Charming Shoppes: From Red To Black

Profits return after 3 years absence

Even slower economy; weakness in certain divisions. Charming Shoppes, Inc.

is a specialty apparel retailer primarily for women in the United States. The company operates retail stores and related e-commerce Web sites under the LANE BRYANT, FASHION BUG, CACHIQUE, PETITE SOPHISTICATES, and CATHERINES PLUS SIZES brand names. Its retail stores offer plus-size, junior, and misses sportswear, dresses, coats, and intimate apparel, as well as accessories and casual footwear. The company also sells food and specialty gifts through its FIGI'S catalog and related e-commerce Web site. As of April 30, 2011, it operated 1,989 retail stores. The company was founded in 1940 and is headquartered in Bensalem, Pennsylvania. Charming Shoppes lost its charm for the last 3 years. Earnings were negative, showing a loss of 57 cents a share in 2008, then minus 54 cents in 2009. Last year, they improved but were still in the red: -32 cents a share. Analysts think the ink has turned. This year expect 20 cents a share, then 29 cents in 2012 (fiscal year ends in January). First quarter results show the turnaround: 18 cent vs 3 cents in 2010's first period. Look for 2 cents in the second quarter (due out in September) compared to a loss of 7 cents last year in the second. For the first quarter, sales were flat at $504.4 million (compared to $504.8 million last year). Foot traffic was dragging a little. But inventories were lighter and so were markdowns which made margins fatter, as much as 180 basis points better in gross margin. It was the Lane Bryant group that showed best results with a gain of 7% over 2010's same period. Charming Shoppes specializes in plus-size apparel. Around 70% of its stores are in neighborhood strip shopping cents, 30% in malls. Its price points are meant for lower to medium income clientele. Management has been closing stores that were unprofitable and continues to focus on the Fashion Bug locations which have underperformed. While the majority of closures are done, expect more for the remainder of this year. The spotlight is on Lane Bryant stores. Its customers are plus-sized and usually have lower incomes. In the short run, that may keep sales flat as the economoy continues to struggle. Management thinks this is the division that deserves more capital and will lead the company to better growth. Expect more stores and better marketing as management makes Lane its priority. Another division, Fashion Bug, hasn't worked as well as hoped. It's shrinking. Management is trying to figure out what to do with it. Eventually, it may be sold or simply shut. Total sales have been on the decline, going from $2.473 billion in 2008 to $2.061 billion last year. This year, look for $2.01 billion, then $2.00 billion next year. It's the bottom line that should show growth as cost cutting and store closures help boost margins and profitability.

CHRS is not for everyone, only investors with a belief that retail will bounce back once the economy does. While this stock hit an all-time high in 2006, touching $15.60, it also reached a low of 50 cents a share in early 2009. Aggressive investors will find this story of interest. All others will look elsewhere. - Company Web site:

- Ted Allrich

August 11, 2011