SAN FRANCISCO--(BUSINESS WIRE)--March 10, 2008--Design Within
Reach, Inc. (NASDAQ: DWRI) today announced financial results for the
fourth quarter and year ended December 29, 2007.
Fourth Quarter Results:
-- Product sales for the fourth quarter of 2007 increased 5.5% to
$48.4 million, compared to $45.9 million recorded in the
fourth quarter of 2006, primarily driven by increased studio
sales. Net sales, which are comprised of product sales and
shipping revenue, increased 3.4% to $52.0 million in the
fourth quarter of 2007 from $50.3 million in the same period
last year.
-- Gross profit margin improved to 48.2% in the fourth quarter of
2007, compared to 39.9% in the same period last year.
-- Product margin, which the Company defines as product gross
profit divided by net product sales, was 51.3% for the fourth
quarter of 2007, compared to 43.3% in the fourth quarter of
2006. For more information regarding the calculation of
product margin, please see the discussion under the heading
"Non-GAAP Financial Information" below.
-- Selling, general and administrative expenses were $21.9
million for the fourth quarter of 2007, compared to $22.9
million in the same period last year. These expenses represent
42.1% and 45.6% of net sales for the fourth quarter 2007 and
2006, respectively, and reflect increased operating leverage.
-- Income before income tax for the fourth quarter of 2007 was
$3.1 million, compared to a loss before income tax benefit of
$2.7 million in the same period last year. Net income for the
fourth quarter of 2007 was $2.3 million, or $0.16 per diluted
share, compared to a net loss of $2.0 million, or $(0.14) per
diluted share, in the fourth quarter of 2006. Income tax of
$0.8 million was recorded in the quarter ended December 29,
2007, compared to an income tax benefit of approximately $0.8
million in the same period last year.
Fiscal Year Ended December 29, 2007 Results:
-- Net sales increased 8.9% to $193.9 million for the fiscal year
2007 from $178.1 million for the same period last year.
Product sales increased 11.5% to $181.3 million compared to
$162.5 million for the same period last year.
-- Gross profit margin was 44.8%, compared to 41.8% in fiscal
year 2006.
-- Product margin was 48.4% compared to 46.2% in fiscal year
2006.
-- Selling, general and administrative expenses were $87.7
million for fiscal year 2007, compared to $87.6 million in the
same period last year. These expenses represent 45.2% and
49.1% of net sales for fiscal year 2007 and fiscal year 2006,
respectively, as the Company continued to leverage expenses.
-- Income before income tax was $1.0 million for fiscal year
2007, compared to a loss before income tax benefit of $12.9
million in fiscal year 2006. Net income for fiscal year 2007
was approximately $323,000, or $0.02 per diluted share,
compared to a net loss of $8.3 million, or $(0.58) per diluted
share, in fiscal year 2006. Income tax of approximately
$726,000 was recorded in 2007, compared to an income tax
benefit of approximately $4.6 million in fiscal year 2006. The
effective tax rate was 69% for fiscal year 2007, primarily due
to stock-based compensation expense of approximately $1.0
million, which is not deductible for tax purposes. Results
include a $1.9 million gain net of expenses and accelerated
depreciation related to the early termination of a studio
lease per an agreement between Design Within Reach and the
landlord recorded in the third quarter of 2007.
"We are very pleased with our 2007 performance, which marks a
significant milestone in Design Within Reach's turnaround," said Ray
Brunner, Chief Executive Officer. "Achieving annual profitability is
the culmination of 18 months of controlling expenses and improving
margins. We believe that through these actions we have built a
foundation that is well positioned for future growth. Looking ahead to
2008, we plan to continue to increase brand awareness and to broaden
our core audience by expanding into categories that address all
aspects of modern design for our customers' homes and lifestyles."
Net sales by sales channel were as follows:
-- Studio sales were $33.6 million in the fourth quarter of 2007,
up 8.7% from the same period last year, resulting primarily
from increased sales at existing studios driven by price
increases and a more favorable product mix and the addition of
three new studios since the end of 2006. For the year, studio
sales increased 16.9% to $126.2 million from $108.0 million in
fiscal year 2006. Design Within Reach operated 66 studios and
the DWR Annex, an outlet for returned and discontinued
merchandise in Secaucus, New Jersey, at the end of 2007,
compared to 63 studios and one outlet open at the end of 2006.
-- Direct sales (including phone sales and sales through the
Design Within Reach website) were $12.7 million in the fourth
quarter of 2007, a decrease of approximately 5.9% from $13.5
million in the fourth quarter of 2006. For fiscal year 2007,
direct sales decreased 2.4% to $48.2 million from $49.4
million for fiscal year 2006.
As of December 29, 2007, Design Within Reach had approximately
$5.7 million in cash and cash equivalents, no outstanding borrowings
under its revolving credit facility and $1.2 million in outstanding
letters of credit. The Company repaid $11.2 million under its
revolving credit facility during the fourth quarter, and had
approximately $18.8 million available for advances under its revolving
credit facility at the end of 2007. In addition, Design Within Reach
reduced inventory by $6.4 million in the fourth quarter of
2007, compared to the third quarter of 2007, due to decreased orders
for merchandise and increased use of drop-ship inventory fulfillment
from the manufacturer. The Company believes that its cash and cash
equivalents, anticipated cash flow from operations and availability
under its credit facility will provide sufficient working capital to
fund operations and anticipated capital expenditures for the next 12
months.
Guidance
Design Within Reach is maintaining its 2008 sales guidance of
approximately $200 million and diluted earnings per share guidance of
$0.03-$0.05.
Conference Call
Design Within Reach, Inc. will host a conference call today, March
10, 2008 at 1:30 p.m. Pacific (4:30 p.m. Eastern) with Ray Brunner,
President and Chief Executive Officer, and John Hellmann, Chief
Financial Officer. To access the conference call, participants in
North America should dial (888) 726-2460 and international
participants should dial (913) 312-1298. Participants are encouraged
to dial in to the conference call five to ten minutes prior to the
scheduled start time. The call will also be broadcast live over the
Internet and accessible through the Investor Relations section of the
Company's website at www.dwr.com. The webcast will also be archived
online within one hour of the completion of the conference call and
available at www.dwr.com.
Non-GAAP Financial Information
This press release presents product margin, which is a non-GAAP
financial measure within the meaning of applicable SEC rules and
regulations. The Company believes product margin is a useful financial
measure as it removes the impact of shipping revenues and expenses
from gross margin. Management believes shipping operations do not
reflect the core operations of Design Within Reach's business and do
not represent a profit center as shipping margins are expected to
trend to zero. For a reconciliation of product margin to the most
comparable GAAP measure, see the following reconciliation of GAAP
gross margin to product margin.
Amount in
thousands Thirteen Thirteen Fifty-Two Fifty-Two
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
Dec. 29, 2007 Dec. 30, 2006 Dec. 29, 2007 Dec. 30, 2006
------------- ------------- ------------- -------------
Product Sales $ 48,400 $ 45,898 $ 181,276 $ 162,540
License
Royalty Fee 5 - 16 -
Shipping
Revenue 3,589 4,367 12,644 15,602
------------- ------------- ------------- -------------
Net Sales $ 51,994 $ 50,265 $ 193,936 $ 178,142
Product Gross
Profit $ 24,825 $ 19,856 $ 87,678 $ 75,046
Product
Margin % 51.3% 43.3% 48.4% 46.2%
License Gross
Profit 3 - 11 -
License
Margin % 60.0% - 68.8% -
Shipping Gross
Profit 226 219 (767) (585)
Shipping
Margin % 6.3% 5.0% (6.1)% (3.8)%
Total Gross
Profit $ 25,054 $ 20,075 $ 86,922 $ 74,461
Total Gross
Margin % 48.2% 39.9% 44.8% 41.8%
About Design Within Reach, Inc.
Design Within Reach, Inc., founded in 1998 and headquartered in
San Francisco, is an integrated multi-channel provider of distinctive
modern design furnishings and accessories. The Company markets and
sells its products to both residential and commercial customers
nationwide through the DWR catalog, online at www.dwr.com and at over
65 studios across the U.S.
"Design Within Reach" is a registered trademark of Design Within
Reach, Inc.
This press release includes forward-looking statements, including
statements related to anticipated revenues, expenses, earnings,
operating cash flows, the outlook for Design Within Reach's markets
and the demand for its products. Factors that could cause Design
Within Reach's actual results to differ materially from these
forward-looking statements including the following: we have recently
revised our corporate strategy and our new strategy may not be
successful; if we fail to offer merchandise that our customers find
attractive, the demand for our products may be limited; the expansion
of our studio operations could result in increased expenses with no
guarantee of increased revenues; we do not have long-term vendor
contracts and as a result we may not have continued or exclusive
access to products that we sell; our business depends, in part, on
factors affecting consumer spending that are not within our control;
we rely on catalog-based marketing, which could have significant cost
increases and could have unpredictable results; we must manage our
online business successfully or our business will be adversely
affected; we have made and will continue to make certain systems
changes that might disrupt our supply chain operations and delay
financial results; management has identified material weaknesses in
internal controls over financial reporting; our failure to implement
and maintain effective internal controls in our business could have a
material adverse effect on our business, financial condition, results
of operations and stock price; we may need additional financing and
may not be able to obtain additional financing on favorable terms or
at all, which could increase our costs, limit our ability to grow and
dilute the ownership interests of existing stockholders; we may not
manage our inventory levels successfully; changes in the value of the
U.S. dollar relative to foreign currencies and any failure by us to
adopt and implement an effective hedging strategy could adversely
affect our operating results; we rely on foreign sources of
production, which subjects us to various risks; we may fail to timely
and effectively obtain shipments of product from our vendors and
deliver merchandise to our customers; we face intense competition and
if we are unable to compete effectively, we may not be able to achieve
and maintain profitability; and our operating and financial
performance in any given period might not meet the guidance that we
have provided to the public and other risks detailed in our reports
and filings with the Securities and Exchange Commission, including our
latest Annual Report on Form 10-K and Quarterly Report on Form 10-Q,
which is available at the SEC's website at www.sec.gov. You are urged
to consider these factors carefully in evaluating the forward-looking
statements herein, and we caution you not to place undue reliance on
forward-looking statements, which speak only as of the date they are
made. We undertake no obligation to update publicly any
forward-looking statements to reflect new information, events or
circumstances after the date they were made or to reflect the
occurrence of unanticipated events.
-- Financial Tables Follow --
Design Within Reach, Inc.
Condensed Statements of Operations
(Unaudited)
(amounts in thousands, except per share data)
Thirteen Weeks Fifty-Two Weeks
Ended Ended
----------------- -------------------
December December December December
29, 30, 29, 30,
2007 2006 2007 2006
-------- -------- --------- ---------
Net sales $51,994 $50,265 $193,936 $178,142
Cost of sales 26,940 30,190 107,014 103,681
-------- -------- --------- ---------
Gross margin 25,054 20,075 86,922 74,461
Selling, general and
administrative expenses 21,868 22,926 87,651 87,555
-------- -------- --------- ---------
Income (loss) from operations 3,186 (2,851) (729) (13,094)
Other income (expenses), net (86) 104 1,778 212
-------- -------- --------- ---------
Income (loss) before income
taxes 3,100 (2,747) 1,049 (12,882)
Income tax expense (benefit) 830 (756) 726 (4,593)
-------- -------- --------- ---------
Net income (loss) $ 2,270 $(1,991) $ 323 $ (8,289)
======== ======== ========= =========
Net income (loss) per share:
Basic $ 0.16 $ (0.14) $ 0.02 $ (0.58)
Diluted $ 0.16 $ (0.14) $ 0.02 $ (0.58)
Weighted average shares used in
calculation of net income
(loss) per share:
Basic 14,450 14,415 14,430 14,342
Diluted 14,543 14,415 14,544 14,342
Design Within Reach, Inc.
Condensed Balance Sheets
(Unaudited)
(amounts in thousands)
December 29, 2007 December 30, 2006
----------------- -----------------
ASSETS
Current assets
Cash and cash equivalents $ 5,651 $ 6,795
Inventory 37,820 33,849
Accounts receivable 1,176 2,514
Prepaid catalog costs 2,101 1,046
Deferred income taxes 1,251 2,078
Other current assets 1,986 2,434
----------------- -----------------
Total current assets 49,985 48,716
Property and equipment, net 23,302 24,507
Deferred income taxes, net 8,182 8,083
Other non-current assets 955 888
----------------- -----------------
Total assets $ 82,424 $ 82,194
================= =================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable $ 14,442 $ 17,116
Accrued expenses 4,500 4,260
Accrued compensation 2,765 2,445
Deferred revenue 325 1,583
Customer deposits and other
liabilities 3,397 2,342
Long-term debt, current portion 346 519
----------------- -----------------
Total current liabilities 25,775 28,265
Deferred rent and lease incentives 5,976 5,580
Long-term debt, net of current
portion 321 586
----------------- -----------------
Total liabilities 32,072 34,431
Stockholders' equity 50,352 47,763
----------------- -----------------
Total liabilities and
stockholders' equity $ 82,424 $ 82,194
================= =================
CONTACT: Design Within Reach, Inc.
John D. Hellmann, 415-676-6500
jhellmann@dwr.com
or
Investor Relations:
ICR, Inc.
Andrew Greenebaum/Christine Lumpkins, 310-954-1100
agreenebaum@icr-online.com
clumpkins@icr-online.com
SOURCE: Design Within Reach, Inc.
