It has been a mixed bag for women's apparel retailers in recent months. Chico's FAS (NYSE: CHS ) struggled because of a lack of "wear now" items, while Ann Taylor (NYSE: ANN ) is looking attractive with a slimmed-down inventory and the right mix of professional and business casual merchandise. Meanwhile, Coldwater Creek (Nasdaq: CWTR ) is also "firing on all cylinders."
Despite the tough competition, which includes Christopher & Banks (NYSE: CBK ) , Talbots (NYSE: TLB ) , and a list of others, Coldwater Creek appears to have differentiated itself somewhat from the crowd. One of the best ways to learn how it is accomplishing this is by listening to management in its most recent quarterly conference call. If you missed this call, that's OK -- we have you covered. These are my Foolish areas of focus this time around:
- Summer assortments and fall merchandise
- Marketing strategy
- Direct-to-consumer business
Customers chill to Coldwater's summer assortments
Savvy marketing and proper inventory management won't amount to much if folks don't like what's hanging on the racks. With strong double-digit comp growth -- 13.3% in the most recent period -- it is obvious someone likes what Coldwater is selling.
Equally encouraging is that so far, the company hasn't had to resort to price slashing to drive sales. On the contrary, the right product assortment and efficient inventory management enables it to take advantage of full pricing. We saw the positive effect of this in last quarter's gross margins expansion.
On the topic of full pricing, it is important to note how management defines it, particularly in light of one example an analyst raised late in the call; a particular magazine ad included a $25 off coupon on a $100 purchase. Though 90% of merchandise sold was at full price, this "full price" includes the use of coupons, since "marketing promos are not considered discounts off of merchandise" but rather "marketing costs."
As far as merchandise goes, lightweight shirts and jackets are "continuing a long-term trend" in popularity. A couple of other categories exceeding expectations are novelty skirts and summer dresses. Expect strong momentum to continue in the skirt category. Additionally, management is excited about its boots business, since these items are viewed as a "perfect new companion" to Coldwater's skirt assortment. Topping it off, look for what was described as an "eye-catching lineup" of novelty jackets.
Increased advertising costs, increased exposure
Aside from an appealing product assortment, the other factor driving foot and Internet traffic is the company's marketing initiatives. CEO Dennis Pence indicated that the growing "synergy" between stores, Internet, and catalog -- in concert with its national magazine advertising -- is "effective in driving customers to all three channels."
The company has been substantially increasing spending in advertising, particularly in its national magazine campaign. But there is a payoff; the increases have enabled it to multiply its circulation base from 35 million magazine issues last year to 147 million in the latest quarter.
Another marketing tool management is pleased with is its catalog, which has been used primarily to "drive increased traffic" to its stores. The circulation for the Coldwater Creek book will double in the second half of the year with mailings planned in the third and fourth quarters. Management did acknowledge that postage and paper costs are expected to rise over the next year, but Pence believes the contracts currently in place for paper should mitigate any material price increases.
Internet continues to revolutionize shopping
Finally, I will briefly comment on its direct-to-consumer biz. Today, retail stores represent "approximately two-thirds" of the company's total business. The rest is coming from Internet and catalog sales, which increased sales by 30% and 11%, respectively. Management's objective is to get its direct biz to around 30% of net sales; they are definitely on track to meet this goal.
We already mentioned the increased circulation plans for catalogs in the second half of the year. As far as its website, don't expect any dramatic changes this holiday season, but management is "excited" about the possibilities in store for next Christmas, as it looks for creative ways to take advantage of the increased bandwidth going into homes.
Foolish final analysis
One of Coldwater Creek's long-term goals is to have 450 to 500 store sites in operation. To accomplish this it is necessary to increase inventory capacity, which will come in the form of a 350,000-square foot expansion to its West Virginia distribution center. The addition is nearly complete, and this increased capacity and efficiency -- when combined with a ramp up in catalog distribution and magazine ads, plus new store openings -- should continue to drive solid sales growth.
If Coldwater Creek can stay ahead of the fashion curve and offer an attractive assortment, as it has done of late, then good things are in store for shareholders.
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Fool contributor Jeremy MacNealy has no financial interest in any company mentioned. The Fool's disclosure policy is the new black.
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