By and  on August 31, 2007

Ending a review of strategic alternatives that began in November 2006, Gottschalks Inc. said Thursday that it will pursue its own long-term growth strategy.

"We have concluded that focusing on new and independent strategic growth initiatives offers a better long-term value for Gottschalks and our shareholders at this time versus other alternatives proposed and considered," Jim Famalette, chairman and chief executive officer of the retail chain, said in a statement.

There had been speculation that Wal-Mart Stores Inc. was eyeing the chain as a way to immediately enter the Northern California market. Gottschalks has 38 stores in California, half of them in the north, slightly over a quarter in Southern California and a handful in central California. The retailer has 60 stores, with annual revenue of $687 million. Gottschalks' market capitalization is $183 million, and it carries an enterprise value of $298 million.

In a separate development, the company signed an amended five-year, $200 million financing agreement with GE Commercial Finance Corporate Lending to support its three-tiered "value improvement program," which will focus on store openings, marketing programs and real estate utilization.

Meanwhile, the retailer reported a second-quarter loss on softer sales and gross margins due to weakness in its home store and other unspecified merchandise categories and increased promotional activity.

"We continue to anticipate some gradual improvement in these merchandise categories, as we move into the fourth quarter," Famalette said in a statement. "Even in the difficult retail environment we saw solid gains in cosmetics, dresses, special sizes, children's and intimate apparel."

For the second quarter ended Aug. 4, Gottschalks posted a loss of $4.8 million, or 35 cents a diluted share, compared with income of $486,000, or 4 cents a diluted share, in the year-ago period.

The company posted total revenue of $146.7 million, down from $154.2 million in the same period last year.

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