Charming Shoppes May Put Fashion Bug On The Auction Block

Bloomberg News
By Lauren Coleman-Lochner and Jeffrey McCracken

Charming Shoppes Inc., the operator of the plus-size Lane Bryant chain, is exploring a sale of its Fashion Bug stores, according to a person with knowledge of the matter.

Moelis & Co. is advising the retailer on a possible deal, said the person, who declined to be named because the process isn’t public. A sale of the unit may be a few weeks away, the person said. Fashion Bug, aimed at women aged 30 to 50, makes up about a third of the chain’s more than $2 billion in sales.

Chief Executive Officer Tony Romano is devoting resources to the more profitable Lane Bryant label to revive earnings after almost $500 million in losses since 2007. While demand for plus-size apparel is growing, Fashion Bug’s challenge as a lower-priced retailer is to deliver stylish clothing without sacrificing margins, said McMillan Doolittle LLP’s Neil Stern.

"You have a really difficult apparel market that really hasn’t gotten its footing in say, five years,’’ said Stern, a senior partner at the retail consulting firm in Chicago.

Fashion Bug operated about 740 stores as of Jan. 29, mostly in strip malls, according to regulatory filings. The Bensalem, Pennsylvania-based company operated almost 2,100 locations at the end of last year, including about 850 Lane Bryant stores and outlets and 475 Catherines, aimed at women 45 and older.

Stock Performance

Charming Shoppes rose 8 cents, or 2 percent, to $4.07 at 4 p.m. New York time in Nasdaq Stock Market trading. Earlier the shares advanced as much as 10 percent.

Gayle Coolick, a spokeswoman for Charming Shoppes, said she couldn’t immediately comment. Andrea Hurst, a spokeswoman for New York-based Moelis, declined to comment.

Fashion Bug’s sales at stores open at least 13 months rose 4 percent last year, outpacing the company’s average. So-called same-store sales are considered a key gauge of retail performance because they strip out the impact of store closings and openings. Charming Shoppes is scheduled to report first- quarter results on June 2.

Charming Shoppes began more than 70 years ago when the Sidewater brothers opened a single apparel store in Philadelphia. The purchase of the Lane Bryant chain a decade ago turned Charming Shoppes into the largest plus-size retailer in the U.S., according to the company’s website.

Charming Shoppes Surges As 4Q Loss Narrower-Than-Expected

Dow Jones Newswires
By Caitlin Nish

Shares of Charming Shoppes Inc. surged Thursday as the company posted a narrower-than-expected fiscal fourth-quarter loss, with increased promotional activity driving holiday sales but hurting gross margin.

Same-store sales for the women's plus-size apparel retailer grew 9% in the period, after falling in the double digits in the previous two holiday seasons.

Shares were recently up 20% to $3.55, but are still down 46% in the past year.

The operator of the Lane Bryant, Fashion Bug and Catherines Plus Sizes chains has posted only two quarterly profits in about three years, and its sales have lagged behind some other apparel retailers that have gotten a boost from higher consumer spending. Due to the sales weakness, Charming Shoppes has cut jobs and closed stores, as well as reshuffled management.

The retailer Thursday named Chief Operating Officer Anthony M. Romano permanent chief executive and president. Romano assumed the position on an interim basis in October when James Fogarty stepped down from the chief executive post and resigned from the board, leaving the company after serving in that role for just a year and a half.

Romano Thursday outlined his plans for returning the overall business to profitability, including improving inventory management and upgrading the company's merchandise offerings. "We were far too basic and not responsive to our customers' fashion preferences," he said.

Charming Shoppes also said it will close about 240 unprofitable stores in 2011, with more than half at the Fashion Bug chain. The company will also close all 30 Catherines Plus Sizes outlet locations over a two-year period.

Romano warned that the sharp increase in cotton prices will become a bigger challenge for the company in the fall and holiday seasons, and each of its brands will selectively increase prices across product lines. He said on the company's conference call Thursday that Charming Shoppes has been testing higher prices in some areas, and hasn't seen resistance from customers. He added that the company will continue its efforts to value-engineer its products to reduce costs and to seek lower-cost sourcing alternatives.

Charming Shoppes reported a loss of $30.4 million, or 26 cents a share, for the quarter ended Jan. 29, compared with a loss of $28 million, or 24 cents a share, a year earlier. Excluding items such as restructuring and store-impairment charges, the loss narrowed to 8 cents a share from 36 cents.

Sales jumped 6.8% to $575.8 million.

The two analysts polled by Thomson Reuters forecast a loss of 19 cents a share on $553.1 million in revenue.

Same-store sales climbed 9%, including an 11% increase at Lane Bryant and a 41% surge in e-commerce sales.

Gross margin fell to 43% from 43.7%, hurt by the company's more aggressive marketing and promotional activity.