Teenybopper clothier Deb Shops (NASDAQ:DEBS) reports its fiscal Q4 and full-year 2007 earnings results Thursday morning. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Exactly two analysts browse the racks at Deb, both rating it a hold.
  • Revenues. On average, they're looking for a 3% slide in quarterly sales to $85.7 million.
  • Earnings. Profits are predicted to fall 26% to $0.66 per share.

What management says:
Thursday's news won't be "news" exactly, in at least one sense. Less than a month, ago, the chain released its sales figures for the month of January, the fourth quarter of the fiscal year, and the full fiscal year. Briefly -- and unfortunately -- it looks like analysts nailed the quarterly sales number of $85.7 million. "Unfortunately" because in addition to a decline in sales, the results show that Deb's same-store sales declined a depressing 7.2% year over year. That was up from the year-long results (same-store sales down 3.3%). The good news is that things began to stabilize in January, with comps down just 3.8% for that month in particular.

Relatively speaking, January's results show Deb performing about as well as peers Christopher & Banks (NYSE:CBK) and Chico's (NYSE:CHS), a bit better than Ann Taylor (NYSE:ANN) and PacSun (NASDAQ:PSUN), and considerably worse than American Eagle (NASDAQ:AEOS) and Dress Barn (NASDAQ:DBRN).

What management does:
Turning from sales to profits, in tandem with the sales declines, we've watched Deb's margins erode all year long. From a rolling perspective, each of the last three quarters has seen more and more margin erosion at each of the gross, operating, and net levels.





























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Digging deeper into the firm's recent income statements, we can see that the problem at Deb is localized at the operating costs level. Over the last couple of quarters, overall sales aren't really doing too badly -- down less than 1%. Cost of goods sold have headed the other way, unfortunately, but at less than a half-percent rise, the disparity isn't too huge. Where we see a real disconnect between sales growth and costs growth is on the firm's selling, general, and administrative expenses line, where SG&A has risen 5% year over year for the last two quarters.

Ideally, we'll be looking for improvement Thursday on this line. Second priority goes to the balance sheet, where inventory has also outpaced sales growth, rising nearly 4% year over year. Again, the trend is not as frightening as a double-digit rise might be, but over time, inventories need to remain at or below the level of sales growth, lest the company need to clear out "slow" goods at discounted prices -- pressuring margins even further.

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Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy is too cool for school.