Gottschalks Inc. announced a 5-Point Strategic and Financial Positioning Plan designed to strengthen the Company’s financial structure and position the West Coast department store retailer for stable long-term growth.
The 5-Point Plan will improve liquidity and reduce the Company’s debt by approximately $37 million. As part of the 5-Point Plan, the Company also announced today that it has completed the sale of its private label credit card operations to Household’s retail services business. The sale agreement includes the servicing of the Company’s more than one million credit card accounts that generate annual credit card sales of more than $300 million. This strategic alliance with Household increased available capital by $30 million at closing on Friday, January 31st and will also provide ongoing annual income to the Company as program compensation.
“We expect this 5-Point Plan will significantly strengthen our ability to effectively manage our business and return to the levels of success achieved prior to the acquisition of Lamont’s and the overall economic decline which began in 2001,” commented Mr. Jim Famalette, president and chief executive officer. “Our focus this year will be to dramatically improve the productivity of our existing store base and our overall financial condition. The strategic and financial initiatives we are implementing will increase our available capital and improve our operational flexibility and efficiencies. We anticipate that our 5-Point Plan will enable us to focus additional efforts on improving quality and service at our stores, as well as enable us to be more productive with our merchandising efforts.
“Our objective is to strengthen Gottschalks position in key western markets, generate opportunities for new stores and achieve our long-term growth objectives. Our plan is to open two new stores per year, similar to our past practice prior to our acquisition in 2000. There are no new stores planned this year, but we do have several California locations targeted and expect to finalize our growth plans for 2004 later this year.
“Additionally, the sale of our private label credit card business and the strategic alliance we have established with Household will provide best-of-class credit card service to our customers and an innovative, ongoing annual financial benefit to the Company. This partnership will enable us to reduce our financial risk, make the most of our invested capital and focus exclusively on Gottschalks core retail business.”
“We look forward to a mutually rewarding partnership with Gottschalks,” said Richard Klesse, national director of business development and client relations for Household’s retail services business. “We share common goals designed to deliver measurable results, incremental sales and above all excellent customer service.”
Gottschalks 5-Point Strategic and Financial Positioning Plan, developed as part of its annual business planning process and with the advisory support of Financo Inc., a New York based financial advisory firm specializing in the retail and consumer products sectors, includes the following points:
- Private Label Credit Card Strategic Alliance. The Company completed
the sale of its private label credit card business to Household and
established a strategic alliance to service the Company’s more than
one million credit card accounts. This transaction increased
available capital by $30 million at closing. The strategic alliance
will also generate ongoing program compensation for Gottschalks.
Based on seasonal fluctuations in credit card receivables, the
Company estimates this transaction will increase available capital
from $22 to $30 million during the course of the year. The Company
anticipates that partnering with Household and utilizing their
substantial marketing capabilities, as well as leveraging their risk
management expertise, will generate an increased number of
cardholders and, in turn, increased revenue from Gottschalks credit
card usage. - Close Underperforming Stores and Improve Operating Income.
Gottschalks is closing six underperforming stores in the Pacific
Northwest, which will improve annual operating income for the
Company by approximately $2 million. In connection with these
closures, the Company plans to report a one-time, non-cash charge of
approximately $3 million in the fourth quarter of 2002. The stores,
including four in the Seattle-Metro area, one in Wenatchee,
Washington, and one in Corvallis, Oregon, are closed or expected to
close over the next 90 days. The Company continues to closely
monitor the individual store performance and profitability of all
its locations. The streamlining of the store base will allow
management to focus on its successful markets and positions the
Company to achieve better efficiencies throughout its store base. - SG&A Expense Reductions. Including the anticipated reduction in SG&A
from the planned store closures and discontinued in-house credit
card operations, as well as additional expense reduction from
ongoing operations, the Company expects to reduce SG&A expense by
approximately $15 million on an annual basis. The majority of this
expense reduction is expected to be permanent, positioning the
Company to achieve its long-term objective of SG&A expense below 30%
of revenue. - More Focused Deployment of Capital Expenditures. The planned capital
expenditures for 2003 will be reduced and deployed in a more focused
manner, providing further financial flexibility for Gottschalks. The
capital expenditure budget in 2002 was primarily dedicated to
important IT infrastructure improvements. The successful
implementation of those 2002 initiatives and the elimination of the
credit card operation is enabling the Company to eliminate or defer
certain other planned IT investments. Additionally, management plans
to defer new store openings to Spring 2004. Planned capital
expenditures in 2003 will be reduced by more than $9 million to
approximately $7 million and will be directed primarily toward
maintenance and improvement of the Company’s existing store base. - Increase Private Label Assortment. The Company’s merchants will more
aggressively pursue opportunities with its private label brands in
2003, which differentiate the store’s product offerings from
competitors and historically have generated higher profit margins.
The Company has had significant success with the implementation of
its exclusive product lines such as the Shaver Lake and Sarah
Bentley brands, which have proven popular among Gottschalks
customers due to their high quality and excellent value. Gottschalks
anticipates private label sales will grow by 15% in 2003 to
approximately $80 million, or nearly 12% of total owned sales,
compared to 2002. A key component of this initiative is the
expected launch of an exclusive new children’s private label
merchandise program this Spring.
“Our 5-Point Plan is the result of intensive work with our financial advisors at Financo to proactively strengthen the Company’s overall financial condition and position us for long-term success. While we expect in the near term to continue to operate in a challenging economic and retail environment, our 5-Point Plan will provide us with additional resources to withstand a prolonged downturn and handle any potential increased competition until such time that the economy improves,” concluded Mr. Famalette.
Gottschalks will report fiscal 2002 fourth quarter and year-end results on Thursday, March 6, 2003.
