Weak Sales Hurt Levi, Charlotte Russe Earnings
Two large California clothiers issued gloomy reports tied to weak sales Tuesday as Levi Strauss & Co. said it lost $24 million in the first quarter and Charlotte Russe Holding Inc. predicted a second-quarter loss and pulled the plug on its Charlotte’s Room chains of accessories stores.
For San Francisco-based Levi, which makes bluejeans and other casual apparel, the fiscal first-period loss contrasted with a profit of $42 million in the same period in 2002. The loss was due in part to lower sales and higher interest expenses.
Sales in the quarter ended Feb. 23 dropped 6% to $875 million. Levi blamed the downturn on “anemic economies” and weak sales across the globe.
“The first quarter was very difficult ... but we expect things to improve as we go through the year,” Chief Executive Phil Marineau told analysts in a conference call.
The company is privately held, but reports financial results because some of its debt is publicly traded.
Levi is trying to reverse its fortunes partly by bulking up its product offerings and offering lower wholesale prices to win favor with retailers. Marineau said Tuesday that he remains confident in the company’s strategy.
He traced the disappointing first-quarter results to a weak holiday season that left retailers stuck with piles of merchandise. As a result, merchants worked to unload leftover clothes, rather than place new orders. A severe downturn in retail traffic in February exacerbated the problem.
Still, Levi said it expects sales will increase by 2% to 5% for the year, thanks in part to a new, lower-priced jean that will debut in Wal-Mart stores this summer.
Marineau said he does not expect the retail environment to be “substantially more robust” in the second half of the year, but it should improve compared with the first quarter. The wild card: “the uncertain impact of a prolonged war, which I don’t think any of us can predict,” he said.
Meanwhile Charlotte Russe, the San Diego-based operator of the Charlotte Russe and Rampage chains that cater to teens and young women, said it will close its 10 Charlotte’s Room stores as soon as possible. The chain, which sells accessories, gifts and home decor to 11- to 19-year-olds, couldn’t generate enough sales to warrant opening more stores, the company said.
Charlotte Russe had said earlier it was considering alternatives for the concept, which opened in 1999. Four of the stores to be closed are in California.
The company said sales at stores open at least a year, a key measure of growth, probably will drop 11% to 12% in the second quarter ending Saturday. It predicted a loss of 20 cents to 22 cents, including a $6-million pre-tax charge tied to closure of the Charlotte’s Room chain. Without the charge, the company predicted the loss would have been 5 cents to 7 cents a share.
A consensus of analysts polled by Thomson First Call expected the company to earn 13 cents a share. Charlotte Russe logged a profit of $3.5 million, or 15 cents a share, in the same year-earlier period. It said it expects to return to profitability again in the fiscal third quarter.
Charlotte Russe shares closed at $8.85, down 15 cents, in Nasdaq trading Tuesday. The results were released after the markets closed.