Body Central Management Discusses Q1 2013 Results - Earnings Call Transcript

May. 2.13 | About: Body Central (BODY)

Body Central (OTCQB:BODY) Q1 2013 Earnings Call May 2, 2013 4:30 PM ET

Executives

Jean Fontana - Senior Vice President

Brian P. Woolf - Chief Executive Officer and Director

Thomas W. Stoltz - Chief Financial Officer, Chief Operating Officer and Treasurer

Analysts

Randal J. Konik - Jefferies & Company, Inc., Research Division

Erika K. Maschmeyer - Robert W. Baird & Co. Incorporated, Research Division

Sharon Zackfia - William Blair & Company L.L.C., Research Division

Jeremy Hamblin - Dougherty & Company LLC, Research Division

Michael Richardson - Sidoti & Company, LLC

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Body Central Corp's. Fiscal First Quarter 2013 Earnings Release Conference Call. As a reminder, today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Ms. Jean Fontana of ICR. Please go ahead.

Jean Fontana

Thank you. Good afternoon, everyone. Thank you for joining us today for Body Central's First Quarter 2013 Earnings Conference Call. Hosting the call today will be Brian Woolf, the company's Chief Executive Officer; and Tom Stoltz, the company's Chief Operating Officer and Chief Financial Officer.

You can access a copy of today's press release on the company's website at www.bodycentral.com, or by dialing (203) 682-8200.

Before we begin, let me remind you that certain statements made on today's call, during our prepared remarks or in response to your questions, may constitute forward-looking statements and are made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both unknown and known risks and uncertainties that could cause results to differ materially from such statements. Those risks and uncertainties are described in the company's reports and registration statements filed with the SEC. Investors should not assume that statements made during this conference call today will be offered at a later time. Body Central undertakes no obligation to update any of the information discussed on today's call. With that, I would like to turn the call over to Brian Woolf.

Brian P. Woolf

Thank you, Jean. And thank you all for joining us. On today's call, I will provide an update on the company's key initiatives. Tom will then take you through some business updates and details of our first quarter results.

Let me begin by saying that I'm extremely pleased that we were able to attract such great talent to our organization. My first priority was to ensure we had an organizational structure in place that would enable us to effectively execute our strategic plans. We have recently rounded out our team with the addition of 4 new executives who'll bring vast experience in the store operations, marketing and merchandising fields.

Michael Millonzi[ph] joins us as our SVP of store operations. In this position, he will be responsible for overseeing the entire store operation's functions including training and brand presentations and will report directly to me. Michael has over 20 years of experience overseeing store operations, most recently at Lens Crafters, and prior to that, with Lane Bryant and Victoria's Secret.

Edward Jekot[ph] is our new VP of Brand Presentations responsible for in-store marketing, brand development and creative design. He will report to Michael Millonzi[ph] . Edward has over 20 years of experience helping to create and promote brands and has worked for Lane Bryant, Bath & Body Works, Structure and the Gap.

Barry Landau[ph] will be joining us soon as our new VP of Merchandise Planning. With over 25 years of experience, most recently at Boston Proper, a Division of Chico's, he will be responsible for developing a more robust merchandise planning function in our organization.

Finally, we have also welcomed Tamara Bailey[ph] , our new Senior Merchant, who will be working directly with Andrea Jackson and the entire Merchant team. She comes to us from Sears and has 18 years of experience in the past fashion merchandise including adopting Agassi, Mervyns, and Macy's. She will be responsible for driving improvements in our tops business.

In addition, Matt Swartwood, our former Head of Store Operations will head up our new position of SVP of Real Estate and Construction. In this role, Matt will lead the team as we test and then roll out our new store format over the coming months. Matt has been intricately involved in Body Central's Real Estate strategy over the past year and also has functional responsibility for real estate and construction in the past with Vans.

These executives will play front role in helping us to understand, define sales and market trend going forward. We now have the organizational structure in place to support our growth over the long-term and achieve our strategic visions.

Turning to the first quarter, overall, our results were in line with our internal expectations. But more importantly, we made solid progress on our plan to get the business back on track. As we noted on the last call, the first half of this year is really about setting the stage and we don't expect our progress to be evident until the second half of this year when the initiatives that we are undertaking really begin to take hold and meaningfully impact our results.

Let me walk you through the steps that we took during the first quarter. First, we are building the brand. Overall, we believe that in order for us to serve our customer effectively, we will have to firmly establish the Body Central brand and clearly and consistently communicate to her what Body Central stands for. This will be communicated through our merchandise assortment, our marketing programs and across our retail catalog and e-Commerce channels. In order to help us through this process, we hired a brand development firm that has done great work with a number of top-notch brands. As part of this engagement, they will provide us with in depth customer research, help us to develop our brand definition, assistance with our marketing programs and provide input into our new store prototype and fixturings. At the same time, we are taking steps to improve the business in the near term. Starting with our merchandise strategy, as we mentioned last quarter, we are transitioning our assortment to impress the sexy, edgy lifestyle brand for all occasions, and at an amazing value. We want our customer to come to Body Central to create a fashions ensemble for every facet of her life.

As we mentioned last quarter, we've hired Debbie Martin as SVP of Design and Trend. Debbie is placed out of our recently opened New York City office and regularly travels to Los Angeles. This now gives us a weekly market presence with more real-time insight into fashion trends that we previously lacked. In addition, the entire merchant team is making monthly trips to the New York and LA markets. This greater connection with the market as well as the work that has been undertaken with the branding firm will enable us to develop a distinct point of view on current trends. As a result, we are confident that we have a clear idea of the fashion trends that our customers will be looking for in the second half of the year and are planning our assortments accordingly. For example, our fall assortment will make a much more meaningful statement in fashion denim.

We are also using our increased market and Customer Intelligence to remix our assortment as good better best products, to put more emphasis on better and best, which will in turn, increase our AUR's. Given, though, that bestselling merchandise is generally are our on-trend fresh fashion merchandise with higher price points, we believe it is prudent to put more focus on these items. In order to provide a clearer presentation of our merchandise offering, we are reducing the SKU count in our stores. We believe that we can ultimately reduce SKU count by 30% from last year. We have also challenged ourselves internally to raise IMUs by year end, which we will believe will come naturally as we continue to focus on our big ideas.

Turning to our direct business, this was an area of our business that fell well short of our expectations during the first quarter. As part of the transition to the new management teams and difficulty with for shipments from a key vendor, we accounted for the delay in the receipt of goods that resulted in our inability to fulfill some orders in a timely manner. While this is obviously, unacceptable, the good news is that demand is still there and we are well on our way to rectifying the situation.

In addition to the aforementioned branding of merchandising initiatives that we expect to positively impact both our retail and direct businesses, we are also making some improvements to our direct marketing program. For example, as you might have seen with our most recent catalog drop, we are changing the look and feel to project a much clearer fashion driven message that will be more consistent with our stores and online. We are also making ongoing updates to our website to ensure that our powerful aspirational brand message shines through and resonates with our customer every time she comes visits the site. Finally, we are refining our direct marketing campaigns to more effectively reach out to our customers. That means that we are making a concerted effort to reach out for lapsed customers, redefining our catalog distribution list, increasing the number of styles represented on the website and putting more access behind cost-effective marketing such as targeted e-mail campaigns, Pay Per Click, display ads and affiliate programs.

Now moving to other key initiatives. We are enhancing the shopping experience for our customers. This entails making changes to the layout and ambiance of our stores to appeal to her senses. Our goal is to make the stores more aspirational, more exciting and easier to shop for our customers. As I mentioned, we are developing a new store prototype that we plan to refixture in a couple of Jacksonville stores this summer. We expect to begin testing the new design in the fall, with the intent to roll out the stores finally early next year.

Finally, we are creating a true omni channel retail experience with a consistent brand message across all channels. We want our customer to have a consistent experience when they walk into our stores, open our catalogs and visit our website. Each Channel will convey a powerful aspirational brand message that resonates with our customer base. As Tom will detail further, we have begun implementation of a new ERP System that will be the lynch pin to help us bridge the gap that currently exist between platforms. While this new system will have many advantages for the company, I want to highlight a few of the key benefits. First, the new system will allow us to have a more consistent inventory selection across platforms. We believe that both of these upgrades provide us with the functionality which is necessary to provide a seamless brand across all platforms. And perhaps most importantly, we will deploy a new CRM system that will facilitate a unified approach to each and every customer irrespective of whether they primarily shop with us at our retail location or a website. This will be a key step in ensuring that customers have a consistent brand experience no matter how they choose to shop.

As we discussed last quarter, we continued to expect that the first half of the year will be challenging for us. Clearance mark downs will continue to be a larger percentage of our business in the second quarter, resulting in lower average unit retails and significant margin pressure. The good news is that we are moving through existing merchandise and bringing in our refreshed assortment, which we anticipate will be fully in place by August. We are also updating the look and feel of our stores to make them feel more inviting and easier to shop. Overall, I believe that we have a unique opportunity to position Body Central within fast fashion space, as a sexy, edgy, lifestyle brand offering exceptional value to our customers. This positioning will enable us to more effectively serve our current customers while reaching a broader customer base. We are already executing on a same strategy as it made solid progress thus far. I do believe that we can expect to see improvement in the beginning in the third quarter with increasing momentum into the fourth quarter and on into 2014 as these strategies unfold. Now, Tom will take you through a few project updates and our first quarter results. Thank you.

Thomas W. Stoltz

Thanks, Brian. First I would like -- I would give you a progress report on several key projects we have been working on. We have executed a contract with Jet Star to partner with us in implementing our new ERP System. This system will include enhanced and fully integrated processes that cause many functional areas of the company including inventory management and merchandising, merchandise planning, distribution, accounts payable and general ledger accounting. The project is underway with the definition of the merchandise hierarchy as one of the first big milestones.

We anticipated that several components of the system will be implemented this fall with the total project completion aimed mid-2014. There will be multiple benefits of these new systems and processes that include a unified direct and store inventory management system that will allow us to communicate to the customer with an understanding of her specific purchase data. And regardless of our point of contact with her, the ability to manage and plan merchandising in a much deeper level of detail. This new system will enable us to allocate and flow merchandise from our EC more efficiently, ensuring a consistent flow of fresh goods to our stores each week and the ability to financially analyze the overall business in greater depth and detail. We will be able to achieve improved sell-throughs in the higher maintained gross margins.

And as Brian mentioned, the new store prototype project is underway. Our real estate and construction team will execute the roll out of this prototype. In addition, we plan to open approximately 25 stores this year. If the test of the prototype goes well during 2013, we expect to ramp the growth rate back to 15% annually beginning in 2014. We had opened 5 stores in the first quarter this year with the 2 store closings. We expect to continue to evaluate new contiguous markets for expansion in such as the Southwest and Midwest, and a backfill into existing markets where appropriate. We will also continue to expand our openings in alternative venues like power strips, lifestyle centers and alley malls, based on the success we've had to date. We are pleased with the performance of our new stores, which continued to generate strong sales and profits and deliver payback in less than 12 months.

Finally, we are in the process of constructing our new office in DC complex to open this fall. Landlord construction is underway, and our build out will begin over the next 30 days as the design phase for our new office in DC nears completion. Again, we believe this new facility will give us increased capacity and efficiencies in our distribution operations and our new office will give us the room to work together much more effectively.

Now, I will turn to the financial results for the first quarter. Net revenues decreased 1.5% to $81.4 million for the first quarter of the year, from $82.7 million last year. Store sales increased 2.4% to $72.6 million for the quarter from $70.9 million from last year's first quarter. This increase was driven by new store unit growth of 14.8%, representing 36 net new stores since the end of the first quarter of 2012, offset by comparable store sales decline of 10.2%. Our comparable store sale decrease was a result of a decrease in transactions and average unit retails, partially offset by an increase in units per transaction.

Direct sales including shipping and handling fees totaled $8.8 million for the quarter as compared to $11.7 million last year. This decrease was primarily a function of inventory availability, receipt flow and a decrease in the [indiscernible]. With the 5 new stores and 2 closings during the quarter, we operated 279 stores at the end of the quarter versus last year's total store count at 243. Gross profit for the quarter decreased 5.5% to $27.6 million from $29.3 million last year and as a percent of sales, decreased 140 basis points to 34%. The decrease was due to higher markdowns in order to clear slow selling spring and summer merchandise, and deleveraging occupancy, distribution and other cost of sales from the comparable store sales decline.

Selling, general and administrative expenses increased 20.6% to $22 million for the quarter and as a percent of sales was 27% as compared to 22.1% in the same quarter last year. There were one-time costs incurred in the quarter that amounted to an additional $1 million in unplanned expenses. They resulted from severance from former employees, recruiting and relocation cost for new executives, and legal costs. Excluding these costs, SG&A expenses would've been 25.8% of sales and up 15% year-over-year.

Store operating expenses increased $1.8 million or 9.9% compared to 14.8% increase in store units year-over-year. Depreciation and amortization expense increased to $1.8 million as compared to $1.5 million in the same quarter of last year, primarily from the addition of new stores and systems. Operating income was $3.9 million in the quarter compared to operating income of $9.5 million in last year's first quarter. Operating margin was 4.8% this year compared to 11.5% last year.

Our executive tax rate for the quarter was 31% compared to 38% in last year's first quarter. The decrease in rate this year was due to the WOTC credits from 2012 that could not be recognized until the first quarter of this year due to the delay and the renewal of the program. We now expect our full year rate to be approximately 36%. Net income was $2.7 million or $0.17 per diluted share based on $16.3 million weighted average shares outstanding for the quarter. Net income for the first quarter last year was $5.9 million or $0.36 per diluted share, based on $16.4 million weighted average shares outstanding.

Now turning to our balance sheet. Cash and cash equivalents and short-term investments were $43.4 million with no debt at the end of the quarter this year compared to cash and cash equivalents and short-term investments of $44.5 million last year. Our total inventories were $26.8 million compared to $22.5 million last year. On an average store basis, inventory decreased 15% from last year. With the first quarter behind us, we have realized approximately $1 million of the anticipated $1.8 million of unplanned expenses connected with the restructuring of the organization as we've discussed on our February 28 conference call. In addition, we still expect to incur about $1 million over the next -- over the last 3 quarters of 2013 related to additional occupancy and relocation costs, also related to the move later this year to the new distribution center and corporate office. So while we continue to see sales challenges and margin pressure into the second quarter, we are optimistic that we will see improved sales and earnings in the last half of 2013, particularly with our expanded and talented leadership team of our inventory reduction progress, our new store prototype project, a dedicated market presence, our brand development and untapped CRM potential across both the retail and direct side of our business, we have reason to believe that improved results should follow. With that, I'd like to say thanks and now turn the call back over to the operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our questions from Randal Konik with Jefferies.

Randal J. Konik - Jefferies & Company, Inc., Research Division

I guess first, Brian, when you think about the team, you added some new members today, is the full team in place from your perspective? And then consistent with the comments regarding the back half of the year, what have you, what kind of milestones or postmarkers do you want the sell side and buy side to be looking at to give us confidence that this team is making the changes you want to put in place and so forth? And then sort of give us some comments on that. And then Tom, if you could, can you just give us some perspective on your balance sheet and cash flow statement, your balance sheet ended pretty nicely with the quarter, about 45 -- no, just under $45 million of cash in the balance sheet, no debt. That's very encouraging, can you just walk us through how should we be thinking about free cash flow or cash flow over the next 12 to 24 months in the business?

Brian P. Woolf

Okay. So everybody is in place at the executive committee level except for 1 position that we will fill in 2014, which is an SVP of marketing. Right now, we feel that the branding company we are working with very closely. The fact that Michael and Edward are on Board and we have a relatively strong team, not in the number of people, but certainly in talent. And then marketing division right now, we feel that we can hold off on that particular opening until we have a lot more work done and that will be filled in 2014. In terms of the metric business, I'm always a big believer in nothing works without comps store increases, so I think that's the key metric that everybody should be looking for. We've been averaging top line for quite a while now. Our expectation as we get into the third quarter is this business will start to flatten out. And we would certainly look as we head into the fourth quarter to see some kind of comp store increases take place.

Randal J. Konik - Jefferies & Company, Inc., Research Division

Okay, and then as it relates to cash flows in 2012 it was not a good year for us but running down 8% comps. But we did at a record number at new stores 39, we finish that year with flat cash, starting the year with about $41 million and ending the year with about $41 million. So as we look ahead, the midpoint of this year to the midpoint of next year, I would expect that we'll burn through some cash because our CapEx is going to be higher with a new DC and office coming on Board. That's an extra $10 million to $12 million that we wouldn't normally spend. And that should be about the amount of cash that we would burn through between now and mid-2014. And then beyond that point, hopefully at that point, it would return to positive comps, you're going to see us start building cash again on the balance sheet.

Operator

And we'll now take our next question from Erika Maschmeyer with Robert W. Baird.

Erika K. Maschmeyer - Robert W. Baird & Co. Incorporated, Research Division

I understand you're still working through your legacy inventory. What could keep you from being in a position to improve your assortment and comp in Q3?

Brian P. Woolf

There's nothing that we can do at this point in terms of changing the inventory and that's why our level of confidence is high. Over by the time you get to the third quarter, we will have a much more compelling assortment in terms of fashion and trends. And that's one of the reasons obviously, that the profitability in the company is under pressure as we continually clear through a lot of these goods. The on order of the new team from Andrea Jackson and the merchant team, will really start flowing in the end of July right through the August time period, and again, that's why our level of confidence is high.

Erika K. Maschmeyer - Robert W. Baird & Co. Incorporated, Research Division

That makes sense. And then on the lower SKU count, where are you cutting that the most there in driving those declines. And then so where are the areas where you're maybe kind of targeting increases?

Brian P. Woolf

The amount of SKUs we have in the tops, we feel that we have been over testing, and we have too much fragmentation , and we have too many units under $10 retail. And so we feel that there's a huge opportunity to cull down the number of SKUs, become more focused and definitely present a much bigger fashion assortment. In the bottom piece of the business, we never made a very big denim fashion statement, I believe I mentioned it in remarks that, that's going to be an opportunity for us and we have to buy a lot more depth on a per style basis. So basically, the top and bottom business where the number of SKUs is going to be dramatically reduced and we're already rapidly in the process of doing that.

Erika K. Maschmeyer - Robert W. Baird & Co. Incorporated, Research Division

Great, and in terms of spending $22 million of SG&A, is that about the level that we should be looking for over the next few quarters?

Thomas W. Stoltz

I would say that we called out $1 million of additional one-time type expenses of the -- some more one-time costs as we mentioned in this script over the next couple of quarters. So if you slipped that $1 million out, you'll get some idea, and again, we're still adding a few people so we haven't had a full quarter's worth of full management team in place yet. So the $22 million or so is pretty good proxy going forward, I would say.

Erika K. Maschmeyer - Robert W. Baird & Co. Incorporated, Research Division

That's very helpful, and then just on the new store prototype, could you describe it and talk about what you're most excited about with it, and kind of where you think it will be most impactful?

Brian P. Woolf

If we take a look at our stores now, we think the fixturing is very massive, masculine, heavy, dark, everything is black. The new concept will be much more modern, lighter, brighter, we will have a lot more tables, we are working with the design team next week and so we should finish up a lot of the details. But it will certainly -- we will provide an environment to our customers, that the merchandise will speak for itself, and not be overwhelmed by fixturing.

Operator

And we'll now take our next question from Sharon Zackfia with William Blair.

Sharon Zackfia - William Blair & Company L.L.C., Research Division

A question on the direct to consumer segment, understanding the challenges you had in the quarter, can you give us any kind of understanding as to what the true underlying run rate was in that business? If you took the distribution challenges or the vendor challenges?

Thomas W. Stoltz

I would say it's pretty tough for us to tell at this point with the types of issues that we had. The vendor and sort of self-inflicted with the flow of goods. So I would hesitate to say that it was actually what it is, it's probably close to what the overall store level trend is if you took those problems out. And again, we would expect, once we get those issues resolved here that we'll see some improvements as we go forward.

Brian P. Woolf

I could paint you a picture, give you a little bit of color of why things will be different going forward compared to the way we ran the business in the past. Previously, before we had Patti come in, Patti's Summergrand [ph] to run the direct business. The catalog was not a reflection of the assortment in our stores. We had different assortments in the store's organization, in our brick and mortar compared to what was on the site, compared to what was going on in the catalog. We stopped that, the merchandise will be the same, the merchant team under Andrea Jackson is working with Patti, and Debbie Martin under design and trend sides to uniform our assortments and we will become an omni channel retailer so that what you see in our stores will be on the site, and what's on the site is going be on the catalogue,. So we will have the uniformity that didn't exist and we're able to buy much bigger quantities and that was one of the reasons we feel that the IMU upsize exists.

Sharon Zackfia - William Blair & Company L.L.C., Research Division

And when you talk about increasing the better and best assortment, are you talking about just the overall price point of Body Central going up then? And how does that put you vis-a-vis the competition? Are you really talking about better and best in terms of quality and being on-trend? Because I think it's a little unclear.

Brian P. Woolf

That's a good question. Well, we are talking about we will not raise the overall average retail in the company, we are not going to go beyond where we are right now. But we have looked at every department in terms of good, better and best, taking a look at the penetration. I think I mentioned before that we had far too many units under the $10 retail, certainly in tops, and when we examine our better and best in terms of the fashion and trend, it's actually trending much quicker than our opening price point businesses and it would be useless to give the customer what she wants. We're only listening to her, we're not doing this on our own. We're taking the business where it wants to go and if she is telling us that she wants more fashion and trends, at higher price points, she views the value at a higher price point to be better than the our opening price point core merchandise in this particular point in time. Having said that, we are not going to raise our retails above where we are right now.

Operator

And we'll now take our next question from Jeremy Hamblin with Dougherty & Company.

Jeremy Hamblin - Dougherty & Company LLC, Research Division

I wanted to -- I know you've been working against some crummy weather in the cool weather certainly in the south and southeast and I wanted to see if you could add any color in terms of whether or not you think that had an impact throughout the quarter and as we've moved into the beginning of the second quarter. And then just to give us a sense overall on kind of the cadence of comps and whether or not you're starting to see some improvements since as you've adjusted the look and feel of the stores?

Brian P. Woolf

We will never use weather as an excuse. Weather as in macroeconomics, everybody will talk about that. But I think at the end of the day, when the quarter results come out, you're always going to see some winners and you’re always going to see some losers. So somehow the winners fought through the weather and fought through the economy and they were able to make the business come out. So we're not going to buy into that, that's too easy. In terms of the changes we're starting to make, there's no question that we started to see some direction in terms of fashion and trend about what's happening now, even in our top business, which is nothing good, and we're definitely starting to see a direction in the bottom business. And that's why again, we feel good about the assortment we are starting to present to the customer. As we are flowing in this merchandise, we won't see it in top line 'cause there's not enough there and we still have a lot of clearance to move out. And that's why we are pointing to the third quarter when we will land all of these big ideas in depth where we will start to reach an inflection point.

Jeremy Hamblin - Dougherty & Company LLC, Research Division

Okay, and then in terms of your SKU count rationalization, it sounds like you're saying you have even more room to go on that than you did the last time, or the last quarter we reported. How long do you think that's going to take in terms of getting that SKU count reduced to the levels that you think? Is this kind of by Q3 or is this really going to take through the end of the year?

Brian P. Woolf

Shouldn't take it through the end of the year. What we are buying right now is much more focused, the big ideas we're buying with a lot more depth, so that's already starting to take place and then that's one of the reasons there's a markdowns are so high is to clear these excess SKUs. So we should be in position by the time we get to the August-September time period.

Jeremy Hamblin - Dougherty & Company LLC, Research Division

Great. And then just one last question on the promotional activity. It seems as though you've slightly adjusted the way that you're doing some of your promotions both in-store and online. Are you looking to be more proactive in terms of your promotions, to have a higher frequency, or can you just speak to any of the changes you're looking at in terms of strategy?

Brian P. Woolf

We are firm believers that we have great everyday value. On the marketing side we don't think that we get credit for that value. Since we are a fast fashion business and we think we have every day great pricing, while we don't feel that there's a need to promote if you start promoting off of great everyday value, then your everyday value is not so great. So we are going to make sure that in terms of our marketing campaigns that we get credit. What we're doing now is really taking a huge amount of clearance markdowns, promotional activity in terms of the POS-ing classifications and POS-ing items will be rare and few and far between.

Operator

And we'll now take our next question from Mike Richardson and with Sidoti.

Michael Richardson - Sidoti & Company, LLC

Yes. I was wondering if you guys can just give us a quick update on where you are with the direct sourcing. I was also hoping maybe to get a little bit of color on the store opening cadence and if Tom could let us know how many catalogs were actually mailed in the quarter, I would appreciate it.

Brian P. Woolf

We've been investigating direct sourcing but as of now the EP agents that we have been talking to have been unable to get to the price points that we would want and the markup that we would want. We are pursuing still some other people who are directly sourcing out of Asia, and we will continue to pursue that. So we don't have a definitive answer right now, but we do not have a direct sourcing agent who we're working with at this particular time.

Thomas W. Stoltz

And in terms of the catalogs, we distributed $7.1 million in the quarter this year versus $8.1 million in the quarter last year for about a 12% decrease.

Michael Richardson - Sidoti & Company, LLC

And any color on store opening cadence sort of for the balance of the year?

Thomas W. Stoltz

I would expect that the second and third quarters will be in somewhat similar to what we found in the first quarter, 4, 5 each, and then the balance will occur in the fourth quarter. With the prototype, the new store prototype being developed, obviously we'd like to open new stores under that format, but it's going to just depend on how quickly that project kind of goes and whether we'll be able to squeeze some of the fourth quarter opening then under that new prototype.

Operator

And ladies and gentlemen, that concludes today's question-and-answer session. Mr. Woolf, at this time, I'll turn the conference back to you for any additional or closing remarks.

Brian P. Woolf

Well, just to sum up a couple of key points, again, our level of confidence is high that we're going to be able to present a much more compelling assortment to our customers. She is reacting to fashion, she is reacting to trends. We will mix our good, better best 5 points not to go beyond where we are right now, again, just to give the customer what she wants in terms of better and best fashion. And we are the elated with the talent that we're bringing into the organization and the potential of this company and the future. Thank you.

Operator

And ladies and gentlemen, that concludes today's conference call. We thank you for your participation.

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