ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
Results of Operations
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Comparison of Third Quarter 1999 and Third Quarter 1998
The third quarter of 1999 resulted in a net loss of $732,400 as compared to net
income of $2,588,455 for the third quarter of 1998. However, the third quarter
of 1998 included income from non-recurring insurance proceeds of $2.8 million.
Net of the insurance proceeds, the third quarter of 1998 resulted in a net
operating loss of $211,545. The third quarter of 1999 was negatively impacted by
the disposition of excess inventory (approximately $1.6 million pre-tax
inventory writedown and increased volume of sale-priced offerings) and by
increased postage costs (approximately $.9 million pre-tax). These increased
costs were primarily reflected in cost of goods sold and advertising expense.
Net sales for the third quarter of 1999 were approximately the same (down .2%)
as net sales for the third quarter of 1998. Overall, response rates in the third
quarter of 1999 were slightly higher than in the third quarter of 1998 and were
at expected levels for 1999. Gross sales revenue generated per advertising
dollar increased approximately 4.3% in third quarter 1999 as compared to third
quarter 1998. The total number of orders shipped increased slightly and the
average order size decreased slightly in the third quarter of 1999 from the
third quarter of 1998. The provision for returned merchandise as a percentage of
gross sales decreased approximately 6% in the third quarter of 1999 as compared
to the third quarter of 1998 primarily due to the Company's efforts to improve
product quality.
Other income increased 2.6% in the third quarter of 1999 as compared to the
third quarter of 1998. Commissions earned on continuity programs were primarily
responsible for the increased other income.
There were no insurance proceeds in 1999. Insurance proceeds in the third
quarter of 1998 were the result of the Company owned term life policy on John L.
Blair, former President and Chairman of the Company. John died on August 29,
1998.
Cost of goods sold as a percentage of net sales increased to 53.7% in the third
quarter of 1999 from 51.6% in the third quarter of 1998. Cost of goods sold has
been negatively impacted by the disposition of excess inventory (approximately
$1.6 million pre-tax inventory writedown) and by increased shipping (postage)
costs. Excess inventory had resulted from the Company's transition to a larger
catalog operation and lower than expected response in the fourth quarter of 1998
and the first quarter of 1999.
Advertising expense in the third quarter of 1999 decreased 4.9% from the third
quarter of 1998. Increased catalog mailings and postal rates were more than
offset by decreased letter mailings and co-op and media volume.
The total number of catalog mailings released in the third quarter of 1999 was
3% higher than in the third quarter of 1998 (35.4 million vs. 34.2 million).
Catalog mailings from all three product lines, including combined product line
offerings, are continually reviewed as to mailing frequency, page density,
product content, number of pages and trim size.
