Ennis Sells Apparel Segment to Gildan for $110M, Resulting in Net Loss of $26M
MIDLOTHIAN, Texas — June 29, 2016 — Ennis Inc. (the “Company”), (NYSE: EBF), has reported financial results for the first quarter ended May 31, 2016. Highlights include:
- The Company completed the sale of the Apparel Segment to Gildan for $110.0 million.
- Print sequential gross profit margin increased from 27.7% to 29.5% on a sequential quarter basis.
- Diluted earnings per share from operations (continued and discontinued) remained constant at $0.36.
- Diluted earnings per share from continuing operations decreased from $0.34 to $0.26.
As previously announced, the Company completed the sale of its apparel business to Gildan Activewear on May 25, 2016. Based on closing date working capital, which is subject to audit, the all cash purchase price for the apparel business was $110.0 million. The results of the apparel segment have been accounted for as discontinued operations for the quarter ended May 31, 2016, and comparable prior year results have been restated to reflect this accounting.
The Company’s net sales from continuing operations for the quarter ended May 31, 2016, were $90.4 million compared to $96.8 million for the same quarter last year, a decrease of 6.6%. Gross profit margin (“margin”) for continuing operations was $26.7 million for the quarter, or 29.5%, as compared to 27.7% for the sequential quarter and 31.0% for the same quarter last year. Diluted earnings per share from continuing operations for the quarter were $0.26, compared to $0.34 for the same quarter last year. Earnings from discontinued operations during the quarter were $0.10, compared to $0.02 for the same quarter last year. The combined results for continued and discontinued operations were $0.36 per diluted share for both the quarter and the comparable quarter last year. The net loss arising from the sale of the Company’s apparel operations during the quarter, net of tax, was $26.0 million, or ($1.01) per share, which included the write-off of the Company’s balance of foreign currency translation adjustments recorded in accumulated other comprehensive income of $16.0 million, or $10.3 million, net of taxes. As a result, for the quarter the Company realized a net loss of ($16.9) million, or ($0.65) per diluted share compared to net earnings of $9.2 million, or $0.36 per diluted share for the same quarter last year.
The Company believes the non-GAAP financial measure of adjusted EBITDA (adjusted EBITDA is calculated as net earnings from continuing operations before interest, taxes, depreciation, and amortization) provides important supplemental information to both management and investors regarding financial and business trends used in assessing its results of operations. The Company believes adding back the specified items to net earnings provides a more meaningful comparison to the corresponding reported periods and internal budgets and forecasts, provides management with a more relevant measurement of operating performance and yields metrics which are more useful in assessing management performance. In addition, adjusted EBITDA is a component of the financial covenants and an interest rate metric in the Company’s credit facility. While management believes this non-GAAP financial measure is useful in evaluating Ennis, this information should be considered as supplemental in nature and not as a substitute for, or superior to, the related financial information prepared in accordance with GAAP.
During the quarter, the Company generated adjusted EBITDA from continuing operations of $13.8 million compared to $16.9 million for the comparable quarter last year.
The following table reconciles adjusted EBITDA from continuing operations, a non-GAAP financial measure, to the most comparable GAAP measure, net earnings from continuing operations (dollars in thousands):
Keith Walters, chairman, CEO and president, comments, “We are pleased that we were able to close the sale of the apparel business within the first quarter. The completion of this transaction will allow us to focus on our core print business, including pursuing acquisitions that fit our corporate strategy. As previously announced, in connection with the sale the Company declared a one-time cash dividend of $1.50 per share to shareholders of record on July 11, 2016, which is payable on Aug. 8, 2016.
"The print performance for the quarter, while improving over the sequential quarter’s results, did not meet the expectations we have for this business. Operational results for the quarter were impacted by the unavoidable relocation of our Folder Express operations from Omaha, Neb., to Columbus, Kan., which was implemented last quarter. The start-up training process for the labor force has impacted efficiencies, and we estimate the loss of efficiencies associated with the move impacted our financial performance by approximately $1.6 million for the quarter. While we have seen improvements in this operation, we continue to expect this move will impact our financial performance in the short term. However, we continue to be pleased with the integration of recent acquisitions and the margins of print operations as a whole. I would also like to remind our shareholders that our annual shareholders’ meeting is scheduled for July 21, 2016. I hope to see you there.”
Since 1909, Ennis Inc. has primarily engaged in the production and sale of business forms and other business products. The Company is one of the largest private-label printed business product suppliers in the United States. Headquartered in Midlothian, Texas, the Company has production and distribution facilities strategically located throughout the USA to serve the Company’s national network of distributors. Ennis manufactures and sells business forms, other printed business products, printed and electronic media, presentation products, flex-o-graphic printing, advertising specialties and Post-it Notes, internal bank forms, plastic cards, secure and negotiable documents, envelopes, tags and labels and other custom products.