Vistaprint, National Pen Slow Cimpress’ Fiscal Third Quarter Growth

Cimpress, the Dutch parent company of Waltham, Massachusetts-based distributor Vistaprint (PPAI 565755), and San Diego, California-based distributor National Pen Co. LLC (PPAI 107176), has released its financial results for the third quarter of its fiscal year 2019, noting a slowdown in year-over-year growth over the same period last year.

The company’s consolidated revenue grew four percent year-over-year in the quarter and its organic constant-currency revenue grew three percent, compared to 16 percent and 11 percent, respectively, in third quarter fiscal 2018. Cimpress attributes this to essentially flat revenue growth at Vistaprint and continued weakness in National Pen revenue growth, partially offset by a slight improvement in the trend for its Upload and Print businesses. However, Cimpress’ operating income was $29.6 million in third quarter fiscal 2019 versus $16.6 million in the same period last year and Adjusted Net Operating Profit (NOP) was $55.2 million, versus $25.3 million last year. It notes that Vistaprint was the largest contributor, largely driven by a reduction in advertising spend that the company believes was not achieving acceptable ROI.

Cimpress’ adjusted EBITDA (Earnings before interest, tax, depreciation and amortization) for the quarter was $88.9 million, up 29 percent from the same period last year, and its TTM (trailing twelve months) adjusted EBITDA was $347 million, up 13 percent from one year ago. Cimpress’ 2018 acquisition of BuildASign also benefited the company’s EBITDA.

Vistaprint's third quarter revenue growth was in line with revised expectations the company set last quarter when it announced leadership and other changes at the distributor. Reported revenue declined 2 percent and constant-currency revenue grew 1 percent. The company’s segment profits increased by $12.1 million year-over-year, and segment profit margin improved 380 basis points. This was largely driven by a $16.5 million, or 21.4 percent, year-over-year reduction in advertising spending as well as reductions in operating expenses, partially offset by gross margin compression resulting primarily from changes in product mix.

The reduction in advertising spending was one of a series of steps Cimpress shared in a March 1 investor call and reiterated in its third quarter financial report to restore Vistaprint to its foundational basics. Other steps it is taking include a simpler and cleaner customer experience; analytically-driven marketing, merchandising and pricing; and the development of a new ecommerce platform that it plans to launch in one of its smaller markets later this year, and then roll out to progressively larger markets over the following 18-24 months.

Cimpress reports that National Pen’s third quarter revenue growth was disappointing. Following strong performance in the prior fiscal year, it had increased its prospecting in the first two quarters of 2019 and drove new customer growth. However, these efforts were reduced in third quarter as the returns on its prospecting activities did not meet expectations. National Pen's revenue was also impacted by operational delays in the supply chain for direct-marketing mailings, and the company is looking for alternatives for campaigns to improve the company’s performance next fiscal year. National Pen is also working to strengthen its business through the use of data and technology, as well as new products, delivery options for customers and sales channels.

National Pen’s segment profit declined year-over-year by $2.1 million during third quarter and segment profit margin was down 260 basis points. Primary drivers of this were revenue weakness and accelerated investment in ecommerce technology and marketing teams, while currency also had a negative year-over-year impact on segment profit.

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