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Specialty Results Mixed in Quarter

NEW YORK — Sales growth has decelerated for most specialty store chains since the second half of last year, but that didn’t stop most from logging profit increases in the first quarter.<P>Among seven midsize chains reporting earnings this...

NEW YORK — Sales growth has decelerated for most specialty store chains since the second half of last year, but that didn’t stop most from logging profit increases in the first quarter.

This story first appeared in the May 30, 2002 issue of WWD.  Subscribe Today.

Among seven midsize chains reporting earnings this month, three had bottom-line increases, three declines and one managed to move to black ink from red.

Additionally, with differences in growth rates, four chains — Hot Topic, Buckle, Gadzooks and Whitehall Jewellers — wound up with quarterly revenues between $74 million and $80 million.The chains, in descending order of volume for the quarter:

TOO INC. Too Inc. said a 14 percent increase in its store base, higher merchandise margins and lower distribution-related expenses led to a boost in first-quarter profits.The New Albany, Ohio-based specialty retailer for girls and young women said Monday that income grew 53.2 percent to $5.8 million, or 18 cents a diluted share, for the quarter ended May 4. That compares with $3.8 million, or 12 cents, reported in the comparable period last year.Sale of cut-and-sewn casual tops, denim and active bottoms and graphic T-shirts, as well as accessories and shoes, lifted sales 16.1 percent, to $158.6 million from $136.7 million. On a comparable-store basis, sales rose 4 percent, contrasting with a 2 percent decrease in comps last year.Michael?Rayden, chairman, chief executive and president, said on a conference call that the results reflect design and merchandising of popular fashion as well as increased marketing efforts.

Too, which operates 473 stores, opened 13 new doors during the quarter. It also operates nine Mishmash stores, which offer personal care products, sportswear, intimate apparel, shoes, accessories and lifestyle products for girls aged 14 to 19.

united retail groupHigher expenses took a bite out of United Retail Group’s bottom line despite an increase in comparable-store sales.The Rochelle Park, N.J.-based retailer, which owns the 557-unit large-size women’s apparel chain Avenue, reported an 8.2 percent drop in income to $2.9 million, or 21 cents a diluted share, for the three months ended May 4. This compares to income of $3.1 million, or 23 cents, during the same period a year ago. Total sales increased 6.2 percent to $115.6 million from $108.9 million and were up 3 percent on a comp basis.

While results were helped by improvements in its Shop@Home unit, George R. Remeta, vice chairman and chief administrative officer, said in a statement, “Net income was impacted by higher general, administrative and store operating expenses, including store payroll rate pressure, and interest expense.” He noted the call center and Shop@Home distribution facility will be taken in-house in August 2002, which should help to improve customer service immediately and to reduce operating costs substantially in fiscal 2003.

Looking ahead, Raphael Benaroya, chairman and chief executive, said, “Positive comparable-store sales and a merchandise margin very close to last year’s record level are strong indicators that the Avenue brand is gaining acceptance.” In addition, he said strong results from new stores, including three opened during the previous quarter, should have a positive impact on financial results.

HOT TOPICStronger-than-expected sales at new stores, its Torrid division and on the Internet led to a 10 percent increase in Hot Topic’s first-quarter income.

The City of Industry, Calif.-based specialty retailer said net income for the 13 weeks ended May 4 rose to $3.7 million, or 11 cents a diluted share, matching Wall Street’s average expectations. Last year, income was $3.3 million, or 10 cents. Sales for the quarter increased 27 percent to $79.9 million from year-ago sales of $62.9 million, but fell 0.5 percent on a comp basis.Looking ahead, Betsy McLaughlin, president and chief executive, said in a statement: “We continue to be optimistic about the second quarter. New Hot Topic stores continued to open with initial sales exceeding our internal plan.”

Analysts on average are expecting HT to record earnings per share of 15 cents in the current second quarter, better than the 13 cents it reported in the corresponding period last year.

HT, a specialty retailer of apparel and accessories for young adults, operates 388 stores, including seven Torrid stores.

THE BUCKLEThe Buckle Inc. reported first-quarter earnings and sales gains even as comparable-store sales declined.For the three months ended May 4, the Kearney, Neb.-based casual apparel retailer reported net income notched up 1.4 percent to $4.3 million, or 20 cents a diluted share. That compares with earnings of $4.2 million, also 20 cents, in last year’s first quarter.

Net sales rose 4.5 percent to $79.9 million from $76.4 million a year ago, while comp-store sales slipped 1.3 percent.

The company’s careful cost management aided the bottom line as selling, general and administrative expenses rose a modest 1.9 percent to $17.6 million from $17.2 million a year ago.

In the past fiscal year, Buckle opened 18 new stores and added another state to its territory, for a total of 298 units located in 37 states.

GADZOOKSThe competitive retail environment and disappointing sales at its newer stores led to a 25.7 percent plunge in Gadzooks Inc.’s first-quarter net income.

The Dallas-based specialty retailer of casual apparel and accessories for young men and women said earnings dropped to $1.8 million, or 19 cents a diluted share, for the three months ended May 4, but managed to beat Wall Street’s consensus estimates by 2 cents. In last year’s quarter, net income was $2.4 million, or 25 cents. Sales for the quarter increased 10.6 percent to $78.3 million from $70.8 million a year ago, while same-store sales chilled 2.2 percent. Gerald?Szczepanski, chairman and chief executive, said on a conference call: “Although we expect this year to be competitive, we have addressed the components we need to meet the demands of our changing industry.”

Looking ahead, Szczepanski said his goals this year are to work on margin and bottom-line improvement and terms the first-quarter margin result a “very positive step toward our objectives.” In addition, he said Gadzooks has a very light store opening schedule for 2002 and has begun a program to refurbish and refreshen its existing stores. He said he expects the updates to be completed by the back-to-school season.

James?Motley, chief financial officer, reaffirmed consensus earnings per share estimates of 8 cents for the current second quarter, noting however that estimates would not take into account the store renovations costing $325,000 and $150,000, or 2 cents and 1 cent a share, in the second and third quarters, respectively. Without the charge, he said the company was comfortable with EPS estimates of 10 cents. He also said he projects quarterly comps to be in the low-single-digit range with sales between $81 and $83 million, down from the 3 to 5 percent comp gain and sales of $83 to $85 million originally expected.

WHITEHALL JEWELLERSWhitehall Jewellers returned to profitability in its first quarter on higher sales and lower expenses.The Chicago-based specialty jewelry retailer posted income for the three months ended April 30 of $242,000, or 2 cents a diluted share, reversing a year-ago loss of $1.6 million, or 11 cents. Sales for the quarter increased 8.2 percent to $74.6 million from year-ago sales of $68.9 million and a better-than-expected 4.9 percent same-store sales increase.Looking ahead, Hugh M. Patinkin, chairman and chief executive, said in a statement: “We believe we will continue to benefit from our ability to control gross margin and operating expenses. We believe these steps, in combination with comp-store sales increases in the low-single-digit range will result in enhanced profitability.”He noted that he now expects second-quarter earnings per share to be in the range of 4 to 6 cents and full-year EPS between $1.13 and $1.17, compared with 69 cents reached in 2001.

SPORT CHALET Heavy markdowns were needed to overcome sluggish demand and unseasonably warm, dry winter weather in Southern California, dragging down Sport Chalet Inc.’s fourth-quarter profits to the break-even point.Net income for the three months ended March 31 was $2,500, or zero cents a share, compared with $1 million, or 15 cents, in the year-ago period. Sales expanded 2.3 percent to $57.3 million from $56 million in the 2001 quarter but declined 6 percent on a comparable-store basis. Excluding sales of winter-related merchandise, the Los Angeles-based sporting goods retailer calculated that sales would have risen 16.1 percent while comps would have logged a 6.2 percent increase.

“Although we are experiencing only slightly positive comparable-store sales so far this fiscal year, if economic conditions improve we will be ready for opportunistic growth,” said Craig Levra, chairman and chief executive, in a statement.

For the year, Sport Chalet saw earnings fall 34 percent to $4.8 million, or 69 cents a diluted share, from $7.3 million, or $1.07 a share. With the addition of four new stores in the past year, bringing its total to 26, sales rose 5.8 percent, to $227.3 million from $214.8 million, while comps suffered a 1.1 percent setback. The company said that, eliminating in both years results from winter merchandise and in-line scooters, which greatly elevated year-ago results, sales would have been up 12.3 percent, comps, 5.2 percent.

During the year, the firm opened its first out-of-state store, in Henderson, Nev., moved to a new 326,000-square-foot distribution center and made numerous investments in its computer systems and other elements of its infrastructure.

Additionally, two California-based off-price retailers of apparel posted results for the quarter this month, although their outcomes were dramatically different.”