Shoe Pavilion, Inc. reported that net sales for the first quarter totaled $36.2 million while comparable store sales increased by 7.8%. The company said it expects a net loss for the first quarter of approximately $1.2 million to $1.3 million, or a loss of 13 cents to 14 cents per diluted share. Previous guidance for the first quarter of 2007 was for net sales to range between $37.0 million and $39.0 million and for net loss to be approximately 2 cents to 3 cents per diluted share.
Results for the first quarter were negatively impacted by lower than expected sales and operating margin at the company's newest stores opened in the last 12 months. Specifically, the 24 Shoe Pavilion stores opened in 2006 generated sales that were approximately $2.5 million below the company's expectations for that group of stores. These new stores accounted for a majority of the expected first quarter operating loss. In addition, the company opened one new store versus its plan to open three new stores.
Bruce Ross, CFO, stated, “Our results for the first quarter are lower than we initially anticipated as a result of outside factors which affected our 24 stores opened in the last year. Most of the stores we rolled out in 2006 were in new shopping centers where we have experienced slower than expected traffic due to ongoing construction as well as it taking longer than planned for other retailers to open stores at those centers. In addition, we experienced a lower than expected selling margin due to increased discounting in our newer stores to drive sales as well as an extended period of cold weather resulting in higher than typical sales of discounted winter merchandise in the first two months of the quarter.
“Despite the recent performance of our stores opened in the last year, it is important to note that our core business continues to perform very well. While we experienced lower than planned sales at our newer stores, we were able to achieve a 7.8% increase in comparable store sales and a 32.9% increase in net sales versus the first quarter of 2006. As a group, our mature stores, which are stores open for at least three years, outperformed our expectations and generated strong increases in both sales and operating income for the quarter. Based on the results achieved across our store base, we continue to be confident in our merchandise strategy and assortment. In addition, we continue to believe our newer stores will ramp up to generate sales growth and operating margin in line with our more mature stores, just over a longer period of time than we had originally expected.”
The company's 51 stores that are 10,000 square feet or less generated a 10.5% comparable store sales increase. Stores in California, where the Shoe Pavilion brand is most established, generated a 12% comparable store sales increase for the quarter.
Business Outlook
We plan to update our previously announced outlook for the full year 2007 when we report full first quarter 2007 financial results in early May. One assumption of our revised guidance will be that stores opened in the last 12 months will generate sales growth at a slower rate than our mature stores as has been the case to date this year. As part of our updated outlook for the full year we may adjust the number of stores to be opened in 2007.
Shoe Pavilion continues to maintain a solid balance sheet. The company's $50 million line of credit had availability of $23.5 million as of today, April 19, 2007.
Dmitry Beinus, president and CEO, stated, “We are taking a more conservative approach to our outlook for 2007. Following our more aggressive store opening schedule from the past year, which increased our square footage by 57%, we will focus on factors within our control to improve the performance of our newer stores. As for planned store openings, we are experiencing delays in the turnover of new stores from developers, which is expected to affect the timing of store openings and potentially the number of stores we will open this year. We remain very pleased with the performance of our mature stores and believe we are on the right path to increasing sales and improving returns at our newer stores. Importantly, we remain confident in the strength and long-term growth potential of our business strategy as well as our ability to generate value for our shareholders.”
