Coldwater Creek, Inc. (CWTR)
Q2 2012 Earnings Conference Call
August 29, 2012, 14:30 p.m. ET
Anne Rakunas - IR, ICR
Dennis Pence - Co-Founder, Chairman and CEO
Jill Dean - President and CMO
Jim Bell - EVP, COO and CFO
Roxanne Meyer - UBS
Liz Pierce - Roth Capital Partners
Alex Fuhrman - Piper Jaffray
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Greetings and welcome to the Coldwater Creek Inc. Second Quarter 2012 Earnings Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.
It is now my pleasure to introduce your host Anne Rakunas of ICR. Thank you, Ms. Rakunas, you may begin.
Thank you. Good afternoon everyone and thank you for joining us as we discuss our results for the fiscal 2012 second quarter ended July 28, 2012. Participating in today’s call are Dennis Pence, Chairman and Chief Executive Officer; Jill Dean, President and Chief Merchandising Officer; and Jim Bell, Executive Vice President and Chief Operating and Chief Financial Officer.
Before I begin I’d like to remind everyone that the statements contained in this conference call that are not historical facts constitute forward-looking statements within the meaning of the securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties are described in the company’s filings with the Securities and Exchange Commission. No one should assume later in the quarter that the comments we provide today are so valid. Moreover, we are not undertaking any obligation to provide updates in the future.
And now I’d like to turn the call over to Dennis.
Thank you. And thank you for joining us today to review our second quarter results and our plans for the second half of 2012. After my opening remarks Jill will review our merchandised performance during the quarter and Jim will then discuss our second quarter financial results in more detail and provide guidance for the third quarter. After our prepared remarks we will turn the call over to the operator to take your questions.
Our second quarter performance was slightly ahead of the expectations we provided in May with encouraging results across the financial and operational metrics demonstrating that we are executing the appropriate strategies to improve our financial performance and generate consistent sales and earnings growth in the future.
I’d now like to draw your attention to some key data points. Our tight inventory controls and significantly lower markdown sales drove over 465 point basis improvements in merchandised margin. We also continued to tightly manage expenses resulting in a $4 million year-over-year reduction in SG&A expense in the quarter. These improvements resulted in a $10 million reduction in our net loss relative to a year ago.
Our product strategies drove improvements in several key top metrics during the quarter including our average unit retail which increased 2.5% and our conversion rate [comp] which was up 4%. As expected, traffic remained challenging during the quarter due primarily to a significant reduction in planned promotional activity in the month of June.
An important component of our turnaround strategy involves rationalizing our store base by either closing underperforming stores or achieving an optimal store size by downsizing existing venues. To-date we have closed 24 stores and are on-track to meet our plans to close up to a total of 45 by the end of fiscal 2013. These closures represent the majority of our underperforming stores.
We also expect to improve the sales productivity over existing store base by reducing our footprint. Our objective is to overtime bring the average store size down to approximately 4500 square feet from the current average of 5700 square feet. Jim will further discuss the improvements in productivity we see in this regard.
In regards to our factory outlet stores, for the past 18 months we have been growing the penetration of made for outlet product as part of our strategy to ship the focus of our outlet stores from one that utilizes the channel solely for the clearance of excess product to one that primarily sells made for outlet products. As a result of this initiative, we have seen a significant improvement in the profitability of this channel and believe further improvements are attainable. We believe that our factory outlet stores will contribute meaningfully to overall profitability in the future.
As we begin the third quarter, we are confident that we have a strong trend right offering both in our stores and online. Jill will speak about our fall assortment in more detail in a moment. In the direct channel, we are enhancing our online presence through our website, emails and social communications by adding richer content and developing session and product stories that motivate purchase. We are on-track to launch the next-generation of our mobile app in October. We have redesigned our website navigation, home page and landing page to formats that are easier to shop. Our catalogue has also been updated with the more compelling design, enhanced imagery and creative layout.
We were pleased with our catalogue performance for the first half of 2012, with profitability proved up significantly despite a planned decrease in circulation. This gives us confidence that we can moderately increase our circulation and significantly increase our page counts in the second half of the year. For fall, our catalogue circulation will increase 5% and our page count will increase over 40% as a result of the design and merchandising initiatives to significantly improve the breadth and appeal of our direct product offering. In addition, we have increased our investment in online advertising by 13% which will increase our online brand impressions to over 230 million. We believe that these investments will continue to drive brand awareness and improve traffic both to our stores and our website. Despite these investments, we expect to realize a meaningful year-over-year decline in total marketing expense for the second half of the year.