To cut costs and slow the company’s downward financial spiral, Kirkland, WA-based Celebrate Express announced on April 26 that it will consolidate its customer service and print manufacturing operations into its facility in Greensboro, NC. Officials said 48 jobs will be lost through the consolidation, resulting in a one-time cost ranging between $250,000-$300,000, but they projected the annualized benefits to be twice the one-time cost.
Celebrate Express also operates party goods catalog and Website Birthday Express and the Costume Express Website. CEO Kevin Green said in a statement that he expects consolidation to be completed by July. “These changes will allow the company to nearly vacate one of its two leased buildings in Kirkland, Washington,” he said. “We are currently investigating the possibility of subleasing this space to reduce the rent expense to which Celebrate Express is obligated through December 2008. Given there is no incremental rent obligation in our Greensboro location associated with this decision, subletting this space would represent additional savings.”
News of the consolidation comes on the heels of a disappointing 2006. While the company posted a 26% increase in sales, to $87 million, its net income shrunk to just $405,000, compared to $2.5 million the previous year and $9.5 million for fiscal 2004. In June 2006, Celebrate Express folded Storybook Heirlooms, its catalog of special-occasion apparel for girls. Two months later, Celebrate Express retained New York-based investment bank Cowen and Co. to “review strategic alternatives to maximize shareholder value, including a potential sale of the company.”
Last month, company officials announced that the strategic review was completed and the board of directors concluded “it is in the best interests of the company and its shareholders at this time to continue operating as a stand-alone entity.” What’s more, the board declared a special one-time cash dividend of $1.25 per share payable on April 26, 2007 to shareholders of record as of April 12, 2007. Green said in a release: “We’ve concluded that the best path to maximize shareholder value is to pay the special one-time dividend and to focus on building the business.”
It appears that Celebrate Express could not get a “fair” value for the company, says Stuart Rose, managing director of Wellesley, MA-based investment bank Tully & Holland, “So once it realized the price it would receive was below “expectations,” it returned cash to the shareholders providing them with some return. They wouldn’t have taken it off the market if they liked the prices [if any] they were getting.”
It’s no secret that Celebrate Express is “not performing well,” Rose says. Third-quarter sales announced last month fell 11.1%, to $16.7 million down from $18.8 million for the same period last year. The company narrowed its net loss to $137,000, compared to $398,000 in 2006. The company said that $2.0 million of the $2.1 million decrease in net sales was due to the impact of closing the Storybook Heirlooms brand, which was expected to be complete by April 2007.
What’s more, Rose says, “for the nine months of the fiscal year ending in February, sales and marketing expenses (catalog and Internet expenses) increased nearly 16% as circulation and advertising increased, but response rates and average orders decreased.”
Rose notes that Celebrate Express’ administrative costs “skyrocketed” 27% during the same period. “While it appears as if the latest quarter is somewhat stronger, the net loss is a bit better than last year, and they have controlled expenses better –but not great–they dug themselves a hole in the fall 2006. Of course the postage increase will hurt even more.”