Summer Infant, Inc. Reports Third Quarter 2013 Results

Summer Infant, Inc. Reports Third Quarter 2013 Results 
Cost Reduction Initiatives Drive 22% Decrease in SG&A Expenses;
Announces Additional Cost Reduction Initiatives 
WOONSOCKET, RI -- (Marketwired) -- 11/14/13 --  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 third quarter ended
September 30, 2013.  
Management Comments 
"We continued to execute on our profitability improvement strategy,
which includes ending two major licensing agreements to focus on
building the Summer and Born Free brands, reducing our presence in
the furniture category, and implementing operational excellence
initiatives," said Jason Macari, President and Chief Executive
Officer. "As a result, we generated efficiency gains and reduced
Selling and G&A expenses by 22% year over year. We experienced lower
sales due to inventory contraction with several large retailers, SKU
rationalization, exiting two major licensing agreements and lower
monitor sales. The lower monitor sales were the result of competition
and the repositioning of our monitor offering to the new Wi-Fi
monitor and a fully updated monitor line to be launched in 2014.  
"Given the lower sales volume and our expectation that our strategy
to enhance profitability and rebuild sales volume will take longer
than initially expected, we are implementing new cost-reduction
actions during the fourth quarter of 2013. These actions will include
reductions in global staff and temporary and contracted labor,
reductions in professional fees and overall expenses, and merit
increase deferrals. We expect this will result in an estimated charge
of $0.5 million in Q4 2013 and annualized savings of approximately
$5.0 million.  
"Despite disappointing sales, there were positive highlights as we
focused on top-line growth with all of our customers and have had
specific success with growing sales to small- and mid-sized specialty
customers. Revenues to these customers grew by 14% year-to-date. We
also continue to partner closely with our large retailers and have
positive momentum as we have gained new listings for 2014. Given the
growing opportunity for online sales, we are focusing additional
resources on driving our e-com business to ensure that we are
well-positioned on all of our online customer websites, and marketing
our products effectively online. 
"We are excited about our latest Wi-Fi monitor, expected in December,
and are optimistic that this innovative product will help us to drive
revenues in this important category. The Wi-Fi monitor, which was
well received at the ABC Kids Expo in October, is just one in a line
of new monitors that we expect to introduce in the coming quarters.
We also expect to launch new products during the next several months
in a variety of categories, including an expanded line of wearable
blankets to complement our class-leading SwaddleMe product line,
additional models and fashion in the gear line, a new line of Born
Free and Summer sippy cups, expanded travel accessories, and a new
classic bedding line. 
"Going forward, we will continue to focus on developing and launching
innovative new products across our core categories, building the
Summer and Born Free brands, and driving profitability with our
streamlined operations. We believe this strategy will result in
sustainable profitable growth, improved cash flow generation and
increased shareholder value over the long-term," said Macari.  
Due to improvements to working capital management and a focus on cash
management, the Company has reduced debt by $27.9 million from
September 30, 2012 and by $16.0 million from December 31, 2012. 
Loan Agreement 
On November 8, 2013, the Company entered into loan amendments with
its banks that accelerate the transition from a monthly EBITDA
covenant to a monthly fixed charge coverage ratio. The transition to
the fixed charge coverage ratio covenant had been scheduled for March
31, 2014 but is now effective for periods from and after September
30, 2013. In addition, the Company established the senior leverage
ratios under the Company's term loan agreement effective for monthly
periods ending on and after February 28, 2014. 
"Our focus on working capital management, reduction of debt and the
support of our banks have allowed Summer Infant to transition to loan
covenants that we believe will provide us with more flexibility to
manage our business," concluded Macari.  
Third Quarter 2013 Results 
Net revenues for the three months ended September 30, 2013 were $50.5
million compared with $64.0 million for the three months ended
September 30, 2012.  
Gross profit for the third quarter of 2013 was $15.0 million compared
with $19.6 million in the third quarter of 2012. Gross profit as a
percentage of net sales was 29.7% for the third quarter of 2013
compared with 30.7% in the third quarter of 2012. The decline was
attributable to lower year-over-year sales as well as product mix. 
General and administrative expenses decreased to $9.3 million for the
third quarter of 2013 compared with $10.2 million a year ago. The
decline is attributable to the cost reductions initiated in 2012 and
in the first quarter of 2013. 
Selling expenses were $4.9 million for the third quarter of 2013
compared with $8.0 million for the third quarter of 2012. The
decrease was primarily attributable to lower sales as well as
additional cost controls implemented over retailer program costs,
such as promotions, consumer advertising, cooperative advertising,
and lower royalty costs under licensing agreements as part of the
Company's strategy to discontinue certain licensing arrangements. 
The Company reported a net loss of $1.3 million, or $0.07 per share,
in the third quarter of 2013, compared with a net loss of $65.0
million, or $3.63 per share, in the third quarter of 2012. The net
loss for the 2012 period included a goodwill and intangible
impairment charge of $69.8 million. 
Adjusted EBITDA for the third quarter of 2013 was $1.5 million
compared with $1.6 million in adjusted EBITDA in the third quarter of
2012. Adjusted EBITDA for the third quarter of 2013 includes $0.4
million in permitted add back charges compared with no permitted add
back charges in the third quarter of 2012.  
Adjusted EBITDA is a non-GAAP metric that excludes 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 September 30, 2013, the Company had approximately $1.4 million
of cash and $49.5 million of debt compared with $3.1 million of cash
and $65.5 million of debt on December 31, 2012. This represents a
$16.0 million reduction of debt from December 31, 2012 and a $27.9
million reduction in debt from September 30, 2012.  
The management of the Company's working capital has been a key focus.
Inventory at September 30, 2013 was $40.0 million compared with $48.6
million at September 30, 2012. The inventory reduction is the result
of the Company's efforts to transition some category sales to direct
import, improved inventory forecasting capabilities and reduction in
SKUs. Trade Receivables as of September 30, 2013 was $35.3 million
compared with $53.0 million as of September 30, 2012. The accounts
receivable reduction is the result of lower sales, but also improved
pay
ment terms with customers, and centralizing the collections
function into Summer's corporate office. Accounts Payable and Accrued
Expenses as of September 30, 2013 was $31.0 million compared with
$38.2 million as of September 30, 2012. The Company procures its
inventory on credit terms and its current practice is to submit
payments weekly. These working capital improvements reduced the
Company's year-over-year investment in working capital by $19.1
million.  
Conference Call Information 
Summer Infant, Inc. will host a conference call today, Thursday,
November 14, 2013 at 5:00 p.m. Eastern Time, to discuss financial
results for its third quarter ended September 30, 2013. This live
webcast 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. 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 juvenile health, safety and
wellness products (for ages 0-3) which are sold principally to large
North American and European retailers. The Company currently markets
its products in several product categories such as monitors, safety,
nursery, feeding, gear and furniture. Most products are sold under
the core brand names of Summer(R) and Born Free(R). Significant
products include audio/video monitors, safety gates, bath tubs and
bathers, durable bath products, bed rails, swaddling blankets, baby
bottles, warming/sterilization systems, booster and potty seats,
bouncers, travel accessories, high chairs, swings, car seats,
strollers, and nursery furniture. Over the years, the Company has
completed several acquisitions and added products such as cribs,
swaddling, and feeding products. For more information about the
Company, please visit www.summerinfant.com.  
Use of Non-GAAP Financial Information  
This release and the referenced webcast include presentations of
non-GAAP financial measures, including Adjusted EBITDA, adjusted net
income and adjusted earnings per share. 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 Company's
expectations regarding (i) its strategy to improve long-term
profitability, build sales volume and sustain profitable growth and
create shareholder value, (ii) its ability to realize cost savings
from its cost reduction initiatives, (iii) its ability to grow sales
to specialty customers and online, and (iv) the expected launch of
its Wi-Fi monitor and other new products. 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, market and launch new products; the Company's
ability to grow sales with existing and new customers; 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 (unaudited)              
   (amounts in thousands of US dollars, except share and per share data)    
                                                                            
                            Three Months Ended         Nine Months Ended    
                               September 30,             September 30,      
                             2013         2012         2013         2012    
                         -----------  -----------  -----------  ----------- 
                                                                            
Net revenues             $    50,538  $    63,984  $   163,435  $   188,714 
Cost of goods sold            35,521       44,359      112,859      127,198 
                         -----------  -----------  -----------  ----------- 
Gross profit                  15,017       19,625       50,576       61,516 
General & administrative                                                    
 expenses (including                                                        
 stock option expense)         9,298       10,209       28,196       31,707 
Selling expense                4,855        7,968       16,054       21,739 
Depreciati
on and                                                            
 amortization                  1,499        2,050        4,916        5,728 
Other expense (4)                  -       69,796            -       69,796 
                         -----------  -----------  -----------  ----------- 
Operating income (loss)         (635)     (70,398)       1,410      (67,454)
Interest expense                (945)        (938)      (3,128)      (2,557)
                         -----------  -----------  -----------  ----------- 
                                                                            
Loss before taxes        $    (1,580) $   (71,336) $    (1,718) $   (70,011)
Benefit for income taxes        (304)      (6,310)        (581)      (5,883)
                         -----------  -----------  -----------  ----------- 
    Net loss             $    (1,276) $   (65,026) $    (1,137) $   (64,128)
                         ===========  ===========  ===========  =========== 
                                                                            
Loss per diluted share   $     (0.07) $     (3.63) $     (0.06) $     (3.59)
                                                                            
Shares used in fully                                                        
 diluted EPS              17,968,977   17,926,885   17,912,970   17,870,502 
                                                                            
Reconciliation of Non-                                                      
 GAAP EBITDA                                                                
Net loss                 $    (1,276) $   (65,026) $    (1,137) $   (64,128)
Plus: interest expense           945          938        3,128        2,557 
Plus: benefit for income                                                    
 taxes                          (304)      (6,310)        (581)      (5,883)
Plus: depreciation and                                                      
 amortization                  1,499        2,050        4,916        5,728 
Plus: non-cash stock                                                        
 based compensation                                                         
 expense                         213          147          729          766 
Plus: goodwill and                                                          
 intangible impairment                                                      
 (4)                               -       69,796            -       69,796 
Plus: permitted add-                                                        
 backs (1)                       447            -        1,686            - 
                         -----------  -----------  -----------  ----------- 
    Adjusted EBITDA      $     1,524  $     1,595  $     8,741  $     8,836 
                         -----------  -----------  -----------  ----------- 
                                                                            
Reconciliation of                                                           
 Adjusted EPS                                                               
Net loss                 $    (1,276) $   (65,026) $    (1,137) $   (64,128)
Plus: permitted add-                                                        
 backs (2)                       321            -        1,213            - 
Plus: unamortized                                                           
 deferred financing                                                         
 costs(3)                          -            -          243            - 
Plus: goodwill and                                                          
 intangible impairment             -       63,936            -       63,936 
Plus: loss on certain                                                       
 close-out sales in                                                         
 January & February                -            -           96            - 
                         -----------  -----------  -----------  ----------- 
Adjusted Net Income                                                         
 (loss)                  $      (955) $    (1,090) $       415  $      (192)
                         -----------  -----------  -----------  ----------- 
                                                                            
Adjusted Earnings (loss)                                                    
 per diluted share       $     (0.05) $     (0.06) $      0.02  $     (0.01)
                                                                            
(1) 2013 Permitted add-backs consist of items that the Company is permitted 
    to add-back to the calculations of consolidated EBITDA under its loan   
    agreement. Permitted add-backs for the the three months ended September 
    30, 2013 consisted of losses on certain close-out sales ($39), Board    
    Fees ($123), Disney-related scrap ($205), severance ($11), and special  
    projects ($69). Permitted add-backs for the nine months ended September 
    30, 2013 consisted of losses on certain close-out sales ($460),         
    consulting fees ($242), severance costs ($186), Board Fees ($264),      
    Disney-related scrap ($337), and special projects ($197).               
                                                                            
(2) 2013 Permitted add-backs consist of items that the Company is permitted 
    to add-back to the calculations of consolidated EBITDA under its loan   
    agreement. Permitted add-backs for the the three months ended September 
    30, 2013 consisted of losses on certain close-out sales (Gross $39/Net  
    $28), severance costs (Gross $11/Net $8), Board Fees (Gross $123/Net    
    $88), Disney-related scrap (Gross $205/Net $147), and special projects  
    (Gross $69/Net $50). Permitted add-backs for the nine months ended      
    September 30, 2013 consisted of losses on certain close-out sales (Gross
    $460/Net $331), consulting fees (Gross $242/Net $174), severance costs  
    (Gross $186/Net $134), Board Fees (Gross $264/Net $190), Disney-related 
    scrap (Gross $337/Net $242), and special projects (Gross $197/Net $142).
                                                                            
(3) Write off of unamortized deferred financing costs for Bank of America   
    retired loan, Gross $338/Net $243.                                      
                                                                            
(4) The intangible asset impairment charge in the third quarter of 2012 has 
    been retrospectively adjusted to properly state the interim periods     
    within the fiscal year ended December 31, 2012.                         
                                                                            
                                                                            
                                                                            
                             Summer Infant, Inc.                            
  
                       Consolidated Balance Sheet                         
                    (amounts in thousands of US dollars)                    
                                                                            
                                                September 30,  December 31, 
                                                    2013           2012     
                                                 (unaudited)                
Cash and cash equivalents                      $        1,426 $        3,132
Trade receivables, net                                 35,328         45,299
Inventory, net                                         39,960         49,823
Property and equipment, net                            14,984         16,834
Other intangibles, net                                 21,032         21,556
Other assets                                            4,757          3,676
                                               -------------- --------------
    Total assets                               $      117,487 $      140,320
                                               ============== ==============
                                                                            
Accounts payable and accrued expenses          $       30,992 $       37,138
Current portion of long-term debt                       2,075            770
Long term debt, less current portion                   47,409         64,767
Other long term liabilities                             3,349          3,498
Deferred tax liability                                  4,205          4,194
                                               -------------- --------------
    Total liabilities                                  88,030        110,367
                                                                            
Total stockholders' equity                             29,457         29,953
                                               -------------- --------------
    Total liabilities and stockholders' equity $      117,487 $      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 
 
 
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