Hamilton Beach 2014 Annual Report Download - page 14

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HBB is optimistic that it will be able to build
on the momentum achieved in 2014 by focusing
on these five strategic initiatives as a solid set of
strategies for profitable growth. HBB believes
it is well-positioned to continue its leadership
position in the small kitchen appliances industry.
Achieving its $750 million sales objective will
help move the company toward achieving
its near-term financial objective of 8 percent
operating profit margin and its long-term financial
objective of a minimum 10 percent operating
profit margin in the years ahead. It also expects
to continue to be a substantial generator of cash
flow before financing activities, with a continued
low level of capital expenditures required.
Kitchen Collection
Kitchen Collection’s vision is to be a leading
specialty retailer of kitchenware in outlet malls
and to a lesser degree traditional malls through-
out the United States. However, to achieve this
vision, Kitchen Collection must increase the
number of customers coming into its stores, which
is difficult in an environment in which many of its
target consumers are financially stressed. High
unemployment or underemployment, fewer two-
income families and lower rates of household
formation have resulted in fewer visits to many of
the malls and outlets where Kitchen Collection has
store locations. In addition, intense competitive
pressure for value has resulted in additional
discounting and brought margins under pressure.
In this environment, not all malls where Kitchen
Collection maintains stores are doing well. In the
strong malls in which Kitchen Collection has a
good store position, its stores do well, but stores in
struggling malls with poor store locations are not
doing well, despite improvements to the Kitchen
Collection®store format over the past few years.
During 2014, Kitchen Collection closed a
significant number of stores early in the year and
opened a smaller number of stores toward the
end of the year. By the end of 2014, essentially
most of the stores with recurring poor results
were closed or were scheduled for closure in
early 2015. As part of this process, the remaining
Le Gourmet Chef®outlet stores will be evaluated,
and some may be converted to Kitchen Collection®
stores. The company will also continue to evaluate
and, as lease contracts permit, close or restructure
leases for underperforming stores.
Kitchen Collection has a strong core in its
Kitchen Collection®store format in outlet malls.
In the near term, Kitchen Collection expects to
add stores cautiously and focus its growth on
its Kitchen Collection®store format, with new
stores expected to be located in sound positions
in strong outlet malls. As the company reaches
a solid core store portfolio, focus will shift to
comparable store sales growth. Kitchen Collection
expects to accomplish this by enhancing sales
volume and profitability through continued
refinement of its format and ongoing review of
specific product offerings, merchandise mix, store
displays and appearance, while continuing to
improve inventory efficiency and store inventory
controls. A particular focus will be on increasing
sales of higher-margin products. Nonetheless,
at current mall and store traffic levels, reaching
the company’s 5 percent operating profit margin
target will be challenging.
Overall, Kitchen Collection is dealing with a
difficult environment and evolving aggressively in
a constructive manner. Capital expenditures are
expected to be modest, with generation of positive
cash flow before financing activities expected.