If department stores are dead, Stage Stores (NASDAQ:STGS) must have missed that memo. While results at this operator of clothing stores in small and midsize communities won't be drawing in the hypergrowth crowd, management continues to deliver respectable performance.
For the second quarter, sales rose more than 10%, and same-store sales ticked up 7%. While the company didn't single out any areas of particular weakness, sales of women's special sizes, accessories, and misses sportswear were especially strong. Accessories seem particularly popular these days, whether you're Nordstrom (NYSE:JWN) or Dillard's (NYSE:DDS).
I would have liked to see a bit more improvement on the margin lines, but at least the company didn't get any worse. Gross margins ticked up a bit, and though operating costs increased, the company still improved its pre-tax and net income margins. As a result, net income rose more than 20% for the quarter.
Looking at the breakdown provided by management, Stage Stores seems to be doing best in its core markets. This is a clothing retailer focused mostly on smaller communities. In markets the company designates as "small" and "medium," same-store sales were up 7.8% and 6.8% respectively (versus 5.3% in "large" markets).
That's both a boon and a bane for this retailer. It's good news that few retailers are clamoring to open stores in towns with fewer than 50,000 people. When American Eagle (NASDAQ:AEOS) or The Limited (NYSE:LTD) want to open a new store, Jacksonville, N.C., and Arkansas City, Kan., are not going to be at the top of he list. But Wal-Mart (NYSE:WMT) does target that market, and there are only so many shoppers to go around.
Management is still working to improve this business. Not only is the company looking for progress with merchandising and inventory systems, but the company continues to work with higher-end suppliers to add new product lines (like a trial with EsteeLauder (NYSE:EL)) and make its merchandise more appealing. The company has also thrown its hat into the Winn-Dixie bankruptcy, hoping to secure at least a few former Winn-Dixie store sites at attractive prices.
Assuming that the company continues to make progress with its merchandising improvements and that the economy stays reasonably healthy in small-town America, Stage Stores should be fine. After all, it's not the size of the stage that matters, but the skill of the actors.
For more on retailing:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
