May 28, 2009 / 12:52 PM / 10 years ago

UPDATE 3-Perry Ellis Q1 tops Street as cost cuts help results

* Q1 EPS of 46 cents vs est 25 cents

* Q1 revenue $220.0 mln vs est $210.3 mln * Inventory down 19 pct

* Sees decline in FY10 revenue

* Shares up as much as 25 pct (Recasts; adds analyst comments, updates stock movement)

BANGALORE, May 28 (Reuters) - Clothing maker Perry Ellis International Inc PERY.O posted a quarterly profit that topped analysts’ estimates, as it benefited from tighter cost controls, sending its shares up as much as 25 percent.

Even though the top line remains challenged, the company has done a good job of reducing expenses and its inventory exposure, which should allow for further bottom-line improvements, Eric Beder, analyst with Brean Murray & Co, said in a note to clients.

“Frankly, we believe that as the company demonstrates the strength of its business model, investors will once again reward the stock with a higher multiple,” said Beder, while reiterating a “buy” rating on the stock.

Perry Ellis kept a lid on costs, and strengthened its liquidity and financial position as it cut its operating expenses by about $8 million and reduced its inventories by about 19 percent.

“In a challenging consumer environment, we are managing Perry Ellis International to maintain strong liquidity with a solid balance sheet,” Chief Executive George Feldenkreis said in a statement.

Perry Ellis also gained from strong sales of its golf, Hispanic and swimwear brands.

However, the company had to close about 75 unprofitable doors for its Perry Ellis collection at department store channels.

Although its store closures will hurt revenue, it will also allow for better allocation of resources and improved margins, the analyst said.

For the first quarter ended May 2, Perry Ellis reported net income of $5.8 million, or 46 cents a share, while analysts were expecting it to earn 25 cents a share.

Revenue fell 10 percent to $220.0 million, but still came above the consensus revenue view of $210.3 million.

For the second quarter, the company put its revenue decline in high single to low double digits, but projected gross margins improvement in the second half of the year.

It also sees expense reductions of around $15 million for the year.

“We also continue to review all of our businesses for profitability and will take the necessary steps on those businesses that we believe cannot be accretive to our business model,” Chief Operating Officer Oscar Feldenkreis said

Shares of the Miami-based company touched a high of $8.53 before shedding some of the gains to trade up 23 percent at $8.41 Thursday afternoon on Nasdaq. (Reporting by Poojya Trivedi and Nivedita Bhattacharjee in Bangalore; Editing by Anne Pallivathuckal and Anil D’Silva)

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