Joe's Jeans' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Joe's Jeans (JOEZ)

Q4 2011 Earnings Call

February 28, 2012 4:30 pm ET

Executives

Lori Nembirkow -

Marc B. Crossman - Chief Executive Officer, President and Executive Director

Hamish S. Sandhu - Chief Financial Officer and Principal Accounting Officer

Analysts

Jane Thorn Leeson

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Steven Chang

Unknown Analyst

James Fronda - Sidoti & Company, LLC

Presentation

Operator

Welcome to Joe's Jeans Fiscal 2011 Fourth Quarter and Year-End Earnings Call. I will be your conference coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Lori Nembirkow, General Counsel for the company. Please proceed.

Lori Nembirkow

Thanks, operator, and thanks to everyone for joining the call. Present on our call today to discuss our results are Marc Crossman, our President and CEO; and Hamish Sandhu, our CFO.

Before we start, let me review the company's Safe Harbor language. Today's call may contain forward-looking statements, which are statements of the company's or management's intentions, hopes, beliefs, expectations or predictions of the future. These statements are subject to risks and uncertainties that could cause our actual results to be materially different. You're cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. I also refer you to our reports that are filed with the SEC, which includes our 2011 annual report on Form 10-K filed today. This report includes information that could also cause our actual results to be materially different from those contained and any projections which may be made during this conference call. By making any forward-looking statements, the company undertakes no obligation to update them for revisions or changes after today.

Finally, a copy of our earnings release and a recording of this call will be available on our website, www.joesjeans.com, and a telephone replay will be available for 1 week from today.

Now I'll turn the call over to Marc.

Marc B. Crossman

Thanks, Lori, and thanks, everyone, for joining us today. I'll speak about the fourth quarter results, and then I'll turn the call over to Hamish for a discussion of our financials. Finally, we'll end with a Q&A session.

In the fourth quarter, we generated net sales of $25.4 million, an 8% increase. The increase in sales is indicative of 2 trends: First, our Wholesale business is starting to stabilize; and second, our retail strategy is now providing a material diversification of our revenue base.

During the quarter, we incurred a net loss of $268,000 compared to net income of $817,000 in the prior year. However, we invested an additional $1.3 million in advertising during the quarter.

More specifically, during the quarter, we launched an advertising campaign around our colored jeans. Right now, we are in a colored denim trend and rather than trying to identify and offer a handful of colors, we launched a program of 55 colors, which we cut to order. This program allows us to custom tailor our product offering to each retailer without maintaining too much inventory. The program has been a success in generating reorders. In addition, the ad campaign has had a very positive impact in our retail stores where we have had a presentation of all 55 colors on a single wall. With this advertising launch already underway, in future quarters we expect our advertising costs to taper.

Our Retail division sales increased 44%. Sales growth was driven not only by operating 7 stores more than a year ago, but also by very healthy 12% same-store sales growth. In the first quarter of 2012, which ends tomorrow, we have seen similar double-digit same-store sales growth. Most encouraging, same-store sales gains in our full price business exceeded the same-store sales gains from our outlet. This speaks to the fact that the customer is reacting positively to our new product delivery. We believe this positive consumer reception will filter down to our Wholesale business in the coming quarters.

Similar to the third quarter, we were [indiscernible] at our retail stores than a year ago. Accordingly, gross margins expanded 4 percentage points from 61% to 65%. Strong same-store sales gains coupled with increased gross margins led to an 8.4% operating income margin, our highest yet for the division.

Also, our store-level operating margin doubled as compared to a year-ago margin. We were pleased with the results of each and every store in our base. During the quarter, we opened our flagship store in New York, and it continues to outperform our expectations.

I would like to point out that we opened the New York store with only $200,000 of capital expenditure, and as any customer will tell you, it's an absolutely beautiful store. Going forward with improvements in our store design, we believe we can cut our store-level capital expenses in half.

Our wholesale sales were flat during the quarter, reversing a trend we have seen over the last several quarters. The slowing decline in our women's wholesale sales, coupled with sales gains in men's and international sales, led to comparable sales for last year. Our Women's business is starting to feel the positive impact of a revamped core line, the 55 Colors program and a few great collection items.

While we are still feeling the impact of drawer reductions from prior seasons, by offering great products, we are starting to see increases of several of our big department store accounts. We feel this bodes well for the coming year. Our future plan is simple, continue to generate brand stature and relevance with our new, unique and exciting fashion product, but also maintain a consistent core basic program that we can rely upon year round.

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