Coldwater Creek Q3 Earnings Call Transcript

123jump.com Staff
13 Dec, 2008
New York City

Coldwater Creek, an apparel and accessories retailer reported net sales in the third quarter decreased 15.7% to $228.5 million and net loss was $1.3 million or $0.01 per share. Comp store traffic declined 21% and cash flow from operations dropped to $6.2 million.

Coldwater Creek Incorporated ((CWTR))
Q3 2008 Earnings Call Transcript
November 25, 2008 4:45 p.m. ET

Executives

Andrew Greenbaum – Investor Relations
Daniel Griesemer – President, Chief Executive Officer
Georgia Shonk-Simmons – President, Chief Merchandising Officer
Timothy Martin – Senior Vice President, Chief Financial Officer

Analysts

Elizabeth Pierce - Roth Capital Partners, LLC
Christopher Kim – J.P. Morgan Chase & Co.
Liz Dunn - Thomas Weisel Partners LLC

Presentation

Operator

Greetings and welcome to the Coldwater Creek Incorporated third quarter fiscal year 2008 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press “*0” on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Andrew Greenbaum of ICR. Thank you, Mr. Greenbaum. You may begin.

Andrew Greenbaum

Thank you Operator and good afternoon everyone. With me on the call today are Daniel Griesemer, President and Chief Executive Officer; Georgia Shonk-Simmons, President and Chief Merchandising Officer; and Tim Martin, Senior Vice President and Chief Financial Officer.

I would like to remind everyone that the statements contained in this conference call are non-historical facts and constitute forward-looking statements within the meaning of the securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially than those expressed or implied by such statements. These risks and uncertainties are described in the company’s filings with the Securities and Exchange Commission. No one should assume later in the quarter that the comments we provide today are still valid. Moreover, we are not undertaking any obligation to provide updates in the future. With that, I’d like to turn the call over to Daniel Griesemer, President, and Chief Executive Officer.

Daniel Griesemer

Thank you Andrew. Good afternoon everyone and thank you for joining us today as we discuss our results for the third quarter of fiscal 2008. During today’s call, I will briefly review our third quarter results and then spend a few minutes updating you on current business trends and our long term strategic initiatives.

Tim will then give you additional detail on our financial results and strong liquidity position, and Georgia will provide a more comprehensive update on our merchandise including a discussion of our fall and holiday products, and I will conclude the prepared portion of the call with a few closing remarks before we take your questions.

Our third quarter results reflect the challenging environment for both consumers and retailers. While we are not satisfied with our financial performance, we are pleased with our continued progress on improving the controllable aspects of our business, including our product and customer experience, our inventory position and our cost structure.

Our third quarter sales were $228 million for the loss of $0.01 per share, ahead of our revised guidance of sales of approximately $225 million and a loss per share of $0.07 to $0.09. Our better than anticipated financial results can largely be attributed to three areas; lower than anticipated customer returns, labor savings in our store operations, and continued success in extracting costs across all other line items.

On our last call in early November, I discussed the significant deterioration of our traffic during the third quarter as the macro environment grew increasingly challenging, starting the second weekend in October. While we started the quarter building off our relatively strong second quarter performance, we ended the quarter with a 20.5% decrease in same store sales and comp store traffic down similarly.

Although the macro environment is preventing our progress from being reflected in our sales results, we continue to significantly lower our cost structure as evidenced in our third quarter SG&A which was $29 million lower than last year, despite 47 more stores. We have also continued to make meaningful improvements in both our merchandise assortment and inventory management. We ended the quarter with inventories down per square foot 19% year-over-year.

Our performance demonstrates our management team and employees’ abilities to stay focused on strengthening our business fundamentals and improving our product and customer experience. We are very fortunate to have such a dedicated and results driven group of people at all levels of the organization. We believe that we are taking the right steps to revitalize our business and I’d now like to take a moment to discuss why we are so confident about the direction of our new merchandise and our ability to restore our brand’s unique heritage.

We believe that our holiday collection is the best assortment that we’ve featured in several years. It truly captures the essence of our casual brand and is differentiated from both our past product and our competitors. One of our key merchandise strategies has been to reduce our style and color count. We have sharpened our focus on the core categories that we know are most appropriate for our customers.

We have an exciting product assortment that emphasizes fashionable, high quality pants, sweaters, jackets, woven and knit tops at compelling opening price points. And while it is very early in the season, initial results have been positive. Our first holiday collection rolled out to stores on November 7 and we have seen a meaningful improvement in some of our operating metrics. While traffic remains down in the mid to high teens, our conversion rate has improved by more than 200 basis points since the comparable periods last year and we have seen an improvement in the trend of our comp store sales from third quarter levels. Nevertheless, traffic remains erratic and unpredictable and we’re mindful of the macroeconomic environment as we enter the holiday season. We are also benefiting from strength in certain categories and volume levels per style that we have not experienced in recent years. We are seeing improving sell throughs on several items. Our top 30 items represent 45% of sales compared with 36% of sales last year. This assures me that our efforts to provide more focused and cohesive assortments are working.

As we indicated previously, we also continue to be more strategic with regards to our marketing and promotion. We’ve reduced our marketing spend by 33% from the same period last year by being more efficient with our investments. We are seeing improved results from our catalog marketing investments as the response to our first two holiday catalogs are the most productive that we have seen in a year, and our sales per book and per page productivity are exceeding expectations.

We are currently seeing net marketing contribution per household up in the mid to high single digits year-over-year. Our brand is becoming increasingly unified across all channels. We have compelling new creative including imagery, signage, packaging and overall themes that you can see manifested in our stores, on our website and in our catalogs. We believe that our efforts to insure that our brand essence is captured in each touch point will pay dividends.

We continually look at our customer segments and assess how to best reach her. Beginning with our holiday collection, we are changing our store windows every seven days with new promotions to encourage traffic and offer her something new and exciting. We also recently modified our e-mail campaigns, which are proving to be a successful way to drive traffic to our website and our stores at a very low cost.

We pride ourselves on providing excellent customer service so I’m extremely pleased to announce that for the third year in a row, Coldwater Creek was recognized by the National Retail Federation Foundation/American Express Customer Service Award. In an unaided survey, almost 9,000 customers were asked to name the companies that delivered the highest level of customer service and we were once again included in the top ten. It is extremely gratifying to be recognized for our efforts and truly validates all the hard work of our sales associates and contact center agents.

All of this gives me the confidence and the encouragement that we are doing the right things for the business. While the holiday season is long and we are still in the early stages, we are cautiously optimistic that our unique product, excellent customer service, and compelling price points, combined with strategic promotions will resonate with these consumers in today’s very challenging economic climate.

As we discussed previously, all of us at Coldwater Creek committed to revitalizing our business insuring sustainability in this difficult environment. We continue to be appropriately conservative with expenses and to prudently manage our growth in capital. Tim will go into this in more detail, but our cash position remains strong and we are focused on reducing capital expenditures. We recently announced our decision to significantly reduce our store growth plans for 2009 to approximately 15 new stores, down from our previous plan of approximately 40 stores. This will result in a meaningful reduction in capital expenditures. Given the current environment, we believe this is the right decision.

We continue to believe very strongly in our retail opportunity and we know that we have a great deal of growth still ahead of us. However, we are committed to maintaining a solid and liquid financial position and this will allow us to return to our retail rollout strategy when the climate improves and the time is right.

With that, I’d now like to turn the call over to Tim to discuss our financials in more detail. Tim.

Timothy Martin

Thanks Dan. Looking at our third quarter results, net loss for the three-month period ended November 1, 2008 was $1.3 million or $0.01 per share compared with the net loss of $6.2 million or $0.07 per share for the same period a year ago. Consolidated net sales in the third quarter decreased 15.7% to $228.5 million from $271.2 million in the third quarter of 2007. This was primarily a result of the decrease in retail store traffic and lower direct channel sales.

Net sales in the retail segment, which includes our premium retail stores, our outlet stores, and day spa locations, were down 5.8% for the third quarter to $175.4 million compared to $186.3 million in the third quarter of 2007. Retail segment net sales represented 76.8% of the company’s total net sales in the third quarter compared with 68.7% in the third quarter of 2007. The company opened 19 retail stores during the quarter for a total of 341 premium retail stores in operation at the end of the period, which compared to 294 premium retail stores at the end of the third quarter last year.

Our full store sales decreased 20.5% for the third quarter compared with a 13.6% decrease in the prior year period. Comp store traffic was down 20.5% while our premium comp store conversion rate was down approximately 90 basis points. Direct segment net sales decreased 37.5% to $53 million in the quarter from $84.9 million in the third quarter of 2007. Direct segment net sales represented approximately 23.2% of the company’s total net sales in the quarter compared with 31.3% in the third quarter of 2007.

Gross profit for the quarter was $86.1 million or 37.7% of net sales compared with $107.8 million or 39.8% of net sales for the third quarter of 2007. The decrease in gross profit rate was primarily due to de-leveraging of occupancy costs due to the lower same store sales.

Selling, general, and administrative expenses for the third quarter were $88.8 million or 38.9% of net sales, compared with $117.6 million or 43.4% of net sales for the 2007 third quarter. The decrease in SG&A expense of approximately $28.8 million was driven primarily by reduced marketing expense and other cost saving initiatives. Our operating loss for the third quarter was $2.7 million compared with an operating loss of $10.3 million in the third quarter of 2007.

Now turning briefly to our nine month results, net sales for the first nine months of fiscal 2008 were $741 million versus $805.9 million in the same period last year. Net loss for the first nine months was $7.4 million or $0.08 per share compared with net income of $14.5 million or $0.15 per diluted share in the first nine months of 2007. Our nine month results include a pre-tax, non-cash impairment charge related to Coldwater Creek Spa of $1.5 million or $0.01 per share after tax.

I’d now like to discuss our balance sheet, liquidity, and operating cash flow. Based on recent discussions with analysts and investors, it has become increasingly apparent that much of the market’s focus has shifted to our liquidity position and cash flow. Due to this, we believe it is helpful for us to be more detailed than we have been historically with regard to our balance sheet and our cash flow statement.

To reiterate what we’ve said in the past, we remain very comfortable with our liquidity position. We have a strong cash position as we ended the quarter with $72 million in cash, in addition to full availability under our $60 million revolving credit facility which expires in January of 2012.

It is important to note that cash is seasonally low in Q3 because of inventory buildup for our holiday season and we continue to be confident that we will end the year with more than $75 million in cash, up from the $62 million we began the year with.

As we’ve discussed in previous quarters, we remain very confident in our ability to fund both our operations and current growth plan out of existing cash and cash flow without the need for any borrowings. We understand the importance of having an appropriately sized balance sheet to support our business and given significant change in the environment in which we operate, we have taken very meaningful steps to respond by lowering our inventory and reducing our capital expenditures.

As Dan said, we ended the quarter with premium retail inventory, including the distribution center, down 18.6% per square foot from the third quarter of last year. Whole inventory decreased 11.7% to $171.4 million compared to $194.0 million at the end of the third quarter of 2007. This decrease is significant given the addition of 47 premium retail stores or 17.7% premium retail store square footage growth over that same period.

It is also important to note that despite the challenging quarter, cash flow from operations was $6.2 million in the third quarter versus cash flow use from operations was $7 million in the third quarter of 2007. Capital expenditures for the quarter totaled $23.2 million, primarily related to our new store construction and information technology initiatives.

Depreciation and amortization is always a large, non-cash expense for us and was $14.5 million in the third quarter. Regarding the other major components of cash flow, we expect to further reduce inventory levels in the fourth quarter. For the fourth quarter, we expect total inventory will decrease approximately 10% from the end of fiscal 2007.

We anticipate that capital expenditures for the full year will be approximately $75 million and primarily relate to new store construction and information technology and we expect depreciation and amortization will come in at approximately $70 million for the full year. As you know by now, our reduction in our store growth plan for 2009 will significantly reduce our capital expenditures for next year. We believe that capital expenditures for fiscal 2009 will be approximately $35 million, less than half of 2008 levels. Again, this will give us more cash and will bolster our financial stability in this challenging macroeconomic environment.

Briefly, on our outlook, because of the uncertainty in the macroeconomic environment, we deemed it prudent to withdraw our guidance for the fourth quarter. With that being said, we expect to reduce our SG&A in the fourth quarter by over $20 million versus the prior year quarter and we’ll continue to manage our inventory and cash position to provide a solid financial business for the company going forward.

With that, I’d like to turn the call over to Georgia.

Georgia Shonk-Simmons

Thank you Tim. Good afternoon everyone. As Dan mentioned we have been focusing on improving our products and customer experience for over a year and we have made significant progress. I’m extremely proud of the work of our team. The fall and holiday collections are unique, differentiated and reflect our brand heritage which is all about ease, casualness, combined with great quality and fit. We have been and will continue to be diligently focused on insuring that all of our clothing and accessories have these attributes. We finished the quarter with clean inventory and our style and color counts were down approximately 20% from last year, which has followed us to focus on the best – I’m sorry, allowed us to focus on our best products at best prices. Our strategy of buying key items in greater depth and pricing them at levels at which you will not have sticker shock has resonated with her.

We will still have promotions to stimulate her to shop in order to remain competitive in this challenging environment. We view our windows as a selling tool and we’ll be changing them more frequently to highlight key items. This strategy will keep our stores fresh and help drive traffic in this current environment.

While her overall spend was lower during the quarter, we did see some momentum building in our fall collection. Building off the successes of our past collections, our denim business was up in the third quarter. We offered an assortment of denims in several fashion colors that are flattering, slimming and include stretch to make them more comfortable. And as we said in the past, this is a perfect example of where we listened to what our customer was telling us and applied it to our design process.

In addition to our denim, pant business performed well, particularly our casual twills and our holly dress pants. Our other successes included our crisp woven shirts and layering pieces. For the quarter, our jacket business was disappointing and we also see an opportunity to expand our skirt business in the future.

Now turning to our holiday collection, we rolled out our first delivery on November 7 and so far the response has been encouraging. For holiday collections, we focused on creating an assortment of key items that are both great ways for her to update her wardrobe and also lend themselves to gift giving. This of course includes wearing pieces and accessories. A good example of this is our shawl business, which we discussed on our last call and we have purchased in depth.

The Annabel shawl was available in a variety of colors at an attractive $39.50 price point for one or two for $29.95 and has been the most successful of our fall products. Our holiday collection includes shawls ranging from this well priced one in even more colors to a more detailed, ornamented shawl at a much higher price. We are seeing remarkable sell through on both of these items and anticipate selling out of them. This highlights our success with our new pricing pyramid and appealing to different types of shoppers.

We have also invested heavily in the sweater business and this is our most successful category from basic layering items starting at $19.50 to jacquard pattern sweaters at higher price points. We have made a conscious effort to pursue novelty sweaters, particularly in the cardigan business. We believe that cardigans are a great jacket alternative and make for an attractive way to update her wardrobe or give as a gift to others.

In addition to the sweater business, we also invested heavily in plaids for holiday and our Stewart plaid jacket is selling well. We are very confident and we were that she would love this style and we have not seen this level of volume on a single jacket in quite a while. I’m extremely proud of this product and it manifests all of the diligent work of our design team in listening to what the customer wants and applying it.

In our ready-to-wear shop, we have a Ponte double knit jacket that is proving to be a valuable addition to our wardrobe. Depending on her lifestyle and her needs, she can dress up this jacket or make it more casual for every day use. However, we are disappointed in our holiday pants and outerwear business. They have always been strong performing categories for us for the fourth quarter. We’re now trying to determine if the softness is due to price point or if she is simply making do with what she already owns.

And as I stated about fall, we continue to see an opportunity in the skirt business. Along with improved products as we discussed on our last call, we have changed our store layout to enhance her shopping experience. We have received very positive feedback as she is enjoying shopping in an environment that is fun, eclectic while still being organized. In these challenging times, we know that she is cutting back on what she spends and that she is looking for quality, newness and an affordable way to update her wardrobe.

We know that it is more important than ever to emphasize key items at competitive price points that can fill a void in her closet. Throughout our stores, we show her several great ways to update her wardrobe with new accessories, layering pieces and other very versatile items that again have multi-uses in her lifestyle that can be dressed up or dressed down.

While it is certainly a difficult environment, we know that she has budgeted less for holiday spending, I am confident that we met her expectations with both our product and shopping experience. Our stores look fresh and inviting and I am very proud of the differentiated quality assortment we have at great prices.

And with that, I’ll turn the call back over to Dan. Dan.

Daniel Griesemer

Thanks Georgia. In summary, while our results were disappointing we remain focused on our long-term initiatives and are pleased with our continued improvement in our product and customer experience and the other controllable aspects of our business. While we are facing the same macroeconomic headwinds as other retailers, we have been focused on mitigating and offsetting these conditions through a combination of tight control of operating expenses and careful inventory management for over a year.

As we look to the remainder of the year, we are encouraged by the initial customer response to our holiday product assortments and catalog presentations. And although the environment remains extremely challenging, we are confident that we are on track with our direction in product development and customer experience. We believe that this strong foundation will provide space for our return to sustainable profitability in the years to come. With that, I’d now like to open up the call for your questions. Operator.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen we will now be conducting a question-and-answer session. If you would like to ask a question, please press “*1” on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press “*2” if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question is from the line of Liz Pierce with Roth Capital Partners. Please go ahead.

Elizabeth Pierce - Roth Capital Partners, LLC

Thank you everyone. Congratulations on a nice little beep (ph) there, but that’s really the basis of my question. So it just seems to me on November 3rd, when you came out with kind of the pre-announcement, I guess I’m struggling to understand since you hadn’t closed the books, didn’t have a chance – I mean I understand the return part, but maybe help me understand some of the detail that led to such a kind of a different result. And then further, what does that mean in terms of Q4? I realize you said $20 million in savings on SG&A and then what about – how low does the level of the river get on cost as we look at ’09?

Timothy Martin

Okay. That’s kind of a multi-part question and I’ll take the first part. In looking at sort of the change versus what we had thought we were guiding to, I’m sure you can appreciate not only is this a very challenging and extraordinarily unique environment to operate a business in, but it’s also quite frankly a very challenging environment to forecast the business in. As Dan said we had three sort of major areas where we had discrepancies versus our guidance. One was in sales returns coming in substantially better than we had anticipated and seeing. I think that’s attributable to quality and the product acceptance. The second answer is we had better results in our retail labor. And I think on that front we need to be able to tighten up our process to be able to look at that information. We are chasing cost savings quite in an unprecedented manner as an organization. Every employee in this company is dedicated to saving money and delivering on cost savings initiatives and we need to tighten up our forecast process to be able to pick up on that.

And I think overall, what this shows is that in highlighting the challenge of forecasting in this environment is a large part of the reason why we haven’t given guidance for Q4. It’s just the unbelievable uncertainty. We have a significant effort underway under cost savings and trying to stay on top of that. We need to sharpen up our pencils and be a little bit more proactive there, but also the uncertainties in the environment are quite challenging.

I think to look at the fourth quarter, what we talked about is a $20 million SG&A savings versus the prior year. We’ve given you past guidance on where we think we’re going to end up with that perspective and where we think total inventories are going to go. Beyond that, we do believe there are still incremental savings for 2009 and are comfortable that we will deliver those as well as we are in the middle of our budgeting process at this point in time. I think Dan had some thought as well.

Daniel Griesemer

I’ll add a little color to that, Liz. That’s that the principles that we employed in the third quarter and actually throughout this entire year as we said we’ve been at this for a year, looking at every aspect of our operations and looking for opportunities to be more efficient. The same principles that delivered considerable cost savings in the third quarter are in place for the fourth quarter and will continue on into ’09. We will do what it takes to make it through this environment and remain stable and financially solid and liquid. We’ll do what it takes but the caveat is that we’re not going to cost cut our way to greatness here. So, we look forward to making it through this environment and coming out on the other side much healthier and with an invigorated product offering and leaner cost structure, we’ll be positioned to do well at that time.

Elizabeth Pierce - Roth Capital Partners, LLC

Right, just on housekeeping, do you have the split between catalog and Internet sales?

Timothy Martin

Phone sales for this quarter were 23% and Internet was 77% of our direct business.

Elizabeth Pierce - Roth Capital Partners, LLC

Okay, all right thanks. Good luck you guys.

Daniel Griesemer

Thank you.

Operator

Thank you. Our next question is from the line of Christopher Kim with J.P. Morgan Chase. Please go ahead.

Christopher Kim – J.P. Morgan Chase & Co.

All right thanks. Tim, I was wondering if you could break out the, I guess the biggest components of the expense savings in the quarter and would that sort of level apply to the fourth quarter also? It seems like a lot of that is coming from the circulation reduction in the catalog. How are you looking at that in the fourth quarter?

Timothy Martin

I think the easiest way to look at it in the fourth quarter is the $20 million savings that I’ve referenced is probably about a little over 60% marketing savings and the remaining savings versus the prior year are pretty evenly spread across almost every category with a large component of that in labor savings. Chris, any other questions? I guess not. Operator?

Operator

Thank you. Once again ladies and gentlemen, if you would like to ask a question, please press “*1” on your telephone keypad. Our next question is from the line of Liz Dunn with Thomas Weisel Partners. Please go ahead.

Liz Dunn - Thomas Weisel Partners LLC

Hi, good afternoon. My question relates to your leases. I was just looking back through some of the company filings and it appears that some of your leases must still be under escalation clauses because your minimum rent expense for the coming years is more than, you know, you’ve incurred in the current year. So could you just kind of discuss those dynamics, discuss if there are any opportunities to work with landlords to get those leases down in territory where it may make more economic sense? Would you consider closing any stores? Where are you on four wall profitability? Just sort of your store – your four wall dynamics, please.

Daniel Griesemer

Sure. Well, our leases are – I’m very proud of the job the real estate team has done in positioning our entire portfolio very well in terms of all the flexibilities and the turns that the leases are very advantageous to us and we have really no stores at this point, at this level, that are in risk of impairment. We’re looking and we’ll continue to look at that as we did I think a couple of stores I think earlier in the year, a couple of the larger and older stores. We did what we had to do.

There are escalation components in the rent. It’s extremely standard and all built in to all forward budgeting and forecasting and the overall profitability model. We find that even in this environment, the four wall – our stores are four wall positive as evidenced by the cash flow from operations in the third quarter with even the challenging environment that we had. So it’s a very young, very healthy portfolio with all the safeguards in the lease terms in terms of termination clauses and kick-out.

Liz Dunn - Thomas Weisel Partners LLC

Okay. What do you think about the size of the box at this point, having gone through a rationalization of the number of SKUs on the floor? Are you happy with the size of the box? And if we fast forward two or three years from now and you’re opening stores again, do you think those stores will look pretty similar to the stores that you currently have?

Daniel Griesemer

Yes, our average store size is like right around 5,800 square feet, somewhere in there. We like that as an average size for the portfolio today and I think you could expect that as we open stores in the – you know, we’ve got it in that we’ve sited another couple of hundred store markets, trade areas where we can have stores on our way to 500 and 550. When we resume that, I would suspect we’ll probably be down on those stores approximately 500 square feet. Just slightly smaller, but it’s reflective of the trade area and the density and those kind of things.

Liz Dunn - Thomas Weisel Partners LLC

Okay and then just one more if I may squeeze one in. You mentioned that the fourth quarter is turning a bit better on conversion. Is that inclusive of this last week which is comping against the holiday week last year?

Daniel Griesemer

Yes, well it is actually, but it’s also – we looked at it a couple of different ways because with the shift of Thanksgiving, we had to look at it both true calendar comparison and for the same period which would account for the week prior to the week prior. And so we’re seeing those results, which is why I included the 200 basis point improvement in conversion, which is room for encouragement.

Liz Dunn - Thomas Weisel Partners LLC

Okay great. Good luck.

Daniel Griesemer

Okay, thank you.

Operator

Thank you and as a reminder ladies and gentlemen, if you’d like to ask a question, please press “*1” on your telephone keypad. We have no further questions in the queue—oh I’m sorry, we have a followup from Liz Pierce. Please go ahead.
Elizabeth Pierce - Roth Capital Partners, LLC

Thanks Georgia, a question for you on as you guys are managing this inventory, which I think obviously great job and very conservatively, given your lead times which – correct me if I’m wrong, I mean, I still think they’re kind of in that six months plus timeframe. On the off chance that business turns, how quickly I guess that’s the real question do you guys feel you can respond? Because if we think about it, if she really hasn’t shopped – we’re coming up on what, over a year, a year, and a few months, it could be a year from now and she’s ready to shop if the economy improves.

Georgia Shonk-Simmons

Absolutely. I think, and you and I have talked about this many times before, one of our strategies is certainly in our base goods, we certainly keep fabric. We keep it in undyed goods and also in dyed goods so we can turn that very fast. So, our base goods are protected. The key will be is getting it out of the novelties. But we are double sourcing many of our novelties, so that we’re covered in Central America and in Asia. That way I can get a faster turn out of Central America to move in and out of goods quickly.

Elizabeth Pierce - Roth Capital Partners, LLC

Is anything happening domestically that you could in fact bring things back?

Georgia Shonk-Simmons

You know honestly I wish there were. But there are so few sewing factories here and the few that there are we use.

Elizabeth Pierce - Roth Capital Partners, LLC

Okay. And then your comment about jackets and what was the other item that you – in your outerwear. Is part of you trying to figure out is it a test to sensitivity of it? Will we – should we be seeing some promotions coming in to see if it is a pricing thing or a product thing?

Georgia Shonk-Simmons

Yes. Actually we are testing that. As we speak, we’re testing sensitivity in a small group of stores to see again what we can make of this. Remember in Q3, we more than comped our pant business, both denim and our regular pant business. So again that’s why it leaves the question in our mind is to whether she’s again living with what she has and buying great items, or it’s price. So by the next time we talk to you, we should have a clearer picture of what is holding her back from buying pants and outerwear.
Elizabeth Pierce - Roth Capital Partners, LLC

And then finally on the skirts you said you were somewhat vague, maybe purposely. Just what kind of opportunities do you see?

Georgia Shonk-Simmons

Well I think in the fall business, especially in August, because our August business – it’s still very warm out there. I don’t think we took enough advantage quite frankly of having a diversified enough assortment of skirts and having them out there to wear in the warm weather. And I also think since we really looked at holiday as being more casual in key items and we did pull away from doing a lot of dressy merchandise, I do think we missed a few opportunities on doing great skirts. So skirts for us for next year are a focus. And I think you’ll see opportunities in the summer, into June, July timeframe and then again through August.

Elizabeth Pierce - Roth Capital Partners, LLC

All right, that’s helpful. Thank you guys and good luck again.

Georgia Shonk-Simmons

Thank you.

Operator

Thank you. There are no further questions in the queue at this time. I’d like to turn the call back over to Mr. Griesemer for any closing comments.

Daniel Griesemer

Okay. Thank you everybody for joining us and have a good evening.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.