The Yankee Candle Company, Inc. High Yield - Corporate-ir

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The Yankee Candle Company, Inc.
High Yield Conference Presentation
March 2007
Management Presenters
Bruce Besanko
SVP and Chief Financial Officer
Confidential
2
Safe Harbor
This material contains certain information constituting “forward-looking statements” for purposes
of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. Forwardlooking statements include but are not limited to the statements contained herein with respect to
management’s current estimates of the Company’s financial and operating results for Fiscal 2007
and any other statements concerning the Company’s or management’s plans, objectives, goals,
strategies, expectations, estimates, beliefs or projections, or any other statements concerning future
performance or events. Actual results could differ materially from those indicated by these forwardlooking statements as a result of various risks and uncertainties, including but not limited to the
following: the impact of our recent merger with an affiliate of Madison Dearborn Partners LLC on
our financial and operating results; the risk that the substantial indebtedness incurred in connection
with the merger, and the debt agreements entered into in connection therewith, might restrict our
ability to operate our business and pursue certain business strategies the risk that we may not be
able to generate sufficient cash flows to meet our debt service obligations; the current economic
conditions in the United States as a whole and the continuing weakness in the retail environment;
the risk that we will be unable to maintain our historical growth rate; the effects of competition
from others in the highly competitive giftware industry; our ability to anticipate and react to
industry trends and changes in consumer demand; our dependence upon our senior executive
officers; the risk of loss of our manufacturing and distribution facilities; seasonal, quarterly and other
fluctuations in our business; the risk of any disruption in wax supplies; and other factors described or
contained in the Company’s most recent Quarterly Report on Form 10-Q or Annual Report on
Form 10-K on file with the Securities and Exchange Commission. Any forward-looking statements
represent our views only as of today and should not be relied upon as representing our views as of
any subsequent date. While we may elect to update certain forward-looking statements at some
point in the future, we specifically disclaim any obligation to do so even if experience or future
events may cause the views contained in any forward-looking statements to change.
Confidential
3
Transaction Overview
Transaction Overview
On October 24, 2006, Madison Dearborn Partners agreed to purchase
The Yankee Candle Company, Inc. for approximately $1,593 million(1),
representing an 8.7x purchase price multiple based on FY2006 EBITDA of $184
million as of December 30, 2006
MDP funded the Transaction as follows
¾
New $775 million of Senior Secured Credit Facilities
($650 million Term Loan Facility and $125 million Revolving Credit Facility)
¾
New $325 million Senior Notes
¾
New $200 million Senior Subordinated Notes
¾
Significant equity contribution totaling approximately $418 million
MDP is one of the largest and most active private equity investment firms in the
United States, currently managing in excess of $14 billion of capital
MDP’s representative past and present portfolios include: Cinemark, Cornerstone
Brands, Pierre Foods, Ruth’s Chris, Tuesday Morning and Wm. Bolthouse Farms
(1) Includes net debt of $117 million.
Confidential
5
Company Overview
Diversified Multi-Channel Business Model
Leading premium scented candle brand with 4x
the market share of its nearest competitor (1)
Leading designer, innovator and branded
marketer of premium scented candles,
accessories and non-candle fragrance products
2006
2006Revenues
Revenuesby
bySegment
Segment
Retail
54% (2)
Wholesale
46%
Integrated, multi-channel business model
¾
Strong retail model – 400+ stores
¾
Attractive and growing wholesale division
– both domestically and internationally
¾
High growth Consumer Direct business
Efficient manufacturing and distribution
infrastructure
2006
2006Contribution
Contributionby
bySegment
Segment
Retail
45% (2)
Wholesale
55%
“Tuck-in” acquisitions include: Illuminations
(July 2006), Aroma Naturals (November 2005)
and GBI Marketing (June 2004)
(1) Source: Kline 2005 Home Fragrance Study and Company analysis.
(2) Includes Illuminations.
Confidential
7
Evolution of Yankee Candle
1969–1998
Entrepreneurial
1999–2000
Public Company
Transformation
Founder-led
IPO, July 1999
Build a business
Begin to build
public company
infrastructure
Scale the business
Establish the brand
Accelerate retail
store growth
2001–2004
2005–2009
Build the Brand
Unlock the Full
Potential of
the Core Candle
Category
Leverage multichannel model
Reenergize the
“core”
Grow premium
brand position
Expand into new
channels of
distribution
Leadership in the
premium scented
candle market
Innovation beyond
candles
Expand
geographically
Evolve premium
home fragrance
competency
Confidential
8
Key Credit Strengths
Leading premium scented candle brand with dominant, consistently growing market share
Multi-channel strategy enables Company to effectively capture industry growth
Highly attractive industry and favorable consumer trends
Vertically-integrated business model is a competitive advantage
Solid historical financial performance, highly productive business model, strong free
cash flow generation and significant momentum
Experienced and broad-gauged management team
Confidential
9
Leading Premium Scented Candle Brand with
Dominant Market Share
Leading and growing market share
¾
¾
¾
Village
Candle
3.7%
4x the market share of nearest competitor
¾
#1 in conversion
¾
#1 in candle purchase penetration
#1 quality ranking
Bath and
Body Works
9.0%
Growing
GrowingPremium
PremiumScented
ScentedMarket
MarketShare
Share
#1 in unaided awareness
#1 in category awareness
Yankee
Candle
43.4%
Blyth
3.7%
19 share point increase since 1998
¾
¾
Other
competitors
32%
#1 ranked premium scented candle; 43%
market share
Among all premium scented candle
manufacturers, Yankee is:
¾
2005
2005Premium
PremiumScented
ScentedMarket
MarketShare
Share
31.7%
2001
37.3%
2002
41.8%
42.2%
43.4%
2003
2004
2005
Source: Company Attitude & Usage study and leading consulting firm study 2006; 2006 Stax Buyer Survey;
Kline 2005 Home Fragrance Study and Company analysis.
Confidential
10
Strong Wholesale Relationships with Leading Retailers
Partner of choice among wholesale accounts
¾
Continuously ranked #1 in gift store sales
¾
Among top vendors at nearly all key accounts
¾
~59% of accounts have been customers for >5 years
Yankee’s Wholesale Partners
Confidential
11
Multi-Channel Strategy Enables Company to
Effectively Capture Industry Growth
Retail Store Type
Channels of Distribution

Retail stores

Wholesale

Catalog

Internet

Mall
Off-mall
Tourist locations
Flagships
Outlets
Wholesale Channels

Specialty stores

Independent gift stores

Department stores

Premium mass

Fundraising organizations

International (distributors and
direct)
$6.2 Billion Home
Fragrance Industry
Products

71% candles / 29% beyond
candles (1)
Scented and unscented
Pillars, jars, votives, etc.
Impulse, repeat purchase
products and gift items
Signature items and new items
Brands / Demographics

Geography
43 states
24 countries

Yankee Candle
Yankee Candle Home
Aroma Naturals
Illuminations
Simply Home
Mystic Harbor
Celebrate Home
(1) Source: Company Analysis.
Confidential
12
Attractive Market Characteristics
Home Fragrance category: $6.2 Billion
¾
Home
Fragrance (1)
Up 5.8% in 2005
$6.2BN
Premium Scented Candles segment remains
the largest and most important segment
Attractive target demographics and usage
¾
85% Home Fragrance household penetration
Favorable consumer trends
¾
Focus on home
¾
Gifting
¾
Affordable luxury
¾
Significant year round candle use
Scented
Candles (2)
$3.1BN
Fragrance
Diffusers (3)
$1.7BN
Other
Fragrance (4)
$1.4BN
Premium
Scented Candles
Premium
Diffusers
Premium
Other
$1.7BN
$0.3BN
$0.7BN
Sources: 2005 Kline & Company; 2006 Stax Buyer Survey; Unity Marketing; Company estimates.
(1) U.S. Retail sales only. Does not include the Car Fragrancing / Freshening segment (estimated at $0.5BN), Accessory ($0.8BN), and Gift businesses.
(2) “Fragranced / Scented” candles only. Total candles market is estimated at $3.5BN (unscented candle sales = $0.4BN).
(3) Includes both electric / plug-in diffusers ($1.3BN) and “passive / non-electric” diffusers ($0.4BN).
(4) Includes room sprays ($0.7BN), potpourri ($0.3BN), fragrance oils ($0.1BN), and other specialty room / wardrobe ($0.3BN).
Confidential
13
Vertically-Integrated Business Model
is a Competitive Advantage
Designs, develops, manufactures and distributes the majority of its products
Approximately 71% of products manufactured at 294,000 sq. ft. facility in Whately, MA
Provides competitive advantages
¾
Ensures high quality of products
¾
Inventory managed to achieve high fill rate,
quick order turnaround and working capital efficiencies
¾
Exceptional customer service
¾
Responsiveness to consumer trends
Company continues to achieve manufacturing and supply chain improvements
Drives very high gross margins (56.8% in 2006) and EBITDA margins (25.5% in 2006)
Diversified and strong supplier relationships
Confidential
14
Compelling Growth Opportunities
Compelling
CompellingGrowth
GrowthOpportunities
Opportunities
New store growth
¾
¾
Potential for up to 700 Yankee stores
nationwide (300 additional stores)
Potential for 200+ Illuminations stores
nationwide
Yankee’s
Yankee’sMarket
MarketShare
ShareatatRetail
Retail
Comparable store sales growth momentum
¾
¾
¾
¾
Augmented management talent
Recent merchandising and marketing
initiatives have been successful
Continued new product innovation
More focused store growth in the future
Wholesale growth
¾
¾
¾
¾
¾
Growth as existing accounts open stores
(e.g., Bed Bath & Beyond)
Penetrate new accounts
(e.g., department stores)
Space expansion within existing locations
(e.g., J.C. Penney)
International
GBI Marketing & Aroma Naturals
(1)
(1)
43%
>50%
32%
2001
2005
Near-term to
Mid-term
Target
Note: Reflects Yankee Candle’s market share in the premium scented candle industry.
(1) Source: Kline 2005 Home Fragrance Study and Company analysis.
Other opportunities
Confidential
15
Experienced and Broad-Gauged Management Team
Name
Title
Years of
Experience
Craig W. Rydin
Chairman and Chief Executive Officer
33
Harlan M. Kent
President and Chief Operating Officer
21
Bruce H. Besanko
Senior Vice President, Finance and Chief
Financial Officer
15
Paul J. Hill
Senior Vice President, Supply Chain
29
Stephen Farley
Senior Vice President, Retail
21
Martha S. LaCroix
Senior Vice President, Human Resources
16
James A. Perley
Senior Vice President, General Counsel
19
Richard R. Ruffolo
Senior Vice President, Brand, Marketing and
Innovation
16
Mike Thorne
Senior Vice President, Wholesale
20
Confidential
16
Operations Overview
Yankee Candle Retail Stores
404
404Yankee
YankeeCandle
CandleRetail
RetailStore
StoreLocations
Locationsinin
43
43States
States(as
(asofof12/31/06)
12/31/06)
1
2
4
1
1
3
6
7
1
Largest specialty retailer of premium
scented candles in the U.S.
2
11
18
19
4
3
14
16
22
5
5
3
18
20
13
2
8
16
6
6
28
4
11
13
2
14
13
10
1
9
2
Two flagship locations
¾ South Deerfield, MA – 90,000 sq. ft.
¾ Williamsburg, VA – 42,000 sq. ft.
29
3
14
2
30
Note: Map includes 15 outlet stores and 2 flagship stores.
Focus on successful malls, lifestyle
centers, outlets and travel destinations
Confidential
18
High ROI Retail Concept
Typical store economics (2005):
¾
¾
¾
Retail
RetailSales
Sales
($ in millions)
GR
12% CA
Average sales per store: ~$725K
Sales per selling square foot: ~$570
Average store size of ~1,650 square
feet (~1,275 selling square feet)
$175
2000
$212
2001
$240
$370
$267
$284
2003
2004
2002
$304
2005
2006
Profitable new store model
¾
~$300K of capital required (1)
¾
Payback period ~2 years
¾
Attractive IRR
Store
StoreGrowth
Growth
(2)
345
404
2005
2006
45
14
286
239
147
Nearly 40% of store base is younger
than 3 years old – “fresh store base”
Net New
Stores:
(1) Includes fixtures, POS, working capital, etc.
(3)
390
192
2000
2001
2002
2003
45
45
47
47
2004
59
(2) Includes 12 of the 17 stores to be closed under the 2005 store closing plan, which were subsequently
closed in 2006.
(3) Includes 27 new stores.
Confidential
19
Valuable Consumer Direct Business
High growth business last 18 months
coinciding with new Management
Consumer direct sales increased to
$26.8 mm in 2006, representing a 29.2%
increase over the prior year
Integrated into retail marketing strategy
(vs. stand alone business)
Driving business with real time
inventory status, scented pages, flat rate
shipping and Housewarmer jar focus
Confidential
20
Illuminations Overview

Illuminations is a premium-branded
candle and accessory retailer

Purchase of 15 stores (1) and Consumer
Direct business
¾
12 stores in California, 1 in Arizona
and 2 in Washington

Illuminations brand targets a younger,
more affluent and more contemporary
customer in urban markets

~2,000 gross square feet store with
1,500 SKUs

Leverage YCC business model learning
to drive profitable growth
(1) Includes one store which was opened in September 2006; excludes one other store which was opened in late 2006.
Confidential
21
Loyal, Diversified and Growing Wholesale Customer Base
Large and stable customer base
¾
¾
Approximately 17,400 locations in
North America
Approximately 2,500 in Europe
Wholesale
WholesaleSales
Sales
($ in millions)
AGR
12% C
$271
$297
$317
2005
2006
$242
$205
$164
$168
2000
2001
High account retention (59% of accounts
have been customers for >5 years)
“Hutch” generates an estimated sales
per sq. ft. of $875
¾
Often customers’ most profitable
products
2002
2003
2004
(1)
Number
NumberofofWholesale
WholesaleDoors
Doors (1)
6% CAGR
14,100
15,000
15,750
2000
2001
2002
16,900
17,800
18,612
2003
2004
2005
~19,900
Continued growth opportunities
2006
(1) Includes domestic and international accounts.
Confidential
22
Efficiencies Continue to Improve
Yankee Candle designs, develops, manufactures and distributes the majority of its products
Provides competitive advantages
¾
Product quality
¾
Exceptional customer service
¾
Inventory managed to achieve high fill rate, quick order turnaround and working capital efficiencies
¾
Generates strong margins
Continues to focus on productivity and efficiencies
Manufacturing
15,000
10,000
8,000
7,701
Logistics
GR
8% CA
11,006 11,259 11,804
9,569
15
10
5,000
5
0
0
2001
2002
2003
2004
2005
Housewarmer Jars Per Shift
2006
R
CAG
%
5
2
11.1
9.6
11.2
2003
2005
13.5
7.5
4.4
2001
2002
2004
2006
Cartons Picked Per Labor Hour
Confidential
23
Financial Review
Historical Consolidated Performance
Consolidated
ConsolidatedSales
Sales
($ in millions)
$380
17.1%
2001
2002
14.3%
9.0%
8.5%
2003
2004
2005
$509
$445
12.1%
$554
$601
$688
14.0%
2006
Note: Percentages represent consolidated sales growth.
(1)
Consolidated
ConsolidatedEBITDA
EBITDA(1)
($ in millions)
$127
$103
$146
27.2%
28.5%
28.8%
2001
2002
2003
$163
$169
$184
29.4%
28.0%
26.7%
2004
2005
2006
Note: Percentages represent adjusted EBITDA margins.
(1) Excludes long-term stock-based compensation expense and non-recurring charges.
Confidential
25
Historical Segment Financial Performance
Retail
RetailSales
Sales
Wholesale
WholesaleSales
Sales
($ in millions)
($ in millions)
AG
11.8% C
$212
$240
$267
2001
2002
2003
$284
R
13.5% CAG
$304
$370
$168
2004
2005
2006
2001
Retail
RetailContribution
Contribution
($ in millions)
$63
$66
29.7%
27.6%
2001
2002
$77
$76
28.5%
27.1%
24.8%
$205
$242
$271
$297
2002
2003
2004
2005
$317
2006
Wholesale
WholesaleContribution
Contribution
$100
$76
R
27.1%
($ in millions)
$66
$87
$102
$116
$122
$122
42.6%
42.0%
42.7%
41.1%
38.4%
2002
2003
2004
2005
2006
39.0%
2003
2004
2005
2006
2001
Confidential
26
Significant Business Momentum
2005
2005and
and2006
2006Retail
RetailComps
Comps(incl.
(incl.Consumer
ConsumerDirect)
Direct)
($ in millions)
12%
10%
10%
10%
8%
2%
2005
2005and
and2006
2006Retail
RetailSales
Sales
($ in millions)
$52
Q1
(1%)
(6%)
Q3
Q2
(3%)
Q4
2005
$62
Full Year
Q1
2005
2006
Q2
Q4
Q3
2005
Q4
Full Year
2006
2005
2005and
and2006
2006Wholesale
WholesaleSales
Sales
($ in millions)
$67 $72
Q3
$178
$145
$72
$59 $58
2006
19,590
19,882
19,883
19,300
18,400
18,400
18,600
18,394
Q2
$50
$370
(2%)
2005
2005and
and2006
2006Wholesale
WholesaleDoors
Doors
Q1
$304
Q1
$297
$59 $57
Q2
$79
$88
$92
Q3
2005
$317
$99
Q4
Full Year
2006
Confidential
27
Consistent Seasonality (Excludes Illuminations)
4th
4thQuarter
QuarterSales
Sales/ /%%ofofFiscal
FiscalYear
YearSales
Sales
($ in millions)
$300
$200
$100
$205
$219
$237
$278
39%
40%
$157
$176
41%
40%
40%
40%
2001
2002
2003
2004
$0
2005
2006
(1)
(1)
4th
4thQuarter
QuarterEBITDA
EBITDA (1)/ /%%ofofFiscal
FiscalYear
YearEBITDA
EBITDA (1)
($ in millions)
$100
$0
$61
$70
$81
$87
$86
$100
59%
55%
55%
53%
51%
55%
2001
2002
2003
2004
2005
2006
(1) Excludes long-term stock-based compensation expense and non-recurring charges.
Confidential
28
Transaction Structure and Capitalization
Sources and Uses
Pro Forma Capitalization
($ in millions)
($ in millions)
Sources of Funds
Cash
0.0
New Term Loan Facility
650.0
New Senior Notes
325.0
New Senior Subordinated Notes
200.0
Equity
Total Sources
417.9
$1,615.7
Uses of Funds
Total Uses
12/30/06
Existing Debt
New Revolving Credit Facility
New Term Loan Facility
Total Senior Secured Debt
New Senior Notes
Total Senior Debt
Total Debt
$1,413.7
140.0
62.0
$1,615.7
% of Cap.
Debt
New Senior Subordinated Notes
Equity Purchase Price
Refinance Existing Debt
Estimated Fees and Expenses
Pro Forma
PF
$22.8
New Revolving Credit Facilitiy
Status Quo
LTM 12/31/2006
Shareholder's Equity
Total Capitalization
$140.0
$0.0
$0.0
0.0%
0.0
650.0
40.8%
140.0
650.0
40.8%
0.0
325.0
20.4%
140.0
975.0
61.2%
0.0
200.0
12.6%
140.0
1,175.0
73.8%
115.2
417.9
26.2%
$255.2
$1,592.9
100.0%
Credit Statistics
Total Debt / Total Capitalization
73.8%
Total Senior Debt / Adj. EBITDA
5.30x
Total Debt / Adj. EBITDA
6.39x
Adj. EBITDA / Interest Expense
1.77x
Confidential
29
Historical After Tax-Free Cash and ROIC
After-Tax
After-TaxFCF
FCF(Pre-dividend)
(Pre-dividend)
($ in millions)
$92
$66
52%
2002
Capex
$26
$117
$93
$73
57%
63%
42%
64%
2003
2004
2005
2006
$22
$29
$39
$27(1)
Note: Percentages represent after-tax free cash flow (before dividends) as a percentage of EBITDA, adjusted for .
1. Consists of $25 million of Capex in 2006 and $2 million of carry-forward Capex in 2005.
ROIC
ROIC
34%
34%
2003
2004
26%
2002
29%
2005
30%
2006
Note: ROIC defined as net income minus dividends divided by total capital.
Confidential
30
Net Income to EBITDA Reconciliation
EBITDA
Thirteen
weeks ended
December 30,
2006
Thirteen
weeks ended
December 31,
2005
Fifty-two
weeks ended
December 30,
2006
Fifty-two
weeks ended
December 31,
2005
$52,317
$43,404
$84,515
$78,101
32,796
27,750
49,549
49,933
3,928
2,338
14,756
6,793
209
6,549
370
97
5,976
361
572
24,725
1,483
434
23,084
1,270
$96,169
$79,926
$175,600
$159,615
Supplemental Information:
Stock-based compensation (a)
1,424
831
5,772
3,418
Restructuring (b)
Merger costs (c )
(397)
3,158
5,546
-
(397)
3,194
5,546
-
Net income
Income taxes
Interest expense, net – excluding
amortization of deferred financing
fees
Amortization of deferred financing
fees
Depreciation
Amortization
EBITDA
(a) Non-cash charges relating to stock-based compensation.
(b) During the fourth quarter of fiscal 2005, we initiated a restructuring plan designed to close 17 underperforming stores and re-invest in talent and other strategic growth initiatives. In connection with this restructuring
plan, a charge of $5,546 was recorded in the fourth quarter of fiscal 2005. Included in the restructuring charge was $2,404 million related to lease termination costs, $2,559 million related to non-cash fixed assets
write-offs and other costs, and $583 million in employee-related costs. All of the 17 underperforming stores have been closed and we have reversed the remaining reserve of $(397) in the fourth quarter of fiscal
2006.
(c) Represents non-recurring costs incurred in connection with the merger.
Confidential
31
Key Credit Strengths
Leading premium scented candle brand with dominant, consistently growing market share
Multi-channel strategy enables Company to effectively capture industry growth
Highly attractive industry and favorable consumer trends
Vertically-integrated business model is a competitive advantage
Solid historical financial performance, highly productive business model, strong free
cash flow generation and significant momentum
Experienced and broad-gauged management team
Confidential
32
Confidential
33