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Dress Barn Eyes Expansion

Dress Barn opening in Canada, remodeling stores.

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Dress Barn Inc., after decades of quietly building a business with a price-conscious, conservative shopper, is raising its profile.

The Maurices and Justice chains, acquired in 2005 and 2009, respectively, are planning to expand to Canada next year. The Dress Barn division is remodeling stores, eyeing mall locations in a switch from its strip-center concentration, displaying younger fashion and planning e-commerce for fall. And, collectively, Dress Barn, Maurices and Justice, executives say, represent a triple play of value that will continue to capitalize on consumers’ trading-down mind-set and steal market share.

“Maybe people were used to shopping a department store or some fancy specialty store. Now they try us and say, ‘This is nice and it’s an attractive price,’ ” said David Jaffe, president and chief executive officer of the $2.5 billion Dress Barn Inc. “I use the Starbucks analogy. Two years ago, everybody had to have a Starbucks. Now, maybe they get their coffee from Dunkin’ Donuts, McDonald’s or the cafeteria.”

Today, DBI backed up its contention by elevating earnings estimates for its fiscal 2010 based on stronger-than-expected third-quarter sales results and higher gross margins.

Comparable-store sales rose 14 percent for the quarter ended April 24, while total sales increased 77 percent to $666 million compared to $375.7 million, largely due to the inclusion of Justice. For the nine months, comps rose 10 percent, and for the company’s fourth quarter, midsingle-digit comp gains are expected. In the third quarter by division, Dress Barn’s comp sales rose 9 percent; Maurices gained 8 percent, and Justice was up 23 percent.

Third-quarter earnings per share are estimated in the range of 58 cents to 60 cents, compared to 38 cents in the year-ago period. For the fiscal year ending July 31, 2010, DBI expects earnings to hit $1.80 to $1.85 a share compared to earlier guidance of $1.55 to $1.60 and last year’s $1.03.

Unlike much of the competition, DBI is no turnaround story. It’s had none of the convulsions seen in the past few years at Talbots, Ann Taylor, Abercrombie & Fitch, Chico’s, New York & Co., Gap and Old Navy, and there’s no debt on the books other than a $26.7 million mortgage for the Suffern, N.Y., headquarters and distribution center. Maurices was an all-cash acquisition and Justice, formerly Tween Brands, was a merger.

There’s room for expansion, with a few hundred openings envisioned long term, and, as an emerging retail conglomerate, significant cost savings are seen as well, by consolidating sourcing, real estate and other back-of-the-house functions. Dress Barn Inc. currently operates almost 2,500 stores, more than any other U.S. women’s specialty retailer except Gap Inc. In the company’s second quarter ended Jan. 23, net earnings on a generally accepted accounting principles basis increased to $21.7 million, compared to a loss of $1.8 million. Comparable store sales increased 10 percent. On a non-GAAP basis, net was $28.1 million.

So far, two dozen Dress Barn stores have been remodeled, and new stores will reflect the design. “They’re brighter, whiter, much more feminine. Our other stores have a very heavy, woody look,” Jaffe said.

The format features easy-to-read areas for casual sportswear and dresses in regular and special sizes, and different color stories, marked by focal walls and large photos. There’s more stylish hangers, shelves, four-ways and T-stands (rather than rounders), chandeliers in the fitting rooms and a few upholstered living-room chairs so husbands can sit as their wives shop. “This is more of a boutique feel. You don’t feel like you are in a low-end store,” said Jaffe, during a tour of the remodeled Dress Barn on 46th Street and Sixth Avenue in Manhattan. “It’s a strip center design, but it may work in malls, too. There are vacancies in the malls, and landlords are interested in people like us — good operators.” Three quarters of the Dress Barn stores are in strip centers, but with malls on the radar, the balance will shift.

Dress Barn’s fashion tends to be effusive in color and novelty prints. “We keep changing our color story so there is excitement on the floor compared to other more monochromatic chains,” Jaffe said. The Jones Studio label for suit separates, a Dress Barn exclusive made by Jones Apparel Group Inc., is the biggest growth category. Bestsellers are also sheath dresses, long-over-lean combinations like tunics over skinny jeans, and styles with embellishments such as metal treatments, studs, ruffled trims, or as Keith Fulsher, executive vice president and chief merchandise officer of the 837-unit Dress Barn, said, “anything that makes it a little different. We cater to that novelty customer. We have a much more fashionable customer coming to the store. Many have preconceived notions that we’re more traditional in orientation, but they’re nicely surprised by all the fashion and modern looks in our assortment. Who would have thought that Dress Barn would sell skinny jeans?”

The average unit retail at Dress Barn is about $23; Maurices, $17 to $18, and Justice, between $10 and $11. With more updated fashion, the 837-store Dress Barn is skewing to 40-year-olds, whereas five years ago, it was 45, but the range is 35 to 54, Jaffe said. “We’re not white-collar Ally McBeal. We’re not blue-collar Norma Rae. We’re pink collar — for teachers, office workers and bank workers.” Justice, with 890 stores, caters to girls 7 to 14, and Maurices, with 739 stores, targets 17- to 34-year-old women.

“Nothing much has changed under the new ownership,” said Michael Rayden, president and ceo of Justice. “That’s not to be negative in any way. It’s just that there is still lots of discussion how we are going to help each other with things like sourcing. Justice has pretty much gone to the direct sourcing model. It’s greatly helped our margins, and we’re just starting to help Maurices and Dress Barn in that endeavor.”

For Maurices’ next back-to-school season, more than 500,000 units, in cut and sewn, knit tops and woven bottoms are being placed via Justice factory contacts who are quoting better prices, but Rayden said that’s just a start. Eighty percent of Justice product is designed, developed and sourced internally, through the chain’s offices in Seoul and Hong Kong.

He said he’s hoping for the first Justice stores in Canada to open in the spring of next year in the Toronto area.

Asked if the corporation could absorb another chain, Jaffe said, “We’ve got plenty of work ahead to realize synergies between the three brands. It will take a year or two to have a great infrastructure in place to enable us to do another merger or develop a business internally.”

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