Hamilton Beach 2011 Annual Report Download - page 18

Kitchen
Collection
2011 Results
Operationally in 2011, Kitchen
Collection made solid strides in improving
its Kitchen Collection®store format and
progressed in its efforts to develop an
improved Le Gourmet Chef®store format.
While these operational improvements were
encouraging, continued improvement is
still necessary, primarily at the Le Gourmet
Chef®store format. Unfortunately, these
operational improvements did not translate
into financial improvements in 2011. The
company experienced a very challenging
first half of the year. Inclement weather and
financial pressures weighing on middle-
market consumers reduced customer visits
to its stores. The company also incurred
higher costs as it combined its two distri-
bution centers into one and invested
in closing underperforming stores and
opening new Kitchen Collection®stores.
Kitchen Collection began to see gains from
its investments during the fourth quarter
and benefited from favorable weather at
year end. As a result, revenues increased
from $219.6 million in 2010 to $221.2
million in 2011 as sales from new stores
offset lost revenues from closed stores.
However, net income and cash flow before
financing activities declined significantly as
increased sales were not enough to offset
the increased operating costs incurred
early in the year. Net income decreased
to $1.1 million in 2011 from $3.5 million
in 2010 largely due to lower comparable
store results caused by a shift in sales to
lower margin products and costs incurred
as a result of combining the distribution
centers. Cash flow before financing
activities declined to $2.6 million in 2011
from $3.6 million in 2010.
The Kitchen Collection®stores, which
sell a wide variety of basic kitchen items,
generated an increase in sales, sales
transactions and an increased average
sales transaction value despite reduced
customer visits. This store format benefited
from a refreshed store format rolled out to
certain key locations with improved product
assortments and enhanced merchandising.
However, lower gross margins, higher
employee-related costs and unfavorable
comparable store results reduced Kitchen
Collection®store income compared with
the prior year. The Le Gourmet Chef®stores,
which sell higher-end goods focusing on
cooking and entertaining themes, struggled
in 2011. A higher average sales transaction
value did not make up for fewer trans-
actions and reduced customer visits, largely
driven by having fewer stores open in 2011
than in 2010. Improvements were made to
Fifteen
New display layouts and signage at Kitchen Collection’s Le Gourmet Chef®stores. Le Gourmet Chef®stores feature higher-margin, brand-name kitchenware and gourmet foods.