Q4 2019 Earnings Call

Greetings and welcome to the R. T W retail wind Inc. fourth quarter 2019 earnings conference call.

The time, all participants are in a listen only mode anyone should require operator system. During the conference. Please press star zero on your telephone keypad as a reminder, in this conference is being recorded.

I'd like turn the conference over to your host Roberts Robert Ferrari.

Senior Vice President strategy and grow.

Please go ahead Sir.

Thank you good afternoon, everyone.

Before we begin I would like to remind you that some of the comments made on todays call either as part of our prepared remarks or in response to your questions may contain forward looking statements that are made pursuant to the safe Harbor provisions in the private Securities Litigation Reform Act of 1995.

Actual results may differ from those projected in such forward looking statement.

Such forward looking statements are subject to risks and uncertainties as described in the company's documents filed with the FCC, including the company's fiscal year 18 form 10-K.

The company undertakes no obligation to publicly update or revise any forward looking statements to reflect subsequent events or circumstances.

And now I would like to turn the call over to Greg Scott CEO.

Good afternoon, I would like to start our call and thinking all of our associates and customers for their support and commitment during the current grown a virus.

Company, we will stay as transparent as possible during this ever changing crisis.

That said after months of discussions with the board of directors. This week I informed about my decision to relocate fulltime Dr., California.

After nearly 10 years with our tw I'll be stepping down from my position its chief Executive Officer Archi W.

And the number of our board of directors effective April 17.

During my almost 10 years, but our teed up you I have led the company during a revolutionary time in retail.

We have transformed from a brick and mortar retailer with only 3% of sales online so an omni retailer with over 33% of our sale done differently.

We have also launched in developed brands such as 7000 design studio Yeah. The amended collection, the Gabrielle Union collection and a job he got to be strong results with the plots brand fashion to figure.

We are one of the first retailers to implement omni abilities that your ship from store and pick up in store.

Over the past 10 years, we have significantly shortened our product development cycle over 12 weeks and the implemented a bounce back process in our business, which culminated in our ability to deliver over 50000 sweaters from order to DC unless it 40 day this past holiday.

And finally, we have consistently held a strong balance sheet no debt and a strong ability to borrow.

At the same time, we've developed a strong management team and it's such a board is implemented succession plan you had put in place where the internal appointment of Tracy English Archie W.'s New CEO.

With her appointment to CEO the company is well positioned on its net evolution.

Celebrate our digital transformation, leveraging Tracy digital marketing and fashion background.

During this especially challenging time as we're all faced with an unprecedented global crisis.

Important that I'd maintain it close partnership with our leadership team and the board of directors to ensure a seamless and smooth transition.

In addition, I have agreed to remain an adviser to the board I'd be navigate this new unchartered climate.

Lastly, I would like to acknowledge and thank our customer and it says yet for the top 10 years of loyalty and commitment to myself into our company.

It is our customer was inspired me to work every day to be there fashion navigator and to make product that gives our customer that competent make anything happen.

And your sense, yet one of the things I'll Miss notes is traveling to the stores and meeting you and our customers.

It is because of your inspiration and dedication to the brands that I was able to do what I do I won't get you.

I would like to pass the call onto my partner over the top 10 years, Sheamus Toal, our COO and CFO, whose loyalty and dedication to me had been instrumental to my successor.

Jana.

Thank you before I begin I'd like to take a moment to express my heartfelt appreciation and gratitude to Greg.

Over the last 10 years, you've worked tirelessly to lead our organization through ever changing and challenging retail landscape.

Every day, you brought your passion energy and integrity to inspire the entire organization you.

You are truly adored and respected by all of US I'd argue W.

I am personally appreciative of the outstanding partnership and support that you have provided me over the years and I'm looking forward to watching what's next as you begin this new chapter in your life.

On behalf of the board of directors the entire Executive Committee all of your our Tw Associates and for me personally I want to say thank you.

[noise] before I discuss our performance I would like to briefly comment on the impact of the cobot 19 virus on our business and the steps, we're taking to ensure the safety of our customers and our associates.

Surely covert 19 has had a significant global impact.

Like many others. We are closely following the guidelines from the center for disease control and prevention as well as the local health authorities.

We are actively working with our teams to ensure that we have the most accurate and up to date information from the CDC and local organizations as we navigate this situation together.

In the immediate term we have taken several steps.

First we have announced the temporary closure of all New York and company and fashion to figure stores through March 28.

We are encouraging our remote work environment for our headquarters employees until further notice.

And we suspended all work related travel.

As we navigate through this unprecedented period, we have a laser focus on expense discipline and have continued our transformation plan that capitalizes on our flexible real estate portfolio and branch Frank to become a digitally dominant brand.

I'd now like to review, our fourth quarter performance.

As noted in our press release, we were disappointed with our fourth quarter results with sales decreasing to $224 million as compared to $247.3 million in the prior year.

Reflecting a 7.4% decrease in comparable store sales driven largely by store traffic declines offset by growth in our core digital bran celebrity brands and another double digit comp increase in our fashion to figure business, which was up more than 50%.

Gross profit as a percentage of net sales decreased 460 basis points to 24.2%, reflecting increased promotional activity decreased leverage of buying and occupancy costs and increased shipping costs, primarily related to the growth and ecommerce business.

Selling general and administrative expenses increased by $2.5 million, primarily reflecting an increase in marketing expense to drive sales and accelerated depreciation related to the re platform of our E. Commerce site, partially offset by a decrease in store selling it.

Expenses.

As noted in our release during the quarter. We also recorded $19.8 million of noncash charges to impair right abuse assets established under new lease accounting standards and various store level assets.

For the quarter GAAP operating results reflected a loss of $39.8 million with non-GAAP results, reflecting a loss of $19 million after excluding noncash impairment charges and other non operating charges.

Finally, we ended the fiscal year with $61 million in cash on hand, or 94 cents per share and no debt.

Inventories were also well controlled with yearend inventory decreasing by 8% versus the prior year.

In light of our performance and given the current environment, we are acting with urgency to take decisive actions to accelerate our strategic transformation agenda, and we have get engaged an outside consultancy to assist with recalibrating our business to support a profitable.

And more balanced direct to consumer operating model.

In addition to our previously announced customer first initiative, which I will discuss in further detail in a moment. We have also realigned our design and merchandising organization, allowing us to improve clarity of offer optimize organizational efficiencies and reduced development expense.

We also announced today that we plan to permanently close up to 150 locations over the next 18 months as part of our transformation to a digital first portfolio of brands.

Finally, we are reviewing our entire go to market process to identify additional opportunities to improve our operating model.

We believe these initiatives along with our previously announced customer first project and the re platform of our E Commerce site will position us well to adapt and navigate the changing retail landscape.

Let me now turn to an update of our strategic initiatives, where we continue to advance our agenda.

First fashion to figure are on trend plus size brand continues to exceed our expectations. We are pleased with the overall performance of our customer response to Assortments and marketing as we position this brand for growth and the plus size market.

In addition, we delivered several influencer collaborations during the quarter, which drove awareness increased sales and provided a source of new customer acquisition.

We see these types of collaborations as an important component and driving the brands future growth and they will be increasing in frequency throughout 2020.

Our celebrity brands, which are exclusive to New York and company delivered double digit positive comp increases and continue to be an important driver of new customer acquisition and assortment differentiation.

Looking ahead, we recognize that we have more opportunities to complement our celebrity brands with nano and micro influencers.

Regarding our core New York and company brand, we have realigned our design and merchandising organizations around product categories. Instead of sub brands with the goal of supporting focused cohesive and curated collections. In addition, we are pleased to share that our newly launched denim.

Franchise program has exceeded expectations and continues to gain momentum.

Regarding our customer first initiative.

Under traces leadership, we have completed an overall assessment of the customer decision journey and have identified opportunities to enhance elevate and focus our brand and marketing efforts in order to improve customer engagement.

Our ecommerce site Replatform initiative is also well underway.

As we are developing an enhanced digital experience that will allow us to elevate our brands through segmentation and personalization.

We continue to leverage customer and data analytics to identify select customers and categories and then offer affinities with targeted messaging.

Recently, we enhanced our customer communication to select customer groups and we're pleased to see improved levels of engagement across the active and laugh customer segments.

New customer acquisition continues to be a top priority. Although results were below our expectations as they were impacted by negative store traffic.

We also continue to invest in paid digital marketing aligned to those marketing channels that build customer awareness and engagement with our brands.

Looking ahead, we remain focused on implementing our transformation agenda as we look to improve operating results and EBITDA.

As has been widely been reported the recent developments surrounding the cobot 19 virus have negatively impacted mall traffic and resulted in the temporary closure of all of our stores.

We realize the situation is evolving and the safety of our customers and associates is our primary concern.

That said in light of the rapidly changing environment with the covert 19 virus and its potential implications on mall traffic patterns. The company as refraining from providing specific earnings guidance on metrics, but is evaluating and preparing for a variety of scenarios.

We appreciate that the road ahead as a challenging one we believe that once the benefits of our strategy are fully realized we will add significant value to our portfolio of brands and to our shareholders.

Lastly, as we say farewell to Greg I would like to take this opportunity to congratulate Tracy on her appointment to Chief Executive officer of our Tw.

I have enjoyed working with Tracy over the last year and I'm confident under her leadership. The company is well positioned to accelerate our digital transformation leveraging her outstanding digital marketing and fashion background.

I look forward to partnering with Tracy in her new role.

Ladies and gentlemen. This concludes today's conference you May now disconnect you lines. Thank you for your participation.

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