CSS Industries Overview

Transcription

1 F e b r u a r y CSS Industries Overview (NYSE: CSS)

2 Forward Looking Statements This presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, among others, statements relating to the Company s expected levels of net sales, net income (loss), and adjusted EBITDA for fiscal 2018; the Company s expected ability and capacity for value creation and to achieve long-term strategic priorities and goals; and the Company s expected capital allocation priorities. Forward-looking statements are based on the beliefs of the Company s management as well as assumptions made by and information currently available to the Company s management as to future events and financial performance with respect to the Company s operations. Forward-looking statements speak only as of the date made. The Company undertakes no obligation to update any forwardlooking statements to reflect the events or circumstances arising after the date as of which they were made. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including without limitation, inherent uncertainties associated with assumptions used to forecast fiscal 2018 net sales, net income and adjusted EBITDA; execution risks that may impact the Company ability to achieve the levels of net sales, net income and adjusted EBITDA forecasted for fiscal 2018; general market and economic conditions; increased competition (including competition from foreign products which may be imported at less than fair value and from foreign products which may benefit from foreign governmental subsidies); information technology risks, such as cyber attacks and data breaches; increased operating costs, including labor-related and energy costs and costs relating to the imposition or retrospective application of duties on imported products; currency risks and other risks associated with international markets; risks associated with acquisitions, including acquisition integration costs and the risk that the Company may not be able to integrate and derive the expected benefits from such acquisitions; the risk that customers may become insolvent, may delay payments or may impose deductions or penalties on amounts owed to the Company; costs of compliance with governmental regulations and government investigations; liability associated with non-compliance with governmental regulations, including regulations pertaining to the environment, Federal and state employment laws, and import and export controls and customs laws; and other factors described more fully in the Company s annual report on Form 10-K for the fiscal year ended March 31, 2017 and elsewhere in the Company s filings with the Securities and Exchange Commission. As a result of these factors, readers are cautioned not to place undue reliance on any forward-looking statements included herein or that may be made elsewhere from time to time by, or on behalf of, the Company. 2

3 Our Mission and Vision Mission Our creative craft, seasonal and gift products inspire our consumers and spark their participation. We deliver our high quality, on-trend and innovative products with a focus on value through an Omni-Channel approach, designed to make life s moments more memorable. Vision To be the market leader in creative craft, seasonal and gift products by delivering an innovative and high valued experience to our customers. When we delight our customers, we provide value to our stockholders. We strive to help make life s everyday moments and special events more memorable. We Make it Memorable for our customer, our consumers, our employees and our shareholders Everyday! 3

4 CSS Family of Brands Dates back to 1945 #1 in packaging ribbon Dates back to 1863 #2 in home sewing patterns Dates back to 1876 #1 in craft ribbon Dates back to 1877 #1 in craft buttons Dates back to 1927 #1 in home sewing patterns Dates back to 1870 Leader in gift and stationery categories Dates back to 1897 #1 in trims and tapes Dates back to 1906 #1 in knitting and crocheting tools Dates back to 2006 #1 in gift card holders Dates back to 1976 #1 in needle arts Dates back to 1990 #1 in fusible beads Long History of Industry Leadership Dates back to 1906 #1 in floral ribbon 4

5 CSS Industries Strategy Map Premier partner for our customers Exceptional opportunities for our employees Superior returns for our shareholders Grow Profitable Sales and Improve ROIC STRATEGIC PRIORITIES Defend the base business Identify adjacent product categories with a focus on brands Build an Omni- Channel business model Improve ROIC by maximizing margins while minimizing capital investment Build a Collaborative, Dynamic One CSS Culture KEYS TO SUCCESS Design, Product Innovation, Category Leadership Strategic Acquisitions Dedicated Resources, Leverage Technology Fix Underperforming Product Lines, Focus on WC Communication, Accountability, Talent Infusion GOALS Keep our base business flat in a declining market Complete at least one material acquisition per year Achieve online sales of >$50 million annually Improve ROIC >1% Every Year Aligned & engaged workforce driving for results 5

6 CSS Competitive Advantages Managing product category complexity Design and merchandising Flexible distribution close to customers Category/POS management Strong direct retailer senior executive and buyer relationships Tied to our relationship and service driven sales and marketing teams Expanding due to expanding portfolio size Category leadership across many product lines Flexible supply chain with a mix of USA and imported key product categories Narrow woven and extruded ribbon and sewing patterns made in the USA High-end sewing and craft buttons sourced for variety from around the world Gift and gift packaging products from value oriented Asian sources On-trend custom product design Customers look to us to communicate/validate trends Becoming a go-to company for private label stationery production Strong financial position Strong historical free cash flow Low/no leverage 6

7 Multi-Channel Distribution CSS is a trusted partner to its customer base of leading mass, craft, food & drug, discount, gift & specialty retailers and warehouse clubs Exceptional reputation in the industry Breadth of product offerings (cross selling, production and sourcing capabilities) Customized programs Deep, long term relationships with multiple buyers per retailer and continuity over many years Dedicated internal sales staff across all categories and national sales reps to extend reach in gift & specialty We sell to many luxury retailers, such as Tiffany, Aveda, Nordstrom, Lush, Ghirardelli, Vera Bradley A S a m p l e o f O u r B l u e C h i p C u s t o m e r B a s e Mass Discount Craft Warehouse Clubs Food & Drug 7

8 Our Markets Seasonal The seasonal product category is defined as products designed, produced and sold to mass market retailers for holidays and seasonal events, including Christmas, Valentine's Day, Easter and back-to-school. Products include Christmas packaging ribbons and bows, boxed greeting cards, gift tags, gift card holders, gift bags, gift wrap, tissue paper, classroom exchange Valentine s Day classroom exchange cards, Easter egg dyes and novelties, and educational products. Production forecasts for these products are generally known well in advance of shipment. Gift The gift product category is defined as products primarily designed to enhance certain life events or special occasions such as weddings, birthdays, anniversaries, graduations, and the birth of a child. These products are primarily sold into mass and specialty retailers. Products include infant products, journals, gift card holders, all occasion boxed greeting cards, memory books, scrapbooks, stationery, stickers and other items that commemorate life's celebrations. Products in this category are generally ordered on a replenishment basis throughout the year. Craft The craft product category is defined as products used for craft activities, and includes ribbons, buttons, sewing patterns, knitting needles, needle arts and kids crafts. These products are sold to mass market and specialty retailers and are generally ordered on a replenishment basis throughout the year. 8

9 Our Markets Seasonal Gift Crafts Total Market Size (at retail*): $212.6B $46.2B $43.9B CSS Market Segments: $159.2B $36.2B $21.5B Total Market Status: Growing Growing Stable CSS Market Segment Status: Shrinking Shrinking Growing Competitive Dynamic: Key Market Dynamics: * Based on consumer reported spending Narrow market with leading brands by season for key product segments Mass drives the market and most purchases are still brick & mortar focused Highly fragmented with few category specific brands and no leading national brands Purchases shifting from specialty stores to mass accounts and on-line sales Highly fragmented with category specific brands, but no leading national brands Increasing DI focus to address retailer margin pressure 9

10 Leadership Team with Diverse Experience Title Age Year Joined CSS Previous Roles / Employers Chris Munyan President and Chief Executive Officer CEO since 2006; Chief Operating Officer, President Berwick Offray John Roselli Executive Vice President and Chief Financial Officer years at TE Connectivity/Tyco in divisional CFO roles / investor relations; 6 years as analyst at Citigroup Carey Edwards Executive Vice President - Sales years in sales leadership roles at Calvin Klein and Elizabeth Arden Jack White Executive Vice President - Operations years in senior operations and supply chain roles at DuPont Cara Farley Executive Vice President - Marketing and Product Development years in senior marketing roles across branded consumer goods including Kids, Craft, Gift and Seasonal categories Jeff DeSandre Vice President - CIO years at First Quality Enterprises (2 yrs as CIO); 12 years in IT leadership roles at CSS, Deloitte and News Corp 10

11 Driven by Design We are the category leaders for many of our customers they come to us for input on design trends in our categories. We subscribe to top trend services, purchase reports and shop internationally throughout the year to identify trends. We attend a broad range of trade shows and seminars. We partner with top licensors and designers to compliment 11

12 Licensing Expertise is a Competitive Advantage Selected Properties Vogue Patterns Carter s NFL Disney Badgley Mischka Spode MLB Mattel Tracey Reese Fitlosophy NBA Marvel CLC Nickelodeon 12

13 Broad Manufacturing and Sourcing Capabilities 200+ Asia partner factories with broad capabilities 8 CSS factories manufacturing plastic extruded and woven ribbon, bows, waxed tissue, sewing patterns, and trims MANUFACTURING Excellence in managing complexity Leading Performance Category leading domestic Distribution Capability 3,000+ Orders Imported Direct to Retailers, 99% ontime Broad Market Coverage 13,000+ customers Retail, wholesale, on-line 50,000+ SKUs Numerous product categories 13

14 Coupled with Domestic Distribution is How We Win Domestic Replenishment - 6,000 ship-to locations - 2+ million order lines/month - $500 average order size DISTRIBUTION CENTERS - Lead-time < 2 weeks - >$300+ million revenue/year Retailers increasing pressure on suppliers to manage inventory and we are well positioned 14

15 Financial Overview

16 Financial Overview $ millions Net Sales Net sales expected to grow 10% to 12% primarily due to Simplicity and McCall Projected net loss in FY2018 largely driven by acquisition-related costs as well as the accounting treatment of acquired inventory Adjusted EBITDA growth primarily reflects contributions from acquisitions Net Income (GAAP) Adjusted EBITDA CSS Industries, Inc. All Rights Reserved

17 Sales History $ millions Growth driven by acquisitions in Craft CSS Industries, Inc. All Rights Reserved

18 Significant Capacity for Value Creation $ millions Strong balance sheet with solid annual cash flow generation Cash balance fluctuates due to seasonal working capital requirements; September quarter is typically the seasonal low point Available cash under credit facility Cash and cash equivalents and shortterm investments as of 12/31/17 $150 million credit facility with $48 million drawn as of 12/31 CSS Industries, Inc. All Rights Reserved

19 Capital Allocation Priorities 1. Distribute cash to shareholders via dividends $5.5 million paid through 9 months of FY18 $0.80 per share 2. Strategic Acquisitions in Craft / Celebrations Product tuck-ins Adjacent product categories 3. Share repurchase 303K shares authorized as of 9/30/17 To be utilized if cash cannot be deployed for value creating M&A CSS Industries, Inc. All Rights Reserved

20 Investment Highlights Long history of category leadership #1 or #2 in most categories Decades-long relationships with customers Trusted design partner and category leader Defendable business model Trusted design partner and licensing portfolio U.S. manufacturing capabilities Ability to handle SKU complexity and replenishment business model New leadership brings new ideas 4 of 6 senior leaders are new within the past two years Diversity of experience from large companies in the retail, chemicals and electronics industries Strong balance sheet and cash flow generation Strong cash flow generation historically Significant cash on hand and $102 million available under credit facility Low debt levels ($48 million as of 12/31) Disciplined buyer in fragmented industry CSS Industries, Inc. All Rights Reserved 2018 Long list of private equity or family-owned businesses that are expected to sell Challenging retail environment expected to reduce competition among buyers Significant value can be created from acquisitions at the right price 20

21 Appendix

22 Non-GAAP Reconciliation Year Ended March 31, Net (loss) income ($11.3) - ($9.1) $28.5 $17.2 Income tax (benefit) expense (3.9) - (3.1) Interest expense (income) (0.1) Other income (0.1) (0.0) (0.3) Depreciation and amortization Gain on bargain purchases 0.0 (20.0) 0.0 Acquisition integration and other Inventory step-up amortization Adjusted EBITDA $ $26.0 $ 25.1 $ 35.6 Use of Non-GAAP Measures and the Reconciliation of GAAP to Non-GAAP Measures In addition to the results reported in accordance with accounting principles generally accepted in the United States ( U.S. GAAP ) in this presentation, the Company has provided certain non-gaap financial information, specifically adjusted diluted EPS and adjusted EBITDA. These measures are non-gaap metrics that exclude various items that are detailed in the accompanying financial tables reconciling U.S. GAAP results to non-gaap results that are included in this presentation. Management believes that the presentation of these non-gaap financial measures provides useful information to investors because the information may allow investors to better evaluate ongoing business performance and certain components of the Company s results. In addition, the Company believes that the presentation of these financial measures enhances an investor s ability to make period to period comparisons of the Company s operating results. The presentation of our non-gaap measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. The Company has reconciled the non-gaap information included in this presentation to the nearest U.S. GAAP measures, as required under the rules of the Securities and Exchange Commission regarding the use of non-gaap financial measures. CSS Industries, Inc. All Rights Reserved