NEW YORK — Is Charlotte Russe Holding Inc. poised for a turnaround? Depends on who you ask.

This story first appeared in the January 29, 2004 issue of WWD. Subscribe Today.

Equity analysts recently offered diverging views — some bullish, others bearish — on the fate of the San Diego-based specialty retailer. But there is one thing they agree on: The past several quarters have been hard on the retailer.

In its most recent quarterly report, the retailer blamed a 11.8 percent earnings slump on an overassortment of goods as well as a lack of differentiation between its two concepts: Charlotte Russe and Rampage stores.

In addition, the retailer, which sells value-priced, fashion-forward clothing, forecast last week that for the current quarter it expects a loss of 5 to 9 cents per share, which would fall below consensus estimates of a profit of 3 cents. Looking forward, same-store sales are expected to be flat to negative-single digits. This follows nearly two years of same-store sales declines, which suggests a retailer on shaky ground.

Still, Jeffrey Klinefelter, a senior research analyst with Piper Jaffray, said a turnaround is possible based on the contribution of two new general merchandising mangers, one at Charlotte Russe stores and one at Rampage. The changes follow the departure of the firm’s previous chief merchandising officer, Harriet Sustarsic.

Klinefelter said he was cautiously optimistic, crediting the retailer for putting in place new merchandising leadership at both divisions to stem some of the financial bleeding and fashion missteps. Although the contribution of the two managers, Brad Cunningham at Rampage and Donna Desrosiers for the Charlotte Russe chain, will not be fully realized until mid-year, Klinefelter said he believes “the change in ranks could potentially be a catalyst for new verve injected into the assortment.”

As a result, the analyst upped his investment rating of Charlotte Russe to “market perform” from “underperform.”

Brian Tunick, a specialty retailing analyst at J.P. Morgan, has another take on the retailer. He said in recent reports that Charlotte Russe will continue to be challenged due to steep competition as well as hurdles relating to its cost reduction program.

Tunick feels there is increased pressure from Wet Seal, Gadzooks and Forever 21 as well as other specialty stores. So as Charlotte Russe tries to turn around their recent woeful results, it “will continue to face significant pressure on the pricing front as it is up against severe competition from its specialty retail peers as well as department stores and discounters — a new dynamic of commodization in the fashion equation.”

The retailer also faces other challenges, such as weaker returns on new store investments, the negative impact of oversized stores and a lack of dominating mass marketable trends on the horizon, Tunick added.

The equity analyst questioned why the largest shareholder-equity sponsor, Saunders Karp & Mergue, filed to liquidate 4 million shares, or 34 percent of its holding.

Tunick also wondered why investors were recently trading shares of the retailer at 24 times Tunick’s most recent 2004 earnings estimate of 56 cents per share, which was lowered from 73 cents.

“We wonder if investors are confusing [Charlotte Russe] with another company,” he wrote in his most recent research note. The retailer trades under the symbol “CHIC.” As of Tuesday, the 52-week high stood at $15.45, the low, $6.73. Recent trades have hovered around $13.

“We would remind investors that this is the company with 11 straight quarters of comp declines, [Earnings Before Interest and Taxes] margins that have fallen some 70 percent, store volumes that have fallen 30 percent and is trying to compete in an environment which is becoming more tumultuous and price competitive.”