Hanover Direct Reports 1999 Second Quarter Results; Company Initiates Segment Reporting for Brand Marketing and Web Services Divisions
WEEHAWKEN, N.J.--(BUSINESS WIRE)--Aug. 10, 1999--
Brand Marketing Division Reports Operating Profit of $1.7 Million
Brand Internet Sales Versus 1998 Increase over 400%
Web Services Division Builds Keystone Fulfillment Client Roster
Hanover Direct, Inc. (AMEX: HNV) today announced its results for the thirteen weeks
ended June 26, 1999.
For the second quarter of 1999, Hanover Direct, Inc. reported revenues of $131.2
million compared to $134.6 million for the same period last year, a 2.5% decrease.
Revenues in the second quarter, while down slightly versus 1998, were basically flat for
continuing catalogs, meeting Company expectations, as it focused marketing initiatives
against accelerating the migration of sales from print catalogs to the Company's Internet
websites. Year-to-date total revenues for the Company were flat versus the prior year
period at $259.0 million with revenues from core catalogs offsetting decreases in
revenues from non-core catalogs. Core catalog revenues increased $11.8 million or 5.1%
during the Y-T-D 1999 period. The Company recorded a net loss of $(5.8) million, or
$(.03) per common share, for the quarter compared to a net loss of $(4.9) million, or
$(.02) per common share, for the comparable period last year. For the six month period,
the Company reported a net loss of $(10.0) million compared to a net loss of $(9.5)
million for the comparable 1998 period.
Senior Vice President and Chief Financial Officer, Brian C. Harriss, noted that "the
inclusion of divisional segment reporting establishes clear benchmarks to separately
assess the operating performance of each of our businesses. The Brand Marketing division
reported income from operations of $1.7 million for the second quarter, reflecting higher
demand for core catalogs, higher margins of core catalogs, and the successful
re-positioning of non-core catalogs."
"We are pleased with the performance of the Brand Marketing division," said President
and Chief Executive Officer, Rakesh K. Kaul. "The division posted an operating profit
during the quarter and for the first half reflecting the strength of our core catalogs
and on-line businesses; this performance confirms the successful execution of our
strategy over the past two years to rationalize and return this segment to profitability.
Year-to-date, these core businesses increased revenues by $11.8 million, a 5.1% increase
versus the comparable period last year. Operating performance, including margin
improvements for each of our core brands, Silhouettes, Domestications, The Company Store,
Gump's, International Male and Improvements, continues to be strong, and we are excited
about our successful efforts to date in increasing our e-commerce mix. Additionally, we
successfully tested Encore, a new prospecting catalog tool showcasing best-selling
products from our core catalogs. Encore has generated topline growth via new customers
while also driving traffic to our web sites and will continue as an ongoing program in
the future."
"Our Internet demand continues to accelerate, with $6.6 million in sales posted for
the quarter, a 150% increase over first quarter 1999, and an increase of over 400% versus
the comparable quarter last year. Productive prospecting efforts and the successful
migration of print shoppers to the Internet are driving this overall increase in the
numbers of consumers shopping our sites on-line. And our cost structure is benefiting.
Our total six-month Selling expenses this year of $66.0 million are 25.5% of revenue
compared to $71.1 million, or 27.4%, in the first half of 1998," stated Kaul.
Harriss reported that "the Web Services lost $(5.0) million for the second quarter,
primarily the result of the Company's continued investments in strategic initiatives,
system platform and start-up costs of its third party services provider, Keystone
Fulfillment. The Web Services division provides and charges administrative, information,
and fulfillment services to the Brand Marketing division at January 1, 1999 contractual
rates that the Company believes are not less than market incorporating a profit element
providing Web Services a reasonable return on invested capital."
Kaul added, "our Web Services division, while reporting an operating loss, continues
to make great strides. We are firmly committed to continuing our investments in all
profit centers of this division including Desius, Keystone Fulfillment and Vertical
On-line Enterprises (VOLE). Desius, the Company's association with R.S. Software in
India, has completed the training of its first 30 employees, and a search is in process
for a President of this new enterprise. Keystone continues to position itself as a market
leader in third-party outsourcing services recently adding three new accounts to its
roster, each a significant player in its marketing space. Keystone's third party revenues
increased from $0.7 million in the first quarter to $1.0 million in the second quarter.
However, the critical mass provided by recently-signed new clients leads us to reasonably
anticipate 1999 third-party Keystone revenues in the $10 to $15 million range. And we
have recently signed a contract for our first VOLE".
During recent months new accounts announced by Keystone included: www.mercata.com,
recently launched by Mercata, Inc., a privately held company with funding from Vulcan
Ventures, Inc.; KBkids.com, a new Internet joint venture between BrainPlay.com and
Consolidated Stores Corporation; and, The Dress Barn, Inc., a national chain of women's
fashion specialty retail stores now entering new direct marketing channels of
distribution.
"We are in a strong position to implement our Internet-related initiatives for both
divisions, Brand Marketing and Web Services. We remain committed to our aggressive
strategy to transform the business model of the Company while also improving visibility
to our shareholders of the brand merchandise and platform service components of our
business," Kaul added.
Turning to costs and liquidity, Harriss commented "while our G&A expense for the first
six months of 1999 of $30.3 million shows a $4.1 million increase over the first six
months of 1998, $3.7 million of the increase can be specifically related to new business
investments. We retain a tight control over expenses in both the base business and new
initiatives. And the Company's liquidity is positive. Our revolver debt ended the quarter
at $8.5 million with availability, including cash on hand, under the Company's revolving
credit agreement at approximately $33.9 million at June 26, 1999."
During the quarter, the Company also announced its retention of Bear Stearns as
corporate financial advisor for the Company, and it has begun the process of targeting
potential strategic, financial and operating parties that could both complement and
accelerate Hanover's e-commerce initiatives. Kaul concluded that, "the e-commerce
landscape is particularly differentiated within American commerce by broad and flexible
strategic associations and operating agreements between diverse businesses."
Hanover Direct, Inc. (AMEX: HNV), and its business units, provide quality, branded
merchandise through a portfolio of catalogs and e-commerce platforms to consumers, as
well as a comprehensive range of Internet, e-commerce, and fulfillment services to
businesses. The Brand Marketing division is comprised of the Company's catalog and
e-commerce web site portfolio of home fashions, apparel and gift brands, including
Domestications, The Company Store, Colonial Garden Kitchens, Kitchen & Home,
Improvements, The Safety Zone, Silhouettes, Tweeds, International Male, Austad's,
Undergear, and Gump's By Mail. The Company also owns Gump's, a retail store based in San
Francisco. Each brand can be accessed on the Internet individually by name. The Web
Services division is comprised of the Company's Internet marketing services group,
systems platform, fulfillment and telemarketing and third party fulfillment service
vendor, Keystone Fulfillment Inc. (www.keystonefulfillment.com). Information on Hanover
Direct, including each of its divisions, can be accessed on the Internet at
www.hanoverdirect.com.
Forward Looking Statements
The following may be deemed to be forward looking statements:
"However the critical mass provided by recently-signed new clients leads us to
reasonably anticipate 1999 third-party Keystone revenues in the $10 to $15 million range.
"We are in a strong position to implement our Internet-related initiatives for both
divisions, Brand Marketing and Web Services. We remain committed to our aggressive
strategy to transform the business model of the Company while also improving visibility
to our shareholders of the brand merchandise and platform service components of our
business..."
Cautionary Statements
The following material identifies important factors, which could cause actual results
to differ materially from those in the forward looking statements identified above:
A general deterioration of economic conditions in the United States leading to
increased competitive activity, including a business failure of a substantial size
company in the retail industry, a reduction in consumer spending generally, or
specifically with reference to the types of merchandise the Company offers in its
catalogs. The failure of the Internet generally to achieve the projections made for it
with respect to growth of e-commerce or otherwise.
The ability of the Company's computer systems to connect with the systems of others,
and to be able to serve the others' fulfillment needs.
The Company has a history of operating losses. Continuation of the operating losses
may prevent the Company from making the investments in e-commerce that are required to be
made to achieve a position of leadership in serving the e-commerce needs of companies
doing business, or desiring to do business, on the Internet. Also acquisitions may be
prevented by the continuation of operating losses.
Hanover Direct Reports 1999 Second Quarter Results; Company -2-
The ability of the Company to attract management with the requisite experience in
e-commerce or in Internet businesses and to develop a culture that is consistent with the
manner in which e-commerce is managed.
HANOVER DIRECT, INC.
CONSOLIDATED OPERATING SUMMARY
(in thousands except per share data and number of shares)
13 Weeks Ended 26 Weeks Ended
------------------- -------------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
-------- -------- -------- --------
Revenues $131,237 $134,562 $258,951 $259,097
Operating costs and expenses
Cost of sales and
operating expenses 82,300 83,659 164,204 162,360
Selling expenses 34,072 37,080 66,018 71,068
General and
administrative expenses 15,882 13,737 30,329 26,210
Depreciation and amortization 2,243 2,453 4,544 4,790
-------- -------- -------- --------
Loss from operations (3,260) (2,367) (6,144) (5,331)
-------- -------- -------- -------
Interest expense, net (2,333) (2,242) (3,480) (3,677)
-------- -------- -------- --------
Loss before income taxes (5,593) (4,609) (9,624) (9,008)
Income tax provision (benefit) (201) (250) (394) (500)
-------- -------- -------- --------
Net loss (5,794) (4,859) (10,018) (9,508)
Preferred stock dividends (158) (158) (317) (280)
-------- -------- -------- --------
Net loss applicable to
common shareholders ($5,952) ($5,017) ($10,335) ($9,788)
======== ======== ======== ========
Net loss per share ($0.03) ($0.02) ($0.05) ($0.05)
======== ======== ======== ========
Weighted average
shares outstanding 210,634,049 203,982,414 210,539,416 203,885,594
=========== =========== =========== ===========
EBITDA
(Earnings before
interest, taxes,
depreciation
and amortization)
Loss from operations ($3,260) ($2,367) ($6,144) ($5,331)
Depreciation/amortization 2,243 2,453 4,544 4,790
-------- -------- -------- --------
EBITDA ($1,017) $86 ($1,600) ($541)
Reportable segment data were as follows:
In thousands of dollars
-------------------------------------------
Results for
the 2nd Quarter Brand Web Consolidated
Ended June 26, 1999: Marketing Services Unallocated Total
-------------------------------------------
Revenues from
external customers $ 130,185 $ 1,052 $ - $ 131,237
Intersegment Revenues - 24,967 (24,967) -
Income/(loss)
from operations 1,737 (4,997) - (3,260)
Interest Income/(Expense) (585) (1,748) - (2,333)
--------- --------- --------- ---------
Income/(loss) before
income taxes
1,152 (6,745) - (5,593)
Total Assets at
June 26, 1999 145,698 38,925 15,118 199,741
Results for the
2nd Quarter
Ended June 27, 1998:
Revenues from
external customers $ 134,294 $ 268 $ - $ 134,562
Intersegment Revenues - 26,490 (26,490) -
Income/(loss)
from operations (2,177) (190) - (2,367)
Interest Income/(Expense) (912) (1,330) - (2,242)
--------- --------- --------- ---------
Income/(loss) before
income taxes (3,089) (1,520) - (4,609)
Total Assets at
June 27, 1998 172,209 43,754 15,830 231,793
------------------------------------------------
Results for the
Six Months Brand Web Consolidated
Ended June 26, 1999: Marketing Services Unallocated Total
-------------------------------------------
Revenues from
external customers $ 257,198 $ 1,753 $ - $ 258,951
Intersegment Revenues - 49,984 (49,984) -
Income/(loss)
from operations 2,443 (8,587) - (6,144)
Interest Income/(Expense) (879) (2,601) - (3,480)
--------- --------- --------- ---------
Income/(loss) before
income taxes 1,564 (11,188) - (9,624)
Results for the
Six Months
Ended June 27, 1998:
Revenues from
external customers $ 258,478 $ 619 $ - $ 259,097
Intersegment Revenues - 52,882 (52,882) -
Income/(loss)
from operations (6,047) 716 - (5,331)
Interest Income/(Expense) (1,213) (2,464) - (3,677)
--------- --------- --------- ---------
Income/(loss)
before income taxes (7,260) (1,748) - (9,008)
CONTACT: Hanover Direct, Inc., Weehawken
Brian C. Harriss, 201/272-3224
Sr. VP-Chief
Financial Officer
or
AGG International, Public Relations
Paula Zwerdling, 212/869-8230
Managing Director
paula@aggintl.com
07:31 EDT AUGUST 10, 1999 |
