AMES SEES ’94 NET TRAILING PLAN; BLAMES APPAREL SALES
Byline: Valerie Seckler
NEW YORK — Due to soft apparel sales, the 1994 net income at Ames Department Stores will fall below plan despite a projected 13 percent increase in operating earnings.
Sales will dip an estimated 3.9 percent for the year.
“While we anticipate that the net profit and EBITDA will be higher than last year, these results are expected to be below fiscal 1994 business plan projections,” Joseph Ettore, Ames president and chief executive officer, said in a Feb. 28 letter to vendors.
A copy of the letter was obtained by WWD. In it, Ettore projects the retailer will report EBITDA — earnings before interest, taxes, depreciation and amortization — of $43.4 million on sales of $2.14 billion for the year ended Jan. 28.
Those results compare with operating income of $38.3 million on sales of $2.23 billion in 1993.
Jack Burtelow, executive vice president and chief financial officer, said Ames had planned net income of $22 million and EBIDTA of $53 million in 1994. Yearend earnings will be released in April.
An investor with a substantial stake in Ames, who asked not to be named, estimated the 306-store retailer will produce 1994 earnings per share of 65 cents, up from 51 cents in 1993. Burtelow didn’t confirm the estimate.
Comparable-store sales were up about 1.7 percent in 1994 and 6.5 percent in the fourth quarter, according to Burtelow.
Ettore said in his letter that Ames’ gross margin in 1994 will rise to 26.6 percent of sales from 26.1 percent. Gross margin growth is expected to slow down in 1995, however, while increasing to 26.8 percent of sales.
Financial analysts noted Ames’ gross margins have eroded in the last six months as sales transactions increased but the flow of dollars to the bottom line slowed.
Richard Hastings, an analyst at Solo Credit Corp., Charlotte, N.C., said Ettore has heightened the emphasis on building sales at Ames and is less bottom-line focused than his predecessor, Peter Thorner.
“I’m a little less comfortable with the sales-driven concept than the margin-driven concept,” Hastings added. “They may be a survivor, but I don’t think the profit is going to be where it could have been.”
Burtelow also acknowledged that a shift in strategy to building sales and marking down certain merchandise had depressed margins.
The Ames investor said competing against Wal-Mart in the last two years has been tough for Ames and other regional discounters. He added he still expects Ames’ bottom line to grow 28 percent for the year.
Ettore said in his letter that Ames’s 1994 EBITDA is expected to exceed the credit agreement requirements of $35.4 million. Based on the 1995 projections, he said Ames will meet the credit-agreement covenant requirements for the year.
Ettore projected Ames will produce net income of $17.3 million on sales of $2.2 billion in 1995. He also predicted EBITDA would hit $55.1 million and comparable-store sales would climb 2.8 percent next year. — Fairchild News Service