Perry Ellis Tops Consensus

Perry Ellis International Inc. (PERY - Snapshot Report) posted adjusted earnings per share of 71 cents in the first quarter of fiscal 2013, beating the Zacks Consensus Estimate of 65 cents but deteriorating from the year-ago earnings of $1.08 per share. On a reported basis, earnings per share were 64 cents versus 99 cents earned in the year-ago quarter. Perry Ellis' total revenue decreased 7.9% year over year in the quarter to $265.5 million.

During the quarter, Perry Ellis' gross profit declined 9.6% year over year to $87.7 million. Moreover, gross margin fell 60 basis points (bps) to 33.0%. Selling, general and administrative expense increased 4.6% year over year to $66.3 million owing to the expansion of the company’s direct to consumer business in the second half of fiscal 2012 and costs related to exited brands as well as restructuring in the first quarter of fiscal 2013.

Financials

At quarter end, Perry Ellis had cash and cash equivalents of $28.5 million. Total long-term liability was $248.7 million.

Guidance

For full fiscal 2013, Perry Ellis expects revenue from its existing business in the range of $990 million to $1.0 billion. Adjusted earnings per share are expected in the range of $1.95 to $2.00. On a GAAP basis, management expects earnings per share between $1.85 and $1.90.

For the full year, management anticipates gross margin improvement in the range of 70 to 80 bps.

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 new product assortment for the fall and holiday seasons especially in Rafaella sportswear collections. Management remains committed to growing direct-to-consumer and e-commerce businesses. We believe this is a positive step toward the strength of Perry Ellis’ market share gain. In a faltering economy, the company is streamlining operations and cutting less productive overhead in order to realize cost savings. Moderating prices of cotton and other raw materials is another positive for the company.

Concerns for the near term include wage inflation, promotional markdowns and high amount of debt in the company’s balance sheet. Additionally, most of the company’s initiatives are unlikely to reap benefit before the second half of the year.

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 - Analyst Report) and CROCS Inc. (CROX - Snapshot Report).