Claire’s lowers earnings forecast despite strong first-quarter gains

 Teen-oriented jewelry and accessories retailer Claire’s Stores Inc. said on Thursday its first-quarter profits almost doubled, but warned that earnings for the rest of the year would be significantly below expectations due to challenges in its Afterthoughts accessories business, Reuters reported.

Shares of Claire’s tumbled 15.5% on Thursday to close down $3.40 at $18.50 on the New York Stock Exchange. The stock’s 52-week range is $24.93 to $15.62.


On a conference call following the company’s earnings release, Claire’s management said it was continuing to revamp its merchandise offering in its Afterthoughts stores, which sell jewelry and accessories to teenage girls and which for the past several months have seen sales dwindle as its target customer effectively rejected its current product assortment.


The company said its current merchandise mix was “too extreme” for its core customer, and it has opted to liquidate that inventory at significant markdowns in order to clear the way for a new and more focused inventory, Reuters reported.


The Pembroke Pines, Florida-based company said net income for the first quarter ended May 5 rose to $7.7 million, or 16 cents a share, from $4.0 million, or 8 cents a share, in the comparable year-ago period, which ended April 29, 2000.


Net sales for the quarter rose 1% to $235.3 million from $232.0 million for the same period last year, while sales at stores open at least one year were flat.


Same-store sales for the company’s North American business rose in the mid-single digits in percentage terms, while Claire’s Europe same-store sales fell in the low-single digits. Same-store sales at Afterthoughts were also down in the high-single digits, while comparable sales at its Mr. Rags business were down in the mid-single digits.


“Claire’s North America remains a strong and healthy business and produced a positive same-store sales result for the first quarter, but was offset by the disappointing results in our Afterthoughts division as we shift the merchandise mix as our customer matures,” Claire’s Chairman and Chief Executive Rowland Schaefer said in a statement.


Claire’s, which operates more than 3,000 stores worldwide under the Claire’s Accessories, Afterthoughts, and Mr. Rags brands, lowered its second-quarter earnings per share guidance to 19 cents from 34 cents, as well as its third and fourth-quarter guidance to 18 cents and 85 cents from 28 cents and 92 cents, respectively.


“Looking ahead we anticipate the Afterthoughts division to continue to be a challenge for the remainder of the year,” Schaefer said. “The merchandise that hit the stores in late April was too extreme for our customer.”

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