Operating Performance Operating income for the third quarter increased 15.9 percent to $124 million or 3.0 percent of sales compared to $107 million last year. The non-cash qualified pension plan expense was $56 million in the third quarter compared to $73 million in the same period last year. Excluding the impact of the pension plan expense from both this year's and last year's third quarter, adjusted operating income, as a percent of sales, was 4.3 percent, flat to last year. A reconciliation of non-GAAP adjusted operating income is included with this release.
For the quarter, gross margin dollars decreased $61 million to 39.0 percent of sales. In the same quarter last year, gross margins were 40.6 percent of sales, a near historic peak for the Company. SG&A expenses were well managed decreasing $52 million or 3.8 percent when compared to last year's third quarter, including the impact of a reduction in the Company's incentive compensation accrual. Total operating expenses declined $78 million to 36.0 percent of sales in the third quarter, compared to 38.0 percent from the same period last year.
Financial Condition The Company ended the third quarter with $1.7 billion in cash and cash equivalents on its balance sheet. Interest expense for the quarter was $57 million compared to $64 million in last year's third quarter.
Outlook
Management's guidance for the fourth quarter is as follows:
• Comparable store sales: expected to increase 3 to 4 percent. • Total sales: due to the impact from the Company's discontinuation of its Big Book catalogs, total sales are expected to increase approximately 150 basis points less than comparable store sales. • Gross margin rate: expected to be modestly lower than last year's historic peak margins in the fourth quarter. • SG&A expenses: SG&A dollars are expected to increase approximately 1 to 2 percent. • Depreciation and amortization: approximately $141 million. • Interest expense: approximately $58 million. • Income tax rate: approximately 37 percent. • EPS: expected to be in the range of $0.90 to $1.00 per share. • Average shares for EPS calculation: approximately 238 million common shares.
For the full year, the company continues to expect comparable store sales to increase low single digits and earnings to be in the range of $1.40 to $1.50 per share.
marketing@alchempro.com
