Yankee Candle buys, and maybe sells

Sep 01, 2006 9:30 PM  By

The same day that Yankee Candle Co., announced it was acquiring Petaluma, CA-based competitor Illuminations, the South Deerfield, MA-based candles manufacturer/marketer also said it has hired Lehman Bros. to help it explore strategic alternatives, including a potential sale of the company, in order to increase the value for shareholders.

Yankee Candle’s profits have been squeezed by disappointing wholesale sales of its scented candles, higher spending on promotions, and increased freight and wax costs. Second-quarter net income fell 43%, to $4.8 million for the three months ended July 1. Sales did increase 7%, however, to $116.3 million, as an 18% rise in retail sales offset a 3% decline in wholesale sales.

Its $22 million cash acquisition of Illuminations should help broaden Yankee Candle’s appeal, says Yankee chief financial officer Bruce Besanko. Both Yankee Candle and Illuminations sell scented candles and related home decor items to resellers as well as to consumers via stores, catalogs, and the Internet. But Besanko says the Illuminations audience differs from that of Yankee Candle. “It’s a younger, typically more fashion-forward customer than a typical Yankee Candle customer, which is somewhat older,” he explains.

Along with the direct business, Yankee Candle acquired 15 Illuminations stores in California, Arizona, and Washington. Illuminations’ remaining 20-25 stores will be phased out over time.

Illuminations will maintain its brand and continue to operate out of California. “It’s a very strong brand,” says Besanko. “We’ve had great respect for that brand since it was founded. It’s been under great leadership, and it’s a terrific brand. That’s the principle reason we wanted to acquire it.”