ENC Enesco Grp.

Enesco Group, Inc. (NYSE:ENC), a leader in the gift, collectibles and home and garden decor industries, today announced financial results for the first quarter ended March 31, 2005. First Quarter 2005 Summary -- Revenue of $60.1 million, 14.8% higher than 1Q '04 -- Gross profit of $22.6 million, a slight increase from 1Q '04 -- Net loss increased to $15.2 million, primarily due to reduced gross margin and higher SG&A, interest and tax expense Financial Results Revenue for the quarter increased 14.8% to $60.1 million from $52.3 million in the comparable period of 2004. The revenue increase is primarily due to strength in the Heartwood Creek product line and contributions from Gregg Gift and Dartington Crystal, which were acquired in February and July 2004, respectively. Revenue for the quarter also includes a $1.2 million favorable impact from changes in foreign currency translation rates. Gross profit was $22.6 million compared to $22.3 million in the first quarter of 2004. Gross profit from higher sales during the first quarter of 2005 was offset by an increase in the Precious Moments royalty, an increase in closeout sales and a decrease in Club kit sales. Selling, general and administrative (SG&A) expenses were $34.6 million versus $29.5 million in the same period last year. The increase primarily reflects a $2.4 million accelerated depreciation on the Enterprise Resource Planning (ERP) system and an increase in SG&A expenses related to the Gregg Gift and Dartington Crystal acquisitions from 2004, as well as Sarbanes-Oxley compliance. The operating loss for the first quarter was $12.0 million compared to an operating loss of $7.2 million in the year ago period. First quarter net loss was $15.2 million, or ($1.04) per diluted share, versus $4.4 million, or ($0.31) per diluted share, during the first quarter of 2004. The increase in net loss was due to the increased operating loss, and higher interest and tax expenses. Commenting on first quarter results, Cynthia Passmore-McLaughlin, President and CEO, stated, "While we continue to face challenges to our business, we are pleased with the 15% top line growth we experienced during the quarter. We took a proactive approach to clearing slow moving inventory and have improved our inventory position. Despite the SG&A increase, which was due largely to accelerated depreciation from the ERP system, we continue to focus on improving our operating efficiencies. While the ERP system caused a backlog of $26 million at the end of 2004, I'm pleased to report we were able to return to normal levels by the end of the first quarter of 2005. "In addition," added Passmore-McLaughlin, "our Heartwood Creek and Dartington Crystal lines are performing very well and reflect our strength as a global market leader in gifts and home and garden decor. As we move ahead, we look forward to making further progress toward our goal of generating long-term growth and improved profitability." A conference call will be broadcast live on Tuesday, May 10, at 1:00 p.m. Central Time (2:00 p.m. Eastern) at http://www.enesco.com and http://www.streetevents.com. An online replay also will be available approximately one hour after the call. To listen to the Webcast, your computer must have RealPlayer installed. If you do not have RealPlayer, go to http://www.streetevents.com prior to the call, to download RealPlayer for free. For a phone replay, call 1-800-642-1687, Passcode: 6151501. The replay will be available for one week following the conference call. About Enesco Group, Inc. Enesco Group, Inc. is a world leader in the gift, collectible, and home and garden decor industries. Serving more than 40,000 customers globally, Enesco distributes products to a wide variety of specialty card and gift retailers, home decor boutique as well as mass-market chains and direct mail retailers. Internationally, Enesco serves markets operating in Europe, Canada, Australia, Mexico, Asia and the Pacific Rim. With subsidiaries located in Europe and Canada, and a business unit in Hong Kong, Enesco's international distribution network is a leader in the industry. The Company's product lines include some of the world's most recognizable brands, including Walt Disney Classics Collection, Nickelodeon, Heartwood Creek, Halycon Days, Lilliput Lane, Border Fine Arts and Precious Moments, among others. Further information is available on the Company's web site at www.enesco.com. This press release contains various forward-looking statements that are based on management's current assumptions and beliefs and upon information currently available to management. The Company has tried to identify such forward-looking statements by use of such words as "expects," "intends," "anticipates," "could," "estimates," "plans," and "believes," and similar expressions, but these words are not the exclusive means of identifying such statements. Such statements are subject to various risks, uncertainties and other factors which could cause actual results to vary materially from those anticipated, estimated, expected or projected. Important factors that may cause actual future events or results to differ materially and adversely from those described in the forward-looking statements include, but are not limited to: the Company's success in developing new products and consumer reaction to the Company's new products; the Company's ability to secure, maintain and renew popular licenses, particularly our licenses for Precious Moments, Cherished Teddies, Heartwood Creek and Disney; the Company's ability to grow revenues in mass and niche market channels; the Company's ability to effectively complete the implementation of the ERP system; changes in general economic conditions, as well as specific market conditions; fluctuations in demand for our products; manufacturing lead times; the timing of orders and shipments and our ability to predict customer demands; inventory levels and purchase commitments exceeding requirements based upon incorrect forecasts; collection of accounts receivable; changes in the regulations and procedures affecting the importation of goods into the United States; changes in foreign exchange rates; price and product competition in the giftware industry; variations in sales channels, product costs or mix of products sold; and, possible future terrorist attacks, epidemics, or acts of war. In addition, the Company operates in a continually changing business environment and does not intend to update or revise the forward-looking statements contained herein, which speak only as of the date hereof. Additional information regarding forward-looking statement risk factors is contained in the Company's reports and filings with the Securities and Exchange Commission. In light of these risks and uncertainties, the forward-looking statements contained herein may not occur and actual results could differ materially from those set forth herein. Accordingly, you should not rely on these forward-looking statements as a prediction of actual future results. -0- *T ENESCO GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED First Quarter Ended March 31, 2005 and 2004 (In thousands, except per share amounts) 2005 2004 % Change --------- --------- ---------- Net revenues $60,084 $52,323 15% Cost of sales 37,481 30,014 25% --------- --------- Gross profit 22,603 22,309 1% Gross Profit % 37.6% 42.6% Selling, distribution, general and administrative expense 34,626 29,531 17% --------- --------- Operating loss (12,023) (7,222) -66% Interest expense (399) (85) Interest income 120 112 Other income (expense), net (835) (315) --------- --------- Loss before income taxes (13,137) (7,510) -75% Income tax benefit (expense) (2,079) 3,108 --------- --------- Net loss $(15,216) $(4,402) -246% ========= ========= Loss per share basic and diluted: Net loss ($1.04) ($0.31) Average basic and diluted shares outstanding 14,607 14,178 ENESCO GROUP, INC. CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS March 31, December 31, 2005 2004 ------------ ------------ Current Assets: Cash and equivalents $18,636 $14,646 Accounts receivable, net 64,389 70,526 Inventories 62,633 65,371 Prepaid Expenses 4,934 3,310 Deferred income taxes 820 920 ------------------------- Total current assets 151,412 154,773 Property, plant and equipment, net 19,334 22,509 Other assets 16,486 16,601 ------------------------- Total assets $187,232 $193,883 ========================= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes and loans payable $38,048 $26,354 Accounts payable 14,395 18,680 Federal, state and foreign income taxes 8,078 6,405 Deferred gain on sale of fixed assets 1,711 1,711 Accrued Expenses - 21,576 21,628 ------------------------- Total current liabilities 83,808 74,778 Long-term liabilities: 9,234 9,838 Total shareholders' equity 94,190 109,267 ------------------------- Total liabilities and shareholders' equity $187,232 $193,883 ========================= ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (Unaudited) (In thousands) 2005 2004 ------------ ------------ Operating Activities: Net Loss $(15,216) $(4,402) Adjustments to reconcile net loss to net cash used by operating activities 7,281 (7,003) ------------ ------------ Net cash used by operating activities (7,935) (11,405) ------------ ------------ Investing Activities: Acquisition, net of cash acquired -- (7,262) Purchase of property, plant and equipment (618) (868) Proceeds from sales of property, plant and equipment 5 12 ------------ ------------ Net cash used by investing activities (613) (8,118) ------------ ------------ Financing Activities: Issuance of notes and loans payable 11,761 18,523 Common stock issuance and exercise of stock options 717 306 ------------ ------------ Net cash provided by financing activities 12,478 18,829 ------------ ------------ Effect of exchange rate changes on cash and cash equivalents 60 620 ------------ ------------ Increase/(decrease) in cash and cash equivalents 3,990 (74) Cash and cash equivalents, beginning of period 14,646 10,645 ------------ ------------ Cash and cash equivalents, end of period $18,636 $10,571 ============ ============ *T