Bon-Ton's 3Q Results Improve

The departmental store chain, Bon-Ton Stores Inc. ( BONT ) recently reported net loss of 55 cents in the third quarter of 2012, significantly better than the Zacks Consensus Estimate of a loss of $1.13 and the year-ago net loss of $1.21.

Total revenue nudged up 1.9% year over year to $668.7 million in the reported quarter, benefiting from same-store sales growth of 1.9% on the back of balanced merchandise assortment, new product offerings and enhancement of the marketing program. The positive comps were also driven by stronger performance of the ready-to-wear category, which was earlier a weak performing category. E-commerce business also continues to remain robust. Gross margin in the quarter contracted 80 basis points (bps) to 36.6%, attributable to higher net markdowns rates and delivery expenses.

Selling, general and administrative expenses, as a percentage of revenue, fell 220 bps year over year to 33.6%. Operating income increased to $10.8 million as compared to $0.5 million in the prior-year quarter.

Financial Position

Bon-Ton ended the quarter with cash and cash equivalents of $8.1 million, shareholders’ equity of $40.3 million and long-term debt of $957.6 million.

At the end of the third quarter, the company’s excess borrowing capacity under the revolving credit facility was $400 million.

Outlook

Bon-Ton, headquartered in York, Pennsylvania and Milwaukee, Wisconsin, reiterated 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 and its adjusted EBITDA guidance between $160 million and $190 million.

Our Take

Management expects the momentum of the third quarter of 2012 to continue in the fourth quarter as well, based on strong merchandising and marketing initiatives. The company has headed into the holiday season on a great note and expects shoes, fashion apparel, outerwear, accessories, and home to be key growth drivers. Moreover, Superstorm Sandy had minimal impact on its business. Hence, we expect an upward movement in estimates going forward. The Zacks Consensus Estimate is currently pegged at a loss of 53 cents for 2012 and earnings of $1.11 for 2013.

Bon-Ton, which competes with the likes of Macy’s, Inc. ( M - Analyst Report ) , carries a Zacks #1 Rank, implying a short-term ‘Strong Buy’ rating. Our long-term recommendation on the stock remains ‘Neutral’.