With sales inching up only 1% and earnings plummeting 44%, Charming Shoppes
The second-quarter report appeared plagued with problems. Same-store sales decreased 3% across its entire brand as shoppers tightened their money belts because of the macro environment. Charming's Fashion Bug and Catherine brands appeal to people of more moderate means who, in a struggling economy, are more fickle, so management blamed lower comps on the challenging environment. Its Lane Bryant attracts less cautious, higher-income customers, but the brand posted the weakest comps in decreasing 5%. Management's argument was weakened further when other retailers, such as J.C. Penney
From the numbers, it looks as though customers just didn't like the offerings. The company was forced to clear out the summer merchandise aggressively at lower prices than anticipated. Management is responding by reducing inventory levels for the rest of the year in an effort to improve the company's margins.
Management reaffirmed its earnings guidance for the year, but this is still not comforting. Earnings are expected to be $0.65-$0.68 a share, which is a 16%-20% decline from last year. Additionally, it doesn't look like the company expects to attract many new shoppers in the coming quarter as comps are expected to be relatively flat.
Charming Shoppes has accelerated its share-buyback program. It repurchased 1.7 million shares in the quarter and has bought back an additional 4 million since. This may temporarily boost the bottom line and possibly the stock price, but it will probably hurt the company down the road. Because of the weak performance, capital expenditures have been cut by $12 million to $15 million from this year's budget. But to me, it doesn't make sense that the company would use cash to buy back shares rather than concentrate on improving its brands and investing for the future.
The company can't seem to get its parts moving in the right direction at the same time. Now all three of its brands, as well as its Direct-to-Consumer business, are struggling. This stock is definitely not in my shopping bag, as I have already forecast the company's excuse for its next earnings shortfall, a retailers' favorite: the weather.
- Foolish Forecast: Charming Shoppes Not Ready to Charm
- Foolish Forecast: Charming Shoppes' Slim Pickings
- Don't Get on the Kohl's Bus
Fool contributor Lawrence Rothman is happy to receive feedback and promises to read it when he's not being wrestled by his three children. Feel free to email him at firstname.lastname@example.org. He doesn't have any positions in the companies mentioned. The Fool has a tailored disclosure policy.