Based on January's retail comps numbers, investors could be forgiven for expecting the worst from Dress Barn
Big-time clothing seller Wal-Mart
Yet on Wednesday, the women's apparelier with the anything-but-sexy name turned investors' heads. While Dress Barn, too, saw its comps slide in its second quarter, new store growth and new-store revenue helped Dress Barn's total sales rise 2%. Profits fell by half to $0.12 per share; that figure would have been just $0.09 per share, but for $0.03 worth of tax benefits recorded in the quarter.
OK, from an absolute perspective, the Q2 results weren't much to look at. But more importantly, they weren't nearly as bad as Wall Street feared. You see, although profits got cut in half, analysts had been telling investors to expect a 75% drop instead. In reporting $0.12 a share, Dress Barn actually earned twice as much as expected. So far today, that's been good for a 15% bump in share price.
More important than what's going on with the stock, though, is what's going on in the stores -- or more specifically, the storeroom. As you may recall from my November column on Dress Barn's first-quarter results for fiscal 2008, inventories were wildly outpacing sales trends back then. Sales were up 1%, but inventories had risen 11%. Fortunately, management saw this problem, too, and decided to fix it right away. Promising to clear out inventories through "an increased promotional retail environment for much of this holiday season," CEO David Jaffe has been as good as his word: With sales up 2% from last year, inventories are now up only 2% as well.
Where to go from here
Although it hurt margins and profits in the short term, this accomplishment of working down inventories has put Dress Barn back in a position to regain the characteristics that attracted me to the company in the first place. (I own shares, by the way.) The liquidated inventory should get free cash flowing once more -- although, to be sure, we'll need to wait to see the cash flow statement that Dress Barn inexplicably failed to include in its release. And with less need to slash margins to move inventory, these cash profits may even grow again. Then this barn can really start to storm.
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