Clothes. They're not just for kids anymore.
While the good news in retail clothiers lately has centered on kids' brands like Children's Place
Good news, bad news
Profits for the fiscal third quarter of 2008 leapt 18% year over year, to $0.39 per share. That wasn't just good from an objective perspective -- it also blew analysts' estimates entirely out of the water. Wall Street had been expecting Dress Barn to earn only $0.26 a share!
So how did Dress Barn stun the skeptics? The bulk of its additional profits came from a lower tax rate and 9% fewer diluted shares outstanding this year than last, as Dress Barn continued buying back stock. Operationally, however, sales grew a threadbare 1%, and same-store sales slipped 3%.
CEO David Jaffe's take on the quarter went like this: "We controlled our inventory and saw strong merchandise margins. In addition, we were able to carefully control our expenses."
Now, you can quibble with Jaffe's assessment in part. Inventories actually grew 4% year over year, even though sales ticked downward. That said, the increase was not dramatic, and Dress Barn did hold the line on profit margins earned on its wares. Gross margin ticked up 40 basis points in comparison to Q3 2007. Operating costs rose only 10 basis points, and depreciation costs added another 30 basis points. As a result, the operating profit margin held firm at 10.3%. So yeah, I guess you can call that "strong," especially in comparison to last quarter.
Dress Barn isn't entirely out of the tall grass yet. While sounding generally pleased with the quarter, Jaffe worried aloud over "a potential further deterioration of the tough retail environment and ... an increase in the promotional competitive landscape." In other words, he's still concerned about margin pressure in Q4. Still, with one month down and only two more to go before fiscal-year-end, I suspect that management's guidance of $1.05 to $1.10 per share for the year will fall close to the mark.
Even better, Jaffe presumed "a mid-single-digit decrease in comparable-store sales" when crunching his numbers. If the company manages anything like a repeat of Q3, therefore, we should see Dress Barn strutting down the catwalk again this fall.
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