Coldwater Creek's Arctic Chill (CWTR)

Coldwater Creek's Arctic Chill

Coldwater Creek (Nasdaq: CWTR ) was once known as a highflier -- but times have changed. Now, things at the retailer just keep getting worse.

Coldwater Creek swung to a net loss of $17 million, or $0.19 per share, from net income of $15.9 million, or $0.17 per share this time last year. (Even then, Coldwater Creek wasn't warm enough.)

Net sales decreased, too, falling 6% to $345.5 million. Its fourth-quarter same-store sales dropped a chilling 19.2% in the quarter. Some other ugly trends include freefalling gross profit (dropping to 30% of sales compared to 40.9% last year) and rising SG&A costs (up to 38.7% of sales from 34.3%).

This story may sound familiar -- and not just because Coldwater Creek has gotten colder and colder. Rival Chico's (NYSE: CHS ) , which also targets older women, has been a fashion casualty for quite some time, and Talbots (NYSE: TLB ) is still tarnished, too.

I've long believed that while Coldwater, Chico's, and Talbots look deceptively cheap, given their continued failure to perform. I believe there are retailers in other niches with a much better shot at avoiding retail disaster in 2008. As for Coldwater Creek specifically, I have little confidence in its plans for the time being. For example, "right-sizing inventories consistent with the business climate" doesn't sound like rocket science. If people aren't buying as much, you definitely don't want to have too much merchandise in need of markdowns.

Coldwater management expressed optimism about the second half of the year, and even though it plans to "moderate" store openings, those plans may still be too aggressive. In January 2007, longtime Fool Rick Munarriz pointed out that it might be prudent for the company to slow down its frenetic expansion into mall-based stores. (Coldwater used to be a catalog-only retailer.) Last year, it opened 65 stores; its new "moderate" approach plans for 50 openings this year. With the company challenged and the economy ailing, wouldn't a much more cautious approach be better? And while Coldwater can boast cash on its balance sheet, bear in mind that its $62.5 million in cash now pales in comparison to the $148.7 million it had last year this time, and it didn't generate free cash flow in 2007, either.

Somebody pass a blanket -- and a down coat, if they're handy. I just don't feel confident Coldwater Creek can warm up its business anytime soon.

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