Small profit a big swing for Hanover

Putting behind it a costly preferred stock dividend that pushed the retailer into the loss column last year, Hanover Direct Inc. recorded a modest first-quarter profit of $417,000, compared with a year-ago deficit of $3.4 million.

The swing back to profitability came as the direct-mailer and Internet retailer — parent of Domestications and The Company Store — eliminated a preferred stock dividend that cost it $3.6 million last year as part of a sweeping recapitalization.

Hanover sales decreased 7 percent, to $95.3 million from $102.5 million last year, largely due to a reduction in circulation of one of the company's catalogs in order to cut production and inventory costs tied to the catalog. Most of those cuts, the company said, took place in the first quarter, but ongoing cuts will continue to have an impact on sales moving further into the year, "albeit at a lower rate of decline."

Internet sales continue to grow, said Hanover, now accounting for 33.2 percent of total Internet and catalog revenues for the period. Internet sales grew 12.1 percent, to $28.6 million.

Helped by continued deep cost cutting, operating profits at Hanover more than doubled during the opening quarter, rising 101.5 percent, to $2.4 million from $1.2 million last year. Operating costs were whittled 5.8 percent, to $33.6 million from $36.9 million, yielding a cash savings of $1.7 million. When measured as a percentage of declining sales, costs inched up 40 basis points, or four-tenths of a percentage point, to 35.3 percent from 34.9 percent in the same period a year ago.

Helped by the sharply lower cost of goods sold, average gross margin climbed 180 basis points, or 1.87 percentage points, to 37.8 percent from 36 percent a year ago.

The company's cost of goods sold dropped 9.6 percent, to $59.2 million from $65.5 million last year.

In another lift to the bottom line, Hanover pared its interest expense 36.3 percent.

Hanover Direct Inc.

Qtr. 3/27 (x000) 2004 2003 % chg
Sales $95,312 $102,474 -7.0
Oper. income (EBIT) 2,426 1,204 101.5
Net income 417a (3,440)a
Per share (diluted) 0.00 (0.02)
Average gross margin 37.8% 36.0%
SG&A expenses 35.3% 34.9%
a-First-quarter results include $31,000 in miscellaneous income, compared with a $277,000 charge in the year-ago period; and a federal tax payment of $63,000, compared with zero federal tax liability last year. The prior-year period included a $1.9 million gain on the sale of its Improvements business; and a $3.6 million preferred stock dividend.

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