Bakers Footwear Group, Inc. reported third quarter net sales decreased 13.5% to $40.3 million from $46.6 million for the same period last year. Comparable store sales for the third quarter of fiscal 2007 decreased 16.6%, compared to a decrease of 4.2% in the prior-year period.

Gross profit was $3.5 million, or 8.7% of net sales, compared to $12.1 million, or 26.0% of net sales in the third quarter last year. The decline in gross margin reflects aggressive pricing actions taken to adjust our inventory to appropriate levels moving into the fourth quarter.
Selling, general and administrative expenses were unchanged at $16.0 million, but increased as a percentage of sales to 39.7% in the third quarter of 2007 from 34.3% in the third quarter last year.
Impairment expense was $2.4 million, reflecting non-cash charges in connection with specific underperforming stores. No impairment expense was recognized in the third quarter last year.
Net loss was $15.3 million or $2.35 per share, widening from a net loss of $2.6 million or 40 cents per share in the third quarter last year.
Peter Edison, chairman and CEO of Bakers Footwear Group said, “We are disappointed with our third quarter results, which reflect a more aggressive clearance of sandals given the unfavorable response to this segment of our business early in the quarter, as well as unseasonably warm weather that led to lower levels of store traffic and affected boot sales during the latter half of the period.

“On a positive note, during the quarter we moved swiftly to reduce costs and promoted key talent within our design, store and merchandising teams to infuse newness and excitement into our offerings. At the same time, we maintained our disciplined approach to inventory management. We ended the third quarter with inventory down more than 21% from the third quarter last year and remain pleased with both the level and composition of our inventory, as we enter the fourth quarter.

“We are achieving the cost reductions we anticipated and continue to expect to generate annual savings of $8.0 million, positively impacting operating results in fiscal 2008 with benefits also expected to positively affect net income in the fourth quarter this year. In addition, our business trends have improved markedly from the third quarter with fourth quarter-to-date comparable store sales down 1.4% from the prior year. We believe these efforts have us positioned to achieve improved operating results in the fourth quarter and beyond.”

For the first nine months of fiscal 2007, net sales were $131.5 million, compared to $143.5 million for the thirty-nine weeks ended October 28, 2006. Comparable store sales decreased 14.6% compared to a 3.8% decline in the first nine months of fiscal 2006.

Gross profit was $28.1 million, or 21.3% of net sales, compared to $41.9 million, or 29.2% of net sales in the first nine months of fiscal 2006. Selling, general and administrative expenses increased to $48.0 million, or 36.5%, of sales from $45.9 million, or 32.0% in the first nine months of fiscal 2006.
Impairment expense was $3.1 million, reflecting non-cash charges in connection with specific underperforming stores. No impairment expense was recognized in the first nine months of fiscal 2006.
Net loss was $25.0 million or $3.85 per share, as compared to a net loss of $3.0 million or 46 cents per share in the first nine months of fiscal 2006.
Store Opening Plans

During the first nine months of fiscal 2007, the company opened six new stores and remodeled seven stores. The company plans no additional store openings or remodels for the remainder of fiscal 2007.

Management Change

Separately, the company announced that Lawrence Spanley, Jr., CFO of Bakers Footwear Group, Inc., will retire effective February 2008. Charles R. Daniel, III, currently controller of Bakers will be promoted to the position of VP – finance and principal financial officer, effective February 2008. Mr. Daniel has been the controller of Bakers Footwear Group, Inc. since April 2004. Previously, he was employed by Stone Carlie and Company, L.L.C., a St. Louis based public accounting firm.

“I want to thank Larry for his 16 years of dedicated service that included significant contributions to Bakers Footwear. His efforts assisted us to build an outstanding financial team and I wish him well in his retirement,” Mr. Edison remarked. “I am also pleased to promote Charlie to the position of V.P. – Finance and principal financial officer. Charlie brings over 25 years of financial knowledge and experience to this position, with an established track record at Bakers.”

Bakers Footwear Group, Inc.

Income Statement Data

Thirteen

Weeks Ended

November 3,

2007

Thirteen

Weeks Ended

October 28,

2006

Thirty-nine

Weeks Ended

November 3,

2007

Thirty-nine

Weeks Ended

October 28,

2006

(in thousands, except per share data) Unaudited Unaudited Unaudited Unaudited
Net sales $ 40,294 $ 46,553 $ 131,534 $ 143,542

Cost of merchandise sold, occupancy, and buying expenses

36,785

34,430

103,461

101,611

Gross profit 3,509 12,123 28,073 41,931
Operating expenses
Selling 11,228 10,980 34,333 32,054
General and administrative 4,753 4,987 13,704 13,883
Loss on disposal of property and equipment 18 115 63 243
Impairment of long-lived assets 2,376 – 3,131 –
Operating loss (14,866 ) (3,959 ) (23,158 ) (4,249 )
Interest expense (499 ) (320 ) (1,264 ) (617 )
Other income, net 71 67 109 101
Loss before income taxes (15,294 ) (4,212 ) (24,313 ) (4,765 )
Income tax expense (benefit) – (1,610 ) 691 (1,805 )
Net loss $ (15,294 ) $ (2,602 ) $ (25,004 ) $ (2,960 )
Basic loss per share $ (2.35
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