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Delia’s Sees Q4 Sales Slide, Loss Grow

The omnichannel teen retailer will offer stock and notes to raise $44.1 million.

Delia’s Inc.’s turnaround isn’t coming easily.
 
Shares of the omnichannel teen retailer fell more than 10 percent in morning trading today after the company reported a steep decline in fourth-quarter sales, projected a large loss for the period and disclosed plans for a private placement to raise $44.1 million.

This story first appeared in the February 19, 2014 issue of WWD.  Subscribe Today.

The New York-based firm said revenues for the 13 weeks ended this month were $35.4 million, 34.2 percent below the 14-week 2012 quarter, with retail revenues off 33 percent to $22 million and comparable-store sales down 26.9 percent. Direct segment sales fell 36 percent to $13.4 million. Gross margin is expected to land between 7 and 8 percent, down from 29.6 percent in the final quarter of 2012.

The loss from continuing operations, excluding possible impairment charges, is expected to be between $17 million and $18 million.

 

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Delia’s net loss for the first nine months of fiscal 2013 was $40.7 million, nearly half of it incurred in the third quarter.

The company is in the midst of a turnaround push under chief executive officer Tracy Gardner, who became ceo in June after joining Delia’s in May as chief creative officer. In disclosing the sales results, Gardner noted that inventories of “underperforming legacy merchandise” were cut — total inventories were down about 21 percent to $19.6 million — and that reaction to new spring merchandise was “highly encouraging.”

Gardner said, “We remain in the early stages of our turnaround and we believe the headwinds that continue to pressure the retail industry hampered our progress in the fourth quarter. That said, we continued to make progress in executing on key initiatives that we believe will drive improved performance in our business longer term.”

The company finished the fourth quarter with $3.2 million in cash and cash equivalents and $14.5 million in borrowings under its credit facility.

To bolster its financial position, it said it had entered into a preliminary agreement to raise $44.1 million through a private placement in which the company would sell nearly 200,000 shares of Series B convertible stock for about $20 million as well as $24.1 million of secured convertible notes bearing interest of 7.25 percent.

Each share of preferred stock would convert to 125 shares of common stock at a conversion price of 80 cents, boosting the shares outstanding by about 25 million. The notes would automatically convert into about 241,000 shares of Series B stock contingent upon shareholder approval, expected within 120 days of the closing of the placement.

Janney Montgomery Scott LLC is the sole placement agent for the transaction, which has yet to be registered.

Shares fell 8 cents, or 10.3 percent, to 67 cents Tuesday morning. On Jan. 31, Nasdaq informed the company that, as its shares had closed below $1 for 30 consecutive business days, it no longer met the requirements for listing. The company has until July 30 to regain compliance or submit a plan for doing so.