ITEM 1. BUSINESS
History Duckwall-ALCO Stores, Inc., (the "Company" or "Registrant"), was founded as a general merchandising operation in 1901 in Abilene, Kansas by A. L. Duckwall. From its founding until 1968, the Company conducted its retail operations as small variety or "dime" stores. In 1968, the Company followed an emerging trend to discount retailing when it opened its first ALCO discount store. In 1991, the Company adopted its current business strategy that focuses on under-served markets that have no direct competition from another full-line discount retailer. This strategy includes opening either an ALCO discount store or a Duckwall variety store, depending upon the market size. As of April 26, 2002, the Company operates 262 retail stores located in the central United States, consisting of 174 ALCO retail discount stores and 88 Duckwall variety stores.
The Company was incorporated on July 2, 1915 under the laws of Kansas. The Company's executive offices are located at 401 Cottage Street, Abilene, Kansas 67410-2832, and its telephone number is (785)263-3350. General
The Company is a regional retailer operating 262 stores in 21 states in the central United States. The Company's strategy is to target smaller markets not served by other regional or national full-line retail discount chains and to provide the most convenient access to retail shopping within each market. The Company's ALCO discount stores offer a full line of merchandise consisting of approximately 35,000 items, including automotive, candy, crafts, domestics, electronics, fabrics, furniture, hardware, health and beauty aids, housewares, jewelry, ladies', men's and children's apparel and shoes, pre-recorded music and video, sporting goods, seasonal items, stationery and toys. The Company's smaller Duckwall variety stores offer a more limited selection of similar merchandise.
Of the Company's 174 ALCO discount stores, 137 stores are located in communities that do not have another full-line discounter. The Company intends to continue its strategy of opening ALCO stores in markets that do not have other full-line discount retailers and where the opening of an ALCO store is likely to be preemptive to the entry by other full-line discount competitors in the market. The ALCO discount stores account for 92% of the Company's net sales. While the current ALCO stores average 20,900 square feet of selling space, the Company's store expansion program is primarily directed toward stores with a design prototype of approximately 18,000 square feet of selling space ("Class 18 Stores"), which, based on the Company's experience, has been a design that maximizes return on investment for newly-constructed stores.
The Company's 88 Duckwall variety stores are primarily located in communities of less than 2,500 residents and are designed to act as the primary convenience retailer in these smaller communities. These stores, which account for the remaining 8% of the Company's net sales, average approximately 5,700 square feet of selling space and offer approximately 12,000 items. Operating Duckwall stores offer the Company the opportunity to serve the needs of a community that would not support a full-line retail discount store with a reduced investment per store.
All of the Company's discount and variety stores are serviced by the Company's 352,000 square foot distribution center in Abilene, Kansas.
Business Strategy
The Company's focus over the last two fiscal years has been to implement new merchandising and marketing initiatives in an effort to increase customer traffic and same-store sales. One of the initiatives was a remodel program. In Fiscal 2002, the Company remodeled 32 stores. These stores feature an improved merchandise mix, with greater emphasis on everyday low values that are highlighted through a new and more dominant sign program. On average, the remodeled stores have generated significant same-store sales increases, and the Company plans to continue its remodeling program next year. New store growth has been slowed during the last two fiscal years. As same store sales growth and corresponding improved operating performance continue, the Company intends to re-focus on executing a business strategy that includes the following key components:
Markets: The Company intends to open ALCO stores in towns with populations of typically less than 5,000 that are in trade areas with populations of less than 16,000 where: (1) there is no direct competition from national or
regional full-line discount retailers; (2) economic and demographic criteria indicate the market is able to commercially support a discount retailer; and (3) the opening of an ALCO store would significantly reduce the likelihood of the entry into such market by another full-line discount retailer. This key component of the Company's strategy has guided the Company in both its opening of new stores and in its closing of existing stores. Since 1991, the Company has opened 122 ALCO discount stores (with an approximate average size of 18,500 square feet of selling space) and 87 Duckwall variety stores. Except for eight stores, each of the new ALCO and Duckwall stores was opened in a primary market in which there was no direct competition from a national or regional full-line discount retailer.
Market Selection: The Company has a detailed process that it uses to analyze under-served markets which includes examining factors such as distance from competition, trade area, disposable income and retail sales levels. Markets that are determined to be sizable enough to support an ALCO or a Duckwall store, and that have no direct competition from another full-line discount retailer, are examined closely and eventually selected or passed over by the Company's experienced management team.
Store Expansion: The Company's expansion program is designed primarily around the prototype Class 18 Store. This prototype details for each new store plans for shelf space, merchandise presentation, store items to be offered, parking, storage, as well as other store design considerations. The 18,000 square feet of selling space is large enough to permit a full line of the Company's merchandise, while minimizing capital expenditures, required labor costs and general overhead costs. The Company will also consider opportunities in acceptable markets to open ALCO stores in available space in buildings already constructed. The Company's expansion strategy for its Duckwall variety stores is based on opportunities presented to the Company in smaller communities where there is a need and where existing premises are available for lease with a relatively low cost and which provide the Company with limited downside exposure.
Technology: The Company is continually improving its management information technologies to support the operation of the Company. In fiscal 1999, the Company implemented a new system for merchandise administration and distribution. In fiscal 2000, the Company completed the roll-out of new point-of-sale ("POS") store software that has extended the life and capabilities of its POS hardware. In conjunction with this roll-out of POS software, the stores received radio frequency hand held devices to allow for additional operating efficiencies. The Company also devoted resources to identify and fix or replace software and hardware that was not year 2000 compliant. In fiscal 2001 and fiscal 2002, the Company continued to devote resources to development of long-term projects that are expected to improve operational efficiencies and performance, including the selection of a warehouse management software package that is expected to go into production in fiscal 2003.
Advertising and Promotion: The Company utilizes full-color photography advertising circulars of 8 to 28 pages distributed by insertion into newspapers or by direct mail where newspaper service is inadequate. During fiscal 2002, these circulars were distributed 35 times in ALCO markets. In its Duckwall markets, the Company advertises approximately 13 times a year during seasonal promotions. The Company's marketing program is designed to create an awareness, on the part of its identified target customer base, of the Company's comprehensive selection of merchandise and its competitive pricing. During fiscal 1999, the Company began market research and planning for the initial roll-out in fiscal 2000, of its new pricing strategy "Down Home Savings". This strategy has benefited customers by offering sharper prices everyday on products that typically would have been subject to promotional pricing and markdowns. During fiscal 2003, the Company will distribute approximately 35 circulars in ALCO markets, and advertise approximately 13 times during seasonal promotions in the Duckwall stores.
Store Environment: The Company's stores are open, clean, bright and offer a pleasant atmosphere with disciplined product presentation, attractive displays and efficient check-out procedures. The Company endeavors to staff its stores with courteous, highly motivated, knowledgeable store associates in order to provide a convenient, friendly and enjoyable shopping experience.
Store Development
The Company expects to open approximately 3 to 5 ALCO stores during fiscal year 2003, and approximately 4 ALCO stores during each of the fiscal years 2004 and 2005.
The Company's strategy regarding store development is to increase sales and profitability at existing stores by continually refining the merchandising mix and improving operating efficiencies, and through new store openings
in the Company's targeted base of under-served markets in the central United States. Since fiscal 1995, the Company has opened a total of 90 ALCO stores with an average selling area of approximately 18,500 square feet, and 67 Duckwall stores. The following table summarizes the Company's growth during the past three fiscal years:
The Company intends to primarily utilize the
18,000 square foot store profile for new ALCO store openings. Currently, the Company owns 13 ALCO and 2
Duckwall locations, and leases 161 ALCO and 86 Duckwall store locations. The Company's present intention is to lease
all new Duckwall stores. The Company may
own some of the ALCO locations, but will generally try to lease these store
locations.
Before entering a new market with an ALCO or
Duckwall store, the Company analyzes and screens available competitive, market,
and demographic data to evaluate the suitability and attractiveness of the
potential market. The process involves
an objective review of selection criteria including, among other factors,
distance and drive time to discount retail competitors, demographics, retail
sales levels, existence and stability of major employers, location of county
government and distance from the Company's distribution
center. The screening process also
involves a visit by officers of the Company to more subjectively evaluate the
potential new site. There are currently
over 100 communities known by the Company to have met the Company's ALCO and Duckwall
initial market selection process. The
Company is in the site selection and/or procurement process in approximately 20
of those markets, each of which has been approved by the Company for a new
store location.
The estimated investment to open a new Class
18 Store is approximately $1.375 million for the land, building, equipment, and
inventory.
Store Environment and Merchandising
The Company manages its stores to
attractively and conveniently display a full line of merchandise within the
confines of the stores' available square footage. Corporate merchandising direction is provided
to each ALCO and Duckwall store to ensure a consistent company-wide store presentation. To facilitate long-term merchandising
planning, the Company divides its merchandise into three core categories driven
by the Company's customer profile:
primary, secondary, and convenience.
The primary core receives management's primary focus, with a wide
assortment of merchandise being placed in the most accessible locations within
the stores and receiving significant promotional consideration. The secondary core consists of categories of
merchandise for which the Company maintains a strong assortment that is easily
and readily identifiable by its customers.
The convenience core consists of categories of merchandise for which
ALCO will maintain convenient (but limited) assortments, focusing on key items
that are in keeping with customers' expectations for a discount store. Secondary and convenience cores include
merchandise that the Company feels is important to carry, as the target
customer expects to find them within a discount store and they ensure a high
level of customer traffic. The Company
continually evaluates and ranks all product lines, shifting product
classifications when necessary to reflect the changing demand for products.
Purchasing
Procurement and merchandising of products is
directed by the Company's Senior Vice President - Merchandise, who reports to
the Company's President. The Senior Vice
President - Merchandise is supported by a staff of three Vice President - Divisional
Merchandise Managers who are each responsible for specific product
categories. The Company employs 24
merchandise buyers and two assistant buyers who each report to a Vice President
- Divisional Merchandise Manager. Buyers
are assisted by a management information system that provides them with current
price and volume information by SKU, thus allowing them to react quickly with
buying and pricing adjustments dictated by customer buying patterns.
The Company purchases its merchandise from
approximately 2,200 suppliers. The
Company generally does not utilize long-term supply contracts. No single supplier accounted for more than 5%
of the Company's total purchases in fiscal 2002 and competing brand name and
private label products are available from other suppliers at competitive
prices. The Company believes that its
relationships with its suppliers are good and that the loss of any one or more
of its suppliers would not have a material adverse effect on the Company.
Pricing
Merchandise pricing is done at the corporate
level and is essentially the same for all of the ALCO stores, regardless of the
level of local competition. This pricing
strategy, with its promotional activities, is designed to bring consistent
value to the customer. In fiscal 2003,
promotions on various items will be offered approximately 34 times through
advertising circulars. Even though the
same general pricing and advertising activities are carried out for all ALCO
stores, the impact of such activities is significantly different depending upon
the level of competition in the market.
Distribution and Transportation
The Company operates a 352,000 square foot
distribution center in Abilene,
Kansas, from which it services each of the 174 ALCO
discount stores and 88 Duckwall variety stores.
This distribution center is responsible for distributing approximately
80% of the Company's merchandise, with the balance being delivered directly to
the Company's stores by its vendors.
This distribution center ships to each of the Company's stores once a
week, primarily through irregular route common carriers. The Company also utilizes its wholly owned
subsidiary, SPD Truck Line, Inc. (the
"Subsidiary") for
delivery to the stores. The distribution
center is fully integrated into the Company's management information system,
allowing the Company to utilize such cost cutting efficiencies as perpetual
inventories, safety programs, and employee productivity software.
The Subsidiary acts as a contract carrier for
the Company in transporting goods to and from its stores. The Subsidiary leases and uses five tractors
and 24 trailers for such deliveries.
Management Information Systems The Company has committed significant
resources to the purchase and application of available computer hardware and
software to its discount retailing operations with the intent to lower costs,
improve customer service and enhance general business planning.
In general, the Company's merchandising
systems are designed to integrate the key retailing functions of seasonal
merchandise planning, purchase order management, merchandise distribution,
sales information and inventory maintenance and replenishment. All of the Company's ALCO discount stores
have POS computer terminals that record certain sales data in a format that can
be transmitted nightly to the Company's data processing facility where it is
used to produce daily and weekly management reports. In fiscal 1999, the Company implemented a new
system for merchandise administration and distribution. In fiscal 2000, the Company completed the
roll-out of new POS store software that has extended the life and capabilities
of its POS hardware. In conjunction with
this roll-out of POS software, the stores received radio frequency hand held
devices to allow for additional operating efficiencies. In fiscal 2001 and fiscal 2002, the
Company continued to devote resources to development of long-term projects that
will improve operational efficiencies and performance, including the selection
of a warehouse management software package that is expected to go into
production in fiscal 2003.
Approximately 1,000 of the Company's
merchandise suppliers currently participate in the Company's electronic data
interchanges ("EDI") system, which makes it possible for the Company to place purchase
orders electronically. Many of these
suppliers are able to utilize additional EDI functions, including transmitting
invoices and advance shipment notices to the Company and receiving sales
history from the Company.
Store Locations As of
April 26, 2002, the Company
operated 174 ALCO stores in 21 states located in smaller communities in the
central
United States. Of the ALCO stores,
13 are owned by the Company and 161 are leased to the Company. The ALCO stores
average approximately 20,900 square feet of selling space, with an additional
5,000 square feet utilized for merchandise processing, temporary storage and
administration. The Company also operates 88 Duckwall stores in 11 states, two
of which are owned by the Company, and 86 of which are leased by the Company.
The geographic distribution of the Company's stores is as follows:
Competition
While the discount retail business in general is highly competitive, the Company's business strategy is to locate its ALCO discount stores in smaller markets where there is no direct competition with larger national or regional full-line discount chains, and where it is believed no such competition is likely to develop. Accordingly, the Company's primary method of competing is to offer its customers a conveniently located store with a wide range of merchandise at discount prices in a primary trade area population under 16,000 that does not have a large national or regional full-line discount store. The Company believes that trade area size is a significant deterrent to larger national and regional full-line discount chains. Duckwall variety stores are located in very small markets, and like the ALCO stores, emphasize the convenience of location to the primary customer base.
In the discount retail business in general, price, merchandise selection, merchandise quality, advertising and customer service are all important aspects of competing. The Company encounters direct competition with national full-line discount stores in 26 of its ALCO markets, and another 11 ALCO stores are in direct competition with regional full-line discount stores. The competing regional and national full-line discount retailers are generally larger than the Company and the stores of such competitors in the Company's markets are substantially larger, have a somewhat wider selection of merchandise and are very price competitive in some lines of merchandise. Where there are no national or regional full-line discount retail stores directly competing with the Company's ALCO stores, the Company's customers nevertheless shop at retail discount stores and other retailers located in regional trade centers, and to that extent the Company competes with such discount stores and retailers. The Company also competes for retail sales with mail order companies, specialty retailers, mass merchandisers, dollar stores, manufacturers outlets, and the internet. In the 124 markets in which the Company operates a Class 18 Store, there is no direct competition from a national or regional full-line discount retailer. The Company competes with dollar stores in approximately two-thirds of its ALCO stores and approximately forty percent of its Duckwall stores.
Executive Officers of the Company
The following table sets forth the names, ages, positions and certain other information regarding the executive officers of the Company as of April 26, 2002.
Name Age
Position
Glen L. Shank				
Chairman of the Board and President
James E. Schoenbeck
Senior Vice President - Operations and Advertising
James R. Fennema
Senior Vice President - Merchandise
Richard A. Mansfield
Vice President - Finance and Treasurer
________ Tom L. Canfield, Jr. Vice President - Distribution and Administration
Except as set forth below, all of the executive officers have been associated with the Company in their present position or other capacity for more than the past five years. There are no family relationships among the executive officers of the Company.
Glen L. Shank has served as President of the Company since
June 1988 and as Chairman of the Board since May 1991. Between 1982 and 1988, Mr. Shank served as
Vice President of Merchandising of the Company.
Prior to 1982, Mr. Shank served as a Buyer and as a Merchandise Manager
for the Company. Mr. Shank has
approximately 35 years of experience in the retail industry.
James E. Schoenbeck has served as Vice President of Store
Operations and Advertising since 1988.
From 1979 to 1988, Mr. Schoenbeck served as the Vice President of
Administration. Mr. Schoenbeck has
approximately 28 years of experience in the retail industry.
James R. Fennema has served as Vice President - Merchandise
of the Company since March 1993. For the
four years prior to that he served as Vice President and a divisional
merchandise manager with Caldor, Inc., a chain of regional discount stores in New England" and the mid-Atlantic states of the . For
more than the four years prior to that he served as a divisional merchandise
manager of Fishers Big Wheel, a regional chain discount retailer. Mr. Fennema has approximately 29 years of
experience in the retail industry.Richard A. Mansfield has served as Vice President - Finance and
Treasurer of the Company since May 1997.
For the two years prior to that he served as Chief Financial Officer of Country General Stores, Inc., a regional chain of specialty farm and ranch
stores located in the Midwest". For
the three years prior to that he served as Chief Financial Officer of American
Laminates, Inc. and Relco, Inc. Mr. Mansfield has approximately 21 years of
experience in the retail industry.
Tom L.
Canfield, Jr. has served as
Vice President - Distribution and Administration since 1992. From 1973 to 1992, Mr. Canfield served in
various capacities with the Company. Mr.
Canfield has approximately 29 years of experience in the retail industry.
Employees
As of April 26, 2002, the Company employed approximately 5,200
people, of whom approximately 500 were employed in the general office and
distribution center in Abilene, 4,100 in the ALCO stores and 600 in the Duckwall stores. Approximately 3,000 additional employees are
hired on a seasonal basis, most of whom are sales personnel. There is no collective bargaining agent for
any of the Company's employees. The
Company considers its relations with its employees to be excellent.
ITEM 2.
ITEM 2.
PROPERTIES.
The Company owns facilities in Abilene, Kansas that consist of a general office (approximately 35,000 square feet),
the Distribution (approximately 352,000 square feet) and
additional warehouse space adjacent to the general office.
Thirteen of the ALCO stores and two of the
Duckwall stores operate in buildings owned by the Company. The remainder of the stores
operate in properties leased to the Company. Such ALCO leases expire as follows:
approximately 369,922 square feet (8.2%) expire between April
26, 2002 and February
2, 2003;
approximately 655,864 square feet (14.5%) expire between February
3, 2003 and February
1, 2004; and
approximately 499,849 square feet (11.1%) expire between February
2, 2004 and January 31, 2005. The remainder expire through 2021. All Duckwall store leases have terms
remaining of five years or less.
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS.
Neither the Company nor any of its
subsidiaries is involved in any material pending legal proceedings, other than
routine litigation incidental to their businesses.
ITEM 4.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the
stockholders of the Company during the fourth quarter of the fiscal year ended February
3, 2002.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company is quoted on
the NASDAQ National Market tier of The NASDAQ Stock Market under the symbol
"DUCK" The following table sets forth the range of high
and low bid information for the Company's Common Stock for each quarter of
fiscal 2002 and 2001.
As of April 5, 2002, there were approximately 1,302 holders of record of the Common Stock of the Company. The Company has not paid cash dividends on its Common Stock during the last five fiscal years. The terms of the Loan and Security Agreement, dated as of April 15, 2002, between the Company and Fleet Retail Finance Inc. allow for the payment of dividends unless certain loan covenants are triggered, which are not expected to occur during fiscal 2003.
ITEM 6.
ITEM 6.
SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share and store data)
The selected consolidated financial data
presented below for, and as of the end of, each of the last five fiscal years
under the captions Statements of Operations Data and Balance Sheet Data have
been derived from the audited consolidated financial statements of the Company. This data should be read in conjunction with
"Management's Discussion and Analysis of
Financial Condition and Results of Operations" (Item 7) and the consolidated financial statements, related notes, and
other financial information included herein.
(1) Effective October 30, 2000, the Company, in response to the Securities and Exchange Commission
Staff Accounting Bulletin No. 101 (SAB 101), changed its method of accounting
for layaway sales, retroactive to the beginning of the year. Previously, the Company recognized revenue on
the entire amount of layaway sales at the time merchandise was placed on
layaway. Under the new method, revenue
on layaway sales are recognized upon delivery of the
merchandise to the customer.
(2)
Effective November 1, 1998, the Company adopted AICPA Statement of
Position 98-5, Reporting on the Costs of Start up
Activities, retroactive to the beginning of the year. Under the new method, the Company expenses
store preopening costs as incurred rather than over
the initial 12-months of a store's operation.
(3) "Non-competitive" markets refer to those
markets where there is not a national or regional full-line discount store
located in the primary market served by the Company. The Company's stores in such non-competitive
markets nevertheless face competition from various sources. See Item 1 "Business-Competition".
(4) Percentages, as adjusted to a comparable 52 week year,
reflect the increase or decrease based upon a comparison of the applicable
fiscal year with the immediately preceding fiscal year for stores open during
the entirety of both years.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, THE STATEMENTS MADE IN THIS REPORT ON FORM 10-K
ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS, FINANCIAL
CONDITION OR BUSINESS COULD DIFFER MATERIALLY FROM ITS HISTORICAL RESULTS,
FINANCIAL CONDITION OR BUSINESS, OR THE RESULTS OF OPERATIONS, FINANCIAL
CONDITION OR BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW UNDER
THE CAPTION
"FACTORS THAT
MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR BUSINESS," AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THE COMPANY'S REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Reference is hereby made to the description of the Company's business appearing in Item 1.
The Company's fiscal year
ends on the Sunday closest to January 31.
Fiscal 2002 consisted of 53 weeks, and Fiscal 2001 and 2000 each
consisted of 52 weeks.
As used below, the term
"competitive market" refers to any market in
which there is one or more national or regional full-line discount stores
located in the primary market served by the Company. The term "non-competitive market" refers to any market in
which there is no national or regional full-line discount store located in the
primary market served by the Company.
Even in a non-competitive market, the Company faces competition from a variety
of sources. See Item 1 "Business-Competition".
Critical Accounting Policies
As discussed in Note 1 (d) to the Consolidated Financial
Statements, inventories are stated at the lower of cost or net realizable value
with cost determined using the last-in, first-out (LIFO) method. The retail inventory method ("RIM") used by
the Company is an averaging method that has been widely used in the retail
industry. This method calculates a cost
to retail ratio that is applied to the retail value of inventory to calculate
cost inventory and the resulting gross margin.
Use
of the RIM method does not eliminate the
use of management judgments and estimates, including markdowns and shrinkage,
which significantly impact the ending inventory valuation at cost and the
resulting gross margins. The Company
continually evaluates product categories to determine if markdown action is
appropriate, or if a markdown reserve should be established. The Company recognizes that the use of the
retail inventory method will result in valuing inventories at lower of cost or
market if markdowns are currently taken as a reduction of the retail value of
inventories. As of February 3, 2002, the Company had recorded
markdowns that had not been taken and which served to reduce inventories to
lower of cost or market by approximately $1,355,000.
Management believes that the Company's RIM provides an
inventory valuation which reasonably approximates cost and results in carrying
inventory at the lower of cost or market.
The Company considers determination of impairment
of long-lived assets as a critical accounting policy because determination as
to whether the long-lived assets of a store are impaired and, if impaired, the
fair value of such assets requires the use of judgment, particularly as it
relates to projecting whether the sum of expected undiscounted future cash
flows for the store over an extended period of time will equal or exceed the
carrying value of such assets.
Management uses the best information available to make the determination;
however, actual future cash flows for the store may vary significantly from the
cash flows projected in conjunction with the impairment assessment. The potential impact on the financial
statements of incorrect judgments regarding impairment of long-lived assets is
that a provision for impairment could be needlessly recorded if projected
future cash flows for a store are significantly under estimated or a provision
for impairment could be deferred until later determined necessary in
a future period if initial projected cash flows are over estimated. See Note 1 of Notes to Consolidated Financial
Statements for a description of the Company's accounting policy for impairment
of long-lived assets.
Results of Operations
The following table sets forth, for the fiscal years indicated, the components of the Company's consolidated statements of operations expressed as a percentage of net sales:
Fiscal 2002
Compared to Fiscal 2001
Net sales for fiscal 2002 increased
$21.3 million or 5.5% to $411.9 million compared to $390.6 million for fiscal
2001. During fiscal 2002, the Company
opened 4 ALCO stores, all of which were in new non-competitive markets. Two ALCO and five Duckwall stores were
closed, resulting in a year end total of 264 stores. The increase in net sales was due to new
stores opened over the last two fiscal years, a comparable store sales increase
of 3.0%, and $5.9
million in sales from the extra week in Fiscal 2002 compared to Fiscal
2001. Net sales for all stores open the
full year in both fiscal 2002 and 2001 (comparable stores), increased by $11.0
million or 2.9% in fiscal 2002 compared to fiscal 2001. Sales in the Class 18 Stores, the
main focus of the Company's
expansion efforts, increased $5.5 million, or 3.1%. Sales strengthened in the second
half of the year due to the success of the ongoing store remodeling program,
along with other merchandising and marketing initiatives designed to improve
sales.
Gross margin for fiscal 2002 increased
$6.1 million, or 4.7%, to $134.6 million compared to $128.5 million in fiscal
2001. As a percentage of net sales,
gross margin decreased to 32.7% in fiscal 2002 compared to 32.9% in fiscal
2001. The decline in the gross margin
percentage was attributable to higher transportation costs and shrinkage. Gross margin for the first two quarters of
the fiscal year declined from 33.4% in fiscal 2001 to 32.5% in fiscal 2002, due
to an unfavorable mix of sales, higher transportation costs and shrinkage. The results of the third and fourth quarters
were favorably impacted by a more favorable mix of sales, due in part to the
store remodel program and other merchandising and marketing initiatives. Gross margin for the third and fourth
quarters increased from 32.5% in fiscal 2001 to 32.9% in fiscal 2002.
Selling, general and administrative
expenses increased $7.1 million or 6.5% to $117.2 million in fiscal 2002
compared to $110.0 million in fiscal 2001, primarily due to higher insurance
and distribution center costs. As a
percentage of net sales, selling, general and administrative expenses were
28.4% in fiscal 2002 and 28.2% in fiscal 2001.
Selling, general and administrative expense was unfavorably impacted by
the sale-leaseback transaction for $2.1 million that was completed at the end
of fiscal year 2001. The sale-leaseback
impacts selling, general and administrative expense through higher store rent
expense, with a corresponding reduction in depreciation and interest expense.
The provision for asset impairment
and store closure decreased $901,000, or 60%, to $601,000 in fiscal 2002
compared to $1.5 million in fiscal 2001.
Those amounts comprise $498,000 for asset impairment and $103,000 for
store closing in fiscal 2002, and $1.2 million for asset impairment and
$320,000 for store closing in fiscal 2001.
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to estimated future net cash flows expected to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the
assets. For purposes of determining
impairment, assets are grouped at the store level. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. A provision for store closure expense is
recorded in the period the decision to close a store is made and a definitive
plan of closure for such store is put in place that will be completed in the
near term. Such store closure expenses
consist primarily of lease costs and property tax amounts that relate to the
period subsequent to the date of closure.
Store closure expense represents costs to close 2 ALCO and 2 Duckwall
stores in fiscal 2002, and 4 ALCO stores and 4 Duckwall stores in fiscal
2001. Included in store closure expense
are expenses accrued for stores expected to be closed as well as others closed
during the current year. Because there
is a smaller investment in fixtures and leasehold costs, the cost to close a
Duckwall store is smaller than the cost to close an ALCO store. During fiscal 2002 a provision for impairment had been recorded for two fuel centers for which
operations had not been closed nor had a decision been made to close. Depreciation expense that the Company will
not experience as a result of the assets impaired in fiscal 2002 will be
approximately $89,000 for fiscal 2003.Income from operations decreased
$321,000, or 3.0%, to $10.5 million in fiscal 2002 compared to $10.8 million in
fiscal 2001. Income from operations as a
percentage of net sales decreased to 2.5% in fiscal 2002 from 2.7% in fiscal
2001.
Interest expense decreased $476,000,
or 14.6%, in fiscal 2002 compared to fiscal 2001.
The reduction in interest expense is due
primarily to lower interest rates.
Income taxes were $2.9 million in
fiscal 2002 compared to $2.8 million in fiscal 2001. The Company's effective tax rate was 38.1% in
fiscal 2002 and 37.8% in fiscal 2001.
Earnings before the cumulative effect
of accounting change for fiscal 2002 increased by $75,000, or 1.6%, to $4.8
million compared to $4.7 million in fiscal 2001.
Fiscal 2001 Compared to
Fiscal 2000
Net sales for fiscal 2001 increased
$10.1 million or 2.7% to $390.6 million compared to $380.5 million for fiscal
2000. During fiscal 2001, the Company
opened 5 ALCO stores, all of which were in new non-competitive markets. Seven stores were closed, resulting in a year
end total of 267 stores. Substantially
all of the increase in net sales was due to new stores opened over the last two
fiscal years. Net sales for all stores
open the full year in both fiscal 2001 and 2000 (comparable stores), increased
by $1.5 million or .4% in fiscal 2001 compared to fiscal 2000. Sales in the Class 18 Stores, the
main focus of the Company's
expansion efforts, increased $2.4 million, or 1.5%. Sales softened in the second half
of the year as consumer spending in the Company's small markets was
impacted by higher interest rates, high transportation and home heating costs,
and a weak farm economy.
Gross margin for fiscal 2001 increased
$0.7 million, or 0.6%, to $128.5 million compared to $127.8 million in fiscal
2000. As a percentage of net sales,
gross margin decreased to 32.9% in fiscal 2001 compared to 33.6% in fiscal
2000. The decline in the gross margin
percentage was attributable to higher transportation costs, markdowns, and the
mix of sales.
Selling, general and administrative
expenses increased $3.3 million or 3.1% to $110.0 million in fiscal 2001
compared to $106.7 million in fiscal 2000, primarily due to higher advertising
and utilities costs. Also included are
expenses associated with the development and implementation of key initiatives
that are designed to improve sales and profits in fiscal 2002 and future
years. As a percentage of net sales,
selling, general and administrative expenses was 28.2% in fiscal 2001 and 28.1%
in fiscal 2000. Selling, general and
administrative expense was unfavorably impacted by the sale-leaseback
transaction for $6.1 million that was completed at the end of fiscal year
2000. The sale-leaseback impacts
selling, general and administrative expense through higher store rent expense,
with a corresponding reduction in depreciation and interest expense.
The provision for asset impairment
and store closure increased $1.0 million, or 224%, to $1.5 million in fiscal
2001 compared to $0.5 million in fiscal 2000.
Those amounts comprise $1.2 million for asset impairment and $320,000
for store closing in fiscal 2001, and $294,000 for asset impairment and
$169,000 for store closing in fiscal 2000.
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to estimated future net cash flows expected to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the
assets. For purposes of determining
impairment, assets are grouped at the store level. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. A provision for store closure expense is
recorded in the period the decision to close a store is made and a definitive
plan of closure for such store is put in place that will be completed in the
near term. Such store closure expenses
consist primarily of lease costs and property tax amounts that relate to the
period subsequent to the date of closure.
Store closure expense represents costs to close 4 ALCO stores and 4
Duckwall stores in fiscal 2001, and 3 ALCO and 5 Duckwall stores in fiscal
2000. Included in store closure expense
are expenses accrued for stores expected to be closed as well as others closed
during the current year. Because there
is a smaller investment in fixtures and leasehold costs, the cost to close a
Duckwall store is smaller than the cost to close an ALCO store. At the end of fiscal 2001 a provision for
impairment had been recorded for 6 ALCO and 5 Duckwall
stores for which stores had not been closed nor had a decision been made to
close such stores. Depreciation expense
that the Company will not experience as a result of these impairments will be
approximately $210,000 for fiscal 2002.
Income from operations decreased $3.5
million, or 24.4%, to $10.8 million in fiscal 2001 compared to $14.2 million in
fiscal 2000. Income from operations as a
percentage of net sales decreased to 2.7% in fiscal 2001 from 3.7% in fiscal 2000.
Interest expense decreased $418,000,
or 11.4%, in fiscal 2001 compared to fiscal 2000. The reduction in interest expense is due
primarily to the reduction in borrowing due to the sale-leaseback transactions
previously discussed.
Income taxes were $2.8 million in fiscal
2001 compared to $4.0 million in fiscal 2000.
The Company's effective tax rate was 37.8% in fiscal 2001 and 38.0% in
fiscal 2000.
Earnings before the cumulative effect
of accounting change for fiscal 2001 decreased by $1.9 million, or 28.7%, to
$4.7 million compared to $6.6 million in fiscal 2000.
Seasonality and Quarterly Results
The following table sets forth the Company's net sales, gross margin, income from operations, and net earnings during each quarter of fiscal 2000,
2001, and 2002.
The Company's
business is subject to seasonal fluctuations.
The Company's
highest sales levels occur in the fourth quarter of its fiscal year which
includes the Christmas holiday selling season.
The Company's results of operations in any one quarter are not necessarily
indicative of the results of operations that can be expected for any other
quarter or for the full fiscal year. The
Company's results of operations may also fluctuate from quarter to quarter as a
result of the amount and timing of sales contributed by new stores and the
integration of the new stores into the operations of the Company, as well as
other factors. The addition of a large
number of new stores can, therefore, significantly affect the quarterly results
of operations. Also, refer to Impact of
Change in Accounting Principle and Note 10 to the Consolidated Financial
Statements regarding the impact of the accounting change on quarterly results.
Inflation
Management does not believe that its merchandising operations have been
materially affected by inflation over the past few years. The Company will continue to monitor costs,
take advantage of vendor incentive programs, selectively buy from competitive
vendors and adjust merchandise prices based on market conditions. The
Company's operating expenses have been impacted by increases in general and
medical insurance, as well as competitive pressures in wages in selected
markets. See additional discussion of
wages in the "Government Regulation" section.
Liquidity
and Capital Resources
At the end of fiscal 2002, working
capital (defined as current assets less current liabilities) was $71.1 million
compared to $94.0 million at the end of fiscal 2001 and $95.9 million at the
end of fiscal 2000. The decrease in
working capital was due to the classification of the revolving loan as a
current liability as it became due on April 15,
2002. On April 15,
2002,
that revolving loan was replaced with a new revolving loan that matures in
April 2006.
The Company's primary sources of funds
are cash flow from operations, borrowings under its revolving loan credit
facility, vendor trade credit financing and lease financing. In fiscal years 2002, 2001 and 2000, the
Company completed a sale-leaseback of a number of its owned stores. The proceeds from these transactions amounted
to $0.6 million, $2.0 million and $6.1 million in fiscal years 2002, 2001 and
2000, respectively.
Cash provided by operating
activities aggregated $11.1 million, $7.3 million, and $10.5 million, in fiscal
2002, 2001 and 2000, respectively. The
increase in cash provided in fiscal 2002 relative to fiscal 2001 resulted
primarily from an increase in income taxes payable as well as a similar balance
in accounts payable at the end of each fiscal year. The decrease in cash provided in fiscal 2001
relative to fiscal 2000 resulted primarily from earnings as well as a decrease
in accounts payable.
The Company uses its
revolving loan credit facility and vendor trade credit financing to fund the
build up of inventories periodically during the year for its peak selling
seasons and to meet other short-term cash requirements. The revolving loan credit facility provides
up to $70 million of financing in the form of notes payable and letters of
credit. The loan agreement expires in April 2006. The Company had borrowings available at February 3, 2002 under the revolving loan credit facility amounting to
$49.2 million. Short-term trade credit
represents a significant source of financing for inventory to the Company. Trade credit arises from the willingness of
the Company's vendors to grant payment terms for inventory purchases.
In fiscal 2002, the Company made net cash
payments on its revolving credit facility of $7.5 million, made cash payments
of $1.2 million to reduce its long-term debt and capital lease obligations, and
repurchased $1.7 million of Company stock.
In fiscal 2001, the Company made net cash payments on its revolving
credit facility of $4.8 million, made cash payments of $1.8 million to reduce
its long-term debt and capital lease obligations, and repurchased $3.0 million
of Company stock. In fiscal 2000, the
Company made net cash payments on its revolving credit facility of $178,000,
made cash payments of $3.7 million to reduce its long-term debt and capital
lease obligations, and repurchased $2.8 million of Company stock. The Company executed operating leases for 36
additional stores during the three year period ending in fiscal 2002. The Company's long-range plan
assumes growth in the number of stores in smaller markets where there is less
competition, and, in accordance with this plan, 4 new stores were opened in
fiscal 2002 and 3 to 5 new stores are expected to be opened in fiscal
2003. The Company believes that with the
$70 million line of credit, sufficient capital is available to fund the Company's
planned expansion.
Cash used for acquisition of
property and equipment in fiscal 2002, 2001 and 2000 totaled $6.0 million, $5.9
million, and $6.4 million, respectively.
A sale-leaseback of store buildings was completed in the amount of $0.6
million, $2.0 million, and $6.1 million in fiscal 2002, 2001, and 2000,
respectively. This resulted in net cash
used for acquisition of property and equipment in fiscal 2002, 2001, and 2000
of $5.4 million, $3.9 million, and $0.3 million, respectively. Anticipated cash payments for acquisition of
property and equipment in fiscal 2003, principally for store buildings and
fixtures, are $7.5 million.
During fiscal 1999, the Company's
Board of Directors approved a plan to repurchase up to 411,000 shares of the Company's
Common Stock (the
"Stock Repurchase Program"). During fiscal 2000, the Company's Board of Directors
approved the repurchase of an additional 1,000,000 shares. Purchases pursuant to the Stock Repurchase
Program are to be made from time to time in the open market or directly from
stockholders at prevailing market prices.
The Stock Repurchase Program is anticipated to be funded with internally
generated cash and borrowing under the Company's credit facility. As of
February 3,
2002,
the Company had purchased and retired 1,010,300 shares of Common Stock for $8.1
million, which represents 20% of its outstanding shares.
The following table
summarizes the Company's significant contractual obligations payable as of February 3, 2002 (in thousands).
The long-term debt payments represent principle payments only. Amounts due under the Company's revolving
loan credit facility (principle balance of $18,137 as of February 3, 2002) are not included in this table. The revolving loan which the Company obtained
on April 15, 2002 is due in April 2006.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR BUSINESS
In order to take advantage of
the safe harbor provisions for forward-looking statements contained in Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, the Company is hereby identifying
important risks and uncertainties that could affect the Company's actual results of
operations, financial condition or business and could cause the Company's
actual results of operations, financial condition or business to differ
materially from its historical results of operations, financial condition or
business, or the results of operations, financial condition or business
contemplated by the forward-looking statements made herein or elsewhere orally
or in writing, by, or on behalf of, the Company. Factors that could cause or
contribute to such differences include, but are not limited to, those factors
described below.
Expansion Plans
The continued growth of the
Company is dependent, in large part, upon the Company's ability to open
and operate new stores on a timely and profitable basis. The Company plans to open approximately 4
ALCO stores in the current fiscal year and at least 4 ALCO stores in both
fiscal 2004 and 2005. While the Company
believes that adequate sites are currently available, the rate of new store
openings is subject to various contingencies, many of which are beyond the Company's
control. These contingencies include the
availability of acceptable communities for store locations, the Company's
ability to secure suitable store sites on a timely basis and on satisfactory
terms, the Company's
ability to hire, train and retain qualified personnel, the availability of adequate capital resources and the
successful integration of new stores into existing operations. There can be no assurance that the Company
will be able to continue to successfully identify and obtain new store sites or
that once obtained, the new stores will achieve satisfactory sales or profitability.
Competition
The Company's strategy is to
locate its ALCO stores in smaller retail markets where there is no competing
full-line discount retail store within the primary trade area and where the
Company believes the opening of a store would significantly reduce the
likelihood of such a competitor entering the market. No assurance can be given,
however, that competition will not emerge in such markets which, if developed,
could seriously reduce the prospect of a profitable store in such market. In those markets in which the Company has direct
competition, it often competes with national or regional full-line discount
stores which often have substantially greater financial and other resources
than the Company.
Government Regulation
The Company is subject to
numerous federal, state and local government laws and regulations, including
those relating to the development, construction and operation of the Company's
stores. The Company is also subject to
laws governing its relationship with employees, including minimum wage
requirements, laws and regulations relating to overtime, working and safety
conditions, and citizenship requirements.
Material increases in the cost of compliance with any applicable law or
regulation and similar matters could materially and adversely affect the
Company.
In 1996, Congress enacted The
Small Business Job Protection Act of 1996 (the
"Act"), raising the hourly minimum
wage from $4.75 to $5.15 effective as of September 1,
1997. The majority of the Company's store employees
were paid hourly wages below these increased minimum wage rates. As a result, the Act increased the Company's
payroll expense. Additional increases in
the minimum wage could have a material impact on the results of the Company's
operations if it is unable to pass those increased costs on to customers or if
sales are not increasing at a rate large enough to offset the impact.
Control by Significant Stockholder Kansas Public Employees
Retirement System (
"KPERS") and Jeffrey Macke are principal stockholders of the Company,
beneficially owning approximately 17% and 13%, respectively, of the outstanding
shares of Common Stock of the Company as of March 1, 2002.
Quarterly Fluctuations Quarterly results of
operations have historically fluctuated as a result of retail consumers
' purchasing patterns, with
the highest quarter in terms of sales and profitability being the fourth
quarter. Quarterly results of operations
will likely continue to fluctuate significantly as a result of such patterns
and may fluctuate due to the timing of new store openings.
Economic Conditions
Similar to other retail
businesses, the Company's
operations may be affected adversely by general economic conditions and events
which result in reduced consumer spending in the markets served by its
stores. Also, smaller communities where
the Company's
stores are located may be dependent upon a few large employers or may be
significantly affected by economic conditions in the industry upon which the
community relies for its economic viability, such as the agricultural
industry. This may make the Company's
stores more vulnerable to a downturn in a particular segment of the economy
than the Company's
competitors, which operate in markets which are larger metropolitan areas where
the local economy is more diverse.
Dependence on Officers
The development of the Company's
business has been largely dependent on the efforts of its current management
team headed by Glen L. Shank and sixteen other officers. The loss of the services of one or more of
these officers could have a material adverse effect on the Company.
No Recent Dividend Payments; Restrictions on Payment of Dividends
The Company has not paid a
cash dividend on the Common Stock for more than five years, and it has no plans
to commence paying cash dividends on the Common Stock. The Company's revolving loan
credit facility currently allows the payment of cash dividends unless certain
loan covenants are triggered.
Impact of Change in Accounting Principle Effective
October 30, 2000, the Company, in response to the Securities and
Exchange Commission Staff Accounting Bulletin No. 101 (SAB 101), changed its
method of accounting for layaway sales, retroactive to the beginning of that
year. Previously, the Company recognized
revenue on the entire amount of layaway sales at the time merchandise was
placed on layaway. Under the new method,
revenue on layaway sales are recognized upon delivery
of the merchandise to the customer. The
effect of adopting the accounting change on earnings before cumulative effect
of accounting change, net earnings, and net earnings per share for fiscal 2001
is to increase (decrease) such amounts by $(38,000), $(211,000), and $(.05),
respectively. The change is considered a
cumulative effect-type accounting change and, accordingly, the cumulative
effect as of January 31, 2000 has been reported in the
accompanying financial statements.
Financial statements for fiscal 2000 and prior periods have not been
restated. The Company believes the pro
forma effect on net earnings and earnings per share for
fiscal 2000 and 1999, as if the new accounting method had been applied
consistently during such periods, is not material.
New Accounting Standards
In August 2001, the FASB issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS No. 144). SFAS No. 144 addresses
significant issues relating to the implementation of SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," and develops a single accounting method under which long-lived
assets that are to be disposed of by sale are measured at the lower of book
value or fair value less cost to sell.
Additionally, SFAS No. 144 expands the scope of discontinued operations
to include all components of an entity with operations that (1) can be distinguished
from the rest of the entity and (2) will be eliminated from the ongoing
operations of the entity in a disposal transaction. SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001 and its provisions are to be
applied prospectively. Management
believes that the adoption of SFAS No. 144 will not have a significant impact
on the financial statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to
market risk from exposure to changes in interest rates based on its financing,
investing and cash management activities.
The Company maintains a secured line of credit at variable interest
rates to meet the short-term needs of its expansion program and seasonal
inventory increases. Under this loan agreement,
the Company converted $30,000,000 from the revolving rate loan to a 7.23% fixed
rate loan on
April 15, 1998. Borrowings by the Company subsequent to April 15, 2001 were obtained pursuant to the Revolving Rate Loan
(balance of $3,137,000 as of February 3, 2002) or LIBOR Rate loan (balance
of $15,000,000 as of February 3, 2002) provisions of the revolving
loan credit facility.The Company entered into an
interest rate swap in December 2000 with a notional principal amount of
$10,000,000 whereby the Company pays a fixed rate of interest and receives
interest based on LIBOR for the period
April 15,
to April 15, 2002 to mitigate its interest
rate risk under the LIBOR rate loan.On April 15, 2002
, the Company replaced the existing line of credit with
a new line of credit with Fleet Retail Finance Inc. that expires in April
2006. The credit line available is
$70,000,000, which carries a variable rate of interest.
ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Independent Auditors' Report
The Board of Directors and Stockholders
Duckwall-ALCO Stores, Inc.:
We have audited the accompanying
consolidated balance sheets of Duckwall-ALCO Stores, Inc. and subsidiaries as of
February 3, 2002 and January 28, 2001, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended February 3, 2002. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with
auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Duckwall-ALCO Stores, Inc. and subsidiaries as of
February 3, 2002, January 28, 2001, and January 30, 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended February 3, 2002, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in note 1 of notes to
consolidated financial statements, the Company changed its method of accounting
for layaway sales in the year ended January 28, 2001.
/s/ KPMG LLP
Wichita, Kansas
March 13, 2002
DUCKWALL-ALCO STORES, INC