Harry & David reports $20 million loss as expenses rise

By MATEUSZ PERKOWSKI

Capital Press

Dropping sales and rising operating expenses have contributed to a $20 million net annual income loss for the Harry & David premium fruit company.

"Fiscal 2009 was the most challenging year in the company's 75-year history," said Bill Williams, president and CEO of the Medford, Ore.-based firm, during a Sept. 17 conference call. "We're in a very uncertain time in terms of sales."

At nearly $490 million, the company's sales in 2009 fell about 10 percent from last year, according to a report filed with the U.S. Securities and Exchange Commission the same day.

The cost of raw materials decreased 3 percent, to $287 million, while its operating expenses rose more than 5 percent, to about $230 million, according to SEC filings.

After interest expenses, tax benefits and other provisions, the company lost more than $20 million in fiscal 2009, which ended in late June. To compare, Harry & David earned about $4.3 million in net income during fiscal 2008 and $30.7 million in fiscal 2007.

The firm owns about 3,400 acres in Oregon, more than half of which is comprised of orchards in the Rogue Valley in the southwestern part of the state. Harry & David also owns packing and production facilities in Medford and Hebron, Ohio.

Due to slower demand for its gift baskets and other products, the company has reduced its inventories -- primarily raw materials -- by about 18 percent, said Williams.

The firm has also shut down five stores, bringing its total number of retail outlets to 138, he said. In light of the recession, the company will try to save money by aggressively renegotiating leases for about half its remaining stores.

Product pricing during the Christmas season remains an unknown for the company, since prices are subject to competitive pressures, Williams said. The company typically sells most of its products in the last quarter of the year.

"People are going to be expecting bargains," he said. "Last year was extraordinary bargains."

Fruit companies probably won't cut prices as dramatically as they did during the 2008 Christmas season, but free or reduced-cost deliveries to customers are likely, he said.

If the products still don't move, then prices will be more apt to fall, Williams said.

The firm has also seen consumers reducing their orders and buying less expensive items, he said.

"People are trading down," he said, noting that it's difficult to make sales margin predictions based on the habits of bargain shoppers. "Last year, we thought Christmas would go a lot better than it did."

Staff writer Mateusz Perkowski is based in Salem, Ore. E-mail: mperkowski@capitalpress.com.

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