1-800 CONTACTS Announces Second Quarter Results

January 02, 2005 Posted by 1-800 CONTACTS, INC.

 

1-800 CONTACTS, INC. reported on 2 August the results for its second quarter ended July 2, 2005.

Net sales for the second quarter ended July 2, 2005 were US$61.8 million, compared to $50.0 million for the comparable quarter of the prior year, a 24% increase. For the second quarter of fiscal 2005, the Company reported net income of $0.3 million, or $0.02 per diluted common share, compared to a net loss of $(1.1) million, or $(0.09) per diluted common share, for the second quarter of fiscal 2004.

Net sales and operating income for the Company’s US retail business for the second quarter of fiscal 2005 were $56.8 million and $4.4 million, respectively, compared to net sales of $48.7 million and operating income of $1.8 million for the second quarter of fiscal 2004. Net sales and operating loss for ClearLab, the Company’s international manufacturing business, for the second quarter of fiscal 2005 were $5.1 million and $(1.7) million, respectively, compared to net sales of $1.2 million and an operating loss of $(2.3) million for the second quarter of fiscal 2004. ClearLab’s results for the second quarter of fiscal 2005 include $1.0 million in license fees from the Company’s Japanese license agreement.

The Company’s gross margin of 38.6% was constant with the gross margin in the second quarter of fiscal 2004. The gross margin for the US retail business decreased slightly to 40.3% for the second quarter of fiscal 2005 from 40.7% in the second quarter of fiscal 2004.

Advertising expenses for the second quarter of fiscal 2005 were $7.1 million, or 11.5% of net sales, compared to $7.2 million, or 14.5% of net sales for the comparable quarter of the prior year. Legal and professional expenses for the second quarter of fiscal 2005 were $0.9 million compared to $1.3 million for the second quarter of the prior year.

Research and development spending as a percentage of net sales was 1.3% for the second quarter of fiscal 2005 up from 0.9% for the second quarter of fiscal 2004. Other selling, general and administrative expenses as a percentage of net sales decreased to 19.9% for the second quarter of fiscal 2005 from 21.5% for the second quarter of fiscal 2004. For the US retail business, during the second quarter of fiscal 2005, other selling, general and administrative expenses as a percentage of net sales also decreased to 19.0% from 19.7% in the second quarter of fiscal 2004.

Other expense for the second quarter of fiscal 2005 increased principally because of unrealized foreign exchange transaction losses related primarily to intercompany loans to ClearLab.

Third Quarter and Fiscal 2005 Outlook for US Retail

For the third quarter of fiscal 2005, the Company expects US retail net sales of approximately $57 million to $58 million, with operating income of approximately $4.0 million. For fiscal 2005, the Company expects to achieve US retail net sales of approximately $225 million and US retail operating income of approximately $18 million. The Company expects advertising expenses of approximately $25 million for fiscal 2005.

Jonathan Coon added, "Doctor exclusive lenses continue to take a heavy toll on our business and on consumers. We began the year hopeful that this issue would be resolved by mid-year, but the issue has instead grown to become our top priority. We are losing millions in sales and income on orders we cannot fill because the manufacturer maintains a policy of selling lenses only to eye doctors and affiliated retail stores. More importantly, consumers are being denied the right to choose where they purchase contact lenses—a right Congress clearly intended consumers to have when it passed the Fairness to Contact Lens Consumers Act nearly two years ago."

"Most manufacturers abandoned this anti-consumer practice of selling lenses only to doctors and affiliated retailers after the major manufacturers were sued by 32 state attorneys general. However, one large manufacturer, who was much smaller at the time of the suit, continues to promote this practice to the detriment of millions of contact lens wearers. We are confident that this issue will be resolved in the best interest of consumers and that contact lens wearers will have the right to choose where they purchase their lenses."

Third Quarter and Fiscal 2005 Outlook for ClearLab

The Company expects ClearLab to achieve revenue of approximately $5.0 million to $6.0 million and an operating loss of approximately $(1.0) million for the third quarter of fiscal 2005. The Company expects fiscal 2005 revenues for ClearLab of approximately $20 million and an operating loss of approximately $(5.0) million for the year.

Board of Director Changes

Stephen L. Key recently joined 1-800 CONTACTS’ Board of Directors and was appointed as the chair of the Company’s Audit Committee. Jonathan Coon, Chief Executive Officer and Chairman of the Board commented, "We are excited and privileged to have Steve Key join our Board of Directors. He brings knowledge and experience that will make him a strong addition to our Board."

>From 2001 to March 2004, Mr. Key was a member of the Board of Directors of Aurora Foods, Inc., during which time he served as the chairman of the Board’s Audit and Compliance Committee and served on the Board’s Independent Committee. From 1995 to 2001, Mr. Key was the Executive Vice President and Chief Financial Officer of Textron Inc., and from 1992 to 1995, Mr. Key was the Executive Vice President and Chief Financial Officer of ConAgra, Inc. From 1968 to 1992, Mr. Key worked at Ernst & Young, serving in various capacities, including as the Managing Partner of Ernst & Young’s New York Office from 1988 to 1992. Mr. Key is a Certified Public Accountant in the State of New York.

With the appointment of new board member, Stephen Yacktman and Jason Subotky tendered their resignations from 1-800 CONTACTS’ Board of Directors, as anticipated in April. Mr. Yacktman, a Vice President at Yacktman Asset Management, an investment advisory company, has served on 1-800 CONTACTS’ Board of Directors since February 1996. Mr. Subotky, a portfolio manager at Yacktman Asset Management, has served on 1-800 CONTACTS’ Board of Directors since March 2000.

Jonathan Coon added, "We thank Steve and Jason for their dedicated service on our Board. They have been members of our Board during a time of growth and transition for our Company and added greatly to the Company’s success. We appreciate their contributions and wish them well as they leave to focus on their own growing business."

1-800 CONTACTS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION
(in thousands, except per share amounts)
(unaudited)

Quarter Ended Two Quarters Ended
July 3, July 2, July 3, July 2,
2004 2005 2004 2005
NET SALES $49,971 $61,841 $100,820 $122,124
COST OF GOODS SOLD 30,698 37,945 62,251 75,720
Gross profit 19,273 23,896 38,569 46,404
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES:
Advertising 7,224 7,120 16,039 13,658
Legal and professional 1,341 906 3,181 2,190
Research and development 443 811 1,335 1,866
Purchased in-process
research and
development——83—
Other selling, general
& administrative 10,766 12,304 20,648 23,821
Total selling,
general &
administrative
expenses 19,774 21,141 41,286 41,535
INCOME (LOSS) FROM
OPERATIONS (501) 2,755 (2,717) 4,869
OTHER EXPENSE, net (699) (1,166) (1,055) (1,807)
INCOME (LOSS) BEFORE
BENEFIT (PROVISION)
FOR INCOME TAXES (1,200) 1,589 (3,772) 3,062
BENEFIT (PROVISION)
FOR INCOME TAXES 52 (1,320) 418 (2,610)
NET INCOME (LOSS) $(1,148) $269 $(3,354) $452

PER SHARE INFORMATION:
Basic and diluted net
income (loss) per
common share $(0.09) $0.02 $(0.25) $0.03

WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 13,286 13,312 13,237 13,307
Diluted 13,286 13,463 13,237 13,476

OTHER DATA:
Depreciation $987 $1,115 $1,876 $2,170
Amortization 943 1,050 1,730 2,121
Total depreciation
and amortization $1,930 $2,165 $3,606 $4,291

Depreciation and
amortization included
in the following
captions:
Cost of goods sold $660 $711 $1,122 $1,403
Research and
development 20 26 38 53
Other selling,
general &
administrative 1,250 1,428 2,446 2,835
Total depreciation
and amortization $1,930 $2,165 $3,606 $4,291

 

SEGMENT INFORMATION:

Quarter Ended
July 3, 2004
U.S. International Eliminations Total
Net sales $48,742 $1,229 $—$49,971
Gross profit (loss) 19,825 (552)—19,273
Research and
development—443—443
Other selling,
general &
administrative 9,606 1,160—10,766
Income (loss)
from operations 1,835 (2,336)—(501)

 

Quarter Ended
July 2, 2005
U.S. International Eliminations Total
Net sales $56,767 $5,077 $(3) $61,841
Gross profit (loss) 22,857 931 108 23,896
Research and
development—811—811
Other selling,
general &
administrative 10,794 1,510—12,304
Income (loss)
from operations 4,389 (1,742) 108 2,755

 

Two Quarters Ended
July 3, 2004
U.S. International Eliminations Total
Net sales $98,193 $2,627 $—$100,820
Gross profit (loss) 38,755 (186)—38,569
Research and
development 536 799—1,335
Purchased in-process
research and
development—83—83
Other selling,
general &
administrative 18,575 2,073—20,648
Income (loss)
from operations 686 (3,403)—(2,717)

 

Two Quarters Ended
July 2, 2005
U.S. International Eliminations Total
Net sales $113,133 $9,365 $(374) $122,124
Gross profit (loss) 45,044 1,534 (174) 46,404
Research and
development—1,866—1,866
Purchased in-process
research and
development————
Other selling,
general &
administrative 20,872 2,949—23,821
Income (loss)
from operations 8,792 (3,749) (174) 4,869

 

1-800 CONTACTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
(in thousands)
(unaudited)

ASSETS

January 1, July 2,
2005 2005
CURRENT ASSETS:
Cash $3,105 $646
Accounts receivable, net 3,178 4,441
Inventories, net 22,206 21,344
Deferred income taxes 1,328 1,535
Other current assets 3,944 5,397
Total current assets 33,761 33,363
PROPERTY, PLANT AND EQUIPMENT, net 20,618 20,993
DEFERRED INCOME TAXES 720 817
GOODWILL 34,320 33,975
DEFINITE-LIVED INTANGIBLE ASSETS, net 17,897 15,976
OTHER ASSETS 1,669 3,031
Total assets $108,985 $108,155

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $1,632 $1,599
Current portion of capital lease obligations 47 44
Accounts payable and accrued liabilities 22,125 25,556
Total current liabilities 23,804 27,199
LONG-TERM LIABILITIES:
Line of credit 14,404 13,493
Long-term debt, net of current portion 8,170 7,160
Capital lease obligations, net of
current portion 98 75
Deferred income tax liabilities 1,458 545
Other long-term liabilities 2,547 778
Total long-term liabilities 26,677 22,051
STOCKHOLDERS’ EQUITY 58,504 58,905
Total liabilities and
stockholders’ equity $108,985 $108,155


CONTACT: Brian W. Bethers, President and CFO, or Robert G. Hunter, Vice President, Finance, both of 1-800 CONTACTS, INC., +1-801-924-9800, investors@contacts.com

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