Vistaprint N.V. announced financial results for the three month period ended March 31, 2014, the third quarter of its 2014 fiscal year.
Revenue for the third quarter of fiscal year 2014 was $286.2 million, a 1% decrease compared to revenue of $287.7 million reported in the same quarter a year ago. Gross margin in the third quarter was 64.7%, down from 65.5% in the same quarter a year ago. Operating income in the third quarter was $5.2 million, or 1.8% of revenue, and reflected a 46% decrease compared to operating income of $9.7 million, or 3.4% of revenue, in the same quarter a year ago.
“This is the first quarter in the past 14 years in which our revenue declined year over year,” said Robert Keane, president and CEO. “While we are not content with this performance, our underlying value creation was much better than our headline financial numbers. Based upon significant customer research that we have conducted over the past three years we are shifting our value proposition away from the deep discounts and free-offer direct marketing that characterized the Vistaprint of the past toward being simply the best way for business owners to market their business. We are making this shift in order to expand into the large market opportunity that lies beyond our traditional base of highly price sensitive customers.
“This shift has been gaining momentum for more than two years and has created significant near-term revenue headwinds, but we persist in implementation because we believe in the long-term value of the strategy,” Keane continued. “The most impactful headwinds to date occurred in the past quarter. They were the result of changes to our pricing and marketing practices that we recently rolled out in our largest markets—the United States, Germany and United Kingdom.
“Since 2012 we have successfully tested similar changes in Canada but, as we described last August at our investor day, these types of changes typically cause an immediate revenue impact, the magnitude of which is difficult to project,” he added. “In this past quarter, the headwinds were greater in the United States, Germany and United Kingdom, than we had anticipated. We have levers to optimize our results once the changes are released in the market, and post the initial implementation our results improved in these markets as the quarter progressed. We made these changes against a backdrop of other actions to improve the return on our advertising spend. These advertising optimizations negatively impacted our new customer acquisition count, but they increased our projected long-term advertising returns and reduced advertising expense both as a% of revenue and in absolute dollars. As a result, despite our revenue challenges, we have been able to maintain our profitability and we continue to track toward our margin improvement goals this year.
“We also continue to move forward with many other improvements to our value proposition beyond our pricing and marketing practices,” Keane noted further. “Examples include better customer service availability, improved product substrate quality, more reliable shipping methods, assistance for graphic design creation, new options for premium finishes, and more SKU choices. These improvements typically come with higher expenses, but we are encouraged by several metrics we see in each market in which we have implemented them, especially when combined with Canadian-style pricing and marketing changes. In Canada our customer retention, gross profit per customer and the return on advertising expenditures have improved significantly. Around the world, we have seen increased average order values, a reflection that we are attracting more valuable customers. And we have seen material improvements to our Net Promoter Score (NPS) in all regions. This is a loyalty metric that we believe to be a leading indicator of customer lifetime value.
“We believe that we have not yet seen the full financial returns of these NPS improvements and we still have a lot more work ahead of us to reach our customer loyalty goals,” Keane concluded. “However we are confident that when measured over a multi-year period, our marketing shift will deliver higher returns compared to our past marketing and pricing practices, and that significantly higher customer loyalty will eventually translate into renewed organic growth.”