Growing sales, growing expenses

A solid number of publicly traded consumer merchants were able to improve both their sales and their profitability during the second quarter of the year. Sandpoint, ID-based women’s apparel cataloger/retailer Coldwater Creek, Hampstead, MD-based men’s apparel cataloger/retailer Jos. A. Bank Clothiers, and South St. Paul, MN-based outdoor gear mailer The Sportsman’s Guide were among those posting double-digit increases on both sides of the ledger.

But a number of other companies were challenged by growing operating expenses. Tim Tully, managing director at Wellesley Hills, MA-based investment bank Tulley & Holland, which tracks the publicly traded marketers for Multichannel Merchant, numbers gifts merchants 1-800 Flowers.com and RedEnvelope among them. “Some of the companies, while registering strong top-line growth, had earnings negatively affected by higher catalog costs, increased paper costs, and higher page circulation,” Tully says.

In all, 71% of the merchants tracked improved their second-quarter revenue, down from 81% last year. As for profits, 57% of the marketers tracked bettered the bottom line, compared with 69% last year.

Net loss widens at Brookstone

Quarter ended: July 30 The facts: Merrimack, NH-based Brookstone reported a net loss of $5.7 million, compared with a much more modest loss of $465,000 last year. This year the second-quarter loss includes a write-off of the assets of Gardeners Eden as well as related severance costs, totaling $4.1 million. The gadgets and tools cataloger/retailer said in late June it planned to divest itself of Gardeners Eden, which sells gardening accessories. Direct marketing sales for Brookstone’s three titles (Brookstone, Hard-to-Find Tools, and Gardeners Eden) fell 2%, to $13.1 million, on an 11% reduction in circulation. Total sales for the quarter fell 7%, to $87.5 million, while same-store sales dropped 10%. The skinny: It appears all five Gardeners Eden stores are closing. According to Brookstone, Gardeners Eden’s remaining assets include $2.1 million in inventory and $2.9 million in property and equipment.

Penney’s direct sales up 7%

Quarter ended: July 30 The facts: Plano, TX-based J.C. Penney Co.’s second-quarter earnings from continuing operations more than doubled to $0.46 per share from $0.22 per share last year. What’s more, the general merchant’s net income soared to $131 million from $1 million. In the year-ago quarter, however, Penney had taken a $67 million charge relating to the sale of the Eckerd Drugstore business. Total net sales increased 5%, to $3.98 billion, and same-store sales rose 4%. Direct sales climbed 7%, primarily as a result of Web sales, which increased more than 30%. Operating profit was $213 million, compared with $149 million last year. The skinny: Five Penney stores in the Gulf Coast were closed as a result of Hurricane Katrina in late August; these stores had accounted for about 0.5% of its 2004 sales.

RedEnvelope sees more red ink

Quarter ended: July 3 The facts: The net loss at San Francisco-based gifts cataloger RedEnvelope widened to nearly $1.8 million from $952,000 last year. That’s despite an 18% boost in revenue, to $25.0 million from $21.1 million for the comparable quarter of 2004. The increased loss wasn’t unexpected, though, according to a statement from president/CEO Alison May: “It met our expectations as we invested in brand-building advertising this quarter and are now fully staffed…having filled a number of key positions in areas such as marketing, information technology and product development.” The company said the print catalog had performed below expectations but that the online channel had exceeded expectations. The skinny: To take advantage of a strong category, Red Envelope in June test-mailed a jewelry catalog to an unspecified number of customers.

2Q REVENUE 2Q INCOME (LOSS)
Company 12 months prior Current quarter Increase (decrease) 12 months prior Current quarter Increase (decrease)
(000) (000)
1-800-Flowers.com $161,567 $186,118 15% $30,429 $3,901 (87%)
Alloy 81,852 89,202 9% (11,155) (3,059) NM
Blair Corp. 126,993 120,835 (5%) 5,011 6,064 21%
Brookstone 93,749 87,521 (7%) (465) (5,749) NM
Coldwater Creek 111,215 154,569 39% 3,338 6,982 109%
Gaiam 17,031 21,706 27% (2,215) (766) NM
J.C. Penney Co. 3,778,000 3,981,000 5% 1,000 131,000 13,000%
J. Jill Group 120,561 117,417 (3%) 6,529 3,870 (41%)
Jos. A. Bank Clothiers 81,994 98,588 20% 3,432 5,339 56%
RedEnvelope 21,131 24,978 18% (952) (1,752) NM
Sharper Image Corp. 148,963 137,296 (8%) 93 (6,777) NM
The Sportsman’s Guide 39,553 63,778 61% 1,240 2,507 102%
The Talbots 401,553 449,577 12% 19,351 18,876 (2%)
Williams-Sonoma 689,621 776,239 13% 27,629 30,823 12%
Notes: NM = not meaningful
Source: Tully & Holland

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