CHARMING SHOPPES IN RED DESPITE STRONG LANE BRYANT

Byline: Evan Clark / With contributions from Vicki M. Young

NEW YORK — Charming Shoppes Inc. leaned on the recently acquired Lane Bryant in the fourth quarter and came in with a slight loss before charges as its other divisions floundered.
Losses for the quarter mounted to $27.8 million, or 25 cents a share, and compared to year-ago earnings of $9.1 million, or 9 cents. Excepting a pretax restructuring charge of $37.7 million, losses totaled a milder $3.3 million, or 3 cents. Adjusted per-share losses matched Wall Street’s consensus estimate of 3 cents.
Shares of the firm fell 26 cents, or 3.4 percent, to close at $7.48 in Nasdaq trading Tuesday.
As reported, the restructuring plan Charming Shoppes laid out on Jan. 28 entailed the shuttering of its 77-door Added Dimensions/Answer chain, closure of 130 underperforming Fashion Bug stores and the conversion of 44 Fashion bugs to the Lane Bryant concept. When the fiscal year ended Feb. 2, Charming Shoppes operated 1,252 stores under the Fashion Bug nameplate, 647 Lane Bryant units and 461 Catherine’s doors.
Sales for the quarter bounded up 48.9 percent to $647.1 million from $434.7 million a year ago but comparable-store sales decreased 3 percent during the quarter.
The year-to-year comparison is also skewed by the Aug. 16 acquisition of Lane Bryant.
On a conference call Tuesday, a company spokeswoman attributed the decreased earnings to negative comps at Fashion Bug (down 8 percent) and Catherine’s (down 5 percent), which were both below expectations. The poor showing resulted in declines in merchandise margins and negative leverage on fixed expenses worsened by the highly promotional holiday season.
The quarter’s strong sales increase flowed from $254 million in incremental revenues from Lane Bryant. The plus-size division saw strength in knit tops, tech jackets and jeans during the quarter. Inventories ended the period down 9 percent in dollar terms and 23 percent in units.
Jeffrey Stein, equity analyst with McDonald Investments, declared, “Lane Bryant saved the fourth quarter.” He said the acquisition “wasn’t a home run, but it’s been a pleasant surprise to date.” Stein noted, though, that he sees very few home runs in fashion.
Executive vice president and chief financial officer Eric Specter said that Lane Bryant “exceeded their internal sales plan with comp-store sales increases for the quarter and full year.” The cfo added he was looking for the division to continue to improve over the coming year.
Overall, Stein termed the quarter as “fine” and noted Charming Shoppes going forward will reap the benefits of the restructuring charges against the fourth quarter. Still, he said, the full benefit will be realized next year, in fiscal 2004, when the lower end Fashion Bug unit, particularly affected by the economic downturn, hopes to prosper from a stronger economy. Additionally, the company expects $10 million to $12 million in cost savings from the acquisition next year and an acceleration of the expansions of Lane Bryant and Catherine’s, he said. Fiscal 2004 “has the potential to be a really break-out year for the company,” noted the analyst.
In the next 12 months, “the upside from an earnings standpoint will be provided by owning Lane Bryant for a full year,” said Stein. “They’re in a position to weather difficulty, but clearly the risk in the short term is the economy because the company has a more highly leveraged balance sheet than they have had in the last five years.”
At the end of the quarter Charming Shoppes’ debt stood at about 49 percent of its total equity, according to Specter.
For the year, the bottom line retreated into the red with losses of $4.4 million, or 4 cents a diluted share. The prior year’s profits totaled $51.1 million, or 48 cents, and included the negative effects of a $540,000 accounting adjustment.
Sales for the 12 months were up 24.1 percent to $1.99 billion compared to $1.61 billion last year. Same-store sales backtracked 4 percent for the year.
For the first quarter, the firm projected earnings per share of 9 cents, up a penny from year-ago profits of 8 cents. Comps are slated to be down slightly.

WHITEHALL JEWELLERS
Whitehall Jewellers Inc.’s fourth quarter sparkled with a more than 50 percent increase in profits despite reductions in overall and same-store sales.
Net income for the three months ended Jan. 31 leapt 56.3 percent to $15.8 million, or $1.07 a diluted share. This compared to year-ago earnings of $10.1 million, or 69 cents.
Revenues slipped 2.8 percent to $130.5 million from $134.3 million a year ago. Comparable-store sales were off 5.4 percent for the period.
In a statement, chairman and chief executive Hugh Patinkin noted, “In the context of a weak economy and lower sales during 2001, we made great strides in reducing costs, improving margins, reducing owned inventory and increasing cash flow.”
In the quarter, the cost of sales dropped 9.2 percent from year-ago levels, to $73.8 million, and selling, general and administrative expenses were cut 12.7 percent, to $30.7 million.
Earnings for the 12 months couldn’t keep pace with the quarter, but still shot up 38 percent to $10.1 million, or 69 cents a diluted share. Last year’s earnings totaled $7.3 million, or 46 cents, after a $3.1 million, or 19 cent, reduction due to an accounting change. Without the one-time item in the prior year, profits dipped by 2.8 percent for the year.
Sales retreated 4.5 percent to $338.9 million against $355.1 million last year. Comps for the 12 months dropped 10.7 percent.
Patinkin said same-store sales since Feb. 1 had increased by low- to mid-single digits and would help reduce first-quarter losses to 2 to 5 cents a share. The firm lost 11 cents a share in the year-ago quarter.

GADZOOKS
Gadzooks Inc. reported substantial declines in both fourth-quarter and yearend results.
For the period ended Feb. 2, income fell 38.8 percent to $3.9 million, or 43 cents a diluted share, from $6.4 million, or 69 cents, in the year-ago quarter. Sales inched up 3.6 percent to $97.3 million from $94 million. Same-store sales declined 3.9 percent from the comparable 2000 quarter.
Gerald Szczepanski, chief executive, said in a conference call to Wall Street analysts that the firm will slow expansion in 2002 while continuing to upgrade stores to remain competitive. “Unit productivity is first and foremost on our minds,” the ceo said. “Goals for this year can be summed up in three words: productive, competitive and profitable.” For the year, income plummeted 53 percent to $6 million, or 65 cents a diluted share, from $12.8 million, or $1.38 in the year-ago period. Sales rose 8.8 percent to $313.8 million from $288.4 million. Same-store sales dropped 5.1 percent.

DELIA’S
Teen retailer Delia’s Corp. on Tuesday posted improved preliminary results over last year’s fourth-quarter and year-end losses, but a final tally of its performance won’t come until the final amount of a class-action lawsuit settlement is decided upon.
For the three months ended Feb. 2, the chain recorded net income of $310,000, or 1 cent a share, against a loss of $17.8 million loss, or 55 cents, in the year-ago quarter. The prior-year period included $8.6 million in pretax merger, restructuring and finance charges. Sales dropped 36 percent in the period to $49 million from $76.4 million.
Delia’s also said it will take a noncash charge to settle a class-action lawsuit. The settlement amount, estimated to be about $7 million, is expected to be determined by the end of April.
The company attributed part of the sales decline to sporadic mail delays in its direct-marketing division, whose sales fell 19 percent to $49 million from $60.7 million. Andrea Weiss, president, said in a statement that the company expects a first-quarter loss in the range of 7 to 10 cents but looks forward to “achieving full-year profitability.”
For the year, the loss narrowed to $22.1 million, or 54 cents, from a loss of $79.7 million or $2.98, a year ago. The most recent year’s numbers included $803,000 in aftertax charges for the early extinguishment of debt and $5 million in pretax merger and restructuring costs versus $29.2 million in the prior year. Sales declined by 33.2 percent to $143.7 million from $215.1 million.

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