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Christopher & Banks Corp. (CBK - Snapshot Report) posted adjusted loss per share of 45 cents in the third quarter of fiscal 2012, better than the Zacks Consensus Estimate of 50 cents. However, the quarterly loss was wider than the year-ago earnings per share of 10 cents. On a reported basis, losses were 79 cents per share compared with 26 cents per share recorded in the year-earlier quarter.

Based in Minneapolis, Christopher & Banks reported year-over-year net sales growth of 2.5% in the quarter to $123.9 million. Comparable sales (comps) were flat for the third quarter.

During the quarter, gross profit plummeted 38.2% year over year to $26.8 million. Gross margin fell 21.7% from 35.9% in the year-ago period driven by significantly reduced merchandise margins, resulting from increased promotional activity aimed at driving sales and clearance of slower moving products. Merchandise margins were also impacted by product cost increases of approximately 30% on a year-over-year basis. However, positive leverage of buying and occupancy costs were also experienced.  

Financials

At quarter end, Christopher & Bankshad's cash, cash equivalents and investment were $74.7 million compared with $102.3 million in the year-ago period with no long-term debt.  Total inventory was $58.2 million at the end of the third quarter versus $46 million last year.

Store Update

The company opened 12 new dual stores, 20 outlet stores, and one Christopher & Banks store in the first three quarters of fiscal 2012. At the end of this fiscal year, the retailer expects to operate approximately 397 Christopher & Banks stores, 194 CJ Banks stores, 67 dual stores, and 23 outlet stores for a total of 681 stores.

Our Take

Christopher & Banks primarily competes with its peers, such as Cache Inc. (CACH - Snapshot Report) and Foot Locker Inc. (FL - Snapshot Report). The company expects merchandise margin pressures to continue in the fourth quarter given the fact that the company still needs to work through the residual fall and holiday products while encouraging aggressive promotion. Secondly, management feels that its fourth quarter assortments are not at par with holiday and fall collection, which will restrain the company to pass on the full extent of ticket and cost increases in the fourth quarter.

Going forward, the company remains focused on completing previously announced store closing plan, disciplined inventory management and expense controls, and improved product execution. The company plans to close approximately 100 underperforming stores by the end of January 2012.

Christopher & Banks, a specialty retailer of women’s clothing is currently reeling under pressure and we believe its solid balance sheet will help the company to see modest results over the long term. The majority of the closings are expected to benefit EBITDA in the next fiscal year by approximately $3 million to $4 million. We reiterate our Underperform recommendation on Christopher & Banks.

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