Coldwater Creek Announces Results for Second Quarter of Fiscal 2013

SANDPOINT, Idaho, Sept. 10, 2013 (GLOBE NEWSWIRE) -- Coldwater Creek Inc. CWTR today reported financial results for the three-month period ended August 3, 2013.

Second Quarter of Fiscal 2013 Operating Results

• Consolidated net sales were $149.7 million, compared with $163.7 million in second quarter 2012. Net sales from the retail segment were $118.6 million, compared with $129.9 million in the same period last year. Comparable premium retail sales declined 7.3 percent for the quarter. Net sales from the direct segment were $31.1 million, compared with $33.8 million in the same period last year.
   
• Consolidated gross profit was $44.0 million, or 29.4 percent of net sales, compared with $48.5 million, or 29.6 percent of net sales, for second quarter 2012. The 20 basis point decline in gross profit margin was a result of improved occupancy leverage, offset by lower merchandise margins reflecting increased promotional activity.
   
• Selling, general and administrative expenses (SG&A) were $62.6 million, or 41.8 percent of net sales, compared with $65.7 million, or 40.1 percent of net sales, for second quarter 2012. The improvement in SG&A was driven by lower marketing and employee-related expenses. 
   
• Net loss was $16.4 million, or $0.54 per share, and included other gain, net, of $5.6 million, or $0.18 per share, due to the change in the fair value of the derivative liability related to the Series A Preferred Stock issued in July 2012. This compares to second quarter 2012 net loss of $17.6 million, or $0.58 per share, which included other gain, net, of $1.3 million, or $0.04 per share, due to the change in the fair value of the derivative liability net of related issuance costs. 
   
• On an adjusted basis, excluding the gain on the derivative liability, net loss was $22.1 million, or $0.72 per share, compared with $18.8 million or $0.62 per share for second quarter 2012. (Please see the table of GAAP to Non-GAAP Reconciliation of Selected Measures at the end of this press release.) As compared to previous guidance, second quarter 2013 net loss was negatively impacted by a change in the timing of revenue recognition related to the extension of the term under our current credit card agreement. The extension was put in place to better facilitate the upcoming transition of the Company's credit card program from Chase to Alliance Data Systems. The result was $1.7 million, or $0.06 per share, of revenue shifted out of the quarter and will instead be recognized over the next four quarters. 

"Sales were lower than planned in the second quarter, largely due to a deceleration in traffic during the month of July. Despite a challenging environment, we delivered bottom-line results that were in line with our guidance," said Jill Dean, President and Chief Executive Officer of Coldwater Creek. "Our return to more consistent comparable store sales has been slower than expected; however, we know that customer engagement and driving traffic are critical to our long-term success and two recent announcements represent progress against these objectives. First, we have further strengthened our management team with the addition of Deb Cavanagh as Chief Marketing Officer. In addition, our partnership with Alliance Data Systems provides us with an enhanced platform to drive sales and customer loyalty. We believe that these steps, combined with the extensive work we are continuing to do to align our merchandise assortment with our brand strategy, as well as our disciplined management of expenses and inventory, remain the right focus for our business." 

Balance Sheet

At August 3, 2013, cash totaled $17.3 million, as compared with $45.5 million at July 28, 2012. There were $15.0 million borrowings outstanding under the Company's revolving line of credit as of August 3, 2013. Total inventory decreased 7.3 percent to $123.9 million from $133.6 million at the end of the second quarter last year. Inventory per square foot, which includes inventory in our retail stores and retail inventory in the distribution center, decreased approximately 7.5 percent as compared to the end of the second quarter last year.

Reverse Stock Split

On October 4, 2012, the Company effected a reverse stock split of its common stock following stockholder approval. As a result of the split, every four shares of common stock outstanding were consolidated into one share, reducing the number of common shares outstanding on the effective date from 122.0 million to 30.5 million.

Store Optimization Program

The Company closed three premium retail stores and one factory store during the second quarter 2013, ending the fiscal quarter with 344 premium retail stores, 36 factory stores, and 8 spas. As part of the Company's ongoing store optimization plan, the Company's plan calls for the closure of up to six additional retail stores in fiscal 2013 for a total of 45 stores since fiscal 2011. 

Third Quarter of Fiscal 2013 Financial Guidance

For third quarter 2013, the Company expects:

• Comparable premium retail store sales to be down high-single digits as compared with a 7.3% increase in the third quarter of fiscal 2012.
• Gross margins to be flat to slightly down as compared with a gross margin rate of 35.1% in the third quarter of fiscal 2012.
• Adjusted net loss per share in the range of $0.55-$0.75, excluding the impact of any change in the fair value of the derivative liability.
• Total inventory at the end of the quarter to be down mid to high-single digits as compared to the third quarter of fiscal 2012.

Conference Call Information

Coldwater Creek will host a conference call on Tuesday, September 10, 2013, at 4:30 p.m. (Eastern) to discuss fiscal 2013 second quarter results. The dial in number for the call is 877-705-6003. 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 419936. 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, jewelry, and accessories. The Company was founded in 1984 in Sandpoint, Idaho, and sells its merchandise through premium retail stores across the country, online, and through its mobile applications.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION: 

This news release contains "forward-looking statements" within the meaning of the securities laws, including statements about the effect of our strategic initiatives on our future financial results, the Company's expectations about future store closures and, with respect to the third quarter of fiscal 2013 expectations about comparable premium retail store sales, margin rate, adjusted 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:

• our inability to improve our brand perception and increase traffic;
• 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 significant weather events, 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;
• the benefits expected from aligning merchandise assortment to our brand strategy may not lead to improvements in our financial performance, may take longer to achieve than we expect, or may not resonate with our customers;
• our potential inability to continue to fund our operations without additional sources of financing and maintain compliance with debt covenants if we do not generate sufficient net sales and improve our results of operations;
• potential inability to attract and retain key personnel;
• our partnership with Alliance Data Systems may not drive additional sales and create customer loyalty;
• 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 revolving line of credit may not be fully available due to borrowing base and other limitations;
• 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 initiatives to optimize our supply chain capabilities 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 improving the breadth of our customer base, or increasing traffic in the near term, or at all;
• difficulties encountered in anticipating and managing customer returns including anticipating the effects of the change to our return policy 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;
• 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 Reports 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.

About Non-GAAP Selected Measures

The Company reports its consolidated financial results in conformity with accounting principles generally accepted in the United States (GAAP). The accompanying press release dated September 10, 2013, contains non-GAAP financial measures. These non-GAAP financial measures include adjusted net loss and adjusted net loss per share, which excludes the gain on the derivative liability. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in conformity with GAAP. Management believes that these non-GAAP financial measures provide meaningful supplemental information because they exclude activity that is not included by management when assessing the performance of the Company. The Company may consider whether other significant items that arise in the future should be adjusted from GAAP measures.