Targeting the so-called "fashion right" teen girl has been the right strategy for retailer dELiA*s
That kind of focus has been dressing up quarterly sales for the teen retailer since its spinoff at the end of 2005. In the just-reported fourth quarter, dELiA*s' sales jumped 14% (the bricks-and-mortar locations realized a 39% boost in revenues compared with the 5% increase from direct sales) and profits surged 45% from a year ago. While the teen trend follower has a retail store presence, the bulk of its profits come from catalog and Internet sales.
While that kind of performance is usually enough to hike the stock price, dELiA*s share price decline by nearly 10% because of a less than rosy first-quarter outlook. The first half of the year is typically the slowest because it doesn't include the important back-to-school and holiday selling seasons. Moreover, the company will be recording a number of one-time charges. The retailer is also increasing its store footprint size, which will serve to drag down margins; and it will see some new, higher expenses, like the cost of mailing out its catalogs, beginning in the second quarter.
It seems like dELiA*s is having an identity crisis and can't decide whether it's fish or fowl. The roots of the company are in catalog sales and it wants to continue growing its Internet presence, if for no other reason than it generates sales with lower overhead costs than an actual store. Yet dELiA*s also wants to transition its brand to that of a full-fledged teen retailer like Abercrombie & Fitch
The changeover has been slow going. That can signal conservative management, but it also serves to drag down operating performance because of the lower margins such sales offer. Even with the sell-off in price, dELiA*s trades at a high premium to the competition. At 28 times EBITDA (earnings before interest, taxes, depreciation, and amortization), the teen retailer is three-and-a-half times more expensive than Abercrombie and nearly three times richer than American Eagle.
Unlike its competitors, though, dELiA*s doesn't have to worry about whether its fashions will find favor with its target market because it isn't setting trends. Where Hot Topic
There is some synergy to be realized with its catalog-Internet-store merchandising effort, with each having the ability to reinforce the other. Yet in an industry rife with teen retailers, dELiA*s might need more than a bigger store count to make the transition to a destination retailer.
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