Europe-based Cimpress (asi/162149), the parent company of Vistaprint and Top 40 distributor National Pen (asi/281040), increased revenue 16%, but experienced declines in gross margin, net operating profit and income per diluted share in the second quarter of its fiscal year 2017, the company said Wednesday. In a statement, Cimpress also announced a sweeping plan to decentralize operations – an initiative that will, principles say, increase efficiencies, customer service and cost-savings, but also result in layoffs. Additionally, the firm told Counselor that National Pen, which Cimpress acquired in December, increased revenue 10% in calendar year 2016.
According to data on earnings, Cimpress’ revenue for the three months ending December 31 tallied $576.9 million – a 16% rise over the same quarter the prior year. Excluding currency exchange rate fluctuations and revenue from recently acquired businesses, revenue increased 8% compared to Cimpress’ fiscal Q2 2016.
While revenue rose, gross margin dropped from 60.2% in the previous fiscal year’s second quarter to 52% in the same period for 2017. Net operating profit after tax also fell – from $82.5 million, or 16.6% of revenue, to $50.6 million, or 8.8% of revenue, in this fiscal year’s Q2.
Cimpress said a variety of factors affected margins, including: Increased weighting of upload and print business units; planned investments in cost of revenue; production and outsourcing inefficiencies during the holiday peak season; and significant unfavorable currency changes. Income from operations was $33.7 million in the quarter versus $67.6 million the previous year.
Despite the declines, CFO Sean Quinn said that Cimpress is on the right track for profitable growth. “We remain confident that our investments will strengthen our competitive position and improve the intrinsic value of our business,” he said.
Cimpress’ extensive decentralization plan is also giving executives cause for optimism. The initiative calls for transferring about 3,000 team members from company-wide central groups into more independently functioning business units or related portfolio management teams. Executives say the restructuring will improve accountability for customer satisfaction and capital returns, simplify decision-making, and enhance speed of execution, among other positives. Once fully completed, decentralizing will lead to annualized pre-tax operating expense savings of approximately $55 million to $60 million, Cimpress reported.
Even so, the restructuring will result in approximately 160 employees from Cimpress’ nearly 10,000-person workforce being let go. Four executives are among those departing. “Even though these changes are the right thing to do for the future of Cimpress, it was a difficult decision that we did not take lightly due to the job loss for many highly capable colleagues,” said CEO Robert Keane. “I would like to express my heartfelt respect, empathy and gratitude to each of the people, at all levels, who will leave Cimpress.”
One person who isn’t going anywhere is Peter Kelly. The chief executive officer for National Pen, the 10th largest distributor by revenue in the promotional products industry, is joining Cimpress’ executive team. Kelly’s appointment comes following National Pen’s strong performance in calendar year 2016. The distributor’s 2016 sales increased 10% to $278 million, Meredith Mendola Burns, Cimpress’ VP of investor relations, told Counselor. Overall, Cimpress generated $1.78 billion in fiscal year 2016 revenue, with 20% year-over-year growth. Vistaprint, which along with customizable print items also sells promo products, accounted for $1.22 billion in revenue for the fiscal year, growing 6% over the previous year.