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Charming Shoppes, Inc. (CHRS)

Q4 2009 Earnings Call

March 18, 2009 9:15 am ET

Executives

Gayle Coolick – Vice President, Investor Relations

Alan Rosskamm – Chairman, Board of Directors, Interim CEO

Jay Levitt – President, Fashion Bug

Eric Specter – Chief Financial Officer, Executive Vice President

Analysts

Scott Krasik – C. K. King

Jeffrey Stein – Stein Research, Soleil Securities

[Sabina Battia – Bosco Capital]

[Frank Bianco – Lazard Asset Management]

Presentation

Operator

Welcome to the Charming Shoppes fourth quarter and year end 2009 results conference call. (Operator Instructions) With us today are Alan Rosskamm, Chairman of the Board of Directors and Interim CEO of Charming Shopppes, Eric Specter, CFO, Executive Vice President and Jay Levitt, President of the company's Fashion Bug Brand. I would now like to turn the call over to your host, Miss Gayle Coolick, V.P. Investor Relations with Charming Shoppes, Inc.

Gayle Coolick

Thank you all for joining us this morning. 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 risks 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 10-K for the fiscal year ended February 2, 2008. Our complete Safe Harbor statements and today's prepared remarks are available at www.charmingscoppes.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 progress of our ongoing initiatives.

Alan Rosskamm

Good morning. I would like to briefly review our quarterly results and comment on our liquidity and cash position and provide an update on 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 positions as the nation's largest specialty retailer serving the plus size women's apparel market, then Jay Levitt the President of our Fashion Bug division will provide his thoughts and plans on transforming Fashion Bug into a value apparel retailer focusing on a more sharply defined customer audience. Finally Eric Specter will provide a deeper review of our operating results as well as an update on our credit securitization program.

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 fourth quarter results on an operating basis were in line with our November guidance. Improvements in the merchandizing margin at Lane Bryant and Fashion Bug and our aggressive management of expenses allowed us to meet our operating plan despite lower than planned revenues during the quarter.

We achieved our goal to end the year with clean inventories which were down 16% on a same store basis. Our plans moving into fiscal 2010 include continued focus on driving inventories down in order to drive gross margin improvement and increase inventory turns. This will also enable us to provide our customer with an exciting, consistent flow of new fashion product throughout the year.

Our strong liquidity position at the end of the year included $100 million in cash, cash equivalents and available for sale securities compared to $74 million a year ago. We generated approximately $26 million in cash in this very difficult climate through aggressive efforts to liquidate inventory, significant reductions in capital spending and realized cost savings from previously announced initiatives as well as from the sale of the non core Mrs. apparel catalogues.

We again ended the quarter with no borrowings on our revolving credit facility. This facility is committed through July 2010 and as of January 31, 2009 the available borrowing capacity on this facility was $206 million which is a source of liquidity above and beyond our substantial cash balances.

Looking ahead, we expect to generate positive free cash flow during fiscal 2010. Our analysis assumes growth in working capital through continued inventory management, gross margin improvement, further paring down capital expenditures and the achievement of substantial savings through our cost reduction program which I'll provide more color on in just a moment.

I'm pleased to announce today the renewal of our $50 million asset securitization funding facility for another year. When combined with other existing asset securitization facilities the availability for our credit card receivables program is expected to exceed our needs for fiscal 2010. Eric will provide additional details later in the call.

On a GAAP basis, we posted a significant loss for Charming Shoppes for the full year. Ironically, just two years ago we posted record earnings. I would like to spend the rest of my time on the call reviewing the aggressive actions we are taking to right size our expense structure and to improve our strategies for providing a merchandising and marketing program that will focus exclusively on our core brands and quickly return us to profitability.

In November, we announced a significant restructuring plan geared towards optimizing our cash flow and operating efficiency with a targeted total expense savings goal over two years of $100 million to $125 million with $75 million expected to be realized in the fiscal year 2010.

Results to date have been favorable and I am pleased to report that we are ahead of schedule. We now expect to realize cost savings of approximately $125 million in the current fiscal year. Our effort addresses all selling, general and administrative spend areas including corporate overhead, indirect expenses, store operations as well as store occupancy and supply chain.

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