Red Ink Darkens for Wilsons

by MR Magazine Staff

NEW YORK – Still unable to regain its footing after a move into private labels, Wilsons The Leather Experts saw its first quarter loss more than triple on sharply lower sales.

In the three months ended May 5, the net loss came to US$21.3 million, or $0.54 a diluted share, versus a $6.5 million, or $0.17, loss in the 2006 quarter. The loss per share is $0.20 greater than the one expected by analysts.

Sales withered 22.9% to $57.6 million from $74.7 million a year ago as same-store sales contracted 20.8%. Gross margin was cut by more than half to 11.2% of sales in this year’s quarter from 26.4% in the first quarter of last year.

“It is clear from our transaction volume, which is down significantly to last year, the ‘price only customer’ has opted out,” said Michael Searles, chairman and chief executive officer of the Minneapolis, Minnesota-based leather outerwear specialist. “While we do not have the technology to measure conversion rates in all stores, we do know that the customers who are coming in to most stores are spending more than they did last year. Dollars per transaction are up 16% year-over-year.

“We just do not have enough new customers to offset the ones who have left us,” he continued. “It is clear that attracting new customers needs to be our key focus as we move into fall.”

In March, when Wilsons reported a 71.3% drop in profits for the fourth quarter, the key selling season for outerwear, Searles suggested that Wilsons had become too dependent on its own label.

“As we build our Wilsons Leather brand,” he said, “we have made a strategic decision to dedicate a portion of our inventory starting this fall to recognizable outerwear brands to increase the willingness of our customers to cross the lease line.”

At the end of the first quarter, Wilsons operated 414 stores in 45 states.