Ames stays the course despite poor 3Q - Ames Department Stores Inc. reports poor third quarter for 1994

Discount Store News, Jan 2, 1995

ROCKY HILL, CONN. -- An industrywide slump in apparel business and unseasonably warm weather were the major culprits in the third quarter losses reported by Ames last month. Although a new merchandising strategy championed by president and ceo Joseph Ettore has been put into place, results of those opportunistic buys won't be noticeable until spring at the earliest.

However, November was a "nice turnaround" and December is "running a small percentage over last year in comp stores," Ettore told DSN five days before the Christmas holiday. Ironically, even with retailers' efforts to drive greater sales earlier in the season, the "whole season still comes down to the last five days," Ettore observed.

A good Holiday season is important if the chain hopes to maintain its resuscitated credit standing and its $300 million revolving credit facility with BankAmerica Business Credit.

Currently, the emerged retailer is having no credit problems, according to Ettore. The stores are amply stocked and Ames' credit standing has improved immensely from last year. "We are receiving, on average, 10 days better dating from vendors than a year ago," Ettore added.

Ames emerged from Chapter 11 in December 1992 and, under former president Peter Thorner, reported an annual profit of $10.8 million in January 1994. The credit facility took effect in April 1994; in June Thorner left Ames and Ettore took the helm. Since that change at the top, Ames has adopted a more aggressively promotional, higher turn/lower margin merchandising strategy.

The downward pressure on margin has not been offset by any substantial gains in revenues over 1993, due partly to the depressed apparel sales experienced by most retailers.

Ames was operating slightly ahead of Thorner's plan through the first half of 1994, but fell behind the plan in the third quarter.

Also of note, the board of directors of Ames in early December adopted a share-holder rights plan, set to trigger when any person or group's voting stock totals 15%. Ames said it knew of no takeover bids and cast the poison pill as a routine form of security. Ettore emphasized, "Similar plans have been adopted by many other companies, including other major retailers." The only stockholder with a major share of Ames voting stock is Dickstein Partners, the same group that attempted a takeover of Hills Stores' board last summer. Dickstein holds about 7.1% of Ames' stock.

It is reasonable to withhold judgment on Ettore's impact until 1995 plays out. His team inherited more than a credit facility. Ettore gives Thorner ample credit for tightening operation controls, launching renovations and winning over a burned-by-bankruptcy vendor community. But Ettore has had to graft his merchandising style onto a merchandising plan and inventories stocked by his forerunners.

Both Ettore and his handpicked executive vp of merchandising Denis Lemire are exponents of opportunistic purchases. They took early markdowns on some older inventory in July to generate cash flow for these "best buys." But until the results of these opportunistic purchases start hitting the bottom line, the full impact of their command will not be apparent.