Dover Saddlery Announces Fourth Quarter and Full Year 2013 Financial Results

LITTLETON, MA--(Marketwired - Mar 27, 2014) - Dover Saddlery, Inc. (NASDAQ: DOVR), the leading omni-channel retailer of equestrian products, today announced financial results for the fourth quarter and fiscal year ended December 31, 2013.

Fourth quarter results

Total revenues for the fourth quarter of 2013 increased 13.8% to $30.3 million over the same period in the prior year: Revenues from the retail channel increased 22.5% to $13.1 million, and revenues from the direct channel increased 8.0% to $17.2 million. Same-store sales increased 7.3% in the fourth quarter of 2013.

Net income for the quarter increased 33.0% to $1,331,000 or $0.23 per diluted share, from $999,000 or $0.18 achieved in the corresponding quarter of the prior year. "Dover Saddlery, as previously reported, had an extremely strong fourth quarter with very successful omni-channel promotions that led to an impressive 7.3% increase in same-store sales and an 8% increase in the direct channel," said Stephen L. Day, President and Chief Executive Officer. "We had an excellent in-stock situation during the holiday period and were able to ship out all our holiday orders on time."

Full Year Results

Total revenues for the fiscal year 2013 increased 8.7% to $93.8 million, from $86.3 million achieved during 2012.

As a result of the opening of new stores and same-store sales increasing 3.7%, retail store revenues increased 17.7% to $43.5 million. The company opened four Dover Saddlery retail stores during 2013, in Huntington, NY, Winter Park, FL, Austin, TX and Charlotte, NC, bringing the total number of retail stores to twenty-two. Revenues from the direct channel increased 2.0% to $50.3 million.

Net income for fiscal 2013 was $1,591,000, or $0.29 per diluted share, compared to $1,716,000, or $0.31 per diluted share, achieved in the fiscal year 2012. Adjusted EBITDA for the fiscal year 2013 was $5.0 million, compared to $4.9 million achieved in 2012. A reconciliation of the net income calculated in accordance with GAAP and the non-GAAP Adjusted EBITDA measure is provided in the table accompanying this press release.

During the twelve months ending December 31, 2013, breakage income of $120,584 was recognized compared to gift card breakage income of $607,892, including the cumulative impact of $441,362 that was recognized during the year ending December 31, 2012. On an as-adjusted basis, operating income (net of the cumulative impact of Gift Card Breakage Income) would have been $3,464,000 in 2013, compared to $3,296,000 in the prior year, an increase of 5.1% and Adjusted EBITDA would have been $5.0 million compared to $4.5 million in the prior year, an increase of 11.8%. For a reconciliation of the operating income calculated in accordance with GAAP and the non-GAAP operating and cash flow measure, see the table accompanying this press release.

Business Outlook

Dover Saddlery is planning to open four to six retail stores in 2014. Until there is greater long-term visibility on sustainable economic conditions and consumer behavior, the Company is not providing guidance on other business prospects.

Today's Teleconference and Webcast
Dover Saddlery will be hosting a conference call at 4:30 P.M. ET today to discuss the fourth quarter and full year 2013 results. Investors are invited to listen to the earnings conference call over the Internet through the company's website at http://investor.shareholder.com/DOVR/. This webcast will be archived for a year.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including without limitation statements made about the Company's business outlook for fiscal 2014, the prospects for overall revenue growth, profitability, consumer sentiment and the opening of new stores. All statements other than statements of historical fact included in this press release regarding the company's strategies, plans, objectives, expectations, and future operating results are forward-looking statements. Although Dover believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to have been correct. These forward-looking statements involve significant risks and uncertainties, including those discussed in this release and others that can be found in "Item 1A Risk Factors" of Dover Saddlery's Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Dover Saddlery is providing this information as of this date and does not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise. No forward-looking statement can be guaranteed and actual results may differ materially from those Dover Saddlery projects.

DOVER SADDLERY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
		Three Months Ended								Twelve Months Ended
		Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,
		2013				2012				2013				2012
Revenues, net- direct		$	17,171			$	15,906			$	50,346			$	49,378
Revenues, net - retail stores			13,088				10,688				43,497				36,964
Revenues, net - total		$	30,259			$	26,594			$	93,843			$	86,342
Cost of revenues			17,151				16,127				57,127				53,350
Gross profit			13,108				10,467				36,716				32,992
Selling, general and administrative expenses			10,537				8,589				33,252				29,255
Income from operations			2,571				1,878				3,464				3,737
Interest expense, financing and other related costs, net			150				148				576				538
Other investment loss, net			46				55				13				39
Income before income tax provision			2,375				1,674				2,875				3,160
Provision for income taxes			1,044				674				1,284				1,444
Net income		$	1,331			$	999			$	1,591			$	1,716
Net income per share
Basic		$	0.25			$	0.19			$	0.30			$	0.32
Diluted		$	0.23			$	0.18			$	0.29			$	0.31
Number of shares used in per share calculation
Basic			5,339,000				5,336,000				5,343,000				5,334,000
Diluted			5,703,000				5,476,000				5,548,000				5,509,000
Other Operating Data:
Number of retail stores(1)			22				18				22				18
Capital expenditures			579				523				1,891				2,184
Gross profit margin			43.3	%			39.4	%			39.1	%			38.2	%

(1)	Includes twenty-one Dover-branded stores and one Smith Brothers store.

DOVER SADDLERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
			Three Months Ended						Twelve Months Ended
			Dec. 31,			Dec. 31,			Dec. 31,			Dec. 31,
			2013			2012			2013			2012
Net income			$	1,331		$	1,000		$	1,591		$	1,716
Other comprehensive loss:
	Change in fair value of interest rate swap contract, net of tax			13			13			66			1
Total comprehensive income			$	1,344		$	1,013		$	1,657		$	1,717

DOVER SADDLERY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
			Dec. 31, 2013				Dec. 31, 2012
ASSETS
Current assets:
	Cash and cash equivalents		$	319			$	299
	Accounts receivable			1,300				1,778
	Inventory			23,633				19,915
	Prepaid catalog costs			974				784
	Prepaid expenses and other current assets			1,277				1,116
	Deferred income taxes			355				300
Total current assets				27,858				24,192
Net property and equipment				5,763				5,034
Other assets:
	Deferred income taxes			1,495				1,201
	Intangibles and other assets, net			758				784
Total other assets				2,253				1,985
Total assets			$	35,874			$	31,211
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Current portion of capital lease obligations and outstanding checks		$	290			$	337
	Current portion - Term notes			786				589
	Current portion - Capex term loan			630				--
	Accounts payable			2,352				1,837
	Accrued expenses and other current liabilities			7,201				6,348
	Income taxes payable			1,006				936
Total current liabilities				12,265				10,047
Long-term liabilities:
	Revolving line of credit			95				1,515
	Capex term loan, net of current portion			2,818				--
	Term notes, net of current portion			4,125				4,911
	Capital lease obligation, net of current portion			96				121
	Interest rate swap contract			189				320
Total long-term liabilities				7,323				6,867
Stockholders' equity:
	Common stock, par value $0.0001 per share; 15,000,000 shares authorized; 6,147,263 and 6,133,343 issued and 5,351,398 and 5,337,478 outstanding as of December 31, 2013 and December 31, 2012, respectively			1				1
	Additional paid in capital			46,304				45,973
	Treasury stock, 795,865 shares at cost			(6,082	)			(6,082	)
	Other comprehensive loss			(122	)			(189	)
	Accumulated deficit			(23,815	)			(25,406	)
	Total stockholders' equity			16,285				14,297
	Total liabilities and stockholders' equity		$	35,874			$	31,211

Non-GAAP Financial Measures and Information

From time to time, in addition to financial results determined in accordance with generally accepted accounting principles in the United States ("GAAP"), the Company provides financial information determined by methods other than in accordance with GAAP. The Company's management uses these non-GAAP measures in its analysis of the Company's performance and ongoing operations. The Company believes that these non-GAAP operating measures supplement our GAAP financial information and provide useful information to investors for evaluating the Company's operating results and trends that may be affecting the Company's business, as they allow investors to more readily compare our operations to prior financial results and our future performance. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

When we use the term "Adjusted EBITDA", we are referring to net income minus interest income, investment income and other income plus interest expense, income taxes, non-cash stock-based compensation, depreciation, amortization and other investment loss. We present Adjusted EBITDA because we consider it an important measure of our performance, and the Company ties its executive and employee bonus pools directly to this measure. We also believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

The following table reconciles net income to Adjusted EBITDA and Adjusted EBITDA without the cumulative impact of gift card breakage income (in thousands):

		Three Months Ended						Twelve Months Ended
		Dec. 31,			Dec. 31,			Dec. 31,			Dec. 31,
		2013			2012			2013			2012
Net income		$	1,331*		$	1,000*		$	1,591**		$	1,716**
Depreciation			319			249			1,162			873
Amortization of intangible assets			17			20			69			57
Stock-based compensation			91			65			310			251
Interest expense, financing and other related costs, net			150			148			576			538
Other investment loss, net			46			55			13			39
Provision for income taxes			1,044			674			1,284			1,444
Adjusted EBITDA		$	2,998*		$	2,211*		$	5,005**		$	4,918**
Cumulative impact of gift card breakage income			--			--			--			441
Adjusted EBITDA w/o the cumulative impact of gift card breakage income		$	2,998*		$	2,211*		$	5,005**		$	4,477

(*)	For the three months ended December 31, 2013 gift card breakage income was $30,146. For the three months ended December 31, 2012 gift card breakage income was $41,632.
(**)	For the twelve months ended December 31, 2013 gift card breakage income was $120,584. The twelve months ended December 31, 2012 includes the cumulative impact of the change in accounting for gift card breakage income of $441,362 plus gift card breakage income for the period of $166,530.

The following table reconciles operating income to Adjusted Operating Income without the cumulative impact of gift card breakage income (in thousands):

		Three Months Ended						Twelve Months Ended
		Dec. 31,			Dec. 31,			Dec. 31,			Dec. 31,
		2013			2012			2013			2012
Operating income		$	2,571		$	1,878		$	3,464		$	3,737
Cumulative impact of gift card breakage income			--			--			--			441
Adjusted Operating Income		$	2,571		$	1,878		$	3,464		$	3,296