DRAPER, Utah, March 7 /PRNewswire-FirstCall/ -- 1-800 CONTACTS, INC.
(Nasdaq: CTAC), today reported results for its fourth quarter and fiscal year
ended December 31, 2005.
(Logo: http://www.newscom.com/cgi-bin/prnh/20040107/LACONTACTSLOGO )
Consolidated net sales for the fourth quarter ended December 31, 2005 were
$55.4 million, compared to $54.0 million for the comparable quarter of the
prior year. For the fourth quarter of fiscal 2005, the Company reported a
consolidated net loss of $(2.3) million, or $(0.17) per diluted common share,
compared to consolidated net income of $1.4 million, or $0.10 per diluted
common share, for the fourth quarter of fiscal 2004.
For the fiscal year ended December 31, 2005, consolidated net sales were
$238.0 million, compared to $211.7 million for the prior year, a 12% increase.
The Company reported a consolidated net loss of $(2.6) million, or $(0.20) per
diluted common share, for fiscal 2005 compared to a consolidated net loss of
$(0.6) million, or $(0.05) per diluted common share, for fiscal 2004.
US Retail
Net sales and operating income for the Company's US retail business for
the fourth quarter of fiscal 2005 were $50.6 million and $3.2 million,
respectively, compared to net sales of $51.3 million and operating income of
$5.7 million for the fourth quarter of fiscal 2004. The reduction in net
sales was principally a result of the Company's inability to fill orders for
certain customers due to lack of inventory for certain "doctors only" lenses
and differences in the Company's cancelled order percentage.
For fiscal year 2005, net sales and operating income for the Company's US
retail business were $219.6 million and $15.4 million, respectively, compared
to net sales of $204.4 million and operating income of $11.6 million for
fiscal 2004.
The gross margin for the US retail business decreased to 38.4% for the
fourth quarter of fiscal 2005 from 41.4% from the fourth quarter of fiscal
2004 and to 39.4% for fiscal 2005 from 40.2% for fiscal 2004.
For the US retail business, during the fourth quarter of fiscal 2005,
other selling, general and administrative expenses as a percentage of net
sales increased to 21.0% from 19.0% in the fourth quarter of fiscal 2004. For
fiscal 2005, other selling, general and administrative expenses as a
percentage of net sales increased to 19.4% from 18.6% in fiscal 2004.
ClearLab
Net sales and operating loss for ClearLab, the Company's international
manufacturing business, for the fourth quarter of fiscal 2005 were
$4.7 million and $(4.1) million, respectively, compared to net sales of
$2.7 million and an operating loss of $(2.7) million for the fourth quarter of
fiscal 2004. ClearLab's results for the fourth quarter of fiscal 2005 include
$1.0 million in license fees from the Company's Japanese license agreement.
For the fourth quarter of fiscal 2005, ClearLab's operating results
reflect a sequential drop in net sales, increases in unabsorbed manufacturing
costs due to reduced output while certain processes were redesigned and
improved, increases in costs related to a new lens design, and overall
increases in operating cost structure.
Net sales and operating loss for ClearLab for fiscal 2005 were
$19.6 million and $(9.4) million, respectively, compared to net sales of
$7.3 million and an operating loss of $(8.2) million for fiscal 2004.
ClearLab's results for fiscal 2005 include $4.0 million in license fees from
the Company's Japanese license agreement.
Other expense for the fiscal 2005 periods increased principally because of
unrealized foreign exchange transaction losses related primarily to
intercompany loans to ClearLab.
First Quarter of Fiscal 2006 Outlook
For the first quarter of fiscal 2006, the Company expects US retail net
sales of approximately $57.0 million to $58.0 million and operating income of
approximately $4.5 million to $5.5 million.
The Company expects ClearLab to achieve revenue of approximately
$4.0 to $5.0 million and an operating loss of approximately $(2.5) million to
($3.0) million for the first quarter of fiscal 2006.
Outlook
Jonathan Coon, Chief Executive Officer, commented, "We are encouraged by
the results in our US retail business as we met our expectations for the
fourth quarter and are seeing solid performance so far during the first
quarter of 2006. Our current performance is being driven by internet sales as
we are now realizing the benefits from the upgrades we made to our website
during 2005."
"Although we are certainly disappointed by the magnitude of losses at
ClearLab, we remain optimistic about and committed to ClearLab. ClearLab is a
start-up business which is developing new manufacturing technology and new and
unique contact lens products. During 2005, we achieved some significant
milestones at ClearLab. Revenue from the sale of contact lenses more than
doubled. We launched two new lenses internationally and increased our
manufacturing capacity. We also received a $3 million milestone payment from
our Japanese licensee in the fourth quarter of 2005 and another $2 million
payment in the first quarter of this year. To date, we have received
$10 million of the license fee payments expected under the agreement."
Brian Bethers, President and CFO, added, "ClearLab's operating results
were negatively impacted as we reduced our output during the quarter to make
some improvements to our daily lens design and our manufacturing processes.
We have also restructured the management of the business to improve the
coordination and oversight between the manufacturing facilities and to
strengthen our finance and marketing functions. To date, we have invested
approximately $86 million in ClearLab including the acquisitions of Igel and
VisionTec and the funding of operating losses, including investments in R&D.
We strongly believe that the value of ClearLab exceeds our investment."
Mr. Coon added, "On July 26th at 4:30pm at a live investor and press
conference in New York, we will announce publicly the product that is the
subject of our extensive R&D initiatives and subject to our Japanese license
agreement. Under the terms of this license agreement, after the initial
$18 million in upfront license fees, Clearlab will also receive the greater of
a percentage of Japanese market sales or minimum cumulative license fees of
$75 million ($5 million per year for 15 years). The Japanese market
represents approximately one fourth of the global market for contact lenses.
We believe our commitment to ClearLab will be understood once this product is
revealed in July."
Update on 'doctors only' lenses
Jonathan Coon commented, "Addressing the threat of 'doctors only' lenses
is our highest priority. As stated previously, we are currently turning away
thousands of customers who have been prescribed 'doctors only' lenses. One
trade advertisement for these lenses promises that the doctor will 'make more
money' and goes on to explain that 'since ProClear lenses are only available
through your practice, you'll get what you're looking for -- increased patient
loyalty and greater profitability.' Another 'doctors only' ad promises 'a
lens that cannot be shopped around.'
"The purpose of the Fairness to Contact Lens Consumers Act was to give
consumers the right to shop around and choose where they fill their
prescriptions. 'Doctors only' prescriptions affect more than the consumers
being turned away by 1-800 CONTACTS. Some 'doctors only' lens prescriptions
cannot be filled at many other popular optical retailers. The impact on a
consumer trying to fill a restricted prescription is the same as if she had
never received her prescription at all. As the trade ad for these lenses
promises, she must return to her prescriber to purchase lenses and the doctor
or affiliated retailer does, as promised, 'make more money.'
"A manufacturer offering doctors 'more money' to prescribe the
manufacturer's products is wrong. This is the same collusive behavior that
resulted in 32 state attorneys general suing the three largest contact lens
manufacturers in multi-district litigation (MDL 1030). The states argued that
damages to consumers totaled more than $355 million. The manufacturers and
the American Optometric Association settled the litigation with the states for
a combined $92 million and the manufacturers agreed to sell to alternative
channels in a commercially reasonable and nondiscriminatory manner for five
years. Approximately 80% of the contact lens market has operated under the
terms of these settlements for the last four years.
"With these settlements expiring this year, thirty eight state attorneys
general have signed a letter supporting the need for legislation to codify the
consumer protection provided by the MDL 1030 settlements. We are encouraged
by the early progress we have seen this year. Utah Senate bill 176 passed
both the Utah house and senate last week. This bill effectively codifies the
terms of the MDL 1030 settlements and requires a manufacturer to make its
lenses available in a 'commercially reasonable and nondiscriminatory manner'
to 'alternative channels' including any Internet and mail order seller
'without regard to whether it is associated with a prescriber.' Numerous
other states and the US Congress are currently considering similar
legislation.
"We are committed to supporting legislation which allows consumers to not
only receive their prescription, but to also choose where their prescription
is filled. We have long been a proponent of prescription release and consumer
choice for a simple reason -- we are one of those choices. The recently
passed Utah bill and others under consideration grant no special privilege to
1-800 CONTACTS or any other retailer. The Utah bill and others under
consideration in other states codify the terms of the attorney general
settlements which have worked for four years and ensure that contact lens
consumers can choose where they fill their prescriptions -- including at the
doctor's office."
Updated industry report
The Company has posted an updated industry report on its website at
http://www.1800contacts.com/compliance/march06report. As detailed in this report,
the Company believes that one of its online competitors offers free shipping
that is not free, offers rebates with restrictions which they do not disclose
and which most customers cannot redeem, adds a hidden 6.5% 'handling fee' to
all orders, and guarantees the lowest price when it does not in fact have the
lowest prices.
Jonathan Coon added, "We are doing our part in the marketplace to inform
consumers of the honest low prices, actual free shipping, and real rebates
offered by 1-800 CONTACTS. In the first quarter, we began offering to beat
any online price by 2%. Once customers learn about our competitors' shipping
costs, hidden fees, and restricted rebates, many customers find that
1-800 CONTACTS already offers lower net prices. As a result, we expect our
offer to beat any price by 2% to have limited impact on our gross margins.
"This offer also leverages the dramatically higher brand recognition of
1-800 CONTACTS. Quarterly TeleNation surveys show that 1-800 CONTACTS has 18
times the unaided brand recognition of our nearest Internet or mail order
competitor -- the result of our cumulative investment of more than
$180 million in offline and online advertising in the last 10 years. We
believe consumers would rather get the best price from a brand they know and
trust than order from a company that they have never heard of."
About 1-800 CONTACTS, INC.
1-800 CONTACTS offers consumers an attractive alternative for obtaining
replacement contact lenses in terms of convenience, price and speed of
delivery. Through its easy-to-remember, toll-free telephone number,
"1-800 CONTACTS" (1-800-266-8228), and its Internet web site,
http://www.1800contacts.com, the Company sells almost all of the popular brands of
contact lenses. 1-800 CONTACTS offers products at competitive prices, while
delivering a high level of customer service.
ClearLab develops and manufactures a wide range of disposable contact lens
products and distributes these lenses in international markets. More
information about ClearLab can be found at its website, http://www.clearlab.com.
This news release contains forward-looking statements about the Company's
future business prospects. These statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
set forth in or implied by such forward-looking statements. Factors that may
cause future results to differ materially from the Company's current
expectations include, among others: general economic conditions, the health of
the contact lens industry, inventory acquisition and management, manufacturing
operations, governmental regulations, integrations and growth of the Company's
acquisitions into its business, exchange rate fluctuations, advertising
spending and effectiveness, the length of time required for completion of the
Company's obligations under the Japanese license agreement, the ability to
complete the milestones under the Japanese license agreement, the amount of
license fees and royalties that will ultimately be received under the Japanese
license agreement, unanticipated costs and expected benefits associated with
the Japanese license agreement and the Company's supply agreements and related
arrangements, research and development initiatives, prescription verification
requirements of The Fairness to Contact Lens Consumers Act, and other
regulatory considerations. Information on the Company's websites, other than
the information specifically referenced in this press release, shall not be
deemed to be part of this press release.
1-800 CONTACTS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION
(in thousands, except per share amounts)
(unaudited)
Quarter Ended Year Ended
January 1, December 31, January 1, December 31,
2005 2005 2005 2005
NET SALES $53,965 $55,444 $211,678 $237,950
COST OF GOODS SOLD 32,602 36,088 129,742 149,266
Gross profit 21,363 19,356 81,936 88,684
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES:
Advertising 4,589 4,715 27,161 24,979
Legal and professional 1,389 1,341 5,596 4,741
Research and
development 1,075 877 2,977 3,169
Purchased in-process
research and
development -- -- 83 --
Other selling, general
& administrative 11,281 12,702 42,718 50,061
Total selling,
general &
administrative
expenses 18,334 19,635 78,535 82,950
INCOME (LOSS) FROM
OPERATIONS 3,029 (279) 3,401 5,734
OTHER INCOME (EXPENSE),
net 552 (549) (719) (3,111)
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES 3,581 (828) 2,682 2,623
PROVISION FOR INCOME
TAXES (2,196) (1,427) (3,298) (5,228)
NET INCOME (LOSS) $1,385 $(2,255) $(616) $(2,605)
PER SHARE INFORMATION:
Basic and diluted net
income (loss)per
common share $0.10 $(0.17) $(0.05) $(0.20)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING:
Basic 13,295 13,340 13,269 13,321
Diluted 13,444 13,340 13,269 13,321
OTHER DATA:
Depreciation $1,177 $1,335 $4,132 $4,740
Amortization 1,115 1,013 3,790 4,180
Total depreciation
and amortization $2,292 $2,348 $7,922 $8,920
Depreciation and
amortization included
in the following
captions:
Cost of goods sold $729 $720 $2,562 $2,920
Research and
development 27 55 88 140
Other selling,
general &
administrative 1,536 1,573 5,272 5,860
Total depreciation
and amortization $2,292 $2,348 $7,922 $8,920
SEGMENT INFORMATION:
Quarter Ended
January 1, 2005
Inter- Elimina-
U.S. national tions Total
Net sales $51,247 $2,718 $-- $53,965
Gross profit (loss) 21,197 166 -- 21,363
Research and
development -- 1,075 -- 1,075
Other selling, general
& administrative 9,756 1,525 -- 11,281
Income (loss) from
operations 5,723 (2,694) -- 3,029
Year Ended
January 1, 2005
Inter- Elimina-
U.S. national tions Total
Net sales $204,406 $7,272 $-- $211,678
Gross profit (loss) 82,187 (251) -- 81,936
Research and
development 536 2,441 -- 2,977
Purchased in-process
research and
development -- 83 -- 83
Other selling, general
& administrative 38,032 4,686 -- 42,718
Income (loss) from
operations 11,588 (8,187) -- 3,401
Quarter Ended
December 31, 2005
Inter- Elimina-
U.S. national tions Total
Net sales $50,635 $4,712 $97 $55,444
Gross profit (loss) 19,466 (651) 541 19,356
Research and
development 103 774 -- 877
Other selling, general
& administrative 10,624 2,078 -- 12,702
Income (loss) from
operations 3,230 (4,050) 541 (279)
Year Ended
December 31, 2005
Inter- Elimina-
U.S. national tions Total
Net sales $219,559 $19,585 $(1,194) $237,950
Gross profit (loss) 86,438 2,496 (250) 88,684
Research and
development 103 3,066 -- 3,169
Purchased in-process
research and
development -- -- -- --
Other selling, general
& administrative 42,494 7,567 -- 50,061
Income (loss) from
operations 15,389 (9,405) (250) 5,734
1-800 CONTACTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
(in thousands)
(unaudited)
ASSETS
January 1, December 31,
2005 2005
CURRENT ASSETS:
Cash $3,105 $1,481
Accounts receivable, net 3,178 3,451
Inventories, net 22,206 21,458
Deferred income taxes 1,328 1,624
Other current assets 3,944 5,530
Total current assets 33,761 33,544
PROPERTY, PLANT AND EQUIPMENT, net 20,618 29,705
DEFERRED INCOME TAXES 720 1,087
GOODWILL 34,320 35,405
DEFINITE-LIVED INTANGIBLE ASSETS, net 17,897 13,847
OTHER ASSETS 1,669 1,357
Total assets $108,985 $114,945
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $1,632 $1,633
Current portion of capital lease
obligations 47 58
Accounts payable and accrued
liabilities 22,125 24,126
Total current liabilities 23,804 25,817
LONG-TERM LIABILITIES:
Line of credit 14,404 23,746
Long-term debt, net of current
portion 8,170 6,440
Capital lease obligations, net of
current portion 98 83
Deferred income tax liabilities 1,458 --
Other long-term liabilities 2,547 1,642
Total long-term liabilities 26,677 31,911
STOCKHOLDERS' EQUITY 58,504 57,217
Total liabilities and
stockholders' equity $108,985 $114,945
SOURCE 1-800 CONTACTS, INC.
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Related links:
http://www.1800contacts.com
http://www.clearlab.com
Photo Notes:http://www.newscom.com/cgi-bin/prnh/20040107/LACONTACTSLOGO
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com
CONTACT:
Brian W. Bethers, President and Chief
Financial Officer, or Robert G. Hunter, Vice President, Finance,
both of 1-800 CONTACTS, INC., +1-801-924-9800,
investors@contacts.com
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