PLYMOUTH MEETING, Pa.--(BUSINESS WIRE)--CSS Industries, Inc. (NYSE: CSS), a leading consumer products company within the craft, seasonal and celebrations markets, today announced results for its second fiscal quarter ended September 30, 2016 and the first six months of its 2017 fiscal year.
Net sales were $101.3 million in the second quarter of fiscal 2017 compared to $111.5 million in the second quarter of fiscal 2016, a 9% decrease. The decrease is largely attributable to timing, as a higher portion of our known Christmas 2016 sales volume is with retailers who have requested product shipments in our third fiscal quarter. Additionally, a portion of our craft and floral ribbon sales volume, which in the prior year had shipped in our second fiscal quarter, is expected to ship in the last six months of fiscal 2017. These decreases more than offset net sales growth from the Company’s acquisition of the business and assets of Blumenthal Lansing Company LLC (“Blumenthal”), which the Company acquired in February 2016. CSS expects that its second fiscal quarter sales shortfall will be more than offset in the second half of fiscal 2017.
Earnings per diluted share in the second quarter of fiscal 2017 were $0.77 as compared to $1.22 in the second quarter of fiscal 2016. The lower earnings per share are primarily the result of the lower sales noted above and the impact of two warehouse consolidation projects that resulted in higher customer claims and higher labor costs. In addition, since the sales of Christmas merchandise are among our highest gross margin revenue, the shift in these orders lowered our gross margin percentage for the quarter. The warehouse consolidation projects, which are substantially completed, involved the closing of a distribution facility in El Paso, TX in the fourth quarter of fiscal 2016 and the closing of a manufacturing and distribution facility in Lansing, IA, which CSS acquired as part of its Blumenthal acquisition, in the second quarter of fiscal 2017. CSS consolidated the distribution operations of the two closed facilities into the Company’s existing distribution facilities in Florence, AL. The higher, unusual costs associated with the warehouse consolidation projects were approximately $1.8 million pretax in the second quarter of fiscal 2017 and reduced diluted earnings per share by $0.12.
Net sales were $146.6 million in the first six months of fiscal 2017 compared to $155.7 million in the first six months of fiscal 2016, a 6% decrease. The decrease is attributable to the factors noted above. CSS expects that its first six months sales shortfall will be more than offset in the second half of fiscal 2017 due to known Christmas orders expected to ship in the Company’s third quarter of fiscal 2017 and higher forecasted all occasion retail orders that are expected to ship in the last six months of fiscal 2017.
Earnings per diluted share in the first six months were $0.41 as compared to $0.87 in the first six months of fiscal 2016. The lower earnings per share are primarily the result of the lower sales and gross margin impact of the lower sales as noted above, as well as the impact of two warehouse consolidation projects that resulted in higher customer claims and higher labor costs. The higher, unusual costs associated with the warehouse consolidation projects were approximately $2.8 million in the first six months of fiscal 2017 and reduced diluted earnings per share by $0.19.
Christopher J. Munyan, Chief Executive Officer and President commented, “While we are disappointed in our results in the first half of our fiscal year, we expect the sales shortfall will be more than offset in the latter half of this fiscal year. We further believe that most of the unusual costs associated with our two warehouse consolidation projects have been incurred as of September 30, 2016; however, the higher costs incurred year-to-date will have a permanent impact on earnings for the full year. Despite the challenges we faced with these consolidation projects, we believe that the efficiencies we expect to realize from such projects will benefit our long-term mass retail distribution capabilities. We also continued executing on our strategy of growing our presence in the craft, seasonal and celebrations markets with the Schiff acquisition during our second quarter.”
Mr. Munyan added, “With our strong balance sheet and cash flow, excellent business fundamentals and long-term growth strategy, we are well positioned for future success.”
About CSS Industries, Inc.
CSS is a consumer products company primarily engaged in the design, manufacture, procurement, distribution and sale of all occasion and seasonal social expression products, principally to mass market retailers. These all occasion and seasonal products include decorative ribbons and bows, classroom exchange Valentines, infant products, journals, buttons, boxed greeting cards, gift tags, gift card holders, gift bags, gift wrap, decorations, floral accessories, craft and educational products, Easter egg dyes and novelties, memory books, scrapbooks, stickers, stationery, and other items that commemorate life’s celebrations.
