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The Topps Company, Inc. Reports Fiscal 2006 Second Quarter Results
The Topps Company, Inc. (TOPP) today reported financial results for the fiscal
2006 second quarter ended August 27, 2005.
Net sales in the fiscal 2006 second quarter increased 9.4% to $75.3 million compared
to $68.8 million last year. Income from operations was $3.3 million compared to $4.8
million last year. Profitability for the period was impacted by higher marketing-related
expenses. Net income in the fiscal 2006 second quarter was $4.8 million, or $0.12 per
diluted share, versus $3.7 million, or $0.09 per diluted share, last year. Net income
in the recent period benefited from a one-time, non-cash reversal of income tax reserves
which added approximately $1.6 million.
For the six months ended August 27, 2005, net sales were $154.1 million compared to $156.9
million last year. Stronger foreign currencies versus the prior year contributed $1.6 million
to 2006 first half sales. Income from operations was $3.7 million compared to $10.5 million
last year. Net income was $5.7 million, or $0.14 per diluted share, versus $7.8 million,
or $0.19 per diluted share, last year.
Fiscal 2005 results included a one-time charge of $1.9 million, or approximately $0.05 per
diluted share, incurred in the first quarter related to a European Commission fine. Results
for the first half of fiscal 2006 included the second quarter tax benefit of approximately
$1.6 million.
Confectionery net sales increased 5.7% to $42.2 million in the fiscal 2006 second quarter
compared to $40.0 million in last year's second quarter. The sales gain resulted from the
improved performance of domestic Confectionery products due, in part, to increased advertising,
consistent with our strategy. Strong sales of Ring Pop, Push Pop, and Baby Bottle Pop,
broadened distribution of Juicy Drop Pop, and the rollout in Japan and Latin America of Mega
Mouth Spray all contributed to the quarter's results.
Entertainment net sales increased 14.7% to $33.0 million in the fiscal 2006 second quarter
from $28.8 million in the prior-year period. U.S. sports cards recorded year-over-year
double-digit gains driven by strong football sales. The growth in the Company's football
line is largely attributable to an effective marketing campaign based on Topps 50th
anniversary of selling football cards, an exciting rookie class, and the absence of a
long-time competitor which ceased operations and liquidated its assets.
In addition, the Company is pleased to report progress regarding its efforts to reduce
product proliferation in the sports card category.
During the quarter, the Major League Baseball Players' Association and Major League Baseball
Properties each announced its intention to reduce the number of licensees from four to two
companies -- Topps and Upper Deck -- to market baseball cards for the next four years beginning
February 2006. As part of this realignment, the Company will be increasing its financial and
marketing commitments to its licensing partners and views the overall reduction of product
releases by more than 50% as a positive development for the business.
Non-sports publishing products, including World Wrestling Entertainment in Italy, Wacky Packages
in the U.S., and Star Wars in the U.S. and Europe also added to sales increases in the period.
WizKids Pirates strategy games enjoyed cross-over success in the quarter beyond traditional
gaming stores into mass retail outlets. The Company will apply this constructible game format
in a new direction with the launch of a NASCAR product during the third quarter.
Arthur T. Shorin, Chairman and CEO commented, "We are pleased to report improved sales
performance during the period in both our Confectionery and Entertainment segments. Additionally,
we have completed the comprehensive strategic review with outside consultants and have
already taken action. A restructuring program was recently announced which will separate
our Confectionery and Entertainment businesses and will streamline the organizational
structure through headcount reductions. We expect the changes to generate annual savings of
approximately $2.5 million. This amount includes $3.4 million of headcount reductions, less
$900,000 in targeted additions to support top-line growth initiatives.
"As part of the restructuring, the Company will incur a charge of approximately $2.4
million, 50% of which will be in the third quarter and the balance in the fourth quarter.
In addition, as part of our overall review of the business, we have decided to exit one
of our Internet operations, thePit.com, through either sale or closure, and will record
an after-tax charge of approximately $5 million in the third quarter. Excluding these
charges, we expect to realize our financial objectives for this fiscal year, as previously
stated."
Mr. Shorin concluded, "Beyond taking actions to improve performance, the Company's
Board of Directors has approved an additional 3.4 million share buyback that increases the
total outstanding authorization to 5.0 million shares. The Board has also approved the
immediate implementation of a 10b5-1 program that will further facilitate the Company's
repurchase of shares."
During the first quarter, the Company paid its regular quarterly cash dividend to shareholders
of $0.04 per share. At August 27, 2005, the Company had $96.9 million in cash and short-term
investments and no debt.
The Topps Company, Inc. will host a webcast of its earnings conference call today at 10:00 a.m.,
Eastern Time. Investors, analysts, and the media are invited to listen to the call live at
http://www.topps.com. A replay of the webcast will be available on the Company's website for
the next 60 days.
Founded in 1938, Topps is a leading creator and marketer of distinctive confectionery and
entertainment products. The Company's confectionery brands include "Ring Pop,"
"Push Pop," "Baby Bottle Pop" and "Juicy Drop Pop" lollipops
as well as "Bazooka" bubble gum. Topps entertainment products include trading cards,
sticker album collections, and collectible games. For additional information, visit
www.topps.com.
This release contains forward-looking statements pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations
contained in such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. This information may involve risks and uncertainties
that could cause actual results to differ materially from the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited to, factors
detailed in the Company's Securities and Exchange Commission filings.
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share data)
(Unaudited) (Unaudited)
Thirteen weeks ended Twenty Six weeks ended
August August August August
27, 2005 28, 2004 27, 2005 28, 2004
Net sales $75,277 $68,781 $154,143 $156,870
Cost of sales 46,857 42,501 98,049 96,791
Gross profit on
sales 28,420 26,280 56,094 60,079
Other income 195 411 1,147 844
-
Selling, general and
administrative expenses 25,330 21,879 $53,559 50,472
Income from
operations 3,285 4,812 3,682 10,451
Interest income, net 798 557 1,537 1,041
Income before provision
for income taxes 4,083 5,369 5,219 11,492
(Benefit)/provision for
income taxes (754) 1,714 (515) 3,735
Net income $4,837 $3,655 $5,734 $7,757
Basic net income per
share 0.12 0.09 0.14 0.19
Diluted net income per
share 0.12 0.09 0.14 0.19
Weighted average shares
outstanding -- Basic 40,512,000 40,459,000 40,484,000 40,513,000
Weighted average shares
outstanding -- Diluted 41,547,000 41,511,000 41,429,000 41,565,000
THE TOPPS COMPANY, INC.
CONSOLIDATED BALANCE SHEET HIGHLIGHTS
(amounts in thousands)
As of As of
August 27, 2005 February 26, 2005
Cash and Equivalents $32,180 $36,442
Investments 64,754 69,955
Working Capital 138,655 138,146
Net Property, Plant and Equipment 12,378 12,553
Total Assets 284,104 290,411
Shareholders' Equity 219,919 219,189
SEGMENT INFORMATION
(amounts in thousands)
Quarter ended Six Months ended
August August August August
27, 2005 28, 2004 27, 2005 28, 2004
Net Sales
Confectionery $42,248 $39,982 $86,287 $84,189
Entertainment Products 33,029 28,799 67,856 72,681
Total $75,277 $68,781 $154,143 $156,870
Contributed Margin
Confectionery $14,067 $15,777 $25,907 $28,779
Entertainment Products 10,046 8,998 18,327 22,426
Total $24,113 $24,775 $44,234 $51,205
Reconciliation of Contributed Margin
to Income Before Provision for
Taxes:
Total Contributed Margin $24,113 $24,775 $44,234 $51,205
Unallocated General and
Administrative
Expenses and Manufacturing
Overhead (19,602) (18,805) (38,847) (38,437)
Depreciation & Amortization (1,421) (1,569) (2,852) (3,161)
Other Income 195 411 1,147 844
Income from Operations 3,285 4,812 3,682 10,451
Interest Income, Net 798 557 1,537 1,041
Income before Provision for
Income Taxes $4,083 $5,369 $5,219 $11,492
Source: The Topps Company, Inc.
Date: September 28, 2005
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