Retail Ventures Inc. Reports Operating Results (10-Q)

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Dec 08, 2010
Retail Ventures Inc. (RVI, Financial) filed Quarterly Report for the period ended 2010-10-30.

Retail Ventures Inc. has a market cap of $832.6 million; its shares were traded at around $16.98 with a P/E ratio of 12.8 and P/S ratio of 0.5. RVI is in the portfolios of Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

On April 21, 2009, Retail Ventures disposed of Filenes Basement, Inc. and certain related entities to FB II Acquisition Corp., a newly formed entity owned by Buxbaum Holdings, Inc. (Buxbaum). Retail Ventures did not realize any cash proceeds from this transaction, agreed to pay a fee of $1.3 million to Buxbaum, which has been paid, and has reimbursed $0.4 million of Buxbaums costs associated with the transaction. Retail Ventures has also agreed to indemnify Buxbaum, FB II Acquisition Corp. and their owners against certain liabilities. Retail Ventures has recognized an aggregate after-tax gain of $84.9 million on the transaction as of October 30, 2010. On May 4, 2009, Filenes Basement filed for bankruptcy protection. On June 18, 2009, following bankruptcy court approval, SYL LLC, a subsidiary of Syms Corp (Syms), purchased certain assets of Filenes Basement. All references to liquidating Filenes Basement refer to the debtor, formerly known as Filenes Basement Inc., and its debtor subsidiaries remaining after the asset purchase by a subsidiary of Syms. All references to New Filenes Basement refer to the stores operated by Syms. On September 25, 2009, RVI and DSW entered into a settlement agreement with liquidating Filenes Basement and its related debtors and the Official Committee of Unsecured Creditors appointed in the Chapter 11 case for the debtors. On November 3, 2009, the settlement agreement was approved by the Bankruptcy Court for the District of Delaware. As a result of the courts approval of the settlement agreement, RVIs claims in respect of $52.6 million in notes receivable from liquidating Filenes Basement were released; RVI assumed the rights and obligations related to (and agreed to indemnify liquidating Filenes Basement with regard to certain matters arising out of) the liquidating Filenes Basement defined benefit pension plan; and liquidating Filenes Basement and the creditors committee agreed to allow certain general unsecured claims for amounts owed to RVI and DSW.

Change in Fair Value of Derivative Instruments. During the third quarter of fiscal 2010 and fiscal 2009, the Company recorded a non-cash charge of $8.2 million and $9.1 million, respectively, relating to the changes in fair value of the warrants. During the third quarter of fiscal 2010 and fiscal 2009, the Company recorded a non-cash charge of $23.5 million and $21.6 million, respectively, related to the change in the fair value of the conversion feature of the PIES. The change in the fair value of the derivatives is primarily due to the changes in the RVI and DSW stock prices.

Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses decreased $51.2 million from $531.1 million in the nine months ended October 31, 2009 to $479.9 million in the nine months ended October 30, 2010. SG&A expense decreased, as a percentage of net sales, from 44.3% for the nine months ended October 31, 2009 to 35.4% for the nine months ended October 30, 2010.

Corporate segment SG&A expense decreased $59.8 million for the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009. The decrease in SG&A expense was primarily due to a reduction of bad debt expense of $2.7 million during the first quarter of fiscal 2010 due to an initial distribution from the debtors estates, compared to an increase in bad debt expense of $57.3 million during the first quarter of fiscal 2009 recorded against the notes and accounts receivable from Filenes Basement due to the bankruptcy filing of Filenes Basement on May 4, 2009. This was partially offset by the $4.0 million accrued for the complaint filed by the Debtors.

Change in Fair Value of Derivative Instruments. During the nine months ended October 30, 2010 and October 31, 2009, the Company recorded a non-cash charge of $11.3 million and $10.0 million, respectively, related to the change in fair value of the warrants. During the nine months ended October 30, 2010 and October 31, 2009, the Company recorded a non-cash charge of $34.6 million and $30.8 million, respectively, related to the change in the fair value of the conversion feature of the PIES. The change in the fair value of the derivatives is primarily due to the changes in the RVI and DSW stock prices.

During the nine months ended October 31, 2009, the income from discontinued operations, net of tax Filenes Basement was comprised of two components; the gain on the disposition of Filenes Basement of $76.1 million partially offset by the loss from Filenes Basement operations of $31.5 million. The gain on the disposition of Filenes Basement was due to the write off of the investment in Filenes Basement partially offset by the recording of guarantees, other expenses relating to the disposition of Filenes Basement and income tax expense of $1.8 million in the aggregate.

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