Tween Brands Inc., responding to slumping sales at its Limited Too stores, said it will convert about 560 of them to its lower-priced Justice brand and close 26 others.The strategy shift by the New Albany, Ohio, retailer, which sells apparel aimed at 7- to 14-year-old girls, comes as the economic slowdown is causing preteens and teens, along with older consumers, to trade down to lower-priced goods. The Justice brand is priced an average of 20% to 25% less than the more fashion-conscious Limited Too brand.
Mother and daughter back-to-school shoppers at the Limited Too store at the Shops at Mission Viejo, Calif., on Saturday. The division aims at fashion-conscious preteens.
The retailer also reported a loss of $6.7 million, or 27 cents a share, for its fiscal second quarter ended Aug. 2. Sales at stores open at least a year declined 8% in the period, with both chains doing worse than expected. Justice's same-store sales were up 3%.
Analysts were surprised by the announcement, which came after the close of trading Tuesday, and said it could signal a highly promotional back-to-school and holiday season. That Tween Brands is restructuring around a chain that delivered only a 3% same-store sales gain in the latest quarter is "another ominous sign" that this will be one of the worst back-to-school seasons in years, said Brian Tunick, an analyst at J.P. Morgan Chase & Co. In after-hours trading, Tween Brands stock was at $12.36, off $2.52, or 17%.
In an interview, Tween Brands Chief Executive Mike Rayden said he believes shoppers will continue to look for value, even if the economy picks up. "They have changed their psyche," he said.
Tween Brands said it will take a charge of $18 million, or 45 cents a share, in the second half of its fiscal year to cover costs related to the conversion, including severance and store closings. After the charge, Tween Brands said it expects second-half earnings per share in the range of 35 cents to 65 cents, based on a 6% to 9% decline in comparable-store sales, among other estimates.
Tween Brands added that it expects the conversion to result in annual after-tax savings of $20 million to $25 million, including about $15 million from reduced head count and about $9 million in reduced marketing and store expenses. As part of the conversion, Tween Brands has eliminated 148 positions.
The conversion, which is expected to be completed by the end of the company's fiscal first quarter in May, will expand the Justice brand's reach into malls. By the end of the conversion, the Justice chain is expected to have more than 900 stores.
However, Tween Brands will monitor the performance of 90 stores that were formerly Limited Too locations for "possible off-mall relocation." Limited Too products will continue to be carried in 175 to 200 Justice stores, where they will make up about 15% to 20% of the assortment, and online.
In recent quarters, the 310-store Justice chain has posted double-digit increases in same-store sales. In a limited number of prior conversions, the new Justice stores had "equal or more volume, and in a few cases, significantly more" volume than the old Limited Too stores, the company said.
Tween Brands lately has had trouble meeting its profit guidance. In recent months, the company's chief financial officer and the president of the Limited Too chain have both resigned and the company has eliminated the post of chief operating officer.
By: Jennifer Saranow
Wall Street Journal; August 13, 2008
