Hamilton Beach 2015 Annual Report Download - page 14

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it is well-positioned to continue its leadership
position in the small appliance 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. Constrained discretionary
income, lower rates of household formation and
increased online shopping have resulted in fewer
visits to many of the malls and outlets where
Kitchen Collection has store locations. In this
environment, not all malls where Kitchen Collection
maintains stores have been adequately profitable.
Kitchen Collection closed nearly 100 stores during
2014 and 2015 due to a rigorous and strategic
review of the short-term and long-term prospects
of each location. As part of that process, Kitchen
Collection determined it was important to focus on
the Kitchen Collection brand, which resulted in the
closure of all remaining Le Gourmet Chef®stores.
As the business moves into 2016, Kitchen
Collection has a strong core in its Kitchen
Collection®store format in outlet malls. While
the company continues to optimize its store
portfolio with stores in high-traffic locations in
strong outlet malls, the focus is now shifting to
comparable store sales growth. Kitchen Collection
expects to accomplish this by increasing closure
rates through continued refinement of its format,
ongoing review of specific product offerings,
merchandise mix, store displays and appearance
and enhancing customers’ store experience
through improved customer interactions. A
particular focus will be on increasing sales of
higher-margin products. Nonetheless, at current
mall and store traffic levels, reaching the company’s
long-term 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. To achieve its vision,
Kitchen Collection must increase the number
of customers coming into its stores and its sale
closure rate with these customers. Kitchen
Collection believes its remaining stores are well-
positioned to allow the company to perform at
close to break-even in the current challenging
environment and to take advantage of any future
market rebound. The company will continue to
evaluate and, as lease contracts permit, terminate
or restructure leases for underperforming stores.
Capital expenditures are expected to be modest,
with generation of positive cash flow before
financing activities expected.
Conclusion and NACCO Outlook
NACCO is a strong, multi-industry company
with leading businesses in the mining and small
appliances industries. The Company continues to
believe HBB’s growth opportunities are significant.
NACCO is confident that HBB has the right strategic
initiatives in place to move it closer to achieving
its long-term growth and financial objectives.
While growth opportunities also are significant
at NACoal, they are largely based on growth at
existing and newer mines. Both HBB and NACoal
will be prudent in pursuing any new opportunities.
Kitchen Collection’s long-term prospects at this
time are uncertain, but its near-term prospects
are positive and should improve. NACCO is