Coldwater Creek Set to Sizzle

Don't be fooled by the geometric-pattern jacket, the party-bright cardigan, or the leopard moleskin vest: Coldwater Creek (Nasdaq: CWTR  ) is styling this fall. (All right, at least the stock is.) Bolstered by strong second-quarter earnings, a solid cash position, and tight inventory management, the women's apparel retailer is poised for a strong third quarter and even stronger year-end results.

Net earnings nearly doubled in the second quarter from the previous year, reaching $0.11 per share. And the company is raising its guidance for the fall. Management expects full-year earnings to reach as much as $0.67 per share; last year's earnings were $0.48 per share.

For more than 20 years, Coldwater Creek has been targeting the 35-to-60-year-old female fashionista who likes a good bargain just as much as she likes an array of shopping venues. But just recently, the Sandpoint, Idaho, company upped its market presence and fattened its return on equity for the trailing 12 months, reaching more than 18%. The company's rapid growth in 2005 is already encroaching on XXL territory (it carries those sizes, too). And Coldwater Creek is hoping to let out a few more belt notches before 2006.

The company points to growing Internet sales and stronger brand awareness for solid earnings and a sturdy cash position. Coldwater Creek began campaign spreads in Oprah, Good Housekeeping, and Better Homes and Gardens earlier this year. And it closed the second quarter with $93 million in cash, up more than 5% versus the same time last year, and no long-term debt.

Coldwater Creek's profit margin of 5.41% is one statistic that needs to pack on a few pounds. However, that number falls between fellow retailer J.Jill's (Nasdaq: JILL  ) meager margin of 0.26% and Chico's (NYSE: CHS  ) plump 13.57%. J.Jill and Chico's offer similar women's apparel; neither offers the array of home and garden goods that Coldwater Creek does.

Dabbling in sales of jewelry, art, kitchen appliances, gift cards, and the garden goods, Coldwater Creek is located mainly in the upper Midwest. However, it is eyeing all corners of the continent, with plans to add 60 new retail stores to its current roster of 160; lofty expansion for just one year considering Coldwater Creek started as a catalog retailer. While the company's fastest sales growth is in its Internet segment, the rustic, autumn appearance of its stores, which cater mainly to the apparel line, should not be discounted for a stronger-than-expected year-end boost. Rapid retail expansion, with apparel already accounting for 80% of the company's business, could prove a potent mix.

But don't discount what's behind that warm facade. The company runs a tight logistics ship and points to its real-time distribution channels for keeping it a thread above the rest. Management boasts about its distribution center that allows the company to virtually move merchandise on real-time for Internet, retail, and catalog sales. However, Coldwater Creek should not get too big for its britches, because only one distribution center in Mineral Wells, West Virginia, must supply this rapid newfound demand.

Eager for full-year results, bolstered by holiday cheer? Me too. But we will just have to hold tight for now. Management says it has holiday marketing merriment in the works but is keeping those plans under wraps.

Fool contributorAmanda Tylerhas no position in any of the companies mentioned here. The Fool has a disclosure policy.


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