Enesco Group, Inc. Reports First Quarter 2006 Results; Company Provides Update on Operating Improvement Plan

Business Wire, May 12, 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 first quarter ended March 31, 2006 and provided an update on its Operating Improvement Plan.

First Quarter and Recent Highlights

--Net revenues for the first quarter were $38.0 million compared to $60.1 million in the first quarter of the prior year, largely reflecting the elimination of Precious Moments sales as of December 2005 and the product rationalization completed as part of Enesco's Operating Improvement Plan

--First quarter gross profit margin expanded 450 basis points to 42.1% from 37.6%

--First quarter SG&A expenses decreased 28% to $25.3 million from $35.3 million

--Net loss for the first quarter improved 31% to $10.6 million from a net loss of $15.2 million in the first quarter of 2005

--On April 28, 2006, Enesco's U.K. subsidiary divested unprofitable Dartington Crystal operations, which is expected to benefit the Company's long-term results

--Enesco's Board of Directors and Cynthia Passmore mutually agreed that she will no longer serve as President, Chief Executive Officer, and director of the Company, effective May 15, 2006.

--Board has named Basil Elliott as Interim Chief Executive Officer and Marie Meisenbach Graul as Interim Chief Financial Officer, both effective May 15, 2006

--Keystone Consulting Group engagement completed on April 30, 2006; Mesirow Financial Consulting LLC retained on May 10, 2006 by Enesco to complete the implementation of the Operating Improvement Plan

First Quarter

Net revenues were $38.0 million compared to $60.1 million in the first quarter of 2005. First quarter 2006 revenues do not include U.S. Precious Moments sales while first quarter 2005 included $10.8 million in U.S. Precious Moments sales. Excluding U.S. sales of Precious Moments from the first quarter of 2005, net revenues in the first quarter would have decreased 22.9% from $49.3 million in the first quarter of 2005. The decline primarily reflects the effect of discontinuing product lines in the fourth quarter of 2005 associated with Enesco's product rationalization, as well as the impact of delayed and lost sales that resulted from slower than expected ramp-up at the new third-party distribution center. Enesco also experienced lower sales from collectibles, Gregg Gift and Dartington, as well as an unfavorable foreign currency translation rate impact of $1.4 million in the U.K.

Gross profit was $16.0 million compared to $22.6 million in the prior year period. Gross profit margin expanded 450 basis points to 42.1% from 37.6%. Gross profit margin in the first quarter 2005 was negatively impacted by approximately 350 basis points due to the U.S. Precious Moments guaranteed minimum royalty costs and generally lower margins on the product line. Excluding the royalty fees on 2005 U.S. Precious Moments sales, gross margin in the first quarter would have increased 100 basis points from 41.1% in the first quarter of 2005. This improvement reflects a more favorable product mix in the U.S. and Canada.

Selling, general and administrative expenses (SG&A) decreased 28% to $25.3 million from $35.3 million reported in the first quarter of 2005. The decrease primarily reflects reduced corporate overhead expenses and a reduction in depreciation expense due to accelerated depreciation of the ERP system in the prior year period. These factors were offset somewhat by increased bank and consulting fees. As a percent of sales, SG&A increased to 66.6% in the first quarter of 2006 from 58.7% in the first quarter of the prior year, as a result of a lower revenue base.

Operating loss for the first quarter was $9.3 million compared to an operating loss of $12.7 million in the same period in 2005. The improvement reflects higher gross profit margin and reduced SG&A expenses, which more than offset the impact of lower sales.

First quarter net loss was $10.6 million, or ($0.71) per diluted share, compared to a net loss of $15.2 million, or ($1.04) per diluted share, in the first quarter of 2005. The net loss narrowed as a result of the decline in operating loss and a lower tax expense compared to the prior year period.

"In the first quarter, the Company began to generate results from our Operating Improvement Plan," stated Tony Testolin, Chief Accounting Officer at Enesco. "While our top line was impacted by a number of factors, focusing our sales efforts on a better performing mix of products and reducing corporate expenses contributed to an improvement in our operating loss for the quarter. Importantly, our exit from the U.S. Precious Moments business and our product rationalization are benefiting our operating results, as expected. While we are experiencing a slower than expected ramp-up at our new third-party distribution center, we continued to increase our shipment levels as the quarter progressed."

Operating Improvement Plan Update

Enesco completed the following activities to date in 2006 in relation to its Operating Improvement Plan: