Coldwater Creek Announces Third Quarter 2010 Results

SANDPOINT, Idaho, Dec. 2, 2010 /PRNewswire-FirstCall/ -- Coldwater Creek Inc. (Nasdaq: CWTR) today reported financial results for the three- and nine-month periods ended October 30, 2010.

Third Quarter 2010 Operating Results

• Net sales were $232.4 million, compared with $266.7 million in the fiscal 2009 third quarter. Net sales from the retail segment, which includes the Company's premium retail stores, outlet stores and day spa locations, decreased 15.9 percent to $174.3 million, versus $207.3 million in the same period last year, primarily reflecting a decrease in comparable premium retail store sales of 20.1 percent.  Third quarter net sales from the direct segment, which includes internet, phone and mail orders, decreased 2.1 percent to $58.1 million from $59.4 million in the same period last year.
• Gross profit for the fiscal 2010 third quarter was $70.9 million, or 30.5 percent of net sales, compared with $97.1 million, or 36.4 percent of net sales, for the fiscal 2009 third quarter. The 590 basis point decline in gross profit margin was primarily due to increased promotional activity and deleveraging of occupancy expenses as compared to last year, which was partially offset by improvements in IMU.
• Selling, general and administrative expenses ("SG&A") for the fiscal 2010 third quarter were $85.4 million, or 36.8 percent of net sales, compared with $108.2 million, or 40.6 percent of net sales, for the fiscal 2009 third quarter. The decline in SG&A was driven primarily by lower employee-related expenses, marketing expenses, and other fixed and variable costs. Employee-related expenses in the fiscal 2009 third quarter included separation agreement charges of $6.0 million.
• Net loss for the three-month period was $10.9 million, or $0.12 per share, compared with a net loss of $34.0 million, or $0.37 per share, for the three-month period ended October 31, 2009. Results in the third quarter of fiscal 2010 include approximately $0.9 million after tax, or $0.01 per share, of certain discrete tax benefits primarily related to the change in valuation allowance, partially offset by impairments of certain technology and store related assets. For the third quarter 2009, net loss per share included approximately $0.33 per share in charges related to a valuation allowance against net deferred tax assets and separation agreement charges.  

"Our third quarter operating results were in line with the revised outlook we provided in mid October. This was a disappointing quarter for us as our fall merchandise assortment was not well received by our customers," stated Dennis Pence, Chairman and Chief Executive Officer of Coldwater Creek. "On a positive note, we continued to tightly manage expenses with SG&A for the quarter down approximately $23 million from the third fiscal quarter last year."

Mr. Pence continued, "We expect the challenges we experienced in fall to continue during the fourth quarter.  As we move forward, our highest priority is to continue to reposition the Coldwater Creek brand to better address the needs of our target demographic.  We are focused on improving our collections to offer a more compelling fashion sensibility and while we recognize that the transition will take some time, our April deliveries will begin to reflect our new design aesthetic being led by Jerome Jessup and his new design team."

First Nine Months Operating Results

• Net sales were $729.0 million, compared with $720.2 million in the first nine months of fiscal 2009. Net sales from the retail segment were $545.7 million, versus $561.4 million in the first nine months of fiscal 2009. Direct sales were $183.3 million, compared with $158.8 million in the same period last year.
• Gross profit for the first nine months of fiscal 2010 was $246.6 million, or 33.8 percent of net sales, compared with $244.0 million, or 33.9 percent of net sales, for the first nine months of fiscal 2009.
• Selling, general and administrative expenses for the first nine months of fiscal 2010 were $254.4 million, or 34.9 percent of net sales, compared with $273.7 million, or 38.0 percent of net sales, for the first nine months of fiscal 2009. The decline in SG&A was primarily related to lower employee-related expenses and other fixed and variable costs, partially offset by slightly higher marketing expenses.
• Net loss for the nine-month period was $7.1 million, or $0.08 per share, compared with a net loss of $46.5 million, or $0.51 per share, for the first nine months of fiscal 2009. Results in the first nine months of fiscal 2010 include approximately $0.9 million after tax, or $0.01 per share, of certain discrete tax benefits primarily related to the change in valuation allowance, partially offset by impairments of certain technology and store related assets. For the first nine months of fiscal 2009, net loss per share included approximately $0.33 per share in charges related to a valuation allowance against net deferred tax assets and separation agreement charges.

Balance Sheet

At October 30, 2010, cash totaled $51.7 million, as compared with $69.6 million in cash at October 31, 2009.  Premium retail store inventory per square foot, including retail inventory in the distribution center, was  approximately 8.0 percent lower than at the end of the fiscal 2009 third quarter. Total inventory increased 2.3 percent to $197.5 million from $193.0 million at the end of the third quarter of 2009. Working capital increased by $15.8 million to $105.7 million from $89.9 million at October 31, 2009.

Store Openings

The Company opened 8 new premium retail stores during the three-month period ended October 30, 2010, ending the quarter with 372 premium retail stores.  As of December 2, 2010, we completed our 2010 store expansion plan with 19 new premium retail stores opened since the beginning of the fiscal year.  

Conference Call Information

Coldwater Creek will host a conference call on Thursday, December 2, 2010, at 4:30 p.m. (Eastern) to discuss fiscal 2010 third quarter results. To listen to the live Web cast, log on to the Investor Relations section of the Company's Web site at http://www.coldwatercreek.com/. The call will be archived from approximately one hour after the conference call until Thursday, December 9, 2010. The replay can be accessed by dialing (877) 870-5176 and providing conference ID 361262. A replay and 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 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 relating to our expected fourth quarter fiscal 2010 financial results. 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 the 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 possibility that our planned promotional activities during the fourth fiscal quarter will not reduce our inventory to expected levels;
• potential inability to attract and retain personnel, particularly for key merchandise and design positions;
• our new design aesthetic may take longer to implement than expected or may not resonate with our core and target customer demographic;
• difficulties in forecasting consumer demand as a result of changing fashion trends and consumer preferences;
• the possibility that our sales and earnings expectations will not be realized, due to changing business and economic conditions;
• our potential inability to recover the substantial fixed costs of our retail store base due to sluggish sales;
• our potential inability to continue to fund our operations solely with operating cash as a result of either lower sales or higher than anticipated costs, or both;
• delays we may encounter in sourcing merchandise from our foreign and domestic vendors, including 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; risks related to our foreign sourcing strategy; and the possibility that foreign sourcing may not lead to any 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;
• difficulties encountered in anticipating and managing customer returns and the possibility that customer returns will 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 our expanding and increasingly complex business, including our current efforts to improve key management information systems and controls;
• the risk that the benefits expected from our strategic initiatives will not be achieved or may take longer to achieve than we expect;

and such other factors as are discussed in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q 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.

SOURCE Coldwater Creek Inc.