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Duckwall-Alco Posts Negative Q2, Will Trim Home Decor

Abilene, Kan. - Short on inventory in some key categories, including the high-margin outdoor furniture and apparel businesses, regional discount chain Duckwall-Alco suffered poor results in its second quarter with declines in net sales and comps.

Net sales from continuing operations for the second quarter ended August 1 decreased 5.5% to $118.2 million, and same-store sales declined 7.2%.

Net loss for the second quarter was $1.3 million, or 34 cents per diluted share, compared to net earnings of $3.0 million, or 78 cents eps, for the year-ago period.

"Clearly, we must deliver improved results," Richard Wilson, president and ceo, said. "The management team and I are working quickly to improve top-line sales and profitability. Business is stabilizing as inventory levels are now sufficient to achieve our sales objectives."

Wilson explained same-store sales were negatively impacted by inventory levels in key seasonal departments. Due to lower sales, gross margin contribution was lower by approximately $2.9 million.

Year-to-date results were also hurt, as net sales from continuing operations for the first half decreased 3.8% to $231.2 million, and comp sales fell by 5.1%. Also, the net loss for the first six months was $3.2 million, or 85 cents eps, compared to net earnings of $3.0 million, or 77 cents eps, one year ago.

Duckwall-Alco said it is making improvements in store layouts and enhancing some high-velocity product offerings, particularly consumables like food and paper products, and in turn shrinking some of its "low-turn" categories - such as bulk fabrics and home décor, Wilson noted.

"By reallocating space, we've rationalized a big chunk of the business," he said, with a "more appropriate" mix that is expected to benefit both the top and bottom lines. For example, he said the chain recently removed its bulk fabric assortment, which had occupied roughly 24 linear feet of store space, because of its "low productivity."

"Same thing with décor," he continued. "It can be very profitable, but once the customer has bought into the specific look you are selling, it is hard to get them to buy further into it."

These changes, which are part of Duckwall-Alco's larger effort to reset its existing store base with improvements in presentation and expanded consumables offerings, are giving the retailer cause to feel "encouraged" by its August same-store sales trend, "reflecting a significant improvement over our second-quarter same-store sales result," the 257-store company said.

Wilson continued, "Our core strategy is to improve our value proposition, provide an improved shopping experience with our new store layouts, and build upon key ‘trip driving' businesses to improve our comp store sales and improve shareholder value. As a major step in this strategy, we are progressing with our store resets and expect to be fully complete by the end of September."

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