Sales gains come at a cost

May 01, 2005 9:30 PM  By

The fourth quarter has always been considered the make-or-break quarter for catalogers. Happily, 77% of the publicly traded consumer merchants tracked by Catalog Age reported fourth-quarter sales increases in 2004. The previous year, 73% had posted year-over-year improvement in fourth-quarter revenue.

“Within a relatively weak retail market, the majority of the companies tracked registered revenue growth,” says Tim Tully, president of Wellesley Hills, MA-based investment bank Tully & Holland. These trends are being driven by sustained commitment to advertising, affiliate marketing, and increased circulation as well as exploitation of new marketing channels, he says.

All of which comes at a cost. Only 54% of the companies tracked reported an improved bottom line, down from 66% the previous year.

Wilting profit for 1-800-Flowers.com

Quarter ended: Dec. 26 The facts: Net income fell 36%, to $8.7 million, for 1-800-Flowers.com. The Westbury, NY-based parent company of Plow & Hearth, The Popcorn Factory, HearthSong, and Magic Cabin Dolls did boost revenue 8%, to a record $230.0 million for its fiscal second quarter. Online revenue increased 19%, to $107.7 million. Telephone revenue fell 3%, to $109.6 million. Retail and fulfillment revenue increased 43%, to $12.8 million, primarily due to increased sales of products and services to the Bloomnet network of florists and to fulfillment services revenue associated with the Wine Tasting Network business acquired during the quarter. The skinny: Despite the bottom-line decline, 1-800-Flowers plans to invest in search and affiliate marketing programs; broadcast advertising; the Bloomnet infrastructure; and the technology platform, marketing programs and personnel for Wine Tasting Network.

Catalog a sore point for J. Jill

Quarter ended: Dec. 25 The facts: Though Quincy, MA-based J. Jill Group managed to grow its total sales, the women’s apparel merchant’s catalog division remains problematic. Fourth-quarter catalog sales fell 23%, to $24.8 million. Total direct sales for the quarter fell 10%, to $46.0 million. Overall net sales increased 4%, to $119.4 million. But that wasn’t enough to stave off a 19% decline in net income, to $2.6 million. For the fiscal year, however, net income rose 24%, to $8.7 million. And overall annual sales increased 15%, to $434.9 million. But catalog sales for the year fell 12%, to $110.5 million.

In a statement, president/CEO Gordon Cooke admitted that the direct division “continues to fall short of our expectations. We think that our ongoing design initiatives, combined with our fit evolution, may be creating the appearance that we are shifting our focus to a different or younger customer. This is not our strategy, and we need to find a way to make that clear to our customers.” The skinny: If the cataloger/ retailer intends to fix its catalog business it will have to do so without John Hayes, the company’s executive vice president/chief marketing officer, who left in March. Calls to J. Jill about a successor to Hayes were not returned.

Acquisition helps fire up Sportsman’s Guide

Quarter ended: Dec. 31 The facts: Thanks in part to its June 29 acquisition of The Golf Warehouse and TGW.com, South St. Paul, MN-based The Sportsman’s Guide reported a 19% rise in fourth-quarter earnings and a 29% jump in fourth-quarter sales. For the final quarter of 2004 the outdoor gear merchant netted $4.6 million on $92.5 million in sales. The Golf Warehouse acquisition notwithstanding, Sportsman Guide says its core business generated a 6% increase in sales. Internet-based sales accounted for 42% of the company’s revenue, up from 36% a year earlier. The skinny: Despite a 31% rise in its cost of sales, the company still managed to increase gross profit 25%. The cataloger also made progress toward paying down the debt incurred as a result of The Golf Warehouse acquisition, ending the year with $8.6 million in cash and $5.0 million in long-term bank debt.

4Q REVENUE 4Q NET INCOME (LOSS)
Company 12 months prior Current quarter Increase (decrease) 12 months prior Current quarter Increase (decrease)
(000) (000)
1-800-Flowers.com $213,182 $230,014 8% $13,678 $8,704 (36%)
Blair Corp. 166,481 133,411 (20%) 9,133 6,346 (31%)
Brookstone 219,085 237,788 9% 32,143 33,130 3%
Coldwater Creek 168,800 204,100 21% 6,400 11,400 78%
Gaiam 35,143 34,828 (1%) 341 (564) NM
J.C. Penney Co. 6,098,000 6,073,000 0 (1,069,000) 333,000 NM
J. Jill Group 114,851 119,444 4% 3,200 2,600 (19%)
Jos. A. Bank 100,900 127,900 27% 9,600 12,600 31%
RedEnvelope 35,922 47,514 32% 1,176 2,768 135%
The Sportsman’s Guide 71,700 92,453 29% 3,845 4,558 19%
The Talbots 422,671 470,725 11% 21,970 16,032 (27%)
Vermont Teddy Bear Co. 13,410 16,128 20% 428 302 (30%)
Williams-Sonoma 1,004,281 1,083,639 8% 102,116 102,601 0
Notes: Price-to-earnings ratios are from various sources
NM = not meaningful
Source: Tully & Holland