Phoenix Footwear Reports Second Quarter 2015 Results

Phoenix Footwear Group, Inc. (OTCMarkets.com: PXFG) today reported results for the Second Quarter and First Six months ended July 4, 2015.

Second Quarter and First Six Months of Fiscal 2015

• Gross sales from continuing operations for the second quarter increased 4.3% to $5.6 million compared to $5.3 million for the second quarter of fiscal 2014. Net sales for the period decreased to $4.1 million or 5.0% from $4.3 million when compared to the second quarter of fiscal 2014.
• During the first half of fiscal 2015, the Company instituted a Minimum Advertised Pricing (“MAP”) policy. This policy will allow for the continued expansion of the Company’s brands both online and with a broad base on authorized retail partners. The initial implementation of this policy resulted reduced sales and 110 basis points reduction in gross margins associated with markdowns and other allowances.
• The Company continued to experience significant growth with its occupational product offering. This collection grew by 110.4% in the second quarter and 127.0% for the first half of fiscal 2015 when compared to the second quarter and first half of fiscal 2014.
• Gross sales for the first six months of fiscal 2015 increased 12.7% when compared to the first six months of fiscal 2014, while net sales increased 7.4% to $10.7 million from $10.0 million when compared to fiscal 2014.
• Consolidated net loss from continuing operations for the first six months of fiscal 2015 was $690,000 or $0.08 per share and included $167,000 of early termination fees associated with the refinancing of the Company’s loan and securities agreements in February, $149,000 in markdowns and other expenses related to the implementation of the Company’s MAP policy, and net increase of $65,000 of non-cash stock option expense for the period when compared to a net loss of $195,000 or $0.03 per share.
• Effective September 1, 2015, David G. Whalen will be joining the Board of Directors of Phoenix Footwear Group, bring his experience of growing and building substantial consumer brands.

THE SALE OF EQUITY SECURITIES

On August 18, 2015, the Company completed the sale of 4,000,000 shares of its common stock at a price of $0.50 per share. The sale was made in a private placement offer to its shareholders who are “accredited investors” as defined in Regulation D promulgated by the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”).

The offering was made directly on a best efforts basis without an underwriter or any minimum number of shares that must be sold. The offering commenced on July 28, 2015, and terminated at 5:00 p.m. Eastern Time on August 12, 2015. The shares were issued to accredited investors in private transactions not involving any public offering and exempt from the registrations requirements of the Securities Act pursuant to Section 4(a)(2) thereof, and Rule 506 (c) of Regulation D thereunder. The offering was open to all shareholders of record as of June 11, 2015 who are accredited investors and currently reside in the United States.

In connection with the offering, The Company entered into a Standby Purchase Agreement, dated July 23, 2015 (the “Purchase Agreement”), with Greenwood Capital, LP, a Massachusetts limited partnership, and MGPLA, LP, a Delaware limited partnership, both managed by Greenwood Investments, Inc. (the “Greenwood Investors”). The Purchase Agreement was negotiated and approved by a special committee of the Company’s Board of Directors. Under the Purchase Agreement, the Greenwood Investors initially purchased 2,094,400 Shares at the offering price of $0.50 per share. This represents the Greenwood Investors’ pro rata portion of the total number of Shares available in the Offering based upon their beneficial ownership of the common stock issued and outstanding as of the record date, including shares underlying the convertible notes held by them.

The Greenwood Investors also committed in the Purchase Agreement to purchase from the Company, at the Offering Price, any portion of the Shares not otherwise subscribed for in the Offering. Pursuant to these terms, the Greenwood Investors purchased an additional 1,105,600 shares from the Company on August 18, 2015. The Greenwood Investors’ obligation to buy any shares not otherwise subscribed for in the Offering was subject to standard closing conditions set forth in the Purchase Agreement. 800,000 shares were purchased by other eligible stockholders, including the Company’s Chairman and CEO, James R. Riedman, who purchased 300,000 shares.

APPOINTMENT OF DAVID G. WHALEN TO BOARD OF DIRECTORS

Phoenix announced today the appointment of David G. Whalen to the Company’s Board of Directors (the “Board”) beginning September 1, 2015. Prior to the appointment of Mr. Whalen, the Board consisted of four members.

Mr. Whalen is the former President and Chief Executive Officer of the A.T. Cross Company. While with A.T. Cross, Mr. Whalen acquired and built the Costa premium sunglass brand into one of the largest sports sunglass brands in the United States. Prior to his experience at Cross, Mr. Whalen held various senior executive positions with Bausch & Lomb Inc., including Corporate Vice President and President of North American, President of Europe, Middle East and Africa as well as Managing Director of Bausch & Lomb UK. Prior to Bausch & Lomb, Mr. Whalen also worked at Booz, Allen & Hamilton and the General Foods Corporation. Mr. Whalen graduated from Trinity College and received his MBA from the University of Chicago’s Booth School of Business.

Commented Mr. James Riedman, “Dave’s experience in building consumer brands while managing and delivering dynamic growth will bring an invaluable perspective. We look forward to Dave’s contributions as a member of the Company’s Board.”

SECOND QUARTER AND FIRST SIX MONTHS OF FISCAL 2015

For the quarter ended June 28, 2014, net sales decreased by $213,000, or 5.0% to $4.1 million compared to $4.3 million for the second quarter of fiscal 2014. Net sales for the first six months of fiscal 2015 increased $741,000, or 7.4% to $10.7 million compared to $10.0 million for the first six months of fiscal 2014.

The increase in net sales for first six months of fiscal 2015 was primarily driven by a 121.0% increase in net sales of occupational and licensed footwear first introduced in Spring of fiscal 2014, together with increased sales to the Company’s online and national retail customers. The decrease in net sales for the second quarter of fiscal 2015 was primarily associated with an increase in discounts and markdown allowances provided to national online and big box retailers.

Gross profit from continuing operations decreased $267,000 from $1.4 million to $1.1 million in the second quarter of fiscal 2015. Gross margins as a percentage of net sales for the second quarter of fiscal 2015 declined to 28.1% compared to 33.0% for the second quarter of fiscal 2013. Gross profit from continuing operations decreased $6,000 from $3.52 million to $3.51 million for the first six months of fiscal 2015. Gross margin as a percentage of net sales for the first six months of fiscal 2015 decreased to 32.7% compared to 35.2% for the first six months of fiscal 2014. Lower gross margins for the second quarter and first six months of fiscal 2015 were a resulted of an increase in discounts and markdown allowances associated with national online and big box retailers, an increase in the inventory obsolescence reserve as the Company’s product offering transitions to Spring 2016, together with a 121.0% increase in net sales of lower margin occupational and licensed footwear.

SG&A for the second quarter of fiscal 2015 increased to $1.63 million or 2.6% compared to $1.59 million for the second quarter of fiscal 2014. SG&A as a percentage of net sales increased to 40.1% for the second quarter of fiscal 2014 from 37.2% when compared to the same period of fiscal 2014. SG&A for the first six months of fiscal 2015 increased $367,000 or 10.9% to $3.72 million from $3.36 million for the first six months of fiscal 2014. SG&A as a percentage of net sales decreased to 34.7% from 33.6% when compared to the same period of fiscal 2014.

The increase in SG&A for the second quarter and first six months of fiscal 2015 is attributable to planned personnel additions in sales, sales support and distribution along with other marketing and selling expense during the period in support of the Company’s expansion of it occupational and licensed footwear initiative launch during the Spring of fiscal 2014.

The Company reported a net operating loss from continuing operations of $651,000 or $0.08 per share for the second quarter, compared to a net operating loss from continuing operations of $366,000 or $0.05 per share for the same period of the prior year.

For the first six months of fiscal 2015, the Company reported a net operating loss from continuing operations of $690,000 or $0.08 per share, compared to a net operating loss from continuing operations of $195,000 or $0.03 per share for the first six months of fiscal 2014.

Earnings before interest, taxes, depreciation and amortization (or “EBITDA”) from continuing operations for the first six months of fiscal 2015 was $55,700 compared to $259,600 for the first six months of fiscal 2014.

About Phoenix Footwear Group, Inc.

Phoenix Footwear Group, Inc., headquartered in Carlsbad, California, specializes in quality comfort women’s and men’s footwear with a design focus on fitting features. Phoenix Footwear designs, develops, markets and sells footwear in a wide range of sizes and widths under the brands Trotters® and SoftWalk®, These brands are primarily sold through department stores, leading specialty and independent retail stores, mail order catalogues and internet retailers and are carried by approximately 588 customers in over 1,417 retail locations throughout the U.S. Phoenix Footwear has been engaged in the manufacture or importation and sale of quality footwear since 1882.

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These forward-looking statements include, but are not limited to, statements regarding Phoenix Footwear’s ability to repay its bank debt in a timely manner, future growth and performance of its individual brands, expected financial performance and condition for fiscal 2015 and/or statements preceded by, followed by or that include the words “believes,” “could,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “projects,” “seeks,” “exploring,” or similar expressions. Although Phoenix Footwear believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by Phoenix Footwear or any other person that the objectives and plans of Phoenix Footwear will be achieved. All forward-looking statements included in this press release speak only as of the date of this press release and are based on Phoenix Footwear’s current expectations and projections about future events, based on information available at the time of the release, and Phoenix Footwear expressly disclaims any obligation to release publicly any update or revision to any forward-looking statement contained herein if there are changes in Phoenix Footwear’s expectations or if any events, conditions or circumstances on which any such forward-looking statement is based.

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