Sitting pretty: Claire's Stores is raking in a pretty penny with value-priced fashion jewelry. Can the company keep up with Wall Street's expectations?

South Florida CEO, July, 2005 by Jennifer LeClaire

Claire's Stores Inc. has for decades attracted the attention of teenage girls through its value-priced costume jewelry and cosmetics. But recently the international specialty retailer has been attracting the attention of Wall Street analysts.

The 32-year-old company, No. 17 on the South Florida 500 list of public companies, is posting steady quarter-after-quarter growth with no signs of stalling. Analysts credit Bonnie and Marla Schaefer, the daughters of 89-year-old company founder Rowland Schaefer, with steering Claire's makeover. The pair improved the shopping experience with a cleaner and user-friendly store design.

But that's not the only change the sisters, now co-CEOs and co-chairwomen, made after their father retired three years ago in the wake of health problems. Bonnie and Marla, who say it takes both of them to fill their dad's shoes, also installed new corporate executives to help them steer the Pembroke Pines-based company to record financial results.

After more than doubling in value, Claire's stock split in December 2003. The following year the company continued double-digit sales increases and became a Wall Street darling. However, Claire's leadership team admits that sales may be slowing, or at least leveling off in the aftermath of major corporate changes that the sisters felt were long overdue.

Indeed, after several years of prosperity, the Schaefer sisters are facing a daunting task: sustain the rate of growth that gave the retail analysts such confidence in the co-leadership of 51-year-old Bonnie, a former nurse, and her older sister Marla, 56, who used to work at her father's wig and handbag businesses.

"We don't have business backgrounds, but we paid our dues and we learned on the job," says Bonnie, who lives in Boca Raton. "With all due respect to our father who left us a fabulous business to run, we would be remiss not to pat on ourselves and the rest of the company's executives on the back. We intend to continue growing the company and keeping it healthy."

[Baubles, bangles and profits]

Keeping the company healthy depends in large part on keeping up with trends--and even creating them. With its more than 3,000 retail stores, Claire's targets fashion-aware tweens, teens and young adults through its two store concepts: Claire's Accessories, which caters to girls in the 7 to 17 age range, and Icing by Claire's, a lesser-known brand that caters to fashion-conscious teens and young women in the 17 to 27 age range. Bonnie prefers to say that Claire's Stores targets women age 7 to 97.

Claire's merchandise typically ranges in price between $2 and $20, with products averaging $4. The company booked approximately $1.28 billion of sales in its most recently completed fiscal year, volume driven primarily by an increase in the average number of transactions per store.

The company continued its strong performance in fiscal first quarter 2006, which ended April 30, with European sales helping net income increase 7 percent to $29.7 million, or 30 cents per share, compared with $27.7 million, or 28 cents per share, during the same period last year. That beat Thomson Financial First Call estimates of 27 cents per share.

Same-store sales for the first quarter--considered the best measure of a retailer's health--increased 5 percent, compared with 11 percent during the same period last year. The biggest quarterly same-store sales increases were in Europe in the high single-digits. Claire's reported it expects second quarter net income of between $30 million and $33 million. First Call estimates 35 cents per share for the period. Claire's growth seems to be stalling.

Still, William Armstrong, a retail analyst with CL King & Associates, an institutional research boutique in Albany, N.Y., expects strong merchandising and the continued popularity of costume jewelry to ferry Claire's to another 3 percent gain for the second quarter. "Most apparel retailers have a selection of accessories, but there are no pure players other than Claire's," he says. "Claire's is a unique company and the co-CEOs have done a good job so far."

But is 3 percent enough to keep Wall Street on its good side after 78 percent net income increases a year ago? Wall Street can be brutal. And the firm was already substantially "punished" by Wall Street late last year, presumably for missing analyst estimates by 2 cents a share in the third quarter report.

The Schaefer sisters--Bonnie, known as the international strategist, and Marla, called the visionary--have a plan. "You can post double-digit increases when you are building a business but at some point you mature and level off," Marla reasons. "Our goal is to keep the business healthy, keep inventories in line and keep moving forward. We always want to be ready for the next hot item. We don't run the business for Wall Street. We run it for our shareholders and employees and customers."

[The Next Generation]

Marla says the company is ready to spot the "next hot item." That is important to targeting this fickle yet financially powerful demographic. Teens spent an estimated $169 billion in 2004, according to a study by Northbrook, Ill.-based Teenage Research Unlimited (TRU). And market researcher The NPD Group's report. "Buying Habits of Teens and Tweens," indicates this demographic is spending much of its money at value-based stores. That's good news for Claire's with its low price points and 11,000 items.