Gaiam, Inc. reported revenue for the first quarter ended March 31, increased 11.5% to $65.2 million from $58.5 million recorded in the same period last year. Revenue for Gaiam's direct to consumer segment increased 13.8% to $38.8 million. Revenue for Gaiam's business segment increased 8.2% to $26.4 million.
Gross profit increased to $41.0 million, or 62.9% of revenue, from $37.5 million, or 64.1% of revenue, in the comparable period last year. The change in gross margin reflects the company's investment in the lower margin solar business.
Operating income for the first quarter of 2008 increased 64.1% to $2.7 million, or 4.1% of revenue, compared to $1.6 million, or 2.8% of revenue for the first quarter of 2007. The increase reflects Gaiam's ability to leverage its infrastructure to deliver strong improvement in operating results, while continuing to invest in its community.
Interest income was $0.5 million for the first quarter of 2008 compared to $1.1 million during the first quarter of last year, reflecting Gaiam's repurchase of 2.5 million shares of its common stock and the decline in average interest rates received on its cash investments from 5.18% as of March 31, 2007 to 2.37% at March 31, 2008.
Net income increased 26.3% to $2.2 million, compared to net income of $1.8 million for the first quarter a year ago. Earnings per share increased 28.6% to $0.09 per share from $0.07 per share in the first quarter of 2007. Depreciation and amortization for the first quarter of 2008 was $2.5 million.
During the first quarter, Gaiam increased its branded store-within-store presentations to over 7,100 retail doors, up from 6,000 at the end of the first quarter of 2007, and grew its number of overall retail doors to 71,000 as of March 2008.
“We are very pleased with our first quarter results, marked by sales and profit growth even after continued investment in our business,” commented Lynn Power, Gaiam's President. “Our 2008 initiatives are performing well, including the initial expansion of our wellness media store-within-store and securing our new role as fitness category manager for certain retail partners including Target. Given the soft consumer spending environment, our continued success during this period, including delivering revenues above budgeted level, is a testament to the priority consumers are placing on high quality, socially responsible content and brands.”
During the first quarter, Gaiam completed its strategy in international markets to change to licensing arrangements by disposing of the company's ownership in its U.K. subsidiary. The transition from sales of products to licensing arrangements is expected to improve profitability, reduce complexity of operations, lower capital requirements and limit the impact of the weakness of U.S. currency. This change is expected to reduce reported international revenue by approximately $25.7 million, from $33.7 million recognized in 2007 to approximately $8 million in 2008. International license fees typically average between 20-25% of product revenues.
During the first quarter, Gaiam acquired SPRI Products, Carlson Solar, and the remaining 49.9% ownership in Conscious Enlightenment. The acquisition of SPRI expands Gaiam's distribution into the professional fitness market and the acquisition of Carlson Solar extended the solar division's geographic reach in Southern California. During the first quarter Gaiam also divested its non-LOHAS publications included as part of a previous acquisition. These first quarter 2008 acquisitions, less the publication divestiture, represented approximately $12.5 million of net revenue. Additionally, all companies acquired during 2007, if acquired as of January 1, 2007, would increase Gaiam reported 2007 revenues on a pro forma basis by approximately $10.9 million.
Including conversion of international product sales to licensing agreements, acquisitions and divestitures, Gaiam expects its revenues for 2008 including anticipated strong internal growth, to be approximately $300 million, up from $262.9 million reported in 2007.
“Since the beginning of the year we have delivered on several fronts in positioning Gaiam for continued earnings growth, while reporting strong operating results,” said Jirka Rysavy, Gaiam CEO. “At the end of the quarter, even after recent acquisitions and investments and before the $20 million repayment from our solar operation, our cash position remained strong at $48 million and no debt. Additionally, we have capitalized on our solar strategy unlocking additional shareholder value.”
Last week, Gaiam's solar subsidiary, Real Goods Solar, Inc. priced its $55 million initial public offering of Class A common stock. Approximately $20 million of the net proceeds will be repaid to Gaiam for loans provided to the Real Goods Solar business. In the offering, Real Goods Solar sold 5.5 million shares at $10 per share. Post-offering, Gaiam owns 10 million shares or approximately 65% of Real Goods and in excess of 80% of Real Goods' voting power.
