Bakers Footwear Group, Inc. reported net sales for the first quarter decreased 11.8% to $43.5 million from $49.3 million for the year-ago period. Comparable store sales for the first quarter of fiscal 2008 decreased 11.1%, compared to a decrease of 9.3% in the prior-year period. Gross profit in the first quarter was $11.3 million, or 25.8% of net sales, compared to $15.3 million, or 31.0% of net sales in the first quarter last year. Operating loss was $4.1 million, compared to $1.2 million in the first quarter last year and net loss was $4.9 million or 70 cents per share, compared to $1.0 million, or 15 cents per share in the first quarter last year.


The decrease in gross profit percentage in the first quarter resulted primarily from the sales shortfall which caused the company to take additional promotional activity and reduced our operating leverage. During the first quarter of fiscal 2008, the company opened one new store and closed one store, ending the quarter with 249 total stores.

 

“Our first quarter results reflected a difficult start to the spring selling season driven by unseasonably cool weather and an early Easter holiday as compared to last year,” said Peter Edison, chairman and CEO of Bakers Footwear Group. “Comparable store sales in February and March were down 16.1% but rebounded nicely in April, to flat comparable store sales, due to strong customer response to our open-toe footwear assortment, demonstrating the strength of our merchandising team.”

 

“During the quarter, we also achieved our cost reduction goals and continue to expect this effort to positively impact operating results this year. In addition, we were pleased to maintain our tight inventory discipline during the quarter with inventories at quarter end down 15% from the prior-year period. Comparable store sales for the first five weeks of the second quarter are down 0.7% but, other than the first week of the quarter, due to reduced promotional activity, have improved each week with June sales starting off strongly positive.”

 

“We continue to believe we have adequate liquidity to operate throughout 2008 and a business plan that allows us to meet our debt covenants. In addition, we have continued to cut costs and eliminate underperforming stores,” Peter Edison continued.

 

The company continues to face considerable liquidity constraints as a result of lower sales in the first quarter and through the first five weeks of the second quarter. As of May 3, 2008, the company had negative working capital of $12.8 million and unused borrowing capacity under its revolving line of credit of $2.5 million. As of May 31, 2008, unused borrowing capacity was $0.6 million.

 

As previously disclosed, during the first quarter of 2008, the company obtained net proceeds of $6.7 million from the entry into a $7.5 million three year subordinated secured term loan and the issuance of 350,000 shares of common stock. Also as previously disclosed, on May, 9, 2008, the company amended the subordinated secured term loan to adjust the financial covenant for minimum EBITDA for the first quarter of 2008 and to defer principal payments until September 1, 2008 and issued an additional 50,000 shares of common stock as consideration for the amendment.

 

The company’s business plan for fiscal year 2008 continues to be based on moderate increases in comparable store sales beginning in the second quarter and continuing through the remainder of the year, improved gross margins, and expense reductions. The company has adjusted its business plan in light of year-to-date sales and its current liquidity position and has taken actions it considers necessary to maintain adequate liquidity and meet the financial covenants under its debt agreements.

 

Although the company believes its business plan is achievable, in light of past sales results and the current state of the economy, there is a reasonable possibility that the company may not be able to comply with the quarterly minimum EBITDA covenants. As a result, the company’s long-term debt obligations are classified as current liabilities.

 

If the company is unable to comply with its financial covenants or otherwise maintain adequate liquidity it could be necessary for the company to obtain one or more amendments or waivers from its lenders, obtain additional sources of liquidity, or make further cost cuts to fund operations. However, there is no assurance that the company could accomplish these steps.

 

“Despite the requirement to classify our long term debt as short-term debt for accounting purposes, approximately $4.0 million of the balance has scheduled repayments due from 12 to 33 months from the end of the first quarter and $4.0 million of the balance is scheduled for repayment in 2012,”  Peter Edison concluded.

 

Despite the difficult February and March, the company now expects their cost reduction plan exceed the $8.0 million in cuts that they previously announced. Peter Edison believes the company will have adequate liquidity to operate, make all of the financial covenants and make a rebound in sales and gross margin beginning in the second quarter.

 

 




































































































































































































































Bakers Footwear Group, Inc.

 


Income Statement Data

  Thirteen

Weeks Ended


May 3, 2008

  Thirteen

Weeks Ended


May 5, 2007

(in thousands, except per share data)   Unaudited   Unaudited
 
Net sales $ 43,538 $ 49,256
Cost of merchandise sold, occupancy, and buying expenses  

32,288

     

33,968

 
Gross profit 11,250 15,288
 
Operating expenses
Selling 10,712 11,892
General and administrative 4,385 4,565
Loss on disposal of property and equipment   222       36  
Operating loss (4,069 ) (1,205 )
 
Interest expense (807 ) (362 )
Other income, net   2       13  
Loss before income taxes (4,874 ) (1,554 )
 
Income tax benefit         (589 )
 
Net loss $ (4,874 )   $ (965 )
 
Basic loss per share $ (0.70 )   $ (0.15 )
Diluted loss per share $ (0.70 )   $ (0.15 )
 
Weighted average shares outstanding
Basic 7,006 6,493
Diluted 7,006 6,493