DWRI News Design Within Reach, Inc. Reports Preliminary Third Quarter 2006 Results
SAN FRANCISCO--(BUSINESS WIRE)--Design Within Reach, Inc. (NASDAQ:DWRI) today announced
preliminary financial results for the third quarter ended September 30,
2006. The results are preliminary because the Company has not yet
completed the reconciliation of a previously announced difference
between its accrued inventory sub-ledger and the general ledger. The
imbalance relates back to June 2005, and reconciliation of the entries
in question may require revision of the Company’s
operating results in the first and second quarters of 2006 and fiscal
year 2005. Until this work is complete, the Company cannot be certain
that the results reported below will not change and the Company will not
be able to file its quarterly reports on Form 10-Q for the quarters
ended July 1, 2006 and September 30, 2006.
As previously announced, the Nasdaq Listing Qualifications Panel granted
the Company continued listing on The Nasdaq Global Market provided that
the Company files its quarterly report on Form 10-Q for the period ended
July 1, 2006 and any restatements of prior periods that may be required
by November 24, 2006. Although the Company continues to work diligently
toward completing this filing, it does not appear that the Company will
have the work completed and reviewed by its independent public
accountants in time to meet this deadline. As a result, the Company is
applying for a further extension.
While the Company has not fully completed its third quarter closing
process and its accrued inventory account reconciliation is ongoing, the
Company’s preliminary results for the three
months ended September 30, 2006 are as follows:
Net sales increased to approximately $44 million compared to $39.4
million recorded in the same period last year.
Product margin improved to approximately 48% from 47.1% in the third
quarter of 2005 due to newly implemented product and promotional
initiatives, but gross profit margin decreased to 42% to 43% in the
third quarter of 2006 from 43.8% in the same period last year,
primarily due to higher shipping and handling expenses.
Selling, general and administrative expenses were approximately $18
million, representing an increase in absolute dollars, but a decrease
as a percentage of net sales compared to the same period last year.
Net loss for the third quarter of 2006 was approximately $(0.08) to
$(0.10) per share, compared to a net loss of $441,000, or $(0.03) per
share in the third quarter of 2005.
Included in the third quarter 2006 results is approximately $300,000 of
non-recurring charges, primarily related to severance, approximately
$500,000 of non-cash stock-based compensation expenses and approximately
$400,000 in additional depreciation, primarily due to the accelerated
write-off of the IMARC system. Included in the third quarter 2005
results is approximately $460,000 of severance expenses and $140,000 of
non-cash stock-based compensation expenses, as well as approximately
$300,000 in proceeds associated with the disposal of assets.
“We continue to make progress on the principal
elements of our turnaround strategy and are encouraged by the initial
results of our margin initiatives,” said Ray
Brunner, Chief Executive Officer. “Our top
line remains healthy and we continue to employ cost controls throughout
the Company. During the quarter, we reduced our catalog circulation by
over 65%, resulting in a nearly fourfold increase in demand per book
from the same period last year, and we began testing select media
advertising. Going forward, we plan to apply our marketing findings and
improve our web platform in order to better use our online channel to
augment studio sales through customer prospecting and exposing the
customer to Design Within Reach’s full product
assortment. While much work remains, we believe that we are on-track to
building a foundation that will position Design Within Reach for
long-term sustainable growth.”
Net sales by distribution channel were as follows:
Studio sales were approximately $27 million in the third quarter of
2006,up approximately 20% from the same period last year, due
to the addition of 10 net new studios since the end of the same period
last year and increased sales at existing studios. Design Within Reach
operated 62 studios and the DWR Annex, an outlet for returned and
discontinued merchandise in Secaucus, New Jersey, at the end of the
third quarter. The Company has opened seven studios year-to-date,
including one during the fourth quarter, and has completed its studio
expansion plan for fiscal 2006.
Direct sales (including phone sales and sales through the Design
Within Reach website) were approximately $12 million in the third
quarter of 2006, up slightly from the same period last year.
As of September 30, 2006, Design Within Reach had approximately $6.0
million in cash and short-term investments and approximately $2.1
million in outstanding borrowings on its revolving credit facility
excluding outstanding letters of credit. The Company recently received a
commitment letter from Wells Fargo Retail Finance LLC., to replace its
$10 million revolving credit facility with a new $20 million facility.
Design Within Reach believes that the increased credit line will provide
liquidity and cash flows needed to fund operations and anticipated
capital expenditures for the foreseeable future.
Guidance
Design Within Reach is maintaining its 2006 sales guidance of
approximately $175 million. The Company is expecting continued
improvement in the net loss and liquidity in the fourth quarter as the
benefits from the cost cutting and strategic initiatives begin to take
hold. Design Within Reach is introducing 2007 guidance of approximately
$190 million in sales and breakeven earnings.
Conference Call
Design Within Reach, Inc. will host a conference call today, November
14, 2006 at 1:30 p.m. Pacific (4:30 p.m. Eastern). The call, which will
be hosted by Ray Brunner, President and Chief Executive Officer, and
John Hellmann, Chief Financial Officer, will be broadcast live over the
Internet and accessible through the Investor Relations section of the
Company’s website at www.dwr.com.
The webcast will also be archived online within one hour of the
completion of the conference call and available at www.dwr.com.
About Design Within Reach, Inc.
Design Within Reach, Inc., founded in 1998 and headquartered in San
Francisco, is an integrated multi-channel provider of distinctive modern
design furnishings and accessories. The Company markets and sells its
products to both residential and commercial customers nationwide through
the DWR catalog, studios, website and direct sales force, and a single
common “in stock and ready to ship”
inventory.
“Design Within Reach”
is a registered trademark of Design Within Reach, Inc.
This press release includes forward-looking statements, including
statements related to anticipated revenues, expenses, earnings,
operating cash flows, the outlook for Design Within Reach’s
markets and the demand for its products. Factors that could cause Design
Within Reach's actual results to differ materially from these
forward-looking statements including the following: we may be required
to revise our reported results of operations as a result of our ongoing
reconciliation of the accrued inventory account and our third-quarter
closing process; if we are unable to continue to increase our net sales
while reducing our promotional discounts, our profitability may be
impaired; if we fail to offer merchandise that our customers find
attractive, the demand for our products may be limited; we do not have
long-term vendor contracts and as a result we may not have continued or
exclusive access to products that we sell; our business depends, in
part, on factors affecting consumer spending that are not within our
control; our business will be harmed if we are unable to implement our
growth strategy successfully; the expansion of our studio operations
could result in increased expenses with no guarantee of increased
earnings; if we do not manage our inventory levels successfully, our
operating results will be adversely affected; we depend on domestic and
foreign vendors, some of which are our competitors, for timely and
effective sourcing of our merchandise; declines in the value of the U.S.
dollar relative to foreign currencies could adversely affect our
operating results; and we face intense competition and if we are unable
to compete effectively, we may not be able to achieve and maintain
profitability. Furthermore, if we do not receive from the Nasdaq Listing
Qualifications Panel a further extension to file our Form 10-Q for the
period ended July 1, 2006, our securities may be subject to delisting
from the Nasdaq Global Market. Please refer to our reports and filings
with the Securities and Exchange Commission, including our latest Annual
Report on Form 10-K and Quarterly Report on Form 10-Q, for a further
discussion of these risks and uncertainties. We also caution you not to
place undue reliance on forward-looking statements, which speak only as
of the date they are made. We undertake no obligation to update publicly
any forward-looking statements to reflect new information, events or
circumstances after the date they were made or to reflect the occurrence
of unanticipated events.
