[JAFRA LOGO]
NEWS RELEASE
Contact: Mike DiGregorio
Executive Vice President and Chief Financial Officer
(805) 449-3030
JAFRA REPORTS SECOND QUARTER AND YEAR TO DATE RESULTS
WESTLAKE VILLAGE, California, July 28, 2004 - Jafra Worldwide Holdings (Lux)
S.aR.l. and subsidiaries, doing business as Jafra Cosmetics International
("Jafra" or the "Company"), today reported its financial results for the second
quarter of 2004.
SECOND QUARTER RESULTS
The Company reported a 9% increase in the average number of consultants during
the second quarter of 2004 over the comparable prior year period. As a result,
net sales increased approximately 10% measured in local currencies in the second
quarter of 2004 over the comparable prior year period. Due to overall weaker
average exchange rates, net sales of $103.7 million in the second quarter of
2004 increased 4% measured in U.S. dollars compared to $100.0 million in the
second quarter of 2003. Mexico's net sales increased 17% and 7% measured in
local currency and U.S. dollars, respectively, in the second quarter of 2004
over the second quarter of 2003 driven by strong growth of the consultant base.
Net sales in the U.S. Hispanic Division increased 4% in the second quarter of
2004 over the comparable prior year period. The divisions in the United States
have resolved most of the issues associated with the launch of Enterprise
Resource System noted in prior quarters. However, as a result of issues earlier
in the year, the consultant base in the United States was lower in previous
months, which had a negative impact on net sales in the period.
On May 27, 2004, Vorwerk & Co. eins GmbH ("Vorwerk") acquired all of the issued
and outstanding capital stock of Jafra S.A., the parent of the Company (the
"Acquisition"). Vorwerk is an indirect wholly-owned subsidiary of Vorwerk & Co.
KG, a family-owned company based in Wuppertal, Germany.
Loss from operations was $8.1 million during the second quarter of 2004 compared
to income from operations of $2.4 million during the second quarter of 2003.
During the second quarter of
2004, the Company recorded $0.9 million of restructuring and impairment charges,
consisting primarily of severance and asset impairment charges related to the
implementation of its plan to relocate substantially all skin and body care
manufacturing operations to its facilities in Mexico. In addition, the Company
recorded transaction fees of $26.1 million mostly related to the Acquisition.
These fees were primarily compensation expense of $25.2 million to the holders
of options to purchase Jafra S.A. stock for the buyback and cancellation of all
options and bonus payments to certain members of management and non-employee
board of director members, as well as insurance cancellation costs due to change
of control provisions within the insurance contracts. During the second quarter
of 2003, the Company completed a recapitalization of its operations by the
issuance of new debt (the "Recapitalization"). In connection with the
Recapitalization, the Company expensed $13.3 million in bonus payments to
certain members of management and non-employee board of director members.
Additionally, the Company expensed $1.1 million in transaction related fees
during the second quarter of 2003, for a total of $14.4 million of transaction
fees. Operating income, adjusted to exclude these transaction fees and
restructuring and impairment charges, would have increased $2.2 million, or 13%
to $18.9 million during the second quarter of 2004 compared to $16.7 million
during the second quarter of 2003.
Exchange losses were $5.1 million, an increase of $5.5 million during the second
quarter of 2004 compared to exchange gains in the prior year period, primarily
as a result of the impact of weaker average exchange rates of the Mexican peso
on the remeasurement of U.S. dollar denominated debt. Net interest expense
(including interest income) increased $2.3 million during the second quarter of
2004 over the comparable prior year period as a result of higher net debt levels
after the Recapitalization as the debt was outstanding for the whole second
quarter of 2004 compared to a portion of the second quarter of 2003.
As a result of increased transaction related fees, restructuring and impairment
charges, increased exchange loss, increased interest expenses, partially offset
by increased income tax benefit during the second quarter of 2004 over the
comparable prior year period, net loss increased to $13.2 million from $7.7
million.
SIX-MONTH RESULTS
The Company reported a 9% increase in the average number of consultants during
the first six months of 2004 over the comparable prior year period. As a result,
net sales measured in local currencies for the first six months of 2004
increased 12% over the comparable prior year period. Because of overall weaker
average exchange rates, net sales measured in U.S. dollars increased 9%, or
$16.7 million to $206.8 million for the first six months of 2004 compared to
$190.1 million for the first six months of 2003. Mexico's net sales increased
22% and 15% measured in local currency and U.S. dollars, respectively, for the
first six months of 2004 over the first six months of 2003. Net sales measured
in U.S. dollars in Europe increased 6% primarily due to stronger average local
currencies compared to the U.S. dollar. Net sales in the U.S. decreased
approximately 4% because of a lower average consultant base, partially offset by
an increase in consultant productivity. The lower average consultant base was
largely due to the previously reported Enterprise Resource System implementation
issues.
Income from operations was $2.3 million for the first six months of 2004
compared to $12.8 million for the first six months of 2003. During the first six
months of 2004, the Company recorded $2.8 million of restructuring and asset
impairment charges related to relocating substantially all of its skin and body
care production to its Mexico subsidiary. Additionally, the Company recorded
$29.5 million of transaction related expenses for the Acquisition and other
transactions contemplated but not completed. During the six months ended June
30, 2003, the Company recorded $15.1 million of transaction related fees for the
Recapitalization and other transactions contemplated but not completed.
Excluding these transaction related expenses and restructuring and impairment
charges, income from operations would have been $34.6 million for the first six
months of 2004 compared to $28.0 million for the same period of the prior year.
Excluding these expenses, operating income as a percentage of net sales in the
first six months of 2004 increased to 16.7% over 14.7% for the comparable prior
year period.
Exchange losses were $4.5 million, an increase of $4.2 million primarily as the
result of the remeasurement of U.S. dollar-denominated debt. Net interest
expense increased $6.2 million, primarily as a result of a greater average debt
balance associated with the Recapitalization of the Company's operations in May
2003. During the first six months of 2004 there was an income tax benefit of
$4.1 million compared to income tax expense of $1.6 million in the first six
months of 2003.
As a result of increased transaction related expenses, restructuring and
impairment charges, increased exchange losses and interest, and partially offset
by a favorable change in income taxes, the Company's net loss increased to $12.1
million for the first six months of 2004 compared to $5.1 million for the first
six months of 2003.
Due to the discontinuation of operations in Venezuela, Colombia, Chile and Peru
in 2003, the results of these markets are included in the statements of
operations as losses on discontinued operations, net of income tax expense.
Commenting on the results, Ronald Clark, Chief Executive Officer, said, "So far,
2004 is shaping up to be another great Jafra year. We ended the period with
approximately 432,000 consultants and the average number of consultants during
the quarter grew approximately 9%. Mexico had an exceptional quarter and
averaged approximately 323,000 consultants, which was an increase of
approximately 24% compared to the second quarter of 2003. The larger consultant
base drove the 17% local currency increase in Mexico's net sales during the
quarter. During 2004, the divisions in the United States increased the minimum
order size to receive the maximum commission. One result of this change was a
smaller yet more productive base. We believe that this change will help generate
future growth."
Gonzalo Rubio, Jafra's Chief Operating Officer, spoke about new products. "As
always, we continue to evaluate and enhance our current product offerings.
During the second quarter of 2004, we updated the men's skin care line by
reformulating the products with the latest ingredient technology. We introduced
the Daily Eye Treatment, which is a daytime moisturizing eye treatment that
helps to minimize the appearance of dark circles and is the perfect complement
to the Jafra eye treatment used at night. During the second quarter, we also
introduced the Anti-Age Lip Cream. This product provides moisture for dry,
chapped lips and
minimizes the appearance of fine lines around the mouth, which improves Jafra
lipstick application."
Mr. Clark concluded, "The second quarter was notably marked by the Acquisition
of Jafra by Vorwerk. Vorwerk is a family-owned direct selling company that was
founded back in 1883. That makes Vorwerk one of the oldest direct selling
companies in the world. We believe that Jafra is the best company for women and
their families. Therefore, we think that the Jafra culture will fit in well with
the Vorwerk culture and will enhance Jafra's future growth potential."
The Company has scheduled a conference call to discuss information contained in
this release for Thursday July 29, 2004 at 8:00 a.m. Pacific Standard Time. The
dial in number for the conference call is 1-877-817-7188, passcode # 523908.
NON-GAAP FINANCIAL MEASURES
This news release contains information regarding the Company's income from
operations, as adjusted for the exclusion of transaction related expenses and
restructuring and impairment charges. This financial information is a non-GAAP
financial measure as defined by SEC Regulation G. The GAAP financial measure
most directly comparable is (loss) income from operations. The reconciliation of
the non-GAAP financial measure for each period presented is as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2004 2003 2004 2003
-------- -------- -------- --------
(Loss) income from operations, as reported ....... $ (8,089) $ 2,384 $ 2,295 $ 12,844
Adjustments:
Transaction related expenses ..................... 26,114 14,354 29,523 15,124
Restructuring and impairment charges ............. 864 -- 2,773 --
-------- -------- -------- --------
Income from operations, excluding
transaction related expenses and restructuring and
impairment charges ............................... $ 18,889 $ 16,738 $ 34,591 $ 27,968
======== ======== ======== ========
THE COMPANY
Jafra is a direct seller of skin and body care products, color cosmetics,
fragrances and other personal care products. Jafra sells its Jafra brand
products through a direct selling network of approximately 432,000 independent
consultants who market and sell Jafra's products to their customers. Jafra
operates in three primary markets: Mexico, the United States and Europe. In
Europe, Jafra operates in Germany, Switzerland, Italy, Austria, Holland and
several other countries through distributors. More information about Jafra and
its products can be found on the Company's website, http://www.jafra.com.
The statements in this press release that relate to future plans, events or
performance are forward-looking statements that involve risks and uncertainties.
Readers are cautioned that these statements are only predictions and may differ
materially from actual future events or results, and are referred to the
documents filed by the Company with the Securities and Exchange
Commission, specifically the most recent reports on Form 10-K and Form 10-Q,
which identify important risk factors that could cause actual results to differ
from those contained in the forward-looking statements, including risks
associated with future growth, dependence on new product offerings, currency
adjustments, international operations, competition, and financial risk
management, among others. The Company undertakes no obligation to update any
such forward-looking statements.
JAFRA WORLDWIDE HOLDINGS (LUX) S.AR.L. AND SUBSIDIARIES
($ in Thousands)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
STATEMENTS OF OPERATIONS DATA:
Net sales $ 103,716 $ 100,010 $ 206,838 $ 190,148
Cost of sales 23,875 22,688 48,058 44,218
--------- --------- --------- ---------
Gross profit 79,841 77,322 158,780 145,930
Selling, general and administrative expenses 60,952 60,584 124,189 117,962
Transaction related expenses (1) 26,114 14,354 29,523 15,124
Restructuring and impairment charges (2) 864 -- 2,773 --
--------- --------- --------- ---------
(Loss) income from operations (8,089) 2,384 2,295 12,844
Other income (expense):
Exchange (loss) gain, net (5,091) 459 (4,540) (304)
Interest expense (6,942) (4,700) (13,735) (7,453)
Interest income 31 70 77 239
Loss on extinguishment of debt -- (6,620) -- (6,620)
Other expense (184) (299) (184) (339)
Other income 44 27 27 45
--------- --------- --------- ---------
Loss before income taxes (20,231) (8,679) (16,060) (1,588)
Income tax (benefit) expense (7,069) (2,138) (4,123) 1,619
--------- --------- --------- ---------
Loss from continuing operations (13,162) (6,541) (11,937) (3,207)
Loss on discontinued operations, net of
income tax expense of $0 million in
2004 and in 2003 (3) (46) (1,117) (186) (1,926)
--------- --------- --------- ---------
Net loss $ (13,208) $ (7,658) $ (12,123) $ (5,133)
========= ========= ========= =========
OTHER DATA:
Depreciation and amortization $ 1,659 $ 1,484 $ 3,270 $ 2,951
Unrealized exchange loss (gain) 4,996 (209) 4,511 1,355
Non-cash charges (4) -- 120 36 120
Losses from Thailand (5) 9 221 31 763
Net debt (6) -- -- 251,982 238,283
Consultants at end of period -- -- 432,000 408,000
Average number of consultants 441,000 405,000 439,000 403,000
(1) Amounts relate to certain transaction expenses as defined in the
covenants in the agreements governing the Company's outstanding
indebtedness. During 2004, these expenses related primarily to the
acquisition by Vorwerk. During 2003, these expenses related primarily to
the recapitalization of the Company.
(2) Current year restructuring charges related to the implementation of the
Company's plan to relocate substantially all skin and body care
manufacturing operations to its facilities in Mexico, primarily
severance related charges and asset impairment.
(3) Venezuela, Colombia, Chile and Peru have been classified as discontinued
operations.
(4) Amounts relate to non-cash charges in connection with the write off or
disposal of assets as defined in the covenants in the agreements
governing the Company's outstanding indebtedness.
(5) Amounts represent the net operating losses from Thailand, a market in
which the Company has ceased operations.
(6) Net debt is calculated as total debt less cash and cash equivalents.