Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Clive Warshaw - Chairman

Steven Lazarus - Chief Financial Officer

Analysts

Sharon Zackfia - William Blair

Assia Jagefa - Infinity Research

Steven Wieczynski - Stifel Nicolaus

Steiner Leisure Limited (STNR) Q1 2010 Earnings Call April 29, 2010 11:00 AM ET

Operator

Good morning and thank you for standing by, and welcome to the first quarter earnings call. At this time all participants are in a listen-only mode. After the presentation we will conduct a question-and-answer session. (Operator Instructions)

I would like to introduce to your host for today’s conference Mr. Clive Warshaw, Chairman of Steiner; you may begin.

Clive Warshaw

Thank you very much. Good morning ladies and gentlemen, and I’d like to welcome you all to our first quarter 2010 earnings call, and I’d like to know hand you over to Leonard, who will take over from me.

Leonard Fluxman

Thank you Clive. Good morning everyone, and thank you for joining us this morning for Steiner Leisure’s 2010 first quarter earnings call. With me today is Steven Lazarus our Chief Financial Officer, and before we get into our results and my comments about the current operating environment, I’d like to remind you that during this call we may make forward-looking statements within the meaning of the Federal Security Laws.

These statements reflect our current views about future events, do not guarantee future performance, and are subject to risks and uncertainties which may cause our actual results to differ materially from those expressed in or implied by such forward looking statements. Examples of these risks are described in our Form 10-K for 2009 and our other SEC filings.

I will start as usual with an overview of the business and results of the quarter, followed by an analysis of the performance by segment. I will hand you over to Stephen Lazarus our CFO to give you the breakdown on specific balance sheet items, debt, cash on hand, any stock repurchase updates, CapEx during the quarter, and other pertinent balance sheet data. We will also address guidance for the third quarter and for the year, and then turn it over for our regular Q&A.

This is a first quarter we are reporting results that include the Bliss acquisition, which we closed on December 31, 2009. Results of the Bliss operations are included primarily in three areas, specifically in land based spa operations, third party spa product sales, and obviously all of the SG&A expenses related to the Bliss operations.

Total revenues for the first quarter increased 24.6% quarter-over-quarter, gross profit increased by 43.3% quarter-over-quarter, with service margins declining 30 basis points quarter-over-quarter, primarily attributable to better than expected performance of our school segment, offset by lower service margins in our land based spa operations.

Product margins increased 930 basis points, primarily driven by increase sales in third party channels, and a benefit of 320 basis points attributable to FX gains. Gross margin improved by 320 basis points to 24.2%. Operating margin improved by 80 basis points quarter-over-quarter, despite the inclusion of a negative impact of $2 million of FX expense.

Our Cruise ship spa division improved for the first time in 18 months. This continued to be value focused, and discounting continued to be an integral part of consumer expectations on some or all of our port days. Yield management initiatives are still needed to drive demand and improve revenue cruise-to-cruise. We still face a guest on board that is reluctant to impulse shop as much as they have done so in the past.

That being said, we did see a very moderate up-tick in spend on retail products in the attachments in this quarter. Total revenue increased 8.3% quarter-over-quarter. The increase in revenue drove stronger productivity metrics across both our spa and non-spa ships.

Average weekly revenue in all ships increased 10.7% quarter-over-quarter. Average weekly revenues from spa ships increased by 4% quarter-over-quarter, with non-spa ships increasing by 31.8% quarter-over-quarter. Gross revenue for spa per day improved by 7.6%, and this was derived by revenues per staff per day on spa ships increasing by 6%, and non-spa ships increasing by 20.3%.

Our next quarter we will commence operations on Celebrity’s second Solstice class vessels, The New Eclipse, and we finally made our way back to doing business with P&O UK which I am pleased to report; by winning the concession away from our competitor Harding Brothers Onboard Spa Division, to operate the new P&O Azura.

Turning to land-based spa operations. The land-based spa operations divisions grew revenue 62.5% quarter-over-quarter, primarily due to the inclusion of the Bliss spas. While certain of our land based spas experienced improvement in this quarter, there are so many that continue to experience a cheaper guest, who are not trying to spend money in the spa as an amenity.

Our average weekly revenue in land-based spas increased by 24.1% quarter-over-quarter. Our third party products divisions performed well in this quarter, with revenue growing 76% quarter-over-quarter. This increase was primarily driven by the inclusion of the Bliss numbers. It was covered with strong performance from our Elemis division. Our third party products division now accounts for almost 17% of our total revenues.

Last year we turned to Steiner Education Division. This division once again delivered strong results in the quarter. Revenues increased by 15.3% quarter-over-quarter, primarily due to a higher number of enrollments and increased student populations at our schools this year versus last year at the same time.

Despite the massive winter storms disrupting business in some of our Bliss spas and our school divisions during this quarter, we executed well as a group and showed some encouraging signs that consumer spend ticked up some, but that is not to say we are out of the woods yet.

We continue to be focused on cost saving initiatives implemented last year, while continuing to deliver superior guest service and experience in our maritime and land-based spas. Our balance sheet remains strong with strong cash flow and liquidity, and we have used this to accelerate repayment of debt we raised for the Bliss acquisition last year.

I will now hand you over to Stephen, who will guide you on the second quarter and the full year, and give it some more clarity on some of the balance sheet data.

Stephen Lazarus

Thank you Leonard. Good morning ladies and gentlemen. Firstly as usual, I’ll provide some details on the first quarter of 2010 covering depreciation, capital spending, cash and our share repurchases.

Depreciation and amortization for the first quarter of 2010 was $3.5 million, broken down at $738,000 below the line depreciation, and $100,000 below the line amortization. Above the line depreciation was $2.7 million. Our estimate for the second quarter is for depreciation and amortization, a $3.7 million, with below the line depreciation at $740,000, and below the line amortization at $100,000. Above the line depreciation is expected to be $2.9 million.

Capital spending in the first quarter was $971,000 and it’s expected to be $1.8 million in the second quarter. Cash and investments at March 31 was $44.7 million, and outstanding on our term loan and revolving line of credit as of 03/31 was $46.3 million and $5 million respectively, with $55 million therefore available on our line of credit. As you are aware, we have $3.75 million capital payment due at the end of the quarter.

We did not repurchase any share since our last conference call, and therefore continue to have $50.5 million remaining from our February 2008 share repurchase grant authorization; although shareholders equity as of March 31 was $227.1 million.

Moving then on to our guidance; we are fine-tuning the low end of our guidance ranges. Our full year revenue guidance is $570 million to $585 million, and for earnings per share we are increasing the bottom of the range from $250 million to $255 million to account for Q1, and maintaining the high end of $280 million. So our full year EPS guidance is $255 million to $280 million.

For the second quarter, we expect revenue to be in the range of $140 million to $145 million, with Q2 earnings per share estimated at $0.59 to $0.64.

We will now move to Q&A. Cathy if you could please open the call to questions, thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Sharon Zackfia - William Blair.

Sharon Zackfia - William Blair

I guess, given some of the comments that you trying to see some improvement or some encouraging signs I think was the nomenclature in the consumer environment. If you could talk about the decision at the high end of either of your guidance range so far 2010.

Leonard Fluxman

Yes Sharon. March was for everyone of our divisions was just an incredible month; Bliss, Elemis, all environments showed, certainly the impact of the Easter weekend. I mean March in and of itself was almost the outlier in the first quarter, and really helped the quarter as a whole. That being said, April has not started quite as strongly as March, and so we are still really reluctant to take up the top end of the range at this point. We are going to go through the second quarter to determine whether in fact that’s appropriate.

Sharon Zackfia - William Blair

And not to parse it apart too much, but is April still running stronger than January and February; and did you see any impact on the Icelandic volcano disruption.

Leonard Fluxman

It impacted clearly passengers getting back and forth to certain cruise lines. The impact to us, I would say it has been minimal. We’ve had to expand the top contracts on both ships for a period of time. We may not have been able to get staff on to some ships as early as we wanted to, so there were delays. It’s very hard to determine that impact at this point, and that’s why we are just taking a look at April as it finishes out here, but going back to your question, April has finished a little stronger than it started, and I would say better than January.

Sharon Zackfia - William Blair

And then, given that this is the first quarter that we see less kind of in the P&L, is there anything unusual about the way it’s flowing through in this quarter. Where we can extrapolate it to the rest of the year, and maybe if you could help us understand how we should think about Bliss going forward.

Stephen Lazarus

I think Bliss is performing exactly as we anticipated. Clearly getting our hands around some synergies as we work through the year is the opportunity here, and we are focused on taking a look at the middle, the top line, the strong focus as well, as we look at all of the channels at which Bliss operates today. I think at this point it’s still early to start saying “it’s going to change materially from what we’ve seen in the first quarter.”

Sharon Zackfia - William Blair

Are there any concrete plans in place to ground any spas to Bliss on the ships this year.

Stephen Lazarus

No not at all.

Operator

Your next question comes from Assia Jagefa - Infinity Research.

Assia Jagefa - Infinity Research

First of all, can we assume that school-operating income was in the range of $4.5 million.

Leonard Fluxman

Yes, we can’t hear you. There is something happening….

Assia Jagefa - Infinity Research

Yes I am hearing the static as well. Can I assume that school-operating income is in the $4.5 million range?

Leonard Fluxman

We don’t break up the operating income as part of what you take a look at the Q on the call. So once you get Q you will take a look at the individual segments and it should be clear from there what the school operating is.

Assia Jagefa - Infinity Research

But would that be off by a lot or would I still be in the range?

Stephen Lazarus

My answer is the same. You wait for the first quarter segment reporting. It’s a nice try, but I am not breaking it up for you.

Assia Jagefa - Infinity Research

Okay, I understand, I will wait for the Q. Second question is on Bliss. It seems that weekly revenues there are closed to those of large spa ships i.e., in the $55,000 range. Is that really the case, and obviously this is a quarter that might be seasonally weaker than some of the other quarters for Bliss.

Stephen Lazarus

I would say they are bigger and smaller than the Bliss spa mix. I mean there are some bigger spas in New York and maybe the rest will be of the region of the spa that operated under lease deals. Some of those averages might be getting close to that, but they are all over the map; it’s just like some of ships are.

Assia Jagefa - Infinity Research

For Bliss, for all of their spas, for the 15 spas that has been included, would it be fair to guess that weekly revenues are in that range, the $55,000?

Stephen Lazarus

No it wouldn’t be fair to guess that

Assia Jagefa - Infinity Research

That’s the price.

Stephen Lazarus

We are not guiding specifically on the individual Bliss spas, we haven’t guided on element spas so.

Assia Jagefa - Infinity Research

It’s a new acquisition, so all of us are curious as to how that is performing well, just with the other segments of the business.

Leonard Fluxman

It’s performing directly in line with our expectations and guidance. We are very content with what it’s done in the first quarter.

Assia Jagefa - Infinity Research

Okay, and do you still expect further improvement, especially with the economy, and I imagine with seasonality in Q2 and Q3.

Leonard Fluxman

Assia, remember these are open base spas so there is very, very moderate seasonality. As I said, certainly some of the winter weather in the early part of this quarter impacted some of the northeastern Bliss spas, up in the old Chicago, etc., but seasonality is extremely moderate. Its really doesn’t vary that much quarter-to-quarter.

Assia Jagefa - Infinity Research

Okay, I felt there might be some seasonality there as well.

Leonard Fluxman

No they are all open saps.

Assia Jagefa - Infinity Research

Well, but still when the weather is not nice, people don’t want to be out as much and may be…

Leonard Fluxman

Right; which is exactly what I was getting to. In the first quarter they were certain weekends, which actually disrupted some of the business, which is higher on Fridays and Saturdays, and certainly that bad weather did impact us a little bit in the first quarter. So the performance from those Bliss spas could have been better, but for the weather.

Assia Jagefa - Infinity Research

And my last question, maybe for Stephen. There was a $2 million negative FX impact in the quarter. That was in SG&A item.

Stephen Lazarus

Yes, included in SG&A was a negative $2 million FX impact. That was partially offset by a $14.5 million impact in cost of goods, so the net negative impact was about $460,000.

Assia Jagefa - Infinity Research

Okay, that’s helpful. Any other one-time items in the quarter?

Leonard Fluxman

Not material, no.

Operator

Your next question comes from Steven Wieczynski - Stifel Nicolaus.

Steven Wieczynski - Stifel Nicolaus

I just want to go back and have a look at your guidance, what you gave in February for the first quarter, and the numbers that you came out with last night. What was the biggest surprise to you guys in terms of up-side there.

Leonard Fluxman

I would say March revenues as a group are much better that expected, and clearly are being able to sell more products into third part channels, improve margins, in a way that they impacted or sufficed. March was just kind of out of the box. It really was an amazing month for us, and we saw incredible execution in elements. They certainly executed well in all of their channels. Maritime had a great March, our resorts, Bliss. I mean March was strong overall, and really the spring break sort of timing I would say really assisted March as a whole.

Steven Wieczynski - Stifel Nicolaus

After having the list kind of integrated now for just three months, has your outlook in terms of what you guys thought you could do in terms of accretion, has that changed materially yet?

Leonard Fluxman

No, its early days. I mean its first 90 days here with Bliss in the box. We are working on a lot of initiatives with the Bliss team. We are content with where its at, clearly with our new President that we’ve brought on, Michael Indursky, we hope to make some changes as we move though the year, but I think its early days to talk about any of that at this point.

Steven Wieczynski - Stifel Nicolaus

Last question I’ve got, its more for Stephen. Has CapEx for the full year changed or its still around $69?

Stephen Lazarus

Yes, it is still around $69. It’s just some of the timing shifts out of Q1.

Steven Wieczynski - Stifel Nicolaus

And can you get the ship count for the last three quarters.

Stephen Lazarus

I don’t have that with me, but it hasn’t changed significantly from what I gave four weeks ago.

Operator

(Operator Instruction) It looks like we have no other questions at this time.

Leonard Fluxman

Well, thanks Cathy. Thank you all for joining us on our quarter call. We look forward to speaking with you in the next quarter. Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Steiner Leisure Limited Q1 2010 Earnings Call Transcript
This Transcript
All Transcripts