20.11.2008 11:00:00

Stage Stores Announces Third Quarter Results; Provides Updated Fourth Quarter and Full Year Guidance

Stage Stores, Inc. (NYSE:SSI) today reported a loss for the third quarter ended November 1, 2008 of $102.8 million, or $2.66 per diluted share, compared to net income of $2.4 million, or $0.06 per diluted share, for the prior year third quarter ended November 3, 2007. This year’s third quarter results include a non-cash goodwill impairment charge of $95.4 million, or $2.47 per diluted share. Without the impairment charge, the Company’s net loss was $7.4 million, or $0.19 per diluted share.

The Company’s sales for the third quarter were $333.8 million as compared to sales of $355.1 million last year. Comparable store sales for the third quarter decreased 10.3%, or 7.6% excluding the estimated impact of Hurricanes Gustav and Ike, versus a decrease of 1.0% in the prior year period.

Total sales for the nine-month period ended November 1, 2008 were $1,060.0 million versus $1,072.5 million for the prior year nine-month period. Comparable store sales decreased 5.6% versus a decrease of 0.1% in the prior year period. The Company reported a net loss for the nine-month period of $90.9 million, or $2.37 per diluted share, compared to net income of $21.4 million, or $0.49 per diluted share, last year. Without the impairment charge, the Company’s net income for the nine-month period was $4.5 million, or $0.12 per diluted share.

Andy Hall, President and Chief Executive Officer, commented, "Our third quarter operating results reflect the current difficult retail environment combined with the loss of approximately $10 million in sales due to the hurricanes. While we are disappointed with our financial results, we are pleased with our accomplishments regarding the management of our inventory levels and expenses. At quarter end, our inventories were down approximately 13.0% on a comparable store basis, and our SG&A expenses for the third quarter were $2.2 million below last year despite operating 44 more stores.

"Despite the challenging environment, our year-to-date cash flow from operating activities exceeded last year by $33.0 million,” Mr. Hall continued. "Additionally, we will end fiscal 2008 with less debt than we ended fiscal 2007 while opening 56 new stores and a new distribution center. Looking ahead to next year, we think it prudent in light of the current economic conditions to moderate our fiscal 2009 store opening program to between 30 and 40 stores. This will allow us to reduce next year’s capital expenditures to $55.0 million versus this year’s expected capital spend of approximately $80.0 million.

"For the fourth quarter, we will continue to focus on the things that we can control, such as providing our customers with exceptional service and trend-right merchandise assortments, re-ordering merchandise with strong sell-throughs, offering our customers compelling values, executing an aggressive marketing campaign, conservatively managing our inventory levels, and controlling our expenses,” Mr. Hall concluded.

Non-Cash Goodwill Impairment Charge

Under U.S. GAAP, goodwill is not amortized, but rather is tested for impairment at least annually. These tests are performed more frequently if there are triggering events. As a result of the decline in the market capitalization for the Company and other factors, the Company determined that an interim impairment test was necessary during the third quarter.

Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, prescribes a two-step method for determining goodwill impairment. The Company has historically employed various methodologies to determine fair value of the Peebles reporting unit. These tests rely on market valuation multiples, comparable transaction multiples, and the expected cash flows of the reporting unit. Given the recent reduction in market multiples, and the current challenging economic environment and its impact on the Peebles reporting unit’s sales and earnings performance, the Company determined that a total write-off of the goodwill related to the Peebles and B.C. Moore acquisitions was warranted. This resulted in a goodwill impairment charge in the third quarter of $95.4 million, or $2.47 per diluted share. This is a non-cash charge which does not affect the company’s revolving credit facility covenants or cash flows.

Fiscal 2008 - Fourth Quarter and Updated Full Year Projections

Commenting on the Company’s projections, Mr. Hall stated, "We are not forecasting an improvement in the current economic climate. As such, we are projecting that our fourth quarter comparable store sales will be down 8.0% to 10.0%.”

4th Quarter 2008:

       
 
4Q 2008 OUTLOOK 4Q 2007 ACTUAL
Sales ($mm) $448     -     $457 $473.0
 
Net Income ($mm) $24.6 - $26.8 $31.7
 
Diluted EPS $0.64 - $0.70 $0.78
 
Diluted Shares (m) 38,200 40,462
 

FY 2008:

   
 
FY 2008 OUTLOOK FY 2007 ACTUAL
Sales ($mm) $ 1,508   -   $ 1,517 $1,545.6
 
Net Income ($mm) $ (66.4 ) - $ (64.1 ) $53.1
Goodwill Impairment   95.4   -   95.4   -
Non-GAAP Net Income $ 29.0 - $ 31.3 -
 
Diluted EPS $ (1.73 ) - $ (1.67 ) $1.24
Goodwill Impairment   2.48   -   2.48   -
Non-GAAP Diluted EPS $ 0.75 - $ 0.81 -
 
Diluted Shares (m) 38,400 42,720
  • FY 2008 results include a non-cash goodwill impairment charge of $95.4 million, or $2.48 per diluted share. Without the impairment charge, the Company’s net income outlook would be $29.0 million to $31.3 million, or $0.75 to $0.81 per diluted share.
  • FY 2007 results include a non-comparable gain of $1.7 million, or $0.04 per diluted share, related to the March 2004 sale of the Peebles private label credit card portfolio.

Conference Call Information

The Company will host a conference call today at 8:30 a.m. Eastern Time to discuss its third quarter results. Interested parties can participate in the Company’s conference call by dialing 703-639-1112. Alternatively, interested parties can listen to a live webcast of the conference call by logging on to the Company's web site at www.stagestores.com and then clicking on Investor Relations, then Webcasts, then the webcast link. A replay of the conference call will be available online until midnight on Friday, November 28, 2008.

About Stage Stores

Stage Stores, Inc. brings nationally recognized brand name apparel, accessories, cosmetics and footwear for the entire family to small and mid-size towns and communities through 744 stores located in 38 states. The Company operates under the Bealls, Palais Royal and Stage names throughout the South Central, Southwestern and Northwestern states, and under the Peebles name throughout the Midwestern, Southeastern, Mid-Atlantic and New England states. For more information about Stage Stores, visit the Company’s web site at www.stagestores.com.

Caution Concerning Forward-Looking Statements

This document contains "forward-looking statements”. Forward-looking statements reflect our expectations regarding future events and operating performance and often contain words such as "believe", "expect", "may", "will", "should", "could", "anticipate", "plan" or similar words. In this document, forward-looking statements include comments regarding the number of new stores that the Company plans to open in the 2009 fiscal year, as well as comments regarding the Company’s sales and earnings projections for the fourth quarter of the 2008 fiscal year and full 2008 fiscal year. Forward-looking statements are subject to a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include, but are not limited to, those described in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the "SEC") on April 1, 2008 and other factors as may periodically be described in our other filings with the SEC. Forward-looking statements speak only as of the date of this document. We do not undertake to update our forward-looking statements.

Stage Stores, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except earnings per share)
(Unaudited)
       
Thirteen Weeks Ended
November 1, 2008 November 3, 2007
Amount % to Sales (1) Amount % to Sales (1)
 
Net sales $ 333,756 100.0 % $ 355,147 100.0 %

Cost of sales and related buying, occupancy and distribution expenses

  259,036   77.6 %   260,898 73.5 %
Gross profit 74,720 22.4 % 94,249 26.5 %
Selling, general and administrative expenses 84,417 25.3 % 86,651 24.4 %
Store opening costs 2,340 0.7 % 2,459 0.7 %
Goodwill impairment 95,374 28.6 % - 0.0 %
Interest expense   1,365   0.4 %   1,210 0.3 %
(Loss) income before income tax (108,776 ) -32.6 % 3,929 1.1 %
Income tax (benefit) expense   (5,980 ) -1.8 %   1,483 0.4 %
Net (loss) income $ (102,796 ) -30.8 % $ 2,446 0.7 %
 
Basic and diluted earnings per share data:
Basic (loss) earnings per share $ (2.66 ) $ 0.06
Basic weighted average shares outstanding   38,603     41,400
 
Diluted (loss) earnings per share $ (2.66 ) $ 0.06
Diluted weighted average shares outstanding   38,603     42,258
 
 

Supplemental Information

 
Net (loss) income:
On a U.S. GAAP basis $ (102,796 ) $ 2,446
Goodwill impairment   95,374     -
On a non-GAAP basis $ (7,422 ) $ 2,446
 
Diluted (loss) earnings per share:
On a U.S. GAAP basis $ (2.66 ) $ 0.06
Goodwill impairment   2.47     -
On a non-GAAP basis $ (0.19 ) $ 0.06
 
 
(1) Percentages may not foot due to rounding.
 
Stage Stores, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except earnings per share)
(Unaudited)
       
Thirty-Nine Weeks Ended
November 1, 2008 November 3, 2007
Amount % to Sales (1) Amount % to Sales (1)
 
Net sales $ 1,059,999 100.0 % $ 1,072,596 100.0 %

Cost of sales and related buying, occupancy and distribution expenses

  783,123   73.9 %   774,535 72.2 %
Gross profit 276,876 26.1 % 298,061 27.8 %
Selling, general and administrative expenses 261,277 24.6 % 256,889 24.0 %
Store opening costs 5,879 0.6 % 3,700 0.3 %
Goodwill impairment 95,374 9.0 % - 0.0 %
Interest expense, net of income of $11 and $0, respectively   3,887   0.4 %   3,048 0.3 %
(Loss) income before income tax (89,541 ) -8.4 % 34,424 3.2 %
Income tax expense   1,329   0.1 %   12,995 1.2 %
Net (loss) income $ (90,870 ) -8.6 % $ 21,429 2.0 %
 
Basic and diluted earnings per share data:
Basic (loss) earnings per share $ (2.37 ) $ 0.50
Basic weighted average shares outstanding   38,396     42,438
 
Diluted (loss) earnings per share $ (2.37 ) $ 0.49
Diluted weighted average shares outstanding   38,396     43,473
 
 

Supplemental Information

 
Net (loss) income:
On a U.S. GAAP basis $ (90,870 ) $ 21,429
Goodwill impairment   95,374     -
On a non-GAAP basis $ 4,504   $ 21,429
 
Diluted (loss) earnings per share:
On a U.S. GAAP basis $ (2.37 ) $ 0.49
Goodwill impairment   2.48     -
On a non-GAAP basis $ 0.12   $ 0.49
 
(1) Percentages may not foot due to rounding.
 
Stage Stores, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except par values)
(Unaudited)
   
November 1, 2008 February 2, 2008
 

ASSETS

Cash and cash equivalents $ 16,211 $ 17,028
Merchandise inventories, net 427,816 342,622
Prepaid expenses and other current assets   39,312     43,589  
Total current assets 483,339 403,239
 
Property, equipment and leasehold improvements, net 360,046 329,709
Goodwill - 95,374
Intangible asset 14,910 14,910
Other non-current assets, net   20,641     28,258  
Total assets $ 878,936   $ 871,490  

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable $ 169,253 $ 94,505
Current portion of debt obligations 9,984 6,158
Accrued expenses and other current liabilities   66,841     66,538  
Total current liabilities 246,078 167,201
 
Debt obligations 107,889 94,436
Other long-term liabilities   95,344     89,007  
Total liabilities   449,311     350,644  
 
Commitments and contingencies
 

Common stock, par value $0.01, 100,000 shares authorized, 55,826 and 55,113 shares issued, respectively

558 551
Additional paid-in capital 492,317 479,960
Less treasury stock - at cost, 17,586 and 16,907 shares, respectively (284,640 ) (277,691 )
Accumulated other comprehensive loss (1,766 ) (1,766 )
Retained earnings   223,156     319,792  
Stockholders' equity   429,625     520,846  
Total liabilities and stockholders' equity $ 878,936   $ 871,490  
 
Stage Stores, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
   
 
Thirty-Nine Weeks Ended
November 1, 2008 November 3, 2007
 
Cash flows from operating activities:
Net (loss) income $ (90,870 ) $ 21,429
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization 43,615 35,901
Deferred income taxes 330 (963 )
Stock-based compensation tax benefits 1,564 3,853
Stock-based compensation expense 5,717 5,453
Amortization of debt issue costs 191 188
Goodwill impairment 95,374 -
Excess tax benefits from stock-based compensation (2,270 ) (3,794 )
Deferred compensation 396 -
Construction allowances from landlords 18,921 19,678
Changes in operating assets and liabilities:
Increase in merchandise inventories (85,194 ) (108,305 )
Decrease (increase) in other assets 12,899 (371 )
Increase in accounts payable and other liabilities   66,897     61,502  
Total adjustments   158,440     13,142  
Net cash provided by operating activities   67,570     34,571  
 
Cash flows from investing activities:
Additions to property, equipment and leasehold improvements (79,710 ) (64,093 )
Proceeds from sale of property and equipment   3     31  
Net cash used in investing activities   (79,707 )   (64,062 )
 
Cash flows from financing activities:
Proceeds from (payments on):
Borrowings under revolving credit facility, net 2,124 89,510
Repurchases of common stock (6,949 ) (62,540 )
Finance lease obligations 1,625 1,850
Equipment financing 18,961 -
Debt obligations (5,431 ) (103 )
Debt issuance costs (190 ) (258 )
Exercise of stock options and stock appreciation rights 4,687 5,643
Excess tax benefits from stock-based compensation 2,270 3,794
Cash dividends   (5,777 )   (6,382 )
Net cash provided by financing activities   11,320     31,514  
Net (decrease) increase in cash and cash equivalents (817 ) 2,023
 
Cash and cash equivalents:
Beginning of period   17,028     15,866  
End of period $ 16,211   $ 17,889  
 

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