Eddie Bauer Stocks Soar on Q2 Results

Pirkko Karhunen named senior vice president of design.

Eddie Bauer Holdings Inc. drastically reduced its second-quarter losses, nudged sales upward and was rewarded by investors who traded the firm’s stock up more than 25 percent Friday.

This story first appeared in the August 11, 2008 issue of WWD.  Subscribe Today.

The net loss for the quarter was $70,000, or breakeven on a per-share basis, compared with a year-ago deficit of $22.2 million, or 73 cents.

Sales for the three months ended June 28 inched up 2.7 percent to $233 million from $227 million. The slightly higher sales, along with lower costs and expenses, translated to the bottom-line advance and improvement in gross margin to 37.9 percent of sales from 35.4 percent in the year-ago quarter. Total inventories were down 18.3 percent versus a year ago.

“Overall, this was a good quarter for Eddie Bauer, particularly in light of the tough economic and retail climate,” Neil Fiske, president and chief executive officer, said on a conference call.

Investors drove up Eddie Bauer stock $1.31, or 25.2 percent, to $6.50 on Friday.

In addition to keeping costs and inventories down, the company is pushing a five-point turnaround plan focused on brand, merchandise, marketing, costs and capital and talent.

On that last count, Eddie Bauer named Pirkko Karhunen senior vice president of design last week.

Most recently, Karhunen helped Aéropostale develop a new product concept. She was senior vice president of design at Lilly Pulitzer as well as senior director of design for women’s and children’s at Lands’ End.

“This is a major step forward for Eddie Bauer,” said Fiske, adding that Karhunen “understands where we are going, appreciates our heritage and knows how to translate direction into winning products.”

Karhunen will receive 20,000 restricted stock units that become 100 percent vested after four years of service and will get options on another 30,000 shares of common stock that are vested over the four years.

During the current quarter, Eddie Bauer will pull back on both catalogue circulation and advertising in women’s magazines.

“We are cutting the number of catalogue pages circulated in the third quarter by approximately 24 percent,” Fiske said on the conference call. “This cutback will put top-line pressure on the direct business. However, we expect catalogue productivity and overall profitability will go up. Last year, we were simply circulating too many catalogues without focusing on profitable sales.”

First-half losses narrowed to $19.4 million, or 63 cents a share, from $67 million, or $2.20, a year earlier. Sales increased 1.2 percent to $446.3 million from $441 million.

Fiske was appointed president and ceo of Eddie Bauer, previously part of the bankrupt Spiegel Group, in June 2007. He succeeded Fabian Mansson, who left the company in February 2007 after shareholders rejected a $286 million buyout bid by affiliates of Sun Capital Partners and Golden Gate Capital.