The Bon-Ton Stores, Inc. (

BONT

)

Q3 2010 Earnings Call Transcript

November 18, 2010 10:00 am ET

Executives

Joe Teklits – IR

Bud Bergren – President and CEO

Keith Plowman – EVP, CFO and Principal Accounting Officer

Tony Buccina – Vice Chairman and President, Merchandising

Analysts

Edward Yruma – KeyBanc

Michael Exstein – Credit Suisse

Grant Jordan – Wells Fargo

Karru Martinson – Deutsche Bank

Carla Casella – JP Morgan

Emily Shanks – Barclays Capital

Ronald Philip [ph] – FBR Capital

Janet Elbridge [ph] – Goldman Sachs

Leah Hartman – CRT Capital

Presentation

Operator

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» The Bon-Ton Stores, Inc. Q3 2009 Earnings Call Transcript

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's Bon-Ton Stores third quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. As a reminder, today’s conference is being recorded. And now it is my pleasure to turn the conference over to Joe Teklits. Please go ahead, sir.

Joe

Teklit

s

Thanks. Good morning, everybody. Welcome to Bon-Ton's third quarter 2010 conference call. Today Mr. Bud Bergren, President and CEO; Tony Buccina, Vice Chairman and President of Merchandising; and Keith Plowman, Executive Vice President, Chief Financial Officer and Principal Accounting Officer, will host the call. You can access a copy of the company's earnings release on its website at www.bonton.com, and you can also obtain the earnings release by calling 203-682-8200.

As a reminder, the statements contained in this conference call, which are not historical facts, may constitute forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. Actual results might differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the company’s filings with the SEC.

With that, I’ll turn the call over to the company’s CEO, Bud Bergren.

Bud Bergren

Good morning, and thank you for joining us. I'll begin with some general comments on the third quarter of 2010. Keith will then provide details of the financial results and update you on our financial guidance and assumptions for 2010. Tony will discuss merchandise results and trends and offer our thoughts on what we see happening in retail in the upcoming holiday season. After that, we will be available to address your questions.

Let me give you some highlights from the third quarter. I believe we executed well in the quarter of our unseasonable warm weather impacted our sales. We delivered a 60 basis point increase in our gross margin rate, an increase in gross margin dollars, and a 9% in clearance inventory at period end. In addition, our excess borrowing capacity under our revolving credit facility was approximately $462 million, up from $246 million a year ago, plus we increased our operating income by $3.2 million.

For the quarter, our best performing markets were Detroit, Minneapolis, Milwaukee, and Buffalo. Our softest regions were Des Moines, Omaha, and Harrisburg, Pennsylvania. We delivered on our merchandise initiatives in the third quarter with franchise businesses, private brands, key items, and incredible value items, generating gains over the prior year period. Another growth vehicle that continues to be strong is our ecommerce business, which posted a significant increase of 74% in the third quarter compared with the prior year.

During the third quarter, we announced two strategic alliances, which further differentiate Bon-Ton from our competition; Casual Male, the largest specialty retailer of big and tall men’s apparel, is providing this merchandise to our customers through our ecommerce website and beginning in the spring of 2011 in certain of our stores. Casual Male’s dominant position in this important niche market allows us to offer our customers hard to find sizes in a wide selection for the male customer. This is a good balance to our already strong women’s size business.

We also announced the signing of a claimed fashion designer, John Bartlett, for an exclusive for an exclusive private label collection of men’s apparel and accessories. We believe John’s collection is a great complement to our extensive portfolio of exclusive private and national brands, offering our customers continue to appreciate. We are very excited about this opportunity that both of these agreements provide.

Looking ahead, we believe we are well positioned for the holiday season with the right merchandise assortment in a strong marketing program that will effectively convey our quality and value message. During the fourth quarter, we are focused on inventory management and the fresh flow of goods, merchandise assortments that deliver quality and outstanding values by also providing margin opportunities for the company, marketing efforts that will target our loyal customers while attracting new ones, and maximizing our ecommerce initiatives. Year-to-date we are up 75% to the prior year period. We are confident we can execute to our plan and deliver our 2010 goals.

At this time, I’d like to turn the call over to Keith to review the financials. Keith?

Keith Plowman

Thank you, Bud. And good morning, everyone. I’ll review a few notable accomplishments in the third quarter of 2010, and I will touch upon certain income statement and balance sheet components, as well as our 2010 guidance. Our comp store sales decreased 30 basis points in the third quarter while our gross margin rate increased 60 basis points, which yielded a net increase in gross margin dollars of approximately $2.7 million.

Our income from operations was $22.7 million compared to $19.6 million in the third quarter of 2009, and our EBITDA, defined as earnings before interest, taxes, depreciation and amortization, including amortization of lease-related interests, was $48.7 million compared to $48.8 million in the prior year period. For a reconciliation of EBITDA to net loss, please refer to our earnings press release.

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