Print - ALCO Stores, Inc. Reports Operating Results for Third Quarter and Year-to-Date Fiscal 2014

Source: ALCO Stores, Inc.
December 18, 2013 08:30 ET

ALCO Stores, Inc. Reports Operating Results for Third Quarter and Year-to-Date Fiscal 2014

COPPELL, Texas, Dec. 18, 2013 (GLOBE NEWSWIRE) -- ALCO Stores, Inc. (Nasdaq:ALCS), which specializes in providing a superior selection of essential products for everyday life in small-town America, today announced operating results for its third quarter ended November 3, 2013.

Net sales from continuing operations, excluding fuel, increased 1.0% to $105.4 million during the third quarter of fiscal 2014, compared to $104.3 million in the third quarter of fiscal 2013. Same-store sales, excluding fuel, decreased 2.9% to $101.1 million during the third quarter of fiscal 2014. For the 39 weeks ended November 3, 2013, net sales from continuing operations, excluding fuel, increased 1.7% compared to the same period of the prior year to $338.7 million. Same-store sales, excluding fuel, decreased 1.5% to $327.6 million during the 39 weeks ended November 3, 2013.

Net loss for the third quarter of fiscal 2014 was $16.6 million, or $5.11 per diluted share, compared to a net loss of $1.4 million, or $0.37 per diluted share, for the third quarter of fiscal 2013. Results in the third quarter of fiscal 2014 included a non-cash charge of $9.8 million related to a valuation allowance on the Company's cumulative deferred tax asset, and $1.1 million of non-recurring expenses attributable to merger activity.

Net loss for the 39 weeks ended November 3, 2013, was $17.8 million, or $5.47 per diluted share, compared to net loss of $0.7 million, or $0.17 per diluted share, for the 39 weeks ended October 28, 2012. Results in the 39 weeks included the non-cash charge of $9.8 million related to a valuation allowance on the Company's cumulative deferred tax asset, and a total of $2.9 million of non-recurring expenses attributable to the relocation of the corporate office and merger activity.

Richard Wilson, President and CEO, commented, "Operating results in the third quarter were impacted by several significant one-time events, as we dealt with a proposed merger and also took steps to fix long-term problems that have hurt ALCO's profitability. We recorded approximately $1.1 million in merger-related costs. We experienced a net reduction in gross margin dollars of approximately $5 million, primarily due to increased promotional activity in an attempt to reduce inventory and debt levels. In addition, ALCO has closed eight underperforming stores in the first three quarters of fiscal 2014 and decided in October to close 10 more locations by year-end. Store-closing costs in the quarter were approximately $934,000. Finally, we recognized a large non-cash charge relating to the accounting for deferred tax assets on the Company's balance sheet."

Mr. Wilson added, "Moving forward, ALCO is focused on executing five major initiatives to improve profitability and deliver value for shareholders. These actions include:

Maximizing the benefit of our headquarters relocation to the Dallas area, which is enabling ALCO to recruit experienced managers, buyers and marketers from some of the nation's top retail organizations. Our new team is largely in place.
Expanding gross margins by completing the price optimization initiative with Revionics, which increases top-line sales and gross margin by adjusting prices store-by-store and item-by-item based on detailed demand data.
Improving our real estate portfolio by closing unprofitable stores and opening more productive ones. By the end of fiscal 2014 we will have closed a total of 18 underperforming stores and opened three high-performing locations in regions with growing energy-based economies.
Upgrading our information technology (IT) with a new Enterprise Resource Planning system and a new supply chain service provider. These systems will increase efficiency, reduce costs and improve inventory management.
Reducing inventory and associated debt levels by, in addition to the store rationalization and IT upgrades mentioned, making a number of targeted changes in store layout and merchandise mix to appeal to ALCO shoppers."

In summary, Mr. Wilson stated, "We look forward to delivering greater shareholder value by executing on these initiatives to substantially increase profitability for the ALCO enterprise. Across ALCO's 202 stores, our team is committed to providing personal, friendly service and great values to our ALCO shoppers during this holiday season – and beyond. Early holiday sales results have been positive on a same-store basis."

Investor Conference Call

The Company will host an investor conference call at 10:00 a.m. Central Time on Wednesday, December 18, 2013, to discuss operating results for the third quarter ended November 3, 2013. The dial-in number for the conference call is 888-417-8516 (international/local participants dial 719-325-2491), and the Conference Code is 9639165. 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 1:00 p.m. Central Time December 18, 2013 through December 23, 2013, by dialing 888-203-1112 (international/local participants dial 719-457-0820), and the Replay Code is 9639165. 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-K.

Certain Non-GAAP Financial Measures

The Company has included 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. 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 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 EBITDA may not reflect important aspects of the results of the Company's operations.

ALCO Stores, Inc.

ALCO Stores, Inc. is a broad-line retailer, primarily located in small underserved communities across 23 states. The Company has 213 ALCO stores that offer both name brand and private label products of exceptional quality at reasonable prices. We are proud to have continually provided friendly, personal service to our customers for the past 112 years. To learn more about the Company visit www.ALCOstores.com.

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.

- Tables to follow -


ALCO Stores, Inc.
Balance Sheets
	November 3, 2013	February 3, 2013
Assets	(Unaudited)
Current assets:
Cash	$ 2,972	$ 3,160
Receivables	12,125	13,187
Inventories	194,101	166,671
Prepaid expenses	4,005	3,767
Deferred income taxes	—	3,081
Property held for sale	568	568
Total current assets	213,771	190,434

Property and equipment, at cost:
Land and land improvements	5,648	5,648
Buildings and building improvements	10,499	10,499
Furniture, fixtures and equipment	78,118	74,066
Transportation equipment	988	988
Leasehold improvements	21,138	21,138
Construction work in progress	9,360	5,083
Total property and equipment	125,751	117,422
Less accumulated depreciation and amortization	87,537	81,794
Net property and equipment	38,214	35,628

Property under capital leases	26,972	26,972
Less accumulated amortization	12,220	11,476
Net property under capital leases	14,752	15,496

Deferred income taxes — non current	—	1,693
Other non-current assets	2,288	624
Total assets	$ 269,025	$ 243,875

Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of capital lease obligations	$ 537	$ 580
Accounts payable	66,800	39,220
Accrued salaries and commissions	2,907	3,111
Accrued taxes other than income taxes	6,182	5,046
Self-insurance claim reserves	4,118	4,429
Other current liabilities	5,158	4,429
Total current liabilities	85,702	56,815

Notes payable under revolving loan	77,995	63,446
Capital lease obligations - less current maturities	15,497	15,936
Deferred gain on leases	2,763	3,053
Other noncurrent liabilities	2,376	2,462
Total liabilities	184,333	141,712

Stockholders' equity:
Common stock, $.0001 par value, authorized 20,000,000 shares; 3,258,163 shares issued and outstanding, respectively	1	1
Additional paid-in capital	36,868	36,533
Retained earnings	47,823	65,629
Total stockholders' equity	84,692	102,163
Total liabilities and stockholders' equity	$ 269,025	$ 243,875


ALCO Stores, Inc.
Statements of Operations
(dollars in thousands, except share data)
(Unaudited)
	Thirteen Week Periods Ended		Thirty-Nine Week Periods Ended
	November 3, 2013	October 28, 2012	November 3, 2013	October 28, 2012
Net sales	$ 106,661	$ 105,918	$ 343,172	$ 338,188
Cost of sales	78,740	72,974	242,826	232,844

Gross margin	27,921	32,944	100,346	105,344

Selling, general and administrative	35,032	31,831	102,684	96,775
Depreciation and amortization expenses	2,112	2,177	6,439	6,356

Total operating expenses	37,144	34,008	109,123	103,131

Operating earnings (loss)	(9,223)	(1,064)	(8,777)	2,213

Interest expense	852	859	2,862	2,395

Loss from continuing operations before income taxes	(10,075)	(1,923)	(11,639)	(182)

Income tax expense (benefit)	5,981	(779)	5,395	(89)

Loss from continuing operations	(16,056)	(1,144)	(17,034)	(93)

Loss from discontinued operations, net of income tax benefit of $354, $140, $471, and $354 respectively	(579)	(229)	(772)	(580)
Net loss	$ (16,635)	$ (1,373)	$ (17,806)	$ (673)

Loss per share
Basic
Continuing operations	$ (4.93)	$ (0.31)	$ (5.23)	$ (0.02)
Discontinued operations	(0.18)	(0.06)	(0.24)	(0.15)

Net loss per share	$ (5.11)	$ (0.37)	$ (5.47)	$ (0.17)

Loss per share
Diluted
Continuing operations	$ (4.93)	$ (0.31)	$ (5.23)	$ (0.02)
Discontinued operations	(0.18)	(0.06)	(0.24)	(0.15)

Net loss per share	$ (5.11)	$ (0.37)	$ (5.47)	$ (0.17)


ALCO Stores, Inc.
Schedule of Adjusted SG&A
(Unaudited)

	Thirteen Week Periods Ended		Thirty-Nine Week Periods Ended
	November 3, 2013	October 28, 2012	November 3, 2013	October 28, 2012
SG&A Expenses from Continuing Operations
Store support center ⁽¹⁾	$ 6,615	$ 5,245	$ 18,737	$ 15,207
Distribution center	1,564	1,667	4,733	5,087
401K expense	125	—	375	—
Same-store SG&A ⁽²⁾	25,807	24,796	76,369	76,088
Non same-store SG&A ⁽³⁾	814	26	2,135	66
Share-based compensation	107	97	335	327
SG&A as reported	35,032	31,831	102,684	96,775
(Less) add:
Share-based compensation	(107)	(97)	(335)	(327)
Merger Activity ⁽¹⁾	(1,065)	—	(2,273)	—
Office relocation ⁽¹⁾	—	—	(602)	—
Gain (loss) on sale of fixed assets ⁽¹⁾	—	(87)	—	4

Adjusted SG&A from Continuing Operations	$ 33,860	$ 31,647	$ 99,474	$ 96,452

Adjusted SG&A as % of sales	31.7%	29.9%	29.0%	28.5%

Sales per average selling square feet ⁽⁴⁾	$ 24.53	$ 24.63	$ 78.86	$ 79.05

Gross Margin dollars per average selling square feet ⁽⁴⁾	$ 6.50	$ 7.78	$ 23.36	$ 25.00

Adjusted SG&A per average selling square feet ⁽⁴⁾	$ 7.88	$ 7.47	$ 23.15	$ 22.89

Adjusted EBITDA per average selling square feet ⁽⁴⁾⁽⁵⁾	$ (1.59)	$ 0.23	$ (0.06)	$ 1.92

Average inventory per average selling square feet ^(4)(6)(7)	$ 37.30	$ 35.83	$ 35.95	$ 35.60

Average selling square feet ⁽⁴⁾	4,296	4,235	4,296	4,214

Total stores operating beginning of period	213	215	217	216
Total stores operating end of period	210	215	210	215
Total stores less than twelve months old	4	7	6	9
Total non-same stores	4	7	6	9

Supplemental Data:
Same-store gross margin dollar change	-19.7%	-2.1%	-8.2%	-0.7%
Same-store SG&A dollar change	-4.5%	-3.8%	-0.8%	0.0%
Same-store total customer count change	-4.0%	-6.8%	-5.0%	-5.0%
Same-store average sale per ticket change	1.1%	3.7%	3.7%	4.0%

⁽¹⁾	Store support center includes gain (loss) on disposal of fixed assets and costs associated with office relocation and pending merger.
⁽²⁾	Same-stores are those stores which were open at the end of the reporting period, had reached their fourteenth month of operation, and include store locations, if any, that had experienced a remodel, an expansion, or relocation. Same-stores also include the Company's transactional website.
⁽³⁾	Non same-stores are those stores which have not reached their fourteenth month of operation.
⁽⁴⁾	Average selling square feet is calculated as beginning square feet plus ending square feet divided by 2.
⁽⁵⁾	Adjusted EBITDA per average selling square foot is calculated as Adjusted EBITDA divided by average selling square feet.
⁽⁶⁾	Average store level merchandise inventory is calculated as beginning inventory plus ending inventory divided by 2.
⁽⁷⁾	Excludes inventory for unopened stores.


ALCO Stores, Inc.
Schedule of Adjusted EBITDA
(Unaudited)
	53 Weeks	Twenty-Six Week Periods Ended		Trailing 53 Weeks Ended	Thirteen Week Periods Ended		Trailing 53 Weeks Ended
	Fiscal 2013	August 4, 2013	July 29, 2012	August 4, 2013	November 3, 2013	October 28, 2012	November 3, 2013
Net earnings (loss)	$ 1,307	(1,171)	700	(564)	(16,635)	(1,373)	(15,826)
Plus:
Interest	3,477	2,010	1,536	3,951	852	859	3,944
Taxes	311	(703)	476	(868)	5,627	(919)	5,678
Depreciation and amortization	8,902	4,393	4,263	9,032	2,144	2,216	8,960
EBITDA	13,997	4,529	6,975	11,551	(8,012	783	2,756
Plus:
Share-based compensation	381	228	230	379	107	97	389
Office relocation	—	602	—	602	—	—	602
Merger activity	—	1,208	—	1,208	1,065	—	2,273
(Gain) loss asset disposals	141	—	(91)	232	—	87	145
Adjusted EBITDA	14,519	6,567	7,114	13,972	(6,840)	967	6,165

Cash	3,160	2,834	2,407	2,834	2,972	1,179	2,972
Debt	79,962	97,757	56,567	97,757	94,029	74,745	94,029
Debt, net of cash	$ 76,802	94,923	54,160	94,923	91,057	73,566	91,057