Checkpoint Systems faces severe downturn, makes change at top

By: Tom Paine, Philly Tech News

Checkpoint Systems, which provides loss prevention(shrink management) and inventory tracking systems using EAS and RFID technologies to retailers, issued quarterly results recently showing a dramatic revenue decline.checkpoint_photo_from_website

The company also announced that Chairman, President & CEO Rob van der Merwe was stepping down. Board member George Babich, Jr., a former President and Chief Financial Officer of Pep Boys, will become interim CEO and President. Another board member, William S. Antle, III will serve as non-executive Chairman.

Checkpoint Systems (NYSE: CKP), not to be confused with Checkpoint Software, is based in Thorofare (Gloucester County), NJ. In late 2010, Checkpoint moved its official headquarters location to Philadelphia, although that move has since been rescinded, apparently. The company’s shares are down 16% today; more notably, the shares have lost two thirds of their value since the onset of the recession.

Revenue for the first quarter was down 10.8% to $162.3 million; the company said organic revenue (excluding the impact of acquisitions) fell almost 15%. The core of the problem was Europe, particularly in Checkpoint’s apparel labeling systems business. GAAP operating loss was $19.6 million compared to a loss of $9.0 million for the first quarter 2011.

The company is withdrawing all financial guidance for the full year. Although Checkpoint stressed during its conference call that its balance sheet is sound and it can repatriate additional funds if needed, it will have to renegotiate some terms of its loan covenants to get more flexibility on certain ratios.

In the first quarter, Checkpoint expanded its restructuring program, which is intended to produce annualized run rate savings of approximately $67 million at a cost of approximately $56 million.

Interim CEO Babich said the “board believes strongly” in Checkpoint’s strategy, but the problem has been in the pace of execution. The business “needs to be rightsized” to match current market demand, he said. A special committee of the board has been established to guide a turnaround initiative. Babich will lead a deep fact finding effort and assessment, with the goal of reporting back to the board by the end of July.

Babich was pressed by at least one investor on the conference call as to why Checkpoint had not hired a banker and put all its strategic options on the table, including that of selling the company. Babich said the board was committed to doing the review process first, both to fix immediate problems and to make a better assessment of longer term structure and options.

For example, Babich questions whether Checkpoint’s existing “matrix management” structure is best for running the business. He did say that once the review is completed, all options for the future of the business would be considered.

Checkpoint had been coming under increasing pressure from investors to make changes.

While Checkpoint wants to maintain a leading position in shrinkage management systems, it also looks to grow its business in an area it calls Merchandise Visibility, which uses RFID technology and advanced software from its 2008 acquisition of OATSystems. Merchandise Visibility solutions are intended to give retailers a much better dynamic, real time view of where all their inventory is.

Checkpoint Systems was founded in 1969 as subsidiary of Logistics Industries. It started off serving the library market but quickly saw the opportunity to move into retail.

[Reposted with permission of Philly Tech News. The original article appeared Thursday,  May 3,2012]

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