EX-99 2 q405ex99.txt QUARTER 4 FISCAL 2005 PRESS RELEASE EXHIBIT 99 FOR IMMEDIATE RELEASE CHARMING SHOPPES REPORTS PRELIMINARY, UNAUDITED FOURTH QUARTER AND FULL YEAR RESULTS o Net Income increases 65% for fiscal year 2005 o Company estimates impact of changes in lease-related accounting; will restate financial statements o First quarter earnings outlook reaffirmed Bensalem, PA, March 16, 2005 - Charming Shoppes, Inc. (NASDAQ:CHRS) a leading retail apparel chain specializing in women's plus-size apparel, today reported sales and preliminary earnings for the fourth quarter and fiscal year ended January 29, 2005. As previously announced, the Company is reviewing its accounting practices for lease-related accounting. Based on this review, the Company will restate its previously filed financial statements as applicable. All results presented in today's press release are preliminary, unaudited and exclude the impact of such review. 3 Months Ended January 29, 2005 ------------------------------- o For the three months ended January 29, 2005, net income was $5,544,000 or $0.05 per diluted share, compared to net income of $10,146,000 or $0.09 per diluted share for the corresponding period ended January 31, 2004, a decrease of 45%. During the fourth quarter of the prior year, General and Administrative expenses were favorably impacted by approximately $5 million on a pre-tax basis, primarily related to employee medical benefit programs. o Net sales for the three months ended January 29, 2005 were $586,100,000, compared to sales of $585,647,000 for the three months ended January 31, 2004. Comparable store sales for the consolidated corporation decreased 2% during the three months ended January 29, 2005. 12 Months Ended January 29, 2005 -------------------------------- o For the twelve months ended January 29, 2005, net income was $67,242,000 or $0.54 per diluted share compared to net income of $40,639,000 or $0.35 per diluted share for the corresponding period ended January 31, 2004, an increase of 65%. Net income for the twelve months ended January 31, 2004 included pre-tax expense in the amount of $11,534,000 ($7,340,000 after tax or $0.06 per diluted share) related to the implementation of the Company's Cost Reduction Plan, which was announced on March 18, 2003. o During the year, the Company experienced solid progress in the improvement of its Lane Bryant brand, including strong increases in both the gross margin and operating margin for Lane Bryant. Inventory was well managed at each of the Company's brands, contributing to strong cash flows. During the first two quarters of the fiscal year, the Company reported record net income. o Net sales for the twelve months ended January 29, 2005 increased 2% to $2,332,334,000, compared to sales of $2,285,680,000 for the twelve months ended January 31, 2004. Comparable store sales for the consolidated corporation increased 1% for the twelve months ended January 29, 2005. Commenting on the fiscal year, Dorrit J. Bern, Chairman, Chief Executive Officer and President of Charming Shoppes, Inc., said, "I am very pleased with the excellent progress we made during 2004, increasing net income by 65%, driven by gross margin expansion of 160 basis points. Much of our success is attributable to the strong operating margin improvement at our Lane Bryant brand. Inventory management at each of our brands was well executed, resulting in a decrease in inventory of $25 million, while at the same time driving positive comparable store sales for the corporation during the year. Achieving this goal has allowed us to utilize our working capital more effectively. As a result, we strengthened our balance sheet, generating strong cash flows. This was all achieved despite the difficult environment we experienced during the fourth quarter." Bern continued, "We look forward to achieving additional successes during 2005, including our goals of continued expansion of margins and increased market share in women's plus apparel. We have the opportunity to build on the many successes we achieved during 2004, and to even further improve our execution on a day-to-day basis." Changes in Lease-Related Accounting ----------------------------------- The Company previously announced a review of its lease-related accounting practices as a result of a clarification issued on February 7, 2005 by the Securities and Exchange Commission. The Company has completed an initial assessment of the impact of correcting its lease-related accounting practices. Based on this initial assessment on March 15, 2005, management and the Audit Committee of the Company's Board of Directors discussed these matters with the Company's independent auditors and concluded that restatements of financial statements for prior fiscal years will be required. These corrections will have no impact on the Company's historical or future cash flows, previously reported comparable store sales or net sales, actual lease payments, or economic value of the Company's leasehold improvements. For the fiscal year ended January 29, 2005, the Company estimates a non-cash reduction in net income in the range of $2.5 million to $3.5 million, or $0.02 - $0.03 per diluted share. For the fiscal years ended January 31, 2004 and February 1, 2003, the Company will restate its financial statements and estimates that the reductions will not exceed $0.03 per diluted share in any fiscal year. The Company's current estimate for the cumulative non-cash after-tax reduction to shareholders' equity, including the expected adjustment to the fiscal year ended January 29, 2005, is in the range of $20 - $22 million. Additionally, the Company will adjust its accounting for construction allowances, reclassifying them as a deferred rent liability on the balance sheet and as an operating activity on the Company's statement of cash flows. These estimates are subject to change as the Company completes its internal review and its independent auditors complete their audit of the Company's financial statements. The Company's restated financial statements will be provided with the filing of its Fiscal 2005 financial results on form 10-K. First Quarter Earnings Outlook ------------------------------ For the first quarter ending April 30, 2005, the Company has reaffirmed its projection of diluted earnings per share in the range of $0.22 - $0.23. This projection assumes total sales of approximately $600 million and slightly positive comparable store sales for the consolidated corporation. For the corresponding first quarter ended May 1, 2004, which included record net income, diluted earnings per share were $0.22. Charming Shoppes, Inc. will host its fourth quarter fiscal year 2005 earnings conference call today at 9:15 am Eastern time. To listen to the conference call, please dial 1-866-818-1393 with the passcode 2594 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-eventDetails. The general public is invited to listen to the conference call via the webcast or the dial-in telephone number. This press release, a transcript of prepared conference call remarks, and certain other financial and statistical information will be available, prior to today's conference call, on the Company's corporate website, at http://phx.corporate-ir.net/phoenix.zhtml?c=106124&p=irol-audioArchives. An audio rebroadcast of the conference call will be accessible at http://phx.corporate-ir.net/phoenix.zhtml?c=106124&p=irol-audioArchives, following the live conference. 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 represents 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 the end of the period, Charming Shoppes, Inc. operated 2,221 stores in 48 states under the names LANE BRYANT(R), FASHION BUG(R), FASHION BUG PLUS(R), and CATHERINES PLUS SIZES(R). During the twelve months ended January 29, 2005, the Company opened 51, relocated 47, and closed 57 stores. The Company ended the period with 1,028 Fashion Bug and Fashion Bug Plus stores, 722 Lane Bryant stores, 471 Catherines Plus Sizes stores, and approximately 15,404,000 square feet of leased space. Please visit www.charmingshoppes.com for additional information about Charming Shoppes, Inc. This press release and the Company's conference call will contain certain forward-looking statements concerning the Company's operations, performance, and financial condition. These forward-looking statements include statements regarding future performance, sales, expenses, gross margin, capital expenditures, earnings per share, store openings and closings, and other matters. 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: failure to successfully implement the Company's business plan for increased profitability and growth in the plus-size women's apparel business, changes in or miscalculation of fashion trends, extreme or unseasonable weather conditions, economic downturns, the impact of lease accounting adjustments on fiscal year 2005 and prior periods, a weakness in overall consumer demand, failure to find suitable store locations, the ability to hire and train associates, trade restrictions and political or financial instability in countries where goods are manufactured, the interruption of merchandise flow to the Company's retail stores from its centralized distribution facilities, competitive pressures, and the adverse effects of acts or threats of war, terrorism, 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 January 31, 2004 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 Director of Investor Relations 215-638-6955 CHARMING SHOPPES, INC. (Unaudited)
4th Quarter 4th Quarter Ended Ended Percent Jan. 29, Percent Jan. 31, Percent (in thousands, except per share amounts) Change 2005(d) of Sales(b) 2004(c)(d) of Sales(b) ------- ----------- ------ ----------- ------ Net sales................................... 0.1% $ 586,100 100.0% $ 585,647 100.0% ------- ----------- ------ ----------- ------ Cost of goods sold, buying, and occupancy... (2.1) 427,353 72.9 436,365 74.5 Selling, general, and administrative........ 10.9 146,041 24.9 131,634 22.5 Expenses related to cost reduction plan(a).. (100.0) 0 0.0 566 0.1 ------- ----------- ------ ----------- ------ Total operating expenses.................... 0.8 573,394 97.8 568,565 97.1 ------- ----------- ------ ----------- ------ Income from operations...................... (25.6) 12,706 2.2 17,082 2.9 Other income, principally interest.......... 103.0 1,506 0.3 742 0.1 Interest expense............................ 3.6 (3,971) (0.7) (3,832) (0.7) ------- ----------- ------ ----------- ------ Income before income taxes.................. (26.8) 10,241 1.7 13,992 2.4 Income tax provision........................ 22.1 4,697 0.8 3,846 0.7 ------- ----------- ------ ----------- ------ Net income.................................. (45.4)% $ 5,544 0.9% $ 10,146 1.7% ======= =========== ====== =========== ====== Basic net income per share.................. $ 0.05 $ 0.09 =========== =========== Weighted average shares outstanding......... 118,362 112,650 =========== =========== Net income per share, assuming dilution..... $ 0.05 $ 0.09 =========== =========== Weighted average shares and equivalents outstanding.............................. 120,311 129,090 =========== =========== (a) Expenses related to the Company's Cost Reduction Plan, announced on March 18, 2003. (b) Results do not add due to rounding. (c) Certain prior year amounts have been reclassified to conform to the current-year presentation. (d) Amounts are preliminary and subject to adjustments based on the outcome of the Company's review of its accounting for leases.
Twelve Months Twelve Months Ended Ended Percent Jan. 29, Percent Jan. 31, Percent (in thousands, except per share amounts) Change 2005(d) of Sales(b) 2004(c)(d) of Sales(b) ------- ----------- ------ ----------- ------ Net sales................................... 2.0% $ 2,332,334 100.0% $ 2,285,680 100.0% ------- ----------- ------ ----------- ------ Cost of goods sold, buying, and occupancy... (0.2) 1,635,945 70.1 1,638,701 71.7 Selling, general, and administrative........ 3.4 577,301 24.8 558,248 24.4 Expenses related to cost reduction plan(a).. (94.8) 605 0.0 11,534 0.5 ------- ----------- ------ ----------- ------ Total operating expenses.................... 0.2 2,213,851 94.9 2,208,483 96.6 ------- ----------- ------ ----------- ------ Income from operations...................... 53.5 118,483 5.1 77,197 3.4 Other income, principally interest.......... 51.1 3,098 0.1 2,050 0.1 Interest expense............................ 0.0 (15,610) (0.7) (15,609) (0.7) ------- ----------- ------ ----------- ------ Income before income taxes and minority interest................................. 66.5 105,971 4.5 63,638 2.8 Income tax provision........................ 67.4 38,729 1.7 23,141 1.0 ------- ----------- ------ ----------- ------ Income before minority interest............. 66.0 67,242 2.9 40,497 1.8 Minority interest in net loss of consolidated subsidiary.................. (100.0) 0.0 142 0.0 ------- ---------- ------ ----------- ------ Net income.................................. 65.5% $ 67,242 2.9% $ 40,639 1.8% ======= ========== ====== =========== ====== Basic net income per share $ 0.58 $ 0.36 ========== ========== Weighted average shares outstanding 116,196 112,491 ========== ========== Net income per share, assuming dilution $ 0.54 $ 0.35 ========== ========== Weighted average shares and equivalents outstanding 133,174 128,558 ========== ========== (a) Expenses related to the Company's Cost Reduction Plan, announced on March 18, 2003. During the third quarter ended October 30, 2004, the Company revised its estimate on a lease obligation related to the Cost Reduction Plan and recognized expense of $605. (b) Results do not add due to rounding. (c) Certain prior year amounts have been reclassified to conform to the current-year presentation. (d) Amounts are preliminary and subject to adjustments based on the outcome of the Company's review of its accounting for leases.
CHARMING SHOPPES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
January 29, January 31, (Dollars in thousands, except share amounts) 2005 2004 ---- ---- ASSETS Current assets Cash and cash equivalents.............................. $ 273,049 $ 123,781 Available-for-sale securities ......................... 52,857 55,688 Merchandise inventories ............................... 285,120 309,995 Prepaid income taxes .................................. 8,670 Deferred taxes ........................................ 19,320 19,902 Prepayments and other ................................. 74,250 57,494 ---------- ---------- Total current assets .................................. 713,266 566,860 Net property, equipment, and leasehold improvements ... 310,303 318,624 Other assets .......................................... 270,200 279,395 ---------- ---------- Total assets .......................................... $1,293,769 $1,164,879 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable ...................................... $ 127,819 $ 135,777 Accrued expenses ...................................... 140,973 132,996 Income taxes payable .................................. 0 1,128 Current portion - long-term debt ...................... 16,419 17,278 ---------- ---------- Total current liabilities ............................. 285,211 287,179 ---------- ---------- Deferred taxes and other non-current liabilities ...... 85,057 69,796 Long-term debt ........................................ 208,645 202,819 ---------- ---------- Total long-term liabilities ........................... 293,702 272,615 ---------- ---------- Total stockholders' equity ............................ 714,856 605,085 ---------- ---------- Total liabilities and stockholders' equity ............ $1,293,769 $1,164,879 ========== ========== Certain prior-year amounts have been reclassified to conform to the current-year presentation. Amounts are preliminary and subject to reclassifications and adjustments based on the outcome of the Company's review of its accounting for leases.
CHARMING SHOPPES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Year Ended ------------------------------------- January 29, January 31, February 1, (In thousands) 2005 2004 2003 ---- ---- ---- Operating activities Net income (loss) .......................................... $ 67,242 $ 40,639 $ (2,770) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ......................... 71,265 76,347 79,421 Deferred income taxes ................................. 13,999 12,049 5,327 Write-down of Catherines goodwill ..................... 0 0 43,975 Cumulative effect of capitalization of cash received from vendors ....................................... 0 0 7,881 Net loss from disposition of capital assets ........... 736 1,537 3,436 Capitalized interest on conversion of convertible notes 0 0 3,026 Tax benefit related to stock plans .................... 6,469 23 1,505 Other, net ............................................ 185 (142) (679) Changes in operating assets and liabilities, net of acquisitions: Merchandise inventories ........................... 24,875 (23,523) 6,054 Accounts payable .................................. (7,958) (12,175) 40,061 Prepaid income taxes .............................. (8,670) 0 0 Prepayments and other ............................. (16,756) 16,802 16,583 Income taxes payable .............................. (1,128) (6,016) 7,144 Accrued expenses and other ........................ 7,547 (15,255) (4,972) --------- --------- --------- Net cash provided by operating activities .................. 157,806 90,286 205,992 --------- --------- --------- Investing activities Gross purchases of available-for-sale securities ........... (30,887) (35,440) (58,308) Proceeds from sales of available-for-sale securities ....... 48,206 31,463 54,797 Investment in capital assets ............................... (51,249) (45,014) (74,303) Proceeds from sales of capital assets ...................... 0 500 801 Increase in other assets ................................... (6,984) (6,704) (4,150) --------- --------- --------- Net cash used by investing activities ...................... (40,914) (55,195) (81,163) --------- --------- --------- Financing activities Proceeds from short-term borrowings ........................ 186,173 221,423 534,499 Repayments of short-term borrowings ........................ (186,173) (221,423) (588,795) Proceeds from long-term borrowings ......................... 18,098 1,557 164,000 Repayments of long-term borrowings ......................... (18,530) (14,566) (84,122) Payments of deferred financing costs ....................... (350) (1,500) (5,568) Purchases of treasury stock ................................ 0 0 (84,136) Proceeds from issuance of common stock ..................... 33,158 1,173 4,679 --------- --------- --------- Net cash provided/(used) by financing activities ........... 32,376 (13,336) (59,443) --------- --------- --------- Increase in cash and cash equivalents ...................... 149,268 21,755 65,386 Cash and cash equivalents, beginning of year ............... 123,781 102,026 36,640 --------- --------- --------- Cash and cash equivalents, end of year ..................... $ 273,049 $ 123,781 $ 102,026 ========= ========= ========= Non-cash financing and investing activities Common stock issued on conversion of convertible notes...... $ 0 $ 0 $ 89,105 ========= ========= ========= Equipment acquired through capital leases .................. $ 5,399 $ 17,466 $ 6,997 ========= ========= ========= Amounts are preliminary and subject to reclassifications and adjustments based on the outcome of the Company's review of its accounting for leases.