Mall-based women’s apparel retailer Charlotte Russe Holding Inc. said Wednesday that it is considering a sale of the company among other strategic alternatives to increase long-term growth and profitability. The firm reported a first-quarter loss on marginally higher sales.
Charlotte Russe said it has received interest from third parties but “no timetable has been set for completion of the review” and there is “no assurance that any transaction will result.” The San Diego-based junior retailer hired Cowen and Co. LLC for financial counsel and Covington & Burling LLP and Cooley Godward Kronish LLP for legal counsel.
“While we remain confident in our ability to successfully implement the plan and improve performance, the board is evaluating all alternatives to achieve maximum value for Charlotte Russe shareholders,” said chairman Jennifer Salopek.
The announcement came after shareholder B. Riley & Co. said last month that it would pursue hostile takeover measures should the company’s board not respond to letters demanding a reevaluation of a takeover bid by KarpReilly Capital Partners LP and H.I.G. Capital Partners LLC.
The bid, which the retailer rejected in November, valued the company between $9 and $9.50 a share, or $188 million to $199 million. This represented a 31 to 38 percent premium over its closing stock price the day before the offer.
B. Riley’s Dec. 23 letter came after a similar letter, sent on Dec. 15 from Maryland-based hedge fund Plainview Capital LLC, criticizing the company for rejecting the deal.
Before to the announcement that Charlotte Russe would explore a sale or other transaction, Bryant Riley, founder and chairman of B. Riley, told WWD, “We’ve gotten no response; you cannot blow off and ignore legitimate [buyout] offers at a premium….We’re not going to sit idly by and watch a disservice to shareholders.”
In the first quarter ended Dec. 27, Charlotte Russe reported a net loss of $2.9 million, or 14 cents a diluted share, versus net income of $14 million, or 56 cents a share, in the year-ago period. Net sales for the period rose 1 percent to $240.7 million from $238.2 million. Excluding pretax charges related to its recent management transition of $2.2 million, the loss in the most recent quarter was 7 cents a share.
Comparable-store sales for the quarter fell 9.1 percent. The company said it opened eight new stores during the period, and reported it had $55 million in cash and no long-term debt at the end of the quarter. The company also said it recorded charges of $2.2 million related to recent management transition.
“We’re operating conservatively in this uncertain environment by protecting our strong cash position, reducing inventory levels, carefully managing expenses and lowering capital expenditures,” said chief executive officer John Goodman.
Based on the earlier disclosure of the company’s strategic review, Charlotte Russe said during the earnings conference call that it has canceled its analysts and investors day next Wednesday in New York.
The company said it anticipated sales trends to remain “soft” during the second quarter, “reflecting the macro environment, the Easter shift and the seasonality of the company’s business model.” Comparable-store sales are expected drop in the mid- to high-single digits during the period while a net loss of 10 and 20 cents a diluted share, exclusive of transition costs, is forecast.
The retailer also said it has reduced its new store opening and capital expenditure plans to 20 locations and $30 million, respectively for the year.
Analysts expect a loss of 8 cents a share on sales of $188.6 million for the second quarter.
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