February 18, 2011, 1:41 PM

Harry & David replaces its current CEO with a restructuring specialist

After a poor Q2, the company is struggling to stay afloat.

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Harry & David Holdings Inc. has hired a restructuring specialist to try and help the struggling direct marketer of gourmet fruits, foods and gifts turn things around.

The specialist, Kay Hong, also will serve as Harry & David’s interim chief executive officer. Kong replaces CEO Steven Heyer, who remains as chairman of Harry & David, No. 84 in the Internet Retailer Top 500 Guide.

Prior to joining Harry & David, Hong was a managing director with Alvarez & Marsal Holdings LLC, a corporate turnaround and restructuring firm based in San Francisco. Harry & David hired Alvarez & Marsal to assist in restructuring the company after making an announcement earlier this month that it was not able to finance continuing operations.

In its second quarter fiscal 2011 earnings release, Harry & David also said it was having trouble paying for the company’s daily operations. “There can be no assurance that our efforts to obtain new capital and restructure our obligations will be successful, and therefore, there is substantial doubt as to our ability to continue as a going concern,” says Harry & David. “Based on the current working capital and anticipated working capital requirements, the company will not be able to finance continuing operations, including servicing its payment obligations under its senior notes, without securing new capital and restructuring its obligations.”

In its earnings release Harry & David, which generated e-commerce sales of $175.5 million in fiscal 2010, blames a tough economy and other competitive conditions for a weak quarter.

“While we were able to attract new customers, reactivate old ones, significantly grow Internet traffic and build awareness by means of many new initiatives last year, sales fell well below expectations due to market and competitive conditions,” says Heyer.

For the second quarter of fiscal 2011 ended Dec. 25, Harry & David reported:

  • A decrease of 1.8% in total sales to $262.1 million from $267 million in the second quarter of fiscal 2010.
  • A year-over-year decrease of 56.5% in net income to $13.8 million from $31.7 million.
  • A decrease in direct sales of 0.6% to $193.4 million from $194.5 million in the second quarter of fiscal 2010. The company does not break out quarterly web sales.

For the first two quarters:

  • Total sales declined 3.4% to $302.6 million from $313.3 million in the first two quarters of fiscal 2010.
  • Net loss was $4.4 million compared with net income of $10 million in the first two quarters of fiscal 2010.
  • Direct sales decreased 1.3% to $211.4 million from $214.1 million in the prior year.
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