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Gottschalks continues to dig out

Faced with declining sales, Gottschalks Inc. concentrated on straightening out its expense picture in the third quarter.

As a result, the West Coast department store retailer was able to narrow its third quarter net loss and to manage a slight push upward in its operating income.

Gottschalks posted a $1.5 million net loss in the quarter just ended, compared with a $1.9 million loss in the third quarter of 2002.

Its operating profit edged up 0.2 percent, to $1.8 million. These results owed to a modest 30-basis point reduction on the company's selling, general and administrative expenses as a ratio of sales, which finished the quarter at 34.5 percent.

Net sales, meanwhile, dropped by nearly 5 percent in the quarter, to $145.9 million. Same-store sales fell 2 percent for the quarter.

Jim Famalette, Gottschalks' president and chief executive officer, said the retailer is still striving to put into place financial and merchandising initiatives that were crucial points of its strategic plan it began implementing earlier this year.

"We improved gross margin 20 basis points from the third quarter of 2002 through improved flow of merchandise on a seasonal basis and the closure in the last year of several underperforming stores," Famalette stated.

"We also were able to reduce our SG&A expense by $3.2 million," he added.

The improvement in operating margin enabled the company to generate bottom-line results even with the same period in 2002.

For the first three quarters of 2003, Gottschalks' net loss increased to nearly $2.1 million, deepening the $1.9 million loss recorded during the same period last year.

Operating income posted an increase of 1.3 percent, to $8.5 million; while sales for the period slipped 4.4 percent, to $438.5 million.

Famalette said Gottschalks is on target as far as reaching its strategic and financial goals for this year for its 64 department stores and 11 specialty units.

"As we enter the important holiday season," he added, "our merchandise assortments are where we expected them to be and we have a strong marketing plan in place."

Gottschalks Inc.

Qtr. 11/1 (x000) 2003 2002 % chg
Sales $145,929 $153,108 -4.7
Operating income 1,832 1,829 0.2
Net income -1,546 -1,879
Earnings per share -0.20 -0.20
Average gross margin 35.8% 35.9%
SG&A percentage 34.5% 34.8%
Nine months 2003 2002 % chg
Sales 438,520 458,536 -4.4
Operating income 8,481 8,376 1.3
Net income -2,057 -1,908
Earnings per share -0.51 -0.58
Average gross margin 35.6% 35.9%
SG&A percentage 33.7% 34.1%


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