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Bluestem Group Inc. Announces Unaudited Consolidated Second Quarter Fiscal 2019 Earnings Results

EDEN PRAIRIE, Minn.--(BUSINESS WIRE)--

Bluestem Group Inc. ("Bluestem Group" or the "Company") (BGRP) today reported unaudited consolidated financial results that include its wholly-owned subsidiary, Bluestem Brands, Inc. and its subsidiaries (“Bluestem Brands”), for the 13- and 26-weeks ended August 2, 2019 and August 3, 2018. We refer to the 13-week periods in this release as the "second quarter." Bluestem is a multi-brand, direct-to-consumer online retailer of a broad selection of name-brand and private label general merchandise serving the boomer and senior demographic, generally considered age 50 and over, and low- to middle-income consumers across all age demographics.

Second Quarter Fiscal 2019 Bluestem Brands Highlights

  • The previously announced strategic exit from six of our eleven Orchard brands is on track, with inventory liquidation completed in August 2019.
  • Net sales were $365.4 million, a 13.5% decrease compared to the second quarter of fiscal 2018. Net sales decreased 9.7% when adjusted for exited brand sales in 2019 and 2018.
  • Gross margin was 46.4% compared to 47.8% in the second quarter of fiscal 2018. Excluding the impact of inventory liquidation of the exited brands, gross margin was 46.6%.
  • Selling and marketing expenses as a percent of net sales was 21.8% compared to 23.3% in the second quarter of fiscal 2018.
  • Net credit expense excluding servicing rights valuation was $23.2 million, an improvement of $6.2 million compared to Q2 2018 from a lower merchant discount rate charged on sales to SCUSA due to an improving credit portfolio.
  • Contribution margin, excluding the impact of the servicing rights valuations and the inventory liquidation of exited brands, was 18.3% of net sales an improvement of 80 bps compared to Q2 2018.
  • Adjusted EBITDA was $25.1 million compared to $31.6 million in the second quarter of fiscal 2018, excluding the impact of inventory liquidation of the exited brands, decreased 50 basis points as a percent of net sales.
  • Compliant with lender covenants as of the end of the second quarter, net liquidity was $50.2 million compared to a covenant requirement of $40.0 million and lender leverage ratio was 3.02x compared to a covenant requirement of 4.50x.

Bruce Cazenave, CEO, stated, “During second quarter, we continued to benefit from initiatives employed to stabilize the credit portfolio and delivered increased contribution margin rates once again at both the Northstar and Orchard portfolios. At Northstar, we remain focused on implementing our customer segmentation and personalization strategies to drive increased overall customer engagement while also continuing to deliver improvements in the credit portfolio. At Orchard, there are encouraging signs that our continued focus on circulation productivity as well as refinements to our merchandising and marketing strategies will yield positive results for our go-forward brands. At this time, we continue to develop a new three year strategic plan which will add focus to driving improved performance in core business processes as well as capitalizing on our growth opportunities. We have a differentiated business model that enables us to offer a compelling value proposition to our value-minded customers and believe that the execution of this plan will lead to long term profitable growth and enhanced value to our stakeholders.”

Second Quarter Fiscal 2019 Bluestem Group Consolidated Information

unaudited in millions (except gain (loss) per share)

 

Q2 2019

 

Q2 2018

Bluestem Group net gain (loss)

 

$

2.4

 

 

$

6.1

 

Bluestem Group basic and diluted gain (loss) per share

 

$

0.02

 

 

$

0.05

 

Bluestem Group Adjusted EBITDA

 

$

24.7

 

 

$

30.9

 

Bluestem Group cash and cash equivalents

 

$

118.8

 

 

$

123.3

 

Second Quarter Fiscal 2019 Bluestem Brands Stand-Alone Information

unaudited in millions

 

Q2 2019

 

Q2 2018

Bluestem Brands net sales

 

$

365.4

 

 

$

422.2

 

Bluestem Brands net gain (loss)

 

$

(1.2

)

 

$

3.0

 

Bluestem Brands Adjusted EBITDA

 

$

25.1

 

 

$

31.6

 

 

 

 

 

 

Northstar Portfolio net sales

 

$

211.7

 

 

$

224.5

 

Orchard Portfolio net sales

 

$

153.5

 

 

$

194.5

 

Northstar portfolio active customers

 

1.5

 

 

1.5

 

Orchard Portfolio gross active customers

 

5.2

 

 

6.0

 

Northstar Portfolio revolving credit portfolio:

 

 

 

 

30+ day delinquency rate

 

17.6

%

 

17.5

%

Net principal charge-off rate

 

23.0

%

 

22.0

%

All financial information included in this release is unaudited. Information for Bluestem Group is presented on a consolidated basis. Consolidated information for Bluestem Group’s wholly-owned subsidiary, Bluestem Brands, Inc., is also presented on a stand-alone basis.

Adjusted EBITDA is defined in the accompanying financial information of Bluestem Group and Bluestem Brands. Please see “Bluestem Group Inc. and Bluestem Brands, Inc. Financial Information-Overview and Basis of Presentation” below and accompanying disclosures for a more detailed explanation of the foregoing matters, reconciliations to results reported under GAAP and other important information for investors to consider.

Earnings Teleconference Information

The Company will host a conference call at 8:00 AM ET on Tuesday, September 17, 2019. The conference call can be accessed at (877) 407-0789 or (201) 689-8562 (International), conference ID # 13694133 and broadcast simultaneously at http://www.bluestem.com/investor-relations. Following completion of the call, a recorded replay of the webcast will be available on Bluestem’s website. To listen to the telephone replay, call toll-free (844) 512-2921 or (412) 317-6671 (International), replay pin # 13694133. The telephone replay will be available at 11:00 AM ET September 17, 2019. Additional investor information can be accessed at http://www.bluestem.com/investor-relations.

About Bluestem Group

Bluestem Group Inc., a holding company headquartered in Eden Prairie, MN, operates multiple direct to consumer retail brands through its subsidiary Bluestem Brands. The Northstar Portfolio includes Fingerhut and Gettington, both of which are national multi-channel retail brands offering a broad selection of name brand and private label merchandise serving low- to middle-income consumers by offering multiple payment plans through revolving credit lines or installment loans offered by WebBank. The Orchard Portfolio consists of multichannel brands that offer apparel, accessories, and home products for the boomer and senior demographic, generally considered age 50 and over and provide customers with the ability to obtain credit through a third-party private label credit card. At the end of fiscal 2018, the Company announced that it would be exiting from six legacy brands in fiscal 2019: Bedford Fair, Gold Violin, Norm Thompson, Sahalie, Tog Shop and WinterSilks. Continuing brands include Appleseed’s, Blair, Draper’s & Damon’s, Haband, and Old Pueblo Traders. For additional information visit the Bluestem Group website at www.bluestem.com.

Forward Looking Statements

This release contains statements that are “forward-looking statements”. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. All statements contained herein that are not clearly historical in nature are forward-looking. In some cases, you can identify these statements by use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,” “project,” “intend,” “could” or similar expressions. In particular, statements regarding Bluestem Group’s plans, strategies, prospects and expectations regarding its business are forward-looking statements. You should be aware that these statements and any other forward-looking statements in this document only reflect Bluestem Group’s beliefs, assumptions and expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Many of these risks, uncertainties and assumptions are beyond Bluestem Group’s control and may cause actual results and performance to differ materially from Bluestem Group’s expectations. Forward-looking statements are based on Bluestem Group’s beliefs, assumptions and expectations of its future performance and actions, taking into account all information currently available to Bluestem Group. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to Bluestem Group or are within its control. If a change occurs, Bluestem Group’s plans, business, financial condition, and liquidity may vary materially from those expressed in its forward-looking statements. Important factors that could cause the actual results to be materially different from Bluestem Group’s expectations include the risks and uncertainties set forth in “Risk Factors” in Bluestem Group’s Report as of and for the fiscal years ended February 1, 2019 and February 2, 2018.

Accordingly, you should not place undue reliance on the forward-looking statements contained in this release. These forward-looking statements are made only as of the date of this release. Bluestem Group undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

BLUESTEM GROUP INC.

Table of Contents

 

Page

Overview and Basis of Presentation

5

Bluestem Group Inc

6

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

7

Condensed Consolidated Balance Sheets (Unaudited)

8

Condensed Consolidated Statements of Cash Flows (Unaudited)

9

Non-GAAP Financial Measure (Unaudited)

10

Bluestem Brands, Inc

11

Condensed Consolidated Statements of Comprehensive Income (Loss) and Selected Operating Data (Unaudited)

12

Condensed Consolidated Balance Sheets (Unaudited)

14

Condensed Consolidated Statements of Cash Flows (Unaudited)

15

Supplemental Financial Information (Unaudited)

 

Segment Net Sales

16

Credit Portfolio

18

Non-GAAP Financial Measures (Unaudited)

20

BLUESTEM GROUP INC.
BLUESTEM BRANDS, INC.
FINANCIAL INFORMATION
13- and 26-Weeks Ended August 2, 2019 and August 3, 2018

Overview and Basis of Presentation

As used in this release:

  • “Bluestem Group,” "BGI," “we,” “us,” “our,” or “the Company” refers to Bluestem Group Inc. with its consolidated subsidiaries
  • “BGI Holding Company” refers to the Bluestem Group Inc. legal entity, excluding its subsidiaries
  • "Bluestem Brands" or “Bluestem” refers to Bluestem Brands, Inc., an indirect subsidiary of Bluestem Group, which consists of Northstar Portfolio and the Orchard Portfolio
  • "Northstar Portfolio” refers to the consolidated Fingerhut and Gettington retail brands
  • “Orchard Portfolio” refers to the consolidated Appleseed’s, Blair, Draper’s & Damon’s , Haband, and Old Pueblo Traders go-forward retail brands along with Norm Thompson, Gold Violin, Bedford Fair, Sahalie, Tog Shop, and WinterSilks that are being exited and all inventory of the exited brands is being liquidated in 2019

The accompanying financial information for Bluestem Group Inc. is presented on a consolidated basis, including its wholly owned subsidiary Bluestem Brands, Inc. and its consolidated subsidiaries. The accompanying financial information for Bluestem Brands, Inc. is also presented on a stand-alone basis. All financial information included in this release is unaudited.

At the end of the fourth quarter of fiscal 2018, the Company announced that it had made the strategic decision to exit six of its thirteen retail brands: Bedford Fair, Gold Violin, Norm Thompson, Sahalie, The Tog Shop and Winter Silks ("the 2018 Restructuring Plan"). This decision was made to streamline the business, enabling Company management to focus resources on the core Orchard portfolio brands, consisting of Appleseed’s, Blair, Drapers & Damon’s, Haband and Old Pueblo Traders. All of Sahalie's inventory assortment is now and will continue to be offered through our Gettington retail brand. Liquidation of the exited brands inventory was completed in August 2019.

The Company reviews and presents the consolidated business results based on the organizational structure management uses to evaluate performance and make decisions on allocating resources and assessing performance.

Financial Information

To supplement the historical financial data derived from Bluestem Group’s and Bluestem’s consolidated financial statements, which are prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), this release uses adjusted EBITDA as a non-GAAP performance measure. In addition, Bluestem’s stand-alone consolidated financial statements include contribution margin, adjusted general and administrative expenses, adjusted free cash flow, program agreement adjusted EBITDA, lender adjusted EBITDA, leverage ratio net debt, program agreement leverage ratio, lender leverage ratio, working capital, adjusted working capital, program agreement net liquidity and lender net liquidity as non-GAAP performance measures. These measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP. Please see the accompanying report on Bluestem Group’s and Bluestem’s results for further important information concerning these measures.

Bluestem Group Inc.
Results for the 13- and 26-Weeks Ended
August 2, 2019 and August 3, 2018

BLUESTEM GROUP INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited - in thousands, except shares and per share amounts)

 

 

13-Weeks Ended

 

26-Weeks Ended

 

August 2, 2019

 

August 3, 2018

 

August 2, 2019

 

August 3, 2018

Net sales

$

365,882

 

 

$

422,557

 

 

$

715,815

 

 

$

804,012

 

Costs and expenses

 

 

 

 

 

 

 

Cost of goods sold

195,405

 

 

220,059

 

 

380,862

 

 

415,226

 

Sales and marketing expenses

79,501

 

 

98,233

 

 

178,223

 

 

225,252

 

Net credit expense

22,796

 

 

29,011

 

 

41,176

 

 

54,159

 

General and administrative expenses

43,736

 

 

46,171

 

 

90,949

 

 

95,187

 

Amortization and depreciation not included in cost of goods sold

10,534

 

 

12,043

 

 

21,121

 

 

24,347

 

Total costs and expenses

351,972

 

 

405,517

 

 

712,331

 

 

814,171

 

Operating income (loss)

13,910

 

 

17,040

 

 

3,484

 

 

(10,159

)

Interest expense, net

12,654

 

 

12,513

 

 

25,320

 

 

25,115

 

Income (loss) before income taxes

1,256

 

 

4,527

 

 

(21,836

)

 

(35,274

)

Income tax expense (benefit)

(1,122

)

 

(1,584

)

 

(383

)

 

(1,273

)

Net income (loss)

$

2,378

 

 

$

6,111

 

 

$

(21,453

)

 

$

(34,001

)

 

 

 

 

 

 

 

 

Income (loss) per share - common stockholders

 

 

 

 

 

 

 

Basic and diluted income (loss) per share

 

$

0.02

 

 

$

0.05

 

 

$

(0.16

)

 

$

(0.26

)

Basic weighted average shares outstanding

 

133,585,905

 

 

132,761,508

 

 

133,382,012

 

 

132,544,192

 

Diluted weighted average shares outstanding

134,473,890

 

 

132,764,804

 

 

133,382,012

 

 

132,544,192

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

Unrealized gain (loss) on interest rate swap, net of tax

(951

)

 

(254

)

 

(1,450

)

 

148

 

Comprehensive income (loss)

$

1,427

 

 

$

5,857

 

 

$

(22,903

)

 

$

(33,853

)

 

BLUESTEM GROUP INC.

Condensed Consolidated Balance Sheets

(unaudited - in thousands)

 

August 2, 2019

 

February 1, 2019

 

August 3, 2018

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

118,751

 

 

$

119,507

 

 

$

123,318

 

Restricted cash

14,975

 

 

13,508

 

 

14,348

 

Customer accounts receivable, net of allowance of $4,790, $7,801 and $5,638

4,748

 

 

8,154

 

 

5,658

 

Merchandise inventories

177,126

 

 

210,658

 

 

192,534

 

Promotional material inventories

11,654

 

 

13,810

 

 

17,739

 

Other current assets

33,982

 

 

29,742

 

 

30,257

 

Total current assets

361,236

 

 

395,379

 

 

383,854

 

Property and equipment, net

82,174

 

 

90,376

 

 

96,336

 

Operating lease right of use assets

25,202

 

 

 

 

 

Intangibles, net

113,633

 

 

120,921

 

 

155,815

 

Goodwill

36,717

 

 

36,717

 

 

36,717

 

Other assets

2,758

 

 

5,966

 

 

7,646

 

Total Assets

$

621,720

 

 

$

649,359

 

 

$

680,368

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

141,657

 

 

$

140,992

 

 

$

166,112

 

Accrued costs and other liabilities

42,780

 

 

73,349

 

 

70,094

 

Short-term debt

63,462

 

 

49,903

 

 

38,719

 

Short-term operating lease liabilities

8,641

 

 

 

 

 

Total current liabilities

256,540

 

 

264,244

 

 

274,925

 

Long-term debt

383,847

 

 

395,819

 

 

407,800

 

Long-term operating lease liabilities

21,254

 

 

 

 

 

Deferred income taxes

 

 

 

 

2,495

 

Other long-term liabilities

23,120

 

 

30,925

 

 

35,380

 

Total liabilities

684,761

 

 

690,988

 

 

720,600

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

Series A participating convertible preferred stock

5,000

 

 

5,000

 

 

5,000

 

Common stock

1,340

 

 

1,340

 

 

1,332

 

Treasury stock

(131

)

 

(131

)

 

(131

)

Additional paid-in capital

298,537

 

 

297,310

 

 

296,254

 

Accumulated deficit

(367,831

)

 

(346,642

)

 

(345,166

)

Accumulated other comprehensive income, net of tax

44

 

 

1,494

 

 

2,479

 

Total stockholders’ equity

(63,041

)

 

(41,629

)

 

(40,232

)

Total Liabilities and Stockholders' Equity

$

621,720

 

 

$

649,359

 

 

$

680,368

 

 

BLUESTEM GROUP INC.

Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)

 

 

26-Weeks Ended

 

August 2, 2019

 

August 3, 2018

Operating Activities

 

 

 

Net income (loss)

$

(21,453

)

 

$

(34,001

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

Amortization and depreciation expense

23,373

 

 

26,582

 

Provision for doubtful accounts

28,677

 

 

41,472

 

Provision for deferred income taxes

(696

)

 

(1,714

)

(Gain) loss on servicing right

(3,119

)

 

(3,190

)

Net losses on loans held for sale, investment securities and other

126

 

 

265

 

Amortization of debt discounts

2,701

 

 

 

Stock-based compensation expense

1,640

 

 

1,716

 

Non cash lease expense

4,741

 

 

 

Other, net

(523

)

 

2,185

 

Net change in assets and liabilities:

 

 

 

Customer account receivables

(145

)

 

(821

)

Merchandise inventories

33,532

 

 

2,159

 

Promotional material inventories

2,156

 

 

3,080

 

Other assets

(4,572

)

 

(459

)

Accounts payable and other liabilities

(34,303

)

 

8,742

 

Net cash provided by (used in) provided by operating activities

32,135

 

 

46,016

 

 

 

 

 

Investing Activities

 

 

 

Purchases of customer accounts receivable

(409,842

)

 

(423,953

)

Proceeds from sale of customer accounts receivable

384,716

 

 

386,652

 

Net purchases of property and equipment

(8,347

)

 

(9,581

)

Distributions from equity investments

3,040

 

 

2,109

 

Net cash provided by (used in) investing activities

(30,433

)

 

(44,773

)

 

 

 

 

Financing Activities

 

 

 

Repayments of debt

(16,115

)

 

(14,401

)

Borrowings on asset backed line of credit

153,316

 

 

181,805

 

Repayments on asset backed line of credit

(138,142

)

 

(170,046

)

Net cash provided by (used in) financing activities

(941

)

 

(2,642

)

 

 

 

 

Effect of Foreign Exchange Rates on Cash

(50

)

 

(92

)

 

 

 

 

Net increase (decrease) in Cash, Cash Equivalents and Restricted Cash

711

 

 

(1,491

)

Cash, Cash Equivalents and Restricted Cash, Beginning of Period

133,015

 

 

139,157

 

Cash, Cash Equivalents and Restricted Cash, End of Period

$

133,726

 

 

$

137,666

 

 

BLUESTEM GROUP INC.
Non-GAAP Financial Measure
(unaudited - in thousands)

To supplement the consolidated financial statements of Bluestem Group Inc. and its subsidiaries, which are presented in accordance with GAAP, we use the following measure that is not in accordance with, or an alternative to, measures prepared in accordance with GAAP ("non-GAAP measure"):

Adjusted EBITDA, as presented, represents net income (loss) attributable to Bluestem Group Inc. before income tax benefit, interest expense, amortization and depreciation expense, loss on impairment, gain or loss on servicing right, stock-based compensation expense, restructuring costs, impact of inventory liquidation related to exited retail brands and other.

We provide this measure because we believe it is useful to investors in evaluating our operating performance compared to other companies in our industry. As a non-GAAP measure, it has limitations in that it does not reflect all of the amounts associated with Bluestem Group Inc.'s results of operations as determined in accordance with GAAP and is not based on any comprehensive set of accounting rules or principles. This non-GAAP measure should be considered along with the GAAP financial presentation and should not be considered in isolation or as a substitute for results reported in accordance with GAAP. In addition, our calculation of Adjusted EBITDA may not be comparable to the calculation of such measure by other companies.

The following table reconciles Adjusted EBITDA from the nearest GAAP performance measure, which is net income (loss):

 

13-Weeks Ended

 

26-Weeks Ended

 

August 2, 2019

 

August 3, 2018

 

August 2, 2019

 

August 3, 2018

Adjusted EBITDA:

 

 

 

 

 

 

 

Net income (loss)

$

2,378

 

 

$

6,111

 

 

$

(21,453

)

 

$

(34,001

)

Income tax expense (benefit)

(1,122

)

 

(1,584

)

 

(383

)

 

(1,273

)

Interest expense

12,661

 

 

12,517

 

 

25,332

 

 

25,122

 

Amortization and depreciation expense

11,655

 

 

13,118

 

 

23,356

 

 

26,583

 

(Gain) loss on servicing right

(449

)

 

(366

)

 

(3,119

)

 

(3,190

)

Stock-based compensation expense

699

 

 

637

 

 

1,640

 

 

1,715

 

Restructuring costs

726

 

 

5

 

 

1,907

 

 

94

 

Impact of inventory liquidation of exited brands

(1,674

)

 

 

 

(3,267

)

 

 

Other

(178

)

 

508

 

 

(143

)

 

1,703

 

Adjusted EBITDA

$

24,696

 

 

$

30,946

 

 

$

23,870

 

 

$

16,753

 


Bluestem Brands, Inc.
Results for the 13- and 26-Weeks Ended
August 2, 2019 and August 3, 2018

BLUESTEM BRANDS, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss) and Selected Operating Data

(unaudited) (in thousands)

 

13-Weeks Ended

 

 

 

 

August 2, 2019

 

August 3, 2018

 

Change(a)

 

Net sales

$

365,377

 

 

$

422,198

 

 

(13.5

)%

 

Cost of goods sold

195,857

 

 

220,536

 

 

(11.2

)%

 

Gross profit

169,520

 

 

201,662

 

 

(15.9

)%

 

Sales and marketing expenses

79,501

 

 

98,233

 

 

(19.1

)%

 

Net credit expense

22,796

 

 

29,084

 

 

(21.6

)%

 

General and administrative expenses

42,003

 

 

44,433

 

 

(5.5

)%

 

Amortization and depreciation not included in cost of goods sold(b)

10,534

 

 

12,043

 

 

(12.5

)%

 

Interest expense, net(c)

12,654

 

 

12,513

 

 

1.1

%

 

Income (loss) before income taxes

2,032

 

 

5,356

 

 

62.1

%

 

Income tax expense (benefit)

3,220

 

 

2,401

 

 

(34.1

)%

 

Net income (loss)

$

(1,188

)

 

$

2,955

 

 

140.2

%

 

 

 

 

 

 

 

 

Margins and Expenses as a Percentage of Net Sales:

 

 

 

 

 

 

Gross profit

46.4

%

 

47.8

%

 

(140

)

bps

Sales and marketing expenses

21.8

%

 

23.3

%

 

(150

)

bps

Net credit expense

6.2

%

 

6.9

%

 

(70

)

bps

Contribution margin (d)

$

67,223

 

 

$

74,345

 

 

(9.6

)%

 

As a percentage of net sales(d)

18.4

%

 

17.6

%

 

80

 

bps

Adjusted general and administrative expenses(d)

$

40,897

 

 

$

43,194

 

 

(5.3

)%

 

As a percentage of net sales(d)

11.2

%

 

10.2

%

 

100

 

bps

Adjusted EBITDA (d)

$

25,078

 

 

$

31,636

 

 

(20.7

)%

 

As a percentage of net sales

7.0

%

 

7.5

%

 

(50

)

bps

 

 

 

 

 

 

 

Selected Operating Data:

 

 

 

 

 

 

Northstar Portfolio revolving new customer credit accounts(e)

117

 

 

134

 

 

(12.7

)%

 

Fingerhut FreshStart new customer credit accounts(e)

36

 

 

47

 

 

(23.4

)%

 

Orchard Portfolio unique new customers - go-forward brands(f)

111

 

 

132

 

 

(15.9

)%

 

Northstar Portfolio active customers(g)

1,514

 

 

1,486

 

 

1.9

%

 

Orchard Portfolio unique active customers - go-forward brands(h)

3,567

 

 

3,935

 

 

(9.4

)%

 

(a) Changes in rates are presented as the basis point ("bps") increase (decrease) from the prior period.
(b) Consists of amortization expense of customer relationship finite-lived intangible assets, right of use assets, and depreciation expense related to software and office equipment. Owned fulfillment facilities and equipment depreciation is included in cost of goods sold.
(c) Interest expense is net of interest income.
(d) Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.
(e) Customers that have made their initial order on account during the fiscal period presented. Revolving new customer credit accounts excludes FreshStart graduates initially included in FreshStart new customer credit accounts when their initial order was made.
(f) Individual customers, counted only once without regard for purchases from multiple brands and excluding exited brands in all periods, who have made a first-time purchase during the period presented. Go-forward gross new customers, counted once for each brand from which a purchase has been made, who have made a first-time purchase from the Orchard Portfolio, during the 13-weeks ended August 2, 2019 and August 3, 2018, were 283 and 355, respectively. Gross new customers including exited brands in all periods, during the 13-weeks ended August 2, 2019 and August 3, 2018, were 302 and 425, respectively.
(g) Revolving credit customers that have made at least one purchase on account within the previous twelve fiscal months and at least one payment on account since origination.
(h) Individual customers, counted only once without regard for purchases from multiple brands and excluding exited brands in all periods, who have made at least one purchase from the Orchard Portfolio during the period presented. Go-forward gross active customers, counted once for each brand from which a purchase has been made, that have made at least one purchase from a particular brand within the Orchard Portfolio excluding exited brands in all periods during the 13-weeks ended August 2, 2019 and August 3, 2018, were 5.2 million and 6.0 million, respectively. Gross active customers including exited brands in all periods, during the 13-weeks ended August 2, 2019 and August 3, 2018, were 6.0 million and 7.3 million, respectively.

 

BLUESTEM BRANDS, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss) and Selected Operating Data

(unaudited) (in thousands)

 

26-Weeks Ended

 

 

 

 

August 2, 2019

 

August 3, 2018

 

Change(a)

 

Net sales

$

714,388

 

 

$

803,258

 

 

(11.1

)%

 

Cost of goods sold

381,765

 

 

416,180

 

 

(8.3

)%

 

Gross profit

332,623

 

 

387,078

 

 

(14.1

)%

 

Sales and marketing expenses

178,223

 

 

225,252

 

 

(20.9

)%

 

Net credit expense

41,176

 

 

53,744

 

 

(23.4

)%

 

General and administrative expenses

86,322

 

 

90,863

 

 

(5.0

)%

 

Amortization and depreciation not included in cost of goods sold(b)

21,121

 

 

24,347

 

 

(13.3

)%

 

Interest expense, net(c)

25,320

 

 

25,115

 

 

0.8

%

 

Loss before income taxes

(19,539

)

 

(32,243

)

 

39.4

%

 

Income tax expense (benefit)

(335

)

 

(4,454

)

 

92.5

%

 

Net income (loss)

$

(19,204

)

 

$

(27,789

)

 

30.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Margins and Expenses as a Percentage of Net Sales:

 

 

 

 

 

 

Gross profit

46.6

%

 

48.2

%

 

(160

)

bps

Sales and marketing expenses

24.9

%

 

28.0

%

 

(310

)

bps

Net credit expense

5.8

%

 

6.7

%

 

(90

)

bps

Contribution margin (d)

$

113,224

 

 

$

108,082

 

 

4.8

%

 

As a percentage of net sales(d)

15.8

%

 

13.5

%

 

230

 

bps

Adjusted general and administrative expenses(d)

$

83,331

 

 

$

87,651

 

 

(4.9

)%

 

As a percentage of net sales(d)

11.7

%

 

10.9

%

 

80

 

bps

Adjusted EBITDA (d)

$

25,248

 

 

$

19,028

 

 

32.7

%

 

As a percentage of net sales

3.7

%

 

2.4

%

 

130

 

bps

 

 

 

 

 

 

 

Selected Operating Data:

 

 

 

 

 

 

Northstar Portfolio revolving new customer credit accounts(e)

222

 

 

245

 

 

(9.4

)%

 

Fingerhut FreshStart new customer credit accounts(e)

80

 

 

100

 

 

(20.0

)%

 

Orchard Portfolio unique new customers - go-forward brands(f)

251

 

 

309

 

 

(18.8

)%

 

Northstar Portfolio active customers(g)

1,514

 

 

1,486

 

 

1.9

%

 

Orchard Portfolio unique active customers - go-forward brands(h)

3,567

 

 

3,935

 

 

(9.4

)%

 

(a) Changes in rates are presented as the basis point ("bps") increase (decrease) from the prior period.
(b) Consists of amortization expense of customer relationship finite-lived intangible assets, right of use assets, and depreciation expense related to software and office equipment. Owned fulfillment facilities and equipment depreciation is included in cost of goods sold.
(c) Interest expense is net of interest income.
(d) Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.
(e) Customers that have made their initial order on account during the fiscal period presented. Revolving new customer credit accounts excludes FreshStart graduates initially included in FreshStart new customer credit accounts when their initial order was made.
(f) Individual customers, counted only once without regard for purchases from multiple brands and excluding exited brands in all periods, who have made a first-time purchase during the period presented. Go-forward gross new customers, counted once for each brand from which a purchase has been made, who have made a first-time purchase from the Orchard Portfolio, during the 26-weeks ended August 2, 2019 and August 3, 2018, were 638 and 832, respectively. Gross new customers including exited brands in all periods, during the 26-weeks ended August 2, 2019 and August 3, 2018, were 710 and 988, respectively.
(g) Revolving credit customers that have made at least one purchase on account within the previous twelve fiscal months and at least one payment on account since origination.
(h) Individual customers, counted only once without regard for purchases from multiple brands and excluding exited brands in all periods, who have made at least one purchase from the Orchard Portfolio during the period presented. Go-forward gross active customers, counted once for each brand from which a purchase has been made, that have made at least one purchase from a particular brand within the Orchard Portfolio excluding exited brands in all periods during the 26-weeks ended August 2, 2019 and August 3, 2018, were 5.2 million and 6.0 million, respectively. Gross active customers including exited brands in all periods, during the 26-weeks ended August 2, 2019 and August 3, 2018, were 6.0 million and 7.3 million, respectively.

 

BLUESTEM BRANDS, INC.

Condensed Consolidated Balance Sheets

(unaudited - in thousands)

 

 

August 2, 2019

 

February 1, 2019

 

August 3, 2018

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,471

 

 

$

7,102

 

 

$

8,590

 

Restricted cash

 

14,975

 

 

13,508

 

 

14,348

 

Customer accounts receivable, net of allowance of $4,790, $7,800 and $5,505

 

4,748

 

 

8,154

 

 

5,658

 

Merchandise inventories

 

177,126

 

 

210,658

 

 

192,534

 

Promotional material inventories

 

11,654

 

 

13,810

 

 

17,739

 

Prepaid expenses and other assets

 

30,059

 

 

27,887

 

 

28,576

 

Total current assets

 

247,033

 

 

281,119

 

 

267,445

 

Property and equipment, net

 

64,114

 

 

71,810

 

 

78,606

 

Operating lease right of use assets

 

51,638

 

 

 

 

 

Intangible assets, net

 

113,633

 

 

120,921

 

 

155,815

 

Goodwill

 

36,717

 

 

36,717

 

 

36,717

 

Other assets

 

1,047

 

 

1,674

 

 

2,369

 

Total Assets

 

$

514,182

 

 

$

512,241

 

 

$

540,952

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDER'S EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

141,657

 

 

$

140,992

 

 

$

166,112

 

Current income taxes payable

 

36,730

 

 

36,678

 

 

39,676

 

Accrued costs and other liabilities

 

59,613

 

 

89,628

 

 

85,519

 

Short-term debt

 

63,462

 

 

49,903

 

 

38,719

 

Short-term operating lease liabilities

 

10,964

 

 

 

 

 

Total current liabilities

 

312,426

 

 

317,201

 

 

330,026

 

Long-term debt

 

383,630

 

 

395,602

 

 

407,583

 

Long-term operating lease liabilities

 

46,286

 

 

 

 

 

Deferred income taxes

 

 

 

3,828

 

 

5,210

 

Other long-term liabilities

 

24,392

 

 

35,291

 

 

35,635

 

Total liabilities

 

766,734

 

 

751,922

 

 

778,454

 

 

 

 

 

 

 

 

Stockholder's equity:

 

 

 

 

 

 

Common stock

 

 

 

 

 

 

Additional paid-in capital

 

369,602

 

 

369,602

 

 

369,602

 

Accumulated deficit

 

(622,188

)

 

(610,228

)

 

(608,984

)

Accumulated other comprehensive income, net of tax

 

34

 

 

945

 

 

1,880

 

Total stockholder's equity

 

(252,552

)

 

(239,681

)

 

(237,502

)

Total Liabilities and Stockholder's Equity

 

$

514,182

 

 

$

512,241

 

 

$

540,952

 

...
 

BLUESTEM BRANDS, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)

 

26-Weeks Ended

 

August 2, 2019

 

August 3, 2018

Operating Activities

 

 

 

Net income (loss)

$

(19,204

)

 

$

(27,789

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

Amortization and depreciation expense

22,894

 

 

26,127

 

Provision for doubtful accounts

28,677

 

 

41,530

 

Provision for deferred income taxes

(710

)

 

(11,115

)

Gain on servicing right

(3,119

)

 

(3,190

)

Amortization of debt discounts

2,701

 

 

 

Stock-based compensation expense

1,227

 

 

1,415

 

Non cash lease expense

5,561

 

 

 

Other, net

 

 

2,514

 

Net change in assets and liabilities:

 

 

 

Customer accounts receivable

(145

)

 

(2,612

)

Merchandise inventories

33,532

 

 

2,159

 

Promotional material inventories

2,156

 

 

6,423

 

Prepaid expenses and other assets

(2,503

)

 

(1,831

)

Current income taxes payable

52

 

 

3,306

 

Accounts payable and other liabilities

(33,869

)

 

9,268

 

Net cash provided by (used in) operating activities

37,250

 

 

46,205

 

 

 

 

 

Investing Activities

 

 

 

Purchase of customer accounts receivable

(409,842

)

 

(423,953

)

Proceeds from sale of customer accounts receivable

384,716

 

 

386,652

 

Net purchase of property and equipment

(8,347

)

 

(8,256

)

Net cash provided by (used in) investing activities

(33,473

)

 

(45,557

)

 

 

 

 

Financing Activities

 

 

 

Repayments of debt

(16,115

)

 

(14,401

)

Borrowings on asset backed line of credit

153,316

 

 

181,805

 

Repayments on asset backed line of credit

(138,142

)

 

(170,046

)

Net cash provided by (used in) financing activities

(941

)

 

(2,642

)

 

 

 

 

Net increase (decrease) in Cash, Cash Equivalents and Restricted Cash

2,836

 

 

(1,994

)

Cash, Cash Equivalents and Restricted Cash, Beginning of Period

20,610