Bad weather the culprit in disappoint 1st qtr - discount houses financial returns - Industry Overview

Discount Store News, June 7, 1993

Full-line discounters produced mixed results during the first quarter, with some chains showing profit increases - or reduced losses - in line with sales gains, while others saw their profits plunge more than 50% - despite decent sales gains.

Wal-Mart led the Big Three discounters. The No. 1 discounter reported a 16.7% increase in operating profit that coincided with a 19.5% gain in sales.

Nonetheless, Wal-Mart, which has been accustomed to reporting overall sales gains in the 25% range and double-digit same store increases, saw its comp store sales growth slow to 5%/ during the quarter ended in April

Chief executive officer David Glass praised the company's employees for achieving the results despite several unanticipated factors, including bad weather.

In terms of percentage gains in profits, Dollar General did even better, logging a 49.4% profits gain on a 17.2% sales gain. The company earned those results despite operating under the same weather conditions that left other chains crying the blues.

Target posted a small, but undisclosed, operating profit increase for the quarter. Target said its gross margin was lower due to the continuation of its value pricing strategy and weak seasonal sales. Same store sales gained 5%.

During the quarter, Target entered the Chicago market in mid-March, opening 11 Greatland stores. The chain claims that the Chicago Greatlands are running above plan, but the opening expenses are bound to have hurt overall operating margins for the quarter ended May 1, 1993.

Kmart, with its stores barely eking out a 0. 1% increase in same store sales, sustained a 27.7% decline in operating profits. Total sale gained 9.2%

Pace Membership Warehouse was the problem child for the quarter, posting a $24 million operating loss. Kmart dealt with the problem by selling 14 money-losing Pace units in Kansas City, Chicago and Dallas to Wal-Mart, which will convert them to Sam's Clubs.

Waldenbooks, another Kmart specialty chain, posted a $7 million operating loss for the period.

Net profits - the most important sign for stockholders - at Kmart fell 80.7% to $23 million on sales of $9 billion.

Winter storms "severely impacted" sales in February and March, chairman Joe Antonini said.

Even though sales declined 10.8% at Sears under a round of store closings, the merchandise group turned around first quarter results, posting a $79.9 million profit, compared to a $150.3 million operating loss in 1992.

During the quarter, Sears closed 51 multi-line stores, reducing store count to 809, and closed 125 specialty stores, bringing store count to 1,034.

Rose's returned to profitability in the first quarter after almost three years of losses. It logged a pre-tax profit of $1.2 million on a 4.8% sales decline stemming in part from store closings. That compares with a pre-tax loss of $11.1 million in the same period last year.

Hills reduced its operating loss to $4.9 million for the first quarter of '93 from $6.7 million a year earlier, even though sales declined 5.2%. It attributed the improvement, despite bad weather, to continued efforts to cut costs.

Venture took note of increased competition from higher than normal store openings in its markets (i.e., Chicago Greatlands), as well as cooler weather and the sluggish economy when reporting flat sales. Operating profits plunged 51.9% to $5.2 million.

Operating profits at Caldor plummeted 57.6%, even though sales rose 12.5%. Operating entirely in the Northeast, Caldor was particularly hard hit by bad weather. Comp store sales rose just 1.7% in February and 1.2% in March but rebounded to 7% in April, for a quarterly average of 3.3% gain.

Consolidated Stores, the nation's largest closeout chain, saw its operating profits slump 58.5% on a 10.3% gain in first quarter sales. It blamed the profit decline on "unusually severe weather" during February and March.

Jamesway posted the worst results, with its operating loss deepening to $10.9 million from $8.1 million in the first quarter of 1991.

Same store sales declined 6% and overall sales slumped 13.2%, partially because it had closed 14 more stores, reducing count to 108. But Jamesway also said sales had decclined because of a temporary disruption in the flow of merchandise while it negotiated an extension of its credit agreements.

In addition, Jamesway noted the historically bad weather in February and March affected sales.