Brookstone (NASDAQ:BKST)
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Brookstone Reports Record Profit and Sales for FY 2004
MERRIMACK, N.H., March 28 /PRNewswire-FirstCall/ -- Product developer and
specialty retail company Brookstone, Inc. (NASDAQ:BKST) today announced it
earned a record profit in 2004 of $21.4 million, or $1.02 per diluted share.
These earnings were reduced by a cumulative after tax adjustment of $1.4
million or $0.07 per diluted share related to lease accounting.
Adjusting for the cumulative impact of lease accounting, full year diluted
earnings per share were $1.09, as compared to previously released guidance of
$1.03 - $1.07 per diluted share.
The lease accounting matter is discussed later in this release.
For the 52-week Fiscal Year ended January 29, 2005, Brookstone total sales
climbed 14.9 percent to $499 million, compared to $434 million in 2003, while
same-store sales rose 6.3 percent. The Company's Direct-Marketing profit
increased 73.5 percent to $11 million, on sales that rose 20.8 percent to $91
million on a 41.5 percent increase in circulation.
For the 13-week fourth quarter ended January 29, 2005, Brookstone reported a
net income of $33 million, or $1.57 per diluted share. Adjusting for the impact
of the lease accounting matter, fourth quarter earnings per share were $1.63.
Total sales for the comparable 13-week period rose 8.5 percent to $238 million,
while same-store sales were flat. Direct-Marketing sales rose 24.5 percent to
$48 million on a 46.7 percent increase in circulation.
Adjusted earnings per share, which is a non-GAAP financial measure, is
presented to enhance an investor's understanding of historical and expected
financial results and improve comparability of financial information from
period to period.
Brookstone Chairman, President and Chief Executive Officer Michael Anthony
credited the Company's record performance in 2004 to customer demand for
proprietary Brookstone-branded products, as well as strong revenue growth among
all the Company's sales channels.
"We are pleased with our 2004 results, particularly with our record profit and
our operating income as a percent of sales, which was the highest in our
Company's history, even after the impact of substantial structural increases in
costs such as Sarbanes-Oxley. We are also pleased that these results follow
last year's strong financial performance."
Mr. Anthony continued: "In 2004, we continued to see the benefits of our
investment in our product-development infrastructure, as customer demand for
products designed and engineered by Brookstone rose from 65 percent to 70
percent of sales. These products typically have a higher net margin than other
products. We are also pleased that we were able to raise our product margins
in 2004 over our strong performance in 2003."
Mr. Anthony added: "We're also pleased to report that all of our sales
channels turned in record performances. Our stores delivered a strong 6.3
percent increase in same-store sales, driven largely by our unique product
assortment. In addition, our airport store same-store sales were above the
Company average. In 2004, we opened 18 Brookstone-branded stores, including
three in airports, and remodeled 12 locations."
Mr. Anthony continued: "Driven by the strength of our Brookstone catalog and
our website (http://www.brookstone.com/), as well as our strategy to leverage
the synergy of all of our sales channels, our Direct-Marketing business
delivered another record performance, generating a 73.5 percent increase in
profit over 2003. Throughout 2004, we executed our successful marketing
strategy by approximately doubling the circulation of the Brookstone catalog
and generating incremental revenue and profit to all of our sales channels.
Additionally, our website continued its strong double-digit growth and in 2004
generated 8.7 percent of our total sales."
Mr. Anthony continued: "Our Gardeners Eden brand delivered its second
consecutive year of double-digit same-store sales increases. In 2004, we
opened two new stores for a total of five locations in various real-estate
venues. Only when these stores achieve our return criteria, however will we
consider a further rollout of the Gardeners Eden stores."
Looking ahead to fiscal year 2005, Mr. Anthony said: "In 2005, we believe we
will deliver earnings of between $1.20 and $1.25 per diluted share. We base
this expectation on opening approximately 20 new Brookstone stores, generating
a 2 percent to 3 percent same-store sales increase, increasing the productivity
of the Brookstone catalog and continuing to grow our Internet business."
Mr. Anthony concluded: "For the first quarter of 2005, we anticipate our loss
will be between $0.27 and $0.30 per diluted share, compared to a first- quarter
loss of $0.23 per diluted share in 2004. For the first quarter, we expect
same-store sales to decrease 2 percent to 4 percent compared to a 20.1 percent
same-store sales increase in the first quarter of 2004."
Because of the seasonal nature of specialty retailing, Brookstone generally
incurs a loss over the first three quarters and makes its profit in the fourth
quarter.
Lease Accounting
The Company recorded in the fourth fiscal quarter of 2004 a non-cash charge
representing the cumulative effect of correcting an error in its accounting
policy to generally accepted accounting principles related to the timing of
recognition of rent expense for certain locations. Previously, the Company
followed a practice in which it began recording rent expense at the time a
store opened and the lease term commenced. The Company will now begin
recording rent expense when it takes possession of a store, which occurs before
the commencement of the lease term and approximately 60 days prior to the
opening of the store. This will result in earlier recognition of rent expense
for each lease, as Brookstone begins recording rent expense during the
pre-opening period, but a reduction in monthly rent expense, as the total rent
due under the lease is amortized over a greater number of months.
Financial results for prior periods will not be restated due to the
immateriality of the impact to the fiscal 2004 and prior year financial
statements. This will not affect historical or future cash flows or the timing
or amounts of payments under related leases. Furthermore, it is not expected
to have any material impact on future earnings.
Management is in the process of completing its evaluation of the Company's
internal control over financial reporting as required by the Sarbanes Oxley Act
of 2002. Although management's work is not yet complete, management believes
that it may have a material weakness in its information technology control
environment. The Company is evaluating compensating controls that may mitigate
this potential material weakness.
Brookstone, Inc. is a product development and specialty retail company that
operates 288 Brookstone Brand stores nationwide and in Puerto Rico. Typically
located in high-traffic regional shopping malls, lifestyle centers and
airports, the stores feature unique and innovative consumer products. The
Company also operates five stores under the Gardeners Eden Brand, and a
Direct-Marketing business that consists of three catalog titles -- Brookstone,
Hard-to-Find Tools and Gardeners Eden -- as well as e-commerce web sites at
http://www.brookstone.com/ and http://www.gardenerseden.com/.
Statements in this release which are not historical facts, including statements
about the Company's confidence or expectations, earnings, anticipated
operations of its e-commerce sites and those of third-party service providers,
and other statements about the Company's operational outlook, are
forward-looking statements subject to risks and uncertainties that could cause
actual results to differ materially from those set forth in such
forward-looking statements. Such risks and uncertainties include, without
limitation, risks of changing market conditions in the overall economy and the
retail industry, consumer demand, the effectiveness of e-commerce technology
and marketing efforts, availability of products, availability of adequate
transportation of such products, and other factors detailed from time to time
in the Company's annual and other reports filed with the Securities and
Exchange Commission. Words such as "estimate," "project," "plan," "believe,"
"feel," "anticipate," "assume," "may," "will," "should" and similar words and
phrases may identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of the date thereof. The Company undertakes no obligations to publicly release
any revisions to these forward-looking statements or reflect events or
circumstances after the date hereof.
CONTACT:
Philip Roizin
EVP of Finance and
Administration
(603) 880-9500
Robert Fusco
Investor Relations
(603) 880-9500
Brookstone, Inc.
Consolidated Statement of Income
($ in thousands, except per share data)
(Unaudited)
Thirteen weeks ended Fifty-two weeks ended
January 29, January 31, January 29, January 31,
2005 2004 2005 2004
Net sales $237,788 $219,085 $498,911 $434,173
Cost of sales 120,662 108,410 297,618 260,420
Gross profit 117,126 110,675 201,293 173,753
Selling, general
and administrative
expenses 62,863 58,159 164,253 144,353
Income from
operations 54,263 52,516 37,040 29,400
Interest expense, net 161 248 921 857
Income before taxes
and other party
interest in
consolidated
entities 54,102 52,268 36,119 28,543
Income tax provision 20,841 20,125 14,303 10,991
Income before other
party interests in
consolidated entities 33,261 32,143 21,816 17,552
Other party interest
in consolidated
entities, net of tax 111 --- 454 ---
Net Income $33,150 $32,143 $21,362 $17,552
Net Income per share
Basic $ 1.63 $1.61 $1.06 $ 0.90
Diluted $ 1.57 $1.55 $1.02 $ 0.87
Weighted average shares outstanding
Basic 20,342 19,962 20,207 19,559
Diluted 21,103 20,673 20,973 20,181
Brookstone, Inc.
Consolidated Condensed Balance Sheet
($ in thousands)
January 29, January 31,
2005 2004
Current Assets:
Cash and cash equivalents $86,205 $69,738
Receivables, net 9,859 7,476
Merchandise inventories 75,585 66,876
Deferred income taxes, net 3,917 4,799
Other current assets 6,045 6,217
Total current assets 181,611 155,106
Deferred income taxes 5,256 4,738
Property, plant and equipment, net 74,019 53,970
Intangible assets, net 3,853 4,123
Other assets 1,741 2,390
Total assets $266,480 $220,327
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $17,402 $15,759
Other current liabilities 46,500 41,417
Total current liabilities 63,902 57,176
Other long term liabilities 22,432 15,676
Long term debt 8,760 1,941
Commitments and Contingencies
Other party interest in consolidated entities 1,100 410
Total shareholders' equity 170,286 145,124
Total liabilities and shareholders' equity $266,480 $220,327
DATASOURCE: Brookstone, Inc.
CONTACT: Philip Roizin, EVP of Finance and Administration, +1-603-880-
9500, or Robert Fusco, Investor Relations, +1-603-880-9500, both of
Brookstone, Inc.
Web site: http://www.brookstone.com/