Bakers Trims Q3 Loss, Optimistic for 2009

NEW YORK — Bakers Footwear Group, troubled this past year by liquidity concerns, said last week it is on track to close 2008 with adequate funding and that it may return to profitability in 2009.

Chairman and CEO Peter Edison told investors and analysts on the firm’s post-earnings conference call last Tuesday that 2008 “expected operating results will allow us to meet our debt covenants.”

The executive’s optimism has been fueled in part by the company’s recent upswing in comparative-store sales, which closed the third quarter up 4.5 percent — versus a 16.6 percent decrease the prior year — including a comp-store rise of 13.4 percent during the Thanksgiving weekend. And aided by expense control, the fi rm also narrowed its quarterly loss by 45 percent on a slight increase in revenues. This is the second quarter in a row the fi rm has trimmed its net loss.

Edison said Bakers has seen strength in dress shoes and boots. “As I have said many times, our sales are less tied to the economy than to fashion trends, and our team has done an excellent job of identifying several key things for holiday and spring,” he said on the call, adding that the company believes “we are at the beginning of a fashion cycle.”

In an interview with Footwear News, Edison said the fi rm is seeing a consumer trade-down effect positively impacting results. “I’ve talked to a number of customers who used to spend more for shoes [elsewhere], and they’re sneaking in and buying more from us,” he said.

The fi rm forecast double-digit comps for the fourth quarter and predicted that positive momentum would continue into 2009. “We certainly think we have that possibility of being profitable next year, but we don’t comment on exact levels,” Edison said on the call. (In fullyear 2007, the firm posted a net loss of $17.7 million, significantly wider than the prior-year’s $1.5 million loss.)

Liquidity concerns emerged for Bakers last May when its independent auditing fi rm at the time, Ernst & Young, stated in a filing with the Securities and Exchange Commission its doubts about Bakers’ ability to continue to operate as a going concern. Bakers later confirmed that there was a “reasonable possibility” that it may not be able to comply with certain financial covenants. Bakers, however, said in a SEC fi ling last week that it was in compliance with all its financial and other covenants as of Dec. 6.

Bakers shares rose 10 percent in trading last Tuesday, ending at 81 cents, but on Wednesday, the stock lost about 7 percent. The shares still have a long way to go, however, to reach their year-ago level of about $3, and the stock is well off its two-year high of about $11.

Last Tuesday, St. Louis-based Bakers reported a third-quarter net loss of $8.3 million, or $1.18 a share, versus a loss of $15.3 million, or $2.35, the prior year. Net revenues were $41.1 million, up 2 percent from $40.3 million a year ago.

The company said it reduced quarterly expenses by about 13 percent and that it is on track for $10 million in cost reductions for the current fiscal year. And despite a 26 percent rise in inventories as of Nov. 1, the fi rm said it plans to end the year with inventory fl at on a year-over-year basis.

Gross margins were a standout in the third quarter, increasing to 21.9 percent of net sales from 8.7 percent of sales in the third quarter last year.

Edison noted that one of the firm’s initiatives is to drive gross margins through higher regular-priced sellthroughs.

“Based on the strength of our Bakers label of footwear styles, we have increased our allocation of higher- [priced] Bakers private-label styles in our stores,” he said. “This bodes well for future margin gains.”

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