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Bluestem Group Inc. Announces Unaudited Consolidated Second Quarter Fiscal 2018 Earnings Results

September 18, 2018

EDEN PRAIRIE, Minn.--(BUSINESS WIRE)--Sep 17, 2018--Bluestem Group Inc. (“Bluestem Group” or the “Company”)(OTCMKTS:BGRP) today reported unaudited consolidated financial results that include its wholly-owned subsidiary, Bluestem Brands, Inc. and its subsidiaries (“Bluestem Brands”), for the 13- and 26-weeks ended August 3, 2018 and August 4, 2017. We refer to the 13-week periods in this release as the “second quarter”. Bluestem is a multi-brand, direct-to-consumer online retailer of a broad selection of name-brand and private label general merchandise serving the boomer and senior demographic, generally considered age 50 and over, and low- to middle-income consumers across all age demographics.

Second Quarter Fiscal 2018 Bluestem Brands Highlights

Net sales were $422.2 million, a 3.8% decrease compared to the second quarter of fiscal 2017. Adjusted net sales, which exclude exited businesses, decreased 2.0%**. Gross margin was 47.8% compared to 47.9% in the second quarter of fiscal 2017. The new revenue recognition accounting standard (“Topic 606”) adopted in Q1 2018 resulted in a net decrease of $10.8 million of direct response advertising costs. Adjusted EBITDA was $31.6 million compared to $21.1 million in the second quarter of fiscal 2017, an increase of 270 basis points as a percent of net sales*. Excluding the impact from the adoption of Topic 606, Adjusted EBITDA was $20.8 million in the second quarter of fiscal 2018. Compliant with lender covenants throughout and as of the end of the second quarter, net liquidity was $82.5 million compared to a covenant requirement of $40.0 million and lender leverage ratio was 3.98x compared to a covenant requirement of 4.50x.

Lisa Gavales, Interim CEO, stated, “Our second quarter results reflect further progress in key areas of the business. We saw improved performance in our credit portfolio with our 30+ day delinquency rate down for the second quarter in a row. This demonstrates the stabilization in performance of the overall portfolio which is an indicator of potential future declines in credit losses. Excluding the impact of the adoption of the new revenue recognition standard, adjusted EBITDA margin increased 10 basis points and at Northstar, we delivered a 300 basis point increase in contribution margin. In our Orchard portfolio, while we saw sequential improvement in the year over year trends, we recognize that we have work to do and are taking actions to advance this turnaround effort. Looking ahead, we continue to focus our efforts on improving the health of the credit portfolio, driving sales, and increasing marketing efficiencies, which we expect will drive improved EBITDA performance for the company and put us on track to achieve long-term sustained profitability.”

Second Quarter Fiscal 2018 Bluestem Group Consolidated Statistics

Second Quarter Fiscal 2018 Bluestem Brands Stand-Alone Statistics

*Second quarter of fiscal 2018 includes a $10.8 million impact from the net reduction of certain advertising costs as a result of the adoption of Topic 606.

**Excludes net sales for exited businesses (PayCheck Direct and LinenSource). Year-over-year changes are estimated using net sales for the 13-weeks ended August 3, 2018 and August 4, 2017, respectively.

All financial information included in this release is unaudited. Information for Bluestem Group is presented on a consolidated basis. Consolidated information for Bluestem Group’s wholly-owned subsidiary, Bluestem Brands, Inc., is also presented on a stand-alone basis.

Adjusted EBITDA is defined in the accompanying financial information of Bluestem Group and Bluestem Brands. Please see “ Bluestem Group Inc. and Bluestem Brands, Inc. Financial Information- Overview and Basis of Presentation ” below and accompanying disclosures for a more detailed explanation of the foregoing matters, reconciliations to results reported under GAAP and other important information for investors to consider.

Earnings Teleconference Information

The Company will host a conference call at 9:00 AM ET on Tuesday, September 18, 2018. The conference call can be accessed at (800) 239-9838 or (323) 794-2551 (International), conference ID # 4432654 and broadcast simultaneously at http://www.bluestem.com/investor-relations. Following completion of the call, a recorded replay of the webcast will be available on Bluestem’s website. To listen to the telephone replay, call toll-free (844) 512-2921 or (412) 317-6671 (International), replay pin # 4432654. The telephone replay will be available at 12:00 PM ET September 18, 2018. Additional investor information can be accessed at http://www.bluestem.com/investor-relations.

About Bluestem Group

Bluestem Group Inc., a holding company headquartered in Eden Prairie, MN, operates multiple direct to consumer retail brands through its subsidiary Bluestem Brands. The Northstar Portfolio includes Fingerhut and Gettington, both of which are national multi-channel retail brands offering a broad selection of name brand and private label merchandise serving low- to middle-income consumers by offering multiple payment plans through revolving credit lines or installment loans offered by WebBank. The Orchard Portfolio consists of multi-channel brands including Appleseed’s, Bedford Fair, Blair, Draper’s & Damon’s, Gold Violin, Haband, Norm Thompson, Old Pueblo Traders, Sahalie, Tog Shop and WinterSilks. These brands offer apparel, accessories, and home products for the boomer and senior demographic, generally considered age 50 and over and provide customers with the ability to obtain credit through a third-party private label credit card. For additional information visit the Bluestem Group website at www.bluestem.com.

Forward Looking Statements

This release contains statements that are “forward-looking statements”. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. All statements contained herein that are not clearly historical in nature are forward-looking. In some cases, you can identify these statements by use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,” “project,” “intend,” “could” or similar expressions. In particular, statements regarding Bluestem Group’s plans, strategies, prospects and expectations regarding its business are forward-looking statements. You should be aware that these statements and any other forward-looking statements in this document only reflect Bluestem Group’s beliefs, assumptions and expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Many of these risks, uncertainties and assumptions are beyond Bluestem Group’s control and may cause actual results and performance to differ materially from Bluestem Group’s expectations. Forward-looking statements are based on Bluestem Group’s beliefs, assumptions and expectations of its future performance and actions, taking into account all information currently available to Bluestem Group. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to Bluestem Group or are within its control. If a change occurs, Bluestem Group’s plans, business, financial condition, and liquidity may vary materially from those expressed in its forward-looking statements. Important factors that could cause the actual results to be materially different from Bluestem Group’s expectations include the risks and uncertainties set forth in “Risk Factors” in Bluestem Group’s Report as of and for the fiscal years ended February 2, 2018 and February 3, 2017.

Accordingly, you should not place undue reliance on the forward-looking statements contained in this release. These forward-looking statements are made only as of the date of this release. Bluestem Group undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview and Basis of Presentation

As used in this release:

“Bluestem Group,” “BGI,” “we,” “us,” “our,” or “the Company” refers to Bluestem Group Inc. with its consolidated subsidiaries “BGI Holding Company” refers to the Bluestem Group Inc. legal entity, excluding its subsidiaries “Bluestem Brands” or “Bluestem” refers to Bluestem Brands, Inc., an indirect subsidiary of Bluestem Group, which consists of Northstar Portfolio, Orchard Portfolio and PayCheck Direct (which was exited in the first quarter of fiscal 2017) “Northstar Portfolio” refers to the consolidated Fingerhut and Gettington retail brands “Orchard Portfolio” refers to the consolidated Appleseed’s, Bedford Fair, Blair, Draper’s & Damon’s (retail stores were exited during the first quarter of fiscal 2017), Gold Violin, Haband, LinenSource (which was exited in the second quarter of fiscal 2017), Norm Thompson, Old Pueblo Traders, Sahalie, Tog Shop, and WinterSilks retail brands

The accompanying financial information for Bluestem Group Inc. is presented on a consolidated basis, including its wholly owned subsidiary Bluestem Brands, Inc. and its consolidated subsidiaries. The accompanying financial information for Bluestem Brands, Inc. is also presented on a stand-alone basis. All financial information included in this release is unaudited.

The business results for 2018 reflect the adoption of the new revenue recognition accounting standard (Topic 606). The primary impact of the adoption of Topic 606 was to accelerate the timing of recognizing direct mail catalog advertising costs, which were capitalized and amortized over their expected period of future benefit prior to adoption and are now recognized on the estimated date of first delivery to recipients.

The Company reviews and presents the consolidated business results based on the organizational structure management uses to evaluate performance and make decisions on allocating resources and assessing performance.

Financial Information

To supplement the historical financial data derived from Bluestem Group’s and Bluestem’s consolidated financial statements, which are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), this release uses adjusted EBITDA as a non-GAAP performance measure. In addition, Bluestem’s stand-alone consolidated financial statements includes contribution margin, adjusted general and administrative expenses, adjusted free cash flow, program agreement adjusted EBITDA, lender adjusted EBITDA, leverage ratio net debt, program agreement leverage ratio, lender leverage ratio, working capital, adjusted working capital, program agreement net liquidity and lender net liquidity as non-GAAP performance measures. These measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP. Please see the accompanying report on Bluestem Group’s and Bluestem’s results for further important information concerning these measures.

Bluestem Group Inc. Results for the 13- and 26-Weeks Ended August 3, 2018

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