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Charlotte Russe Net Falls 51%, Mark Hoffman Elevated to CEO

Charlotte Russe Holding promoted Mark Hoffman to ceo, after reporting profits were cut in half in the third quarter.

NEW YORK — Coming off a third quarter in which earnings were sliced in half and same-store sales dropped by one-sixth, Charlotte Russe Holding promoted Mark Hoffman to chief executive officer.

Hoffman, 54, succeeds Bernard Zeichner, 59, who will continue as chairman. Hoffman, who has been with the firm for two years, will be added to its board and relinquish his current post as chief operating officer. The firm doesn’t expect to fill that position.

CR, which operates 293 stores under the Charlotte Russe and Rampage nameplates, reported that profits during the 13 weeks ended June 28 fell 50.8 percent to $2.8 million, or 12 cents a diluted share, 5 cents more than the First Call consensus estimate. In last year’s quarter, CR had profits of $5.6 million, or 24 cents. Overall sales for the quarter notched up 5.1 percent to $107.2 million from $102 million, but sagged 16.1 percent on a comparable-store basis.

The decline in profits reflected the promotional retail environment, reduced mall traffic and the absence of a strong fashion trend, the company said.

On Thursday, as retail issues moved sharply lower and the Standard & Poor’s Retail Index declined 1.4 percent to 337.12, CR shares were off 5 cents, or 0.4 percent, to $12.80 in Nasdaq trading.

In reviewing the quarter on a morning conference call, Hoffman said the heavy clearance activity from companies with inventories similar to CR’s, the cool and rainy weather and a poorly performing Rampage contributed to the poor performance. However, the company said it managed to clear through much of its spring-summer merchandise, ending the quarter with inventory levels down 10 percent for both divisions, and 20 percent on a square-foot basis, allowing it to begin the current fourth quarter ready for the flow of fall goods.

“In this highly competitive young women’s fashion sector, I believe CR stands out with regard to disciplined inventory control, which is never more important than these days, and that together with our strong and stable product gross margins, we will grow our earnings per share,” Hoffman said in the conference call.

CR pointed to a slight improvement in sale trends, particularly in the sell-throughs of the new, regular-priced products, although comp trends remain negative.

“Our package of merchandise assortments at both concepts at value pricing and our interpretation of fashion trends will determine our success,” Hoffman said. “We are on course with the clarity of our assortment and their pricing, and the customer is going to vote on that.”

Although the company did not break out Rampage’s sales, Harriet Bailiss-Sustarsic, president and chief merchandising officer, said the division had the most disappointing performance during the past six months. Specifically, she said, “We lost sight of its core customer and lifestyle needs by chasing trends that spoke to a younger demographic, lower price points and a more casual attitude.” Rampage caters to 18- to 35-year-olds with the sweet spot being in the early-to-late 20s, compared with CR, which mostly attracts women in their late teen years.

To remedy the problem, Bailiss-Sustarsic has commenced a restructuring of the Rampage organization, noting the apparel head merchandising position is open and a search is in progress.

“The refocusing on the Rampage core customer combined with fashion trends for both chains that can speak to feminine attitudes and higher average retail should result in strong sales trends,” Bailiss-Sustarsic said.

For the nine months, CR reported profits of $5.3 million, or 23 cents, including a pretax $5.5 million charge for the closure of Charlotte’s Room stores, a 67.9 percent plunge from year-ago results of $16.5 million, or 70 cents. Excluding the charge, earnings were 37 cents. Overall sales increased 11.2 percent to $333.6 million from $300 million, but fell 10.3 percent on a comp basis.