Joe's Jeans' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Joe's Jeans (JOEZ)

Q1 2012 Earnings Call

April 12, 2012 4:30 pm ET

Executives

Lori Nembirkow - Corporate Secretary

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

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

Analysts

Andrew Y. Kim - KeyBanc Capital Markets Inc., Research Division

Steven Chang

Unknown Analyst

Presentation

Operator

Good day, ladies and gentlemen. Welcome to Joe's Jeans' Fiscal 2012 First Quarter Earnings Call. My name is Caris, and 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, 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 include our 2012 quarterly report on Form 10-Q filed today. This report includes information that could also cause our actual results to be materially different from those contained in 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 one week from today.

Now I'll turn the call over to Marc.

Marc B. Crossman

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

In the first quarter, we generated net sales of $26 million, an increase of 23%. The increase in sales is indicative of 2 trends that we started seeing in the fourth quarter of fiscal 2011. First, our wholesale business has stabilized and even begun to show increases, with else being 19% increase from the prior year period. Second, our retail strategy continues to provide material diversification to our revenue base, representing 20% of our revenues for the quarter and increasing 40% over the prior year. During the quarter, our operating income increased by 244%, resulting in operating income of $1.8 million.

Our retail division sales increased by 40% to $5.2 million for the quarter. Sales growth was driven by a very healthy 22% same-store sales increase, plus the addition of 4 more stores. For the first quarter, both our full-priced business and our outlets had healthy same-store sales gains, with our full-priced same-store sales up over 70%. With the first half of our second quarter underway, we are continuing to see solid same-store sales growth at our stores. Our retail gross margins increased 70% from 68% in the prior year quarter, primarily due to the addition of 4 stores, which included one full-priced store. Our strong same-store sales gain, coupled with the increase in gross margins, led to a 5% operating income margin, a big improvement over our negative 3% operating income margin a year ago. Also, our store-level operating margins more than tripled from the year-ago margins.

We continue to be pleased with the results of each and every store in our base, especially our full-priced stores. We recently announced the opening of our 23rd retail store in South Florida at the Aventura Mall. We continue to improve our store design and expect the build out for this store to be roughly $200,000. Given the store will be opened next week, we are pleased with our quick turnaround time of 4 weeks between lease signing and store opening. In addition to Aventura, we have 2 signed leases and expect to have another several signed leases in the coming months.

Our wholesale sales increased by 19% for the quarter, with sales of $20.8 million compared to $17.5 million in the prior year period. Sales gains came from both our men's and women's sales channels and the addition of sales attributable to our new brand, else. Our men's wholesale sales continue to exceed our expectations, increasing 58% over the prior year period, with strong growth in both denim and tees. Similar to last quarter, we saw increases in our door count, our average sales per door and presentation sizes at our retailers. Our Joe's women's wholesale sales increased this quarter, reversing the downtrend of the last several quarters. Most encouraging is the fact that we saw increases in Joe's women's denim, which further built upon the trends from the fourth quarter. As we have seen over the last several months in our company-owned stores, our fashion product is resonating with our customer. Based on the results of the last couple of quarters, we are cautiously excited that we are seeing the same trends filter down to our wholesale channel.

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