Gottschalks Trims Back Home

By Cecile B. Corral -- Home Textiles Today, 3/12/2007 12:00:00 AM

Fresno, Calif. —

Gottschalks is trading down its weaknesses in favor of its strengths — which translate to home goods and apparel, respectively — going forward as the 60-unit western regional department store chain looks to reinvigorate after several sluggish seasons.

"We want to focus on the strengths of our company and those appear to be in soft lines and not the home lines," said Jim Famalette, president and ceo, during the company's fourth-quarter and year-end earnings call. "Our performance in the fourth quarter was not as strong as we'd hoped. We generated sales growth that was lower than anticipated, due largely to continued challenges in our home store merchandise."

In contrast, its soft lines — including apparel, fashion accessories, and shoes — proved to be bright spots.

As a result, the retailer is taking floor space away from home goods, including home textiles, to spotlight the more popular merchandise.

This is not to say that Gottschalks is giving up on its home division, Famalette urged.

"We remain committed to improving results in home store merchandise," he said. "We're refining the assortments as well as our marketing programs for this division, and we continue to believe there is an opportunity to improve the overall performance of this category in the coming year."

The plan is to reduce the amount of space dedicated to home goods "in almost in every store, to some extent, and it would be relative to that store's penetration of soft line business," he said. The company is currently modeling the locations where this change would be most effective, with some such projects already in place. In addition, the soft lines areas will be refreshed with new fixturing and other improvements as well as a new marketing and branding campaign slated for debut later this year.

"In most cases it will not require a tremendous amount of renovating — we're just borrowing space from one pad to add to another," he continued, noting, "The home textiles area had a fairly significant sized department in almost all Gottschalks stores, and that space is probably over-spaced for what it needs."

The onset of the 2007 holiday season is when most of these shifts are projected to be completed, with only some spilling over to next year.

"We do expect to touch almost every store that carries home product in some way through the course of the year," Famalette said.

The company reported net income for fiscal 2006 of $2.6 million, half of prior year income of $5.2 million. A sizeable portion of the drop in income stemmed from a 2006 pre-tax charge of $810,000 relating to the expensing of stock-based compensation. Sales for the year rose 1.0% to $683.9 million, while comps edged up 0.6%.

In other news, Gottschalks' special strategic committee is making "progress" with its work to evaluate alternatives. Famalette reminded there will be no updates announced "unless or until the board approves a specific option."

On the real estate front, the company opened one new store, located in Eugene, Ore., during the second half 2006, at a site where it took over a former Macy's lease. And Gottschalks last year closed four units that were not meeting operating targets or were not good fits with the store base.

Two more store closings are scheduled for this year — a specialty furniture store in Scotts Valley, Calif., at the end of this month, and a department store in Wasilla, Ala., at end of April when the lease expires.

"We continue to make progress in addressing underperforming locations toward achieving future earnings improvement," said Gregory Ambro, cfo and cao.