Improved Momentum in the Third Quarter

Based on third-quarter results from the publicly traded companies tracked, consumer catalogers had reason to be optimistic about holiday sales. Eighty-one percent of the marketers tracked for Catalog Age by investment bank Tully & Holland reported improved third-quarter sales.

Only 56%, however, had improved their bottom line. And 50% ended the quarter in the red.

“Profitability probably suffered somewhat due to increased prospecting to build sales and customer files,” says Jim Adams, managing director at Wellesley, MA-based Tully & Holland. Not that Adams was overly concerned: “I expect continued improvement in both sales and profitability in the next quarter as the overall economy improves.”

Last year 73% of the consumer catalogers tracked had improved their third-quarter bottom lines, and 53% had posted gains in net sales. But in comparing this year’s results to last year’s, bear in mind that Catalog Age has added 1-800 Flowers.com, Gaiam, RedEnvelope, The Sportsman’s Guide, and Vermont Teddy Bear Co. to the list of companies tracked. And to reflect the prevalence of multichannel marketing, we no longer differentiate catalogers from cataloger/retailers.

CATALOG AGE’S SPOTLIGHT ON THIRD-QUARTER FINANCIALS

Earnings Soar at Sportsman’s Guide

Quarter ended: Sept. 30

What it means: The Sportsman’s Guide’s net earnings skyrocketed 164%, to $710,000 for the quarter, compared with $269,000 for the third quarter of 2002. While not as impressive as the bottom-line improvement, sales increased 12%, to $41.2 million from $36.7 million.

The Internet accounted for 36% of the quarter’s sales at the South St. Paul, MN-based outdoor gear cataloger, compared with approximately 30% of total sales for the same period in 2002. Selling, general and administrative expenses grew 6%, to $11.4 million from $10.8 million last year.

The skinny: The company credits the one-two punch of increased circulation and improved catalog productivity for its sales growth.

Williams-Sonoma Posts Double-Digit Top- and Bottom-Line Gains

Quarter ended: Nov. 2

What it means: A 28% rise in catalog and Internet sales helped home products cataloger/retailer Williams-Sonoma enjoy double-digit sales and earnings growth. Third-quarter net income increased 58%, to $23.9 million from $15.1 million in 2002. Net revenue increased 20%, to $632.8 million compared with $527.9 million.

The San Francisco-based company mails the Williams-Sonoma, Hold Everything, West Elm, and Chambers catalogs as well as four Pottery Barn titles. Its direct sales for the quarter reached $239.3 million, compared with $187.7 million the previous year. Internet net sales increased 71%, to $82.4 million from $48.0 million.

Williams-Sonoma’s retail net sales increased 15%, to $351.4 million from $306.1 million last year, mainly from 39 new stores. Comparable-store sales increased 6%.

The skinny: Based on its strong third-quarter results, Williams-Sonoma upped its direct-to-consumer guidance for the year ending Feb. 1. At press time it projected catalog and Internet sales of $951 million-$967 million for fiscal 2003, up approximately 20% from 2002.

Direct Sales Down, Total Sales Up at Coldwater Creek

Quarter ended: Nov. 1

What it means: Despite declining net sales from its direct business, Sandpoint, ID-based women’s apparel marketer Coldwater Creek posted gains in third-quarter revenue and profit. Net income increased 16%, to $5.6 million from $4.8 million the previous year. Net sales for the quarter increased 7%, to $138.2 million from $128.8 million. Direct sales fell 9%, to $83.8 million, from $91.6 million last year. Catalog sales fell 14%, to $44.7 million from $54.3 million. The direct segment’s net sales represented 61% of Coldwater’s revenue, compared with 71% last year.

Coldwater Creek mailed 42.7 million catalogs during the quarter, or 8% more than it had for the third quarter of 2002. The company grew its full line retail store base 66%, to 63 from 38 stores in the year ago quarter.

The skinny: Coldwater Creek in January merged its Spirit of the North and Elements catalogs, combining the best merchandise from both in a book titled Spirit, featuring “sophisticated ensembles, dresses, and accessories,” according to the company Website. Its other title, Northcountry, sells gifts and jewelry as well as apparel.

Brookstone Sales Rise on Circ Drop

Quarter ended: Nov. 1

What it means: Nashua, NH-based cataloger/retailer Brookstone, which mails the Brookstone, Hard-to-Find Tools, and Gardeners Eden catalogs, increased its third-quarter direct sales 7%, to $13.4 million — despite an 8% cut in circulation. Total sales climbed 17%, to $73.7 million from $62.8 million for the third quarter of 2002. Same-store sales surged 16%. Brookstone narrowed its net loss to $5.9 million from $6.7 million.

The skinny: At press time Brookstone was projecting fiscal 2003 earnings of $1.14-$1.17 per diluted share, a sizable increase over the $0.93 per diluted share the company earned in 2002.

RedEnvelope Joins the Party

Quarter ended: Sept. 28

What it means: In its first quarter since becoming publicly traded in September, San Francisco-based gifts cataloger RedEnvelope reported net sales of $8.3 million, up 55% from $5.4 million for the third quarter of 2002. RedEnvelope also narrowed its net loss, to $2.8 million from $3.7 million.

The skinny: Are we back in the late ’90s? Despite the money-losing quarter, as of Jan. 7 RedEnvelope’s stock price was up 18%, to $16.57, from its Sept. 25 initial public offering price of $14.00. This is a make-or-break year for the mailer, warns Mal Appelbaum, founder of New York-based investment bank Appletree Advisors. “They’ve got to track toward profitability.”

FINANCIAL REPORT
REVENUE $000 NET INCOME (LOSS) $000
12 months prior Current quarter Improvement (decline) 12 months prior Current quarter Improvement (decline) Info as of quarter ended P/E (as of 12/22/03)
1-800-Flowers.com $89,225 $95,160 7% ($7,294) ($5,146) NM 9/28/03 53.96
Alloy 93,226 105,751 13% 11,597 (6,818) NM 10/31/03 N/A
Blair Corp. 117,830 124,100 5% 279 793 184% 9/30/03 17.01
Brookstone 62,843 73,657 17% (6,672) (5,865) NM 11/1/03 21.26
Coldwater Creek 128,830 138,152 7% 4,832 5,603 16% 11/1/03 35.64
Gaiam 25,794 23,533 (9%) 1,395 (201) NM 9/30/03 84.41
Hanover Direct 106,030 96,633 (9%) (4,212) (16,645) NM 9/27/03 N/A
J.C. Penney Co. 7,872,000 7,985,000 1% 123,000 80,000 (35%) 10/25/03 21.95
J. Jill Group 80,012 82,325 3% 3,621 (2,851) NM 9/27/03 25.42
Jos. A. Bank Clothiers 57,866 72,011 24% 1,864 2,863 54% 11/1/03 17.79
RedEnvelope 5,366 8,329 55% (3,676) (2,826) NM 9/28/03 N/A
Sharper Image Corp. 106,109 131,075 24% (504) 985 NM 10/31/03 20.87
The Sportsman’s Guide 36,746 41,213 12% 269 710 164% 9/30/03 17.49
The Talbots 401,789 408,148 2% 37,407 34,794 (7%) 11/1/03 15.67
Vermont Teddy Bear Co. 5,084 4,980 (2%) (46) (138) NM 9/30/03 23.91
Williams-Sonoma 527,894 632,824 20% 15,137 23,876 58% 11/2/03 29.70
MARKET INDICES
Dow Jones Industrial Average 22.31
Standard & Poor’s 500 Index 28.38
Notes: Price-to-earnings ratios are from various sources
NM = not meaningful NA = not available
Source: Tully & Holland

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