At first glance, investors seem to have been very pleased indeed with the Q4 and full-year 2007 earnings results put out by teeny-bop clothier Deb Shops
Honestly, I'm not surprised. Here's why.
Investors were undoubtedly pleased to see Deb's profit report. Although the firm's $0.73 in profits came in 18% lower than last year's Q4, they helped the company earn $1.49 per share for the year, which was at the high end of its guidance. Unfortunately, at $85.1 million in sales for the quarter, Deb moved nearly 4% less product than last year and saw its gross margin fall as well.
With those numbers out of the way, let's move down the aisles and check in on the two items I said we'd be focusing on in our pre-earnings Foolish Forecast.
First, operating costs. As you may recall, those had been on the rise over the last couple of quarters, heading in the opposite direction from sales trends. That situation got worse, rather than better, as selling, general, and administrative expenses rose nearly 10% for the quarter and almost 7% for the year. Deb blamed "higher ... payroll and store expenses" for the rise in costs.
Likewise with inventories. Pre-earnings, we had watched them rise "nearly 4% year over year" on average in Q2 and Q3. But by year's end, inventories rang in 4.8% higher than at the end of fiscal 2005. Again, the situation's getting worse rather than better.
Checking out the competition
One final note. When writing about retailers, it's practically de rigeur to discuss same-store sales trends (even if one month's blip on the radar hardly makes a trend). So before we close, I'll just point out that Deb scored a 2% slide in same-store sales for February. That beat out the 3% decline reported recently by Ann Taylor
For more Foolish news and views on Deb, browse around:
New York & Co. is a Hidden Gems pick. bebe is a Stock Advisor selection, and Limited Brands is an Income Investor recommendation. The Motley Fool has a newsletter to meet your investing needs, and they're all available free for 30 days.