CSS Industries Announces Restructuring Plan and Additional Measures to Improve Its Business and Financial Performance

Company revises fiscal 2019 guidance and provides fiscal 2020

Key Highlights

  • Total cost base to be reduced by approximately $20 million, net of
    restructuring costs
  • Salaried workforce to be reduced by approximately 12 percent

PLYMOUTH MEETING, Pa.–(BUSINESS WIRE)–CSS Industries, Inc. (NYSE: CSS) announced today a comprehensive
restructuring plan to significantly reduce its cost base, while
streamlining the organization in a manner designed to improve business
performance, profitability and cash flow generation. Development of this
restructuring plan initially began in connection with the Company’s
previously announced management project.

Under the restructuring plan, ongoing run-rate spending (primarily
attributable to selling, general and administrative expense) is expected
to be reduced approximately $22 million by the end of fiscal 2020,
representing an approximate 10 percent reduction in total spending. Half
of the total savings are expected to be generated from an approximate 12
percent workforce reduction. The remainder of the total savings will be
driven through the implementation of aggressive cost savings initiatives
across the organization, though heavily focused on its legacy business.
Associated with this change, the Company expects to record a
restructuring charge of approximately $2 million, mainly attributable to
severance costs to be incurred during the first quarter of the Company’s
fiscal 2020.

The restructuring plan will focus on implementing actions directly
resulting from the Company’s previously announced management project,

  • The rollout of an Active SKU Management (ASM) and New Item Creation
    (NIC) process, which we expect will significantly improve existing
    processes around product life-cycle management and new product
    development. This approach will focus on product line simplification
    and SKU reductions through the implementation of economic value add
    (EVA) concepts within our existing product lines.
  • The implementation of the new processes identified by the management
    project will result in a reduction of SKU complexity and drive more
    standardization of products and processes, which we expect will reduce
    run-rate spending around product development, samples procurement,
    catalog development and product sourcing initiatives. Currently, we
    have identified approximately 7,000 SKUs to be eliminated, which is
    approximately 14% of our total SKUs.
  • We expect to realize lower sales from these initiatives as we exit
    under-performing SKUs, as well as the previously announced exit of our
    sports-licensed back-to-school product line; however, we do not expect
    an impact to profit, as the sales volume reduction will be offset by
    cost saving initiatives. In addition, we anticipate that these changes
    will contribute to enhancements of free cash flow through lower
    inventories. We estimate these initiatives will result in an
    approximate $10 million decline in fiscal 2020 sales.

The roll-out of these initiatives is expected to drive enhanced
efficiencies across the business and further serve to improve the
alignment between sales, marketing and operations.

The announced restructuring is a comprehensive plan developed over the
last several months, seeking to address the ongoing declines within our
legacy categories and to implement steps and strategies necessary to
drive the business forward,” commented Christopher J. Munyan, President
and Chief Executive Officer. “We are taking immediate and decisive
actions to execute this plan and to address the cost base. These changes
will further optimize our cost base, while ensuring we maintain and
focus on our core capabilities. In addition, we continue to work on
other initiatives to drive shareholder value.”

Fiscal 2019 Outlook

The Company is adjusting its outlook for fiscal 2019 full year net sales
and adjusted EBITDA to reflect continued erosion within its
replenishment craft and gift businesses.

The Company now expects net sales for its fiscal 2019 to be in the range
of $381 million to $383 million, resulting in year over year growth of 5
percent to 6 percent. Our previous fiscal 2019 net sales guidance was in
the range of $390 million to $400 million. The driver of the growth will
be the full year impact of the Simplicity acquisition, partially offset
by a decline in the Company’s base business, specifically weak
replenishment sales within Craft and Gift.

Adjusted EBITDA* for fiscal 2019 is now expected to be in the range of
$14.5 million to $15.5 million compared to $24.3 million in fiscal 2018.
Our previous fiscal 2019 adjusted EBITDA guidance was in the range of
$21 million to $23 million. The decline in adjusted EBITDA reflects
continued erosion in base business sales, higher manufacturing variances
and higher technology costs, partially offset by the full year
contribution of Simplicity sales, acquisition integration synergies and
operating expense reductions within the base business.

Our legacy business continues to experience erosion across our Craft,
Gift and Seasonal categories,” commented Mr. Munyan. “More recently,
we’ve seen a continued downturn in our replenishment businesses within
Craft and Gift, reflecting lower reorders from our retailers. We believe
that the declines in sales are not reflective of share losses, but
rather are driven by our customers more tightly managing their inventory
levels around slow-turn categories within brick-and-mortar retail.”

Fiscal 2020 Outlook

While we are planning for continued declines in net sales in fiscal
2020, we expect significant improvements in adjusted EBITDA and free
cash flow,” said Mr. Munyan. “We anticipate continued sales erosion in
our legacy business, driven by brick-and-mortar retail, as well as
through our SKU rationalization. In addition to our restructuring plan
currently being executed, we will continue to review and address our
cost structure, including assessing the viability of underperforming
product lines and/or categories. Our near-term strategy will remain
focused around the stabilization of our existing business’s revenue and
cash flow, while we address cost savings initiatives and continue to
closely monitor debt levels. This focus will allow us to further
stabilize the base business, while growing EBITDA and improving working

The Company expects to generate net sales of $355 million to $365
million in its fiscal year ending March 31, 2020, resulting in
year-over-year erosion of -4 percent to -7 percent, all driven by
declines within its core business, partially offset by flat to moderate
sales growth in our Simplicity and McCall businesses.

Adjusted EBITDA* for fiscal 2020 is expected to be in the range of $21
million to $24 million, compared to a range of $14.5 million to $15.5
million in fiscal 2019. The expected growth in adjusted EBITDA primarily
reflects the anticipated realization of cost savings initiatives,
partially offset by lower sales volumes within our core businesses,
commodity and freight inflation and expected higher manufacturing

Free cash flow*, defined as operating cash flow minus capital
expenditures, for fiscal 2020 is expected to be in the range of $14
million to $18 million, compared to expected fiscal 2019 negative free
cash flow in the range of -$9 million to -$11 million. The resulting
improvement is driven by cost savings initiatives, improvements in
working capital, primarily lower inventories, and reduced capital

* This non-GAAP financial measure is not reconciled to the comparable
GAAP financial measure because such GAAP measure is not accessible on a
forward-looking basis. The Company is unable to reconcile this
forward-looking financial measure to the most directly comparable GAAP
measure without unreasonable efforts because the Company currently is
unable to predict with a reasonable degree of certainty the type and
extent of certain items that would be expected to impact GAAP measures
for these periods but would not impact the non-GAAP measure. The
unavailable information could have a significant impact on the Company’s
GAAP financial results.

About CSS Industries, Inc.

CSS is a creative consumer products company, focused on the craft, gift
and seasonal categories. For these design-driven categories, we engage
in the creative development, manufacture, procurement, distribution and
sale of our products with an omni-channel approach focused primarily on
mass market retailers. Our core products within the craft category
include sewing patterns, ribbons, trims, buttons, and kids crafts. For
the gift category, our core products are designed to celebrate certain
life events or special occasions, with a focus on packaging items, such
as ribbons, bows, bags and wrap, as well as stationery, baby gift items,
and party and entertaining products. For the seasonal category, we focus
on holiday gift packaging items including ribbons, bows, bags, tags and
gift card holders, in addition to specific holiday-themed decorations
and activities, including Easter egg dyes and Valentine’s Day classroom
exchange cards. In keeping with our corporate mission, all of our
products are designed to help make life memorable.

Forward-looking Statements

This press release includes “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, among others, statements related to the Company’s:
restructuring plan, including statements relating to future reductions
to the Company’s cost base and salaried workforce, future restructuring
costs, expected future improved business performance, profitability and
cash flow generation, the future rollout of new business processes and
the expected results from those processes; and the Company’s current
outlook for net sales, adjusted EBITDA and free cash flow for fiscal
2019 and fiscal 2020, respectively.

Forward-looking statements are based on the beliefs of the Company’s
management as well as assumptions made by and information currently
available to the Company’s management as to future events and financial
performance with respect to the Company’s operations. Forward-looking
statements speak only as of the date made. The Company undertakes no
obligation to update any forward-looking statements to reflect the
events or circumstances arising after the date as of which they were
made. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including without limitation, risks associated with the Company’s
restructuring plan, including the risk that the Company may not
successfully execute on its restructuring plan and the risk that
execution of the restructuring plan will not yield favorable results;
risks associated with management projects, including the risk that
anticipated future savings may not be realized in the amounts currently
expected, or at all; risks associated with omni-channel and other
initiatives, including the risk that expected the benefits from such
initiatives may not be realized; risks associated with integration
initiatives, including the risk that expected future savings and/or
synergies will not be realized in the amounts currently expected, or at
all; inherent uncertainties associated with forecasting future net
sales, net income, adjusted EBITDA, and free cash flow; execution risks
that may impact the Company’s ability to achieve the levels of net
sales, adjusted EBITDA and free cash flow currently forecasted for
fiscal 2020; risks associated with the Company’s previously announced
plan to exit a product line and restructure the specialty gift product
line; risks associated with the recent consolidation of certain
operations in the United Kingdom and Australia; risks associated with
the base business, including the risk that currently forecasted base
business sales may not be achieved; general market and economic
conditions; increased competition (including competition from foreign
products which may be imported at less than fair value and from foreign
products which may benefit from foreign governmental subsidies);
information technology risks, such as cyber attacks and data breaches;
increased operating costs, including labor-related and energy costs and
costs relating to the imposition or retrospective application of duties
on imported products; currency risks and other risks associated with
international markets; risks associated with acquisitions, including
difficulties identifying and evaluating suitable acquisition
opportunities, acquisition integration costs and the risk that the
Company may not be able to integrate and derive the expected benefits
and synergies from acquisitions; the risk that customers may become
insolvent, may delay payments or may impose deductions or penalties on
amounts owed to the Company; costs of compliance with governmental
regulations and government investigations; liability associated with
noncompliance with governmental regulations, including regulations
pertaining to the environment, Federal and state employment laws, and
import and export controls and customs laws; uncertainties associated
with projecting the impact on the Company of new tariffs on products
imported from China; and other factors described more fully in the
Company’s annual report on Form 10-K and elsewhere in the Company’s
filings with the Securities and Exchange Commission. As a result of
these factors, readers are cautioned not to place undue reliance on any
forward-looking statements included herein or that may be made elsewhere
from time to time by, or on behalf of, the Company.



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