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FRESNO, CA-Aperion Group of Dallas has initiated financial coverage of Gottschalks Inc., the 100-year-old department store chain that says it will resume store expansions in 2005.

The new coverage by Aperion follows a round of meetings with financial industry analysts in New York in September by Gottschalks, which has shown improved results after initiating a five-point plan last year to streamline its operations. The company now says it plans to open two stores each year “in growing markets where opportunities exist for distribution and marketing synergies with its current store base.”

Arguably the most ambitious opening will be a 100,000-sf “concept store” that the company is planning for mid-year 2005 in East Fresno. The “Gottschalks River Park lifestyle center store” will be designed and merchandised as a flagship location that will feature a different exterior design than existing stores as well as a focus on upscale brands in cosmetics, fragrances, accessories and shoes. Gottschalks, in its meetings with analysts, said it anticipated opening the new format stores in “non mall lifestyle shopping centers” and pointed out that its existing stores include 20 that are anchors in locations that are not malls. The chain says it also expects to introduce the new lifestyle center store format in other cities, including a smaller, 60,000-sf version for smaller markets. The company laid the groundwork for the expansion with last year’s five-point plan, which included selling its accounts receivable, reducing debt, closing seven under-performing stores, reducing general and administrative expenses and renovating existing stores.

Jim Famalette, president and CEO, says that in addition to the expansion of two stores per year through 2006 and the introduction of the new lifestyle center format, the company’s operating plan will focus on improving gross margin through increased inventory turn and growth in private label sales. Its target is for private label merchandise to reach 15% of total sales by 2006. Gottschalks also says it will expand its penetration into the youth and Hispanic markets.

The regional chain, which operates 63 department stores and 10 specialty apparel stores in six western states, reported last week that same store sales for October 2004 decreased 1.9% from October of the previous year and total sales for the month decreased 2.3% to $43.8 million from $44.9 million in October 2003. For the entire third quarter, however, same store sales increased 1.8% and total sales increased 1.4% to $147.9 million on a year-to-year basis.

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