Gottschalks loses $2.8M despite 2Q sales gains

FRESNO, CA — Whittled down by costs tied to the closing of six stores and a distribution center as well as sharply rising overhead and thinning margins, Gottschalks Inc. recorded a second-quarter loss of $2.8 million, compared with a small year-before profit of $11,000.

But boosted by the earlier buyout of 34 Lamonts Apparel stores, sales climbed higher by 22.2 percent, to $158.7 million from $129.9 million the prior year. Same-store sales were flat, the company reported.

Taking a small bite out of the bottom line, the retailer recorded a one-time, pre-tax charge of $686,000 tied to the store and third-party DC closings. Excluding the one-time item, the retailer recorded a loss of $2.4 million, squeezed between rising costs and falling margins.

In an increasingly promotional environment, average gross margin thinned by 50 basis points to 34.2 percent from 34.7 percent the prior year. In an even bigger hit to the bottom line, costs climbed sharply higher, rising by 210 basis points, to 34.2 percent of sales from 32.1 percent a year ago. Measured in absolute dollars, overhead costs rocketed up by 30.2 percent, to $54.3 million from $41.7 million last year, far outpacing the 22.2 percent increase in sales.

Taking a further big bite out of the bottom line, interest expense shot up by 26.7 percent, outpacing the gain in sales yielded by the acquisition, to $3.7 million from $2.9 million the preceding year.

"We experienced a softening of our comparable-store sales trend as well as an increased level of promotional activity during the last few months," said Jim Famalette, president and ceo. "In addition, we incurred one-time costs associated with the previously announced closures of six stores and our distribution center in the Northwest. We expect that the consolidation of our distribution operations will result in expense reductions, which will offset the closing costs of the Northwest distribution center."

Famalette added, "We have instituted a major cost containment program, which we expect to result in lower selling, general and administrative expenses in the second half of the year. We are also carefully monitoring our receipt flow and inventory levels. We began the third quarter with comp-store inventory 2 percent below last year. In addition, we continue to refine our merchandise assortments and marketing efforts in the Pacific Northwest, and have begun to see improved sales trends despite the challenging economic conditions."