Apparel retailers have had quite a time of it here lately, given macroeconomic concerns and crazy fashion changes that have left many investors feeling pretty uncertain about the sector. However, Charlotte Russe (NASDAQ:CHIC) seemed to buck the trend last week, and that gave plenty of reason to try to determine whether this stock is chic or not.
I admit it -- I don't know much about Charlotte Russe, and it's not a company that seems to be on the radar as often as well-known names like Abercrombie & Fitch (NYSE:ANF) or Gap (NYSE:GPS) are. Charlotte Russe provides value-priced clothes, footwear, and accessories aimed at girls in their teens and 20s. Although I can name a whole slew of retailers that cater to that age group, Charlotte Russe in its 10-K filing names Wet Seal (NASDAQ:WTSLA), Forever 21, and Limited's (NYSE:LTD) Express chain as its major competitors.
Charlotte Russe's third-quarter profit increased 77% to $5.9 million, or $0.24 per share, and sales jumped 32% to $162.6 million. Same-store sales rose 18.2%. It's also working to repair operating margins, which jumped from 3.6% during the first nine months of fiscal 2005 to 7.3% in the first nine months of FY 2006. However, the third quarter this year included an extra week. Even more important, Charlotte Russe has sold many of the stores in its Rampage chain and from here on out will focus on continuing operations for its core concept. In its press release, the company breaks out the what the results would look like if not for discontinued operations -- for example, excluding losses and expenses attributed to Rampage, net income increased 176%.
Although Charlotte Russe didn't meet analysts' expectations, the retailer did say that fourth-quarter numbers will exceed analysts' projections. However, it will come up against some tough comparisons in same-store sales metrics, since in the fourth quarter of last year, comps increased by 10.6%. It now expects same-store sales in the mid-single-digit range.
What I gather from Charlotte Russe's third quarter, though, is that while on the surface it seems impressive that it's bucking the trends seen at many other teen-oriented retailers, it's still in the midst of a transition as it walks away from Rampage. Indeed, last year's third quarter was a whole different scene from this year's, since earnings fell 39%. Take a walk down memory lane -- it's easy to do by checking out the company's press release archives in the investor relations section of its website -- and you'll see that 2005 was tough for Charlotte Russe.
There's nothing wrong with turnarounds, of course. However, Charlotte Russe is not only in a transitional phase as it rids itself of Rampage, but it's also about to come up against some tougher comparisons, since its fourth quarter last year was its turning point. So there's good reason to expect more sedate results, and investors might want to bide their time before jumping in to this retailer.
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Alyce Lomax does not own shares of any of the companies mentioned.
