ABILENE, Kan., April 4, 2005 (PRIMEZONE) -- Duckwall-ALCO Stores, Inc. (Nasdaq:DUCK), which operates 266 full-line discount and hometown variety stores in 21 states in the central United States, today announced its operating results for the fourth quarter and full year of FY2005.
Net earnings for the fourth quarter of FY2005 were $2,094,000, or $0.47 per diluted share, versus net earnings of $3,833,000, or $0.87 per diluted share, in the quarter ended February 1, 2004. Net earnings totaled $3,923,000, or $0.88 per diluted share, during the full fiscal year of FY2005, compared with $6,513,000, or $1.50 per diluted share, for the fiscal year ended February 1, 2004.
Net sales from continuing operations for the quarter ended January 30, 2005, increased 2.8% to $124.1 million, while same-store sales increased 0.4% when compared with the prior-year quarter. Net sales for the full fiscal year increased 2.2% to $433.9 million, while same-store sales increased 0.1%.
Gross margin decreased to 31.7% of sales in the most recent quarter, compared with 32.5% in the fourth quarter of FY2004, due primarily to higher markdowns, including those resulting from the Company's efforts to reduce its seasonal inventory. For the full year of FY2005, gross margin declined to 32.9% of sales compared with 33.2% last year. This decline occurred entirely in the fourth quarter. During the year, the Company experienced significantly lower shrink (down 20% or $2.1M at retail), offset primarily by an unfavorable mix of sales towards lower margin products and the higher markdowns. Also, due to efforts by the Company to control transportation costs, it was able to offset a major spike in fuel prices almost entirely with transportation cost savings in other areas.
Chairman of the Board Warren Gfeller said, "Fiscal 2005 included a number of one time costs and markdowns associated with the implementation of programs focused on improving long-term performance. Despite these constructive developments, we still regard F2005 as a disappointing year. Company revenue goals weren't met and same store sales were unacceptable."
Gfeller continued, "Previously announced performance initiatives, based on input from AlixPartners, certain shareholders and our own evaluation, had a negative impact on reported earnings, as was anticipated. We expect the execution of some of these initiatives during implementation will have a negative impact on fiscal 2006. However, the actions when executed are expected to reduce costs and investment in inventory and improve organic growth. Our focus for fiscal 2006 is 100% on improving results from existing operations. We strongly believe that the changes being implemented are both necessary and desirable to our stock owners."
In an additional development, the Company recently announced the hiring of Bruce Dale as President and CEO. Chairman of the Board Gfeller added, "We are very excited to have Bruce join us. He brings with him 35 years of valuable experience from a successful career with many of our country's leading retailers. We are confident he has the talent and energy to ensure the company is performing in line with shareholder expectations and to develop and execute a strategy for growth."
Operating expenses increased to 28.9% of sales (vs. 28.2%) in the fourth quarter of FY2005. The primary causes of the increase were higher insurance costs (0.4%), write-down of a technology asset (0.4%), the one-time lease related accounting adjustment explained below (0.2%), costs related to the CEO retiring (0.1%) and costs associated with complying with Sarbanes-Oxley. These were partially offset by higher co-op advertising income and lower incentive compensation and profit sharing. For the full fiscal year of FY2005, operating expenses increased to 31.1% of sales, from 30.7% last year. The main causes of the increase were higher medical and general insurance costs (0.5%), the engagement of AlixPartners in the third quarter as business advisors (0.1%), the technology asset write-down in the fourth quarter (0.1%), higher credit card fees (0.1%) and higher store management training expenses. These were partially offset by a $1.0M reduction in profit sharing and incentive compensation costs, of which $600,000 occurred in the fourth quarter.
Dick Mansfield, Chief Financial Officer said, "The increase in our SG&A expenses last year resulted both from unusual items such as the third quarter engagement of AlixPartners and fourth quarter charges for technology asset write-down and lease accounting adjustments as well as a continuation of a multi-year trend towards rising insurance costs. We have engaged R.J. Dutton to help evaluate ways to reduce our medical insurance costs and we are continuing to look at ways to lower our general insurance costs as well. Together, general and medical insurance increased 23% ($2.2M) in 2005."
Store Operations Update
During the fourth quarter and fiscal year that ended January 30, 2005, the Company remodeled 0 and 16 ALCO stores, respectively, as part of its ongoing program to enhance the performance of existing stores. A total of 103 stores have been remodeled since the inception of the remodeling program four years ago. Since October 2001, the Company has also opened a net total of 22 new ALCO stores that incorporate its latest merchandising concepts, bringing the total number of ALCO stores with the updated format to 125 as of January 30, 2005.
During the most recent quarter, the Company opened 3 new ALCO stores (Texas, Missouri and Utah) and 1 new Duckwall store (Oklahoma), while 1 ALCO store in South Dakota was converted into an ALCO Market Place store. The Company closed 1 Duckwall store during the quarter. New store openings during FY2005 included 6 ALCO's and 3 Duckwall's. The Company closed 3 ALCO and 4 Duckwall stores in fiscal 2005 and 2 ALCO and 6 Duckwall stores in fiscal 2004. The financial results of stores closed, including the cost of closing, for both fiscal 2005 and fiscal 2004 are carried as discontinued operations and resulted in a net loss during fiscal 2005 of ($430,000), or ($0.10) per diluted share. This compares with net earnings from discontinued operations of $313,000, or $0.07 per diluted share in FY2004, principally due to a gain on the sale of a store of $258,000, or $0.06 per diluted share.
Lease Accounting
The Company, like many retailers, undertook a review of its accounting for operating leases, after a February 7, 2005, letter from the Securities and Exchange Commission ("SEC") to the American Institute of Certified Public Accountants, which clarified its views about what is allowable under Generally Accepted Accounting Principles ("GAAP") as they relate to operating leases.
As a result of this review, the Company determined that its methods of accounting, for rent expense prior to commencement of operations and rent payments, were not in accordance with the SEC's recent clarification of what is acceptable under GAAP, even though those methods of accounting were in line with common industry practices. The Company had previously started recording rent expense at the time the store opened, and is now modifying its recognition of rent expense to include the period prior to opening, using a straight-line method. Additionally, the Company determined that in those instances where the lease includes a rent escalation clause, that the rent was not being accounted for in accordance with the recent SEC clarification. The Company is now modifying its practices to handle these in accordance with the SEC's recent clarification.
The Company reviewed the impact of these changes on prior years and determined that it is not material, so prior year financial statements will not be restated. However, it has recorded a one-time charge of $150,000 net of income taxes, or $0.03 per diluted share in the fourth quarter ended January 30, 2005, to reflect a cumulative "catch-up" adjustment.
These changes in accounting for rent expense will not affect historical or future cash flows or the timing of payments under the related leases.
Investor Conference Call
The Company will host an investor conference call at 11:15 AM eastern time on April 5, 2005 to discuss its operating results for the quarter ended January 30, 2005, in greater detail. The dial-in number for the conference call is 800-523-2399 (international/local participants dial 706-643-9636), the Access Code is 5074269. Parties interested in participating in the conference call should dial in approximately five minutes prior to 11:15 AM eastern time. A replay of the call will be available two hours after completion from April 5 through April 19 by dialing 800-642-1687 or for international/local callers by dialing 706-645-9291, the replay Access Code is 5074269.
About Duckwall-ALCO Stores, Inc.
Duckwall-ALCO Stores, Inc. is a leading regional retailer that specializes in offering a wide variety of products at reasonable prices to the underserved communities of America. Founded in 1901 by A.L. Duckwall as a general merchandising operation in Abilene, Kan., Duckwall-ALCO is known for its convenient locations and for its friendly, personal service. The company has 266 stores in 21 states across the central United States, operating under two names, ALCO and Duckwall. ALCO discount stores offer a full line of merchandise, while Duckwall variety stores serve smaller communities, offering a smaller selection.
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.
-- Tables to follow --
DUCKWALL-ALCO STORES, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Unaudited
Three Months Ended Twelve Months Ended
--------------------- ---------------------
January 30, February 1, January 30, February 1,
2005 2004 2005 2004
-------- -------- -------- --------
Net sales $124,111 $120,781 $433,854 $424,548
Cost of sales 84,785 81,486 290,989 283,802
-------- -------- -------- --------
Gross profit 39,326 39,295 142,865 140,746
Selling,
general and
administrative 34,202 32,226 128,351 123,328
Depreciation and
amortization 1,662 1,775 6,708 7,141
-------- -------- -------- --------
Total operating
expenses 35,864 34,001 135,059 130,469
Operating income
from continuing
operations 3,462 5,294 7,806 10,277
Interest expense 301 311 1,230 1,386
-------- -------- -------- --------
Earnings from
continuing
operations
before income
taxes 3,161 4,983 6,576 8,891
Income tax
expense 958 1,264 2,223 2,691
-------- -------- -------- --------
Earnings from
continuing
operations 2,203 3,719 4,353 6,200
Earnings /
(Loss) from
discontinued
operations, net
of income tax (109) 114 (430) 313
-------- -------- -------- --------
Net earnings /
(loss) $ 2,094 $ 3,833 $ 3,923 $ 6,513
======== ======== ======== ========
Per share data
(diluted):
Earnings from
continuing
operations $ 0.49 $ 0.84 $ 0.98 $ 1.43
Net earnings /
(loss) $ 0.47 $ 0.87 $ 0.88 $ 1.50
Weighted-average
shares
outstanding:
Basic 4,463 4,283 4,392 4,243
Diluted 4,495 4,405 4,464 4,343
DUCKWALL-ALCO STORES, INC.
Consolidated Balance Sheet
(In thousands)
Unaudited
January 30, February 1,
2005 2004
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 1,200 $ 1,084
Receivables 1,734 1,521
Refundable income tax -- --
Inventories 129,486 131,661
Prepaid expenses 2,644 2,188
-------- --------
Total current assets 135,064 136,454
-------- --------
Property and equipment 88,008 86,349
Less accumulated
amortization 63,520 59,586
-------- --------
Net property and equipment 24,488 26,763
-------- --------
Property under capital
leases, net of accum
amortization 2,546 3,079
Other non-current assets 89 164
Deferred income taxes 1,350 1,033
Total assets $163,537 $167,493
======== ========
Liabilities and
Stockholders' Equity
Current Liabilities
Current maturities of
long-term debt $ -- $ 533
Current maturities of
capital lease obligations 856 802
Accounts payable 22,234 27,799
Income taxes payable 351 1,944
Accrued salaries and
commissions 4,728 5,475
Accrued taxes other than
income 4,367 4,496
Other current liabilities 6,183 4,276
Deferred income taxes 914 1,668
-------- --------
Total current liabilities 39,633 46,993
Notes payable under
revolving loan credit
facility 4,023 4,958
Long-term debt, less current
maturities -- --
Capital lease obligations,
less current maturities 3,726 4,583
Other noncurrent liabilities 1,479 1,347
Deferred revenue -- 419
-------- --------
Total liabilities 48,861 58,300
-------- --------
Stockholders' equity
Common Stock, $.0001 par
value, authorized
20,000,000 shares in 2005
and 2004; issued and
outstanding 4,475,079 and
4,299,816 shares in 2005
and 2004, respectively
1 1
Additional paid-in capital 50,889 49,329
Retained earnings 63,786 59,863
-------- --------
Total stockholders' equity 114,676 109,193
-------- --------
Total liabilities and
stockholders' equity $163,537 $167,493
======== ========