By  on July 22, 2005

NEW YORK — Charlotte Russe Holding Inc. reported a 38.9 percent drop in third-quarter earnings despite a 10.4 percent increase in total sales.

Even with positive trends emerging in its repositioned Rampage chain, the company issued a fourth-quarter earnings projection that could come in below consensus estimates.

In the three months ended June 25, the San Diego-based Charlotte Russe earned $3.3 million, or 14 cents a diluted share, missing Wall Street analysts’ consensus of 17 cents. The quarterly results included a charge of 1 cent a share for the tentative settlement of a labor-related lawsuit. By comparison, the company earned $5.4 million, or 23 cents, in the year-ago quarter. Prior-year results have been restated to reflect changes to the company’s lease accounting practices.

Third-quarter sales rose to $146.9 million from $133 million, but same-store sales fell 0.9 percent.

For the first nine months of fiscal 2005, Charlotte Russe earned $4.7 million, or 20 cents, a decrease of 60.7 percent compared with earnings of $12 million, or 50 cents, a year ago. Total sales in the nine months rose 5.7 percent to $423.8 million from $401.1 million, but same-store sales fell by 4.8 percent.

“While it is hard to see in the numbers just reported for the quarter, I believe much progress was made by the merchandising teams in both Charlotte Russe and Rampage during the quarter,” Mark Hoffman, chief executive officer of Charlotte Russe, said during a conference call with analysts. He noted that an earlier Easter shifted sales from the third quarter to the second, which affected the period’s results. He said sales picked up in June, a trend the company expects will continue.

Charlotte Russe has struggled with the repositioning of its Rampage stores, which began last August. Rampage now offers fashionable merchandise at price points below more aspirational brands, Hoffman said.

He expressed optimism that the concept is on the right track, noting that same-store sales for the chain were up in the double digits during both May and June.

“Rampage has turned,’’ Hoffman said. “It continues building customer recognition and it is just beginning to build its market share.

Nevertheless, Hoffman guided fourth-quarter earnings per share to 16 to 20 cents; analysts’ consensus is for 20 cents. The company earned 13 cents last year. He said the company needs to see a continuation of regular-priced selling from apparel.Same-store sales are expected to be up in the mid-single digits in the fourth quarter.

The company plans to open 50 new stores during fiscal 2005 and 35 new Charlotte Russe stores in fiscal 2006. Charlotte Russe operates 321 Charlotte Russe stores and 67 Rampage stores.

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