990729 Non-Meat Gardenburger Sales Down

Portland, OR - Slumping sales pulled second quarter earnings for Gardenburger Inc. down 69% from the same period last year, when the maker of veggie-burgers achieved record sales following a nationwide advertising blitz that included a spot on the final episode of “Seinfeld.”

The company said it was disappointed with the results and scaled back its sales projections for this year and next. It said it lacks the funds for a national television ad campaign for the time being.

On the news, Gardenburger fell by 20%, or by $1.50, to an all-time closing low of $5.87 1/2 a share on the Nasdaq Stock Market.

Executives also said that even if last year's sales were not sustained, they did not regret a gamble last year that bet the company's advertising budget on a quirky TV commercial blitz that immediately pumped up business.

The $17 million campaign included a series of animated commercials, narrated by actor Samuel L. Jackson. One of the earliest ads in the series ran during the highly rated final episode of “Seinfeld.” It helped put 140,000 burgers on store shelves in 1998, compared with the 20,000 it had on the market in 1997.

Gardenburger reported Friday that sales for the second quarter of this year dropped to $22.2 million from $25.7 million in the same quarter last year, when the ad ran on “Seinfeld.”

The Portland-based company posted a loss of $10.4 million, the equivalent of $1.29 a share, in the quarter ended June 30, compared with a loss of $6.2 million, or 72 cents a share, a year earlier.

“Last year is a pretty tough comparison,” said Richard Dietz, the chief financial officer. “We generated a lot of publicity with the 'Seinfeld' ad and really had skyrocketing sales.”

Even with sales sagging a year later, Dietz says the campaign was well worth it at the time.

“Our repeat rate is about 40%,” he said. “So of all the consumers that we brought in with the ads, many are staying with us.”

But some marketing analysts said last year's campaign was a financial bungle that Gardenburger is still paying for.

“It got them a small bump in sales,” said Gary Stibel, of the Westport, Conn.-based New England Consulting Group. He said good advertising sustains a long-term improvement in the bottom line and shouldn't give way to steady decline.

“They absolutely didn't get their money's worth,” he said.

Dietz admitted the company used the same ad this year and failed to generate the same kind of success. But he blamed that, in part, on a flat market for all vegetarian burgers.

This year, the overall market declined by 1%, although Gardenburger's share of the market rose by 2%, Dietz said.

Gardenburger has no plans to advertise nationally in the short term.

“We're constrained financially right now from advertising until we can do it and make money at the same time,” Dietz said.

With the slowdown in business, Gardenburger lowered its sales expectations for 1999 and 2000, Dietz said. Instead of focusing on aggressive market growth, the company will emphasize profitability and cash flow, he said.

“We are disappointed by our second-quarter results,” said Lyle Hubbard, Gardenburger's chief executive officer. “Our aggressive growth plan was dependent upon our ability to accelerate consumer trial of the Gardenburger brand and the veggie burger category.”

The company now distributes its flagship meatless hamburger-shaped patty to more than 35,000 food service outlets throughout the United States and Canada and employs approximately 300 people.

For the first half of this year, losses widened by almost 52% as sales fell nearly 8% from a year earlier.

Gardenburger reported a loss of just under $16 million, or $1.92 a share, in the first six months of 1999, compared with a loss of $10.5 million, or $1.22 a share, a year earlier. Sales slid to $35.8 million from $38.8 million.

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