SHOPKO SHINES IN 1ST QUARTER, EARNINGS FALL AT KMART, AMES

Byline: Thomas J. Ryan

NEW YORK — First-quarter earnings were slammed at discounters Kmart Corp. and Ames, as cold spring weather hampered sales of spring apparel and backyard basics, while Shopko turned in a picnic of a report.
As forewarned, Kmart said on Thursday that cold spring weather and too soft a marketing push caused first-quarter earnings to tumble 60.7 percent.
Ames, also as projected, logged a sharply wider loss than Wall Street had expected, as chilly northeast weather curtailed sales not only of spring apparel but also patio furniture, grills and other seasonal items. A discount winner was Green Bay, Wis.-based Shopko, which banged out a 27.2 percent hike in operating profits.
Kmart’s profits tumbled to $22 million, or 5 cents a share, from $56 million, or 11 cents, a year ago. Kmart warned on May 4 that earnings would fall short of the then 10-cent consensus estimate due to weak April sales. Sales inched ahead 1.4 percent to $8.2 billion, and were flat on a same-store basis.
On a conference call, Kmart attributed its poor April sales to “very aggressive” television and radio campaigns by competitors, citing Wal-Mart, Target, Kohl’s and Sears.
“We simply did not generate the promotional excitement necessary to extend our string of 15 consecutive quarterly earnings increases,” said Floyd Hall, chairman, president and chief executive of Kmart.
“They were out-advertised by their competitors,” said Jeffrey Edelman, an analyst at PaineWebber. “They probably cut back a little bit to maintain expenses flat while their competition increased expenditures, and they probably were not as promotional as they needed to be. I think they are going to ratchet up some campaigns going forward.”
But Edelman also said sales were running below plan in February and March and the prolonged weakness underscores the chain’s need to improve basic areas such as check-out time and inventory flow.
Kmart said it was hurt by understocking some promoted consumable items. BlueLight.com, its e-commerce site, also accounted for a loss of $11 million, or about 2 cents a share, in the period.
Ames, based in Rocky Hill, Conn., lost $29.1 million versus $29.8 million a year ago. Excluding the impact of costs related to last year’s Hills acquisition, the year-ago loss would have been $5.9 million. The prior year reflects a $1.1 million charge for an accounting change.
Ames also warned on May 4 that cold and rainy weather would sharply increase its loss over consensus estimates for a 37 cent loss. The loss came in at 99 cents.
Sales inched ahead 1.8 percent to $830.7 million, with same-store sales up 1.2 percent.
“Our customer buys very close to time of need, and if it’s 40 degrees and raining, they are not going to go out and buy shorts and T-shirts or patio furniture or gas grills,” Joseph R. Ettore, Ames’s chairman and ceo told WWD.
A “significant rebound” in sales and traffic occurred as warm weather arrived last week, he said.
“We’re very confident right now that we’ll stay on plan for the balance of the year,” Ettore said.
Ettore said former Hills stores that were converted to Ames stores “continue to develop and we remain confident that those stores as a whole will meet our performance expectations as they mature over an 18- to 24-month period.”
Shopko’s operating profits ran up to $16.4 million from $12.9 million. Sales climbed 36.3 percent to $752.7 million, reflecting last year’s acquisition of Pamida, a smaller chain focusing on smaller markets than Shopko, and a 2.6 percent same-store gain at the Shopko chain.
Net earnings surged to $1.8 million, or 6 cents a share, from $537,000, or 2 cents, though the year-ago period included a $3.8 million charge to retire debt.
ProVantage Health Services, now listed as a discontinued operation, contributed income of $1.2 million in the latest period versus $2.4 million a year ago. Merck has agreed to buy ProVantage.
At the Shopko chain, operating earnings rose 26.6 percent to $22.8 million, sales gained 6.2 percent to $583.4 million, and gross margins improved to 25.9 percent from 25.2 percent. Pamida had operating earnings of $416,000, sales of $166.1 million, and gross margins of 24.6 percent.
“With a sound infrastructure in place in our retail operations and a strong balance sheet that has the flexibility and liquidity to support our company’s growth, we feel we are well positioned for a successful 2000,” said William Podany, chairman, president and ceo.