Financial Update: Bottom Line, a Mixed Fourth Quarter

For the 11 publicly traded business-to-consumer merchants tracked by Multichannel Merchant, fourth-quarter results were mixed. Sales rose for all but two of the companies. But five of the 11 suffered bottom-line erosion.

Sharper Image Corp. and Blair Corp. saw declines on both sides of the ledger. Sales at electronic gifts cataloger/retailer Sharper Image fell 14%, as the San Francisco-based company continued its two-year-long decline. And its fourth-quarter loss more than doubled, from $10.6 million in fiscal 2005 to $22.1 million.

Revenue at Warren, PA-based Blair, meanwhile, dropped 10%, contributing to a 75% decline in fourth-quarter income for the cataloger of apparel and home decor.

Nonetheless, “it was a strong quarter for most in the direct marketing industry, as revenue continued to grow,” says Stuart Rose, managing director of Wellesley, MA-based investment bank of Tully & Holland, which tracks the companies for Multichannel Merchant. “Holiday was strong. Sharper Image’s troubles were largely attributable to a decrease in sales of its branded products. The company has scaled back advertising and direct marketing expenditures. This combined with increasing price-related competition resulted in a 27.5% decline in average revenue per transaction.”

Coldwater runs smoothly

Quarter ended: Feb. 3 The facts: Fourth-quarter sales at women’s apparel merchant Coldwater Creek jumped 29%, to $366.6 million from $283.9 million the previous year. Internet sales rose 35%, to $98.4 million, while retail sales were up 37.5%, to $224.3 million. All that sales growth, however, couldn’t prevent a 3% dip in net income, to $15.9 million from $16.4 million, as the company continued its retail expansion. The skinny: Sandpoint, ID-based Coldwater Creek opened 65 stores in 2006 and hopes to open an additional 210-260 stores within the next three to five years. To build brand recognition, the company increased its advertising expenditures from $13.6 million in 2005 to $24.2 million in 2006.

Rosy quarter for RedEnvelope

Quarter ended: Dec. 31 The facts: The San Francisco-based gifts merchant posted net revenue of $57.0 million for its fiscal third quarter, up 7.5% from the previous year. Net income for the quarter rose 29%, to $5.3 million from $4.1 million. Despite this solid fiscal success, CEO Ken Constable resigned last month “to pursue other business opportunities.” Previous chairman John Pound was named executive chairman and assumed day-to-day leadership duties, and chief operating officer Frank Buettner has added president to his title. The skinny: By shifting its advertising focus toward the Internet and e-mail, RedEnvelope found a cost-effective method to attract new customers. The company has also put a greater emphasis on upscale gifts and continues to make progress operationally.

Talbots disappoints

Quarter ended: Feb. 3 The facts: Thanks to its May 2006 purchase of women’s apparel cataloger/retailer J. Jill Group, fourth-quarter direct sales for The Talbots climbed 58%, to $114.2 million. And total sales for the quarter rose 31%, to $638.0 million. But overall same-store sales declined nearly 2%, though same-store sales for the smaller J. Jill brand did increase 1.5%. As for net income, the Hingham, MA-based apparel merchant earned just $17,000, compared with net income of $19.8 million for the fourth quarter of 2005, as it continued to absorb the cost of the J. Jill acquisition and integration. For the fiscal year, net income dropped 66%, to $31.6 million from $93.2 million in fiscal 2005. The skinny: “We did not achieve our overall sales expectations for the period due to weaker-than-anticipated performance across all channels,” CEO Arnold Zetcher said in a statement. “This also resulted in heavier markdowns during the period, which impacted the bottom line.” Talbots hopes to fully realize the J. Jill synergies this year.

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