Joe's Jeans Management Discusses Q2 2012 Results - Earnings Call Transcript

Joe's Jeans (JOEZ)

Q2 2012 Earnings Call

July 16, 2012 4:30 pm ET


Lori Nembirkow - Corporate Secretary

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

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


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

Edward D. Timmons - Roth Capital Partners, LLC, Research Division

James Fronda - Sidoti & Company, LLC



Welcome to Joe's Jeans Fiscal 2012 Second Quarter Earnings Call. My name is Dejira and I'll be the conference coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would 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 are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made.

I'll also refer you to our reports that are filed with the SEC, which includes our quarterly reports 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,, 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 second 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 second quarter, we increased net sales 16% to a record $28.6 million. This increase built upon the trends we started to see in the fourth quarter of fiscal 2011. First, our domestic wholesale business continues to post healthy increases, growing 12% over the prior year. Second, retail sales grew 26% over the prior year, now representing 20% of our consolidated revenue. Due to the positive results from both wholesale and retail, our operating income increased 82% to $3.1 million for the quarter.

Our retail division sales growth of 26% was driven by a healthy 10% same-store sales increase and the addition of 3 more stores. For the second quarter, both our full price stores and our outlets had positive same-store sales gain. It's important to note that our full price same-store sales were up 38% for the quarter, with the first half of our third quarter under way, we are continuing to see a positive same-store sales growth.

Our retail gross margin increased by 6 percentage points to 71% from 65% primarily due to less commercial activity at the outlets and the addition of 2 full price stores. Our strong same-store sales gains, coupled with the increase in gross margins, led to store-level EBITDA margins of 22% compared to 16% a year ago. We continue to be pleased with the results of each and every store in our base.

We recently announced the location of our 25th retail store on Melrose in Los Angeles and expect to have both this and our 24th store in South Coast Plaza open in August, in time for the fall shopping season. Both of our new stores are located in highly coveted shopping destinations.

We expect these stores to increase brand awareness with new and existing customers. We expect the capital expenditures for these 2 new stores to be consistent with Aventura and SoHo which costs about $200,000 each to build out. Looking forward, we have signed leases for another 2 stores opening later this year. We are continuing to aggressively pursue our retail strategy and expect to have several more leases signed in 2012. Our wholesale sales increased by 14% to $22.9 million. Sales gains came from both our men's and women's sales channels and from our else brands. Our Joe's men's wholesale sales continued its strong growth trajectory with an increase of 11% over the prior-year period. We continue to see strong growth in denim and consistent growth in collection. I would point out that colored denim also proved to be a volume driver on our men's business as it was incremental revenue to our denim plans. Similar to last quarter, we saw increases in our door count and dollars per door.

Our Joe's women's wholesale sales grew 8% this quarter. We saw our women's denim business draw positive increases in both department and specialty stores. Again, a portion of our sales growth was attributable to the strength of our 55 Colors program. In addition, we generated a meaningful amount of reorder business as a result of our printed denim campaign. Our international sales also increased this quarter compared to the year-ago period. Similar to our domestic wholesale business, we saw significant increases in international women's denim sales as a result of our printed denim and 55 Colors program. We recently announced a new distribution agreement for France and currently the restructuring of the Paris office. As a result, our European business generated a healthy profit slate during the quarter. We continue to believe the international market represents a sizable opportunity for us and with this new distribution model, we expect to reduce corporate overhead and increase profitability.

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