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Cache, Inc. (CACH)

Q4 2008 Earnings Call Transcript

March 3, 2009 4:30 am ET


Allison Malkin – Senior Managing Director, ICR Inc.

Tom Reinckens – Chairman, CEO and President

Maggie Feeney – EVP and CFO


Margaret Whitfield – Sterne, Agee

Liz Dunn – Thomas Weisel Partners

Liz Pierce – Roth Capital Partners

Chris Kim – JPMorgan

Jeff Van Sinderen – B. Riley & Company

Eric Beder – Brean Murray Carret & Co.

Robin Murchison – SunTrust Robinson Humphrey

Maria Vizuete – Piper Jaffray



Greetings, and welcome to the Caché, Inc. fourth quarter and fiscal 2008 results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Allison Malkin of ICR. Thank you. You may begin.

Allison Malkin

Thank you. Good afternoon. Today's conference call includes comments concerning Caché's business outlook and contains forward-looking statements. These particular forward-looking statements and all other statements that may be made on this call, that are not based on historical facts are subject to risks and uncertainties. Actual results may differ materially.

Additional information concerning a number of factors that could cause actual results to differ materially than the information that will be discussed is available in Caché filings with the SEC, including Caché's report on Form 10-K for the fiscal year ended December 27, 2008.

And now I'd like to turn the call over to Tom Reinckens, Caché's Chairman and CEO.

Tom Reinckens

Thank you, Allison. Good afternoon, and thank you for joining us. Here with me today are Maggie Feeney, our Executive Vice President and Chief Financial Officer; Ashok Gandhi, our Vice President of Finance; and Victor Coster, our Treasurer and Secretary.

For today's call, I will begin by providing an overview of our fourth quarter and fiscal 2008 results, and discuss our priorities for fiscal 2009; then Maggie will review our financial highlights and guidance. Following my closing comments, I will turn the call over to the operator to conduct the question-and-answer portion of the call.

Without a doubt, 2008 was a very challenging year, with our sales and profitability affected by the difficult economy. As conditions worsened throughout 2008, we appropriately implemented actions to align our costs and inventory with our sales trends, and importantly, begin fiscal 2009 with increased financial flexibility, as we believe the economy will remain challenging throughout 2009.

As a result of our actions, we achieved our liquidity goals and expect further improvements in 2009, giving our cost reduction plan. To this end, at year-end, inventory on an average store basis at cost was down 34% from the prior year. Cash and marketable securities totaled $30 million, even as we utilized $15 million in cash to repurchase 1.7 million shares of our common stock during the year. We had positive cash flow from operations, and we identified more than $15 million in cost reductions pretax or approximately $0.72 per diluted share, with these savings expected to benefit us in 2009.

Turning to the income statement for the fiscal year, our net sales decreased 3% to approximately $266 million, and comp store sales decreased 4%, and the company had a net loss per share of $0.53, and included one-time charges of $0.13 per diluted share for store closures; $0.10 per diluted share relating to non-cash impairment charges; and $0.03 per diluted shares relating to management changes. Adjusted to exclude these non-recurring costs, our loss per share was $0.28.

For the fourth quarter, net sales decreased 16% to $65.9 million, and included a comp store sales decline of 17%, and our net loss per share on a GAAP basis for the quarter was approximately $0.42 per share, which included a $0.10 per share diluted non-cash impairment charge, and the revised guidance that we gave on January 8 only reflected an estimated total non-cash impairment charge of $0.03 per diluted share. Excluding these impairment charges, our results were in line with our revised guidance.

While none of us could have predicted the sharp decline in consumer spending we saw in the back half of 2008 – which has obviously continued into 2009 – we have made significant progress towards realigning our business model to return to profitability. Our initiatives include intensification of our daytime sportswear, dresses and coordinated outfits; higher impact marketing and adding value for our consumers. Each of these initiatives are now gaining traction.

First with regard to merchandising. In an effort to increase our market share, we are expanding our daytime sportswear and daytime dress categories, which include our wear to work contour collection and our casual assortments. Performance in these areas are encouraging, and we will continue to make investments going forward. Second, we will continue to focus on our good-better-best pricing strategy. We believe this will open our company up to a new level of business. We now offer better value and are priced competitively with many of our mall peers.

With regard to marketing, we have improved the look and feel of our catalog and mailers, adding coupon offers. We have also intensified our value-orientated in-store messages, utilizing prominent signage to educate our customers about our great styles and affordable pricing. Our enhanced targeted marketing efforts helped to offset some of the sales shortfall that resulted from the significant decline in natural mall traffic during the second half of the year. We also continue to be pleased with our Caché Accents program. To date, we have signed up over 620,000 customers, and expect this initiative to continue to grow customer loyalty for our brand.

In addition, we improved the productivity of our store base through the closure of 14 under performing locations. We remain selective with new store openings, as 13 stores opened during the year. In early 2009, we opened one new store and closed three additional stores, and currently operate 294 locations.

Finally, in an effort to maximize cash flow in this difficult macro environment, we conducted a comprehensive review of our business, and launched cost reduction initiatives across our organization, targeting reductions in both floor operating, and general and administrative expenses. As I mentioned, we expect to generate more than $15 million in savings from our cost reduction moves in fiscal 2009. Elements of the cost reduction plan include, first, lower labor costs through a 10% reduction in home office headcount and a 15% reduction in field level supervision. We were also able to reduce in-store sales floor coverage, utilizing our payroll matrix system to better match store traffic with personnel levels.

Second, a reduction in salaries and bonuses. Our executive committee took a base salary reduction. We also cut field employee bonuses, and aligned our store bonuses to the business that we expect to see in the future. In addition, there were no corporate headquarter bonuses for 2008. Third, lower freight costs. Through our ability to consolidate shipments to our store, we now utilize a warehouse model and a drop-ship model together.

Fourth, we expect to improve our markup, as we manage our supply chain cost and benefits from our warehouse model. And finally, lower rent costs, as we negotiate lower rent payments with our landlord. 28% of our leases either expire, are up for renewal, or have kick-out options through January of 2011. So we are in a very favorable position.

As we begin 2009, we are planning conservatively, keeping inventories tight and maintaining our emphasis on fashion newness. We will provide consumers with more wearable items and outfits, while continuing to offer an assortment for our core Caché fans. Our number one merchandising priority is to expand our customer base, thus increasing our market share and top line performance.

To accomplish this, we are first broadening the number of styles we sell in an effort to continue to drive increased shopping frequency and UPCs. We expect to accomplish this through expansion in our casual styles, including denim and tops, and intensification of daytime dresses, all of which show early positive signs.

At the same time, we are reducing our assortment of embellished styles, which are not purchased at the same rate of frequency, giving our customers a broader appeal of updated contemporary looks. We have also significantly lowered our special occasion dress business. As I mentioned, we expect to benefit from our cost reduction plan, and will intensify our marketing, offering stronger value to consumers, utilizing our loyalty program to maximize sales.

We will remain selective in store expansion. For fiscal 2009, we plan to open just three to five new Caché stores, and remodel a minimum number of existing locations, with CapEx or capital expenditures targeted between $3 million to $5 million for the year, down from approximately $11 million in fiscal 2008. And we expect to maintain lower inventory positions throughout 2009 by planning average inventories per store, at cost, to be down between 20% and 30% this year, as compared to 2008 levels.

With that, I would like to turn the call over to Maggie to review our fourth quarter and fiscal 2008 results and guidance in more detail.

Maggie Feeney

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