EX-99 3 ex99_errelq31.htm STAGE STORES INC., FORM 8-K, 11-16-2006, EX 99

Exhibit 99

NEWS RELEASE

CONTACT:
Bob Aronson
Vice President, Investor Relations
800-579-2302
(baronson@stagestores.com)


FOR IMMEDIATE RELEASE

STAGE STORES ANNOUNCES THIRD QUARTER RESULTS; UPDATES FOURTH QUARTER & RAISES FULL YEAR GUIDANCE

--Reports Third Quarter Net Income of $0.09 per Diluted Share--
 
HOUSTON, TX, November 16, 2006 - Stage Stores, Inc. (NYSE: SSI) today reported that total sales for the third quarter ended October 28, 2006 rose 15.5% to $353.4 million from $306.0 million for the prior year third quarter ended October 29, 2005. The increase in third quarter sales was driven by a comparable store sales gain of 4.1%, by sales of $30.8 million generated at new stores not yet in the comparable store sales base, and by sales during the quarter from the former B.C. Moore stores prior to their conversion to Peebles stores of $11.5 million.

The Company also reported third quarter net income of $2.8 million, or $0.09 per diluted share, compared to $9.1 million, or $0.31 per diluted share, in the same quarter last year. The Company noted that this year’s third quarter results are not comparable to last year due, in part, to the different inventory accounting methods (as defined below) as announced by the Company on October 24, 2006.  On a year-over-year basis, the total impact on the Company’s fiscal 2006 third quarter results was a reduction in earnings of $(0.03) per diluted share related to the changes in accounting principles, which include the implementation of the weighted average cost method versus the retail method and capitalizing certain of its distribution center handling costs, as well as the correction of an accounting error related to the deferral of credits received from vendors for handling charges at the Company’s distribution centers (collectively “the different inventory accounting methods”). This year’s results also reflect other non-comparable items, including:

 
·
costs totaling $(0.08) per diluted share related to the acquisition, transition and conversion of 69 former B.C. Moore stores;
 
·
charges totaling $(0.03) per diluted share related to professional fees paid to third parties associated with the Company’s inventory valuation methodology review;

--more--
 
 
Stage Stores Announces
Third Quarter Results
Page - 2


 
·
incremental charges of $(0.02) per diluted share for stock option expensing and other long-term incentive equity awards;
 
·
increased property insurance premiums of $(0.01) per diluted share due to claims activity related to last year’s hurricanes; and
 
·
reimbursements received by the Company related to last year’s hurricane damages of $0.02 per diluted share.
 
The Company further noted that last year’s results also included non-comparable charges of $(0.01) per diluted share related to the closure of its Knoxville, Tennessee distribution center.

Jim Scarborough, Chairman and Chief Executive Officer, commented, “This was a quarter filled with significant achievements for our Company. We posted record sales for the third quarter and reached the $1 billion mark in sales at the earliest point in any year in our Company’s history. We also experienced positive comparable store sales performances in most of our major product categories. Our home décor and dress departments led the way with double-digit increases of 10.9% and 10.8%, respectively. Those increases were followed up by solid gains in our men’s (+8.8%), cosmetics (+7.5%) and misses sportswear (+7.4%) departments. Additionally, our Peebles Division produced positive comparable store sales in the third quarter, due to improved merchandise levels combined with increased promotional activities, which helped drive its sales gains during the quarter.

Another very significant achievement was the opening of 82 new stores during the quarter, which included the conversion of 69 former B.C. Moore stores, all of which were opened under our Peebles banner. These 82 store openings equated to unit growth of approximately 15%, and selling square footage growth of approximately 11%, during the third quarter. We also expanded our geographic presence to 33 states during the quarter by opening new Peebles stores in Massachusetts and Michigan.

I am also pleased to report that work progressed during the third quarter on six new Estee Lauder and six new Clinique counters in our Stage Division, and five new Estee Lauder and four new Clinique counters in our Peebles Division. We expect that the installation of these twenty-one new counters will be completed during the fourth quarter. I am also very pleased to announce that our Company’s cosmetics offerings will be enhanced by the addition of the prestigious Lancome brand. During the third quarter, work began on our initial three Lancome counters, which will be featured in our Athens, TX, Eagle Pass, TX and Natchitoches, LA stores. The installation of these three counters will be completed during the fourth quarter. We look forward to expanding the number of our stores carrying their fine products in the future.

--more--


Stage Stores Announces
Third Quarter Results
Page - 3


From an earnings perspective, we clearly exceeded the high end of our previously provided guidance range for the quarter. There were two key factors that contributed to our better than forecasted results. First, our third quarter gross margin performance was better than we had projected. Second, in estimating the impact on our third quarter results related to the different inventory accounting methods, we had previously projected that the impact of these changes would be a reduction in earnings of approximately $(0.06) per diluted share. As it turned out, the actual impact was a reduction of only $(0.03) per diluted share. We believe the impact of the different inventory accounting methods should result in an overall reduction in our full year earnings of approximately $(0.03) per diluted share, and as a result, we are reducing our previously forecasted fourth quarter benefits related to the different inventory accounting methods by $(0.03) per diluted share,” Mr. Scarborough concluded.

Total sales for the nine-month period ended October 28, 2006 rose 14.4% to $1,059.0 million from $925.5 million last year. The increase in sales was driven by a comparable store sales gain of 3.9% for the nine-month period, by sales of $53.5 million generated at new stores not yet in the comparable store sales base, and by sales from the B.C. Moore stores prior to their conversion to Peebles stores of $62.1 million. Net income for the nine-month period was $15.7 million, or $0.54 per diluted share, compared to $36.2 million, or $1.22 per diluted share, last year. Net income and diluted earnings per share for the two periods are not comparable due to, among other things, the different inventory accounting methods. The Company noted that the impact on this year’s nine-month results related to the different inventory accounting methods as compared to last year was a reduction of $(0.34) per diluted share.
 
Fiscal 2006 - Fourth Quarter and Updated Full Year Outlook

4th Quarter 2006:
 
The Company provided the following guidance for the fourth quarter ending February 3, 2007:

   
4Q 2006 OUTLOOK
  
4Q 2005 ACTUAL
Sales ($mm)
  
$492.0
-
$502.0
  
$418.6
             
Net Income ($mm)
 
$39.1
-
$40.6
  
$19.7
             
Diluted EPS
  
$1.31
-
$1.36
  
$0.68
             
Diluted Shares (m)
  
29,958
  
28,936

--more--


Stage Stores Announces
Third Quarter Results
Page - 4


In issuing its fourth quarter guidance, the Company provided the following additional information:
 
 
·
13-weeks comparable store sales assumption: low to mid single digits
 
·
This year’s 4th quarter will have an extra week (14th week). The expected impact of the 14th week is an increase in sales of from $16.5 - $17.5 million, while the expected impact of the 14th week on net earnings is $0.02 - $0.04 per diluted share.
 
·
Estimated incremental impact on diluted EPS of stock option expensing and other long-term incentive equity awards: $(0.02) per share
 
·
Estimated accretive impact on diluted EPS from the converted B.C. Moore stores in their first full quarter of operation as Peebles stores: $0.05 per share
 
·
Estimated impact on diluted EPS from increased property insurance premiums due to claims activity related to last year’s hurricanes: $(0.01) per share
 
·
The impact on fourth quarter results related to the different inventory accounting methods as compared to last year is estimated to be an increase of $0.31 per diluted share.
 
·
Last year’s fourth quarter results included total charges of $(0.03) per diluted share related to the closure and consolidation of the Company’s Knoxville, Tennessee distribution center.

FY 2006:
 
The Company provided the following updated guidance for the 2006 fiscal year ending February 3, 2007 to reflect the first nine months actual results:

   
FY 2006 OUTLOOK
  
FY 2005 ACTUAL
Sales ($mm)
  
$1,551.0
-
$1,561.0
  
$1,344.1
             
Net Income ($mm)
 
$54.8
-
$56.3
  
$55.9
             
Diluted EPS
  
$1.86
-
$1.92
  
$1.90
             
Diluted Shares (m)
  
29,394
  
29,360
 
--more--


Stage Stores Announces
Third Quarter Results
Page - 5


In updating its fiscal 2006 guidance, the Company provided the following additional information:

 
·
52-weeks comparable store sales assumption: low single digits
 
·
Fiscal 2006 will have an extra week (53rd week). The expected impact of the 53rd week is an increase in sales of from $16.5 - $17.5 million, while the expected impact of the 53rd week on net earnings is $0.02 - $0.04 per diluted share.
 
·
Estimated incremental impact on diluted EPS of stock option expensing and other long-term incentive equity awards: $(0.09) per share
 
·
Estimated impact on diluted EPS from the B.C. Moore acquisition, transition and conversion: $(0.08) per share
 
·
Estimated impact on diluted EPS from increased property insurance premiums due to claims activity related to last year’s hurricanes: $(0.03) per share
 
·
Actual reimbursements received by the Company for hurricane related losses in the second and third quarters: $0.07 per diluted share
 
·
Impact on diluted EPS from the Company’s inventory valuation methodology review related to fees paid to third parties: $(0.03) per share
 
·
The impact on full year results of the prior years’ cumulative effect of the correction of the error was $(0.07) per diluted share, while the impact related to the different inventory accounting methods as compared to last year is estimated to be a reduction of $(0.03) per diluted share.
 
·
Last year’s results included total charges of $(0.05) per diluted share related to the closure and consolidation of the Company’s Knoxville, Tennessee distribution center and benefited from a reduction of accrued liabilities to landlords for contingent rent obligations and store real estate taxes of approximately $0.03 per diluted share.

Conference Call Information

The Company will hold a conference call today at 8:30 a.m. Eastern Time to discuss its third quarter results and its fourth quarter outlook. Interested parties can participate in the Company’s conference call by dialing 703-639-1323. Alternatively, interested parties can listen to a live webcast of the conference call by logging on to the Company's web site at www.stagestores.com and then clicking on Investor Relations, then Webcasts, then the webcast link. A replay of the conference call will be available online until midnight on November 24, 2006.
 
--more--


Stage Stores Announces
Third Quarter Results
Page - 6


About Stage Stores

Stage Stores, Inc. brings nationally recognized brand name apparel, accessories, cosmetics and footwear for the entire family to small and mid-size towns and communities through 656 stores located in 33 states. The Company operates under the Bealls, Palais Royal and Stage names throughout the South Central states, and under the Peebles name throughout the Midwestern, Southeastern, Mid-Atlantic and New England states. For more information about Stage Stores, visit the Company’s web site at www.stagestores.com.

“Safe Harbor” Statement

This news release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including comments regarding the Company’s outlook and expectations for the fourth quarter of the 2006 fiscal year and full 2006 fiscal year. The Company intends forward looking terminology such as “believes”, “expects”, “may”, “will”, “should”, “could”, “anticipates”, “plans” or similar expressions to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause the Company’s actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include, but are not limited to, those described in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on April 13, 2006, in the Company’s subsequent quarterly reports on Form 10-Q as filed with the SEC and other factors as may periodically be described in other Company filings with the SEC.

(Tables to Follow)


Condensed Consolidated Statements of Income
(in thousands, except earnings per share)
(Unaudited)
 
   
Thirteen Weeks Ended
 
   
October 28, 2006
  
October 29, 2005
  
   
Amount
  
% to Sales(1)
  
Amount
  
% to Sales(1)
  
                   
Net sales
  
$
353,348
    
100.0
%
$
306,044
    
100.0
%
Cost of sales and related buying, occupancy and distribution expenses
    
253,034
   
71.6
%
  
215,329
   
70.4
%
Gross profit
    
100,314
   
28.4
%
  
90,715
   
29.6
%
Selling, general and administrative expenses
    
90,477
   
25.6
%
  
73,933
   
24.2
%
Store pre-opening costs
    
4,034
   
1.1
%
  
1,293
   
0.4
%
Interest expense, net of interest income of $29 and $8, respectively
    
1,344
   
0.4
%
  
972
   
0.3
%
Income before income tax
    
4,459
   
1.3
%
  
14,517
   
4.7
%
Income tax expense
    
1,661
   
0.5
%
  
5,371
   
1.8
%
Net income
  
$
2,798
    
0.8
%
$
9,146
    
3.0
%
                           
(1) Percentages may not foot due to rounding
                          
                           
Basic and diluted earnings per share data:
                          
Basic earnings per share
  
$
0.10
        
$
0.34
        
Basic weighted average shares outstanding
    
28,341
         
27,030
       
                           
Diluted earnings per share
  
$
0.09
        
$
0.31
        
Diluted weighted average shares outstanding
    
29,589
         
29,502
       
 
 
Stage Stores, Inc.
Condensed Consolidated Statements of Income
(in thousands, except earnings per share)
(Unaudited)
 
   
Thirty-nine Weeks Ended
  
   
October 28, 2006
  
October 29, 2005
  
   
Amount
  
% to Sales (1)
  
Amount
  
% to Sales (1)
  
                   
Net sales
  
$
1,058,993
    
100.0
%
$
925,534
    
100.0
%
Cost of sales and related buying, occupancy and distribution expenses
    
763,435
   
72.1
%
  
647,888
   
70.0
%
Gross profit
    
295,558
   
27.9
%
  
277,646
   
30.0
%
Selling, general and administrative expenses
    
260,312
   
24.6
%
  
215,144
   
23.2
%
Store pre-opening costs
    
6,770
   
0.6
%
  
2,987
   
0.3
%
Interest expense, net of interest income of $130 and $136, respectively
    
3,463
   
0.3
%
  
2,085
   
0.2
%
Income before income tax
    
25,013
   
2.4
%
  
57,430
   
6.2
%
Income tax expense
    
9,317
   
0.9
%
  
21,249
   
2.3
%
Net income
  
$
15,696
    
1.5
%
$
36,181
    
3.9
%
                           
(1) Percentages may not foot due to rounding
                          
                           
                           
Basic and diluted earnings per share data:
                          
Basic earnings per share
  
$
0.58
        
$
1.33
        
Basic weighted average shares outstanding
    
27,205
         
27,240
     
                           
Diluted earnings per share
  
$
0.54
        
$
1.22
        
Diluted weighted average shares outstanding
    
29,206
         
29,688
     
 
 
Stage Stores, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except par values)
(Unaudited)
 
   
October 28, 2006
  
January 28, 2006
  
   
 
  
 
  
ASSETS
          
Cash and cash equivalents
  
$
22,126
  
$
33,683
  
Merchandise inventories, net
    
414,632
   
283,665
 
Current deferred taxes
    
43,810
   
24,270
 
Prepaid expenses and other current assets
    
28,783
   
36,076
 
Total current assets
    
509,351
   
377,694
 
               
Property, equipment and leasehold improvements, net
    
265,890
   
244,091
 
Goodwill
    
95,374
   
79,353
 
Intangible asset
    
14,910
   
14,910
 
Other non-current assets, net
    
19,145
   
15,605
 
Total assets
  
$
904,670
  
$
731,653
  
               
LIABILITIES AND STOCKHOLDERS' EQUITY
              
Accounts payable
  
$
138,860
  
$
81,719
  
Income taxes payable
    
-
   
8,968
 
Current portion of debt obligations
    
83
   
74
 
Accrued expenses and other current liabilities
    
78,070
   
64,423
 
Total current liabilities
    
217,013
   
155,184
 
               
Debt obligations
    
77,254
   
2,979
 
Deferred taxes
    
3,768
   
9,860
 
Other long-term liabilities
    
74,100
   
61,798
 
Total liabilities
    
372,135
   
229,821
 
               
Commitments and contingencies
              
               
Common stock, par value $0.01, 50,000 shares authorized, 36,081 and 33,033 shares issued, respectively
    
361
   
330
 
Additional paid-in capital
    
458,386
   
412,456
 
Less treasury stock - at cost, 7,023 and 6,448 shares, respectively
    
(161,210
)
  
(143,515
)
Minimum pension liability adjustment
    
(1,981
)
  
(1,981
)
Retained earnings
    
236,979
   
234,542
 
Stockholders' equity
    
532,535
   
501,832
 
Total liabilities and stockholders' equity
  
$
904,670
  
$
731,653
  
 

Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
   
Thirty-nine
Weeks Ended
October 28, 2006
  
Thirty-nine
Weeks Ended
October 29, 2005
  
Cash flows from operating activities:
  
 
  
 
  
Net income
  
$
15,696
  
$
36,181
  
Adjustments to reconcile net income to net cash provided by operating activities:
              
Depreciation and amortization
   
34,136
    
30,043
  
Gain on insurance proceeds related to property, equipment and leasehold improvements
   
(1,756
)
  
-
  
Deferred income taxes
    
(9,510
)
  
(1,133
)
Stock option income tax benefits
   
6,178
    
3,424
  
Stock compensation expense
   
3,441
    
592
  
Amortization of debt issue costs
    
335
    
335
  
Excess tax benefits from stock based compensation
   
(6,009
)
  
-
  
Construction allowances received from landlords
    
6,905
    
9,583
  
Proceeds from sale of private label credit card portfolio, net
    
4,436
    
-
  
Changes in operating assets and liabilities:
              
Increase in merchandise inventories
    
(129,683
)
  
(105,355
)
Decrease (increase) in other assets
   
8,018
    
(8,549
)
Increase in accounts payable and other liabilities
    
45,778
    
38,493
  
Total adjustments
   
(37,731
)
  
(32,567
)
Net cash (used in) provided by operating activities
    
(22,035
)
  
3,614
  
 
              
Cash flows from investing activities:
              
Additions to property, equipment and leasehold improvements
    
(51,410
)
  
(58,492
)
Acquisition of B.C. Moore, net of cash acquired
   
(35,622
)
  
-
  
Proceeds from insurance on property, equipment and leasehold improvements
    
1,756
    
-
  
Proceeds from retirements of property and equipment
    
269
    
391
  
Net cash used in investing activities
    
(85,007
)
  
(58,101
)
 
              
Cash flows from financing activities:
              
Proceeds from (payments on):
              
Borrowings under revolving credit facility, net
    
74,339
    
73,462
  
Repurchases of common stock
    
(17,695
)
  
(48,687
)
Debt obligations
    
(55
)
  
(108
)
Exercise of warrants
    
27,354
    
2
  
Exercise of stock options
    
8,988
    
5,613
  
Excess tax benefits from stock based compensation
   
6,009
    
-
  
Cash dividends
   
(3,455
)
  
(680
)
Net cash provided by financing activities
    
95,485
    
29,602
  
Net decrease in cash and cash equivalents
   
(11,557
)
  
(24,885
)
 
              
Cash and cash equivalents:
              
Beginning of period
    
33,683
    
40,455
  
End of period
  
$
22,126
  
$
15,570
  
 
              
Supplemental disclosures:
              
Interest paid
  
$
2,744
  
$
1,737
  
Income taxes paid
  
$
24,097
  
$
27,499
  
Unpaid liabilities for capital expenditures
  
$
367
  
$
-