Margins Improve For Specialty Stores In Quarter

by Alexandra Steigrad with contributions from Vicki M. Young
From WWD Issue 05/19/2011

Three specialty chains — Abercrombie & Fitch Co., Limited Brands Inc. and Chico’s FAS Inc. — reported improved bottom-line results Wednesday as higher sales were supported by improved gross margins.

Helped by strong international sales, Abercrombie registered net income of $25.1 million, or 28 cents a diluted share, for the three months ended April 30, versus a year-ago loss of $11.8 million, or 13 cents. Excluding special items, earnings per share were 27 cents, more than twice the 12-cent result expected by analysts polled by Yahoo Finance.

Net sales expanded 21.6 percent to $836.7 million from $687.8 million, helped by a 64 percent gain in international sales to $195.7 million. Comparable-store sales gained 10 percent and gross margin climbed to 65 percent of sales from 62.7 percent a year earlier. Shares gained 3.4 percent to close at $75.69 in Wednesday trading.

Jonathan Ramsden, chief financial officer, said on the company conference call that gross margin is expected to “erode” in the second quarter, with the firm’s strong “international mix” helping to limit the contraction. He said the firm would be helped by its ability to be nimble in the face of price increases and a continuing promotional environment. “We have a very specific plan of the promotions and the domestic business that we expect to execute, and we have some flexibility in that plan,” he said.

Although rating the stock a “hold,” Stifel Nicolaus analyst Richard Jaffe voiced a degree of skepticism, noting that “after two years of declining retail prices at domestic Abercrombie and Hollister stores, it is uncertain if the customer is willing to begin to pay up for these brands.” He was “hesitant to assume [the firm’s] perfect execution” given the “diminished appeal of the merchandise domestically” and other factors.

Reporting after the close of the markets, and before its Thursday morning earnings call, Limited Brands said net income jumped 46.8 percent to $165.2 million, or 50 cents a diluted share, against profits of $112.5 million, or 34 cents, in the 2010 quarter. Adjusted EPS was 40 cents, 1 cent better than the consensus estimate.

The operator of Victoria’s Secret and Bath & Body Works registered net sales of $2.22 billion, 14.8 percent better than the $1.93 billion reported for the year-ago quarter. Comps were up a robust 15 percent, and gross margin improved to 38 percent of sales from 35.9 percent in the 2010 period.

The company projected second-quarter adjusted EPS of between 38 cents and 43 cents, with the higher number corresponding to the current consensus estimate.

Chico’s reported a 29.7 percent gain in income for the quarter to $45.9 million, or 26 cents a diluted share, from $35.4 million, or 20 cents, in the year-ago period.

Total sales rose 11.5 percent to $537.2 million from $481.6 million, with comps up 7.7 percent.

Gross margin moved up to 59.1 percent of sales from 58.5 percent. Kent Kleeberger, chief operating officer, said the firm expects second-quarter gross margin to be up slightly, with markdown percentages lower.

Comparing the company’s turnaround to a hospital stay, David Dyer, Chico’s chairman, president and chief executive officer, said the company is “home at last, healthy again and ready for sustainable profitable growth.” He told analysts that over the next three or four years, the Chico’s brand has the potential for another 150 boutique and outlet stores and White House|Black Market for possibly more than 250, with the emphasis on front-line units. Chico’s currently has 593 boutique and 71 outlet stores, versus 351 boutiques and 24 outlets for White House|Black Market.

With sales coming in below analysts’ estimates, shares dropped 5.1 percent to $14.43.

Leslie Wexner Paid $20.5 Million in 2010

by Arnold J. Karr
From WWD Issue 04/12/2011

Limited Brands Inc. chief executive officer Leslie Wexner nearly doubled his pay package in 2010 as the company registered an 80 percent increase in earnings and double-digit growth in same-store sales.

According to the definitive proxy filed with the Securities and Exchange Commission Monday, Wexner, founder, chairman and ceo of the Columbus, Ohio-based operator of Victoria’s Secret and Bath & Body Works, pulled in total compensation of $20.5 million last year, 89.5 percent above the $10.8 million he earned in 2009.

Disclosure of Wexner’s earnings came on the same day that shares of his firm hit a new all-time high of $37.99. They ended the day at $37.45, up 28 cents, or 0.8 percent, as the S&P Retail Index rose 0.1 percent to 526.77 and the Dow Jones Industrial Average added less than 0.1 percent to end the day at 12,381.11.

While his salary was unchanged at $1.9 million, Wexner’s cash bonus — classified as nonequity incentive plan compensation — grew 28.7 percent to $6.3 million from $4.9 million, and the sum of his stock and option awards nearly quintupled to $11.6 million from $2.4 million. Because of fluctuating stock prices and vesting schedules, these awards aren’t necessarily realized in the year they’re recorded, but companies are required to include them in the compensation tables submitted with proxies.

Limited Brands also reported $324,000 in change in pension value and nonqualified deferred compensation for Wexner, down 16.6 percent from 2009. Other compensation declined 74.5 percent to $312,000 from $1.2 million in 2009. The earlier figure included $930,000 in security services paid by the company; the costs for security services in 2010 weren’t included as part of Wexner’s compensation or elsewhere in the proxy.

Limited did say that security costs unrelated to business were reimbursed to the company by Wexner, as were any costs related to personal use of the corporate aircraft.

Sharen Turney, executive vice president of the company and president and ceo of the Victoria’s Secret brand, earned $7.1 million in 2010, down 7.5 percent from $7.6 million in 2009, when she received a $1.9 million cash payment in connection with a guaranteed minimum gain on options awarded under her initial employment offer in 2000.

Included in Turney’s pay last year was a nonequity bonus of $3,998,400, just $1,600 below the $4 million maximum to which she was eligible, based on Victoria’s Secret’s operating income.

Driven by Victoria’s Secrets’ results, Limited’s net income rose 79.7 percent to $804.8 million, while sales rose 11.4 percent to $9.61 billion and same-store sales expanded 11.4 percent. Its annual meeting is scheduled for May 26 at its headquarters.

March US Retail Sales Showing Unexpected Strength

Dow Jones Newswires
By Karen Talley

U.S. consumers spent March on the move, allowing many retailers to deliver solid sales numbers that suggest resilience in the face of challenges from a later Easter, poor weather and higher gasoline prices.

Early reports from companies including warehouse club Costco Wholesale Corp., Victoria's Secret operator Limited Brands Inc., and teen retailer Zumiez Inc. show considerably better gains than expected at stores open a year or more.

Others, including Hot Topic Inc., Stage Stores Inc. and apparel retailer Cato Corp. posted drops in same-store sales from a year earlier, but the declines were less than analysts projected.

"I wouldn't necessarily say the performances we're seeing for March was remarkable, because expectations were so low," said John Long, retail strategist at Kurt Salmon. "It will take April and the Easter holiday to really gauge what's going on, especially on the apparel side."

Wet Seal Inc., a young women's retailer, reported a 4.7% gain in same-store sales compared with expectations for a 1.7% drop. Chief Executive Susan McGalla said the company estimated same-store sales would have increased at a high single-digit percentage without the effect of a later Easter, but that April would benefit as a result.

The month did see robust growth in employment, with non-farm payrolls showing the addition of 216,000 positions, spurring hopes for a sustained employment recovery. The stock market also continues rising, a plus especially for higher-end shoppers.

Costco, which posted a 13% rise in same-store sales when analysts were projecting a 7.4% gain, continued to benefit from higher gasoline prices at the pumps at its clubs, favorable foreign exchange rates and the continued economic recovery in California, where the company has a significant presence.

Costco's international operations showed continued growth, with foreign sales rising 17% for the month, while U.S. sales increased 11%. Costco said its Tamasakai, Japan, warehouse, closed for repairs from earthquake damage, is expected to reopen before the end of the year.

While many other big players are still to be heard from, including Target Corp., Macy's Inc. and Saks Inc., it is looking like retailers will beat expectations as a group.

The 25 retailers tracked by Thomson Reuters are expected to post a 0.7% drop in same-store sales for last month, with much of the reservations for a stronger showing the result of Easter being its latest since 1943. The calendar shift pushed buying into April. The March showing is expected to be followed by 7.5% gain in April. As a result of the April momentum, sales for the two months are expected to show 3.4% growth, which Thomson Reuters considers healthy buying.

Easter fell on April 4 last year and is three weeks later this year on April 24.

And consumers are expected to buy. U.S. retail spending on Easter related merchandise, for everything from cookware to clothing, is expected to average $131.04 a person this year, up 11% from a year ago, the National Retail Federation said. The figure is based on a poll of consumers. The increase suggests momentum and is "a good sign leading into the much busier and important months to come," said Matthew Shay, the trade group's president.

Retailers in coming months will look to back-to-school and Christmas holiday buying to the lion's share of their annual sales. They are also facing increasing cost pressures from rising cotton and labor prices and will have to see what kind of price increases shoppers will absorb.