Retail Ventures Back in Black

Don Hogsett, December 12, 2005

Retail Ventures Inc., the parent of Value City and Filene's Basement, broke back into the black — with a highly qualifying asterisk — reporting a first quarter profit of $54.2 million, compared with a year-before loss of $1.3 million.

But it wasn't really a cash profit generated by its diversified retail portfolio, rather the results stemmed entirely from a $64.8 million, non-cash paper gain reflecting an increase in the value of warrants. Pull that paper gain out of the equation, and the retailer recorded an operating loss of $6.7 million, compared with a prior-year operating profit of $6 million, as operating costs exceeded what the company took in after it paid for goods sold.

Putting operating results under heavy pressure, average gross margin weakened substantially, thinning 200 basis points, or 2 percentage points, to 38 percent from 40 percent a year ago. Operating costs improved slightly, 30 basis points, or three-tenths of a percentage point.

Sales at Retail Ventures climbed 6.6 percent, to $746.1 million from $699.7 million a year ago. Same-store sales rose 1 percent, a big gain over a 4.1 percent drop during the same period a year ago.

Same-store sales were mixed. Comps declined 1 percent at Value City Department Stores, but that marked a big improvement from a 7.8 percent decline the year before. Same-store sales rose 3.5 percent at the DSW shoe retailing operation, improving on a smaller 0.8 percent gain a year ago. Filene's Basement built its comps 2.1 percent, an improvement over last year's 1.1 percent gain.

Retail Ventures Inc.

Qtr. 10/29 (x000) 2005 2004 % change
a. Third quarter results include $64.8 million in non-cash income, stemming from the increase in the fair value of warrants; an income tax benefit of $1.8 million, compared with $646,000 last year; and a $4.0 million loss form a minority interest.
b. Nine month results include a $31.1 million non-cash loss stemming from a decrease in the value of warrants; an income tax benefit of $1.6 million vs. $911,000 the year before; and a $3.3 million loss from the company's minority interest in an investment.
Sales $746,101 $699,738 6.6
Oper. income (EBIT) (6,735) 6,000
Net income 54,181a (1,342)a
Per share (diluted) 0.88 (0.04)
Average gross margin 38.0% 40.0%
SG&A expenses 38.9% 39.2%
Nine months
Sales 2,092,880 1,977,692 5.8
Oper. income (EBIT) (23,860) 20,729
Net income (72,794)b (2,534)b
Per share (diluted) (1.90) (0.07)
Average gross margin 38.8% 40.4%
SG&A expenses 39.9% 39.4%

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