Educational Development Corp., which has seen unprecedented growth in the last two years due to the success of its home party division, reported a number of challenges that curtailed growth in the third quarter ended November 30, 2016, and limited gains in earnings.
While total revenue in the most recent quarter rose 26% over the period ended November 30, 2015, to $30.7 million, earnings increased just 1.3% to $1.3 million. Moreover, EDC said that issues with its shipping and distribution process led to a “significant” order backlog at the end of the quarter, and the company was forced to reduce service levels to its home-based sales consultants as well as to its retail accounts.
For over a year, EDC has been installing new software and distribution systems, but those upgrades ran into problems. Implementation of the new systems “was hampered by steep learning curves and complicated customizations,” EDC said. In particular, a new program designed for use in its direct sales program has taken longer to install than expected, and while the company is working with the software vendor to improve its functionality, it acknowledged in its quarterly filing with the SEC that it may need to take further steps to bring the new system up to acceptable levels.
The problems EDC has incurred to keep up with its growth led to inventory levels jumping to $34.5 million at the end of November 2016, compared to $17.6 million a year earlier. The buildup has caused EDC to fall behind in its payments to some of its suppliers and put it in violation of its bank covenant. EDC said it expects to receive a waiver to the covenant by the end of January.
EDC said it will continue to improve its warehouse-fulfillment operations throughout fiscal 2018, which begins March 1, 2017.
To provide more details about what is happening at the company, EDC said it will hold its first-ever quarterly analyst call on January 27 at 3 p.m. EST.
