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Franklin Covey Co. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: July 3, 2012 03:22PM
Franklin Covey Co. (FC) filed Quarterly Report for the period ended 2012-05-26. Franklin Covey Co. has a market cap of $182.3 million; its shares were traded at around $10.47 with a P/E ratio of 25.6 and P/S ratio of 1.1.
Highlight of Business Operations:Our third quarter of each fiscal year includes the months of March, April, and May. The quarter ended May 26, 2012 was the strongest third quarter ever for our current business. Following the substantial increase in our business during the third quarter of fiscal 2011 (34% increase in sales over fiscal 2010), our fiscal 2012 financial improvements were less dramatic but were consistent with our expectations. For the quarter ended May 26, 2012, our consolidated sales increased $0.4 million, or 1 percent, to $41.3 million compared to $40.9 million in the third quarter of fiscal 2011. Improved sales, a slight improvement in our gross margin, and reduced depreciation and amortization expenses combined to produce an overall improvement in our operating results as we recognized income from operations of $3.4 million in the third quarter of fiscal 2012 compared with $2.9 million in the prior year. For the quarter ended May 26, 2012, we recognized pre-tax earnings of $2.8 million compared with $2.2 million in the prior year. Including the impact of income taxes as discussed below, our net income more than doubled to $1.6 million ($.09 per diluted share) in the third quarter of fiscal 2012 compared with $0.7 million ($.04 per diluted share) for the quarter ended May 28, 2011.
U.S./Canada Direct – This channel includes our four regional field offices that serve clients in the United States and Canada and our government services group. For the quarter ended May 26, 2012, sales through our four regional offices increased by $0.8 million, or five percent, compared to the prior year. Partially offsetting this increase were expected sales reductions from contracts with a governmental agency. Sales through our government services group decreased $0.6 million compared with the third quarter of fiscal 2011. However, during the third quarter of fiscal 2012 we won a renewal of these contracts with the governmental agency and we expect to continue to deliver training and consulting services under these contracts for the upcoming 12 months at similar levels to those delivered in fiscal 2012.
Selling, General and Administrative – Our selling, general, and administrative (SG&A) expenses increased $0.4 million compared to the prior year. The increase in SG&A expenses was primarily due to 1) a $0.7 million increase in advertising and promotion expense primarily for new strategic marketing initiatives; 2) a $0.6 million increase in non-cash share-based compensation expense primarily resulting from performance awards granted in fiscal 2011; and 3) a $0.5 million increase in non-capitalized development costs primarily related to our curriculums. These increases were partially offset by 1) a $0.6 million decrease in associate costs primarily due to reduced bonuses and commissions compared with prior year bonuses and commissions generated by the significant increase in sales during fiscal 2011; 2) a $0.1 million decrease in legal services resulting from the successful resolution of certain litigation during the second quarter of fiscal 2012; 3) a $0.1 million reduction in rent and utilities charges, resulting primarily from reduced telephone and communications expenses; 4) a $0.1 million decrease in outsourced service charges; and 5) ongoing cost reduction efforts in various other areas of our operations.
Our consolidated gross profit for the first three quarters of fiscal 2012 increased to $77.7 million compared to $74.0 million for the same period of fiscal 2011. For the first three quarters of fiscal 2012, our consolidated gross margin was 65.0 percent of sales compared to 63.9 percent for the corresponding period of fiscal 2011. The slight increase in gross margin was primarily due to increased book royalties in the first quarter of fiscal 2012 and increased licensee royalty revenues in the three quarters ended May 26, 2012.
Selling, General and Administrative – Our SG&A expenses increased $2.8 million compared to the prior year. As a percent of sales, SG&A expenses increased to 53.2 percent compared to 52.4 percent of sales in the first three quarters of fiscal 2011. The increase in SG&A expenses was primarily due to 1) a $2.0 million increase in non-cash share-based compensation costs, primarily resulting from performance awards granted in fiscal 2011; 2) a $1.6 million increase in advertising and promotional costs that were primarily related to the launch of our new productivity offering The 5 Choices to Extraordinary Productivity and the launch of new strategic marketing initiatives; and 3) a $0.9 million increase in associate costs resulting from increased commissions and bonuses on improved sales, and the addition of new personnel. These increases were partially offset by 1) a $0.8 million decrease in rent and utilities expenses primarily as a result of reduced rent expense at our Japan office and reduced telephone and communication expenses; 2) a $0.6 million decrease in legal expenses resulting primarily from the settlement of certain litigation and the reimbursement of previously expensed legal costs; and 3) $0.3 million of decreased professional services costs compared to the prior year.
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