By and  on February 26, 2009

Tween Brands Inc. and Zale Corp. disappointed Wall Street with substantial losses on Wednesday and outlined plans to reduce costs through job cuts and other means in light of continuing soft demand.

Touching off a wave of selling, Tween reported a loss of $13.9 million, or 56 cents a diluted share, during the fourth quarter ended Jan. 31 compared with earnings of $25 million, or $1 a share, in the year-ago period. Excluding a restructuring charge of 19 cents a share, the retailer had a net loss of $9.1 million, or 37 cents a share.

However, analysts on average expected a net profit of 44 cents a diluted share, and shares of the New Albany, Ohio-based specialty store group nose-dived, closing at $1.67, down $1.07 or 39.1 percent, and were as low as $1.40 during the trading day. After disclosure on Aug. 13 of the company’s plans to convert all stores under the Limited Too banner to its newer Justice nameplate, shares dropped 46.2 percent to $8.01 from $14.88.

With a 23 percent decline in same-store sales, revenues fell 15.9 percent to $265.9 million from $316.1 million.

Chairman and chief executive officer Michael Rayden said Tween, which cut 150 positions last year, would trim another 85 jobs, 36 of which were already vacant, to save about $7 million before taxes in 2009. Tween also amended its revolving credit facility, reducing it to a maximum of $50 million from $100 million, and cut capital expenditures for the new year to about $10 million from $63.8 million in 2008.

Tween’s earnings and stock performance notwithstanding, the rebranding may yet pay dividends, analysts said. “If Tween stayed with Limited Too, they would have continued to lose share,” said Susquehanna Financial Group retail analyst Thomas Filandro, who added that the company lost “substantial” market share in the fourth quarter to Wal-Mart Stores Inc.

“I sincerely believe that the [Tween] brand still has a clear meaning in the marketplace,” he said.

Rayden said the company became “highly promotional” as economic conditions worsened throughout the year, cutting into margins, but managed to reduce inventories 24.4 percent in 2008, to $88.5 million.

For the year, the retailer posted a net loss of $17.1 million, or 69 cents a diluted share, compared with earnings of $52.6 million, or $1.81 a share, a year earlier. Net sales slid 1.9 percent to $995.1 million from $1.01 billion.

At Dallas-based Zale, special charges and a double-digit sales decline were the major culprits in a larger-than-expected second-quarter loss.

Zale, which a year ago announced $175 million in inventory and cost reductions, said Wednesday that it identified another $140 million in cost cuts, including the closure of 115 underperforming stores as their leases mature and the elimination this month of 245 associate positions, 75 of which were unfilled. It is also seeking further inventory reductions and has trimmed its supplier count by two-thirds since the beginning of 2008.

The company operates more than 2,080 jewelry stores in the U.S., Canada and Puerto Rico.

For the three months ended Jan. 31, the loss was $23.6 million, or 74 cents a diluted share, versus net income of $60.8 million, or $1.34, in the year-ago quarter. Excluding a series of charges for store and goodwill impairments and other items in both periods, earnings fell to $5.1 million, or 16 cents a share, 32 cents below analysts’ estimates, from $52.7 million, or $1.16, in last year’s quarter. Revenues retreated 17.9 percent to $679.4 million from $827.8 million, and were down 18.1 percent on a same-store basis.

“The second quarter was the most difficult in memory due to the overall macroeconomic situation,” Neil Goldberg, chief executive officer, told Wall Street analysts on a conference call.

Some of the deterioration was the result of an “aggressive promotional stance” in which the retailer began emphasizing storewide discounts as the retail environment worsened, Goldberg said. After the holiday season, the chain returned to its original strategy that emphasized emotion-based purchases and item-specific promotions.

“The result has been more normalized 50 percent-plus margins, along with comparable-store sales improvement to trend,” Goldberg said. “These comp and margin improvements have held from January through the Valentine’s Day selling period.”

For the six months, the loss was $68.9 million, or $2.17 a diluted share, against income of $32.5 million, or 69 cents, in the year-ago period. Revenues dropped 13.4 percent to $1.04 billion from $1.21 billion.

Shares of the company fell 11 cents, or 7.5 percent, to close at $1.35 on Wednesday. Retail shares managed to hold on to most of Tuesday’s gains as the S&P Retail Index was down 1.93, or 0.8 percent, to 250.35. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all gave up 1.1 percent during trading on Wednesday.

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