Retail Ventures Boosts Margins, Pushes Home

Don Hogsett, June 19, 2006

Columbus, Ohio Climbing back on track after a string of disappointing results, diversified off-pricer Retail Ventures Inc. (RVI) boosted same-store sales, plumped up margins, whittled down costs, paid down debt and hacked away at interest costs, producing a first-quarter operating profit of $13.1 million, reversing a prior-year loss of $11.0 million.

But nicked by a one-time, non-cash charge of $59.4 million stemming from a change in the value of warrants issued by the retailer to some of its lenders, the company recorded a widening paper loss of $59.4 million, compared with last year's $11.5 million deficit.

In its conference call, president and ceo Heywood Wilansky said the turnaround in the company's home categories is very encouraging, increasing 3.6% at the Filene's Basement division. In the Value City discount chain, where home departments had been strategically trimmed 10 months ago, there is good news in those categories that are being championed: “In the domestics and housewares businesses we're running comps again in that mid-single-digit trend already, when we take out the businesses that we've given up.” Wilansky said the trend in home is “equal to or better than the total company” gain.

Wilansky said seasonal goods such as summer furniture, a direct import business, are showing “price points up a little and the business is up high-double digits.” He praised the work of former Garden Ridge president and ceo Paul Davies, who was brought in by RVI in January to oversee the home area.

Wilansky said Davies “will get home structured with 50% to 60%” of the business in upfront replenishable programs, and as much as 40% in opportunistic buys.

In a major top-line turnaround by RVI, same-store sales improved by 3.5% during the opening quarter after sliding down by 2.5% during the same period last year, helped by a major rebound at Value City. There, same-store sales climbed by 2.5%, climbing back from a deep decline of 7.9% a year, ago, a swing of more than 10% over the past 12 months.

Tweaking key performance metrics, the retailer widened margins and cut its costs. Average gross margin improved by 80 basis points, or eight-tenths of a percentage point, to 40.3% from 39.5%, boosting gross margin dollars by 8.3%, or $22.2 million, to $290.6 million. At the same time, costs were pared by 260 basis points, or 2.6 percentage points, to 38.5% of sales from 41.1% a year ago. Measured in absolute dollars, costs were reduced by 0.7%, to $277.5 million, yielding a cash savings of $1.8 million.

In another big savings, the retailer hacked away at debt levels and interest costs. Debt service was slashed by 74.1%, to $2.5 million from $9.6 million, as the retailer worked long-term debt down 47.2%, to $181.3 million from $343.7 million.

Saving the company even more money, inventories were unchanged at $541.7 million, even though sales were boosted by 6.1%.

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