Service Merchandise Q3
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Service Merchandise Q3
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Service Merchandise Co, Inc <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SME)") else Response.Write("(NYSE: SME)") end if %> UNION CITY, Ca., October 13, 1996/FOOLWIRE/ --- Service Merchandise had a net loss in the quarter of $0.12 this year versus a net loss of $0.08 per share last year.
Comp sales for the quarter were up 0.08%, a continuing improvement over their second and first quarter decreases of 1.2% and 3.5%. The overall improvement was driven by September's performance which was positive in the mid-single digit range while performance earlier in the quarter was soft. Hard line comp sales were positive in the low single-digit range for the quarter with September in the high single digit range. Jewelry comps were negative in the low-single digit range, they believe reflecting a promotional shift from third quarter into fourth quarter of separate gold and diamond events.
Advertising impressions during the quarter were down in the mid-to-upper single digits according to their plan to shift advertising emphasis into the fourth quarter of the year.
Geographically, comp sales performance was positive throughout the chain with the exception of the Midwest, West, and Southwestern areas which were flat or down slightly.
Merchandise category wise, fitness, video, gifts, and furniture performed very well while audio, toys, and juvenile were weak. The jewelry business was particularly soft in diamonds, colored stones, and gold, again reflecting somewhat the shift of promotional events.
Gross margin rates after buying and occupancy costs were down 40 basis points reflecting a higher hard line sales percentage in their sales mix and the higher freight costs associated with increased hard line sales. Their SG&A expenses rose 80 basis points due primarily to increased employment costs associated with the merchandising and display transitioning in their stores. Transitioning was both more expensive in areas like tabletop, kitchen, electronics, and jewelry, and completed within a shorter window. Last year they spent 2-3 months transitioning where this year they did the entire transition in 3-5 week time frame. Interest expense improved by $2.3 million on lower average short term borrowing of $119 million and slightly lower rates.
Inventories were flat compared to the prior year reflecting the beginning of deliveries of Fall merchandise and significant assortment transitions. Average inventories in the quarter, though, were down by $27 million or 2.2%.
Total debt at quarter end was $101 million lower than at the end of the third quarter last year with cash up $2.5 million. Accounts payable leverage improved to 41% versus last year's level of 39%. Capital expenditures for the quarter were $9 million versus $11 million last year. Year to date they have spent $17 million versus $24 million in the similar period last year. This year their capital expenditures are planned to still be at $50 million. They plan to open 4 more stores and closing 5-8 more in 1996.
Last Friday they closed on $58 million of a $75 million mortgage financing. They will utilize approximately 28 properties when the total transaction is completed. The term is 15 years with a 15 year amortization period at the rate applicable to the first pool is 9.275. The primary reason for the transaction is to improve liquidity, particularly during their peak borrowing period, and to consider more aggressive remodel programs along with an alternative private label credit card program. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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