For the quarter ended April 28, Bon-Ton Stores posted a net loss of $40.78 million, or $2.23 a share, versus a loss of $36 million, or $2.01 a share, a year ago.
Net sales declined 1.4% to $640.8 million. Comparable store sales decreased 1.3% and gross margin narrowed to 34.3% from 35.5% due to increased markdowns.
Bon-Ton missed analysts’ average estimate for a loss of $1.57 a share on sales of $654.55 million.
According to Brendan Hoffman, president/ceo, the department store company suffered from a shift in a major sale event and a shuffle in the company’s merchandise mix.
“Sales from the shift of our Community Day event from February to the end of April exceeded the prior year, but we believe it had an overall negative impact on April sales leading up to the event,” Hoffman said. “We responded quickly with aggressive markdowns, and liquidated a higher level of transitional and carry-over inventory, resulting in gross margin erosion.”
On a conference call with analysts, Hoffman said the company tried to bring in more modern, fashion looks into its assortments that were heavily dominated by traditional offerings. But sales of the new offerings were offset by sales lost to core traditional customers.
More Emphasis on National Brands
“We made that change far too dramatically,” Hoffman said, adding that Bon-Ton will continue to change its merchandise mix toward modern looks in a more gradual manner, including greater emphasis on national brands.
In addition to reevaluating merchandise assortments, the company plans “continue evaluation of and adjustment to our merchandise assortment, reallocation of floor space to higher growth categories, greater focus on smaller markets, enhancements to our marketing programs, growth of profitable sales in e-commerce and changes to our operating structure.”
Hoffman said that while the company will reduce spending on circulars and other direct mail promotions, TV advertising may be increased. For promotions, Hoffman said Bon-Ton will try to strengthen sales events by instituting fewer but longer sales with simpler messages.
Moreover, by cutting general and administrative expenses, Bon-Ton may see savings of $20 million a year, up from a previous forecast for $10 million a year in savings.
Since he came to Bon-Ton from Lord & Taylor in January, Hoffman has been pushing the turnaround at the company, where Fitch Ratings, Standard & Poor’s Ratings Services and Moody’s Investors Service lowered its ratings due to weak results.
“I think there’s a lot of hope that he (Hoffman) is going to be able to right-size this business and make it a good competitor,” said Imperial Capital LLC analyst Mary Ross Gilbert, adding, “but when you have a first quarter like this one, it’s not a good start.”
Gilbert said the turnaround could take at least a year.
In the meantime, Bon-Ton, which operates about 275 department stores under the Bon-Ton, Bergner’s, Boston Stores and other retail brands, lowered its full year forecast.
The company now expects a loss of 94 cents to a profit of 50 cents a share, down from its previous forecast for earnings of 15 cents to 75 cents a share. Comparable store sales are expected to be an increase of 1.5% to an increase of 1%, down from its expectation of 1% to 2% growth. Analysts’ average estimate expects earnings of 23 cents a share.