Basis of Presentation and Operations

12 Months Ended

Jan. 28, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

NATURE OF BUSINESS

Perfumania Holdings, Inc. (the "Company") a Florida corporation, performs all of its operations through five wholly-owned subsidiaries, Quality King Fragrance, Inc. (“QFG”), Five Star Fragrance Company, Inc. (“Five Star”), Scents of Worth (“SOW”), Perfumania, Inc. (“Perfumania”), and Perfumania.com, Inc. (“Perfumania.com”).

The Company’s wholesale business, which is conducted through its subsidiary, QFG, distributes designer fragrances to mass market retailers, drug and other chain stores, retail wholesale clubs, traditional wholesalers, and other distributors throughout the United States. It sells principally to retailers such as Wal-Mart, Walgreens, Kohl’s, Nordstrom Rack, Marshalls, Target, Ross Stores and CVS. The Company’s manufacturing division is operated by another subsidiary, Five Star, which owns and licenses designer and other fragrance brands, paying royalties to the licensors based on a percentage of sales. Five Star also manufactures, on behalf of Perfumania, the Jerome Privee product line, which includes bath and body products and which is sold exclusively in Perfumania’s retail stores. Five Star’s owned and licensed brands are sold principally through the Company’s wholesale business, SOW’s consignment business, and Perfumania’s retail stores. All manufacturing operations are outsourced to third party manufacturers. Five Star’s sales and results of operations are not significant to the Company’s results on a consolidated basis and are included within the Company’s wholesale business for reporting purposes.

The Company’s retail business is conducted through its subsidiaries, 1) Perfumania, a specialty retailer of fragrances and related products, 2) Perfumania.com, an Internet retailer of fragrances and other specialty items and 3) SOW, which sells fragrances in retail stores on a consignment basis. Perfumania is a leading specialty retailer and distributor of a wide range of brand name and designer fragrances. As of January 28, 2012, Perfumania operated a chain of 344 retail stores, including one seasonal location, specializing in the sale of fragrances and related products at discounted prices up to 75% below the manufacturers’ suggested retail prices. Perfumania’s retail stores are located in regional malls, manufacturers’ outlet malls, lifestyle centers, airports and on a stand-alone basis in suburban strip shopping centers, throughout the United States and Puerto Rico. Perfumania.com offers a selection of our more popular products for sale over the Internet and serves as an alternative shopping experience to the Perfumania retail stores. SOW operates the largest national designer fragrance consignment program, with contractual relationships to sell products on a consignment basis in approximately 2,400 stores, including more than 1,300 Kmart locations nationwide. Its other retail customers include Burlington Coat Factory, Loehmann’s, Daffy’s, Steinmart and K&G.

There were no customers who accounted for more than 10% of net sales in fiscal 2011 or 2010.

PENDING MERGER

The Company has entered into a merger agreement dated as of December 23, 2011, under which it plans to acquire Parlux Fragrances, Inc. (“Parlux”), a publicly-traded company that is in the business of creating, designing, manufacturing, distributing and selling prestige fragrances and beauty related products. Parlux, which markets its products primarily through specialty stores, national department stores and perfumeries on a worldwide basis, had net sales of $123 million for its most recently audited fiscal year ended March 31, 2011. See Note 5 for a discussion of transactions with Parlux. The consideration to be delivered by Perfumania to Parlux stockholders for the acquisition (which we refer to as the “Merger”) will consist of cash and company stock with an aggregate value of approximately $115.5 million, based on the $9.05 closing sale price of Perfumania common stock on the Nasdaq Stock Market on April 13, 2012.

At the effective time of the Merger (the “Effective Time”), each issued and outstanding share of Parlux common stock will be cancelled and automatically converted into the right to receive either (i) $4.00 in cash plus 0.20 shares of Perfumania common stock (the “Mixed Consideration”) or (ii) .53333 shares of validly issued, fully paid and non-assessable shares of Perfumania common stock (“Stock Consideration”), subject to adjustment as described below. Parlux stockholders may elect whether they would prefer to receive Mixed Consideration or Stock Consideration, however, the maximum amount of cash that will be paid is $61.9 million and the maximum amount of Perfumania common stock that will be paid is 5,919,052 shares, which amounts are subject to adjustment in certain circumstances provided in the Merger Agreement, including to reflect any issuance of Parlux shares due to the exercise of options, to adjust the maximum cash consideration for each share of Parlux stock as to which appraisal rights have been exercised, and for any shortfall of Parlux cash or cash equivalents at the Effective Time below a target amount calculated as provided in the Merger Agreement. In addition, if Parlux stockholders elect, in the aggregate, to receive more Perfumania shares than the maximum number available, holders electing to receive all stock consideration will receive a proportionate amount of the maximum available shares plus cash for the shares elected but not issued.

The Company expects to obtain financing for the cash portion of the merger consideration from two sources. First, it will use borrowings under its existing Senior Credit Facility (which is further described in Note 7) of up to $32 million (which amount would be reduced to the extent that cash and cash equivalents held by Parlux at the closing of the merger are less than $15 million) to fund a portion of the merger consideration and up to $11 million to fund costs of the merger and related transactions. Second, it will borrow a total of $30 million from certain family trusts of its principal shareholders, Stephen Nussdorf, Glenn Nussdorf, and Arlene Nussdorf. The new loans will be subordinated to the Senior Credit Facility on the same basis as the Company's existing indebtedness to the Nussdorf trusts.

The Merger is subject to the approval of the shareholders of both companies. Special shareholder meetings are scheduled for April 17, 2012. Assuming the necessary approvals, and subject to the satisfaction or waiver of other conditions set forth in the merger agreement, we expect the Merger to close shortly after the shareholder meetings.

Included in our operating expenses for fiscal 2011 are Merger-related expenses of approximately $2.3 million.

OTHER MATTERS - LIQUIDITY ENHANCEMENT

In January 2011, the Company entered into a new $225 million Senior Credit Facility (the “Senior Credit Facility”) (see Note 7). The Company currently anticipates that cash flows from operations and the projected borrowing availability under the Senior Credit Facility will be sufficient to fund its liquidity requirements for at least the next twelve months. Nevertheless, there can be no certainty that availability under the Senior Credit Facility will be sufficient to fund the Company’s liquidity needs. The sufficiency and availability of the Company’s projected sources of liquidity may be adversely affected by a variety of factors, including, without limitation, the level of the Company’s operating cash flows, which will be impacted by retailer and consumer acceptance of the Company’s products; general economic conditions and the level of consumer spending; and the Company’s ability to comply with financial and other covenants included in the Senior Credit Facility.

The Company has incurred substantial indebtedness to fund its business. If the Company does not have a sufficient borrowing base at any given time, borrowing availability under the Senior Credit Facility may not be sufficient to support liquidity needs. Insufficient borrowing availability under the Senior Credit Facility would have a material adverse effect on the Company’s financial condition and results of operations. If the Company were unable to comply with the requirements in the Senior Credit Facility, it would be unable to borrow under such agreement and any amounts outstanding would become immediately due and payable, which would have a material adverse effect on the Company’s financial condition, results of operations and liquidity. If we need to raise additional funds to support our operations, we may not be able to do so on favorable terms, or at all. Without such funding, we may need to modify or abandon our growth strategy or eliminate product offerings, either of which could negatively impact our financial position.