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Coldwater Creek narrows operating loss in Q2 FY'12

30 Aug '12
6 min read

“Our comparable store sales results were in line with our expectations as we made the strategic decision to significantly reduce our promotional activity primarily in the month of June.

"As we look ahead, we believe that our upcoming collections build upon the foundation of differentiated, trend right assortments at a balance of price points, and position us well to generate improvements in our traffic trends and overall sales performance in the second half of the year. While the majority of the third quarter lies in front of us, we are encouraged by the initial response to our fall offering, which arrived in stores in early August."   

Balance Sheet

At July 28, 2012, cash totaled $45.5 million, as compared with $31.5 million at July 30, 2011. There were no borrowings outstanding under the Company's revolving line of credit as of July 28, 2012. During the quarter the Company announced the closing of a five-year $65 million senior secured term loan with an affiliate of Golden Gate Capital.

Premium retail store inventory per square foot, including retail inventory in the distribution center, declined approximately 3.8 percent as compared to the end of the second quarter last year. Total inventory decreased 12.2 percent to $133.6 million from $152.2 million at the end of the second quarter last year.

Derivative Liability

In connection with the $65 million term loan received from an affiliate of Golden Gate Capital, the Company issued 1,000 shares of Series A Preferred Stock which are convertible into an aggregate of 24.4 million shares of common stock at a purchase price of $0.85 per share.

As a result of this transaction, the Company recorded a derivative liability of $15.7 million, which represents the fair value of the shares of Series A Preferred Stock upon issuance. In accordance with applicable U.S. GAAP, this derivative liability is measured at fair value on a recurring basis with changes recorded as other gain or loss, net.

The Company's third fiscal quarter of 2012 earnings guidance set forth below excludes the quarterly impact of any change in the fair value of the derivative liability due to the inherent variability of this financial instrument.

Store Optimization Program

The Company closed four premium retail stores during the fiscal 2012 second quarter, ending the quarter with 355 premium retail stores. As part of the Company's ongoing store optimization plan, year-to-date in fiscal 2012, the Company has closed eight premium retail stores. The Company's plan calls for the closure of up to 45 stores from fiscal year 2011 through 2013, and since 2011, the Company has closed 24 total stores.

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