Ames cuts 1Q operating loss by 23%

ROCKY MOUNT, CT — Paring costs and rebuilding margins, Northeastern regional discounter Ames Department Stores Inc. narrowed its first-quarter loss by almost 5 percent, to $27.7 million from $29.1 million last year.

In an even more substantial improvement, Ames slashed its operating loss in the period by more than 23 percent, to $21.5 million from $28.1 million. But acting as a drag on the bottom line, interest and debt expense shot up by almost 24 percent, to $34.3 million from $18.8 million.

In a broadly soft retail environment, Ames sales declined by 4.5 percent, to $793.7 million from $830.7 million last year, a shortfall of $37 million. Under siege from Kohl's and Target, both muscling into Ames' trading area, same-store sales declined by 6.8 percent.

In the most conspicuous improvement to its operations, Ames whittled down its operating costs by 3.5 percent, to $238.7 million from $247.4 million the prior year, a cash savings of $8.7 million. But hampered by the weaker sales, costs climbed moderately as a percentage of sales, rising by 30 basis points, to 30.1 percent from 29.8 percent.

In another substantial improvement, average gross margin widened by 130 basis points, to 28.7 percent from 27.4 percent a year ago. But once again hobbled by falling sales, gross margin dollars were flat at $227.7 million. "Starting the year with clean, fresh inventories at levels well below last year went a long way to help minimize markdowns," said Joe Ettore, chairman and ceo.

Inventories were down by 15.2 percent, or $150.4 million from year-before levels, dropping to $837.5 million from $987.9 million.

Between the margin improvement and lower costs, April "was a profitable month," Ettore said.

He said the retailer's improved performance during the opener "was a direct result of the programs we have implemented to improve margins and reduce selling, general and administrative expenses. In February and April our sales were above plan levels. The sales shortfall from the prior year was attributable to the effects of the snow and inclement weather, which affected our operating area in March."