VENATOR FOURTH-QUARTER NET LEAPS 97.3%

Byline: Thomas Cunningham

NEW YORK — As performance at its core Foot Locker chain showed improvement, Venator Group said its fourth-quarter earnings rose 97.3 percent to $73 million, or 53 cents a diluted share, from $37 million, or 27 cents.
Excluding the financial impact of Venator’s restructuring programs, the results of businesses either sold or slated for disposal, one-time tax benefits and real-estate gains, the company’s adjusted net income from operations bounced back to 12 cents a share from a loss of 22 cents a year ago. Wall Street analysts were expecting the company to earn 13 cents a share.
Venator told analysts in a conference call Wednesday that it is optimistic about 2000, since Foot Locker comparable-store sales results are strong, and its Northern Group, which operates the Northern Reflections chain, is on track for a profitable first quarter.
Wednesday’s announcement indicates that Venator, formerly Woolworth, has successfully refashioned itself from a massive retail conglomerate into a much leaner athletic apparel retailer, according to John Shanley, analyst at First Security Van Kasper.
“It’s a transformed business, and we think their prospects going forward are excellent,” Shanley said. “Foot Locker, Lady Foot Locker and Kids Foot Locker are all doing extremely well, with double-digit comps for the first six weeks of the first quarter. And Champs [Sports] same-store sales are up in the high single-digits.”
Over the last five years, Venator has closed or sold 35 divisions worldwide, slashing its annual sales volume from around $8 billion in 1995 to less than $5 billion last year. In the fourth quarter, Venator took an $88 million restructuring charge to shut another 358 stores and lay off 3,700 workers.
Venator’s shares gained 1/4 to close at 7 on the New York Stock Exchange Wednesday.
The retailer’s sales for the quarter were essentially flat at $1.33 billion. Sales from adjusted operations, excluding the operations of businesses either sold or held for sale, climbed 4 percent to $1.16 billion. Same-store sales rose 5.6 percent.
“While the fourth-quarter environment remained promotional, we are encouraged by our ability to generate significant improvements in gross-margins contributions through enhanced product offering at full margin, including proprietary brands and value-priced merchandise,” Dale W. Hilpert, Venator president and chief executive, said in a statement.
“Sales trends last quarter and for the first six weeks of fiscal 2000 suggest that this strategy, together with a very focused and deep merchandise assortment, is making a real impact on our business, allowing us to generate improved sales and market-share gains,” Hilpert said.
Gross margins from adjusted operations in the quarter climbed to 27.6 percent of sales from 20.9 percent.
The gains reflect better merchandise buying and fewer clearance sales, partially offset by increased occupancy costs and the continuing markdown of apparel at Champs Sports, Venator said.
The Champs markdowns were needed to keep the chain competitive in 2000, Venator said.
Venator’s core Foot Locker athletic footwear and apparel business saw “significant” same-store sales gains and market share increases, Hilpert said. For the entire footwear group, which includes Foot Locker and Champs Sports, adjusted operating profits bounced back to $30 million from a $48 million loss. Adjusted retail sales for the group climbed 3.8 percent to $966 million. “They made a decision to cut stockkeeping units by 50 percent, but to really showcase what they do feature and to never be out of stock on those products,” Shanley said.
Venator’s strategy of negotiating exclusive deals with major makers like Nike is also paying off, Shanley said. For example, Nike’s “tuned air” sneakers, only available at Foot Locker, should have sales of $600 million this year, he said.
Hilpert said he was “encouraged” by the progress of the Northern Group, which now consists mainly of the Northern Reflections chain. During the quarter, Venator closed 208 stores in the group, including all the Northern Getaway and Northern Elements stores in the U.S.
The changes appeared to pay off, as the division’s adjusted operating profit rose 150 percent to $20 million. Adjusted sales ticked down 1.4 percent to $138 million. Venator’s goal is to return the division to its historical operating profit level of 8 to 10 percent, Hilpert said.
“We expect the company will most likely sell the Northern stores sometime next year,” Shanley said. “We think there would be a ready market for it when it is profitable.”
During the quarter Venator also sold its Afterthoughts accessories chain to Claire’s Stores and spun off its Australian retailer Colorado Group for net proceeds of $280 million. The company told analysts it is close to completing the sale of the two remaining operations slated for disposal: San Francisco Music Box and several Burger King franchises.
“We ended the year with our inventories being on plan and their aging improved, which positions us well for the start of fiscal 2000,” Hilpert said. On a per-square-foot basis, end-of-year inventories were down 3 percent compared to the end of fiscal 1998, he said.
For the full year, Venator’s earnings bounced back to $48 million, or 35 cents, from a loss of $136 million. Excluding the operations and disposition of non-core businesses, the 1999 restructuring charges and the operations of the accelerated store closings in both periods, Venator’s adjusted net income from operations more than tripled to $41 million, or 30 cents, from $11 million, or 8 cents.
For the full year, Venator’s sales ticked up 2 percent to $4.65 billion from $4.56 billion. Sales from adjusted operations rose 2.2 percent to $4.06 billion. Same-store sales improved 2.1 percent.
During the year, direct-to-customer sales jumped 21.9 percent to $195 million, including $13 million of Internet-only sales. E-commerce sales should triple this year, Shanley said.
As its cost-cutting efforts and asset sales freed up cash, Venator cut its debt net-of-cash by $327 million from $574 million a year earlier.
Earlier this month the company retired $109 million of its 7 percent notes. Venator said it has set-aside funds to buy back the rest of the $200 million issue, which comes due in June.

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