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Subj: Service Merchandise Reports First Quarter 1997 Results, Includes Impact of $130
Date: 97-04-14 09:24:28 EDT
From: AOLNewsProfiles@aol.net
NASHVILLE, Tenn.--(BUSINESS WIRE)--April 14, 1997--Service
Merchandise Company, Inc. (NYSE:SME) today announced results for the
first quarter ended March 30, 1997, and detailed the elements of the
$130 million restructuring charge related to the closure of 60
underperforming stores and its Nevada distribution center that was
announced by the Company on March 27, 1997.
First Quarter Ended March 30, 1997
Net sales for the first quarter of 1997 were $686.4 million
compared to $715.6 million for the same period in 1996. This
represents a net sales decrease of $29.2 million or 4.1%, with comp
store sales (adjusted for the shift in Easter) decreasing 2.5%.
Affecting the total sales decrease was the fact that the Company
operated 399 stores during the first quarter of 1997 compared to 409
stores during the first quarter of 1996. The comparable store sales
decrease was driven primarily by a storewide sales event in the first
quarter of 1996 which was not repeated in the first quarter of 1997.
Jewelry sales and hardline sales were both off in the low single
digit percentages for the quarter.
The net loss for the first quarter, including the impact of a
$129.5 million pre-tax ($80.9 million after tax) restructuring
charge, was $107.2 million, or $1.07 per share. Excluding the
restructuring charge, net loss was $26.3 million, or $0.26 per share,
compared to a net loss of $24.7 million, or $0.24 per share, for the
first quarter of 1996.
The $1.6 million increase in net loss excluding the impact of the
restructuring charge was primarily attributable to a decrease in
gross margin dollars due to a higher inventory shrinkage expense
accrual and lower cash discounts on lower purchases, as well as an
increase in advertising. These items were offset to a significant
degree by a reduction of employment costs and other selling, general
and administrative expenses compared to the first quarter of 1996.
"We are not satisfied with the Company's first quarter
performance, but there are positive points to consider," noted Gary
Witkin, President and COO. "The closing of underperforming stores
reflects our resolve to change the trajectory of the Company's
performance. Our commitment was also demonstrated as we reduced
employment costs and other selling, general and administrative
expenses in a quarter over quarter comparison as our expense
reduction initiatives began to manifest results."
Gross margin, after buying and occupancy expenses, was $154.8
million, or 22.5% of net sales for the first quarter of 1997 compared
to $160.8 million, or 22.5% for the first quarter of 1996. The
decrease in gross margin dollars was primarily due to a higher
inventory shrinkage expense accrual and lower cash discounts on lower
purchases.
Selling, general and administrative expenses for the first
quarter of 1997 were $165.0 million, or 24.0% of net sales compared
to $168.7 million, or 23.6% of net sales for the first quarter of
1996. Reduced employment costs and other selling, general and
administrative expenses contributed to the decrease of $3.7 million,
although these reductions were partially offset by higher advertising
expenses.
Inventory balances at quarter end were $1.078 billion compared to
$1.101 billion at the end of the first quarter of 1996, a reduction
of $23 million. Short-term borrowings at quarter end were $101
million compared to $185 million at the end of the first quarter of
1996, reflecting the impact of the $75 million, fifteen-year mortgage
financing.
Accounts payable were $389.0 million at March 30, 1997 compared
to $463.3 million at the end of the first quarter of 1996. The
decrease of $74.3 million in accounts payable reflects lower
purchasing volumes during the first quarter of 1997.
Restructuring Charge
The Company recorded a restructuring charge of $129.5 million
pre-tax ($80.9 million after tax) in the first quarter of 1997
related to its decision to close 60 underperforming stores and its
Nevada distribution center. The elements of this charge include:
-- Severance costs (related to the store and distribution center
closures and the store management restructuring), $5 million.
-- Lease exit costs (related to exiting or sub-leasing: leased
store properties to be closed, the distribution center, ground
leases related to certain owned properties to be closed, and
various equipment leases; commission expenses associated with
the disposal of the properties or the marketing of the properties
to sub-lessees, and other contractual obligations such as common
area maintenance and real estate taxes), $83 million.
-- Fixed Assets (related to the write-down of property and equipment
to be disposed of as well as the selling commissions related to
the sale of the properties), $33 million.
-- Other costs (related to professional and other fees, contractual
obligations and other exit costs), $8.5 million.
The after-tax, present value of the cash costs associated with
the $130 million charge are estimated to be $30-$40 million, after
giving effect to the non-cash nature of the fixed asset write-down
and the undiscounted nature of the period expenses related to future
lease payments and expenses.
The Company announced on March 27, 1997 that the first quarter
pre-tax charge of $129.5 million was the initial component of a
strategic repositioning whose total financial impact is anticipated
to be $175 million pre-tax ($109 million after tax). The estimated
remaining $45.5 million pre-tax financial impact will be reflected as
reduced gross margin when inventory is liquidated pursuant to the 60
store closings and as a result of any re-merchandising decisions the
Company may make over the next several quarters and into 1998.
SAFE HARBOR STATEMENT UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This release includes certain forward-looking information that is
based upon management's beliefs as well as on assumptions made by and
data currently available to management. This information, which has
been, or in the future may be, included in reliance on the "safe
harbor" provisions of the Private Securities Litigation Reform Act
of 1995, is subject to a number of risks and uncertainties, including
but not limited to the factors identified in the Company's Form 10-K
filed with the Securities and Exchange Commission. Actual results
may differ materially from those anticipated in such forward-looking
statements even if experience or future changes make it clear that
any projected results expressed or implied therein may not be
realized.
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