UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 31, 1998
Date of Earliest Event Reported: July 31, 1998
DEPARTMENT 56, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-11908 13-3684956
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
One Village Place, 6436 City West Parkway, Eden Prairie, MN 55344
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (612) 944-5600
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Item 5. Other Events.
CAUTIONARY DISCLOSURE FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
CONCERNING "FORWARD-LOOKING STATEMENTS"
A. Department 56, Inc. (the "Company") expects that net
sales and earnings for the fourth quarter of fiscal year
1998 may be lower than those results for the fourth
quarter of fiscal year 1997. This expectation is based
primarily on the Company's efforts to ship product to its
customers sooner, designed to allow retailers a greater
amount of time to present product to consumers in advance
of and during the Winter Holiday retail season. These
efforts have resulted in increased shipments in the
second quarter of fiscal 1998 and may result in increased
shipments again in the third quarter of fiscal 1998,
thereby leaving a reduced backlog available for shipment
during the fourth quarter of fiscal 1998. Based on the
Company's expectation for orders expressed in Paragraph D
below, this would result in reduced shipments to the
trade in the 1998 fourth quarter with respect to customer
orders that are to be fulfilled this year.
B. In the event that 1998 fourth quarter net sales and
earnings are lower than those for the comparable period
in 1997, the Company expects that 1998 fourth quarter
earnings per share (EPS) would be lower than 1997 fourth
quarter EPS. The Company's EPS result for fourth quarter
1998 will be affected, however, by any Company purchases
of its common stock, among other factors.
C. The Company expects that its full fiscal year 1998
Operating Margin Rate (i.e., the amount that Income from
Operations represents as a percentage of Net Sales) will
approximate or slightly exceed its Operating Margin Rate
achieved for the full 1997 fiscal year. This expectation
is based primarily on the Company's estimates that (1)
its 1998 full fiscal year Gross Margin Rate (i.e., the
amount that Gross Profit represents as a percentage of
Net Sales) will approximate or slightly exceed its 1997
full fiscal year Gross Margin Rate and (2) that its SG&A
Rate (i.e., the amount that its Selling, General &
Administrative expenses (SG&A) represent as a percentage
of Net Sales) for the entire 1998 fiscal year will
approximate or slightly exceed its 1997 full fiscal year
SG&A Rate. The Company's estimate expressed in clause (1)
is assumed primarily on an improved margin mix of product
shipped overall as well as benefit derived from direct
sales to Canada, consistent with the overall product mix
and Canadian benefit experienced in Gross Margin Rate
through the first 26 weeks of the 1998 fiscal year. The
Company's estimate expressed in clause (2) is based
primarily on increased marketing expenditures and
staffing.
D. The Company estimates that its customer order rate for
the full 1998 fiscal year may approximate, or decline by
one to two percentage points from, the customer order
rate experienced for the first 26 weeks of the 1998
fiscal year. The Company's
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estimate is based (1) primarily on the Company's belief
that a higher percentage of orders for product relating
to this year's Fall marketing events were received in
the first half of fiscal 1998 than comparable product
orders received in the first half of fiscal 1997, and
that consequently it is unlikely that the order growth
trend of the first half of 1998 can be matched against
the record level of orders received in the second half
of fiscal 1997, and (2) on the view that the impact on
the order growth rate for the full 1998 fiscal year
from customer orders during the second half of fiscal
1998 is bound to be moderated because historical
performance indicates that more than 80% of customer
orders are received by mid-year.
E. The Company has no basis on which to believe that the
medium-term growth for customer orders of its Village
Products will vary substantially from an annual growth
rate of 8% to 9%. The Company bases this view on the
assumption that the customer order rate experienced for
the first 26 weeks of fiscal 1998 accurately reflects an
annualized rate of growth in medium-term customer demand.
The Company is filing this Current Report on Form 8-K
solely in order to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 (the
"Act"). Readers are cautioned that each of the expectations and
estimates stated above constitute an expectation or estimate that
would be a "forward-looking statement" within the meaning of the
Act. However, to the extent that any such information (singularly
or in combination) or that any conclusion or expectation drawn
from such information would be a "forward-looking statement",
readers are cautioned that forward-looking statements involve
inherent risks and uncertainties and that a number of important
factors could cause actual results to differ materially from the
goals, strategies, prospects, sales, plans, objectives,
expectations, estimates, beliefs, views and intentions expressed
in such forward-looking statements. Such factors are discussed
below.
Readers are cautioned that dealer orders, Company revenue,
actual growth, SG&A and earnings per share are dependent on
numerous factors, including the amount, quality and market
acceptance of new product introductions, the timing and extent of
promotional and marketing efforts undertaken by the Company, and
retailer and consumer demand. Furthermore, dealer order patterns
have historically varied in number, mix and timing, and there can
be no assurance that the order trend experience year-to-date will
continue. Moreover, the statements above concerning customer
order growth are based, in part, on statistical research
conducted by or for the Company (conclusions from which have been
previously disclosed in the Company's press releases and April
30, 1998 Form 8-K), and assume that such findings are correct and
representative of market conditions as a whole.
Other factors (including: consumer acceptance of new
products; product development efforts; identification and
retention of sculpting and other artisan talent; completion of
third party product manufacturing; dealer reorders and order
cancellations; control of operating expenses; corporate cash flow
application; identification, completion and results of
acquisitions and other corporate development efforts; grants of
stock options or other equity equivalents: actual or
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deemed exercises of stock options; and industry, general
economic, regulatory and international trade and monetary
conditions) can significantly impact the Company's sales,
earnings, and earnings per share. Actual results may vary
materially from forward-looking statements and the assumptions on
which they are based. The Company cautions that the foregoing
list of factors is not exclusive and that other risks and
uncertainties may cause actual results to differ materially from
those in forward-looking statements. The Company undertakes no
obligation to update or publish in the future any forward-looking
statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
Date: July 31, 1998
DEPARTMENT 56, INC.
/s/ Mark R.Kennedy
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Mark R. Kennedy
Senior Vice President and
Chief Financial Officer
