Lillian Vernon Stock Dips After Unfavorable Earnings

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Lillian Vernon Corp. stock hit $6.60 on April 30, near its 52-week low of $6.25, because of a $1.4 million net loss for its fiscal year 2001, which ended Feb. 24. The loss was announced April 26.


The specialty catalog and online retail marketer attributed its unfavorable earnings primarily to the $2.05 million, or 15-cents-per-share, cost of its early March restructuring. Its salaried work force was reduced companywide by roughly 12 percent, or 40 employees, and its Las Vegas call center was consolidated into its national distribution center in Virginia Beach, VA.


"The economy weakened during the peak holiday season last year, and the season hurt us along with the rest of the retail industry," said Wayne Palladino, chief financial officer at Lillian Vernon, Rye, NY. "The restructuring was used to offset the reduced sales effects of the weak economy. While the initial cost of the restructuring was about $2 million due to severance costs, we will obviously see savings flowing through the current year."


Lillian Vernon markets gift, household, gardening, kitchen, Christmas and children's products through its catalogs, including Lillian Vernon, Lilly's Kids, Christmas Memories, Neat Ideas, Favorites, Personalized Gifts, Rue de France, Sales & Bargains and Lillian Vernon Gardening. Products also are available through www.lillianvernon.com and www.ruedefrance.com. The company also markets merchandise through retail centers in New York, Virginia, South Carolina and Delaware. It also markets premium incentive, gift and rewards programs to corporations.


"In order to stay competitive, we are always introducing new, fresh well-priced products," Palladino said. The company introduces more than 3,000 products per year for its customer database of 23.4 million, he said.


The target demographic is 90 percent women, with an average age of 44 and an average household income of $64,000. Palladino said the company wants to add stores to expand its reach to its demographic. He declined to give details.


"If you look at the catalogs, lack of newness and real growth of customer files was a factor in the 2001 loss," said Derek Leckow, senior equity analyst for Barrington Research, Chicago. Though the company has maintained a positive balance sheet through cost-cutting and stable sales, there has not been large sales growth, he said.


Palladino said that Lillian Vernon adds about 1 million new names to its customer database per year.


"They are focusing on cost-cutting to achieve profit, and their sales strategy seems to be status quo," Leckow said. "Cost-cutting might solve profitability in the short term only."


Leckow also attributed the earnings drop to unstable leadership. Several executive changes have occurred in the past two years, including the departure of president Howard Goldberg in January 1999.


"Leadership decisions are being made by the board headed by Lillian Vernon, as opposed to the executive management," Leckow said.


Kevin Green replaced Goldberg roughly one year ago.


"Green grew up at Lillian Vernon through the marketing side," Palladino said. "Even though Lillian Vernon has new people on its management staff, most of them have been with the company at some capacity for a long time." He said Lina LoRusso, the new vice president of merchandising, has been with the company 18 years.


To achieve earnings growth, Leckow said, the company must "demonstrate to Wall Street that it can grow its top-line sales revenues." He added that the company should focus more on its fulfillment outsourcing capabilities.


"The Lillian Vernon warehouse stands empty until Christmas," he said. "The fulfillment outsourcing aspect can generate additional revenue through unused space."


Leckow rates Lillian Vernon stock a long-term buy with a one-year target of $12 to $13, which he said is the book value of the stock.


In other news, Damark International (DMRK) changed its name to Provell Inc. (PRVL).


Also, infoUSA announced April 26 that Nasdaq had granted its request for continued listing on the Nasdaq National Market pursuant to an exception to the net tangible assets requirement through June 14. If the Securities and Exchange Commission does not approve the proposed changes to the listing requirements by June 14, the company intends to request an extension of the exception granted by the Nasdaq Panel.


Portfolio Value: If $1,000 had been invested in each of the 100 companies in the DMNews Portfolio at the beginning of the year-for newly public companies, when the stock first closed-the value would be $128,260, a 28.26 percent increase.


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