Stage Stores, Inc. (SSI)

SSI 
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Industry: Consumer Services
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Stage Stores (SSI)

Q2 2013 Earnings Call

August 22, 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

Madeline Steiner - Barclays Capital, Research Division

Kristina M. Westura - Telsey Advisory Group LLC

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

David Kwon

Jonathan Hart - The Buckingham Research Group Incorporated

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

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 host for today's conference call, Mr. Bob Aronson, Vice President of Investor Relations. Mr. Aronson, please begin your conference call.

Bob Aronson

Thank you, operator. Good morning, and welcome to Stage Stores' second 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 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 last year.

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 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 that said, I would like to turn the call over to Michael.

Michael L. Glazer

Thanks, Bob, and good morning, everyone. Thanks for joining us today for our second quarter conference call. I'll provide a high-level overview of our performance, and then Oded will cover our financial results and our revised guidance for 2013 in much greater detail. Following that, Oded, Ed, Steve and I will be happy to answer any of your questions. Steve is actually in Las Vegas at Magic but is on the phone and can address any specific merchandising questions that you may have.

Okay. So let's talk about our second quarter results. Comparable store sales improved over the first quarter to 1.7%, and adjusted earnings increased 11% over last year to its second quarter record of $0.41 per share. We achieved these results despite some significant headwinds, which prevented both sales and earnings from being even higher. One factor was our slow start to the quarter. I won't dwell on the obvious weather situation early in the quarter other than to say that it did hurt our sales in seasonal categories. As a result, we missed opportunities to drive full price sales.

Also, as you undoubtedly have heard from most other retailers, the second quarter was heavily promotional. The only way to generate traffic was to have extremely compelling offers to attract customers. Those 2 factors, lower full price sales and the promotional environment, led to a 4.1% decline in our average unit retail and a flat adjusted merchandise margin.

Another issue that had a major impact on our quarter was the disparity in our comp store sales results between our former South Hill stores and our Houston stores. Comp store sales in our Houston stores were up 3.3% for the quarter, while they were down 1.9% in our former South Hill stores. That is more than a 500-basis-point difference.

While we have completed the South Hill consolidation from an operational and systems perspective, the alignment of merchandise assortments in the stores has taken us longer than we originally anticipated. Every day, we are making progress, and we are confident that we will close the sales gap as the assortments normalize during the fall season.

Before I continue, I do want to take a moment to thank all of our associates for their dedication and for their hard work with regard to this consolidation project. The merging of the buying offices was long overdue and will definitely produce significant long-term benefits for our company.

Okay. Turning to sales by family of business. We saw the strongest trends for the quarter in our men's and young men's categories. That was followed by gains in our children's, junior's, cosmetics and footwear categories, which all exceeded the company average for the quarter.

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