Stage Stores, Inc. (SSI)

SSI 
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Industry: Consumer Services
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Stage Stores (SSI)

Q1 2013 Earnings Call

May 17, 2013 8:30 am ET

Executives

Bob Aronson - Vice President of Investor Relations

Michael L. Glazer - Chief Executive Officer, President and Independent Director

Oded Shein - Chief Financial Officer and Executive Vice President

Steven Paul Lawrence - Chief Merchandising Officer

Edward J. Record - Chief Operating Officer and Secretary

Analysts

Jeffrey S. Stein - Northcoast Research

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Robert S. Drbul - Barclays Capital, Research Division

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Steven J. Kernkraut - Berman Capital Management LP

Jonathan Hart - The Buckingham Research Group Incorporated

Presentation

Operator

Good morning, and welcome to Stage Stores' conference call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your moderator for today's conference call, Mr. 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' first quarter conference call. With us on the call this morning is Michael Glazer, President and Chief Executive Officer; Oded Shein, Chief Financial Officer; Ed Record, Chief Operating Officer; and Steve Lawrence, Chief Merchandising Officer. Michael and Oded will begin the call with some prepared remarks, and then following the conclusion of their remarks, they will all be available to take your questions.

Before we begin, I would like to point out that you will be hearing Michael and Oded using the terms reported earnings and adjusted earnings. Reported earnings are on a GAAP basis. Adjusted earnings are on a non-GAAP basis and refer to our GAAP earnings which have been adjusted to exclude certain onetime items. We believe adjusted earnings provide a better comparison of operating trends between the periods as they exclude those items which impact comparability. The onetime items that they will be referring to are costs associated with the consolidation of our South Hill, Virginia operations into our Houston corporate headquarters, and with the resignation of our former CEO in March of 2012.

I would also 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. Such forward-looking statements are subject to a number of risks and uncertainties, which could cause our 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 SEC 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 Michael.

Michael L. Glazer

Thanks, Bob. Good morning, everyone. Thanks for joining us today for our first quarter conference call. I'm going to begin today's call by providing a high-level overview of our performance and then, Oded will discuss our financial results for the quarter in much greater detail. Following that, all of us, including Ed and Steve, will be happy to answer all your questions.

Clearly, the first quarter was more challenging than we anticipated. The quarter actually started out fine, but the unseasonably cool weather, which started right before the important Easter Holiday shopping period and lasted throughout most of the quarter, definitely impacted our business. For those of you who know me, I hate blaming weather for lackluster sales. But it's really difficult to ignore the effect of the weather on our first quarter results. Our warm weather categories of shorts, sandals, capris, sundresses, tank tops, swimwear, those categories were actually down 18%.

For us at Stage, another meaningful statistic is the performance of what we call our South Central region, which is comprised primarily of stores in Texas, Louisiana and Oklahoma. This region alone accounts for over 50% of our sales, and guess what? The average temperatures in these 3 key states in March and April were well below last year. In fact, in this part of the country, it was actually warmer last November than it was in March.

Okay, enough about the weather. I assume you'll hear about it or have already heard about it from every single retailer that sells apparel. That said, our total sales for the first quarter were up 3.5%, growing to $379 million this year from $366 million last year. Comparable store sales were up slightly, increasing 0.7%. As part of our plan, we accelerated markdowns into the first quarter to clear merchandise closer to the natural selling window. These markdowns were taken in the second quarter last year. Now if you recall, for those of you who know Stage well, it is the exact same strategy we implemented in last year's third quarter. It negatively impacted our gross margin last third quarter, but it was offset by gross margin gains in our fourth quarter.

In addition, and in response to the sluggish sales this quarter, we took decisive action to manage our inventory and to make sure that the inventory was properly positioned for the second quarter. The end result was the year-over-year adjusted gross profit rate decline of 110 basis points. We definitely expect the second quarter's gross margin to benefit from the markdowns we accelerated into this year's first quarter.

We ended the quarter with comparable store inventories on plan, up 6.8%. We absolutely believe this is an appropriate level, given the receipt of goods to accommodate the Mother's Day calendar shift to the first week of fiscal May and the strategic investments, which most of you know we've made, in our basics and for our dot-com fulfillment.

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