Decline in Checkpoint's Apparel Labeling Solutions biz

04 May '11

3 min read

Checkpoint Systems Inc reported financial results for the first quarter ended March 27, 2011.

Net revenues for the first quarter of 2011 were $184.7 million compared to net revenues for the first quarter of 2010 of $187.5 million. Net loss attributable to Checkpoint Systems, Inc. for the first quarter of 2011 was $9.3 million, or $0.23 per diluted share, compared to net earnings attributable to Checkpoint Systems, Inc. for the first quarter of 2010 of $3.5 million, or $0.09 per diluted share.

Non-GAAP net loss attributable to Checkpoint Systems, Inc. for the first quarter of 2011 excluding restructuring expenses was $8.2 million, or $0.20 per diluted share. Non-GAAP net earnings attributable to Checkpoint Systems, Inc. for the first quarter of 2010 were $4.0 million, or $0.10 per diluted share.

"Gross profit margin for the quarter declined from the comparable period one year ago and had a significant impact on our bottom line," said Rob van der Merwe, Chairman, President and Chief Executive Officer of Checkpoint Systems. "The decline in our EAS consumables businesses and Apparel Labeling Solutions was principally due to new RF label product introductions. We have been surprised by the speed with which customers have adopted our new RF label technology. Strategically this is good news for Checkpoint in the long run, as it migrates us away from the vanilla EAS label base, which although very profitable, is subject to increasing competition.

“The expansion of production of products employing this new technology also created unanticipated cost pressures in late 2010, which have extended into 2011. We have implemented actions that will improve this product transition that will protect and improve the margins. From the costing information visible in March and April it is clear that costs for the new products are now coming down and this will continue as productivity improves and as outside production is in-sourced. We are taking strong pricing action across all businesses and this will be completed by June. I expect a sequential improvement in the overall margins of the Company beginning in the second quarter and this is all included in the guidance provided to shareholders."

Mr van der Merwe continued, "For the first quarter of 2011, our net revenues experienced a minor decline principally due to the EAS consumables businesses. Although our Hard Tag @ Source business nearly doubled from the fourth quarter, and while this performance was consistent with our expectations, it was well off the levels of one year ago when a highly successful program with a major European retailer started to peak.

“We believe that revenues in this business will continue to increase. To a much lesser degree, our EAS labels business declined due to lower than anticipated business with certain European accounts. We believe this is only temporary. The remaining businesses finished the quarter effectively at last year's comparable quarter levels."

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