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Retailers Post Earnings Declines, Wider Losses

The third quarter was especially unkind to specialty stores.

The Talbots Inc.’s shares rose 25.5 percent on Tuesday, partly on word of new financing.

Retailers catering to Baby Boomer women couldn’t escape the crushing pressure of the economic downturn. Chico’s FAS Inc., The Talbots Inc. and Charming Shoppes Inc. all reported declines in third-quarter profitability.


Chico’s posted a large drop in profits, and Talbots and Charming Shoppes posted wider losses for the period. However, with Talbots reporting that it would convert $125 million in working capital lines of credit to committed facilities upon completion of due diligence, its shares soared 25.5 percent to $2.66.

Charming Shoppes’ shares picked up nearly as much, rising 21.7 percent to $1.46 on an upbeat fourth-quarter outlook and news that it would discontinue its Lane Bryant Woman catalogue and cut costs an additional $100 million to $125 million. Chico’s shares rose a more modest 2.1 percent to $2.40.

“For those selling to women over 40, it’s really been challenging for over a year now,” said Sterne, Agee & Leach retail analyst Margaret Whitfield. “The family budget is under a lot of strain and women are sacrificing.” They’re also not seeing much in the way of new, compelling merchandise, she said.

Chico’s still has a lot of bright, glitzy apparel that does not suit its target customer, Whitfield said, while White House|Black Market has been able to extend its customer base to women in their 30s. Company comparable-store sales dropped 13.4 percent — 17 percent at Chico’s, but 5 percent at White House.

For the quarter ended Nov. 1, Chico’s net income fell 91.5 percent to $2 million, or 1 cent a diluted share, from $23.6 million, or 13 cents a share. Net sales declined 5.2 percent to $394.2 million from $415.9 million. Analysts predicted a loss of 2 cents a share on sales of $390.9 million.

Inventory per square foot dropped 2 percent overall and 9 percent at the Chico’s division, and are slated to recede in the low-single digits and 9 to 10 percent at White House during the current quarter. “Given current business trends, this may lead to higher markdowns and lower gross margins, particularly for the Chico’s brand,” Whitfield said.

Talbots widened its net loss to $167.2 million, or $3.13 a diluted share, versus a loss of $9.4 million, or 18 cents a share, a year earlier. Excluding various charges related to the decision to sell J. Jill and its earlier closures of its Kids, Mens and U.K. businesses, the loss grew to $14.8 million, or 28 cents, from $893,000, or 2 cents. Stripping out other charges, the loss came to 21 cents a share, just below analysts’ consensus estimates of 22 cents. Quarterly sales fell 13.7 percent to $357.3 million from $414 million last year as comps slid 13.9 percent and inventory dropped 23 percent.

Retail analyst Jennifer Black of Jennifer Black & Associates said word of Talbots’ new financing should “quiet people” concerned about the retailer’s liquidity, while its new assortments should build confidence in its merchandising strength. “The changes they have made have resonated extremely well,” she said.

Talbots did not offer fourth-quarter or full-year guidance due to continued economic volatility. Analysts are looking for a loss of 22 cents a share on sales of $382.4 million for the fourth quarter, and a loss of 69 cents on revenues of $1.77 billion for the year.

Charming Shoppes’ quarterly loss grew to $93 million, or 81 cents a share, from $3.6 million, or 3 cents a share, in 2007. Losses from continuing operations, exclusive of special items, were $23.7 million, or 21 cents a diluted share. Quarterly comps fell 9 percent, while net sales dropped 7.8 percent to $553.1 million from $599.7 million.

The performance exceeded analysts’ expectations of a loss of 36 cents a share, exclusive of charges, on revenues of $536.8 million.

Improvements in October sales and margin performance allowed Charming Shoppes to beat its internal projections for the quarter, said chairman and interim chief executive officer Alan Rosskamm. It will continue to “liquidate inventory, reduce capital spending and realize cost savings,” he said, adding that the retailer ended the quarter with no borrowings under its revolving credit facility.

In addition to its cost cuts and the discontinuation of the Lane Bryant Woman catalogue, the company intends to close an additional 100 stores. It operates 2,344 units.

SPECIALTY JEWELERS

The challenge of selling jewelry to the masses in a weakening economy came into sharp focus Tuesday as both Signet Jewelers Ltd. and Zale Corp. reported sharp declines resulting in quarterly losses.

Signet, the Hamilton, Bermuda-based operator of Kay, Jared and other chains in the U.S. and U.K., posted a net loss of $15.1 million, or 18 cents a diluted share, versus net income of $2.5 million, or 3 cents, in the year-ago quarter. In the third quarter ended Nov. 1, sales fell 7.3 percent to $629.3 million from $678.7 million and were off 4.3 percent at constant exchange rates. Same-store sales were off 6.6 percent.

The company said capital expenditures for the year should fall to about $125 million from $140.4 million last year and, pending final determination, should be cut to about $65 million next year.

“We have a strong business that we continue to manage cautiously in the current, very difficult trading conditions,” said Terry Burman, ceo. “We are focused on maximizing gross margin dollars, managing costs and inventory tightly, as well as maintaining a strong balance sheet.”

In the most recent quarter, gross margin fell 10.5 percent to $174.8 million, or 27.8 percent of sales, from $195.2 million, or 28.8 percent.

Dallas-based Zale reported that its net loss in the first quarter expanded to $45.3 million, or $1.43 a diluted share, from $28.4 million, or 58 cents, in the year-ago period. Analysts on average had expected a significantly lower quarterly loss of 95 cents. Excluding discontinued operations, the year-ago loss was 54 cents. Sales backtracked 3.5 percent to $364.1 million from $377.3 million and fell 3.7 percent on a same-store basis.

Citing a “significant decline in sales” in October and November, the company withdrew earlier guidance.

“We have recently eliminated almost $15 million of additional capital expenditures from our fiscal 2009 plan, and we intend to find more avenues for reducing both capital and expenses in the coming year,” said ceo Neal Goldberg. “Our work to consolidate and speed up our supply chain should enable us to run with significantly lower inventory, driving greatly improved returns.”

He added that Zale’s “position as the value provider in the industry will serve us well in these economic conditions.”

However, the disappointing results and withdrawal of guidance drove investors from Zale’s stock, which finished the day down 40.9 percent to $5.38. Signet shares fell 6.4 percent to $8.49.

High-end jeweler Tiffany & Co. is scheduled to report its third-quarter results today.