The rugged sales environment that has challenged Harry & David Holdings in recent years continued to eat away at the company's bottom line in fiscal 2009.

The rugged sales environment that has challenged Harry & David Holdings Inc. in recent years continued to eat away at the company's bottom line in fiscal 2009.

Sales and income at Medford's largest nonmedical employer took additional hits as longtime customers tightened their purse strings and corporate clients either cut their spending or disappeared during the fiscal year that ended June 27.

Sales slipped 10.2 percent to $489.6 million in fiscal 2009, down from $545 million in 2008. The company lost $20.2 million on the year, compared with a net income of $4.6 million for the 2008 budget year.

"During fiscal 2009, we faced unprecedented economic conditions, which lowered discretionary spending," said Bill Williams, president and chief executive officer, during a Thursday conference call. "There was softer consumer demand in direct marketing sales and our stores and the same thing was true of our business-to-business sales."

Direct marketing sales fell 12.5 percent, while sales in stores declined 8.8 percent from a year ago.

"We are in very uncertain times," Williams said. "We're getting mixed signals from what we read and hear. High-end discretionary spending is still depressed. All you have to do is look at the luxury stores. People are reducing their credit balances. As a result we're going slow with our inventory build and advertising right now. What we can expect in the coming holiday season is too uncertain to call."

According to a Securities and Exchange Commission filing, Harry & David had 1,168 full-time employees as of Aug. 31. During the fiscal 2009 holiday selling season, the company said it employed approximately 8,260 workers.

"Our focus on reducing production expenses, capital expenditures and controllable (selling, general and administrative) costs partially offset the effect of lower sales and margins on our cash flow. Additionally, the integration of the Wolferman's and Cushman Fruit Company acquisitions were positive contributors to the year."

The company's fourth-quarter loss of $17.3 million compared with a $24.4 million loss during the same period in 2008. Capital spending during fiscal 2010 will be limited to between $4 million and $5 million, and the money will be spent on improving efficiency, expanding marketing, store remodels and mailings.

Falling demand led Harry & David to reduce inventory to $44.7 million at the end of the fiscal year, down 18 percent from $54.5 million last year.

Consumers will decide how Harry & David fares during its traditional make-or-break holiday season, Williams said.

"Everything we read tells us it's going to be competitive," Williams said. "Last year, there were unprecedented bargains. I think that won't happen this year, but I think pricing is going to be an issue. It took markdowns to stimulate sales (last year). We saw more frequent shopping, though, and that partially offset (smaller orders). One thing we know is that (we are dealing with) a bargain shopper out there. We found the shopper in the third quarter and they stuck with us through fourth quarter."

He said free delivery or reduced freight rates might not be effective selling tools.

"Delivery pricing is the first thing on the table and that's followed by pricing," Williams said.

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