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Coldwater Creek Inc. (CWTR) today reported financial results for the three-month period ended July 28, 2012.
Second Quarter 2012 Operating Results
-- Consolidated net sales were $163.7 million, compared with $181.4 million
in the fiscal 2011 second quarter. Net sales from the retail segment,
which includes the Company’s premium retail stores, factory outlet
stores and day spas, were $129.9 million versus $142.2 million in the
same period last year, primarily reflecting a decrease in comparable
premium retail store sales of 6.5 percent. Sales from the retail segment
were also impacted by 12 net store closures since the end of the second
quarter of fiscal 2011 as part of the Company’s store optimization
program. Second quarter net sales from the direct segment, which
includes internet, phone and mail orders, were $33.8 million, compared
with $39.2 million in the same period last year.
-- Consolidated gross profit increased $3.2 million to $48.5 million, or
29.6 percent of net sales, compared with $45.3 million, or 25.0 percent
of net sales, for the fiscal 2011 second quarter. The 465 basis point
increase in gross profit margin was primarily due to an increase in
merchandise margin reflecting improved product performance and
significantly lower markdowns as a result of overall lower inventory
levels.
-- Selling, general and administrative expenses (SG&A) were $65.7 million,
or 40.1 percent of net sales, compared with $70.0 million, or 38.6
percent of net sales, for the fiscal 2011 second quarter. The $4.3
million decline in SG&A was due primarily to lower expenses in all
categories, with the largest decline from marketing expense versus the
prior year.
-- Net loss was $17.6 million, or $0.14 per share on 121.8 million weighted
average shares outstanding, and compares to a net loss of $27.7 million,
or $0.30 per diluted share on 92.6 million weighted average shares
outstanding for the fiscal 2011 second quarter. The increase in the
number of shares versus the prior year reflects the sale of 28.9 million
shares of common stock on October 24, 2011. Net loss for the three
months ended July 28, 2012 included other net gain of $1.3 million, or
$0.01 per share, due to the change in the fair value of the derivative
liability net of issuance costs related to the Series A Preferred Stock.
Net loss for the three months ended July 28, 2012 also included
incremental interest expense of $1.1 million, or $0.01 per share, as a
result of closing the Secured Term Loan financing transaction. Net loss
for the three months ended July 30, 2011 included a non-cash asset
impairment charge of $2.4 million, or $0.03 per share, primarily
associated with eighteen under performing stores.
"During the second quarter we significantly narrowed our operating losses reflecting the ongoing success of our new merchandising, inventory management and real estate optimization strategies, leading to a 465 basis point improvement in merchandise margin and a $3.2 million improvement in our gross profit as compared to the second quarter last year. Our comparable store sales results were in line with our expectations as we made the strategic decision to significantly reduce our promotional activity primarily in the month of June," said Dennis Pence, Chairman and Chief Executive Officer. "As we look ahead, we believe that our upcoming collections build upon the foundation of differentiated, trend right assortments at a balance of price points, and position us well to generate improvements in our traffic trends and overall sales performance in the second half of the year. While the majority of the third quarter lies in front of us, we are encouraged by the initial response to our fall offering, which arrived in stores in early August."
Balance Sheet
At July 28, 2012, cash totaled $45.5 million, as compared with $31.5 million at July 30, 2011. There were no borrowings outstanding under the Company’s revolving line of credit as of July 28, 2012. During the quarter the Company announced the closing of a five-year $65 million senior secured term loan with an affiliate of Golden Gate Capital. Premium retail store inventory per square foot, including retail inventory in the distribution center, declined approximately 3.8 percent as compared to the end of the second quarter last year. Total inventory decreased 12.2 percent to $133.6 million from $152.2 million at the end of the second quarter last year.
Derivative Liability
In connection with the $65 million term loan received from an affiliate of Golden Gate Capital, the Company issued 1,000 shares of Series A Preferred Stock which are convertible into an aggregate of 24.4 million shares of common stock at a purchase price of $0.85 per share. As a result of this transaction, the Company recorded a derivative liability of $15.7 million, which represents the fair value of the shares of Series A Preferred Stock upon issuance. In accordance with applicable U.S. GAAP, this derivative liability is measured at fair value on a recurring basis with changes recorded as other gain or loss, net. The Company’s third fiscal quarter of 2012 earnings guidance set forth below excludes the quarterly impact of any change in the fair value of the derivative liability due to the inherent variability of this financial instrument.
Store Optimization Program
The Company closed four premium retail stores during the fiscal 2012 second quarter, ending the quarter with 355 premium retail stores. As part of the Company’s ongoing store optimization plan, year-to-date in fiscal 2012, the Company has closed eight premium retail stores. The Company’s plan calls for the closure of up to 45 stores from fiscal year 2011 through 2013, and since 2011, the Company has closed 24 total stores.
Third Quarter Financial Guidance
For the fiscal 2012 third quarter, the Company expects:
-- Comparable premium retail store sales to be flat to down low single
digits
-- Gross margin rate to improve 150 to 250 basis points
-- Net loss per share in the range of $0.16-$0.20 on 121.9 million weighted
average shares outstanding. This guidance excludes the quarterly impact
of the change in the fair value of the derivative liability due to the
inherent variable nature of this financial instrument.
-- Total inventory at the end of the quarter to be down in the mid-single
digit range as compared to the third quarter of fiscal 2011.
Conference Call Information
Coldwater Creek will host a conference call on Wednesday, August 29, 2012, at 4:30 p.m. (Eastern) to discuss fiscal 2012 second quarter results. The call will be simultaneously broadcast on the Investor Relations section of the Company’s Web site at www.coldwatercreek.com. A recording of the call can be accessed for one week following the reporting date by calling (877) 870-5176 and providing conference ID 398821. A transcript of the call will also be available in the Investor Relations section of the Company’s Web site.
Coldwater Creek is a leading specialty retailer of women’s apparel, gifts, jewelry, and accessories that was founded in 1984 and is headquartered in Sandpoint, Idaho. The Company sells its merchandise through premium retail stores across the country, online at www.coldwatercreek.com and through its catalogs.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION:
This news release contains "forward-looking statements" within the meaning of the securities laws, including statements about the Company’s expectations for 2012, including statements about future store closures and, with respect to the third quarter of fiscal 2012, expectations about changes in comparable store sales and gross margin rate, net loss per share, and inventory. These statements are based on management’s current expectations and are subject to a number of uncertainties, risks and assumptions that may not fully materialize or may prove incorrect. As a result, our actual results may differ materially from those expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, but are not limited to:
-- the inherent difficulty in forecasting consumer buying and retail
traffic patterns and trends, which continue to be erratic and are
affected by factors beyond our control, such as current macroeconomic
conditions, high unemployment, continuing heavy promotional activity in
the specialty retail marketplace, and competitive conditions and the
possibility that because of lower than expected customer response, or
because of competitive pricing pressures, we may be required to sell
merchandise at lower than expected margins, or at a loss;
-- potential inability to attract and retain key personnel;
-- our new design aesthetic may take longer to implement than expected or
may not resonate with our customers;
-- difficulties in forecasting consumer demand for our merchandise as a
result of changing fashion trends and consumer preferences;
-- changing business and economic conditions resulting in our inability to
realize our sales and earnings expectations;
-- our potential inability to recover the substantial fixed costs of our
retail store base due to sluggish sales, which may result in impairment
charges;
-- our potential inability to maintain compliance with debt covenants;
-- delays we may encounter in sourcing merchandise from our foreign and
domestic vendors, including the possibility our vendors may not extend
us credit on acceptable terms, and the potential inability of our
vendors to finance production of the goods we order or meet our
production needs due to raw material or labor shortages;
-- our foreign sourcing strategy may not lead to reduction of our sourcing
costs or improvement in our margins;
-- increasing competition from discount retailers and companies that have
introduced concepts or products similar to ours;
-- marketing initiatives may not be successful in increasing traffic in the
near term, or at all;
-- difficulties encountered in anticipating and managing customer returns
and the possibility that customer returns may be greater than expected;
-- the inherent difficulties in catalog management, for which we incur
substantial costs prior to mailing that we may not be able to recover,
and the possibility of unanticipated increases in mailing and printing
costs;
-- unexpected costs or problems associated with our efforts to manage the
complexities of our multi-channel business model, including our efforts
to maintain our information systems;
-- our revolving line of credit may not be fully available due to borrowing
base and other limitations;
-- the benefits expected from our merchandising and design initiatives may
not be achieved or may take longer to achieve than we expect;
-- the actual number and timing of planned store closures depends on a
number of factors that cannot be predicted, including among other things
the future performance of our individual stores and negotiations with
our landlords;
and such other factors as are discussed in our most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, and Current Reports on Form 8-K filed with the U.S. Securities and Exchange Commission. You should not place undue reliance on forward-looking statements, which are based on current expectations and speak only as of the date of this release. We do not assume any obligation to publicly release any revisions to forward-looking statements to reflect events or changes in our expectations after the date of this release.
COLDWATER CREEK INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND SUPPLEMENTAL DATA
(Unaudited)
(in thousands, except for per share data and store counts)
Three Months Ended Six Months Ended
------------------------ ------------------------
July 28, July 30, July 28, July 30,
2012 2011 2012 2011
----------- ----------- ----------- -----------
Net sales $ 163,690 $ 181,409 $ 333,574 $ 361,204
Cost of sales 115,170 136,088 230,663 261,270
----------- ----------- ----------- -----------
Gross profit 48,520 45,321 102,911 99,934
Selling, general and
administrative
expenses 65,674 69,977 143,193 153,489
Loss on asset
impairments -- 2,445 -- 2,875
----------- ----------- ----------- -----------
Loss from operations (17,154) (27,101) (40,282) (56,430)
Other gain, net (1,278) -- (1,278) --
Interest expense, net 1,725 507 2,286 921
----------- ----------- ----------- -----------
Loss before income
taxes (17,601) (27,608) (41,290) (57,351)
Income tax provision
(benefit) (43) 71 28 356
----------- ----------- ----------- -----------
Net loss $ (17,558) $ (27,679) $ (41,318) $ (57,707)
Net loss per share --
Basic and Diluted $ (0.14) $ (0.30) $ (0.34) $ (0.62)
=========== =========== =========== ===========
Weighted average shares
outstanding -- Basic
and Diluted 121,810 92,606 121,761 92,561
Supplemental Data:
Segment net sales:
Retail $ 129,939 $ 142,244 $ 261,141 $ 277,506
Direct 33,751 39,165 72,433 83,698
----------- ----------- ----------- -----------
Total $ 163,690 $ 181,409 $ 333,574 $ 361,204
=========== =========== =========== ===========
Operating statistics:
Catalogs mailed 5,109 7,089 23,848 28,816
Premium retail
stores:
Opened -- 2 -- 2
Closed 4 7 8 9
Count at end of
the fiscal period 355 366 355 366
Square footage 2,038 2,130 2,038 2,130
Factory outlet
stores:
Opened -- -- -- --
Closed -- -- -- --
Count at end of
the fiscal period 38 39 38 39
Square footage 257 266 257 266
Spas:
Count at end of
the fiscal period 9 9 9 9
Square footage 49 49 49 49
COLDWATER CREEK INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except for per share data)
January 28,
July 28, July 30,
2012 2012 2011
----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 45,517 $ 51,365 $ 31,530
Receivables 6,576 8,199 9,296
Inventories 133,615 131,975 152,183
Prepaid and other current
assets 8,095 6,137 11,639
Prepaid and deferred
marketing costs 5,539 3,273 4,293
Deferred income taxes 2,313 2,313 6,536
----------- ----------- -----------
Total current assets 201,655 203,262 215,477
Property and equipment, net 190,160 206,079 231,448
Deferred income taxes 1,884 1,891 2,049
Other assets 4,983 1,883 1,686
----------- ----------- -----------
Total assets $ 398,682 $ 413,115 $ 450,660
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable $ 67,992 $ 55,130 $ 74,541
Accrued liabilities 82,991 74,915 78,460
Income taxes payable 187 3,260 3,302
Current maturities of debt
and capital lease
obligations 544 15,735 878
----------- ----------- -----------
Total current liabilities 151,714 149,040 157,181
Deferred rents 92,665 101,384 108,227
Long-term debt and capital
lease obligations 59,998 26,575 26,877
Supplemental Executive
Retirement Plan 12,335 12,142 10,208
Deferred marketing fees and
revenue sharing 3,294 4,402 5,144
Deferred income taxes 1,716 1,716 5,524
Other liabilities 1,090 1,443 1,509
----------- ----------- -----------
Total liabilities 322,812 296,702 314,670
----------- ----------- -----------
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par
value, 1,000 shares
authorized; 1, 0 and 0
shares issued, respectively -- -- --
Common stock, $0.01 par
value, 300,000 shares
authorized; 121,973,
121,669 and 92,688 shares
issued, respectively 1,220 1,217 926
Additional paid-in capital 151,095 150,341 126,482
Accumulated other
comprehensive loss (2,186) (2,204) (464)
Retained earnings (deficit) (74,259) (32,941) 9,046
----------- ----------- -----------
Total stockholders’
equity 75,870 116,413 135,990
----------- ----------- -----------
Total liabilities and
stockholders’ equity $ 398,682 $ 413,115 $ 450,660
=========== =========== ===========
COLDWATER CREEK INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
------------------------
July 28, July 30,
2012 2011
----------- -----------
Operating activities:
Net loss $ (41,318) $ (57,707)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 26,580 30,042
Non-cash interest expense 777 --
Stock-based compensation expense 869 1,162
Supplemental Executive Retirement
Plan expense 294 278
Deferred income taxes 7 (641)
Valuation allowance adjustments (217) (658)
Deferred marketing fees and revenue
sharing 84 (807)
Deferred rents (9,159) (8,503)
Gain on derivative liability (2,349) --
Series A Preferred Stock issuance
costs 1,070 --
Net loss on asset dispositions and
other termination charges 1,320 125
Loss on asset impairments -- 2,875
Other 64 748
Net change in operating assets and
liabilities:
Receivables 1,055 265
Inventories (1,640) 4,298
Prepaid and other current assets (4,444) 4,676
Accounts payable 10,891 (3,878)
Accrued liabilities (5,994) (7,356)
Income taxes payable (3,073) 3,302
----------- -----------
Net cash used in operating
activities (25,183) (31,779)
----------- -----------
Investing activities:
Purchase of property and equipment (9,784) (3,699)
Proceeds from asset dispositions -- 766
----------- -----------
Net cash used in investing
activities (9,784) (2,933)
----------- -----------
Financing activities:
Borrowings on revolving line of
credit 10,000 --
Payments on revolving line of credit (25,000) --
Proceeds from the issuance of
long-term debt 65,000 15,000
Payments of long-term debt and
capital lease obligations (15,177) (296)
Payment of debt and Series A
Preferred Stock issuance costs (5,809) (680)
Other 105 605
----------- -----------
Net cash provided by financing
activities 29,119 14,629
----------- -----------
Net decrease in cash and cash
equivalents (5,848) (20,083)
Cash and cash equivalents,
beginning 51,365 51,613
----------- -----------
Cash and cash equivalents,
ending $ 45,517 $ 31,530
=========== ===========
Supplemental Cash Flow Data:
Interest paid, net of amount
capitalized $ 1,511 $ 854
Income taxes paid (refunded), net $ 3,187 $ (3,148)
This news release was distributed by GlobeNewswire, www.globenewswire.com
SOURCE: Coldwater Creek, Inc.
CONTACT: For Coldwater Creek
Lyn Walther
Divisional Vice President, Investor Relations
208-265-7005
Web site: www.coldwatercreek.com
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