Cyrk Q2
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Cyrk Q2
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(FOOL CONFERENCE CALL
SYNOPSIS)* By Debora Tidwell (MF Debit)
Cyrk, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CYRK)") else Response.Write("(NASDAQ: CYRK)") end if %> UNION CITY, Ca., August 4, 1996/FOOLWIRE/ --- Cyrk reported Q2 net sales of $44.1 million, an increase of $10 million or 29% over net sales of $34.1 million in the same period a year ago. The company reported a net loss of $974,000 or -$0.09 per share versus a net income of $106,000 or $0.01 per share in Q2 1995. The $0.09 per share loss was a penny better than the $0.10 per share loss analysts were expecting.
Sales to Philip Morris in Q2 amounted to $7.4 million, or approximately 17% of total sales. Sales to Pepsico totalled $12.9 million in Q2 or approximately 29% of sales. These amounts are lower than the Q1 sales to these two very prominent customers. They attribute this decline to the timing of the purchases in relation to the stage of the marketing programs currently in the marketplace for these two customers. Those programs are the Marlboro Unlimited and Pepsi Stuff promotions.
The sales to other promotional customers represents an increase of 34% over Q1 and totalled just over $11 million. It is a 3-fold increase over Q2 1995. Sales to this category of customers is a strong indication of their customer diversification effort and the success that they are enjoying.
The other category of sales is their private label and Cyrk brand business, which amounts to $12.5 million or 28% of total sales. This represents a decline from Q1 levels of approximately 20%, yet reflects an increase of over 9% over last year. The decline in Q1 is primarily one of timing in that their Q1 reflected the shipments to their customers for their Spring season. They had a robust Q1 in this category having reported gains of up to 50% over prior years.
The sales in Q2 reflects lower gross margin as well. The more mature larger promotional programs have evolved and have subjected them to margin pressures. This is the single largest reason for the margin decline versus last year. The decline in the volume associated with their private label and retail groups is another factor in the decline of gross margins from Q1. With the throughput decline in their manufacturing operations, they are incurring an associated increase in the cost of production per unit.
The company's SG&A in Q2 reflects a 3.5% increase over Q1 levels. On a year-over-year comparison, SG&A reflects a $1.9 million increase and remains at approximately 20% of net sales. They described the investments made with these expenses in the press release. They believe these expenditures to be the prerequisite of their business development effort as well as their customer diversification strategy. They have added capacity as well as experienced industry professionals as a result of these measures.
Their backlog at the end of Q2 stands at $40 million, an increase over last year and the balance sheet remains debt free and reflects extreme liquidity. A year ago, the backlog was $30 million.
Cyrk feels that they have turned the corner as far as their topline sales revenue. They had quite a large hole and still have quite a large number to fill. They have a marketing machine that has, in the past, done over $402 million. They knew their job was to diversify their customer base and start to build back that volume. They also reorganized around their different business units. Each of those units is showing increased sales.
Pepsi Stuff program is going extremely well. Pepsi announced in their own press releases that sales exploded and are going faster than they have in 5 years thanks to the Pepsi Stuff promotion. They have characterized the promotion as the biggest, best-known promotion in the company's history and consumers are participating at a record pace. So, it has been very good as a promotion, and very good for Cyrk. It is a new industry for Cyrk and shows that their continuity programs work not only in tobacco-related industries, but in beverage and others. The program ends in October.
They can obviously fill their "machine" through acquisitions of companies that have great people and great customer relationships but can't do the things Cyrk can do. Cyrk can bring these companies' volumes into their machine and can also add to their ability to do business because of Cyrk's capabilities. So, their acquisition efforts have been going full-steam ahead. They indicated in their press release that they have negotiations and discussions going on in almost every stage.
A lot of their major programs and a lot of investments in SG&A come in globally. These programs don't just work in the US and their relationships aren't just limited to the US. They have a lifecycle. Cyrk has been doing a lot of business with the same customers or opening business with the same customers in Europe and Asia, so that has been a follow-on as they build their sales and account management organizations up in those areas of the country. They don't replicate the programs exactly because each country has its different ways of promoting, but it is similar gear items and some of which draw exactly off of the programs they are doing in the US.
The difficulty in Cyrk's business is that they have had major swings in volume depending on the popularity of certain items in certain programs. What they intend to do is build a company where the fluctuations among major, big continuity programs is really the gravy. They want to build a profitable company based on their core other business. They will remain the leader in continuity gear programs, but they welcome and look forward to the day when those wild swings amongst major continuity programs are really the gravy on top of a very stable base of their other areas -- private label, corporate promotion, integrated marketing services, and retail brands. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |