Christopher & Banks has reported a fourth-quarter loss of $0.13 a share $0.14 better than the consensus estimate.
There was no earnings quality since the company generated a loss. The beat was driven by better-than-expected sales (+2.7% versus the tear-sheet average), coupled with a higher-than-expected gross margin (+137 basis points versus tear sheet expectation) and lower-than-expected SG&A expenses (-672 bps versus expectations).
Revenues fell 1.9% year over year. Fourth-quarter same-store sales decreased 4%. CBK did have comparable store sales gains during the last two months of the year, however.
Gross profit for the quarter increased 66.7% and, as a percentage of sales, gross margin increased to 31.9% from 18.8% in the fourth quarter of 2009.
Management expects a mid to high single-digit increase in comparable-store sales in the first quarter 2011. Gross margin is expected to improve by a couple of hundred basis points and SG&A, as a percent of sales, is expected to be flat to slightly lower.
Sales & Comps:
Total sales were $101.9 million in the fourth quarter of fiscal 2010 compared to $103.9 million in the fourth quarter of fiscal 2009.
Comparable store sales declined 4% in the quarter. Bad weather hurt December sales. However, CBK had comp store gains in both January and February. The company also had continued improvement in conversion and average transaction value in the quarter. Management attributed the gain to improved merchandise assortment and excellent customer service.
For the full fiscal year, total sales declined to$455.4 million compared to $530.7 million in the prior year. Comparable store sales declined 15% last year.
Store Openings & Closing:
Store openings in fiscal 2010 by format:
1 Christopher & Banks store
3 CJ Banks stores
1 dual concept store
Store closings last year by format:
9 Christopher & Banks stores
5 CJ Banks stores
As of February 27, 2010, the company operates:
540 Christopher & Banks stores
265 CJ Banks stores
1 dual concept store.
This year CBK plans to open approximately 10 new stores and close 25 existing stores.
Margin Discussion:
Cost of merchandise buying and occupancy expense were $69.3 million or 68.1% of net sales in the fourth quarter of fiscal 2010, compared to $84.4 million or 81.2% of net sales in the fourth quarter of fiscal 2009. The increase in gross profit margin in the fourth quarter primarily resulted from a nearly 11 percentage point increase in merchandise margins due to smaller markdowns from a much cleaner inventory position Positive leverage in occupancy and freight expense also contributed to the increase in gross profit margin.
For the fourth quarter, SG&A expense totaled $32.8 million, or 32.2% of net sales compared to $43.3 million, or 41.7% of net sales in the fourth quarter of fiscal 2009. SG&A expense for the fourth quarter of fiscal 2009 included one-time charges related to severance costs associated with its field reorganization and workforce reduction at the corporate office, and software and implementation related costs. Excluding these charges in the fourth quarter of 2010, CBK realized savings of $8 million due to lower store payroll and other store operating expenses. Lower medical costs, marketing spend, travel, and IT related expenses also helped.
Balance Sheet:
The company ended the year with $113 million in cash, cash equivalents and investments, and no long-term debt.
Total inventory was $38.5 million last year, versus $38.8 million in the previous year.
Excluding the e-Commerce, inventory per store at the end of fiscal 2010 was down approximately 3% from fiscal 2009.
$6 million of capital expenditures last year were funded from cash on hand.
Outlook:
Same-store sales to increase in the mid- to high-single digit range in the first quarter.
In the second half of this year, CBK believes that year-over-year comparisons will be more challenging.
In the first quarter, total gross margin is expected to improve by a couple of hundred basis points due to reduced markdowns and better leveraging of buying and occupancy expenses.
Management believes that the cost controls implemented last year will leave little room for further SG&A expense reductions this year. As a result, they expect SG&A expense as a percent of sales in the first quarter to be roughly the same, or slightly lower, than in the first quarter of last fiscal year and they do not anticipate achieving additional year-over-year SG&A reductions in the remainder of this fiscal year.
Approximately $4 million of SG&A expense reductions in last fiscal year, resulted from one-time, savings related to legal settlements and insurance proceeds that will not be repeated in this fiscal year.
Depreciation and amortization is expected to be about the same in the first quarter of this year as is in the first quarter of last year.
The estimated effective tax rate is in the low 40% range.
Per store inventory, which excludes e-Commerce, is expected to be up mid to high single digits on a percentage basis at the end of the first quarter as compared to the end of the first quarter of last year.
Capital Expenditures are expected to be $12 million to $14 million for the full fiscal year.
CBK plans to be cash flow positive this fiscal year.
No earnings guidance was given.
Friday, April 16, 2010
Tuesday, April 13, 2010
Talbot's Fourth Quarter Conference Call Notes
Talbot’s has reported fourth-quarter earnings of $0.13 a share, excluding $0.01 in restructuring charges and $0.15 in merger costs, The consensus stands at $0.02.
Earnings quality was ok. An unexpected tax benefit added about $0.04 to results. Meanwhile, the gross margin was 44 basis points better than the tear-sheet average and SG&A expenses came in 106 basis points lower as a percentage of sales than the tear-sheet average.
Revenues fell 3.7% year over year. Comparable-store sales declined 7.2% in the quarter, with January comps up high single digits.
Cost of sales, as a percent of net sales improved 2,070 basis points compared to last year. This improvement was due primarily to a substantial increase in pure merchandise margin of 1,900 basis points, resulting from strong IMU, improved full-price selling and a decrease in buying and occupancy costs of 170 basis points.
SG&A expense as a percent of sales decreased 1,180 basis points, reflecting a $42.4 million or 30% decline in SG&A expenses over the prior year.
For the first quarter, the company anticipates a top line sales increase in the range of 4% to 5% compared to the prior year period. Adjusted operating income, excluding restructuring, impairment and merger costs, is anticipated to be in the range of approximately 4.5% to 6% of sales.
For the full year, the company anticipates a top-line sales increase in the range of approximately 3% to 5% compared to the prior year period. Adjusted operating income, excluding restructuring, impairment and merger costs, is anticipated to be in the range of 5% to 6% of sales.
Sales & Comps:
Total sales in the fourth quarter were $316 million compared to $328 million last year. Source sales were $261 million compared to $279 million last year. Markdown selling declined 21% in the quarter and full priced sales increased 10%. Direct marketing sales in the fourth quarter, which include catalog and internet, were up 11% to $55 million compared to $49 million last year. The gain in the direct channel was due to store associates continuing to aggressively promote direct marketing sales, a stronger mix of full priced merchandise, and better fulfillment.
Transactions were down in the quarter. But, dollars per transaction increased 13%, reflecting strong full-priced selling. Customer traffic was also down in the fourth quarter but remained stable from the third quarter.
Comp store sales were -7.2% in the fourth quarter. However, comps have shown sequential improvements over the last four quarters.
Margins:
Fourth quarter cost of sales buying and occupancy improved to 64.7% of net sales, versus 85.4% last year. The more than 2000 basis point improvement was primarily due to a 1900 basis point increase in merchandise margins, driven by improved IMU and strong full price selling, and a 170 basis point improvement in buying and occupancy.
SG&A expenses in the fourth quarter were $98 million at 31.1% of sales versus $141 million at 42.9% of sales last year. The 1180 basis point improvement came from an ongoing expense reduction program. In early 2009, TLB established a goal of reducing annualized expenses by $150 million by the end of fiscal 2010. By the end of fiscal 2009, TLB reduced expenses by $120 million in SG&A and $27 million in buying and occupancy.
Balance Sheet:
TLB ended the fourth quarter with total accounts receivable of $164 million versus $169 million last year.
Total inventory at quarter end was $143 million, down 31% from $207 million last year.
Total debt outstanding was $486 million, compared to $477 million in the same period last year. TLB has paid off its debt to AEON.
Capital expenditures were $21 million last year, compared to $45 million in the prior year.
Cash flow from operating activities was $81 million last year.
Outlook:
For the full year:
Sales growth of 3% to 5% compared to last year.
Operating profit, excluding non-recurring items, of 5% to 6% of sales.
Capital expenditures of about $40 million.
For the First Quarter:
Sales growth of 4% to 5% compared to last year's first quarter.
Operating income, excluding non-operating items, of 4.5% to 6% of sales.
Early read on the first quarter:
Comps are currently trending positive, with positive comps in each of the last three months. March was the strongest, up 10% over last year.
Earnings quality was ok. An unexpected tax benefit added about $0.04 to results. Meanwhile, the gross margin was 44 basis points better than the tear-sheet average and SG&A expenses came in 106 basis points lower as a percentage of sales than the tear-sheet average.
Revenues fell 3.7% year over year. Comparable-store sales declined 7.2% in the quarter, with January comps up high single digits.
Cost of sales, as a percent of net sales improved 2,070 basis points compared to last year. This improvement was due primarily to a substantial increase in pure merchandise margin of 1,900 basis points, resulting from strong IMU, improved full-price selling and a decrease in buying and occupancy costs of 170 basis points.
SG&A expense as a percent of sales decreased 1,180 basis points, reflecting a $42.4 million or 30% decline in SG&A expenses over the prior year.
For the first quarter, the company anticipates a top line sales increase in the range of 4% to 5% compared to the prior year period. Adjusted operating income, excluding restructuring, impairment and merger costs, is anticipated to be in the range of approximately 4.5% to 6% of sales.
For the full year, the company anticipates a top-line sales increase in the range of approximately 3% to 5% compared to the prior year period. Adjusted operating income, excluding restructuring, impairment and merger costs, is anticipated to be in the range of 5% to 6% of sales.
Sales & Comps:
Total sales in the fourth quarter were $316 million compared to $328 million last year. Source sales were $261 million compared to $279 million last year. Markdown selling declined 21% in the quarter and full priced sales increased 10%. Direct marketing sales in the fourth quarter, which include catalog and internet, were up 11% to $55 million compared to $49 million last year. The gain in the direct channel was due to store associates continuing to aggressively promote direct marketing sales, a stronger mix of full priced merchandise, and better fulfillment.
Transactions were down in the quarter. But, dollars per transaction increased 13%, reflecting strong full-priced selling. Customer traffic was also down in the fourth quarter but remained stable from the third quarter.
Comp store sales were -7.2% in the fourth quarter. However, comps have shown sequential improvements over the last four quarters.
Margins:
Fourth quarter cost of sales buying and occupancy improved to 64.7% of net sales, versus 85.4% last year. The more than 2000 basis point improvement was primarily due to a 1900 basis point increase in merchandise margins, driven by improved IMU and strong full price selling, and a 170 basis point improvement in buying and occupancy.
SG&A expenses in the fourth quarter were $98 million at 31.1% of sales versus $141 million at 42.9% of sales last year. The 1180 basis point improvement came from an ongoing expense reduction program. In early 2009, TLB established a goal of reducing annualized expenses by $150 million by the end of fiscal 2010. By the end of fiscal 2009, TLB reduced expenses by $120 million in SG&A and $27 million in buying and occupancy.
Balance Sheet:
TLB ended the fourth quarter with total accounts receivable of $164 million versus $169 million last year.
Total inventory at quarter end was $143 million, down 31% from $207 million last year.
Total debt outstanding was $486 million, compared to $477 million in the same period last year. TLB has paid off its debt to AEON.
Capital expenditures were $21 million last year, compared to $45 million in the prior year.
Cash flow from operating activities was $81 million last year.
Outlook:
For the full year:
Sales growth of 3% to 5% compared to last year.
Operating profit, excluding non-recurring items, of 5% to 6% of sales.
Capital expenditures of about $40 million.
For the First Quarter:
Sales growth of 4% to 5% compared to last year's first quarter.
Operating income, excluding non-operating items, of 4.5% to 6% of sales.
Early read on the first quarter:
Comps are currently trending positive, with positive comps in each of the last three months. March was the strongest, up 10% over last year.
Thursday, April 1, 2010
Dollar General Fourth Quarter Conference Call Notes
Dollar General (DG) has reported fourth-quarter earnings of $0.51 a share, excluding non-recurring items, $0.08 better than the consensus estimate.
Earnings quality was solid. Although a lower-than-expected tax rate added $0.02 a share versus the tear-sheet average, the brunt of the beat was driven by a higher-than-expected gross margin, which accounted for the remainder of the beat.
Revenues rose 11.9% year over year. Same-store sales increased 7.4% versus 9.4% last year. Customer traffic and average transaction amount both contributed to the same-store sales increase. Sales were strongest in the consumables and seasonal categories.
The gross margin increased by 275 basis points on a year over year basis to 32.2% of sales from 29.4% of sales in the 2008 period. SG&A expenses were down 40 basis points year over year.
For the full year, the company is guiding earnings to a range of $1.55 – $1.63. The consensus stands at $1.57.
Notes From The Call:
Sales and Comps:
Sales increased 12.8% to a record $11.8 billion in fiscal 2009. Same-store sales rose 9.5%, on top of a 9% gain in 2008. Every region had positive comps.
Total net sales increased across all four merchandise categories led by 14% growth in both consumables and seasonal. DG saw good sell-through of holiday seasonal merchandise, and they are encouraged by the progress in their apparel area.
Margin Discussion:
Gross margin for the quarter was 32.2%, an increase of 275 basis points from the prior year quarter. Margins benefited mostly from private label product growth, better product sourcing, and lower shrinkage.
In 2010 they expect expansion of their private label products to help improve the gross margin further. In 2009, private label penetration was more than 21% of their consumables sales, with about 1300 SKUs. The private brand initiatives will be supported by a new comprehensive in-store marketing campaign.
Another opportunity for gross margin expansion will come from direct sourcing of merchandise. During 2009, they realigned and overhauled the organizational responsibilities of the Hong Kong office and expanded into India. Going forward, they are developing new sourcing alternatives such as improved sourcing for apparel products.
In 2010, shrinkage should decrease due to the relocation of high shrink items, additional closed-circuit TV, scan-based trading, and automated exception-based reporting.
Balance Sheet:
Total debt declined by $734 million last year, to $3.4 billion. The company used excess cash and the proceeds from the IPO to retire debt. The ratio of long-term obligations, net of cash to adjusted EBITDA, decreased from 4.1 at year-end 2008 to 2.5 at year-end 2009.
At year-end total merchandise inventories at costs were $1.52 billion compared to $1.41 billion in '08. That is an increase of 7.4% or 1.7% on a per store basis. Increases in the consumables and seasonal inventories were partially offset by decreases in apparel and home product inventories. Annual inventory turns improved to 5.3 times in 2009 compared to 5.2 times in 2008.
Cash flow from operating activities was $669 million, up 16% from the $575 million generated in 2008.
Store Openings:
In 2009, DG opened 500 new stores and remodeled or relocated an additional 450. In 2010, the plan is to open stores in their new customer-centric format, which has an improved layout. They plan to open 600 new customer-centric stores while also remodeling or relocating an additional 500 stores to fit the new model. The new store format improves the store’s appearance and creates a better shopping environment based on extensive customer insights from focus groups and from proprietary market basket data. By the end of fiscal 2010, they plan to have 1500 stores in the new format.
Fiscal 2010 Guidance:
• Total sales growth of 8%-10%.
• Same-store sales growth of 4%-6%.
• Adjusted operating profit growth of 15%-20%.
• Tax rate of 38%-39%.
• Earnings excluding non-recurring items to increase at an annual rate of 18% - 24% to $1.55 - $1.63 a share. The consensus stands at $1.57.
• Capital expenditures of $325 million to $350 million.
Earnings quality was solid. Although a lower-than-expected tax rate added $0.02 a share versus the tear-sheet average, the brunt of the beat was driven by a higher-than-expected gross margin, which accounted for the remainder of the beat.
Revenues rose 11.9% year over year. Same-store sales increased 7.4% versus 9.4% last year. Customer traffic and average transaction amount both contributed to the same-store sales increase. Sales were strongest in the consumables and seasonal categories.
The gross margin increased by 275 basis points on a year over year basis to 32.2% of sales from 29.4% of sales in the 2008 period. SG&A expenses were down 40 basis points year over year.
For the full year, the company is guiding earnings to a range of $1.55 – $1.63. The consensus stands at $1.57.
Notes From The Call:
Sales and Comps:
Sales increased 12.8% to a record $11.8 billion in fiscal 2009. Same-store sales rose 9.5%, on top of a 9% gain in 2008. Every region had positive comps.
Total net sales increased across all four merchandise categories led by 14% growth in both consumables and seasonal. DG saw good sell-through of holiday seasonal merchandise, and they are encouraged by the progress in their apparel area.
Margin Discussion:
Gross margin for the quarter was 32.2%, an increase of 275 basis points from the prior year quarter. Margins benefited mostly from private label product growth, better product sourcing, and lower shrinkage.
In 2010 they expect expansion of their private label products to help improve the gross margin further. In 2009, private label penetration was more than 21% of their consumables sales, with about 1300 SKUs. The private brand initiatives will be supported by a new comprehensive in-store marketing campaign.
Another opportunity for gross margin expansion will come from direct sourcing of merchandise. During 2009, they realigned and overhauled the organizational responsibilities of the Hong Kong office and expanded into India. Going forward, they are developing new sourcing alternatives such as improved sourcing for apparel products.
In 2010, shrinkage should decrease due to the relocation of high shrink items, additional closed-circuit TV, scan-based trading, and automated exception-based reporting.
Balance Sheet:
Total debt declined by $734 million last year, to $3.4 billion. The company used excess cash and the proceeds from the IPO to retire debt. The ratio of long-term obligations, net of cash to adjusted EBITDA, decreased from 4.1 at year-end 2008 to 2.5 at year-end 2009.
At year-end total merchandise inventories at costs were $1.52 billion compared to $1.41 billion in '08. That is an increase of 7.4% or 1.7% on a per store basis. Increases in the consumables and seasonal inventories were partially offset by decreases in apparel and home product inventories. Annual inventory turns improved to 5.3 times in 2009 compared to 5.2 times in 2008.
Cash flow from operating activities was $669 million, up 16% from the $575 million generated in 2008.
Store Openings:
In 2009, DG opened 500 new stores and remodeled or relocated an additional 450. In 2010, the plan is to open stores in their new customer-centric format, which has an improved layout. They plan to open 600 new customer-centric stores while also remodeling or relocating an additional 500 stores to fit the new model. The new store format improves the store’s appearance and creates a better shopping environment based on extensive customer insights from focus groups and from proprietary market basket data. By the end of fiscal 2010, they plan to have 1500 stores in the new format.
Fiscal 2010 Guidance:
• Total sales growth of 8%-10%.
• Same-store sales growth of 4%-6%.
• Adjusted operating profit growth of 15%-20%.
• Tax rate of 38%-39%.
• Earnings excluding non-recurring items to increase at an annual rate of 18% - 24% to $1.55 - $1.63 a share. The consensus stands at $1.57.
• Capital expenditures of $325 million to $350 million.
Wednesday, March 31, 2010
CHRS: Fourth Quarter Conference Call Notes
CHRS reported fourth quarter revenues of $539 million and a share loss of $0.10. The expectations were for sales of $558 million and a share loss of $0.13.
Sales and Comp Breakdown:
Fourth-quarter revenue declined $93 million, or 15%. The decline reflected 152 net store closings over the last 12 months, a comparable store sales decline of 12%, and a 10% increase in e-commerce sales. Comp store sales were negative 13% in the third quarter, and improved only modestly to negative 12% in the fourth quarter. The fourth quarter had similar issues as in the third quarter. Primarily a lack of focus on its core customer and a failure to provide her with a strong core tops and bottoms assortment.
Comps through the first eight weeks of the first quarter were down around 4%.
By Brand:
Lane Bryant: -5.0%
Fashion Bug: -4.0%
Catherine’s: -1.0%
Total: -4.0%
The improvement was aided by both an offensive assortment positioning and at least a temporal improvement in the consumer environment, somewhat offset by bad weather in February. The internet business was up 35% in that same period, benefiting from the August launch of new websites, as well as the February launch of a universal shopping cart, linking all four apparel websites.
LB’s revenue. declined 15% on a comparable-store basis, compared to a 14% comp decline in the third quarter. Outlet stores represented 12% of the brand's revenue in the quarter. The EBITDA margin declined by 120 basis points to 3% due to the negative leverage on comp sales decreases. Assortment issues were consistent with those in the third quarter. The problems were poor understanding of the customer and her need for fit and value, sufficient depth in sizing and lengths, and lack of a strong core tops and bottoms assortment.
Fashion Bug delivered $161 million of revenue. Revenues declined 8% on a comparable store basis, an improving trend compared to our 14% decline in the third quarter. Assortment issues were consistent with the third quarter. Accessories, intimate apparel, and footwear worked, while core tops and pants assortments didn’t.
Catherine's delivered $66 million of revenue. Revenues declined 6% on a comparable store basis, compared to a 5% comp decline in the third quarter. Sweaters, knit tops, active, and cold weather accessories did well. Intimate apparel, coats, dresses, and swimwear did not.
The Figi's segment delivered $105 million of revenue. Revenues were comparable to the prior year period.
Internet revenue across the three brands for the quarter was $27.8 million, reflecting a 10% increase versus last year. Internet revenue trends improved to an increase of 35% in the first quarter to date. During August, they launched completely rebuilt websites, to make it easier for customers to shop online. Last month, a single checkout linking all four apparel websites, lanebryant.com, cacique.com, fashionbug.com and catherines.com was added. Additionally, free shipping is available for customers who choose to pick up their packages at any of the Company's 2100 store locations. The feature is driving increased store visits and opportunities for further upsell.
Comparable store sales declined 12%. For the quarter, average inventory decreased 6% on a same-store basis, while inventory increased 1% on a same-store basis at the end of the period. Same-store inventories represent increased receipt of Spring product, while Fall and holiday inventory levels declined year-over-year. By brand, comp sales declined by 15% at Lane Bryant, and comp inventory increased 2%. At Fashion Bug, comp sales declined 8%, while comp inventory increased 3%. At Catherines, comp store sales declined by 6%, and comp inventory was down 4%.
Quarter to date comps through eight weeks were approximately – 4.0%. While still lousy compared to the rest of the market, it improved across all brands from fourth quarter comps and management believes they are making progress with spring assortments. The improvement is due to assortment positioning and at least a temporal improvement in the consumer environment, somewhat offset by the poor weather experienced in February. The company is beginning to see strength in recent launches of core apparel programs.
Margin Discussion:
Gross profit was $235 million in the quarter, a decrease of $29 million, or 11%. The gross margin improved by 190 basis points to 43.7% of sales compared to 41.8% of sales for the year-ago period. The increase was driven by improved gross margin in the Company's direct to consumer segment, following the close of the Lane Bryant woman catalog in the first half of the year, and lower average inventories resulting in reduced markdowns on seasonal merchandise at Lane Bryant, somewhat offset by increased markdowns on seasonal merchandise at the Fashion Bug and Catherines brands.
Total operating expenses excluding restructuring and one-time charges decreased $36 million, or 12%. Occupancy and buying expense decreased $16 million, or 15% related to the operation of fewer stores and rent reductions related to lease renegotiations. SG&A expense decreased $17 million, or 10%, to $156 million in the fourth quarter compared to $173 million in the same quarter last year, primarily related to the lack of leverage on a declining sale base. Total operating expenses for the year, excluding certain items, were down $162 million or 13%. They surpassed their initial cost reduction program and approximately $136 million of the total expense reductions are associated with the Company's previously announced cost reduction program of 129 -- $125 million for the 2009 fiscal year.
Capital and Liquidity:
They believe their balance sheet remains strong and with total liquidity of $328 million at the end of the quarter. Liquidity includes $187 million in cash, and $141 million available on the revolving line of credit. During the fourth quarter, they repurchased $16.1 million of convertible notes for a cash purchase price of $11.3 million, or 70% of par. As of the end of the quarter, the principal amount of the notes was $190 million, which represents the original $275 million issuance, less the $85 million face value for an aggregate purchase price of $51 million, which was repurchased from the beginning of the year through the end of the fourth quarter.
In October, they sold their credit card business to Alliance Data. As a result of these actions, they ended the year with a cash position of $187 million compared to $100 million in the prior and net debt of $33 million compared to $212 million in the previous year.
The major components of the increase in the cash position include an increase of $136 million related to the sale of the credit program, an increase of approximately $29 million related to income tax refunds, offset by a net loss for the year, a decrease of $51 million related to the repurchases of our convertible debt, and a decrease of $33 million related to capital expenditures. Gross capital expenditures were approximately $23 million last year, down 59% year over year. Capital expenditures for this fiscal will be about $50 million, mostly for the opening of six to eight new stores, remodels and refurbishments to existing stores.
Store Closings and Openings:
The company closed 152 stores (net) during the year. Eight previously committed stores were opened while 160 stores were closed.
Store Closings By Format:
Fashion Bug: 97
Lane Bryant: 39
Petite Sophisticate: 16
Catherine’s: 8
These closures and downsizings amounted to about 7% of the store base.
On the call, management announced that they will be closing around 100 to 120 underperforming stores this year. The cost to execute the store closing program will be about $7 million to $9 million. Nearly half of these closings (60) will be Fashion Bug stores.
Sales and Comp Breakdown:
Fourth-quarter revenue declined $93 million, or 15%. The decline reflected 152 net store closings over the last 12 months, a comparable store sales decline of 12%, and a 10% increase in e-commerce sales. Comp store sales were negative 13% in the third quarter, and improved only modestly to negative 12% in the fourth quarter. The fourth quarter had similar issues as in the third quarter. Primarily a lack of focus on its core customer and a failure to provide her with a strong core tops and bottoms assortment.
Comps through the first eight weeks of the first quarter were down around 4%.
By Brand:
Lane Bryant: -5.0%
Fashion Bug: -4.0%
Catherine’s: -1.0%
Total: -4.0%
The improvement was aided by both an offensive assortment positioning and at least a temporal improvement in the consumer environment, somewhat offset by bad weather in February. The internet business was up 35% in that same period, benefiting from the August launch of new websites, as well as the February launch of a universal shopping cart, linking all four apparel websites.
LB’s revenue. declined 15% on a comparable-store basis, compared to a 14% comp decline in the third quarter. Outlet stores represented 12% of the brand's revenue in the quarter. The EBITDA margin declined by 120 basis points to 3% due to the negative leverage on comp sales decreases. Assortment issues were consistent with those in the third quarter. The problems were poor understanding of the customer and her need for fit and value, sufficient depth in sizing and lengths, and lack of a strong core tops and bottoms assortment.
Fashion Bug delivered $161 million of revenue. Revenues declined 8% on a comparable store basis, an improving trend compared to our 14% decline in the third quarter. Assortment issues were consistent with the third quarter. Accessories, intimate apparel, and footwear worked, while core tops and pants assortments didn’t.
Catherine's delivered $66 million of revenue. Revenues declined 6% on a comparable store basis, compared to a 5% comp decline in the third quarter. Sweaters, knit tops, active, and cold weather accessories did well. Intimate apparel, coats, dresses, and swimwear did not.
The Figi's segment delivered $105 million of revenue. Revenues were comparable to the prior year period.
Internet revenue across the three brands for the quarter was $27.8 million, reflecting a 10% increase versus last year. Internet revenue trends improved to an increase of 35% in the first quarter to date. During August, they launched completely rebuilt websites, to make it easier for customers to shop online. Last month, a single checkout linking all four apparel websites, lanebryant.com, cacique.com, fashionbug.com and catherines.com was added. Additionally, free shipping is available for customers who choose to pick up their packages at any of the Company's 2100 store locations. The feature is driving increased store visits and opportunities for further upsell.
Comparable store sales declined 12%. For the quarter, average inventory decreased 6% on a same-store basis, while inventory increased 1% on a same-store basis at the end of the period. Same-store inventories represent increased receipt of Spring product, while Fall and holiday inventory levels declined year-over-year. By brand, comp sales declined by 15% at Lane Bryant, and comp inventory increased 2%. At Fashion Bug, comp sales declined 8%, while comp inventory increased 3%. At Catherines, comp store sales declined by 6%, and comp inventory was down 4%.
Quarter to date comps through eight weeks were approximately – 4.0%. While still lousy compared to the rest of the market, it improved across all brands from fourth quarter comps and management believes they are making progress with spring assortments. The improvement is due to assortment positioning and at least a temporal improvement in the consumer environment, somewhat offset by the poor weather experienced in February. The company is beginning to see strength in recent launches of core apparel programs.
Margin Discussion:
Gross profit was $235 million in the quarter, a decrease of $29 million, or 11%. The gross margin improved by 190 basis points to 43.7% of sales compared to 41.8% of sales for the year-ago period. The increase was driven by improved gross margin in the Company's direct to consumer segment, following the close of the Lane Bryant woman catalog in the first half of the year, and lower average inventories resulting in reduced markdowns on seasonal merchandise at Lane Bryant, somewhat offset by increased markdowns on seasonal merchandise at the Fashion Bug and Catherines brands.
Total operating expenses excluding restructuring and one-time charges decreased $36 million, or 12%. Occupancy and buying expense decreased $16 million, or 15% related to the operation of fewer stores and rent reductions related to lease renegotiations. SG&A expense decreased $17 million, or 10%, to $156 million in the fourth quarter compared to $173 million in the same quarter last year, primarily related to the lack of leverage on a declining sale base. Total operating expenses for the year, excluding certain items, were down $162 million or 13%. They surpassed their initial cost reduction program and approximately $136 million of the total expense reductions are associated with the Company's previously announced cost reduction program of 129 -- $125 million for the 2009 fiscal year.
Capital and Liquidity:
They believe their balance sheet remains strong and with total liquidity of $328 million at the end of the quarter. Liquidity includes $187 million in cash, and $141 million available on the revolving line of credit. During the fourth quarter, they repurchased $16.1 million of convertible notes for a cash purchase price of $11.3 million, or 70% of par. As of the end of the quarter, the principal amount of the notes was $190 million, which represents the original $275 million issuance, less the $85 million face value for an aggregate purchase price of $51 million, which was repurchased from the beginning of the year through the end of the fourth quarter.
In October, they sold their credit card business to Alliance Data. As a result of these actions, they ended the year with a cash position of $187 million compared to $100 million in the prior and net debt of $33 million compared to $212 million in the previous year.
The major components of the increase in the cash position include an increase of $136 million related to the sale of the credit program, an increase of approximately $29 million related to income tax refunds, offset by a net loss for the year, a decrease of $51 million related to the repurchases of our convertible debt, and a decrease of $33 million related to capital expenditures. Gross capital expenditures were approximately $23 million last year, down 59% year over year. Capital expenditures for this fiscal will be about $50 million, mostly for the opening of six to eight new stores, remodels and refurbishments to existing stores.
Store Closings and Openings:
The company closed 152 stores (net) during the year. Eight previously committed stores were opened while 160 stores were closed.
Store Closings By Format:
Fashion Bug: 97
Lane Bryant: 39
Petite Sophisticate: 16
Catherine’s: 8
These closures and downsizings amounted to about 7% of the store base.
On the call, management announced that they will be closing around 100 to 120 underperforming stores this year. The cost to execute the store closing program will be about $7 million to $9 million. Nearly half of these closings (60) will be Fashion Bug stores.
Thursday, March 25, 2010
WestMarine – Fourth Quarter 2009 Conference Call Notes
Geoff Eisneberg, President & CEO, comments:
Results were favorably impacted by:
1. Boat usage, which most directly affects sales, appeared to be a bit higher in 2009. The uptick was likely due to lower fuel costs and more optimistic attitudes among boaters in 2009 compared to 2008.
2. The closure of the Boater's World chain provided them with an opportunity to reach a new group of customers. The company expanded its product line to better fit the needs of Boater's World's customers who typically have smaller, towable boats.
3. The company benefited from better weather in 2009. The hurricane season was relatively light. So, WMAR had no stores closed or significantly damaged due to weather.
4. Given the significant economic downturn, the company correctly assumed that there would be a shift to more do-it-yourself projects. So, they put more emphasis on core categories like maintenance, electrical, plumbing, and engine repair, and less on higher ticket merchandise like electronics, inflatable boats, and outboard motors.
Revenues were adversely affected during 2009 by less than desired in-stock levels due to higher than expected demand and poor fulfillment from a number of our key suppliers.
Strategies they are implementing in 2010:
1. Store development. They will continue to move towards having fewer, larger, and more dominant stores that provide customers with better assortments and better shopping experiences. This process will continue to include expansions and consolidations of existing stores.
2. They plan to open stores in the three basic sizes -- 9,000 square foot to 12,000 square foot, known as standard size; 13,000 square foot to 19,000 square foot, large size; and over 20,000 foot flagship size. They plan to open three new standard-size stores and five new large-size stores within roughly the next six months.
3. They opened two flagships in 2009 bringing the total to four and they plan to open three new flagships within the year. These stores will be located in Newport, Rhode Island, Sarasota, Florida, and Bay Shore, which is on Long Island, New York.
4. They also plan to supplement their annual catalog with a number of new, highly-targeted, specialty catalogs which will be coming out this spring.
Tom Moran, CFO, SVP Finance & Assistant Secretary, comments:
West Marine recorded net income of $12.4 million or $0.55 per share for fiscal 2009. This was a $51.2 million improvement compared to a net loss last year of $38.8 million, which was a per-share loss of $1.76, including $1.41 of non-recurring expenses. (A$0.30 per share for non-recurring charges connected with the 2008 restructuring plan, $1.05 charge related to a non-cash valuation allowance taken against their deferred tax assets, and $0.06 of expenses related to the now settled SEC investigation.)
Net revenues for 2009 were $588.4 million compared to $631.3 million for the same period a year ago. The primary driver of the lower revenues was a 3.6% or $18.7 million decline in comparable store sales for the 52 weeks in 2009 versus the 53 weeks in 2008. As compared to the corresponding 52-week period ended January 3, 2009, adjusted comparable store sales would have decreased by 2.7%.
There was an additional $27.1 million decrease in the store segment attributable to store closures during 2008 and 2009. Partially offsetting the sales decreases, though, was an $18.4 million increase from new stores opened in 2008 and 2009.
The direct sales segment declined $5.9 million last year due to decreased revenues from the call center channel, lower revenues from international customers, and lower revenues from higher-priced discretionary items. The remaining decline of $10.5 million was in the Port Supply segment primarily due to lower sales to our boat dealer and boat builder customers.
Gross profit for the year was $160.9 million, which was a decrease of $6.5 million compared to 2008. As a percentage of net sales gross profit was 27.3%, which was an increase of 80 basis points when compared to the gross profit of 26.5% last year.
The increase in gross profit as a percentage of sales was primarily due to an improvement of 87 basis points in product margins which was driven by more effective promotions, less clearance activity, and a shift in revenues to higher-margin core boating categories such as maintenance. Also, inventory shrinkage improved by 23 basis points.
These improvements were somewhat offset by a decrease of 37 basis points in occupancy costs. Occupancy is the largest fixed expense and its impact on gross margin is largely driven by sales results along with the fixed nature of the expense.
Selling, general, and administrative expense, or SG&A, for the year was $152.3 million, a decrease of $24.5 million compared to $176.8 million for the same period last year. Expenses leveraged by 220 basis points going from 28% of sales last year to 25.8% this year.
The dollar decrease in SG&A expenses was due to a number of items. There was an $8.4 million reduction in variable selling and marketing expense. They also had a $6.7 million decrease in selling and support overhead. $5.5 million of the reduction was due to closed stores.
There was a $4.8 million favorable foreign currency impact this year versus last year and they we had $3 million in lower costs related to the now settled SEC investigation. All of these lower expenses were partially offset by $7.6 million in higher accrued bonus expense reflecting the Company's performance above budgeted expectations.
Interest expense decreased by over 65% from $2.3 million down to $0.8 million in 2009 due to both lower borrowing levels and lower average borrowing rates including the fact that WMAR was debt free for most of the second half of 2009.
Income taxes reflected a benefit of $2.8 million for 2009. This primarily was related to a recent change in tax laws which increased the number of historical years in which companies are permitted to carry-back prior period net operating losses.
During 2009 they opened nine stores, including our two flagships in Brick, New Jersey, and Jacksonville, Florida. 18 stores were closed. The average size of new stores opened in 2009 was over 15,000 square feet, whereas the average size of closed stores was about 8,700 square feet.
Overall selling square footage year over year was about flat.
Turning to the balance sheet, inventory levels at the end of the year stood at $196.6 million which was a decrease of $26 million or 11.7% versus last year. The decrease was due to lower inventory purchases and the closure of the Hagerstown distribution center at the end of fiscal 2008. The decrease was also 11.7% when calculated on a per-store square footage basis which had remained flat.
Cash provided by operating activities in 2009 was $62.6 million, more than triple last year's $20.6 million. At the end of the year the Company had paid off all outstanding debt, down from $47 million at the end of 2008, and had built up a cash balance of $10.3 million as compared to $7.5 million at the end of last year.
Results were favorably impacted by:
1. Boat usage, which most directly affects sales, appeared to be a bit higher in 2009. The uptick was likely due to lower fuel costs and more optimistic attitudes among boaters in 2009 compared to 2008.
2. The closure of the Boater's World chain provided them with an opportunity to reach a new group of customers. The company expanded its product line to better fit the needs of Boater's World's customers who typically have smaller, towable boats.
3. The company benefited from better weather in 2009. The hurricane season was relatively light. So, WMAR had no stores closed or significantly damaged due to weather.
4. Given the significant economic downturn, the company correctly assumed that there would be a shift to more do-it-yourself projects. So, they put more emphasis on core categories like maintenance, electrical, plumbing, and engine repair, and less on higher ticket merchandise like electronics, inflatable boats, and outboard motors.
Revenues were adversely affected during 2009 by less than desired in-stock levels due to higher than expected demand and poor fulfillment from a number of our key suppliers.
Strategies they are implementing in 2010:
1. Store development. They will continue to move towards having fewer, larger, and more dominant stores that provide customers with better assortments and better shopping experiences. This process will continue to include expansions and consolidations of existing stores.
2. They plan to open stores in the three basic sizes -- 9,000 square foot to 12,000 square foot, known as standard size; 13,000 square foot to 19,000 square foot, large size; and over 20,000 foot flagship size. They plan to open three new standard-size stores and five new large-size stores within roughly the next six months.
3. They opened two flagships in 2009 bringing the total to four and they plan to open three new flagships within the year. These stores will be located in Newport, Rhode Island, Sarasota, Florida, and Bay Shore, which is on Long Island, New York.
4. They also plan to supplement their annual catalog with a number of new, highly-targeted, specialty catalogs which will be coming out this spring.
Tom Moran, CFO, SVP Finance & Assistant Secretary, comments:
West Marine recorded net income of $12.4 million or $0.55 per share for fiscal 2009. This was a $51.2 million improvement compared to a net loss last year of $38.8 million, which was a per-share loss of $1.76, including $1.41 of non-recurring expenses. (A$0.30 per share for non-recurring charges connected with the 2008 restructuring plan, $1.05 charge related to a non-cash valuation allowance taken against their deferred tax assets, and $0.06 of expenses related to the now settled SEC investigation.)
Net revenues for 2009 were $588.4 million compared to $631.3 million for the same period a year ago. The primary driver of the lower revenues was a 3.6% or $18.7 million decline in comparable store sales for the 52 weeks in 2009 versus the 53 weeks in 2008. As compared to the corresponding 52-week period ended January 3, 2009, adjusted comparable store sales would have decreased by 2.7%.
There was an additional $27.1 million decrease in the store segment attributable to store closures during 2008 and 2009. Partially offsetting the sales decreases, though, was an $18.4 million increase from new stores opened in 2008 and 2009.
The direct sales segment declined $5.9 million last year due to decreased revenues from the call center channel, lower revenues from international customers, and lower revenues from higher-priced discretionary items. The remaining decline of $10.5 million was in the Port Supply segment primarily due to lower sales to our boat dealer and boat builder customers.
Gross profit for the year was $160.9 million, which was a decrease of $6.5 million compared to 2008. As a percentage of net sales gross profit was 27.3%, which was an increase of 80 basis points when compared to the gross profit of 26.5% last year.
The increase in gross profit as a percentage of sales was primarily due to an improvement of 87 basis points in product margins which was driven by more effective promotions, less clearance activity, and a shift in revenues to higher-margin core boating categories such as maintenance. Also, inventory shrinkage improved by 23 basis points.
These improvements were somewhat offset by a decrease of 37 basis points in occupancy costs. Occupancy is the largest fixed expense and its impact on gross margin is largely driven by sales results along with the fixed nature of the expense.
Selling, general, and administrative expense, or SG&A, for the year was $152.3 million, a decrease of $24.5 million compared to $176.8 million for the same period last year. Expenses leveraged by 220 basis points going from 28% of sales last year to 25.8% this year.
The dollar decrease in SG&A expenses was due to a number of items. There was an $8.4 million reduction in variable selling and marketing expense. They also had a $6.7 million decrease in selling and support overhead. $5.5 million of the reduction was due to closed stores.
There was a $4.8 million favorable foreign currency impact this year versus last year and they we had $3 million in lower costs related to the now settled SEC investigation. All of these lower expenses were partially offset by $7.6 million in higher accrued bonus expense reflecting the Company's performance above budgeted expectations.
Interest expense decreased by over 65% from $2.3 million down to $0.8 million in 2009 due to both lower borrowing levels and lower average borrowing rates including the fact that WMAR was debt free for most of the second half of 2009.
Income taxes reflected a benefit of $2.8 million for 2009. This primarily was related to a recent change in tax laws which increased the number of historical years in which companies are permitted to carry-back prior period net operating losses.
During 2009 they opened nine stores, including our two flagships in Brick, New Jersey, and Jacksonville, Florida. 18 stores were closed. The average size of new stores opened in 2009 was over 15,000 square feet, whereas the average size of closed stores was about 8,700 square feet.
Overall selling square footage year over year was about flat.
Turning to the balance sheet, inventory levels at the end of the year stood at $196.6 million which was a decrease of $26 million or 11.7% versus last year. The decrease was due to lower inventory purchases and the closure of the Hagerstown distribution center at the end of fiscal 2008. The decrease was also 11.7% when calculated on a per-store square footage basis which had remained flat.
Cash provided by operating activities in 2009 was $62.6 million, more than triple last year's $20.6 million. At the end of the year the Company had paid off all outstanding debt, down from $47 million at the end of 2008, and had built up a cash balance of $10.3 million as compared to $7.5 million at the end of last year.
Wednesday, March 24, 2010
DSW Inc. - Conference Call Notes
DSW reported fourth quarter earnings of $0.30 a share, $0.02 worse than the consensus estimate.
Net sales for the fourth quarter increased 16% to $402.6 million. Sales were about $18 million better than expected. Same store sales increased 12.9% for the comparable period, versus a decrease of 7.2% a year ago. By segment, comps for the DSW business were up 14.1% for the quarter, which was driven by increases in traffic, conversion, and average unit retail. The comps for the leased business were up 2.7%. The DSW comp does not include sales for DSW.com. However, beginning in the first quarter of 2010, DSW.com sales will be in the DSW segment comp calculation.
The merchandise margin rate for the fourth quarter increased 560 basis points to 44.4%, compared to last year's 38.8%. Throughout the quarter, DSW experienced higher regular priced selling and a lower markdown rate on their clearance inventory. The occupancy expense rate decreased significantly, due to the positive comp in the quarter and a continued focus on negotiating rent concessions from landlords. The combination of a significant increase in merchandise margin and an overall decrease in occupancy expense resulted in a gross profit rate increase of 860 basis points to 29.2%.
SG&A rate decreased 110 basis points to 22.9% in the quarter, due to the increased sales and an overall concerted effort to control expenses. Operating income for the quarter was $25.3 million, or 6.3% of sales, compared to an $11.8 million loss a year ago. Interest income was offset by a charge for an uncertain tax position resulting in a net interest expense of approximately $0.5 million for the quarter. DSW also took a $1.7 million pretax nonoperating charge in the quarter to fully impair its one remaining auction rate security. Net income for the quarter was $13.4 million, compared with a net loss of $7.5 million last year, and diluted earnings per share were $0.30 compared with a loss of $0.17 a year ago.
Balance sheet
At the end of the year, inventories were up approximately 7% on a cost per square foot basis, due to exceptionally low inventories in the previous year that were down 14%. The company is comfortable with its current in-store inventories as it enters the important spring selling season of March and April. DSW invested approximately $22 million of capital into new stores. Cash and short-term investments increased by $133 million in the year, to $289 million, and the company has no debt.
Outlook for 2010
Comps are expected to be in the low single digit range including sales from DSW.com. The company plans to open about 10 new stores in the year. They expect their SG&A rate to improve in 2010, but they do not plan to increase their margin rate off the historical record high of 2009. Earnings per diluted share in the range of $1.35 to $1.45, with all of the increase over last year expected to occur in the first two quarters. The consensus is for share profits of $1.43 this fiscal year.
Other:
Management gave more color on the contrast of its performance in the first and second halves of the year. In the first half comp sales were down 4% on a one-year basis, and they were down 10% on a two-year basis. In the second half, comps were up 11% on a one-year basis, and up 5% on a two-year basis. So the turnaround in comp performance from first to second half was 15 points, regardless of whether you calculate it on a one-year basis or a two-year basis.
In the first half, comp sales declined in women's, men's and athletic footwear. In the second half, all three footwear categories had comp sales increases. Similarly, all geographic store regions were down in the first half, and all had double-digit comp increases in the second half of the year. In the first half, our operating income was down 30% to the prior year. In the second half, our operating income improved by over 600% versus the prior year. The improvement was driven by both strong gross margin dollar growth and meaningful expense improvements in virtually all areas of the business.
In the second half, DSW was continuously chasing additional merchandise receipts to catch up with accelerating sales trends. As a result, inventory turnover accelerated. Sell-through rates on regular priced merchandise improved and proportionately fewer shoes found their way into clearance racks. All of that led to record merchandise margin rate performance.
The significant mid-year turnaround in sales trend was a function of both environmental factors and the successful execution of several initiatives.
First, the shoe category generally performed better than overall retail, just based on the reported sales results of other shoe retailers, and the several positive comments about the shoe category made by other multi-category retailers. Also, value oriented retailers performed much better than overall retail. DSW's positioning in the value sector of the shoe category was a combination that gave them a special opportunity to drive strong sales growth.
Second, the company’s strategy to create category distortion and focus on key items really worked. In the fall, they had a competitively superior selection of boots, and they identified several styles of boots for which they staged multiple deliveries in order to provide a continuous flow of these key items into stores. The result was a blow-away boot season. This category alone accounted for over half of the fall season sales growth.
The company thinks it can repeat the success of the second half of 2009 in the second half of this year by:
1. Continuing to be exceptionally well positioned in the value segment of the fashion footwear space.
2. Continuing to focus on size replenishment, precision marketing, key item penetration, private brand growth, increasing offerings in extended sizes and dimensions, growing men's and accessories, and undergoing store remodeling.
3. At a little over $200 per square foot, DSW feels they're not even close to maxing out on sales productivity.
4. Additional store openings.
5. Further growth from its two-year old e-commerce business.
Net sales for the fourth quarter increased 16% to $402.6 million. Sales were about $18 million better than expected. Same store sales increased 12.9% for the comparable period, versus a decrease of 7.2% a year ago. By segment, comps for the DSW business were up 14.1% for the quarter, which was driven by increases in traffic, conversion, and average unit retail. The comps for the leased business were up 2.7%. The DSW comp does not include sales for DSW.com. However, beginning in the first quarter of 2010, DSW.com sales will be in the DSW segment comp calculation.
The merchandise margin rate for the fourth quarter increased 560 basis points to 44.4%, compared to last year's 38.8%. Throughout the quarter, DSW experienced higher regular priced selling and a lower markdown rate on their clearance inventory. The occupancy expense rate decreased significantly, due to the positive comp in the quarter and a continued focus on negotiating rent concessions from landlords. The combination of a significant increase in merchandise margin and an overall decrease in occupancy expense resulted in a gross profit rate increase of 860 basis points to 29.2%.
SG&A rate decreased 110 basis points to 22.9% in the quarter, due to the increased sales and an overall concerted effort to control expenses. Operating income for the quarter was $25.3 million, or 6.3% of sales, compared to an $11.8 million loss a year ago. Interest income was offset by a charge for an uncertain tax position resulting in a net interest expense of approximately $0.5 million for the quarter. DSW also took a $1.7 million pretax nonoperating charge in the quarter to fully impair its one remaining auction rate security. Net income for the quarter was $13.4 million, compared with a net loss of $7.5 million last year, and diluted earnings per share were $0.30 compared with a loss of $0.17 a year ago.
Balance sheet
At the end of the year, inventories were up approximately 7% on a cost per square foot basis, due to exceptionally low inventories in the previous year that were down 14%. The company is comfortable with its current in-store inventories as it enters the important spring selling season of March and April. DSW invested approximately $22 million of capital into new stores. Cash and short-term investments increased by $133 million in the year, to $289 million, and the company has no debt.
Outlook for 2010
Comps are expected to be in the low single digit range including sales from DSW.com. The company plans to open about 10 new stores in the year. They expect their SG&A rate to improve in 2010, but they do not plan to increase their margin rate off the historical record high of 2009. Earnings per diluted share in the range of $1.35 to $1.45, with all of the increase over last year expected to occur in the first two quarters. The consensus is for share profits of $1.43 this fiscal year.
Other:
Management gave more color on the contrast of its performance in the first and second halves of the year. In the first half comp sales were down 4% on a one-year basis, and they were down 10% on a two-year basis. In the second half, comps were up 11% on a one-year basis, and up 5% on a two-year basis. So the turnaround in comp performance from first to second half was 15 points, regardless of whether you calculate it on a one-year basis or a two-year basis.
In the first half, comp sales declined in women's, men's and athletic footwear. In the second half, all three footwear categories had comp sales increases. Similarly, all geographic store regions were down in the first half, and all had double-digit comp increases in the second half of the year. In the first half, our operating income was down 30% to the prior year. In the second half, our operating income improved by over 600% versus the prior year. The improvement was driven by both strong gross margin dollar growth and meaningful expense improvements in virtually all areas of the business.
In the second half, DSW was continuously chasing additional merchandise receipts to catch up with accelerating sales trends. As a result, inventory turnover accelerated. Sell-through rates on regular priced merchandise improved and proportionately fewer shoes found their way into clearance racks. All of that led to record merchandise margin rate performance.
The significant mid-year turnaround in sales trend was a function of both environmental factors and the successful execution of several initiatives.
First, the shoe category generally performed better than overall retail, just based on the reported sales results of other shoe retailers, and the several positive comments about the shoe category made by other multi-category retailers. Also, value oriented retailers performed much better than overall retail. DSW's positioning in the value sector of the shoe category was a combination that gave them a special opportunity to drive strong sales growth.
Second, the company’s strategy to create category distortion and focus on key items really worked. In the fall, they had a competitively superior selection of boots, and they identified several styles of boots for which they staged multiple deliveries in order to provide a continuous flow of these key items into stores. The result was a blow-away boot season. This category alone accounted for over half of the fall season sales growth.
The company thinks it can repeat the success of the second half of 2009 in the second half of this year by:
1. Continuing to be exceptionally well positioned in the value segment of the fashion footwear space.
2. Continuing to focus on size replenishment, precision marketing, key item penetration, private brand growth, increasing offerings in extended sizes and dimensions, growing men's and accessories, and undergoing store remodeling.
3. At a little over $200 per square foot, DSW feels they're not even close to maxing out on sales productivity.
4. Additional store openings.
5. Further growth from its two-year old e-commerce business.
Subscribe to:
Comments (Atom)