NEW YORK — Profits inched upward and sales retreated as a lack of fashion newness bore the brunt of a disappointing fourth quarter for tween wardrober Too Inc.
Separately on Wednesday, Reebok International signed a one-year partnership with Too to sell its athletic footwear at the chain’s stores, on its Web site and through its "catazine" — a product and promotions guide mailed to more than 4 million girls several times a year. Next month, 12 styles of Reebok footwear will be launched in 50 Too stores and will retail between $35 and $50. Sixty percent of those offerings will be exclusive to Too. Distribution will be expanded for the back-to-school season, said Paula Damaso, senior vice president of Too.
A Limited Brands spinoff previously known as Limited Too, Too, which sells apparel and accessories for girls and tweens, said Wednesday it was able to eke out a 1.2 percent profit increase to $25.1 million, or 72 cents a diluted share, for the three months ended Feb. 1, a penny shy of average Wall Street estimates. In the year-ago comparable period, the retailer reported profits of $24.8 million, or 77 cents. This year’s quarterly earnings per share reflect the impact of 2.4 million additional shares over last year as a result of the follow-on sale of common stock completed in May.
Total sales for the 510-unit chain decreased 4.6 percent to $183 million over sales of $191.8 million as comparable-store sales fell 12 percent and average store transactions fell by 13 percent. The company said that every category of hanging merchandise except casual shirts experienced a sales decrease, as did sleepwear, personal care and footwear. Accessories, lifestyle and innerwear categories enjoyed positive sales results.
"To term our fourth quarter a disappointment would be a gross understatement," Michael?Rayden, chairman, president and chief executive, said on a morning conference call. "Our Jan. 9 preannouncement on comps and earnings reflected a very difficult holiday sales period for Too Inc. and Limited Too and there was nothing in January’s business to suggest a reversal of that trend."
In addition to the fashion misstep, he said the difficult environments for mall traffic and pricing, as well as the West Coast’s dock lockout, contributed to the lackluster holiday quarter.While improved sourcing and lowered expenses and tax rate helped avert further deterioration, Rayden was forthright in admitting the specialty retailer suffered gravely from fashion issues.
"Not only did we lack freshness as we exited the back-to-school selling season, we lacked newness for holiday as well," Rayden said. "In hindsight, we stayed with the bohemian or peasant-inspired fashion look too long and zigged when we should have zagged."
For the spring, Rayden said the firm will be offering an improved mix of feminine, sporty and classic fashion "suiting every aspect of a tween girl’s life." However, he said results to date have been mixed due to the recent snow in the eastern half of the U.S. As a result, he said it is likely additional promotions will be needed to move spring goods.
Still, reminding investors that many of Too’s ills could be cured quickly, it may take six months to get the stores’ assortments right.
Rayden detailed several plans under way to help the retailer make gains against its two biggest challenges: price perceptions and increased competition from mass merchants. "We feel we lost ground in the non-frequent-buyer segment," he said, referring to less loyal Too shoppers. "This buyer is looking elsewhere to make apparel dollars stretch further and is not using Too’s various loyalty programs."
Rayden said Too will make a big push with its promotional and marketing strategies in the new year with activities, including a birthday mailer offering a 20 percent-off coupon good for 10 days in February, versus only four days last year; a 55 percent increase in catalog circulation and a 70 percent increase in direct marketing contacts.
Other initiatives include partnership and licensing opportunities to help drive traffic to the stores and provide substantial income.
Among these initiatives is the new alliance with Reebok, which hopes to increase its penetration of the tween market. While Damaso declined to comment on the projected volume of the Reebok affiliation, she told WWD, "We believe our girls wear athletic footwear on a daily basis. Athletic clothes are also a very important part of our business and make up one-third of our sales. Right now there isn’t a cool athletic footwear brand out there for our girls."At this point, there are no plans for Canton, Mass.-based Reebok to pitch in with Limited Too’s apparel design.
Too’s tween customer base and its mall-based distribution appealed to Reebok, said Jan Sharkansky, vice president and general manager of Reebok women’s. Given the brand awareness and fashion sense of today’s tweens, Reebok has taken design inspiration from its women’s activewear for its athletic footwear for tweens, she said.
She also noted how this slightly younger customer is as brand-conscious as the female teenager. "We’re not going to segment her out. In fact, we think she is on the leading edge," Sharkansky said.
Both companies said they would consider partnerships with other parties.Sharkansky said, "We will look at every opportunity if we think there is a fit."
Too now expects flat first-quarter earnings with comps expected to decline 6 to 10 percent.
For the year, income jumped 19.7 percent to $47.3 million, or $1.38, compared with earnings in 2001 of $39.6 million, or $1.23. Sales rose 7.4 percent to $647.5 million over sales of $602.7 million, but decreased 3 percent on a comp basis.
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