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Investors Not Charmed by Warning

NEW YORK — Shares of Charming Shoppes Inc. hit a new 52-week low before rallying Tuesday afternoon as the plus-sized specialty retailer warned its 2004 earnings would fall well short of Wall Street’s initial expectations. <br><br>The...

NEW YORK — Shares of Charming Shoppes Inc. hit a new 52-week low before rallying Tuesday afternoon as the plus-sized specialty retailer warned its 2004 earnings would fall well short of Wall Street’s initial expectations.

The Bensalem, Pa.-based operator of 2,248 stores cited the continuing soft performance of Lane Bryant as it forecast net income for the new fiscal year ending Jan. 31, 2004, of $39 million to $42 million, or 33 to 35 cents a share, below consenses estimates of 42 cents, according to First Call. For the first half, which is historically stronger, earnings are expected to tally 28 cents compared with 33 cents last year. For the second half, earnings are expected to be 5 cents, better than the 2 cent losses projected by analysts on average.

The company expects sales of $2.38 billion in the new year as comparable-store sales finish up in the low-single digits. Comps are expected to be flat to down in the low-single digits in the first half, improving to an increase in the low-single digits in the back half. By chain, CS expects comps to be flat at Lane Bryant and up in the low-single digits at Fashion Bug and Catherines Plus Sizes.

Although shares hit a new 52-week low of $3.26 in intraday trading on the Nasdaq, they rebounded in the afternoon and closed at $3.30, up 2 cents, or 0.6 percent, as the major indices all sustained declines of more than 1 percent. CS’s 52-week high of $9.14 was reached on April 11.

In addition to the soft economy, CS noted sales will be slowed because it has begun fiscal 2004 with about 200 fewer stores, or 8 percent less square footage, than a year ago. The decrease is related to the closing of 130 Fashion Bug and 77 Added Dimensions stores in conjunction with a restructuring plan announced in January 2002.

Eric Specter, chief financial officer, outlined on a conference call a number of initiatives to improve results, including improved inventory management, stronger merchandise for fall at LB and the conversion of stores to better performing brands.

CS bought 650 units of the leading plus-size brand Lane Bryant from Limited Inc. in July 2001 for $335 million in cash and stock, positioning itself at the top of the plus-size specialty market. Recently, the LB division has proven to be CS’s weakest link, facing declining sales and traffic. LB’s December comps fell 13 percent, contributing to the firm’s 7 percent decline for the month. Fourth-quarter results are expected to be reported on March 5, when CS expects a loss of 1 to 3 cents a share. In the first nine months of last year, CS lost 1 cent a share while, excluding nonrecurring charges, it earned 34 cents. With the addition of LB, sales jumped 35 percent to $1.8 billion as comps dipped 1 percent.

On Jan. 9, CS announced Susan C. Connell was named general merchandise manager of the sportswear division at LB, and will report directly to Diane V. Missel, president of the division.

“Charming Shoppes has positioned itself to be a category killer for plus-size apparel, but with that, being the innovator for fashion and format is its risk,” Maribeth Holland, a retail analyst at Goldsmith & Smith, said. “They had a large acquisition in Lane Bryant and that has to be digested with a new demographic and a lot to work through, but it looks like 2004 is to be the execution year.”

CS expects first-quarter earnings of $14.2 million, or 12 cents a share, in line with the First Call consensus, on sales of about $595.7 million. In the second quarter ending Aug. 2, the company expects earnings of $19.3 million, or 16 cents a share, compared with First Call’s projection of 20 cents a share, on sales of $619.3 million. For the third quarter, it expects to report a loss of $1.5 million, or 1 cent a share, on sales of $550 million. First Call is looking for earnings of 4 cents a share. In the fourth quarter, the company expects earnings of $6.8 million, or 6 cents a share, which is in line with a First Call consensus estimate, on sales of $611 million.