Q3 2019 Earnings Call
Continue to standby and thank you for your patience.
Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2019 stage towards earnings Conference call. At this time all participants are in listen only mode. If you acquire any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today, that's certainly should tawney senior.
Manager, Oh strategy and Investor Relations.
Thank you operator, good morning, with us on the call or Michael Glazer, President and Chief Executive Officer, and Jason Curtis Chief Financial Officer.
Supplemental materials regarding our business are available in a presentation posted in the Investor Relations section of our web site at corporate Dot stage dotcom.
Management will not be speaking to directed fight be flights are meant to facilitate your view of the company's results and should be used as a post called reference.
Our comments. This morning include adjusted EBITDA result, adjusted net loss and adjusted diluted loss per share what forgot derived in accordance with GAAP reconciliations of GAAP results. non-GAAP results are included in this morning's earnings release, which is available in the Investor Relations section of our web site.
Our remarks. This morning will also include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and such statements are intended well qualified for the protection of the Safe Harbor provided by the act, which reflects the company's current view of future events and financial performance.
Words, such as expect forecast plan anticipate estimate may will should and similar expressions identify forward looking statements.
These forward looking statements are subject to risks and uncertainties that may cause our actual results could differ materially from those projected in the forward looking statements for more information. Please refer to the risk factors discussed in our most recent Form 10-K , and our other filings with the S easy.
Forward looking statements speak only as of today's date and we undertake no obligation to update the statements because the new information future developments or otherwise I'll now turn the call over to Michael.
Thanks Felicia.
Good morning, everyone and thank you for joining us for our third quarter earnings call.
I'll begin by reviewing our third quarter results and then Jason will provide additional financial details.
I've been looking forward to this day, because I want to share with you. The incredible excitement that is going on here in stage stores.
We are absolutely thrilled with our third quarter results.
On nearly every key financial metrics, the third quarter of 20 million team was record setting.
I could go on and on about our third quarter achievements.
Sales were the highest for any quarter ever in our history.
Comp sales were positive every month and sequentially grew each month.
Merchandise margins improved by over 100 basis points.
We leveraged expenses by 380 basis points.
And the inventory levels are actually down more than 3% versus a year ago.
Most importantly, our adjusted EBITDA of $15 million. He was our first positive third quarter EBITDA since 2015.
And represents an improvement of nearly $30 million versus last year.
As a result or ended the third quarter excess availability under our credit facility was over $100 million.
And the increase of approximately 35 million compared to the second quarter.
And our highest quarter end level in almost two years.
Our comp store increase of 17% demonstrates that our strategic initiatives are clearly working.
While there were multiple drivers over outstanding sales performance. The most important for future is the sales lift we're delivering in the stores converted from department stores to off price.
During 2019, we converted 37 stores in the first quarter.
35 in the second quarter and 17 in the third quarter.
In the third quarter. These 89 Gordmans stores had the sales increase of almost 40%.
Compared to their department store sales in the third quarter of 2080.
The 40% increase was attributable to both former department store guess seeking great values.
As well as new and younger guests, who just love off price.
Additionally, our home and gifts businesses continued their strong momentum.
You may recall, we invested $5 million in capital to rollout high capacity home Fixturing in about 700 department stores in the first quarter.
This investment combined with our expanded and upgraded home assortment led to 880% increase in comparable store home sales in these locations in the third quarter.
The importance of the gift business, obviously grows in the fourth quarter.
And we are looking forward to this strong momentum building to an even larger impact on total company sales during the holidays.
While home and gives our fastest growing department I want to point out the results in our women's business, which remains our largest single category.
The women's business has been challenging for many years, but in the second quarter, we began to gain traction.
In the third quarter, thanks to our refined assortment and the appeal of an off price buying experience women's also delivered strong positive comparable sales.
Within women's apparel sportswear was our most improved business as we better connected with our core guess.
Our strongest categories overall and women's apparel were active.
Seasonal contemporary intimates and sleepwear.
While we were excited for our future in off price, we're proud of our department store heritage and how much the names stage Peebles Pelley Royal Goody's and bills me in the small towns we've been honored to serve for so many years.
We have developed many long term relationships with our guests.
And while they are excited about our conversion the off price.
Some will miss their department store.
As a result, our sales and events have a special meaning this year.
Because there is no next year as a department store.
For example, our last Halloween sale ever was very well received.
And we are even more excited to see the results of our last black Friday sale ever and last Christmas sale ever promotions.
We are highly optimistic about the fourth quarter and beyond as we begin to convert the full company to off price in 2020.
Approximately 550 of these store conversions to off price will occur next year.
Beginning with the first group of 45 stores opening in February .
With the experience of converting nearly a 100 stores in 2018 in 2019.
We feel confident in our ability to execute an aggressive conversion timeline that will culminate by the beginning of the third quarter next year.
Equally important only about $40000 of capital is required to convert each store.
This results in a total fiscal year 2020 capital spend of $30 million.
Which is about the same as we have spent on capital expenditures the last couple of years.
In addition, the lower inventory levels in off price will allow us to reduce our inventory investment by more than $30 million in 2020.
Another very exciting move for US this year was the launch of Amazon counter in our off price and department stores.
This service provides Amazon shoppers with convenient pickup locations at our friendly stores.
During the third quarter many of our loyal guests took advantage of the Amazon counter service.
We also welcomed many new faces into our stores.
Amazon counter is now available in approximately 700 of our stores just in time for the holiday season.
In summary.
Our pivot to off price has made great progress.
There are many who doubted our ability to truly transition from our department store culture.
Nevertheless, we are well underway and we will not be denied.
We want to win and our stage team along with our suppliers landlords and other key partners are energized to make it happen.
I said last quarter.
We are rapidly becoming the best story in retail.
And our third quarter results are proof of that statement.
With fantastic third quarter numbers and with the momentum we are already seen in the fourth quarter, we're raising our guidance for the full year.
We now expect full year comparable sales for the total company.
To be between a positive 7% and 9%.
Adjusted EBITDA.
Is projected to be between 35 and 40 million.
With the inventory reductions associated with conversions to off price.
We also forecast positive cash flow for the full year of more than $35 million.
Before I turn it over to Jason.
I want to say a very special thank you.
To our thousands of dedicated associates.
Who never waiver.
Believe in our strategy.
And on a daily basis exceed all expectations with their phenomenal performance.
With that.
I will now pass it over to Jason for more details on the financial results.
Jason.
Thanks, Michael.
We're very proud of our accomplishments during the third quarter. So I'm excited to dive right into the financial details.
Net sales for the third quarter were a record high $399 million, an increase of $52 million compared to the third quarter of last year.
Comparable sales increased 17.4% in the third quarter.
The key drivers of this comparable sales increase where the following.
One as sales increase of nearly 40% in the 89 off price conversions completed during 2019.
To the first quarter ROA of the Gordmans home assortment to department stores, which contributed to a third quarter increase of more than 180% in department store home and give sales.
Three continued momentum in the women's business, our largest single category.
For strong customer reception to our pre conversion promotional activities in stores that will the come off price in 2020.
For the quarter, both average transaction value in comparable store transactions increased.
As a result of increased penetration of home and gifts units per transaction increased partially offset by lower average unit retail.
Each month of the third quarter delivered positive comparable sales and improved sequentially versus the prior month.
Credit income for the third quarter was $60 million, an increase of 18% compared and third quarter last year.
Total credit sales increased during the quarter.
With Gordmans off price credit penetration, increasing 410 basis points compared to the third quarter 2018.
Cost of sales are related buying occupancy and distribution expenses were 79.0% for the third quarter and improvement of 130 basis points compared to last year.
This improvement is driven by lower markdowns and sales leverage on fixed costs, partially offset by increased freight.
As DNA was 27.8% in the third quarter and improvement of 380 basis points compared to last year.
This improvement was due to sales leverage on fixed costs as well as reductions in advertising in store payroll associated with the transition to off price.
Adjusted EBITDA in the third quarter was $15 million, an improvement of $28 million compared to the third quarter last year.
Net loss for the quarter was $16 million and improvement of $15 million compared to third quarter 2018.
Adjusted net loss for the quarter was $4 million and improvement of $26 million compared to third quarter last year.
Adjustments to net income are mainly associated with our conversion to off price, including impairment of long lived assets severance preopening expenses in store closing services.
Turning to the balance sheet inventory was $581 million at the end of third quarter, a decrease of 3.5% compared to last year.
Inventory levels reflect both our expectation of continued double digit comparable sales increase in the fourth quarter and the impact of the lower inventory investments in the off price model.
And third quarter accounts payable was $176 million, which represents approximately 31% of end of quarter merchandise inventories.
Our headquarters payables balance is indicative of the continued level of trade support the company receipts.
Debt at the ended the quarter was $365 million and cash and cash equivalent to the end of quarter were $26 million.
Third quarter excess availability under the credit facility was $101 million, reflecting a $34 million increase versus second quarter, 2019, and a $5 million increase versus the third quarter 2018.
This was the company's highest excess availability since 2017.
Capital spend during the third quarter was $7 million, including 17 stores converted the off price in September .
Additionally, 11 department stores are permanently closed during third quarter.
On a year to date basis, the company's converted 89 stores to off price opened one new off price store and permanently closed 22 department stores.
As of November 20, Onest 2019, the company is operating 772 stores, including 158 Gordmans off price locations.
As a result of strong third quarter results and with the expectation of continued momentum in the fourth quarter selected fiscal 2019 guidance is as follows.
Net sales of $1.640 billion to $1.670 billion, an increase of $85 million compared to prior guidance.
Comparable sales of plus 7% to plus 9% compared to prior guidance, a plus 1% to plus 3%.
Adjusted EBITDA of $35 million to $40 million, an increase of $50 million compared to prior guidance and an improvement at the midpoint of $35 million compared 2018.
Adjusted net loss of $40 million to $35 million, including attach rate of approximately zero percent.
An improvement at the midpoint of $31 million compared to last year.
89 off price conversions.
One new store.
60 store closures.
And $30 million in capital with a focus on off price conversions.
At the end of fiscal 2019 store count is expected to be approximately 740 stores, including 158 Gordmans stores.
As a result of improved sales and profitability guidance and with a significant year to date cash flow improvement versus last year full year 2019 cash flow is expected to be positive in excess of $35 million with a commensurate reduction in company debt.
Finally, as previously announced the entire company will be converting to off price in 2020.
Ended 2020 store count is expected to be 700 stores, including 40 store closures during the course of the year.
Total capital for fiscal 2020, including all off price conversions will be $30 million inline with 2019 capital spend.
As a result of faster turns in the off price model 2020 inventory is expected to be reduced by more than $30 million.
That concludes my remarks, I will now return the call to Michael.
Thank you Jason.
And thank you again to our team here at stage, who make it happen every single day.
Also a special thank you to our shareholders vendors and guests for your ongoing continued support.
We wish all of you a very happy.
Healthy and safe holiday season.
We look forward to speaking with you again after the holidays.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Ladies and gentlemen, thank you for standing by welcome to the third quarter 2019 stage towards earnings Conference call. At this time all participants are in listen only mode. If you acquire any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today, that's totally shut Connie.
Your manager.
Strategy and Investor Relations.
Thank you operator, good morning, with us on the call, our Michael Glazer, President and Chief Executive Officer, and Jason Curtis Chief Financial Officer supplemental materials regarding our business are available in a presentation posted in the Investor Relations section of our web site at corporate Dot stage dotcom.
Management will not be speaking to direct it's like these flights are meant to facilitate your view of the company's result, and should be used at they post called reference.
Our comments. This morning include adjusted EBITDA result, adjusted net loss and adjusted diluted loss per share, which forgot derived in accordance with GAAP reconciliations of GAAP results. non-GAAP results are included in this morning earnings release, which is available in the Investor Relations section of our website.
Our remarks. This morning will also include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and such statements are intended to quell qualify for the protection of the Safe Harbor provided by the act, which reflects the company's current view of future events and financial performance.
Words, such as expect forecast plan anticipate estimate may will should and similar expressions identify forward looking statements.
These forward looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those projected in the forward looking statements for more information. Please refer to the risk factors discussed in our most recent Form 10-K , and our other filings with the FCC.
Forward looking statements speak only as of today's date and we undertake no obligation to update the statements because the new information future developments or otherwise I'll now turn the call over to Michael.
Thanks Felicia.
Good morning, everyone and thank you for joining us for our third quarter earnings call.
I'll begin by reviewing our third quarter results and then Jason will provide additional financial details.
I've been looking forward to this day, because I want to share with you. The incredible excitement that is going on here at stage stores.
We are absolutely thrilled with our third quarter results.
On nearly every key financial metrics, the third quarter of 20 million team was record setting.
I could go on and on about our third quarter achievements.
Sales were the highest for any quarter ever in our history.
Comp sales were positive every month and sequentially grew each month.
Merchandise margins improved by over 100 basis points.
We leveraged expenses by 380 basis points.
And the inventory levels are actually down more than 3% versus a year ago.
Most importantly, our adjusted EBITDA of $15 million is our first positive third quarter EBITDA since 2015.
And represents an improvement of nearly $30 million versus last year.
As a result or ended the third quarter excess availability under our credit facility was over $100 million.
And the increase of approximately 35 million compared to the second quarter.
And our highest quarter end level in almost two years.
Our comp store increase of 17% demonstrates that our strategic initiatives are clearly working.
While there were multiple drivers of our outstanding sales performance. The most important for future is the sales lift we are delivering in the stores converted from department stores to off price.
During 2019, we converted 37 stores in the first quarter.
35 in the second quarter and 17 in the third quarter.
In the third quarter. These 89 Gordmans stores had a sales increase of almost 40%.
Compared to the Department store sales in the third quarter of 2018.
The 40% increase was attributable to both former department store guess seeking great values.
As well as new and younger guests, who just love the off price.
Additionally, our home and gifts businesses continued their strong momentum.
You may recall, we invested $5 million in capital to rollout high capacity home Fixturing and about 700 department stores in the first quarter.
This investment combined with our expanded an upgraded home assortments led to 880% increase in comparable store home sales in these locations in the third quarter.
The importance of the gift business, obviously grows in the fourth quarter.
And we are looking forward to this strong momentum building to an even larger impact on total company sales during the holidays.
While home and gifts our fastest growing department I want to point out the results in our women's business, which remains our largest single category.
The women's business has been challenging for many years, but in the second quarter, we began to gain traction.
In the third quarter, thanks to our refined assortment and the appeal of an off price buying experience women's also delivered strong positive comparable sales.
Within women's apparel sportswear was our most improved business as we better connected with our core guess.
Our strongest categories overall in women's apparel were active.
Seasonal contemporary intimates and sleepwear.
While we are excited for our future in off price, we're proud of our department store heritage and how much them names stage Peebles Pelley Royal Goody's and bills me in the small towns we've been honored to serve for so many years.
We have developed many long term relationships with our guests.
And while they are excited about our conversion to off price.
Some will miss their department store.
As a result, our sales and events have a special meaning this year.
Because there is no next year as a department store.
For example, our last Halloween sale ever was very well received.
And we are even more excited to see the results of our last Black Friday sale number and last Christmas sale ever promotions.
We are highly optimistic about the fourth quarter and beyond as we begin to convert the full company to off price in 2020.
Approximately 550 of these store conversions to off price will occur next year.
Beginning with the first group of 45 stores opening in February .
With the experience of converting nearly 100 stores in 2018 in 2019.
We feel confident in our ability to execute and aggressive conversion timeline that will culminate by the beginning of the third quarter next year.
Equally important only about $40000 of capital is required to convert each store.
This results in a total fiscal year 2020 capital spend of $30 million.
Which is about the same as we have spent on capital expenditures the last couple of years.
In addition, the lower inventory levels in off price will allow us to reduce our inventory investment by more than $30 million in 2020.
Another very exciting move for US this year was the launch of Amazon counter in our off price and department stores.
This service provides Amazon shoppers with convenient pickup locations at our friendly stores.
During the third quarter many of our loyal guests took advantage of the Amazon counter service.
But we also welcomed many new faces into our stores.
Amazon counter is now available in approximately 700 of our stores just in time for the holiday season.
In summary.
Our pivot to off price has made great progress.
There are many who doubted our ability to truly transition from our department store culture.
Nevertheless, we are well on our way and we will not be denied.
We want to win and our stage team along with our suppliers landlords and other key partners are energized to make it happen.
I said last quarter.
We are rapidly becoming the best story in retail.
And our third quarter results are proof of that statements.
With fantastic third quarter numbers and with the momentum we are already seen in the fourth quarter, we're raising our guidance for the full year.
We now expect full year comparable sales for the total company.
To be between a positive 7% and 9%.
Adjusted EBITDA is projected to be between 35 and 40 million.
With the inventory reductions associated with conversions to off price.
We also forecasts positive cash flow for the full year of more than $35 million.
Before I turn it over to Jason.
I want to say a very special thank you.
To our thousands of dedicated associates.
Who never waiver.
Believe in our strategy.
And on a daily basis exceed all expectations with their phenomenal performance.
With that.
I will now pass it over to Jason for more details on the financial results.
Jason.
Thanks, Michael.
We're very proud of our accomplishments during the third quarter. So I'm excited to dive right into the financial details.
Net sales for the third quarter were a record high $399 million, an increase of $52 million compared to third quarter of last year.
Comparable sales increased 17.4% in the third quarter.
The key drivers of this comparable sales increase where the following.
One a sales increase of nearly 40% in the 89 off price conversions completed during 2019.
To the first quarter ROA of the Gordmans home assortment to department stores, which contributed to a third quarter increase of more than 180% in department store home and give sales.
Three continued momentum in the women's business, our largest single category.
For strong customer reception to our pre conversion promotional activities in stores that will the come off price in 2020.
For the quarter, both average transaction value in comparable store transactions increased.
As a result of increased penetration of home and gifts units per transaction increased partially offset by lower average unit retail.
Each month of the third quarter delivered positive comparable sales and improve sequentially versus the prior month.
Credit income for the third quarter was $60 million, an increase of 18% compared to the third quarter last year.
Total credit sales increased during the quarter.
With Gordmans off price credit penetration, increasing 410 basis points compared to the third quarter 2018.
Cost of sales are related buying occupancy and distribution expenses were 79.0% for the third quarter and improvement of 130 basis points compared to last year.
This improvement is driven by lower markdowns and sales leverage on fixed costs, partially offset by increased freight.
As DNA was 27.8% in the third quarter and improvement of 380 basis points compared to last year.
This improvement was due to sales leverage on fixed costs as well as reductions in advertising in store payroll associated with the transition to off price.
Adjusted EBITDA in the third quarter was $15 million, an improvement of $28 million compared to the third quarter last year.
Net loss for the quarter was $16 million, an improvement of $15 million compared to third quarter 2018.
Adjusted net loss for the quarter was $4 million and improvement of $26 million compared to third quarter last year.
Adjustments to net income are mainly associated with our conversion to off price, including impairment of long lived assets severance preopening expenses and store closing services.
Turning to the balance sheet inventory was $581 million at the end of third quarter, a decrease of 3.5% compared to last year.
Inventory levels reflect both our expectation of continued double digit comparable sales increase in the fourth quarter and the impact of the lower inventory investments in the off price model.
And third quarter accounts payable was $176 million, which represents approximately 31% of end of quarter merchandise inventories.
Our headquarters payable balance is indicative of the continued level of trade support the company receipts.
Debt at the ended the quarter was $365 million and cash and cash equivalent to the end of quarter were $26 million.
Third quarter excess availability under the credit facility was $101 million, reflecting a $34 million increase versus second quarter, 2019, and a $5 million increase versus the third quarter of 2018.
This was the company's highest excess availability since 2017.
Capital spend during the third quarter was $7 million, including 17 stores converted the off price in September .
Additionally, 11 department stores are permanently closed during third quarter.
On a year to date basis, the company's converted 89 stores the off price opened one new off price store and permanently closed 22 department stores.
As of November 20, Onest 2019, the company is operating 772 stores, including 158 Gordmans off price locations.
As a result of strong third quarter results and with the expectation of continued momentum in the fourth quarter selected fiscal 2019 guidance is as follows.
Net sales of $1.640 billion to $1.670 billion, an increase of $85 million compared to prior guidance.
Comparable sales of plus 7% to plus 9% compared to prior guidance, a plus 1% to plus 3%.
Adjusted EBITDA of $35 million to $40 million, an increase of $50 million compared to prior guidance and an improvement at the midpoint of $35 million compared 2018.
Adjusted net loss of $40 million to $35 million, including a tax rate of approximately zero percent and improvement at the midpoint of $31 million compared to last year.
89 off price conversions.
One new store.
60 store closures.
And $30 million in capital with a focus on off price conversions.
At the end of fiscal 2019 store count is expected to be approximately 740 stores, including 158 Gordmans stores.
As a result of improved sales and profitability guidance and with a significant year to date cash flow improvement versus last year full year 2019 cash flow is expected to be positive in excess of $35 million with a commensurate reduction in company debt.
Finally, as previously announced the entire company will be converting to off price in 2020.
Ended 2020 store count is expected to be 700 stores, including 40 store closures during the course of the year.
Total capital for fiscal 2020, including all our price conversions will be $30 million inline with 2019 capital spend.
As a result, a faster turns in the off price model 2020 inventory is expected to be reduced by more than $30 million.
That concludes my remarks, I'll now return the call to Michael.
Thank you Jason.
And thank you again to our team here at stage, who make it happen every single day.
Also a special thank you to our shareholders vendors and guess for your ongoing continued support.
We wish all of you a very happy.
Healthy and safe holiday season.
We look forward to speaking with you again after the holidays.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.