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Mixed Results in 3rd Quarter for Chapters
-- 2/21/00

Chapters Inc. reported that total revenues for the third quarter ended December 31, 1999, rose 11.4% to C$234.7 million, while net earnings fell to C$9.7 million from C$16.1 million. The profit decline reflects a 5.4% drop in retail earnings to C$15.8 million as well as a loss of C$8.5 million from Chapters Online and a C$3.4 million loss from Pegasus Wholesale that offset one-time gains of C$2.2 million from a 15% sale of Pegasus and a C$3.6 million gain from the sale of additional shares of Chapters Online.

During the quarter, sales from the company's retail operations rose 5.9% to C$222.5 million. The gain was led by 19.4% increase in superstore sales to C$125.3 million, with sales of traditional stores down 11.8% to C$83.8 million. Comparable store sales were down 5.2% in the quarter for superstores and off 4% for traditional stores. The company reported that the decline in same store sales was predicted and is forecast to continue for the next few quarters as the company opens new stores in markets that already have existing Chapters stores.

Chapters Inc. chairman Larry Stevenson said that the drop in comparable store sales was greater than anticipated in the third period because of out-of-stock positions caused by the change in distribution to Pegasus Wholesale. Stevenson added that the cannibalization of retail sales by the Internet "was faster than expected," but he noted that the Web sales were being picked up by Chapters Online, where sales rose to C$12.2 million from C$600,000. Revenues at Pegasus were C$45.5 million in the quarter, although Chapters Inc. d s not count those revenues in its final total because 100% of its sales were made to Chapters' retail and online operations.

For the nine-month period, total revenues rose 16.9% to C$505.2 million, although earnings from continuing operations dropped from C$23.5 million to a net loss of C$14.7 million; figures in fiscal 2000 exclude a C$41.3 million gain from the sale of stakes in Chapters Online and Pegasus.

In some Chapters personnel moves, the company has appointed Glenn Murphy president and

CEO of Chapters Retail, the store division of Chapters that includes 69 superstores and 243

Coles and SmithBooks outlets. Murphy, a 13-year veteran of Canadian supermarket giant Loblaw, will report to Larry Stevenson, who continues as CEO of Chapters Inc. and CEO and chairman of Chapters Online.Harry Yanowitz, former president and COO of Chapters Retail, has been appointed president of Chapters Inc. According to Stevenson, Yanowitz will coordinate the interactions of Chapters Inc.'s three main business units, while also working on new initiatives.
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