Stage Stores, Inc. (SSI)

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Stage Stores, Inc. (SSI)

Q2 2009 Earnings Call

August 20, 2009 8:30 am ET


Bob Aronson - Vice President Investor Relations

Andy Hall - President and Chief Executive Officer

Ed Record - Executive Vice President and Chief Financial Officer


Robert Drbul – Barclays Capital

Jeff Blaeser - Morgan Joseph

Kenneth Marcus – First New York Investment

David Mann - Johnson Rice

Robin Murchison – Suntrust



(Operator Instructions) Welcome to Stage Stores Conference Call. I would now like to introduce your moderator for the day’s conference call Mr. Bob Aronson, Vice President Investor Relations.

Bob Aronson

Welcome to Stage Stores Second 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 second quarter. Ed will discuss the quarter’s financial results in greater detail and will also cover the company’s 2009 third quarter, fourth quarter and full year financial 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.

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 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.

With that said I would like to turn the call over to Andy.

Andy Hall

The economic recession and significantly reduced levels of clearance merchandise resulted in a comparable store sales decrease of 10.7% for the quarter. We feel that our current strategy of controlling inventory levels and expenses is appropriate and we will continue to do so throughout the fall season. We are very happy with our second quarter and spring season merchandise margins which are directly related to our inventory disciplines. We achieved a 186 and 95 basis point improvement in our second quarter and spring season merchandise margin rates respectively.

We ended the second quarter with comparable store inventories down 11% and feel that we are well positioned to deliver a fall season merchandise margin rate in excess of last year. We also tightly controlled expenses and achieved a year over year SG&A expense reduction of $4.7 million while operating 24 more stores. As I said, we will remain focused on expense control throughout the balance of the year.

Another spring season success was growing our cash balance by $35 million. We ended the quarter with no borrowings on our $250 million credit facility and our quarter end cash balance of $61 million exceeded our $53 million of debt obligations.

Moving now to a brief discussion of our major merchandise categories, all families of business experienced a comparable store sales decline in the second quarter. Ladies ready to wear comprised of missy, petites, and plus continued to out perform the company average. Casual sportswear, sublimation, printed knit tops, crops and capri’s continued to show strength. Where now styles and pre-fall color such as greens, blues, teals, browns and oranges are working. Denim was strong throughout the store. We continue to reorder in junior tops, especially animal prints, sublimation and screen tees. Comps for dresses, intimates, men’s and cosmetics also exceeded the company average.

Vendor strength included Levi’s in all zones, Gloria Vanderbilt and US Polo Association in men’s, women’s and kids. We continue to be please with our Hannah and Rebecca Malone private label brands as well as our Palais exclusive Emma James brand. Finally, we are please with the June launch of D.R. by D. Rodriguez, another exclusive label and are comfortable with our fall sales plan of $500,000 in 100 stores.

We plan to open six Estee Lauder and Clinique combination bays in the third quarter. A combination bay is a single installation with separate counters for both Estee Lauder and Clinique and it takes 35% less floor space. There is also a 35% selling cost efficiency. Because of their space and selling cost efficiencies the combination bays may provide us with an opportunity to put Estee Lauder and Clinique into smaller volume stores where an individual counter for each product line would not be fiscally prudent. With these six openings we will have 10 combination bays in test.

Staying on the subject of cosmetics I want to say that I’m extremely excited about the appointment of Christine Johnston to the newly created position of Senior Vice President Cosmetics. Christine comes to us from Macy’s New York and has 20 years of cosmetics related experience. We have consolidated the responsibility for cosmetics buying, planning, allocation, and replenishment for both the Houston and South Hill divisions under Christine. Cosmetics lends itself to this consolidated approach as the vendor structure and product assortments are very similar in all stores regardless of customer demographic, geographic location or climate.

I believe this strategic move along with her stellar reputation in the cosmetics market gives us a tremendous opportunity to aggressively grow our cosmetics business and take advantage of the combined leverage of both divisions.

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