Bon-Ton Halves Q1 Losses, Shows Operating Profit

Soft Home Categories Contribute to Margin Gains

Retail Editor 5, James Mammarella, May 24, 2010

As Bon-Ton Stores showed progress in its multi-year swing back to profitability, the soft home area was part of the good news, company executives noted during the first quarter conference call last week.

On a sales gain of 2.6% to $661.4 million, 278-store Bon-Ton eked out an operating profit of $5.6 million, swinging into black ink from the operating loss of $23.6 million in the same quarter one year ago.

Bon-Ton essentially halved its quarterly net loss to $23.5 million from $45.4 million. On a diluted per share basis, the net loss was $1.33, improved from the loss of $2.67 in the year-ago quarter.

Comparable store sales rose 3%, the company reported.

Bud Bergren, president and ceo, told analysts that Bon-Ton realized its highest first quarter gross margin rates “in the last several years” during the quarter ended May 1, 2010. The increase of 260 basis points took average gross margin up to 37.4% of sales, from 34.8% in the same period one year ago.

The northern regional department store merchant also benefited by continued discipline on overhead -- pressing down SG&A to 34.5% of sales from 36.7% one year ago -- and inventory. Vice chairman and president-merchandising Tony Buccina said clearance inventory was down 14% year-over year in the quarter.

Buccina said that Bon-Ton's private brands made up about 62% of “differentiated merchandise” (as measured against competing retailers) in the quarter, and this was a key factor in driving gross margin gains. Among the private brands he singled out was Living Quarters, the company's major internally-developed home furnishings statement.

First-quarter merchandise sales, said Buccina, were best in shoes, accessories, children's, coats and soft home. He characterized two categories as “tough,” namely hard home and furniture. But, he said, furniture still performed “better than expected.”

Bergren told analysts that Bon-Ton foresees a “choppy” business environment over the next three quarters, but was bolstered enough by above-plan Q1 results to upgrade its full year outlook.

Keith Plowman, evp and cfo, projected eps of 80 cents to $1.60 for the year. In March, the company had forecast full year eps of 30 cents to $1.10.

The new guidance, Plowman said, is built on assuming comps of 1% to 3% for the year, a gross margin rate of 37.2% to 37.3%, and a further $20 million to $25 million reduction in SG&A costs.

The company, which does business under the Bon-Ton, Bergner's, Boston Store, Carson Pirie Scott, Elder-Beerman, Herberger's, Younkers, and Parisian nameplates, said that its two strongest Q1 markets were Detroit and Minneapolis. Overall, Minnesota, Wisconsin, Michigan and New York were above company average, with central Pennsylvania weakest.

The Bon-Ton Stores, Inc. & Subsidiaries

Qtr. 5/1 (millions) 2010 2009 % change
a. Net sales. Other 2010 Q1 income decreased $4.6 million to $13.8 million, compared with $18.4 million in 2009 Q1. The 2010 Q1 amount reflects reduced leased department income, the result of the late 2009 conversion of fine jewelry to an owned department, and reduced income from Bon-Ton Stores proprietary credit card.
Sales 661.4a $644.5a 2.6%
Oper Income (EBIT) $5.6 ($23.6) --
Net income ($23.5) ($45.4) --
Per share (diluted) ($1.33) ($2.67) --
Average gross margin 37.4% 34.8% --
SG&A expenses 34.5% 36.7% --

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