It had been a red-hot year for Claire's until the fourth quarter. During the first, second and third quarters of fiscal 2005, comps grew 11%, 10% and 9% respectively over the same quarters in fiscal 2004. Still, the accessory and jewelry retailer's same-store sales numbers for the fourth quarter (ended Jan. 29, 2005) weren't too shabby, posting a 5% increase over the same period a year earlier. For the entirety of fiscal 2005, the company saw an 8% increase in comp-store sales.

"We acted quickly by canceling some orders, and moving up some planned markdowns," Schaefer continued. "So we lessened the impact of excess inventory. However, increased promotional activities, primarily in January, affected revenues, margins and net incomes."

According to Schaefer, the dip in traffic "wasn't attributable to any significant mistakes on our part in terms of inventory selection. We had no major misses. Our results were attributable to mall and store traffic levels below expectations, and the lack of a hot item to drive traffic, like initials were last year. Also, there was competition from electronic products such as iPods, which fall outside our inventory universe."