Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good morning, ladies and gentlemen and thank you for standing by. Welcome to today's Bon-Ton Stores Incorporated first quarter 2006 earnings conference call. [OPERATOR INSTRUCTIONS] And now, I'd like to turn the conference over to Mr. David [Griffith] of ICR for Bon-Ton. Please go ahead sir.
DAVID GRIFFITH (ph), IR, ICR: Good morning and welcome to the Bon-Ton's first quarter fiscal 2006 conference call. Mr. Bud Bergren, President and CEO, Mr. Jim Baireuther, Vice Chairman and Chief Administrative Officer, Mr. Tony Buccina, President and Chief Merchandising Officer of Carson's, David Zant, Vice Chairman and Chief Merchandising Officer of Bon-Ton, and Mr. Keith Plowman, Executive Vice President, Chief Financial Officer and Principle Accounting Officer; will host today's call. You may access a copy of the earnings release on the Company's Website at www.bonton.com. You may also obtain a copy of the earnings release by calling ICR at 203-682-8200.
Before the Company starts their comments, I would like to point out that any statements about future expectations, plans, or prospects will be forward-looking for the purposes of SEC Safe Harbor provisions. Actual results may differ due to the factors discussed in the Company's SEC filings. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only of today's date.
The Company undertakes no obligation to publicly release new revisions to these forward-looking statements that may be named to reflect events or circumstances after today's date or to reflect the occurrences of unanticipated events. The inclusion of any statement in this conference call does constitute an admission by the Bon-Ton or any other person that the events or circumstances described in such statements are material. At this time, I'd like to turn the call over to Mr. Bud Bergren, President and CEO.
BUD BERGREN, CEO AND PRESIDENT, BON-TON STORES: Good morning and thank you for joining us this morning for our first quarter, 2006 conference call. I will start with a high-level review of sales and earnings and then I will speak more specifically to our sales and margin performance. After my remarks, Tony Buccina will address our merchandising initiatives and Jim Baireuther will review the integration process. And Keith Plowman will discuss the first quarter financial results, as well as reiterate the financial assumptions for our 2006 guidance. Following our remarks, we will be available to answer your questions.
For the first quarter 2006, total sales increased 114% to 561.8 million, compared to 262.5 million for the same period last year. The first quarter of 2006 includes 311.3 million from the Carson stores for the period of March 5, 2006 through April 29, 2006. Bon-Ton comparable store sales for the first quarter of 2006 decreased 2.9%. For informational purposes, for the period of March 5, 2006, through April 9, 2006, Carson's comparable sales stores increased 1.7%.
The net loss in the first quarter was $0.66 per share, compared to a net loss of $0.27 per share in the prior year period. We do want to stress that this reflects the combined operations in 2006 as compared to Bon-Ton only in the first quarter of 2005. Categories that performed better than the Company average for the quarter were women's apparel and shoes in the Bon-Ton stores. And Carson stores had positive sales results in ladies better sportswear, ladies private brand in all working zones and children's also did well for Carson stores.
Bon-Ton's weakest categories were home, mens clothing, furnishings, accessories, and dresses. On the Carson side, there was weakness in home and accessories also, along with mens sportswear. Gross margin in the first quarter increased $115.1 million from the prior year period. Gross margin rate increased 1.2 percentage points to 37.4% of sales, as compared to 36.2% reported last year. Carson sales carry a higher gross margin rate than Bon-Ton. However, we are not assuming any gross margin rate increased beyond the weighing of the sales by division in our financial projections for this year.
The first quarter reflects the seasonality of our business, as well as the initial stages of the integration process. We remain comfortable with the guidance that we provided during our 2005 year-end conference call. Keith will go into further detail regarding these assumptions during his discussions.
We have made significant progress in several areas since the acquisition of Carson's in March. We have identified the senior management team. Tony Buccina will head up the merchandising team and provide the direction for all merchandise in all 279 stores. David Zant will head up the private brand and planning and allocation initiatives for the total Company. And Ed Carroll will head up the marketing department and provide the sales promotion direction. And all three of these people will report directly to me. We have reconciled businesses processes and the required system support that's needed. And third, we have assessed the needs of the overall organizational structure and are filling these needs now. And fourth, we have controlled the integration process on time and on budget.
Our main focus is integrating the two Company functions and systems and the ability to operate without the transition services we are receiving from Saks Incorporated. As well as increasing topline growth, maximizing merchandise margins in our operating profit. At this time, I would like to turn the call over to Tony, who will address the merchandising initiatives for the combined Company. Tony?
TONY BUCCINA, PRESIDENT, BON-TON STORES: Thanks, Bud. Work is well underway in creating two important things for the combined Company. First, was the common merchandise assortment. And second, was the common calendar for the combined Company. Now, the way we've approached that is; First, in February, was creation of the combined vendor matrix for fall. That occurred in the third week of February. Merchants met from both sides of the Company to get familiar with the merchandise on the Bon-Ton side.
The Bon-Ton merchants actually came prepared with their results from their prior fall season. As well as; If they were to be running the business in the fall, how would they plan their business? We felt that was the best way to understand the business at the Bon-Ton. We reviewed the results of the five -- of the '05, and we used best of class strategies, particularly on the vendor side, to put the fall matrix together.
The second thing we did, is through March -- by the end of March, we had negotiated with vendors who were either gaining from the vendor transition, as well as communicating to those vendors that we dropped. The third thing we did, was that we began our inventory liquidation of the non go-forward merchandise in our price equalization. That really started last week in the furniture business, as well as the home store. And it begins this week in the rest of the Company, in the apparel areas and the accessory areas.
We've already scheduled talk-out meetings to communicate the merchandise strategy by category of business to the stores organization. On May 23, last week, we actually presented to the Bon-Ton all the stores organization and visual, the home strategy, because that's where our assortment is going to change the most. And we scheduled to communicate the entire Company to both the strategy to both the Bon-Ton stores in visual as well as Carson stores in visual at the end of June.
The Bon-Ton actually is going to start receiving the new assortment of merchandise, including private brand merchandise in June. They've been getting dribbles of it in May and will get a lot of it in the month of June. Most of that will be in the home followed by the balance of apparel and accessories July through August.
Now, we've identified five key initiatives for our merchandise strategic plan that will drive our success over to long-term. The first, is franchise businesses. We designate them as cosmetics, ladies shoes, not mens shoes, petite sportswear, large sized women's sportswear, moderate career sportswear, social occasion dressing, and gifts. These are businesses that we've known as the best place to shop in our markets. We fund them with inventory, marketing, we put our best merchants behind running them and we put our best sales associates in the stores that we call pace setters to sell them.
The second strategic initiative is differentiated product. We believe that is key to maintaining and gaining our market share. Our goal is to have a significant portion of our assortment in differentiated brands and products. CPF, the Carson's division is about a 1/3 differentiated from the department stores. And it's over 2/3 differentiated from the mass merchants that we identify as Kohl's and JC Penney's.
The third initiative is private brand. The development is going to be a focus. We continue to grow our private brands on a category -- on a family of business basis where there is a void of market share. And a question will come up of; How large do you see private brand growing? And we really don't have a problem with it, letting it as big as the customer tells us it should be and what she's willing to buy there. We're establishing a private brand organization to support this initiative of increasing the penetrations of the private brands. We have already placed common assortments in private brand in all of the Bon-Ton stores. And we'll be placing the first quarter of spring '07 in all stores later in June.
The fourth piece -- initiative of our merchandise strategy is investing in key items. It's been very successful for us. It has a huge penetration, it continues to grow. And they obviously carry a much higher margin than the total Company.
And the fifth is we want to focus on our vendor relations. We're bigger now, our size has increased and our relationships with our vendors are stronger. This is going to allow us to have exclusive merchandise that our customer is going to appreciate for its quality and value. And we'll also improve the margin for the Company by leveraging our buying power. Our merchandise strategy has worked for Carson's and I'm confident it's going to work in the combined Companies. And at this point in time, I'd like to turn it over to Jim Baireuther. He's going to talk about the integration process.
JIM BAIREUTHER, VICE CHAIRMAN AND CAO, BON-TON STORES: Thank you, Tony. Our three-phase integration process is now well underway. The first phase, we will target by the end of September to have completed the integration of Bon-Ton and Carson's merchandising and marketing inventory management and human resources functions. In phase two, which will terminate at the end of fiscal '06, we will have completed the integration of Bon-Ton's and Carson's logistics, store operations, accounting systems and proprietary credit card operations.
In the final phase, which will encompass fiscal 2007, we will complete the transition and enhancement of the combined Bon-Ton/Carson's enhanced systems and business practices. The process includes weekly Friday meetings held with senior management representing both Carson's and Bon-Ton. And at this time, we review each functional area and determine the progress we're making toward our targeted goals that are incorporated in our phase one and two and three completion dates.
Each week, we also review the master project plan for incorporating for information systems, to make sure that we're able to get the system support that we need for the business practices that we've adopted. So far, we've reviewed functional areas to include information systems, stores, human resources, communications, credit, operations, marketing, merchandising, planning and allocation, finance, and accounting. We also have weekly calls with Saks to review the status of our TSA and the timeline for them, so that we can transition from dependence on the TSA to operating those areas on our own.
We analyzed the similarities and differences in all of the functional areas, at all levels and are working to …