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Edited Transcript of NWY earnings conference call or presentation 19-Mar-20 8:30pm GMT

Q4 2019 RTW Retailwinds Inc Earnings Call

New York Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Rtw Retailwinds Inc earnings conference call or presentation Thursday, March 19, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gregory J. Scott

RTW Retailwinds, Inc. - CEO & Director

* Robert Ferrario

RTW Retailwinds, Inc. - SVP of strategy and growth

* Sheamus G. Toal

RTW Retailwinds, Inc. - Executive VP, COO & CFO

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Presentation

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Operator [1]

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Greetings, and welcome to the RTW Retailwinds, Inc. Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Robert Ferrario. Senior Vice President, Strategy and Growth. Please go ahead, sir.

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Robert Ferrario, RTW Retailwinds, Inc. - SVP of strategy and growth [2]

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Thank you. Good afternoon, everyone. Before we begin, I would like to remind you that some of the comments made on today's 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 statements. Such forward-looking statements are subject to risks and uncertainties as described in the company's documents filed with the SEC, including the company's FY '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.

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Gregory J. Scott, RTW Retailwinds, Inc. - CEO & Director [3]

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Good afternoon. I would like to start our call in thanking all of our associates and customers for their support and commitment during the current coronavirus. As a company, we will stay as transparent as possible during this ever-changing crisis. That said, after a month of discussions with the Board of Directors, this week, I have informed them of my decision to relocate full-time back to California. After nearly 10 years with RTW, I'll be stepping down from my position as the Chief Executive Officer of RTW and as a member of our Board of Directors, effective April 17. During my almost 10 years with RTW, I have led the company during the revolutionary time in retail. We have transformed from a brick-and-mortar retailer with only 3% of sales online to an omni retailer with over 33% of our sales done digitally. We have also launched and developed brands such as 7th Avenue Design Studio, the Eva Mendes Collection, the Gabrielle Union Collection and have just begun to see strong results with the plus brand Fashion to Figure. We were one of the first retailers to implement omni ability such as ship from store and pick-up in store. Over the past 10 years, we have significantly shortened our product development cycle by over 12 weeks and have implemented a fast track process in our business which culminated in our ability to deliver over 50,000 sweaters from order to DC in less than 40 days 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 have developed a strong management team, and as such, the Board has implemented the succession plan we had put in place with the internal appointment of Traci Inglis as RTW's new CEO. With her appointment to CEO, the company is well positioned on its next evolution to accelerate our digital transformation, leveraging Traci's digital, marketing and fashion background. During this especially challenging time as we're all faced with an unprecedented global crisis, it is important that I maintain a 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 as we navigate this new unchartered climate.

Lastly, I would like to acknowledge and thank our customer and associates for the past 10 years of loyalty and commitment to myself and to our company. It is our customer who's inspired me to work every day to be their fashion navigator and to make product that gives our customer the confidence to make anything happen. And to our associates, one of the things I'll miss most is traveling to the stores and meeting you and our customers. It is because of your inspiration and dedication to the brand that I was able to do what I do. I will miss you.

I would like to pass the call on to my partner over the past 10 years, Sheamus Toal, our COO and CFO, whose loyalty and dedication to me has been instrumental to my success. Sheamus?

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Sheamus G. Toal, RTW Retailwinds, Inc. - Executive VP, COO & CFO [4]

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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 landscapes. Every day, you brought your passion, energy and integrity to inspire the entire organization. You are truly adored and respected by all of us at RTW. I am personally appreciative of the outstanding partnership and support that you have provided me over the years, and I am 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 RTW associates, and from me personally, I want to say thank you.

Before I discuss our performance, I would like to briefly comment on the impact of the COVID-19 virus on our business and the steps we are taking to ensure the safety of our customers and our associates. Clearly, COVID-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 & Company and Fashion to Figure stores through March 28. We are encouraging a 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 brand strength to become a digitally dominant brand.

I would 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 brand, 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 in the e-commerce 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 expenses.

As noted in our release, during the quarter, we also recorded $19.8 million of noncash charges to impair right-of-use 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 nonoperating charges.

Finally, we ended the fiscal year with $61 million in cash on hand or $0.94 per share and no debt. Inventories were also well controlled with year-end 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 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 reduce 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. Our 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 in 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 in driving the brand's future growth, and they will be increasing in frequency throughout 2020.

Our celebrity brands, which are exclusive to New York & 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 & 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 Traci's 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 e-commerce site re-platform 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 are pleased to see improved levels of engagement across active and lapsed 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 widely been reported, the recent developments surrounding the COVID-19 virus have negatively impacted malls' traffic and resulted in the temporary closure of all of our stores. We realize this 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 COVID-19 virus and its potential implications on mall traffic patterns, the company is refraining from providing specific earnings guidance on metrics, but is evaluating and preparing for a variety of scenarios. We appreciate that the road ahead is 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 Traci on her appointment to Chief Executive Officer of RTW. I have enjoyed working with Traci 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 Traci in her new role.

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Operator [5]

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Ladies and gentlemen, this concludes today's conference. You may now disconnect your lines. Thank you for your participation.