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Design Within Reach Studio sales down 10.2% in Q3

10
Nov '08

Design Within Reach Inc announced financial results for the third quarter and nine months ended September 27, 2008.

Third Quarter Results:

-- Product sales for the third quarter of 2008 decreased 12.9% to $39.8 million, compared to $45.8 million recorded in the third quarter of 2007. Net sales, which are primarily comprised of product sales and shipping revenue, decreased 13.7% to $42.3 million in the third quarter of 2008 from $49.0 million in the same period last year. Gross profit margin decreased to 40.9% in the third quarter of 2008, compared to 44.5% in the same period last year.

-- Net sales by sales channel were as follows:

-- Studio sales were $28.8 million in the third quarter of 2008, down 10.2% from $32.1 million in the same period last year, in part, due to declining demand attributable to current economic conditions. Design Within Reach operated 68 studios, one DWR:Tools for Living store in New York City and the DWR Annex, an outlet for returned and discontinued merchandise, at the end of the third quarter of 2008, compared to 65 studios and one outlet open at the end of the third quarter of 2007. Following the close of the quarter, the Company opened a second DWR:Tools for Living Store in Santa Monica, California.

-- Direct sales (including phone sales and sales through the Design Within Reach website) were $8.7 million in the third quarter of 2008, a decrease of approximately 26.8% from $11.8 million in the third quarter of 2007.

-- Product margin, which the Company defines as product gross profit divided by product sales, was 45.3% for the third quarter of 2008, compared to 47.9% in the third quarter of 2007. The decrease is primarily attributable to a warehouse sale held in the third quarter of 2008 for damaged and overstock inventory, for which margins were lower than margins on products sold through the Company's integrated sales channels. For more information regarding the calculation of product margin, please see the discussion under the heading "Non-GAAP Financial Information" below.

-- Selling, general and administrative expenses were $21.8 million for the third quarter of 2008, compared to $21.3 million in the same period last year.

-- Loss before income taxes for the third quarter of 2008 was $4.4 million, compared to income before income taxes of $2.3 million in the same period last year. Net loss for the third quarter of 2008 was $5.6 million, or $(0.39) per diluted share, compared to net income of $2.4 million, or $0.17 per diluted share, in the third quarter of 2007. An income tax expense of $1.2 million was recorded in the third quarter of 2008 to reverse an income tax benefit recorded in the six months ended June 28, 2008, because recent adverse changes in the economy and decline in demand for our products have indicated that, more likely than not, the tax benefit of the year-to-date pre-tax loss would not be realized during fiscal year 2008. An income tax benefit of $0.1 million was recorded in the third quarter of 2007.

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