F3Q09 Earnings Call
November 25, 2008 8:30 am ET
Bob Dennis – President, CEO
James Gulmi – Chief Financial Officer
Jeffrey Klinefelter – Piper Jaffrey
John Shanley – Sussquehanna Financial
Mitch Kummetz – Robert W. Baird
Justin Boisseau – Gates Capital Management
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Good morning. Thank you for joining us for our third quarter fiscal 2009 conference call. Participating with me on the call today are Hall Pennington our Chairman and Jim Gulmi, our Chief Financial Officer.
We will make some forward-looking statements in this call. They reflect our expectations as of today but actual results could be materially different. We refer you to our earnings release and to our recent SEC filings including the 10-Q for the second quarter for some of the factors that could cause differences from our expectations. And for those listening to the replay of this call, some of these factors can be read on the opening screen.
As you know, we pre-announced our third quarter results and revised our outlook for the rest of the year. First, let me briefly review our actual third quarter results. Net sales increased approximately 5% to $390 million. Total company same store sales increased 2%.
We reported diluted earnings per share from continuing operations of $0.43 per share for the quarter versus $0.23 last year on a GAAP basis which includes restructuring charges, merger related fees and tax benefits. As noted in the release last year's number without merger and restructuring costs were $0.39 versus $0.43 this year.
We also continue to effectively manage inventories. As quarter end, year over year inventories were down 4%. During the third quarter we experienced significant erosion in our same store sales trends. We had a solid back-to-school, then comps deteriorated and this weakness has continued into November.
Through November 16, same store sales for the month are down 9%. We are not providing a comp update beyond November 16 because Thanksgiving and Black Friday fell in the third week of the month last year versus the fourth week this year, making last weeks and this weeks comparisons meaningless standing on their own.
We have outlined a broader than usual range of guidance for the fourth quarter to reflect the uncertainty in the marketplace. We expect same store sales to range from negative1% to negative 4% and diluted earnings per share subject to the items we outlined in the schedule to the press release to range from $1.06 to $1.20 versus $1.01 last year.
This outlook is not based on any change in the general economic environment which we don't expect in the short term, but on some specific favorable comparisons that we will discuss in the course of the call. In addition, we believe that the move of Thanksgiving back one week relative to last year shifts November's retail sales more to the back half of the month and into December when compared to last year.
We base this on our daily sales index of fiscal 2004, the last year with Thanksgiving falling this late. Thus, we expect significant improvement to our negative 9% comp performance through the rest of the quarter.
In the near term we remain focused on what we can best influence. First, driving sales dollars and margins while effectively managing inventory levels through whatever promotions we find necessary. Second, controlling costs with special attention to our biggest controllable which is store labor, and finally, executing in a way that makes the customer shopping experience the best it can be.
As we head into holiday, we remain confident that we are well positioned from a merchandise standpoint and believe that the product looks great. We recognize how difficult the retail environment is but we also believe we have some favorable comparisons that make our guidance realistic.
Now let me review our individual businesses beginning with Journeys. The overall comp increase for the Journeys group was 5% for the quarter compared to a 3% decrease in the same period last year. Through November 16, comps in the Journeys group for November were negative 9% against positive 2% in last year's comparable period.
We anticipate that fourth quarter comps for Journeys group will range from negative low single digits to positive low single digits versus negative 7% last year. We believe that early November same store sales trends in the Journeys group reflect unfavorable year over year calendar comparisons as we mentioned earlier. We also believe Journey group heads into the holiday with product advantages in several categories, especially skate and women's boots.
Looking at the components of the Journeys group in the third quarter, in the Journeys stores alone, third quarter comps were up 4% compared to a 3% decline last year in the third quarter. Footwear unit comps increased 2% and average selling price increased 4%. The solid comp results were driven by continued strength in the skate business and women's boots. Men's footwear made up about 46% of Journeys footwear sales for the quarter and women's and kids footwear represented about 54%.
We opened five new Journeys stores during the quarter and we remain on track to open sixteen this fiscal to end the year with a total of 819 stores.