in the Company's
consolidated financial statements as an indicator of financial
performance or liquidity. The Company provides reconciliations of
these non-GAAP measures in its press releases of historical
performance. Because these measures are not determined in accordance
with GAAP and are susceptible to varying calculations, these non-GAAP
measures, as presented, may not be comparable to other similarly
titled measures of other companies.  
Forward-Looking Statements 
Certain statements in this release that are not historical fact may
be deemed "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and the Company intends that such
forward-looking statements be subject to the safe harbor created
thereby. These statements are accompanied by words such as
"anticipate," "expect," "project," "will," "believes," "estimate" and
similar expressions, and include statements regarding the expected
effect on profitability of the reduction of SKUs and the
discontinuation of license agreements, the effect of the refinancing
on interest expense, the expectation that 2013 will be a turnaround
year for the Company, and that the Company has the right team and
strategy to build long-term value for shareholders. The Company
cautions that these statements are qualified by important factors
that could cause actual results to differ materially from those
reflected by such forward-looking statements. Such factors include
the concentration of the Company's business with retail customers;
the ability of the Company to compete in its industry; the Company's
ability to continue to control costs and expenses; the Company's
dependence on key personnel; the Company's reliance on foreign
suppliers; the Company's ability to develop and market new products;
the Company's ability to meet required financial covenants under its
loan agreements; and other risks as detailed in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2012, and
subsequent filings with the Securities and Exchange Commission. The
Company assumes no obligation to update the information contained in
this release. 


 
                                                                            
                                                                            
Summer Infant, Inc.                                                         
Consolidated Statements of Operations                                       
(amounts in thousands of US dollars, except share and per share data)       
                                                                            
                                                     Three Months Ended     
                                                          March 31,         
                                                     2013           2012    
                                                 ------------  -------------
                                                                            
Net revenues                                     $     59,118  $      62,999
Cost of goods sold                                     40,539         41,894
Gross profit                                           18,579         21,105
General & administrative expenses (including                                
 stock option expense)                                  9,611         10,625
Selling expense                                         5,604          6,023
Depreciation and amortization                           1,790          1,875
                                                 ------------  -------------
Income before interest                           $      1,574  $       2,582
Interest expense                                        1,255            720
                                                 ------------  -------------
Income before taxes                              $        319  $       1,862
Provision (benefit) for income taxes                     (125)           540
                                                 ------------  -------------
  Net Income                                     $        444  $       1,322
                                                 ============  =============
                                                                            
Earnings per diluted share                       $       0.02  $        0.07
                                                                            
Shares used in fully diluted EPS                   17,871,495     17,976,634
                                                                            
Reconciliation of Non-GAAP EBITDA                                           
                                                                            
Net Income                                       $        444  $       1,322
Plus: interest expense                                  1,255            720
Plus: provision (benefit) for income taxes               (125)           540
Plus: depreciation and amortization                     1,790          1,875
Plus: non-cash stock based compensation expense           178            259
Plus: permitted add-backs(1)                              404              -
  Adjusted EBITDA                                $      3,946  $       4,716
                                                 ============  =============
                                                     
                       
Reconciliation of Adjusted EPS                                              
Net Income                                       $        444  $       1,322
Plus: permitted add-backs(2)                              266              -
Plus: unamortized deferred financing costs (3)            223              -
Plus: loss on certain close-out sales in January                            
 and February                                              88              -
  Adjusted Net Income                            $      1,021  $       1,322
                                                 ============  =============
  Adjusted Earnings per diluted share            $       0.06  $        0.07
                                                                            
(1) 2013 Permitted add-backs consisted of items in January and February that
    the Company was permitted to add-back to the calculation of consolidated
    EBITDA under its credit agreement as in effect through February 28, 2013
    and for items in March that the Company was permitted to add-back to the
    calculation of consolidated EBITDA under its new credit agreement in    
    effect as of February 28, 2013. Permitted add-backs for the three months
    ended March 31, 2013 include consulting fees ($229), loss on certain    
    close-out sales in March ($116), severance costs ($36), special projects
    ($15), and board costs ($8).                                            
(2) 2013 Permitted add-backs consisted of items in January and February that
    the Company was permitted to add-back to the calculation of consolidated
    EBITDA under its credit agreement as in effect through February 28, 2013
    and for items in March that the Company was permitted to add-back to the
    calculation of consolidated EBITDA under its new credit agreement in    
    effect as of February 28, 2013. Permitted add-backs for the three months
    ended March 31, 2013 include consulting fees (Gross $229/Net $151), loss
    on certain close-out sales in March (Gross $116/ Net $77), severance    
    costs (Gross $36/ Net $23), special projects (Gross $15/ Net $10), and  
    board costs (Gross $8/ Net $5). Tax rate of 34% applied to each item to 
    arrive at net income.                                                   
(3) Write off of unamortized deferred financing costs for Bank of America   
    retired loan, $389 Gross/$223 Net tax.                                  
                                                                            
                                                                            
                                                                            
Summer Infant, Inc.                                                         
Consolidated Balance Sheet                                                  
(amounts in thousands)                                                      
                                                                            
                                                   March 31,    December 31,
                                                      2013          2012    
                                                  (unaudited)               
Cash and cash equivalents                        $       2,634 $       3,132
Trade receivables, net                                  47,547        45,299
Inventory, net                                          40,231        49,823
Property and equipment, net                             15,937        16,834
Other intangible assets, net                            20,765        21,046
Other assets                                             6,201         4,186
                                                 ------------- -------------
        Total assets                             $     133,315 $     140,320
                                                 ============= =============
                                                                            
Accounts payable and accrued expenses            $      31,916 $      37,138
Current portion of long-term debt                        1,467           770
Long term debt, less current portion                    62,203        64,767
Other long term liabilities                              3,453         3,498
Deferred tax liability                                   4,202         4,194
                                                 ------------- -------------
        Total liabilities                              103,241       110,367
                                                                            
  Total stockholders' equity                            30,074        29,953
                                                 ------------- -------------
    Total liabilities and stockholders' equity   $     133,315 $     140,320
                                                 ============= =============

  
Contact: 
Paul Francese 
Chief Financial Officer
Summer Infant, Inc.
(401) 671-6572 
or  
David Calusdian 
Sharon Merrill Associates, Inc. 
(617) 542-5300
SUMR@investorrelations.com 
 
 
Press spacebar to pause and continue. Press esc to stop.