Filed by Zany Brainy, Inc.
Pursuant to Rule 425 under
the Securities Act of 1933 and
deemed filed pursuant to
Rule 14a-12 of the Securities
Exchange Act of 1934
Commission File No.: 000-26185
Subject company: Noodle Kidoodle, Inc.
THE FOLLOWING IS A PRESS RELEASE DISSEMINATED
BY ZANY BRAINY, INC. ON MAY 22, 2000:
ZANY BRAINY, INC./1Q00 RESULTS
ZANY BRAINY, INC.
Contact: Robert A. Helpert
Chief Financial Officer
(610) 278-7800
THE MWW GROUP
Investor Relations - Tel. (212) 704-9727
Contact: Laura L. Kieley
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ZANY BRAINY, INC. REPORTS FIRST QUARTER 2000 RESULTS
KING OF PRUSSIA, PA - May 22, 2000 - Zany Brainy, Inc. (Nasdaq National
Market: ZANY), a leading specialty retailer of high quality toys, games, books
and multimedia products, today announced results for the first quarter ended
April 29, 2000.
For the first quarter of fiscal 2000, sales totaled $39.4 million compared
to $40.6 million in the first quarter of 1999. Comparable store sales for the
first quarter decreased 22.8% from the first quarter of last year. The net loss
for the first quarter of fiscal 2000 was $5.0 million, or ($0.23) per basic
share, compared to a net loss of $1.4 million, or ($0.06) per pro forma basic
share for the same period in 1999.
"As we expected and previously announced, sales comparisons were impacted
by last year's hot products. We anticipate that the impact of these hot
products will diminish over the next two quarters and expect that positive sales
comparisons in our fourth and traditionally strongest quarter will enable us to
achieve operating profitability for the full year," stated Keith C. Spurgeon,
Chairman and CEO of Zany Brainy, Inc.
Mr. Spurgeon continued, "While our product margins were on plan, we were
unable to leverage occupancy, distribution and merchandising costs due to our
sales shortfall." As a result, gross profit for the first quarter declined to
20.2% of sales from 27.6% for the first quarter of 1999. Selling, general and
administrative costs, as a percent of sales, increased to 40.9% from 32.0% for
the same period of 1999.
Management reiterated that Zany Brainy's recently announced acquisition of
Noodle Kidoodle is progressing well and they remain confident in the short and
long-term benefits to
-more-
be realized from the transaction. The acquisition is still expected to close
this summer. Management also noted that losses at its e-commerce joint venture,
ZanyBrainy.com, might be recognized by Zany Brainy in the second quarter of 2000
pending operating results and additional funding.
Zany Brainy has opened four new stores this year and plans to open an
additional twenty-one stores in the second and third quarters of fiscal 2000.
ABOUT ZANY BRAINY
- ------------------
Zany Brainy, Inc. is a leading and rapidly growing specialty retailer of high
quality toys, games, books and multimedia products for kids. The Company is a
different kind of toy store with a unique product mission and a passionate
commitment to its customers. Zany Brainy believes learning should be fun. Its
products entertain, educate and spark the imaginations of children up to 12
years of age. The Company combines this distinctive merchandise offering with
superior customer service and daily in-store events to create an interactive,
kid-friendly and exciting shopping experience for children and adults. The
Company presently operates 107 stores in 27 states.
Certain statements in this report, including statements regarding the impact of
hot products on profitability, comparable sales and revenue in future quarters,
the timing of the merger and the benefits to be derived therefrom, the timing of
recognition of losses from ZanyBrainy.com, and new store openings are forward
looking statements within the meaning of the Private Securities Litigation
Reform Act. Actual results may differ materially from those indicated in such
statements due to a number of factors, including unanticipated competitive and
operational challenges in connection with operation of the stores and the
e-commerce site; delays in opening new stores due to, among other things,
construction delays and inability to hire adequate personnel; the ability to
efficiently manage inventory; the ability to obtain all necessary consents and
approvals for the merger; unanticipated operational challenges and expenses in
connection with combining operations; the availability of capital to fund
continuing operations of ZanyBrainy.com; changes in consumer spending patterns
and in demand for popular products; and prevailing economic conditions.
Additional information on factors that may affect the business and financial
results of Zany Brainy can be found in its filings with the Securities and
Exchange Commission.
-more-
STATEMENT OF OPERATIONS
(in thousands except earnings per share)
Thirteen Weeks Ended
--------------------
April 29, 2000 May 1, 1999
----------------------------------------------
Net Sales $ 39,363 $ 40,577
Cost Of Goods Sold 31,395 29,387
------------------- --------------------
Gross Profit 7,968 11,190
Selling, General and
Administrative Expenses 16,097 12,986
------------------- -------------------
Operating Loss (8,129) (1,796)
Interest Expense, net 82 427
------------------- -------------------
Pre-Tax Loss (8,211) (2,223)
Income Tax Benefit (Expense) 3,161 845
------------------- -------------------
Net Loss ($5,050) ($1,378)
=================== ===================
HISTORICAL:
Net Loss ($5,050) ($1,378)
Weighted Average Shares
Outstanding (Basic) 21,679 5,384
Loss per Share (Basic) ($0.23) ($0.26)
PRO FORMA:
Net Loss ($5,050) ($1,378)
Weighted Average Shares
Outstanding (Basic) (1) 21,679 21,405
Loss per Share (Basic) (1) ($0.23) ($0.06)
(1) The pro forma shares outstanding and per share calculations assume
that the public offering shares were outstanding and all preferred stock was
converted to common stock during the first quarter of 1999.
BALANCE SHEET:
Cash and Cash Equivalents 177 923
Line of Credit 7,184 12,402
Inventory 71,870 52,375
Shareholder's Equity 93,680 46,919
###
THE FOLLOWING IS THE SCRIPT TO A ZANY BRAINY, INC. CONFERENCE CALL ON MAY 23,
2000:
ZANY BRAINY, INC.
Moderator: Mr. Keith Spurgeon
K. Spurgeon Good morning everyone and thank you for joining us for our first
quarter conference call for fiscal 2000. I am here today with Tom
Vellios, our President; Bob Helpert, our Chief Financial Officer;
and Dan Kaufman, Vice President of our Legal Department. To
begin, Dan will read our Safe Harbor disclosure statement.
D. Kaufman Thank you, Keith. Certain statements during this call, including
statements regarding the impact of hot products on profitability
and comparable sales, revenue in future quarters, plans for
funding and profitability of ZanyBrainy.com, the recognition of
ZanyBrainy.com losses, the expected timing, expenses and benefits
of the Noodle Kidoodle acquisition, new store openings, and
growth in private label sales are forward looking statements
within the meaning of the Private Securities Litigation Reform
Act. Actual results may differ materially from those indicated in
such statements due to a number of factors, including
unanticipated competitive and operational challenges in
connection with operation of the stores and the e-commerce site;
delays in opening new stores due to, among other things,
construction delays and inability to hire adequate personnel; the
ability to efficiently manage inventory; the ability to obtain
all necessary consents and approvals for the acquisition;
unanticipated operational challenges and expenses in connection
with combining operations; the availability of capital to fund
continuing operations of ZanyBrainy.com; changes in consumer
spending patterns and in demand for popular products; and
prevailing economic conditions. Additional information on factors
that may affect the business and financial results of Zany Brainy
can be found in our filings with the Securities and Exchange
Commission. Keith...
K. Spurgeon Thanks, Dan. Today's conference call will begin with Bob Helpert,
who will provide a financial overview of the first quarter
results for fiscal 2000. I will follow Bob with some highlights
from the quarter, conclude by listing specifically the
initiatives that we feel will drive shareholder value, and the
call will then be opened for questions.
I'd like to turn the call over to Bob Helpert to review our
financial performance. Bob...
B. Helpert Thanks, Keith. Good morning. In the first quarter, sales were
$39.4 million compared to $40.6 million in the first quarter of
1999.
Comparable store sales decreased 23% from the same period in
1999, reflecting last year's strong sales of Beanie Babies and
Crazy Bones which represented 18% of sales in the first quarter
of 1999, compared to only 2% in 2000. The impact of these hot
products on year-over-year sales comparisons will dissipate, as
they represented just 10% of revenues for the second quarter, and
less than 5% of the third, and fourth quarter's revenues last
year. As a result, we will see negative comparisons of about half
of the magnitude witnessed during the first quarter, but, we are
expecting positive sales comparisons for the second half of the
year which will enable us to report an operating profit for the
full year.
Net loss for the first quarter of fiscal 2000 was $5 million, or
($0.23) per basic share, compared to a net loss of $1.4 million,
or ($0.06) per proforma basic share in 1999. Selling, general and
administrative expenses were 41% of sales in the first quarter
compared to 32% of sales last year. This reflected operating
expenses associated with 24 additional stores this year versus
the first quarter last year. Merchandising, distribution and
occupancy expenses associated with the new stores impacted gross
profit for the first quarter, which equated to 20.2% of sales,
versus 27.6% for the same period in 1999.
Inventory levels as of the close of the first quarter of fiscal
2000 were $71.8 million, the same level we had at year-end.
Average store inventory was $670,000 per store, compared to
$640,000 for the same period last year.
ZanyBrainy.com continues to be an integral part of our growth
strategy, as both a brand extension and a sales channel. To date,
Zany Brainy, Inc. has contributed $12 million in funding to
ZanyBrainy.com. Both Zany Brainy, Inc. and our joint venture
partner, Online Retail Partners, may invest further in
ZanyBrainy.com this year. We expect Zany Brainy Inc.'s additional
capital contributions to be no more than $2 to $3 million in
FY2000. Per the terms of our joint venture agreement with Online
Retail Partners, Zany Brainy, Inc. may begin to recognize
ZanyBrainy.com losses starting in the second quarter of this
year.
Now, I'd like to turn the call back over to Keith to discuss the
quarter in more detail.
K. Spurgeon Thanks, Bob. Even with these disappointing results, we believe we
are creating a strong foundation and positioning Zany Brainy to
achieve strong profitability from its bricks and mortar business
in the fourth quarter, which we expect will offset the losses we
are incurring now. We are also progressing in our strategy of
enhancing the Zany Brainy brand presence through bricks, clicks
and catalog.
On the store side, we have already opened 4 new stores this year,
bringing our current store base to 107 stores. We remain
confident that we will accomplish our goal of opening a total of
25 new stores during fiscal 2000.
As for our online presence, we continue to develop and improve
the site, as evidenced by the recent rollout of Version 2.0,
which has many enhanced customer features. Most importantly, we
intend to drive the dot-com business to profitability by the
fourth quarter of fiscal 2001. We are confident in the potential
profitability of our model, which builds a successful online
business as an important part of the Zany Brainy brand.
As for our most recent strategic initiative, the acquisition of
Noodle Kidoodle continues to represent another excellent
opportunity for Zany Brainy, and is progressing as planned. Our
transition teams have been busy in Long Island, Philadelphia, and
in the field -- working on integration plans for the two
companies. I am pleased to report that the integration is
progressing smoothly at all levels. We have submitted our initial
Hart-Scott-Rodino and SEC filings and, at this point, await
responses from the appropriate government agencies. Based upon
the timing and nature of these responses, the deal should close
by late second quarter or early third quarter.
As stated in our release, we remain confident of the
acquisition's accretive nature, net of one-time transaction
charges of approximately $15 million after taxes. Moreover, I
want to stress that this acquisition will contribute
significantly to both the short and long-term success of Zany
Brainy. We expect these benefits to come in a number of ways.
First, we will eliminate duplicative overhead. We foresee a
savings of $5 million in this regard.
Secondly, we will further leverage our strong relationships with
our vendors. And, thirdly, we will get scale efficiencies out of
our logistics and distribution processes. We anticipate a 40
basis point improvement split between our respective buying and
distribution costs as a result.
Before I conclude, let me say that our management team is
committed to enhancing Zany Brainy's market valuation. I would
like to outline very specifically, some of the initiatives that
we expect to drive the company's valuation going forward:
1. We have announced the acquisition of Noodle Kidoodle,
which positions us as the leading retailer in our
market.
2. We have outlined our expectations regarding a path to
profitability for ZanyBrainy.com.
3. We are entering the $7 billion video game business and
will begin to sell games and hardware that fit the Zany
Brainy product mission. In typical Zany Brainy fashion,
we will edit the vast number of titles currently
available and provide our customers with only the best
selection for their children. This is a very exciting
opportunity, and we expect to generate revenues
beginning in the third quarter.
4. We continue to proceed on plan with the growth of our
private label business, and expect to benefit
significantly from products available only at Zany
Brainy. We expect this highly profitable segment to grow
to about approximately 10% of our sales this year.
5. We will leverage our experience with the catalog
business and expect this sales channel to be even more
significant than last year.
6. We will continue to aggressively expand the Zany Brainy
customer database, which will stand at approximately 3.5
million after the Noodle acquisition.
7. Finally, we will continue our rapid store expansion
targeting an additional 25 new stores by the end of
2000. Four stores have already been opened this year.
I hope you share our conviction that these growth initiatives
will result in value for all of our investors. We appreciate
your time today and I would now like to open the call for your
questions.