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Edited Transcript of SSI earnings conference call or presentation 2-Mar-17 1:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Stage Stores Inc Earnings Call

Houston Mar 2, 2017 (Thomson StreetEvents) -- Edited Transcript of Stage Stores Inc earnings conference call or presentation Thursday, March 2, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Randi Sonenshein

Stage Stores, Inc. - SVP of Finance & Strategy

* Michael Glazer

Stage Stores, Inc. - President & CEO

* Oded Shein

Stage Stores, Inc. - CFO

* Thorsten Weber

Stage Stores, Inc. - Chief Merchandising Officer

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Conference Call Participants

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* David Mann

Johnson Rice & Company - Analyst

* Michael Davis

SunTrust Robinson Humphrey - Analyst

* Heather Balsky

BofA Merrill Lynch - Analyst

* Jeff Van Sinderen

B. Riley & Co. - Analyst

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Presentation

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Operator [1]

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Good morning and welcome to Stage Stores conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your moderator for today's conference call, Ms. Randi Sonenshein, Senior Vice President of Finance and Strategy. Ms. Randi Sonenshein, please begin your conference call.

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Randi Sonenshein, Stage Stores, Inc. - SVP of Finance & Strategy [2]

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Thank you, operator. Good morning.

With us on the call is Michael Glazer, President and Chief Executive Officer; Oded Shein, Chief Financial Officer; and Thorsten Weber, Chief Merchandising Officer. We will begin with prepared remarks and then take questions.

Our comments this morning include adjusted results not derived in accordance with GAAP. Non-GAAP results have been adjusted to exclude the impact of charges related to the consolidation of the Company's corporate headquarters, severance associated with workforce reductions, store closures and impairments. Reconciliation of GAAP results to non-GAAP adjusted results are included in this morning's earnings release which is available on the investor relations section of our website.

Our discussion this morning will also include forward-looking statements. Various factors may cause our actual results to differ materially from those projected in the forward-looking statements.

For more information please refer to the risk factors discussed in our most recent Form 10-K, our other filings with the SEC and this morning's earnings release. Forward-looking statements speak only as of today's date and we undertake no obligation to update those statements.

I will now turn the call over to Michael.

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Michael Glazer, Stage Stores, Inc. - President & CEO [3]

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Thank you, Randi. Good morning, everyone, and thank you for joining us today for our fourth-quarter and 2016 year-end conference call.

I will recap our results and then share my thoughts on 2017. Oded will follow with a financial review and then Thorsten will join us for questions.

For the fourth quarter our comps declined 8.5% which resulted in comps being down 8.8% for the year. Regional differences continued to play a major role in our sales performance.

For the year, there was more than a 500 basis point difference between our stores in Texas, Louisiana, Oklahoma and New Mexico versus the balance of the chain. Stores in the states I just identified continue to be pressured by the impact of low oil prices and a devalued peso. They were down 11% both for the quarter and the year with the balance of chain down 6% in the same periods.

Our gross margin was also under intense pressure as a result of the weak retail environment and the necessity to be highly promotional in order to align our inventory with sales. Those deeper-than-planned discounts had a significant impact on our fourth-quarter earnings, resulting in adjusted earnings of $0.20 per share, which was at the low end of our guidance.

Our online business did grow double digit for the quarter. The updated site experience with improved navigation helped showcase our expanded assortments and improved shopability for our customer.

I am pleased that our quick action to clear goods in the fourth quarter resulted in our inventory being down 6% as compared to the prior year. Our inventory content is certainly favorable as evidenced by our clearance merchandise which was 30% less than last year. Going forward, this should help us improve merchandise margin, increase inventory turnover and provide our customers with more fresh goods.

From an expense control standpoint we reduced adjusted expenses for the year by over $27 million compared to last year. As has been the case all year, our top-performing categories in the fourth quarter were the non-apparel areas of gifts and home along with beauty.

From an apparel standpoint, dresses and women's denim had the best results. On the men's side outdoor product as well as performance activewear were the top categories.

Now let's discuss 2017. We continue to execute on several initiatives and we will evolve our business in response to changes in consumer behavior as well as external headwinds.

I now want to share with you what we call our jumpstart plan. One, continuing to build our online business, making shopping easier and faster for customers with improved mobile capabilities, more digital marketing and expanded assortments. We are pleased to have launched buy online, ship to store during the fourth quarter and we will leverage this as a traffic driver to our stores in 2017.

Two, we are invigorating our merchandise mix to deliver more newness, gift and impulse items. In addition, we will be pulling back on underperforming categories to shift emphasis into sales-driving areas where we believe we can win big including beauty, plus sizes, gift and women's updated and contemporary apparel.

Three, we are looking at beauty as an important growth area and we are partnering with Estee Lauder and Clinique to add a smaller format cosmetic counter to approximately 30 stores. We are also expanding our assortments within beauty, bath and body. NYX is a good example of this.

Four, we see an opportunity to recover merchandise margin rate by reducing promotional discount levels, eliminating overlapping coupons and improving seasonal transitions.

Five, we are moving to deepen the relationship with our customer. Our marketing campaigns in 2017 will emphasize new and exciting merchandise that we plan to showcase online and in store each time the customer visits. We are growing our loyalty business with the goal of increasing the penetration of our private label credit card to 50% of sales.

Six, we are thinking differently about how to improve the store experience. Over time, we have eroded a service culture due to reductions in staffing in our stores. We will fix this issue with our Sell One More campaign that will integrate a culture that greatly enhances in-store service and execution.

While we expect to continue facing external headwinds, a key focus of our 2017 financial plan is to generate positive free cash flow. In that spirit, one of our actions will be to reduce capital expenditures on refreshing stores. The positive news is that we have completed over 200 remodels since we began the program, and those 200 stores account for 40% of our sales.

From a profitability perspective, we believe we can begin to rebuild margins and will continue our disciplined expense controls.

I want to add a few comments about our liquidity. In December we strengthened our credit facility with an amendment that increased total capacity by $100 million up to $450 million and extended the term to December 2021.

The amended credit facility provides us with enhanced liquidity as we continue to execute our strategic initiatives and reflects the confidence that our banking partners have in Stage Stores. We believe in taking care of our shareholders, as you have often heard me say, and we recently announced our Board's decision to pay our 47th consecutive quarterly dividend.

In summary, generating positive free cash flow is a key priority for 2017. We have an evolving small-market business model, a healthy balance sheet, and an acutely focused management team. We believe strongly that through our initiatives and investments we are positioning the business to drive long-term shareholder value.

Before I turn the call over to Oded, I want to sincerely thank all of our outstanding associates around the country in our stores, call center, distribution centers and support center office for their incredible hard work and dedication. Oded?

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Oded Shein, Stage Stores, Inc. - CFO [4]

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Thanks, Michael, and good morning everyone. For the fourth quarter net sales were $454 million, a decrease of 9.6% to last year. Comparable sales decreased 8.5%, driven primarily by double-digit decline in traffic.

Average units retail in the quarter was down 5% while units per transactions were up 10%. The merchandise margin decreased 340 basis points, driven by increased promotions. As a result of the disciplined inventory management effort by our merchant team we managed to end the quarter with total merchandise inventories 6% lower than last year.

The adjusted gross profit for the quarter decreased 460 basis points, reflecting the merchandise margin decrease and deleverage from lower sales. Adjusted SG&A for the quarter was $5.8 million lower than last year, a 5.8% decrease. Adjusted EPS for the quarter was $0.20 per share compared to $0.91 per share in the prior year.

For the year, net sales were $1.443 billion, a decrease of 10.1% over last year. Comparable sales decreased 8.8%, driven by continuing headwinds in the oil-impacted and border states as well as the overall soft retail environment. Merchandise margins for the year decreased 150 basis points while the adjusted gross profit rate decreased 340 basis points.

Adjusted SG&A for the year was $27 million lower than last year, a 7.2% decrease. Both store and corporate expense were lower than last year.

We continue to see growth in our private label credit card program as we finished the year with penetration of 47.3%, a 290 basis point increase over last year. Credit income for the year increased by 3%.

The adjusted loss per share for the year was $0.89 compared to adjusted earnings per share of $0.51 last year. Tax rate was 39.9%. Share count was 27.1 million.

The 2016 results are adjusted to exclude charges associated with severance related to workforce reductions, strategic store closures and other asset impairments. The 2016 adjustment totaled $0.51 per share with the majority coming from store asset impairment.

I would like to take a moment to provide some additional color around the asset impairment. Given the difficult retail environment and the decline in our sales and profitability during the year, and especially in the fourth quarter, we recorded an after-tax charge of $11.7 million for asset impairment attributed to 116 stores. It is important to note that 75% of the assets impairment charge came from stores located in our four oil and gas states.

Stage continues to be in solid financial position. We ended the year with borrowing under our credit facility of $159.7 million, $2.9 million higher than last year. Total net debt at year-end was $156.4 million compared to $149.2 million for the prior year.

We are pleased to report that despite a challenging 2016 we were able to generate positive free cash flow of $11.2 million. Our liquidity positions further improved in December when we amended our credit facility to increase total capacity to $450 million and extended the term to December 2021.

Capital expenditures net of landlord allowances totaled $67 million. For the year, we closed 37 stores, completed 86 remodels, relocations and expansions and made a number of other capital investments in technology, omnichannel and supply chain. Our store count at the end of the year was 798.

Turning to our guidance for 2017, we expect comparable sales to be in the range of minus 4% to minus 8%. Comparable sales are expected to improve progressively throughout the year. Total sales including the 53rd week are projected in the range of $1.330 billion to $1.385 billion.

We expect the merchandise margin rate for the year to improve compared to 2016 and expenses are expected to be slightly lower than last year. We plan to close 15 to 20 stores while not opening any stores in 2017.

Our guidance rate for 2017 is a loss of $0.95 to $1.55 per share. We assume the share count of 27.5 million in tax rates ranging from 32% to 35%. As Michael mentioned, our key goal for 2017 is to generate positive free cash flow by decreasing our capital expenditures and improving our working capital through disciplined inventory management.

We expect to generate positive free cash flow within the provided guidance range for the year. The 2017 capital plan is $35 million to $40 million. In 2017 we plan to remodel, expand or relocate approximately 10 stores.

We plan to install Estee Lauder and Clinique cosmetics counters in approximately 30 additional locations. The capital plan also includes $19 million invested in technology, omnichannel and supply chain.

That concludes my remarks. We would now be happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) David Mann, Johnson Rice.

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David Mann, Johnson Rice & Company - Analyst [2]

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Yes, thank you. Can you talk about the trend in the comps during the quarter?

I know you had given us some sense on how they went in January. It sounds like they really deteriorated -- in early January, it sounded like they deteriorated in January and how are things going thus far in February?

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Thorsten Weber, Stage Stores, Inc. - Chief Merchandising Officer [3]

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So we won't get into February, but what I will talk about how the quarter shaped up in terms of Q4. Basically it was a pretty tough start to November. I think the pre-election anxiety that took place out there plus the really warm temps, we saw very challenging comps the first two weeks.

We competed aggressively, though, Black Friday. We reacted to some things we saw at our competition. We had some really good pre-planned events lined up, and we had actually comp increase the two weeks of Black Friday the back half of November.

November, in fact, ended up being our best month of the year. December, on the flipside, was challenging. I think a couple of things happened there.

The first one was a couponing effort we had in place there where our goal was to try to get our existing customer to spend more, more return visits. At the end of the day that strategy resulted in her buying the same amount but paying a lot less. Our AUR took a hit as a result of that.

Plus I think some of the other headwinds we had from a merchandising standpoint, just the lack of newness on the floor in December hurt us. We had a great set for holiday. But we did not come up with any new product after that nor any transitional apparel of any material amount.

So I think that hurt us in December along with the overall AUR component. January, the comps were tough in January. And I'm not going to get into February, but certainly January was challenging month for us.

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David Mann, Johnson Rice & Company - Analyst [4]

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Oded, in terms of, I'm just curious on the credit card portfolio, the stream of income there, what has that -- what was that benefit to SG&A in 2016 and how are you projecting that for 2017?

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Oded Shein, Stage Stores, Inc. - CFO [5]

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So I mentioned, David, in 2016 the benefit was actually good, it increased 3% over the prior year. We are really happy about the penetration and how our customer uses the credit very favorable.

Going forward we are more or less modeling flat benefit to the bottom line with increased penetration. As Michael said our goal is now to hit 50%, but based on our sales guidance that offsets that and we are looking at a flat benefit.

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David Mann, Johnson Rice & Company - Analyst [6]

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And then just in terms of the free cash flow forecast, obviously you've maintained the dividend at an astonishingly high yield now. Given your guidance and your comment about positive free cash flow, should we expect that if you are in your guidance range that you will be funding the dividend fully from the free cash flow and not having to incur any more debt?

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Michael Glazer, Stage Stores, Inc. - President & CEO [7]

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Hi, David, it's Michael. I knew you would get around to this question. You know I can't really comment.

As you know, the Board of Directors meet every quarter and determine whether what the payment of the dividend should be. I can only point to the track record here, David, which as I said is 47 consecutive quarters.

So the price of the stock seems crazy, I get it, but our Board likes to look at cash flow and all the other how the business is going, etc. So that is about as much color as I can give you.

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David Mann, Johnson Rice & Company - Analyst [8]

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Thank you very much. Good luck.

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Operator [9]

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Pam Quintiliano, SunTrust.

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Michael Davis, SunTrust Robinson Humphrey - Analyst [10]

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Hey guys, this is Michael on for Pam. Thanks for taking our question today.

First, can you guys please talk a little bit more about the mindset of the consumer and your stores located in the energy states? And I guess along those lines, maybe going a little bit further, how you think about those locations on the border if we do indeed build a wall? How do you combat that?

Michael Glazer

Mike, repeat your first question again.

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Michael Davis, SunTrust Robinson Humphrey - Analyst [11]

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Sure. Sorry about that. Just want to have a little bit more understanding about the mindset of the consumer in the energy states.

Michael Glazer

Obviously, we haven't seen any pickup at this point based on the results we just talked about, a 500 basis point difference between that oil patch and border and the rest of our chain. Having said that, though, I'll tell you it does seem, it does feel like things may be going in the right direction. We haven't seen it yet in our sales, but you start reading about the rigs and I have to caution everyone that even though there are more rigs and the price may go up we don't get that immediate impact.

There is a lag effect. It takes time to hire more people and even once the people there are more people in our small cities it does take time for them to get a couple of paychecks and until they have some more disposable income we really don't feel the impact of it. But it feels like it might be going in the right direction from that standpoint.

In terms of your question about the wall, who knows? The import tax, there is 1 million questions out there how this is going to impact anything. I guess the one positive thing to say is it does seem like the current administration is focused on business and aren't going to do things to hopefully hurt anything that we are trying to accomplish.

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Michael Davis, SunTrust Robinson Humphrey - Analyst [12]

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Okay. And regarding the rigs, have you actually looked at prior cycles where there may have been a trough and then we're picking up increasing rigs and then try to look at your sales? You mentioned a lag, so I'm just curious if you have looked at it in prior cycles to see how long that lag usually takes.

Michael Glazer

You know, yes, in fact it kind of went the other way. Obviously, when it's going the other way when they were decreasing the rigs and when the price started dropping you may recall if you followed Stage that we didn't even feel it in the first couple of quarters when others were starting to call it out.

So there clearly is a lag. If I had to put a number, a time period on it, I don't know, six months maybe. But that's just a guess, that's just pure speculation on my part in terms of that.

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Michael Davis, SunTrust Robinson Humphrey - Analyst [13]

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Okay, great. Thank you for that.

And then quickly turning to what's going on across the retail landscape, there's a lot of contraction out there and we are assuming there may be some opportunity to acquire some new brands into your stores. So can you please talk about what you are seeing out there with the brands that may have previously not been receptive to you guys and now it's turning the page?

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Thorsten Weber, Stage Stores, Inc. - Chief Merchandising Officer [14]

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You know, I would say that it definitely creates an opportunity. Certainly the Macy's component walking out of 100 doors, we are working on some of those collaborations now. What I would tell you is we do have some good launches coming up.

This month we are launching Anne Klein sportswear, Nine West dresses, Nine West career. It's really going to address white space for us and updated better career with our partners from Kasper, it's great-looking product. And we are really looking to expand on what our call our halo brands, brands that give us the kind of fashion credibility to the balance of our floor.

Examples of that are Democracy and Vintage America which are both denim collections. Vince Camuto, Jessica Simpson, G by Guess.

As far as Adidas, that brand has been red-hot. We are going to double our business with them. In fact, we are going to put shops in our top doors in both men's, women's and have a bigger footprint in the footwear floor as well.

And we have some partnerships that we are getting ready to announce, we are not quite there, we are working on in beauty, bath and body. And there I'm talking more things along the lines of moderate priced self-service brands, that's the really hot part of the category right now.

We did mention the 30 doors of Lauder and Clinique and I think certainly the disruption out there helped and that should help us further. I'd like to point out on that particular launch that we are doing it in a smaller footprint in partnership with Lauder Corp. That really opens the door for us by having a smaller footprint, less inventory, a little bit less staffing.

It opens up a lot more doors to us in the future. So certainly the Macy's disruption there could help in conjunction with that.

Finally, we have some partnerships we are working on for holiday. Again, not ready to talk about it, but we think there's going to be some really fun collaborations for our customer.

Certainly I know the question you may be asking may be centered around Under Armour. What I would tell you is we have a terrific partnership with Nike we are growing. I mentioned the Adidas growth, and conversations continue there with Under Armour.

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Michael Davis, SunTrust Robinson Humphrey - Analyst [15]

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That's great color. Thank you for that. Thanks for taking our questions.

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Operator [16]

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Heather Balsky, Bank of America.

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Heather Balsky, BofA Merrill Lynch - Analyst [17]

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First, I guess a follow-up with the last question. J.C. Penney announced that they are closing a fair number of their rural stores. I was wondering if that opportunity is baked into your guidance and how you are thinking about potential liquidation sales in the first half of the year?

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Michael Glazer, Stage Stores, Inc. - President & CEO [18]

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We don't know enough yet, Heather. Obviously, we were kind of pleased to see that an announcement. I don't know if it is going to impact us.

But we've seen in the past where a competitor goes out of the market, it goes without saying that that's helpful to us. Again, we haven't seen the list so we don't know yet, but it's encouraging I will tell you that.

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Thorsten Weber, Stage Stores, Inc. - Chief Merchandising Officer [19]

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And I would just add to it that we did review over the last year, where they have closed we really didn't get the disruption we anticipated during the liquidation phase, but we did definitely see some benefit in sales post the liquidation. So we are anxious to see the list.

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Heather Balsky, BofA Merrill Lynch - Analyst [20]

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I'm just curious what kind of benefit did you see?

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Thorsten Weber, Stage Stores, Inc. - Chief Merchandising Officer [21]

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I'm not going to quantify it for you. But I will tell you it was material. And if we see a nice group of stores there it will be a benefit to us for sure.

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Oded Shein, Stage Stores, Inc. - CFO [22]

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And just to add that we did not include any of that benefit in our guidance just because we don't know how many stores it's going to impact.

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Heather Balsky, BofA Merrill Lynch - Analyst [23]

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And another question just on inventory. If you strip out the stores that were closed, the impact from that, how does your inventory look? And in terms of your efforts to pull out of, I guess reduce inventory where things aren't working and increase where things are working, where are you in that process?

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Thorsten Weber, Stage Stores, Inc. - Chief Merchandising Officer [24]

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Yes, the delta in those stores are probably a little over 100 basis points in value, to answer your first question. The second thing I would tell you is the down 6% that we quoted, it actually was a lot better than that. And I'd tell you from the standpoint that we actually ended December down 11% and inventory, which allowed us to have a lot more flow in January than we did a year ago.

And as Michael mentioned our clearance inventory is down 30% versus a year ago. We were very heavy last year coming off of a tough winter where we were bought heavily in those categories. So we are in really the best position from a liquid standpoint in our inventory going into Q1.

As far as stores, I mean basically it just comes down to how stores are performing and weeks of supply and that's basically how we determine inventory levels by store. Or if we see a shift in the environment if we got some kind of indication in oil and gas that things were improving, obviously we would start to shift more inventory back into those stores, but that's what I would tell you.

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Heather Balsky, BofA Merrill Lynch - Analyst [25]

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And in terms of the mix, your efforts to lean into categories that are working, are you starting to do that already or is that later in the year?

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Thorsten Weber, Stage Stores, Inc. - Chief Merchandising Officer [26]

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No question, you know. And I would tell you a lot of it is just based upon our core strategy. Beauty is going to be, first and foremost, one of our biggest strategies and as we turn the corner into late Q2 we get this 30 Lauder Clinique doors, plus the initiative around the rest of beauty with what I mentioned is the moderate price open sell environment, huge investment there.

Plus sizes, we are going to get out of some categories that are not productive and we are going to, of course, have those online and our stores will be advocates to sell them online. But we are going to shift that funding to have a great presence in plus sizes, to have all occasions covered now in plus sizes, have our trends covered there. So no doubt that there's a lot of look at it by category not just reacting to the moment but reacting to strategically how we want to plan the business going forward.

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Heather Balsky, BofA Merrill Lynch - Analyst [27]

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Okay, great. Thank you.

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Operator [28]

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Jeff Van Sinderen, B. Riley.

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Jeff Van Sinderen, B. Riley & Co. - Analyst [29]

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Good morning. A couple of questions for you on the calendar shift this year.

I think 2014 was the last time we had a calendar shift like this. I'm just wondering how you are thinking about that? And then also how you are thinking about the tax refund phenomenon, if you think that's had any impact on you?

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Thorsten Weber, Stage Stores, Inc. - Chief Merchandising Officer [30]

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So the calendar shift, it's a three-week shift, 2014, you are correct. So what we tend to do with Easter or by week or Christmas by day is we will look at the comp year. 2014 is the best year we got.

The only problem is that Mother's Day is a week later this year than it was in 2014, so it's less than perfect. But we plan our business, we look very closely at those weekly penetrations in 2014 and that's how we forecast. Because, to your point, it can be a little muddy knowing exactly how you are doing with that shift.

The other part of your question, certainly we've heard several retailers talk about the tax credit. In fact, a couple this morning just called it out as far as the shift out of February. So I think it's fair to say there's something to that.

But I think most are saying that that will be a neutral situation for the quarter. It's just moving business across the quarter.

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Jeff Van Sinderen, B. Riley & Co. - Analyst [31]

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Okay. And then your e-comm concentration and penetration in Q4, could you give us that and what it was for the year?

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Thorsten Weber, Stage Stores, Inc. - Chief Merchandising Officer [32]

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So we are not going to give you the exact penetration. We will tell you that we had a really good Q4. The first three quarters we had modest growth.

We had nice double-digit growth in Q4. The problem with penetration is everything is getting blurry now between stores and online. But we are excited, we've got some terrific initiatives lined up there.

The site redesign that occurred in November made it a lot easier for a customer to navigate. It helped with search, it helped with transactions. We're pushing digital more than ever.

It has proven to be effective. Our mobile experience keeps getting better, it's 60% of our site traffic now. Our assortments, which are so key, when you think of our small stores our assortments are seven times the size of our average store now and the more we connect the dots with our brick-and-mortar stores we are going to win there.

Our central fulfillment, a lot of investment is going on there. So now we have a much better fulfillment experience for our customer. We started with buy online, ship to store in Q4, and that's really a pilot but now we have the opportunity to market it. We've seen attachment rates as high as 30%. So big opportunity there.

But the biggest thing we talk online for us is to really connect our stores and our online site. Our stores now are advocates, we've got 790 advocates out there who view the site as their second store. And you talk about a little store that is 10,000 square feet to now have 100,000 square foot assortment, free returns into that store, the service that our stores bring to the table, that should be a disproportionate win for us relative to other retailers.

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Jeff Van Sinderen, B. Riley & Co. - Analyst [33]

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Okay, and then one last one if I could squeeze it in. I know you spoke to merchandise margin opportunities as the year unfolds. Just wondering when are you planning to inflict year over year in terms of being less promotional or discounting less versus last year?

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Thorsten Weber, Stage Stores, Inc. - Chief Merchandising Officer [34]

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Good question. What I would tell you is there's really four keys and what you said is two of them. But the first one is being more liquid.

And I mentioned we came in 30% cleaner in seasonal product. That's a win. I think we are going to reinvest some of that to start attacking aging in some season-less business like shoes and handbags. But, again, getting more liquid is key to our business model go forward.

Streamlining coupons is something we are working on now. That's where we have multiple offers on the same day. At the end of the day I don't think that helps our sales, but it hurts our margins because the customer is picking and choosing in-store the better offer.

Pulling back on discount levels is I think targeted at your question. What I would tell you there is particularly as we get deeper into Q1 and Q2, not the big weekends, those we are going to fight hard on the big destination holiday weekends, but those nine-, 10-day stretches in months like September where post-Easter in April where we have too high of a discount on our coupons we are going to pull back. We are finding we just don't get the incremental unit spend on those transactions off of the AUR.

Finally, higher markup is going to be a big part of our margin formula here, as well. We are getting more and more off price into our model and we are even looking to utilize closeouts as a way to bring profitable value to our customers. We can only do that, though, if we remain liquid. From an open-to-buy standpoint the team is deeply committed to that.

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Oded Shein, Stage Stores, Inc. - CFO [35]

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And just to add that when you look at the year from a quarter's point of view, the key opportunity is clearly for margin is in the fourth quarter since last year's results were disappointing for margin.

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Thorsten Weber, Stage Stores, Inc. - Chief Merchandising Officer [36]

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Specifically December. December we had a couponing strategy that really had a strong elevation in our POS but it didn't help top line. So we see that being the biggest month in terms of opportunity to Oded's point.

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Jeff Van Sinderen, B. Riley & Co. - Analyst [37]

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Okay, got it. Thanks very much and best of luck.

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Operator [38]

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There are no further questions. I will now turn the call back over to Michael for closing remarks.

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Michael Glazer, Stage Stores, Inc. - President & CEO [39]

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Thank you. Well, thank you everyone for participating in our conference call today and we definitely look forward to speaking with you again after the conclusion of our first quarter. Thank you very much.

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Operator [40]

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Ladies and gentlemen, this concludes today's conference call and you may now disconnect.