Taking Stock: Tough Luxe… Quik, Be Nimble…

TOUGH LUXE: With Wall Street reeling and banks struggling to regain their balance, upscale retailers have endured some of the harshest medicine the economy has to dish out. Even excluding $560.1 million in impairment charges, privately held Neiman Marcus last week reported a second-quarter operating loss of $32.6 million versus $134.3 million in operating income in the comparable 2007 period. Net sales dropped 21.4 percent, to $1.08 billion. Burt Tansky, chairman and CEO, reiterated his belief in the long-term reliability of the luxury customer, but indicated that Neiman will be closely watching expenses and paring its vendor roster at least until that customer returns in force. In addition, Neiman’s 22.8 percent drop in quarterly same-store sales was the highest decline among the Big Three of luxe retailing, with its 22.8 percent drop significantly larger than the 15.3 percent slip reported earlier by Saks Inc. and the 15.8 percent decline registered in Nordstrom’s full-line stores.

Dick’s Sporting Goods Inc. last week became the latest retailer to see its fourth-quarter earnings wiped out by a noncash impairment charge — in this case, a pretax $193.4 million (or $1.44 a share after-tax) blow that left it with a net loss of $104.4 million, or 93 cents a diluted share. Without the charges, which relate to the acquisition of Golf Galaxy in 2007 and the decline in value of certain store assets, the company would have earned 55 cents a diluted share, 2 cents more than analysts expected. Dick’s joins the long list of retailers who have bled as much as nine figures and can still claim to have had a “good quarter.” And even though it predicted lower first-quarter profits, Wall Street wasn’t disputing the firm’s characterization. In the first two days after the fourth-quarter report, the Pittsburgh-based company’s shares soared 22.7 percent, fueled by both the first two-day winning streak for the S&P Retail Index in more than a month and a sense that perhaps retail shares had reached a short-term nadir. Among the strong points at Dick’s were a year-on-year reduction in inventory per square foot of 13.9 percent and that all $440 million of its credit agreement unused and available. “As we plan our business for 2009, we are not anticipating any improvement in the macroeconomic conditions compared with what we experienced in the fourth quarter,” said Edward Stack, chairman and CEO. “We will continue to remain focused on servicing core athletes and outdoor enthusiasts, carefully managing inventory levels, tightly controlling expenses and modestly growing our store base.”

QUIK, BE NIMBLE: There’s a commercial on TV these days in which Robert McKnight, introduced as the “Surfin’ CEO” of Quiksilver, gives his thoughts on the current “economic tsunami” and how important technology is in today’s business environment. But in reality, Quiksilver has been battling financial headwinds since 2005, when it made what seemed like the enlightened decision to buy Rossignol Group and expand its focus beyond the seashore to the ski slope. But the acquisition was never anything but trouble, and the company wound up selling it last November for about $50 million, less than one-sixth of what it paid. And the Rossignol debacle haunts the company to this day, with its operations and expenses responsible for $134 million of the company’s fourth-quarter net loss of $194.4 million. The financially strapped Huntington Beach, Calif.-based owner of the Roxy, DC and Hawk brands is in the process of exploring a range of strategic and financing options with the goal of improving its liquidity position and capital structure — and speculation has been rampant that either some of its businesses or the entire company might be sold. (FN reported in January that VF Corp. is said to be pursuing the DC Shoe brand, and analysts believe that marriage would be a good one.) To accommodate the timing of a potential transaction, Quiksilver won an extension of the maturity date of a 55 million euro, or $69.8 million, line of credit from European lenders to June 30 from March 14.

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