FINANCE

Stage Stores to convert 70 to 80 department stores to Gordmans, close 40 to 60 others

BY Marianne Wilson

Stage Stores is shrinking its department store footprint through store closures and the acceleration of its off-price store conversion program.

The department store retailer on Thursday said it plans to convert 70 to 80 of its stores to the Gordmans banner in 2019, with 19 converted locations opening on March 7, and 18 opening at the end of March. An additional 30 to 40 stores will be converted in time for the back-to-school season. Stage Stages also plans to exit 40 to 60 underperforming department stores.

“We’re excited to accelerate our off-price conversion strategy,” Stage Stores president and CEO Michael Glazer said on the chain’s quarterly call with investors. “For the last few years, the off-price sector has seen tremendous growth despite the challenges that have faced traditional retailers. These results in off-price were the catalysts for us to invest in Gordmans when the opportunity presented itself in 2017 and we have since transformed these stores into a true off-price concept that represents significant growth potential.”

Stage Stores acquired 48 stores and a distribution center from Gordmans in March 2017 after the company filed for bankruptcy and decided to liquidate. It turned the acquired chain into an off-pricer to successful results — so successful that Stage Stores launched a strategy to convert some of its department store locations to the off-price model. The company plans to convert 150 more department stores to off-price by the middle of 2020, giving it a total of about 300.

“Given the strong conversion results in 2018, we expect these efforts to benefit our comparable sales performance in 2019 by at least 200 basis points,” stated Glazer. “By the end of 2020, off-price sales will represent approximately 50% of our total sales volume.” (As of March 7, Stage Stores operates 709 Bealls, Goody’s, Palais Royal, Peebles and Stage specialty department stores and 87 Gordmans’ off-price stores.)

The cost of conversion is about $125,000 per store. The company can “comfortably” fund all its 2019 conversion activities within its historical $30 million to $35 million capital spend, Glazer said.

In addition to ramping up off-price conversions, Stage Stores is expanding the home category within its department stores, rolling out new assortments and high-capacity home fixturing in all stores

Stage Stores on Thursday posted a net loss, including $14.9 million of non-cash tradename impairment, of $7.8 million for the quarter ended Feb. 2; EBITDA adjusted for impairments was $27.1 million.

Net sales were $520 million compared to $549 million in the year-ago period, which had an extra week. Total company comparable sales decreased 2.4%. Shifted comparable sales, comparing the thirteen weeks ended February 2, 2019 and February 3, 2018, increased 0.6%.

“The fourth quarter represented our best quarter of shifted comparable sales results in fiscal 2018, and we are excited for the momentum to carry forward,” said Glazer. “We drove sequential improvement in shifted comparable sales, including double digit e-commerce sales growth, each quarter this year.”

Glazer said the six department stores converted to Gordmans in smaller mid-west markets delivered a shifted comparable sales increase of more than 150% in the fourth quarter.

“This further increases our confidence in the next phase of our strategy, as the 2019 conversions are predominantly in these smaller mid-west markets,” he said. At year-end, total inventories were down 3%, in line with our expectations, and excess availability under our credit facility was $82 million.”

For the full year, net sales were $1.58 billion compared to $1.59 billion. Same-store sales decreased 1.9%. Shifted comparable sales increased 6.7% in off-price, decreased 2.9% for department stores, and decreased 1.6% for total company. Net loss was $87.7 million, compared to net loss of $37.3 million. (Stage Stores’ fiscal 2018 results included $14.9 million of non-cash impairments related to the Peebles trade name as a result of its multi-year conversion strategy.)

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