Judging by the first-quarter results released yesterday, it appears that business is improving for Christopher & Banks (NYSE:CBK), the Minneapolis-based women's-apparel retailer. Though the numbers aren't scintillating, they at least send some promising signals.
Total revenues grew 20% on a same-store sales increase of 4%, but the company wasn't able to parlay the sales increase into higher earnings, which came in at $0.26, flat with the previous year. The two key culprits were lower gross margins on markdowns and higher SG&A expenses, partially related to the acquisition of 21 Acorn stores last November. One promising sign: Inventory was lower than last year, by 9% per square foot.
These results appear pretty mediocre on the surface. On its conference call, the company acknowledged disappointment over not leveraging the nifty sales increase. But for a company that ran negative-2% in same-store sales last year and saw earnings per share contract by 28%, this could mark the beginning of better times, especially since May comp sales were up 7%, and June is looking to be in the 6%-7% range.
Because I think the company has some worthy attributes, I've been watching Christopher & Banks for a while now. Operating margin at 9.8% compares favorably with that of Talbots (NYSE:TLB), at 8.4%, and is approximately twice what Ann Taylor (NYSE:ANN) and Charming Shoppes (NYSE:CHRS) are able to deliver. Before the company's earnings meltdown last year, operating margins had been in the mid-teens.
With their moderately priced business and casual apparel, the mall-based stores target 40- to 60-year-old women. The three formats under its banner include mainstay Christopher & Banks; C.J. Banks, which carries plus sizes; and recently acquired Acorn, offering more upscale wares. More than 95% of the apparel is sourced overseas and mostly sold under private labels. The company puts a premium on customer service, a necessary attribute given the target customer. All purchases are wrapped in tissue, and sales receipts go in envelopes.
The company operates 660 stores. It opens about 90 new stores a year, with an ultimate U.S. target of approximately 1,000 locations. Store growth for the next two years is expected to fall in the 12% to 15% range. Operating cash flow (net cash from operations minus capital expenditures) has been solidly in the black for several years, even with the acquisition of the Acorn stores last year.
If Christopher & Banks can get beyond last year's merchandising miscues, it would be a retailer worth watching. The addition of seasoned Chief Merchandising Officer Matt Dillon in March was a step in the right direction. The Street, meanwhile, is focused more on recent favorable sales trends -- the stock moved up 3% yesterday on the flat earnings, while the rest of the market moved mostly sideways.
At 26 times trailing 12-month earnings, this stock isn't exactly a bargain, but few solid retailers these days are. Keep an eye on this company's comp sales trends -- the next few months will indicate whether Christopher & Banks really is back on track.
For more reviews of Christopher & Banks, check out these stories:
- The company had a fashion faux pas over the holidays.
- That led to a disappointing fourth quarter.
- Its third quarter wasn't so hot, either.
Fool contributor Timothy M. Otte searches for retail value from Atlanta. He welcomes comments on his articles and doesn't own the stock of any company mentioned in this article.
