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NEW YORK — Charming Shoppes announced Tuesday that restructuring in 2002 helped it post a fourth-quarter profit and that a new round of cost-cutting initiatives in 2003, including the elimination of about 285 jobs, should ultimately result in annualized savings of $45 million.
This story first appeared in the March 19, 2003 issue of WWD. Subscribe Today.
The Bensalem, Pa.-based plus-sized specialty retailer — which operates 2,248 stores under the Lane Bryant, Fashion Bug and Catherine’s Plus Sizes chains — also lowered its earnings forecast for the first quarter based on below-plan sales in February. It said it is now anticipating earnings per share to land between 8 and 10 cents, below earlier guidance of 11 to 12 cents, with comparable-store sales projected in the negative mid-single-digit range for the period.
To cut costs, LB will eliminate about 160 jobs at its corporate and divisional offices, about 14 percent of the workforce in those locales. In addition, it plans to consolidate the distribution operations of its LB and Catherine’s Plus Sizes businesses into a single facility in Maryland, resulting in about 50 job losses, and close its Hollywood, Fla.-based credit operation, eliminating 75 positions.
The upcoming reconfiguration of CS will include the closure of the nine Monsoon and Accessorize stores it has operated in the U.S. under a joint venture with Monsoon PLC of the U.K. since Oct. 2000.
CS said the plan should boost annual pretax earnings by about $45 million, with about $18 million in savings expected this fiscal year.
CS, which said in January it was expecting to report a fourth-quarter loss, instead reported a profit of $4 million, or 4 cents a diluted share, which includes a pretax restructuring credit of $3.5 million, for the three months ended Feb. 1. Excluding the restructuring credit, which was announced Jan. 28, 2002, net income was $1.9 million, or 2 cents. In the year-ago quarter, the retailer reported a loss of $27.8 million, or 25 cents, which included a $37.7 million pretax charge for the restructuring plan. The loss was $3.3 million, or 3 cents, without the charge.
Sales for the quarter decreased 7.1 percent to $601.2 million over $647.1 million. Comps for the company fell 5 percent in the quarter, led by the 12 percent comp decline at Lane Bryant, offsetting the 1 percent comp increase at FB and the flat comp at Catherine’s.
CS stock ended Tuesday at $3.17, up 7 cents, or 2.3 percent, in Nasdaq trading.
Lane Bryant, purchased from Limited Brands on Aug. 16, 2001, experienced weak response to its product offerings, resulting in a more aggressive promotional stature, the company said. Total sales at LB were $236 million versus the $254 million in incremental revenues in the prior year.
“That is a business we have been spending a lot of time on and effort to turn around and fix,” Dorrit J. Bern, chairwoman and chief executive, said on a morning conference call. “That said, I am pleased with the performance of the other two divisions. If you look at the blend of businesses when we started last year, I expected more from LB and less from Catherine’s and less from the Bug, but Fashion Bug had a great year and Catherine’s came back roaring.”
LB, however, was disappointing, “particularly in the second half.”
Eric?Specter, chief financial officer, told WWD: “It was a difficult holiday selling season. We had merchandise assortment issues in a number of key categories, including denim, sweaters and intimate apparel, and that led to significant price reductions.”
To help shore up the LB unit, CS appointed Carrie Klein as its new general merchandise manger for its intimate apparel division. She previously served as the divisional merchandise manager of intimate apparel and accessories at FB. In addition, the firm announced in January the appointment of Susan C. Connell as general merchandise manager of the sportswear division, reporting to Diane Missel, president of LB.
Bern said that, by the fall, LB customers will see a distinct move away from what she termed the “gimmicky” merchandise that occupied its selling space, and didn’t properly address its consumer niche: “I am confident by the third quarter, you are going to see a new direction. We are putting less of emphasis out there in the latest fashion, but more on function,” she said. “We want to be sure the young woman is fashion right, but with her figure type in mind and the requirements that brings.”
The company has completed last year’s restructuring plan, which called for the closure of its 77-door Added Dimensions-Answer chain, elimination of 130 underperforming FB stores and conversion of 44 of them into the LB concept. In addition, it reduced its long-term debt by roughly $56 million, while extending the majority of its debt maturities to 2012. It also repurchased over 12 million shares, and, as conditions allow, is prepared to proceed with additional repurchases, contingent on appropriate consent from lenders and Limited Brands.
Specter said: “The genesis of the cost-reduction plan is the fact we have now, over the past three years, grown from a $1 billion, single retail brand in Fashion Bug stores, to now a $2.4 billion, multidivisional retailer under the LB, Catherine’s and FB nameplates. We are now in the position to take advantage of streamlining processes and getting the synergies of running a larger corporation and consolidating a number of administrative, financial, human resources and information technology services.”
Dorothy Lakner, a retail analyst with CIBC World Markets, said that, while she applauds CS for its cost savings, the real issue at LB is getting the unit back on track through improved sales. Lakner said the denim business became too basic, while the intimate and sweater merchandise, which she said was too bulky and had fur collars, was fashion appropriate, but not for LB’s customers.
“They need to find a better balance between fashion and basics,” Lakner said.
For the full year, CS reported a loss of $2.8 million, or earnings of 1 cent a diluted share, including the cumulative effect of an accounting change and the restructuring credit of $4.8 million. Income before the accounting change was $46.3 million, or 39 cents a diluted share, including the pretax restructuring credit of $4.8 million. Income, excluding the credit and before the accounting change, was $43.4 million, or 37 cents. Last year, the company reported a loss of $4.4 million, or 4 cents a diluted share, including a $37.7 restructuring charge. Excluding the restructuring charge, income was 20.1 million, or 19 cents. Sales for 2002 increased 21 percent to $2.41 billion compared with sales of $1.99 billion in 2001, including sales from LB. Comps declined 2 percent for the year.
“These initiatives are designed to position the company for increased profitability,” a company official said. “While our strategic focus continues to be on increasing revenue and margins, particularly at our Lane Bryant brand, our immediate focus is to reduce our cost structure and leverage our size through efficiencies in operations.”