Mothers Work Reports Record First Quarter Earnings of $0.63 Per Share, Up 37% Versus a Year Ago
Company Raises Earnings Guidance Range For Full Fiscal Year
Mothers Work, Inc. , the world's leading maternity apparel retailer, today announced operating results for the first quarter of fiscal 2003 ended December 31, 2002.
Net income available to common stockholders for the first quarter of fiscal 2003 was $3.6 million, or $0.63 per common share (diluted), compared to net income for the first quarter of fiscal 2002 of $1.7 million, or $0.46 per common share (diluted), representing a 108% increase in net income and a 37% increase in diluted earnings per share. Given the Company's strong first quarter results and its plans for the rest of the year, the Company is increasing its targeted diluted earnings per common share range for fiscal 2003 to between $2.60 and $2.70 per share versus the Company's previous guidance range of between $2.56 and $2.61 per share.
Net sales for the first quarter of fiscal 2003 increased 10.5% to $126.3 million from $114.4 million in the same quarter of the preceding year. Comparable store sales increased 5.1% during the first quarter of fiscal 2003 (based on 746 locations) versus a comparable store sales decrease of 2.5% during the first quarter of fiscal 2002 (based on 687 locations). For the quarter ended December 31, 2002, the Company opened 30 new locations and closed 4 locations, including 2 iMaternity® stores closed in connection with the consolidation of the acquired store chain. The Company ended the quarter with 935 locations compared to 939 locations at December 31, 2001, reflecting the closure of 75 of the acquired iMaternity stores during the past twelve months, largely offset by the Company's new store openings during this period. The Company's increase in sales for the quarter was due to both the 5.1% comparable store sales increase as well as the higher average sales level of the Company's new stores opened during the past twelve months compared to that of the closed iMaternity stores. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $12.0 million for the first quarter of fiscal 2003, representing a 20.0% increase from the $10.0 million EBITDA for the first quarter of fiscal 2002.
Rebecca Matthias, President and Chief Operating Officer of Mothers Work, Inc., noted, "We are very proud of our performance for the first quarter, particularly given the continued difficult retail environment. For the quarter, we delivered a 10.5% increase in sales, a 20% increase in EBITDA, and a 37% increase in diluted earnings per share. We attribute our sales increase for the quarter to the strong reception of our product lines by our customers, including strong early sell-through results for our Spring product lines, the successful integration of our October 2001 iMaternity acquisition, and the contribution of our quick response merchandise replenishment process. We believe our sales results also benefited by the continued transfer of sales from closed iMaternity stores to existing Motherhood and Mimi stores. Since our acquisition of iMaternity, consistent with our plan, we have closed 90 of the 166 acquired iMaternity stores where we believed we could transfer a sufficient portion of the sales to our existing stores within the same area while eliminating acquired store expenses and improving inventory utilization. An important factor behind our increased profitability was our gross margin improvement. For the quarter, our gross margin improved by approximately 1.7 percentage points versus last year, reflecting our continued success at reducing product costs through our global sourcing initiatives and our ability to achieve our sales results without increased price promotional activity compared to last year. In addition, our inventory management initiatives have enabled us to maintain an overall inventory level less than 4% higher than last December, while delivering a 10.5% sales increase for the quarter.
Although there is an uncertain retail, economic and global political environment surrounding us, given our strong first quarter results and our confidence in our business, we are increasing our targeted net sales for fiscal 2003 to $498 to $503 million, based on our plan to open approximately 100 new stores during the year, net of store closings, and an assumed comparable store sales increase of between 2% and 3% for the year. We have planned for a comparable store sales increase of between 2.5% and 3.5% for the second quarter, and an increase of between 1% and 2% for the third and fourth quarters. We have planned for stronger comparable store sales results in the first half of the fiscal year because of the weaker last year sales comparisons and the greater expected impact in the first half of the year of the iMaternity acquisition on our overall comparable store sales results. We believe we can continue to increase our gross margin by continuing to reduce our product costs through our global sourcing initiatives, although not to the same extent as achieved in fiscal 2002, and are targeting to increase our gross margin by approximately 1.0 to 1.1 percentage points of sales (100 to 110 basis points) for fiscal 2003, to between 54.3% and 54.4% of sales in fiscal 2003 from 53.3% in fiscal 2002. We expect our year-over-year gross margin improvement to be significantly greater in the second quarter than the remainder of fiscal 2003, since we begin to anniversary much tougher gross margin comparisons beginning in the third quarter. We expect our operating expenses to increase as a percentage of sales for fiscal 2003 versus fiscal 2002 primarily as a result of the estimated impact of new store openings and our assumed low comparable store sales growth. Accordingly, we are raising our targeted EBITDA for fiscal 2003 to between $49.5 and $50.5 million. Including the effect of our August 2002 debt and common equity offerings, we project average diluted shares outstanding for earnings per share calculation purposes of approximately 5.79 million shares for the full year. Based on these figures, we are increasing our targeted fiscal 2003 diluted earnings per common share range to between $2.60 and $2.70 per share versus the Company's previous guidance range of between $2.56 and $2.61 per share. Of course, our ability to achieve these targeted results will depend, among other factors, on the overall retail, economic, political and competitive environment.
We are continuing to plan our fiscal 2003 capital expenditures to be between $20 million and $25 million, a significant increase over the $9.8 million figure for fiscal 2002, driven by our increased store opening plan, planned expenditures for expanding and relocating selected stores, store remodelings and increased investment in our management information systems, including the continued roll out of our proprietary, upgraded point-of-sale system. With respect to inventory, we are planning for modest improvement in inventory turn for fiscal 2003, with inventory levels generally somewhat higher than fiscal 2002, but growing at a slower rate than sales. Based on these targets and plans, we expect to generate positive free cash flow during fiscal 2003.
Looking forward to fiscal 2004 and 2005, we are maintaining the same financial guidance as previously articulated. For fiscal 2004 and 2005, our goal is to increase sales by an average of approximately 10% annually, based on our plan to open new Motherhood Maternity® and Mimi Maternity® stores and our planned 1% to 2% comparable store sales growth. We also have a goal to increase our gross margin by approximately 60 to 70 basis points per year during these two years. If we were able to achieve these gross margin goals, we believe our operating income margin would increase by approximately 20 to 25 basis points per year during these two years, with the gross margin improvement being partially offset by an expected increase in operating expenses as a percent of sales resulting from new store openings and a low comparable store sales growth assumption. Consistent with these previously mentioned goals, our goal is to increase our earnings per share by approximately 18-20% annually during fiscal 2004 and 2005. We expect our capital expenditures to be between $20 and $25 million per year during these two years, principally for opening new stores, expanding and relocating selected stores, and store remodelings, and plan to fund these expenditures principally from cash flow from operations. Based on these goals and expectations, and targeting operating working capital growth at a slower growth rate than sales, we expect to generate positive free cash flow during each of fiscal 2004 and 2005."
As announced previously, the Company will hold a conference call today at 9:00 a.m. ET, regarding the Company's first quarter fiscal 2003 earnings and certain financial guidance. You can participate in this conference call by calling (630) 395-0068. Please call ten minutes prior to 9:00 a.m. ET. The passcode for the conference call is "Mothers Work."
Mothers Work is the world's largest designer, manufacturer and retailer of maternity apparel, using its custom TrendTrack™ computer systems and quick response replenishment process to "give the customer what she wants, when she wants it." Mothers Work currently operates 935 maternity locations, including 785 stores and 150 leased departments, predominantly under the tradenames Motherhood Maternity®, A Pea in the Pod®, and Mimi Maternity®, and sells on the web through its www.maternitymall.com and brand-specific websites.
The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this press release or made from time to time by management of the Company, including expected results of operations, involve risks and uncertainties, and are subject to change based on various important factors. The following factors, among others, in some cases have affected and in the future could affect the Company's financial performance and actual results and could cause actual results to differ materially from those expressed or implied in any such forward-looking statements: changes in consumer spending patterns, raw material price increases, consumer preferences and overall economic conditions, the impact of competition and pricing, availability of suitable store locations, continued availability of capital and financing, ability to hire and develop senior management and sales associates, ability to develop and source merchandise, ability to receive production from foreign sources on a timely basis, and other factors set forth in the Company's periodic filings and registration statements filed with the Securities and Exchange Commission, or in materials incorporated therein by reference
Mothers Work, Inc. And Subsidiaries Consolidated Statements Of Operations (In Thousands, Except Per Share Data) (Unaudited) First Quarter Ended ----------------------- 12/31/02 12/31/01 --------- -------- Net sales $126,340 $114,385 Cost of goods sold 59,697 55,982 --------- -------- Gross profit 66,643 58,403 SG&A expenses, excluding depreciation and amortization 54,685 48,440 --------- -------- EBITDA 11,958 9,963 Depreciation and amortization 2,436 2,496 --------- -------- Operating income 9,522 7,467 Interest expense, net 3,742 3,587 --------- ------- Income before income taxes 5,780 3,880 Income tax provision 2,168 1,346 -------- ------- Net income 3,612 2,534 Preferred dividends -- 800 -------- ------- Net income available to common stockholders $3,612 $1,734 ======== ====== Income per share - basic $ 0.69 $ 0.49 ======== ====== Average shares outstanding - basic 5,214 3,512 ======== ====== Income per share - diluted $ 0.63 $ 0.46 ======== ====== Average shares outstanding - diluted 5,721 3,764 ======== ======= Selected Balance Sheet Data (in thousands) December 31, September 30, December 31, 2002 2002 2001 (unaudited) (audited) (unaudited) ---------- ------------ ----------- Cash and cash equivalents $28,362 $14,759 $2,851 Inventories 72,529 76,830 69,997 Property, plant and equipment, net 49,669 50,460 47,842 Line of credit borrowings -- -- 17,325 Long-term debt 127,908 127,913 96,744 Stockholders' equity 51,955 47,505 17,349 Mothers Work press releases available through Company News On-Call at http://www.prnewswire.com/comp/581877.html
SOURCE: Mothers Work, Inc.
CONTACT: Edward M. Krell, Senior Vice President - Chief Financial
Officer of Mothers Work, Inc., +1-215-873-2220
Web site: http://www.motherswork.com/
Company News On-Call: http://www.prnewswire.com/comp/581877.html