Enesco Group, Inc. Reports Fourth Quarter and Fiscal 2005 Financial Results; - Company Provides Update on Operating Improvement Plan -

Business Wire, March 31, 2006

ITASCA, Ill. -- Enesco Group, Inc. (NYSE:ENC), a leader in the giftware, and home and garden decor industries, today announced financial results for the fourth quarter and year ended December 31, 2005, and also provided an update on its operating improvement plan.

Fourth Quarter and Recent Highlights

--Fourth quarter net revenues decreased 19.7% to $56.0 million; excluding U.S. sales of Precious Moments products, net revenues decreased 7.6% to $53.6 million.

--Full year net revenues decreased 9.1% to $244.4 million; excluding U.S. sales of Precious Moments products, net revenues were down 2.3% from the prior year to $210.9 million.

--Reached 2005 goal of reducing expenses that Enesco believes will generate pre-tax annualized cost savings of $26.7 million.

--Completed product rationalization by reducing product lines from 170 to approximately 50.

--Initiated the transition to a third-party distribution facility in December 2005.

--Entered into a new strategic alliance with Jim Shore Designs, Inc.

Fourth Quarter

Net revenues for the quarter decreased 19.7% to $56.0 million from $69.7 million in the fourth quarter of 2004, reflecting the significant reduction in U.S. sales of Precious Moments products, which was due primarily to the termination of the U.S. license agreement in the second quarter of 2005. Excluding U.S. sales of Precious Moments, net revenues for the fourth quarter, were down 7.6% from the same period in 2004.

Gross profit was $16.5 million compared to $22.3 million in the fourth quarter of 2004. Gross profit margin was 29.5% compared with 32.0% in the fourth quarter of 2004. Gross profit was negatively impacted by lower sales volume, a lower margin achieved on the U.S. sales of Precious Moments products, as well as increases in slow-moving and excess inventory reserves, which resulted from additional discontinued inventories related to Enesco's product line rationalization. Gross margin, excluding U.S. sales of Precious Moments products, decreased to 33.4% for the quarter versus 36.4% for the same period last year.

Selling, general and administrative expenses (SG&A) decreased 13.5% to $30.8 million compared to $35.5 million reported in the fourth quarter of 2004. This decrease was primarily the result of reduced salary expense and lower selling and marketing costs, as well as other cost saving initiatives implemented throughout the quarter. These factors were offset in part by the write-off of $1.1 million of Dartington goodwill and restructuring and severance provisions of $1.0 million, associated with the transition to third-party warehousing and distribution, and the closure of non-essential showrooms.

Operating loss for the fourth quarter was $14.2 million compared to an operating loss of $9.3 million in the same period in 2004. The operating loss for the fourth quarter of 2004 included a gain of $4.0 million on the sale of Enesco's distribution and warehousing facility in Elk Grove Village, Illinois, which subsequently was leased back under a five-year operating lease.

Fourth quarter net loss was $14.7 million, or ($0.99) per diluted share, compared to a net loss of $40.7 million, or ($2.80) per diluted share, in the fourth quarter of 2004. The reduction in net loss primarily reflects Enesco's tax benefit of $0.5 million in the fourth quarter of 2005 versus a tax expense of $31.1 million in the fourth quarter of 2004.

Fiscal 2005

Net revenues for the year decreased 9.1% to $244.4 million from $269.0 million in 2004, primarily due to the continued decline in sales of collectibles in the U.S., primarily sales related to Precious Moments. Excluding U.S. sales of Precious Moments products, net revenues were down 2.3% from 2004.

Gross profit was $82.8 million compared to $106.5 million in 2004. Gross profit margin declined to 33.9% compared to 39.6% last year. Gross profit was negatively impacted by lower sales volume, a loss on the termination of the license agreement with Precious Moments Inc. of $7.7 million, a lower margin achieved on the U.S. sales of Precious Moments products, and increases in slow-moving and excess inventory reserves, which resulted from additional discontinued inventories related to Enesco's product line rationalization. Gross margin, excluding U.S. sales of Precious Moments products, declined to 38.1% for 2005 compared to 40.9% in 2004.

SG&A expenses increased 1.9% to $130.0 million compared to $127.5 million last year, primarily reflecting higher bank fees, accelerated depreciation on the ERP system and incremental costs incurred as a result of the Dartington acquisition. These factors were partially offset by reduced selling and marketing costs, as well as lower salary expense.

Operating loss for the year was $47.2 million compared with an operating loss of $17.0 million in 2004. The operating loss for 2004 included a gain of $4.0 million on the sale of Enesco's distribution and warehousing facility in Elk Grove Village, Illinois.

Fiscal 2005 net loss was $54.0 million, or ($3.67) per diluted share, compared to a net loss of $45.2 million, or ($3.16) per diluted share, in 2004. The increase in net loss reflects the increase in operating loss and additional interest expense in 2005, partially offset by a significantly reduced tax expense as compared to the prior year.