Gottschalks Blames Higher Q1 Loss on Home

by MR Magazine Staff

NEW YORK – Weakness in home goods overshadowed “solid trends” in footwear and several apparel categories, dropping regional department store operator Gottschalks Inc. to a larger loss in the first quarter.

In the 13 weeks ended May 5, the Sacramento, Calif.-based regional department store operator suffered a net loss of $4.7 million, or $0.34 a diluted share, higher than the year-ago loss of $4 million, or $0.30. The loss in the 2006 quarter included $0.01 a share for discontinued operations.

Analysts, on average, had expected a loss of $0.33.

Net sales declined 0.7% to $141.8 million from $142.7 million and were off 0.8% on a same-store basis. Including credit income and leased departments, revenues dropped 0.4% to $143.5 million.

Gross margin, excluding discontinued operations, fell to 32.9% of sales from 33.4%.

“Our sales results and gross margin for the quarter were lower than we expected, primarily due to weakness in our home store merchandise,” said Jim Famalette, president and chief executive officer. “However, we continued to see solid trends in our core merchandise categories, including shoes, dresses, sportswear and special sizes. In addition, we achieved greater credit card sales penetration and increased credit revenue for the first quarter as a result of our new and enhanced agreement for the operation of our proprietary credit card business.”

He also reported that SG&A (selling, general and administrative) expenses as a percent of sales fell, “which is a reflection of our focus on expense management. Despite a more challenging sales environment, we were able to achieve bottom line results in line with our internal projections.”

A special committee of Gottschalks is evaluating strategic alternatives for the business, but the company continued its policy of not disclosing details about the process “unless and until the board of directors has approved a specific transaction.”

With 59 department stores and four apparel specialty stores in six states in the western US, Gottschalks is among the smallest publicly held department store retailers.

The company’s shares were up $0.45, or 3.5%, to close at $13.15 in New York Stock Exchange trading Tuesday, prior to its earnings report, but fell $1.03, or 7.8%, to $12.12 in after-hours trading.