StORES Magazine - August 2007 - (Page S14)

HOT1OO NOT SO HOT EARNINGS There can be myriad reasons for a precipitous drop in earnings, and this year’s crop of Not-So-Hot retailers displays a variety of textbook examples. Guitar Center made a number of acquisitions over the past few years that appeared strategically sound, but 62 which have come back to depress earnings dramatically. The music retailer, which recently entered a deal with Bain Capital to be taken private, took an $80 million charge in last year’s fourth quarter to write down goodwill in the Music and Arts Center division it acquired several years ago. Rite Aid is in the unenviable position of being the No. 3 competitor in the three-horse race that is national chaindrug retailing. Its profits amounted to $1.3 billion two years ago, boosted by a billion-dollar tax credit and other COMPANY 2006 EARNINGS 2005 EARNINGS CHANGE (000) (000) Guitar Center Rite Aid A&P Big Dog Holdings Neiman Marcus Group A.C. Moore Arts & Crafts RadioShack CKE Restaurants Pacific Sunwear Michaels Stores All dollar figures in thousands $424 26,826 26,893 971 56,609 2,434 73,400 50,172 39,621 41,236 $76,678 1,273,006 392,630 4,723 248,824 10,042 265,300 181,139 126,212 131,024 -99.40% -97.90 -93.20 -79.40 -77.20 -75.80 -72.30 -72.30 -68.60 -68.50 favorable accounting events. Rite Aid did not enjoy those same benefits last year, and earnings suffered as a result. The Great Atlantic & Pacific Tea Co. was stretched thin in too many markets, and competition intensified in its core markets. Big Dog Holdings has spent a lot of money on expansion, and Neiman Marcus is controlled by hedge fund investors – which generally have good track records at improving the performance of sagging retailers, but like to take a large share of profits for themselves. CKE Restaurants, parent of the Carl’s Jr. and Hardees chains, had a decent 2006, but the prior year was favored with an income-boosting tax credit primarily related to a reduction of previously deferred tax asset valuation allowances. For arts and crafts retailer A.C. Moore, profit was deflated by expenses and inventory levels that got a little out of hand, while at Michaels, a larger competitor, a restatement of prior years’ earnings and other accounting changes depressed earnings in the most recently-completed fiscal year. Pacific Sunwear misjudged fashion trends at its activewear-oriented PacSun and urban-gear d.e.m.o. units and was forced to decrease inventory density at stores. RadioShack bit the bullet, closed stores and laid off employees, all of which impacted the bottom line. 16 S14 STORES / AUGUST 2007 dication that the Wii and DS Lite titles are attracting a new audience of gamers, while the allure of genrebreakthrough titles like Guitar Hero II are expanding the audience for videogame product,” Fontaine says. New York-based Triarc is trying to fix its game after financier Norman Peltz stepped down as chairman and CEO in June. Peltz remains a director and a large shareholder; just days after resigning, he was agitating for the company to purchase Wendy’s, saying Triarc was a “natural, strategic buyer” for the hamburger chain. Triarc is divesting itself of Deerfield & Co., an asset management firm with which Peltz had been associated, with the goal of becoming solely a restaurant operating and franchising company. The major business is Arby’s Restaurant Group; there are more than 1,000 WWW.STORES.ORG http://WWW.STORES.ORG

Table of Contents Feed for the Digital Edition of StORES Magazine - August 2007

Contents Executive Editor's Page President's Page Upfront NRF News Retail People Concept2Watch Supermarkets Cover Story Online Marketing In-Store Marketing RFID Data Management Payment Systems Software Loss Prevention E-Commerce Risk Management Communications Loyalty Marketing Human Resources Mobile Commerce Loeb Retail Letter Arts Update Point of View Advertising Index Retail Industry Calendar

StORES Magazine - August 2007

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