Bombay Announces First Quarter Revenue Declines

Furniture World Magazine

The Bombay Company, Inc. reported that revenue for the quarter ended April 29, 2006 was $118.7 million compared to $122.1 million for the corresponding period of the prior year. Same store sales for stores open more than one year declined 1.2% for the thirteen-week period. Revenue from non-store activity, including Bailey Street Trading Company, Internet, Mail Order and International amounted to 6.7% of total revenue for the quarter compared to 7.5% for the first quarter of the prior year. Increases in revenue from our direct-to-customer business, driven primarily by Internet sales, and International wholesale operations partially offset the loss of revenue from the Bailey Street operations, the assets of which were sold during Fiscal 2005. The loss before income taxes for the quarter ended April 29, 2006 was $16.0 million compared to $13.5 million for the quarter ended April 30, 2005. The net loss for the quarter ended April 29, 2006 was $15.6 million or $0.43 per share compared to a net loss of $8.0 million or $0.22 per share for the same period last year. For the first quarter, revenue from retail stores decreased 2.0% from the first quarter of the prior year. Approximately half of the decrease was related to a net reduction in store count as we continued to implement our initiative of rationalizing the real estate portfolio, while the remainder related to the decline in same store sales. Revenue from Internet, International and mail order increased $2.4 million for the quarter partially offsetting the loss of revenue from Bailey Street, which totaled $3.6 million last year and contributed marginally to operating results. Gross margin for the first quarter declined 180 basis points versus prior year, primarily attributable to a 150 basis point decline in product margin. The decline in product margin was related to a larger portion of sales being generated by promotional activity particularly in the furniture area where the bedroom, dining room and KIDS categories had margin declines as a result of increased clearance activity. Buying and store occupancy costs decreased $0.5 million due to the lower store count and lower costs in off-mall locations, but increased from 23.5% of revenue to 23.7% of revenue as a result of lower same-store sales. For the quarter, four-wall operating margins for the off- mall core stores were approximately 700 basis points higher than the mall- based stores primarily as a result of the lower occupancy costs. Selling, general and administrative expenses decreased $0.3 million but were 33.5% of revenue during the first quarter compared to 32.8% in the year ago period, a 70 basis point increase, because of the deleveraging effect of fixed costs on the lower revenue base. Higher store payroll costs and increased advertising expenses have been offset by lower corporate SG&A costs. No tax benefits have been recorded for losses generated by the Company's U.S. operations during the current interim period, which effectively results in income being reported on a pre-tax basis compared to the prior year when tax benefits were reflected in connection with quarterly results. The income tax benefit reflected in the first quarter of Fiscal 2006 relates primarily to the Canada operations and results in an effective tax rate of 2.5%. The Company does not expect to recognize tax benefits associated with its U.S. operations during the current fiscal year. During the first quarter, the Company opened 4 stores, including one combination store, and closed 20 stores. We ended the quarter with a total of 482 stores compared to 495 stores at the end of the first quarter of Fiscal 2005; however, square footage declined a modest 0.5% due to the difference in sizes of the stores as we have migrated stores from mall to off-mall over the past twelve months. During the second quarter, the Company expects to open 3 stores and close approximately 10 to 14 stores. The year-end store count is expected to be in the range of 460 to 465 stores. James D. Carreker, Chairman and Chief Executive Officer, stated, "The overall environment for specialty home furnishings remains challenging. We saw a significant decline in traffic and business after Easter that adversely affected results. We continue to control expenses, investing in areas to drive business to remain competitive. We are testing national television broadcast on select cable networks during May and early June. We are tightly controlling our inventory levels and carefully managing liquidity and markdown levels in order to maintain flexibility. We enter the second quarter with an improved inventory content compared to last year and what we believe to be an improved assortment." In conjunction with this release, you are invited to listen to Bombay's conference call with management that will be conducted on Thursday, May 18, 2006 at 10:00 a.m. Central Time. The Company will review the first quarter and the outlook for Fiscal 2006. Interested parties should dial 212-676-5390 ten minutes prior to the start time. The call will also be broadcast live over the Internet at http://www.bombaycompany.com/. For those who are unable to listen to the live broadcast, a telephone replay will be available for 72 hours beginning at noon Central Time at 800-633-8284. The access code is 21274577. The call will also be available for replay for 45 days on the investor relations page of the Bombay website. The Bombay Company, Inc. designs, sources and markets a unique line of home accessories, wall decor and furniture through retail outlets, specialty catalogs and the internet in the U.S. and internationally.