Lenox Group Inc Reports First Quarter 2006 Results.EDEN PRAIRIE Eden Prairie A city of eastern Minnesota, a residential suburb of Minneapolis. Population: 57,300. , Minn. -- Lenox Lenox, town (1990 pop. 5,069), Berkshire co., W Mass., in the Berkshire Mts., 7 mi (11 km) south of Pittsfield. It is primarily a summer resort. The Berkshire Festival, one of the country's premier music festivals, is held annually on the Tanglewood estate, which Group Inc (NYSE NYSE See: New York Stock Exchange :LNX LNX Linux (operating system) LNX Links ), a leading collectible collectible An asset of limited supply that is sought for a variety of reasons including, it is hoped, an increase in value. Stamps, antiques, coins, and works of art are among the many things usually classified as collectibles. , tabletop and giftware company, today reported financial results for its first quarter ending April 1, 2006. Summary of Results From Continuing Operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the Revenues for the first quarter were $90.4 million compared to $19.6 million in the first quarter of 2005. The increase in revenue reflects the impact of the acquisition of Lenox, Inc. in September September: see month. 2005 (the "Acquisition"). Loss from continuing operations for the first quarter was $7.1 million or $0.52 per share compared to a loss of $2.2 million or $0.16 per share in the first quarter of 2005. The increase in loss from continuing operations for the quarter is principally related to the Acquisition as the Lenox business historically operates at a loss during the first quarter. Business Improvements and Initiatives During the first quarter, the Company has continued to make progress toward the integration of Department 56 and Lenox. A major accomplishment was the recently announced realignment re·a·lign tr.v. re·a·ligned, re·a·lign·ing, re·a·ligns 1. To put back into proper order or alignment. 2. To make new groupings of or working arrangements between. of separate Lenox and Department 56 wholesale sales groups into one sales organization which will sell all four Company brands (Department 56, Lenox, Dansk a. 1. Danish. and Gorham Gorham is a surname, and may refer to:
shop, store - a mercantile establishment for the retail sale of goods or services; "he bought it at a shop on Cape Cod" , special markets, and gift and specialty accounts. Susan Engel Susan Engel (born 25 March 1935 in Vienna, Austria) is a British actress. She remains best known for her work in television, including the series The Lotus Eaters and the Doctor Who serial The Stones of Blood. , Chairwoman and Chief Executive Officer, noted, "This new sales organization combines the sales expertise of Department 56 in gift and specialty accounts with the strength of Lenox in department stores and emerging alternate channels. We believe that this team, consisting of the best sales talent from both companies, will put us in a favorable position Noun 1. favorable position - the quality of being at a competitive advantage favourable position, superiority advantage, vantage - the quality of having a superior or more favorable position; "the experience gave him the advantage over me" to grow the top line." Department 56 On May 1, 2006, the Company completed its purchase of several product lines from Willitts Designs International, an industry leader in creating fine quality and unique collectibles and home decor products Home Décor Products, Inc. is a large online retailer of home improvement and furnishings, headquartered in Edison, NJ. It claims to carry over 450,000 home products from over 800 luxury brands including TOTO, Lenox, Kohler, and Jacuzzi. . Among the lines acquired were (i) Thomas (language) Thomas - A language compatible with the language Dylan(TM). Thomas is NOT Dylan(TM). The first public release of a translator to Scheme by Matt Birkholz, Jim Miller, and Ron Weiss, written at Digital Equipment Corporation's Cambridge Research Laboratory runs Blackshear's Ebony ebony, common name for members of the Ebenaceae, a family of trees and shrubs widely distributed in warmer climates and in the tropics. The principal genus, Diospyros, includes both ebony and persimmon trees. Visions, consisting of Afro-Nouveau styled sculptures which celebrate the pride of heritage and beauty of African Americans African American Multiculture A person having origins in any of the black racial groups of Africa. See Race. , and (ii) Possible Dreams, a line of Clothtique figurines which utilize a stiffened cloth technique to create fine sculptural detailing. Linda Miller Linda J. Miller is the Iowa State Representative from the 82nd District. She has served in the Iowa House of Representatives since 2007. Miller currently serves on several committees in the Iowa House - the Education committee; the Human Resources committee; and the State , President of Department 56, stated "The Willitts acquisition fits perfectly into the Department 56 strategy of developing unique collectibles and gifts for our customers. I am pleased that we were able to retain talented artists and product development professionals from the Willitts organization, including its CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. and President, Joe Walsmith, who has combined his passion for creative thinking with a sound business plan to build a foundation for a successful business." Ms. Engel Engel means angel in German, Danish, Dutch and Norwegian and may refer to:
as·sort·ment n. of Department 56, Lenox, Dansk and Gorham products offered to the trade through multiple wholesale channels. In addition, Willitts products present a revenue growth opportunity for Company-operated retail stores and the Company's direct marketing business (internet, catalog catalog, descriptive list, on cards or in a book, of the contents of a library. Assurbanipal's library at Nineveh was cataloged on shelves of slate. The first known subject catalog was compiled by Callimachus at the Alexandrian Library in the 3d cent. B.C. and mail order)." Lenox Brands On March 9, 2006, the Company announced the appointment of Lesa Chittenden Places called Chittenden:
Consumer Direct The Company successfully converted the Department 56 retail stores to Lenox's retail IT systems. Joel Anderson Joel Anderson is a California politician. He is currently a member of the California Assembly. He represents the 77th Assembly District that encompasses East San Diego County, including all or portions of El Cajon, La Mesa, Santee, Jamul, Lakeside, Ramona, Alpine, Borrego Springs, , President of Consumer Direct, stated, "The integration of our retail systems is a significant milestone of our overall goal to operate effectively as one retail team. There has been tremendous collaboration Working together on a project. See collaborative software. , hard work and passion from both the Department 56 and Lenox groups to make this retail integration a success." In addition to the Company's existing store formats, consisting of Lenox stores, Department 56 stores, and warehouse/outlet liquidation-type stores, the Company is developing a new concept store which will showcase all four Company brands. The Company's goal is to open two to three stores with this new format before the end of fiscal year 2006. Mr. Anderson Mr. Anderson can refer to several fictional characters:
The Company believes that it has the potential to increase sales in its Consumer Direct business through a more robust personalization Custom tailoring information to the individual. On the Web, personalization means returning a page that has been customized for the user, taking into consideration that person's habits and preferences. business. As such, the Company intends to expand its personalization capabilities through decaling ceramicware and engraving engraving, in its broadest sense, the art of cutting lines in metal, wood, or other material either for decoration or for reproduction through printing. In its narrowest sense, it is an intaglio printing process in which the lines are cut in a metal plate with a metalware met·al·ware n. Articles made of metal, especially flatware and other household implements. Noun 1. metalware - household articles made of metal (especially for use at table) . Ms. Engel stated, "We are always looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. ways to add value and provide uniqueness for our consumers. Personalization is one way to accomplish this objective. We believe that we can generate incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. sales by personalizing our high quality branded products to each consumer's specifications and delivering these types of products within a quick turnaround time (1) In batch processing, the time it takes to receive finished reports after submission of documents or files for processing. In an online environment, turnaround time is the same as response time. ." Operations The Company continues to evaluate cost saving opportunities such as consolidating Company showrooms and leveraging the combined purchasing position of Department 56 and Lenox in areas such as ocean freight. Continuing, Ms. Engel said, "I am pleased with the progress that our Company has made since the Lenox acquisition. We have integrated certain business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets , consolidated a number of back room functions, adopted best business practices from both companies and created new opportunities for growth. Our employees have worked very hard as a team to make significant progress and we will continue to focus on changes which add shareholder value." First Quarter Performance from Continuing Operations Wholesale Segment Revenues were up 184% to $51.8 million from $18.3 million in 2005. The increase in revenue was principally due to the Acquisition offset by a decrease in Department 56 branded sales of $5.0 million, or 27%. The decrease in Department 56 branded sales was principally due to the timing of receipt of product from manufacturers overseas as well as the continued softness experienced in the Gift and Specialty channel A specialty channel (or speciality channel) is a television channel which consists of programming focused on a single type or targeted at a specific demographic. . Retail Segment Revenues increased to $16.2 million from $1.3 million in the prior year principally due to the Acquisition. Same-store sales Same-store sales is a business term which refers to the revenue generated by one of a retail chain's specific outlets during a certain period of time (often a fiscal quarter or a particular shopping season), compared to an identical period in the past, usually in the previous year. (including stores added as a result of the Acquisition which are compared against pre-acquisition results) increased by 0.4% across all of the Company's retail stores, led by the Department 56 retail stores with a 12% increase in same store sales Same Store Sales A statistic used in retail industry analysis. It compares sales of stores that have been open for a year or more. Notes: This statistic allows investors to determine what portion of new sales has come from sales growth and what portion from the opening of . The gross profit percentage was 72% compared to 67% in the prior year reflecting the impact of the Acquisition. In the first quarter of 2006, the Lenox retail business closed 31 stores and liquidated DAMAGES, LIQUIDATED, contracts. When the parties to a contract stipulate for the payment of a certain sum, as a satisfaction fixed and agreed upon by them, for the not doing of certain things particularly mentioned in the agreement, the sum so fixed upon is called liquidated damages. (q.v. excess product acquired as part of the Acquisition. The impact of this activity normally would have resulted in lower gross margins for the Lenox retail business; however, this was offset by the requirement to value Lenox inventory at its estimated selling price less cost of disposal under the purchase method of accounting on the opening balance sheet date. The impact of this purchase accounting adjustment was approximately $4.3 million. Excluding the purchase accounting adjustment, the gross profit percentage was 45% compared to 67% in 2005. This decrease in gross profit percentage in 2006 compared to 2005 was due to Lenox closing 31 stores and liquidating excess product acquired as part of the Acquisition (as mentioned above) and the fact that the Lenox outlet stores An outlet store or factory outlet is a retail store in which manufacturers sell their stock directly to the public through their own branded stores. The stores can be can be brick and mortar or online. typically carry lower gross profit percentages than the Department 56 retail stores. Direct Segment Revenues from the direct business which was acquired as part of the Acquisition were $22.4 million. The gross profit percentage of 65% was negatively impacted by a $1.2 million purchase accounting fair market value adjustment related to the write up of inventory to its estimated selling price less cost of disposal under the purchase method of accounting on the opening balance sheet date. Excluding the purchase accounting adjustment, the gross profit percentage was 71%. Fiscal 2006 Outlook The Company estimates fully diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of (EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. ) for fiscal year 2006 will fall within the range of $0.75-$0.85 from continuing operations. EPS from continuing operations in 2005 was $1.26. EPS in 2006 is estimated to be lower than EPS in 2005 due to the fact that the Company benefited disproportionately dis·pro·por·tion·ate adj. Out of proportion, as in size, shape, or amount. dis  pro·por in fiscal year 2005 from
the Acquisition. The results of operations in 2005 included four months
of Lenox operations (from the Acquisition date of September 1, 2005 to
December 31, 2005, the end of the fiscal year) which are historically
the most profitable months of the year for Lenox. As the Company has
previously discussed, the Lenox business has historically operated at a
loss during the first eight months of the year. EPS in 2006 is also
estimated to be lower than EPS in 2005 due to the continued softness in
the Company's Gift and Specialty channel, particularly as it
relates to Department 56 branded products. The softness in this channel
is principally due to the loss of accounts as a result of their going
out of business. First quarter orders from accounts estimated to have
completed their orders were flat when compared to their previous year
amounts.About Lenox Group Inc Lenox Group Inc is a market leader in quality tabletop, collectible and giftware products sold under the Department 56, Lenox, Gorham and Dansk brand names. The Company sells its products through wholesale customers who operate gift, specialty and department store locations in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and Canada, Company-operated retail stores, and direct-to-the-consumer through catalogs, direct mail, and the Internet. Investors will have the opportunity to listen to the Company's May 3rd, 2006 conference call over the Internet at www.earnings.com. To listen to the live call, please go to the website at least fifteen minutes prior to the 9:00 a.m. ET call. For those who cannot listen to the live broadcast, a replay will be available. Notes concerning forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. : This release contains forward-looking statements about the Company's performance. These statements are based on management's estimates, assumptions and projections as of today and are not guarantees of future performance. Any conclusions or expectations expressed in, or drawn from, the statements in this press release concerning matters that are not historical corporate financial results are forward-looking statements that involve risks and uncertainties. Such risk and uncertainties that could affect performance include, but are not limited to, the ability of Lenox Group Inc to: (1) integrate Lenox into its business; (2) achieve revenue or cost synergies Cost Synergy In the context of mergers, cost synergy is the savings in operating costs expected after two companies, who compliment each other's strengths, join. Notes: The savings in operating costs usually come in the form of laying off employees. ; and (3) generate cash flow to pay off debt. Actual results may vary materially from forward-looking statements and the assumptions on which they are based. The Company undertakes no obligation to update or publish in the future any forward-looking statements. Also, please read the bases, assumptions and factors set out in Item 7 in the Company's Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for 2005 dated March 16, 2006 and filed under the Securities Exchange Act of 1934, all of which is incorporated herein by reference and applicable to the forward-looking statements set forth herein.
LENOX GROUP INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
Quarter Ended
-------------------------
April 1, April 2,
2006 2005
---------- ---------
NET SALES $90,387 $19,619
COST OF SALES 41,924 46.4% 10,690 54.5%
---------- ---------
Gross Profit 48,463 53.6% 8,929 45.5%
Selling, general and administrative
expenses 56,802 62.8% 12,508 63.8%
---------- ---------
OPERATING LOSS FROM CONTINUING
OPERATIONS (8,339) -9.2% (3,579)-18.2%
Interest expense 3,044 3.4% 58 0.3%
Other, net (1) 0.0% (155) -0.8%
---------- ---------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (11,382)-12.6% (3,482)-17.7%
INCOME TAX BENEFIT (4,296) -4.8% (1,253) -6.4%
---------- ---------
LOSS FROM CONTINUING OPERATIONS (7,086) -7.8% (2,229)-11.4%
---------- ---------
LOSS FROM DISCONTINUED OPERATIONS, NET
OF TAX - (401)
---------- ---------
NET LOSS $(7,086) $(2,630)
========== =========
LOSS PER SHARE - BASIC:
LOSS PER SHARE FROM CONTINUING
OPERATIONS $(0.52) $(0.16)
LOSS PER SHARE FROM DISCONTINUED
OPERATIONS - (0.03)
---------- ---------
NET LOSS PER SHARE - BASIC $(0.52) $(0.19)
========== =========
LOSS PER SHARE - ASSUMING DILUTION:
LOSS PER SHARE FROM CONTINUING
OPERATIONS $(0.52) $(0.16)
LOSS PER SHARE FROM DISCONTINUED
OPERATIONS - (0.03)
---------- ---------
NET LOSS PER SHARE - ASSUMING
DILUTION $(0.52) $(0.19)
========== =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 13,725 13,641
ASSUMING DILUTION 13,725 13,641
SUPPLEMENTAL INFORMATION -
Depreciation expense (as reported
within SG&A from continuing
operations) $3,213 $833
Reclassifications - Certain reclassifications were made to quarter
ended April 2, 2005 condensed consolidated statement of operations in
order to conform to the presentation of the quarter ended April 1,
2006 condensed consolidated statement of operations. These
reclassifications had no impact on consolidated net loss as previously
reported.
LENOX GROUP INC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
ASSETS
April 1, December 31, April 2,
2006 2005 2005
--------- ------------ ---------
CURRENT ASSETS:
Cash and cash equivalents $440 $1,279 $25,198
Short-term investments - - 20,000
Accounts receivable, net 46,625 55,563 21,022
Inventories 97,532 94,346 16,116
Deferred taxes 10,031 13,380 4,076
Income tax receivable 1,881 - -
Other current assets 9,189 8,411 2,449
Current assets of discontinued
operations - - 2,260
--------- ------------ ---------
Total current assets 165,698 172,979 91,121
PROPERTY AND EQUIPMENT, net 69,410 71,428 14,924
ASSETS HELD FOR SALE 17,018 17,018 -
GOODWILL, net 53,901 53,769 37,074
TRADEMARKS, net 121,971 121,971 13,761
OTHER INTANGIBLES, net 16,022 17,037 621
MARKETABLE SECURITIES 1,874 2,449 2,267
OTHER ASSETS 12,666 13,277 424
NONCURRENT ASSETS OF DISCONTINUED
OPERATIONS - - 188
--------- ------------ ---------
$458,560 $469,928 $160,380
========= ============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $10,170 $10,000
Borrowings on revolving credit
facility 26,193 10,468
Accounts payable 28,616 31,270 $5,211
Accrued compensation and benefits
payable 14,773 16,538 2,480
Income taxes payable - 6,590 312
Severance and restructuring
reserves 7,999 12,201 -
Other current liabilities 3,973 6,554 757
Current liabilities of discontinued
operations 1 32 33
--------- ------------ ---------
Total current liabilities 91,725 93,653 8,793
DEFERRED COMPENSATION OBLIGATION 1,898 2,489 2,263
PENSION OBLIGATIONS 88,048 87,014 -
POSTRETIREMENT OBLIGATIONS 28,761 28,560 -
DEFERRED TAXES 322 1,424 5,571
LONG-TERM DEBT 87,580 90,250 -
OTHER NONCURRENT LIABILITIES 5,038 4,789 790
STOCKHOLDERS' EQUITY 155,188 161,749 142,963
--------- ------------ ---------
$458,560 $469,928 $160,380
========= ============ =========
Reclassifications - Certain reclassifications were made to the April
2, 2005 condensed consolidated balance sheets in order to conform to
the presentation of the April 1, 2006 condensed consolidated balance
sheet. These reclassifications had no impact on consolidated net
loss or retained earnings as previously reported.
LENOX GROUP INC
SEGMENTS OF THE COMPANY AND RELATED INFORMATION FROM CONTINUING
OPERATIONS (UNAUDITED)
(In thousands)
Quarter Ended
------------------------
April 1, April 2,
2006 2005
--------- --------
WHOLESALE:
Net sales $51,821 100.0%$18,274 100.0%
Gross profit 22,270 43.0% 8,032 44.0%
Selling expenses 9,479 18.3% 3,385 18.5%
Income from continuing operations 12,791 24.7% 4,647 25.4%
RETAIL:
Net sales $16,197 100.0% $1,345 100.0%
Gross profit 11,602 71.6% 897 66.7%
Selling expenses 9,362 57.8% 1,712 127.3%
Income (loss) from continuing
operations 2,240 13.8% (815) -60.6%
DIRECT:
Net sales $22,369 100.0% -
Gross profit 14,591 65.2% -
Selling expenses 10,133 45.3% -
Income from continuing operations 4,458 19.9% -
CORPORATE -
Unallocated general and
administrative expenses $(27,828) $(7,411)
CONSOLIDATED:
Net sales $90,387 $19,619
Operating loss from continuing
operations (8,339) -9.2% (3,579) -18.2%
The Company has three reportable segments - Wholesale, Retail, and
Direct. Although the product produced and sold for each segment is
similar, the type of customer for the product and the method used to
distribute the product are different. The segmentation of these
operations also reflects how the Company's chief executive officer
(the CEO) currently reviews the results of these operations. Operating
income (loss) from continuing operations for each operating segment
includes specifically identifiable operating costs such as cost of
sales and selling expenses. General and administrative expenses are
generally not allocated to specific operating segments and are
therefore reflected in the corporate category. Other components of the
statement of operations, which are classified below operating income
(loss) from continuing operations, are also not allocated by segment.
In addition, the Company does not account for or report assets,
capital expenditures or certain depreciation and amortization by
segment. All transactions between operating segments have been
eliminated and are not included in the following table.
Reclassifications - Certain reclassifications were made to the quarter
ended April 2, 2005 segment information in order to conform to the
presentation of the quarter ended April 1, 2006. These
reclassifications had no impact on consolidated net loss as previously
reported.
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