Harry and David Holdings Inc. President and Chief Executive Officer Bill Williams said his company hasn't turned the corner yet, but has narrowed its losses.

The Medford-based retailer of gourmet food products and gifts Wednesday reported a net fourth-quarter loss of $21.8 million, compared to $25.1 million for the fourth quarter 2005. But for the fiscal year, ending June 24, the company recorded a net loss of $9.7 million, more than double the net loss of $4.3 million for fiscal 2005.

Williams said the Jackson & Perkins unit was hit hard by the cancellation of rose orders by a major retailer, garden décor product markdowns and a change in marketing strategy that included lower circulation of higher page-count catalogs.

"The problems we had with Jackson & Perkins were unique and for the most part correctable events," Williams said.

Net sales for the fourth quarter were $83.5 million, an increase of 12.9 percent from $74.0 million recorded a year earlier. A shift of the Easter holiday from the third quarter in fiscal 2005 to the fourth quarter, as well as strong catalog and Internet sales in the Harry and David Direct Marketing operating segment and improved comparable sales at Harry and David Stores accounted for the gain.

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"Our performance in the second half of fiscal 2006 reflects ... increases in product prices and delivery charges, which offset material and delivery fuel cost increases and resulted in increased top-line sales, gross profit and operating margin in Harry and David Direct Marketing and partially counteracted the decreases in our Jackson & Perkins segment," Williams said.

During fiscal 2006, 61 percent of the company's customers placed at least one Internet order. Williams said the growth in Internet orders has a variety of effects, including the reduction of paper, postage and preparation costs. He said between 100 and 125 of 600 holiday catalog items will go away and "a couple hundred" will be removed from the Internet.

"We won't have overlapping items at the same price point as last year," he said. "We'll focus more on what we do best in our seasonal operation facilities by limiting the number of (products) and better management of the facilities. What we ... have found is that a first-year Internet purchaser tends to be a little less loyal than someone purchasing by catalog. However, once we're past that first year, we find that a customer becomes much more traditional in their behavior."

A telephone order costs "a couple of bucks" while Internet orders cost little, he said. "The downside is that (competitors) are willing to compete on prices and take a lower margin. That's the challenge for a quality retailer — everything looks pretty much the same on the screen."

The company reported a gross profit margin of 32.0 percent in the fourth quarter compared to 29.9 percent a year before. For the fiscal year, gross profit margin decreased to 40.3 percent from 43.5 percent. In addition to the Jackson & Perkins write-downs, the lower margin was attributed to 2005 holiday product markdowns, delivery discounts and gift cards, as well as higher delivery expense, in the Harry and David Direct Marketing and Stores operating segments.

Williams said the company's signature Royal Riviera pear crop is 55 percent harvested with picking to continue through the end of the month. During fiscal 2007 the company expects to make capital expenditures of $23 million compared to $17.7 million in 2006. Moose Munch manufacturing capacity will be expanded next month with a new cooking kettle. Williams said the company is seeking wine and alcohol licenses for some of its Harry and David stores in other states.

Reach reporter Greg Stiles at 776-4463 or at business@mailtribune.com

• Harry and David Direct Marketing's segment net sales were $40.4 million in the fourth quarter of fiscal 2006, up 15.9 percent from the same period of fiscal 2005. For the 2006 fiscal year, Harry and David Direct Marketing's segment net sales were $369.8 million, a 5.6 percent increase from fiscal 2005. Catalog circulation grew approximately 6.5 percent from fiscal 2005 to nearly 100 million catalogs circulated in fiscal 2006.
• Harry and David Stores' net sales increased 13.4 percent in the fourth quarter to $22.5 million. After closing seven locations and opening one, Harry and David Stores ended the fiscal year with 130 active stores and recorded a 1.6 percent increase in its fiscal 2006 net sales to $132.1 million.
• Jackson & Perkins' segment net sales increased 4.1 percent to $18.6 million in the fourth quarter of fiscal 2006. For the 2006 fiscal year, net sales decreased by $1.7 million, or 2.3 percent, to $73.8 million compared to fiscal 2005.
• Harry and David's other category net sales increased 45.2 percent in the fourth quarter of fiscal 2006 to $2.0 million and 100.0 percent for fiscal 2006 to $22.4 million.