Q1 2006 Retail Ventures, Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good afternoon. Welcome to the Retail Ventures, Inc. first-quarter results call. (OPERATOR INSTRUCTIONS). At this time, I would like to turn the call over to Mr. Jim McGrady so that (technical difficulty) begin the call.

JIM MCGRADY, CFO, RETAIL VENTURES, INC.: Thank you. With me on the phone is Heywood Wilansky, our CEO. Again, good afternoon, everybody, and welcome to our discussion of RVI's first-quarter fiscal 2006 operating results.

Before I begin, I would like to restate to you the Company's policy with respect to forward-looking information, pursuant to the Private Securities Litigation Reform Act of 1995. Statements made in the course of this call that are not purely historical, such as statements regarding the Company's or management's intentions, expectations, or projections of the future, are forward-looking statements. Actual results could materially differ from those forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to the factors and risks discussed in the Company's annual report on Form 10-K for the fiscal year ended January 28, 2006 and the Form 10-Q that we will be filing for the period ended April 29, 2006 -- also, the other reports filed from time to time by the Company with the Securities and Exchange Commission. Any forward-looking statements made during this call are based upon information presently available to the Company, and we take no obligation -- or assume no obligation to update any such forward-looking statements.

As you know, today, we announced a first-quarter net loss of $59.6 million or $1.45 per diluted share. This is compared to a net loss of 11.5 million or $0.32 per share on a diluted basis in the prior year. The first quarter includes this year a non-cash accounting adjustment of $59.4 million of expense related to the modification and the issuance of the warrants last year.

No tax benefit has been recognized in connection with this charge. If we were to adjust for this charge through our P&L, our non-GAAP net loss would be $200,000, and we would have a flat earnings per share to report.

Total sales for the first quarter increased $41.5 million or 6.1% to 721.5 million from $680 million last year. Comp store sales for the quarter increased 3.5%, and were positive in each business segment. Comp sales by segment were Value City, 2.5%; DSW 4.2; and Filene's Basement, 4.6.

The increase in comparable store sales at Value City is comprised of increases in men's, women's, jewelry, and shoes of 10.5%, 12.1%, 3.6%, and 7.1%, respectively. There were decreases in the comparables sales of nonapparel hardlines and children's of 11.4% and 10% respectively.

DSW sales were $316.5 million, a 12.3% increase in the quarter, which includes a net increase of 27 stores and 10 nonaffiliated leased shoe departments. The merchandise categories of men's, women's, athletics, and accessories had increases of 1.7, 5.5, 3.2, and 3.1%, respectively.

Filene's Basement sales increased 4.4% for the quarter to $90.6 million. This includes a net decrease of one store over the prior-year period and a comparable store sales increase, as I mentioned earlier, of 4.6%. The merchandise categories of men's, ladies, children's, and jewelry had comparable sales increases of 4.5, 1.1, 9.7, and 0.3%, respectively.

Total gross profit in the quarter increased $22.2 million to 290.6 million. In the first quarter gross profit as a percentage of sales increased 80 basis points to 40.3% from the previous year's quarter of 39.5%. The increase in the overall gross margin is attributable to positive comparable margin results at the Value City and Filene's Basement segments.

Gross profit as a percent of sales by segment were -- Value City, 38.3; DSW, 43.5; and Filene's Basement, 35.9. Value City's overall margin rate increase is attributable to improved initial markups and departments converted to the new merchandising strategy that focuses on a larger presentation of brand-name merchandise, a timely seasonal presentation, and better assortments at compelling prices. The segment also incurred fewer markdowns related to merchandise changes as compared to the prior year's comparable quarter.

At DSW, the gross profit increased 14.6 million to 137.6 million during this quarter. The decrease in rate as a percentage of sales at DSW it attributable to the increased markdowns partially offset by an increased initial markup and a reduction in the internal shrink accrual rate compared to the prior period.

Filene's Basement gross profit increased by $4.6 million, which is attributable to increased IMUs and a decrease in markdowns from the prior year's rate due to reduced fall clearance merchandise that we carried over and some markdowns in the previous year.

SG&A for the first quarter ended April 29 -- for the comparable …