Gottschalks' sales dip results in flat profits

Don Hogsett, Meredith Schwartz, March 18, 2002

Stunted by a steep dropoff in sales that offset stronger margins and sharply lower costs and interest expense, fourth-quarter profits at Gottschalks Inc. were virtually flat, edging up just 0.3 percent, to $10.4 million.

Acting as a drag on the bottom line, sales in the crucial Christmas quarter fell by 6.9 percent, to $241.1 million from $258.9 million, hobbled by one less week of sales than last year, and five fewer stores in operation. Same-store sales declined by 1.1 percent in a persistently weak environment for full-price department stores.

Taking a big bite out of sales, during the fourth quarter the retailer shut down four Village East specialty stores and a Gottschalks department store in Seattle, acquired during the Lamonts acquisition in July 2000. Merchandise from the Village East stores was integrated into adjacent Gottschalks department stores.

Despite the retail environment, Gottschalks managed to beef up margins, reduce its inventories at a double-digit pace and steadily hack away at costs.

Working on lower stockpiles — down 12 percent on a year-over-year basis — and so less pressured to markdown goods in a promotional holiday season, Gottschalks widened its margins by 50 basis points, to 34.0 percent of sales from 33.5 percent a year ago.

Even on the lower level of sales, the California-based retailer scaled back its operating costs by 30 basis points, to 25.5 percent of sales from 25.8 percent. More importantly, measured in absolute dollars, Gottschalks cut its costs by 7.9 percent, to $61.6 million from $66.8 million last year, a cash savings of $5.2 million.

And paying down its long-term debt, the retailer cut its interest expense by 26.0 percent, to $3.3 million from $4.4 million the prior year, another cash savings, of $1.2 million.

Jim Famalette, president and ceo, commented: "Our efforts to focus on direct marketing campaigns, especially those utilizing predictive modeling techniques, have resulted in higher customer spending rates per event. We anticipate increasing the use of this type of marketing approach in 2002. While our total sales for the quarter decreased compared to the prior year, this year had one less week than 2000 and we operated with five fewer stores. In light of the continuing difficult retail environment, it is worth noting our comparable-store sales performance for the quarter was at the high end of our industry peer group."

Gottschalks Inc.

Qtr. 2/2/02 (x000) 2002 2001 % CHG
Average gross margin and SG&A expenses are calculated as a percentage of net sales, excluding credit revenues and leased department sales.
a-Net sales. Overall fourth-quarter sales, including credit and leased department, declined by 7.1 percent, to $244,631. Credit revenues in the period declined by 27.7 percent, to $2.1 million from $2.9 million. For all of last year, total company sales increased by 7.1 percent overall sales, with credit revenues falling by 8.0 percent, to $8.4 million from $9.2 million.
b-Fourth-quarter results include miscellaneous income of $530,000, compared with $355,000 a year ago; and also include a $429,000 charge stemming form the early retirement of debt. 12-month results include $1.6 million in miscellaneous income vs. $1.4 million last year; and the one-time charge of $429,000 from the early retirement of debt.
Sales $241,138a $258,900a -6.9
Oper. income (EBIT) 20,365 20,980 -2.9
Net income 10,409b 10,381b 0.3
Per share (diluted) 0.82 0.82 0.0
Average gross margin 34.0% 33.5%
SG&A expenses 25.5% 25.8%
12 months
Sales 710,702a 663,868a 7.1
Oper. income (EBIT) 14,156 23,789 -40.5
Net income 425b 7,079b -94.0
Per share (diluted) 0.82 0.82 0.0
Average gross margin 33.8% 34.7%
SG&A expenses 31.5% 30.4%

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