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Format Change Hurts Gadzooks

With the elimination of its $160 million young men’s business now complete, Gadzooks posted a second-quarter loss of $7.9 million.

NEW YORK — When Gadzooks decided to transform itself into an all-girls format, the Dallas-based chain knew it first was going to cost them.

With the elimination of its $160 million young men’s business now complete, the retailer posted a second-quarter loss of $7.9 million, or 86 cents a diluted share, for the three months ended Aug. 2. Results include nonrecurring charges of $1.4 million related to store closures and between $2.6 million and $2.7 million related to the liquidation of its men’s business, or a total of 27 cents a share. That compared to a profit of $115,000, or 1 cents, in the same period last year. Still, the retailer was able to post results far ahead of the $1.02 loss Wall Street analysts were expecting.

Sales for the quarter trickled down 10.7 percent to $68.5 million from $76.7 million, while same-store sales declined 9.9 percent.

“Although we certainly never want to announce a loss, the particular results were significantly better than we planned for,” Gerald?Szczepanski, chairman and chief executive, said on a conference call.

While Gadzooks recently reported a 34.3 percent comparable-store sales decline in July, Szczepanski said the negative comp trends should continue as the company adjusts to the loss of the $160 million men’s business and copes with the fickleness of the junior customer. He would not provide details as to when he expected comps to turn positive.

“We know our current assortment, which covers various new categories, will help some classifications of items outperform our expectations as well as items that underperform our plan,” he said. “We intend to use the back-to-school season to make these observations and of course find adjustments as we move forward to the Christmas season.”

Going forward, Szczepanski said he is concentrating on fine-tuning the assortment and building traffic. In addition, he said the firm plans to close 25 to 35 stores and doesn’t plan to open any this year. The chain currently operates 427 units.

“We are working on eliminating the bottom-line negative and strengthening the top-line positive,” he said.

For the first half, the firm reported a loss of $12 million, or $1.31 a diluted share, reversing year-ago profits of $1.9 million, or 20 cents. Sales for the six months declined 10.2 percent to $139.2 million from $155 million and receded 10.3 percent on a comp basis.