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Frederick's of Hollywood Group Inc. Reports Second Quarter Fiscal 2014 Financial Results

HOLLYWOOD, Calif., March 11, 2014 /PRNewswire/ -- Frederick's of Hollywood Group Inc. (OTCQB: FOHL) (the "Company") today announced the financial results for its second quarter of fiscal 2014.

"We are moving ahead with our strategy to maximize higher performing retail locations, which will allow us to reduce overall costs and effectively utilize limited resources. Over the past three months, we have closed 15 underperforming stores and one additional store at the end of its lease.  This activity will continue into April, as we plan to close an additional two stores," stated Thomas Lynch, the Company's Chairman and Chief Executive Officer.

Fiscal 2014 Second Quarter Compared to Fiscal 2013 Second Quarter:

  • Net loss applicable to common shareholders was $5.1 million or $0.13 per basic and diluted share, compared with a net loss of $10.0 million or $0.26 per basic and diluted share. 
  • Net sales decreased 3.1% to $23.5 million from $24.3 million.
    • Direct sales (e-commerce and catalog) increased 9.7% to $8.9 million
    • Comparable store sales decreased 4.1%
    • Total store sales decreased 8.0% to $14.2 million
    • Other revenue decreased by $0.3 million, or 45.9%.  The decrease is primarily attributable to a decrease in shipping revenue due to an increase in online promotional shipping offers to stimulate retail sales and compete more effectively
  • Gross margin, as a percentage of net sales, was 27.0% as compared to 24.1%.
  • Selling, general and administrative expenses decreased to $9.3 million, or 39.4% of sales, from $13.7 million, or 56.4% of sales.

Fiscal Six Months Ended January 25, 2014 Compared to Fiscal Six Months Ended January 26, 2013:

  • Net loss applicable to common shareholders was $12.8 million or $0.33 per basic and diluted share, compared with a net loss of $15.2 million or $0.39 per basic and diluted share. 
  • Net sales decreased 7.4% to $43.3 million from $46.7 million.
    • Direct sales (e-commerce and catalog) increased 5.4% to $15.4 million
    • Comparable store sales decreased 7.7%
    • Total store sales decreased 11.5% to $27.1 million
    • Other revenue decreased by $0.7 million, or 50.1%.  The decrease is primarily attributable to a decrease in shipping revenue due to an increase in online promotional shipping offers to stimulate retail sales and compete more effectively
  • Gross margin, as a percentage of net sales, was 24.5% as compared to 25.5%.
  • Selling, general and administrative expenses decreased to $19.1 million, or 44.2% of sales, from $23.8 million, or 50.9% of sales.

Going Private Transaction 
As previously disclosed, in December 2013, a group consisting of HGI Funding LLC, a wholly owned subsidiary of Harbinger Group Inc., and certain of the Company's other common and preferred shareholders (the "Consortium") entered into a definitive merger agreement to acquire the Company. The members of the Consortium as a group beneficially own approximately 88.7% of the Company's common stock. The merger will be accomplished through FOHG Holdings, LLC ("Parent"), an entity controlled by the Consortium that was formed for the purpose of the transaction.

Under the merger agreement, the Company's shareholders who are not members of the Consortium will receive $0.27 per share in cash upon completion of the transaction. The price represents a premium of 50% to the closing price of the Company's shares on September 27, 2013, the last trading day before the announcement by the Consortium of its proposal, and a premium of 46% over the average closing price of the Company's common stock for the 45 trading days prior to that date.

The Company and its directors may be deemed to be participants in the solicitation of proxies for the special meeting of the Company's shareholders to be held to approve the merger. The Company's directors have certain interests in the merger, as more fully described in the preliminary proxy statement referenced below, including: (a) the directors (other than William F. Harley III) will receive the merger consideration for each share of our common stock held by them, including shares subject to restricted share awards; (b) Mr. Harley will contribute shares of the Company's common stock held by him and his affiliates to Parent in exchange for an increase in their respective equity interests in Parent; (c) Thomas J. Lynch, the Company's Chairman and Chief Executive Officer, has entered into a new employment agreement, which will take effect if the merger is completed, under which Mr. Lynch will receive an equity interest in Parent; and (d) Mr. Harley and Peter Cole became members of the board of managers of Parent upon the signing of the merger agreement.

The Company's shareholders and other interested persons are advised to read the Company's preliminary proxy statement and, when available, definitive proxy statement in connection with the Company's solicitation of proxies for the special meeting because these proxy statements will contain important information, including a description of the security holdings of the Company's directors and their interests as shareholders in the successful consummation of the merger. The definitive proxy statement will be mailed to shareholders as of a record date to be established for voting on the merger. Shareholders will also be able to obtain a copy of the definitive proxy statement, without charge, by directing a request to: Frederick's of Hollywood Group Inc., 6255 Sunset Boulevard, 6th Floor, Hollywood, California 90028. The preliminary proxy statement and the definitive proxy statement, once available, can also be obtained, without charge, at the Securities and Exchange Commission's internet site (http://www.sec.gov).

Forward Looking Statement 
Certain of the matters set forth in this press release are forward-looking and involve a number of risks and uncertainties.  These statements are based on management's current expectations or beliefs.  Actual results may vary materially from those expressed or implied by the statements herein.  Among the factors that could cause actual results to differ materially are the following: working capital needs; competition; business conditions and industry growth; rapidly changing consumer preferences and trends; general economic conditions; continued compliance with government regulations; loss of key personnel; labor practices; product development; management of growth, increases in costs of operations or inability to meet efficiency or cost reduction objectives; timing of orders and deliveries of products; risks of doing business abroad; the ability to protect our intellectual property; satisfaction of the various conditions to the closing of the transaction contemplated by the merger agreement; and the other risks that are described from time to time in the Company's SEC reports.  The Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

About Frederick's of Hollywood Group Inc. 
Frederick's of Hollywood Group Inc., through its subsidiaries, sells women's intimate apparel and related products under its proprietary Frederick's of Hollywood® brand through 96 specialty retail stores and an online shop at http://www.fredericks.com/.  With its exclusive product offerings including Seduction by Frederick's of Hollywood and the Hollywood Exxtreme Cleavage® bra, Frederick's of Hollywood is the Original Sex Symbol®. Our press releases and financial reports can be accessed on our corporate website at http://www.fohgroup.com.  

CONTACT: 
Frederick's of Hollywood Group Inc.  
Thomas Rende, CFO  (212) 779-8300

Investor Contacts:
Todd Fromer / Garth Russell
KCSA Strategic Communications
212-896-1215 / 212-896-1250  [email protected] / [email protected]

   


(Tables Below)

 

FREDERICK'S OF HOLLYWOOD GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

 


January 25,


July 27,


2014


2013


ASSETS

(Unaudited)


(Audited)


CURRENT ASSETS:






Cash

$     170


$       201



Accounts receivable

1,055


926



Merchandise inventories

15,006


11,333



Prepaid expenses and other current assets

484


815



Deferred income tax assets

93


93



   Total current assets

16,808


13,368


PROPERTY AND EQUIPMENT, Net

2,692


3,196


INTANGIBLE ASSETS

18,259


18,259


OTHER ASSETS

2,031


1,376



      TOTAL ASSETS

$  39,790


$  36,199








LIABILITIES AND SHAREHOLDERS' DEFICIENCY





CURRENT LIABILITIES:






Revolving credit facilities

$  7,565


$    6,078



Current portion of term loan

5,000


-



Accounts payable and other accrued expenses

27,750


19,639



   Total current liabilities

40,315


25,717












DEFERRED RENT AND TENANT ALLOWANCES

2,054


3,006


TERM LOAN

14,248


14,068


DEFERRED INCOME TAX LIABILITIES

7,397


7,397


WARRANT LIABILITY

4,989


3,402


OTHER

10


10



TOTAL LIABILITIES

69,013


53,600









TOTAL SHAREHOLDERS' DEFICIENCY

(29,223)


(17,401)



   TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY

$    39,790


$    36,199

 

 

FREDERICK'S OF HOLLYWOOD GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In Thousands, Except Per Share Amounts)

 



Three Months Ended


Six Months Ended



January 25,


January 26,


January 25,


January 26,



2014


2013


2014


2013










Net sales


$        23,530


$        24,288


$          43,266


$         46,743

Cost of goods sold, buying and occupancy


17,166


18,429


32,670


34,818

        Gross profit


6,364


5,859


10,596


11,925

Selling, general and administrative expenses


9,268


13,702


19,145


23,778

Loss on abandonment


-


189


-


710

Impairment of long-lived assets


-


1,295


-


1,295

Operating loss


(2,904)


(9,327)


(8,549)


(13,858)

Interest expense, net


914


520


1,706


1,051

Fair value loss on warrant


773


-


1,587


-

        Loss before income tax provision


(4,591)


(9,847)


(11,842)


(14,909)

Income tax provision


25


25


50


50

Net loss


(4,616)


(9,872)


(11,892)


(14,959)

Less Preferred stock dividends


451


118


869


234

Net loss applicable to common shareholders


$       (5,067)


$       (9,990)


$       (12,761)


$      (15,193)

Basic and diluted net loss per share applicable to common shareholders


$         (0.13)


$         (0.26)


$           (0.33)


$          (0.39)










Weighted average shares outstanding – basic and diluted


39,268


38,996


39,243


38,987



 

 

SOURCE Frederick's of Hollywood Group Inc.

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