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Cache (CACH)

Q1 2013 Earnings Call

May 14, 2013 9:00 am ET


Allison C. Malkin - Senior Managing Director

Jay M. Margolis - Chairman and Chief Executive Officer

Margaret J. Feeney - Chief Financial Officer, Principal Accounting Officer and Executive Vice President


Alex J. Fuhrman - Piper Jaffray Companies, Research Division

James Fronda - Sidoti & Company, LLC

Ross Haberman



Greetings, and welcome to the Cache Incorporated First Quarter 2013 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Allison Malkin of ICR. Thank you, Ms. Malkin. You may begin.

Allison C. Malkin

Thank you. Good morning, everyone. Today's conference call includes comments concerning Cache's business and contains forward-looking statements. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Statements made on this call should be considered together with the cautionary statements and other information contained in today's press release, in our most recent periodic reports filed with the SEC, including our most recent Annual Report on Form 10-K for the fiscal year ended December 29, 2012, including the sections contained therein entitled, Risk Factors. A copy of our press release is also available on Cache's website, in the Investor Relations section.

Now, I would like to turn the call over to Jay Margolis, Chairman and CEO of Cache.

Jay M. Margolis

Thank you, Allison and good morning, everyone. We had a challenging start to the year trimmed by a couple of factors. First, we entered the quarter with increased levels of inventory and carryover goods and we bought too heavily in spring.

Second factor is related to our actions to reduce promotional activity on the web. When I joined the company in February, I knew we had some work to do to clean up prior season's inventory and felt that our assortments could be improved, which we communicated on our Q4 call. What became abundantly clear as I became more entrenched in the business was that our spring receipts were bought way too high. Prior to my arrival at Cache, the decision was made to significantly increase buys across all of our styles in an effort to boost sales in our lower productivity stores. Clearly, this was a misaligned strategy as our stores became cluttered. We were over-inventoried, and we did not represent what our customers looked for in our brand.

I continue to view the process as our biggest opportunity and my highest priority. The new process starts with having the right amount to inventory that is targeted to the areas of our business where we see opportunity. And I will discuss this with you in more detail momentarily. Our new process will improve our decision making and add to our agility, so that we can quickly identify and react to trends. Steps we are taking include: modifying approach by improving the flow of information across all areas of our business by linking, planning, allocation and design. Daphne Pappas, who joined us in April as Executive Vice President and Chief Merchandising Officer, has a track record of success in developing the merchandising functions of Burberry and Saks that has already made huge contributions at our company. We are improving our sourcings to move quicker to market. And I'm pleased to have attracted Rich Owen to head up our sourcing effort. Rich and I worked together in the early days of Liz Claiborne in manufacturing. His industry experience, technical knowledge, speed-to-market mindset and logistics distribution background is already being felt.

We are implementing a test regiment so we can invest in the right big ideas. We are also changing how we flow inventory leaving open-to-buy dollars to position us to chase strong styles of the season. We are allocating inventory more strategically, recognizing the various needs of our southern and resort stores versus northern and western stores. All these actions will help drive sales productivity, reduce markdowns and advance our profitability goals.

Equally important is having our stores stand for what we are best at. At Cache, there's no doubt that we stand for dresses. Even with the tough first quarter, we had event dresses -- event dresses remained strong and we had another successful prom season. I'm increasingly convinced that our strength in event dresses needs to be maximized and represents a white space opportunity. We will intensify our emphasis on that it dress for day, evening and that special occasion and night out.

At the same time, we believe our sportswear assortments need to be refined and differentiated. Going forward, our offerings in sportswear will be more targeted. We will showcase a sexy, sophisticated assortment that is unique and appropriately conveys our sense of style. For example, you will see a great pair of black leggings with a perfect lace cami with an eye-catching jacket. This is how the Cache woman likes to dress head to toe. I see an incredible opportunity to differentiate from others in the mall within the sportswear category. We also continue to see opportunity in accessories, and in particular, jewelry.

The second factor that negatively impacted our first quarter results were our actions to reduce promotional activity online as we work to present our customers with a consistent message on the web and in store. Our opportunity at web is equally significant. But rather than relying on promotions, our emphasis will now be on utilizing the web to showcase our brand image with a terrific assortment, exclusive styles and targeted promotions. We recently announced that Arnie Cohen joined our company as Executive Vice President, Chief Marketing Officer. Arnie has over 30 years of experience working with many iconic brands, including J. Crew and Gucci, and is incredible at creative and brand building. He will focus on aligning our marketing and e-commerce functions, so we have a consistent and clear message in-store and online and assist us to capitalize on our e-commerce opportunity.

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