Day Runner Stumbling (News) September 1, 1999

Day Runner Stumbling

By Dave Marino-Nachison (TMF Braden)
September 1, 1999

How much longer can Day Runner Inc. (Nasdaq: DAYR) keep slogging along? Last night, the calendar and organizer maker reported fiscal Q4 results that were pretty much a downer across the board.

Sales fell 6.3% to $47.7 million. Net losses were $0.44 per share, a far cry from last year's $0.39 per share profit and well below the $0.18 per share loss estimate two analysts gave First Call. For the year, pre-charge net losses were $0.28 per share; First Call's analysts were calling for EPS of $0.15.


Investors had waited patiently since early June, keeping the stock price about flat since the company said to expect a Q4 loss of between $0.14 and $0.18. The shares lost some 15% of their market value today. Investors and analysts aren't likely to trust company guidance again anytime soon.

Nor does there appear to be a light at the end of this particular tunnel. Day Runner said product returns have been higher than usual and it expects that trend, in combination with inventory tightening among its merchants, to continue hurting sales and raising returns through the end of the calendar year.

Day Runner also said it found "errors related to the treatment of manufacturing variances and certain other costs" in its year-end audit. As a result, it has restated results for the first three quarters of the just-completed fiscal year, reducing net income by a total of about $2.1 million.

"We believe that as we move farther into fiscal 2000 our sales of products to these retailers will come to more closely reflect consumer demand," said CEO James Freeman Jr., who made mention of a "major marketing initiative" that's testing well.

Selling products that reflect consumer demand is a good idea, and if that's really what's going to happen, then Freeman's projection of "a much better year in fiscal 2000" and a return to profitability in the current quarter and year could be in the cards.

Doubtful, though, unless the company gets its product offerings right. What seems to be happening here is that Day Runner, which made its fortune peddling a wide variety of organizers and planners, hasn't responded well to the advent of personal digital assistants like the ubiquitous PalmPilot, which don't require constant refilling beyond the occasional battery charge.

That might help explain why Day Runner's sales of organizers, planners, and refills slid to just over 73% of fiscal year sales from more than 80% the previous year. Increased promotion of products like its ePage electronic planner insert might help spur increased interest in large, leather-bound organizers.

Perhaps that's why Freeman saved what might be the best for last. In July the company brought in Wasserstein Perella & Co. to help plot a course for Day Runner. Says Freeman: "We are in a position to aggressively explore the alternatives available to the company."

Freeman said Day Runner has received "a number of unsolicited expressions of interest from third parties in acquiring the company." Though the company hasn't committed to anything, he and his staff will be giving them their due.

Without further explanation, it's not quite clear what investors should think about the possibility of a sale. With the company's core operations in a state of flux, would Day Runner be able to get a good return for its investors? Only the Filofax division -- Day Runner bought the U.K.-based company last year -- has been consistently performing well, the company attributing most of its year-over-year sales growth to that operation.

Unsurprisingly, of the company's primary sales channels, only the foreign customers line item increased its share of company revenues in fiscal 1999.

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