An ad featuring Bebe’s spring line.

NEW YORK — As Bebe Stores and Charlotte Russe Holding kicked off specialty retailers’ earnings season, one exited the quarter with higher profits while the other admitted more work still needs to be done.<br><br>Bebe said better...

NEW YORK — As Bebe Stores and Charlotte Russe Holding kicked off specialty retailers’ earnings season, one exited the quarter with higher profits while the other admitted more work still needs to be done.

This story first appeared in the January 23, 2004 issue of WWD. Subscribe Today.

Bebe said better assortments paved the way for a 28.7 percent gain in its second-quarter profits. CR, however, blamed its 11.8 percent earnings slump on an over-assortment and a lack of differentiation between its two concepts in the first quarter.

In addition, although both firms cautioned investors that earnings in their current quarter would fall below analysts’ forecasts, they said they were optimistic about spring.

Brisbane, Calif.-based Bebe, which operates a chain of 188 stores under the Bebe and Bebe Sport nameplates, reported earnings for the three months ended Dec. 31 sprouted to $13.9 million, or 53 cents a diluted share, ahead of Wall Street’s expectations of 50 cents. Last year, the contemporary retailer reported profits of $10.8 million, or 42 cents. Sales for the quarter rose 11.1 percent to $112 million from $100.8 million and 7.1 percent on a comparable-store basis.

“A more balanced assortment in all categories contributed to our comp increase,” Manny Mashouf, Bebe’s chairman and chief executive, said on a conference call. “Given the success of the quarter, we remain optimistic our spring assortment remains trend-right.”

When asked about spring trends, executives of the contemporary retailer offered no other details.

Looking ahead, Walter Parks, Bebe’s chief financial officer, cautioned third-quarter earnings are expected to range between 4 and 7 cents a share, below consensus estimates of 9 cents. Comps are expected to be positive low to mid-single digits.

Although the company said it expects gross margins in the third quarter to be below last year’s levels, Mashouf said there is upside potential from better pricing stemming from opening more Bebe Sport stores as well as its new management, which will help the firm better focus on each division’s products, ultimately reducing markdown exposure.

Mashouf said the field of candidates for a chief executive, head of Bebe Sport and head of design for Bebe, has been narrowed, noting he expected to announce the appointments within the next 30 days.

For the six months, income rose 25.5 percent to $19.9 million, or 76 cents a share, from $15.9 million, or 61 cents. Sales for the first half increased 12 percent to $195.6 million from $174.7 million.

On the other hand, San Diego-based CR, which operates 329 stores under the CR stores and Rampage nameplates and which offers fashion-forward clothes at more value prices, said income for the three months ended Dec. 27 fell 11.8 percent to $6.6 million, or 28 cents a diluted share, beating Wall Street’s expectations by a penny. Last year, the firm reported profits of $7.4 million, or 32 cents. Sales for the quarter rose 12 percent, but declined 7.6 percent on a comp basis.

Comps have been on a downward spiral for nearly two years, reflecting a company that has lost its way with customers by offering too much in the way of unisex looks and lacking a point of view. But with a new general merchandise manager at each division — Brad Cunningham at Rampage and Donna Desrosiers for the CR chain — executives expressed confidence about the forthcoming sexy and feminine apparel and accessories, a sweet spot for both chains, this spring.

Mark Hoffman, president and ceo, said the spring floor sets will be completed by March and will begin to reflect the transformation process. He noted the merchandise strategy will reflect lifestyle assortments “that are edited with clarity of presentation and value.”

Hoffman said other merchandise initiatives include a 10 to 15 percent stockkeeping unit reduction; a focus on color and coordination of tops and bottoms, product quality improvements and improved sizing. In addition, the retailer said it plans to reduce its everyday casual assortment to 70 percent of the overall mix, supplemented by a 20 percent in wear-to-work and 10 percent in “going out” clothes.

“We are moving into a new season. We have done our homework and we feel good about the overall fashion direction,” Hoffman said. “The number one priority is to get back to positive comp sales. We are tired of losing and we made some very significant changes to set in motion that which should result in those improvements.”

Looking ahead to the second quarter — one of its toughest — cfo Daniel Carter said he anticipates a loss of 5 to 9 cents, which would fall below current consensus estimates of a profit of 3 cents. Comps are expected to be flat to negative single-digits.