Charming Shoppes cutting staff, closing stores, retailoring business

It was a tough day at Charming Shoppes Inc.

The Bensalem women's-apparel retailer yesterday lost a key executive to a local rival; announced that it was cutting its management staff by 150, or 13 percent; and would be closing 150 stores, 100 of them in its popular Fashion Bug chain.

It also cut back plans for new stores, reducing this year's capital spending 30 percent. And the company's stock declined almost 6 percent.

Charming Shoppes and analysts blamed the moves on "the continuing weak retail and economic environment." Last month, the firm reported that same-store sales, a key retail measure, were down 7 percent during the holiday shopping season from the same period the year before.

The executive who left, Diane M. Paccione, was yesterday named chief executive officer of the smaller Philadelphia retailer Deb Shops Inc. She had been with Charming for four years and was in charge of its Fashion Bug and Catherines Plus Sizes brands.

Paccione said in an interview yesterday that she was lured to Deb by "the opportunity for growth. . . . It has been in business for 75 years and still has a lot of growth potential." The trendy retailer has 340 stores in 43 states, including a dozen in the Philadelphia area.

Charming Shoppes has 2,453 stores in 48 states and four major brands - Fashion Bug, Lane Bryant, Catherines and Petite Sophisticate.

Paccione "leaves a big hole. They were sorry to see her leave," said analyst Erin Moloney, a senior vice president of Merriman, Curhan, Ford & Co., of Portland, Ore., who said she talked with Charming Shoppes executives soon after yesterday's announcement.

Charming Shoppes announced in the fall that it would move the headquarters of its Catherines brand - which it acquired in 2000 - from Memphis, Tenn., to Bensalem, to get the operation closer to Paccione's base.

Charming, which reported revenue last year of $1.1 billion, is under pressure from Crescendo Partners L.P. and other activist investors restless for a stock-price boost. The shares have fallen 59 percent in the last 52 weeks. They lost 37 cents yesterday to close at $5.48.

In a November conference call with analysts, company chairman Dorrit J. Bern acknowledged merchandise problems with its Lane Bryant brand, which led to the replacement last summer of the chain's president and buyer.

But, Bern told analysts then, "we're right-on with right product in [Fashion] Bug and Catherines." Declining sales there are "all about weather and economy." She said the Catherines customer was "not spending because she doesn't have any money."

Catherines same-store sales declined 10 percent during the nine months ended Jan. 5, the company reported. During the same period, Lane Bryant was down 8 percent and Fashion Bug 6 percent. Same-store sales are those at stores open at least a year.

Analyst Moloney praised the Charming Shoppes moves. "It was a difficult decision that, in the current environment, needed to be made." Retail sales are suffering generally, she said, because of the economy, warm weather, and poor fashions - "there isn't anything compelling" this season to draw customers into stores.

Moloney said she remained optimistic about Charming Shoppes. "They've been through down times before. They'll make it through this one, as they have in the past."

Charming Shoppes named Joseph M. Baron, now executive vice president and chief operating officer, as an interim replacement for Paccione.

The company said capital spending in fiscal 2009, which begins this week, will be cut $40 million from 2008 due to fewer store openings.

Bern said the company has repurchased about 24 million of its shares over the last nine months. In November, the board authorized an additional $200 million for buying back shares, which Bern said would be spent over the next several years. As of early December, it had 117 million shares outstanding.

In addition to retail stores, Charming has catalog and online operations.

Meanwhile, at privately held Deb Shops, chairman Allen Questrom said Paccione would join him on the company's board. He touted her 30-year "track record of success" and merchandising experience at Charming Shoppes, Sears Holding Corp., and the May Co.

Deb offers apparel and accessories in junior, regular and plus sizes, targeting girls 11 to 17 years old.