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The Spiegel Group Reports Second Quarter Earnings

From: ASAP
Remote Name: 64.12.104.177

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The Spiegel Group announced financial results for the second quarter ended June 30, 2001. The company reported earnings of $5.0 million, or $0.04 per share, compared to earnings of $25.8 million, or $0.20 per share for the comparable period last year. Second quarter earnings were consistent with previous guidance and First Call consensus estimates.

"While under last year's record performance, earnings were in line with our expectations. We anticipate substantial year-over-year earnings improvement in the fall season as we compare against last year's weaker sales period, particularly at Eddie Bauer. Inventory levels are well positioned and we have taken a cautious approach to ownership of fall inventory," said James R. Cannataro, executive vice president and chief financial officer of The Spiegel Group.

Operating income declined by $29.9 million for the quarter, including a $39.6 million decrease in the merchandising segment and a $9.4 million improvement in the bankcard segment.

Total revenue for the quarter declined 4 percent to $831.9 million reflecting a 5 percent decrease in net sales and a 4 percent decrease in finance revenue.

Net sales for the quarter included a 6 percent decline in direct sales and a 4 percent drop in retail store sales. Direct sales reflected a 61 percent increase in e-commerce sales offset by a 15 percent decrease in catalog sales. The decline in retail store sales was due to a 9 percent drop in Eddie Bauer's comparable-store sales offset somewhat by sales growth in its outlet stores.

The $3.1 million decrease in finance revenue reflects a $17.1 million, or 35 percent, decline in revenue from the private-label credit card programs offset by a $14.0 million, or 44 percent, increase in bankcard revenue. The decline in finance revenue was primarily attributable to lower retained-interest income from securitized receivables. While the yield on receivables rose in the quarter along with the level of receivables serviced, higher charge-offs reduced the earnings performance of the credit card programs, particularly the private-label credit programs, resulting in lower retained-interest income (or excess cash flows) from the securitized receivables. Somewhat offsetting this decline, the company reported net gains on the sale of receivables of $24.7 million in this year's second quarter compared to $8.2 million in the same period last year. The incremental gains primarily reflect anticipated improvement in portfolio performance due to improving delinquencies and higher revenue yield.

The gross profit margin as a percent of net sales decreased in the second quarter to 38.4 percent from 40.3 percent in last year's second quarter, primarily due to higher markdowns taken at the company's Eddie Bauer division.

Spending on selling, general and administrative expenses (SG&A) was relatively flat for the quarter. However, as a percent to total revenue, SG&A expenses increased by 220 basis points as lower revenue hindered expense leverage. The decline in customer spending resulted in lower productivity on catalog circulation for each of the Group's merchant companies. In addition, our private-label credit operations were disleveraged due to higher charge-offs against a declining revenue base.

For the first six months, total revenue decreased 4 percent to $1.581 billion from $1.640 billion for the comparable period last year. The company reported a loss of $7.2 million, or $0.05 per share, for the six months ended June 30, 2001, compared with earnings of $46.1 million, or $0.35 per share, before the cumulative effect of an accounting change, for the comparable period last year.

Outlook

Commenting on the company's outlook, Martin Zaepfel, vice chairman, president and chief executive officer of The Spiegel Group, said, "Although the economic outlook for the second half of the year remains uncertain, we have seen some positive indicators that should favorably impact our ability to reach our earnings objectives. Improving delinquency rates in our private-label credit programs should result in lower charge-offs and favorably impact earnings in the second half of the year. In addition, we expect to begin to see the benefit of the actions taken in our Eddie Bauer division to reposition its apparel offer and strengthen its overall financial performance, particularly in the fourth quarter.

Zaepfel continued, "We are responding to the current challenges in the economic environment by implementing conservative inventory commitments, stringent credit-limit and credit-authorization controls, relatively flat catalog circulation plans and vigilant expense controls. Also, our management teams are developing long-term strategies aimed at strengthening our market position and achieving higher levels of earnings."

Earnings Guidance

The company reiterated its previously issued guidance for the second half of the year, which ends December 29, 2001. The company expects revenue growth of approximately 7 to 8 percent and an earnings increase of about 45 to 50 percent for the six-month period compared to the same period last year, with the earnings improvement weighted to the fourth quarter.

For the third quarter ending September 29, 2001, revenue is expected to increase by about 3 to 5 percent and earnings are projected to be flat with last year's third quarter earnings of $0.10 per share.

Management Comments

Jim Cannataro, executive vice president and chief financial officer of The Spiegel Group, will provide comments on the company's second quarter financial results today at 9:30 a.m. Eastern Time. This information can be accessed as follows:

- Call 800-625-5288 for domestic or 303-804-1855 for international and enter passcode 1125971

- Visit the Earnings Overviews and Presentations section of the company's Web site at thespiegelgroup.com

The pre-recorded call will be available through August 7,

This press release contains statements that are forward-looking within the meaning of applicable federal securities laws and are based upon Spiegel, Inc.'s current expectations and assumptions. Words such as "expect," "plan," "believe," "anticipate," and similar expressions identify forward-looking statements. Any such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Potential risks and uncertainties include, but are not limited to, factors such as the financial strength and performance of the retail and direct marketing industry, changes in consumer spending patterns, dependence on the securitization of accounts receivable to fund operations, state and federal laws and regulations related to offering and extending credit, risks associated with collections on the company's credit card portfolio, interest rate fluctuations, postal rate increases, paper and printing costs, the success of planned merchandising, advertising, marketing and promotional campaigns, and other factors that may be described in the company's filings with the Securities and Exchange Commission.

The Spiegel Group is a leading international specialty retailer marketing fashionable apparel and home furnishings to customers through catalogs, more than 580 specialty retail and outlet stores and eight e-commerce sites, including eddiebauer.com, newport-news.com and spiegel.com. The Spiegel Group's businesses include Eddie Bauer, Newport News, Spiegel and First Consumers National Bank. The company's Class A Non-Voting Common Stock trades on the NASDAQ National Market System under the ticker symbol: SPGLA. Investor relations information is available on The Spiegel Group Web site (thespiegelgroup.com).

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