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Delia’s Shares Surge on Reduced Loss

Strong back-to-school results lift revenues.

Shares of Delia’s shot up nearly 35 percent Friday after strong back-to-school results allowed the multichannel retailer to narrow its second-quarter loss and beat analysts’ expectations.

For the three months ended Aug. 2, the New York-based company posted a net loss of just under $5 million, or 16 cents a share, compared with a net loss of $5.1 million, or 16 cents a share, during the year-ago period. Net sales grew 10.8 percent to $58.1 million from $52.4 million last year. Retail sales rose 22 percent to 23.6 percent, including a same-store sales increase of 5.2 percent, and direct channel sales grew 4.3 percent to $34.5 million.

Internet sales accounted for 82 percent of the direct channel total, up from 76 percent a year ago.

Analysts expected a loss of 17 cents a share on revenues of $58 million.

The stock closed Friday’s Nasdaq session at $2.49, up 64 cents, or 34.6 percent.

Quarterly gross margin increased to 35.3 percent of sales versus 34.6 percent in the 2007 quarter, driven primarily by higher merchandise margins derived from improvements in initial markups and full-price selling.

“We are pleased with our important back-to-school selling period so far, with high-single-digit comps in July and continued strength thus far in August,” said chief executive officer Robert Bernard. “Early indications are that we are seeing a payback for the investments we made earlier in the year in merchandising, store operations and inventory planning and allocation.”

Based on the better-than-expected results, C.L. King & Associates retail analyst Mark Montagna upgraded his rating of the stock to “strong buy” from “neutral” despite the company’s “checkered past.”

“Considering the depths Delia’s share price has sunk to versus its store growth opportunity and margin potential, the stock could ultimately trade at a substantial premium to the group and surpass our target price,” he said. C.L. King’s target price is $4.

Net loss for the first half was $8.9 million, or 29 cents a share, compared with a net loss of $8.4 million, or 27 cents a share. Revenues rose 10.4 percent to $121.7 million, from $110.2 million.