- Revenues for the first quarter this year increased 14% over last
year TROY, Mich., Aug. 29 /PRNewswire-FirstCall/ -- Handleman
Company (NYSE:HDL), http://www.handleman.com/, today announced
results for its first quarter of fiscal year 2008, which ended July
28, 2007. Revenues for the first quarter of this fiscal year were
$274.2 million, compared to $240.4 for the first quarter of last
year, an increase of 14%. Loss before income taxes for the first
quarter of this year was $17.7 million, compared to $22.4 million
for the first quarter of last year, an improvement of $4.7 million.
However, as a result of an income tax expense of $51,000 for the
first quarter of this year, compared to an income tax benefit of
$16.5 million for the same period last year, the Company reported a
greater loss. Net loss for the first quarter of this year was $17.7
million or $.88 per diluted share, compared to $5.9 million or $.30
per diluted share last year. Stephen Strome, the Company's Chairman
and CEO stated, "Although our operating performance improved over
last year's first quarter, the music industry continues to decline
and impact our music revenues. As a result, we are taking actions
to further reduce costs and improve operating performance as well
as initiate opportunities for diversification. During fiscal year
2007 the Company put in place programs to reduce annual expenses by
over $20 million. This year we are implementing new programs that
will further reduce costs by at least another $20 million. Aligning
our cost structure to be in- line with forecasted reductions in our
music revenues is an important component in returning our business
to profitability." Mr. Strome added, "We are also taking steps to
improve our overall operating performance. In the United Kingdom
our new fee for service model for music, DVDs and video games
became operational in April 2007. In addition, our music supply
agreement with ASDA, which recently has negatively impacted our
operating results, is in the process of being terminated.
Accordingly, we expect our UK operating results will improve and
our working capital will be reduced by $40 - $50 million over the
next several months." During the first quarter of this year
revenues increased $33.8 million to $274.2 million. The increase
was due to the following: -- Tesco revenues and ASDA greeting card
revenues collectively added $33.5 million during the first quarter
of this fiscal year. These operations substantially began in the
latter part of fiscal 2007. -- Console video game revenues
increased $14.1 million, or 45% from the first quarter of last
year. These increases were partially offset by a decline in our
music category management revenues by approximately $13.8 million
during the first quarter of this year. The Company's gross profit
margin, as a percentage of revenues, increased modestly to 15.2%
for the first quarter of this year from 14.8% for the first quarter
of last year. Selling, general and administrative (SG&A)
expenses for the first quarter of this year were $57.5 million or
21.0% of revenues, compared to $56.2 million or 23.4% of revenues
last year. The dollar increase in SG&A expense this year
resulted from $7.0 million of costs associated with new business
operations in the United Kingdom that began in the latter part of
fiscal 2007. SG&A expenses excluding these new operations were
$50.5 million, a decline of $5.7 million, or 10.1% from the first
quarter of last year. The reduced costs during the first quarter of
this year can be mainly attributed to the cost savings initiatives
put in place by the Company during the last fiscal year. Interest
expense for the first quarter of this year increased to $3.3
million from $1.8 million in the first quarter of last year as a
result of higher borrowing costs. Income tax expense for the first
quarter of this year was $51,000, despite a loss before income
taxes of $17.7 million. The expense this year was due to income
taxes payable in tax jurisdictions where the Company was
profitable. The requirement to record valuation allowances negated
recognizing any carry forward benefits the Company may realize from
losses incurred in other tax jurisdictions. The income tax
benefits, however, remain available to offset income tax
liabilities the Company may incur on potential future earnings. For
the first quarter of last year the Company recognized a tax benefit
of $16.5 million or 73.5% of its $22.4 million loss before income
taxes. This benefit was substantially eliminated in the Company's
second fiscal quarter of last year. Mr. Strome concluded, "The
Company is making the changes necessary to adjust to the declining
trends within the music industry and recognizes the importance of
diversifying its business to become less dependent on music.
Several steps have already been taken, including the addition of
console video games and greeting cards to the Company's product
assortment, as well as expanding our in-store service revenue.
Further, we are reviewing several other initiatives to leverage our
core competencies: category management services, logistics and
in-store services. Among the initiatives being considered by the
Company are: -- Exploring opportunities to leverage the Company's
RFID technology capabilities, which capture and manage information
on an individual item level. The Company has unique systems and
programs to manage and report information on an individual item
basis, as well as high speed automation devices in place to apply
RFID tags at a high rate of speed. The Company's RFID capabilities
evolved from systems and processes developed over the years to
manage individual items across multiple retail store locations. --
Pursuing category management, distribution and in-store service for
other products that have similar characteristics to music - large
number of SKU's, unique assortment for each store based on that
store's consumer demographics, reverse logistics, shipping less
than case-pack quantities of shelf ready product, multiple
suppliers and more; and -- Growing the Company's service model, and
pursuing other new business models, such as direct-to-consumer
fulfillment or management of consignment inventory. Throughout our
77 year history we have demonstrated that we are capable of
leveraging our core competencies to change our business and we are
optimistic the current initiatives being developed will generate
revenues and lead to future growth." Call Notice Handleman Company
will host a conference call to discuss the first quarter of fiscal
year 2008 financial and operating results on Thursday, August 30,
2007 at 11:00 a.m. (Eastern Time). To participate in the
teleconference call (in listen mode only), please dial 800-442-9683
at least five minutes before the start of the conference call. In
addition, Handleman Company will simulcast the conference live via
the Internet. The web cast can be accessed and will be available
for 30 days on the investor relations page of Handleman Company's
web site, http://www.handleman.com/. A telephone replay of the
conference call will be available until Tuesday, September 4, 2007
at midnight by calling 800-642-1687 (PIN Number 13066833). About
Handleman Company: Handleman Company is a category manager and
distributor of prerecorded music and console video game hardware,
software and accessories to leading retailers in the United States,
United Kingdom, and Canada. As a category manager, the Company
manages a broad assortment of titles to optimize sales and
inventory productivity in retail stores. Services offered include
product selection, direct-to-store shipments, marketing and
in-store merchandising. Forward-Looking and Cautionary Statements
Information in this press release contains forward-looking
statements, which are not historical facts. These statements
involve risks and uncertainties and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act
of 1995. Actual results, events and performance could differ
materially from those contemplated by these forward- looking
statements including, without limitation, risks associated with the
Company's responsibilities required under its agreement with Tesco
PLC, improving operating performance after the termination of the
Company's music supply agreement with ASDA and generating cash from
reducing working capital investment, the ability to secure funding
or generate sufficient cash required to build and grow other new
businesses, achieving the business integration objectives expected
with the Crave Entertainment Group and REPS acquisitions,
achievement of cost saving strategies identified or in the process
of being implemented, changes in the music and console video game
industries, continuation of satisfactory relationships with
existing customers and suppliers, establishing satisfactory
relationships with new customers and suppliers, effects of
electronic commerce inclusive of digital music and console video
game distribution, success of new music and video game releases,
dependency on technology, ability to control costs, relationships
with the Company's lenders, pricing and competitive pressures,
successfully executing new business initiatives, dependence on
third-party carriers to deliver products to customers, the
occurrence of catastrophic events or acts of terrorism, retaining
and/or recruiting key executives, certain global and regional
economic conditions, and other factors discussed in this press
release and those detailed from time to time in the Company's
filings with the Securities and Exchange Commission. Handleman
Company notes that the preceding conditions are not a complete list
of risks and uncertainties. The Company undertakes no obligation to
update any forward-looking statement to reflect events or
circumstances after the date of this press release. - Tables Follow
- CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands,
except per share data) (unaudited) Three Months Ended July 28, 2007
July 29, 2006 (13 Weeks) (13 Weeks) Revenues $274,184 $240,406
Costs and expenses Direct product costs (232,495) (204,814)
Selling, general and administrative expenses (57,519) (56,216)
Operating loss (15,830) (20,624) Interest expense (3,284) (1,781)
Investment income 1,449 6 Loss before income taxes (17,665)
(22,399) Income tax (expense) benefit (51) 16,456 Net loss $
(17,716) $ (5,943) Weighted average number of shares outstanding -
basic 20,195 20,127 - diluted 20,195 20,127 Net loss per share -
basic $(.88) $(.30) - diluted $(.88) $(.30) CONSOLIDATED CONDENSED
BALANCE SHEETS (amounts in thousands) (unaudited) July 28, 2007
July 29, 2006 Assets Cash and cash equivalents $2,610 $9,043
Accounts receivable, less allowances of $13,124 at July 28, 2007
and $12,797 at July 29, 2006 241,506 216,351 Merchandise
inventories 119,533 148,237 Other current assets 17,929 24,081
Total current assets 381,578 397,712 Property and equipment, net of
depreciation and amortization 62,305 54,255 Other assets, net
94,411 111,067 Total assets $538,294 $563,034 Liabilities Debt,
current $94,200 $- - Accounts payable 176,968 161,483 Other current
liabilities 32,848 18,597 Total current liabilities 304,016 180,080
Debt, non-current - - 75,000 Other liabilities 11,345 15,929
Shareholders' equity 222,933 292,025 Total liabilities and
shareholders' equity $538,294 $563,034 ADDITIONAL INFORMATION
(amounts in thousands) Three Months Ended July 28, 2007 July 29,
2006 (13 Weeks) (13 Weeks) Net loss $(17,716) $(5,943) Investment
income (1,449) (6) Interest expense 3,284 1,781 Income tax expense
(benefit) 51 (16,456) Depreciation/amortization expense 6,404 6,394
Recoupment of development costs and acquired rights 1,200 624
Adjusted EBITDA $(8,226) $(13,606) Additions to property and
equipment $1,215 $4,280 Adjusted EBITDA is computed as net loss
less investment income and income tax benefit, plus interest
expense, income tax expense, depreciation expense, amortization
expense and recoupment of development costs and acquired rights.
DATASOURCE: Handleman Company CONTACT: Thomas Braum, Executive Vice
President and CFO, +1-248-362-4400, Ext. 718, or Greg Mize, Vice
President of Investor Relations and Treasurer, +1-248-362-4400,
Ext. 211, both of Handleman Company Web site:
http://www.handleman.com/
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