Bon-Ton Reports Wider Loss

Bon-Ton Stores Inc. (BONT), operating 272 department stores in the United States, reported adjusted loss of $1.88 in the second quarter of 2012, wider than the Zacks Consensus Estimate of a loss of $1.78. The lower-than-expected results were due to sluggish sales and margin contraction.

On a reported basis, including fees associated with the recently completed senior notes exchange program, and severance and other non-recurring costs, the company posted a loss of $2.43 per share, higher than the loss of $1.78 per share in the year-ago quarter.

Total revenue of the departmental store chain slipped 0.1% year over year to $594.9 million in the reported quarter. However, same-store sales edged up 0.1% on the back of new product offerings and enhancement of the marketing program. The positive comps were also driven by strong performance of categories like cosmetics, shoes and home, including furniture and improved performance of ladies’ ready-to-wear, particularly moderate sportswear.

Gross margin in the quarter contracted 120 basis points (bps) to 36.0%, attributed to increased net markdowns rate.

Selling, general and administrative expenses, as a percentage of revenue, were flat year over year at 36.9%. Operating loss of the company also increased to $17.6 million as compared to loss of $11.8 million in the prior-year quarter.

Financial Position

Bon-Ton ended the quarter with cash and cash equivalents of $8.6 million, shareholders’ equity of $48.3 million and long-term debt of $839.8 million.

Outlook

Bon-Ton, headquartered in York, Pennsylvania and Milwaukee, Wisconsin, for the second time trimmed its outlook for 2012. The company expects earnings in the range of loss of $1.35 per share to a profit 20 cents per share, down from its prior outlook of a loss of 95 cents to a profit 50 cents per share. However, the company reiterated its EBITDA guidance between $160 million and $190 million.

Our Take

The company has concluded the first half of 2012 on a disappointing note with the outlook being lowered in both the quarters. Moreover, the company recently sold $475 million worth of private label credit card accounts to Alliance Data Systems Corporation (ADS - Snapshot Report) for an undisclosed amount. Hence, we expect a downward movement in estimates over the coming days. The Zacks Consensus Estimate is currently pegged at a loss of 52 cents for 2012 and $1.09 for 2013.

However, Bon-Ton is taking efforts to shift towards a profitable mix, increase its focus on smaller markets, save costs, expand updated merchandise, enhance the marketing program and more, to drive performance of the company.

Bon-Ton currently carries a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.