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| Breaking Headlines |  |
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| Galyan's Q4 EPS Fall 42%; Sales Up 18%
MARCH 18, 2004 -- Net sales for the fourth quarter of fiscal 2003 rose 17.7% to $249.8 million, from the $212.2 million reported in the fourth quarter last year. Comp-store sales decreased 4.5%, slightly better than the cmpany's most recent guidance. The decrease in comp-store sales was primarily due to weaker results in the outdoor equipment, casual apparel and accessories categories. Gross margin as a percentage of sales was 30.3% versus 33.6%. Gross profit included a charge of $3.1 million or $0.11 per diluted share relating to markdowns to improve inventory freshness in the outdoor and athletic equipment categories. The remaining decline in gross margin was primarily due to higher promotional markdowns in other categories and de-leveraging of buying and occupancy costs, which was partially offset by the adoption of Emerging Issues Task Force Consensus No. 02-16 (EITF 02-16). SG&A as a percent of Q4 sales increased to 22.8% from 20.2%. The increase was primarily from higher depreciation and marketing costs, which was partially attributable to EITF 02-16, and insurance proceeds received last year related to tornado damage at the Greenwood, IN store. Operating income as a percentage of sales decreased to 7.5% from 13.4%. Edwin Holman, CEO, commented, "While fiscal 2003 was a difficult year, we addressed several areas which we believe will allow Galyan's to return to positive comparable store sales. In addition, we have taken the appropriate markdowns to improve inventory aging. While this action negatively impacted the fourth quarter and fiscal year results, it has positioned us with fresh inventory receipts." FY EPS were $0.21 per share, on net earnings of $3.6 million, as compared to $1.09 EPS, on net earnings of $18.7 million for FY 2002. As stated above, the charge for additional year-end markdowns to improve inventory was $0.11 per diluted share. FY 2003 earnings also included an after tax charge of $715,000, or $0.04 per diluted share, related to a valuation allowance against a capital loss carry forward that the company does not anticipate utilizing before it expires. For FY 2003, net sales rose 15.6% to $690.7 million from $597.7 million last year. Comp-store sales decreased 5.8%. The decrease in comp-store sales was primarily due to weaker results in the casual and outdoor apparel, outdoor equipment and accessories categories. FY gross margin was 27.6%, down from 30.4%. The decline was due to the same reasons as previously stated for Q4. Gross profit included a charge of $3.1 million relating to markdowns to improve inventory freshness in the outdoor and athletic equipment categories. The remaining decline in gross margin was primarily due to promotional markdowns and de-leveraging of buying and occupancy costs, partially offset by the adoption of EITF 02-16. SG&A increased to 26.1% from 24.8% due to higher depreciation and marketing costs, which was partially attributable to EITF 02-16, and to a lesser extent increases in insurance costs. Operating income decreased to 1.4% from 5.5%. Holman added, "Despite the challenges of 2003, the company has focused on managing its inventories and positioning the company for the future. For 2004, we have numerous initiatives in place that, we believe, will strengthen us competitively. We are working on initiatives to strengthen our merchandise assortments, improve our inventory turnover, and improve our marketing message. We will make several changes to enhance our customer's overall shopping experience in our stores. We believe all of this will lead to improved store profitability." "Galyan's opened nine new stores in fiscal 2003 and remains on track to open during 2004 the nine stores which were committed to in early 2003, one being a replacement in our home market of Indianapolis. While new store openings are the cornerstone of Galyan's growth strategy, we will begin to slow the future store commitments now, which will impact fiscal 2005 and allow us to focus on maximizing the performance of our existing stores. We are becoming more selective and will concentrate new store growth in existing markets to leverage our marketing dollars and provide additional locations for the shopping convenience of our customers." The company anticipates capital expenditures for fiscal year 2004 of approximately $40 million, as compared to $77 million in fiscal year 2003. All 2004 stores have landlord financing as compared to six of the nine stores which had landlord financing in 2003. Galyan's anticipates adequate liquidity under its credit facility for fiscal year 2004 to fund its growth, including capital and inventory for new stores. Cash flow from operations for fiscal year 2004 is estimated to be sufficient for the company to meet all working capital and fixed capital needs without increasing the debt level at the end of FY 2004 versus FY 2003. |
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