Home decor retailer Blyth (NYSE:BTH) reported that its multi-level marketing business is alive and well -- in Europe. Elsewhere, so-called "party plan" sales continued their downward spiral with yet another 12% drop in the U.S. and a 6% decline in Canada.
For that reason, Blyth sold off its European wholesale business last year and the full extent of its international business will be indirect selling. It also sold off its holiday decorations business last year and is trying to have a more focused approach. That's not uncommon in the home decor and gift items business. Russ Berrie (NYSE:RUS) is also undergoing a restructuring and relying more on its gift business instead of plush toys to generate profits.
Without the extraneous lines of business and taking away the positive effects of foreign currency exchange rates, Blyth's quarterly sales still declined ever so slightly to $379 million. Where it has been achieving gains (other than its European direct selling) has been in its catalog and Internet operations. Those saw an 11% jump in sales to $72 million on the strength of its Miles Kimball brands and gourmet coffee and tea purveyor Boca Java.
The company was able to post a $17 million profit for the quarter -- compared with a $12 million loss last year -- primarily because it didn't impair as much of its goodwill as it has in previous quarters. In the year-ago period, Blyth recorded a $53 million writedown of goodwill compared with the $12 million charge it took in the current quarter.
When one company buys another, the amount it paid above and beyond its tangible assets -- its machinery, inventory, and paper clips in the desk drawer -- is called "goodwill." It has to be accounted for somewhere on the balance sheet and that's what accountants have determined to call it. But sometimes companies pay too much for their acquisitions and so they have to mark down (i.e., write off) all that excess cost. That's what Blyth's been doing, writing off so-called "impaired" goodwill.
We should not exactly cheer the fact that it is able to record a profit now simply because it doesn't have to mark down the bloated goodwill charge anymore. Such writedowns show lax management skills and point to wasting shareholder capital in the past.
Blyth's domestic operations are contracting, and while European direct selling is growing -- as is its catalog and Internet division -- these have not been enough to offset the falloff in U.S. operations. Add in that it's able to boost revenues on the basis of currency fluctuations and you have a picture of a company that's still in extremis.
With a forward multiple similar to that of Lancaster Colony (NASDAQ:LANC), which is at least profitable if not also facing a tough sales environment, I find Blyth too pricey a knickknack for one's portfolio.
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
