Bon-Ton Stores Management Discusses Q1 2012 Results - Earnings Call Transcript

Bon-Ton Stores (BONT)

Q1 2012 Earnings Call

May 17, 2012 10:00 am ET

Executives

Jean Fontana - Senior Vice President

Brendan L. Hoffman - Chief Executive Officer, President and Director

Keith E. Plowman - Chief Financial Officer, Executive Vice President of Finance and Principal Accounting Officer

Anthony J. Buccina - Vice Chairman and President of Merchandising

Analysts

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

Grant Jordan - Wells Fargo Securities, LLC, Research Division

William M. Reuter - BofA Merrill Lynch, Research Division

Jordan Hughes - Goldman Sachs Group Inc., Research Division

Emily E. Shanks - Barclays Capital, Research Division

Carla Casella - JP Morgan Chase & Co, Research Division

Karru Martinson - Deutsche Bank AG, Research Division

Rishi Parekh - Sterne Agee & Leach Inc., Research Division

Elie Radinsky - Cantor Fitzgerald & Co.

Colleen Burns

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Bon-Ton Stores Fiscal First Quarter 2012 Results Conference. Today's conference is being recorded. And now, I'd like to turn the call over to Ms. Jean Fontana with ICR. Please go ahead, ma'am.

Jean Fontana

Good morning, and welcome to Bon-Ton's first quarter fiscal 2012 conference call. Mr. Brendan Hoffman, President and CEO and Mr. Keith Plowman, Executive Vice President and CFO, will host today's call.

You may access a copy of the earnings release on the company's website at www.bonton.com. You may also obtain a copy of the earnings release by calling (203) 682-8200.

The statements contained in this conference call which are not historical facts may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results might differ materially from those projected in such statements due to a number of risks and uncertainties, including those set forth in the cautionary note in the earnings release, and all of which are described in the company's filings with the SEC.

I would now like to turn the call over to Mr. Brendan Hoffman.

Brendan L. Hoffman

Good morning, and thank you for joining us. I will share my observations of some actions taken or that we are beginning to take during my initial 90 days with the company. But first, let me quickly review our merchandising performance in the first quarter.

We were a little fooled in the beginning of the first quarter based on February results doing better than expected, especially because we had shifted a very big promotion, Community Day, out of February to the end of April. We believe the stronger-than-expected February sales results were due in large part to the warmer-than-normal temperatures we were experiencing in our markets. In retrospect, while the event was successful, it had a negative impact on April in total, as it suppressed April sales prior to the event. We will move this event back to February, where it will help that month and not impact the entire month of April, which is more important to the quarter than February.

We continued to see some customer resistance to price increases, especially in our private brand merchandise. Private brand penetration was 19% compared to 19.7% in the first quarter of 2011. We have seen slight cost reductions on our current second quarter deliveries and will benefit from additional reductions going forward, which will enable us to reduce price points on most categories going forward. This should favorably impact the private brand business in the fall.

Our best performing businesses for the quarter were lady shoes, hard home and cosmetics. Franchise businesses had positive comp sales for the quarter and performed better than the company -- total company average.

Our Incredible Value Program or IVP was slightly below last year, and the toughest businesses were moderate traditional ladies sportswear, ladies outerwear and juniors.

Some of my observations. I've visited about 80 stores across all banners since I began. As I previously stated, I believe there are numerous opportunities to improve the performance in our stores.

Merchandising. We continue to evaluate and make adjustments to our assortment. We recognize that we were too aggressive in shifting our assortment mix towards updated from traditional. We believe this is the primary reason for the sales shortfall in this category in ready-to-wear, including missed business in the opening price points. We have aggressively corrected this with receipts near the end of April, including opening price points of traditional merchandise.

We will continue to identify ways to enhance our merchandise assortment as we review other categories. We have increased the communication between the stores and our planning and allocation teams. We are also taking into account input from the stores to a much greater degree, giving them the opportunity to make adjustments to better align with what they observed from their customers' response.

We are building upon what we learned from last fall and this spring's rollout of our strategic initiatives, the good and the bad, and are applying what we learned to our stores. We will add an additional 31 stores that reflect these strategic initiatives in the fall, which will support our growth strategy.

I continue to meet with our vendors to discuss ways in which we can grow the business together. They have been very supportive and have given us the opportunity to expand certain key brands such as Michael Kors, Coach, Calvin Klein and Ralph Lauren, into additional doors and online.

We recently announced Tony's plan to retire. I'm pleased that Tony is staying until February of 2013 to assist me in my transition here at Bon-Ton.

As far as marketing is concerned, Luis Fernandez has joined the company as our Chief Marketing Officer, a new position for us. We believe our marketing messaging will benefit greatly from Luis' expertise. We anticipate these benefits will impact our stores and eCommerce operations, both in driving sales and doing so more efficiently. We plan to deliver a more simplified, clear and concise message, resulting in an improved overall shopping experience for our customers.

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