Alco focuses on improving profitability

Alco is developing a strategy to improve profitability and deliver shareholder value, following a growing net loss during the third quarter of fiscal 2014, compared to the same period in the prior year.

Net loss totaled $16.4 million, compared to $1.4 million. Results in the third quarter of fiscal 2014 included a non-cash charge of $9.8 million related to a valuation allowance on the company's cumulative deferred tax asset, and $1.1 million of non-recurring expenses attributable to merger activity.

Net sales from continuing operations, excluding fuel, increased 1% to $105.4 million during the third quarter of fiscal 2014, compared to $104.3 million in the third quarter of fiscal 2013. Same-store sales, excluding fuel, decreased 2.9% to $101.1 million during the third quarter of fiscal 2014.

Alco intends to maximize the benefit of headquarters relocation to the Dallas area, which is enabling Alco to recruit experienced managers, buyers and marketers from top retail organizations. The company plans to expand gross margins by completing a price optimization initiative with Revionics, which increases top-line sales and gross margin by adjusting prices store-by-store and item-by-item based on detailed demand data.

The company also plans on improving the real estate portfolio by closing unprofitable stores and open more productive ones. By the end of fiscal 2014, Alco will have closed a total of 18 underperforming stores and opened three high-performing locations in regions with growing energy-based economies.

Alco will be upgrading IT with a new ERP system and a new supply chain service provider, as well as reducing inventory and associated debt levels by, in addition to the store rationalization and IT upgrades, making a number of targeted changes in store layout and merchandise mix.

"Operating results in the third quarter were impacted by several significant one-time events, as we dealt with a proposed merger and also took steps to fix long-term problems that have hurt Alco's profitability,” said Richard Wilson, president and CEO. “We recorded approximately $1.1 million in merger-related costs. We experienced a net reduction in gross margin dollars of approximately $5 million, primarily due to increased promotional activity in an attempt to reduce inventory and debt levels. In addition, Alco has closed eight underperforming stores in the first three quarters of fiscal 2014 and decided in October to close 10 more locations by year-end. Store-closing costs in the quarter were approximately $934,000. Finally, we recognized a large non-cash charge relating to the accounting for deferred tax assets on the company's balance sheet."



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