Enesco (NYSE:ENC)
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Enesco Group, Inc. (NYSE:ENC), a leader in the giftware,
and home and garden decor industries, today announced financial
results for the fourth quarter and year ended December 31, 2005, and
also provided an update on its operating improvement plan.
Fourth Quarter and Recent Highlights
-- Fourth quarter net revenues decreased 19.7% to $56.0 million;
excluding U.S. sales of Precious Moments products, net
revenues decreased 7.6% to $53.6 million.
-- Full year net revenues decreased 9.1% to $244.4 million;
excluding U.S. sales of Precious Moments products, net
revenues were down 2.3% from the prior year to $210.9 million.
-- Reached 2005 goal of reducing expenses that Enesco believes
will generate pre-tax annualized cost savings of $26.7
million.
-- Completed product rationalization by reducing product lines
from 170 to approximately 50.
-- Initiated the transition to a third-party distribution
facility in December 2005.
-- Entered into a new strategic alliance with Jim Shore Designs,
Inc.
Fourth Quarter
Net revenues for the quarter decreased 19.7% to $56.0 million from
$69.7 million in the fourth quarter of 2004, reflecting the
significant reduction in U.S. sales of Precious Moments products,
which was due primarily to the termination of the U.S. license
agreement in the second quarter of 2005. Excluding U.S. sales of
Precious Moments, net revenues for the fourth quarter, were down 7.6%
from the same period in 2004.
Gross profit was $16.5 million compared to $22.3 million in the
fourth quarter of 2004. Gross profit margin was 29.5% compared with
32.0% in the fourth quarter of 2004. Gross profit was negatively
impacted by lower sales volume, a lower margin achieved on the U.S.
sales of Precious Moments products, as well as increases in
slow-moving and excess inventory reserves, which resulted from
additional discontinued inventories related to Enesco's product line
rationalization. Gross margin, excluding U.S. sales of Precious
Moments products, decreased to 33.4% for the quarter versus 36.4% for
the same period last year.
Selling, general and administrative expenses (SG&A) decreased
13.5% to $30.8 million compared to $35.5 million reported in the
fourth quarter of 2004. This decrease was primarily the result of
reduced salary expense and lower selling and marketing costs, as well
as other cost saving initiatives implemented throughout the quarter.
These factors were offset in part by the write-off of $1.1 million of
Dartington goodwill and restructuring and severance provisions of $1.0
million, associated with the transition to third-party warehousing and
distribution, and the closure of non-essential showrooms.
Operating loss for the fourth quarter was $14.2 million compared
to an operating loss of $9.3 million in the same period in 2004. The
operating loss for the fourth quarter of 2004 included a gain of $4.0
million on the sale of Enesco's distribution and warehousing facility
in Elk Grove Village, Illinois, which subsequently was leased back
under a five-year operating lease.
Fourth quarter net loss was $14.7 million, or ($0.99) per diluted
share, compared to a net loss of $40.7 million, or ($2.80) per diluted
share, in the fourth quarter of 2004. The reduction in net loss
primarily reflects Enesco's tax benefit of $0.5 million in the fourth
quarter of 2005 versus a tax expense of $31.1 million in the fourth
quarter of 2004.
Fiscal 2005
Net revenues for the year decreased 9.1% to $244.4 million from
$269.0 million in 2004, primarily due to the continued decline in
sales of collectibles in the U.S., primarily sales related to Precious
Moments. Excluding U.S. sales of Precious Moments products, net
revenues were down 2.3% from 2004.
Gross profit was $82.8 million compared to $106.5 million in 2004.
Gross profit margin declined to 33.9% compared to 39.6% last year.
Gross profit was negatively impacted by lower sales volume, a loss on
the termination of the license agreement with Precious Moments Inc. of
$7.7 million, a lower margin achieved on the U.S. sales of Precious
Moments products, and increases in slow-moving and excess inventory
reserves, which resulted from additional discontinued inventories
related to Enesco's product line rationalization. Gross margin,
excluding U.S. sales of Precious Moments products, declined to 38.1%
for 2005 compared to 40.9% in 2004.
SG&A expenses increased 1.9% to $130.0 million compared to $127.5
million last year, primarily reflecting higher bank fees, accelerated
depreciation on the ERP system and incremental costs incurred as a
result of the Dartington acquisition. These factors were partially
offset by reduced selling and marketing costs, as well as lower salary
expense.
Operating loss for the year was $47.2 million compared with an
operating loss of $17.0 million in 2004. The operating loss for 2004
included a gain of $4.0 million on the sale of Enesco's distribution
and warehousing facility in Elk Grove Village, Illinois.
Fiscal 2005 net loss was $54.0 million, or ($3.67) per diluted
share, compared to a net loss of $45.2 million, or ($3.16) per diluted
share, in 2004. The increase in net loss reflects the increase in
operating loss and additional interest expense in 2005, partially
offset by a significantly reduced tax expense as compared to the prior
year.
Cynthia Passmore, President and Chief Executive of Enesco, stated,
"2005 was a year of transition for Enesco as we focused on stabilizing
the business. We successfully completed a number of strategic
financial and operational initiatives in the first half of the year,
including the termination of our Precious Moments license agreement
and corporate restructurings, which enabled us to reduce salary
expense and streamline operations. In September, we introduced a
comprehensive operating improvement plan designed to build on our
earlier initiatives and establish a sustainable and profitable
business model. While our financial results for the year are not in
line with our long-term objectives, we began to see positive impact
from the implementation of our operating improvement plan in the
second half of 2005. Specifically, we benefited from a reduced cost
structure, better inventory management and the completion of the
rationalization of our product lines which allowed us to focus on our
core merchandising categories."
Operating Improvement Plan Update
Enesco made substantial progress in implementing its operating
improvement plan and, as of this date, has accomplished the following:
-- Enesco completed its product rationalization in the fourth
quarter of 2005, reducing its product lines by more than 70%,
from 170 product lines to approximately 50. The remaining
lines in total represent approximately 90% of Enesco's U.S.
sales, excluding Precious Moments. The remaining product lines
fit into Enesco's core merchandising categories: decorative
gifts, inspirational gifts, brand enthusiast gifts and
occasion-based gifts. Enesco believes that the product lines
in these categories generate strong and sustainable market
demand and profitability and leverage Enesco's core
distribution base.
-- Enesco began its transition to a third-party distribution
center and began shipping from the new facility at the end of
January 2006. Enesco experienced a delay in beginning
shipments from the new facility, as the new facility ramp-up
took longer than expected. Enesco expects to work through the
backlog by the end of April and, in May, expects to be at the
shipping levels required to meet its targets for the year.
-- Enesco reached its 2005 goal of reducing expenses that will
generate pre-tax cost savings on an annualized basis of $26.7
million. These savings are included in the total $34 million
to $38 million in pre-tax annualized cost savings, which
Enesco expects to realize as a result of the operating
improvement plan in 2007.
-- Enesco established a new Executive Committee which will direct
Enesco's turnaround and help ensure that it is positioned
appropriately for sustainable growth when its operating
improvement plan objectives are achieved. The Executive
Committee will include Ms. Passmore, a future Executive Vice
President and Chief Financial Officer, and key business unit
leaders in the U.S., the U.K. and Canada.
Passmore concluded, "We are making progress with the
implementation of our operating improvement plan. We have accomplished
a number of goals already in 2006, with the transition to the new
third-party distribution facility and the signing of our new strategic
alliance with Jim Shore Designs. Further, as a result of our product
line rationalization, our sales and marketing teams have been able to
focus on our top selling product lines, resulting in a 16% increase in
orders taken at this year's January gift shows. In addition, excluding
Precious Moments orders in 2005, product orders at the January 2006
gift shows increased 21%. We believe we are driving positive change
for the business and anticipate seeing gradual improvements in our
performance over the course of 2006."
More detailed information is set forth in Enesco's Form 10-K for
the year ended December 31, 2005, which was filed on March 31, 2006.
Credit Facility
On March 31, 2006, Enesco entered into the eleventh amendment to
its existing credit facility, effective March 31, 2006, and reset
Enesco's 2006 cumulative minimum monthly EBITDA covenants, effective
January 30, 2006, based on its reforecast. The eleventh amendment also
reduced the credit facility commitment from $75.0 million to $70.00
million and accelerated by one month the tenth amendment fees payable
unless outstanding loans and letters of credit under the existing U.S.
credit facility are paid in full prior to specified dates.
On December 14, 2005, Enesco Group, Inc. signed a commitment
letter with LaSalle Business Credit, LLC to arrange a new $75 million
senior secured credit facility, which is to replace the existing
credit facility with Bank of America, as successor to Fleet National
Bank, and LaSalle Bank N.A. Under the letter, the commitment was to
close on the new credit facility on or before January 31, 2006. Enesco
Group, Inc. has subsequently received modifications to its commitment
letter from LaSalle Business Credit, LLC, extending the expiration
date from January 31, 2006 to March 31, 2006. On March 31, 2006,
Enesco Group, Inc. received another modification to its commitment
letter from LaSalle Business Credit, LLC, extending the expiration
date from to April 30, 2006.
Conference Call
A conference call will be broadcast live on Monday, April 3 at
3:00 p.m. CDT (4:00 p.m. EDT). Investors interested in participating
on the live call can do so by calling 1-888-271-7222, and ask for the
Enesco Quarterly Earnings conference call. Investors also may listen
to the live call via a Webcast at http://www.enesco.com and click on
"Investor Relations," or by logging onto http://www.streetevents.com.
To listen to the Webcast, your computer must have RealPlayer
installed. This Webcast will be available online for 90 days following
the live conference call. If you do not have RealPlayer, go to
http://www.streetevents.com prior to the call to download RealPlayer
for free.
For a phone replay, call 1-800-642-1687, Passcode: 7439355. The
phone replay will be available for one month following the conference
call.
About Enesco Group, Inc.
Enesco Group, Inc. is a world leader in the giftware, and home and
garden decor industries. Serving more than 30,000 customers globally,
Enesco distributes products to a wide variety of specialty card and
gift retailers, home decor boutiques, as well as mass-market chains
and direct mail retailers. Internationally, Enesco serves markets
operating in the United Kingdom, Canada, Europe, Mexico, Australia and
Asia. With subsidiaries located in Europe and Canada, and a business
unit in Hong Kong, Enesco's international distribution network is a
leader in the industry. Enesco's product lines include some of the
world's most recognizable brands, including Border Fine Arts, Bratz,
Circle of Love, Foundations, Halcyon Days, Jim Shore Designs, Lilliput
Lane, Pooh & Friends, Walt Disney Classics Collection, and Walt Disney
Company, among others. Further information is available on Enesco's
web site at www.enesco.com.
This press release contains forward-looking statements, which
reflect management's current assumptions and beliefs and are based on
information currently available to management. Enesco has tried to
identify such forward-looking statements by use of such words as
"expects," "intends," "anticipates," "could," "estimates," "plans,"
and "believes," and similar expressions, but these words are not the
exclusive means of identifying such statements. Such statements are
subject to various risks, uncertainties and other factors, which could
cause actual results to vary materially from those anticipated,
estimated, expected or projected. Important factors that may cause
actual future events or results to differ materially and adversely
from those described in the forward-looking statements include, but
are not limited to: Enesco's success in implementing its comprehensive
plan for operating improvement and achieving its goals for cost
savings and market share increases; Enesco's success in developing new
products and consumer reaction to Enesco's new products; Enesco's
ability to secure, maintain and renew popular licenses, particularly
our Cherished Teddies, Disney and Jim Shore Designs licenses; Enesco's
ability to grow revenues in mass and niche market channels; Enesco's
ability to comply with covenants contained in its credit facility;
changes in general economic conditions, as well as specific market
conditions; fluctuations in demand for our products; manufacturing
lead times; the timing of orders and shipments and our ability to
predict customer demands; inventory levels and purchase commitments
exceeding requirements based upon forecasts; collection of accounts
receivable; changes in the regulations and procedures affecting the
importation of goods into the United States; changes in foreign
exchange rates; price and product competition in the giftware
industry; variations in sales channels, product costs or mix of
products sold; and, possible future terrorist attacks, epidemics, or
acts of war. In addition, Enesco operates in a continually changing
business environment and does not intend to update or revise the
forward-looking statements contained herein, which speak only as of
the date hereof. Additional information regarding forward-looking
statement risk factors is contained in Enesco's reports and filings
with the Securities and Exchange Commission. In light of these risks
and uncertainties, the forward-looking statements contained herein may
not occur and actual results could differ materially from those set
forth herein. Accordingly, you should not rely on these
forward-looking statements as a prediction of actual future results.
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ENESCO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
Three Months Ended December 31, 2005 and 2004
(In thousands, except per share amounts)
2005 2004 % Change
--------- --------- ---------
Net revenues $55,970 $69,658 -20%
Cost of sales 39,450 47,365 -17%
--------- ---------
Gross profit 16,520 22,293 -26%
Gross profit % 29.5% 32.0%
Selling, general and administrative
expense 30,750 35,531 -13%
Gain on sale of building - (3,985)
--------- ---------
Operating income (14,230) (9,253) 54%
Interest expense (744) (524) 42%
Interest income 28 59 -53%
Other income (expense), net (168) 169 199%
--------- ---------
Income (Loss) before income taxes (15,114) (9,549) 58%
Income tax benefit (expense) 456 (31,124) -101%
--------- ---------
Net income (loss) $(14,658) $(40,673) -64%
========= =========
ENESCO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For The Years Ended 2005 and 2004
(In thousands, except per share amounts)
2005 2004 % Change
--------- --------- ---------
Net revenues $244,434 $268,967 -9%
Cost of sales 153,935 162,423 -5%
Cost of sales - loss on license
termination 7,713 - 100%
--------- ---------
Gross profit 82,786 106,544 -22%
Gross profit % 33.9% 39.6%
Selling, general and administrative
expense 129,956 127,543 2%
Sale of building (gain) - (3,985)
--------- ---------
Total selling, general and
administrative expense 129,956 123,558
Operating loss (47,170) (17,014) -177%
Interest expense (2,260) (1,148) 97%
Interest income 201 404 -50%
Other income (expense), net (449) (75) 499%
--------- ---------
Loss before income taxes (49,678) (17,833) -179%
Income tax benefit (expense) (4,347) (27,355) -84%
--------- ---------
Net loss $(54,025) $(45,188) -20%
========= =========
Loss per share:
Basic:
Net loss ($3.67) ($3.16) -16%
Average shares outstanding 14,739 14,309 -3%
Diluted:
Net loss ($3.67) ($3.16) -16%
Average shares outstanding 14,739 14,821 1%
ENESCO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 AND 2004
(In thousands)
ASSETS
2005 2004
--------- ---------
Current Assets:
Cash and equivalents $12,918 $14,646
Accounts receivable, net 42,285 70,526
Inventories 40,659 65,371
Prepaid expenses 3,471 3,310
Deferred income taxes 783 920
-------------------
Total current assets 100,116 154,773
Property, plant and equipment, net 15,504 22,509
Other assets 14,571 16,601
-------------------
Total assets $130,191 $193,883
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes and loans payable $30,823 $26,354
Accounts payable 15,306 18,680
Income taxes payable 9,005 6,405
Deferred gain on sale of fixed assets 6,358 1,711
Accrued Expenses 14,592 21,628
-------------------
Total current liabilities 76,084 74,778
Long-term liabilities 1,281 9,838
Total shareholders' equity 52,826 109,267
-------------------
Total liabilities and shareholders' equity $130,191 $193,883
===================
ENESCO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
(Unaudited)
(In thousands)
2005 2004
--------- ---------
Operating Activities:
Net loss $(54,025) $(45,188)
Adjustments to reconcile net loss to net cash used
by operating activities 49,639 23,576
--------- ---------
Net cash used by operating activities (4,386) (21,612)
--------- ---------
Investing Activities:
Acquisition, net of cash acquired -- (14,409)
Purchase of property, plant and equipment 809 19,265
Proceeds from sales of property, plant and
equipment (2,348) (4,552)
--------- ---------
Net cash used by investing activities (1,539) 304
--------- ---------
Financing Activities:
Issuance of notes and loans payable 4,599 22,656
Exercise of stock options 322 1,552
--------- ---------
Net cash provided by financing activities 4,921 24,208
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents (724) 1,101
--------- ---------
Increase/(decrease) in cash and cash equivalents (1,728) 4,001
Cash and cash equivalents, beginning of period 14,646 10,645
--------- ---------
Cash and cash equivalents, end of period $12,918 $14,646
========= =========
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