Retail Ventures Explores Profitability

Don Hogsett, September 13, 2004

Steering toward a turnaround, helped by rising sales and stronger margins, Retail Ventures Inc. — parent of Value City and Filene's Basement — recorded a second quarter profit of $1.2 million, recovering from a prior-year loss of $3.6 million.

Sales at the off-price retailer increased 4.5 percent, to $631.7 million from $604.6 million the preceding year. But same-store sales drifted down 1.7 percent, held in check by a 5.6 percent decline at the core Value City Department Store franchise.

But two other retail formats both recorded improving comps. Same-store sales at DSW Shoe Warehouse rose 2.8 percent, compared with a prior-year gain of 4.5 percent; and same-store sales at Filene's Basement gained 5.1 percent versus a year-before gain of 0.3 percent.

In addition to rising sales, the retailer recorded licensing fees and other income of $1.6 million, a 2.1 percent improvement over $1.3 million during the same period a year ago.

Aiding the bottom-line recovery, average gross margin strengthened 200 basis points, or 2 percentage points, to 41.1 percent from 39.1 percent a year ago.

But acting as a drag and partially offsetting improving margins were higher costs. Measured as a percentage of sales; selling, general and administrative expenses rose 60 basis points, or six-tenths of a percentage point, to 39.5 percent from 38.9 percent a year ago.

Putting further downward pressure on earnings, stockpiles climbed faster than sales during the second quarter, rising 8.5 percent, to $517.5 million from $477.2 million, running ahead of a smaller sales gain of 4.5 percent.

Reflecting weakness earlier during the year, the retailer posted a small loss of $387,000 for the six months year to date, compared with a prior-year loss of $16.8 million. Sales for the six months increased 7.1 percent, to $1.3 billion from $1.2 billion, while same-store sales increased 1.2 percent, improving over a prior-year decline of 1.5 percent.

Retail Ventures Inc.

Qtr. 7/31 (x000) 2004 2003 % change
a-Second quarter results include a $797,000 provision for income tax, compared with a year before income tax benefit of $2.6 million.
b-Six month results include a $265,000 income tax benefit, compared with a prior-year income tax benefit of $11.9 million income tax benefit.
Sales $631,654 $604,594 4.5
Oper. Income (EBIT) 10,305 1,481 595.8
Net income 1,160a (3,648)a --
Per share (diluted) 0.03 (0.11) --
Average gross margin 41.1% 39.1% --
SG&A expenses 39.5% 38.9% --
Six months 2004 2003 % CHANGE
Sales 1,277,954 1,193,126 7.1
Oper. Income (EBIT) 15,534 (11,833) --
Net income (387)b (16,821)b --
Per share (diluted) (0.01) (0.50) --
Average gross margin 40.6% 38.0% --
SG&A Expenses 39.4% 39.0% --

2Q Same Store Sales By Segment

2004 2003
Value City Department Stores -5.6% 0.6%
DSW Shoe Warehouse 2.8 4.5
Filene's Basement 5.1 0.3
Total -1.7 1.6

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