Salton, Inc., of Lake Forest, Illinois, U.S., today announced results for its first quarter ended October 1, 2005. The electric housewares and personal care appliances maker reported net sales of U.S. $148.4 million for its fiscal 2006 first quarter compared to net sales of $204.7 million for the fiscal 2005 first quarter.
Salton reported net income of $29.7 million, or $2.43 per share or $1.83 per diluted share, versus a loss of $3.2 million, or $0.28 per share, for the same period in fiscal 2005.
Net sales decreased domestically by $47.0 million. Salton said this resulted from "restructuring and the uncertainty it created among one of our large suppliers and a few customers." This uncertainty impacted product availability as well as demand. Salton says it has now wrapped up a major portion of its restructuring.
Sales outside the U.S. declined by $9.2 million, a decrease blamed on weak consumer demand and some product shortages in the United Kingdom. As a result of the sale of Amalgamated Appliance Holdings Limited (AMAP) on September 29, 2005, AMAP results were included in discontinued operations for the first quarter of fiscal 2006 and 2005.
Salton reported its gross margin was 27.0 percent for the first quarter of fiscal 2006, compared to 32.6 percent for previous year. The decreased, Salton said, resulted from an inventory shortage of higher margin products and increased closeouts in the domestic market. In addition, Salton said its business and margins continue to be affected by the high cost of steel, corrugated and oil-based raw materials. Despite these challenges, operating expenses, including distribution costs, declined $8.8 million in the first quarter of fiscal 2006 compared to fiscal 2005 - primarily a result of $7.8 million in domestic cost improvements.
Net income increased by $32.9 million, mostly from a $27.8 million gain from the sale of Salton's 52.6-percent ownership interest in AMAP and a pre-tax gain of $21.7 million from the early retirement of debts. Salton had a loss from operations of $11.0 million compared to operating income of $6.2 million in the year-earlier period.
Salton said that, as a result of lower-than-expected sales, it was not in compliance with its financial covenants as of the end of the first quarter of fiscal 2006 and does not expect to be in compliance as of November 5, 2005. Salton sought and received The Sixth Amendment and waiver from its senior lenders, who also agreed to provide additional availability of $5.0 million for seasonal build-up of inventory.
"During the last 18 months, Salton has taken significant steps to make the company less leveraged and more competitive. Our goal remains to return the company to profitability," said William Rue, president and chief operating officer. "Recently, we completed the sale of AMAP and our Tabletop Division, which improved our balance sheet and will allow us to focus on sales initiatives and our business. Through our cost-reduction programs, we have reduced our annual domestic expenses by more than $55.0 million. We will continue to seek ways to make our business more cost effective and profitable, while looking for new ways to grow."
Salton's Business Outlook
"As we had indicated previously, our sales for the first quarter were weak due to the impact of our restructuring efforts, delays in customer orders, product shortages and the effects of the hurricanes," said Salton CEO Leonhard Dreimann. "However, we are encouraged by recent reactions from customers and suppliers. Incoming orders indicate customers are excited about our new products such as the George Foreman(R) G5 Next Grilleration, the latest in a line of removable plate grills developed by the Company and George Foreman. We expect a much stronger second quarter"
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