DELIA’S TURNS TO BRAND FOCUS

Byline: Vicki M. Young

NEW YORK — Multichannel retailer Delia’s earlier this month expects the company to show a profit, but not until the final quarter of the coming fiscal year.
The company also said that earnings before interest, taxes, depreciation and amortization for its Delia’s branded businesses will be positive for the full fiscal year ending in January 2002, and it will post positive earnings per share in the coming year’s final quarter.
As reported, the company in November 2000 merged with iTurf Inc., the Delia’s spinoff that oversaw its Internet operation, and has been looking to sell its nonbranded Internet properties. Delia’s said it will take a noncash restructuring charge in the fourth quarter of fiscal 2000, which ended last month, and in the first half of fiscal 2001 in connection with the disposition of assets as a result of the merger.
Equity analyst Jeffrey Klinefelter at U.S. Bancorp Piper Jaffray, has since upgraded the stock to “strong buy” from “buy,” stating that the investment bank was “encouraged by Delia’s multichannel model and the rollout of its productive specialty retail stores.” He also introduced short- and long-term price targets of $7 and $12, respectively.
For the year, Delia’s said consolidated revenue — from Delia’s Direct, which is the catalog and dot-com operation, and from Delia’s Retail, which consists of 31 stores and four outlet sites — will be in the range of $160 million to $165 million.
Both divisions, according to Delia’s, are projected to have EBITDA contributions of between $3 million and $3.3 million for the year. However, the company disclosed that it is projecting quarterly EBITDA consolidated losses in the range of between $2.6 million to $2.8 million in the first quarter, between $2.7 million and $2.9 million in the second quarter and between $800,000 and $1 million in the third quarter.
For the fourth quarter, EBITDA should move into positive territory at between $3.5 million to $3.7 million.
According to Klinefelter, the company’s preliminary projections reflect a “substantial concentration on profitability in the fourth quarter.” He noted that in retailing, the teen market continues to be the center of the action. “Teens are still shopping. In retail, it’s the place that you want to be. The dollars that they spend don’t fluctuate, regardless of the [overall] economy,” he said.
As for EBITDA profitability, Klinefelter said that Delia’s branded businesses stand a good chance of meeting the company’s projections for the full fiscal year 2001, assuming one takes out $5 million from selling, general and administrative expenses. That amount, Klinefelter said, represents the portion of SG&A that is allocable to the noncore operations still reported in the consolidated numbers.
Delia’s is projecting a sale of its Internet community businesses — Gurl.com, TheSpark.com, SparkNotes.com and SparkMatch.com — by the end of the second quarter. The community Web sites were part of the iTurf operation. The company has signed a letter of intent with Barnes & Noble for the sale of SparkNotes.com. Because those Web sites are functional and still under the Delia’s umbrella, the inclusion of related expenses on the company’s consolidated balance sheet would mean that the entire Delia’s operation would not show a positive EBITDA for fiscal year 2001, a Delia’s spokeswoman confirmed.
The catalog circulation at Delia’s Direct is around 45 million and the company said it will open 10 new stores during 2001.

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