YCC Yankee Cdle

The Yankee Candle Company, Inc. ("Yankee" or the "Company"; NYSE:YCC) today announced financial results for the second quarter ended July 1, 2006. Earnings per common share on a diluted basis decreased 37% to $0.12 from $0.19 for the prior year quarter. Total sales for the second quarter were $116.3 million, a 7% increase over the year ago quarter. "Second quarter 2006 results were in line with the expectations we previewed in mid-July", commented Craig Rydin, Chairman and Chief Executive Officer. "While total revenue was in line with our original outlook for the quarter, Wholesale sales fell short of our expectations and eclipsed a strong performance in our Retail segment. While this was a difficult quarter, we recognize our team's hard work, and appreciate their continued dedication as we enter the important second half selling season." Second Quarter Highlights: -- Retail sales were $59.1 million, an 18% increase over the fiscal 2005 second quarter. Comparable sales in the 337 retail stores including the South Deerfield flagship store that have been open for more than one year increased 8%. Comparable sales in the 336 retail stores excluding the South Deerfield flagship store increased 10%. Consumer Direct increased 35% over the fiscal 2005 second quarter. Including Consumer Direct, total retail comparable sales increased 10%. -- Wholesale sales were $57.2 million in the second quarter, a decrease of 3% over the year ago quarter. -- Gross profit increased 2% to $63.1 million for the second quarter versus the prior year quarter. As a percentage of sales, gross profit decreased to 54.3% compared to 57.0% for the prior year quarter, driven primarily by softer sales to the core gift channel and certain national accounts along with tighter inventory management at some national accounts. Gross profit rates were also negatively impacted as a result of increased promotional costs and higher wax, freight and energy-related costs. -- Income from operations for the second quarter decreased 28% to $11.5 million, from $16.0 million for the second quarter of 2005. Six Months Ended July 1, 2006 Highlights: -- Retail sales were $120.7 million for the first six months of 2006, a 19% increase over the first six months of fiscal 2005. Comparable sales in the 337 retail stores including the South Deerfield flagship store that have been open for more than one year increased 6%. Comparable sales in the 336 retail stores excluding the South Deerfield flagship store increased 7%. Consumer Direct increased 45% over the first six months of fiscal 2005. Including Consumer Direct, total retail comparable sales increased 9%. -- Wholesale sales were $129.5 million for the first six months of fiscal 2006, an increase of 3% over the first six months of fiscal 2005. -- Gross profit increased 7% to $135.1 million for the first six months of fiscal 2006 versus the prior year comparable period. As a percentage of sales, gross profit decreased to 54.0% compared to 55.6% for the prior year, driven primarily by softer sales to the core gift channel and certain national accounts along with tighter inventory management at some national accounts. Gross profit rates were also negatively impacted as a result of increased promotional costs and higher wax, freight, and energy-related costs. -- Income from operations for the first six months of fiscal 2006 decreased 12% to $30.7 million, from $34.8 million for the first six months of fiscal 2005. Craig Rydin continued, "Our Retail division benefited from continued strong execution and our emphasis on newness and excitement in store displays and customer communications. Both our Mother's Day and Summer Clearance events were successful, with higher average ticket and traffic levels enabling us to exceed our comparable sales growth outlook. We expect the very tight inventory constraints that our Wholesale customers applied in the second quarter to loosen in preparation for the fall and holiday selling seasons, and we are experiencing strong early acceptance of our second half products. Additionally, our performance with new customers and new brand launches, particularly in the premium mass channel, was solid in the second quarter and remains promising going into the third. We are on track to implement a price increase for the beginning of September designed to help offset the wax, freight and energy-related costs impacting our business." Share Repurchases During the second quarter, the Company repurchased and retired approximately 1.4 million shares of its Common Stock at a total cost of approximately $42.0 million. Approximately $23.0 million remains outstanding pursuant to its stock repurchase program announced on July 27, 2005. Separate News Announcement In a separate news release today, Yankee Candle announced it has entered into a definitive agreement with Candle Acquisition Co., d/b/a/ Illuminations to acquire the Illuminations (R) brand, together with certain related assets including 15 Illuminations retail stores and the consumer direct business, for a purchase price of $22 million, subject to adjustment in accordance with the terms of the agreement. Pursuant to the agreement, those Illuminations stores not being acquired by the Company will be phased out by the seller over time. The transaction is currently expected to close by August 1, 2006, subject to the satisfaction of customary closing conditions. Forecast Highlights: The Company also provided its sales and EPS guidance for the fiscal 2006 third quarter and full year. As is customary for Yankee Candle Company, this guidance excludes any impact of any future share repurchases. -- For the third quarter of 2006, the Company expects approximately 7%-9% total sales growth and earnings per diluted common share of $0.28 to $0.30 versus $0.35 in the third quarter of 2005. -- The Company anticipates the 2006 diluted EPS to be in a range of $1.93 per share to $2.03 per share, including the tax benefit of $0.05 per share in the first quarter of 2006. Excluding this tax benefit, the Company projects 2006 diluted EPS of $1.88 to $1.98, which compares to the Company's previous guidance of $2.01 to $2.07 and to fiscal 2005 diluted EPS of $1.73. This guidance does not include the impact of any future share repurchase activity by the Company. Total sales growth for the full year 2006 is expected to be in a range of approximately 8% to 10% over prior year. -- This guidance does not yet include any effect from the pending Illuminations acquisition, though the Company expects this acquisition to be mid-single digit dilutive this year. The Company will provide updated guidance including Illuminations at its Third Quarter conference call at which point the transaction is expected to have closed. Mr. Rydin concluded, "Yankee Candle is well prepared for the second half selling season with strongly positioned merchandising and marketing plans. We continue to feel positive about our retail performance, and as you know the conversion rate in the fourth quarter is quite strong compared to earlier quarters. Additionally, we should benefit from our September price increase, particularly on top of the increase last November. We remain cautious on gross profit rates in Wholesale due to our belief that softness in the core gift channel may persist in the second half. However, given an improving open to buy environment in advance of the holiday selling season, incremental space in certain national accounts and the strength of our fall/holiday programs, we believe that overall wholesale performance in the second half will improve." Considering Strategic Alternatives The Company also announced today that its Board of Directors has authorized the Company to retain the services of Lehman Brothers to assist the Company in an analysis and consideration of potential strategic alternatives to enhance shareholder value, including a potential sale of the Company. Mr. Rydin stated "We are confident in our business strategy and optimistic about our future financial performance. We and our Board of Directors also believe that we owe it to our shareholders to explore whether there are strategic alternatives available to us that would optimize shareholder value. During this process, it will be business as usual for all facets of the Yankee Candle operations and we remain focused on executing our second half plan." The Company cautions that there can be no assurance that the exploration of strategic alternatives will result in a transaction. The Company does not intend to disclose developments with respect to the exploration of strategic alternatives unless and until its Board of Directors has made a decision regarding a specific transaction. Earnings Conference Call: The Company will host a conference call to be broadcast via the Internet at 1:00 p.m. (EST) this afternoon to more fully discuss fiscal 2006 second quarter results and outlook. This call is being webcast by CCBN and can be accessed at The Yankee Candle Company's web site at www.yankeecandle.com. Click on the "About Us" link, and then select the "Investor Information" link. Enter your registration information ten minutes prior to the start of the conference. About Yankee Candle The Yankee Candle Company, Inc. is the leading designer, manufacturer, wholesaler and retailer of premium scented candles, based on sales, in the giftware industry. Yankee has a 36-year history of offering distinctive products and marketing them as affordable luxuries and consumable gifts. The Company sells its products through a North American wholesale customer network of approximately 17,250 store locations, a growing base of Company owned and operated retail stores (385 located in 42 states as of July 1, 2006), direct mail catalogs, its Internet website (www.yankeecandle.com), international distributors and to a European wholesale customer network of approximately 2,340 store locations (through its distribution center located in Bristol, England). This press release contains certain information constituting "forward-looking statements" for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to the statements contained herein with respect to management's current estimates of the Company's financial and operating results for Fiscal 2006, and the third quarter thereof, management's current expectations regarding the pending Illuminations acquisition, its plan to operate the acquired business and any impact thereof on the Company's financial and operating results, the growth initiatives and specific actions discussed above and their impact on the Company's future operating results, and any other statements concerning the Company's or management's plans, objectives, goals, strategies, expectations, estimates, beliefs or projections, or any other statements concerning future performance or events. Actual results could differ materially from those indicated by these forward-looking statements as a result of various risks and uncertainties, including but not limited to the following: the current economic conditions in the United States as a whole and the continuing weakness in the retail environment; the risk that we will be unable to maintain our historical growth rate; the effects of competition from others in the highly competitive giftware industry; our ability to anticipate and react to industry trends and changes in consumer demand; our dependence upon our senior executive officers; the risk of loss of our manufacturing and distribution facilities; the impact on our stock price of seasonal, quarterly and other fluctuations in our business; the risk of any disruption in wax supplies; and other factors described or contained in the Company's most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K on file with the Securities and Exchange Commission. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update certain forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if experience or future events may cause the views contained in any forward-looking statements to change. -0- *T The Yankee Candle Company, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except per share data) (Unaudited) Thirteen Weeks Thirteen Weeks Ended Ended July 1, 2006 July 2, 2005 ---------------- ---------------- Sales: Retail $59,068 50.81% $49,889 45.96% Wholesale 57,183 49.19% 58,659 54.04% ---------------- ---------------- Total sales 116,251 100.00% 108,548 100.00% Cost of sales 53,115 45.69% 46,694 43.02% ---------------- ---------------- Gross profit 63,136 54.31% 61,854 56.98% Retail 31,234 52.88%(A) 27,891 55.91%(A) Wholesale 5,348 9.35%(B) 4,231 7.21%(B) ---------------- ---------------- Total selling expenses 36,582 31.47% 32,122 29.59% General & administrative expenses 15,056 12.95% 13,742 12.66% ---------------- ---------------- Income from operations 11,498 9.89% 15,990 14.73% Interest income (6) 0.00% (6) -0.01% Interest expense 3,740 3.22% 1,526 1.41% Other (income) expense (148) -0.13% 479 0.44% ---------------- ---------------- Income before provision for income taxes 7,912 6.81% 13,991 12.89% Provision for income taxes 3,086 2.65% 5,457 5.03% ---------------- ---------------- Net income $4,826 4.15% $8,534 7.86% ================ ================ Basic earnings per share $0.12 $0.19 ======== ======== Diluted earnings per share $0.12 $0.19 ======== ======== Weighted avg. basic shares outstanding 40,412 45,048 Weighted avg. diluted shares outstanding 40,791 45,594 ------------------------------- (A) Retail selling expenses as a percentage of retail sales. (B) Wholesale selling expenses as a percentage of wholesale sales. The Yankee Candle Company, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except per share data) (Unaudited) Twenty-Six Twenty-Six Weeks Weeks Ended Ended July 1, 2006 July 2, 2005 ----------------- ----------------- Sales: Retail $120,704 48.25% $101,709 44.65% Wholesale 129,460 51.75% 126,094 55.35% ----------------- ----------------- Total sales 250,164 100.00% 227,803 100.00% Cost of sales 115,051 45.99% 101,118 44.39% ----------------- ----------------- Gross profit 135,113 54.01% 126,685 55.61% Retail 63,210 52.37%(A) 56,231 55.29%(A) Wholesale 10,638 8.22%(B) 8,384 6.65%(B) ----------------- ----------------- Total selling expenses 73,848 29.52% 64,615 28.36% General & administrative expenses 30,520 12.20% 27,274 11.97% ----------------- ----------------- Income from operations 30,745 12.29% 34,796 15.27% Interest income (13) -0.01% (12) -0.01% Interest expense 6,529 2.61% 2,462 1.08% Other (income) expense (294) -0.12% 697 0.31% ----------------- ----------------- Income before provision for income taxes 24,523 9.80% 31,649 13.89% Provision for income taxes 7,226 2.89% 12,343 5.42% ----------------- ----------------- Net income $17,297 6.91% $19,306 8.47% ================= ================= Basic earnings per share $0.42 $0.42 ========= ========= Diluted earnings per share $0.42 $0.42 ========= ========= Weighted avg. basic shares outstanding 40,714 45,963 Weighted avg. diluted shares outstanding 41,066 46,453 Basic EPS before Q1 Tax Adjustment 0.37 Diluted EPS before Q1 Tax Adjustment 0.36 ------------------------------ (A) Retail selling expenses as a percentage of retail sales. (B) Wholesale selling expenses as a percentage of wholesale sales. The Yankee Candle Company, Inc. And Subsidiaries Condensed Consolidated Balance Sheets (in thousands) ASSETS July December 1, 31, 2006 2005 ----------- ----------- (unaudited) Current Assets: Cash and cash equivalents $9,604 $12,655 Accounts receivable, net 32,447 42,546 Inventory 71,504 55,528 Prepaid expenses and other current assets 11,891 9,060 Deferred tax assets 5,462 6,734 ----------- ----------- Total Current Assets 130,908 126,523 Property, Plant And Equipment, net 134,009 139,089 Marketable Securities 2,274 2,223 Deferred Financing Costs 743 593 Deferred Tax Assets 71,807 73,975 Other Assets 13,368 12,731 ----------- ----------- Total Assets $353,109 $355,134 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $11,488 $21,068 Accrued payroll 10,329 14,319 Accrued income taxes - 20,828 Other accrued liabilities 14,698 34,326 Short-term debt 10,000 - ----------- ----------- Total Current Liabilities 46,515 90,541 Deferred Compensation Obligation 2,364 2,418 Long-Term Debt 241,000 178,000 Deferred Rent 16,186 16,031 Stockholders' Equity 47,044 68,144 ----------- ----------- Total Liabilities And Stockholders' Equity $353,109 $355,134 =========== =========== The Yankee Candle Company, Inc. July 26, 2006 Earnings Release Supplemental Data Year to Quarter Date Total ----------- ----------- -------- Retail Stores 5 9 385 Wholesale Customer Locations - North America 203 866 17,250 Wholesale Customer Locations - Europe 40 140 2,340 Square Footage - Gross 5,302 11,089 784,521 Square Footage - Selling 4,391 9,116 613,645 Total Company Comp Sales Change % -10% -4% Wholesale Comp Sales Change % -18% -10% Retail Comp Store Sales Change % 8% 6% Retail Comp Store Count 337 - 337 Retail Comp Store Sales Change %, excl. S.Deerfield 10% 7% Retail Comp Store & Hub Sales Change % 10% 9% Sales per Square Foot (1) - $577 Store Count - 337 Average store square footage, gross (2) - 1,657 Average store square footage, selling (2) - 1,282 Gross Profit (3) Retail $ $38,879 $77,637 Retail % 65.8% 64.3% Wholesale $ $24,257 $57,476 Wholesale % 42.4% 44.4% Segment Profit (3) Retail $ $7,645 $14,424 Retail % 12.9% 12.0% Wholesale $ $18,910 $46,838 Wholesale % 33.1% 36.2% Depreciation & Amortization (3) $6,495 $12,980 Inventory per Store $38,000 - Inventory Turns 3.2 4.3 (4) Capital Expenditures (3) $10,148 $12,427 Shares Outstanding 39,738,361 - Weighted avg diluted shares in EPS calculation 40,791,000 41,066,000 (1) Trailing 12 months, stores open for full 12 months, excluding S. Deerfield Flagship Store. (2) Excludes S. Deerfield and Williamsburg, VA Flagship stores. (3) Dollars in thousands. (4) Rolling four quarters. *T