Venture projects fiscal terra firma - Venture Stores Inc - Venture: Rewriting the Book, part 5

Discount Store News, Jan 15, 1996 by James Mammarella

ST. LOUIS--The clang and clatter of tools echoes through the night as a legion of carpenters, pipe fitters, mechanics and squads of third-shift fixer-uppers refit Venture Stores for its category dominance incarnation, due for unveiling in mid-February.

Meanwhile, the eyes of many are on the books of the $2 billion regional discounter. The 115-store chain, now in its 26th year, reported steep comp store declines during late 1995: down 15% in both November and December. For the year to date through Dec. 31, the comp store drop was 8.3%. The final result will likely be between that figure and 10%.

President and ceo Bob Wildrick stuck to his guns, noting that the sales decrease was partly a reflection of purposely depleting stocks in various hard lines categories. He emphasized that gross margin percentage of sales was better than plan and that Venture is focused on margin.

While the mood as 1996 dawns across discount retailing is to hope for the best, expect more bankruptcies and liquidations. A sampling of vendors revealed solid support for Venture. Apparel commodity suppliers from Lee to Chic/H.I.S. to the mass market division of Santana told DSN that they had not altered their receivable terms with Venture, which range from 30 days to 60 days. Still other suppliers indicated that they had loosened their previously stringent terms, a sign of increased confidence that was boosted in no small part by the vendor meeting hosted here Dec. 13.

Other observers, including some factors, expressed doubts about Venture's strategy, but shipments seemed to be flowing on schedule. Inventories at the chain are flat, compared to a year ago.

Ventura executive vp for finance and administration Russell Solt and senior vp, cfo Gene Caldwell told DSN that the chain's cash liquidity is adequate. Caldwell said that the chain, faced with tough choices, "made a good cash liquidity play in 1995, as opposed to a good profit/loss play."

Caldwell admitted that the original plan had been for 5% comp store gains in 1995, but that plan went by the boards nearly a year ago, upon the recruitment of Wildrick by chairman Julian Seeherman, who plans to retire. Wildrick and his new team determined that Venture would bite the bullet in 1995 in order to remake the chain's opportunities this year and beyond.

Wildrick's decision last August to boost the credit facility package (which expires September 1997) from $175 million to $200 million paid off two months later. The chain had a $30 million cushion at peak usage in October, Caldwell said, compared to Venture's typical elbow room of about half that amount for that time frame.

The chain has the ability to rapidly initiate a debt filing for up to $94 million if need be. In addition, Venture owns about $150 million of unencumbered real estate that could form collateral for borrowing.

Caldwell remarked that Venture faces a "very low debt repayment in the near term" and emphasized that the credit facility is not attached to inventory, thus debt service fees are low.

As of Jan. 3, Venture had $120 million in available cash, a combination of $105 million on the direct credit line and $15 million cash on hand. Caldwell projected "adequate cash flow from operations" during 1996, asserting the chain would maintain "at least $50 million to $60 million."

He projected a debt to capital ratio between 60% and 62% for 1995, reducing to below 60% for 1996.

Venture's gross margin rate was 24.3% of sales in 1994. While the new plan reflected lowered expectations, (example: 22.5% for November 1995). Wildrick said that actual results were closer to 1994 figures.

Venture's SG&A (selling, general and administrative) expense as a percent of sales was 21.4 in 1994. Caldwell projected that they would rise to no more than 22.0 for 1995.

Shareholders's net earnings per share was $1.53 in 1994. With the repositioning generating mammoth non-recurring charges, there will be a loss in 1995. Goldman Sachs has predicted 50 cents per share net earnings for 1996.

While the financial house is in reasonably good order at Venture, structural problems remain: savage competition, over-stored markets and a lower average ring than Wal-Mart. The good news: These are precisely the factors Wildrick and company aim to attack with the new Venture through the category dominance strategy.

While some observers praise the chain for taking a gutsy step, others question the wisdom of the expensive makeover. "For a company with eroding margins, getting creamed by Target and Wal-Mart," said one source, "what is the threshhold of return on these investments?"

Still others wonder how a strategy dependent on soft lines will pan out in the currently pernicious apparel environment.

Wildrick and Solt assert there is one clear answer: Sales per square foot must rise. The rate was $187 in 1994. Vendors were impressed by the new consumer marketing campaign, very much in the spirit of Sears' softer-side effort, which Venture will launch within several weeks. Whether the ads and the new, easier-to-shop, good/better/ best merchandising result in more store traffic and higher margins remains to be seen.