Stage Stores, Inc. (SSI)

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Stage Stores, Inc. (SSI)

F4Q08 Earnings Call

March 10, 2009 8:30 am ET

Executives

Bob Aronson - Vice President Investor Relations

Andy Hall - President and Chief Executive Officer

Ed Record - Executive Vice President and Chief Financial Officer

Analysts

David Glick - Buckingham Research Group

[John Conowith] - Barclays Capital

David Mann - Johnson Rice & Company

Presentation

Operator

Good morning and welcome to the Stage Stores conference call. (Operator Instructions)

I would now like to introduce your moderator for today's conference call, Bob Aronson, Vice President, Investor Relations. Mr. Aronson, please begin your conference call.

Bob Aronson

Thank you, Operator. Good morning and welcome to Stage Stores fourth quarter conference call.

Speaking this morning from the company will be Andy Hall, President and Chief Executive Officer, and Ed Record, Executive Vice President and Chief Financial Officer. Andy will provide a high level overview of the financial and operational highlights for the fourth quarter. Ed will discuss the quarter's financial results in greater detail and will also cover the company's 2009 first quarter and full year sales and earnings outlooks.

Before they begin I would like to point out that our comments this morning contain forward-looking statements. Forward-looking statements reflect our expectations regarding future events and operating performance and often contain words such as believe, expect, may, will, should, could, anticipate, plan or similar words.

Our forward-looking statements include comments regarding the number of new stores that we plan to open in the first quarter, second quarter and in the fall of 2009, as well as the number of Estee Lauder and Clinique counters that we plan to roll out in the first quarter of 2009. Our forward-looking statements also include comments regarding our net sales, comparable store sales, gross margins, SG&A expenses and earnings outlooks for the first quarter and full 2009 fiscal year and our anticipated depreciation expense, interest expense, tax rate and capital expenditures for the 2009 fiscal year.

Such forward-looking statements are subject to a number of risks and uncertainties which could cause the actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include but are not limited to those described in our most recent annual report on Form 10-K as filed with the Securities and Exchange Commission and other factors as may periodically be described in other company filings with the SEC.

And now, with all of that said, I would like to turn the call over to Andy.

Andy Hall

Thanks, Bob, and good morning, everyone. We appreciate you joining us for our fourth quarter conference call.

The fourth quarter concluded what was one of the most difficult and challenging years for our industry. Continuing weakness in the housing and job markets translated into reduced customer traffic throughout the period. This, combined with a heightened promotional environment, led to a comparable store sales decrease of 7.2% and earnings of $0.67 per share, which were 14% lower than last year.

We are nonetheless pleased with several of our accomplishments, which reflect the hard work put forth by our 14,000 dedicated associates. We ended the quarter with comparable store inventories down 17%. We reduced fourth quarter SG&A expenses by $3.4 million versus last year, while operating 45 more stores. For the year, the increase in SG&A expenses was limited to $1 million. We increased cash by $9 million and ended the year with 63% less net debt. Also we ended the year and continue today to have no borrowings on our $250 million revolving credit facility.

Benefiting from strong fragrance demand and 31 additional Estee Lauder and 23 additional Clinique counters versus last year, cosmetics again achieved a comparable store sales increase. Dresses, footwear, intimate apparel, men's, missy sportswear and petites all had comps which were at or better than the company average. We ended the year with 156 Estee Lauder and 141 Clinique counters. We plan to install 6 new Estee Lauder and 5 new Clinique counters during the first quarter of 2009.

In looking at fourth quarter comparable store sales by region, the South Central and the Southwest were the best-performing regions and the Northeast and Southeast were the weakest.

With regard to comparable store sales by market size, our small markets were once again the best performing, at down 6.3% for the quarter. Our midsized markets were down 7.6% and our large markets were down 8.9%. We will continue to open new stores primarily in underserved and less competitive small markets.

During the fourth quarter we opened 11 new stores, reopened three hurricane-damaged stores, relocated one store, expanded one store, and closed six stores. For the year we had a net increase of 45 stores and ended with 739 stores.

In the 2009 first quarter we plan to open 10 new stores and reopen our hurricane-damaged store in Galveston, Texas. No new store openings are planned for the second quarter. While our full year guidance contemplates opening an additional 10 to 20 stores in the fall, at this point only one fall lease has been signed. Because of our short lead time between lease signing and store opening, we have the flexibility to look for the most attractive new store opportunities for the fall and still be in a position to hit our new store opening goal of between 20 and 30 stores for the year.

Our belief is that we will experience a challenging economic environment throughout 2009 and our sales and earnings guidance reflects this cautious view. Having said that, we are confident that we are taking the appropriate measures to strengthen our balance sheet and to maximize our cash flows. We also remain focused on maximizing sales by providing our customers with exceptional service, great selections and name brands, compelling values and convenience.

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