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Persistent promotional pressures depressed Charming Shoppes Inc.’s first-quarter profits despite stabilizing sales trends.

In what is likely to be the final quarterly earnings report before its anticipated mid-June acquisition by Ascena Retail Group Inc., the Bensalem, Pa.-based operator of Lane Bryant plus-size stores generated net income of $17.8 million, or 15 cents a diluted share, 31.7 percent below the $26 million, or 22 cents, realized in the first quarter of 2011. Adjusting for nonrecurring items in the quarters for both years, EPS was 16 cents, 2 cents below the analyst consensus estimate of 18 cents, compared to 18 cents in the year-ago period.

Eliminating special items as well as interest, taxes, depreciation and amortization, adjusted EBITDA rose 3.1 percent to $42.6 million.

 

In the three months ended April 28, sales fell 4.6 percent to $481.3 million from $504.4 million a year ago. With 157 fewer stores in operation than in the 2011 period, comparable-store sales were flat, with comps up 1 percent at Lane Bryant, down 3 percent at Fashion Bug and up 5 percent at Catherines. Net sales fell 0.6 percent, to $261.1 million, at Lane Bryant and declined 15.3 percent, to $127 million, at Fashion Bug, and rose 0.1 percent, to $77.9 million at Catherines. Including an 18 percent increase in e-commerce, direct-to-consumer revenues rose 10.9 percent to $15.3 million. Gross margin dropped to 54.4 percent of sales from 56.6 percent a year ago.

“Although we generated healthy gross margins during the quarter, our gross margins continued to be impacted by increases in product costs compared to a year ago,” said Anthony Romano, president and chief executive officer. “We also executed deeper discounts to ensure seasonal unit sell-throughs as we experienced continuing challenging traffic trends.”

 

He noted, however, that conversion rates and average unit retails rose at all three of its brands. Additionally, he noted, the firm exercised rigorous expense management, allowing the combination of selling, general and administrative expenses and occupancy and buying expenses to drop 10.2 percent, to $219.1 million. Since the end of the 2011 fiscal year, Charming’s cash and cash equivalents have risen 27 percent, to $214.1 million, while inventories are 8.1 percent higher than three months earlier, at $278.1 million.

Romano pointed out that same-store inventories were 7 percent below year-ago levels on a dollar basis with units down 16 percent.

Ascena agreed on May 2 to acquire Charming Shoppes for $7.35 a share, or $890 million. Upon consummation of the merger on or about June 14, Ascena will add Charming’s more than 1,800 stores to its current 2,500-store portfolio, which includes the Dress Barn, Maurices and Justice nameplates.