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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) June 16, 2005
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Duckwall-ALCO Stores, Inc.
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(Exact name of registrant as specified in its charter)
Kansas 0-20269 48-0201080
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(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
401 Cottage, Abilene, KS 67410-2832
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (785) 263-3350
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(Former name or former address if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17
CFR 240.14a-12(b))
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
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Section 7 - Regulation FD
Item 7.01 - Regulation FD Disclosure
In response to shareholder requests, Duckwall-ALCO Stores, Inc. is making the
following information relating to its fiscal years 2001 to 2005 available
through this 8-K filing.
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F05 F04 F03 F02 F01 F01 F05 Minus
---------------------------------------------------------------------- Inflated F01
53 weeks To F05 Adjusted
Using CPI For
(B) Inflation
---------------------------
SG&A Expense Breakout
General Office (A) $ 16,878,368 $ 16,462,055 $ 14,619,934 $ 13,857,264 $ 12,975,928 $ 14,144,970 $ 2,733,398
Distribution Center 8,371,659 8,199,610 8,562,272 7,702,204 6,598,781 7,193,286 1,178,373
SPD Truck Lines 2,436,328 2,170,134 2,172,322 2,097,918 2,006,848 2,187,651 248,677
Asset impairment 479,984 963,465 1,050,267 (1,050,267)
Stores 102,349,953 98,897,271 94,636,692 93,626,472 88,990,449 97,007,875 5,342,078
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Total 130,036,308 125,729,070 119,991,220 117,763,842 111,535,471 121,584,048 8,452,260
Less Discontinued Operations 1,685,760 2,401,079 5,152,970 6,526,430 8,816,337
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Final SG&A Per F05 Annual Report 128,350,548 123,327,991 114,838,250 111,237,412 102,719,134
Return on average equity 3.50% 6.16% 5.42% 5.05% 4.93%
(ROE)****
Net Sales 433,854,000 424,548,000 394,245,000 390,406,000 360,277,000
(From F05 Annual Report)
SG&A as % of sales 29.58% 29.05% 29.13% 28.49% 28.51%
SG&A per selling square foot $ 29.94 $ 30.30 $ 28.86 $ 28.52 $ 27.01 $ 29.44 $ 0.50
EBITDA** $ 14,514,000 $ 17,418,000 $ 16,700,000 $ 16,480,000 $ 15,900,000
EBITDA per selling square foot*** $ 3.39 $ 4.28 $ 4.20 $ 4.23 $ 4.18
Sales per selling square foot*
ALCO 104 108 103 104 99
Duckwall 73 73 69 72 69
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Total 101 104 99 100 95
Selling square feet* 4,286,593 4,070,894 3,978,511 3,899,980 3,803,204
Square feet % change - year 5.3% 2.3% 2.0% 2.5%
Square feet cumulative % change 12.2% 6.9% 4.6% 2.5%
(A) Includes store district managers and loss prevention
(B) Using 2.18% annual CPI increase
*Includes stores open at year-end, as adjusted to exclude discontinued
operations.
**EBITDA is earnings from continuing operations before interest, taxes,
depreciation and amortization (a non-GAAP financial measure) and is
reconciled to the most comparable GAAP financial measure below.
***EBITDA per selling square foot is a non-GAAP financial measure and is
reconciled to the most comparable GAAP financial measure below. It is
calculated as EBITDA divided by selling square feet.
****Return on average equity (ROE) is calculated as Net Earnings divided by
average stockholders' equity.
Average Stockholders' Equity is calculated as beginning of the year
stockholders' equity plus end of year stockholders' equity divided by 2.
2
Following are explanations of the SG&A variances:
F05 Compared To F04
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General office SG&A increased $416,000, or 2.5%. The largest variances include a
technology asset write-down, $519,000, fees for AlixPartners business advisory
services, $520,000, former CEO retirement related expenses, $180,000, increases
in technology department expenses, $251,000, and Sarbanes-Oxley compliance,
approximately $113,000. These were partially offset by decreases in bonus and
profit sharing, $1,054,000.
Distribution center expenses increased $172,000, or 2.1%, which is below the
5.3% increase in store square footage and roughly equal to the inflation rate.
The distribution center was able to absorb an increase in volume and increases
in general and medical insurance ($325,000) with only an inflationary increase
in expenses by improving its productivity.
SPD truck line expenses increased $266,194, or 12.2%. Approximately $112,000 of
this increase was payroll and related truck rental expenses for one additional
driver. The balance was due primarily to increases in fuel and insurance costs.
Store expenses (excluding discontinued operations) increased $4,168,001, or
4.3%, which is below the 5.3% increase in square footage. Store labor (excluding
the store manager training program) increased $932,000 (1.8%), which is well
below the increase in square footage, due to improved productivity in the
stores. Other large factors affecting store expenses were a $1,722,000 (33%)
increase in medical and general insurance, a $372,000 (22%) increase in credit
card fees, a $432,000 (18%) increase in costs associated with the store manager
training program and a $233,000 unfavorable adjustment relating to lease
accounting. These were partially offset by an adjustment related to layaways,
$275,000 and a reduction in store opening expense of $393,000. Increases in the
store manager training program were a result of efforts by the Company to
improve the quality of its store managers.
F05 Compared To F01
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General office expenses increased $3,903,440 (30%), and outpaced the CPI
increases by approximately $2.7M. The largest factors impacting this increase
were increases in: merchandising department expenses, $465,000, accounting
department expenses, $407,000 (of which more than half is due to increases in
outside services as a result of Sarbanes-Oxley and being a public company),
information technology department expenses, $407,000, personnel department
costs, $351,000, Aircraft department expenses, $212,000, general and medical
insurance, $709,000, costs associated with the CEO retirement, $180,000, a
technology asset write-down, $519,000 and district manager and loss prevention
expenses, $399,000. These were partially offset by higher co-op advertising
income, $503,000.
Distribution center expenses increased $1,772,878 (27%). Approximately 12.2%
($805,000) of this increase is due to the higher number of stores serviced by
the distribution center. Of the remaining balance, 9% ($595,000) is due to
inflation and $636,000 is due to increases in medical and general insurance.
3
SPD truck lines expenses increased $429,000 (21%). Over half of this increase is
due to the higher number of stores and higher than normal increases in fuel and
insurance costs. The balance is due to other (normal) inflation.
Store expenses (excluding discontinued operations) increased $20,490,081 (26%),
slightly higher than the combined 12.2% increase in square footage and 9%
inflation, which totals 21.2%. Unusual items impacting expenses were a $2.5M
increase in expenses relating to the store manager training program, a $3.4M
(184%) increase in general insurance, a $1.1M (100%) increase in credit card
fees, and higher store remodel expenses (up $529,000).
Initiatives To Reduce Expenses
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The Company has undertaken several initiatives to reduce its SG&A expenses by
over $4M including:
o A workforce reduction of almost 20% of its home office, district
manager and loss prevention staff on April 30th, 2005 that will save
$2.2M annually.
o Changes in the Company's medical / dental plan expected to save $1.1M
annually starting 8/1/05.
o Leasing excess space in stores.
o Reductions in travel (including more efficient use of the Company's
aircraft), supplies, utilities, and other miscellaneous of $1.1M
annually.
o Improving productivity in the distribution center.
In addition to the above initiatives, we are aggressively looking for other ways
to reduce expenses.
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Reconciliation and Explanation Of Non-GAAP Financial Measures
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EBITDA (earnings from continuing operations before interest, taxes, depreciation
and amortization) is a non-GAAP financial measure. Management believes this is
useful because it is widely used as a benchmark against other companies and
shareholders have asked for this disclosure for the same reason. Also, EBITDA is
used by investors to determine a company's ability to service debt, reinvest in
the business and/or return to shareholders. The following table shows how EBITDA
is calculated:
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F05 F04 F03 F02 F01
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Earnings from $4,353,000 $6,200,000 $5,297,000 $4,663,000 $4,251,000
continuing operations
before discontinued
operations and
cumulative effect of
accounting change
- ------------------------- ----------------- ---------------- ------------------- ------------------ ------------------
Plus income tax expense 2,223,000 2,691,000 3,068,000 2,868,000 2,583,000
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Plus depreciation and 6,708,000 7,141,000 6,726,000 6,171,000 5,812,000
amortization.
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Plus interest expense 1,230,000 1,386,000 1,609,000 2,778,000 3,254,000
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= EBITDA $14,514,000 $17,418,000 $16,700,000 $16,480,000 $15,900,000
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EBITDA per selling square foot is also a non-GAAP financial measure and is
calculated by taking EBITDA divided by selling square feet. This measure is used
by both management and shareholders for the same reasons EBITDA is used. The
following table shows how it is calculated:
- ---------------------------- ------------- ------------------ ------------------ ------------------ ------------------
F05 F04 F03 F02 F01
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Earnings from continuing $1.01 $1.53 $1.33 $1.20 $1.12
operations before
discontinued operations
and cumulative effect of
accounting change per
square foot
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Plus income tax expense $0.52 $0.66 $0.77 $0.74 $0.68
per square foot
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Plus depreciation and $1.57 $1.75 $1.69 $1.58 $1.53
amortization per square
foot
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Plus interest expense per $0.29 $0.34 $0.41 $0.71 $0.85
square foot
- ---------------------------- ------------- ------------------ ------------------ ------------------ ------------------
= EBITDA per selling $3.39 $4.28 $4.20 $4.23 $4.18
square foot
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5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
(Registrant)
Duckwall-ALCO Stores, Inc.
Date: June 16, 2005 By: /s/ Richard A. Mansfield
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Name: Richard A. Mansfield
Title: Vice President - Finance
Chief Financial Officer
6