News Releases
Brookstone Reports Record Profit and Sales for FY 2004
MERRIMACK, N.H., March 28, 2005 -- Product developer and specialty retail company Brookstone, Inc. (Nasdaq:BKST) today announced it earned a record profit in 2004 of $21.4 million, or $1.02 per diluted share. These earnings were reduced by a cumulative after tax adjustment of $1.4 million or $0.07 per diluted share related to lease accounting.
Adjusting for the cumulative impact of lease accounting, full year diluted earnings per share were $1.09, as compared to previously released guidance of $1.03 -- $1.07 per diluted share.
The lease accounting matter is discussed later in this release.
For the 52-week Fiscal Year ended January 29, 2005, Brookstone total sales climbed 14.9 percent to $499 million, compared to $434 million in 2003, while same-store sales rose 6.3 percent. The Company's Direct-Marketing profit increased 73.5 percent to $11 million, on sales that rose 20.8 percent to $91 million on a 41.5 percent increase in circulation.
For the 13-week fourth quarter ended January 29, 2005, Brookstone reported a net income of $33 million, or $1.57 per diluted share. Adjusting for the impact of the lease accounting matter, fourth quarter earnings per share were $1.63. Total sales for the comparable 13-week period rose 8.5 percent to $238 million, while same-store sales were flat. Direct-Marketing sales rose 24.5 percent to $48 million on a 46.7 percent increase in circulation.
Adjusted earnings per share, which is a non-GAAP financial measure, is presented to enhance an investor's understanding of historical and expected financial results and improve comparability of financial information from period to period.
Brookstone Chairman, President and Chief Executive Officer Michael Anthony credited the Company's record performance in 2004 to customer demand for proprietary Brookstone-branded products, as well as strong revenue growth among all the Company's sales channels.
"We are pleased with our 2004 results, particularly with our record profit and our operating income as a percent of sales, which was the highest in our Company's history, even after the impact of substantial structural increases in costs such as Sarbanes-Oxley. We are also pleased that these results follow last year's strong financial performance."
Mr. Anthony continued: "In 2004, we continued to see the benefits of our investment in our product-development infrastructure, as customer demand for products designed and engineered by Brookstone rose from 65 percent to 70 percent of sales. These products typically have a higher net margin than other products. We are also pleased that we were able to raise our product margins in 2004 over our strong performance in 2003."
Mr. Anthony added: "We're also pleased to report that all of our sales channels turned in record performances. Our stores delivered a strong 6.3 percent increase in same-store sales, driven largely by our unique product assortment. In addition, our airport store same-store sales were above the Company average. In 2004, we opened 18 Brookstone-branded stores, including three in airports, and remodeled 12 locations."
Mr. Anthony continued: "Driven by the strength of our Brookstone catalog and our website (www.brookstone.com), as well as our strategy to leverage the synergy of all of our sales channels, our Direct-Marketing business delivered another record performance, generating a 73.5 percent increase in profit over 2003. Throughout 2004, we executed our successful marketing strategy by approximately doubling the circulation of the Brookstone catalog and generating incremental revenue and profit to all of our sales channels. Additionally, our website continued its strong double-digit growth and in 2004 generated 8.7 percent of our total sales."
Mr. Anthony continued: "Our Gardeners Eden brand delivered its second consecutive year of double-digit same-store sales increases. In 2004, we opened two new stores for a total of five locations in various real-estate venues. Only when these stores achieve our return criteria, however will we consider a further rollout of the Gardeners Eden stores."
Looking ahead to fiscal year 2005, Mr. Anthony said: "In 2005, we believe we will deliver earnings of between $1.20 and $1.25 per diluted share. We base this expectation on opening approximately 20 new Brookstone stores, generating a 2 percent to 3 percent same-store sales increase, increasing the productivity of the Brookstone catalog and continuing to grow our Internet business."
Mr. Anthony concluded: "For the first quarter of 2005, we anticipate our loss will be between $0.27 and $0.30 per diluted share, compared to a first-quarter loss of $0.23 per diluted share in 2004. For the first quarter, we expect same-store sales to decrease 2 percent to 4 percent compared to a 20.1 percent same-store sales increase in the first quarter of 2004."
Because of the seasonal nature of specialty retailing, Brookstone generally incurs a loss over the first three quarters and makes its profit in the fourth quarter.
Lease Accounting
The Company recorded in the fourth fiscal quarter of 2004 a non-cash charge representing the cumulative effect of correcting an error in its accounting policy to generally accepted accounting principles related to the timing of recognition of rent expense for certain locations. Previously, the Company followed a practice in which it began recording rent expense at the time a store opened and the lease term commenced. The Company will now begin recording rent expense when it takes possession of a store, which occurs before the commencement of the lease term and approximately 60 days prior to the opening of the store. This will result in earlier recognition of rent expense for each lease, as Brookstone begins recording rent expense during the pre-opening period, but a reduction in monthly rent expense, as the total rent due under the lease is amortized over a greater number of months.
Financial results for prior periods will not be restated due to the immateriality of the impact to the fiscal 2004 and prior year financial statements. This will not affect historical or future cash flows or the timing or amounts of payments under related leases. Furthermore, it is not expected to have any material impact on future earnings.
Management is in the process of completing its evaluation of the Company's internal control over financial reporting as required by the Sarbanes Oxley Act of 2002. Although management's work is not yet complete, management believes that it may have a material weakness in its information technology control environment. The Company is evaluating compensating controls that may mitigate this potential material weakness.
Brookstone, Inc. is a product development and specialty retail company that operates 288 Brookstone Brand stores nationwide and in Puerto Rico. Typically located in high-traffic regional shopping malls, lifestyle centers and airports, the stores feature unique and innovative consumer products. The Company also operates five stores under the Gardeners Eden Brand, and a Direct-Marketing business that consists of three catalog titles -- Brookstone, Hard-to-Find Tools and Gardeners Eden -- as well as e-commerce web sites at http://www.brookstone.com and http://www.gardenerseden.com.
Statements in this release which are not historical facts, including statements about the Company's confidence or expectations, earnings, anticipated operations of its e-commerce sites and those of third-party service providers, and other statements about the Company's operational outlook, are forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those set forth in such forward-looking statements. Such risks and uncertainties include, without limitation, risks of changing market conditions in the overall economy and the retail industry, consumer demand, the effectiveness of e-commerce technology and marketing efforts, availability of products, availability of adequate transportation of such products, and other factors detailed from time to time in the Company's annual and other reports filed with the Securities and Exchange Commission. Words such as "estimate", "project", "plan", "believe", "feel", "anticipate", "assume", "may", "will", "should" and similar words and phrases may identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof. The Company undertakes no obligations to publicly release any revisions to these forward-looking statements or reflect events or circumstances after the date hereof.
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(tables follow)
Brookstone, Inc.
Consolidated Statement of Income
($ in thousands, except per share data)
(Unaudited)
Thirteen weeks ended Fifty-two weeks ended
-------------------- ---------------------
January 29, January 31, January 29, January 31,
2005 2004 2005 2004
--------------------------------------------------
Net sales $237,788 $219,085 $498,911 $434,173
Cost of sales 120,662 108,410 297,618 260,420
--------------------------------------------------
Gross profit 117,126 110,675 201,293 173,753
Selling, general
and
administrative
expenses 62,863 58,159 164,253 144,353
--------------------------------------------------
Income from
operations 54,263 52,516 37,040 29,400
Interest expense,
net 161 248 921 857
--------------------------------------------------
Income before
taxes and
other party
interest in
consolidated
entities 54,102 52,268 36,119 28,543
Income tax
provision 20,841 20,125 14,303 10,991
--------------------------------------------------
Income before
other party
interests in
consolidated
entities 33,261 32,143 21,816 17,552
Other party
interest in
consolidated
entities, net of
tax 111 -- 454 --
--------------------------------------------------
Net Income $ 33,150 $ 32,143 $ 21,362 $ 17,552
==================================================
Net Income per
share
Basic $ 1.63 $ 1.61 $ 1.06 $ 0.90
==================================================
Diluted $ 1.57 $ 1.55 $ 1.02 $ 0.87
==================================================
Weighted average
shares
outstanding
Basic 20,342 19,962 20,207 19,559
==================================================
Diluted 21,103 20,673 20,973 20,181
==================================================
Brookstone, Inc.
Consolidated Condensed Balance Sheet
($ in thousands)
-------------------------------------
January 29, 2005 January 31, 2004
---------------- ----------------
Current Assets:
Cash and cash equivalents $ 86,205 $ 69,738
Receivables, net 9,859 7,476
Merchandise inventories 75,585 66,876
Deferred income taxes, net 3,917 4,799
Other current assets 6,045 6,217
-----------------------------
Total current assets 181,611 155,106
Deferred income taxes 5,256 4,738
Property, plant and
equipment, net 74,019 53,970
Intangible assets, net 3,853 4,123
Other assets 1,741 2,390
-----------------------------
Total assets $266,480 $220,327
=============================
Liabilities and
Shareholders' Equity
Current Liabilities:
Accounts payable $ 17,402 $ 15,759
Other current liabilities 46,500 41,417
-----------------------------
Total current liabilities 63,902 57,176
Other long term
liabilities 22,432 15,676
Long term debt 8,760 1,941
Commitments and
Contingencies
Other party interest in
consolidated entities 1,100 410
Total shareholders'
equity 170,286 145,124
-----------------------------
Total liabilities and
shareholders' equity $266,480 $220,327
=============================
CONTACT: Brookstone, Inc.
Philip Roizin
EVP of Finance and Administration
(603) 880-9500
Robert Fusco
Investor Relations
(603) 880-9500