Cache Reports First Quarter Fiscal 2014 Results

Photo: www.cache.com

Cache, a specialty chain of women’s apparel stores, reported results for the thirteen week period (“first quarter”) ended March 29, 2014.

For the 13-week period net sales were $47.4 million compared to $53.5 million in the first quarter of fiscal 2013.

Comparable store sales decreased 8.9%, reflecting the difficult selling season with the decrease in mall traffic, adverse weather conditions and the shift of Easter to the second quarter.

Operating loss totaled $10.7 million and included employee separation charges incurred of $134,000. This compares to an operating loss of $7.7 million in the first quarter of fiscal 2013 and included employee separation charges incurred of $1.5 million.

Net loss totaled $10.8 million or $0.51 per share and included a $134,000 charge, or $0.01 per share, in employee separation charges. This compares to a net loss of $17.8 million, or $1.33 per share, in the first quarter of fiscal 2013 which included a $10.1 million charge, or $0.75 per share, related to an increase in the tax valuation allowance against net deferred tax assets as well as a $1.5 million charge, or $0.11 per share, in employee separation charges.

Jay Margolis, Chairman and Chief Executive Officer, commented, “We had a disappointing start to the year with strength across our dress assortments more than offset by too narrow of an assortment in key casual bottoms, and the decision not to move forward with certain casual and accessories offerings that were inconsistent with our brand positioning. This, along with lower mall traffic throughout the quarter, store closings as a result of winter snowstorms and the later Easter holiday impacted our sales and profitability. While not yet evident in our bottom line, the quarter included progress toward our long term goals and we are applying key learnings from the first quarter to our go forward strategies. To this end, we were pleased with the response to our dress assortments in long, short, day and evening categories. At quarter end, dresses represented 55% of our total sales compared to 44% a year ago. On the process side, we reduced lead times to allow us to be more nimble and react faster to fashion trends.

“As we look ahead, we remain confident in our strategies and our ability to move our business forward in a positive direction,” Mr. Margolis, continued. “In the second quarter, we have seen a favorable reaction to our prom offerings and while traffic continues to be challenging, the trend has improved. We are investing in denim and crop pants to satisfy our customer’s needs in these important casual categories and we are elevating our accessories assortment, which we believe represents a significant area for growth going forward. On May 9, 2014, we initiated a rights offering that, if a substantial portion of our stockholders participate in the offering, is expected to enhance our financial position.”

First Quarter Operating Results

Gross profit for the first quarter of fiscal 2014 was $13.0 million, or 27.3% of net sales, compared to $17.0 million, or 31.7% of net sales, in the first quarter of fiscal 2013. The decrease in gross profit margin was primarily due to the leverage impact of occupancy costs on reduced sales, as compared to the prior year.

In total, operating expenses were $23.6 million, or 49.8% of net sales, as compared to $24.7 million, or 46.1% of net sales, in the first quarter of fiscal 2013. The decrease in operating expenses was primarily due to a decrease in store operating expenses, partially offset by increases in general and administrative expense due to an increase in payroll and payroll related costs and a net increase in other miscellaneous items.

At March 29, 2014, cash totaled $806,000, as compared to $4.7 million in cash and certificates of deposit at March 30, 2013. Total inventory at cost was approximately the same as last year.

The Company changed its method of accounting for finished goods inventory effective December 29, 2013 from the retail inventory method (“RIM”) to the lower of cost or market with cost being determined on the first-in, first-out basis. The effect of this change on the net loss for the 13-week period March 30, 2013 was a reduction to the loss by $678,000. Refer to schedule on Change in Accounting Principle attached.

Store Openings and Closings

During the first quarter, the Company closed eight stores, ending the quarter with 242 stores in operation. During the balance of fiscal 2014, the Company expects to open approximately two new stores. The Company has closed three stores since quarter end and continues to evaluate the performance of its store base regarding further openings and closings in the normal course of business.