Bakers Still Upbeat Despite Rough Q4

NEW YORK — Bakers Footwear Group Inc. remains bullish on its future, despite lagging fourth-quarter results and ongoing questions about the health of the company.

After reporting a 93 percent earnings slide in the quarter, Bakers’ Chairman and CEO Peter Edison argued that the worst could be over for the St. Louis-based retailer.

“We took heavy markdowns to keep our inventories in line during the holiday season, and we missed sales by about $3 million in the second half of December and January,” Edison told Footwear News in a post-earnings interview last week.

“But we’ve had a lot of full-price selling so far for spring — the highest we’ve seen in four or five years — and margins look much better,” he said.

Bakers’ net income for the fourth quarter ended Jan. 31, totaled just $500,000, or 7 cents a diluted share, versus $7.3 million, or $1.03, in the fourth quarter of the prior year (which included a gain of $4.8 million, or 67 cents a share, from the early termination of an operating lease).

Sales at the fashion-footwear chain rose 1 percent in the fourth quarter to $55.5 million, from $54.7 million for the same quarter last year.

However, the company’s comparable-store sales were a bright spot, jumping 3.6 percent for the quarter, versus a decline of 6.8 percent in the fourth quarter of last year.

For the first 10 weeks of 2009, Edison said, comps are up 7.5 percent, indicating that Bakers could be on the rebound after being marked as an “ongoing concern” by its independent audit firm last May.

Although Bakers’ accounting firm reiterated its concern last week, Edison noted that Bakers has addressed all its credit covenants and remains focused on fiscal responsibility for the upcoming year. “We have more than adequate liquidity. Our sub-debt holder has worked with us to waive covenants, and I feel better about our business than I did last year,” he said.

Bakers also plans to reduce capital expenditures to just $1 million this year and has extended its revolving credit agreement with Bank of America to January 2011 from August 2010.

Analysts expressed confidence about Bakers’ liquidity, even with the auditor’s warning looming. “Once you get slapped with a ‘going concern’ from your auditor, there’s no benefit for the auditor to take it off,” explained one analyst, who asked not to be named.

“Things have improved, even though the fourth-quarter numbers didn’t show it,” the analyst continued. “The company is comping positive, and gross margins are high. The trends we’re seeing [at Bakers] right now bode well, not only for this quarter but we could see a decent second quarter also.”

For the full year, Bakers narrowed its loss to $15 million, or $2.13 a diluted share, down from last year’s loss of $17.7 million, or $2.70. Revenue dropped 1 percent to $183.7 million, from $186.3 million the year prior, while same-store sales rose 0.5 percent for the year, versus a 12.3 percent decline during the year-ago period.

However, investors did not seem rattled by Bakers’ lackluster fourth-quarter performance. The retailer’s stock closed up 11.8 percent to end at 89 cents last Wednesday, following the retailer’s earnings call with analysts.

In other company news, Bakers promoted Charles Daniel to the post of EVP and CFO, from his former position as VP of finance.

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