Press release·02/26/2025 21:02:49

Financial Performance Overview

The company experienced a significant increase in net loss for fiscal year 2024 compared to the prior year. This was primarily due to a 10.1% decrease in net sales, which was partially offset by lower selling and administrative expenses.

The decrease in net sales was attributed to a 9.4% decline in same-store sales. The company believes this was largely due to persistent inflationary pressures that dampened consumer demand for discretionary products. Reduced store count also contributed to the lower sales.

Gross profit margin decreased from 32.3% in fiscal 2023 to 29.5% in fiscal 2024. This was driven by lower merchandise margins, higher store occupancy costs, and increased distribution expenses. However, merchandise margins remained healthy compared to pre-pandemic levels.

Selling and administrative expenses decreased by 2.2% year-over-year, primarily due to reductions in legal costs, performance-based incentives, and employee-related expenses. This helped offset the impact of the lower sales on the bottom line.

The company reported a net loss of $69.1 million, or $3.15 per share, in fiscal 2024 compared to a net loss of $7.1 million, or $0.33 per share, in the prior year. This larger loss was mainly attributable to the decline in net sales and a non-cash charge for establishing a valuation allowance on deferred tax assets.

Liquidity and Capital Resources

The company’s principal liquidity sources are cash on hand, cash flows from operations, and borrowings from its revolving credit facility. Operating cash flow declined from $18.5 million in fiscal 2023 to a negative $11.4 million in fiscal 2024, primarily due to the lower net income.

Capital expenditures remained relatively flat at around $11 million in both years, with investments focused on store remodels, new store openings, distribution center improvements, and technology upgrades.

The company ended fiscal 2024 with $5.4 million in cash and $13.8 million in revolving credit borrowings, compared to $9.2 million in cash and no borrowings at the end of fiscal 2023. The increase in borrowings was due to the company resuming draws on its credit facility.

Dividend payments were reduced from $19.8 million, or $0.875 per share, in fiscal 2023 to $2.8 million, or $0.10 per share, in fiscal 2024 as the company suspended its quarterly cash dividend in the second half of the year.

The company’s credit facility was amended and extended in December 2024, providing up to $150 million in aggregate committed availability, with the potential to increase to $200 million. The facility has a maturity date of December 2029 and includes covenants related to minimum fixed charge coverage ratios and restrictions on dividends and share repurchases.

Strengths and Weaknesses

A key strength for the company is its healthy merchandise margins, which have remained favorable compared to pre-pandemic levels despite the recent decline. This suggests the company has pricing power and the ability to pass on cost increases to consumers.

However, the company’s reliance on discretionary consumer spending has made it vulnerable to the impacts of high inflation and recessionary pressures. The significant decrease in net sales and profitability in fiscal 2024 highlights the company’s sensitivity to macroeconomic conditions.

Another weakness is the company’s high fixed costs, particularly in the form of store occupancy expenses. While the company has reduced its store count, it still has a large physical retail footprint that can weigh on profitability during periods of lower sales.

The company’s liquidity position, with access to its credit facility and relatively low debt levels, provides some financial flexibility. However, the recent suspension of its dividend and restrictions on share repurchases under the credit facility covenants suggest the company may need to prioritize cash preservation in the near term.

Outlook and Future Considerations

Looking ahead, the company’s performance will likely continue to be influenced by macroeconomic factors, such as the persistence of high inflation and the potential for a broader economic slowdown. If consumer demand for discretionary products remains weak, the company may face further pressure on its sales and profitability.

To address these challenges, the company plans to focus on managing its expenses and inventory levels. It does not anticipate opening any new stores in fiscal 2025 and expects to close approximately 15 stores. This could help reduce fixed costs and align the company’s footprint with current demand.

The company’s ability to maintain healthy merchandise margins will be crucial, as will its efforts to optimize its product assortment and marketing strategies to appeal to consumers in the current environment. Successful execution in these areas could help offset the impact of lower sales volumes.

The company’s amended credit facility provides additional financial flexibility, but the covenants related to minimum fixed charge coverage ratios and restrictions on dividends and share repurchases may limit its strategic options in the short term. Carefully managing its liquidity and debt levels will be important to navigate the current challenges.

Overall, the company faces a challenging operating environment, but its focus on cost control, inventory management, and preserving financial flexibility could help it weather the current macroeconomic conditions. Investors will be closely watching the company’s ability to adapt its business model and strategies to the evolving consumer landscape.