SAN FRANCISCO, Feb. 13 /PRNewswire-FirstCall/ -- RedEnvelope, Inc.
(NASDAQ:REDE) today reported financial results for the third fiscal
quarter ended December 30, 2007. Net revenues for the third quarter
of fiscal 2008 were $45.2 million, compared to $57.0 million in the
third quarter of fiscal 2007. Net loss was $(4.3) million, or
$(0.45) per diluted share, compared to net income of $5.3 million,
or $0.56 per diluted share in the third quarter of fiscal 2007. For
the thirty-nine weeks ended December 30, 2007, net revenues were
$85.6 million, compared to $99.4 million for the same period in
fiscal 2007. Net loss for the first thirty-nine weeks of fiscal
2008 was $18.2 million, or $(1.91) per diluted share, compared to
net income of $0.7 million, or $0.08 per diluted share, for the
first thirty-nine weeks of fiscal 2007. Third Quarter Fiscal 2008
Business Highlights -- Net revenues per order decreased to
approximately $91, compared to approximately $93 in Q3 fiscal 2007
-- Gross profit per order decreased to approximately $44 compared
to $50 in Q3 fiscal 2007 -- Approximately 495,000 orders shipped, a
decrease of approximately 20% from the same period of the prior
year, primarily due to a decline in customer response rates and a
reduction in marketing expenditures for new customer prospecting in
the second half of fiscal 2007 -- New customers grew by
approximately 134,000 from the end of Q2 fiscal 2008, compared with
an increase of 227,000 during the third quarter of fiscal 2007,
resulting in a total customer file of approximately 3.6 million
names Gross profit margin was approximately 48.7% in the third
quarter of fiscal 2008, compared to 54.1% in the same period last
fiscal year, primarily due to the ongoing shift in merchandising
strategy and product mix. Marketing expenses in the third quarter
of fiscal 2008 were $13.5 million, or 29.8% of net revenues,
compared to $12.6 million, or 22.1% of net revenues, in the same
period last year. The increase in dollars is primarily due to
higher catalog production and postage costs, and increased public
relations activities. Third quarter fulfillment expenses were flat
year-over-year at $7.4 million, but increased 320 basis points to
16.3% of net revenues due to the decrease in net revenues. General
and administrative expenses were $5.5 million in the third quarter
of fiscal 2008, consistent with the comparable period last year on
a dollar basis. As of December 30, 2007, RedEnvelope had $12.3
million in cash and cash equivalents and no debt. The Company has a
credit facility of up to $12.5 million (of which $3.8 million was
available as of December 30, 2007), the availability of which is
subject to an inventory-based formula, and a stand-by subordinated,
unsecured credit arrangement for up to $2.6 million. The Company
believes the cash on hand and available under its lending
arrangements will be sufficient to fund operations and anticipated
capital expenditures through the quarter ending June 2008. However,
the continuation of the Company as a going concern beyond the
quarter ending June 2008 is dependent upon the Company's ability to
fund operations and anticipated capital expenditures and achieve
profitable operations in the future. The Company is focused on its
financial condition and capital needs and is evaluating various
options for addressing these challenges immediately. However, there
can be no assurance that additional financing or other alternatives
will be available when necessary, or if available, that such
alternatives will not result in undue dilution to, or an adverse
impact on the rights of, the Company's existing stockholders. At
the end of the third quarter, inventory was $9.2 million, compared
to $14.5 million at the end of the corresponding period of the
prior year. Capital expenditures for the third quarter of fiscal
2008 were approximately $0.4 million as the Company invested in its
fulfillment center and technology. The Company anticipates spending
approximately an additional $0.3 million during the remainder of
fiscal 2008. Management Discussion and Analysis John Pound,
RedEnvelope's Chairman and CEO, made the following comments on the
progress of the business: "We entered the third quarter with a
significantly freshened creative message. However, as I had
indicated previously, we also entered the quarter with negative
customer file dynamics and decreased response rates, and, with
legacy merchandising that we were completely unable to affect for
fall, and largely unable to affect for holiday. Despite these
constraints we hoped that our renewed creative statement would
drive an up-tick in performance in fall and holiday. Unfortunately
this was not the case. Revenue came in at the low end of our
pre-season forecasts. Margins were also affected by promotional
activity necessary to drive revenue in holiday. Third quarter
performance was a catalog driven issue. Our web business performed
well through holiday. We hit our revenue plan while also reducing
marketing spend significantly from our original plan. Our catalog
response rates were low through both fall and holiday. They were
particularly low in prospecting. We increased prospecting
circulation in holiday in hopes of beginning to rebuild our
customer file, but did not achieve our goals. Analyzing the data
for fall and holiday, and, based also on the extensive customer
file and merchandise analysis that we have engaged in since last
summer, we believe that we understand the dynamics of the business
and the causes of the shortfalls that the business has been
experiencing. The most significant elements that contributed to our
catalog response rate decline are: a steady upward trend in our
catalog price points; mis-alignment of some of our merchandise
categories; and excessive variance in the performance of new
catalog products. It was obviously also a challenging environment
-- an environment in which consumer caution exacerbated our price
point creep -- but the damage is primarily self-inflicted and the
result of strategic decisions made in the first half of 2006.
Looking forward, the good news is that these problems are fixable.
We believe that the data support a quite clear strategy to take the
combined web and catalogue business to break-even. The new team at
RedEnvelope has coalesced wonderfully. We have in the management
team a terrific set of talents, and a focused and unified view of
the business. After eight months of deep analysis, I believe we now
have strong visibility into what it will take to make the model
work. Concurrently, the damage done by the past two years means
that our balance sheet is now inadequate, as it stands, to execute
this process. Accordingly, we have begun an aggressive process to
capitalize the transition that we believe can occur in the
business. We are also looking at ways to accelerate that
transition, and create additional value, through combinations and
partnerships that leverage our core assets. We have multiple
discussions underway with a variety of potential partners, and it
is our goal to have a resolution to our balance sheet situation in
the next 90 days. We continue to believe that the RedEnvelope brand
is strong and that the business model can be compelling. The team
is focused on driving the transition and we will be aggressively
seeking the new partners necessary to realize the value intrinsic
in the brand, the product, and the customer file. About
RedEnvelope, Inc. RedEnvelope, Inc. is a retailer dedicated to
inspiring people to celebrate their relationships through giving.
RedEnvelope offers an extensive collection of imaginative gifts
through its webstore, http://www.redenvelope.com/. "RedEnvelope" is
a registered trademark of RedEnvelope, Inc. This press release
contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934. The forward-looking
statements contained in this press release include, among others,
statements regarding our ability to secure additional financing,
our ability to continue as a going concern and our ability to
re-energize the RedEnvelope brand. Such statements are based upon
current expectations and involve risks and uncertainties. Our
actual results and the timing of events could differ materially
from those anticipated in these forward-looking statements as a
result of several factors. Factors that could affect future
performance include, but are not limited to: any failure to address
our funding requirements and continue as a going concern;
marketing, advertising and customer acquisition programs and
related expenditures may not achieve desired results; cost-control
measures may fail to yield satisfactory results; changes in key
management positions and personnel; the inability to attract and
retain qualified managerial, creative and technical personnel;
integration of recently hired key personnel, and other managerial,
technical, finance, accounting and operations personnel, and
potential disruption occasioned thereby; failure of the market to
accept our new or existing products and competition relating to
such products; planned and ongoing fulfillment center and system
upgrades and enhancements could fail to achieve desired results or
cost savings or could take longer or incur greater costs than
anticipated to implement; difficulties encountered in, or increased
costs of, fulfillment; economic conditions and changes in consumer
spending levels; any significant disruption of our operations due
to network or systems failures or disruptions, power outages,
regulatory actions, natural disasters or attacks; difficulties
encountered in predicting consumer preferences, managing inventory
levels or gaining access to popular products; increased or more
effective competition from other retailers; difficulties
encountered in managing our growth; increased costs for, or delays
or difficulties in the receipt of, merchandise ordered by us;
seasonality of the retail business; increases in shipping,
advertising or marketing costs; intellectual property or other
claims that may have an adverse effect on our financial results
product offerings or technology; difficulties encountered in
properly staffing our operations or providing satisfactory customer
service; changes in government or regulatory requirements affecting
e-commerce that may restrict, or increase the cost of, our
operations, and other risk factors described in detail in our
Report on Form 10-K for the fiscal year ended April 1, 2007 and
Quarterly Report on Form 10-Q for the period ended December 30,
2007, including, without limitation, those discussed under the
caption, "Risk Factors," which documents are on file with the
Securities and Exchange Commission (the "SEC") and available at the
SEC's website at http://www.sec.gov/. These forward-looking
statements are made only as of the date of this press release, and
RedEnvelope undertakes no obligation to update or revise the
forward-looking statements, whether as a result of new information,
future events or otherwise. The lack of any update or revision is
not intended to imply continued affirmation of forward-looking
statements contained herein. Investor Contact: Andrew
Greenebaum/Christine Lumpkins ICR, Inc. ; (310) 954-1100 -
Financial Tables Follow - REDENVELOPE, INC. STATEMENTS OF
OPERATIONS (Unaudited) Thirteen Weeks Ended Thirty-nine Weeks Ended
December 30, December 31, December 30, December 31, 2007 % 2006 %
2007 % 2006 % (In thousands, except for per share data) Net
revenues $45,195 100.0% $56,987 100.0% $85,596 100.0% $99,376
100.0% Cost of sales 23,196 51.3% 26,157 45.9% 45,048 52.6% 46,569
46.9% Gross profit 21,999 48.7% 30,830 54.1% 40,548 47.4% 52,807
53.1% Operating expenses: Fulfillment 7,382 16.3% 7,449 13.1%
13,665 16.0% 13,655 13.7% Marketing 13,478 29.8% 12,569 22.1%
23,438 27.4% 22,019 22.2% General and admini- strative 5,466 12.2%
5,519 9.7% 21,881 25.5% 16,515 16.6% Total operating expenses
26,326 58.3% 25,537 44.8% 58,984 68.9% 52,189 52.5% (Loss) income
from operations (4,327) -9.6% 5,293 9.3% (18,436)-21.5% 618 0.6%
Interest (expense) income, net (7) 0.0% 14 0.0% 216 0.2% 101 0.1%
Net (loss) income $(4,334) -9.6% $5,307 9.3%$(18,220)-21.3% $719
0.7% Net (loss) income per share - basic $(0.45) $0.56 $(1.91)
$0.08 Net (loss) income per share - diluted $(0.45) $0.56 $(1.91)
$0.08 Weighted average shares outstanding - basic 9,526 9,458 9,523
9,369 Weighted average shares outstanding - diluted 9,526 9,488
9,523 9,477 REDENVELOPE, INC. BALANCE SHEETS (Unaudited) December
30, April 1, December 31, 2007 2007 2006 (In thousands) ASSETS
Current assets: Cash and cash equivalents $12,345 $13,245 $23,471
Accounts receivable, net 2,679 1,050 3,300 Inventory 9,177 14,288
14,466 Prepaid catalog costs and other current assets 2,288 2,423
3,081 Total current assets 26,489 31,006 44,318 Property and
equipment, net 6,240 8,221 7,682 Other assets 379 184 193 Total
assets $33,108 $39,411 $52,193 LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Accounts payable and accrued expenses $22,987
$12,463 $21,712 Capital lease obligations, current 148 207 207
Total current liabilities 23,135 12,670 21,919 Capital lease
obligations, long-term 288 350 403 Deferred rent 368 502 548 Total
liabilities 23,791 13,522 22,870 Stockholders' equity: Common stock
96 96 97 Additional paid-in capital 120,403 118,800 117,978
Deferred compensation - (1) - Notes receivable from stockholders -
(44) (44) Accumulated deficit (111,182) (92,962) (88,708) Total
stockholders' equity 9,317 25,889 29,323 Total liabilities and
stockholders' equity $33,108 $39,411 $52,193 REDENVELOPE, INC.
STATEMENTS OF CASH FLOWS (Unaudited) Thirty-nine Weeks Ended
December 30, December 31, 2007 2006 (In thousands) Cash Flows From
Operating Activities: Net (loss) income $ (18,220) $ 719
Adjustments to reconcile net (loss) income to net cash provided by
operating activities: Depreciation and amortization 1,830 2,357
Stock-based compensation 1,538 1,921 Asset impairment 3,520 - Other
non-cash charges (106) (114) Changes in current assets and
liabilities: Accounts receivable, net (1,629) (2,246) Inventory
5,111 5,224 Prepaid catalog costs and other current assets (88)
(237) Accounts payable 8,463 5,302 Accrued expenses and other
current liabilities 2,604 2,914 Net cash provided by operating
activities 3,023 15,840 Cash Flows From Investing Activities:
Maturities of short-term investments - 11,619 Purchases of
short-term investments - (4,857) Repayment of note receivable 44 -
Purchases of property and equipment (3,866) (2,620) Net cash (used
in) provided by investing activities (3,822) 4,142 Cash Flows From
Financing Activities: Proceeds from issuance of common stock 66 692
Principal payments on capital lease obligations (167) (336)
Proceeds from line of credit 5,800 6,700 Repayment of line of
credit (5,800) (6,700) Payment of debt issuance costs - (144) Net
cash (used in) provided by financing activities (101) 212 Net
(decrease) increase in cash and cash equivalents (900) 20,194 Cash
and cash equivalents at beginning of period 13,245 3,277 Cash and
cash equivalents at end of period $ 12,345 $ 23,471 DATASOURCE:
RedEnvelope, Inc. CONTACT: Andrew Greenebaum, , or Christine
Lumpkins, , both of ICR, Inc., +1-310-954-1100, for RedEnvelope,
Inc. Web site: http://www.redenvelope.com/
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