AccessMyLibrary provides FREE access to millions of articles from top publications available through your library.
Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good morning and welcome to the Boyds Collection financial results conference call for the second quarter and first half of 2004. Today's call is being recorded. Any conclusions or expectations drawn from statements made on this conference call concerning matters that are not historical corporate financial results are forward-looking statements that involve risks and uncertainties.
Sales patterns has historically varied in number, metric timing and there could be no assurance that the sales estimates will be accurate or that the sales prints year to date will continue. Other factors including retail inventory levels, consumer demand, product development efforts, completion of third party product manufacturing, seller reorders and order cancellations, control of operating expenses, corporate cash flow application and industry, general economic, regulatory and international trade conditions can significantly impact the company's estimated and actual sales and earnings. Actual results may vary differently from estimates and other forward-looking statements and the assumptions on which they are based.
The company undertakes no obligation to update or publish in the future any forward-looking statement. The company refers you to the documents that the company files from time to time with the Securities and Exchange Commission, such as the company's Form 10Q and 10K which contain additional important factors that could cause actual results to differ its from current expectation and from the forward-looking statements made on this conference call.
I will now turn the call over to Joseph E. Macharsky, Chief Financial Officer of Boyds. Mr. Macharsky, please begin.
JOSEPH E. MACHARSKY, CFO, THE BOYDS COLLECTION: Good morning and welcome to the Boyds Collection Limited earnings call for the second quarter of 2004 which ended on June 30th. We're glad that you could be us. I am Joe Macharsky, the Chief Financial Officer of Boyds and I will walk you through our financials for the second quarter and first half of this year. I will then turn the call over to Jan Murley, our Chief Executive Officer who will tell you about the factors driving this performance and some additional interventions that we will be employing over the next several months. Then, as always we will take any questions that you might have. So let me start with the second quarter performance.
In the second quarter of 2004, the company's net sales declined by 8%, which was primarily attributed to the wholesale segment. While the company is not pleased with this decline, it is appreciably better than the negative trend the company experienced through 2003 and into the first quarter of 2004 which was a decline of approximately 25%. The key to impacting this negative trend was the release of several new product lines that the company began shipping in the second quarter, most notably our NASCAR plush.
The company's bookings from cancelable orders for the second quarter are down 10-12% which is better than the 2003 trend that the company experienced, but lower than the trend we saw in the first quarter of 2004. This slowing can be attributed to the timing of product introduction on several product lines that were delayed to coincide with participation in the July Atlanta Gift Show.
We continue to see opportunities in the giftable business and we have being expanding our presence in retail locations with this giftable profile. In an effort to boast our collectable stores we are rolling out a Boyds home reunion or home party program which allows retailers to extend their store fronts into the homes of their consumers. This program is currently targeted at our larger retailers. The company's retail store experienced a decline in net sales of 5% compared to the same period of 2003 due to a decline in consumer traffic.
The company's net income for the second quarter decreased from 2003 by $1.7m to $5m. This decrease was caused by the reduction in sales, increase license product royalties, increase SG&A costs surrounding the national sales force, the retirement package for the company's chief operating officer and additional management overhead cost in the retail segment.
Cash provided by operations in the first six months of retail of 2004 was approximately $4.9m. In the first six months of 2004, the company utilized existing cash, and cash generated from operations to repay approximately $4m of debt and invested $4.3m of cash in property and equipment. The company is actively working to refinance its debt and plans to have a new debt structure in place by December 31st, 2004. I will now walk through three months ended June 30th, 2004 versus the three months ended June 30th, 2003.
Net sales decreased $1.9m or 8% to $22.6m in the second quarter of 2004 and $24.5m for the second quarter of 2003. Sales of Boyds plush products increased $.5m or 4%, resin product sales decreased $1.8m to 22% and other product sales decreased from $.5m or 14%. As a percentage of net sales for the quarter, plush products represented 58%, resin products represented 28% and other products represented 14%. Wholesale net sales declined $1.7m in the quarter for 8% to $19m in 2004 from $20.7m in 2003.
Retail net sales declined $.2m to $3.6m in 2004 from $3.8m in 2003. Wholesale revenues were impacted by the reduced sales of the company's resin line, specifically its Bearstone and T Beary sales For Fashion Family plush line. These reduced sales were partially offset by the strong plush sales in our newly ordered NASCAR line and from our custom plush. Retail sales were impacted by the continued slowness of consumer traffic at the Gettysburg store.
Gross profit decreased $1.9m or 12% to $13.9m in the second quarter of 2004 from $15.8m for the second quarter of 2003. Gross profit as a percentage of net sales decreased to 61% for the quarter from 65% for the same period in 2003. The dollar decreased and the percentage decreases is attributed to the decrease in sales, a decrease in the amount of costs capitalized inventory, higher transportation costs and costs associated with NASCAR royalties. The company's NASCAR product line has a lower gross margin compared to its other product lines due to the additional royalties that are paid on these products.
Wholesale gross profit decreased by $1.8m or 14% to $11.2m in 2004 from $13m in 2003. Retail gross profit decreased by $.1m or 4% to $2.7m in 2004 …