The Hain Celestial Group, Inc. (Melville, N.Y.), a natural and organic food and personal care products company, recently announced the final implementation of its Stock Keeping Unit (SKU) rationalization program. In a release to investors the company reported that it identified approximately 500 SKUs, with annual sales of $15 million that it discontinued. The company said its fourth quarter and year ending June 30, 2005 financial reports will include a non-cash charge to operations of approximately $8 million to $11 million for the completion of the SKU rationalization program.
"During the past year, we have streamlined our business to further focus on the highest value opportunities in our core natural and organic business. As a result, we have placed a priority on margin enhancement, leading to the SKU rationalization program, as well as efficiencies through the consolidation of our suppliers," said Irwin D. Simon, president and CEO.
Among the SKUs being eliminated from the company's active product list are Carb Fit low carbohydrate products, which have been impacted by the recent decline in demand for low carbohydrate products across the food sector, as well as other items competitively disadvantaged as a result of small production runs and low volumes of sales.
Over the next 12 to 18 months company leaders expect the decrease in sales volume of the discontinued products to be offset by the introduction of new products and brand extensions to improve sales and margins and to maintain shelf presence. They expect the SKU rationalization program to achieve future cost savings of approximately $2 million annually. These benefits include a expected 0.5% increase in Hain-Celestial’s gross margin as a result of reduced spoilage, warehouse and procurement costs, consolidation of co-packers and other efficiencies. The SKU rational program will also achieve a reduction in working capital through inventory reductions and an improvement in the company's cash conversion cycle.
"The key to our SKU rationalization program is to maintain our valuable space at retail, by replacing discontinued SKUs with new products and faster selling products," Simon added.
Source: The Hain Celestial Group