Christopher & Banks to cut costs, close 100 stores

  • Article by: THOMAS LEE , Star Tribune
  • Updated: November 11, 2011 - 11:40 PM

The Plymouth-based women's apparel retailer has not said how many of its employees would lose their jobs following a disastrous fiscal 2011.

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Christopher & Banks’ news of 100 store closures follows a disastrous fiscal 2011, when the company lost $22.2 million — its worst-ever annual loss.

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When Christopher & Banks Corp. named Larry Barenbaum as its new CEO in January, Barenbaum promised to restore profitability to the struggling Plymouth-based women's apparel retailer by focusing on product innovation.

Several months into his tenure, the company's merchandising efforts have not gone so well. With sales dropping, Barenbaum is adopting another strategy to boost profits: cost cutting.

Christopher & Banks said Friday that it will close 100 stores by the end of January 2012 and that it had laid off fewer than 25 employees from its corporate headquarters and store operations. The company did not say how many of its 4,700 part-time employees would lose their jobs as a result of the store closings. It also said it didn't know how many Minnesota stores would close.

The retailer operates about 760 stores under such banners as Christopher & Banks and CJ Banks. The company will seek to restructure its remaining leases. Overall, Christopher & Banks will take a $5 million to $7 million charge related to employee severance costs and terminating leases.

The move comes less than two weeks after Southpoint Capital Advisors, a New York-based hedge fund, purchased a 5 percent stake in the company.

"We anticipate that these initiatives will help us to both improve store productivity and support our return to profitability," Barenbaum said in a statement.

Investors applauded the plan, sending Christopher & Banks stock up 13 cents, or nearly 5 percent, to close Friday at $2.97.

Christopher & Banks "remains a turnaround in progress," Howard Tubin, a retail analyst with RBC Capital Markets, wrote in a research note. "However, we view today's [announcements] as positive steps. Store closings should help improve profitability, as we believe most of the stores were losing money. We believe management continues to move the company in the right direction."

Coming off a disastrous fiscal 2011, when the company lost $22.2 million, its worst annual loss, the company had high hopes for a recovery based on a renewed focus on merchandising. The company recruited Morris Goldfarb, CEO of clothing designer/manufacturer G-lll Apparel Group, to join its board. Christopher & Banks also brought back Joules Rouse, who launched the CJ Banks brand back in 2001, as senior vice president and general merchandise manager.

However, Christopher & Banks' new clothing lines have gotten off to a shaky start. For the first half of fiscal 2012, the company said sales dropped 3.2 percent to $220.1 million compared to the same period a year ago. Sales at stores open for at least a year, a key way to measure retail growth, declined 5 percent.

'Over-engineered the product'

So far this year, Christopher & Banks has lost $11.1 million, compared with a profit of $3.8 million during the first six months of fiscal 2011.

Barenbaum acknowledged customers did not feel some of its clothing was worth the higher prices the retailer wanted to charge.

"Our customers resisted paying higher prices, which led to heavy promotions and deeper discounts," Barenbaum told analysts last month. "We found that she was willing to pay more for an item when it was both differentiated and versatile. Styles that were unique and innovative resulted in strong sell-throughs."

"However, not enough styles reflected these characteristics," he said. "Our assessment is that in our efforts to enhance our merchandise assortments, we over-engineered the product in many areas."

Christopher & Banks' plan to close 100 stores came as somewhat of a surprise since Barenbaum, in his remarks to analysts in October, indicated the company was content to control costs by freezing store openings and reducing capital spending.

Later that month, Southpoint Capital Advisors, a hedge fund that specializes in distressed assets, purchased 2 million shares, or 5.57 percent, of Christopher & Banks stock, making it the fourth-largest investor in the company, according to documents filed with the U.S. Securities and Exchange Commission.

Company executives, however, deny there is any connection between the store closings and its new investor.

"The cost-cutting moves are in line with our efforts to evaluate all of our business aspects to move the company back to a stronger financial situation -- unrelated to any stock activity," senior vice president Monica Dahl said in a e-mailed statement.

The company would only respond to e-mailed questions.

Southpoint Capital Advisors managing member John Clark III did not return a phone call seeking comment.

Thomas Lee • 612-673-4113

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