NEW YORK — Wilsons The Leather Experts bit the bullet for the continuing difficulties of its El Portal and Bentley’s travel stores in the second quarter.
The combination of operating losses and the one-time effect of an accounting change left the apparel and accessories retailer with a net loss of $51.6 million, or $2.55 a share, in the quarter ended Aug. 3, versus a $22.8 million, or $1.32 a share, loss in the second quarter of last year. In addition to the accounting adjustment, which is a non-cash charge attributable solely to its travel stores, the more recent period included a 6-cent-a-share charge for the relocation of its Las Vegas office to the company headquarters in Minneapolis.
Excluding the $24.6 million aftertax impact of the accounting change, the net loss for the quarter was $27 million, or $1.33 a share. The charge included the determination that the goodwill of the Bentley’s Luggage and El Portal units was fully impaired, with book value exceeding fair market value,
Net sales in the quarter declined 5.1 percent to $89.4 million from $94.2 million in the year-ago period. Although comps at the Wilsons Leather stores were up 1.9 percent in the quarter, a 21.9 percent comp nosedive at the travel stores dropped overall same-store results 6.5 percent.
In a statement, Joel Waller, chief executive officer, lauded the improvements in comps and "solid merchandise margins in a tough environment for specialty retail" at Wilsons Leather stores. "While we continue to have challenges ahead of us in our travel stores, our 25-store remerchandising test program is recently under way," he said. "We are focusing on identifying an appropriate product mix and pricing strategy that will improve our comparable-store sales trend and margin performance in our travel stores in time for the holiday season."
Jeffrey Stein, analyst at McDonald Investments, acknowledged that he was "rooting for Wilsons" to see its travel unit’s problems through. He considered the acquisitions in the travel area crucial to the company’s efforts to "de-seasonalize" the business, making it less dependent on the third and fourth quarters for sales and profits, and open up new real estate opportunities since "they’re pretty well tapped with the Wilsons format." At quarter’s end, Wilsons operated 756 leather stores, including 489 in mall locations, and 139 travel stores."If they can’t fix the problems in the travel business, they will have to go back to being the one-dimensional business they once were," Stein told WWD. "Travel was a well-conceived strategy, but it hasn’t come back from Sept. 11. They’re the biggest player in travel now and, while it’s going to take years, I think they can make it right. They’ll need patience and the strength to withstand investor pressures for a short-term solution, like getting out of travel, but it’s a good management team and they’ve reacted quickly."
He characterized the core business at Wilsons as "performing better, with a hint of revitalization. Comps were good in the quarter and the read on fall products is good."
For the nine months, the net loss, including the effect of the accounting change, more than doubled to $66.3 million, or $2.55 a share, versus a net loss of $22.8 million, or $1.32 a share, last year. Sales dropped 1.4 percent to $208.6 million from $211.6 million. Comps declined 8.6 percent overall and were down 4.5 percent at the leather stores.
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