The Bon-Ton Stores Inc. plans to close at least 40 locations in 2018 after reporting third-quarter results missed expectations.

Results For Third Quarter Ended October 28, 2017

  • Comparable-store sales decreased 6.6 percent as compared with the prior-year period.
  • Selling, general and administrative (SG&A) expense decreased $11.2 million, or 5.2 percent, as compared with the third quarter of fiscal 2016.
  • Net loss in the current year third quarter was $44.9 million, or $2.19 per share, compared with net loss of $31.6 million, or $1.58 per share, in the third quarter of fiscal 2016.
  • Adjusted EBITDA was negative $5.2 million in the third quarter of fiscal 2017. Adjusted EBITDA in the third quarter of fiscal 2016 was $10.6 million.

William Tracy, president and chief executive officer, commented: “While results in the third quarter fell short of our expectations, we are taking more aggressive actions to fuel improved performance as well as strengthen our financial position. We are executing with a sense of urgency as we work to enhance our merchandise assortment, drive growth in omnichannel, and implement a more focused marketing strategy to improve traffic and customer engagement. We are also focused on cost reductions through the continued rollout of our profit improvement initiatives. In addition, we expect to implement a significant store rationalization program and plan to close at least 40 locations through 2018. This will enable us with moving forward with a more productive store footprint and redirecting capital expenditures toward investments designed to drive sales growth. We are working with our advisors to proactively engage with our debt holders to establish a sustainable capital structure to support the business. We believe that the actions we are taking position us to drive improved and consistent financial performance over the long term. With our new merchandising initiatives in place and more seasonable November weather, we are already seeing a positive comparable store sales trend and believe we are well-positioned for a successful holiday season.”

Third Quarter Review

Comparable store sales in the third quarter of fiscal 2017 decreased 6.6 percent, reflecting in part the impact of unseasonably warm weather. Total sales in the period decreased 7.6 percent to $545.3 million, compared with $589.9 million in the third quarter of fiscal 2016.

The company continued its double-digit sales growth in omnichannel, which reflects sales via the company’s website, mobile site, and its Let Us Find It customer service program. This was driven by increased demand and conversion on both the company’s eCommerce and mobile platforms during the quarter as the company leveraged its West Jefferson facility and store-fulfillment network.

Other income in the third quarter of fiscal 2017 was $17.1 million, a decrease of $0.2 million over the comparable prior year period. The decrease was primarily due to lower revenues associated with the company’s proprietary credit card operations. Proprietary credit card sales, as a percentage of total sales, increased approximately 90 basis points to 57.9 percent in the third quarter of fiscal 2017.

The gross margin rate in the third quarter of fiscal 2017 was 33.1 percent of net sales, a decrease of approximately 200 basis points as compared with the third quarter of fiscal 2016 due to an increase in the markdown rate driven by a shift in merchandise mix. Gross profit decreased $26.8 million to $180.3 million in the third quarter of fiscal 2017, primarily as a result of decreased sales volume.

SG&A expense in the third quarter of fiscal 2017 was $202.6 million, a decrease of $11.2 million, or 5.2 percent, as compared with the third quarter of fiscal 2016. This was largely due to savings associated with stores closed within the prior year and reductions in medical insurance, payroll, and store occupancy costs. The SG&A expense rate in the third quarter of 2017 was 37.2 percent of net sales, an increase of approximately 90 basis points from the prior year as a result of lower sales volume.

Adjusted EBITDA was negative $5.2 million in the third quarter of fiscal 2017, inclusive of $2.7 million of professional fees. In the third quarter of fiscal 2016, Adjusted EBITDA was $10.6 million, inclusive of $2.1 million of consulting fees and severance costs related to cost reduction initiatives.

The company’s excess borrowing capacity under its revolving credit facility was approximately $162 million at the end of the third quarter of fiscal 2017 and $184 million as of November 14, 2017. As of October 28, 2017, our ABL credit facility has been classified as current debt, but currently matures on March 15, 2021.

Guidance

As a result of financial performance in the third quarter the company now expects fiscal 2017 loss per share to be in a range of $2.86 to $3.35, inclusive of a $0.05 per share expense from the 53rd week, and Adjusted EBITDA to be in a range of $100 million to $110 million.

Updated assumptions reflected in the company’s full-year guidance include the following:

  • A comparable sales decrease now ranging from 4.5 percent to 5.5 percent, which excludes sales from the 53rd week;
  • A gross margin rate decrease now ranging from 50 to 65 basis points below the fiscal 2016 rate of 35.5 percent;
  • SG&A expense now ranging from $836 million to $840 million, including approximately $10 million for the 53rd week, compared with SG&A expense of $880.6 million in fiscal 2016;
  • Capital expenditures not to exceed $30 million, net of external contributions; and
  • An estimated 20.3 million weighted average shares outstanding.

Previously, the company continues to expect loss per share to be in a range of $2.08 to $2.59 and Adjusted EBITDA to be in a range of $115 million to $125 million.  The comparable sales decrease was expected to range from 3.5 percent to 4.5 percent.

Advisors

As previously announced, the company has retained AlixPartners LLP and PJT Partners Inc. to provide operational and financial advisory services.