For those of you who have the joy of raising little girls, you know how difficult they can be to please. Tween Brands (NYSE: TWB), which caters to girls between the ages of 7 and 14, seems to have discovered the perfect product mix to keep its customers smiling. As the numbers show, the retailer made significant gains in earnings and sales in the quarter. However, it seems to be having trouble keeping its inventory levels under control.
In the first quarter, Tween Brands reported earnings growth of 6.6% to $12.5 million, or $0.39 per share. Sales jumped 14.4% to $223.2 million, and comps grew 3%. Although its Limited Too locations reported flat comps, its newer, faster-growing Justice locations grew comps by 22%. The Justice concept, which focuses on sportswear, has been a huge success thus far. The company plans to capitalize on its success by opening 100 new locations in 2007.
Even with the achievements of the first quarter, investors may be hesitant to push the stock price much higher than they already have, after the initial euphoria experienced yesterday. For the second quarter, Tween Brands provided earnings guidance that lagged analysts' estimates, and comps growth that will be flat or negative. The company projects per-share earnings of $0.13 to $0.16, a significant drop from the $0.18 per share it earned in last year's second quarter. However, any letdown should be short-lived, since the company left its annual guidance unchanged at $2.15 to $2.25 per share, an increase of 10% to 15% over last year.
Perhaps I'm being picky, but I'd like to see the company's balance sheet tidied up somewhat. Its cash and short-term investments fell, and accounts receivable and inventory rose in the quarter. This has been a recurring theme for Tween Brands. However, the company is giving back to shareholders, repurchasing 1.6 million shares in the first quarter.
Although there are a plethora of other hip options out there, including Abercrombie & Fitch (NYSE: ANF), American Eagle Outfitters (NYSE: AEO), and Claire's (NYSE: CLE), Tween is unique in specifically targeting preteen girls. Providing girls in this age group a place to call their own certainly seems to give the retailer a competitive advantage. Even after yesterday's 4% jump in stock price, Tween's valuation is in line with its peers. With respect to its stock price, I think there will probably be some fluctuation and the opportunity to get in at lower levels in the upcoming quarters, but Tween Brands has proven it has the makings of a solid long-term performer.
For more on the struggle to please little girls, check out:
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Fool contributor Mike Cianciolo welcomes feedback and doesn't own any of the companies in this article.
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