Bottoms not up

While most of the publicly traded consumer merchants tracked improved their revenue for the second quarter, those increases failed to correlate on the earnings side.

Of the 11 consumer merchants tracked, all but two — San Francisco-based gifts catalogers Red Envelope and Sharper Image — posted year-over-year increases. But only four of the companies saw bottom-line improvement. Stuart Rose, managing director for Tully & Holland, the Wellesley, MA-based investment bank that tracks marketers for Multichannel Merchant, notes: “The second quarter has seen increased year-over-year revenue for most of the consumer multichannel merchants.”

Rose says the quarter brought “an increased level of volatility and uncertainty in the markets.” Consumers’ inability to pay their increasing rate mortgages and the decreasing value of the securities that were backed by these payments caused a credit crunch throughout the economy that lowered consumer spending, he notes. “With decreased consumer activity, a majority of these consumer multichannel merchants were unable to show any bottom line growth.”

But there is hope. “As the markets digest the credit crunch and the effects of the recently lowered interest rates are felt, consumer spending should once again increase,” Rose says. in full bloom

Quarter ended: July 1 The facts: Carle Place, NY-based, which includes the HearthSong, Plow & Hearth, Popcorn Factory, Magic Cabin Dolls, and Cheryl & Co. catalogs, increased its fiscal fourth-quarter sales 10%, to $231.8 million. Profits, meanwhile, skyrocketed a whopping 545%. Net income hit $6.56 million, from just over $1 million for the same period in 2006. Rose says the merchant’s increased revenue is based mostly on organic growth following its recent acquisitions. “The massive increase in net income was due to a lower level of costs for the company,” he explains. “The costs of goods sold decreased by nearly 3%, while the SG&A expenses also decreased by about 1.3%. The lower expenses translated into increased margins and a much higher bottom line.” The skinny: In fiscal year 2008, the company will continue to focus on cost savings and the further growth of BloomNet Wire Service now that it has completed its investment stage, Rose says.

Creek’s results run hot and cold

Quarter ended: Aug. 4 The facts: Net sales for women’s apparel merchant Coldwater Creek increased 17.1%, to $253.5 million for the second quarter. But net income tumbled 27.6%, to $8.7 million. Net sales from Coldwater’s retail segment rose 23.5%, to $177.7 million, though same-store sales decreased 6%. Catalog/Internet net sales increased 4.5%, to $75.8 million up from $72.6 million. Specifically, Internet sales increased 9.8%, to $54.8 million, but catalog sales slipped 7.3%, to $21.0 million. Coldwater added 69 stores in the past year, and saw a decrease in same-store sales, a key sign of retailer performance, Rose says. Even with the nearly 10% increase in Web sales, “overall revenue growth for the company was still slower.” The skinny: Rose attributes the decrease in net income largely to an increase in cost of goods sold due to a higher level of promotion and clearance activity. SG&A expenses rose due to increased employee expenses and overhead relating to the company’s expansion.

Earnings slide at Sonoma

Quarter ended: July 29 The facts: Williams-Sonoma closed its fiscal second quarter with a 4% increase in revenue, reaching $859.3 million. On the other side of the ledger, however, the company incurred a 27% hit in its net income, which fell to $25.9 million from $35.5 million a year ago. Revenue grew largely from an increase in leased square footage, with 23 new store openings, and a 1.2% increase in same-store sales. What’s more, it reported a 2.8% growth in direct-to-customer (catalog/Web) sales, to $372.4 million. Internet sales rose 11%, to $237.4 million. The increase was partially offset by lost revenue in the Hold Everything storage items brand, which the company phased out this year, and reduced sales in the Pottery Barn Kids and Pottery Barn brands. The skinny: The company estimates that approximately 45% of nongift registry Internet sales are incremental to the direct-to-customer channel. About 55% of the Web business is from customers who recently received a catalog.

12 months prior Current quarter Increase (decrease) 12 months prior Current quarter Increase (decrease)
($000) ($000) 211,130 231,821 10% 1,017 6,562 545%
Coldwater Creek 216,422 253,476 17% 12,014 8,696 -28%
Delia’s 48,851 52,438 7% (3,129) (5,088) NM
Gaiam 43,161 52,361 21% (1,166) (346) NM
J.C. Penney Co. 4,238,000 4,391,000 4% 179,000 182,000 2%
Jos. A. Bank 119,098 134,278 13% 6,973 8,206 18%
Red Envelope 26,858 24,529 -9% (900) (3,555) NM
Sharper Image 107,156 80,285 -25% (14,620) (20,628) NM
Talbots 571,377 572,331 0% (3,858) (13,316) NM
Williams-Sonoma 825,536 859,396 4% 35,563 25,966 -27%
Notes: NM = not meaningful
Source: Tully & Holland

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