The Yankee Candle Company, Inc. Reports Fiscal 2013 Second Quarter Results

SOUTH DEERFIELD, Mass., Aug. 8, 2013 /PRNewswire/ -- Yankee Holding Corp. and The Yankee Candle Company, Inc. (collectively, "Yankee Candle" or the "Company") today announced financial results for the second quarter ended June 29, 2013.  Yankee Holding Corp., a direct subsidiary of YCC Holdings LLC ("YCC Holdings"), is a holding company that was formed in connection with the Company's merger with an affiliate of Madison Dearborn Partners, LLC ("MDP") on February 6, 2007, and is the parent company of The Yankee Candle Company, Inc.

(Logo: http://photos.prnewswire.com/prnh/20101110/YANKEECANDLELOGO )

Net sales for the second quarter of 2013 were $155.7 million as compared to net sales of $145.3 million during the second quarter of 2012, an increase of $10.4 million or 7.1%.  Retail segment sales were $86.8 million for the second quarter of 2013 as compared to $81.8 million during the second quarter of 2012, an increase of 6.1%.  Sales from the Company's Wholesale segment increased 2.4% to $41.5 million during the second quarter of 2013, as compared to $40.5 million during the second quarter of 2012.  Sales in the Company's International segment were $27.3 million during the second quarter of 2013, compared to $23.0 million during the second quarter of 2012, an increase of 19.0%. 

Net sales for the six months ended June 29, 2013 were $319.1 million, compared to $300.4 million for the first six months of fiscal 2012, an increase of 6.2%.

The Company recorded a net loss of $4.9 million for the second quarter of 2013 compared to a net loss of $13.5 million for the second quarter of 2012.  The Company recorded a net loss of $6.6 million during the six months ended June 29, 2013, compared to a net loss of $17.1 million during the first six months of fiscal 2012.  The net loss for the second quarter and first six months of fiscal 2012 include the loss on early extinguishment of debt of $13.4 million recorded in connection with the Company's April 2012 term loan refinancing.

The Company presents Adjusted EBITDA (as defined below) to provide investors with additional information to evaluate the Company's operating performance and its ability to service its debt.  Adjusted EBITDA for the second quarter of 2013 was $14.7 million as compared to Adjusted EBITDA of $18.1 million for the prior year second quarter.  Adjusted EBITDA for the first six months of fiscal 2013 was $35.7 million as compared to Adjusted EBITDA of $38.2 million for the first six months of fiscal 2012. Reconciliations of net income to Adjusted EBITDA, which is a non-GAAP financial measure, are included at the end of this press release. 

"We delivered above market performance in our Retail business, which together with continued momentum in our strategic growth channels such as International and Consumer Direct, helped deliver sales increases over the prior year quarter," said Harlan Kent, Chief Executive Officer of Yankee Candle.  "Our Retail business posted its eighth consecutive quarter of positive all-in comparable sales, delivering 5.2% comp sales growth versus the prior year quarter.  Our International business also delivered strong results, with sales increasing 19.0% over the prior year quarter.  The sales growth turned in by these two divisions more than offset sluggishness in our Wholesale business, where tight open to buy conditions and inventory management programs by our wholesale customers continue to have an impact.  As compared to prior year, our earnings were challenged in the quarter by lower contribution from our Wholesale business and an increase in general and administrative expenses related to our ongoing investments in talent and marketing to drive growth."

2013 Second Quarter Segment Highlights:

  • Retail sales were $86.8 million in the second quarter of 2013 compared to $81.8 million in the prior year second quarter, an increase of $5.0 million or 6.1%.  The increase in sales was driven primarily by increased comparable retail sales of $3.7 million and increased sales from our fundraising business of $1.0 million.
  • Total Retail comparable sales, which includes sales in our comparable store base and our consumer direct business, increased 5.2% compared to the prior year second quarter.  There were 543 stores included in our comparable store base as of the end of the second quarter of fiscal 2013, compared to 515 stores included in our comparable store base at the end of the prior year quarter.
  • Wholesale sales were $41.5 million in the second quarter of 2013 compared to $40.5 million in the same quarter of the prior year, an increase of $1.0 million or 2.4%.  The increase was primarily a result of increased sales to our specialty and department store channel, somewhat offset by decreased sales to our premium mass channel.
  • International sales were $27.3 million in the second quarter of 2013 as compared to $23.0 million in the prior year quarter, an increase of $4.3 million or 19.0%.  The increase was driven by sales growth across all of our international channels.

Six Months Ended June 29, 2013 Segment Highlights:

  • Retail sales were $176.0 million for the first six months of fiscal 2013, an increase of $13.2 million or 8.1% over the prior year period, driven primarily by increased comparable retail sales of 7.8% or $11.4 million and sales from new stores opened after the second quarter of 2012 of approximately $1.3 million.
  • Wholesale sales were $85.1 million for the first six months of fiscal 2013, a decrease of $5.6 million from the prior year period.  The decrease was primarily driven by decreased sales in our specialty and department store channel, gift channel and premium mass channel somewhat offset by increased sales to our "all other" channel consisting of various accounts outside of our major channels.
  • International sales were $57.9 million for the first six months of fiscal 2013 compared to $46.9 million for the first six months of fiscal 2012, an increase of $11.0 million or 23.5%.  The increase was largely driven by increased sales in our United Kingdom wholesale business, retail concession business and increased sales to distributors primarily in Europe, Asia and Latin America. 

"Our strategic investments continue to gain traction and resulted in solid topline growth across our businesses in the second quarter," said Kent.  "Our Omni-channel business model allows us to capitalize on shopping trends wherever our guest chooses to shop.  We believe we are well positioned as we enter the important fall and holiday seasons to continue this sales momentum while focusing on converting sales to optimize cash generation."

For the quarter ended June 29, 2013, YCC Holdings reported a net loss of $10.6 million, compared to the above-referenced net loss recorded by the Company of $4.9 million.  The difference in the net loss between the Company and YCC Holdings is primarily a result of additional interest expense (net of tax benefits) recorded during the second quarter of 2013 at YCC Holdings of $5.7 million related to the $315.0 million 10.25%/11.0% Senior PIK Notes due 2016 (the "Senior PIK Notes"). 

For the twenty-six weeks ended June 29, 2013, YCC Holdings reported a net loss of $17.9 million, compared to the above-referenced net loss recorded by the Company of $6.6 million.  The difference in the net loss between the Company and YCC Holdings is primarily a result of additional interest expense (net of tax benefits) recorded during the first half of 2013 at YCC Holdings of $11.3 million related to the Senior PIK Notes.  

Neither Yankee Holding Corp. nor The Yankee Candle Company, Inc. have any obligations with respect to the Senior PIK Notes.  During the first six months of fiscal 2013, Yankee Holding Corp paid dividends of $16.2 million to YCC Holdings.  Such dividends were used by YCC Holdings primarily to pay for interest incurred related to the Senior PIK Notes.

Earnings Conference Call:

The Company will host a conference call to be broadcast via the Internet at 11:00 a.m. (EST) this morning to more fully discuss its second quarter results.  The dial-in number is (800) 860-2442, for International Calls the dial-in number is (412) 858-4600.  When greeted by the operator, request the conference by stating the Company and the host's last name (Yankee Candle/Kent) or reference the conference title (Q2 2013 Yankee Candle Earnings Conference Call).  This call is being webcast by MultiVu and can be accessed at The Yankee Candle Company's web site at www.yankeecandle.com.  Click on the "About Us" link, select the "Investor Information" link, and then select the "Events Calendar" link.  Enter your registration information ten minutes prior to the start of the conference.

About Yankee Candle

The Yankee Candle Company, Inc. is the leading designer, manufacturer, wholesaler and retailer of premium scented candles, based on sales, in the giftware industry.  Yankee Candle has a 43-year history of offering distinctive products and marketing them as affordable luxuries and consumable gifts.  The Company sells its products through a North American wholesale customer network of approximately 35,000 store locations, a growing base of Company owned and operated retail stores (561 Yankee Candle Stores located in 46 states and 1 province in Canada as of June 29, 2013), direct mail catalogs, and its Internet website (www.yankeecandle.com).  Outside of North America, the Company sells its products primarily through its subsidiary, Yankee Candle Company (Europe), Ltd., which has an international wholesale customer network of approximately 6,400 store locations and distributors covering a combined 57 countries.

Forward Looking Statements

This press release may contain certain information constituting "forward-looking statements" for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to the statements contained herein with respect to management's current estimates of the Company's future financial and operating results, and any other statements concerning the Company's or management's plans, objectives, goals, strategies, expectations, estimates, beliefs or projections, or any other statements concerning future performance or events.  Actual results could differ materially from those indicated by these forward-looking statements as a result of various risks and uncertainties, including but not limited to the following: the current economic conditions and uncertain future outlook, including continued softness in consumer confidence and spending; the risk that our substantial level of indebtedness could adversely affect our financial condition and operations; that we may not be able to generate sufficient cash flows to service all of our indebtedness; that any failure to protect our reputation could have a material adverse effect on our brand image; the risk of loss of one of our manufacturing or distribution facilities; that we may be unable to maintain our historical growth rates; that our profitability may be affected by increases in the cost of raw materials or that further increases in wax prices above the rate of inflation may negatively impact our cost of goods sold and margins; that any shortages in refined oil supplies could impact our wax supply; the effects of competition in the giftware industry; that there may be a failure of our information technology systems; that a material decline in consumers' discretionary income could cause our sales and income to decline; that current environmental laws and regulations, or those enacted in the future, could result in additional liabilities and costs; that we may be unable to continue to open new stores successfully or renew leases for existing locations; the risk of a loss or significant deterioration in the financial condition of a significant wholesale customer, or a bankruptcy filing and subsequent bankruptcy proceedings by such a customer; the failure or delay of a third party to supply goods to our customers could adversely impact our business; sustained interruptions in the supply of products from overseas; that restrictive covenants in the indenture governing the Senior PIK Notes, the indentures governing Yankee Candle's Senior Subordinated Notes and Yankee Candle's Term Loan Facility and ABL Facility could restrict our operating flexibility; risks associated with the ability of YCC Holdings and Holding Corp. to repay their debt, which is dependent on cash flow generated by Yankee Candle and its subsidiaries; that restrictions in our subsidiaries' debt instruments and under applicable law limit their ability to provide funds to us; that the interests of our controlling stockholders may differ from the interests of the noteholders; that because we are not a diversified company and are primarily dependent upon one industry, we have less flexibility in reacting to unfavorable consumer trends, adverse economic conditions or business cycles; the risk that we lose our senior executive officers, or are unable to attract and retain the talent required for our business; that our international operations subject us to a number of risks, including unfavorable regulatory, labor, tax and political conditions in foreign countries; that we may be required to recognize additional impairment charges against goodwill or intangible assets in the future; seasonal, quarterly and other fluctuations in our business, and general industry and market conditions; the risk of product liability claims; and other factors described or contained in the Company's most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q on file with the Securities and Exchange Commission.  Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.  While we may elect to update certain forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if experience or future events may cause the views contained in any forward-looking statements to change.

 

Yankee Holding Corp. and Subsidiaries 

Condensed Consolidated Statements of Operations

(in thousands)

(Unaudited)









Thirteen Weeks


Thirteen Weeks



Ended


Ended



June 29, 2013


June 30, 2012


Sales:









  Retail

$     86,814


55.76%


$        81,809


56.29%


  Wholesale

41,518


26.66%


40,530


27.88%


  International

27,348


17.57%


22,988


15.82%


  Total sales

155,680


100.00%


145,327


100.00%











Cost of sales

71,866


46.16%


63,906


43.97%


Gross profit

83,814


53.84%


81,421


56.03%











Selling expenses: (A)









  Retail

45,578


52.50%

(B)

43,401


53.05%

(B)

  Wholesale

3,086


7.43%

(C)

2,921


7.21%

(C)

  International

7,402


27.07%

(D)

6,909


30.05%

(D)










   Total selling expenses

56,066


36.01%


53,231


36.63%











General & administrative expenses

20,712


13.30%


17,951


12.35%


Restructuring charge

-


0.00%


1,070


0.74%











Income from operations

7,036


4.52%


9,169


6.31%


Interest expense

14,883


9.56%


18,553


12.77%


Loss on extinguishment of debt

-


0.00%


13,376


9.20%


Other income

(469)


-0.30%


(1,735)


-1.19%











Loss before benefit from income taxes

(7,378)


-4.74%


(21,025)


-14.47%


Benefit from income taxes

(2,521)


-1.62%


(7,515)


-5.17%


Loss from continuing operations

(4,857)


-3.13%


(13,510)


-9.31%











Loss from discontinued operations, net of
   income taxes

(21)


-0.01%


(31)


-0.02%


Net loss

$      (4,878)


-3.13%


$       (13,541)


-9.32%











(A) Includes purchase accounting costs that are reflected in the unallocated/corporate/other column within the segment disclosure of the Company's 10-Q.

(B) Retail selling expenses as a percentage of retail sales.





(C) Wholesale selling expenses as a percentage of wholesale sales.




(D) International selling expenses as a percentage of international sales.



 

Yankee Holding Corp. and Subsidiaries 

Condensed Consolidated Statements of Operations

(in thousands)

(Unaudited)









Twenty-Six Weeks


Twenty-Six Weeks



Ended


Ended



June 29, 2013


June 30, 2012


Sales:









  Retail

$   176,026


55.17%


$      162,777


54.19%


  Wholesale

85,096


26.67%


90,703


30.19%


  International

57,934


18.16%


46,914


15.62%


  Total sales

319,056


100.00%


300,394


100.00%











Cost of sales

144,808


45.39%


135,183


45.00%


Gross profit

174,248


54.61%


165,211


55.00%











Selling expenses: (A)









  Retail

92,048


52.29%

(B)

88,579


54.42%

(B)

  Wholesale

6,021


7.08%

(C)

7,090


7.82%

(C)

  International

15,473


26.71%

(D)

13,045


27.81%

(D)










   Total selling expenses

113,542


35.59%


108,714


36.19%











General & administrative expenses

40,170


12.59%


34,852


11.60%


Restructuring charge

764


0.24%


1,725


0.57%











Income from operations

19,772


6.20%


19,920


6.63%


Interest expense

31,357


9.83%


35,787


11.91%


Loss on extinguishment of debt

-




13,376




Other income

(2,250)


-0.71%


(2,827)


-0.94%











Loss before provision for income taxes

(9,335)


-2.93%


(26,416)


-8.79%


Benefit from income taxes

(2,769)


-0.87%


(9,436)


-3.14%


Loss from continuing operations

(6,566)


-2.07%


(16,980)


-5.66%











Loss from discontinued operations, net of
   income taxes

(45)


-0.01%


(74)


-0.02%


Net loss

$      (6,611)


-2.07%


$       (17,054)


-5.68%











(A) Includes purchase accounting costs that are reflected in the unallocated/corporate/other column within the segment disclosure of the Company's 10-Q.

(B) Retail selling expenses as a percentage of retail sales.






(C) Wholesale selling expenses as a percentage of wholesale sales.




(D) International selling expenses as a percentage of international sales.




 

Yankee Holding Corp. And Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)






ASSETS

June 29,  


December 29,  



2013


2012












Current Assets:





    Cash

$             3,784


$             39,979


    Accounts receivable, net

52,324


63,572


    Inventory

108,284


77,969


    Prepaid expenses and other current assets

26,713


4,882


    Deferred tax assets

8,564


6,814


          Total Current Assets

199,669


193,216


Property and Equipment, net

128,114


121,553


Deferred Financing Costs

11,399


12,799


Other Assets

914,479


913,929


          Total Assets

$      1,253,661


$         1,241,497












LIABILITIES AND STOCKHOLDER'S EQUITY










 Current Liabilities:





    Accounts payable

$           23,652


$             25,309


    Accrued payroll

9,049


13,680


    Accrued income taxes

-


7,110


    Other accrued liabilities

46,882


55,395


          Total Current Liabilities

79,583


101,494


Long-Term Debt 

896,821


846,174


Deferred Rent

13,254


12,886


Deferred Tax Liabilities

118,346


117,135


Other Long-Term Liabilities

10,362


9,678


Stockholder's Equity 

135,295


154,130


          Total Liabilities And Stockholder's Equity

$      1,253,661


$         1,241,497


 

June 29, 2013  Earnings Release

Supplemental Data 



Quarter


Year to Date


Total

YCC Retail Stores

4

(5)

(7)

(5)

561

Wholesale Customer Locations - North America  

(211)


7,068

(5)

34,852

Wholesale Customer Locations - Europe

257


470


6,378

Square Footage - Gross

5,542

(5)

(12,425)

(5)

1,057,726

Square Footage - Selling

2,633

(5)

(10,869)

(5)

808,268

Total Comp Stores & Consumer Direct Sales Change %

5.2%


7.8%



YCC Retail Comp Store Count 

543


543


543

Sales per Square Foot (1)



$539



   Store Count



546



Average store square footage, gross (2)



1,624



Average store square footage, selling (2)



1,227



Gross Profit (3) (6)






   Retail $

$54,158


$109,935



   Retail %

62.4%


62.5%



   Wholesale $

$19,603


$41,016



   Wholesale %

47.2%


48.2%



   International $

$10,052


$23,296



   International %

36.8%


40.2%



Segment Profit (3) (6)






   Retail $

$8,581


$17,887



   Retail %

9.9%


10.2%



   Wholesale $

$16,516


$34,995



   Wholesale %

39.8%


41.1%



   International $

$2,650


$7,823



   International %

9.7%


13.5%



Depreciation & Amortization (3)

$7,506


$15,133



Inventory per Store (2)



$35,823



Inventory Turns (4)



3.2



Capital Expenditures (3)

$8,181


$20,116















(1)  Trailing 12 months, stores open for full 12 months, excluding S. Deerfield/Williamsburg Flagships.







(2)  Excludes S. Deerfield/Williamsburg Flagships.










(3)  Dollars in thousands.












(4)  Based on a 13 month average inventory divided by 12 month rolling COGS. 







(5) Net of closures. 







(6) Includes purchase accounting costs that are reflected in the unallocated/corporate/other column within the segment disclosure of the Company's 10-Q.

Reconciliation of Adjusted EBITDA

In addition to the results reported in accordance with generally accepted accounting principles in the United States of America (GAAP), the Company has provided information regarding "Adjusted EBITDA," as defined, which is a non-GAAP financial measure.  Adjusted EBITDA is defined as earnings/loss from continuing operations before interest, taxes, depreciation and amortization adjusted to remove the effects of equity-based compensation, MDP advisory fees, purchase accounting, restructuring, loss on debt extinguishment and realized (gains) losses on foreign currency transactions, loss on store closings and equipment disposals and certain other non-recurring items.  Adjusted EBITDA is not intended to represent cash flow from operations as defined by GAAP and should not be used as an alternative to net income (loss) as an indicator of operating performance or to cash flow as a measure of liquidity.  We believe the presentation of Adjusted EBITDA provides useful information to investors regarding our results of operations because such presentation assists in analyzing and benchmarking the performance value of our business.  We believe Adjusted EBITDA is useful to investors because it helps enable investors to evaluate our business in the same manner as our management evaluates our business, and because this measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies with substantial financial leverage.  In addition, because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we also use Adjusted EBITDA for business planning purposes, to incent and compensate our management personnel and to measure our performance relative to that of our competitors.  While Adjusted EBITDA is frequently used as a measure of operating performance and the ability to meet debt service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation.  In evaluating our operating performance these measures should be used in conjunction with GAAP measures. 

 

Adjusted EBITDA is calculated as follows:











Thirteen Weeks Ended

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Twenty-Six Weeks Ended

June 29, 2013

June 30, 2012

June 29, 2013

June 30, 2012





Net loss

$         (4,878)

$        (13,541)

$          (6,611)

$       (17,054)

Loss from discontinued operations, net of income taxes

21

31

45

74

Benefit from income taxes 

(2,521)

(7,515)

(2,769)

(9,436)

Interest expense, net - excluding amortization of deferred financing fees

13,797

15,127

27,448

29,762

Amortization of deferred financing fees

1,086

1,244

2,152

2,284

Depreciation

6,351

6,395

12,843

12,732

Amortization

70

85

138

1,308






EBITDA from continuing operations

13,926

1,826

33,246

19,670

Equity-based compensation 

165

220

323

424

MDP advisory fees

375

375

750

750

Purchase accounting (a)

437

280

578

814

Restructuring (b)

-

1,070

764

1,725

Loss on extinguishment of debt (c)

-

13,376

79

13,376

Realized (gains) losses on foreign currency (d)

(445)

426

(490)

863

Loss on store closings and disposals of equipment

147

15

147

44

Certain non-recurring items (e)

99

463

348

515






Adjusted EBITDA

$         14,704

$         18,051

$         35,745

$        38,181

 

 

(a) Represents purchase accounting adjustments as a result of the merger in 2007.


(b) For 2013, includes costs for employee related severance costs and costs to close a satellite office in Germany associated with restructuring of the International operations during the first quarter of 2013.  For 2012, includes costs for employee severance associated with restructuring the wholesale and retail operations and changes in the internal reporting structure during the first quarter of 2012; and costs associated with the consolidation and relocation of our logistics operations and corporate headquarters for our foreign subsidiary during the second quarter of 2012.


(c) For 2013, represents loss on extinguishment of debt attributable to the redemption of the remaining $10.0 million outstanding of Yankee Candle's Senior Notes that occurred during the first quarter of 2013. For 2012, represents loss on extinguishment of debt attributable to the refinancing of the $338.1 million outstanding under the prior Senior Secured Credit Facility and $315.0 million of Senior Notes due 2015 that occurred during the second quarter of 2012.


(d) Represents transaction (gains) losses on settlements of our intercompany receivable with our foreign subsidiary and transaction (gains) losses from foreign vendors and customers.


(e) Represents costs associated with the implementation of our new European enterprise resource planning ("ERP") system and warehouse moving costs.

SOURCE The Yankee Candle Company, Inc.



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