Positive sales trends, and the prospect of a return to profitability in the second quarter, pushed Caché Inc.’s shares up 11 percent to $6.99 on Wednesday despite the women’s apparel retailer’s larger-than-expected first-quarter loss.

This story first appeared in the May 13, 2010 issue of WWD. Subscribe Today.

Heavy discounting elevated the New York-based company’s net loss to $4.1 million, or 32 cents a diluted share, for the period ended April 3, from a year-ago loss of $1.6 million, or 12 cents a share. Sales for the quarter slid 8.4 percent, to $48.6 million from $53 million a year earlier, and were off 6.8 percent on a comparable-store basis. Analysts polled by Yahoo Finance expected a loss of 18 cents on revenues of $48.5 million.

Thomas Reinckens, chairman and chief executive officer, attributed the results to the firm’s decision to “reduce inventory during January and February, through increased markdowns to expedite the new merchandising initiatives,” which “caused a significant decline” in quarterly merchandise margin.

As a result, gross margin declined to 34.4 percent of sales from 41.1 percent in the prior-year period.

But Reinckens said on the company call that customers have responded well to new merchandise offerings, adding that robust sales in sportswear have helped comps increase to the low-single-digit percent range during the first five weeks of the second quarter and leading him to believe the company will “return to profitability in the second quarter.”

“We are confident that our focus on delivering cohesive collection assortments while changing our planning calendar and promotional cadence will lead to improved sales and profitability in the year and provide us with a stronger platform for growth in the future,” he said.

Piper Jaffray retail analyst Neely Tamminga rated the stock “overweight” based on the company’s “strong operating margin expansion” potential.

“Evidenced by positive same-store sales coinciding with the new merchandising team’s efforts, a positive inflection in Caché’s outlook is under way,” she wrote in a research note.

Caché, which operates 285 stores, said it expects to ramp up its marketing efforts, improve store visuals and introduce more strategic promotions.

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