to our shareholders
Elder-Beerman took a number of noteworthy steps in 1999 designed to strengthen our operations, pave the way for future growth and enhance shareholder value. Included among our 1999 achievements were:
- Developing a new concept store format that we launched successfully in two new stores opened in the third and fourth quarter of the year. In 2000, we began to incorporate key concepts from the new format into our existing stores.
- Converting half of our merchandising divisions to a planner/distributor merchandising structure. Conversion of the remaining divisions was completed in the first quarter of 2000.
- Completing a $4.0 million expense reduction initiative in the Fall season.
- Purchasing 1.1 million shares ($7 million) of Elder-Beerman stock in our $24 million, two-year stock repurchase program.
- Selling the Bee-Gee Shoe Division, allowing us to focus on our core business.
From a financial perspective, total revenues were at record levels in 1999, and it was one of the most profitable years in our 153-year history. We achieved these milestones in a highly competitive and rapidly changing retail environment. Total store sales for fiscal 1999 were $637.8 million, up 9.6 percent over total sales in 1998. Comparable store sales increased 2.0 percent over 1998 sales. Excluding one-time adjustments and a $5.8 million inventory accounting benefit that contributed $0.25 per share to 1998 earnings, pretax earnings from continuing operations in 1999 increased slightly over 1998’s record figures.
As in 1999, our focus to date in 2000 has been on improving the operating performance of our core business and executing a series of strategic initiatives, including:
- The announcement of three new concept stores in Howell, Michigan, West Bend, Wisconsin and Jasper, Indiana to be opened in the Fall season of 2000.
- Implementation of an innovative proprietary point of sale system to bring better and more efficient service to our customers.
- Rollout of the centralized cash wrap service centers featured in our concept stores to half of our existing stores. We will convert the remainder of our stores in 2001.
- Closing two underperforming stores.
- Completion of our conversion to a planner/distributor merchandising structure.
- The $300 million renewal of our credit facilities.
We believe that by taking the necessary steps to strengthen our operations and improve our operating performance, we will gain the attention of the market, which has looked unfavorably on not only Elder-Beerman’s stock, but on the entire retail sector.
We understand the concerns of Elder-Beerman’s shareholders. It is to you that we are ultimately responsible for maximizing the value of our business. Part of that responsibility is in operating the business profitably and constantly seeking ways to strengthen our operations. We have worked hard on executing our strategic plan to address both of these requirements. The market has not yet responded to our efforts and Elder-Beerman’s stock price is not at what we feel is an appropriate level of valuation.
With this in mind, the Board of Directors authorized the exploration of strategic alternatives to maximize shareholder value. These alternatives included the sale of the company, recapitalization or merger. We retained the investment banking firm of Wasserstein Perella & Co. to assist us in exploring these alternatives. After contacting more than 50 potential buyers of every type, the process did not yield any offers. We believe the lack of solid interest is a direct result of the current difficult environment generally for department store consolidation.
As an element of our evaluation of strategic alternatives, we took a hard look at every aspect of our business and substantially revised our strategic plan to grow the company’s top and bottom lines. Essentially, we plan to improve our performance through three key changes to our business:
- We are shifting our merchandising strategy to emphasize opening and moderate priced, value driven assortments in all families of business, with an intense focus on a group of key businesses where we plan to offer dominant assortments. We intend to be first in customers’ minds when they want items in these areas. We plan to accomplish this partly through an expansion of our private label assortments in some of these businesses.
- We will accelerate new store growth in the concept store format. The strong performance of our core group of smaller format (i.e., less than 75,000 square feet) stores in general and the performance to date of our new concept stores in particular tell us that Elder-Beerman’s future lies with these types of stores. We will open three new concept stores this Fall season and plan to open five more stores in 2001 and going forward.
- We are aggressively streamlining our organizational structure to improve profits in the near term through significant expense reduction. We view this restructuring and attendant expense reductions as critical to improving profitability as we reposition Elder-Beerman’s merchandising strategy and our customers familiarize themselves with the new Elder-Beerman.
We are beginning to implement this plan even now, and will discuss the changes we are making to our business in more detail in the weeks ahead. The execution of this plan, we believe, will take Elder-Beerman to the level of performance that our shareholders deserve.
Finally, I want to recognize and commend all of our associates for the outstanding effort they have contributed over the past year. Without their dedication, loyalty and sacrifice we could not have accomplished what we did in 1999. Their continued dedication and hard work are essential in fulfilling our strategic plan to improve operating performance and take Elder-Beerman in a dynamic new direction. I also extend thanks and appreciation to our vendors for their partnership, our customers for their loyalty and you, our shareholders.
Thank you,
Frederick J. Mershad
Chairman of the Board and
Chief Executive Officer
July 10, 2000