ENC Enesco Grp.

Enesco Group, Inc. (NYSE:ENC), a leader in the giftware, and home and garden decor industries, today announced financial results for the second quarter ended June 30, 2005. Second Quarter 2005 Summary -- Revenue decreased to $49.2 million compared to $61.7 million in 2Q 2004 primarily due to the continued sales decline in collectibles and the planned shift to the third quarter for procurement and ship dates for seasonal products. -- Gross margin decreased by $16.0 million primarily due to the sales volume decline, the $7.7 million non-cash loss on the Precious Moments license termination, and increased closeout sales. -- SG&A expenses increased by $3.4 million to $32.5 million primarily due to the accelerated depreciation of the Enterprise Resource Planning (ERP) system, bank penalty fees associated with our current lender and SG&A expenses of Dartington Crystal, acquired in July 2004. -- Net loss increased by $20.9 million to $22.0 million, $1.50 per diluted share, primarily due to reduction in gross margin, higher SG&A expenses, and higher interest and tax expense. Commenting on second quarter results, Cynthia Passmore-McLaughlin, President and CEO, stated, "Our performance was impacted by the Company's initiatives to fix our operating model and improve cash flow. During the second quarter, we terminated the Precious Moments license agreement, further reducing our dependence on collectibles. We also converted our warehouse management and distribution system to an upgraded version of our legacy I.T. system and stabilized the remaining portions of our current ERP system that relate to order management and financials. Lastly, we reduced salary costs and headcount in the U.S. and U.K. Our revenues were lower on a year-over-year basis due to the planned shift primarily to the third quarter of our ordering and shipping of seasonal and Christmas products, and the continued softness of the collectible product category. While our top line was impacted this quarter, we expect to improve our cash flow by now handling our seasonal products on a 'make to order' basis and spreading the shipments to retailers and payments to our vendors from June through October." More detailed information is set forth in Enesco's Form 10-Q for the quarter ended June 30, 2005, which was filed August 9, 2005. Conference Call A conference call will be broadcast live on Wednesday, August 10, at 8:00 a.m. CT (9:00 a.m. Eastern). Investors interested in participating on the live call can do so by calling 1-877-271-7222, and ask for the Enesco Second Quarter Earnings call. Investors also may listen to the live call via a Webcast at http://www.enesco.com and click on "Investor Relations," or by logging on to http://www.streetevents.com. To listen to the Webcast, your computer must have RealPlayer installed. This Webcast will be available online for 90 days following the live conference call. 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: 8593955. The phone replay will be available for one week following the conference call. About Enesco Group, Inc. Enesco Group, Inc. is a world leader in the giftware, 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 boutiques as well as mass-market chains and direct mail retailers. Internationally, Enesco serves markets operating in Europe, Canada, Australia, Mexico, and Asia. 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 Heartwood Creek, Jim Shore, Walt Disney Company, Walt Disney Classics Collection, Pooh & Friends, Nickelodeon, Bratz, Halcyon Days, Lilliput Lane and Border Fine Arts, among others. Further information is available on the Company's web site at www.enesco.com. This press release contains forward-looking statements, which reflect management's current assumptions and beliefs and are based on 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 Cherished Teddies, Heartwood Creek and Disney licenses; the Company's ability to grow revenues in mass and niche market channels; the Company's ability to comply with covenants contained in its credit facility; the Company's ability to obtain a new global senior credit facility; the Company's ability to effectively transition to the legacy information 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 Second Quarter Ended June 30, 2005 and 2004 (In thousands, except per share amounts) 2005 2004 --------- --------- Net revenues $49,159 $61,695 Cost of sales 30,180 34,466 Cost of sales - loss on license termination 7,713 - --------- --------- Gross profit 11,266 27,229 Gross profit % 22.9% 44.1% Selling, general and administrative expense 32,511 29,100 --------- --------- Operating loss (21,245) (1,871) Interest expense (456) (189) Interest income 38 143 Other income (expense), net (20) (53) --------- --------- Loss before income taxes (21,683) (1,970) Income tax benefit (expense) (353) 818 --------- --------- Net loss $(22,036) $(1,152) ========= ========= Loss per share basic and diluted: Net loss ($1.50) ($0.08) Average basic and diluted shares outstanding 14,700 14,238 ENESCO GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED Six Months Ended June 30, 2005 and 2004 (In thousands, except per share amounts) 2005 2004 ---------- ---------- Net revenues $109,243 $114,018 Cost of sales 67,661 64,480 Cost of sales - loss on license termination 7,713 - ---------- ---------- Gross profit 33,869 49,538 Gross profit % 31.0% 43.4% Selling, general and administrative expense 67,793 58,956 ---------- ---------- Operating loss (33,924) (9,418) Interest expense (855) (274) Interest income 158 255 Other income (expense), net (199) (43) ---------- ---------- Loss before income taxes (34,820) (9,480) Income tax benefit (expense) (2,432) 3,926 ---------- ---------- Net loss $(37,252) $(5,554) ========== ========== Loss per share basic and diluted: Net loss ($2.54) ($0.39) Average basic and diluted shares outstanding 14,653 14,204 ENESCO GROUP, INC. (UNAUDITED) CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS June 30, December 31, 2005 2004 ------------ ------------ Current Assets: Cash and equivalents $4,571 $14,646 Accounts receivable, net 56,424 70,526 Inventories 57,612 65,371 Prepaid expenses 4,129 3,310 Property held for sale 761 - Deferred income taxes 686 920 --------------------------- Total current assets 124,183 154,773 Property, plant and equipment, net 16,712 22,509 Other assets 15,805 16,601 --------------------------- Total assets $156,700 $193,883 =========================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes and loans payable $35,062 $26,354 Accounts payable 15,471 18,680 Income taxes payable 7,488 6,405 Deferred gain on sale of fixed assets 1,711 1,711 Accrued Expenses 19,448 21,628 --------------------------- Total current liabilities 79,180 74,778 Long-term liabilities 7,519 9,838 Total shareholders' equity 70,001 109,267 --------------------------- Total liabilities and shareholders' equity $156,700 $193,883 =========================== ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (Unaudited) (In thousands) 2005 2004 --------- --------- Operating Activities: Net loss $(37,252) $(5,554) Adjustments to reconcile net loss to net cash used by operating activities 19,683 (16,378) --------- --------- Net cash used by operating activities (17,569) (21,932) --------- --------- Investing Activities: Purchase of property, plant and equipment (1,204) (2,524) Acquisition, net of cash acquired -- (7,413) Proceeds from sales of property, plant and equipment 6 56 --------- --------- Net cash used by investing activities (1,198) (9,881) --------- --------- Financing Activities: Issuance of notes and loans payable 8,797 29,950 Exercise of stock options 322 266 --------- --------- Net cash provided by financing activities 9,119 30,216 --------- --------- Effect of exchange rate changes on cash and cash equivalents (427) 97 --------- --------- Increase/decrease in cash and cash equivalents (10,075) (1,500) Cash and cash equivalents, beginning of period 14,646 10,645 --------- --------- Cash and cash equivalents, end of period $4,571 $9,145 ========= ========= *T