Hamilton Beach 2011 Annual Report Download - page 19

the Le Gourmet Chef®format and layout,
but these improvements were not fully
implemented by the end of 2011. Opera-
tionally, Kitchen Collection ended the year
with enhanced store formats, which are
expected to improve performance in 2012,
especially when customer visits improve.
Outlook for 2012
Uncertainty in the economy, high
unemployment rates and rising fuel prices,
along with other consumer financial
concerns, are expected to continue to affect
consumer sentiment and limit spending
levels for Kitchen Collection’s target
customer, prolonging a challenging retail
environment in 2012. However, the
company expects to have an increased
number of Kitchen Collection®stores in
2012. As a result, Kitchen Collection
expects revenue in 2012 to increase
compared with 2011.
Overall, Kitchen Collection expects
a modest increase in 2012 net income
and cash flow before financing activities
compared with 2011 primarily as a result
of an increase in the number of Kitchen
Collection®stores opened throughout 2011
and new stores expected to be opened in
2012, including some mall-based stores
with a smaller footprint and lower rent.
Kitchen Collection expects the momentum
achieved by the new stores in the fourth
quarter of 2011 to continue in 2012
and expects improvements in operating
results as new stores opened in 2011
gain traction and additional new stores
are opened in 2012. In addition, Kitchen
Collection anticipates improvements
in operating results as the company
continues its disciplined program of
closing underperforming stores.
Enhanced sales and margins are also
expected as a result of further improve-
ments in the company’s store formats and
layouts at both the Kitchen Collection®
and Le Gourmet Chef®stores as a result
of further refinements of its promotional
offers and merchandise mix in both store
formats. In 2011, Kitchen Collection®
tested a refreshed layout and achieved
positive performance with this prototype.
The new layout will be rolled out to a large
portion of the stores in 2012. In addition,
during the year, the company invested
significant time and resources in developing
a Le Gourmet Chef®prototype that is
anticipated to enhance profit prospects.
Initial results are encouraging, and the
new prototype, with an improved product
assortment, is expected to be rolled out
to all stores during 2012. In addition to
the new formats, Kitchen Collection has
also created value and trend messaging
specific to each store format to enhance
sales. Finally, the renegotiation of store
leases and the combination of Kitchen
Collection’s two distribution centers into
one larger, more efficient facility, as well as
the absence of a number of costs incurred
in 2011 but not expected to recur in 2012,
are also expected to contribute to improved
results. Although the company anticipates
increased product and transportation costs
in 2012, it expects to offset these increased
costs through price increases and other
actions as needed.
Longer-Term Perspective
Kitchen Collection’s vision is to be the
leading specialty retailer of kitchen, home
entertaining and gourmet food products
in outlet malls and other retail channels
for consumers seeking a large selection
of unique, high-quality products at excep-
tional value. It sources products globally
from China, Taiwan, Indonesia, Vietnam
and India, as well as North America. The
company’s core strength is its Kitchen
Collection®store format in outlet malls, but
it has two solid store formats and plans to
leverage this strength with strong, separate
brand identities for each.
The Kitchen Collection®store format
is strong and Le Gourmet Chef®continues
to improve. Going forward, management’s
plans for revenue and profitability growth
will focus on further strengthening its
merchandise mix, store displays and
appearance, optimizing store selling space,
evaluating and closing underperforming and
loss-generating stores as lease contracts
permit and maintaining disciplined cost
control. The company also plans to expand
the number of outlet malls in which Kitchen
Collection®and Le Gourmet Chef®operate
and to optimize store footprint sizes to
enhance its ability to achieve target profit
levels. The company also plans to continue
to work on refining a traditional mall
approach for both store formats which
focuses on a smaller store footprint and
which takes advantage of open locations
and lower rents. In the near term, expansion
will be focused on the Kitchen Collection®
format. When adequate profit prospects
are demonstrated for the Le Gourmet
Chef®format, focus will shift to growth in
the number of these stores.
With improvements already
implemented or in planning, the Kitchen
Collection®stores are expected to achieve
higher margins in 2012, but are still not
expected to achieve the long-term operating
margin target of 5 percent until 2014.
Le Gourmet Chef®stores are not expected
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