Enesco Group, Inc. (NYSE:ENC), a leader in the giftware, and home
and garden decor industries, today announced financial results for
the first quarter ended March 31, 2006 and provided an update on
its Operating Improvement Plan. First Quarter and Recent Highlights
-- Net revenues for the first quarter were $38.0 million compared
to $60.1 million in the first quarter of the prior year, largely
reflecting the elimination of Precious Moments sales as of December
2005 and the product rationalization completed as part of Enesco's
Operating Improvement Plan -- First quarter gross profit margin
expanded 450 basis points to 42.1% from 37.6% -- First quarter
SG&A expenses decreased 28% to $25.3 million from $35.3 million
-- Net loss for the first quarter improved 31% to $10.6 million
from a net loss of $15.2 million in the first quarter of 2005 -- On
April 28, 2006, Enesco's U.K. subsidiary divested unprofitable
Dartington Crystal operations, which is expected to benefit the
Company's long-term results -- Enesco's Board of Directors and
Cynthia Passmore mutually agreed that she will no longer serve as
President, Chief Executive Officer, and director of the Company,
effective May 15, 2006. -- Board has named Basil Elliott as Interim
Chief Executive Officer and Marie Meisenbach Graul as Interim Chief
Financial Officer, both effective May 15, 2006 -- Keystone
Consulting Group engagement completed on April 30, 2006; Mesirow
Financial Consulting LLC retained on May 10, 2006 by Enesco to
complete the implementation of the Operating Improvement Plan First
Quarter Net revenues were $38.0 million compared to $60.1 million
in the first quarter of 2005. First quarter 2006 revenues do not
include U.S. Precious Moments sales while first quarter 2005
included $10.8 million in U.S. Precious Moments sales. Excluding
U.S. sales of Precious Moments from the first quarter of 2005, net
revenues in the first quarter would have decreased 22.9% from $49.3
million in the first quarter of 2005. The decline primarily
reflects the effect of discontinuing product lines in the fourth
quarter of 2005 associated with Enesco's product rationalization,
as well as the impact of delayed and lost sales that resulted from
slower than expected ramp-up at the new third-party distribution
center. Enesco also experienced lower sales from collectibles,
Gregg Gift and Dartington, as well as an unfavorable foreign
currency translation rate impact of $1.4 million in the U.K. Gross
profit was $16.0 million compared to $22.6 million in the prior
year period. Gross profit margin expanded 450 basis points to 42.1%
from 37.6%. Gross profit margin in the first quarter 2005 was
negatively impacted by approximately 350 basis points due to the
U.S. Precious Moments guaranteed minimum royalty costs and
generally lower margins on the product line. Excluding the royalty
fees on 2005 U.S. Precious Moments sales, gross margin in the first
quarter would have increased 100 basis points from 41.1% in the
first quarter of 2005. This improvement reflects a more favorable
product mix in the U.S. and Canada. Selling, general and
administrative expenses (SG&A) decreased 28% to $25.3 million
from $35.3 million reported in the first quarter of 2005. The
decrease primarily reflects reduced corporate overhead expenses and
a reduction in depreciation expense due to accelerated depreciation
of the ERP system in the prior year period. These factors were
offset somewhat by increased bank and consulting fees. As a percent
of sales, SG&A increased to 66.6% in the first quarter of 2006
from 58.7% in the first quarter of the prior year, as a result of a
lower revenue base. Operating loss for the first quarter was $9.3
million compared to an operating loss of $12.7 million in the same
period in 2005. The improvement reflects higher gross profit margin
and reduced SG&A expenses, which more than offset the impact of
lower sales. First quarter net loss was $10.6 million, or ($0.71)
per diluted share, compared to a net loss of $15.2 million, or
($1.04) per diluted share, in the first quarter of 2005. The net
loss narrowed as a result of the decline in operating loss and a
lower tax expense compared to the prior year period. "In the first
quarter, the Company began to generate results from our Operating
Improvement Plan," stated Tony Testolin, Chief Accounting Officer
at Enesco. "While our top line was impacted by a number of factors,
focusing our sales efforts on a better performing mix of products
and reducing corporate expenses contributed to an improvement in
our operating loss for the quarter. Importantly, our exit from the
U.S. Precious Moments business and our product rationalization are
benefiting our operating results, as expected. While we are
experiencing a slower than expected ramp-up at our new third-party
distribution center, we continued to increase our shipment levels
as the quarter progressed." Operating Improvement Plan Update
Enesco completed the following activities to date in 2006 in
relation to its Operating Improvement Plan: -- The Board has
decided not to renew Enesco's agreement with the Keystone
Consulting Group, which had been consulting with Enesco on a number
of issues relating to the Operating Improvement Plan for 11 months.
The Company has retained a team from Mesirow Financial Consulting,
LLC to provide support to the finance team in completing Enesco's
Operating Improvement Plan. -- Divested the business and assets of
Dartington Crystal for $2.4 million in a management buyout
transaction, effective April 28, 2006. Following a review of its
product strategy in the fourth quarter of 2005, Enesco determined
that glassware was not a strategic fit for the Company and began to
actively market the sale of the Dartington operation. --
Transitioned to a third-party distribution center (NDC) and began
shipping from the new facility at the end of January 2006. As
stated above, Enesco experienced a delay in beginning shipments
from the new facility, as the new facility ramp-up is taking longer
than expected. Anne-Lee Verville, Chairman of the Board of
Directors at Enesco stated, "As Enesco's first quarter performance
indicates, we are beginning to see positive results from the
Company's Operating Improvement Plan. The Company's focus for the
upcoming months includes working closely with NDC to improve
shipment throughput and employ alternative means of meeting
necessary product shipment levels, and decreasing corporate
expenses. While improving operating efficiencies remains a
priority, the Company is also taking steps to generate top line
growth over the long term with the introduction of new products in
Enesco's four merchandise categories of decorative, enthusiast,
inspirational and occasion-based gifts. The Company plans to launch
new products developed within these categories at the upcoming
summer gift shows. The Board and new interim management announced
yesterday remain committed to completing Enesco's Operating
Improvement Plan, improving profitability, diversifying revenue
from new product lines, and positioning the Company for long-term
growth and market share expansion." More detailed information is
set forth in Enesco's Form 10-Q for the quarter ended March 31,
2006, which was filed May 12, 2006. Conference Call A conference
call will be broadcast live on Monday, May 15 at 10:00 a.m. CT
(11:00 a.m. ET) to discuss Enesco's first quarter financial results
as well as other recent company announcements. 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: 9301961. 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 44,000 customers worldwide,
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 ability to identify and hire a permanent CEO and Executive
Vice President and Chief Financial Officer; 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. -0- *T ENESCO GROUP, INC. CONSOLIDATED STATEMENTS OF
OPERATIONS UNAUDITED FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND
2005 (In thousands, except per share amounts) 2006 2005 % Change
---------- ---------- ---------- Net revenues $37,964 $60,084 -37%
Cost of sales 22,000 37,481 -41% ---------- ---------- Gross profit
15,964 22,603 -29% Gross profit % 42.1% 37.6% Selling, general and
administrative expense 25,273 35,282 -28% ---------- ----------
Operating loss (9,309) (12,679) 27% Interest expense (559) (399)
40% Interest income 28 120 -77% Other income (expense), net 19
(179) -111% ---------- ---------- Loss before income taxes (9,821)
(13,137) 25% Income tax benefit (expense) (735) (2,079) -65%
---------- ---------- Net loss $(10,556) $(15,216) 31% ==========
========== Loss per share: Basic: Net loss ($0.71) ($1.04) 32%
Average shares outstanding 14,920 14,607 -2% Diluted: Net loss
($0.71) ($1.04) 32% Average shares outstanding 14,920 14,607 -2%
ENESCO GROUP, INC. CONSOLIDATED BALANCE SHEETS MARCH 31, 2006 AND
DECEMBER 31, 2005 (In thousands) ASSETS (Unaudited) March 31,
December 31, 2006 2005 ------------ ------------ Current Assets:
Cash and equivalents $8,724 $12,918 Accounts receivable, net 34,087
42,285 Inventories 42,414 40,659 Prepaid expenses 4,044 3,471
Deferred income taxes 836 783 ------------ ------------ Total
current assets 90,105 100,116 Property, plant and equipment, net
14,617 15,504 Other assets 14,774 14,571 ------------ ------------
Total assets $119,496 $130,191 ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes and
loans payable $38,422 $30,823 Accounts payable 12,522 15,306 Income
taxes payable 8,576 9,005 Deferred gain on sale of fixed assets
5,886 6,358 Accrued Expenses 10,176 14,592 ------------
------------ Total current liabilities 75,582 76,084 Long-term
liabilities 993 1,281 Total shareholders' equity 42,921 52,826
------------ ------------ Total liabilities and shareholders'
equity $119,496 $130,191 ============ ============ ENESCO GROUP,
INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE
MONTHS ENDED MARCH 31, 2006 AND 2005 (Unaudited) (In thousands)
2006 2005 ------------ ------------ Operating Activities: Net loss
$(10,556) $(15,216) Adjustments to reconcile net loss to net cash
used by operating activities (1,399) 7,676 ------------
------------ Net cash used by operating activities (11,955) (7,540)
------------ ------------ Investing Activities: Purchase of
property, plant and equipment (21) (618) Proceeds from sales of
property, plant and equipment 44 5 ------------ ------------ Net
cash provided (used) by investing activities 23 (613) ------------
------------ Financing Activities: Issuance of notes and loans
payable 7,599 11,761 Exercise of stock options - 322 ------------
------------ Net cash provided by financing activities 7,599 12,083
------------ ------------ Effect of exchange rate changes on cash
and cash equivalents 139 60 ------------ ------------
Increase/(decrease) in cash and cash equivalents (4,194) 3,990 Cash
and cash equivalents, beginning of period 12,918 14,646
------------ ------------ Cash and cash equivalents, end of period
$8,724 $18,636 ============ ============ *T
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