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Bear of the Day: Bon Ton


Even though gas prices have declined more than 40% in the past few months, it is not yet clear whether consumers are ready to spend the money saved from cheaper gas on other items. The landscape continues to be challenging for many retailers despite improving economy and healing labor markets.
 
Bon-Ton Stores (BONT) is one of the largest regional department store operators in the country, offering a broad assortment of fashion apparel and accessories, as well as cosmetics, fine jewelry and home furnishings.
 
Founded in 1898, the company currently operates 270 stores, including furniture galleries.
 
Disappointing Results and Guidance
 
On November 20, the company reported operating results for Q3 of fiscal 2014.  Total sales for the quarter declined 1.3% to $642.7 million, while adjusted EBITDA was down to $28.4 million from $38.4 million in Q3 2013.  Slower traffic and warmer weather in October impacted sales.
 
Gross margin decreased 29 basis points to 36.3% of net sales, thanks mainly to higher distribution and delivery costs. Net loss for the quarter was $11.0 million or $0.57 per share, compared with a net loss of $0.9 million or $0.05 per share, in the prior-year quarter. This was much worse than the Zacks Consensus Estimate of $0.08 per share.
 
The bright spot in the report was 27% growth over the prior year quarter in e-commerce sales as the partnership with ShopRunner continues to drive incremental sales.
 
Based on Q3 results, the management also downgraded their guidance for FY 2014. They now expect adjusted EBITDA in a range of $150 million to $160 million and earnings in a range of a loss of $0.20 per share to income of $0.10,
 
Downward Revisions
 
Analysts have been cutting their estimates for the company after quarterly results and lowered guidance. Zacks Consensus Estimates for the current and next year are currently ($0.01) per share and $0.66 per share respectively, down from $0.35 per share and $0.72 per share, 30 days ago. Declining estimates sent the stock back to Zacks Rank # 5 last week.
 

The Bottom Line

 
Declining store traffic and highly promotional environment continue to present challenges for retailers. The Zacks industry rank for Retail-Regional Department Stores” is currently 247 out of 265 (Bottom 7%).
 
Investors seeking exposure to the broader “Retail” industry could look at Columbia Sportswear, which currently enjoys a Zacks Rank # 1 (Strong Buy).
 
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