(Recasts; adds background, conference call details, share movement)
By Anne Pallivathuckal
BANGALORE, May 21 (Reuters) - Women's plus-size apparel retailer Charming Shoppes (CHRS.O) posted a surprise quarterly profit, but forecast weak second-quarter results as it struggles to cut costs and weather a challenging retail environment, sending its shares down 11 percent.
The company has operated with much leaner inventories to improve merchandise margins as customer visits to its stores fell in the wake of rising fuel prices and the U.S. economic downturn.
Since hitting a 52-week high of $12.92 last May, Charming Shoppes' stock had lost more than two-thirds of its value to touch a low of $4.01 in January.
But the stock has recovered 39 percent from its January low as the company cut jobs, closed stores and planned to shed its non-core brands.
Charming Shoppes, whose core brands include Lane Bryant, Catherines and Fashion Bug, had also earlier this month resolved a proxy contest with hedge funds Crescendo Partners and Myca Partners by appointing two of their nominees to its board.
JP Morgan analyst Christopher Kim had said earlier he believes the company has taken the right steps in protecting its margins, but sales would be hurt given difficult store traffic trends and its "economically-sensitive customer base."
On Wednesday, Charming Shoppes said it continued to see weak traffic at its outlets and forecast second-quarter results from continuing operations in the range of breakeven to a loss of 2 cent a share. The forecast includes a charge of 3 cents a share related to streamlining efforts.
The company, which competes with Dress Barn Inc DBRN.O and larger retailer TJX Companies Inc (TJX.N), forecast second-quarter net sales of $625 million to $640 million.
Analysts on average expect earnings of 4 cents a share, before special items, on revenue of $735.6 million for the quarter ending August 2.
In April, the Bensalem, Pennsylvania-based company had said it was looking to sell its non-core apparel catalogs and cut capital expenditures to combat challenging retail trends.
The company, which cut about 13 percent of corporate and field management jobs and plans to close 160 to 170 stores in the current financial year, said it expects pretax annualized cost savings of about $28 million in 2009 as a result of its restructuring initiatives.
The company also said it plans 2009 gross capital expenditures of $75 million, before construction allowance, down from $137 million last year.
Charming Shoppes earned 5 cents a share in the first quarter, while analysts on average expected a loss of 6 cents a share, excluding items, according to Reuters Estimates.
Net sales at the company fell 8 percent to $641.3 million for the first quarter ended May 3, while analysts had expected $725.2 million.
The company, whose same-store sales fell 13 percent during the quarter, posted a net loss of $34.5 million, or 30 cents a share during the period.
Charming Shoppes had posted a profit of $26.3 million, or 20 cents a share, a year earlier.
Shares of Charming Shoppes fell to a low of $5.00, before recovering slightly to trade down 18 cents at $5.46 Wednesday afternoon on Nasdaq. (Additional reporting by Sayantani Ghosh; Editing by Pratish Narayanan)