Based on the filing, revenue increased 11% to US$57.8 million from US$51.9 million last year, while same store sales were 9% for the quarter. Gross margin decreased to 36% of sales, SG&A expense was 42.1% vs 40.9%, for a net loss in the quarter of US$3.3 million versus US$1.2 million or a loss of US$0.11 versus US$0.05 for last year. The street was expecting a loss of US$0.07.
A decrease in margin from the retail segment reflects markdowns required to clear excess inventory. Also margins were hurt by what several one time items: CCS girl catalog test charge, and charges related to the moving of headquarters, relocations, severance, and recruiting.
In all honesty, after the call I was left with not much to look forward to. This is the second quarter in a row that I am disappointed by management and what I believe is their inability to execute. Sure, they say that they see strength in denim, dresses and the back to school assortment. But the reality is that denim is not as strong as it was 2 years back, and that their competitors seem to have lower prices. They spent a significant amount of money this quarter testing the CCS catalog when most of their direct segment sales are now coming from the internet (and are growing at a much faster pace). In short, their competitors are winning (significant in a sector where there are many substitutes), and they are banking on fashion trends that are losing steam.
The retail segment is starting to see some weakness in consumer spending, and no matter the prospects, Delia’s is too much of an immature company to weather any kind of downturn. There are better names in the space, and I would stay clear of DLIA until management proves they can for once and for all meet Wall Street’s, and their customers’ expectations.
DLIA vs. S&P 500 performance over the last 3 months
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