October 8, 2008, 12:00 AM

The web bears fruit for Harry and David in fiscal 2008

The Internet was a bright spot in an otherwise tough year for Harry and David Holdings in fiscal 2008. Web sales rose by 9.6% while total direct marketing sales dropped by 3.2% and store sales remained flat at $138 million.

Mark Brohan

Research Director

The Internet was a bright spot in an otherwise tough year for Harry and David Holdings Inc. in fiscal 2008.

For the year, web sales for Harry and David, No. 80 in the Internet Retailer Top 500 Guide, rose by 9.6% to $193.7 million from $176.8 million in fiscal 2007. In comparison, total sales for Harry and David dropped year over year by 2.8% to $545.1 million from $561 million, while net income declined by 85.9% to $4.5 million from $32 million. Store sales were essentially flat at $138 million. Net income dropped as a result of some discontinued operations, a one-time non-cash pension curtailment gain of $15.8 million in the previous year and certain other factors, the company says.

Overall the web accounted for 36% of total sales and 52% of direct sales which totaled $372.6 million, a decrease of 3.1% from $384.4 million in fiscal 2007. “Throughout fiscal 2008, we faced increasingly challenging economic conditions and lower consumer confidence, which contributed to a decline in sales,” says Harry and David CEO Bill Williams. “Our efforts to reduce operating and capital expenses were successful in minimizing the effect of the downturn in sales and margin on our cash flow.”

In the fourth quarter Harry and David, which operates HarryandDavid.com, Wolfermans.com and HoneyBell.com, posted a net loss of $24.4 million on sales of $57.3 million vs. a net loss of $7.8 million on sales of $62.9 million in Q4 of 2007. The company didn’t break out Q4 numbers for the Internet or direct marketing.

Despite weaker sales and profits, Harry and David made two acquisitions to grow its market share in the gourmet food and gifts business in 2008. In a key August purchase, Harry & David acquired Cushman Fruit Co., a multi-channel retailer that generated sales of about $19 million in its 2007 fiscal year. The purchase price was not disclosed. Cushman specializes in selling Florida citrus fruit, particularly a hybrid of tangerines and grapefruit known as Cushman HoneyBells.

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