ABILENE, Kan., Dec. 5, 2005 (PRIMEZONE) -- Duckwall-ALCO Stores, Inc. (Nasdaq:DUCK), which operates 251 full-line discount and hometown variety stores in 21 central states, today announced its operating results for the third quarter and first nine months of FY2006.
Net sales from continuing operations for the third quarter increased 7.2% to $101.1 million, while same-store sales increased 4.3% when compared with the prior-year quarter.
Net loss for the third quarter of FY2006 was ($187,000), or ($0.05) per diluted share, compared with a net loss of ($46,000), or ($0.01) per diluted share, in the quarter ended October 31, 2004.
President and CEO Bruce Dale stated, "After eight months, I am pleased with what has been accomplished. Much is yet to be done, but the initiatives we have put into place are paying dividends. We are particularly pleased with our margin and expense performance in October, combined with a 4.3% same-store sales increase for the quarter."
Dale continued, "New merchandise initiatives recently announced have exceeded plan. We are particularly excited about the improvement in the high margin apparel departments. Our customers have responded very well and we are optimistic about the current quarter."
Dale concluded, "Our inventory is well in check, providing us the flexibility needed as we plan our upcoming spring and summer merchandise and marketing plans, and our very important technology enhancements continue to be on schedule. We look forward to the planning and control improvements those enhancements will give us in the coming year."
Gross margin for the third quarter declined 260 basis points to 32.3% of sales from 34.9% last year. Of this decline, 230 basis points ($2.3M or $0.38 per diluted share) was attributable to higher markdowns primarily in August and September as a result of the Company's efforts to lower its levels of distressed inventory. As a result of those efforts and closing 20 under-performing stores earlier this year, the Company's inventory levels were $11 million below last year. The remaining 30 basis point decrease in gross margin was a result of higher shrink and transportation costs, which impacted us by 70 and 60 basis points respectively, partially offset by an improved mix of sales towards higher margin items as a result of actions we have taken.
Cost cutting is one of Duckwall-ALCO's top priorities to improve shareholder value and the Company has identified approximately $4M (annualized) of expense savings to-date. The largest components of those savings are $2.2M (annualized starting 5/1/05) from the office workforce reduction in May this year and approximately $1M (annualized starting 8/1/05) of savings in medical insurance. The Company continues to take aggressive action to lower its expenses where appropriate.
Operating expenses for the third quarter decreased 140 basis points from 33.7% of sales to 32.3%. Contributing to the decrease is the office workforce reduction, which started 5/1/05, 55 basis points, reduced incentive compensation and profit sharing costs, 50 basis points, AlixPartners fees last year, 51 basis points, as well as savings in medical insurance costs, store remodeling, store payroll, depreciation and amortization, distribution center expense and co-op advertising income. These were partially offset by increases in advertising expense, store opening expense, credit card fees, store utilities, director's fees and Sarbanes-Oxley compliance costs.
Income tax expense for the third quarter includes a favorable adjustment of $149,000, or $0.03 per diluted share, relating to tax credits from 2001 -- 2003 that became available.
Net loss for the first nine months of FY2006 was ($3,211,000), or ($0.77) per diluted share, compared with net earnings of $1,829,000, or $0.41 per diluted share in the first nine months of FY2005.
Net sales from continuing operations for the first nine months of FY2006 increased 5.4% to $307.8 million, while same-store sales increased 2.5% when compared with the comparable period in the prior-year.
Gross margin for the first nine months declined 280 basis points to 31.2% of sales from 34.0% last year. Of this decline, approximately 212 basis points ($6.5M or $1.02 per diluted share) are related to higher markdowns to reduce inventory levels, as outlined earlier. The remainder is due primarily to higher shrink and transportations costs.
Operating expenses for the first nine months declined 100 basis points to 31.2% of sales this year from 32.2% last year. The workforce reduction mentioned earlier resulted in a savings of $1.1M (36 basis points or $0.17 per diluted share). Reductions in general and medical insurance also saved $1.9 million (63 basis points or $0.30 per diluted share). Other reductions also occurred in store remodeling, depreciation and amortization, distribution center, co-op advertising income and incentive and profit sharing costs. These were partially offset by $734,000 (24 basis points or $0.11 per diluted share) of one-time costs associated with the workforce reduction in the first quarter, retirement of the former CEO and hiring the new CEO and a reduction in income related to layaways as a result of a $275,000 one time adjustment last year. The Company also experienced increased costs for credit card fees, compliance with Sarbanes-Oxley, directors' fees, store opening expense, store utilities and advertising.
Stock Buyback Program Update
During the third quarter of FY2006, the Company purchased and retired 153,530 shares at an average price of $23.81. This leaves a total of 89,299 shares to repurchase under the two prior Board authorizations, totaling 1,411,000 shares, from 1998 and 1999.
Also, as previously announced on April 21, 2005, the Company entered into an agreement to purchase from the Kenneth A. Macke Revocable Trust 399,362 shares (almost 9% of outstanding stock) of its own common stock for cash equal to $18.00 per share. Kathleen O. Macke is the trustee of the trust and K&A Asset Management LLC is the investment advisor to Mrs. Macke and the trust. The agreement was reached pursuant to arms-length negotiations between the Company and the investment advisor for the trust. The transaction closed and the shares were retired late in the first quarter of the current fiscal year. The Board of Directors expressly approved this transaction.
The Board of Directors, at its board meeting in August, 2005, adopted a 10b5 plan and expects to continue to repurchase shares both through the 10b5 plan and as other opportunities arise.
Store Operations Update
During the quarter, the Company opened 3 new ALCO stores (in Iowa, Kansas and Texas) and no new Duckwall stores. For the first nine months of FY2006, the company has opened 1 Duckwall and 5 ALCO stores. For the full year, the Company plans to open a total of 1 Duckwall and 7 ALCO stores.
On March 17, 2005, the Company announced that, as one of several initiatives designed to improve performance for its shareholders, Duckwall-ALCO would close 20 stores (8 ALCO's and 12 Duckwall's) that do not meet the Company's minimum return on investment threshold. The process of closing those stores was completed on schedule in early June 2005.
The Company originally estimated that the aggregate cost to close these stores, before income taxes, would be in the range of $3,800,000 to $4,800,000 and that the majority of that expense would be recorded in the first and second quarters of the current fiscal year (2006). The Company is pleased to report that its latest projection of the total cost continues to be at the low end of its original projected range. Of that cost, $2.0M was recorded in the first quarter, $1.6M was recorded in the second quarter and $0.2M was recorded in the third quarter.
Of the 20 stores that closed, 18 were leased and 2 were owned. The Company has placed the 2 owned stores up for sale and, where appropriate, is attempting to sublease or negotiate with the landlords to minimize its remaining lease obligations in the 18 leased locations.
Closing these stores is expected to have a positive impact on the Company's return on assets (ROA). Last year for the full fiscal year (FY2005), those stores had operating income of $392,000 before income taxes.
No additional stores were closed during the third quarter. The financial results of stores closed or in the process of liquidation, including the cost of closing, for both fiscal 2006 and fiscal 2005 are carried as discontinued operations and resulted in a net loss during the third quarter of fiscal 2006 of ($102,000), or ($0.03) per diluted share. This compares with a net loss from discontinued operations of ($507,000), or ($0.11) per diluted share in the third quarter of FY2005.
Investor Conference Call
The Company will host an investor conference call at 11:15 a.m. eastern time on December 7, 2005, to discuss its operating results in greater detail for the quarter ended October 30, 2005. The dial-in number for the conference call is 800-289-0533 (international/local participants dial 913-981-5525), and the Confirmation Code is 6621164. Parties interested in participating in the conference call should dial in approximately five minutes prior to 11:15 a.m. eastern time. A replay of the call will be available two hours after completion from December 7 through December 21 by dialing 888-203-1112 or for international/local callers by dialing 719-457-0820. The Replay Passcode is 6621164.
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 251 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.
DUCKWALL-ALCO STORES, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Unaudited
Three Months Ended Nine Months Ended
--------------------- --------------------
October 30, October 31, October 30, October 31,
2005 2004 2005 2004
--------- --------- --------- ---------
Net sales $ 101,117 $ 94,285 $ 307,822 $ 291,922
Cost of sales 68,445 61,415 211,802 192,560
--------- --------- --------- ---------
Gross profit 32,672 32,870 96,020 99,362
Selling, general and
administrative 31,251 30,205 91,907 89,192
Depreciation and
amortization 1,428 1,624 4,372 4,835
--------- --------- --------- ---------
Total operating expenses 32,679 31,829 96,279 94,027
Operating income (loss)
from continuing
operations (7) 1,041 (259) 5,335
Interest expense 354 369 809 929
--------- --------- --------- ---------
Earnings (loss) from
continuing operations
before income taxes (361) 672 (1,068) 4,406
Income tax expense
(benefit) (276) 211 (526) 1,630
--------- --------- --------- ---------
Earnings (loss) from
continuing operations (85) 461 (542) 2,776
Earnings / (loss) from
discontinued operations,
net of income tax (102) (507) (2,669) (947)
--------- --------- --------- ---------
Net earnings / (loss) $ (187) $ (46) $ (3,211) $ 1,829
========= ========= ========= =========
Per share data
(diluted):
Earnings (loss) from
continuing operations ($0.02) $0.10 ($0.13) $0.62
Net earnings / (loss) ($0.05) ($0.01) ($0.77) $0.41
Weighted-average shares
outstanding:
Basic 3,970 4,416 4,158 4,368
Diluted 3,970 4,474 4,158 4,454
DUCKWALL-ALCO STORES, INC.
Consolidated Balance Sheet
(In thousands)
Unaudited
October 30, October 31,
2005 2004
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 3,454 $ 3,131
Receivables 1,580 2,029
Refundable income tax 2,163 681
Inventories 138,601 149,268
Prepaid expenses 3,174 2,784
Property held for sale 577 --
-------- --------
Total current assets 149,549 157,893
-------- --------
Property and equipment 94,853 90,803
Less accumulated amortization 63,328 63,828
-------- --------
Net property and equipment 31,525 26,975
-------- --------
Property under capital leases, net of accum.
amortization 2,158 2,679
Other non-current assets 81 108
Deferred income taxes 1,350 1,034
-------- --------
Total assets $184,663 $188,689
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of long-term debt $ -- $ 136
Current maturities of capital lease
obligations 856 802
Accounts payable 34,727 33,921
Accrued salaries and commissions 4,366 5,101
Accrued taxes other than income 5,483 5,316
Other current liabilities 7,265 6,084
Deferred income taxes 865 1,626
-------- --------
Total current liabilities 53,562 52,986
Notes payable under revolving loan
credit facility 27,304 18,087
Capital lease obligations, less current
maturities 3,083 3,981
Other noncurrent liabilities 1,457 1,271
Deferred Revenue -- 105
-------- --------
Total liabilities 85,406 76,430
-------- --------
Stockholders' equity
Common Stock, $.0001 par value,
authorized 20,000,000 shares in
2005 and 2004; issued and
outstanding 3,875,853 and 4,447,658
shares in 2005 and 2004,
respectively 1 1
Additional paid-in capital 38,680 50,566
Retained earnings 60,576 61,692
-------- --------
Total stockholders' equity 99,257 112,259
-------- --------
Total liabilities and stockholders'
equity $184,663 $188,689
======== ========