Finlay Reports $10 million Loss for the Year

Finlay Enterprises, Inc. reports that fiscal 2007 sales, ended Feb. 2, 2008, increased 13.1 percent to $835.9 million as compared to fiscal 2006. Specialty jewelry stores contributed sales of $223.8 million in 2007 as compared to $108.2 million in 2006. Same-store sales in 2007 decreased 1.4 percent. Including discontinued stores, comparable store sales in 2007 decreased 1 percent.

For fiscal 2007, the company reported a loss from continuing operations of $10.3 million, compared to a loss of $8 million for fiscal 2006. As noted above, fiscal 2007 includes a pre-tax non-cash charge of $3 million for the Congress goodwill impairment. Excluding this charge, the loss from continuing operations would have been $8.5 million. EBITDA for fiscal 2007 totaled $30 million, compared to $24.3 million in the prior fiscal year. Excluding the goodwill impairment, EBITDA for the current fiscal year would have been $33 million, said the company, which operates luxury stand-alone specialty jewelry stores and licensed fine jewelry departments in department stores throughout the United States.

Income from discontinued operations for fiscal 2007 totaled $200,000, compared to income of $12.5 million. For fiscal 2007, the company reported a net loss on a consolidated basis including discontinued operations of $10 million, compared to net income of $4.4 million in the prior fiscal year period. Excluding the goodwill impairment in fiscal 2007, the net loss would have been $8.2 million.

“Our business was clearly impacted by a difficult retail environment during the past holiday season,” said Arthur E. Reiner, chairman and chief executive officer of Finlay Enterprises, Inc. “For the first two months of fiscal year 2008, we have  had a decrease in comparable store sales of approximately 5 percent, but have continued to manage our inventory in a disciplined manner, as reflected in a 5 percent decrease as compared to the prior year period.  Additionally, we are responsibly controlling expenditures to maximize cash flow as we navigate our business through a challenging economy. We remain excited about the opportunities to further expand and diversify into the luxury jewelry store sector and intend to remain focused on optimizing our leased department store business during a period of consolidation.”

Effective with 2008, the company said it will no longer provide quarterly sales or earnings guidance. The company will continue to report sales and earnings quarterly and to provide sales and earnings guidance on an annual basis.

For the fourth quarter, ended Feb. 2, 2008, Finlay said that sales increased 24 percent to $383.1 million compared to same period of 2006. Specialty jewelry stores consisting of Carlyle, Congress, and Bailey Banks & Biddle, contributed sales of $145.9 million for the fourth quarter, as compared to $51.6 million for the same period last year. Same-store sales for the fourth quarter decreased 6.4 percent on a continuing operations basis.

The company reported income from continuing operations of $13.4 million compared to $12.2 million for the same period of the prior fiscal year. The figures includes a pre-tax non-cash charge of $3 million for the impairment of goodwill at our Congress specialty jewelry store division. Excluding this charge, income from continuing operations would have been $15.3 million.

Income from operations before depreciation and amortization expenses for the fourth quarter totaled $38.4 million, compared to $30.1 million in the prior year period. Excluding the goodwill impairment, EBITDA for the fourth quarter this year would have been $41.4 million.

Income from discontinued operations for the fourteen weeks ended Feb. 3, 2007, totaled $4 million and net income on a consolidated basis including discontinued operations totaled $16.2 million. There were no discontinued operations in the fourth quarter of the current year.

For fiscal 2008, Finlay projects consolidated same-store sales will be approximately flat to positive 1 percent for the year. In the licensed business, same-store sales are expected to be in the range of negative 0.5 percent to positive 1 percent. For the specialty stores, the company expects an increase in same-store sales in the low-to-mid single digit range. Same-store sales will not include sales from Bailey Banks & Biddle until fiscal 2009.

In 2008, the company plans to open 10 new doors and close 15 doors, not including the 94 Macy’s North and Northwest departments and the 47 Lord & Taylor departments which are scheduled to close at the end of the fiscal year. Included in the openings are four Carlyle stores and two Bailey Banks & Biddle stores.

The company currently anticipates sales for fiscal 2008 to be approximately $1 billion. The specialty jewelry stores are projected to achieve sales in fiscal 2008 of approximately $400 million to $410 million. Projected EBITDA for the fiscal year is expected to be in the range of $33 million to $35 million. With an estimated LIFO charge of approximately $10 million, EBITDA on a FIFO basis is expected to be in the range of $43 million to $45 million.  These EBITDA estimates include $1.6 million for severance, as described below.

The company anticipates total one-time charges of $3.7 million associated with the Macy’s and Lord & Taylor store group closings. The one-time charges are expected to be comprised of $1.6 million for severance and $2.1 million for accelerated depreciation.

The company projects significant reductions in asset inventory primarily as a result of the store closures and therefore it says it expects to generate free cash flow in the range of $20 million to $25 million. This is expected to result in a reduction in its year end revolver position to approximately $200 million to $205 million in borrowings. The expected revolver position compares to $224 million at the end of fiscal 2007, at which time the excess availability on its revolving credit facility totaled $144 million. The forecasted peak on the revolving credit facility in fiscal 2008 is approximately $360 million.  At the low point of availability on the line, the company projects having approximately $50 million in excess capacity.