DRAPER, Utah, Nov. 7 /PRNewswire-FirstCall/ -- 1-800 CONTACTS, INC.
(Nasdaq: CTAC), today reported results for its fiscal 2006 third quarter
ended September 30, 2006.
(Logo: http://www.newscom.com/cgi-bin/prnh/20040107/LACONTACTSLOGO)
Third Quarter Results
Consolidated net sales for the third quarter ended September 30, 2006
were $64.3 million, compared to $60.9 million for the comparable quarter of
the prior year. For the third quarter of fiscal 2006, the Company reported
a consolidated net loss of $(1.5) million, or $(0.11) per diluted common
share, compared to a consolidated net loss of $(0.6) million, or $(0.04)
per diluted common share, for the third quarter of fiscal 2005.
U.S. Retail
Net sales and operating income for the Company's U.S. retail business
for the third quarter of fiscal 2006 were $59.2 million and $5.1 million,
respectively, compared to net sales of $55.8 million and operating income
of $3.4 million for the third quarter of fiscal 2005.
Gross margin for the Company's U.S. retail business decreased to 38.8%
for the third quarter of fiscal 2006 from 39.3% for the third quarter of
fiscal 2005.
Advertising expense for the third quarter of fiscal 2006 was $2.6
million less than the third quarter of fiscal 2005.
During the third quarter of fiscal 2006, other selling, general and
administrative expenses as a percentage of net sales for the U.S. retail
business increased to 21.6% from 19.7% in the third quarter of fiscal 2005.
ClearLab
Net sales and operating loss for ClearLab, the Company's international
contact lens manufacturing business, for the third quarter of fiscal 2006
were $5.1 million and $(4.6) million, respectively, compared to net sales
of $6.0 million and an operating loss of $(1.4) million for the third
quarter of fiscal 2005. ClearLab's net sales for the third quarters of
fiscal 2006 and 2005 included $1.0 million in license fees from the
Company's Japanese license agreement. In addition, ClearLab's net sales for
the third quarter of fiscal 2005 included $0.9 million of intercompany
sales to the Company's U.S. retail business.
For the third quarter of fiscal 2006, ClearLab's operating results
included a $1.0 million increase in research and development expense and a
$1.4 million increase in other selling, general and administrative
expenses.
The change in consolidated other income (expense) for the third quarter
of fiscal 2006 was principally due to unrealized foreign exchange
transaction gains related primarily to intercompany loans to ClearLab.
Strategic Review of ClearLab
The Company, with the assistance of its investment banking advisor,
Sonenshine Partners, has completed the first round of its strategic review
of ClearLab. Jonathan Coon, Chief Executive Officer, remarked, "In the last
90 days, we have met with numerous third parties who have expressed
interest in AquaSoft Singles and other technology developed by ClearLab.
Based on these discussions, we are now committed to a separation of
ClearLab from the U.S. retail business and expect to announce terms by the
end of March 2007."
2006 and 2007 Outlook
For the fourth quarter of fiscal 2006, the Company expects U.S. retail
net sales of approximately $51 million and operating income of
approximately $4 million. These expected results are comparable to the
results for the fourth quarter of the prior year and are consistent with
the Company's historical seasonality in the fourth quarter.
For fiscal year 2006, the Company expects U.S. retail net sales of
approximately $227 million and operating income of approximately $22
million. Brian Bethers, President, added, "For the first three quarters of
2006, the retail business has performed above expectations despite a
significant reduction in advertising spending. This has largely been due to
improved efficiency and effectiveness of our marketing -- in particular our
online marketing. We intend to increase our advertising spending in 2007 to
approximately $18 million. We believe that this level of advertising
spending will deliver a meaningful increase in revenue and an operating
income of $23 million to $26 million in 2007 for our U.S. retail business."
The Company expects ClearLab's net sales and operating loss for the
fourth quarter of fiscal 2006 to be similar to those reported for the third
quarter of fiscal 2006 excluding any potential costs or accounting charges
resulting from a possible consolidation of ClearLab's operations. Mr.
Bethers added, "Over the last several months, we have undergone an
extensive review of ClearLab's manufacturing operations. Subject to any
consultation that may be necessary under United Kingdom law, we are
evaluating a consolidation of ClearLab's manufacturing, research and
development operations which are currently carried out in the Singapore and
United Kingdom manufacturing facilities."
New Director Appointment
Grange Johnson recently joined 1-800 CONTACTS' Board of Directors. Mr.
Coon, also Chairman of the Board, commented, "Grange Johnson has been a
long-term investor in 1-800 CONTACTS and is one of our largest
shareholders. We are excited about having him on our Board." Mr. Johnson
added, "I am pleased to be joining the Board of this exciting and growing
company at an inflection point in its history."
Mr. Johnson founded LaGrange Capital Partners, an asset management firm
with over $300 million in assets under management, in May 2000. Bloomberg
Markets Magazine ranked LaGrange as the highest returning event driven fund
in the world for the three year period ended September 2005. LaGrange also
received the 2003 GAIM award for the best event driven fund with a three to
four year track record. Mr. Johnson holds a BA from Brown University and an
MBA from Columbia Business School.
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 markets outside of the United
States. More information about ClearLab can be found at its website,
http://www.clearlab.com.
Forward-looking Statements
This news release contains a number of statements about the Company's
future business prospects which are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements in this release include all statements which are
not purely historical and include, but are not necessarily limited to,
statements relating to the Company's commitment to a separation of ClearLab
from the U.S. retail business; the Company's intention to announce terms of
that separation by the end of March 2007; anticipated net sales and
operating income for the fourth quarter of fiscal 2006 and fiscal years
2006 and 2007; the Company's intention to increase advertising spending in
fiscal 2007; and any statements relating to the potential consolidation of
ClearLab operations. All such forward-looking statements are based upon
information available to 1-800 CONTACTS as of the date hereof, and the
Company disclaims any intention or obligation to update any such
forward-looking statements. Actual results could differ materially from
current expectations. Factors that could cause or contribute to such
differences include, among others: general economic conditions, the health
and size of the contact lens industry, consumer acceptance of ClearLab's
products, product health benefits, the outcome of the strategic review of
ClearLab, inventory acquisition and management, manufacturing operations,
governmental regulations, exchange rate fluctuations, advertising spending
and effectiveness, 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,
other regulatory considerations, and the other risks and uncertainties
identified in the reports filed from time to time by 1-800 CONTACTS with
the U.S. Securities and Exchange Commission, including the Company's most
recent Annual Report on Form 10-K. 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 Three Quarters Ended
October 1, September 30, October 1, September 30,
2005 2006 2005 2006
NET SALES $60,858 $64,329 $182,506 $190,975
COST OF GOODS SOLD 37,706 40,427 113,178 119,963
Gross profit 23,152 23,902 69,328 71,012
SELLING, GENERAL &
ADMINISTRATIVE
EXPENSES:
Advertising 6,606 3,977 20,264 11,663
Legal and professional 1,210 1,307 3,400 3,555
Research and
development 426 1,388 2,292 4,353
Other selling, general
& administrative 13,538 16,657 37,359 46,258
Total selling,
general &
administrative
expenses 21,780 23,329 63,315 65,829
INCOME FROM OPERATIONS 1,372 573 6,013 5,183
OTHER INCOME (EXPENSE),
net (755) (55) (2,562) 610
INCOME BEFORE PROVISION
FOR INCOME TAXES 617 518 3,451 5,793
PROVISION FOR INCOME
TAXES (1,191) (2,053) (3,801) (8,185)
NET LOSS $(574) $(1,535) $(350) $(2,392)
PER SHARE INFORMATION:
Basic and diluted
net loss per
common share $(0.04) $(0.11) $(0.03) $(0.18)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING:
Basic and diluted 13,329 13,366 13,315 13,357
OTHER DATA:
Depreciation $1,235 $1,776 $3,405 $4,682
Amortization 1,046 907 3,167 2,893
Total depreciation
and amortization $2,281 $2,683 $6,572 $7,575
Depreciation and
amortization included
in the following
captions:
Cost of goods sold $797 $965 $2,200 $2,557
Research and
development 32 124 85 235
Other selling,
general &
administrative 1,452 1,594 4,287 4,783
Total depreciation
and amortization $2,281 $2,683 $6,572 $7,575
SEGMENT INFORMATION:
Quarter Ended
October 1, 2005
U.S. International Eliminations Total
Net sales $55,791 $5,984 $(917) $60,858
Gross profit (loss) 21,928 1,841 (617) 23,152
Research and development -- 426 -- 426
Other selling, general
& administrative 10,998 2,540 -- 13,538
Income (loss) from
operations 3,367 (1,378) (617) 1,372
Depreciation and
amortization $1,236 $1,045 $-- $2,281
Quarter Ended
September 30, 2006
U.S. International Eliminations Total
Net sales $59,189 $5,140 $-- $64,329
Gross profit (loss) 22,968 934 -- 23,902
Research and development -- 1,388 -- 1,388
Other selling, general
& administrative 12,762 3,895 -- 16,657
Income (loss) from
operations 5,125 (4,552) -- 573
Depreciation and
amortization $1,358 $1,325 $-- $2,683
Three Quarters Ended
October 1, 2005
U.S. International Eliminations Total
Net sales $168,924 $14,873 $(1,291) $182,506
Gross profit (loss) 66,972 3,147 (791) 69,328
Research and development -- 2,292 -- 2,292
Other selling, general
& administrative 31,870 5,489 -- 37,359
Income (loss) from
operations 12,159 (5,355) (791) 6,013
Depreciation and
amortization $3,630 $2,942 $-- $6,572
Three Quarters Ended
September 30, 2006
U.S. International Eliminations Total
Net sales $176,096 $14,879 $-- $190,975
Gross profit (loss) 69,366 1,393 253 71,012
Research and development 10 4,343 -- 4,353
Other selling, general
& administrative 37,044 9,214 -- 46,258
Income (loss) from
operations 17,886 (12,956) 253 5,183
Depreciation and
amortization $4,094 $3,481 $-- $7,575
1-800 CONTACTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
(in thousands)
(unaudited)
ASSETS
December 31, September 30,
2005 2006
CURRENT ASSETS:
Cash $1,481 $1,538
Accounts receivable, net 3,451 3,483
Inventories, net 21,458 21,988
Deferred income taxes 1,624 1,955
Other current assets 5,530 5,151
Total current assets 33,544 34,115
PROPERTY, PLANT AND EQUIPMENT, net 29,705 31,791
DEFERRED INCOME TAXES 1,087 1,007
GOODWILL 35,405 36,742
DEFINITE-LIVED INTANGIBLE ASSETS, net 13,847 11,958
OTHER ASSETS 1,357 1,253
Total assets $114,945 $116,866
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $-- $27,216
Current portion of long-term debt 1,633 2,404
Current portion of capital lease obligations 58 25
Accounts payable and accrued liabilities 24,126 24,103
Total current liabilities 25,817 53,748
LONG-TERM LIABILITIES:
Line of credit 23,746 --
Long-term debt, net of current portion 6,440 4,816
Capital lease obligations, net of current
portion 83 46
Other long-term liabilities 1,642 848
Total long-term liabilities 31,911 5,710
STOCKHOLDERS' EQUITY 57,217 57,408
Total liabilities and
stockholders' equity $114,945 $116,866
SOURCE 1-800 CONTACTS, INC.
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Related links:
http://www.1800contacts.com
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CONTACT:
Brian W. Bethers, President, or Robert G.
Hunter, CFO, both of 1-800 CONTACTS, INC., +1-801-316-5000,
investors@contacts.com
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