UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): March 1, 2004
INNOVO GROUP INC.
(Exact name of registrant as specified in charter)
Delaware 0-18926 11-2928178
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
5804 East Slauson Aven, Commerce, California 90040
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (323) 725-5516
No Change
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(Former name or former address, if changed since last filing)
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Item 5. Other Events and Required FD Disclosure
On March 1, 2004, the Registrant issued the press release attached hereto as
Exhibit 99 and incorporated herein by reference.
Item 7. Exhibits
(c) Exhibits
Exhibit
Number Description
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Exhibit 99 Press Release dated March 1, 2004
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
INNOVO GROUP INC.
(Registrant)
Date: March 1, 2004 By: /s/ Samuel J. Furrow, Jr.
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Samuel J. Furrow, Jr.
Chief Executive Officer and Director
(Principal Executive Officer)
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Exhibit Index
Exhibit
Number Description
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Exhibit 99 Press Release dated March 1, 2004
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Exhibit 99
[INNOVO GROUP INC. LOGO]
Innovo Group Reports Fourth Quarter and Fiscal 2003 Results
LOS ANGELES, March 1, 2004 -- Innovo Group Inc. (NASDAQ: INNO), on Friday,
February 27, 2004, disclosed its financial results for the fourth quarter and
its year ended November 29, 2003 in its annual report on Form 10-K filed with
the Securities and Exchange Commission. The following is a summary and
discussion of certain of these results and events and should be read in
conjunction with the Company's financial statements as disclosed on Form 10-K.
o Net sales for fiscal 2003 increased to $83.1 million compared to $29.6
million in the prior year period, a 181% increase.
o Net sales for the fourth quarter increased 293%, to $37.3 million from
$9.5 million in the prior year comparative period.
o All pre-existing operating divisions experienced growth during fiscal
2003.
o In 2003, the Company launched the Fetish(TM) and Shago(R) brands for
apparel and accessory products.
o During 2003, the Company completed the acquisition of the Blue Concept
division, which generated revenues of $27.8 million during fiscal
2003.
o Joe's Jeans increased its revenues and brand recognition and entered
into a distribution and licensing agreement with Itochu Corporation of
Japan and expanded into new international markets.
o Growing accessory division, whose products during 2003 received
accolades such as TEEN PEOPLE Magazine's Trendspotter(TM)"Hot Picks".
o The Company established an international operational infrastructure to
support growth.
o The Company generated a net loss of $8.3 million, or $0.49 per share,
for fiscal 2003, with $5.8 million of the net loss, or $0.27 per
share, being generated in the fourth quarter.
Jay Furrow, CEO of Innovo, commented: "During fiscal 2003, the Company
experienced tremendous revenue growth and development as an organization. This
is reflected in the Company's revenues of $83.1 million for the year, a 181%
increase over the prior year period, $37.3 million of which were generated in
the fourth quarter; and, this is reflected in the Company's transformation into
an internationally recognized marketer and distributor of apparel and accessory
products. However, the growth during fiscal 2003 came at a cost and this is
reflected in the Company's net loss of $8.3 million for the year, of which $5.8
million was generated in the fourth quarter of fiscal 2003."
The three most notable factors that attributed to the Company's net loss during
fiscal 2003 were: (1) the expenses associated with the establishment of the
Innovo Azteca Apparel, Inc. (IAA) branded business and subsequent launch of the
Fetish(TM) and Shago(R) brands; (2) a significant increase in personnel
necessary to support the Company's
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growing operations; and (3) inventory write downs and adjustments on excess
Fetish(TM) and Shago(R) inventory that negatively impacted the Company's gross
margins, of which a vast majority has been sold since the end of fiscal 2003.
Furrow commented, "During fiscal 2003, we put a significant amount of the
Company's resources into the development of the IAA branded business and the
launch of the Fetish(TM) and Shago(R) brands. We incurred a significant amount
of personnel, marketing, advertising, sampling and tradeshow expenses, to name a
few, which we believe were necessary to properly launch these brands. We have
high expectations for the IAA branded division and we believe that the
anticipated future success will be a function of the investment we made in the
division during fiscal 2003."
Furrow continued, "In regards to our overall increase in operational expenses,
with the substantial growth of our pre-existing businesses during the year the
Company was required to add additional personnel to meet the operational
demands. We are constantly monitoring our personnel needs and working to
increase the operating efficiencies within the Company."
During the end of the second quarter and the fourth quarter of fiscal 2003, the
Company launched the Shago(R) and Fetish(TM) brands, respectively. Furrow
commented, "At the end of fiscal 2003, the Company had excess Fetish(TM) and
Shago(R) inventory. As we began to move this inventory subsequent to end of
fiscal 2003, we were unable to sell it at the year-end carrying value, even
though our initial indications were that we would be able to do so. As such,
when including Joe's Jeans, Inc and Innovo, Inc., we were required to take
inventory write downs and adjustments of approximately $4.3 million, and this is
reflected in the fourth quarter 2003 results."
Outlook
Furrow stated: "As we move into fiscal 2004 we are encouraged about the
Company's prospects. We have a growing private label apparel and accessory
business and we are conducting business with some of the premier retailers and
distributors in the world, we have established the Fetish(TM) brand and it is
garnishing worldwide attention, our Joe's(R) business is as strong as ever with
global demand and we have established an international operational
infrastructure that we believe will allow us to successfully execute on these
opportunities and more."
"We are also encouraged by the fact that the issues that resulted in the loss
for fiscal 2003 are identifiable issues that were associated with our efforts to
create new brands, make acquisitions and establish the necessary infrastructure
to meet the demands related to the growth of our new and pre-existing
businesses. We have and will continue to work diligently to better control
inventory, better manage design and production and mitigate expenses, which we
anticipate will allow sales, margins and profits to increase in future periods."
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As previously announced, the Company has appointed Pierre Levy as the General
Manager of Apparel Operations for the Company. With his involvement the Company
believes that many of operational issues or inefficiencies that were experienced
in fiscal 2003 are being or will be addressed and controlled in future periods.
Furrow continued. "With Mr. Levy's many years of apparel experience at the
operational level, the efforts we have made to manage and reduce expenses and
with the brands launched and acquisitions completed in fiscal 2003 now being
integrated and maturing divisions within the Company we believe that the
anticipated growth in fiscal 2004 will be coupled with profitability." In
conclusion, Furrow stated, "many of the building blocks which will allow the
Company to meet its long term objectives were established in fiscal 2003. While
we are disappointed with our losses in fiscal 2003, we are pleased with the
Company's development and growth during the year, and very confident and excited
in the Company's future capabilities."
Fourth Quarter Results Summary
Fourth quarter net sales for the year ended November 29, 2003 increased 293% to
$37.3 million compared to $9.5 million in the fourth quarter of fiscal 2002. For
the quarter, the Company generated a net loss of $5.8 million, or $0.27 per
share, compared to net income of $41,000, or $0.00 per share, in the same period
of fiscal 2002. Weighted average shares outstanding on a fully diluted basis for
the fourth quarter of 2003 were 21,274,000 compared to 17,769,000 in the fourth
quarter of fiscal 2002.
Net Sales
Net Sales increased to $37.3 million in the fourth quarter of fiscal 2003 from
$9.5 million in the fourth quarter of fiscal 2002, or a 293% increase. The
increase in net sales in the fourth quarter was attributable to sales increases
in both apparel and accessories products. Net sales of apparel increased in the
fourth quarter as a result of such factors as: (1) an 8% increase in the net
sales of our Joe's Jeans brand; (2) a contribution of net sales from our
Fetish(TM) apparel, which was launched during the fourth quarter; (3) a 4%
increase in net sales from the Company's existing private label apparel
customers; and (4) a contribution of net sales from the purchase of the Blue
Concept division, which was not a part of the Company's operations in the fourth
quarter of fiscal 2002. The Company also recognized an aggregate increase in
overall sales from its three accessories segments: branded, private label and
craft.
Gross Margins
Gross profit decreased to $2.4 million in the fourth quarter of fiscal 2003 from
$3.2 million in the fourth quarter of fiscal 2002, or a 25% decrease. As a
result, the Company's gross margin decreased to 6% in the quarter from 34% in
the prior year's quarter. The decrease is attributable to such factors as: (1)
the Company's revenue mix shifted from higher margin branded apparel and
accessories to lower margin private label apparel and accessories and craft
products as a result of our purchase of the Blue Concept
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division; (2) the Company recorded several inventory write downs and adjustments
totaling $4.3 million to mark down slow moving, out-of-season and obsolete
inventory; and (3) the Company experienced production delays in its branded
apparel deliveries which increased costs to bring product to market.
SG&A Expenses
The Company reported SG&A increases to $7.6 million in the fourth quarter of
fiscal 2003, from $2.9 million in the fourth quarter of fiscal 2002, or a 162%
increase. The SG&A increase is largely a result of the following factors: (1) an
increase in advertising expenditures to $463,000 in the fourth quarter of fiscal
2003 from $211,000 in the fourth quarter of fiscal 2002, or a 119% increase, to
establish and market our Fetish(TM), Shago(R) and Joe's(R) branded products
through both advertising and tradeshows; (2) an increase in royalties and
commission to $1.3 million in the fourth quarter of fiscal 2003 from $452,000 in
the fourth quarter of fiscal 2003, or a 188% increase, primarily a result of
152% growth in our branded apparel net sales; (3) increased wages and employee
benefits to $2.2 million in the fourth quarter of fiscal 2003 from $961,000 in
the fourth quarter of fiscal 2002, or a 129% increase, as a direct result of the
addition of 110 employees during the course of 2003, which includes 31 employees
gained as a result of the purchase of Blue Concepts, and (4) increased outside
legal, accounting and other professional fees as a result of continued growth of
the business.
The Company also reported depreciation and amortization expense increased to
$339,000 in the fourth quarter of fiscal 2003 from $78,000 in the fourth quarter
of fiscal 2002 as a result of the amortization of the intangibles assets
acquired with the purchase of Blue Concept. In addition, interest expense
increased to $447,000 in the fourth quarter of fiscal 2003 from $156,000 in the
fourth quarter of fiscal 2002 as a result of the $21.8 million convertible note
issued for the purchase of Blue Concept.
Net Loss
The factors explained above contributed to the Company's net loss of $5.7
million for the fourth quarter of fiscal 2003 compared to net income of $41,000
for the fourth quarter of fiscal 2002.
Fiscal 2003 Results Summary
Net sales for fiscal 2003 increased 181% to $83.1 million, compared to $29.6
million for the fiscal year ended November 30, 2002. Gross profit increased to
$13.0 million in fiscal 2003 from $9.5 million in fiscal 2002, or a 37%
increase, as a result of an increase in net sales. Overall, gross margin, as a
percentage of net sales, decreased to 16% in fiscal 2003 from 32% in fiscal
2002.
Selling, general and administrative ("SG&A") expenses increased to $19.3 million
in fiscal 2003 from $8.1 million in fiscal 2002, or a 138% increase. The Company
also reported depreciation and amortization expense increased to $1,227,000 in
fiscal 2003
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from $256,000 in fiscal 2002 as a result of the amortization of the intangibles
assets acquired with the purchase of Blue Concept. In addition, interest expense
increased to $1,216,000 in fiscal 2003 from $538,000 in fiscal 2002 as a result
of the $21.8 million convertible note issued for the purchase of Blue Concept.
The Company generated a net loss of $8.3 million for the full year ended
November 29, 2003, which, on a fully diluted basis equated to $0.49 per share,
compared with a net income of $572,000, or $0.04 per share, in the same period
last year. Weighted average shares outstanding on a fully diluted basis were
17,009,000 for fiscal 2003, compared with 16,109,000 in the prior comparative
period.
Conference Call Information
Innovo's Chief Executive Officer and Chief Financial Officer will present an
in-depth discussion of Innovo Group's operating performance on its fourth
quarter and year-end earnings conference call, which is scheduled for Tuesday,
March 2, 2004, at 3 p.m. EST. To participate, please call (888) 428-4472 or
(612) 288-0337 (international). The conference ID number is 722552 and is
entitled the "Innovo Group Earnings Release." The information provided on the
teleconference is only accurate at the time of the conference call, and Innovo
Group will take no responsibility for providing updated information. Following
the live audio of the conference call, as soon as possible after the call is
completed, a replay will be archived on the website at www.innovogroup.com for
one week following the conference call.
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Consolidated Balance Sheets
(In thousands)
November 29 November 30
2003 2002
Assets
Current assets:
Cash and cash equivalents $7,248 $222
Accounts receivable and due from factor,
net of allowance for customer credits and
allowances of $2,158 (2003) and $383 (2002) 1,683 2,737
Inventories 7,524 5,710
Prepaid expenses and other current assets 2,115 279
Total current assets 18,570 8,948
Property, plant and equipment, net 2,067 1,419
Goodwill 12,592 4,271
Intangible assets, net 13,058 487
Other assets 78 18
Total assets $46,365 $15,143
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $6,128 $2,438
Due to factor 332 --
Due to related parties 579 4,250
Note payable to officer 500 --
Current maturities of long-term debt
(including related parties) 168 756
Total current liabilities 7,707 7,444
Long-term debt, less current maturities
(including related parties) 22,176 2,631
Commitments and contingencies
8% redeemable preferred stock, $0.10 par value:
Authorized shares - 5,000, 194 (2003 and 2002) -- --
Stockholders' equity:
Common stock, $0.10 par value:
Authorized shares - 40,000 Issued and
outstanding shares - 25,785 (2003) and
14,901 (2002) 2,579 1,491
Additional paid-in capital 59,077 40,343
Accumulated deficit (41,824) (33,507)
Accumulated other comprehensive loss (59) (19)
Promissory note - officer (703) (703)
Treasury stock, 71 (2003) and 58 (2002) (2,588) (2,537)
Total stockholders' equity 16,482 5,068
Total liabilities and stockholders' equity $46,365 $15,143
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Consolidated Statements of Operations
(In thousands)
Three Twelve
Months Ended Months Ended
November 29 November 30 November 29 November 30
2003 2002 2003 2002
Net sales $37,295 $9,458 $83,129 $29,609
Cost of goods sold 34,877 6,271 70,153 20,072
Gross profit 2,418 3,187 12,976 9,537
Operating expenses:
Selling, general
and administrative 7,607 2,874 19,264 8,092
Depreciation and
amortization 339 78 1,227 256
7,946 2,952 20,491 8,348
Income (loss) from
operations (5,528) 235 (7,515) 1,189
Interest expense (447) (156) (1,216) (538)
Other income (expense),
net 148 (46) 458 61
Income (loss) before
income taxes (5,827) 33 (8,273) 712
Income taxes (33) (8) 44 140
Net Income (loss) $(5,794) $41 $(8,317) $572
Net Income (loss)
per share
Basic (0.27) 0.00 (0.49) 0.04
Diluted (0.27) 0.00 (0.49) 0.04
Weighted average
shares outstanding
Basic 21,274 14,847 17,009 14,856
Diluted 21,274 17,769 17,009 16,109
About Innovo Group Inc. Innovo Group Inc. through its subsidiaries Innovo Inc.,
Innovo Azteca Apparel, Inc. and Joe's Jeans, is a sales and marketing
organization designing and selling branded and private label apparel and
accessory products to the retail and private label markets. The Company's craft
products include canvas and denim totebags and aprons. The Company's accessory
product line is comprised of such products as licensed and non-licensed
backpacks, totebags, waist packs and handbags. The company's apparel products
consist of knit shirts and women's high-end denim jeans and knit shirts
featuring the Joe's brand. The Company currently produces products under
licensing agreements for the Bongo(R), Fetish(TM), Shago(R) and Hot Wheels(R)
marks. More information is available at the company web site at
www.innovogroup.com.
Statements in this news release which are not purely historical facts are
forward-looking statements, including statements containing the words "believe,"
"estimate," "project," "expect" or similar expressions. These statements are
made pursuant to the safe harbor provisions of Section 21E of the Securities
Exchange Act of 1934, as amended. All forward-looking statements are based upon
information available to Innovo Group Inc.
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on the date of this release. Any forward-looking statement inherently involves
risks and uncertainties that could cause actual results to differ materially
from the forward-looking statements. Factors that would cause or contribute to
such differences include, but are not limited to, continued acceptance of the
Company's products in the marketplace, including demand for its Shago(R) and
Fetish(TM) products, successful implementation of its strategic plan, including
its strategy to build brands, the ability to generate positive cash flow from
operations and asset sales, whether the Company's investments in the quarter
ended August 30, 2003 will result in tangible benefits to the Company and its
stockholders, dependence upon third-party vendors, and other risks detailed in
the company's periodic report filings with the Securities and Exchange
Commission. There can be no assurance that any financial projections set forth
in this release can be obtained. By making these forward-looking statements, the
company undertakes no obligation to update these statements for revisions or
changes after the date of this release. Readers are cautioned not to place undue
reliance on forward-looking statements.
SOURCE Innovo Group Inc.
Marc Crossman of Innovo Group Inc., 323-725-5572
http://www.innovogroup.com
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: Statements in this press release regarding Innovo Group's business which
are not historical facts are "forward-looking statements" that involve risks and
uncertainties. For a discussion of such risks and uncertainties, which could
cause actual results to differ from those contained in the forward-looking
statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for
the most recently ended fiscal year.
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