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Charlotte Russe Hit by Sales Slump

The 'fast fashion' retail company slashes profit estimates, sending its shares down 23%.

September 10, 2004|Julie Tamaki | Times Staff Writer

Women's retailer Charlotte Russe Holding Inc. joined a growing list of chains hit by a back-to-school shopping slump as it sharply reduced its fourth-quarter sales and earnings estimates Thursday.

The announcement sent the stock of the San Diego-based operator of the Charlotte Russe and Rampage stores down $3.43, or 23%, closing at $11.20 on Nasdaq.

Intense competition, job insecurity and a late Labor Day holiday have caused many U.S. retailers to report disappointing sales in recent weeks. High gas prices have also taken a toll.

Americans "have few dollars left in their pockets to do their shopping," said Kurt Barnard, president of Barnard Retail Consulting Group.

Charlotte Russe executives had counted on stronger sales over the last few weeks to offset a slow back-to-school season, but they never materialized.

The weak results prompted Charlotte Russe Chief Executive Mark Hoffman to issue a statement Thursday warning that the company expected fourth-quarter sales declines in the low single digits at stores open at least a year. He also anticipated earnings of 11 to 13 cents a share for the fourth quarter, in contrast to a previous forecast of 28 to 32 cents.

Analysts had forecast a per-share profit of 26 cents for the fourth quarter ending Sept. 25, according to Thomson First Call.

Sales at Rampage, which peddles trend-setting fashions to girls and women 15 to 35, were particularly disappointing, Hoffman said. The company said the problems at Rampage, acquired by Charlotte Russe Holding in 1998, accounted for 14 cents of the cut in its fourth-quarter earnings forecast.

"The repositioning of the Rampage chain is proving to be more challenging than we expected," Hoffman said in the statement. "We continue to experience significant double-digit negative comparable-store sales declines at these stores."

Fashions currently featured on the Rampage website include bat-winged floral print tops and tweed plaid blazers with scalloped hems. The company said it hoped for a reversal of fortunes at Rampage during the holiday season and into spring.

As of June, Charlotte Russe Holding operated 342 stores in 39 states and Puerto Rico.

Brian Tunick, retail analyst with J.P. Morgan Chase & Co., concluded in a research note issued before Charlotte Russe's profit warning Thursday that the company and other retailers of "fast fashion," which try to quickly produce cheap knockoffs of hot trends, face mounting pressure from discounters.

"It is clear that the likes of the discounters and the off-pricers are helping to compress the fashion cycle that the specialty retailers use to their competitive advantage," Tunick said.

Charlotte Russe isn't the only fashion retailer to struggle in recent weeks.

Last month Wet Seal Inc., which operates the Wet Seal and Arden B. shops, reported lower-than-expected earnings in its fiscal second quarter and warned that third-quarter results would fall well below forecasts.

Earlier in the month, Foothill Ranch-based Wet Seal had announced that its creative director, Victor Alfaro, was exiting the company just four weeks after his apparel line debuted in stores.

On the other hand, Andy Graves, a retail analyst with Pacific Growth Equities, pointed out that some clothing chains, including American Eagle Outfitters Inc. and Bebe Stores Inc., have managed to shine despite the weak retail climate because they hit on the right mix of preppy fashions.

Graves said Rampage was a "black eye" for Charlotte Russe, and the poor performance called into question whether the retailer had the right people and plans in place to reposition the brand.

"We had no idea that Rampage had fallen off a cliff so big," he said. "The question [for management] is, what happened and what are you going to do about it?"

Reuters was used in compiling this report.

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