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Edited Transcript of NWY earnings conference call or presentation 21-Mar-19 8:30pm GMT

Q4 2018 RTW Retailwinds Inc Earnings Call

New York Mar 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Rtw Retailwinds Inc earnings conference call or presentation Thursday, March 21, 2019 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

* Sheamus G. Toal

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

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Conference Call Participants

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* David L. Kanen

Kanen Wealth Management Llc - President & Portfolio Manager

* Ross A. Collins

Cowen and Company, LLC, Research Division - Associate

* Allison C. Malkin

ICR, LLC - Senior MD

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Presentation

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Operator [1]

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Greetings, and welcome to RTW Retailwinds Fourth Quarter 2018 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, Allison Malkin, ICR. Please go ahead.

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Allison C. Malkin, ICR, LLC - Senior MD [2]

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Thank you. Good afternoon, everyone. Before we begin, I'd 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 provision 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 fiscal year 2017 Form 10-K. Consistent with the retail calendar that included a 53rd week last year, the fourth quarter's financial report and discussion today reflects the quarter ended February 2, 2019, compared to the quarter ended February 3, 2018, which included an additional selling week. Fourth quarter and year-to-date comparable sales are shifted to reflect the 13- and 52-week periods ended February 2, 2019, against the comparable 13- and 52-week periods ended February 3, 2018. As a supplement to today's presentation, we have made slides available, which you can view under the Investor Relations section at nyandcompany.com.

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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Thank you. Good afternoon, and thank you for joining us today to discuss our fourth quarter and full year 2018 results. Following my remarks, Sheamus Toal, our Executive Vice President, COO and CFO, will review our financial results and outlook in greater detail before opening the call up for questions.

At our Investor Day last September, we outlined our strategic agenda that we believe will best position us to drive profitable and sustainable growth for the future. In November, we formally changed our name to RTW Retailwinds, which establishes strong and distinct corporate identity reflecting our vision to maximize the power of our platform to create destination, celebrity and lifestyle brand assortments across categories and channels.

For 2018, I am pleased to share that we delivered a 0.4% comp, our second consecutive full year of positive comp store sales against last year's 1% comp. We achieved non-GAAP operating income to $10.2 million, an increase of $2.5 million over the prior year. Our gross profit margin increased 70 basis points to the highest level in over a decade. We increased our adjusted EBITDA to $33.2 million over last year's $30.4 million. Finally, we ended the year with a strong balance sheet, nearly $96 million in cash on hand or $1.45 per share and absolutely no debt. We attribute performance for the year to the ongoing implementation of our strategy to evolve to a lifestyle brand platform with a dominant digital channel delivering improved profitability.

We are challenging ourselves every day to become a leaner, faster, more efficient and streamlined organization that provides product and experiences to our customers can only find across our brands. In a retail environment that is highly dynamic and rapidly evolving, we are making investments in our business and adjustments to the way we operate to ensure we are positioned for future growth.

Our results for the fourth quarter were within our guidance ranges issued post holiday in January, though we were disappointed with these results. Our top line comp of negative 1.5% was comprised of a strong start to the holiday, which decelerated in January, impacted by product acceptance challenges in our Soho Jeans sub-brand, deceleration in our eCommerce business and new customer acquisition headwinds. We have made changes to our digital leadership and are recalibrating our marketing media mix to drive new customer acquisition and believe these initiatives will improve our performance.

Our gross profit deleveraged 70 basis points from the prior year, though still represented near peak levels. Our non-GAAP operating income of essentially breakeven was consistent with our guidance, though below the prior year, which included the benefit of the 53rd week. Finally, our balance sheet is a strategic advantage that positions us for future growth, $96 million in cash on hand and no debt.

Turning to our fourth quarter results. I'd like to discuss our progress against our 2018 Keys to Success, which provides the strategic framework in forming our initiatives. First, celebrity collaborations in sub-brands are critical differentiators that our customers can only find at New York & Company. Our successful Eva Mendes and Gabrielle Union collections continued to expand in the quarter, delivering double-digit comp increases on significant margin growth, reflecting improved customer acceptance for exclusive fashion available only at New York & Company.

In addition, I'd like to share a few fourth quarter highlights regarding our core New York & Company categories and sub-brands. In our largest sub-brand, 7th Avenue, we delivered positive comp supported by comp growth in jackets, pants and sweaters, specifically our ongoing innovations in fit and fabric continued to accelerate our growth in pants, which is an area of competitive strength for New York & Company and is a strong driver of customer loyalty. In addition, with Gabrielle Union as 7th Avenue's ambassador, we continue to see the translation of celebrity and the associated halo as elevating this sub-brand's performance.

Our performance within our casual sub-brands, Soho Jeans and Soho Street, was much softer than anticipated in the quarter. The weakness in Soho Jeans was driven across all categories, including sweaters, tops and denim. In sweaters and tops, our key item and fashion assortment did not resonate with the customer. While in denim, we see an opportunity to improve our fabric and fit innovation. In the near term, we are managing our inventory investments in these areas and are actively testing opportunity to chase into Q2 deliveries. Further, we believe that our multiyear partnership with Kate Hudson as our Soho Jeans celebrity ambassador will allow us to further amplify our casual lifestyle projection.

Number two, regarding our second strategic priority to increase brand awareness and customer engagement, we experienced softness in traffic, and our new customer acquisition decreased over the prior year. We recognize that our marketing investments must be deployed to acquire new customers and are rebalancing our mix towards digital acquisition channels to ensure we are bringing new customers to the New York & Company brand. In addition, we must continue to further deepen our existing relationship with the retained customers to enhance levels of personalization and segmentation, tailoring our marketing voice towards [shift] in the customer journey.

From a customer file perspective, we see a high-level engagement among retained customers, and we are working to address our acquisition opportunities. That said, our customer is highly engaged and loyal. Our Net Promoter Scores continue to improve, and our celebrity collaborations provide an important halo to the brand, which, combined, provide a powerful foundation from which to amplify our marketing efforts.

Our third strategic priority focuses on driving digital and omni. For Q4 2018, we were disappointed with our eCommerce performance with traffic performing under plan, though we were able to increase our sales penetration to over 32% of volume as compared to 31% last year. We have made changes to our digital leadership and are identifying and implementing the appropriate changes to reaccelerate our dynamic growth on eCommerce. That said, our eCommerce exclusive merchandise delivered double-digit comp performance in the quarter and allows us to expand our fashion projection through new styles and categories. These assortments also offer inclusive -- or these assortments are also size-inclusive as we offer sizes 00 through 20 in nearly all styles, including our celebrity collections.

Next, I would like to discuss our operational priorities and highlight the progress we are making against being a leaner, faster, more efficient and responsive organization. Regarding our real estate portfolio, we experienced continued leverage of our store expenses, with store closures and ongoing landlord rent concessions contributing to the decrease in buying and occupancy costs. We also benefit from a highly flexible real estate portfolio with nearly 70% of our existing store base on 2-year-or less terms. In addition, we have opportunistically taken advantage of much of the consolidation that have happened in the industry over the past several years. We have opened approximately 15 new stores in high-profile and premium centers to improve brand awareness and customer acquisition while delivering favorable four-wall economics.

Next, Project Excellence. We remain committed to looking at every cost to improve efficiency and deliver a more profitable operating model and are seeing the benefit of -- to the business as a result of several initiatives. We continue to identify opportunities to enhance our organizational effectiveness. As we have discussed previously, we have streamlined our organization. During fall 2017, we consolidated our New York & Company outlet organizations to improve sales and profit while driving efficiencies across channels. We now have a shared assortment between channels and are achieving improved sell-throughs and margins as a result of the coordination among our merchandising, planning, allocation and store organizations.

During Q4, we initiated the process of full omni integration by consolidating our eCommerce, merchandising and planning teams. This important initiative will be ongoing throughout 2019 and will help simplify and accelerate our speed-to-market decision-making while providing a consistent brand experience.

Our final strategic priority focuses on growth initiatives. In 2018, we expanded our multibrand portfolio with the relaunch of Fashion to Figure. This acquisition enabled us to enter the $21 billion-plus market and drive accretive growth to the New York & Company portfolio. Importantly, our customer insight and strategic planning work conducted throughout 2018 has positively benefited the brand's growth trajectory, which is further enhanced through leverage of RTW sourcing, CRM data analytics, digital omni and operation capabilities.

In addition, we continue to grow our subscription rental service, New York & Company Closet, available at nyandcompanycloset.com, and look forward to expanding this service as it continues to drive new customers to the brand and engage our existing customer base.

As we look ahead, 2019 represents a transformational year for RTW as we execute against the strategic plan we articulated at our Investor Day in September. We will continue to invest in the future growth of the RTW multibrand portfolio as we'll be launching 2 new digitally native brands in Q1, expanding our Fashion to Figure brand and profitably growing our New York & Company brand by leveraging a halo of celebrity amplified with new customer acquisition. Further, we are recalibrating our leadership and teams with intense focus on the customer to ensure our marketing media mix is allocated to new customer acquisition across the RTW portfolio of brands, and our marketing communication is tailored to where the customer is in her life cycle.

To provide a bit of detail regarding each brand's strategic agenda, first, as we transfer -- transition to RTW, we are implementing an organizational structure that will support the growth of our new businesses as well as the continued profitable growth of New York & Company. We'll have more to share throughout 2019 as we execute against this important initiative. Second, regarding our core New York & Company brand, we see new customer acquisition and engagement as our top priority, which is supported by the differentiation of our best-selling celebrity collaborations and omni platform. We are rebalancing our marketing media spend to acquire new and retained existing customers by leveraging our celebrity partnerships in sub-brands as a foundation from which to amplify the brand. Third, our Fashion to Figure team has spent much of 2018 laying the strategic foundation from which to build upon for 2019. Year-to-date, we are seeing growth achieved planned expectations, which has been supported by assortment expansions in loyalty-driving category, amplified brand awareness, facilitated by celebrity and influencer partnerships supported with increased investments in digital spend and future store growth to further drive customer acquisition.

And finally, we are introducing 2 new digitally native brands in Q1, Happy x Nature, Kate Hudson's first ready-to-wear collection, will launch on April 4 and will provide a true lifestyle projection, integrating content and commerce. Our lingerie lifestyle brand Uncommon Sense will launch in Q1. Through our customer insight work and recently hired talent with deep expertise in these categories, we see Uncommon Sense as addressing the challenge many women face in the lingerie lifestyle choices, where they often feel a compromise between feeling comfortable and looking great. Solving this problem with great quality and fit is where we see Uncommon Sense taking share given the disruption that is occurring in these categories.

As we look forward to Q1, as we have been widely reported -- as has been widely reported in the industry, we believe our February trends are related to temporary and macro-related challenges, which are negatively impacting traffic, further exacerbated by new customer acquisition as well as decreased product acceptance in our Soho Jeans sub-brand. We are rebalancing our marketing and media mix towards new customer acquisition, have made leadership changes in our digital organization and are adjusting our go-forward assortments in Soho Jeans to improve the overall trend. In addition, we believe the Easter shift to late April is further exacerbating these results and is reflected in our guidance. Despite these challenges, we remain committed to the vision and the strategy that has contributed to our ongoing improvement in driving profitable growth, which we believe will further accelerate as we transition to a multibrand RTW portfolio.

With that, I'll turn the call over to Sheamus.

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

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Thank you, Greg. Good afternoon, everyone. Before we begin, I would like to note that the fourth quarter of fiscal 2018 is a 13-week period versus the fourth quarter of fiscal 2017, which was a 14-week period, resulting in approximately $12 million of additional sales in the prior year. As such, fiscal year 2018 includes 52 weeks while fiscal year 2017 included 53 weeks.

Net sales for the fourth quarter were $247.3 million as compared to $278.7 million in the prior year, reflecting a reduction of 36 stores, partially offset by the inclusion of sales from Fashion to Figure.

Comparable store sales decreased 1.5% as compared to the same period last year, representing a decline in the company's brick-and-mortar business, partially offset by growth in the Fashion to Figure brand. All quarterly comparable store sales figures are based on a 13-week comparable time period.

In the comparable store sales base, average dollar sale per transaction increased by 1.3% while the number of transactions per average store decreased by 2.9%. Gross profit as a percentage of net sales decreased 70 basis points to 28.8% versus fiscal year 2017's fourth quarter gross profit percentage of 29.5%. The decrease reflects an 80 basis point decrease in merchandise margin due to increased promotional activity, partially offset by a 10 basis point improvement in buying and occupancy costs based upon our continued rent and occupancy negotiations and reduced payroll and incentive compensation.

As Greg mentioned earlier, we continue to leverage our store occupancy expenses through ongoing rent negotiations as we benefit from a highly flexible real estate portfolio with nearly 70% of our stores on 1- and 2-year deals. Selling, general and administrative expenses decreased by $4.3 million and also included $1.7 million of nonoperating charges, primarily related to certain executives' severance expenses. Prior year included $0.3 million of nonoperating charges related to certain consulting costs.

On a non-GAAP basis, excluding these charges, selling, general and administrative expenses decreased by $5.8 million to $71.2 million as compared to non-GAAP selling, general and administrative expenses of $77 million in the prior year, which included the extra week of sales and expenses for our 14-week period.

As we have previously disclosed, we remain committed to our cost efficiency Project Excellence, which has provided benefits in both buying and occupancy through the integration of our merchant and buying teams as well as benefits in selling, general and administrative expenses through cost reductions.

GAAP operating results for the fourth quarter of fiscal year 2018, inclusive of $1.6 million of new business start-up losses, $1.1 million of noncash asset impairment charges and $1.7 million of nonoperating charges, reflected a loss of $1.6 million as compared to operating income of $5 million in the prior year. Excluding the nonoperating charges of $1.7 million, non-GAAP operating income was $0.1 million, which met the company's guidance of approximately breakeven and still included noncash impairment losses of $1.1 million and the $1.6 million of start-up losses associated with the new businesses.

Provision for income taxes was $2.4 million in the quarter, reflecting a $1.6 million assessment related to a multiyear state tax audit as well as adjustments of various state tax reserves. The company continues to maintain a valuation allowance of $56 million, offsetting all deferred tax benefits. While these deferred tax assets do not have a book accounting value, the company does have the ability to utilize these deferred benefits to offset future tax payments.

GAAP net loss for the fourth quarter of fiscal year 2018 was $3.6 million or a loss of $0.06 per diluted share as compared to GAAP net income of $4.7 million or earnings of $0.07 per diluted share in the prior year. On a non-GAAP basis, the fourth quarter net loss was $0.3 million or breakeven per diluted share as compared to net income of $5 million or $0.08 per diluted share last year.

Total quarter end inventory decreased 2.0% as compared to the prior year period, reflecting lower store count and reductions in eCommerce inventory, partially offset by an increase due to the Fashion to Figure business. Capital spending for the fourth quarter was $4.8 million as compared to $4.7 million in the prior year. During the quarter, the company opened 1 Fashion to Figure store, closed 18 locations and remodeled/refreshed 1 existing location, ending the fourth quarter with 411 stores, including 119 outlet stores and 2.0 million selling square feet in operation.

We are pleased to end the quarter with a strong balance sheet with $95.5 million of cash on hand, no borrowings under our credit facility and no long-term debt, representing $1.45 per diluted share on cash.

Now turning to outlook for the first quarter of fiscal year 2019. Regarding expectations for the fiscal year 2019, we continue to focus on improving operating results to drive increases in both annual operating income and EBITDA. For the spring season, combined first and second quarter, we expect comparable store sales to decrease in the low single-digit percentage range. We expect GAAP operating income to be in a range of breakeven to a profit of $2 million, inclusive of $2.5 million of new business start-up losses. As has been widely reported, February's retail industry performance has been below expectations, and we believe this impacted our business due to temporary and macro-related factors as well as through our own traffic challenges, which we have addressed with revisions to our marketing spend towards new customer acquisition. Further, we believe the Easter shift to late April has impacted our results and is reflected in our guidance.

For the first quarter, we expect the following. Net sales are expected to decrease in the high single-digit range -- percentage range, reflecting reduced store count, combined with reductions in comparable store sales. Comparable store sales are expected to decrease in the mid-single-digit percentage range. Gross margin is expected to decrease 100 basis points to 150 basis points, reflecting continued improvements in product margin, resulting from decreased product costs and reduced promotional activity, offset by increased shipping costs due to the growth of our eCommerce business. Selling, general and administrative expenses on a GAAP basis are expected to decrease by approximately $1 million versus the prior year first quarter. This reflects reduction in variable compensation and reduced payroll, partially offset by an increase in marketing to drive sales and increases in selling expenses driven by higher eCommerce variable costs.

We expect on-hand inventory at the end of the first quarter to be up by a mid-single-digit percentage as compared to the prior year, largely reflecting increased inventory to support the new businesses and shifts in the timing of receipts. Capital expenditures for the first quarter of fiscal year 2019 are expected to be approximately $3 million to support ongoing omnichannel enhancements, new business site development and new and remodeled store activity. Depreciation and amortization expense for the first quarter is estimated to be approximately $17 million, inclusive of approximately $12 million attributed to amortization of right-of-use assets, resulting from the adoption of new lease accounting standards on the first day of fiscal year 2019.

During the quarter -- during the first quarter of fiscal year 2019, we expect to open 1 New York & Company store, 1 outlet store and 2 Fashion to Figure stores, remodel or refresh 4 existing stores and close 2 locations.

With that, I would like to turn it over to the -- call to the operator to begin the question-and-answer portion of the call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Oliver Chen with Cowen and Company.

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Ross A. Collins, Cowen and Company, LLC, Research Division - Associate [2]

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This is Ross Collins, on for Oliver. Just on the digital side, can you update us on the key opportunity there just between the channels sort of e-mail versus mobile versus other, and then maybe just contextualize digital within the overall customer acquisition strategy?

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

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Sure. I mean, what I would say about our digital business, obviously, we've done a great job of growing that to about 32% of our total overall business. What I would say is that we believe that we have a great opportunity to reshift some of our media buying really into more customer acquisition parts of the journey and also continue to support retention. And so what I would just say overall, while we have a strong active database, we have a very loyal customer, 43% on private-label credit card, and she continues to spend year-over-year. We see the larger opportunity, both for New York & Company and, obviously, for RTW with our new brands, to really start with a much heavier focus on customer acquisition than we had in the past. And we believe that we could start deploying efforts to this right away. And it's really just a rebalance of how we spent our dollars, really to drive traffic, both online and in our stores. One thing we're super excited about as we move through 2019 is our mobile app. What I would say is today, obviously, 70% of our customers come to us through a mobile device. We have been pretty quiet about our mobile app. What is amazing about our mobile app already is that it's pretty much a utility device that is a place that our loyal customers can go and see their rewards, look at their balance and also shop, but they're also using it in store. So we're going to really make a strong effort of having people join the app this year. We are also going to make it much more user-friendly within our stores. And we believe this will drive traffic, both to our stores and to online. And it's really about -- I think, as a company, we really started to think about the total ecosystem, including the digital ecosystem and less about channel-specific stores versus online and really about the customer and her lifetime value. So I hope that answers the question.

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Operator [4]

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(Operator Instructions) Our next question comes from the line of Dave Kanen with Kanen Wealth Management.

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David L. Kanen, Kanen Wealth Management Llc - President & Portfolio Manager [5]

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So my questions are largely relating to some of the new initiatives that you have, inclusive of Fashion to Figure. So for the quarter and the trends that you're seeing in Q1, is Fashion to Figure growing organically and so far tracking close to what you had anticipated when you bought it out of bankruptcy?

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Gregory J. Scott, RTW Retailwinds, Inc. - CEO & Director [6]

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So I would say, David, and I'll have Sheamus pick up anything else, is that Fashion to Figure, as I said in my prepared remarks, especially as we enter '19, is meeting or slightly exceeding what we thought it would be in terms of growth. I think if you look at 2018, it pretty much achieved its sales performance. We probably invested a little in marketing there and in other costs. But from an accretive perspective, we see Fashion to Figure to be slightly accretive this year, but at the same time, really showing strong growth from a sales perspective. And this is both from a digital perspective, where I think we're really going to see the growth. I think we're going to open about anywhere from 2 to 6 stores this year to continue to really refine that. But we believe the growth online is really what we're going to see the largest growth this year, and that really played out for the first 6 weeks -- or probably the first 5 weeks of the quarter. Sheamus?

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Sheamus G. Toal, RTW Retailwinds, Inc. - Executive VP, COO & CFO [7]

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What I would add to that, David, is, as you know, this past year was a year of really setting up that business for us. So we were pleased in terms of the way things rolled out throughout the year in terms of both setting up the stores, launching the site and getting that positioned for us to grow that business going forward. So I think it was an accomplishment for us this year. And as Greg said, it was pretty close to our initial expectations in terms of sales and results.

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Gregory J. Scott, RTW Retailwinds, Inc. - CEO & Director [8]

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And as you know, David, it was a pretty low capital investment for us. As you know, we were able to get it for a really great price. And we've been able, one, to open stores very economically on short-term deals, putting very little capital into those stores and really be able to grow the footprint. So it's been a low investment, hopefully, with a high-return opportunity for us.

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David L. Kanen, Kanen Wealth Management Llc - President & Portfolio Manager [9]

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Really what I'm trying to get at is stores that you have and that you opened, are you seeing four-wall cash flow? And then on eComm, did it grow organically and is it growing organically?

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Sheamus G. Toal, RTW Retailwinds, Inc. - Executive VP, COO & CFO [10]

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Yes. So obviously, the performance this year was the stores, as I said, we were initially setting those up, relaunching in locations, getting back into inventory position. But I would say, as we go forward, we do believe that the store base will be cash flow positive. Where we -- as you know, we're pretty disciplined in our lease activity in any locations that are not meeting our expectations. We do have an ability to either revise the terms of those agreements upon expiration of the short-term leases. And all of the Fashion to Figure leases are short term or exit locations that aren't performing well. So again, 2018 was a year to relaunch those stores, get back in position in inventory, but we believe that will be successful from a store portfolio as we go forward. And we're taking that same disciplined approach with new stores in new markets where we're entering attractive leases, where we can capture a new customer in a market not only for the store, but to grow the eCommerce base as well. To answer the second portion of your question, we are seeing nice growth in the eCommerce business, the digital side of the business, and that will play into our strategy with stores as well, both showing growth in eCommerce and growth in markets where we're launching stores as well.

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Gregory J. Scott, RTW Retailwinds, Inc. - CEO & Director [11]

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And I think what's different about FTF, which is unique and really speaks to the future, is they have a very strong social presence, 250,000 Instagram followers, pretty good size for the size of their business. At the same time, if you look at social media, both paid and unpaid, they play very high there. So they have a good way to grow customers in a new -- the new way really through really social media versus relying on some of the older techniques such as just e-mail. So I think that also speaks to the relevance of this brand and outgrew some of their collaborations that they're doing on the go forward, how we hope can grow it both socially and organically.

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David L. Kanen, Kanen Wealth Management Llc - President & Portfolio Manager [12]

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Okay. So like I said in the beginning, I'm interested in some of these new growth initiatives. So it looked like in the prepared remarks, you're getting ready to launch Kate Hudson. So can you tell me what that launch will look like in terms of assortment and SKUs in the beginning, where we can find it, and then how that will ramp and expand throughout the year?

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Gregory J. Scott, RTW Retailwinds, Inc. - CEO & Director [13]

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Yes. So April 4, the line Happy x Nature by Kate Hudson will launch. It will launch in approximately 150 New York & Company stores. It will also launch in the New York & Company website, and we'll also launch a stand-alone Happy x Nature site, which is -- which to the consumer will not look connected to New York & Company, which allows us, really, to have that brand grow independent of the New York & Company brand. We're launching it with approximately 40 SKUs. The collection was designed here. We sourced it in new factories, new fabrications. It is going to have a very strong reliance and dedication to sustainability. And you're going to see new fabrics there, organic cottons, blouses made of REPREVE. You're going to see denim made of plastic -- recycled plastic bottles. So there's a whole commitment of lifestyle around that. It's going to be slightly higher priced than the New York & Company brand. And on the assortment that you'll see on the Happy x Nature stand-alone site, there will be an extended assortment where the prices are a little higher than you would see in both New York & Company and in our New York & Company site. And we're really going to be playing on a real overall media mix to really launch this brand. Obviously, Kate will do a lot of PR both on TV and in print on the 3rd and 4th of April. But we also were working on a pretty extensive media plan that's going to go after both social targeting, social followers and really paid and unpaid and really with a high focus on new customer acquisition as we launch this brand.

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David L. Kanen, Kanen Wealth Management Llc - President & Portfolio Manager [14]

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So the $2.5 million of incremental costs, a lot of that is going to be to support the launch of this new brand. Is that correct? Mostly on the margin...

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Sheamus G. Toal, RTW Retailwinds, Inc. - Executive VP, COO & CFO [15]

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$2.5 million is really the impact of all 3 businesses for the entire spring season. So it includes the 3 start-up costs as well as any expenses to do the launches as well.

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Gregory J. Scott, RTW Retailwinds, Inc. - CEO & Director [16]

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And I think, Sheamus, that cost includes, obviously, Happy x Nature, Uncommon Sense and Fashion to Figure, so all 3 businesses. And Uncommon Sense is the name of the lingerie brand that we'll be launching the third week of April, and that will be launching on its own site, Uncommon Sense, which has been built. We will also have a smaller selection of it on the New York & Company site. And then in New York & Company stores, we'll be selling just one category, which is panties, which we'll be selling really the cash for a pickup item. But this brand really will be growing, primarily as a digital-native brand, getting obviously the total benefit of the New York & Company database, which we're going to be able to market to and really launch this brand. We've done a lot of research on how this brand can fit into our customer's lifestyle and what she's looking for. So we're excited about that as well.

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David L. Kanen, Kanen Wealth Management Llc - President & Portfolio Manager [17]

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Yes. You used the term disruption in that category. And so clearly, you guys are looking at some data. You have a ground game or a game plan. Could you just elaborate on that a little bit? I know L Brands has struggled. Aerie, actually, has done exceptionally well. Help me understand what this disruption is and how you intend to capitalize on that.

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Gregory J. Scott, RTW Retailwinds, Inc. - CEO & Director [18]

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So what we -- we did a lot of customer insight work here, and we found that while customers were shopping at the many retailers you spoke about, and we're really targeting this woman that's 25 to 45, have a lot of parallels with New York & Company but also shops in other places. And what we've found is, the opportunity to find a place that has great fashion, whether it be sexy fashion or more modern fashion, with great quality to solve a solution, meaning that's comfortable, that solves a problem, she's lacking that at a great price from any of the places that she's shopping today. So she might think one place is too sexy. She might think one place is great, but guess what, her daughter is wearing that. She's happy with that. She doesn't think it's for her. She might -- she think one of the other start-ups really is too expensive. She loves it, and she loves the authentic nature of that start-up, but she's like, "Wow, a bra for $75 is a lot." And so we really had looked at, and it was kind of interesting, we -- the research showed this triangle intention, I know that sounds crazy, but it really showed if you can solve all 3 of these pieces, great fashion that I'm really happy to wear, is somewhat sexy or flirty that's great quality that solves a problem for me, that's comfortable to wear, you're going to win my business. And so we're really going to push this -- these 3 things when we push Uncommon Sense. And it's really what the research told us about and what was missing out there in the marketplace.

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David L. Kanen, Kanen Wealth Management Llc - President & Portfolio Manager [19]

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That's helpful. Good job on helping me to understand it and sort of sketching it out. One final question. Everyone really in the industry that has a lot of brick presence is struggling. I mean, we know the days of expanding our physical footprint is pretty much behind us. So everyone is struggling, but many people are making money. And there -- it seems like, implicitly, there are opportunities to leverage some of -- and share expense and to grow, in other words, through acquisition. Who do you think, that being said, let's say you did $33 million of adjusted EBITDA this year, if you take out public company costs and some of the shared expense with some of your complementary competitors, that EBITDA might go from $33 million to $40 million or maybe more. Who do you think that you would be complementary to and a good fit with? And how do you feel about getting the company to the next level by potentially being acquired by someone else and integrated?

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Sheamus G. Toal, RTW Retailwinds, Inc. - Executive VP, COO & CFO [20]

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David, it's Sheamus. So I'll take that. I think our core focus is on the key strategies that we've been implementing. We believe that we have, as Greg detailed in his comments in response to some of the questions, we believe we have significant growth opportunities in our own business that will catapult us to the next level and really help us to improve our operating profit and EBITDA. So we're confident in those strategies that we've been implementing and believe that, that will help grow us from a top line perspective. We're equally aggressive in terms of controlling our costs to help us improve profitability, both in terms of our aggressive nature at looking at real estate. We have a very flexible real estate base that we can contract that expense if needed. So we're -- we think we're in a good position there. And then our Project Excellence work in terms of efficiencies, we've proven year after year that we can identify opportunities to consolidate, integrate within the organization. So we really believe that we have many opportunities to -- internally and through our growth initiatives to improve profitability. Of course, we're always looking at opportunistic ways to grow the business as well, and Fashion to Figure was a great example of that, where we were able to acquire a brand for a relatively modest investment and could provide growth for us. So we always look at those opportunities as well.

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David L. Kanen, Kanen Wealth Management Llc - President & Portfolio Manager [21]

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Okay. But you didn't answer my question, to whom might you be complementary? It's just after so many years, I mean, you've got to imagine your shareholder base is pretty tired. I know it's a very difficult business. I can't blame you for everything. You made a lot of progress last year in 2017, but shareholders are not paid any money. We're trading slightly above cash. So one has to certainly consider perhaps there would be greater value to shareholders and if the company was putting up for sale or looking at strategic alternatives. So who might it be complementary to if you can be bold enough to share some of that with us.

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Gregory J. Scott, RTW Retailwinds, Inc. - CEO & Director [22]

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Yes. So first, I would say, obviously, we're very focused on maximizing shareholder value. So that's always our intent. And everything that we do is geared towards an approach to maximize shareholder value. So I don't want you to think that we ever lose sight of that, that's always our core focus. But we, like many other companies, I mean, we can't speculate and comment on potential acquisitions or potential companies that we would like to merge with. It's just not a realistic question for us to answer in that way. But the way I will answer it is that we will always look at opportunities to maximize shareholder value.

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Sheamus G. Toal, RTW Retailwinds, Inc. - Executive VP, COO & CFO [23]

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And I think, Dave -- I'm sorry. I think the -- we just came off of a great board meeting about talking about the future and how we can enhance shareholder value. And as a company, we believe this transformation to RTW where we can keep New York & Company positive comping, and we can grow a strong plus business with Fashion to Figure, and we can launch a great celebrity brand like Kate Hudson, and at the same time, if we can have an explosive growth in lingerie, this is how we believe is the right strategy to leverage all the things we have here to grow this company. And that's really the strategy that we believe is the right strategy today.

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Operator [24]

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Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Greg for closing remarks.

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Gregory J. Scott, RTW Retailwinds, Inc. - CEO & Director [25]

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Thank you, everybody, for joining us today. We look forward to sharing our first quarter results in May. Thank you.

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Operator [26]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.