CWTR Management Is Up a Creek and Apparently without a Paddle!
Yesterday, Coldwater Creek (CWTR – $6.38) delivered disappointing earnings results for Q4 2009. Sure, the company’s EBIT margin improved approximately +744 Bps versus the prior year. But, let’s be clear. CWTR’s business model began to implode in FY 2007… well before most specialty apparel retailers. The bar was and is LOW!
Interestingly, the stock price is up +18% this morning as management expertly played the “buy time for a turnaround hype” game on the quarterly conference call. Of course, CWTR has been through this process a few times over the past 3-4 years, so the playbook was close at hand.
Given the miserable financial performance over the past 3 years, it was almost comical to listen to management describe the potential for a turnaround on the quarterly conference call. The company’s Chairman and CEO is Dennis Pence and the company’s Chief Merchandising Officer is Georgia Shonk-Simmons. While Mr. Pence re-assumed the job of CEO in September 2009, the fact is that he and Ms. Shonk-Simmons were both in the mix when the company made its ill fated decision to MATERIALLY increase inventory levels in 2H 2009.
So, coming off a year in which the company made possibly the dumbest strategic decision in FY 2009 in the entire retail sector, what does the company do this year? Buckle down and operate in an especially disciplined manner? Not a chance. For an encore, management decides to increase its store growth versus previous expectations. Now, the company is planning on opening 20 new stores in FY 2010. You’ve gotta be kidding us.
The fact is that CWTR’s Retail Channel loses money if you allocate a reasonable amount of corporate overhead to the division. See the link for channel profitability scorecard.
CWTR’s financial bar is so low that Mr. Magoo could deliver improved financial performance in FY 2010. But, the decision to open 20 stores in FY 2010 ranks right up their with the company’s foolish decision to dramatically increase the inventory investment for Fall 2009 and Spring 2010.
Chico’s (CHS – $14.23) has gotten a lot of attention recently with its successful turnaround effort in the Missy space. CWTR is no CHS. The average store size at CHS is approximately half the average store size at CWTR. Therein lies the problem. Someone years ago thought CWTR should build stores that were 2X the size of the typical CHS store. Who made that strategic mistake? It looks like the same guy (Mr. Pence) who signed-off on last year’s bloated inventory buy and made this year’s decision to again start building stores.
The bloated store count and store size will provide headwinds for CWTR as it attempts to right the ship. Sure, they’ll make modest improvement in profitability as the company continues to lap dismal financial performance. But, we doubt the company will come anywhere near the 8% EBIT margin (nothing to write home about anyway) it enjoyed during its prime.
This entry was posted
on Thursday, March 4th, 2010 at 10:08 am and is filed under Commentary.
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You can leave a response, or trackback from your own site.
CWTR Management Is Up a Creek and Apparently without a Paddle!
Yesterday, Coldwater Creek (CWTR – $6.38) delivered disappointing earnings results for Q4 2009. Sure, the company’s EBIT margin improved approximately +744 Bps versus the prior year. But, let’s be clear. CWTR’s business model began to implode in FY 2007… well before most specialty apparel retailers. The bar was and is LOW!
Interestingly, the stock price is up +18% this morning as management expertly played the “buy time for a turnaround hype” game on the quarterly conference call. Of course, CWTR has been through this process a few times over the past 3-4 years, so the playbook was close at hand.
Given the miserable financial performance over the past 3 years, it was almost comical to listen to management describe the potential for a turnaround on the quarterly conference call. The company’s Chairman and CEO is Dennis Pence and the company’s Chief Merchandising Officer is Georgia Shonk-Simmons. While Mr. Pence re-assumed the job of CEO in September 2009, the fact is that he and Ms. Shonk-Simmons were both in the mix when the company made its ill fated decision to MATERIALLY increase inventory levels in 2H 2009.
So, coming off a year in which the company made possibly the dumbest strategic decision in FY 2009 in the entire retail sector, what does the company do this year? Buckle down and operate in an especially disciplined manner? Not a chance. For an encore, management decides to increase its store growth versus previous expectations. Now, the company is planning on opening 20 new stores in FY 2010. You’ve gotta be kidding us.
The fact is that CWTR’s Retail Channel loses money if you allocate a reasonable amount of corporate overhead to the division. See the link for channel profitability scorecard.
CWTR’s financial bar is so low that Mr. Magoo could deliver improved financial performance in FY 2010. But, the decision to open 20 stores in FY 2010 ranks right up their with the company’s foolish decision to dramatically increase the inventory investment for Fall 2009 and Spring 2010.
Chico’s (CHS – $14.23) has gotten a lot of attention recently with its successful turnaround effort in the Missy space. CWTR is no CHS. The average store size at CHS is approximately half the average store size at CWTR. Therein lies the problem. Someone years ago thought CWTR should build stores that were 2X the size of the typical CHS store. Who made that strategic mistake? It looks like the same guy (Mr. Pence) who signed-off on last year’s bloated inventory buy and made this year’s decision to again start building stores.
The bloated store count and store size will provide headwinds for CWTR as it attempts to right the ship. Sure, they’ll make modest improvement in profitability as the company continues to lap dismal financial performance. But, we doubt the company will come anywhere near the 8% EBIT margin (nothing to write home about anyway) it enjoyed during its prime.
This entry was posted on Thursday, March 4th, 2010 at 10:08 am and is filed under Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.