Value City struggles in first quarter

By Don Hogsett -- Home Textiles Today, 6/16/2003 12:00:00 AM

COLUMBUS, OH —

COLUMBUS, OH Hobbled by stagnant sales, rising costs, lower margins and sharply higher interest expense, Value City Department Stores Inc. recorded a widening first-quarter loss of $13.1 million, almost triple the size of a year-ago deficit of $4.8 million.

Sales at the diversified retailer — parent of Value City, Filene's Basement and DSW Shoe Warehouse — were virtually flat, inching up by 0.4 percent, to $588.5 million from $585.9 million in 2002. But worsening in a weak retail environment over the past 12 months, same-store sales fell by 4.4 percent, compared to a flat performance last year

Producing the deep quarterly deficit, in addition to weaker same-store sales, the spread between rising costs and falling margins grew wider in a sluggish retail environment, with expenses exceeding declining gross margin dollars by more than $14 million during the opening quarter, producing an operating loss $14.3 million, up sharply from last year's operating loss of just $83,000.

Putting vise-like pressure on the bottom line, average gross margin narrowed by 130 basis points, or 1.3 percentage points, to 36.8 percent from 38.1 percent last year. At the same time, costs jumped up by 120 basis points, or 1.2 percentage points, to 39.3 percent from 38.1 percent last year. Measured in absolute dollars, costs rose by 3.5 percent, or $7.8 million.

Adding an extra dimension of pressure, interest expense jumped up by more than half in the opener, rising by 51.2 percent, to $9.6 million from $6.3 million last year. Pulling even more dollars away from the bottom line, stockpiles outpaced sales growth, with inventories climbing by 8.5 percent, to $452.9 million from $417.4 million, compared with the virtually flat sales.

Value City Department Stores Inc.