Countersuit filed against Enesco

Jim Shore Designs, Department 56 and Sunshine Productions have filed countersuits in response to Enesco's recent lawsuit claiming breach of contract in connection with a line of ties, scarves and pins.

Enesco's original claim, which relates to a worldwide exclusivity license agreement with Shore, has yet to be heard in U.S. District Court, Northern District of Illinois. A deposition hearing set for Oct. 10 was postponed. Shore said the suit is tentatively scheduled for court in July 2006. "Like most lawsuits, it will weave its way through the labyrinth of legalese," Shore said.

"Because we are in litigation, the company cannot respond to questions," Enesco spokesman Donna Shaults said.

Meanwhile Shore, the creative talent behind several of Enesco's most popular collections, will continue with a five-month signing tour for select retailers carrying his Heartwood Creek products.

"I owe a great deal to the hard work of the reps and also to the enthusiastic reception I've gotten from retailers out there," Shore said. "I am not going to do anything that's going to jeopardize the reps, their security or earning ability and I'm not going to disappoint the retailers who have been so good to me, if I can help it.

"The signing tour and continuation of design work will go forward because I feel an obligation to those folks," Shore said. "Yes, we're involved in this and certain aspects of it are uncomfortable. But the bottomline aspect is we will aggressively fight this thing and our intention is to win. I'm not interested in settlements; I'm interested in winning. The first clause of winning will be a request for immediate termination of the contract."

After Enesco filed the original lawsuit, the Itasca, Ill.-based gift manufacturer announced its plans to rigorously pursue adherence to its current license agreement with Jim Shore Designs, which resulted in Enesco sales last year of more than $30 million. It did not seek to end its license agreement with Shore, who is one of the company's strongest designers.

Designer Randy Ouzts also confirmed exclusivity efforts led him to not renew his Enesco contract, which expires at the end of 2005.

Enesco recently announced plans to reduce its overall product lines from about 170 to between 50 and 60 as it returns its focus to giftable products and away from home and garden decor. Product lines will be cut if they do not elicit strong and sustainable market demand/profitability and leverage Enesco's core distribution base, according to the announcement.

President and CEO Cynthia Passmore-McLaughlin told investors a comprehensive plan for operating improvement was underway by the end of September. Enesco anticipates achieving pre-tax cost savings of annualized $34 million to $38 million. Implementation of the plan will continue into 2006, with benefits expected to appear in its 2007 financials.

"When fully implemented, we will be a much leaner, more focused and efficient company with gross and operating margins more in line with our peers," Passmore-McLaughlin said.

Enesco also plans corporate cuts in both its United States and United Kingdom operations. The U.S. downsizing primarily affects finance, information technology, marketing and communications. In the U.K., the downsizing focused on elimination of redundancies within the organization.