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Charming Shoppes, Inc. (CHRS)

F3Q09 Earnings Call

November 25, 2008 9:15 am ET

Executives

Gayle M. Coolick – Vice President Investor Relations

Alan Rosskamm – Chairman of the Board & Interim Chief Executive Officer

Eric M. Specter – Chief Financial Officer & Executive Vice President

Brian J. Woolf – President of Lane Bryant

Analysts

Christopher Kim - J.P. Morgan

Robert Rodriguez - First Pacific Advisors

Thomas Filandro - Susquehanna Financial Group

Lizabeth Dunn - Thomas Weisel Partners

Matthew J. Teplitz - Quaker Capital Management

Presentation

Operator

Good morning ladies and gentlemen and welcome to the Charming Shoppes third quarter sales and earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.


With us today are Alan Rosskamm, Chairman of the Board of Directors and Interim CEO of Charming Shoppes, Eric Specter, CFO and Executive Vice President and Brian Woolf, President of Lane Bryant. I would now like to turn the call over to your host Ms. Gayle Coolick

Gayle M. Coolick

Today’s discussion will contain certain forward-looking statements concerning the company’s operations, performance and financial condition including sales, expenses, gross margin, capital expenditures, earnings per share, store openings and closings and other matters. Such forward-looking statements are subject to various risk and uncertainties that could cause actual results to differ materially from those indicated.

Information regarding risks and uncertainties are detailed in the company’s filings with the SEC including the company’s annual report on Form 10K for the fiscal year ended February 2, 2008, our quarterly reports on Form 10Q and other company filings with the SEC. Our complete Safe Harbor statement and today’s prepared remarks are available at www.CharmingShoppes.com.

At this time Alan Rosskamm our Chairman of the Board and Interim CEO would like to share his remarks about our business, our financial condition and the initiatives we have announced today.

Alan Rosskamm

Given our disappointing stock price and the many questions we’ve been getting about our liquidity and financial strength we will attempt to address those concerns directly this morning. I will briefly review our quarterly results and then comment on our liquidity and cash position and then discuss a number of the initiatives underway at Charming that we feel will not only enhance our cash flows but will also provide the focus to build an exciting and successful future based on our unique position as the nation’s largest specialty retailer serving the plus size women’s apparel market.

Then, Eric Specter our CEO will follow with a sensitivity analysis on our liquidity under various assumptions for next year and will address questions that have been raised regarding our various debt instruments. Finally, Brian Woolfe, the President of our flagship Lane Bryant division will provide a glimpse of our exciting forward focused work actually underway at our brands. Although we will do our best to anticipate some of your concerns in our prepared remarks, we will then open the call for your questions.

Our third quarter results were better than our early October guidance helped by improved sales and margins during October. October sales trends improved significantly with a -4% comp following the very difficult September comp of -15%. The stronger October sales helped to get us to a -9% comp for the quarter as opposed to the double digit decline we had projected.

Driven by our commitment to achieve clean inventories by the end of the year, we accelerated aggressive markdowns early in the fall season particularly at our Fashion Bug brand. These prices reductions helped drive sales but negatively impacted our gross margin for the quarter. As a result of the actions taken during the quarter, we are now in a much cleaner inventory position.

There’s been a lot of press lately about consumer credit. We are pleased to report that the performance of our credit operations was favorable to plan and contributed more than $11 million towards results for the quarter and $32 million year to date. Although charge offs have shown some deterioration, they are performing within plan. In fact, increases in interest and fee revenue more than offset the increase in charge offs so that income from this business is above plan.

Unlike general purpose credit cards with balances of several thousand dollars, our credit cards are only usable at our brands with average balances of approximately $300. I am keenly aware that liquidity is an important subject in this environment. Our strong liquidity position at the end of the third quarter includes $74 million in cash, cash equivalents and available for sale securities, an increase compared to $63 million a year ago.

Our ability to generate cash in this very difficult climate comes from our aggressive steps to liquidate inventory, reduce capital spending, realize cost savings from previously announced initiatives as well as the sale of our non-core misses apparel catalogs. As a result, we ended the quarter with no borrowings under our revolving credit facility despite the fact that we are in our typical period of peak seasonal borrowing.

Looking ahead, we expect to generate positive free cash flow during our fourth quarter, ending the year with cash and cash equivalents and available for sales securities of approximately $90 million to $100 million, a solid increase of last year’s yearend balance of $75 million. This projection assumes comparable store sales declines in the low double digits in the fourth quarter as well as continued strict management of capital spending, expenses and inventory.

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