Duckwall-ALCO Stores, Inc. Reports Earnings for Second Quarter and
First Half of FY2005 First Prototype Store With Expanded Grocery
Opened In Second Quarter ABILENE, Kan., Aug. 23
/PRNewswire-FirstCall/ -- Duckwall-ALCO Stores, Inc. (NASDAQ:DUCK),
which operates 265 full-line discount and hometown variety stores
in 21 states in the central U.S., today announced earnings for the
second quarter and first half of FY2005. Net sales for the second
quarter increased 0.8% to $109.6 million, while same-store sales
rose approximately 0.1%. Management believes that sales comparisons
to the prior-year quarter were unfavorably impacted by higher
gasoline prices that affected discretionary consumer spending, the
absence of Federal tax rebates distributed during the summer of
last year, the shift in a Texas sales tax "holiday" from July last
year to August in 2004, generally much cooler weather patterns that
impacted sales of warm weather merchandise (e.g., fans), and the
timing of a back-to-school advertising circular for the Duckwall
division. Net sales for the first six months of the fiscal year
increased 2.1% to $212.4 million, while same-store sales decreased
approximately 0.1%. Gross margin for the most recent quarter
increased slightly to 32.9% of sales, compared with 32.7% in the
second quarter of FY2004, due primarily to lower shrinkage and
merchandise acquisition costs. In addition, the Company's logistics
department was able to reduce freight expenses, as a percentage of
sales, despite significantly higher fuel prices and legislation
that increased transportation costs. These improvements were
partially offset by slightly higher markdowns, as customers
purchased more items on sale. For the first six months of FY2005,
gross margin held steady at 33.0% of sales. Operating expenses
increased to 30.8% of sales (vs. 30.4%) in the second quarter of
FY2005. A significant factor in this increase involved general
insurance costs, which rose $625,000 (0.6% of sales) from the
prior-year quarter, primarily due to an adjustment in the Company's
reserves for workers compensation (for the policy year ended
5/31/04) that followed a revision in actuarial estimates. Higher
medical insurance costs, along with increased credit card
processing fees (due to higher usage of credit cards by customers)
also played a role in raising the Company's operating expense ratio
in the most recent quarter. These increased expenses were partially
offset by lower depreciation, amortization and store remodeling
costs. Additionally, the Company recorded a $275,000 reduction in
certain expenses related to "layaways", compared with an adjustment
of $0 in the corresponding prior-year period. The Company has
already implemented actions to reduce medical insurance and workers
compensation costs, and management is evaluating alternatives to
further control such expenses. Interest expense declined to
$279,000 in the most recent quarter, from $328,000 in the
prior-year period, primarily due to lower borrowings. For the first
six months of FY2005, interest expense declined to $561,000,
compared with $718,000 last year. The Company's effective tax rate
for the most recent quarter approximated 38.0%, compared with 36.3%
in the second quarter of FY2004. The tax rate was lower in the
prior-year quarter due to the availability of a work opportunity
tax credit. This tax credit may be renewed again this year by
Congress, but it had not been renewed as of the close of the
quarter. If legislation is passed to reauthorize such tax credits,
the Company's effective tax rate will be lowered at that time. For
the quarter ended August 1, 2004, earnings from continuing
operations totaled $1,234,000, or $0.28 per diluted share, compared
with $1,341,000, or $0.31 per diluted share, in the second quarter
of FY2004. Net earnings totaled $1,187,000, or $0.27 per diluted
share, in the most recent quarter, versus $1,599,000, or $0.37 per
diluted share, in the quarter ended August 3, 2003. For the first
half of FY2005, earnings from continuing operations totaled
$1,938,000, or $0.44 per diluted share, compared with $1,954,000,
or $0.45 per diluted share, in the corresponding period of the
previous fiscal year. Net earnings totaled $1,874,000, or $0.42 per
diluted share, for the first half of FY2005, versus with
$2,157,000, or $0.50 per diluted share, in the six months ended
August 3, 2003. "Our second quarter earnings decline relative to
last year was largely attributable to items that are not recurring,
such as a gain on the sale of a store in last year's second quarter
and a one-time adjustment to workers compensation insurance
reserves based on advice from our insurance actuaries, advisors and
underwriters," commented Glen L. Shank, Chairman and Chief
Executive Officer of Duckwall-ALCO Stores, Inc. "These two items,
along with unusually high medical insurance costs, reduced second
quarter earnings by approximately $0.16 per diluted share from the
prior-year period. While the sharp rise in medical insurance and
workers compensation costs was particularly disappointing, we were
pleased with the Company's ability to reduce expenses that were
under the control of management, as a percentage of sales. This was
especially important given a sales environment that was challenged
by higher gasoline prices that impacted discretionary consumer
spending, the absence of Federal income tax rebates that boosted
sales in the prior-year quarter, and cooler temperatures this
year." "We believe that the greatest potential to achieve the
Company's financial goals, while continuing to provide outstanding
customer service, involves a stronger emphasis on consumables, and
Duckwall-ALCO is well-positioned to pursue this opportunity,"
continued Shank. "In June, we opened our first prototype 'ALCO
Market Place' store with an expanded selection of grocery products.
Once we optimize the operational efficiencies of this prototype and
evaluate customer response, we plan to aggressively roll out the
concept in other markets." "While our long-term business strategy
of targeting smaller markets that are not served locally by other
national or regional full-line discount retailers has proven
successful, we continue to operate in a highly competitive discount
retail industry that faces a number of challenges," noted Shank.
"Higher gasoline prices, for instance, not only raise the Company's
transportation costs, but could reduce discretionary spending by
many American families. Under such circumstances, we believe an
increased emphasis upon consumable merchandise should cushion the
impact of any reduction in consumer spending on higher priced
products." "I would like to report that the capabilities of various
business advisory firms to advise us on strategic positioning and
operating effectiveness have been under evaluation since June of
this year. At our Board meeting last Thursday, this search was
narrowed to a single candidate, and the Board authorized management
to engage this leading business advisory firm once suitable terms
of a working relationship are agreed upon. After we have engaged
this business advisory firm, they will do a strategic and
operational review of our Company. After they have completed their
analysis, they will work with the Board and management to develop a
revised business plan. The significant elements of our revised
business plan will, of course, be communicated to all stockholders.
Our Board, management and other advisors will also examine other
means of enhancing stockholder value in the coming months",
concluded Shank. During the second quarter and first half of
FY2005, the Company remodeled 7 and 13 ALCO stores, respectively,
as part of an ongoing program to enhance the performance of
existing stores. A total of 100 stores have been remodeled since
the inception of the remodeling program four years ago. Since
March, 2002 the Company has also opened a net total of 19 new ALCO
stores that incorporate its latest merchandising concepts, bringing
the total number of ALCO stores with the updated format to 119 as
of August 1, 2004. During the most recent quarter, the Company
opened 2 new ALCO stores (Minnesota and Colorado), converted 1 ALCO
store into an ALCO Market Place store (Oklahoma), and opened 2 new
Duckwall Stores (Arkansas and Oklahoma). One ALCO store and 2
Duckwall stores were closed during the quarter. Management plans to
open a total of approximately 7 new ALCO stores and 2 new Duckwall
stores during the current fiscal year. Additionally, the Company
expects to convert approximately 2 more locations to the new ALCO
Market Place format during the balance of FY2005 (one of which
reopened August 3, 2004 in Kansas). About Duckwall-ALCO Stores,
Inc. Duckwall-ALCO Stores Inc. is a leading regional retailer that
currently operates 265 full-line discount and hometown variety
stores in 21 states in the central portion of the United States
under the names "ALCO", "ALCO Market Place" and "Duckwall". The
Company's strategy is to target smaller markets not served by other
regional or national full-line retail discount chains and provide
the most convenient access to retail shopping within each market.
The Company is headquartered in Abilene, Kansas and its common
stock is listed on the NASDAQ National Market under the symbol
"DUCK". Forward-looking statements This press release contains
forward-looking statements, as referenced in the Private Securities
Litigation Reform Act of 1995 ("the Act"). Any forward-looking
statements are made by the Company in good faith, pursuant to the
safe-harbor provisions of the Act. These forward-looking statements
reflect management's current views and projections regarding
economic conditions, retail industry environments and Company
performance. 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 quarterly 10-Q filings and other
public documents, copies of which are available from the Company on
request. CONTACT: Dick Mansfield Vice President, Finance, Treasurer
and Chief Financial Officer 785-263-3350 x286 e-mail: internet home
page: http://www.duckwall.com/ or RJ Falkner & Company, Inc.,
Investor Relations Counsel at (800) 377-9893 or via e-mail at
DUCKWALL-ALCO STORES, INC. Consolidated Statements of Operations
(In thousands, except per share amounts) Unaudited Three Months
Ended Six Months Ended August 1, August 3, August 1, August 3, 2004
2003 2004 2003 Net sales $109,601 $108,719 $212,449 $208,029 Cost
of sales 73,538 73,188 142,265 139,401 Gross profit 36,063 35,531
70,184 68,628 Selling, general and administrative 32,120 31,228
63,085 61,183 Depreciation and amortization 1,673 1,872 3,412 3,663
Total operating expenses 33,793 33,100 66,497 64,846 Operating
income from continuing operations 2,270 2,431 3,687 3,782 Interest
expense 279 328 561 718 Earnings from continuing operations before
income taxes 1,991 2,103 3,126 3,064 Income tax expense 757 762
1,188 1,110 Earnings from continuing operations 1,234 1,341 1,938
1,954 Earnings / (Loss) from discontinued operations, net of income
tax (47) 258 (64) 203 Net earnings $1,187 $1,599 $1,874 $2,157 Per
share data (diluted): Earnings from continuing operations $0.28
$0.31 $0.44 $0.45 Net earnings $0.27 $0.37 $0.42 $0.50
Weighted-average shares outstanding: Basic 4,367 4,197 4,344 4,228
Diluted 4,465 4,289 4,444 4,303 DUCKWALL-ALCO STORES, INC.
Consolidated Balance Sheet (In thousands) Unaudited August 1,
August 3, 2004 2003 Assets Current assets: Cash and cash
equivalents $2,049 $1,809 Receivables 1,865 2,045 Refundable income
tax 295 -- Inventories 133,069 132,067 Prepaid expenses 2,754 2,617
Total current assets 140,032 138,538 Property and equipment 89,449
85,315 Less accumulated amortization 62,558 56,779 Net property and
equipment 26,891 28,536 Property under capital leases, net of
accum. amortization 2,812 3,345 Other non-current assets 127 202
Deferred income taxes 1,033 557 Total assets $170,895 $171,178
Liabilities and Stockholders' Equity Current Liabilities Current
maturities of long-term debt $271 $516 Current maturities of
capital lease obligations 802 712 Accounts payable 27,352 28,499
Income taxes payable -- 1,395 Accrued salaries and commissions
4,185 4,593 Accrued taxes other than income 5,099 4,822 Other
current liabilities 4,890 2,832 Deferred income taxes 1,667 2,175
Total current liabilities 44,266 45,544 Notes payable under
revolving loan credit facility 9,004 14,576 Long-term debt, less
current maturities -- 271 Capital lease obligations, less current
maturities 4,182 5,028 Other noncurrent liabilities 1,296 1,397
Deferred revenue 210 638 Total liabilities 58,958 67,454
Stockholders' equity Common Stock, $.0001 par value, authorized
20,000,000 shares in 2004 and 2003; issued and outstanding
4,380,203 and 4,205,632 shares in 2004 and 2003, respectively 1 1
Additional paid-in capital 50,199 48,216 Retained earnings 61,737
55,507 Total stockholders' equity 111,937 103,724 Total liabilities
and stockholders' equity $170,895 $171,178 DATASOURCE:
Duckwall-ALCO Stores, Inc. CONTACT: Dick Mansfield, Vice President,
Finance, Treasurer and Chief Financial Officer, Duckwall-ALCO
Stores, Inc. +1-785-263-3350, ext. 286, ; or RJ Falkner &
Company, Inc., Investor Relations Counsel, 1-800-377-9893, , for
Duckwall-ALCO Stores, Inc. Web site: http://www.duckwall.com/
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