Stage Might Have to Restate

The retailer delays the release of its second-quarter results.
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Stage Stores

(SSI) - Get Report

will delay the release of its second-quarter results in order to complete an internal review of its inventory-valuation methodology, and the retailer said it might have to restate its past financials.

The company said its earnings guidance for the second quarter and fiscal year should no longer be relied upon.

Shares of Stage were sinking $3.75, or 11.8%, to $28.16 on volume that was about 10 times heavier than normal.

"In the course of reviewing our preliminary financial results for the second quarter, it became apparent that our Peebles division gross margins were significantly higher than our forecast," said Jim Scarborough, Stage's chairman and CEO. "After evaluating the positive second-quarter business trends that could account for the large upside variance, we determined that a review of our inventory valuation methodology used to calculate our cost of goods sold might be appropriate."

Stage, a seller of apparel, cosmetics and footwear, said it can't quantify the impact on its historical financial statements. However, it has concluded that either a retroactive application of a preferable accounting methodology or a restatement of its previously issued results could be required.

The company expects that any adjustments would reduce its previously reported earnings to $1.64 a share from $1.76 for fiscal 2003, to $1.59 from $1.72 for fiscal 2004, to $1.78 from $1.90 for 2005 and to 57 cents from 72 cents for the quarter ended April 29. Stage has received a waiver of certain defaults under its credit agreement pending the conclusion of its review.

The company also said that from a sales and operations standpoint, "the second quarter was a good all-around quarter for our company and we are very pleased with our results. Our sales reached record levels, driven by solid customer demand for our spring and summer merchandise assortments. We posted a 4.5% same-store sales increase on top of a strong 7.0% increase last year."