YORK, Pa. - Bon-Ton officials announced Thursday that difficult retail market means the company will be closing dozens of its 260 department stores.
In a gloomy report of third-quarter 2017 results, Bon-Ton reported a decrease in comparable store sales and an increase in net loss compared to third-quarter 2016. The gross margin rate also declined in a sign that the retailer's problems continue in an environment that has challenged many similar operations.
As a result, the company plans to close at least 40 stores in the upcoming year, primarily those that are coming off of leases. It's not clear which stores the company plans to shutter.
In Berks County, Bon-Ton has a store at the Berkshire Mall in Wyomissing, where it serves as one of three anchors. In the Lehigh Valley, Bon-Ton operates stores in Salisbury Township, Lehigh County; Palmer Township, Northampton County; Bethlehem; Trexlertown, Lehigh County; and Richland Township, Bucks County.
Further complicating Bon-Ton's recovery efforts is that the shareholder deficit has increased to $155.9 million in third-quarter 2017 compared to $68.6 million in third-quarter 2016. Cash and cash equivalents increased slightly from $6.9 million to $7.2 million, but the York-based company maintains that it continues to have the support of its lenders and vendors so that it can maintain adequate inventories to meet the demands of the upcoming holiday season.
To assist the company in its four-point turnaround plan, the company has retained Alix Partners LLP and PJT Partners Inc. to provide operational and financial advisory services. The company plans to continue its aggressive efforts to restore profitability to Bon-Ton.
As an example, to help boost sales in the Christmas season, the company will launch its biggest sale ever, beginning 11 a.m. Thanksgiving Day. Advertising support will be tightly focused, primarily utilizing radio and digital media.
William Tracy was named president and chief executive officer in August to lead the turnaround.
"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," Tracy said. "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."
Tracy said the store closures will enable the company to move 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," he said. "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."
In another positive trend, 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 on both the company’s e-Commerce and mobile platforms during the quarter as the company leveraged its West Jefferson facility and store-fulfillment network.
Key financial results in third-quarter 2017 include a decrease in comparable store sales of 6.6 percent, while total sales in the period decreased 7.6 percent to $545.3 million, compared with $589.9 million in third-quarter 2016.
The gross margin rate in third-quarter 2017 declined to 33.1 percent of net sales due to an increase in the markdown rate driven by a shift in merchandise mix. Adjusted EBITDA (earnings before interest taxes depreciation and amortization) was negative $5.2 million in third-quarter 2017, inclusive of $2.7 million of professional fees.
Looking forward 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 $0.50 per share expense from the 53rd week, and adjusted EBITDA to be in a range of $100 million to $110 million.
Comparable store sales decrease should range from 4.5 percent to 5.5 percent, excluding sales from the 53rd week, The gross margin rate decrease is expected to range from 50 to 65 basis points below the fiscal 2016 rate of 35.5 percent. Selling, general and administrative expense should range from $836 million to $840 million, including approximately $10 million for the 53rd week, compared with $880.6 million in fiscal 2016.
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