Footstar, Inc. reported that net sales decreased $24.3 million, or 13.1%, to $161.7 million in 2005 compared with $186.0 million in 2004. A 9.6% comparable store sales decline in Shoemart during 2005 accounted for $15.7 million of this decrease and the closing of Kmart stores accounted for $8.8 million. There were 1,425 Kmart stores opened at the end of third quarter 2005 versus 1,496 in 2004. A significant portion of the sales decrease is due to lower sales of clearance priced goods in the Shoemart business. Clearance sales were $19.5 million in 2005 compared to $33.4 million in 2004. Throughout 2004, management moved to aggressively clear aged product. Deep price discounts on aged inventory drove 2004 sales that were not replicated in 2005 as aged inventory levels were significantly lower in 2005.
Gross profit decreased $0.2 million to $44.9 million in 2005 compared with $45.1 million in 2004. The decrease in gross profit dollars as a result of the $24.3 million sales decrease and the effect of the aforementioned Kmart settlement was offset by the improved gross profit rate to 27.8% in 2005 from 24.2% in 2004. The improvement in gross profit rate was largely a result of the aforementioned reduction in clearance sales in 2005 compared to 2004 as well as the significant decrease in the markdown percentage on clearance sales in 2005 compared with 2004. The markdown percentage on clearance sales decreased to 53.9% in 2005 from 63.9% in 2004.
SG&A EXPENSES
SG&A expenses decreased $10.5 million, or 20.4%, to $41.0 million in 2005 compared with $51.5 million in 2004. $4.0 million of this decrease was due to the aforementioned Kmart Settlement, $1.3 million was attributable to Kmart fees applicable to stores that were closed in 2005 and $5.2 million due to lower store labor and supervisory costs, partially offset by an increase in administrative expenses. The overall SG&A rate as a percentage of sales decreased to 25.4% in 2005 compared with 27.7% in 2004.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased $2.6 million to $1.6 million in 2005 compared with $4.2 million in 2004 due to the significant disposals of assets during 2004.
OTHER INCOME
In 2004 with Court approval, Footstar and relevant parties mutually agreed to resolve the claims made in the derivative complaints without any admission of liability, for $9.2 million, all of which has been funded with insurance proceeds paid to us. This amount has been recorded as other income in the accompanying fiscal 2004 statement of operations.
NET INCOME
The company's net loss decreased $8.5 million to a loss of $7.3 million in 2005 compared with a loss of $15.8 million in 2004.
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 1, 2005 AND OCTOBER 2, 2004
(Unaudited)
(amounts in millions)
Three Months Ended Nine Months Ended
----------------------- -----------------------
October 1, October 2, October 1, October 2,
2005 2004 2005 2004
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Net sales $161.7 $186.0 $509.1 $579.4
Cost of sales 113.9 137.0 354.4 402.5
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GROSS PROFIT 47.8 49.0 154.7 176.9
Store operating, selling, general and administrative expenses 42.0 58.1 136.6 179.5
Depreciation and amortization 1.6 5.1 5.3 17.1
Other income -- (9.2) -- (9.2)
Interest expense 0.8 1.1 2.8 8.6
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INCOME (LOSS) BEFORE REORGANIZATION ITEMS 3.4 (6.1) 10.0 (19.1)
Reorganization items 4.5 21.2 14.1 29.6
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LOSS BEFORE INCOME TAXES, MINORITY INTERESTS AND DISCONTINUED OPERATIONS (1.1) (27.3) (4.1) (48.7)
Income tax (provision) benefit (5.7) 6.2 (3.2) 7.1
------ ------ ------ ------
LOSS BEFORE MINORITY INTERESTS AND DISCONTINUED OPERATIONS (6.8) (21.1) (7.3) (41.6)
Minority interests in net loss -- 12.6 -- 13.6
------ ------ ------ ------
LOSS FROM CONTINUING OPERATIONS (6.8) (8.5) (7.3) (28.0)
Loss from discontinued operations (0.5) (10.5) (0.5) (67.8)
Gain from disposal of discontinued operations -- 3.2 -- 17.1
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NET LOSS $ (7.3) $(15.8) $ (7.8) $(78.7)
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NET LOSS PER SHARE:
Basic and diluted:
Loss from continuing operations $(0.33) $(0.41) $(0.35) $(1.37)
Loss from discontinued operations (0.02) (0.36) (0.03) (2.47)
------ ------ ------ ------
Net loss $(0.35) $(0.77) $(0.38) $(3.84)
