Woolworth 2Q
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Woolworth 2Q
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(FOOL CONFERENCE CALL SYNOPSIS)* By Alex Schay (FW Games)
Woolworth Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: Z)") else Response.Write("(NYSE: Z)") end if %> NEW YORK, NY., August 15, 1996/FOOLWIRE/--- Woolworth Corporation last evening reported its results for the 1996 second quarter, ended July 27 1996. Woolworth's 1996 2Q Income Before Taxes was $37 million, improving from a Loss Before Taxes of $19 million in 2Q 1995. Second quarter Net Income for 1996 was $22 million, or $0.17 per share. This starkly contrasts with a 1995 second quarter Net Loss of $11 million, or $0.09 per share, giving the struggling blue-chip a first half pre-tax improvement of $152 million. Woolworth's 1996 first half net improvement stands at $91 million, or $0.69 per share.
Todays conference call revealed CEO Roger N. Farah's continued desire to focus on debt reduction as well as improvement of distribution capability. The debt reduction focus in the first half of 1996 yielded a reduction in Total Debt of 47.2%, or $686 million. Reductions in inventory of $313 million were 17.4% (at cost) below last year and interest expense declined $26 million, or 40%. The reduction in inventories was accompanied by a reduction in items that had stayed on the shelf for an extended period . Inventory items 10 months or older formerly comprised 12% of total inventories, the percentage now stands at 5%. In a statement contained in the company's press release Farah asserts, "We are continuing to build on the accomplishments demonstrated during the First Quarter of 1996. Ongoing programs to enhance merchandise strategies, reduce inventories, lower our expense structure , strengthen our financial position, and dispose of non-strategic assets have enabled us to make substantial improvements for the quarter."
Farah's goal of paring down major U.S. distribution centers to a total of 4 by the end of the year highlights a continued focus on aggressive consolidation efforts. Detailing these efforts on the General Merchandise side Farah notes that in the past store manager's determined both price and quantity for key items available in the stores. He states that implementation of a central pricing strategy, while disruptive in the beginning, will make Woolworth more uniformly competitive. In line with this reasoning the company has chosen to focus on a narrowed assortment in all formats, streamlining the distribution channels in order to keep popular items in stock. (A problem that has plagued Woolworth in the past). On the Specialty Merchandise side this new focus reveals itself in efforts to reduce back end space in the Foot Locker stores. Farah's goal of improving the ratio of front end to back end space from a present 50/50 to a future 70/30 is closely linked to expected improvements in distribution capability. Farah's ultimate goal of round -the-clock distribution centers will make frequent replenishment of inventories possible, as well as enable a reduction in inventories. Farah wants a smaller stock of items, but also assurance that there is always something there.
During the second quarter of 1996 the company opened 70 stores and closed or disposed of 227 stores. The company closed its 109-store Accessory Lady chain (announced in May) and announced the sale of its 34-store Lady Plus chain operating in Germany in June. Also in June was the disclosure of the company's sale of its 50 percent interest in the 30-store New Yorker chain. In addition, the Company sold its former distribution center in Greenville SC, also announced earlier this year. Additional real estate transactions included the sale of non-strategic properties involved with operations in Woolworth U.S., Germany, and Canada. The Company reported a net gain of $13 million on these transactions, while the charge for disposed operations was $14 million, bringing the total charge for the year to $28 million.
The Company's sales for 2Q 1996 were $1,856 million, declining 3.4% from the previous year. Comparable store sales declined 0.2%. Excluding the effect of fluctuations in foreign currency rates and sales from disposed operations, total sales were reduced 0.9%. Showing strength in its drive to reduce expenses Woolworth Corporation reported a decline of $41 million in Selling, General and Administrative expenses, bringing the total reduction for 1996 to $95 million, or 26.7% of sales. This is an improvement over the 29% of total sales reported at the end of last years first half.
The improvements in cost reduction were mirrored in the operating results for the quarter. Total operating results were $70 million (excluding net gain on sales of real estate and disposed operations). Buoyed by an exceptionably strong Athletic Group, gains were $50 million higher than the previous year. Due to improvements across the Specialty Merchandise side, gains of $60 million were locked in, from a previous year total of $36 million to the present quarters $96 million. This is a very strong showing for Woolworth when one considers that the operating earnings for the first 26 weeks of 1996 have been $131 million, as opposed to $161 million for all of last year. The few negative numbers in the operating results section were due to a slump in General Merchandise totals. A loss of $26 million was a tidy improvement over the previous years loss of $16 million. The decline for 2Q 1996 includes early retirement costs relating to a workforce reduction program implemented in the companys German operations. Farah states that $11 million of the total loss in 2Q can be attributed to these expenses. The Company hopes that gains in this area will be realized in late 1997. In addition to these gains the Company is hoping to benefit from the change in German shopping laws in November. At this time store hours will be extended into weekday evenings and Saturdays, shopping times that were formerly against the law. * 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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Copyright 1996, The Motley Fool |