Gayan's Trading Company reported a second quarter 2003 GAAP net loss of ($186,000), or ($0.01) per share on a fully diluted basis, compared with net earnings of $3.9 million, or $0.22 per share on a fully diluted basis in the
prior year's second fiscal quarter.
The Company's adoption of Emerging Issues Task Force Consensus No. 02-16 (EITF 02-16) at the beginning of fiscal 2003 reduced earnings in the second quarter of fiscal 2003 by approximately ($203,000), or ($0.01) per share.
The 2003 six-month net loss was ($2.8) million, or ($0.16) per share on a fully diluted basis, compared with net earnings of $3.5 million, or $0.20 per share on a fully diluted basis, as reported for the same period last year. The impact of EITF 02-16 reduced earnings for the first six months of fiscal 2003 by approximately ($486,000), or ($0.03) per share.
Gross margin decreased to 27.2 percent of net sales for the second quarter of 2003 versus 30.1 percent in the 2002 second quarter. For the first six months of 2003, gross margin decreased to 26.6 percent of net sales compared to 29.1 percent last year. For both the quarter and the six month period, the change in gross margin was primarily the result of higher markdowns and higher store occupancy costs.
Selling, general and administrative expenses as a percent of net sales increased to 26.9 percent for the second quarter 2003 versus 25.2 percent in the second quarter of 2002. In the first half of the year, selling, general and administrative expenses were 27.8 percent compared with 26.4 percent of net sales in the same period last year. As a percent of sales, a decrease in payroll costs was primarily offset by higher store rent and depreciation costs and also higher marketing costs as a result of the adoption of EITF 02-16.
Robert B. Mang, Chief Executive Officer and Chairman of the Company, commented, “The second quarter proved to be a difficult operating environment, impacted by a weak economy, a highly promotional environment and the effects of unfavorable weather in our East and Midwest markets.”
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As previously reported, net sales rose 15.0 percent to $163.7 million in the 2003 second quarter, from the $142.3 million reported in the second quarter of
2002. Comparable store sales decreased 7.7 percent. For the six months ended August 2, 2003, net sales increased to $293.2 million, representing a 14.7 percent increase over the same period last year. Comparable store sales
decreased 7.1 percent.
During the second quarter of fiscal 2003, the Company opened new stores in Greenwood, IN and Omaha, NE. The addition of these two stores brings the total stores in operation to 38 versus 29 stores at this time last year, which is in line with the Company's planned roll-out of new stores.
Galyan's has signed leases for the remaining five new store locations expected to be opened in 2003, which include the Company's entry into the New York
metropolitan market with two stores; one additional store in the Chicago market; and its entry into the Cleveland, Ohio and Richmond, Virginia markets.
Looking forward, the Company has already signed five leases for stores in fiscal 2004. Given limited visibility today, Galyan's expects to sign at most
three or four additional leases for 2004, for a maximum of eight to nine new stores.
For both the third quarter and full year, Galyan's expects comparable store sales in the low to mid single digit negative range.
“The management and board of directors of the Company remain committed to providing relevant information about Galyan's objectives and strategies, including quarterly and annual guidance on comparable store sales. However,
due to the difficult environment we have been operating in, which we expect to continue, we have decided to discontinue future guidance on other financial
measures, such as gross margins, expenses and earnings. We believe that establishing detailed short-term guidance prevents a more meaningful focus by the Company's management on the strategic initiatives that we are taking to build this business and to succeed over the long-term. We remain focused on the long-term strategic direction of the Company and continue to strive to deliver a superior and unique shopping experience to our customers,” concluded
Mr. Mang.
Condensed Consolidated Statements of Operations
For the Three and Six Month Periods Ended August 2, 2003 and August 3, 2002
(dollars in thousands, except per share data)
Three Month Periods Ended Six Month Periods Ended
----------------------------- -----------------------------
August 2, 2003 August 3, 2002 August 2, 2003 August 3, 2002
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 163,662 $ 142,275 $ 293,226 $ 255,732
Cost of sales 119,215 99,459 215,135 181,410
-------------- -------------- -------------- --------------
Gross profit 44,447 42,816 78,091 74,322
Selling, general 44,067 35,810 81,543 67,621
and administrative
expenses
-------------- -------------- -------------- --------------
Operating income 380 7,006 (3,452) 6,701
(loss)
Interest expense 707 465 1,174 971
Interest income (18) (32) (40) (153)
-------------- -------------- -------------- --------------
(Loss) income (309) 6,573 (4,586) 5,883
before income tax
(benefit) provision
Income tax (123) 2,688 (1,834) 2,412
(benefit) provision
-------------- -------------- -------------- --------------
Net (loss) income $ (186) $ 3,885 $ (2,752) $ 3,471
-------------- -------------- -------------- --------------
Basic (loss) $ (0.01) $ 0.23 $ (0.16) $ 0.20
earnings per share
-------------- -------------- -------------- --------------
Diluted (loss) $ (0.01) $ 0.22 $ (0.16) $ 0.20
earnings per share
