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Cache (CACH)

Q2 2013 Earnings Call

August 13, 2013 9:00 am ET


Allison C. Malkin - Senior Managing Director

Jay M. Margolis - Chairman and Chief Executive Officer

Anthony F. Dipippa - Chief Financial Officer and Executive Vice President


Neely J.N. Tamminga - Piper Jaffray Companies, Research Division

James Fronda - Sidoti & Company, LLC

Steven J. Kernkraut - Berman Capital Management LP

Harry Ikenson



Greetings, and welcome to the Cache, Inc. Second Quarter Fiscal 2013 Earnings 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. 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 this 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 at 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. With me today are Tony DiPippa, who joined us on August 7 as EVP and Chief Financial Officer; Bart Heminover, our Vice President of Finance; and Victor Coster, our Treasurer. For today's call, I will begin with some opening remarks on the second quarter, outline the progress we have made on our strategic initiatives and update you on our outlook as we begin the second half of the year. Tony will then review our second quarter financial performance in more detail. Following this, we will open up the call for questions.

Our second quarter performance was below the prior year as we expected. During the quarter, we continue to work through inventory purchase at higher than optimal levels, which held back profitability. We also continue to implement our turnaround initiatives. We achieved our intended objectives, ending the quarter well positioned and believe we remain on track to achieve year-over-year improvement in operating results in the back half of the year. In total for the second quarter, we reported net sales of $60.1 million, a decline of 2.5%, while operating 14 fewer stores, a comparable store sales increase of 0.5%. Net loss was $3.2 million or $0.17 a share, and adjusted to exclude employee separation charges, net loss was $2.2 million or $0.12 per share.

Let me highlight our accomplishments towards our turnaround goals. First, Arnie Cohen, who joined us as Chief Marketing Officer in April, has led a total revamp of our marketing strategy. In the quarter, we aligned our online and store pricing by significantly reducing promotional activity on the web. As expected, sales declined on the web, however, the consistent message we sent to our customers benefited store traffic, an important strategy given that our 250 locations account for 90% of our total sales. We also began to implement new web and store promotions which are more targeted to improve traffic trends and fewer regular price sales. As an example, our 1999 short event, which occurred online and in stores, led to a successful promotion and drove more regular price sales in other categories, such as day dresses and date tops. Our flash sale promotions were also effective at driving traffic given their short duration. Going forward, you will also see us more strategically utilize marketing to elevate our brand with consumers. We will engage with consumers through social media efforts, showcasing new trends and highlighting the who's who celebrities wearing Cache. We have also improved our marketing mailers and received a great response to our July 30 mailer, which is representative of our go-forward assortments and updated design aesthetics. We expect our marketing initiatives to allow us to broaden our customer base and increase loyalty among current consumers.

Second, we saw progress on our merchandising and planning strategies. 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 at Burberry and Saks, and she has made a huge contribution to our company. We are also improving our sourcing so we become quicker to market. This effort is headed by Rich Owen, who is also new to our company. His industry experience, technical knowledge, speed to market mindset and logistics distribution background is already being felt. Across categories, we continue to capitalize on opportunity in dresses. We are already an authority in event dresses and have expanded our dress classification in the day category. We see a big opportunity in day dresses given the significant void that exists for great fashion and quality in price points such as ours.

The second quarter also included strength in prom dresses, which we will look to build upon as we enter the homecoming season and continue to branch out our dress offering in mother of the bride, bridesmaids, bar mitzvah, cocktail, Oscar's, Emmy's and any other event that's going on out there, other occasions. Optimally, we will look to have dresses reach 50% of our assortment from 20% at quarter end. We don't believe this is a stretch. In fact, in Cache's best-performing years, dresses were penetrated at 50% or greater and at a quarter end, our 20% penetration dresses drove 50% of our sales. We made progress in sportswear, delivering added assortments that provide our customer with unique trendy looks such as leather, leggings, jackets and camis. And in accessories, we are already seeing success with our elevated assortment of scarves and jewelry that work back to our outfits. By quarter end, all this work culminated in our new receipts causing a positive turn in our comp sales. In fact, in July, we posted a comp store sales increase of 7%, with only 20% of our assortment representative of our go-forward strategy. Even more exciting is that our comp increase was broad-based, with virtually all stores contributing to this growth. Other positive signs include our comp being driven by increased traffic and higher regular price sales, which is a strong validation that our assortments are resonating with consumers. We are seeing current and new consumers interact with our brand in-store and online, which we attribute to the changes we have made, not only in our assortments, but through improved store windows and signage, as well as more effective marketing.

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