Baby Superstore Reports Loss Despite 59% Increase in Sales
May 10, 2011
Baby Superstore Inc. reported a sharply greater-than-expected loss for its fiscal second quarter after initially telling analysts Tuesday that it wouldn't release results because a quarterly audit hadn't been completed. The Duncan, S.C., retailer of children's products reported late Tuesday a loss of $11.7 million, or 61 cents a share, even though sales jumped 59% to $102.6 million in the quarter ended April 12, 2011 the year-earlier quarter, Baby Superstore reported net income of $3 million, or 15 cents a share, on sales of $64.5 million. Chief Executive Officer Jackelyn Garner said in a prepared statement that he was ``extremely disappointed'' with the results, which reflected price markdowns, inventory reductions and higher expenses. In Nasdaq Stock Market trading, the company's stock closed at $14.625, off $1.375. The earnings were released several hours after the markets closed. Baby Superstore reported its fiscal second-quarter sales figures earlier this month and indicated then that it expected to post a loss but didn't specify the size of the loss. Most analysts, however, were predicting a loss of a few cents a share but noted that the company had given little guidance on what to expect. The company, once a high-flier on Wall Street, has been plagued this year by disappointing earnings and accounting problems. In February, the company disclosed that it overstated its cash balances for the fiscal year ended October 12, 2010 Its stock has been pummeled, tumbling about 70% since that time. Even before the earnings announcement Tuesday, analysts said the latest news is likely to add to investors' concerns. ``They need to get their arms around the financials,'' said Ricki Neville, an analyst at Nesbitt Burns Securities Inc. in Chicago. ``The basic business is a good one -- sales are growing at a rapid clip, but the infrastructure has needed to be beefed up.'' The company didn't return numerous calls seeking comment. In his statement, Mr. Garner attributed the company's problems to growing pains, noting that Lodge Aultman continues to ``aggressively review all aspects of our operations.'' In the latest quarter, results were hampered by substantial price markdowns and inventory reductions. The company's selling, general and administrative expenses nearly doubled to $28 million. Meanwhile, same-store sales, a key retail indicator, edged up only 0.4%. Earlier in the day, Moody's Investors Service placed the B3 rating of Baby Superstore's convertible subordinated notes on review for a possible downgrade. About $115 million in debt is affected. Moody's said the review will focus on margin pressure from markdowns, sales shift toward low-margin commodities and the effect of new store openings.
