DUCK Alco Stores, Inc. (MM)

Duckwall-ALCO Stores, Inc. (Nasdaq:DUCK), which specializes in providing a superior selection of essential consumer products for everyday life in underserved communities, today announced operating results for its second quarter ended July 31, 2011.

Net sales from continuing operations for the second quarter of fiscal 2012 increased 7.9% to $122.0 million, compared to second quarter of fiscal 2011.Same-store sales, excluding fuel center sales, increased 7.2%. Net sales from continuing operations for the first half of fiscal 2012 increased 6.8% to $236.2 million, compared to a year earlier. Same-store sales, excluding fuel center sales, increased 5.2%.

Net earnings for the second quarter of fiscal 2012 were $1.2 million, or $0.32 per diluted share, compared to a net loss of $1.1 million, or $0.28 per diluted share, for the second quarter of fiscal 2011.  Net loss for the first half of fiscal 2012 was $0.6 million, or $0.16 per diluted share, compared to a net loss of $3.3 million, or $0.87 per diluted share, for the same period of the prior year.

Richard Wilson, President and CEO, commented, "The improved operating results in the first half of fiscal 2012 demonstrate the progressive benefit of changes we have implemented. Merchandising strategies and cost-reduction initiatives have enabled us to deliver strong same-store sales growth while achieving better operating results as we progress through the year. Gross margin has improved from first to second quarter as a result of the increased sales performance of departments such as Apparel, Housewares and Domestics. Top-line growth continues to be strong in other departments such as Consumables, Electronics, and Sporting Goods."

Wilson added, "While the Company maintains a primary focus on serving small-town America, we are excited to announce an addition to our growth strategy. We are launching a pilot project to add future store locations in selected urban markets where the ALCO value proposition and shopping experience can offer superior convenience to consumers. During the second half of fiscal 2012, the Company anticipates opening ALCO stores in Grand Prairie, Texas (a suburb of Dallas, Texas), and in Houston, Texas. We believe these stores in more densely populated areas will reach a higher volume of customers with merchandise that meets their basic daily shopping needs."

Wilson concluded, "We continue to build momentum across the Company and are focused on achieving further improvement of the business through future initiatives."

During the second quarter, the Company entered a five-year revolving credit agreement with Wells Fargo Bank, National Association and Wells Capital Finance, LLC. The $120 million revolving credit facility replaced the Company's previous $120 million credit facility and expires July 20, 2016. Benefits include a 150 basis point reduction in interest rates, access to more availability through an increase of advance rates on collateral, a streamlined treasury management process and an extended term. The Company recognized a one-time, non-cash after-tax charge of approximately $0.3 million, or $0.08 per share, in the second quarter ended July 31, 2011. This charge was the result of accelerated recognition of certain deferred financing fees from the Company's previous revolving credit agreement.

The Company disclosed an anticipated insurance settlement that will benefit third-quarter earnings. On June 1, 2011, the Company's corporate office and distribution center in Abilene, Kansas, sustained cosmetic roof damage as the result of wind and hail. On August 29, 2011, the Company received notification from the insurer of a tentative settlement for an appearance allowance for the property damage. The insurer noted that no repair is needed or advised. The Company anticipates it will finalize the settlement with the insurer and receive proceeds during the third quarter of fiscal 2012. At that time, the Company intends to record estimated pre-tax income of approximately $2.0 million related to the settlement.

Investor Conference Call

The Company will host an investor conference call at 10:00 a.m. Central Time on Friday, September 9, 2011, to discuss operating results for the second quarter ended July 31, 2011. The dial-in number for the conference call is 877-704-5378 (international/local participants dial 913-312-0416), and the Confirmation Code is 4473968. Parties interested in participating in the conference call should dial in approximately five minutes prior to 10:00 a.m. Central Time. A replay of the call will be available after 1:30 p.m. Central Time September 9, 2011, through September 13, 2011, by dialing 888-203-1112 (international/local participants dial 719-457-0820), and the Confirmation Code is 4473968. A replay of the call will also be available four hours after completion of the call by visiting the Investors page on the Company's website, www.ALCOstores.com.

Supplemental Data

The Company has included certain tables in this press release that are set forth fully in the Company's 10-Q.

Certain Non-GAAP Financial Measures

The Company has included Adjusted Gross Margin and Adjusted EBITDA, non-GAAP performance measures, as part of its disclosure as a means to enhance its communications with stockholders. Certain stockholders have specifically requested this information to assist them in comparing the Company to other retailers that disclose similar non-GAAP performance measures. Further, management utilizes these measures in internal evaluation, review of performance and in comparing the Company's financial measures to those of its peers. Adjusted EBITDA differs from the most comparable GAAP financial measure (earnings [loss] from continuing operations) in that it does not include certain items, as does Adjusted Gross Margin. These items are excluded by management to better evaluate normalized operational cash flow and expenses excluding unusual, inconsistent and non-cash charges.  To compensate for the limitations of evaluating the Company's performance using Adjusted Gross Margin and Adjusted EBITDA, management also utilizes GAAP performance measures such as gross margin, return on investment, return on equity and cash flow from operating activities.  As a result, Adjusted Gross Margin and Adjusted EBITDA may not reflect important aspects of the results of the Company's operations.

About Duckwall-ALCO Stores, Inc.

Duckwall-ALCO Stores, Inc. is a regional broad line retailer that specializes in meeting the needs of smaller, underserved communities across 23 states, primarily in the central United States. The Company offers an exceptional selection of quality products and recognized brand names at reasonable prices. Its specialty is delivering those products with the friendly, personal service its customers have come to expect. With 213 ALCO stores, the Company is proud to have continually provided excellent products at good value prices to its customers for 110 years. To learn more about the Company visit www.ALCOstores.com. The Duckwall-ALCO Stores, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=5865

Forward-looking statements

This press release contains forward-looking statements, as referenced in the Private Securities Litigation Reform Act of 1995 ("the Act"). Forward-looking statements can be identified by the inclusion of "will," "believe," "intend," "expect," "plan," "project" and similar future-looking terms. You should not rely unduly on these forward-looking statements. These forward-looking statements reflect management's current views and projections regarding economic conditions, retail industry environments, and Company performance. Forward-looking statements inherently involve risks and uncertainties, and, accordingly, actual results may vary materially. Factors which could significantly change results include but are not limited to: sales performance, expense levels, competitive activity, interest rates, changes in the Company's financial condition, and factors affecting the retail category in general. Additional information regarding these and other factors may be included in the Company's 10-Q filings and other public documents, copies of which are available from the Company on request and are available from the United States Securities and Exchange Commission.  

Duckwall-ALCO Stores, Inc.
Statements of Operations
(dollars in thousands, except share and per share amounts)
(Unaudited)
	Thirteen Week Periods Ended		Twenty-Six Week Periods Ended
	July 31, 2011	August 1, 2010	July 31, 2011	August 1, 2010
Net sales	$ 121,991	$ 113,051	$ 236,214	$ 221,145
Cost of sales	84,072	76,990	165,195	151,968
Gross margin	37,919	36,061	71,019	69,177
Selling, general and administrative	32,095	34,628	64,961	67,883
Depreciation and amortization expenses	2,138	2,489	4,327	4,963
Total operating expenses	34,233	37,117	69,288	72,846
Operating income (loss) from continuing operations	3,686	(1,056)	1,731	(3,669)
Interest expense	1,649	721	2,718	1,395
Earnings (loss) from continuing operations before income taxes	2,037	(1,777)	(987)	(5,064)
Income tax expense (benefit)	755	(609)	(369)	(1,674)
Earnings (loss) from continuing operations	1,282	(1,168)	(618)	(3,390)
Earnings (loss) from discontinued operations, net of income tax expense (benefit)of $32, ($67), $8, and ($35), respectively	(52)	109	(12)	57
Net income (loss)	$ 1,230	$ (1,059)	$ (630)	$ (3,334)
Earnings (loss) per share
Basic
Continuing operations	$ 0.33	$ (0.31)	$ (0.16)	$ (0.89)
Discontinued operations	(0.01)	0.03	0	0.02
Net earnings (loss) per share	$ 0.32	$ (0.28)	$ (0.16)	$ (0.87)
Earnings (loss) per share
Diluted
Continuing operations	$ 0.33	$ (0.31)	$ (0.16)	$ (0.89)
Discontinued operations	(0.01)	0.03	0.00	0.02
Net earnings (loss) per share	$ 0.32	$ (0.28)	$ (0.16)	$ (0.87)
Weighted-average shares outstanding:
Basic	3,842	3,836	3,842	3,823
Diluted	3,842	3,836	3,842	3,823
	Thirteen Week Periods Ended		Twenty-Six Week Periods Ended
	July 31, 2011	August 1, 2010	July 31, 2011	August 1, 2010
Same-store adjusted gross margin dollar change	7.3%	(1.5%)	5.1%	(1.8%)
Same-store SG&A dollar change	(3.6%)	2.5%	(2.1%)	0.8%
Same-store total customer count change	(1.9%)	(4.7%)	(3.0%)	3.9%
Same-store average sale per ticket change	6.8%	0.7%	8.5%	(0.9%)

Duckwall-ALCO Stores, Inc.
Schedule of Adjusted EBITDA
(dollars in thousands, except share and per share amounts)
(Unaudited)
		Thirteen Week Periods Ended		Trailing 52 Weeks Ended	Thirteen Week Periods Ended		Trailing 52 Weeks Ended
(dollars in thousands)	Fiscal 2011	May 1, 2011	May 2, 2010	May 1, 2011	July 31, 2011	August 1, 2010	July 31, 2011
Net earnings (loss) from continuing operations (1)	$ (3,471)	(1,900)	(2,221)	(3,150)	1,282	(1,168)	(700)
Plus:
Interest	3,502	1,069	674	3,897	1,649	721	4,825
Tax expense (benefit) (1)	(2,414)	(1,124)	(1,065)	(2,473)	755	(609)	(1,109)
Depreciation and amortization (1)	10,001	2,189	2,474	9,716	2,138	2,489	9,365
Share-based compensation	333	100	81	352	82	119	315
Preopening store costs (2)	543	—	199	344	3	183	164
Executive and staff severance	540	76	—	616	55	—	671
Store reset costs	895	—	—	895	—	—	895
AWG transition costs	210	—	—	210	—	—	210
=Adjusted EBITDA (1) (3)(4)(5)	10,139	410	142	10,407	5,964	1,735	14,636
Cash	4,189	5,720	5,186	5,720	6,431	3,690	6,431
Debt	59,072	64,815	34,569	64,815	65,380	40,090	65,380
Debt, net of cash	$ 54,883	59,095	29,383	59,095	58,949	36,400	58,949
(1) These amounts may not agree with 10-Qs of previous quarters due to subsequent store closures. These closed stores are now included in discontinued operations.
(2) These costs are not consistent quarter to quarter as the Company does not open the same number of stores in each quarter of each fiscal year.  These costs are directly associated with the number of stores that have been or will be opened and are incurred prior to the grand opening of each store.
(3) For the trailing twelve periods ended July 31, 2011 the average open weeks for the Company's two, non-samestores was 40 weeks.
(4) During fiscal year 2011, the Company made changes in its executive management team and warehouse operations.  For the trailing twelve periods ended July 31, 2011, these initiatives resulted in approximately $1.6 million reduced SG&A expenses when compared to the same prior year trailing twelve periods.  The initiatives include, but are not limited to, executive and staff reduction.

Duckwall-ALCO Stores, Inc.
Balance Sheets
(dollars in thousands, except share and per share amounts)
	July 31, 2011	January 30, 2011
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$ 6,431	$ 4,189
Receivables	8,665	6,847
Prepaid income taxes	158	168
Inventories	160,133	151,079
Prepaid expenses	3,992	3,720
Deferred income taxes	2,940	2,563
Property held for sale	856	884
Total current assets	183,175	169,450
Property and equipment, at cost:
Land and land improvements	1,496	1,496
Buildings and building improvements	11,847	11,828
Furniture, fixtures and equipment	69,851	69,924
Transportation equipment	803	1,305
Leasehold improvements	16,559	16,449
Construction work in progress	1,688	350
Total property and equipment	102,244	101,352
Less accumulated depreciation and amortization	75,768	72,788
Net property and equipment	26,476	28,564
Property under capital leases	22,254	22,254
Less accumulated amortization	11,109	10,727
Net property under capital leases	11,145	11,527
Deferred income taxes — non current	2,082	2,180
Other non-current assets	886	990
Total assets	223,764	212,711
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt	$ 653	$ 1,414
Current maturities of capital lease obligations	559	703
Accounts payable	32,017	25,968
Accrued salaries and commissions	3,725	4,133
Accrued taxes other than income	5,003	4,822
Self-insurance claim reserves	4,008	4,139
Other current liabilities	4,372	4,608
Total current liabilities	50,337	45,787
Notes payable under revolving loan	52,798	45,282
Capital lease obligations - less current maturities	11,370	11,673
Deferred gain on leases	3,632	3,826
Other non-current liabilities	1,916	1,850
Total liabilities	120,053	108,418
Stockholders' equity:
Common stock, $.0001 par value, 20,000,000 authorized shares; 3,872,745 and 3,841,895 shares issued and outstanding at July 31, 2011 and January 30, 2011 respectively	1	1
Additional paid-in capital	40,051	40,003
Retained earnings	63,659	64,289
Total stockholders' equity	103,711	104,293
Total liabilities and stockholders' equity	$ 223,764	$ 212,711

CONTACT: Wayne S. Peterson
         Senior Vice President--Chief Financial Officer
         785-263-3350 X164
         email: wpeterson@alcostores.com
         
         or
         
         Debbie Hagen
         Hagen and Partners
         913-642-6363
         email: dhagen@hagenandpartners.com