Design Within Reach, Inc. Reports Second Quarter 2008 Results

  
    
  
  
    
      Design Within Reach, Inc. (NASDAQ:DWRI) today announced financial 
      results for the second quarter and six months ended June 28, 2008.
    
    
      Second Quarter and Six Month Results:
    
    
      
        Product sales for the second quarter of 2008 decreased 3.6% to $44.8 
        million, compared to $46.4 million recorded in the second quarter of 
        2007. Net sales, which are primarily comprised of product sales and 
        shipping revenue, decreased 3.7% to $47.3 million in the second 
        quarter of 2008 from $49.1 million in the same period last year. Gross 
        profit margin improved to 46.4% in the second quarter of 2008, 
        compared to 44.3% in the same period last year.
      
      
        Product margin, which the Company defines as product gross profit 
        divided by net product sales, was 50.3% for the second quarter of 
        2008, compared to 48.2% in the second quarter of 2007. For more 
        information regarding the calculation of product margin, please see 
        the discussion under the heading “Non-GAAP 
        Financial Information” below.
      
      
        Selling, general and administrative expenses were $22.7 million for 
        the second quarter of 2008, compared to $22.2 million in the same 
        period last year.
      
      
        Loss before income tax benefit for the second quarter of 2008 was $0.7 
        million, compared to a loss before income tax benefit of $0.6 million 
        in the same period last year. Net loss for the second quarter of 2008 
        was $0.2 million, or $(0.01) per diluted share, compared to a net loss 
        of $0.6 million, or $(0.04) per diluted share, in the second quarter 
        of 2007. An income tax benefit of $0.5 million was recorded in 
        the quarter ended June 28, 2008, compared to no income tax benefit in 
        the second quarter of 2007.
      
      
        Net sales for the six months ended June 28, 2008 increased 1.4% to 
        $94.2 million from $92.9 million in the same period last year. Net 
        loss before income tax benefit for the six months ended June 28, 2008 
        was $2.0 million, compared to a loss before income tax benefit of $4.4 
        million in the same period last year. Net loss for the first six 
        months of 2008 was $0.8 million, or $(0.05) per diluted share, 
        compared to a net loss of $4.4 million, or $(0.30) per diluted share, 
        in the first six months of 2007.
      
    
    
      Net sales by sales channel were as follows:
    
    
      
        Studio sales were $32.6 million in the second quarter of 2008, up 
        2.2% from $31.9 million in the same period last year, due to $1.7 
        million in incremental sales from the addition of four new studios 
        since the beginning of the second quarter of 2007. Design Within Reach 
        operated 68 studios and the DWR Annex, an outlet for returned and 
        discontinued merchandise, at the end of the second quarter of 2008, 
        compared to 65 studios and one outlet open at the end of the second 
        quarter of 2007.
      
      
        Direct sales (including phone sales and sales through the Design 
        Within Reach website) were $10.4 million in the second quarter of 
        2008, a decrease of approximately 17.5% from $12.6 million in the 
        second quarter of 2007.
      
    
    
      As of June 28, 2008, Design Within Reach had approximately $20.5 million 
      in working capital resources, including approximately $7.1 million in 
      cash and cash equivalents and approximately $13.4 million available for 
      advances under its revolving credit facility. The Company has invested 
      approximately $2.5 million in capital expenditures in the first six 
      months of 2008, and expects to invest between $5.5 million and $6.5 
      million during the remainder of the year for information technology, two 
      Tools for Living stores and select studio remodels.
    
    
      Guidance
    
    
      Design Within Reach is maintaining its earnings per share guidance of 
      $0.03-$0.05. In light of the challenging economic environment, the 
      Company believes revenue will be flat year over year.
    
    
      Conference Call
    
    
      Design Within Reach, Inc. will host a conference call today, August 7, 
      2008 at 1:30 p.m. Pacific (4:30 p.m. Eastern) with Ray Brunner, 
      President and Chief Executive Officer, and John Hellmann, Chief 
      Financial Officer. To access the conference call, participants in North 
      America should dial [phone] and international participants should 
      dial [phone]. Participants are encouraged to dial in to the 
      conference call five to ten minutes prior to the scheduled start time. 
      The call will also be broadcast live over the Internet and accessible 
      through the Investor Relations section of the Company’s 
      website at www.dwr.com. The webcast 
      will also be archived online within one hour of the completion of the 
      conference call and available at www.dwr.com. 
      A telephone replay will be available through August 28, 2008. To access 
      the replay, please dial [phone] (domestic) or [phone] 
      (international), passcode 3903619.
    
    
      Non-GAAP Financial Information
    
    
      This press release presents product margin, which is a non-GAAP 
      financial measure within the meaning of applicable SEC rules and 
      regulations. The Company believes product margin is a useful financial 
      measure as it removes the impact of shipping revenues and expenses from 
      gross margin. Management believes shipping operations do not reflect the 
      core operations of Design Within Reach’s 
      business. For a reconciliation of product margin to the most comparable 
      GAAP measure, see the following reconciliation of GAAP gross margin to 
      product margin.
    
    
      
        
          Amount in thousands
        
        
           
        
        
          Thirteen
        
        
           
        
        
          Thirteen
        
        
           
        
        
          Twenty-Six
        
        
           
        
        
          Twenty-Six
        
      
      
        
        
        
        
        
          Weeks Ended
        
        
        
        
          Weeks Ended
        
        
        
        
          Weeks Ended
        
        
        
        
          Weeks Ended
        
      
      
        
        
        
        
        
          June 28, 2008
        
        
        
        
          June 30, 2007
        
        
        
        
          June 28, 2008
        
        
        
        
          June 30, 2007
        
      
      
        
          Product Sales
        
        
        
        
          $
        
        
          44,774
        
        
        
        
        
        
          $
        
        
          46,423
        
        
        
        
        
        
          $
        
        
          88,124
        
        
        
        
        
        
          $
        
        
          87,108
        
        
        
      
      
        
          Commissions, License and Royalty Fees
        
        
        
        
        
        
          29
        
        
        
        
        
        
        
        
          10
        
        
        
        
        
        
        
        
          38
        
        
        
        
        
        
        
        
          10
        
        
        
      
      
        
          Shipping Revenue
        
        
        
        
           
        
        
          2,457
        
        
           
        
        
        
        
           
        
        
          2,635
        
        
           
        
        
        
        
           
        
        
          6,012
        
        
           
        
        
        
        
           
        
        
          5,798
        
        
           
        
      
      
        
          Net Sales
        
        
        
        
          $
        
        
          47,260
        
        
        
        
        
        
          $
        
        
          49,068
        
        
        
        
        
        
          $
        
        
          94,174
        
        
        
        
        
        
          $
        
        
          92,916
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
          
             
          
        
        
        
        
        
      
      
        
          Product Gross Profit
        
        
        
        
          $
        
        
          22,517
        
        
        
        
        
        
          $
        
        
          22,385
        
        
        
        
        
        
          $
        
        
          44,428
        
        
        
        
        
        
          $
        
        
          40,952
        
        
        
      
      
        
          Product Profit %
        
        
        
        
        
        
          50.3
        
        
          %
        
        
        
        
        
        
          48.2
        
        
          %
        
        
        
        
        
        
          50.4
        
        
          %
        
        
        
        
        
        
          47.0
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Commissions, License and Royalty Fees Gross Profit
        
        
        
        
        
        
          27
        
        
        
        
        
        
        
        
          7
        
        
        
        
        
        
        
        
          35
        
        
        
        
        
        
        
        
          7
        
        
        
      
      
        
          Commissions, License and Royalty Fees Profit %
        
        
        
        
        
        
          93.1
        
        
          %
        
        
        
        
        
        
          70.0
        
        
          %
        
        
        
        
        
        
          92.1
        
        
          %
        
        
        
        
        
        
          70.0
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Shipping Gross Profit (Loss)
        
        
        
        
        
        
          (609
        
        
          )
        
        
        
        
        
        
          (674
        
        
          )
        
        
        
        
        
        
          (352
        
        
          )
        
        
        
        
        
        
          (896
        
        
          )
        
      
      
        
          Shipping Profit %
        
        
        
        
        
        
          (24.8
        
        
          )%
        
        
        
        
        
        
          (25.6
        
        
          )%
        
        
        
        
        
        
          (5.9
        
        
          )%
        
        
        
        
        
        
          (15.5
        
        
          )%
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Total Gross Profit
        
        
        
        
          $
        
        
          21,935
        
        
        
        
        
        
          $
        
        
          21,718
        
        
        
        
        
        
          $
        
        
          44,111
        
        
        
        
        
        
          $
        
        
          40,063
        
        
        
      
      
        
          Total Gross Profit %
        
        
        
        
        
        
          46.4
        
        
          %
        
        
        
        
        
        
          44.3
        
        
          %
        
        
        
        
        
        
          46.8
        
        
          %
        
        
        
        
        
        
          43.1
        
        
          %
        
      
    
    
      About Design Within Reach, Inc.
    
    
      Design Within Reach, Inc., founded in 1998 and headquartered in San 
      Francisco, California, is an integrated multi-channel provider of 
      distinctive modern design furnishings and accessories. The Company 
      markets and sells its products to both residential and contract 
      customers through 69 retail Studios in the United States and Canada, its 
      San Francisco-based phone sales team at [phone], and www.dwr.com.
    
    
      “Design Within Reach” 
      is a registered trademark of Design Within Reach, Inc.
    
    
      This press release includes forward-looking statements, including 
      statements related to anticipated revenues, expenses, earnings, 
      operating cash flows, the outlook for Design Within Reach’s 
      markets and the demand for its products. Factors that could cause Design 
      Within Reach's actual results to differ materially from these 
      forward-looking statements including the following: we have recently 
      revised our corporate strategy and our new strategy may not be 
      successful; if we fail to offer merchandise that our customers find 
      attractive, the demand for our products may be limited; the expansion of 
      our studio operations could result in increased expenses with no 
      guarantee of increased revenues; we do not have long-term vendor 
      contracts and as a result we may not have continued or exclusive access 
      to products that we sell; our business depends, in part, on factors 
      affecting consumer spending that are not within our control; we rely on 
      catalog-based marketing, which could have significant cost increases and 
      could have unpredictable results; we must manage our online business 
      successfully or our business will be adversely affected; we have made 
      and will continue to make certain systems changes that might disrupt our 
      supply chain operations and delay financial results; management has 
      identified material weaknesses in internal controls over financial 
      reporting; our failure to implement and maintain effective internal 
      controls in our business could have a material adverse effect on our 
      business, financial condition, results of operations and stock price; we 
      may need additional financing and may not be able to obtain additional 
      financing on favorable terms or at all, which could increase our costs, 
      limit our ability to grow and dilute the ownership interests of existing 
      stockholders; we may not manage our inventory levels successfully; 
      changes in the value of the U.S. dollar relative to foreign currencies 
      and any failure by us to adopt and implement an effective hedging 
      strategy could adversely affect our operating results; we rely on 
      foreign sources of production, which subjects us to various risks; we 
      may fail to timely and effectively obtain shipments of product from our 
      vendors and deliver merchandise to our customers; we face intense 
      competition and if we are unable to compete effectively, we may not be 
      able to achieve and maintain profitability; and our operating and 
      financial performance in any given period might not meet the guidance 
      that we have provided to the public and other risks detailed in our 
      reports and filings with the Securities and Exchange Commission, 
      including our latest Annual Report on Form 10-K and Quarterly Report on 
      Form 10-Q, which is available at the SEC’s 
      website at www.sec.gov. You are urged 
      to consider these factors carefully in evaluating the forward-looking 
      statements herein, and we caution you not to place undue reliance on 
      forward-looking statements, which speak only as of the date they are 
      made. We undertake no obligation to update publicly any forward-looking 
      statements to reflect new information, events or circumstances after the 
      date they were made or to reflect the occurrence of unanticipated events.
    
    
      
        
          Design Within Reach, Inc.
        
      
      
        
          Condensed Balance Sheets
        
      
      
        
          (Unaudited)
        
      
      
        
          (amounts in thousands)
        
      
      
        
           
        
        
           
        
        
        
        
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
           
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
          June 28, 2008
        
        
        
        
           
        
        
          June 30, 2007
        
      
      
        
          ASSETS
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Current assets
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
          Cash and cash equivalents
        
        
        
        
        
        
        
        
          $
        
        
          7,070
        
        
        
        
          $
        
        
          4,593
        
      
      
        
        
        
          Inventory
        
        
        
        
        
        
        
        
        
        
        
        
          38,028
        
        
        
        
        
        
          46,119
        
      
      
        
        
        
          Accounts receivable
        
        
        
        
        
        
          3,058
        
        
        
        
        
        
          2,703
        
      
      
        
        
        
          Prepaid catalog costs
        
        
        
        
        
        
          1,186
        
        
        
        
        
        
          1,309
        
      
      
        
        
        
          Deferred income taxes
        
        
        
        
        
        
          1,251
        
        
        
        
        
        
          2,078
        
      
      
        
        
        
          Other current assets
        
        
        
        
           
        
        
          3,318
        
        
        
        
           
        
        
          2,091
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Total current assets
        
        
        
        
        
        
          53,911
        
        
        
        
        
        
          58,893
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Property and equipment, net
        
        
        
        
        
        
        
        
        
        
        
        
        
        
          23,189
        
        
        
        
        
        
          24,054
        
      
      
        
          Deferred income taxes, net
        
        
        
        
        
        
          8,182
        
        
        
        
        
        
          8,083
        
      
      
        
          Other non-current assets
        
        
        
        
           
        
        
          963
        
        
        
        
           
        
        
          988
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Total assets
        
        
        
        
        
        
          $
        
        
          86,245
        
        
        
        
          $
        
        
          92,018
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          LIABILITIES AND STOCKHOLDERS’ EQUITY
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Current liabilities
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
          Accounts payable
        
        
        
        
        
        
        
        
        
        
          $
        
        
          11,899
        
        
        
        
          $
        
        
          15,934
        
      
      
        
        
        
          Accrued expenses
        
        
        
        
        
        
        
        
          4,992
        
        
        
        
        
        
          5,210
        
      
      
        
        
        
          Accrued compensation
        
        
        
        
        
        
          2,543
        
        
        
        
        
        
          2,262
        
      
      
        
        
        
          Deferred revenue
        
        
        
        
        
        
        
        
          1,954
        
        
        
        
        
        
          3,609
        
      
      
        
        
        
          Customer deposits and other liabilities
        
        
        
        
        
        
          3,150
        
        
        
        
        
        
          2,767
        
      
      
        
        
        
          Borrowings under loan agreement
        
        
        
        
        
        
          4,657
        
        
        
        
        
        
          11,319
        
      
      
        
        
        
          Long-term debt, current portion
        
        
        
        
           
        
        
          357
        
        
        
        
           
        
        
          319
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Total current liabilities
        
        
        
        
        
        
          29,552
        
        
        
        
        
        
          41,420
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Deferred rent and lease incentives
        
        
        
        
        
        
          6,158
        
        
        
        
        
        
          5,751
        
      
      
        
          Long-term debt, net of current portion
        
        
        
        
           
        
        
          125
        
        
        
        
           
        
        
          410
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Total liabilities
        
        
        
        
        
        
        
        
          35,835
        
        
        
        
        
        
          47,581
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Stockholders’ equity
        
        
        
        
        
        
        
        
        
        
        
        
           
        
        
          50,410
        
        
        
        
           
        
        
          44,437
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Total liabilities and stockholders’ equity
        
        
        
        
          $
        
        
          86,245
        
        
        
        
          $
        
        
          92,018
        
      
    
    
      
        
          Design Within Reach, Inc.
        
      
      
        
          Condensed Statements of Operations
        
      
      
        
          (Unaudited)
        
      
      
        
          (amounts in thousands, except per share data)
        
      
      
        
           
        
        
           
        
        
           
        
        
        
        
           
        
        
        
        
        
        
           
        
        
        
        
        
        
           
        
        
        
        
        
        
           
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
          Thirteen weeks ended
        
        
        
        
          Twenty-six weeks ended
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
        
          June 28, 2008
        
        
        
        
           
        
        
          June 30, 2007
        
        
        
        
           
        
        
          June 28, 2008
        
        
        
        
           
        
        
          June 30, 2007
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net sales
        
        
        
        
          $
        
        
          47,260
        
        
        
        
        
        
          $
        
        
          49,068
        
        
        
        
        
        
          $
        
        
          94,174
        
        
        
        
        
        
          $
        
        
          92,916
        
        
        
      
      
        
          Cost of sales
        
        
        
        
           
        
        
          25,325
        
        
           
        
        
        
        
           
        
        
          27,350
        
        
           
        
        
        
        
           
        
        
          50,063
        
        
           
        
        
        
        
           
        
        
          52,853
        
        
           
        
      
      
        
        
        
        
        
          Gross margin
        
        
        
        
        
        
          21,935
        
        
        
        
        
        
        
        
          21,718
        
        
        
        
        
        
        
        
          44,111
        
        
        
        
        
        
        
        
          40,063
        
        
        
      
      
        
          Selling, general and administrative expenses
        
        
        
        
           
        
        
          22,706
        
        
           
        
        
        
        
           
        
        
          22,238
        
        
           
        
        
        
        
           
        
        
          46,065
        
        
           
        
        
        
        
           
        
        
          44,482
        
        
           
        
      
      
        
        
        
        
        
          Loss from operations
        
        
        
        
        
        
          (771
        
        
          )
        
        
        
        
        
        
          (520
        
        
          )
        
        
        
        
        
        
          (1,954
        
        
          )
        
        
        
        
        
        
          (4,419
        
        
          )
        
      
      
        
          Other income (expense)
        
        
        
        
           
        
        
          71
        
        
           
        
        
        
        
           
        
        
          (55
        
        
          )
        
        
        
        
           
        
        
          (64
        
        
          )
        
        
        
        
           
        
        
          39
        
        
           
        
      
      
        
        
        
        
        
          Loss before income tax benefit
        
        
        
        
        
        
          (700
        
        
          )
        
        
        
        
        
        
          (575
        
        
          )
        
        
        
        
        
        
          (2,018
        
        
          )
        
        
        
        
        
        
          (4,380
        
        
          )
        
      
      
        
          Income tax benefit
        
        
        
        
           
        
        
          (541
        
        
          )
        
        
        
        
           
        
        
          —
        
        
           
        
        
        
        
           
        
        
          (1,237
        
        
          )
        
        
        
        
           
        
        
          —
        
        
           
        
      
      
        
        
        
        
        
          Net loss
        
        
        
        
          $
        
        
          (159
        
        
          )
        
        
        
        
          $
        
        
          (575
        
        
          )
        
        
        
        
          $
        
        
          (781
        
        
          )
        
        
        
        
          $
        
        
          (4,380
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net loss per share:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
          Basic
        
        
        
        
          $
        
        
          (0.01
        
        
          )
        
        
        
        
          $
        
        
          (0.04
        
        
          )
        
        
        
        
          $
        
        
          (0.05
        
        
          )
        
        
        
        
          $
        
        
          (0.30
        
        
          )
        
      
      
        
        
        
        
        
          Diluted
        
        
        
        
          $
        
        
          (0.01
        
        
          )
        
        
        
        
          $
        
        
          (0.04
        
        
          )
        
        
        
        
          $
        
        
          (0.05
        
        
          )
        
        
        
        
          $
        
        
          (0.30
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Weighted average shares used in calculation of net loss per share:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Basic
        
        
        
        
        
        
          14,462
        
        
        
        
        
        
        
        
          14,421
        
        
        
        
        
        
        
        
          14,458
        
        
        
        
        
        
        
        
          14,419
        
        
        
      
      
        
        
        
        
        
          Diluted
        
        
        
        
        
        
          14,462
        
        
        
        
        
        
        
        
          14,421
        
        
        
        
        
        
        
        
          14,458
        
        
        
        
        
        
        
        
          14,419