FOR IMMEDIATE RELEASE
CHARMING SHOPPES REPORTS FOURTH QUARTER RESULTS;
ANNOUNCES RENEWAL OF MASTER TRUST'S $50.0 MILLION CREDIT CARD RECEIVABLES FACILITY;
PROVIDES OUTLOOK FOR FIRST QUARTER
| · | Non-GAAP loss from continuing operations of $(0.34) per share in the fourth quarter, excluding non-cash goodwill and store impairment charges, and restructuring charges |
| · | Loss from continuing operations of $(0.94) per share in the fourth quarter on a GAAP basis |
| · | $100 million of cash, cash equivalents and available for sale securities at the end of the fiscal year |
| · | No outstanding borrowings on line of credit facility, committed through July 2010 |
| · | $125 million of cost reductions projected for fiscal year 2010 |
Bensalem, PA, March 18, 2009 – Charming Shoppes, Inc. (NASDAQ:CHRS) a leading multi-brand apparel retailer specializing in women's plus-size apparel, today reported sales and operating results for the fourth quarter and year ended January 31, 2009. Additionally, the Company announced its Master Trust’s $50.0 million credit receivables facility has been renewed through March 2010. The Company also provided an outlook for its first fiscal quarter ending May 2, 2009.
Operating Results for the Fourth Quarter Ended January 31, 2009
For the thirteen weeks ended January 31, 2009, on a non-GAAP basis, excluding after-tax charges of $69.5 million, or $0.60 per diluted share, related to goodwill and store impairment, and restructuring charges, the Company reported a loss from continuing operations of $(39.0) million, or $(0.34) per diluted share; on a GAAP basis, the Company reported a loss from continuing operations of $(108.5) million, or $(0.94) per diluted share. The Company’s non-GAAP results are in line with its previous projection for a diluted loss per share from continuing operations in the range of $(0.32) to $(0.38) for the fourth quarter. For a reconciliation of GAAP to non-GAAP financial information, refer to the table at the end of this release.
Charges of $69.5 million recorded during the quarter ended January 31, 2009 include non-cash charges of $64.2 million, or $0.56 per diluted share, primarily related to goodwill and store impairment charges, the write-down of store assets, and the accelerated depreciation of fixed assets related to the sale of the non-core misses catalogs. Pre-tax cash charges of $5.3 million are primarily related to costs incurred for the execution of the Company’s business transformation initiatives, including severance costs, and costs associated with the closing of the Lane Bryant Woman catalog and Figure Magazine.
The Company’s loss from continuing operations, on a GAAP basis, compares to a loss from continuing operations for the thirteen weeks ended February 2, 2008 of $(44.9) million, or $(0.39) per diluted share, which included non-cash charges of $25.2 million, net of tax, related to the impairment of goodwill for the Figi’s Gifts in Good Taste business, and accelerated depreciation related to the relocation of the Catherines home office. Cash charges of $1.9 million in the year ago period included severance costs related to the relocation of the Catherines home office.
Net sales from continuing operations for the thirteen weeks ended January 31, 2009 decreased 14% to $631.9 million. Consolidated comparable store sales for the Company’s Retail Stores segment decreased 15% during the thirteen weeks ended January 31, 2009.
Alan Rosskamm, Chairman of the Board and Interim Chief Executive Officer of Charming Shoppes, Inc. said, “Our operating results were in line with our expectations, as we were able to offset lower than planned sales through improved merchandise margins at our retail brands. We are beginning to experience some stability in our retail merchandise margins, with improvement at Lane Bryant and Fashion Bug, as a result of our stringent focus on inventory management. We also were successful in reducing expenses by $24 million during the quarter, as compared to the fourth quarter in the previous year, signaling that our cost reduction initiatives are being executed and are beginning to yield meaningful results.
“We are also pleased to have strengthened our cash position during one of the most challenging retail environments we have seen in decades. Our strong liquidity includes year-end balances of cash, cash equivalents and available-for-sale securities of $100 million, exceeding our projections for the period, and no borrowings outstanding on our $375 million line of credit, which is committed through July 2010. We generated approximately $26 million in cash during the fourth quarter, through tightly managed inventories and decreases in expenditures, as well as from net proceeds from the sale of credit card receivables related to the divested non-core misses catalogs.”
Sensitivity Analysis for Free Cash Flow Generation
Rosskamm stated, “We are confident in our ability to deliver positive cash flow in fiscal year 2010, under the assumption that comparable store sales continue to trend at low double digit declines. If comparable store sales declines accelerate to the mid-teens, we expect to be cash-neutral. Our liquidity analysis assumes continued decreases in inventory levels across the retail brands, particularly in the first half of the year, gross margin improvement from stronger inventory management and enhanced merchandise assortments, additional reductions in capital expenditures, and significant savings related to our cost reduction program, as discussed below. Our analysis does not include potential cash proceeds from any further divestitures, nor from the refinancing of any existing real estate assets.”
Charming Shoppes Master Trust's $50.0 Million Credit Receivables Conduit Facility Renewed
The Company also announced today that its $50.0 million Series 1999-2 Credit Card Securitization facility has been renewed through March 30, 2010. Combined with other existing conduit facilities, the Company’s total funding capacity through conduits is $155 million through 2010.
Including term series asset-backed securities, the current receivables funding structure provides availability of $655 million. At January 31, 2009, $536 million of securitized credit card receivables were outstanding, which is expected to be the peak level outstanding for the fiscal year ending January 30, 2010. The Company estimates receivables outstanding for fiscal year 2010 to be in a range of $490 to $510 million. In April 2009, the Company’s $180 Million Series 2004-1 Term Facility is scheduled to begin amortizing at a rate of approximately $14.4 million per month, and the Company expects to meet amortization needs through its fully available $155 million conduit facilities. The Company projects funding availability will continue to exceed funding needs during fiscal 2010.
Business Transformation Initiatives
“We are making a great deal of progress in our strategy to return the Company’s focus and energies to our core brands – Lane Bryant, Fashion Bug and Catherines”, Rosskamm continued. “In addition to several previously announced actions we have taken to eliminate non-core assets, we have also announced the discontinuation of Figure Magazine, effective immediately, and the closing of the shoetrader.com website during the second half of the current year.
“In November, 2008, we announced a significant restructuring and cost reduction program, with the objectives of improving and simplifying critical processes, consolidating activities and infrastructure, and reducing our expense structure to be more appropriately aligned with our generation of revenues in a recessionary environment. At that time, expectations were for net cost reductions of approximately $100 - $125 million over two fiscal years through this program, with $75 million expected to be realized in fiscal year 2010.
“We now expect to realize cost savings of approximately $125 million in the current fiscal year, as compared to our total buying, occupancy and SG&A expenses for the fiscal year ended January 31, 2009. Buying expense will benefit from changes in supply chain, including the frequency of store deliveries, as well as efficiencies in the Company’s distribution network. Occupancy expense reductions are benefiting from working aggressively with landlords to achieve rent reductions in the majority of our underperforming stores. Where our rent reduction efforts are unsuccessful, we will consider closing the stores. In selling expense, significant savings are planned in store labor, based on efficiencies planned from implementing new labor scheduling models, and renegotiating all “not for re-sale” goods and services, such as store supplies. General and administrative savings include corporate and brand overhead savings, including previously announced workforce reductions, suspension of 401(k) matches and reductions in benefits.”
Merchandising Initiatives
Rosskamm continued, “Each of our brand leaders has developed improved strategies in order to better hone the fashion point-of-view for their brand, and provide a merchandising and marketing program that will focus exclusively on their defined target customer. Significant progress has been made in the clearing of inventories and go-forward receipt flows, the appointment of design executives, remerchandising by lifestyle for the fall selling season, and reworking store presentation and marketing to support our strategy.”
The Company has also begun the process of increasing the percentage of internally designed, developed and sourced fashion product, with the goal of enhancing its competitive position through a more compelling fashion assortment that provides better value to customers. A process has commenced to identify select vendors, both overseas and domestically, who can best help achieve this goal. The execution of this model is expected to drive sales, increase gross margins and contribute to improvement in the Company’s financial results over time. Deliveries to stores through this new model are expected to begin this fall, with the process more fully implemented by spring 2010.
The Company’s international sourcing division will play a critical role in increasing the percentage of directly sourced merchandise. This week, the Company announced the appointment of Visa Vei as President – Asia, overseeing multi-country sourcing operations. During her extensive 25+ year career in international sourcing, she has developed the critical skills and expertise required in order to oversee the transition and growth of the Company’s international sourcing operations.
Non-Cash Impairment Charges
During the fourth quarter, the Company completed its annual goodwill and intangible asset impairment testing, and based on the macro-economic climate and its performance outlook, the Company recorded a non-cash goodwill impairment charge in the amount of $43.2 million, related to the recorded goodwill for the acquisition of Catherines Plus Sizes. The Company also recorded a non-cash store asset impairment charge of $16.6 million, and an intangible assets impairment charge of $1.5 million related to the impairment of trademarks and tradenames.
Tax Valuation Allowance
As part of its quarterly closing and reporting process, the Company evaluated its deferred income taxes and determined that a tax valuation allowance was required. For the fourth quarter ended January 31, 2009, the Company recorded a tax valuation allowance of $(21.1) million, or $(0.18) per diluted share. For the fiscal year ended January 31, 2009, the Company recorded a tax valuation allowance of $(38.6) million, or $(0.34) per diluted share. The recording of a tax valuation allowance does not have any impact on cash, nor does such an allowance preclude the Company from using its tax loss carry forwards or other deferred tax assets in the future when results demonstrate a pattern of profitability.
Operating Results for the Year Ended January 31, 2009
For the fifty-two weeks ended January 31, 2009, on a non-GAAP basis, excluding after-tax charges of $114.7 million, or $1.00 per diluted share, related to goodwill and store impairment, restructuring charges and catalog discontinuation costs, the Company reported a loss from continuing operations of $(54.6) million, or $(0.48) per diluted share; on a GAAP basis, the Company reported a loss from continuing operations of $(169.3) million, or $(1.48) per diluted share. For a reconciliation of GAAP to non-GAAP financial information, refer to the table at the end of this release.
After-tax charges of $114.7 million recorded during the year ended January 31, 2009 include after-tax non-cash charges of $87.7 million, or $0.76 per diluted share, primarily related to goodwill and store impairment charges, the write down of store assets and the accelerated depreciation of the write-down of fixed assets related to the sale of the non-core misses catalogs. After-tax cash charges of $27.0 million are primarily related to the separation of our former Chief Executive Officer, lease termination payments, costs incurred in the execution of the Company’s business transformation initiatives, including severance costs, consultant fees, and costs associated with the closing of the Lane Bryant Woman catalog and Figure Magazine.
The Company’s loss from continuing operations, on a GAAP basis, compares to income from continuing operations of $0.7 million, or $0.01 per diluted share, for the fifty-two weeks ended February 2, 2008.
Net sales from continuing operations for the fifty-two weeks ended January 31, 2009 decreased 9% to $2.475 billion. Consolidated comparable store sales for the Company’s Retail Stores segment decreased 12% during the fifty-two weeks ended January 31, 2009.
Comparable store sales by retail brand for the three and twelve month periods ended January 31, 2009, were:
| | Three Months Ended 1/31/09 | Twelve Months Ended 1/31/09 |
Lane Bryant Stores(1) | -17% | -12% |
| Fashion Bug Stores | -14% | -11% |
| Catherines Stores | -11% | -13% |
| Consolidated Retail Store Brands | -15% | -12% |
(1) Includes Lane Bryant Outlet Stores
Net sales from continuing operations by brand for the three and twelve month periods ended January 31, 2009 and February 2, 2008 were:
| | | Three Months | | | Three Months | | | Twelve Months | | | Twelve Months | |
| | | Ended 1/31/09 | | | Ended 2/2/08 | | | Ended 1/31/09 | | | Ended 2/2/08 | |
| | | ($ in millions) | | | ($ in millions) | | | ($ in millions) | | | ($ in millions) | |
Lane Bryant(1) | | $ | 273.0 | | | $ | 323.6 | | | $ | 1,111.9 | | | $ | 1,237.6 | |
| Fashion Bug | | $ | 183.8 | | | $ | 225.8 | | | | 843.8 | | | $ | 984.1 | |
| Catherines | | $ | 68.1 | | | $ | 76.8 | | | $ | 312.1 | | | $ | 353.2 | |
| Direct-to-Consumer Segment | | $ | 96.7 | | | $ | 95.9 | | | $ | 167.5 | | | $ | 120.6 | |
Other (2) | | $ | 10.3 | | | $ | 9.7 | | | $ | 39.6 | | | $ | 27.0 | |
| Consolidated Net Sales from Continuing Operations | | $ | 631.9 | | | $ | 731.8 | | | $ | 2,474.9 | | | $ | 2,722.5 | |
(1) Includes Lane Bryant Outlet Stores; (2) Includes Petite Sophisticate Retail and Outlet Stores, Corporate and Other.
Discontinued Operations
For the fifty-two weeks ended January 31, 2009, the Company reported a loss from discontinued operations of $(74.9) million (net of tax), or $(0.65) per diluted share, compared to a loss from discontinued operations of $(85.0) million (net of tax), or $(0.69) per diluted share for the corresponding period a year ago. The loss from discontinued operations for the fifty-two weeks ended January 31, 2009, includes an after-tax loss on results of operations of approximately $(28.2) million and a loss on disposition of our non-core misses catalog business of approximately $(46.7) million. There was no significant financial impact from discontinued operations for the thirteen weeks ended January 31, 2009. The loss from discontinued operations for the fifty-two weeks ended February 2, 2008, included impairment of goodwill and trademarks of approximately $(75.7) million, net of tax.
Outlook for the First Fiscal Quarter ending May 2, 2009
For the three month period ending May 2, 2009, on a non-GAAP basis, the Company has projected a diluted loss per share from continuing operations in the range of $(0.03) to $(0.07). This projection includes a provision for income taxes of approximately $0.02 per diluted share. On a GAAP basis, the Company has projected a diluted loss per share in a range of $(0.09) to $(0.13). This projection includes charges of approximately $7 million, or $0.06 per diluted share, for the execution of our business transformation initiatives, the majority of which are non-cash charges. This projection does not include the non-cash impact of the adoption of the FASB issued FSP APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlements)” which is effective beginning Fiscal 2010. In the first quarter of the previous year, the Company recorded income from continuing operations of $0.01 on a GAAP basis. The Company's projection for the first quarter assumes net sales from continuing operations in the range of $535 to $545 million, compared to net sales from continuing operations of $641 million for the period ended May 3, 2008. The Company's projection assumes decreases in consolidated comparable store sales in the low double digits for the Company's Retail Stores segment, compared to a 13% decrease in consolidated comparable store sales in the prior year. Additionally, the Company expects to generate cash during the fiscal quarter ending May 2, 2009. For a reconciliation of GAAP to non-GAAP financial information, refer to the table at the end of this release.
The Company’s plans include further significant reductions in inventories during the first quarter of fiscal year 2010, in addition to decreases in inventories, on a same store basis, of 16% for the fiscal year ended January 31, 2009. These plans are expected to benefit the Company’s operating performance, including substantially reduced markdowns and improved gross margins, as well as the continued generation of free cash flow.
For the fiscal year ending January 30, 2010, the Company has planned net capital expenditures of approximately $24 million, representing a reduction of 50% below the $48 million for the fiscal year ended January 31, 2009. Depreciation and amortization for the fiscal year ending January 30, 2010 is estimated to be approximately $80 million.
Planned store activity for the fiscal year currently includes approximately 6 new stores at the Company’s Lane Bryant brand, 12 relocations, primarily at the Lane Bryant brand, and as previously announced, approximately 100 store closings.
Charming Shoppes, Inc. will host its fourth quarter earnings conference call today at 9:15 am Eastern time. To listen to the conference call, please dial 877-407-8293 approximately 10 minutes prior to the scheduled event. The conference call will also be simulcast at http://phx.corporate-ir.net/phoenix.zhtml?c=106124&p=irol-audioArchives. The general public is invited to listen to the conference call via the webcast or the dial-in telephone number.
A transcript of prepared remarks for the conference call will be accessible at http://phx.corporate-ir.net/phoenix.zhtml?c=106124&p=irol-audioArchives prior to 9:15 a.m. eastern time on Wednesday, March 18, 2009.
The conference call will be recorded on behalf of Charming Shoppes, Inc. and consists of copyrighted material. It may not be re-recorded, reproduced, transmitted or rebroadcast, in whole or in part, without the Company's express written permission. Accessing this call or the rebroadcast constitutes consent to these terms and conditions. Participation in this call serves as consent to having any comments or statements made appear on any transcript, broadcast or rebroadcast of this call.
At January 31, 2009, Charming Shoppes, Inc. operated 2,301 retail stores in 48 states under the names LANE BRYANT®, FASHION BUG®, FASHION BUG PLUS®, CATHERINES PLUS SIZES®, LANE BRYANT OUTLET®, and PETITE SOPHISTICATE OUTLET®. During the twelve months ended January 31, 2009 the Company opened 48, relocated 52, and closed 156 retail stores. The Company ended the period with 897 Fashion Bug and Fashion Bug Plus stores, 892 Lane Bryant and Lane Bryant Outlet stores, 463 Catherines stores, and 49 Petite Sophisticate Outlet stores, comprising approximately 15,118,000 square feet of leased space. Please visit www.charmingshoppes.com for additional information about Charming Shoppes, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
For the Thirteen and Fifty-two Weeks Ended January 31, 2009 and February 2, 2008
| | | 13 Weeks Ended 1/31/09 | | | 13 Weeks Ended 2/2/08 | | | 52 Weeks Ended 1/31/09 | | | 52 Weeks Ended 2/2/08 | |
| | | $ in millions | | | EPS | | | $ in millions | | | EPS | | | $ in millions | | | EPS | | | $ in millions | | | EPS | |
| Income/(Loss) per share from continuing operations, on a GAAP basis | | $ | (108.5 | ) | | $ | (0.94 | ) | | $ | (44.9 | ) | | $ | (0.39 | ) | | $ | (169.3 | ) | | $ | (1.48 | ) | | $ | 0.7 | | | $ | 0.01 | |
| Impact of impairment of goodwill, store assets and trademarks charges (non-cash) | | $ | (61.3 | ) | | $ | (0.53 | ) | | $ | (23.8 | ) | | $ | (0.21 | ) | | $ | (81.5 | ) | | $ | (0.71 | ) | | $ | (23.9 | ) | | $ | (0.19 | ) |
| Impact of restructuring and other charges | | $ | (8.2 | ) | | $ | (0.07 | ) | | $ | (3.3 | ) | | $ | (0.03 | ) | | $ | (33.2 | ) | | $ | (0.29 | ) | | $ | (3.3 | ) | | $ | (0.03 | ) |
| Income (Loss) per share from continuing operations, on a non-GAAP basis | | $ | (39.0 | ) | | $ | (0.34 | ) | | $ | (17.8 | ) | | $ | (0.15 | ) | | $ | (54.6 | ) | | $ | (0.48 | ) | | $ | 27.9 | | | $ | 0.23 | |
For the Thirteen Weeks Ending May 2, 2009 and Ended May 3, 2008
| | | 13 Weeks Ending 5/2/09 | | | 13 Weeks Ended 5/3/08 | |
| | | EPS | | | EPS | |
| Income/(Loss) per share from continuing operations, on a GAAP basis | | $ | (0.09 - $0.13 | ) | | $ | 0.01 | |
| Impact of restructuring and other charges | | $ | (0.06 | ) | | $ | (0.04 | ) |
| Income (Loss) per share from continuing operations, on a non-GAAP basis | | $ | (0.03 - $0.07 | ) | | $ | 0.05 | |
SEC REGULATION G -- Charming Shoppes, Inc. reports its financial results in accordance with generally accepted accounting principles (GAAP). However, management believes that non-GAAP performance measures, which exclude one-time charges, present the operating results of the Company on a basis consistent with those used in managing the Company's business, and provide users of the Company's financial information with a more meaningful report on the condition of the Company's business. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP.
Safe Harbor Statement
This press release contains and the Company’s conference call may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning the Company's operations, performance, and financial condition. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those indicated. Such risks and uncertainties may include, but are not limited to: the failure to find a suitable permanent replacement for the Company's former Chief Executive Officer within a reasonable time period, the failure to consummate our identified strategic solution for our non-core assets, the failure to effectively implement our planned consolidation, cost and capital budget reduction plans and store closing plans, the failure to implement the Company's business plan for increased profitability and growth in the Company's retail stores and direct-to-consumer segments, the failure to effectively implement the Company's plans for a new organizational structure and enhancements in the Company's merchandise and marketing, the failure to effectively implement the Company's plans for the transformation of its brands to a vertical specialty store model, the failure to achieve increased profitability through the adoption by the Company's brands of a vertical specialty store model, the failure to achieve improvement in the Company's competitive position, the failure to continue receiving financing at an affordable cost through the availability of our credit card securitization facilities and through the availability of credit we receive from our suppliers and their agents, the failure to maintain efficient and uninterrupted order-taking and fulfillment in our direct-to-consumer business, changes in or miscalculation of fashion trends, extreme or unseasonable weather conditions, economic downturns, escalation of energy costs, a weakness in overall consumer demand, the failure to find suitable store locations, increases in wage rates, the ability to hire and train associates, trade and security restrictions and political or financial instability in countries where goods are manufactured, the interruption of merchandise flow from the Company's centralized distribution facilities, competitive pressures, and the adverse effects of natural disasters, war, acts of terrorism or threats of either, or other armed conflict, on the United States and international economies. These, and other risks and uncertainties, are detailed in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2008, our Quarterly Reports on Form 10-Q and other Company filings with the Securities and Exchange Commission. Charming Shoppes assumes no duty to update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
| CONTACT: | Gayle M. Coolick |
| | Vice President, Investor Relations |
| | 215-638-6955 |
