Numbers fall in Q4 for Gottschalks

Don Hogsett, May 12, 2003

With sales trailing off, margins thinning out and hit by one-time items tied to the shutdown of some of its stores, Gottschalks Inc. recorded a fourth-quarter loss of $4.2 million, compared with a year-before profit of $10.4 million.

Sales at the West Coast retailer dipped by 3.4 percent, to $232.9 million from $241.1 million last year. Same-store sales declined by 1.8 percent.

Acting as a drag on the bottom line was a fistful of one-time items related to the shutdown of six stores in the Pacific Northwest and the sale of the company's credit card business. Knocking the retailer into the loss column were store closing costs of $3.8 million; asset impairment charges tied to the closings of $10.9 million; and $1.7 million in costs tied to the sale of its credit card business to receivables. Additionally, the retailer was hit by a $3.7 million loss stemming from the early retirement of debt.

Putting further pressure on earnings, average gross margin thinned 160 basis points, or 1.6 percentage points, to 32.4 percent from 34.0 percent a year ago. Gross margin dollars fell by 7.9 percent, to $75.5 million from $82.0 million. Operating costs, when measured as a percentage of sales, held relatively steady, edging up just 10 basis points, to 25.6 percent from 25.5 percent, despite the fall-off in sales.

Pressured by lower sales and narrowed margins, operating profits tumbled by 27.2 percent, to $12.3 million from $16.9 million.

As part of a sweeping overhaul, Gottschalks sold its private-label credit card business to Household's retail services business for $102.8 million, using the proceeds to pay down debt, including off-balance sheet debt. That move increased the company's line of credit availability by $30 million. As part of the sale terms, Gottschalk's will receive ongoing compensation from a new Household-administered credit card program, which it says "will equal or exceed the profit contribution" of the in-house credit operation it has sold.

Gottschalks Inc.

Qtr. 2/1 (x000) 2003 2002 % Change
a-Net sales, excluding credit revenues and leased department revenues.
b-Fourth-quarter results include $3.8 million in store closing costs, compared with $61,000 last year; an asset impairment charges of $10.9 million; receivables sale costs of $1.7 million; a $3.7 million loss on the early retirement of debt, compared with $696,000 the prior year; and an income-tax benefit of $4.2 million, compared with a year-before tax liability of $6.5 million.
b-12-month results include store closing costs of $3.4 million vs. $729,000 last year; an asset impairment charge of $10.9 million; receivables sale costs of $1.7 million; a $3.7 million loss on the early retirement of debt vs. $696,000 last year; and an income-tax benefit of $8.6 million, compared with a year-before tax liability of $266,000.
Salesa $232,892 $241,138 -3.4
Oper. income (EBIT) 12,321 16,933 -27.2
Net income (4,198)b 10,409b
Per share (diluted) (0.33) 0.82
Average gross margin 32.4% 34.0%
SG&A expenses 25.6% 25.5%
12 months
Salesa 691,428 710,702 -2.7
Oper. income (EBIT) 1,873 2,372 -21.0
Net income (11,607)c 425c
Per share (diluted) (0.91) 0.03
Average gross margin 34.0% 33.8%
SG&A expenses 31.6% 31.5%

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