Christopher & Banks' Weak 2Q Ahead

Christopher & Banks Corp. (CBK - Snapshot Report) has recently announced a weak outlook for the second quarter of fiscal 2012. Net sales are now expected to be $96.2 million, down 5.0% year over year. Comparable store sales will also decline 8%. Gross margin is expected to be down between 640 bps and 700 bps year over year in second quarter 2012 due to a planned reduction in closing price and increased promotional activity aimed at clearance of slower moving products. Additionally, the pricing action that the company took on the new fall collection was higher than the acceptable range. This resulted in higher inventory on the company’s book.

Adjusted loss is expected in the range 22–24 cents while GAAP loss will range between 37–39 cents after the inclusion of an expected tax provision of approximately $0.1 million. The Zacks Consensus Estimate for second quarter 2012 sales is $97.0 million while the Zacks Consensus Estimate is pegged at a loss of 21 cents. 

Inventory pile-up remains a cause of concern for the company. Management expects total inventory to be up 34% year over year to $53.7 million. In-store inventory is expected to increase approximately 13% year over year on a per store basis. However, management remained impressed with the progress of its merchandise assortment, as customers were willing to pay higher prices on select items although enough of the assortment did not reflect these characteristics.

Management is now trying to make adjustments to its merchandise assortment and future pricing strategy to order to encourage sales momentum. On a positive note, Christopher & Banks is expected to end second quarter 2012 with cash, cash equivalents and investments of approximately $95.8 million and no long-term debt. While the Minneapolis-based specialty retailer of women’s clothing is currently reeling under pressure, we believe its solid balance sheet will help the company to see modest results over the long term. As of September 22, 2011, the company operates 773 stores in 46 states.

Christopher & Banks, which competes with peers like Cache Inc. (CACH - Snapshot Report) and Foot Locker Inc. (FL - Snapshot Report), is slated to report its second quarter 2012 earnings on October 5, after the closing bell. The stock has outperformed the Zacks Consensus Estimate thrice out of the last four quarters. The earnings surprise ranges from negative 40.00% to a massive 183.33%, with the average being 64.48%. Christopher & Banks currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

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