Blyth, Inc. Reports 4Q and Full Year Sales and Earnings

Blyth, Inc. reported that net sales for the fourth quarter ended January 31, 2006 declined 3.6% to $480.6 million compared to $498.8 million a year earlier. Fourth quarter net sales were approximately even with last year, excluding the adverse impact of foreign currency movement.

Operating loss for the quarter was $6.7 million compared to operating income of $65.0 million for the prior year period. This reflects a one-time non-cash goodwill impairment charge of $53.3 million pre-tax ($0.94 per share) from a re-evaluation of the goodwill associated with the wholesale segment.

Blyth noted a book loss of $1.6 million ($0.02 per share) from the sales of the Impact Plastics business during the 4Q. The quarter’s net loss was $12.3 million versus net earnings of $39.2 million a year earlier, which also includes a previously announced one-time tax expense of $9.1 million ($0.22 per share) to recognize the income tax liability associated with repatriating $130 million in foreign earnings under the American Jobs Creation Act of 2004. The 4Q net loss also includes tax credits ($8.5 million; $0.21 per share) mainly due to the reversal of contingent tax liabilities. Diluted net earnings per share equaled a loss of $0.30 compared to earnings of $0.95 for the same period last year. Excluding the adverse effect of the goodwill impairment charge, the sale of the Impact Plastics business and the tax on repatriated European funds, as well as the benefit of the tax liability reversal and true up, fourth quarter Earnings Per Share would have been $0.67 this year versus $0.95 in last year’s fourth quarter.

Net sales for the fiscal year ended January 31, 2006 were approximately even at $1,573.1 million compared to $1,586.3 million reported for the prior year. Operating profit for the fiscal year was $56.2 million versus $169.3 million for last fiscal year, which reflects the fourth quarter non-cash $53.3 million pre-tax goodwill impairment charge and the book loss of $1.6 million on the sale of the Impact Plastics business.

Net earnings were $24.9 million compared to $96.5 million for the prior year and reflect a one-time tax expense of $9.1 million. Diluted net earnings per share was $0.60 versus $2.22 for the prior year. The sale of Impact Plastics and the repatriation tax, as well as the benefit of the tax liability reversal and true up, excluding the adverse effects of the goodwill impairment, earnings per share would have been $1.56.

Lower fourth quarter net sales versus last year resulted from several factors that Blyth experienced throughout the fiscal year. Robust growth in most of PartyLite’s European markets and in Canada (where sales grew 23% year over year) was more than offset by an 8% decline in PartyLite U.S. (which began the fourth quarter with fewer active independent sales consultants than the same time a year earlier). Most of Blyth’s wholesale business units and brands within the Catalog & Internet segment experienced lower sales versus last year’s 4Q. The company’s operating profits were negatively impacted by lower sales, continued higher commodity costs versus a year ago and higher freight costs resulting in part from fuel surcharges. Management also noted that cash flow from operations was $99 million in fiscal year 2006, and capital expenditures of $17 million were recorded during the year.

In the direct selling segment, fourth quarter net sales declined 2% to $235.0 million (from $239.6 million last year). Lower sales in PartyLite’s U.S. market more than offset continued growth in Europe and strong growth in Canada, in which PartyLite is the largest and fastest growing party plan direct selling company. Fourth quarter operating profit in the direct selling segment was $46.6 million versus $49.5 million and was negatively impacted by lower sales and higher distribution costs of candle products that were manufactured in PartyLite’s European facility due to the disruption of the U.S. wax supply following Gulf hurricanes in 2005.

In the wholesale segment, 4Q net sales declined to $180.8 million from $196.6 due to weak sales in most areas of the segment. An operating loss of $57.1 million in the fourth quarter includes a $53.3 goodwill impairment charge and compares to an operating profit of $9.3 million during last year’s fourth quarter. The impact of higher raw material and freight costs in the wholesale segment contributed to lower operating profits, as well.

In the Catalog & Internet segment, fourth quarter net sales increased to $64.8 million from $62.6 a year ago. This reflected the acquisition of Boca Java, a small on-line marketer of premium coffee and tea products, as well as strong growth of the Exposures and Home Marketplace brands. Fourth quarter operating profit in this segment was $3.8 million versus $6.2 million last year and reflects higher commodity and postage costs, as well as investment spending in the Boca Java business.

Blyth said that the repatriation of $130 million in foreign earnings, previously considered permanently reinvested in non-U.S. legal entities, occurred during the fourth quarter. The company recorded a one-time tax expense of $9.1 million ($0.22 per share) in the fourth quarter to reflect the income tax liability associated with repatriating these funds. Blyth’s management plans to make a domestic investment of the repatriated amount in a wide range of initiatives, including hiring and training U.S. workers, research and development efforts, qualified retirement plan funding, capital expenditures to support the U.S. businesses, advertising and marketing with respect to its various trademarks, brand names and rights to intangible property, and acquisitions of U.S.-based businesses, consistent with legislative requirements.