Blyth, Inc. Reports 3rd Quarter 2013 Sales And Earnings

November 1, 2013
By Tina Williams

Blyth, Inc. a direct to consumer company and leading designer and marketer of health & wellness and beauty products, as well as candles and accessories for the home sold through the direct selling and direct marketing channels, today reported sales and earnings for the third quarter of 2013. Net sales for the three months ended September 30, 2013 decreased approximately 33% to $179.5 million from $268.8 million for the comparable prior year period, primarily due to lower sales at ViSalus.

Commenting on the third quarter sales results, Robert B. Goergen, Chairman and Chief Executive Officer noted, the overall sales decline year-over-year was largely driven by the lower North American Promoter count at ViSalus versus 2012's third quarter, and, while Promoter count continued to trend downward, we are encouraged by the focused efforts to re-launch North America undertaken by the leadership team. Moreover, ViSalus continues to address the infrastructure implications of its extremely rapid growth in 2012 while, at the same time, responding to the need for the product diversification and geographic expansion critical to its future success.

Turning to Candles & Home Decor, Mr. Goergen noted further that, there are indications that our investments in technology, as well as targeted training and business-building programs, are beginning to have a positive impact at PartyLite. Consultant web sites, online shopping, preferred customer programs and direct-to-customer shipping have coupled with a great product offering to help resourceful Consultants grow their businesses. Furthermore, these innovations are beginning to have the positive effect of attracting and retaining both Consultants and customers by making it both easier and rewarding to do business with PartyLite, as evidenced by the favorable Consultant trends outside North America.

Blyth's operating loss for the third quarter was $10.1 million this year versus income of $7.8 million last year, largely driven by the decline in sales. Last year included the following pre-tax items:

Fees of $4.7 million related to the ViSalus withdrawn stock offering,
A ViSalus Equity Incentive Plan (EIP) credit of $3.4 million,
PartyLite restructuring charges of $0.7 million, and
An intangible impairment charge of $0.8 million at Silver Star Brands.

Excluding the impact of these charges and credits, Blyth's operating loss of $10.1 million in 2013's third quarter compares to an operating profit of $10.6 million in the year-earlier period.

Net Loss Attributable to Blyth, Inc. was $8.5 million for the three months ended September 30, 2013 compared to earnings of $0.7 million in the comparable prior year period. Diluted Earnings per Share Attributable to Blyth, Inc. were a loss of $0.53 for the three months ended September 30, 2013 compared to earnings per share of $0.04 in the comparable prior year period. The prior year's earnings per share includes $0.12 for fees related to the withdrawn stock offering, a ViSalus EIP credit of $0.06, PartyLite restructuring charge of $0.03 and Silver Star Brands intangible impairment charge of $0.03. During the third quarter of last year, the Company recorded an after-tax profit from discontinued operations for Sterno of $0.03 per share. Excluding these unusual items from last year, normalized earnings per share for the third quarter were a loss of $0.53 versus earnings of $0.13 last year.

Net Loss Attributable to Blyth, Inc. Common Stockholders was $11.2 million for the three months ended September 30, 2013, which includes a downward adjustment of $2.7 million related to dividends paid to the non-controlling interest holders of ViSalus in excess of their allocable share of the income earned by ViSalus. Giving effect to this adjustment, Diluted Earnings per Share Attributable to Blyth, Inc. Common Stockholders were a loss of $0.70 for the three months ended September 30, 2013 compared to earnings per share of $0.04 in the comparable prior year period.

During the second quarter, the Company issued $50 million principal amount of 6.0% Senior Notes due on June 30, 2017 and announced it would redeem for cash all of its outstanding 5.5% Senior Notes due November 1, 2013. On July 10, 2013, the Company completed the redemption of the $71.8 million aggregate principal amount of the 5.5% Senior Notes outstanding plus accrued and unpaid interest as well as a make-whole payment of approximately $1.2 million.

2013 Third Quarter Segment Performance

In the Health & Wellness segment, ViSalus' third quarter net sales decreased 52% to $82.4 million versus $169.9 million for the same period last year, largely reflecting the reduced Promoter base in North America. At the end of the third quarter, qualified independent North American Promoters totaled more than 49,000 versus more than 110,000 Promoters at the end of the prior year's third quarter. International Promoters totaled nearly 4,000, reflecting the entry into the U.K. in April. Health & Wellness third quarter segment operating loss was $0.3 million this year versus operating income of $23.2 million last year. Excluding ViSalus fees related to the withdrawn stock offering of $4.7 million, the EIP credit of $3.4 million last year, and allocated corporate expenses of $1.8 million this year and $2.9 million last year, third quarter operating income for ViSalus was $1.5 million this year versus $27.4 million in the third quarter of 2012. The decrease in ViSalus's operating profit was due primarily to the sales reduction and infrastructure spending to support both its significant North American business and its product diversification and global expansion initiatives.

Ryan Blair, Chief Executive Officer of ViSalus noted that, We are focused on building the North American Promoter base through new products, international expansion and compensation plan sales incentives. We have launched our new patent pending, high protein, high fiber meal, the Vi Crunch^TM Protein Super Cereal. We have also invested $3.4 million to open the UK market and to launch four additional European markets. We are on track for these 2014 market openings, beginning with two in the first quarter, which will bring the Body by Vi Challenge^TM to a European population of over 230 million people in our five markets, more than half of whom face weight management challenges. Further, we have invested over $5.5 million in capital expenditures over the past 18 months to support technology infrastructure, information systems and mobile application development to create an exceptional user experience for our customers and promoters. These are critical, long-term growth initiatives for which we expect to realize a return on investment in 2014 and beyond.

In Candles & Home Decor, PartyLite sales were $67.5 million in the third quarter versus $69.5 million for the same period last year, a decline of 3%. Worldwide, active independent sales Consultants totaled approximately 43,500 compared to approximately 45,000 at the end of 2012's third quarter. PartyLite's European sales during the quarter increased 4% in U.S. dollars, or a 2% decline in local currency. PartyLite's European active independent sales Consultants totaled approximately 24,500 at the end of the third quarter both this year and last year. PartyLite's North American sales, comprised of the U.S. and Canada, declined 15% versus the prior year period. Active North American independent sales Consultants totaled approximately 14,500 at the end of the third quarter versus over 16,000 last year.

Third quarter operating loss for the Candles & Home Decor segment was $9.6 million versus a loss of $13.3 million in last year's third quarter. Excluding allocated corporate expenses and other of $1.2 million this year and $1.9 million last year, as well as a restructuring charge last year of $0.7 million, PartyLite's operating loss was $8.4 million this year versus $10.7 million last year, reflecting improved profitability across many markets.

Commenting on the performance of the Candles & Home Decor segment, Robert B. Goergen, Jr., Chief Operating Officer of Blyth and President, PartyLite Worldwide said, We are deeply gratified by early indications that we are gaining traction in achieving our objectives and are excitedly looking to the future for continued progress. While PartyLite worldwide sales experienced a 3% third quarter decline over the prior year period, our operating profit improved $3.8 million, or 28%. Much of the favorable comparison reflects the effect of our consolidation of North American manufacturing and distribution, overhead streamlining and the impact of many other margin improvement programs, plus we are also seeing some positive results from initiatives geared to growing the top line. Furthermore, PartyLite's European Consultant count was unchanged in the third quarter versus last year, the first quarter in more than two years where the Consultant base held steady. And, in Australia, where Consultant count increased 51% in the third quarter, sales continue to experience double digit growth.

In the Catalog & Internet segment, Miles Kimball Company changed its name to Silver Star Brands in October 2013, in a move to more accurately describe the multi-channel industry leader and the brand portfolio it offers. Third quarter net sales for Silver Star Brands increased slightly to $29.5 million versus $29.4 million last year. Double-digit growth in health and wellness products and higher sales associated with the new Silver Star Brands credit program were offset by lower sales of general merchandise. Third quarter operating loss in this segment was $0.2 million this year versus a loss of $2.1 million last year. Excluding allocated corporate expenses and other of $0.4 million this year and $0.8 million last year, as well the intangible impairment charge of $0.8 million last year, Silver Star Brands' operating profit was $0.2 million this year versus a loss of $0.5 million last year. The improved operating performance year-over-year reflects promotional efficiencies and improved product mix in the current quarter.

Commenting on the improved year-over-year performance, Robert B. Goergen, Jr. noted, We enthusiastically welcome the early performance of our tightly targeted strategy to expand and market appealing health, wellness and beauty products across our various brands. As such, our recent name change to Silver Star Brands portrays more accurately both the breadth and focus of this multi-brand, multi-channel, direct-to-consumer marketer.

The sum of the individual and segment amounts may not equal the reported totals for the quarter and full year for Blyth overall due to rounding.

The summary reconciliation of unaudited Generally Accepted Accounting Principles (GAAP) earnings and earnings per share to Non-GAAP earnings and earnings per share presented in the attached table and the discussion of segment operating profit excluding certain items are included as additional references to assist investors in analyzing the Company's performance and should be considered in addition to, not as a substitute for, measures of financial performance prepared in accordance with GAAP. In presenting comparable results, the Company discloses non-GAAP financial measures when it believes such measures will be useful to investors in evaluating the Company's underlying business performance. Management internally reviews the results of the Company excluding the impact of certain items as it believes that these non-GAAP financial measures are useful for evaluating the Company's core operating results and facilitating comparison across reporting periods.

First Nine Months Fiscal Performance

Net Sales for the nine months ended September 30, 2013 declined 26% to $624.3 million versus $848.5 million for the comparable prior year period. Operating Loss for the first nine months was $3.0 million this year versus operating profit of $44.8 million last year. Last year included the following pre-tax items:

Fees of $4.7 million related to the ViSalus withdrawn stock offering,
A ViSalus Equity Incentive Plan (EIP) charge of $9.1 million,
PartyLite restructuring charges of $2.1 million, and
An intangible impairment charge of $0.8 million at Silver Star Brands.

Excluding the impact of these charges, this year's operating loss of $3.0 million compares to an operating profit of $61.5 million last year.

Net Loss Attributable to Blyth, Inc. was $7.2 million for the nine months ended September 30, 2013 compared to net income of $16.3 million in the comparable prior year period. Diluted Earnings per Share Attributable to Blyth, Inc. was a loss of $0.45 for the nine months ended September 30, 2013 compared to earnings per share of $0.94 in the comparable prior year period. The prior year includes fees related to the ViSalus withdrawn stock offering of $0.12, ViSalus EIP charge of $0.26, PartyLite restructuring charge of $0.08, Silver Star Brands intangible impairment charge of $0.03 and income from discontinued operations of $0.09. Excluding these unusual items from last year, Normalized Loss per Share for the first nine months was $0.45 versus Earnings per Share of $1.34 last year.

Net Loss Attributable to Blyth, Inc. Common Stockholders was $11.8 million for the nine months ended September 30, 2013, which includes a downward adjustment of $4.6 million related to dividends paid to non-controlling interest holders of ViSalus in excess of their allocable share of the income earned by ViSalus. Diluted Earnings per Share Attributable to Blyth, Inc. Common Stockholders were a loss of $0.73 for the nine months ended September 30, 2013 compared to earnings per share of $0.94 in the comparable prior year period.

The Company also commented on its outlook for the year ending December 31, 2013. Diluted Earnings per Share Attributable to Blyth, Inc. are expected to be $0.35 – $0.45 compared to prior guidance of $0.75 – $0.90. The reduced outlook is primarily driven by the decline in ViSalus' North American sales projections. The revised guidance excludes the impact of the $0.28 per share charge reflecting dividends paid to non-controlling interest holders of ViSalus in excess of their allocable share of the income earned by ViSalus. After giving effect to this downward adjustment, Diluted Earnings per Share Attributable to Blyth, Inc. Common Stockholders are expected to be approximately $0.07 – $0.17 for the year ending December 31, 2013. Cash flow from operations for 2013 is expected to be approximately $40 million and capital spending is anticipated to be approximately $14 million.

Blyth, Inc., headquartered in Greenwich, CT, USA, is a direct to consumer business focused on the direct selling and direct marketing channels. It designs and markets health & wellness products, candles and accessories for the home through the direct selling channel, utilizing both the network marketing and home party plan methods. The Company also designs and markets health & wellness and beauty products, household convenience items and personalized gifts through the catalog/Internet channel. Its products are sold direct to the consumer under the ViSalus^®, PartyLite^® and Two Sisters Gourmet by PartyLite^® brands and to consumers in the catalog/Internet channel under the Miles Kimball^®, Walter Drake^®, Easy Comforts^®, As We Change^® and Exposures^® brands.