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DAILY EARNINGS

Coldwater Creek Fourth Quarter Earnings Call


Author: Rozalina Destanova
ticker.com
Last Update: 4:25 AM EDT March 10 2008

This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Coldwater Creek Inc. (CWTR) on March 5, 2008.

Management:

President and CEO: Daniel Griesemer
President and CMO: Georgia Shonk-Simmons
Director of IR: Marie Hirsch
SVP and CFO: Tim Martin

Key Investors Issues

- EPS were a loss of 19 cents a share compared to 17 cents a share last year.
- Net loss was $17 million compared to a net income of $15.9 million a year earlier.
- Revenue totaled $345.5 million, decreasing from $366.6 million a year ago

Fourth Quarter Highlights

The company incurred a net loss of $17 million or 19 cents per share, compared with a net income of $15.9 million or 17 cents per share for the same period a year ago.

- Consolidated net sales decreased 5.7% to $345.5 million from $366.6 million in the fourth quarter of 2006.
- Net sales from the retail segment, which includes premium retail stores, outlet stores and day spa test concept locations, were essentially flat at $226.3 million, compared with $224.3 million in the fourth quarter of 2006.
- Retail segment net sales represented 66% of the company''s total net sales, compared with 61% in the fourth quarter of 2006.

- The company opened 12 retail stores, for a total of 306 premium retail stores in operation at the end of the period, compared with 239 premium retail stores at the end of last year.
- Comparable stores sale decreased 19.2%, compared with a 2.3% increase in the prior year period. Comparable store traffic was down in the mid single-digit range, while conversion rate was up at approximately 80 basis points.

Direct segment net sales decreased $16.2 million to $119.3 million, from $142.3 million in the fourth quarter of 2006.

- Direct segment net sales represented approximately 34% of the company''s total net sales, compared with nearly 39% in the fourth quarter of 2006.
- Gross profit was $103.7 million or 30% of net sales, compared with $149.8 million or 40.9% of net sales for the fiscal 2006 fourth quarter.
- The decrease in gross profit rate was primarily due to increased promotions related to clearance activity, and $7.9 million write-down related to aged and slow moving inventory, as the company positions itself through inventory levels in the current environment.

- Selling, general, and administrative expenses were $133.9 million or 38.7% of net sales, compared with a $125.8 million or 34.3% in net sales for the fourth quarter of 2006. This 440 basis points increase in SG&A as a percentage of net sales was primarily driven by the decrease in comparable store sales, accompanied by the cost associated with the retail expansion. The company incurred a loss from operations of $30.1 million. This compares to the income from operations of $24 million in the fourth quarter of 2006.

Fall and holiday merchandise suffered from a lack of newness and exciting differentiating features.

- Number one priority is to intensely focus on merchandise by delivering what she wants.
- The company is lowering SKU count by at least 20% in order to provide a more focused and cohesive offering. The company believes it will benefit from directing efforts towards fewer categories and executing them extremely well. This SKU reduction will begin to show itself with summer deliveries, with the full impact of the initiatives showing in the back half of 2008, when rolling out the fall collection. The company is committed to decreasing retail inventories per square foot by an average approximately 15% in 2008.

The company is expanding direct sourcing from 50% in 2007 to approximately 60% in 2008, giving the ability to achieve higher initial margins.

- This expansion in direct sourcing is a multi-year initiative, and will ultimately result in approximately 70% of inventory resourced directly.
- The company is working towards restoring the regular prices heritage to brand, by more improvement with levels of promotional activity and discounting going forward.
- The company has eliminated 65 positions at home office, not specifically a cost savings measure, but rather the first step in refining the focus on product and customer experience. However, this did result in approximately $6 million in cost savings for fiscal 2008. The company will be reducing catalog circulations from approximately $130 million to $104 million, in order to be more cost effective while still driving business.

In light of the credit soft retail environment, the company has tempered growth plans with a reduced store opening pace of approximately 50 premium stores per year going forward.

This number is not a quota it is looking to meet, but rather what it thinks is best for maximizing the Coldwater Creek brand opportunity. Ultimately, the company believes chain target is somewhere between 500 and 550 stores.

Build-out expenses are approximately a $150 per square foot, but on an average the company received 50% in tenant allowances, thereby, reducing out-of-pocket expense, and leaving the total Coldwater Creek investment per unit at approximately $450,000, assuming 6,000 square feet stores. Based on planned 50 stores in 2008, this is a total of approximately $22.5 million in net store build cost. The company expects to end fiscal 2008 with more cash than it ended 2007, even with the addition of 50 new stores.

Fiscal 2007 Highlights
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Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites. Market data: BATS Exchange. Inc