Hamilton Beach 2012 Annual Report Download - page 22

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markets. The company believes it is well-
positioned to continue its leadership
position in the small kitchen appliances
industry and to move 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.
Kitchen Collection
2012 Results. Over the course of
2012, Kitchen Collection made signifi-
cant operational strides by improving
its Kitchen Collection®and Le Gourmet
Chef®store formats. Unfortunately,
these operational improvements did not
translate into financial improvements
in 2012. Improved comparable store
results and new store sales in the first
half of the year were offset by a very
difficult second half. Inclement weather
and continued financial pressures
weighing on middle-market consumers
reduced customer visits to outlet malls
in general and to the company’s stores,
especially in the fourth quarter. Further,
the costs to remodel and reformat stores
and a $0.7 million impairment charge
for leasehold improvements at under-
performing stores offset the favorable
results of opening new stores.
The Kitchen Collection®stores,
which sell a wide variety of basic kitchen
items, generated an increased average
sales transaction value. However, the
number of customer visits declined.
Additionally, lower gross margins and
higher employee-related costs 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, continued to
struggle in 2012. A higher average sales
transaction value did not make up
for fewer transactions due to reduced
customer visits.
Revenues increased to $224.7
million in 2012 from $221.2 million in
2011 as sales from new stores and 34
seasonal stores that were open only in
the fourth quarter offset lost revenues
from closed stores. However, operating
results were very disappointing as a
result of the factors previously described
and lower margins due to the liquida-
tion of a significant amount of inven-
tory as stores were closed. As a result,
Kitchen Collection reported a net loss
of $3.1 million in 2012 compared with
net income of $1.1 million in 2011 and
had negative cash flow before financing
activities of $0.1 million compared
with positive cash flow before financing
activities of $2.6 million in 2011.
Outlook for 2013. Prospects
for 2013 remain uncertain, but are
expected to improve over 2012 levels.
However, the middle-market consumer
remains under pressure due to financial
and economic concerns, and those
concerns are expected to continue to
dampen consumer sentiment and limit
consumer spending levels for Kitchen
Collection’s target customer in 2013.
As a result, Kitchen Collection expects
2013 revenues to be comparable to
2012, although the company expects
to maintain a lower number of stores
through much of 2013 than in 2012,
since a number of stores will be closed
early in the year and the majority of
new ones won’t be opened until the
latter half of the year.
Overall, Kitchen Collection expects
modest net income for the 2013 full year
and positive cash flow before financing
activities compared with a net loss and
essentially break even cash flow before
financing in 2012. Enhanced sales per
store and product margins are expected
as a result of the improvements in store
formats and layouts and refinements
of promotional offers and merchandise
mix at both the Kitchen Collection®
and Le Gourmet Chef®stores. During
2012, Kitchen Collection reformatted
many of its stores to promote a value
and trend message at the front of its
stores, which is expected, with some
further adjustments, to drive an
increased number of customers into
its locations. The company invested
significant resources implementing
format changes at all of its Le Gourmet
Chef®stores in the first half of 2012
and completing the remodeling of a
Above: A free-standing display of products at the Le Gourmet Chef® store in Aurora, Ohio, makes it easier for customers to shop and select products.
Right: The newly formatted Kitchen Collection® store in Jeffersonville, Ohio, features bump outs to improve the display of products.