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Mothers Work Earnings Climb

Profits quadrupled in Q3, but fourth quarter loss expected.

Maternity apparel retailer Mothers Work Inc. reported Tuesday that it quadrupled its profits for the third quarter, but forecast a fourth-quarter loss aggravated by restructuring costs and a new $7 million stock repurchasing plan.

This story first appeared in the July 30, 2008 issue of WWD.  Subscribe Today.

Effective through July 2010, the repurchase program will give the company “excellent flexibility” at a time when it is also trying to reduce its debt, according to chief operating officer Edward M. Krell. In June, the company prepaid $8 million of its senior secured term loan, bringing to $13 million the amount prepaid since March.

For the three months ended July 29, the Philadelphia-based retailer posted net income of $4.1 million, or 68 cents a diluted share, versus year-ago profits of $1 million, or 17 cents. Sales declined 0.7 percent to $152.2 million from $153.2 million. After a 0.8 percent increase in June, same-store sales increased 2.4 percent. The company cited lower sales in Sears’ leased departments and the closure of underperforming stores as among the reasons for the decline in net sales.

Eliminating debt repurchase charges of 1 cent in the most recent quarter and 69 cents in the 2007 period, earnings per share declined to 69 cents from 90 cents. The company had projected EPS of between 66 and 70 cents for the most recent quarter.

“We are pleased with our strong sales performance for June and for the third quarter, despite the continued weak overall economic and retail environment, as we continue to anniversary weaker sales results from a year ago and define our merchandise assortments and our in-store merchandise presentation,” president and chief creative officer Rebecca Matthias said.

For the nine months, net income dropped 31.9 percent to $3.4 million, or 56 cents a diluted share, from $5 million, or 81 cents, in last year’s period. Excluding special charges for debt extinguishment, EPS dropped to 57 cents from $1.74. Sales dropped 2.6 percent to $434.1 million from $445.6 million. Same-store sales decreased 0.6 percent.

The company projected a net loss in the range of 30 to 46 cents a share for its fourth quarter, translating to a loss of 23 to 39 cents before debt repurchase and restructuring charges. The firm lost 92 cents a share in the fourth quarter of 2007. Net sales are expected to come in at between $130.5 million and $134.4 million.

Gross margin for fiscal 2008 is projected at approximately 50.3 percent of net sales, a decrease from the company’s 51.6 percent gross margin in fiscal 2007.

At the end of the quarter, the company operated 761 stores and 294 leased departments, down from 787 stores and 812 leased departments in the prior year. The company earlier this month decided to eliminate its Mimi Maternity store brand in favor of its Pea in the Pod and Destination Maternity nameplates.