Few 'Precious Moments' ahead for troubled Enesco
by Kirsten Miller
February 24, 2005
Enesco Group Inc.'s newly appointed CEO has a lot of work ahead of her.
Cynthia Passmore-McLaughlin, 42, formerly of Revlon Inc., where net losses were the norm, inherited the gifts, collectibles and home décor retailer on Jan. 15. But the company was in need of consistent leadership and financial stability long before she was installed. It swung to a loss in the nine months ended Sept. 30 and its stock sagged.
The question is: how does she plan to right things?
Curiously, her background is in marketing, while the company's losses stem from a computerization gone awry, and glitches in order processing and distribution that have cost millions in sales.
Despite repeated requests for an interview, Passmore-McLaughlin isn't saying what her plans and goals are for the Itasca-based company, best known for its Precious Moments figurines. She declines to talk to the press until Enesco's year-end earnings are released in mid-March. And no one else is talking, either.
CEOs are seldom silent, but silence might be right in this case.
"A good part of fixing the financial picture is getting to know a company and getting the strategy right," said Leslie Gaines-Ross, author of CEO Capital: A Guide to Building CEO Reputation.
Gaines-Ross, who has extensively researched the roles of rookie CEOs, said, "You need to spend your first 100 days doing your homework" on the company, because its issues are often different from what a candidate is told during the hiring process.
On the other hand, T.J. Walker, president of Media Training Worldwide in New York and author of Media Training A-Z, said: "When a CEO refuses to speak, he might as well walk up and down Lake Shore Drive wearing a sandwich board that reads, 'We have big problems here. I have no clue how to solve them.'"
Before Passmore-McLaughlin was hired, Enesco had a shaky year.
Its profit for the third quarter ended Sept. 30 plunged 77 percent to $1.04 million, or 7 cents per diluted share, from $4.6 million, or 32 cents, during the same period one year earlier. However, sales spiked 17 percent to $84.2 million from $71.8 million.
In the nine months ended Sept. 30 Enesco lost $4.5 million ? whereas for the same period in 2003, it had a profit of $3.9 million. (Over the same timeframe in 2002, however, Enesco lost a whopping $24.2 million.) The company's nine month sales also were up, 8 percent to $193.8 million from $178.8 million a year earlier.
The company's executive team was a skeleton of its former self by the time the third quarter ended. After President and CEO Dan DalleMolle's unexpected death on April 20, 2004, Chief Financial Officer Tom Bradley stepped in as interim CEO, but resigned to "pursue other interests" in mid-September, leaving Enesco without a CEO or CFO. The board then appointed director George Ditomassi as interim CEO inasmuch as he had run Pawtucket, R.I.-based Milton Bradley Co. for more than a decade.
On Sept. 15, the company announced it would appoint Passmore-McLaughlin of Revlon as its president as of the beginning of October and the fourth quarter. Ditomassi carried on as the interim CEO until Jan. 15, when "and CEO" was added to Passmore-McLaughlin's title.
Nine days later, Paula Manley, 51, CFO of Follett Higher Education Group in Oak Brook, took over as Enesco's CFO.
Burned investors are wondering if they can return Enesco to profitability. The stock is trading around $8.50, off from a 52-week high of $14.94.
Passmore-McLaughlin moved from one consumer products company to another. In her last quarter as Revlon's senior vice president of customer marketing and retail design, the period ended Sept. 30, 2004, the company's net sales fell 7 percent to $294.4 million from $316.5 million during the same period one year earlier, and it posted a loss of $54.7 million, or 78 cents a share, even wider than the year-earlier loss of $32.6 million.
The September quarter was the eighth straight quarter in which Revlon lost money. In the three months ended June 30, 2004 it lost $38.9 million, or 11 cents per diluted share, $1.1 million more than the year earlier period. In the quarter ended March 31, 2004, it lost $58.2 million, or 63 cents per share, versus a loss of $48.7 million in the 2003 quarter.
A Revlon spokeswoman declined to comment about why Passmore-McLaughlin left the company.
Prior to Manley's experience with privately-held Follett, she was CFO and vice president of operations finance/controller of publicly-held, Golden, Colo.-based Einstein Noah Bagel Corp., from April 1999 to October 2000. The company filed for Chapter 11 bankruptcy on April 27, 2000 and was subsequently sold.
According to Enesco's third quarter filing with the SEC, the company experienced "challenges" in implementing a computerized resource planning system. While trying to solve related inefficiencies in order processing and shipping, "?we incurred approximately $2.0 million and $3.1 million of costs for the three months and nine months ended Sept. 30, 2004, respectively."
Enesco attributed the increased costs to "higher than normal distribution center and customer service labor and overtime, as well as system-related consulting."
"As of Sept. 30," the filing read, "we believe there were approximately $7 million of open orders that could have been shipped in the third quarter had we been able to operate at normal efficiency and capacity levels."
The company went on to explain that "during the fourth quarter, Enesco expects to spend an amount comparable to the third quarter in associated system implementation costs."
One move to save money was announced Feb. 1: the company will restructure its marketing team. David Nicklin, 43, promoted from within, is charged with building a new marketing structure. The initiative is expected to save $2.3 million annually but generate one-time costs of $500,000. Jobs are being eliminated, mostly in the Chicago area.
In four out of Enesco's five most recent quarters, it drained cash.
In the third quarter ended Sept. 30, for example, Enesco had a negative cash flow of $12.12 million. The good news is that the company lost 13 percent less than the previous year, when it took a $13.9 million hit to its cash account.
Nevertheless, Enesco's third quarter cash on hand doubled to $11.02 million from $5.28 million last year, through the sale of notes and other borrowings that raised $22 million in the September quarter.
Part of the company's cash has been invested in its business. In the September quarter Enesco accelerated re-investment to $8.19 million from $1.22 million a year earlier ? but the company yo-yos each quarter between two similar figures.
The company also issued new stock last year, for the acquisitions of Gregg Gift and Dartington Crystal, and to raise additional working capital.
====== <BOLD>:</BOLD> Timeline of Enesco People <BOLD>2004 QUARTER 2</BOLD> April 20, 2004: President/CEO Dan DalleMolle died after surgical complication · Came from Newell Rubbermaid Corp. in March 2001 Enesco names Tom Bradley (Enesco CFO since January 2003) interim CEO <BOLD>2004 QUARTER 3</BOLD> August 2004: Bradley resigned to "pursue other interests"
George Ditomassi appointed to interim CEO position · Joined Enesco's board of directors in 2000 · Before that was chairman (1990-2000) and president/CEO (1985-1990) of Milton Bradley Co., a subsidiary of Hasbro Inc.
Enesco begins search for new CFO, continues search for permanent CEO Sept. 15, 2004: Enesco announces it will appoint Cynthia Passmore-McLaughlin as president, effective Oct. 1, 2004. · Passmore-McLaughlin was a senior vice president of customer marketing and retail design for Revlon Inc.
Ditomassi continues interim CEO role <BOLD>2004 QUARTER 4</BOLD> Oct. 1, 2004: Passmore-McLaughlin begins president job <BOLD>2005 QUARTER 1</BOLD> Jan. 4, 2005: Paula E. Manley appointed as Enesco's new CFO · Came from Follett Higher Education Group in Oakbrook, Ill.
Jan. 10. 2005: Enesco board of directors elect Passmore-McLaughlin as new CEO; she also joins the board of directors Jan. 15, 2005: Passmore-McLaughlin's CEO appointment effective Jan. 24, 2005: Manley's CFO appointment effective Feb. 1, 2005: David Nicklin appointed to the newly-created chief marketing officer position · Promoted from within Mid-March 2005: FY 2005 / 4th Quarter earnings to be reported -30-
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