Shoe Pavilion, Inc. second quarter net sales were $37.5 million and comparable store sales decreased by 1.0%. The Company expects a net loss for the second quarter of approximately $1.0 million to $1.2 million, or 10 cents to 12 cents per diluted share. Previous guidance for the second quarter of fiscal 2007 was for net sales to range between $37.0 million and $39.0 million, for comparable store sales to increase 2% to 3% and for net income to be approximately one cent to two cents per diluted share.
Results for the second quarter were negatively impacted by lower than expected sales at the Company's newest stores opened in the last 12 months. The 24 stores opened in 2006 generated sales that were below the Company's expectations for that group of stores. These new stores accounted for a majority of the expected second quarter operating loss. Six of the 24 stores opened in 2006 were included in the comparable store base in the second quarter and their inclusion resulted in the decrease in comparable store sales. Excluding these six stores, comparable store sales increased 1.5%. In addition, the Company exceeded budgeted expenses by approximately $700,000, primarily due to higher than expected legal and accounting fees, freight out, store supplies and store payroll.
Dmitry Beinus, Chief Executive Officer, stated, “Our results for the second quarter are lower than we initially anticipated as a result of outside factors which continue to affect the 24 stores opened in the last year. Most of the stores we rolled out in 2006 were in new shopping centers where we have experienced slower than expected traffic due to ongoing construction as well as it taking longer than planned for other retailers to open stores at those centers. In addition, several of the stores were in new regions where we lacked critical mass. Our near-term goal is to open new stores only in existing markets to boost the economies of scale and the leveraging effects of our cluster strategy.”
“Despite the recent performance of our stores opened in the last year, it is important to note that our core business continues to perform well. While we experienced lower than planned sales at our newer stores, we were able to achieve a 1.5% increase in comparable store sales, excluding six stores opened in 2006, and a 19.5% increase in net sales versus the second quarter of 2006. As a group stores that were opened before January 1, 2006, met our expectations and generated strong increases in both sales and operating income for the quarter. Based on the results achieved across our store base, we continue to be confident in our merchandise strategy and assortment. In addition, we continue to believe our newer stores will ramp up to generate sales growth and operating margin in line with our more mature stores, just over a longer period of time than we had originally expected.”
