NEW YORK — Leading off the earnings season for specialty stores, youth-oriented Charlotte Russe Holdings and Bebe Inc. Thursday saw their profits go in opposite directions even as both warned that uncertainty in the retail environment, specifically mall traffic, had led them to take a cautious outlook for the holiday season.

This story first appeared in the October 25, 2002 issue of WWD. Subscribe Today.

For San Diego-based CR, tight inventory and expense control led to an 11.2 percent increase in net income to $5.9 million, or 25 cents a diluted share, for the fourth quarter ended Sept. 28. Last year, the firm reported income of $5.3 million, or 23 cents. On Sept. 19, CR lowered its guidance for the quarter to between 23 and 25 cents from a July outlook of 28 to 31 cents. Sales rose 22.5 percent to $109.4 million from $89.3 million, but fell 5 percent on a comparable-store basis.

On the other hand, Brisbane, Calif.-based Bebe said income in its first quarter ended Sept. 28 eroded 21.5 percent to $5.1 million, or 20 cents a diluted share, versus income of $6.5 million, or 25 cents. Sales inched up 0.3 percent to $73.8 million from $73.6 million, but fell 10.3 percent on a comp basis.

Reflecting the divergent results, CR’s shares closed up a robust $1.14, or 10.9 percent, to $11.57 in Nasdaq trading, while Bebe closed down 61 cents, or 4.4 percent, to $13.25, also on the Nasdaq. The Dow Jones Industrial Average sustained a 176.93 point, or 2.1 percent, hit on Thursday, closing at 8,317.34 while the Standard & Poor’s retail index dropped 2.59 points, or 0.9 percent, to 291.85.

Most retailers will report third-quarter results next month.

“No question, this holiday season will be extremely promotional,” Bernard Zeichner, and chief executive of CR, said on a morning conference call. “We are fortunate to have strong initial markups and strong inventory turns resulting in strong merchandise margins, giving us flexibility to plan aggressive promotions at stellar price points.”

Zeichner said although October comps have turned slightly positive, mostly because of a pickup in sweater sales, he guided investors toward flat first-quarter comps and earnings per share in a range of 32 to 36 cents. Citing weak store traffic, shaken consumer confidence and uncertainty on the world stage, he said, “It is prudent this quarter to be conservative.”

Harriet Bailiss-Sustarsic, CR’s president and chief merchandising officer, said, “It is very difficult to predict customers’ shopping patterns for the next eight weeks. We have purchased specific merchandise for promotional events.”

In a research note, Lehman Brothers analyst Kimberly Greenberger said she was worried that same-store sales could turn negative in CR’s second and third quarters against difficult comparisons if there is no improvement in mall traffic or the economy.

With CR’s sixth straight quarter of comp declines behind it, Zeichner said the focus needs to be on top-line growth, but offered few details on how that could be achieved other than improved customer service.

“I would love to hear they were attempting to find new ways to drive their business,” Marcia Aaron, a specialty retail analyst at Pacific Growth Equities, said. “During difficult times they should not just talk about the industry, but figure out if there is something else their company could do to outperform.” She cited Pacific Sunwear, Hot Topic and Chico’s FAS as three specialty chains that had succeeded in doing so.

As reported, a lack of newness and differentiation has contributed to soft retail sales for teen-oriented specialty stores since before the back-to-school season started.

Still, Zeichner asserted that, with brand acceptance across the country, plentiful real estate opportunities, $13.6 million in cash and no debt, CR has the potential to be as strong as 700 stores.

For the full year, CR’s income increased 4.3 percent to $22.4 million, or 95 cents a diluted share, from $21.5 million, or 92 cents, in the year-ago period. Sales were $409.4 million, an increase of 26 percent from $324.8 million, but decreased 5.4 percent on a yearly basis. CR operates 241 stores under the Charlotte Russe, Rampage and Charlotte’s Room banners.

At Bebe, chief financial officer John Kyees said on a morning conference call, “First-quarter sales performance fell below expectations primarily as a result of lower average retail selling prices.” Both units sold and transactions were up.

But Manny Mashouf, chairman and chief executive of the 173-unit chain, said a move towards more sophisticated merchandise would “contribute to higher sales per item and higher ticket prices, which would help us with better comps and higher gross margins, effecting better selling, general and administrative expenses and the bottom line.”

Bebe said it was planning for comp declines for the next three quarters: high-single digit for the second and low- to mid-single digit in the third and fourth.

Asked about the pessimism, Kyees said, “I am excited about the merchandise, but with the holiday selling season one week shorter, it leaves us with a lot of uncertainty.”

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