Cache Inc (CACH)

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Cache Inc. (CACH)

F2Q08 Earnings Call

July 24, 2008 9:00 am ET


Allison C. Malkin – Senior Managing Director, ICR

Thomas Reinckens – Chairman, Chief Executive Officer and President

Margaret Feeney – Executive Vice President and Chief Financial Officer


Margaret Whitfield - Sterne, Agee & Leach

Robin Murchison - SunTrust Robinson Humphrey

Neely Tamminga – Piper Jaffray

Liz Dunn - Thomas Weisel Partners

Eric Beder – Brean Murray, Carret & Co.

Jeff Van Sinderen – B. Riley & Company, Inc.

Elizabeth Pierce – Roth Capital Partners, LLC.

Mark Montagna – C. L. King & Associates, Inc.

Harry Ikenson - Ikenson Research and Consulting



Welcome to the Cache Inc. second quarter fiscal 2008 results conference call. (Operator Instructions) It is now my pleasure to introduce your host, Allison Malkin of ICR.

Allison C. Malkin

Today's conference call includes comments concerning Cache’s business outlook and contains forward-looking statements. These particular forward-looking statements and all other statements that may be made on this call that are not based on historical fact are subject to risk and uncertainties. Actual results may differ materially.

The fiscal information concerning a number of factors that can cause actual results to differ materially from the information that will be discussed is available in Cache's filings with the SEC including Cache's report on form 10-K for the fiscal year ended December 29, 2007. For those of you who wish to participate on this conference call via the webcast, please go to, click on ‘Investor Relations’ and then on ‘Presentation’.

And now, I'd like to turn the call over to Tom Reinckens, Cache's Chairman and CEO.

Thomas Reinckens

Here with me today are Maggie Feeney, our Executive Vice President and Chief Financial Officer; Ashok Gandhi, our Vice President of Finance; and Victor Coster, our Treasurer and Secretary.

For today's call, I will begin by providing an overview of our second quarter results and update on our progress towards achieving the priorities we set at the beginning of the year. Then Maggie will review our financial highlights, and I will provide closing comments and turn the call over to the operator to conduct the question-and-answer portion of the call.

We are pleased to report better than expected second quarter results. Net sales rose 4.1% with comparable store sales up 3%. As anticipated, comp store sales accelerated in May and June as sportswear became a larger percentage of our mix. This positive trend has continued in July.

Earnings of $0.16 were $0.01 ahead of the recently raised guidance we provided on July 8. We attribute our strength in a difficult consumer spending environment to the success of our key priorities which we believe position us to increase market share and over time attain our mission 500 sales goals and double-digit operating margin targets.

Briefly, reviewing these priorities first to maximize the potential of the AVD acquisition, consumers are responding very favorably to our cohesive assortment and collection dressing which has been made possible through the design and sourcing talent that we acquired along with the acquisition. In sportswear, our offerings are now appropriate for more of our customers lifestyle needs which is driving traffic, UPP and shopping frequency. We've also seen a benefit to our dress and accessory assortment with encouraging results.

In addition, in 2008 we have now begun to shift a larger portion of our on-order inventory purchases to lower cost, overseas factories. We are pleased with the innovative fabric and quality from our overseas partners. This effort is also allowing us to offset higher labor costs in the U.S. We will however, continue to utilize domestic manufacturing partners for speed to market but at levels less than a year ago.

Second, to implement a good, better, best pricing strategy we rolled out this strategy to our stores during the spring with great results. We now have competitive pricing which is common in our signage and marketing and this is resonating with consumers. UPP's are up. We are confident this initiative will drive sales per square foot to our mission 500 goal.

Third, to maintain discipline in expense and inventory management expenses were well controlled despite incurring incremental expense due to the AVD acquisition. Average inventory at cost on a per store basis for finished goods was down 17% from the same period a year ago.

Fourth, to improve compability by closing underproductive stores and selectively opening new stores as we mentioned last quarter, we identified approximately 14 underperforming stores for closure, mainly our Cache Luxe location. We will continue to carry the last Cache Luxe brand in our ongoing Cache stores and believe our company will benefit as we focus exclusively on Cache.

As it relates to new stores during the quarter, we opened five stores, closed two locations, ending the period with 297 stores. For the second half of the year, we remain on track to open approximately eight new stores and close approximately 13 locations. For the year, we expect to open approximately 16 new stores and close about 21 locations ending the year with approximately 292 locations and 590,000 square feet in operation.

Fifth, to provide consumers with effective marketing our latest catalogue and mail orders have achieved strong results following the testing of several types of events last year. We are also pleased with our Cache Accents program, which is our program designed to grow customer loyalty. To date, we have signed up over 470,000 customers and expect this initiative to continue to gain traction with consumers this year. In addition over 15,000 customers have signed up for our co-branded Cache Visa card.

We also ended the quarter in a strong financial position. Cash and marketable securities totaled $27 million, even after the purchase of $3.2 million of our common shares since last year’s second quarter and our debt to capitalization ratio was 6%.

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