By  on March 4, 2002

NEW YORK -- Even without extraordinary items, Factory 2-U Stores suffered fourth-quarter declines that were anything but ordinary.

Net losses for the quarter ended Feb. 2 totaled $8.9 million, or 70 cents a share, compared with year-ago earnings of $12.2 million, or 92 cents. Results included a $21.2 million pretax charge to close 28 stores and realign the firm's field organization. Excluding this, profits dropped 67.1 percent to $4 million, or 31 cents a diluted share.

Sales for the quarter ended Feb. 2 retreated 12.4 percent, to $169.8 million from $193.8 million a year ago. Sales fell a milder 8.2 percent after excluding an extra week in the year-ago period. Adjusted comparable-store sales, though, dropped 12.9 percent.

In a statement, president and chief executive officer Mike Searles characterized the period as "one of the toughest and most promotional holiday periods in recent memory," which wounded margins with heavy markdown volume. Profit margins in the quarter backtracked 372 basis points to 31.3 percent of sales.

On the bright side, Searles noted: "Our aggressive clearance in January has positioned us with an excellent inventory position."

For the year, losses mounted $10.9 million, or 85 cents a diluted share, and compared with earnings of $21.3 million, or $1.63, in 2000. Exclusive of charges in both periods, earnings slumped 85.6 percent to $3 million, or 23 cents a diluted share, from $20.9 million, or 1.60 last year.

Sales inched up 4.5 percent, to $580.5 million from $555.7 million during the previous year.

Going forward, Searles said: "We intend to implement new merchandise strategies, including new category offerings, better execution of our core business and broader methods of marketing our business, all designed to improve customer frequency and reach new customers."

In 2002, the 274-unit off-pricer plans to open 30 new locations. Searles insisted: "We now have a much clearer understanding of the demographic requirements required for a successful new store."

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