CoolBrands' fiscal 2005 net revenues decline

by Keith Nunes
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TORONTO — The loss of two significant brands as well as unfavorable industry dynamics led to a fiscal 2005 loss of $74,070,000 at CoolBrands International Inc., a marketer of dairy-based snacks. This compared with net income of $23,512,000, equal to 42c per share on the common stock, in fiscal 2004. Net revenues also took a hit, falling 14.4% to $385,070,000 as compared with $449,938,000 for fiscal 2004.

For the fourth quarter ended Aug. 31, CoolBrands sustained a loss of $64,093,000, which compared with earnings of $12,484,000, or 22c per share, in the fourth quarter of fiscal 2004. Net revenues for the fourth quarter of fiscal 2005 fell to $124,055,000 from $129,052,000 for the same quarter last year, a 3.9% decrease.

The 2005 results for the fiscal year and fourth quarter were adversely affected by a non-cash pre-tax asset impairment charge of $55,525,000, which resulted from the impairment of goodwill and intangible assets related to CoolBrands’ frozen dessert and franchising segments.

"Our financial performance for the quarter and full year 2005 reflected the loss of two significant brands, as well as unfavorable industry dynamics throughout the year," said David J. Stein, president, chief executive officer and co-chairman. "Our strategy is to aggressively rebuild and refocus our brand portfolio, including through further development of Breyers Yogurt, in which we acquired both an established brand in a high growth category, and a platform for further refrigerated products brand introductions."

The decrease in net revenues for fiscal 2005 reflects a decrease in net sales and in drayage income. The company’s net sales for fiscal 2005 declined 10.3% to $364,686,000 as compared with $406,470,000 during 2004. The decrease reflects a reduction in sales volume, as well as an increase in trade promotion payments to customers for promotions. The decline in net sales came principally from the discontinuation of sales of Weight Watchers Smart Ones brand products and the decline in sales of Atkins brand products, but declines also came from other frozen dessert brands, the company said.

The sales declines were partially offset by sales from newly introduced frozen dessert products, the acquisition of the Breyers Yogurt business in March 2005 and the increase in sales as a result of a change in the business arrangement with Dreyer’s Grand Ice Cream Holding, Inc. CoolBrands began purchasing products from Dreyer’s and selling them to customers at wholesale, instead of delivering products to customers on a drayage basis, except for Dreyer’s scanned based trading customers which continue to be delivered on a drayage basis.

"Our strategy is being implemented in 2006 in the refrigerated category with an all natural reformulation of Breyers Yogurt, and in the frozen category through the introduction of a broad range of new Godiva Ice Cream offerings, a national rollout of Yoplait Frozen Yogurt and Cereal Bars and the launch of a line of ‘better-for-you’ frozen snacks for kids featuring Disney characters under license from Disney Consumer Products, our newest licensing partner," Mr. Stein said. "The Disney products will be in innovative forms featuring vitamin fortification and will be introduced in early 2006 at retail outlets nationwide."

Gross profit percentage for fiscal 2005 declined to 0.8% as compared with 19% for fiscal 2004. The decrease primarily was due to an increase in trade promotion payments to customers, write downs for obsolete and slow moving inventories, the impact of fixed overhead costs in manufacturing and distribution operations resulting from the decrease in sales, and product mix changes.

"As part of our rebuilding efforts," Mr. Stein said, "CoolBrands is evaluating the disposition of various non-core business assets, including its franchising business. While the corporation is currently in late-stage discussions on certain transactions, there can be no assurance that any particular transaction will be effected."

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