Blog: Leonie BarrieCost cuts and discounts persist

Leonie Barrie | 1 September 2009

Second quarter earnings results continued to roll in last week, but mostly promised little cheer for the ongoing back-to-school season. Cost cutting and discounting persist as the key driver for sales, with a lot of work still required to lift the top line.

There are exceptions to the rule though. Apparel group Guess posted a 10.6% rise in second quarter profits to US$59.6m, thanks to a revenue surge from the company's expanding European operations.

The jeans-led company has responded to the recession-fuelled decline of the US retail market by targeting overseas growth – and the strategy is working, despite an imminent third quarter blip thanks to shipment shifts.

“We believe now more than ever that we can continue to gain global market share and that our brand can achieve worldwide recognition as the economy recovers,” said CEO Paul Marciano.

A focus on unique products and seasonal must-haves, along with careful control of costs and inventory, have also helped apparel retailer J Crew to better-than-expected second quarter results. Net income at the New York based firm edged up 2.8% to $18.6m, while revenues rose 6% to $357.6m.

Explaining the reason for this success, chairman and CEO Millard Drexler said: “We are and have been on a long term mission to be recognised for our quality, style, design and service. This mission puts 'taking care of our customers' front and centre in every part of our business.”

Concerns remain at American Eagle Outfitters, however, where second quarter profit more than halved to $28.6m on sliding sales at its stores. The retailer, which targets 15- to 25-year-olds, admits there is still work to do getting teens and college students to kit themselves out in its stores.

“Today's AE customer expects us to be faster to trend and offer greater variety at more compelling prices,” CEO Jim O'Donnell told analysts. “We are strengthening how we approach fashion and trends and pricing and the flow of products.”

Another teen retailer, Charlotte Russe, is to be acquired and taken private by private equity firm Advent International Corporation, for a total of $380m. Under the terms of the merger agreement, an affiliate of Advent will purchase all of the outstanding Charlotte Russe shares at a price of $17.50 per share. The company’s board has unanimously approved the deal.

And in other news, apparel maker Perry Ellis International has signed a licensing agreement to source, sell and distribute the Pierre Cardin brand for men's sportswear in the US, Puerto Rico and the US Virgin Islands.


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