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Strong Earnings Lift Shares of Burlington, Others

Report of possible private equity interest in Chico’s elevates its stock.

Coming down the homestretch of an earnings season marked by disappointments and misses versus analysts’ expectations, three firms Tuesday reported better-than-expected results for the first quarter and saw their stock prices respond accordingly.

Burlington Stores Inc., Christopher & Banks Corp. and Cherokee Inc. each posted earnings that exceeded consensus views and accounted for three of the five largest gains recorded by fashion, retail and beauty equities tracked by WWD.

Cherokee shares led the pack, rising 12.1 percent to $15.55 and hitting a 52-week high of $16.91 in midday trading, followed by Christopher & Banks, shares of which rose 9.6 percent to $7.29. Burlington shares were up 5.3 percent to $29.67 for the fifth-best result of the day, trailing Chico’s FAS Inc., up 7.6 percent to $16.53, and Oxford Industries Inc., ahead 5.4 percent to $72.47 in advance of its after-hours filing of first-quarter results, which beat earnings estimates but included second-quarter guidance that lagged behind.

Chico’s shares jumped after the Financial Times reported it had held talks with private equity firms about a possible sale. Stifel Nicolaus analyst Richard Jaffe termed the report “credible” but reiterated his “hold” rating on the stock.

The broader market finished close to its starting point, with the S&P 500 Retailing Industry Group falling less than 0.1 percent to 893.68, the S&P 500 dropping the same percentage to 1,950.79 and the Dow Jones Industrial Average gaining less than 0.1 percent to 16,945.92.

Off-pricer Burlington reported profits of $11.8 million, or 16 cents a diluted share, against a net loss of $5.6 million, or 8 cents, a year ago. Adjusted earnings per share was 25 cents a diluted share, above the 22 cents expected, on average, by analysts.

Total revenue for the quarter rose 5.9 percent to $1.14 billion, just above estimates, from $1.07 billion and same-store sales rose 2.7 percent.

Burlington also said its gross margin in the quarter expanded by 80 basis points to 38.1 percent from 37.3 percent.

Tom Kingsbury, chairman, president and chief executive officer, said, “We remain focused on delivering great value, brands and fresh product to our customers every day as well as executing our growth initiatives to improve comparable-store sales, expand our retail store base and enhance our operating margins.”

For fiscal 2014, the company is forecasting adjusted EPS of between $1.25 and $1.35, and a sales gain of 5.8 to 6.8 percent. Comps guidance was a gain of between 2 and 3 percent. The company expects a second-quarter loss of 9 to 12 cents on an adjusted basis with sales up 5 to 6 percent and comps up 2 to 3 percent.

Wells Fargo Securities analyst Paul Lejuez has a valuation range of between $32 and $34 a share, and said that the company is demonstrating that it can “execute and drive top- and bottom-line results. We believe Burlington’s initiatives are beginning to drive better productivity, and the company has continued opportunity to improve both the top line and margin longer term.”

In the three months ended May 3, Christopher & Banks’ net income grew more than fourfold to $2.6 million, or 7 cents a diluted share, from $629,000, or 2 cents, in the year-ago period. Analysts had expected a repeat of the 2-cent profit. Sales slipped 4.8 percent to $103.4 million from $108.5 million but, with the average number of units in operation down 8.9 percent from a year ago, same-store sales declined 0.2 percent, and gross margin grew to 36.7 percent of sales from 34.2 percent.

“While our comparable-store sales were slightly below our expectations for the quarter, we saw business improve as the weather became more seasonal and we exceeded our gross margin expansion target with a refined merchandise offering and enhanced inventory strategies,” commented LuAnn Via, president and chief executive officer.

Investors also latched on to C&B’s projection for an increase in comps for the second quarter in the low- to midsingle-digit range.

At Cherokee, net income more than doubled to $3.6 million, or 43 cents a diluted share, versus analysts’ consensus estimates for EPS of 25 cents and a year-ago profit of $1.6 million, or 19 cents. Royalties, Cherokee’s sole source of revenue, were up 23.7 percent to $10 million from $8.1 million in the 2013 quarter.

The company, in the process of a re-branding move under which it will do business as Cherokee Global Brands, experienced a 9.9 percent increase in royalties from the Cherokee brand, to $7.9 million, and recorded $1.2 million in royalty revenue from its licensing arranging with Kohl’s Corp. for the Tony Hawk brand, which it acquired from Quiksilver in January.

Reporting after the close of the equity markets, Oxford’s net income grew 9.9 percent to $15 million, or 91 cents a diluted share, from $13.6 million, or 82 cents. Adjusted EPS of 94 cents exceeded analysts’ expectations by 7 cents.

Revenues rose 10 percent to $257.6 million from $234.2 million, with all four business units generating higher sales and Lilly Pulitzer the standout with a 27.7 percent revenue increase to $50.4 million. Operating income was down 7.1 percent at Tommy Bahama and up 34.1 percent at Lilly Pulitzer. At Ben Sherman, sales rose 23.3 percent to $15.1 million while the operating loss fell to $4.7 million.

Second-quarter guidance came in below Wall Street’s earlier view, with adjusted EPS of between 85 and 95 cents expected, versus the previous consensus estimate of $1.13. Shares backed off 1.3 percent, to $71.50, in the first 45 minutes of after-hours trading.