RedEnvelope Reports Second Quarter Results; Net Revenues Increase
27% SAN FRANCISCO, Oct. 26 /PRNewswire-FirstCall/ -- RedEnvelope,
Inc. (NASDAQ:REDE) today reported financial results for the second
quarter of fiscal 2005 ended September 26, 2004. RedEnvelope
reported total net revenues of $10.6 million for the quarter
compared to $8.3 million in the second quarter of the prior fiscal
year. Net loss was $(3.9) million, or $(0.44) per share, compared
to a net loss of $(2.8) million, or $(6.56) per share in the second
quarter of fiscal 2004. For the first half of fiscal 2005,
RedEnvelope reported total net revenues of $31.7 million compared
to $26.1 million in the first half of the prior fiscal year. Net
loss was $(4.8) million, or $(0.56) per share, compared to a net
loss of $(4.0) million, or $(10.39) per share, in the first half of
fiscal year 2004. "In the second quarter, we saw the continued
results of our effort to broaden our business beyond holiday
events, focusing on gifts for weddings, anniversaries, birthdays,
and new babies. During the quarter, five of our top 20 sellers were
baby-related gifts," said Alison May, RedEnvelope's President and
Chief Executive Officer. "Our three major channels, online,
catalog, and email, performed well." "Second quarter revenue was
$71 on a per-order basis, compared with $67 per order a year ago.
Our gross profit per order was $35, compared to $32 in the second
quarter of fiscal 2004. We are continuing to focus on products
created by RedEnvelope's own designers. This quarter, 40% of our
top 20 sellers were designed in-house," Ms. May said. "Designing
and sourcing our own products allows us to offer distinctive and
affordable luxury gifts, at improved margins." Ms. May added. For
the second quarter of fiscal 2005, the increase in operating
expenses over the prior year reflects the costs associated with the
proxy solicitation for our recent annual stockholders' meeting,
additional training and staffing at our fulfillment center as we
implemented our new warehouse management and materials handling
systems, and the additional costs associated with being a public
company. RedEnvelope's balance sheet reflects the seasonal build-up
of holiday inventory. Ms. May said, "We also brought in our holiday
inventory earlier than last year to accommodate increased
pre-Holiday shopping this year. Consequently, inventory is higher
on a year-over-year basis." The Company had zero borrowings on its
line of credit at the end of the second quarter of fiscal 2005.
Quarter-End Information -- Net revenues increased 27% for the
second quarter of fiscal 2005 compared to the second quarter of
fiscal 2004. -- Gross margins improved slightly to 48.5% for the
second quarter of fiscal 2005 compared to 48.4% in the second
quarter of fiscal 2004. The second quarter of fiscal 2004 included
approximately $187,000 in one time shipping credits from our former
third party fulfillment provider. -- Operating expenses for the
quarter included approximately $520,000 spent during the proxy
solicitation leading up to the Company's 2004 Annual Meeting of
Stockholders. -- At the end of the quarter, RedEnvelope's customer
file totaled approximately 2.0 million names. -- For the second
quarter, net revenues from existing customers represented
approximately 62% of total net revenues. -- In the quarter,
RedEnvelope shipped approximately 148,000 orders. -- Jewelry was
the largest of the Company's 14 product categories for the quarter.
-- Product revenues from customers who receive catalogs increased
63%, and revenues attributed to online marketing channels grew 34%.
Ms. May said, "We have launched the first stage of our outdoor and
print advertising campaign, as we described last quarter. These ads
appeared in the last few days of the second quarter, and therefore,
we do not believe the ads had a measurable impact on sales for the
quarter. The ads are designed to drive revenues and to raise brand
awareness. Moving into the pre-holiday stage, we will be running
more product-specific advertising. "In addition to our increased
marketing spend to attract both new and repeat customers, we have
focused our resources on the development and training of our
customer service and fulfillment teams to help provide an excellent
customer experience. During the second quarter, we completed the
installation of our new materials handling and warehouse management
systems. We have been receiving inventory and shipping orders on
the new systems since August without interruption to our business.
Additionally, we believe personalization will be a big driver for
gift-givers this year, and as a result, we have improved our
personalization stations in our fulfillment center," Ms. May said.
Business Outlook The following business outlook contains
forward-looking statements describing management's current
expectations for future periods. The matters discussed in these
forward-looking statements are subject to numerous assumptions,
risks and uncertainties, some of which are listed or referred to in
the cautionary note below. Similarly, the forward-looking guidance
provided in this press release is based on limited information
available to RedEnvelope at this time, which is subject to change.
As a result of these uncertainties and information limits, actual
results in the future may differ materially from management's
current expectations. Although management's expectations may change
after the date of this release, RedEnvelope undertakes no
obligation to revise or update the guidance below. The lack of any
revision or update is not meant to imply continued affirmation of
the guidance below. "As we look forward to the holiday rush, we
believe that the groundwork we have laid during the first two
quarters positions us well to serve growing demand from current and
new customers," Ms. May said. Currently, RedEnvelope anticipates
net revenues for fiscal 2005 will be approximately $94 million to
$97 million. Net loss for fiscal 2005 is currently anticipated to
be between $(3.0) million and $(2.0) million. "We are pleased to
maintain our outlook despite the unanticipated costs of the proxy
solicitation during the second quarter," Ms. May said. Webcast of
Management Presentation RedEnvelope, Inc. will make a presentation
regarding these results and the Company's business outlook over the
Internet at 2:00 p.m. (PT) / 5:00 p.m. (ET) today. To listen,
please log on to http://www.redenvelope.com/, go to "About
RedEnvelope," and follow the link entitled "October 26, 2004
Management Presentation: Second-Quarter Results" that will be
posted on that page. After the webcast, interested parties may
access a replay through the same link. The replay of the webcast
will remain available on the Company's website for twelve months.
To access an electronic copy of this press release, please visit
Investor Relations under the "About Us" tab at
http://www.redenvelope.com/. RedEnvelope, Inc. is a multi-channel
retailer of upscale gifts for every occasion, every day.
RedEnvelope offers a unique assortment of imaginative gifts through
its catalog and website, http://www.redenvelope.com/. This press
release contains forward-looking statements that involve risks,
uncertainties and assumptions, such as statements regarding our
plans, objectives and future operations and estimates of our
financial results for future periods. 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: marketing and advertising programs and related
expenditures may not cause anticipated increases in sales; delays
or greater than anticipated costs in introducing new products,
competition relating to new or existing products or failure of the
market to accept these products; customers deciding not to return
to shop at RedEnvelope because of dissatisfaction with shopping
experiences during the 2003 holiday season; recent and planned
fulfillment center and system upgrades and enhancements could fail
to achieve desired results or cost savings or could take longer
than anticipated to implement; 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; our
limited operating history; any decrease in shipping and handling
revenues arising out of a recent change to our shipping and
handling rate policy that is not offset by increases in net
revenues; 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;
difficulties encountered in, or increased costs of, fulfillment
including personalization; 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; increases in sales or other taxes;
lower than expected utilization of electronic commerce by
consumers; product returns that exceed expectations; litigation
that may have an adverse effect on our financial results, product
offerings or reputation; changes in foreign currency exchange
rates; changes in key management personnel; 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 Report on Form 10-K for the period ended March 28, 2004
and our Report on Form 10Q for the period ended June 27, 2004,
including, without limitation, those discussed under the captions,
"Risk Factors," "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and
"Factors That May Affect Future Operating Results," both of 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.
REDENVELOPE, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Thirteen Weeks Twenty-Six Weeks Ended Ended Sept. 26, Sept. 28,
Sept. 26, Sept. 28, 2004 2003 2004 2003 (In thousands, except for
per share data) Net revenues $10,574 $8,329 $31,705 $26,050 Cost of
sales 5,443 4,297 15,342 13,347 Gross profit 5,131 4,032 6,363
12,703 Operating expenses: Fulfillment 2,226 1,538 5,547 4,251
Marketing 2,199 1,679 7,143 5,426 General and administrative 4,610
3,545 8,525 6,814 Total operating expenses 9,035 6,762 21,215
16,491 Loss from operations (3,904) (2,730) (4,852) (3,788)
Interest income 83 5 158 15 Interest expense (66) (101) (145) (270)
Net loss $(3,887) $(2,826) $(4,839) $(4,043) Net loss per share --
basic and diluted $(0.44) $(6.56) $(0.56) $(10.39) Weighted average
shares outstanding -- basic and diluted 8,739 43 8,687 389
REDENVELOPE, INC. CONDENSED BALANCE SHEETS (Unaudited) Sept. 26,
March 28, Sept. 28, 2004 2004 2003 (In thousands, except per share
data) ASSETS Current assets: Cash and cash equivalents $7,669
$18,409 $2,959 Short-term investments 9,952 6,971 -- Accounts
receivable, net 842 1,055 309 Receivable from underwriter, net IPO
proceeds -- -- 28,952 Inventory 15,660 9,609 10,749 Prepaid catalog
costs, other current assets and restricted cash 4,494 2,037 1,582
Total current assets 38,617 38,081 44,551 Property and equipment,
net 7,501 4,746 4,005 Long-term investments -- 1,844 -- Other
assets and restricted cash 642 505 653 Total assets $46,760 $45,176
$49,209 LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY/(DEFICIT) Current liabilities:
Accounts payable and accrued expenses $15,810 $9,847 $11,126
Short-term loan -- -- 1,242 Capital lease obligations, current 584
596 762 Total current liabilities 16,394 10,443 13,130 Capital
lease obligations, long-term 531 816 1,147 Other long-term
liability 280 -- -- Total liabilities 17,205 11,259 14,277
Commitments and contingencies Mandatorily redeemable convertible
preferred stock -- -- 82,556 Stockholders' equity (deficit): Series
A preferred stock -- -- 953 Common stock 88 86 26 Additional
paid-in capital 113,063 112,728 29,731 Deferred compensation (65)
(197) (723) Notes receivable from stockholders (44) (44) (44)
Accumulated deficit (83,491) (78,652) (77,567) Accumulated other
comprehensive income (loss) 4 (4) -- Total stockholders'
equity/(deficit) 29,555 33,917 (47,624) Total liabilities,
mandatorily redeemable convertible preferred stock and
stockholders' equity/(deficit) $46,760 $45,176 $49,209 MEDIA
CONTACT: Susan Hook RedEnvelope, Inc. 415-371-9100 x293 INVESTOR
CONTACT: Jordan Goldstein Financial Dynamics 415-439-4500
DATASOURCE: RedEnvelope, Inc. CONTACT: press, Susan Hook of
RedEnvelope, Inc., +1-415-371-9100, ext. 293; or investors, Jordan
Goldstein of Financial Dynamics, +1-415-439-4500, for RedEnvelope,
Inc. Web site: http://www.redenvelope.com/
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