Handleman Company Reports First Quarter Results
Record First Quarter Sales and Higher Earnings Per Share
TROY, Mich., Aug. 20 -- Handleman Company (NYSE: HDL) , http://www.handleman.com/ , today announced results for its first quarter of fiscal year 2003, which ended July 27, 2002.
Sales for the first quarter of this fiscal year increased 4% to $271.0 million from $261.1 million for the first quarter of last year. Net income was $2.7 million, or $.10 per diluted share, compared to $2.0 million, or $.08 per diluted share, for the first quarter of last year.
Stephen Strome, the Company`s Chairman and CEO commented: "We are relatively pleased with our results for the first quarter, which historically has been the Company`s weakest for both sales and earnings. We achieved record sales for a first quarter and improved net income, despite weakness in both the music industry and overall economy. Music industry sales continue to be impacted by the lack of strong-selling new releases, illegal duplication and downloading over the Internet through the use of file sharing services. The popularity of new artists, which fuel music industry sales, is cyclical. We expect new artists and genres will emerge and again drive music industry sales. In addition, we anticipate that the music labels will further support the encryption of CDs, which will make illegal copying of CDs increasingly difficult."
For the first quarter of fiscal 2003, the Company`s Handleman Entertainment Resources (H.E.R.) division had net sales of $243.9 million, compared to $239.4 million in the first quarter of last year. The increase was generated by higher sales in the Company`s United Kingdom operation. H.E.R.`s first quarter operating income (i.e., income before interest, income taxes and minority interest), was $3.6 million, down from $10.2 million last year. The decline in operating income reflects the weakness within the overall music industry. Also during the quarter, H.E.R.`s sales mix changed, resulting in a higher percentage of sales at a lower gross profit margin. In addition, selling, general and administrative expenses this year increased, due in part to the timing of start-up costs at Handleman Online and non- recurring fees.
The Company`s North Coast Entertainment (NCE) division had net sales for the first quarter of fiscal 2003 of $31.1 million, compared to $25.4 million for the first quarter of fiscal 2002, an increase of 22%. The higher sales this year occurred primarily at Anchor Bay Entertainment, which continued to expand the number of titles it offers consumers on DVD. NCE`s operating income for the first quarter of fiscal 2003 was $.8 million, compared to an operating loss of $4.0 million last year. The operating loss last year was primarily due to results at The itsy bitsy Entertainment Company (TibECo). This unit was discontinued during the second half of last fiscal year. Both Anchor Bay and the Madacy unit were profitable during the first quarter of this fiscal year.
The Company`s consolidated gross margin, as a percent to sales, was 22.3% for the first quarter of this year, compared to 23.2% for the first quarter of last year. The gross margin percentage this quarter was equal to the gross margin percentage achieved during fiscal year 2002 and was within the Company`s range of expectations. Consolidated selling, general and administrative expenses were $55.8 million or 20.6% of sales for the first quarter of this year, compared to $54.2 million, or 20.7% of sales, for the first quarter of last year.
The effective income tax rate for the first quarter of this year was 41.3%, compared to 65.0% during the first quarter of last year. The higher rate last year resulted from losses incurred at TibECo, for which the Company could not recognize a tax benefit. As noted, the Company discontinued TibECo during the second half of last fiscal year.
Mr. Strome added: "We ended the quarter with a strong balance sheet. Our working capital was reduced by over $25 million from the end of July last year. This includes a reduction in our accounts receivable balance of over $48 million and a reduction in merchandise inventories of over $12 million. The Company`s long-term debt to total capitalization was less than 10% compared to 24% last year. Maintaining a strong balance sheet positions the Company to take advantage of investment opportunities and withstand turbulent events."
During the first quarter of this fiscal year, the Company repurchased 126,300 shares of its common stock at an average price of $11.85 per share. As of July 27, 2002 the Company had 26,417,587 shares outstanding.
Call Notice
Handleman Company will host a conference call to discuss the first quarter of fiscal year 2003 financial and operating results on Wednesday, August 21, 2002 at 10:00 a.m. (Eastern Time). To participate in the teleconference call (in listen mode only), please dial 800-442-9683 at least five minutes before the start of the conference call. In addition, Handleman Company will simulcast the conference live via the Internet. The webcast can be accessed and will be available for 30 days on the investor relations page of Handleman Company`s web site, http://www.handleman.com/ . A telephone replay of the conference call will be available until Friday, August 23, 2002 at Midnight by calling 800-642-1687 (PIN Number 5190248).
About Handleman Company:
Handleman Company is comprised of two operating divisions: Handleman Entertainment Resources (H.E.R.) and North Coast Entertainment (NCE).
H.E.R. is a category manager and distributor of prerecorded music to mass merchants in the United States, United Kingdom, Canada, Mexico, Brazil and Argentina. As a category manager, H.E.R. manages a broad assortment of titles to optimize sales in retail stores and provides direct-to-store shipments, marketing of the selections and in-store merchandising. In addition to its core category management business, the Company also provides both traditional and online retailers with an array of e-commerce related products and services through its Handleman Online business unit.
NCE has two companies in its portfolio. Anchor Bay Entertainment is a leading independent home video label, which markets a vast collection of popular titles that range from children`s classics to exercise to suspense/horror. Madacy Entertainment, a major independent record label, markets an exciting range of music and video products with a catalog spanning all genres.
Information in this press release contains forward-looking statements, which are not historical facts and involve risk and uncertainties. Actual results, events and performance could differ materially from those contemplated by these forward-looking statements, including without limitations, conditions in the music industry, the effect of Kmart`s Chapter 11 proceedings, ability to enter into profitable agreements with customers in the new businesses outlined in the Company`s strategic growth plan, securing funding or providing sufficient cash required to build and grow new businesses, customer requirements, continuation of satisfactory relationships with existing customers and suppliers, effects of electronic commerce, relationships with the Company`s lenders, pricing and competitive pressures, the occurrence of catastrophic events or acts of terrorism, certain global and regional economic conditions, and other factors discussed in this press release and those detailed from time to time in the Company`s filings with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this press release.
CONTACT:
Thomas Braum, Sr. Vice President and CFO
+1-248-362-4400, ext. 718
Greg Mize, Vice President, Investor Relations
+1-248-362-4400, ext. 211
Media Relations:
David Bassett
+1-248-855-6777, ext. 132
Fred Marx
+1-248-855-6777, ext. 131
Back...
