Company Projects $4.5 to $5.0 Million Operating Income From US Retail
Operations in Each of the Next Two Quarters
DRAPER, Utah, Aug. 3 /PRNewswire-FirstCall/ -- 1-800 CONTACTS, INC.
(Nasdaq: CTAC), today reported results for its second quarter ended
July 3, 2004.
(Logo: http://www.newscom.com/cgi-bin/prnh/20040107/LACONTACTSLOGO )
Consolidated net sales for the second quarter ended July 3, 2004 were
$50.0 million, compared to $46.4 million for the comparable quarter of the
prior year, an 8% increase. For the second quarter of fiscal 2004, the
Company reported a consolidated net loss of $(1.1) million, or $(0.09) per
diluted common share, compared to consolidated net income of $0.6 million, or
$0.04 per diluted common share for the second quarter of fiscal 2003.
Jonathan Coon, Chief Executive Officer, said, "We have two businesses -- a
profitable US retail business, and a startup international manufacturing
business, ClearLab (operating in the UK and Singapore). We discuss these
operations separately in this press release to make it easier to understand
the operating results for these two very different activities."
Net sales and operating income for our retail business for the second
quarter ended July 3, 2004 were $48.8 million and $1.8 million, respectively.
This compares to net sales of $49.5 million and a loss of $(1.2) million for
the first quarter ended April 3, 2004, and net sales of $44.7 million and
operating income of $3.0 million for the second quarter ended June 28, 2003.
Gross profit improved to 40.7% in the second quarter of fiscal 2004 from 38.3%
in the first quarter of fiscal 2004. During the quarter, the retail business
realized the benefits of the improved pricing arrangements negotiated from
vendors during the latter part of 2003 as well as benefits from increased
retail pricing on orders placed through the call center.
Brian Bethers, President and Chief Financial Officer, said, "Our retail
sales for the quarter were negatively impacted by a full quarter of increased
cancellations under the new federal legislation that went into effect in
February 2004. Cancellations, at more than 20% of total orders in the first
half of this year, were approximately 70% higher than in the first half of
2003. However, we believe that our cancellation rate has peaked and will
decline during the third quarter."
During the second quarter of fiscal 2004, the retail business incurred
operating expenses of $9.6 million, or 19.7% of net sales, compared to
$8.6 million, or 19.2 % of net sales for the second quarter ended June 28,
2003. Consolidated legal and professional expenses for the second quarter of
fiscal 2004 decreased $0.4 million from the comparable quarter of the prior
year and decreased $0.5 million from the first quarter of fiscal 2004. "With
the federal law passed, FTC rules finalized, agreements in place with major
suppliers, and acquisitions completed, we expect legal and professional
expenses to decline for the balance of the year," said Brian Bethers.
Mr. Bethers added, "We see significant improvement in our financial
results ahead for our retail business. We are projecting net sales of
$51 million to $53 million and operating income of $4.5 million to
$5.0 million in the third quarter with advertising expenditures of
$6.0 million to $6.5 million. For the fourth quarter, we are projecting net
sales of $44.0 to $46.0 million and operating income of $4.5 million to
$5.0 million with advertising expenditures of approximately $4.0 million."
Mr. Bethers continued, "This planned reduction in advertising and sales in
the fourth quarter is consistent with our strategy since inception. Most
other companies are heavily driven by the holiday selling season and drive up
ad costs while simultaneously driving down response rates. We continue to
learn from our advertising and promotions in the first and second quarter. We
have made much better use of our advertising dollars both online and offline
recently and believe there is still more room for improvement. Our
projections for the third quarter of fiscal 2004 reflect a 5% to 9% increase
in sales versus the second quarter despite a projected drop in advertising
expenditures of nearly $1 million. We have also been reviewing all of our
operating costs. In addition to increasing sales to leverage the
infrastructure we have built, we have identified numerous ways to operate the
business more efficiently."
Mr. Coon commented on results at ClearLab by saying, "To date, sales at
ClearLab have been disappointing. We originally went to market with good
products, but an incomplete offering. Since the launch of our full family of
products including toric lenses and our new all-day comfort daily disposable
in the second quarter, we have seen demand accelerate. While daily
disposables remain a single digit percentage of the US market, daily lenses
represent a majority of new fits in many European countries."
Mr. Bethers added, "We believe that ClearLab will contribute to operating
income in 2005, but will require continued investment in 2004. For the second
quarter of fiscal 2004, net sales and operating loss for ClearLab were
$1.2 million and $(2.3) million, respectively. We are projecting sales for
ClearLab of $1.6 million to $2.3 million and operating losses of
$(1.5) million to $(2.0) million. Sales will depend largely on our ability to
produce sufficient quantities of our new daily lens. For the fourth quarter,
we are projecting sales of $3.5 million to $4.5 million and operating losses
of $(0.5) million to $(1.0) million. We also expect to fund $1.5 million of
capital expenditures at ClearLab in each of the next two quarters -- primarily
for expansion of our daily lens capacity in response to demand. More
information on ClearLab is available at our website, clearlab.com."
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.contacts.com, the Company sells all of the popular brands of contact
lenses. 1-800 CONTACTS offers products at competitive prices, while delivering
a high level of customer service.
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, integrations and growth of the Company's acquisitions into its
business, exchange rate fluctuations, advertising spending and effectiveness,
unanticipated costs and unrealized benefits associated with the Company's
agreements with Johnson & Johnson Vision Care and CIBAVision, the Company's
doctor referral program with Cole National, research and development
initiatives, prescription verification requirements of The Fairness to Contact
Lens Consumers Act, and other regulatory considerations. Information on our
corporate websites 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 Two Quarters Ended
June 28, July 3, June 28, July 3,
2003 2004 2003 2004
NET SALES $46,354 $49,971 $93,016 $100,820
COST OF GOODS SOLD 28,580 30,698 59,140 62,251
Gross profit 17,774 19,273 33,876 38,569
OPERATING EXPENSES:
Advertising 3,586 7,224 7,380 16,039
Legal and professional 1,755 1,341 3,376 3,181
Research and development 197 443 2,000 1,335
Purchased in-process
research and development -- -- -- 83
Other operating 10,104 10,766 18,753 20,648
Total operating
expenses 15,642 19,774 31,509 41,286
INCOME (LOSS) FROM OPERATIONS 2,132 (501) 2,367 (2,717)
OTHER EXPENSE, net (323) (699) (823) (1,055)
INCOME (LOSS) BEFORE BENEFIT
(PROVISION) FOR INCOME TAXES 1,809 (1,200) 1,544 (3,772)
BENEFIT (PROVISION) FOR
INCOME TAXES (1,249) 52 (1,472) 418
NET INCOME (LOSS) $560 $(1,148) $72 $(3,354)
PER SHARE INFORMATION:
Basic and diluted net income
(loss) per common share $0.04 $(0.09) $0.01 $(0.25)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING:
Basic 12,552 13,286 12,269 13,237
Diluted 12,762 13,286 12,493 13,237
OTHER DATA:
Depreciation $780 $990 $1,515 $1,879
Amortization 821 943 1,493 1,730
Total depreciation and
amortization $1,601 $1,933 $3,008 $3,609
Depreciation and amortization
included in the following
captions:
Cost of goods sold $301 $660 $601 $1,122
Research and development 3 20 5 38
Other operating 1,297 1,253 2,402 2,449
Total depreciation and
amortization $1,601 $1,933 $3,008 $3,609
SEGMENT INFORMATION:
Quarter Ended
June 28, 2003 July 3, 2004
Inter- Inter-
U.S. national Total U.S. national Total
Net sales $44,701 $1,653 $46,354 $48,742 $1,229 $49,971
Gross profit
(loss) 17,045 729 17,774 19,825 (552) 19,273
Research and
development 147 50 197 -- 443 443
Other operating
expense 8,592 1,512 10,104 9,606 1,160 10,766
Income (loss)
from operations 3,055 (923) 2,132 1,835 (2,336) (501)
Two Quarters Ended
June 28, 2003 July 3, 2004
Inter- Inter-
U.S. national Total U.S. national Total
Net sales $89,832 $3,184 $93,016 $98,193 $2,627 $100,820
Gross profit
(loss) 32,793 1,083 33,876 38,755 (186) 38,569
Research and
development 1,909 91 2,000 536 799 1,335
Purchased
in-process
research and
development -- -- -- -- 83 83
Other operating
expense 16,617 2,136 18,753 18,575 2,073 20,648
Income (loss)
from operations 3,666 (1,299) 2,367 686 (3,403) (2,717)
1-800 CONTACTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
(in thousands)
(unaudited)
ASSETS
January 3, July 3,
2004 2004
CURRENT ASSETS:
Cash $1,075 $330
Accounts receivable, net 944 1,210
Inventories, net 24,127 25,166
Prepaid income taxes 797 193
Deferred income taxes 548 900
Other current assets 1,752 3,448
Total current assets 29,243 31,247
PROPERTY, PLANT AND EQUIPMENT, net 13,183 17,346
DEFERRED INCOME TAXES 710 922
GOODWILL 33,853 33,768
DEFINITE-LIVED INTANGIBLE ASSETS, net 9,207 16,325
OTHER ASSETS 735 973
Total assets $86,931 $100,581
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $3,381 $1,253
Current portion of capital lease obligations 191 158
Accounts payable and accrued liabilities 13,405 15,471
Total current liabilities 16,977 16,882
LONG-TERM LIABILITIES:
Line of credit -- 17,420
Long-term debt, less current portion 14,683 8,566
Capital lease obligations, less current portion 64 56
Deferred income tax liabilities -- 2,545
Total long-term liabilities 14,747 28,587
STOCKHOLDERS' EQUITY 55,207 55,112
Total liabilities and stockholders' equity $86,931 $100,581
SOURCE 1-800 CONTACTS, INC.
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Related links:
http://www.contacts.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 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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