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Edited Transcript of CBK earnings conference call or presentation 15-Mar-17 12:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Christopher & Banks Corp Earnings Call

PLYMOUTH Mar 15, 2017 (Thomson StreetEvents) -- Edited Transcript of Christopher & Banks Corp earnings conference call or presentation Wednesday, March 15, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jean Fontana

ICR, Inc. - IR

* Joel Waller

Christopher & Banks Corporation - Interim President & CEO

* Pete Michielutti

Christopher & Banks Corporation - EVP, COO & CFO

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Conference Call Participants

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* Jeremy Hamblin

Dougherty & Company LLC - Analyst

* John Deysher

Pinnacle Value Fund - Analyst

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Presentation

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Operator [1]

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Greetings and welcome to the Christopher & Banks Corporation fiscal fourth-quarter and full-year 2016 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Miss Jean Fontana of ICR. Thank you, you may begin.

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Jean Fontana, ICR, Inc. - IR [2]

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Thank you. Good morning, everyone. Thank you for joining us today for the Christopher & Banks fourth quarter and full year of fiscal 2016 earnings conference call.

Hosting today's call are Joel Waller, interim President and Chief Executive Officer, and Pete Michielutti, Executive Vice President, Chief Operating and Chief Financial Officer. This morning's conference call is in conjunction with the earnings press release the Company issued this morning.

Today's earnings release and conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements address the financial condition, results of operations, business initiatives, growth plans and prospects of the Company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

Please refer to the Company's current earnings release and SEC filings for more information on these risks and uncertainties. The Company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call.

I will now turn the call over to Joel Waller.

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Joel Waller, Christopher & Banks Corporation - Interim President & CEO [3]

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Thank you, Jean. Good morning, everyone, and thank you for joining us today.

Based on my observations during my first two months back I believe that we have an opportunity to better leverage our highly loyal customer base to drive an improved and more consistent financial performance beginning in the back half of the year and over the long term. Since rejoining Christopher & Banks in mid-January I have focused on re-instituting fundamental retail disciplines and simplifying the process. I am encouraged by the responsiveness and the hard work I have seen throughout the organization.

There is a greater sense of urgency and we are making decisions more quickly. Additionally, I have clearly-defined responsibilities and am holding teams accountable for driving their businesses.

Before I cover our initiatives in more detail, first let me say while our fourth-quarter financial results were in line with our pre-announcement, we were disappointed in the overall results. Pete will provide you with a more detailed review of our financial results for the quarter and full year shortly.

Moving on to go-forward priorities, we are swiftly implementing a number of strategic initiatives around merchandising, marketing, e-commerce and store operations designed to stabilize the business and drive more consistent financial performance going forward. Beginning with merchandising, first, recognizing the importance of having a differentiated assortment, we are working quickly to increase the mix of fashion versus core product. We believe the right balance is two-thirds fashion and one-third core, which is the inverse of our mix in fiscal 2016.

The teams are also evolving the fashion content by introducing new relevant styles rather than just repeating last year's bestsellers. In support of this, we are enhancing our sourcing capabilities through partnerships with existing and new vendors. We are also reinstating a disciplined testing process around styles, pricing and promotions.

Lastly, we have returned to a weekly style review cadence to more quickly identify trends in our business. We are chasing into bestsellers and marking slow sellers down on a timely basis.

We believe the rebalanced assortment, increased testing and improved markdown strategy should enable us to increase the inventory productivity and give our customers a reason to spend more with us. While we are committed through May to an assortment purchased under the prior approach, deliveries beginning in April will include some styles reflecting the new strategy. Our new product focus will be fully implemented with our fall assortment.

Second, we need to have a more consistent flow of new merchandise. We have been turning our inventory too slowly with receipts too heavily at set dates. We will still maintain six floor sets but will increase the plan flow of styles in-between sets to consistently deliver newness.

Third, we plan to provide an appropriate mix of Missy, Women's and Petite sizes in our MPW stores. As we implemented our MPW strategy over the last several years our Women's offering skewed too high while Missy product was underrepresented. Going forward we will better leverage our sales data to adjust the product mix to appropriately balance sizes by store and will increase the targeted marketing to lapsed customers.

In support of improving our inventory productivity, we recently implemented two new tools that will benefit our assortment building and allocation process. These tools utilized advanced store grading and in-depth views of our previous results by store and size, enabling us to better maintain a balanced assortment both in depth and breadth across categories and stores. Overall these tools should be instrumental in enabling us to more effectively execute our merchandising initiative and have a highly positive sales impact.

In outlet stores, we will take a similar approach as we focus on creating the right balance of core and fashion items. We will also be improving the price differentiation between our outlets and full price locations. We will better manage our clearance level and outlet locations, targeting approximately 30% clearance at any given time and slightly higher in the summer months and key holiday periods.

To ensure we execute on these initiatives, we have appointed a dedicated merchant supported by a cross-functional team who are responsible for ensuring that the planning, buying and allocation needs are met for our outlets. As part of our efforts to test and learn across merchandise marketing and store operations, we have designated a small group of stores that have seen significant sales decline over the last few years. Beginning in April, these stores will serve as a testing ground for a multitude of initiatives that can serve to inform opportunities for the rest of the store base.

We believe we can quickly reinvigorate sales in these locations with a focus on product mix and flow. Additionally, we will use these stores to layer in new marketing including testing, promotions and events as well as increasing storefront visual interest. We will also be adjusting scheduling and labor hours and will measure the impact on sales.

We remain excited about the opportunities in our e-commerce business. While we have seen additional growth following the launch of our new platform, we are confident that we can drive further expansion by continuing to leverage our new capabilities. For example, our improvements in navigation, checkout and robust visual merchandising elements will enable us to further enhance the user experience.

We are also now able to personalize web content for our customers with a focus on promotional offers and product recommendations. In addition, we have the capability to do more site testing which will allow us to continue improving our decision-making to drive conversion and spend.

As we look ahead to 2017 we believe we can drive accelerated growth through additional functionalities as well as fine-tune the merchandise assortment. To that end, we will use the style selling information that we gather from our e-commerce site to help determine product opportunities in the chain.

We continue to optimize the customer experience through our omnichannel Customer First Initiative. We completed the implementation of our POS system near the end of 2016. Our ultimate goal is to provide our customers with a seamless and consistent shopping experience wherever she chooses to shop. Later in the year we expect to offer find in store and ship to store options.

With regard to marketing we will continue to increase our investments in direct and paid media, which have measurable results. In addition, we will offer more frequent and unique in-store events. We also have opportunities to further leverage and grow our Friendship Rewards and private label credit card programs as these customers tend to be our most loyal and spend more on average than non-cardholders. We remain highly focused on reactivating our lapsed customers.

In terms of acquiring new customers, we will leverage grassroots marketing programs and in-store events by extending our reach further into each market. We believe there is no better spokesperson for Christopher & Banks than our current customer. As a result, we will be implementing a refer a friend program in 2017 to instant customers to introduce new friends to our brand.

Finally, we are enhancing the look and feel of our stores to ensure that customers have an exceptional experience every time they shop. As part of this, we recently changed our store layout to enhance the visual presentation of merchandising trends, color stories and outfitting. We are exploring options for new compelling window presentations. We are also adding additional associate training to ensure that there is consistency in visual presentation and overall store experience across all stores.

In summary, I am confident we have identified the key issues facing the Company and are well down the path to addressing them. The teams are highly focused on executing merchandising marketing and store operation strategies which we believe will yield improved results in the back half of the year. Finally, to say that we are pleased to have the support of a retail Board of Directors and looking forward to leveraging their diverse expertise and wealth of knowledge.

With that I will turn it over to Pete for a review of our financial results. Pete?

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Pete Michielutti, Christopher & Banks Corporation - EVP, COO & CFO [4]

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Thank you, Joel. And good morning everyone. My financial review today will cover the fourth quarter ended January 28, 2017 compared to the fourth quarter ended January 30, 2016 as well as some general comments regarding our fiscal 2017 outlook for the first quarter and full year.

Net sales in the fourth quarter of fiscal 2016 were $85 million, a decrease of 10.1% compared to $94.6 million in last year's fourth quarter. Our sales decline during the fourth quarter was mainly attributable to a 6.7% decrease in average store counts and a 3.5% decrease in units per transaction, partly offset by higher e-commerce transactions. Comparable sales in the quarter decreased 7.8%, driven by a high single-digit decrease in our full price stores, a double-digit decline in our outlet stores, and this was partially offset by a 6.8% sales increase in e-commerce.

We saw volatility in our sales trends for from month to month due to external factors and continued traffic declines in addition to a highly promotional environment as well as an uneven flow of fashion merchandise. Gross margin decreased to 24.8% of net sales, a decline of 610 basis points compared to last year's fourth quarter. The decrease is primarily due to a significant decline in the merchandise margin rate, the effective sales deleverage on occupancy expense and higher e-commerce freights associated with the increase in e-commerce sales.

Merchandise margin decreased by 490 basis points in the fourth quarter of fiscal 2016 as a result of increased promotions and markdowns to manage inventory levels coupled with a decision to exit and rightsize certain merchandise categories. Selling, general and administrative expenses were $35.2 million compared to $33.2 million in last year's fourth quarter. The increase in SG&A dollars was driven by a lost contingency, corporate severance benefits, increased e-commerce operating expenses and ongoing higher medical expenses, partially offset by lower store operating cost and lower professional and advisory fees.

The Company established a loss contingency of $1.5 million in connection with the preliminary settlement regarding pre-litigation employment claims. The corporate severance benefits were the result of the departure of the former CEO and the elimination of a number of positions in both field and headquarters staffing. The annual savings as relative to these job eliminations is expected to be approximately $1.4 million.

SG&A as a percent of net sales increased approximately 630 basis points, 41.4% compared to 35.1% in last year's fourth quarter. Depreciation and amortization was $3.2 million compared to $3.3 million in last year's fourth quarter. Fourth-quarter net loss was $17.2 million or $0.46 per share.

Last year's fourth quarter net loss was $46.6 million or $1.26 per share which included a loss of $37.5 million or $1.02 per share to record a valuation allowance for our deferred tax assets. As more fully explained in the financial schedules accompanying our press release, fourth-quarter adjusted EBITDA, a non-GAAP measure, was a negative $14.1 million compared to a negative $3.7 million in the same period last year.

For the fiscal year ended January 28, 2017, total sales were $381.6 million, down 0.6% compared to last year. Gross margin for the full year decreased approximately 20 basis points to 33.6%.

There were a couple of items in this year and last year that were non-recurring in nature. In fiscal 2016 the Company incurred advisory fees in connection with shareholder activism of approximately $1.5 million and e-commerce plan for transition cost of $700,000 compared to non-recurring advisory fees of $1 million in the same period last year. Excluding these items, adjusted EBITDA for the full year of 2016 was a negative $3.4 million compared to adjusted EBITDA of a positive $2 million last year.

Now turning to the balance sheet, we ended the fourth quarter with approximately $35 million of cash, cash equivalents and investments. The increase in cash from our guidance represents the timing of rent checks with prepaid assets having a corresponding decrease. This compares to $34.5 million at the end of the fourth quarter a year ago.

Total inventory was $36.8 million as of January 28, 2017 compared to $42.5 million at January 30, 2016, a decrease of 13.3%. The decrease in inventory was due to an in-transit inventory decrease and the effects of markdowns to address higher inventory levels due to weaker sales in the fourth quarter.

Capital expenditures for the fourth quarter of 2016 were $1.6 million compared to $3.4 million in last year's fourth quarter. The reduction year over year reflects fewer new stores and lower technology investments given the substantial progress we have made in our Customer First Initiative. We had no outstanding borrowings in our revolving credit facility for the fourth quarter and have not drawn on the facility other than to open up letters of credit in the normal course of business.

During the quarter we closed eight MPW stores. We also closed 12 CB and 12 CJ stores and converted them into 12 MPW stores.

For the year, retail square feet decreased by 4.9%. We operated on average 506 stores consisting of 315 MPW stores, 81 outlet stores, 57 Christopher & Banks stores and 53 CJ Banks stores.

Now moving on to our outlook for fiscal 2017. While we will be making some inroads into repositioning our inventory during the first half, we will not be able to make significant strides until the back half of the year. As a result, product-driven improvements in sales are not expected to materialize until the third quarter.

In light of this, as Joel stated, we will not be providing sales and earnings guidance at this time. That said, we do want to note that we expect the 53rd week in fiscal 2017 to add approximately $4.2 million in sales and to reduce operating income by approximately $1.6 million.

During fiscal 2017 we plan to close four MPW stores and one CB store. In addition, we plan on closing 16 CB and CJ stores and converting them into eight MPW stores. Five of the conversions will be in the first quarter, one in the second quarter and two in the fourth quarter.

We will also open one new MPW store. We expect average square footage for the year to be down approximately 4.4% as compared to fiscal 2016 and down 5.3% in the first quarter with one planned store opening.

We expect capital expenditure for the year between $6.5 million and $7.5 million representing investments in store relocations, merchandising technology applications and the development of omnichannel capabilities. We expect our taxes for the year to be nominal and to represent minimum fees and taxes.

That concludes our prepared remarks. We will now open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Jeremy Hamblin, Dougherty & Company.

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Jeremy Hamblin, Dougherty & Company LLC - Analyst [2]

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Good morning, Joel. Welcome back to the team. Excited to hear some of the changes.

I wanted to start first by coming back to some comments you made around cost savings, and you talked a little about changing the labor scheduling matrix. Can you just give me a sense, there was a callout, obviously, at the end of last year that the Company expected to yield $5 million to $7 million in savings.

I think you may have mentioned in there that you anticipate there could be a little more savings than that based on some additional changes that you found. But can you just clarify the commentary around that and the timing on when savings potentially will start to yield?

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Pete Michielutti, Christopher & Banks Corporation - EVP, COO & CFO [3]

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Sure, Jeremy. We are still on track to save the $5 million to $7 million this year. You will start seeing some of the benefits of that immediately in the first quarter.

Some of them are going to be in the gross margin line as we like to do things like occupancy expense on getting some favorable renewals. Some of it is going to be in SG&A. I mentioned the headcount piece.

As it relates to how that ties into putting some more hours in the stores, that's an initiative that you are very familiar with. We did something similar to that when Joel was here in 2012. And that's going to be a pay-as-you-go, and as long as we get incremental sales and conversion out of that we will add some payroll which might reduce the $5 million to $7 million that we talked about from an SG&A standpoint but will have a distinct top-line benefit.

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Jeremy Hamblin, Dougherty & Company LLC - Analyst [4]

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And is that program -- has that started at this point in time?

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Joel Waller, Christopher & Banks Corporation - Interim President & CEO [5]

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Jeremy, this is Joel. Thank you. That program is actually scheduled to start around April 1.

It's just taking us time to get some merchandise into these stores that will differentiate it and to get this off the ground. We have identified the stores, we have worked on addressing the visual presentation in the stores but we are really not ready to start the program. So April 1 is the target date.

We have taken 10 stores and as Pete said we are going to do it as we did about four years ago which was pay-as-you-go. We will learn things from these 10 stores and if we are happy with that segment, we will pull that segment for maybe 50 or 100 stores. If it continues to work we will spread it to the whole chain.

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Jeremy Hamblin, Dougherty & Company LLC - Analyst [6]

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Okay, great. Then I recognize you are not providing sales guidance at this time, but I think just based on what we've seen from other retailers it sounds like February was a very tough period and maybe even a little bit improved result in March.

But can you provide any color in terms of what you've seen? I think the Company has been fairly active in terms of quickly taking markdowns where necessary.

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Pete Michielutti, Christopher & Banks Corporation - EVP, COO & CFO [7]

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Jeremy, I think our sales have been impacted by things like inventory. Our inventory going into the year was lower and receipts were lower in the month of February and March. We actually got some, I think, favorable results in part of February as the weather warmed up, but I think the best answer is, since we are not giving guidance, is that it's been very choppy thus far in 2017.

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Jeremy Hamblin, Dougherty & Company LLC - Analyst [8]

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Okay. And then to that effect, you did finish the year with $35 million in cash, almost $0.95 a share in cash. That was a little bit above where you had, actually was quite a bit above where you had been guiding to.

Was that simply working capital management? Were you just much more aggressive in those last couple of weeks of January in clearing goods? Or can you just speak to where that cash balance, because I think by my calculation your cash balance was actually up on a year-over-year basis to end the year despite a really tough Q4?

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Pete Michielutti, Christopher & Banks Corporation - EVP, COO & CFO [9]

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Sure, Jeremy. I know sometimes I talk fast on the call, but as I noted in the call basically the increase, we guided to about $30 million in cash and based on where the month ended it was January 27 -- 28, we had not cut rent checks yet. And so rent checks are about $5 million.

When you look at the balance sheet you will see that prepaid assets are down about a comparable amount. So we did end up with the $30 million that we guided to and the rest was just the balance sheet flip-flop for a few days until we get into February.

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Jeremy Hamblin, Dougherty & Company LLC - Analyst [10]

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Okay. And then I wanted to come to store base, as well. And as we step back we are looking at a lower level of sales overall.

There are some changes clearly that are planned for this year that you had mentioned on the call. But in terms of thinking about the higher level of store base as we are moving forward and as we are seeing the retail landscape change, are there meaningful changes that need to happen to the number of stores that you have out there and potentially the mix of stores, meaning your outlets versus your traditional CB, CJ, MPW format locations?

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Pete Michielutti, Christopher & Banks Corporation - EVP, COO & CFO [11]

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I think as it relates to stores, Jeremy, it's a moving target. As traffic goes down we have, obviously, had a lot of closures here in the first few months, announced closures in the first few months of fiscal 2017. And looking at our store base as it exists today, we still have 40-ish CB and CJ stores and they will be converted into MPW stores at the appropriate point in time.

What we are trying to do on the stores is manage the occupancy side of the equation as we look to improve the merchandise assortment within those stores. And it's really hard to say that we would do any significant closings until the merchandise strategy gets in place and we see who are winners are and who the losers are at that point in time. We always have a significant number of lease expirations coming up, so we have the flexibility to close stores if we warrant it.

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Joel Waller, Christopher & Banks Corporation - Interim President & CEO [12]

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But, Jeremy, we do have no appetite for expanding at this time. Clearly we've made the decision, we have a couple of stores we are committed to and a couple of combinations to MPW that we are committed to. But we are not looking to grow.

We think we have a business that can have a financial growth year, quarter after quarter after quarter which is our goal and we think that we have the right base of stores to do that. Now as the merchandise, new merchandise strategy starts to take effect we may learn that WIL have to close a few more stores than we originally planned or not, but today we have no plans for changing the base.

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Jeremy Hamblin, Dougherty & Company LLC - Analyst [13]

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Okay. And I also wanted to come back to your commentary on the merchandise assortment.

You mentioned that you are going to flip-flop your fashion merchandise versus core. In terms of the feedback, is that more your gut sense or is that feedback really that you are getting from your customers of that it felt stale or not fresh enough --

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Joel Waller, Christopher & Banks Corporation - Interim President & CEO [14]

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Jeremy, that is 100% feedback from the customers, and the customer is telling us because as we deliver fashion last week and the week before and this week we see immediate jumps, we see sell-throughs in the 20 to 30 range the first week out in the stores. We are just starving our stores for fashion goods in an effort to, in my opinion, in an effort to reduce inventories for the year-end.

Last September, October they cut their inventories, which is a good thing except that the only place they could cut was in fashion merchandise. And if you look at the chains where they got hurt it clearly was fashion merchandise. Sales were down X and inventory was down 2X in that particular category.

So we think there's a big opportunity and we are already seeing it. The problem is how much of it I can get in quickly. And I will just give you where my head is at.

I think that maybe by, we think we can affect the inventories in April maybe only by 5%. May would be 10% to 15%. Then keep building until we get to the end of July which we will own 100%.

We have done two things to make sure that this works. Number one, we've increased our buy of fashion merchandise. Number two, we have redefined what fashion merchandise is to this customer.

And number three we have instituted a new markdown philosophy. And that is important because if I am driving more fashion I need, I am going to probably need more markdowns to make sure we get out of this merchandise quickly that's not selling up to our plan. So we have put all these strategies into place, and it's just going to take us time until we get the merchandise.

We have, one of our philosophies is that we think we should be acquiring about 30% of our merchandise from what I will call faster turning suppliers. And we have really made a lot of progress in the last eight weeks in acquiring some existing suppliers and converting some existing suppliers and acquiring some new suppliers that can deliver us goods on a timely basis that we can chase goods. Costs may be a little bit higher because it, some of this is domestic, but this is fashion merchandise that we want to turn quickly.

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Jeremy Hamblin, Dougherty & Company LLC - Analyst [15]

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Like

That's really encouraging to hear. One other thing I just wanted to ask about before I hop off or hop back in the queue, in terms of the promotional cadence, the markdowns that you are seeing and, obviously, I think from a strategy standpoint it sounds like you are going to be looking to move quicker when you sense that something is not working.

In terms of the overall level of promotion markdown, how are we faring on that on a year-over-year basis? My assumption is that they probably would be up meaningfully on a year-over-year basis. Can you comment on that?

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Pete Michielutti, Christopher & Banks Corporation - EVP, COO & CFO [16]

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They are up as it relates to certain categories. We mentioned that we are looking to get out of some categories, so we are promoting those much more heavily than we are on the base and the reg price goods or the new goods. So that's going to have a lingering effect.

Now we did, we do believe that when we got to the end of the fourth quarter we addressed the inventory and valued it to a point in time that we are going to get decent margins out of it, not reg price margins but decent margins out of it. And it's just going to take us a little bit of time to work through that. And we've done a good job thus far this quarter moving some of that merchandise.

And I think the other point as it relates to, and it's going to be a transition because as we get more aggressive from a moving things into a promo or a clearance category in the first quarter we will have higher POS rates for a period of time but we will get the benefit in the back end because we will move through that merchandise a lot faster. And we won't have a bigger markdown at the end as we move things from base to clearance and then liquidate it out of the clearance channel.

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Jeremy Hamblin, Dougherty & Company LLC - Analyst [17]

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Okay, great. Well, I am excited about the plans.

I will hop out of the queue and let others ask questions. Good luck guys.

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Operator [18]

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John Deysher, Pinnacle Value Fund.

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John Deysher, Pinnacle Value Fund - Analyst [19]

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Hi, good morning. A couple of questions.

One, I would guess a lot of your customers shop at J.C. Penney and Macy's and other stores that have announced significant closures. And I was just curious based on your current store footprint whether you see any impact from those store closures if indeed they have been announced at this point?

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Joel Waller, Christopher & Banks Corporation - Interim President & CEO [20]

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Thanks, John. I don't know that we've seen any impact today. I will tell you that we are actively looking at this.

I have just seen a list of J.C. Penney stores that are probable closures in malls where we have stores, the same with Macy's and we are talking about marketing programs that we can use. I remember four or five years ago when my friend Mr. Johnson took over Penney's and decided not to give coupons anymore. We actually had a program in place in malls to be passing out coupons in front of the J.C. Penney stores, and it actually worked to drive customers to us. So I don't know that we can do that anymore, but we are clearly looking into marketing plans but we haven't yet formulated them.

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John Deysher, Pinnacle Value Fund - Analyst [21]

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Okay. Based on what you know so far, how many stores, Macy's and J.C. Penney stores, are in close proximity to your stores?

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Joel Waller, Christopher & Banks Corporation - Interim President & CEO [22]

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I think it was about 90, wasn't it?

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Pete Michielutti, Christopher & Banks Corporation - EVP, COO & CFO [23]

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We don't have a full handle on all the J.C. Penney store closings. But I think max is 90. I think based on everything that was specifically announced it's probably more like 40 to 50 at this point.

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John Deysher, Pinnacle Value Fund - Analyst [24]

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Okay, and the 90 would be both chains or just J.C. Penney?

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Pete Michielutti, Christopher & Banks Corporation - EVP, COO & CFO [25]

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Both chains. Everybody that has announced.

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John Deysher, Pinnacle Value Fund - Analyst [26]

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Okay, so you've got contingency plans in place to exploit this as fully as possible?

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Pete Michielutti, Christopher & Banks Corporation - EVP, COO & CFO [27]

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Yes.

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John Deysher, Pinnacle Value Fund - Analyst [28]

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Okay, good. Second question, Joel, I think you mentioned a dedicated merchant had been hired for the outlet side of the business. Is that a new position and has that person actually been hired at this point?

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Joel Waller, Christopher & Banks Corporation - Interim President & CEO [29]

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The answer is it is a new position and it's a new way to operate outlets. Basically the buyers that bought for the CJ and the CB and the other stores, MPW stores bought also for the outlet. And it sort of became a grandchild, a second child syndrome, I think, or middle child syndrome rather, and it got ignored.

So we've promoted and we had a candidate in-house we were very pleased with. And we've made her the merchant in charge of outlets and put together a cross-functional team to work on it. And we've actually seen improvements in that very quickly, not from the merchandise change because it was too soon to see that, but just from some of the operational changes we've made and how we are driving clearance.

A good part of the business, if you heard me talk about 30% of the stores should be clearance. If you look at that clearance level, half of it's clearance level for outlets and either it was made special for outlets or the clearance that we've driven from the outlet stores.

The other half is clearance out of the rest of our stores, and it really helps us get that balance. And if we can manage that better we will do a better job and drive more profitability from that chain.

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John Deysher, Pinnacle Value Fund - Analyst [30]

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Okay, good. So that team is in place and on-site right now?

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Joel Waller, Christopher & Banks Corporation - Interim President & CEO [31]

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Yes.

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John Deysher, Pinnacle Value Fund - Analyst [32]

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Okay, good. Are there any other merchandising/marketing functions that need to be filled at this point?

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Joel Waller, Christopher & Banks Corporation - Interim President & CEO [33]

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Well, we have made a number of changes in merchandise that we are very happy with. We have gone from three or four what we call senior merchants down to two. We are extremely happy with both of them.

One of them has been in her position for the past 12 months and then basically has made all of her numbers. The other one used to be a senior merchant with us and she was moved over into a planning role. We have put her back into merchandise, we are extremely happy with that move.

We had a woman who was VP of sourcing who used to be one of the two general merchandise managers in this Company. We have actually put her over merchandise in-sourcing.

We have moved planning from a merchandise reporting to reporting to Pete which we like that move a lot. So we've made an awful lot of moves in this Company that so far we are extremely pleased with.

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John Deysher, Pinnacle Value Fund - Analyst [34]

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Okay, that's encouraging. But no additional slots need to be filled at this point it sounds like?

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Joel Waller, Christopher & Banks Corporation - Interim President & CEO [35]

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No.

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John Deysher, Pinnacle Value Fund - Analyst [36]

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Okay, good. And then finally a question for you, Pete. What was the severance-related costs and headcount reduction costs for the fourth quarter?

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Pete Michielutti, Christopher & Banks Corporation - EVP, COO & CFO [37]

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$1.4 million in total.

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John Deysher, Pinnacle Value Fund - Analyst [38]

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$1.4 million. Okay. And there's not going to be any further in Q1 or what are your expectations there?

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Pete Michielutti, Christopher & Banks Corporation - EVP, COO & CFO [39]

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There are no plans. We think we addressed what we thought were positions that could be eliminated.

We have no additional planned reductions in-force. We, obviously, look at when somebody leaves does that position really need to get replaced or not on an ongoing basis. But from an organizational standpoint we believe we are in pretty good shape.

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John Deysher, Pinnacle Value Fund - Analyst [40]

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Okay, great. Thank you very much and good luck to you.

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Operator [41]

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There are no further questions at this time. I would like to turn the call back over to Mr. Joel Waller for closing remarks.

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Joel Waller, Christopher & Banks Corporation - Interim President & CEO [42]

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We thank you for your interest and hope you continue on.

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Operator [43]

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Thank you. This concludes today's teleconference.

You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.