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Bon-Ton Stores Inc (BONT) reported adjusted loss of $2.18 in the first quarter of 2012, well below the Zacks Consensus Estimate of break-even. The lower-than-expected results were due to sluggish sales and margin contraction.

On a reported basis, including gain from sale of property and severance cost, the company posted a loss of $2.23 per share, much wider than the loss of $2.01 per share in the year-ago quarter.

Total revenue of the departmental store chain fell 1.3% year over year to $640.8 million in the reported quarter, attributable to a 1.3% drop in the same-store sales. The comps suffered due to weak performance of categories like moderate traditional ladies sportswear, ladies outerwear and juniors.

Gross margin in the quarter contracted 120 basis points (bps) to 34.3%, attributed to increased net markdowns rate. EBITDA of the company also plunged $18.3 million to $4.8 million in the reported quarter.

Selling, general and administrative expenses, as a percentage of revenue, jumped 140 bps to 35.6% in the quarter, attributed to higher store, marketing, insurance and severance costs, partially offset by the profit from the sale of certain property.

Financial Position

Bon-Ton ended the quarter with cash and cash equivalents of $14.3 million, shareholders’ equity of $91.8 million and long-term debt of $872.7 million.

Outlook

Bon-Ton, headquartered in York, Pennsylvania and Milwaukee, Wisconsin, trimmed its outlook for 2012. The company expects earnings in the range of loss of 95 cents per share to a profit 50 cents per share, down from its prior outlook of a profit of 15 cents to 75 cents per share and EBITDA is expected between $160 million and $190 million, below the previous guidance of $180 million–$200 million. Comparable store sales are estimated to be in the range of negative 1.5% to positive 1.0%, lower than the earlier estimate of positive 1% to 2%.

Our Take

The company reported disappointing results and also reduced its outlook. Hence, we expect a downward movement in estimates over the coming days. The Zacks Consensus Estimate is currently pegged at 13 cents for 2012 and a loss of 15 cents for 2013.

However, Bon-Ton is taking host of initiatives like shifting to profitable mix, increased focus on smaller market, cost saving efforts, expansion of updated merchandise and enhancement of marketing program to drive performance of the company.

Bon-Ton, which competes with companies like Dillard's Inc. (DDS - Analyst Report), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also maintain our long-term Neutral recommendation on the stock.

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