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Steiner Leisure Limited Q1 2010 Earnings Call Transcript

Steiner Leisure Limited Q1 2010 Earnings Call Transcript

Steiner Leisure Limited (STNR)

Q1 2010 Earnings Call

April 29, 2010 11:00 am ET


Clive Warshaw - Chairman

Steven Lazarus - Chief Financial Officer


Sharon Zackfia - William Blair

Assia Jagefa - Infinity Research

Steven Wieczynski - Stifel Nicolaus



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Good morning and thank you for standing by, and welcome to the first quarter earnings call. At this time all participants are in a listen-only mode. After the presentation we will conduct a question-and-answer session. (Operator Instructions)

I would like to introduce to your host for today’s conference Mr. Clive Warshaw, Chairman of Steiner; you may begin.

Clive Warshaw

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Thank you very much. Good morning ladies and gentlemen, and I’d like to welcome you all to our first quarter 2010 earnings call, and I’d like to know hand you over to Leonard, who will take over from me.

Leonard Fluxman

Thank you Clive. Good morning everyone, and thank you for joining us this morning for Steiner Leisure’s 2010 first quarter earnings call. With me today is Steven Lazarus our Chief Financial Officer, and before we get into our results and my comments about the current operating environment, I’d like to remind you that during this call we may make forward-looking statements within the meaning of the Federal Security Laws.

These statements reflect our current views about future events, do not guarantee future performance, and are subject to risks and uncertainties which may cause our actual results to differ materially from those expressed in or implied by such forward looking statements. Examples of these risks are described in our Form 10-K for 2009 and our other SEC filings.

I will start as usual with an overview of the business and results of the quarter, followed by an analysis of the performance by segment. I will hand you over to Stephen Lazarus our CFO to give you the breakdown on specific balance sheet items, debt, cash on hand, any stock repurchase updates, CapEx during the quarter, and other pertinent balance sheet data. We will also address guidance for the third quarter and for the year, and then turn it over for our regular Q&A.

This is a first quarter we are reporting results that include the Blitz acquisition, which we closed on December 31, 2009. Results of the Blitz’s operations are included primarily in three areas, specifically in land based spa operations, third party spa product sales, and obviously all of the SG&A expenses related to the Blitz operations.

Total revenues for the first quarter increased 24.6% quarter-over-quarter, gross profit increased by 43.3% quarter-over-quarter, with service margins declining 30 basis points quarter-over-quarter, primarily attributable to better than expected performance of our school segment, offset by lower service margins in our land based spa operations.

Product margins increased 930 basis points, primarily driven by increase sales in third party channels, and a benefit of 320 basis points attributable to FX gains. Gross margin improved by 320 basis points to 24.2%. Operating margin improved by 80 basis points quarter-over-quarter, despite the inclusion of a negative impact of $2 million of FX expense.

Our Cruise ship spa division improved for the first time in 18 months. This continued to be value focused, and discounting continued to be an integral part of consumer expectations on some or all of our port days. Yield management initiatives are still needed to drive demand and improve revenue cruise-to-cruise. We still face a guest on board that is reluctant to impulse shop as much as they have done so in the past.

That being said, we did see a very moderate up-tick in spend on retail products in the attachments in this quarter. Total revenue increased 8.3% quarter-over-quarter. The increase in revenue drove stronger productivity metrics across both our spa and non-spa ships.

Average weekly revenue in all ships increased 10.7% quarter-over-quarter. Average weekly revenues from spa ships increased by 4% quarter-over-quarter, with non-spa ships increasing by 31.8% quarter-over-quarter. Gross revenue for spa per day improved by 7.6%, and this was derived by revenues per staff per day on spa ships increasing by 6%, and non-spa ships increasing by 20.3%.

Our next quarter we will commence operations on Celebrity’s second Solstice class vessels, The New Eclipse, and we finally made our way back to doing business with P&O UK which I am pleased to report; by winning the concession away from our competitor Harding Brothers Onboard Spa Division, to operate the new P&O Azura.

Turning to land-based spa operations. The land-based spa operations divisions grew revenue 62.5% quarter-over-quarter, primarily due to the inclusion of the Blitz spas. While certain of our land based spas experienced improvement in this quarter, there are so many that continue to experience a cheaper guest, who are not trying to spend money in the spa as an amenity.

Our average weekly revenue in land-based spas increased by 24.1% quarter-over-quarter. Our third party products divisions performed well in this quarter, with revenue growing 76% quarter-over-quarter. This increase was primarily driven by the inclusion of the Blitz numbers. It was covered with strong performance from our Elemis division. Our third party products division now accounts for almost 17% of our total revenues.

Last year we turned to Steiner Education Division. This division once again delivered strong results in the quarter. Revenues increased by 15.3% quarter-over-quarter, primarily due to a higher number of enrollments and increased student populations at our schools this year versus last year at the same time.

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