What an interesting year it has been for Charlotte Russe
When I last took a look at Charlotte Russe -- a company I am still learning more about -- last summer, it was in the midst of disposing of its Rampage concept. It's always good to get an idea of what a company can do on its own when it has disposed of part of its business -- think of Wendy's
Taking only its Charlotte Russe business into account, fourth-quarter net income increased 63% to $12.7 million, or $0.51 per share. Sales increased 22%, and same-store sales were up 7.4%, compared to a 10.6% increase in same-store sales this time last year. Operating margin improved to 8.7% of sales from 5.2%.
There are some things I like about Charlotte Russe's balance sheet, too. For example, it has $90 million in cash (nearly three times the amount it had last year) and no debt. And there are no burgeoning inventories here -- inventories dropped a smidge on a year-over-year basis. Maybe that has to do with its "test-and-reorder strategy," through which it buys small quantities and buys more according to demand, which I'm about to expound upon.
You see, Charlotte Russe is actually acting in an interesting retail segment called "fast fashion." Several companies -- albeit private ones, like Sweden's H&M, Spain's Zara, and the U.K.'s TopShop -- have garnered headlines recently due to their successful approaches to this concept. "Fast fashion" retailers nimbly move small quantities of inexpensive, high-fashion merchandise in and out of stores, and can turn on a dime to cater to changing trends, usually by manufacturing their clothing in their own countries as opposed to outsourcing it to overseas manufacturers (although admittedly, overseas manufacturing may be slower, but it's also cheaper). However, fast fashion also pumps up demand -- the lightning-fast cycle means customers know if they see something they like, they'd better snap it up, or it'll be gone next time. (That's one element of Costco's
The fast fashion element may be one more reason why Charlotte Russe is an interesting retail stock to watch. Granted, comps are expected to moderate to the single-digit range during the next year since it will be up against tough comparisons, although Charlotte Russe does have aggressive plans to open 50-plus stores a year and improve its operating margin to 10%.
On the other hand, Charlotte Russe is currently trading at about 17 times forward earnings -- and that's right in line with its expected earnings growth rate for the year. I'm not positive now is the optimum time to buy this retailer, but I have to admit it's a very interesting one to keep an eye on.
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