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Steady Year For Retail

Don Hogsett -- Home Textiles Today, September 19, 2005

New York — Kept guessing for most of the year by a tricky economy and a volatile group of on-again, off-again shoppers, key American retailers turned in a strong, if not remarkable, performance, during 2004 — sales held relatively steady, but profits lagged far behind the impressive gains of 2003 when a handful of big stores made the entire retail spectrum look group look good as they recovered from earlier crushing losses.

The 33 retailers ranked in this year's edition of the Home Textiles Today Retail Report Card pushed composite profits up 14.6 percent, to $27.4 billion in 2004 from $17.7 billion; but that was still only half the size of the whopping gains of 35.4 and 47.5 percent of the two preceding years, 2003 and 2003.

While the gains were smaller, at least on paper, at least more stores were making money. Only three reported losses during 2004: Retail Ventures; the former Sears, Roebuck & Co.; and The Bombay Co. That's a big improvement over 2003, when twice as many retailers, a total of six, lost money.

Sales for the 32 retailers measured in this year's Report Card climbed 9.4 percent, to $692.2 billion from $623.8 billion in 2003, improving on the 8 percent increase put up in 2003. But the good cheer got spread around only so far when it came to the top line — almost one in five in this year's sample lost ground in sales, six out of the total of 32.

When it came to making money during 2004, nobody did it better than a blue-ribbon group of seven retail companies, roughly one-fifth of the stores in this year's report card, who drove their earnings higher by more than 20 percent: Target, up 76.8 percent; Bed Bath & Beyond, up 26.4 percent; Kohl's, up 25.7 percent; newcomer Anna's Linens, up 23.4 percent; Costco, up 22.4 percent; Williams-Sonoma, up 21.6 percent; and May, up 20.7 percent.

When it comes to the top line, the honor roll of the five strongest players was led by a newcomer to this year's Retail Report Card, Anna's Linens — with plans to go public and releasing its numbers — pushing sales up 45.3 percent, to $225.2 million. Next in line, no surprise, was Bed Bath & Beyond, with sales up 25 percent; followed by Restoration Hardware, up 19.9 percent; Lowe's, up 18.2 percent; and Kohl's, up 13.8 percent.

Breaking results out by channel of distribution, the easy winner was the all-the-time-low-price group, where profits soared 40.6 percent, to $15.2 billion, largely on the strength of a whopping 76.8 percent gain at Target as the slimmed-down chain spun off some of its holdings. Acting as a drag in the channel was Retail Ventures, with its loss of $19.5 million.

Earnings runner-up was the warehouse channel, with profits shooting up 21 percent.

But not all channels were riding the gravy train, and three actually lost money during 2003. Held in check by a $507 million loss at Sears, the mid-price channel recorded a 75.7 percent decline. Held back by weakness at Hancock Fabrics, the fabric and decorating channel posted a 16.6 percent drop in profits; and off-pricers were off 6.2 percent, hurt by a loss at Big Lots and weakness at Ross Stores.

U.S. Retailers Have Strong Year

PROFITABILITY MEASURES SALES OPERATIONS
Store Fiscal year end Net income $000 % Change '03-'04 % Change '00-'04 Profit margin Return on equity Net sales ($000) % Change '03-'04 % Change '00-'04 Same-store sales % chg. Gross margin SG&A/Sales Net debt coverage Inventory turns
R = Restated to reflect the adoption of the SEC clarification of accounting for operating leases.
NC = Not Comparable.
1. Includes $193 million in net income from discontinued operations.
2. Excludes non-sales revenues of $2.8 billion in 2004 and $2.4 billion in 2003.
3. Includes net earnings from discontinued operations of $75 million in 2004 and $190 million in 2003. 2004 also includes a $1.2 billion net gain on the disposal of discontinued operations.
4. Excludes net credit revenues of $1.2 billion in 2004, $1.1 billion in 2003 and $541 million in 2000.
5. 2004 and 2003 are 52 weeks; 2000 is 53 weeks.
6. Includes a $946 million net gain on the sales of assets and a $59 million pretax bankruptcy recovery.
7. Includes a $37 million pretax charge for restructuring, impairment and other charges, an $89 million net loss on the sales of assets, a $769 million net reorganization charge, a $4 million pretax bankruptcy recovery and a $10 million net loss from discontinued operations. The 2003 net loss was $628 million.
8. Includes a $12 million net loss from discontinued operations. The 2000 net loss was $268 million.
9. Includes a $10 million pretax gain from litigation settlement expense and other related proceeds.
10. Includes a $162 million pretax charge for litigation settlement.
11. Includes a $9.2 million pretax special charge, a $114.6 million pretax restructuring charge, a $29 million income tax benefit, $1.6 million in net income from discontinued operations and a $32.6 million net gain on the sale of discontinued operations. The 2000 net loss was $15.8 million.
12. Excludes licensed department rentals and other income of $13.2 million in 2004, $12.8 million in 2003 and $13.4 million in 2000.
13. Includes license fees from affiliates of $6.7 million in 2004 and $5.6 million in 2003 and income tax benefits of $12.4 million in 2004 and $1.7 million in 2003. The net loss was $5.2 million in 2003 and $103 million in 2000.
14. Excludes licensed department sales.
15. Includes an $80 million pretax asset impairment and restructuring charge and a $1 billion net loss from discontinued operations. The net loss in 2000 was $184 million.
16. Includes the results of Marshall Field's from its Aug.1, 2004 acquisition.
17. Includes pretax restructuring charges of $19 million in 2004 and $322 million in 2003.
18. Includes pretax charges for asset impairment and store closing costs of $19.4 million in 2004, $43.7 million in 2003 and $51.4 million in 2000. 2000 also includes a $27.3 million extraordinary gain and a $130 million extraordinary charge, the cumulative effect of an accounting change. The net loss in 2000 was $5.8 million.
19. Excludes service charge, interest and other income of $287.7 million in 2004, $264.7 million in 2003 and $251.2 million in 2000.
20. Includes a $3 million pretax charge for store closing costs and a $1.9 million pretax gain on the sale of property, equipment and investments
21. Includes a $14.8 million pretax gain on the sale of property, equipment and investments and a $2 million pretax restructuring charge.
22. Includes a $2.2 million pretax loss on the sale of property, equipment and investments, an $8.9 million pretax restructuring charge and a $292,000 net loss on the disposal of discontinued operations.
23. Includes net losses from discontinued operations of $20,000 in 2004, $882,000 in 2003 and $779,000 in 2000.
24. Excludes net credit revenues of $3.1 million in 2004, $3.7 million in 2003 and $9.2 million in 2000 and net leased department revenues of $3.5 million in 2004, $3.5 million in 2003 and $3.9 million in 2000.
25. Includes a $41 million pretax charge for special charges and impairments and an $839 million extraordinary charge, the cumulative effect of an accounting change.
26. Includes a $791 million net loss on the early retirement of debt, a $140 million pretax charge for special charges and impairments and a $4.2 billion pretax gain on the sale of businesses. Net income in 2003 was $4 billion.
27. Includes a $251 million pretax charge for asset impairment losses and a $49 million after-tax minority interest charge. Net income in 2000 was $1.3 billion.
28. Excludes credit and financial products revenues of $381 million in 2004, $4.8 billion in 2003 and $4.6 billion in 2000.
29. After preferred dividends of $12 million in 2004 and $25 million in 2003; includes net losses from discontinued operations of $143 million in 2004 and $1.3 billion in 2003. The net loss in 2003 was $953 million.
30. Includes a $488 million pretax restructuring charge, a $318 million income tax benefit, $159 million in net income from discontinued operations and a $296 million net loss on the sale of discontinued operations. The net loss in 2000 was $705 million.
31. Includes net losses from discontinued operations of $6.6 million in 2004, $9.7 million in 2003 and $479 million in 2000. The net loss in 2000 was $381.4 million.
32. Includes a $15.8 million pretax charge for impairment of long-lived assets.
33. Includes net losses from discontinued operations of $145,000 in 2004 and $1.7 million in 2003.
34. Net loss in 2000 was $39.4 million.
35. Includes a $3.9 million pretax loss on the early extinquishment of debt.
36. Includes a $6.5 million income tax benefit. Net income in 2003 was $9.7 million and $8.6 million in 2000.
37. Includes income tax benefits of $100,000 in 2004 and $1.5 million in 2003. Net loss in 2003 was $2.5 million and $4.7 million in 2000.
38. Data from S-1 filled with the SEC on May 5, 2005.
39. Includes $66,000 in accretion of preferred stock in both years.
40. Includes pretax provisions for impaired assets and store closing costs of $1 million in 2004, $19.5 million in 2003 and $7 million in 2000.
41. Excludes membership fees and other revenue of $961.3 million in 2004, $852.9 million in 2003 and $543.6 million in 2000.
42. Includes a $2.2 million net loss from discontinued operations.
43. Includes a $4.5 million pretax gain on contingent lease obligations, $676,000 in net losses from discontinued operations and a $1.3 million extraordinary charge, the cumulative effect of an accounting change.
44. Includes a $1.1 million net loss from discontinued operations.
45. Excludes membership fees and other revenue of $155.1 million in 2004, $139.4 million in 2003 and $103.8 million in 2000.
46. Includes pretax charges for stock option compensation expense of $7.7 million in 2004 and $6.4 million in 2003 and pretax charges for debt repurchase and share reclassification of $4.2 million in 2004 and $5.5 million in 2003. The net loss in 2000 was $13.9 million.
47. Includes $15 million in net earnings from discontinued operations.
ALL-THE-TIME-LOW-PRICE
Wal-Mart 1/31/2005 $10,267,000 13.4%1 68.7% 3.6% 20.8% $285,222,0002 11.3%2 57.8% 3.0% 22.9% 17.9% 6.9% 7.8x
Target 1/29/2005 3,198,0003 76.83 R 153.0R 7.0 24.5 45,682,0004 11.64 25.64 31.2 21.4 12.8 6.3
Kmart5 1/26/2005 1,106,0006 — 7 8 5.6 24.7 19,701,000 -15.3 -43.8 -11.0 25.5 21.1 12.3 4.5
Dollar General5 1/28/2005 344,190 15.19 R 414.110 R 4.5 20.4 7,660,927 11.5 68.4 3.2 29.5 22.3 4.0 4.3
Family Dollar 8/28/2004 262,685 6.1 52.7 5.0 19.3 5,281,888 11.2 68.6 1.9 33.8 26.0 3.8
ShopKo Stores 1/29/2005 43,338 10.8 11 1.4 6.8 3,166,64512 -0.512 -10.012 -0.4 26.2 20.6 19.3 4.1
Retail Ventures 1/29/2005 (19,448)13 — 13 R R -0.7 -10.1 2,739,631 5.6 23.814 -1.0 39.3 39.3 3.7
MEDIAN 13.4 110.9 4.5 20.4 11.2 25.6 0.8 29.5 21.4 12.3 4.3
FULL-PRICE
Federated Dept. Stores 1/29/2005 $689,000 -0.6% —%15 4.4% 11.2% $15,630,000 2.4% -6.1% 2.6% 40.5% 31.6% 20.3% 2.9x
May Dept. Stores16 1/29/2005 524,00017 20.717 -38.9 3.6 11.7 14,441,000 8.2 1.6 -2.4 29.5 20.9 31.2 3.5
Dillard's5 1/29/2005 117,66618 1159.318 18 1.6 5.1 7,528,57219 -0.919 -12.119 -1.0 33.4 27.9 33.8 3.0
Belk5 1/29/2005 124,07620 11.221 116.422 5.1 11.6 2,446,832 8.0 8.1 4.2 33.8 24.6 14.2 3.2
Gottschalks 1/31/2004 5,28123 290.023 -22.723 0.8 4.7 661,99224 0.224 2.924 0.2 34.7 31.3 41.4 2.8
MEDIAN 20.7 -22.7 3.6 11.2 2.4 1.6 0.2 33.8 27.9 31.2 3.0
MID-PRICE
Sears, Roebuck 1/1/2005 $(507,000)25 —%26 —%27 -1.4% -8.3% $35,718,00028 -1.8%28 -1.8%28 -1.4% 27.2% 23.1% 18.7% 4.8x
J.C.Penney 1/29/2005 512,00029 —29 30 2.8 10.5 18,424,000 3.6 -42.1 5.0 38.7 31.6 17.8 3.6
Kohl's 1/29/2005 730,380 25.7R 99.1R 6.2 14.7 11,700,619 13.8 90.2 0.3 35.2 21.7 4.0 4.3
MEDIAN 25.7 99.1 2.8 10.5 3.6 -1.8 0.3 35.2 23.1 17.8 4.3
OFF-PRICE
TJX5 1/29/2005 $664,144 0.9% 23.4% 4.5% 40.2% $14,913,483 11.9% 55.7% 5.0% 23.7% 16.3% 2.3% 5.3x
Big Lots 1/29/2005 23,76331 -70.431 31 0.5 2.2 4,375,072 4.8 33.5 0.0 40.6 36.7 14.1 3.0
Ross Stores5 1/29/2005 169,90232 -25.3R 13.1R 4.0 22.2 4,239,990 8.1 56.5 -1.0 22.6 15.7 0.3 3.9
Stein Mart 1/29/2005 37,97333 1625.333 — NC 2.6 13.7 1,459,607 8.0 34 NC 9.1 26.6 23.4 0.7 3.8
Tuesday Morning 12/31/2004 62,617 16.735 154.9 7.0 31.8 897,841 9.1 53.0 -1.7 38.0 26.4 3.0 3.4
MEDIAN 0.9 23.4 4.0 22.2 8.1 54.4 0.0 26.6 23.4 2.3 3.8
SPECIALTY STORE
Bed Bath & Beyond 2/26/2005 $504,964 26.4% 193.7% 9.8% 22.9% $5,147,678 15.0% 114.8% 4.5% 42.5% 27.1% —% 2.7x
Williams-Sonoma 1/30/2005 191,234 21.6 236.8 6.1 20.0 3,136,931 13.9 71.5 3.5 40.5 30.6 4.4
Linens 'n Things 1/1/2005 60,521 -16.8R -2.9R 2.3 7.5 2,661,469 11.1 69.2 1.8 40.3 36.5 3.3 2.2
Pier 1 Imports 2/26/2005 60,457 -48.8 -36.1 3.2 9.1 1,897,853 1.6 34.5 -5.8 38.3 30.2 3.1
The Bombay Company 1/29/2005 (12,205)36 R 36 R -2.1 -6.7 576,087 -3.4 36.0 -12.0 25.6 28.8 -2.9 3.0
Restoration Hardware 1/29/2005 37 R 37 R -136.2 0.3 1.7 525,823 19.9 43.6 7.8 31.6 30.8 60.6 2.9
Anna's Linens38 1/30/2005 5,30639 23.439 793.3 2.4 353.0 225,179 45.3 258.8 10.7 29.3 25.5 0.8 4.3
MEDIAN 21.6 193.7 2.4 9.1 13.9 69.2 3.5 38.3 30.2 2.1 3.0
WAREHOUSE CLUB
Costco5 8/29/2004 $882,39340 22.4%40 39.7%40 1.9% 11.6% $47,145,71241 13.1%41 49.1%41 10.0% 10.7% 9.8% —% 12.1x
BJ's5 1/29/2005 114,40142 11.243 -13.044 1.6 12.2 7,220,23945 10.245 51.545 6.0 8.3 7.7 9.0
MEDIAN 16.8 13.4 1.8 11.9 11.7 50.3 8.0 9.5 8.8 10.6
FABRIC AND DECORATING
Jo-Ann Stores5 1/29/2005 $46,20046 R 15.2%46 R —%R 2.5% 11.3% $1,812,400 4.5% 22.2% 3.2% 47.6% 38.7% 8.5% 2.3x
Hancock Fabrics 1/30/2005 1,758 -89.9 -83.5 0.4 1.4 426,691 -3.8 10.8 -4.2 49.0 46.3 8.1 1.4
MEDIAN -37.4 -83.5 1.5 6.4 0.4 16.5 -0.5 48.3 42.5 8.3 1.9
HOME IMPROVEMENT
Home Depot 1/30/2005 $5,001,000 16.2% 93.8% 6.8% 20.7% $73,094,000 12.8% 59.8% 5.4% 33.4% 22.6% 0.2% 5.1x
Lowe's 1/28/2005 2,176,000R 18.047 R 6.0 18.9 36,464,000 18.2 6.6 33.7 20.7 3.7 4.6
MEDIAN 17.1 93.8 6.4 19.8 15.5 59.8 6.0 33.6 21.7 2.0 4.9


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