Clothing Firm Charlotte Russe Will Try an IPO On for Size


At a time when companies with red ink, low sales and a dot-com on their names are all the stock market rage, San Diego-based retailer Charlotte Russe is planning to go public with healthy profit, gangbuster sales--and no immediate Internet strategy.

Charlotte Russe Holding Inc., three years after buying out the founding family and almost tripling the number of stores, valued the deal at as much as $46 million, according to papers filed with the Securities and Exchange Commission.

The value-priced shopping mall retailer targets women in the 15-to-35 age group, selling dresses in the $20-to-$60 range, with an average apparel sale of $18.75--on the lower end of the industry's price scale.

The company also operates stores under the Rampage banner, which features less career clothing and more cutting-edge fashion, with most dresses from $38 to $68 and an average apparel sale of $29.

Proceeds from the sale of common stock, which the company estimates will be priced at $13 to $15, will be used to repay debt and for "general corporate purposes"--with a long-term goal of national expansion.


The question is, will the equity market respond to Russe's formula of profit generated by bricks and mortar?

"A mall-based specialty retailer is a whole different mind-set for investors," said David Menlow, editor of IPO Frontline, a newsletter for small investors. "It may be nice, they may be making money, but it is not going to get the investors' blood percolating."

Apparel experts, however, cautioned not to count out the expertise of Russe's management team.

Using a system that tests high-fashion, slightly higher-priced clothes at Rampage, then volume-stocks the bestsellers at the more traditional Charlotte Russe, a team led by Chief Executive Bernard Zeichner has doubled sales since he and Connecticut-based investment group Saunders, Karp & Megrue bought the company in 1996.

In the first nine months of this fiscal year, through June 26, sales reached $126.4 million, up 34% from a year earlier.

"Bernie's creativity and dynamics really brought Charlotte Russe to the next level," said Barbara Fields, owner of Barbara Fields Buying Office and a 17-year veteran of the juniors apparel industry. "When you walk into that store, you know you're walking into a trendy store. They do a very, very good job on their visuals and presentation by putting together cohesive looks."

Fields added, however, that continued growth will not be easy: Competition is stiff, and national expansion is always dicey.

Russe's closest competitors, Fields said, aren't the denim-focused Gap stores or the casual Wet Seal outlets, because neither carries the dressier date or work clothes offered at Russe and Rampage stores.

Rather, fast-growing Clothestime, Fields said, is going to increasingly give Russe a run for the money in terms of affordable fashion.

What's more, many West Coast companies have run into difficulties when they try to buy for a national audience, Fields said. A majority of Russe's stores are in Southern California, Arizona and Nevada, according to its SEC filings.

"You have a lot of factors to contend with: climate, different weights of fabrication, different segments of the marketplace," Fields said. "What you buy for Southern California or the Southeast you would not necessarily buy for Omaha."

Menlow added that a young-shoppers company that apparently does not have a well-defined online selling plan could give investors some pause.


Zeichner came to Russe after leading Guess Inc.'s retailing division. He had previously headed junior retailer Contempo Casuals.

Zeichner lured a team of apparel retailing veterans, including Harriet A. Bailiss-Sustarsic, who became Russe's executive vice president and merchandise manager after rising through the ranks at Contempo and then Rampage.

The company also expanded from the founding family's 35 stores to 96 sites: 74 Charlotte Russe stores plus 22 Rampage stores after it bought the chain in 1998. Charlotte Russe employed about 1,650 workers as of its IPO filing in late June.

Net income during the first three quarters of this fiscal year rose to $6.9 million, an 81% increase over the same period a year earlier. Sales in stores open at least a year--considered the best measure of retail health--increased 6.9%, comparable to specialty retailer Talbots, one of this year's specialty retailing success stories.

A year earlier, however, in spite of significant sales increases, the company added only slightly to its operating income. Those figures tell IPO watcher Menlow that the company's plan to pay down debt with its IPO proceeds is a good goal.

"The net is just not there," Menlow said. "Even though they're making money, they added only" a modest gain to the bottom line in fiscal 1998.

Charlotte Russe began in 1975 with a Carlsbad store named for the favorite parfait dessert of three Brooklyn-born brothers: Daniel, Frank and Larry Lawrence.

Offering affordable fashion for young women, the chain grew to 35 stores and annual sales of $70 million by the time the Lawrence brothers sold it. Over the years, the store broadened its line to appeal to a second generation of customers: the teenage daughters of women who themselves had shopped at Russe in their 20s.


The lesson of Rampage, however, is a retail warning. Right before its fall, it was all the rage, with about $260 million in sales in the mid-1990s, but it ran into trouble after buying the Judy's apparel chain and opening another younger-concept store group shortly thereafter. By June 1997, Rampage had filed for bankruptcy protection.

"It's one thing to get up there--it's another thing to stay there," Fields cautioned.

"You really have to be always trying new things in order to succeed because of who the customer is. You're dealing with a very fickle customer."

Charlotte Russe's IPO, tentatively set for mid-October, is being underwritten by BancBoston Robertson Stephens, Banc of America Securities, PaineWebber and First Union Capital Markets. Russe plans to trade on Nasdaq under the symbol CHIC.


Times staff writer Abigail Goldman can be reached at abigail.goldman


Ringing Up Sales

Sales and net income have been rising for Charlotte Russe Holding Inc., which took over the Rampage chain in 1998 and also owns stores under its own name.



Fiscal year* Net sales (in millions) Net income (in millions) 1994** $59.3 $0.7 1995** 61.6 0.6 1996** 70.7 3.5 1997 81.5 5.1 1998 134.1 5.5



* Fiscal years end in September

** Under previous ownership

Source: Company SEC filings

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