Merchandising Business Operating Momentum Continues Sales
Productivity and Efficiencies Demonstrated In Media & Marketing
Services Business
NEW YORK--(BUSINESS WIRE)--Sept. 7, 2005--Alloy, Inc. (Nasdaq: ALOY), a media, marketing services, direct
marketing and retail company primarily targeting the dynamic
Generation Y population, today reported revenues for the fiscal
quarter ended July 31, 2005 of $89.2 million and a loss from
continuing operations, including preferred stock dividends and
accretion, of $3.5 million or $0.08 per diluted share. The net loss
attributable to common stockholders was $3.3 million or $0.07 per
diluted share. In the second fiscal quarter of 2005, Alloy registered
$1.7 million of earnings from continuing operations before interest
and other income/expense, income taxes, depreciation and amortization,
stock-based compensation expense, spin off costs, restructuring
charges, and asset write-downs due to impairment ("Adjusted EBITDA").
For additional financial detail, including the reconciliation of
Adjusted EBITDA to net income (loss) as determined under GAAP, please
refer to the financial tables provided at the end of this release.
Total revenues for the second fiscal quarter of 2005 increased
9.0% to $89.2 million, compared with $81.9 million for the second
quarter of fiscal 2004. Second fiscal quarter net merchandise revenues
of $43.0 million increased 10.3% compared with $39.0 million for last
year's second fiscal quarter. The increase resulted primarily from
strength in the direct marketing segment as all of the company's
direct marketing titles exceeded last year's second fiscal quarter
sales and gross margin levels. Second fiscal quarter sponsorship and
other revenues also increased from $42.8 million for last year's
second fiscal quarter to $46.2 million for the second quarter of
fiscal 2005, a 7.8% increase. Second fiscal quarter gross profit
increased to $48.2 million, or 54.1% of revenues, compared with $39.7
million, or 48.4% of revenues, for the comparable period last year,
driven primarily by significant gross margin improvement in our
promotional marketing business and the previously noted improvements
in the direct marketing segment of our merchandising business.
Operating expenses were $50.4 million for the second quarter of
fiscal 2005 versus $49.1 million for the second quarter of fiscal
2004. Contributing to the increase were expenses of $0.4 million
associated with the anticipated separation of our merchandising
business from our media and marketing services business (i.e., the
spin off transaction) later in the year and $0.9 million of impairment
charges also associated with long lived assets in our merchandising
business. Despite these one-time charges, operating expenses decreased
as a percentage of total revenues to 56.6% for the second quarter of
fiscal 2005 versus 60% for the second quarter of fiscal 2004. The
percentage decrease resulted primarily from the cost savings derived
from integrating the operations of dELiA*s, which we acquired in
September 2003, into our merchandise operations, along with reduced
corporate overhead costs including technology, finance, legal and
other fixed overhead expenses. Beginning in the third quarter of
fiscal 2004, we began to more fully realize many of the synergies we
expected to result from combining our direct marketing operations with
those of dELiA*s, leveraging our combined scale, selling across our
combined databases while controlling overall catalog circulation, and
consolidating fulfillment operations.
The loss from continuing operations, including preferred dividends
and accretion, for the second quarter of fiscal 2005 was $3.5 million,
or $0.08 per diluted share compared with a loss of $11.8 million for
last year's second fiscal quarter or $0.28 per diluted share. The net
loss for the second quarter of fiscal 2005 was $3.1 million, compared
with a net loss of $11.2 million for last fiscal year's second
quarter. Net loss attributable to common stockholders for the second
quarter of fiscal 2005 was $3.3 million, or $0.07 per diluted share,
compared with a net loss attributable to common stockholders of $11.6
million, or $0.27 per diluted share, for last year's fiscal second
quarter. Our weighted average common shares outstanding now include
the impact of the conversion of the Series B Redeemable Convertible
Preferred Stock into approximately 3.3 million shares of Alloy Inc.
common stock on June 15, 2005. Adjusted EBITDA transitioned from a
loss of $5.4 million for the second quarter of fiscal 2004 to earnings
of $1.7 million for the second quarter of fiscal 2005.
Commenting on the quarter, Matt Diamond, Chairman and Chief
Executive Officer stated, "We are pleased to report that we made
meaningful progress toward improved sustained profitability in both
our merchandising and sponsorship businesses. During the second
quarter in both the merchandise and the media and marketing services
businesses we saw a combination of improved sales productivity, margin
expansion and a lower overall cost structure that lead to improved
profitability. We look forward to building on these improvements as
well as executing on our previously announced dELiA*s retail store
roll-out plan."
Looking ahead, Mr. Diamond concluded, "As you have seen today by
our filing of a Form S-1 Registration Statement with the Securities
and Exchange Commission, it is the Company's intention to spin-off the
merchandising business from our media and marketing services business
in the near term. We are working to complete this transaction prior to
the close of our fiscal year." As previously announced, in fiscal 2005
the Company will not be providing an earnings per share or Adjusted
EBITDA target range for the year. Instead, during our quarterly
conference calls we will provide a recap and outlook for key operating
metrics that we expect will influence our earnings per share and
Adjusted EBITDA and our strategies to improve these metrics along with
our actual financial results throughout the year.
Total revenues for the six months ended July 31, 2005 increased
6.8% to $176.9 million compared with $165.7 million for the six months
ended July 31, 2004. Net merchandise revenues for the six months ended
July 31, 2005 of $87.5 million were up 10.3% versus $79.3 million for
the six months ended July 31, 2004. Sponsorship and other revenues of
$89.4 million for the six-month period ended July 31, 2005 increased
3.5% compared with $86.4 million for the same period last year. Gross
profit for the six months ended July 31, 2005 increased to $91.0
million, or 51.5% of revenues, compared with $79.0 million, or 47.7%
of revenues, for the first six months of fiscal 2004. Operating
expenses were flat at $96.8 million for the six months ended July 31,
2005 and 2004. However, operating expenses decreased as a percentage
of total revenues to 54.7% for the six months ended July 31, 2005
versus 58.4% for the six months ended July 31, 2004. The loss from
continuing operations, including preferred stock dividends and
accretion, for the six months ended July 31, 2005 was $8.5 million, or
$0.20 per diluted share compared with a loss of $21.3 million for the
six months ended July 31, 2004 or $0.50 per diluted share. Net loss
for the six months ended July 31, 2005 was $19.0 million, compared
with a net loss of $20.4 million for the six months ended July 31,
2004. Net loss attributable to common stockholders for the six months
ended July 31, 2005 was $19.6 million, or $0.45 per diluted share,
compared with net loss attributable to common stockholders of $21.2
million, or $0.50 per diluted share for the six months ended July 31,
2004.
The 2005 results reflect management's sale of the operations of
Dan's Competition ("Dan's") in June 2005. Accordingly, the company's
results reflect Dan's as a discontinued operation and include a loss
on disposition of the related net assets of approximately $11.4
million. Approximately $13 million in net proceeds were received from
the sale. The 2004 results have been restated to reflect Dan's as a
discontinued operation.
About Alloy
Alloy, Inc. is a media, marketing services, direct marketing and
retail company primarily targeting Generation Y, a key demographic
segment comprising the more than 60 million boys and girls in the
United States between the ages of 10 and 24. Alloy's convergent media
model uses a wide range of media assets to reach more than 31 million
Generation Y consumers each month and is comprised of two distinct
divisions: Alloy Media + Marketing and Alloy Merchandising Group.
Alloy Media + Marketing is one of the largest providers of targeted
media and promotional marketing programs incorporating such industry
recognized divisions as Alloy Marketing & Promotions (AMP), 360 Youth,
American Multicultural Marketing (AMM), Market Place Media (MPM),
Alloy Education, Alloy Entertainment, and Alloy Out-of-Home. Working
with these groups, marketers can connect with their targeted audience
through a host of advertising and marketing programs incorporating
Alloy's wide ranging media and marketing assets such as direct mail
catalogs, college and high school newspapers, Web sites, display media
boards, college guides, and promotional events. Alloy Merchandising
Group, our direct marketing and retail store division, includes the
dELiA*s, Alloy, and CCS brand names and sells apparel, accessories,
footwear, room furnishings and action sports equipment directly to the
youth market through catalogs, websites and retail stores. For further
information regarding Alloy, please visit our corporate website at
(www.alloyinc.com).
This announcement may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934, including statements
regarding our expectations and beliefs regarding our future results or
performance. Because these statements apply to future events, they are
subject to risks and uncertainties. When used in this announcement,
the words "anticipate", "believe", "estimate", "expect",
"expectation", "project" and "intend" and similar expressions are
intended to identify such forward-looking statements. Our actual
results could differ materially from those projected in the
forward-looking statements. Additionally, you should not consider past
results to be an indication of our future performance. Factors that
might cause or contribute to such differences include, among others,
our ability to: increase revenues; generate high margin sponsorship
and multiple revenue streams; increase visitors to our Web sites
(www.alloy.com, www.delias.com, and www.ccs.com) and build customer
loyalty; develop our sales and marketing teams and capitalize on these
efforts; develop commercial relationships with advertisers and the
continued resilience in advertising spending to reach the teen market;
manage the risks and challenges associated with integrating newly
acquired businesses; and identify and take advantage of strategic,
synergistic acquisitions and other revenue opportunities. Other
relevant factors include, without limitation: our competition;
seasonal sales fluctuations; the uncertain economic and political
climate in the United States and throughout the rest of the world, and
the potential that such climate may deteriorate further; and general
economic conditions. For a discussion of certain of the foregoing
factors and other risk factors see the "Risk Factors That May Affect
Future Results" section included in our annual report on Form 10-K for
the year ended January 31, 2005, which is on file with the Securities
and Exchange Commission. We do not intend to update any of the
forward-looking statements after the date of this announcement to
conform these statements to actual results, to changes in management's
expectations or otherwise, except as may be required by law.
Alloy, Inc.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
7/31/2004 7/31/2005 7/31/2004 7/31/2005
Net merchandise revenues $39,009 $43,031 $79,302 $87,461
Sponsorship and other
revenues 42,843 46,171 86,409 89,438
---------------------- ----------------------
Total revenues 81,852 89,202 165,711 176,899
Cost of goods sold 42,195 40,969 86,722 85,857
---------------------- ----------------------
Gross profit 39,657 48,233 78,989 91,042
Selling and marketing
expenses 35,941 38,888 70,695 74,348
General and
administrative expenses 11,216 9,408 22,434 18,931
Amortization of acquired
intangible assets 1,404 749 2,663 1,842
Stock-based compensation 352 84 703 139
Impairment of long-lived
assets 0 889 0 924
Spin off costs 0 427 0 615
Restructuring charges 192 0 318 0
---------------------- ----------------------
Total operating expenses 49,105 50,445 96,813 96,799
Loss from continuing
operations before
interest and other
income (expense) and
income taxes (9,448) (2,212) (17,824) (5,757)
Interest and other income
(expense), net (1,829) (1,043) (2,515) (2,106)
---------------------- ----------------------
Loss from continuing
operations before income
taxes (11,277) (3,255) (20,339) (7,863)
Income tax expense 110 17 120 66
---------------------- ----------------------
Loss from continuing
operations (11,387) (3,272) (20,459) (7,929)
Discontinued operations
Income (loss) from
operations of
discontinued Dan's
Competition (including
loss on disposal of
11,405), net of tax 232 213 61 (11,029)
---------------------- ----------------------
Net loss (11,155) (3,059) (20,398) (18,958)
Preferred stock dividend
and accretion 401 217 795 620
---------------------- ----------------------
Net loss attributable to
common stockholders ($11,556) ($3,276) ($21,193) ($19,578)
Basic loss per common
share:
Loss from continuing
operations including
preferred stock
dividends and
accretion ($0.28) ($0.08) ($0.50) ($0.20)
Income (loss) from
discontinued
operations $0.01 $0.01 $0.00 ($0.25)
---------------------- ----------------------
Total basic loss
attributable to common
stockholders ($0.27) ($0.07) ($0.50) ($0.45)
====================== ======================
Diluted loss per common
share:
Loss from continuing
operations including
preferred stock
dividends and
accretion ($0.28) ($0.08) ($0.50) ($0.20)
Income (loss) from
discontinued
operations $0.01 $0.01 $0.00 ($0.25)
---------------------- ----------------------
Total diluted loss
attributable to common
stockholders ($0.27) ($0.07) ($0.50) ($0.45)
====================== ======================
Weighted average basic
common shares
outstanding: 42,711,248 44,619,471 42,531,538 43,796,270
====================== ======================
Weighted average diluted
common shares
outstanding : 42,711,248 44,619,471 42,531,538 43,796,270
====================== ======================
Reconciliation of EBTA
and Adjusted EBITDA to
GAAP Results (1):
-------------------------
Net loss from continuing
operations ($11,387) ($3,272) ($20,459) ($7,929)
Income tax expense 110 17 120 66
Amortization of acquired
intangible assets 1,404 749 2,663 1,842
Stock-based compensation 352 84 703 139
Impairment of long-lived
assets 0 889 0 924
Spin off costs 0 427 0 615
Restructuring charges 192 0 318 0
----------------------------------------------- ----------------------
EBTA excluding stock-
based compensation,
restructuring, asset
write-downs and spin
off costs ($9,329) ($1,106) ($16,655) ($4,343)
Interest and other income
(expense), net (1,829) (1,043) (2,515) (2,106)
Depreciation and
amortization 2,121 1,806 4,331 3,743
----------------------------------------------- ----------------------
Adjusted EBITDA ($5,379) $1,743 ($9,809) $1,506
====================== ======================
(1) This press release contains the non-GAAP financial measures EBTA
and Adjusted EBITDA. Alloy uses EBTA and Adjusted EBITDA to evaluate
its performance period to period without taking into account certain
expenses which, in the opinion of Alloy management, do not reflect
Alloy's results from its core business activities. These non-GAAP
financial measures should be considered in addition to, and not as a
substitute for, or superior to, other measures of financial
performance prepared in accordance with GAAP. These non-GAAP measures
included in this press release have been reconciled to the nearest
GAAP measure as is required under SEC rules regarding the use of
non-GAAP financial measures. As used herein, "GAAP" refers to
accounting principles generally accepted in the United States of
America.
Alloy, Inc.
SELECTED CONDENSED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
January 31, July 31,
2005 2005
(unaudited)(unaudited)
Assets
Current Assets
Cash and cash equivalents $25,137 $30,680
Marketable securities 6,341 2,001
Accounts receivable, net 39,657 42,220
Inventories 26,623 32,909
Prepaid catalog costs 2,588 3,869
Other current assets 6,651 6,107
Current assets of discontinued operations 2,763 0
----------------------
Total current assets 109,760 117,786
Property and equipment, net 24,505 23,980
Goodwill, net 185,763 185,763
Intangible and other assets, net 17,159 15,461
Noncurrent assets of discontinued operations 21,946 0
----------------------
Total assets $359,133 $342,990
======================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $29,287 $22,403
Deferred revenues 18,144 18,137
Mortgage Note payable 160 172
Bank Loan Payable 0 3,922
Accrued expenses and other current
liabilities 26,433 32,097
Current liabilities of discontinued
operations 822 302
----------------------
Total current liabilities 74,846 77,033
Long term liabilities 6,209 6,271
Convertible debt 69,300 69,300
Series B Preferred Stock 16,042 0
Stockholders' Equity 192,736 190,386
----------------------
Total liabilities and stockholders'
equity $359,133 $342,990
======================
CONTACT: Alloy, Inc.
James K. Johnson, 212-244-4307
SOURCE: Alloy, Inc.
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