You'll find Perry Ellis International (PEI) apparel worn about town during the workweek and on the links most weekends. It designs, distributes, and licenses men's and women's sportswear under 30-plus company-owned or licensed brands, including Jantzen, Laundry, Manhattan, Munsingwear, Original Penguin, and namesake Perry Ellis, among others. PEI also distributes PGA and Champions Tour golf apparel and NIKE swimwear under licenses. PEI's customers include some of the nation's largest retailers (Wal-Mart, Kohl's, and Macy's) and it distributes its products to 20,000 stores. The apparel maker also operates more than 40 Perry Ellis stores in the US, Puerto Rico, and the UK, and several Original Penguin US shops.
PEI is a diversified company with a vast portfolio of brands and products, which it peddles through multiple distribution channels (from mass merchants to luxury stores and specialty shops). The company generates most of its revenue from wholesale sales, which represented 97% of its business in fiscal 2014 (ends January). Of this segment, some 73% came from the sale of men's sportswear; women's sportswear accounted for 15%. PEI is looking to boost business in its direct-to-consumer channel (9% of sales), which includes retail stores and e-commerce revenue, for all of its brands worldwide. Its retail stores operation includes 42 Perry Ellis, six Original Penguin, and two multibrand retail outlet stores located primarily in upscale retail outlet malls across the US, Puerto Rico, and the UK, as well as two Perry Ellis, two Cubavera, and 19 Original Penguin full-price retail stores located in upscale demographic markets in the US and UK.
Licensing agreements accounted for a mere 3% of PEI's revenue. Looking to make itself a mainstay in the apparel arena, PEI licenses its name to third parties -- a strategy many fashion houses have moved away from. Despite this, the company continues to license its name, citing that the effort elevates the overall awareness of its brands without much investment.
Perry Ellis International rings up 10% of its sales outside the US. PEI's apparel is made by Asian and Central American contractors and is sold in the US, Canada, Mexico, the UK, and elsewhere in Europe.
Sales and Marketing
The apparel giant's largest customers are Kohl's and Macy's, which accounted for 11% and 10% of net sales, respectively, in fiscal 2014 (ended January). Other important customers include Wal-Mart-owned Sam's Club, and Dillard's.
Advertising and related costs totaled $16.4 million, $14.9 million, and $14.3 million in fiscal years 2014, 2013, and 2012, respectively.
The apparel maker's sales have fallen from their peak of $980 million reached in fiscal 2012. In fiscal 2014 (ended January) net sales declined 6%, to $912.2 million, versus the prior year. With the exception of licensing (up 9% year over year), all of PEI's business segments posted declines, with its largest, Men's Sportwear and Swim, down 6%. The company blamed the decline in sales in its core segment on decreases in its mid-tier channel, with private and exclusive brands down more than 20% as PEI exited lower margin programs, and as the channel experienced more softness and retailers worked aggressively to manage inventory. These factors were partially offset by increases of 13% in golf apparel sales, including sales of Callaway, PGA Tour, and Ben Hogan. Nike swimwear sales also rose.
The company posted a loss of $22.8 million in fiscal 2014 versus a profit of $14.8 million the prior year. Increased operating expenses, including impairment on assets expenses, and higher selling, general, and administrative expenses, coupled with lower sales contributed to the loss. Cash flow from operations shrunk to $200,000, a decrease of $76.8 million versus 2013, on a decrease in accounts receivable, among other factors.
PEI employs a three-dimensional approach to growth and profitability by developing and enhancing its portfolio of brands, increasing its product offering, and broadening distribution for its brands. Already a major player in menswear, PEI has been actively building its women's contemporary brands business with a spate of acquisitions in recent years. Women's brands acquired in the last few years include Rafaella (2011), and Laundry by Shelli Segal and C&C California acquired from Liz Claiborne in 2008. Laundry is a key dress brand for major retailers such as Saks, Bloomingdale's, Nordstrom, and Neiman Marcus, while C&C is a contemporary brand for missies and juniors.
With sales of golf apparel a relative bright spot amid declining sales, PEI recently signed a long-term licensing agreement with Nicklaus International Brand Management to design, manufacture, and distribute men's and ladies' sportswear, tailored clothing, and accessories under the Jack Nicklaus and Golden Bear brands in the US, Canada, and Mexico.
The apparel company has sought to further diversify by seeking out new markets overseas. Adding the huge Chinese market to the list, in 2012 PEI formed a joint venture with China Outfitters Holdings (CHO), to develop its Manhattan brand in China, Hong Kong, and Macau. CHO will make and distribute Manhattan-brand apparel through in-store shops in more than 160 better department stores throughout China by 2017. Also, PEI hopes to learn about opportunities for its other brands in the Chinese market through the joint venture. Previously, PEI inked a licensing deal with South Pacific Apparel, which makes and markets Savane- and Farah-branded pants and shorts for men and boys in Australia, New Zealand, and elsewhere in the South Pacific region. Also, it has added several licensing deals to sell clothes in South Korea, Japan, and Vietnam.
Mergers and Acquisitions
In early 2012 PEI paid $7 million to acquire the worldwide intellectual property rights to the Ben Hogan family of brands from Callaway Golf. The purchase bolstered the company's golf apparel business and expanded its operations in South Korea and Japan, where it assumed licensing agreements for the Ben Hogan brand. To build its women's business, PEI acquired the privately-held Rafaella Apparel Group from affiliates of Cerberus Capital Management for $80 million in early 2011.