Hamilton Beach 2007 Annual Report Download - page 11

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Because new products drive growth and help sustain
margins, successful housewares companies must repeatedly
capture consumers’ attention, as well as their dollars. HBB is
aggressively focused on innovation through a unique product
development process designed to create new products that
meet consumers’ current needs, as well as improve profitability.
Utilizing a relatively low-risk, staged assessment and develop-
ment process, HBB regularly investigates promising concepts
both inside and outside its traditional product scope that have
the potential to substantially improve results in the longer term.
Strong relationships with leading retailers are vital for
success. Shelf placement, brand positioning and promotions
with all retailers and channels also are important to sustain and
improve sales volumes. HBB believes it has one of the most
professional sales and marketing organizations in the industry.
The company views this sales and
marketing strength as critical to
optimizing channel performance and
maintaining strong retailer relation-
ships. Efforts supporting this strategy
include specific retailer and channel
focus programs as well as a number of
strategic brand application initiatives.
To help manage ongoing margin
pressure in the industry, HBB places significant emphasis on
continuous cost reduction. Several key profitability programs
address cost reductions, continuous quality improvement and
supply chain optimization.
Housewares markets in the United States were relatively
weak in 2007, particularly in the important fourth-quarter
holiday season. Unfortunately, there are no indications these
markets will improve in 2008 and HBB expects reduced
results in 2008. As HBB works to maintain and improve sales
in this challenging environment, the company will continue
to concentrate on further improving margins and efficiencies
as part of its effort to meet its financial targets. The company’s
operating profit margin was 7.5 percent in 2007. Going
forward, more innovation, stronger assortments of new
products and higher sales volume will become more important
to realizing sustainable profit growth and driving the economies
of scale that are critical to attaining the long-term 10 percent
minimum operating profit margin target. Significant
generation of cash flow before financing activities is expected
in future years.
Kitchen Collection
KC’s position as the leading kitchenware retailer in the
outlet mall channel was maintained in 2007 as the company
worked to integrate the LGC business, which was acquired in
2006. LGC provides an additional successful format for outlet
malls, as well as a promising platform for expansion into
other channels.
Consumer visits to outlet malls declined in 2007, while, at
some outlet malls and in some parts of the country, store rent
and labor expenses continued to increase. These pressures,
combined with the challenges of integrating LGC’s distribution
facilities and the time required to implement key product and
merchandising programs, led to a net loss at KC in 2007. KC
has established programs aimed at achieving cost control
through general corporate expense management, highly
focused store expense management,
continuous product cost management
and an ongoing logistics efficiency
program. KC is still in the process of
applying these programs to the newly
acquired Le Gourmet Chef® stores
(“LGC stores”) and operations.
KC believes there is still significant
growth potential in kitchenware
retailing, particularly in the niche between the lowest-priced
discounters and the higher-end chains. One of the keys to
capturing that potential is the ability to offer customers unique,
high-quality products at affordable prices. To help accomplish
this goal, KC has established innovative product selection and
merchandising programs, a highly successful Hamilton Beach®
private label product program and an Economic Value Income
program designed to help evaluate SKU assortments by store
type to optimize profit performance.
With limited construction of new malls expected in the
outlet mall channel, KC has focused on optimizing Kitchen
Collection® store (“KC store”) performance and LGC store
presence at existing outlet malls as well as expanding this
presence into new, high-potential formats and distribution
channels. The company plans to expand LGC’s national presence
in outlet malls over time, although the company will be prudent
during this time of uncertain consumer spending. KC has a
number of other initiatives under way related to enhancing
the KC store outlet mall format, including a segmentation
effort designed to enhance performance based on different
03
04
05
06
07
Consolidated Cash Flow
before Financing Activities
(In millions)
$0 $20 $40 $60 $80 $120$100 $140
$21.7
$138.2
$18.9
$85.9
$80.5