Ames Plans to Close 32 Stores,
Expects to Post Annual Loss
By WILLIAM M. BULKELEY
Staff Reporter of THE WALL STREET JOURNAL
Ames Department Stores Inc., facing a tough retail climate and depressed sales, plans to close 32 stores, take a $140 million charge and report a loss for the year.
"It's been a tough year," said Joseph Ettore, chairman of Ames. After two years of strong growth "the retail environment hasn't been as favorable," he said.
Ames, a 480-store discount retail chain based in Rocky Hill, Conn., caters to people with typically lower income than patrons of chains such as Wal-Mart Stores Inc. It also seeks elderly shoppers. Mr. Ettore said those groups have been particularly hard hit by soaring costs for gasoline and home heating oil.
Mr. Ettore said Ames, whose stores are concentrated in the Northeast, will report Thursday a net loss of $37.2 million, or $1.27 a share, for its third quarter ended Oct. 28, widened from a year-earlier net loss of $27.7 million, or 95 cents a share. Sales for the quarter rose 4.2% to $920.3 million from $883.5 million, but sales at stores open at least a year fell 2.6%.
The third-quarter loss was also substantially wider than the 41-cent loss anticipated by analysts, according to First Call/Thomson Financial.
Although Ames expects to post a profit of about $2 a share for the fourth quarter on flat sales, that will result in a full-year loss of $1 a share, excluding the planned $140 million charge, which will be taken in that period, Mr. Ettore said.
Analysts had expected fourth-quarter net income of $2.63 and full-year net of 51 cents a share, compared with year-earlier net of $60.8 million, or $2.20 a share.
Ames stock has fallen from a high of $30 at the beginning of the year, and traded at $4.59, down 22 cents, in 4 p.m. Nasdaq Stock Market trading Wednesday.
Almost all 32 stores scheduled for closing were acquired in 1998 as part of the 155-store Hills Department Stores Inc. acquisition. About 2,000 workers will lose their jobs.
Mr. Ettore said that he had hoped he could turn the stores around but no longer believes that is possible. He said that the big third-quarter loss reflects a last-ditch effort to boost their results with such promotions as $5 gift-certificate and 20%-off programs mailed to residents with ZIP Codes near those stores. "People certainly used the gift certificates, but we didn't get a long-term bang out of it," he said. "The initiatives really cost us on the bottom line."
In a related development, Moody's Investors Service said it placed the debt ratings of Ames on review for possible downgrade following news of continued same-store sales declines.
However, Rolando de Aguiar, the chief financial officer of Ames, said the retailer is in solid financial shape and isn't "anywhere near violating any covenants." He said that its seasonal borrowings peaked at $611 million in October and will be reduced to under $270 million by the end of the quarter.
Mr. Ettore said that he expects retail sales next year to be flat compared with this year, and said that Ames will open only five stores next year, compared with 26 this year. He said new Ames stores in new markets such as Chicago and Philadelphia have shown better-than-expected results. "We're very confident with our strategy," he said, "but business all around is soft." |
