The Bon-Ton Stores' CEO Discusses Q2 2012 Results - Earnings Call Transcript

The Bon-Ton Stores, Inc. (BONT)

Q2 2012 Earnings Conference Call

August 16, 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

Analysts

Edward Yruma - KeyBanc Capital Markets

Michael Exstein - Credit Suisse

Kristina Westura – Telsey Advisory Group

William Reuter – Bank of America Merrill Lynch

Karru Martinson – Deutsche Bank AG

Jordan Hughes – Goldman Sachs Group Inc.

Mary Gilbert – Imperial Capital LLC

Carla Casella – JP Morgan Chase & Co.

Chris Fetes – JPMorgan Chase & Co.

Jason Alper - Tejas Securities Group, Inc.

Presentation

Operator

Good day, and welcome to the Bon-Ton Stores Inc. second quarter Fiscal 2012 Results Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Jean Fontana, Please go ahead.

Jean Fontana

Good morning, and welcome to the Bon-Ton second 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 earning’s 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 may 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 the call over to Mr. Brendan Hoffman.

Brendan L. Hoffman

Good morning and thank you for joining us. I will begin with some highlights from the second quarter, followed by an overview of our four focus areas and opportunities. Overall, in the second quarter we achieved our first positive comps since the fourth quarter of 2010, and instituted several changes to our business that we believe position us well for improved performance in the second half. We evaluated and made adjustments to our merchandise assortment and marketing programs to drive store productivity. In addition, we made enhancements to e-commerce and took steps to create a store environment that emphasizes a customer first experience.

We successfully completed the exchange of our senior notes in July and seamlessly transitioned to our new partner Alliance Data for our private label credit card business.

We are also on track to achieve the $40 million annualized expense reductions, with an estimated benefit of $30 million to fiscal 2012. Keith will get into more details in his remarks.

Moving on to the merchandise and marketing discussion. All the work we did during the season to adjust the mix of the traditional and updated assortments is beginning to pay dividends. In July, we saw a significant improvement in our Ladies Ready-to-Wear businesses, particularly Moderate Sportswear and Special sizes.

Our best performing businesses for the quarter were Hard and Soft Home, Shoes and Cosmetics, while our toughest businesses were Juniors and Dresses. We are working to identify opportunities to turn these categories around. E-commerce business continues to trend at double-digit sales increases. Our Private brand penetration was 20.3% compared with 21.2% in the second quarter of 2011.

We tested some new marketing events, which really communicated the value we offer through a more consistent and simplified messaging. We were very pleased with the customer’s favorable response and will expand on these in the fall.

Turning to some thoughts in the second half of the year, beginning with merchandising. We continue to evaluate and make adjustments to our assortment. We went too far, too quickly in the recalibration of our moderate traditional versus updated merchandise mix. While we think it is important to attract the updated and younger customer, this cannot be at the expense of our loyal, moderate traditional customer. Going forward, our merchandise assortment will be better aligned with our customer both existing and new. This will be a key driver of profitable sales growth.

Private brand accounted for approximately 70% of our shortfall to the merchant’s gross margin plan. We shifted the assortment too far to the updated customer and combined with price increases, this hurt performance. We adjusted these issues and we were able to rework most of our offering for the fall. We expect sales increases in our private brand categories as we have adjusted our merchandise assortment and have the ability to offer more attractive price points in response to lower costs coming from oversees. Overall, we see prices returning close to 2011 levels by the first quarter of 2013 in many areas particularly apparel. And today, we have implemented to various degrees strategic initiatives designed to support our growth strategy in over 120 doors.

I had spent a lot time with our buyers and market. Our partnership with our vendors is stronger than ever. The vendor community has been very supportive and is working with us to drive sales through intensifying additional doors and online.

Regarding our marketing initiatives, Luis Fernandez, our new Chief Marketing Officer has now been with us for a little over three months and we’ve already seen our marketing message benefiting from Luis’ expertise. We were delivering a clear and more concise message around our plan for motions and product initiatives, resulting in improved overall shopping experience for our customer.

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