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.
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