Clothestime Beats Recession Blues : Earnings: Despite slowdown, the off-price retail women’s apparel chain posts a 21% boost in sales and a 47% increase in net income.

HUNTINGTON BEACH —  In a large, airy Clothestime store so crammed with merchandise that it crawls up the walls, district manager Laurie Trejo points to a long table next to the cash register like an army general displaying a secret weapon.

The table is splashed with V-neck T-shirts in every imaginable shade. At $12.99 each, they are the store’s top-selling items and similar to the ones that sell for $19.50 at a nearby Gap store.

On the strength of its sales of fashionable basics at cut-rate prices, Clothestime released second-quarter earnings Wednesday that show a 21% increase in sales. What makes the increase even more remarkable is that it came a year into a national recession, when many retail apparel chains would be happy to break even. Sales at each store in the chain open at least a year were up 14% on average.

The sales increase showed up spectacularly on the bottom line. Net income rose 47% to $2.2 million, or 15 cents a share, in the three-month period ended July 27, contrasted with $1.5 million, or 11 cents a share, in the same quarter last year. Sales were $69 million, up from $57 million in last year’s second quarter.

In the process, the company has amassed a $25-million bankroll that will probably be used to finance an expansion of 15 new stores this year and 50 additional stores in 1992, according to Vice President David Sejpal. At that rate, the company would have 450 stores by the end of 1992.

True to its off-price image, Clothestime shuns expensive mall locations in favor of strip centers as a way to hold down costs.

The Anaheim-based company has done so well lately that Clothestime officials are almost matter-of-fact in trying to explain their success. Sejpal, for instance, explains that it is “just our emphasis on value-priced merchandise, offering great deals to the customer and controlling inventory levels.”

The financial report also marks a strong turnaround for a company that a year ago was seeing diminished earnings and could not seem to wean itself from expensive television advertising campaigns. Although Clothestime now has intermittent TV advertising campaigns and was even a race-car sponsor, promotion expenses are being kept under control, Sejpal says, adding: “We let the prices do the talking.”

And talk they do. Shoppers at the Huntington Beach store said repeatedly that low prices are what keeps them coming back.

“It’s cheap,” said Raechel Meredith as she inspected a white blouse.

“The mall is expensive” by comparison, explained Louise vanderTuuk while looking through some goldenrod-colored shirts.

Customers also say they are attracted by the large selection.

“I love it. They’ve got everything,” said Michelle Lackey, who stopped by after visiting a nearby shoe store. “I come once a week.”

The stores sell mostly junior sizes worn by young women. But the formula has wide appeal for women in their 30s and 40s who like the youthful look, said Trejo, who supervises nine stores, most of which are in Orange County.

“As for merchandising, we’ve hit the nail on the head,” she said. The Huntington Beach store alone can sell 40 of the V-neck shirts a day, just one of hundreds of items.

The result is a formula that appears to have pleased customers and stockholders.

For the first six months of the fiscal year, Clothestime’s sales were $125.8 million, a 21% increase over $103.8 million for the same period a year ago. Net income was $2.8 million, or 19 cents a share, up from $100,000, or 1 cent a share, for the period last year.

Comparable store sales for the first six months were up 10%. “Not only did we have more people coming in, we had more people buying,” Sejpal said.

Sejpal said no major changes are planned even if the economy starts to heal.

“It’s hard to predict what happens if the economy improves,” he said. “Our focus is on value-priced and lower-priced merchandise. We don’t think customers are going to go back to the free-spending days of 1989.”

Clothestime’s Performance In the second quarter ended July 27, Clothestime Inc. reported a 47% increase in net income to $2.2 million on a sales increase of 21% to $69 million. Company officials credited their recession strategy of low prices and tight inventory controls for the gains. Figures in thousands, except per-share data.

2nd Qtr 2nd Qtr 6 Months 6 Months 1991 1990 1991 1990 Revenue $69,045 $56,975 $125,833 $103,804 Net income 2,234 1,464 2,756 100 Per share $.15 $.11 $.19 $.01

Source: Clothestime Inc.