NEW YORK — Two youth-oriented contemporary retailers based in California — Charlotte Russe Holdings and Bebe Stores — kicked off the fourth-quarter earnings season for specialty stores Thursday with unimpressive results but encouraging prospects for improving sales, boosted by more fashion.
While San Diego-based CR — parent of Charlotte Russe stores and Rampage — marked the start of fiscal 2003 without a significant fashion trend to drive business, its management was optimistic about the future, noting it is on track to open new stores this year and next, and detailing plans to offer an array of fashion styles for the spring.
Also, Bebe said it is seeing early signs of improvements as December’s sale came in better than expected, suggesting its core customers are coming back and responding positively to its revamped merchandising strategy.
For the first quarter ended Dec. 28, CR said profits inched up 0.9 percent to $7.45 million, or 32 cents a diluted share, compared with reported income of $7.38 million, or 31 cents, during the same period last year. New stores helped net sales bounce up 19.1 percent to $133.3 million over sales of $111.9 million, as comparable-store sales slumped 3.6 percent in the quarter.
CR chairman and chief executive Bernard Zeichner said on a conference call that comp inventory at the quarter’s end was up 28 percent, while comp sales rose 20 percent the week after Christmas, a week that is counted as part of CR’s second quarter. He noted that if it were included in December, comps would have been slightly positive, a decent performance “when compared within the fashion specialty store sector.”
U.S. Bancorp Piper Jaffray specialty retail analyst Jeffrey Klinefelter, who has been more upbeat about the specialty sector than many of his peers over the past year, said he is anticipating “the tide to at least stabilize, if not rise, after dropping over the past two years” due to the more rationalized inventory and pricing levels, as well as better fashion.
“I think we hit the bottom this quarter and we are going to start to see gradual improvement going forward,” he said. “I am more encouraged the backdrop has improved so much we can see not a home run, but a modest improvement in the environment for this group.”
Harriet?Bailiss-Sustarsic, president and chief merchandising officer of CR, said on the call that she anticipated this year will bring “multi-fashion trends” as “enough exciting trends are coming off the runway to stimulate our girls’ fashion sensibility and lifestyle needs.” Last spring, CR benefited when fashion was more one-dimensional, focused on prairie tops and denim bottoms.
For CR, Sustarsic said the group is returning to an updated wear-to-work approach based on the successful performance of men’s wear looks — including structured woven shirts, men’s vests and jackets and a broad assortment of woven pants — it’s experienced over the past six months. At Rampage, she said the looks will include an active feel juxtaposed with bright colors, lady-like styles encompassing the Forties, rock-inspired clothing from the Eighties and vintage tropics.
Impressed with its scope of fashion, Klinefelter said, “The move back to a more diverse, broad application of fashion should help. CR has done better when they are not as narrow since they need more things to work to make their larger stores more productive.”
Because a later Easter will move some sales previously registered in the second quarter into the third, CR gave guidance for both. For the second quarter, earnings are expected to range between 13 to 15 cents a share, versus 15 cents last year, and for the third, to range from 28 to 30 cents, compared with 24 cents last year, based on low-single-digit comp increases in each quarter.
Brisbane, Calif.-based Bebe, which offers a more sophisticated, higher-end product, said that for its second quarter ended Dec. 31, profits sank 12 percent to $10.8 million, or 42 cents a diluted share, when compared with year-ago earnings of $12.3 million, or 47 cents.
John Kyees, chief financial officer, said in a statement that earnings for the quarter were negatively impacted by higher professional fees related to the defense of its trademark and the restructuring of the corporate legal entities. As reported, Bebe successfully sought to bar May Department Stores Co. from using the label “Be” in its private label program.
Sales rang in 2.1 percent higher at $100.8 million from $98.7 million, and like CR, were driven by new stores. Comps decreased 8.1 percent.
Earnings results were still better than expected due to a 40 basis point improvement in gross margins, attributable to reduced lower markdown levels.
Kyees said on the call he is forecasting comps to continue to fall, in the high-single digits and mid-single digits in the third and fourth quarters, respectively.
Lauren Cooks Levitan, an analyst with SG Cowen, wrote in research notes: “With a strong brand and increasing evidence of improving business trends, we believe downside risk is limited and view potential earnings outperformance relative to conservative guidance as possible near-term catalysts.”