Vistaprint Reports Disappointing Q3 Earnings
Thursday, May 01, 2014
Press release from the issuing company
VENLO, the Netherlands - Vistaprint N.V., a leading online provider of professional marketing products and services to micro businesses and the home, today announced financial results for the three month period ended March 31, 2014, the third quarter of its 2014 fiscal year.
“This is the first quarter in the past 14 years in which our revenue declined year over year. While we are not content with this performance, our underlying value creation was much better than our headline financial numbers,” said Robert Keane, president and chief executive officer. “Based upon significant customer research that we have conducted over the past three years we are shifting our value proposition away from the deep discounts and free-offer direct marketing that characterized the Vistaprintof the past toward being simply the best way for business owners to market their business. We are making this shift in order to expand into the large market opportunity that lies beyond our traditional base of highly price sensitive customers.”
Keane continued, “This shift has been gaining momentum for more than two years and has created significant near-term revenue headwinds, but we persist in implementation because we believe in the long-term value of the strategy. The most impactful headwinds to date occurred in the past quarter. They were the result of changes to our pricing and marketing practices that we recently rolled out in our largest markets – the U.S., Germany and U.K. Since 2012 we have successfully tested similar changes inCanada but, as we described last August at our investor day, these types of changes typically cause an immediate revenue impact, the magnitude of which is difficult to project. In this past quarter, the headwinds were greater in the U.S., Germany and U.K. than we had anticipated. We have levers to optimize our results once the changes are released in the market, and post the initial implementation our results improved in these markets as the quarter progressed. We made these changes against a backdrop of other actions to improve the return on our advertising spend. These advertising optimizations negatively impacted our new customer acquisition count, but they increased our projected long-term advertising returns and reduced advertising expense both as a percent of revenue and in absolute dollars. As a result, despite our revenue challenges, we have been able to maintain our profitability and we continue to track toward our margin improvement goals this year.”
Keane noted further, “We also continue to move forward with many other improvements to our value proposition beyond our pricing and marketing practices. Examples include better customer service availability, improved product substrate quality, more reliable shipping methods, assistance for graphic design creation, new options for premium finishes, and more SKU choices. These improvements typically come with higher expenses, but we are encouraged by several metrics we see in each market in which we have implemented them, especially when combined with Canadian-style pricing and marketing changes. In Canada our customer retention, gross profit per customer and the return on advertising expenditures have improved significantly. Around the world, we have seen increased average order values, a reflection that we are attracting more valuable customers. And we have seen material improvements to our Net Promoter Score (NPS) in all regions. This is a loyalty metric that we believe to be a leading indicator of customer lifetime value.”
Keane concluded, “We believe that we have not yet seen the full financial returns of these NPS improvements and we still have a lot more work ahead of us to reach our customer loyalty goals. However we are confident that when measured over a multi-year period, our marketing shift will deliver higher returns compared to our past marketing and pricing practices, and that significantly higher customer loyalty will eventually translate into renewed organic growth.”
Consolidated Financial Metrics:
Operating metrics are provided as a table-based supplement to this press release. Starting in the first quarter of fiscal 2014, all operating metrics reflect the consolidated business including our Albumprinter and Webs acquisitions, and post-acquisition prior-period comparisons have been adjusted to reflect the same consolidated view.
Update on Minority Investment in China
Subsequent to the close of the quarter, Vistaprint reached an understanding with Namex Limited thatVistaprint would dispose of its minority equity interest in Namex Limited, as recent discussions with Namex management identified very different visions for the execution of the long-term strategic direction of the entity. Since our initial investment in fiscal 2012, our total capital investment in Namex has been approximately $17.7 million. We expect to sell our 45% share investment to the majority shareholder and recognize an income statement loss of up to $14 million in the fourth quarter of 2014 as the carrying value of the investment exceeds the expected proceeds. We expect to exclude this charge from our non-GAAP net income.
Fiscal 2014 Outlook as of April 29, 2014:
Ernst Teunissen, executive vice president and chief financial officer, said, “We are updating our guidance to incorporate the impact of the many moving pieces in our business since we last provided guidance in January. The revenue guidance below incorporates the positive impact from our recently announced acquisitions of People & Print Group and Pixartprinting, our negative third quarter results and a modified fourth quarter outlook. Despite our revenue shortfall, our profits in the core organic business are on track. The GAAP earnings guidance reflects our continued commitment to driving margin expansion in our core business, but includes the negative impact of our expected fourth quarter Namex loss and the transaction costs of the recently announced acquisitions which have already been incurred. Our non-GAAP earnings guidance reflects minimal change since we provided guidance last quarter.”
Financial Guidance as of April 29, 2014:
As previously stated, beginning with fiscal year 2014, the company provides revenue and earnings guidance on only a fiscal year basis, not quarterly. Based on current and anticipated levels of demand, the company expects the following financial results:
Fiscal Year 2014 Revenue
Fiscal Year 2014 GAAP Net Income Per Diluted Share
Fiscal Year 2014 Non-GAAP Adjusted Net Income Per Diluted Share
Fiscal Year 2014 Capital Expenditures
For the full fiscal year ending June 30, 2014, the company expects to make capital expenditures of approximately $70 million to $80 million. Fiscal 2014 capital investments are designed to support the planned growth of the business and will include various investments in new manufacturing capabilities.
The foregoing guidance supersedes any guidance previously issued by the company. All such previous guidance should no longer be relied upon.
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