Published:
Harry & David Holdings, Inc. Reports First Quarter Fiscal 2010 Results
MEDFORD, Ore., Nov. 5 /PRNewswire/ -- Harry & David Holdings, Inc., announced today financial results for the first fiscal quarter ended September 26, 2009.
Net sales for the 13-week period ended September 26, 2009 decreased 12.1% to $46.3 million, compared to $52.6 million for the same period last year. During the first fiscal quarter, we experienced lower sales in all three of our operating segments.
For the first fiscal quarter, consolidated gross profit was flat to last year at $16.2 million. Consolidated gross profit margin was 35.1% in fiscal 2010, a 430 basis point improvement from 30.8% in the same period in fiscal 2009. The 430 basis point improvement was primarily due to lower labor, overhead and freight costs, partially offset by higher markdowns and discounts.
"We continue to operate in a period of economic uncertainty and reduced consumer spending," said Bill Williams, President and Chief Executive Officer. "We are responding to these challenging conditions by reducing expenses wherever possible."
For the first quarter of fiscal 2010, SG&A expenses were $33.6 million versus $37.9 million last year. However, due to lower sales, SG&A as a percentage of sales increased to 72.6% from 72.1% versus the first quarter of fiscal 2009.
For the first quarter of fiscal 2010, EBITDA (as defined in the "Non-GAAP Financial Measures" section below) was a loss of $12.7 million, compared to a loss of $13.8 million in the same period of fiscal 2009. The improvement in EBITDA loss was primarily attributable to lower overall operating expenses.
Operating loss was reduced by $4.3 million or approximately 20% from $21.7 million in the first quarter last year to $17.4 million in the same period this year. The pre-tax loss for the first quarter of fiscal 2010 was $22.0 million, compared to a pre-tax loss from continuing operations of $24.6 million reported in the same period of fiscal 2009. The fiscal 2009 pre-tax loss of $24.6 million included a $2.8 million gain on debt repayment.
The Company's consolidated net loss for the first quarter of fiscal 2010 was $21.7 million, reflecting an effective tax rate of 1.5%, compared to a net loss, which included discontinued operations, of $15.2 million and an effective tax rate of 37.6% for the quarter ended September 27, 2008.
Inventory was $82.9 million at September 26, 2009, versus $100.7 million last year. The 17.7% decrease in inventory was consistent across raw materials, work in progress and finished goods.
Capital expenditures were $0.5 million for the quarter ended September 26, 2009 versus $1.7 million reported in the same period last year.
Cash balances at September 26, 2009 stood at $2.0 million versus $28.0 million in the same period last year, reflecting a $26 million reduction in revolver borrowings from $73.0 million in the first quarter last year to $47.0 million this year. As of September 26, 2009, the Company is in compliance with all of its debt covenants.
The Company's full interim results for the first fiscal quarter ended September 26, 2009 are expected to be filed with the SEC in a quarterly report on Form 10-Q on November 5, 2009. The first quarter press release is also available on the Company's corporate website, www.hndcorp.com.
Non-GAAP Financial Measures
This press release presents EBITDA, which is a non-GAAP financial measure within the meaning of applicable SEC rules and regulations. The Company believes that EBITDA is a useful financial measure for assessing operating performance and liquidity. For an explanation of why management believes EBITDA is a useful measure for understanding the Company's results of operations, a discussion of the limitations of using such measure and a reconciliation of EBITDA to the most comparable GAAP measure, see the discussion following the attached financial information.
Forward-Looking Statements
Certain of the statements in this document constitute forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These statements relate to future events or future financial performance and involve known and unknown risks and other factors that may cause the Company's actual or our industry's results, levels of activity or achievement to be materially different from those expressed or implied by any forward-looking statements. These risks and uncertainties include, but are not limited to risks relating to market demand for the Company's products, production capabilities, relationships with customers, implementation of the Company's business and marketing strategies, competition, fluctuations in energy and other commodity costs, financial leverage, postal rate increases, increase in labor costs and the availability of a seasonal workforce and changes in federal and state tax laws. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential," or "continue" or the negative of those terms or other comparable terminology. These statements are present expectations. Actual events or results may differ materially. We undertake no obligation to update or revise any forward-looking statement, except as required by law. All of the forward-looking statements are expressly qualified by the risk factors discussed in the Company's filings with the SEC.
Conference Call
Harry & David Holdings, Inc. will host a conference call today, November 5, 2009, at 2:30 p.m. Pacific (5:30 p.m. Eastern) with William H. Williams, President and Chief Executive Officer, and Edward F. Dunlap, Chief Financial Officer. To access the conference call, participants in North America should dial 1-877-941-4775 and international participants should dial 1-480-629-9761, conference ID is 4168024. Participants are encouraged to dial in to the conference call five to ten minutes prior to the scheduled start time. A telephonic replay of the call will also be made available approximately two hours after the conference call is completed. The replay will be accessible via telephone through November 19, 2009 by dialing 1-800-406-7325 in North America and by dialing 1-303-590-3030 when calling internationally, with all callers using the replay pass code 4168024.
About Harry & David Holdings, Inc.
Harry & David Holdings, Inc., headquartered in Medford, Oregon, is a leading multi-channel specialty retailer and producer of branded premium gift-quality fruit and gourmet food products and gifts marketed under the Harry & David, Wolferman's and Cushman's® brands. You can shop our products online at www.harryanddavid.com, www.wolfermans.com, and www.honeybell.com, or visit one of our 136 stores across the country.
-- Financial Tables Follow --
Harry & David Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in Thousands)
September 26, June 27, September 27,
2009 2009 2008
------ ------ ------
Unaudited Unaudited
Assets
Current assets
Cash and cash equivalents $1,986 $15,395 $27,950
Trade accounts receivable, net 4,659 1,466 6,482
Other receivables 1,460 2,062 3,029
Inventories 82,859 44,738 100,704
Deferred catalog expenses 4,087 2,657 18,214
Deferred income taxes - 5,230 3,861
Other current assets 4,462 4,862 10,642
----- ----- ------
Total current assets 99,513 76,410 170,882
Fixed assets, net 141,300 145,477 159,404
Goodwill 12,236 12,236 9,006
Intangibles, net 33,011 33,057 47,984
Deferred financing costs, net 5,382 5,975 8,372
Deferred income taxes - 1,423 -
Other assets 2,133 2,114 3,271
----- ----- -----
Total assets $293,575 $276,692 $398,919
======== ======== ========
Liabilities and stockholders' deficit
Current liabilities
Accounts payable $19,065 $11,171 $33,267
Accrued payroll and benefits 13,672 14,105 14,211
Income taxes payable 6,076 13,643 8,627
Deferred revenue 9,651 16,317 11,209
Deferred income taxes 617 - -
Accrued interest 1,324 4,485 1,814
Other accrued liabilities 3,253 2,980 4,653
Current portion of capital lease
obligations 299 147 633
Revolving credit facility 47,000 - 73,000
------ -- ------
Total current liabilities 100,957 62,848 147,414
Long-term debt and capital lease
obligations 198,519 198,671 225,256
Accrued pension liabilities 27,598 27,364 16,182
Deferred income taxes 168 - 10,485
Other long-term liabilities 9,591 9,591 10,507
----- ----- ------
Total liabilities 336,833 298,474 409,844
------- ------- -------
Commitments and contingencies
Stockholders' deficit
Common stock 10 10 10
Additional paid-in capital 6,732 6,673 6,310
Accumulated other comprehensive loss,
net of taxes (9,606) (9,795) (3,529)
Accumulated deficit (40,394) (18,670) (13,716)
------ ------ ------
Total stockholders' deficit (43,258) (21,782) (10,925)
------ ------ ------
Total liabilities and stockholders'
deficit $293,575 $276,692 $398,919
======== ======== ========
Harry & David Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in Thousands, Except Share and per Share Data)
(Unaudited)
Thirteen Thirteen
weeks ended weeks ended
September 26, September 27,
2009 2008
---- ----
Net sales $46,264 $52,607
Cost of goods sold 30,041 36,399
------ ------
Gross profit 16,223 16,208
------ ------
Operating expenses:
Selling, general and administrative 33,344 37,664
Selling, general and administrative -
related party 250 250
--- ---
33,594 37,914
------ ------
Operating loss (17,371) (21,706)
------ ------
Other (income) expense:
Interest income (3) (184)
Interest expense 4,699 5,921
Gain on debt repayment - (2,843)
Other (income) expense, net (23) 14
-- --
4,673 2,908
----- -----
Loss from continuing operations before
income taxes (22,044) (24,614)
Benefit for income taxes (320) (9,264)
--- -----
Net loss from continuing operations (21,724) (15,350)
------ ------
Discontinued operations:
Gain on sale of Jackson & Perkins - 21
Operating income from discontinued operations - 180
Provision for income taxes on discontinued
operations - 76
-- --
Net income from discontinued operations - 125
-- ---
Net loss $(21,724) $(15,225)
======== ========
Net income (loss) per share - basic and diluted
Continuing operations (21.02) (14.86)
Discontinued operations - 0.12
-- ----
Total $(21.02) $(14.73)
======= =======
Weighted-average shares used in per share
calculations:
Basic and diluted 1,033,295 1,033,295
========= =========
Harry & David Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in Thousands)
(Unaudited)
Thirteen Thirteen
weeks ended weeks ended
September 26, September 27,
2009 2008
---- ----
Operating activities
Net loss $(21,724) $(15,225)
Less: Net income from discontinued
operations - 125
-- ---
Net loss from continuing operations (21,724) (15,350)
Adjustments to reconcile net loss from
continuing operations to net cash used in
operating activities from continuing operations:
Depreciation and amortization of fixed
assets 4,610 4,790
Amortization of intangible assets 46 293
Amortization of deferred financing costs 593 644
Stock option compensation expense 59 119
Loss (gain) on disposal and impairment of
fixed assets 16 (5)
Gain on sale of short-term investments - (64)
Deferred income taxes 7,315 5,704
Amortization of deferred pension loss 312 29
Gain on debt repayment - (2,843)
Changes in operating assets and
liabilities:
Trade accounts receivable and other
receivables (2,591) (4,301)
Inventories (38,121) (45,537)
Deferred catalog expenses and
other assets (1,049) (14,634)
Accounts payable 7,894 14,130
Accrued liabilities (3,321) (4,245)
Income taxes (7,567) (14,983)
Accrued pension liabilities 234 (1,312)
Deferred revenue (6,666) (5,863)
----- -----
Net cash used in operating activities from
continuing operations (59,960) (83,428)
Net cash provided by operating activities
from discontinued operations - 490
-- ---
Net cash used in operating activities (59,960) (82,938)
------ ------
Investing activities
Acquisition of fixed assets (493) (1,744)
Acquisition of business - (9,003)
Proceeds from the sale of fixed assets 44 10
Proceeds from the sale of held-to-maturity
securities - 5,000
Proceeds from the sale of
available-for-sale securities - 10,097
-- ------
Net cash provided by (used in) investing
activities from continuing operations (449) 4,360
--- -----
Financing activities
Borrowings on revolving debt 47,000 73,000
Repayments of long-term debt - (7,107)
Repayments of capital lease obligations - (157)
Proceeds from exercise of stock options - -
-- --
Net cash provided by financing activities
from continuing operations 47,000 65,736
------ ------
Decrease in cash and cash equivalents (13,409) (12,842)
Cash and cash equivalents, beginning of
period 15,395 40,792
------ ------
Cash and cash equivalents, end of period $1,986 $27,950
====== =======
Harry & David Holdings, Inc. and Subsidiaries
Reconciliation of EBITDA from Continuing Operations to Net Cash Used
in Operating Activities
Thirteen Thirteen
weeks ended weeks ended
September 26, September 27,
2009 2008
---- ----
Net loss from continuing operations $(21,724) $(15,350)
Interest expense, net from continuing
operations 4,696 5,737
Benefit for income taxes from continuing
operations (320) (9,264)
Depreciation and amortization from
continuing operations 4,656 5,083
----- -----
EBITDA from continuing operations (1) $(12,692) $(13,794)
Interest expense, net from continuing
operations (4,696) (5,737)
Benefit for income taxes from continuing
operations 320 9,264
Amortization of deferred financing costs 593 644
Stock option compensation expense 59 119
Loss (gain) on disposal and impairment of
fixed assets 16 (5)
Gain sale of on short-term investments - (64)
Deferred income taxes 7,315 5,704
Amortization of deferred pension loss 312 29
Gain on debt repayment - (2,843)
Changes in operating assets and
liabilities from continuing operations (51,187) (76,745)
-------- --------
Net cash used in operating activities from
continuing operations (59,960) (83,428)
Net cash provided by operating activities
from discontinued operations - 490
-- ---
Net cash used in operating activities $(59,960) $(82,938)
======== ========
In the thirteen-week period ended September 26, 2009, net loss and EBITDA from continuing operations included:
-- $196 of consulting fees associated with certain corporate initiatives
and information technology projects;
-- $16 loss on disposal and impairment of fixed assets;
-- $250 of fees paid to Wasserstein and Highfields under the management
agreement;
-- $114 benefit from severance and re-organization payroll and benefits;
-- $25 gain related to FIN 48 liabilities; and
-- $89 in approved recruiting and relocation expenses.
In the thirteen-week period ended September 27, 2008, net loss and EBITDA from continuing operations included:
-- $526 of consulting fees associated with certain corporate initiatives
and information technology projects;
-- $300 of income associated with a vendor settlement;
-- $87 of expense related to inventory step-up amortization related to our
acquisition;
-- $5 gain on disposal of fixed assets;
-- $2,843 net gain on repayment of long-term debt;
-- $82 of expense associated with a leased facility identified for closure;
-- $250 of fees paid to Wasserstein and Highfields under the management
agreement; and
-- $316 of severance and re-organization payroll and benefits.
(1) Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other provisions of the Securities Exchange Act of 1934, define and prescribe the conditions of use of certain non-U.S. GAAP financial information. Our measure of EBITDA meets the definition of a non-U.S. GAAP financial measure.
EBITDA is defined as earnings before net interest expense, income taxes, depreciation and amortization and is computed on a consistent method from quarter to quarter and year to year.
We use EBITDA, in conjunction with U.S. GAAP measures such as cash flows from operating activities, cash flows from investing activities and cash flows from financing activities, to assess our liquidity, financial leverage and ability to service our outstanding debt. For example, certain covenant and compliance ratios under our revolving credit facility and the indenture governing the outstanding notes use EBITDA, as further adjusted for certain items as defined in each agreement. If we are not able to comply with these covenants, we may not be able to borrow additional amounts, incur more debt to finance our ongoing operations and working capital or take other actions. In addition, the lenders could accelerate the outstanding amounts, which could materially and adversely affect our liquidity and financial position.
We use EBITDA, in conjunction with the other U.S. GAAP measures discussed above, to assess our debt to cash flow leverage, to plan and forecast overall expectations and to evaluate actual results against such expectations; to assess our ability to service existing debt and incur new debt; and to measure the rate of capital expenditure and cash outlays from year to year and to assess our ability to fund future capital and non-capital projects. We believe that, like management, debt and equity investors frequently use (and expect to be able to continue to use) EBITDA to compare debt to cash flow leverage among companies.
EBITDA, when used as a liquidity measure, has limitations as an analytical tool. These limitations include:
-- EBITDA does not reflect our cash expenditures, or future requirements
for capital expenditures or contractual commitments;
-- EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
-- EBITDA is not a measure of discretionary cash available to us to pay
down debt;
-- EBITDA does not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments, on our
debt; and
-- other companies in our industry may calculate EBITDA differently than we
do, limiting its usefulness as a comparative measure.
To compensate for these limitations, we analyze EBITDA in conjunction with other U.S. GAAP financial measures impacting liquidity and cash flow, including depreciation and amortization, capital spending and net income in terms of the impact on depreciation and amortization, changes in net working capital, other non-operating income and losses that affect cash flow and liquidity, interest expense and taxes. Similarly, EBITDA should not be considered in isolation or as a substitute for these U.S. GAAP liquidity measures.
We also use EBITDA, in conjunction with U.S. GAAP measures such as operating income and net income, to assess our operating performance and that of each of our businesses and segments. Specifically, we use EBITDA, alongside the U.S. GAAP measures mentioned above, to measure profitability and profit margins and to make budgeting decisions relating to historical performance and future expectations of our segments and business as a whole, and to make performance comparisons of our company compared to other peer companies. We believe that, like management, debt and equity investors frequently use (and expect to be able to continue to use) EBITDA to assess our operating performance and compare it to that of other peer companies.
Furthermore, we use EBITDA (in conjunction with other U.S. GAAP and non-U.S. GAAP measures such as operating income, capital expenditures, taxes and changes in working capital) to measure return on capital employed. EBITDA allows us to determine the cash return before taxes, capital spending and changes in working capital generated by the total equity employed in our company. We believe return on capital employed is a useful measure because it indicates the total returns generated by our business, which, when viewed together with profit margin information, allows us to better evaluate profitability and profit margin trends.
As a performance measure, we also use return on capital employed to assist us in making budgeting decisions related to how debt and equity capital is being employed and how it will be employed in the future. Historical measures of return on capital employed, which include EBITDA, are used in estimating and predicting future return on capital trends. Combined with other U.S. GAAP financial measures, historical return on capital information helps us make decisions about how to employ capital effectively going forward.
However, because EBITDA does not take into account certain of these non-cash items, which do affect our operations and performance, EBITDA has inherent limitations as an operating measure. These limitations include:
-- EBITDA does not reflect the cash cost of acquiring assets or the
non-cash depreciation and amortization of those assets over time, or the
replacement of those assets in the future;
-- EBITDA does not reflect cash capital expenditures on an historical basis
or in the current period, or address future requirements for capital
expenditures or contractual commitments;
-- EBITDA is not a measure of discretionary cash available to us to invest
in the growth of our business;
-- EBITDA does not reflect changes in working capital or cash needed to
fund our business;
-- EBITDA does not reflect our tax expenses or the cash payments we are
required to make to fulfill our tax liabilities; and
-- Other companies in our industry may calculate EBITDA differently than we
do, limiting its usefulness as a comparative measure.
To compensate for these limitations we analyze EBITDA alongside other U.S. GAAP financial measures of operating performance, including, operating income, net income and changes in working capital, in terms of the impact on other non-operating income and losses that affect profitability and return on capital. You should not consider EBITDA in isolation or as a substitute for these U.S. GAAP measures of operating performance.
SOURCE Harry & David Holdings, Inc.
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