DRESS BARN NET UP IN QUARTER, BUT WARNING ISSUED FOR FUTURE
Byline: Jennifer Weitzman
NEW YORK — The Dress Barn Inc. posted sharply higher earnings for its second quarter, but warned that the challenging economic environment would put profits for the remainder of the year at risk of falling below Wall Street estimates.
The company said it anticipates earnings per share to be $2.20 for the fiscal year ending July. 31. Consensus estimates call for the company to earn $2.30.
Wall Street, increasingly sensitive to the earning expectations of retailers, did not react kindly to the outlook. Shares of Dress Barn fell $1.88, or 6.94 percent, to $25.13. The stock reached its 52-week low last Feb. 18, when it hit $13.56, and its 52-week high of $31 on Jan. 17.
Describing Dress Barn as the “value-priced Talbots,” chairman and chief executive Elliot Jaffe said the company markets to the underserved niche of working women aged 30 to 55 looking for inexpensive casual and career-oriented clothing.
The Suffern, N.Y.-based company said its net income increased 31.3 percent to $8.1 million, or 43 cents a share, for the three months ended Jan. 27. That compares with earnings of $6.2 million, or 31 cents. Analysts on average had expected earnings of 38 cents.
Net sales rose 9.7 percent to $164.2 million from $149.5 million.
The company said the gain in earnings per share was primarily due to its continued efforts to reduce its number of outstanding shares. Last year, the company bought back 2.4 million shares for $38.9 million, an average price of $16 per share. However, so far this year, it purchased 272,000 shares for $8.5 million in the first quarter, and none in the second, even though the board has earmarked $50 million for a new repurchase program. Retail analyst Brian Tunick with Bear, Stearns, said he would like to see the company deal with its “cash hoard.” He said Dress Barn, which has $190 million in cash and no long-term debt, needs to become more aggressive with its share repurchase program, which will improve its earnings per share. He also suggested that the company use the cash to make real estate acquisitions and expand its catalog division.
The most recent results “were driven by increased comparable-store sales and continued strong merchandise margins, resulting in a quarterly gross profit increase of 140 basis points,” Jaffe said in a statement.
The company is shifting gears by increasing sales of merchandise bearing the Dress Barn’s brand private label to about 70 percent this spring and 80 in the fall, becoming more of a moderate or value-priced retailer and less of an off-pricer.
“The whole world was offering brand names at discounted prices,” according to David Jaffe, vice chairman and son of the ceo. “We wanted to create our own lifestyle brand that focused specifically on our Dress Barn customer and not just offer merchandise that had a label on it to sell at a discount.”
Roslyn Jaffe, Elliot’s wife, opened the first Dress Barn in Stamford, Conn. in 1962 to cater to the career and casual needs of the price-oriented woman just entering the workforce. Today, the company, which has been trading on the Nasdaq since 1983, operates 701 units nationwide.
Elliot Jaffe said inventories were well controlled throughout the quarter and the company is well-positioned for the spring selling season.
“We have demonstrated our past ability to react quickly to controlling inventories and costs,” he said. “We remain cautiously optimistic for a successful spring selling season.”
David Jaffe said sweaters were the quarter’s strongest performer and that casual and career merchandise outperformed ready-to-wear.
However, despite feeling it was better prepared to weather the economic slowdown as a moderate retailer, the chairman said the difficult retail environment, weaker consumer confidence and tough comparisons will make the season “more challenging.”
For the six months, net income improved 32.5 percent to $20.9 million, or $1.12 a share, versus $15.8 million, or 78 cents, on an 11 percent sale increase to $352.6 million from $317.5 million.
Last month, the company bolstered its management team by naming Kathy Bufano president and chief merchandising officer. She previously served as executive vice president and general merchandise manager of women’s apparel for Macy’s East.
In an attempt to expand its customer reach and brand recognition to the Internet, but believing its core competency is in bricks and mortar, the company outsourced the front-end business operations of its Internet site. The company said it would benefit from the technological know-how of host provider of Andover, Mass.-based Navisite.