CHARLOTTE RUSSE ON THE FAST TRACK
Byline: Kristi Ellis / With contributions from Melanie Kletter, New York
SAN DIEGO — Charlotte Russe Holding may not be a well-known name in many parts of the country, but the junior retailer is on the move and may be coming your way soon.
In the fast-paced, fickle junior market, the chain has initiated an aggressive store roll-out plan based on bigger, more diversified units.
The firm has also started a new retail concept focused on home and accessories, and has zeroed in on shortening its lead times to better respond to changing fashion trends.
So far, the company’s strategies seem to be paying off. Charlotte Russe, which went public late last year, powered ahead in its most recent quarter, as earnings surged 89.6 percent on a 32.4 percent jump in sales.
In the three-month period ended March 25, profits grew to $2.3 million, or 10 cents a diluted share, from $1.2 million, or 6 cents, a year ago. Sales advanced to $47.3 million from $35.7 million and same-store sales edged up 3 percent.
“The performance of our newer stores demonstrates once again that our new store-opening strategy, together with our overall business approach of how we aggressively and creatively manage our merchandise mix, is working,” said Bernard Zeichner, chairman and chief executive officer.
In the six months, earnings surged 62.2 percent to $7.2 million, or 32 cents a share, from $4.4 million, or 21 cents. Sales gained 34.9 percent to $110.2 million from $81.7 million and same-store sales grew 4.9 percent.
The 107-store operation, based in San Diego, focuses on two main concepts: Charlotte Russe, a chain of 84 moderate price stores, and Rampage, a 23-store chain with more fashion-forward apparel and accessories — each catering to women between the ages of 15 and 35.
A third concept, Charlotte’s Room, which features accessories and home goods, was launched in November.
The company recently said it was accelerating the number of store openings next year due to robust performances in new and existing stores. Russe now plans to open more than 40 stores in fiscal 2001, as well as 32 to 34 new units this year.
“We are aiming at achieving increases in revenue of 30 percent,” said Zeichner. “It will be a combination of new stores plus modest comp-store sales increases.
“One of the things we talk about with the investment community is that we are a noncomp story, which basically means that the new stores will drive the additional profits,” said Zeichner in a recent interview. “Since our stores do well over $2.2 million [each], we are not looking for strong comparable increases, and our new stores open up with a return investment of over 90 percent.”
The firm has unveiled plans for a new Web site set to go live in early June and is finalizing Internet partnerships with other companies such as enews.com, a site that offers magazine subscriptions at reduced rates. Zeichner noted that the site would be “highly interactive and content driven” and would combine music, fashion and entertainment. While the site is designed primarily as a marketing tool to build the brand nationally, it will have some e-commerce capabilities.
Charlotte Russe was founded in 1975, and for the next 20 years expanded into a regional chain concentrated in Southern California.
Zeichner, who was ceo of Contempo Casuals from 1988 to 1993 and president of the retail division of Guess from 1993 to 1995, joined Charlotte Russe as president in 1996 and began a national rollout.
In September 1996, the company was acquired by private equity firm Saunders Karp & Megrue, along with Zeichner. Annual revenues at that time were about $71 million, Zeichner noted.
Zeichner and his team quickly bought 16 Rampage stores in 1997 when Rampage Clothing Co. filed for bankruptcy. Zeichner recruited new retail managers, including former Contempo Casual employees, overhauled Rampage’s systems and relocated the company’s corporate office and distribution center to a new facility in San Diego.
“When we started 3 1/2 years ago, we were basically a Southern California chain, and we have since moved to Texas, Florida and to other parts of the South, Northeast and Midwest,” he said.
Zeichner noted that most companies expand regionally, filling in Texas or Florida before embarking on a new state, but he decided to take a different approach.
“We believe that if we can do an ROI [return on investment] north of 90 percent, it doesn’t matter where the store is,” he said. “We are validating a concept that can work across the United States.”
Charlotte Russe raised $16 million before underwriting costs in its initial public offering last October. The firm was one of the few fashion companies to go public last year, at a time when investors were primarily focused on technology and the Internet.
Russe is starting to receive more attention on Wall Street. While the firm’s stock has seen some rocky periods this year, similar to many other apparel retailers, shares until recently have often been trading above the IPO price of $11 a share. On Wednesday, shares closed at $11 in over-the-counter trading.
In a recent research report, Kindra Hix of Banc of America Securities said, “We believe that the concept’s broad consumer appeal, value-oriented positioning and strong cash-flow characteristics create a highly transferable store concept offering a significant opportunity for growth.”
Key factors that Zeichner expects will differentiate the firm’s two concepts from the competition is its ability to quickly respond to trends, its private label focus and its larger store size. In 1999, the chain’s sales were about $177 million, a 32 percent increase over the prior year’s sales of $134.1 million.
Private label accounts for 80 percent of the Charlotte Russe concept mix, while its private label assortments under the Heart, Moon and Star label account for 90 percent in the Rampage stores.
“We don’t merchandise by brand,” said Zeichner. “We as a corporation have about 600 vendors, and no one vendor does more than 4.1 percent of the business, so we’re not relying on any one vendor.”
Analysts and industry executives note that Charlotte Russe’s stores are in general bigger than those of similar chains. On average, Rampage units are 6,500 square feet and Charlotte Russe, 7,800 square feet. Rival specialty stores have about 3,500 square feet.
Zeichner maintains that another key to success is a fast-turn policy.
“We’re 95 percent domestic, and compared to our competitors who experience 90-to-120-day lead times on their products because they import, our lead times are three to six weeks,” he said. “We test and reorder. That is really the pivotal point to our merchandising philosophy.”
To that end, the company has opened an office in the CaliforniaMart, which houses 1,200 showrooms, allowing for daily interaction with vendors.
“No new trend escapes us,” he said. “At the same time we are testing, we know who’s out there, what vendors have what merchandise and how quick we can get back into it.”
Harriet Sustarsic, executive vice president and general merchandising manager, said robust overall demand for fashion was providing a spark for sales.
“We are in a fashion cycle, and more similar products are selling simultaneously at both chains than ever before,” said Sustarsic. “At Rampage, customers want it first and at Charlotte Russe they wait until it hits popular price points and it is more widely accepted.”
Across the board, the rock ‘n’ roll influence, which began with Gucci, is driving spring business, Sustarsic said.
“It permeates the club fashion and is evident in ethnic trends,” she said.
Prints are also strong, particularly paisley and dots. The dominant prints are animal skins and reptile skins.
The firm’s newest concept, Charlotte’s Room, averages about 3,000 square feet. An extension of its accessories business, Charlotte’s Room showcases a girl’s room, complete with gift items, bedding, bean bags, lamps, one-of-a-kind jewelry and cosmetics. In these shops, apparel accounts for just 15 percent of the business; most is in intimate apparel.
The company currently operates two Charlotte’s Room stores — one in Phoenix and the other in Los Angeles. They are aimed at women age 12 to 20.