* Posts Q1 loss $0.06/shr, vs est loss of $0.19/shr
* Q1 rev misses Street; comp-store sales down 23 pct
* Says on track to satisfy credit facility covenants
* To increase marketing spend * Shares up 40 pct
(Recasts; adds details, analyst’s comments, updates share movement)
By Mihir Dalal
BANGALORE, May 20 (Reuters) - Tween Brands Inc TWB.N reported a narrower-than-expected quarterly loss and said it was on track to “comfortably satisfy” its credit facility covenants, sending its shares soaring 40 percent.
“Shares are up so much mostly because of the beat (narrower-than-expected loss)... I don’t think there were any questions in the market that the company would breach covenants at this stage,” Sterne, Agee & Leach analyst Margaret Whitfield told Reuters.
First-quarter store operating, general and administrative expenses fell more than 19 percent to $62.9 million.
“The majority of the decline was associated with reductions in store payroll, home office headcount, and marketing expense,” said the company, which announced in February that it would reduce 85 positions in addition to the 150 it cut last year.
Total inventories were down 22.5 percent at the end of the quarter at the teen-apparel retailer.
For the quarter ended May 2, net sales fell 18 percent to $205.2 million, dragged by a 23 percent drop in comparable-store sales.
“It managed its inventories well and the markdowns were lower. This is likely to be the worst quarter for them in terms of comparable-store sales. The comparisons will get easier from the second quarter,” Whitfield said.
On a conference call with analysts, a company executive said Tween Brands plans to “ramp up” marketing spend from first-quarter levels during the rest of 2009. Sales suffered as a result of reduced marketing spend, he said.
Although it plans to increase marketing expenses, the company said, the cost savings it expects to realise as a result of the shift to one brand remained in place.
In August, Tween Brands said it will convert all its higher-priced Limited Too stores in the United States to its secondary brand, Justice, generating annualised after-tax savings of $20 million to $25 million.
“The increased marketing will benefit their sales trends. The promotions will improve traffic and transactions and the increase in expenses will be offset by better sourcing and product costs,” Sterne, Agee & Leach’s Whitfield said.
She said the company was likely to see sourcing benefits by bypassing agents and going directly to sourcing partners.
The company, which caters to girls in the 7-to-14 age group, posted a first-quarter loss of $1.4 million, or 6 cents a share, compared with a profit of $4.3 million, or 17 cents a share, last year.
Analysts on average were expecting a loss of 19 cents a share, before special items, according to Reuters Estimates.
As of May 2, the company had total current assets of $225.4 million, including $84.3 million in cash and equivalents. Long -term debt stands at $164.8 million, inclusive of $14.3 million in current maturities of long-term debt.
Shares of Tween Brands were up about 33 percent at $4.16 in Wednesday afternoon trade on the New York Stock Exchange. They earlier touched a high of $4.39. (Reporting by Mihir Dalal in Bangalore; Editing by Himani Sarkar and Aradhana Aravindan)