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Christopher & Banks (NYSE:CBK)

Q1 2013 Earnings Call

June 07, 2013 8:30 am ET

Executives

Megan Crudele

Luann Via - Chief Executive Officer, President and Director

Peter G. Michielutti - Chief Financial Officer and Senior Vice President

Analysts

Neely J.N. Tamminga - Piper Jaffray Companies, Research Division

Jeremy Hamblin - Dougherty & Company LLC, Research Division

Justin Ruiss - Sidoti & Company, LLC

Jay Li

Operator

Good day, and welcome to the Christopher & Banks Corporation First Quarter Fiscal 2013 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Megan Crudele of ICR. You may begin.

Megan Crudele

Thank you. Good morning, everyone, and thank you for joining us today to discuss Christopher & Banks earnings results for the first quarter of fiscal 2013. Joining us on the call today are LuAnn Via, President and Chief Executive Officer; and Pete Michielutti, Senior Vice President and Chief Financial Officer. After management has concluded their formal remarks, we will open up the call for questions.

Before we begin, I would like to remind you that certain statements to be made today during today's conference call are forward-looking statements. These are based on assumptions and expectations of future events, which may not prove to be accurate. These statements also involve substantial risks and uncertainties. The company's actual results may vary -- may differ materially from those expected or implied by these forward-looking statements. These forward-looking statements may be identified by such terms as will, expect, believe, anticipate, initiative, estimate, estimated and similar terms or variations.

All of the company's outlook and financial expectations, as well as assumptions underlying the outlook or expectations constitute forward-looking statements. You are directed to the cautionary statement included in the company's earnings release issued today, as well as the most recent Form 10-K report and other SEC filings made since the date of that report, all of which are available under the Investor Relations section of the company's website at www.christopherandbanks.com. They are applicable to the statements made today during the conference call.

I would now like to turn the call over to LuAnn Via.

Luann Via

Thank you, Megan, and good morning. We appreciate you joining us today to discuss our first quarter fiscal 2013 earnings results. I will begin with a review of our first quarter financial highlights and an update on our strategic plans for fiscal 2013. Pete will then review our first quarter financial results in more detail and provide guidance for the second quarter, as well as the general outlook for the full year.

We are very pleased with our strong start to the year, as the momentum that has been building over the last several quarters continued into 2013. Our customers are responding to our merchandise offering, which provides the right combination of style, quality and value they expect from us to our marketing programs, which clearly defined our brand and appealed to her senses, and to our enhanced in-store and e-commerce experience.

For the first quarter, we delivered a 23.4% same-store sales increase and generated gross margin expansion of 1,110 basis points to 34.2% as compared to the same period last year. We also achieved net income per diluted share of $0.02. This compares to a net loss per share of $0.38 last year.

The strategic initiatives that were instituted over the past 1.5 years have enabled us to drive improved sales productivity, generate increased gross margins and deliver profitability. Over this period, we successfully strengthened our connection with our more loyal customers, won back some of our lost customers and engaged new customers, all of which bode well for our future. Our turnaround continues to move forward, and we are excited to build upon the initiatives we have in place to drive long-term sustainable earnings growth.

Here are some of the highlights from the first quarter. Let me begin with our #1 opportunity, our merchandise. We maintained a compelling, versatile and quality fashion assortment at a great value. We continue to offer a balance of classic fashion and unique styles at affordable prices. During the quarter, we saw particular strengths in several categories. In wovens, we reintroduced the classic key item shirt and jacket program with expanded color. We also offered a greater assortment of skirts and dresses. Our knit business remained strong, as did our accessories business, where we focused on jewelry and scarves to complete her look. These key categories represent the biggest growth opportunities long term. In addition, we are making greater use of our in-store fixtures and mannequins for our visual presentation to provide her with complete outfitting ideas.

Importantly, we achieved strong sell-throughs, resulting in a higher merchandise margin versus the first quarter of last year, due primarily to lower levels of markdown. Going forward, we remain focused on building key items in categories within woven, bottoms and sweaters. These improvements in our merchandise assortment and value proposition are being clearly communicated through a targeted and compelling marketing strategy.

Second, we continue to evolve our marketing strategy to ensure we are optimizing our CRM database and our Friendship Rewards loyalty program. Our goal is to maintain a strong connection with customers through ongoing personalized communication and engaging in-store events. As such, we have begun to refine our direct marketing effort to drive store traffic into our stores and to our website. And we continue to use grassroots marketing and in-store events to engage her.

Our March direct mail piece generated double-digit response rates, even though 40% of the March mailing was comprised of lapsed or lapsing customers. We are targeting our marketing efforts not only on current customers, but aggressively pursuing lapsed and new customers, particularly with our direct mail program. One way we are tracking success in this area is through our customer list. At the end of April, we saw approximately 1% growth in our active customers, our first increase in several years. This increase comes in spite of 10% decline in our store count from the same period last year. Growing our customer base is key to maintaining continued sales growth.

On the in-store marketing front, we held a fashion show in March and moved our Friends and Family event from March last year to April this year. The fashion show, which is an event that our customers look forward to participating in, helped draw customers into the store in the pre-Easter period, while our Friends and Family event brought customers in post-Easter, which is normally a lower traffic period.

We are also seeing great success with our private label credit card program. We currently have over 375,000 private label cardholders, accounting for approximately 1/5 of our overall sales. Given the incredible success of this program and loyalty of these customers to Christopher & Banks, we will be adding in-store payments for our private label credit card customers, starting in the second quarter, making it easier and more convenient for them to maintain their credit card account.

We are also increasing our emphasis on e-commerce. As you may recall, our goal is to ensure our e-commerce sites maintain our brand integrity and are maximized as a testing platform. During the first quarter, we made several key investments in our e-commerce business, including launching our new e-commerce platform and adding additional resources to our team, including a new VP of E-commerce and Digital Marketing. With these investments, as well as our increased marketing spend, we believe that we have the platform and talent necessary to maximize our e-commerce channel. Altogether, we believe that these investments will allow us to significantly increase traffic and gain traction in new customer acquisition.

Turning to our store base, we have seen great success with our store pilot program. During the first quarter, we added 34 stores to the program, bringing it to 101 stores in total. Our pilot stores delivered approximately 1,500 basis points of incremental comp performance compared to the balance of the chain. With the success of the pilot program, we now have the basis for the DNA of our store base and have begun to roll out some of the learnings across all stores. For example, we are using our upgraded planning and allocation system to rightsize inventory based on our learnings from the pilot stores. In addition, staffing levels are being adjusted to ensure we are providing an appropriate level of customer service based on an individual store sales volume.

Overall, we believe that these improvements will serve to maximize profitability and productivity. We will continue to maintain our base of control stores to test new ideas, including marketing initiatives.

Finally, we are focused on refining and optimizing our real estate strategy. Overall, we are taking a methodical and disciplined bottoms-up approach, with a focus on our existing store base. Our plan for full-sized stores is to focus on finding opportunities to convert existing Christopher & Banks and CJ Banks stores into MPW stores, which we formerly called duals. We believe we can better serve our customer by providing our full complement of missy, petite and women sizes in one location.

Our recently implemented JDA system have enabled us to tailor our assortment to appropriately present the right balance of missy, petite and women apparel to reflect each location's customer mix. This has resulted in margin improvements, driving merchandise margins above the combined margins of CB and CJ format.

For 2013, we are currently planning on opening 2 MPW stores, as well as converting 12 existing stores to fit MPW format. For fiscal 2013, we also expect to open 5 outlet stores.

Over the long term, we expect store count expansion to be primarily driven by adding outlets. Given our limited number of outlets currently and the potentially greater four-wall profitability, outlets represent longer term, we anticipate the number of outlet stores could grow to between 75 and 100.

Overall, we are pleased with our solid start for 2013. We have made some great strides to set our business on a path towards sustainable long-term growth and are intently focused on building upon these successes to further expand the business throughout fiscal 2013 and beyond. We are confident about the initiatives we have in place and look forward to continuing to share our progress with you over the course of the year.

With that, I will now turn it over to Pete for a review of our financial results.

Peter G. Michielutti

Thank you, LuAnn, and good morning, everyone. I will begin with the financial review of the first quarter ended May 4, 2013. I will then provide some general comments regarding our outlook for the second quarter, as well as some full year guidance. My financial review today will cover the 13 weeks ended May 4, 2013, compared to the 13 weeks ended April 28, 2012, except as otherwise noted.

Total sales grew 15.9% to $108.5 million in the first quarter of fiscal 2013 compared to $93.6 million for the same period last year. During the quarter, the company operated on average 10.5% fewer stores than during the comparable period last year. Same store sales increased 23.4% for the 13-week period ended May 4, 2013, compared to the 13-week period ended May 5, 2012. And this compares to a 14.6% decrease for the 13-week period ended April 28, 2012. The improvement in sales was driven by a continuation of strong conversion rates, coupled with double-digit growth rates in our average dollar sale. Traffic was down slightly. We achieved this comp increase despite unseasonal weather, which impacted us to some extent throughout the quarter, but most heavily in the second half of April, including the last 2 days of our semi-annual Friends and Family event.

Gross profit increased 71.3% to $37.1 million in the first quarter as compared to $21.7 million in the comparable period last year. Gross margin was 34.2% as compared to 23.1% for the first quarter last year. Approximately 2/3 of the 1,110 basis point increase in gross margin was driven by higher merchandise margins, mostly from lower markdown and a moderate increase in IMU. The remaining 1/3 came from lower occupancy cost and sales leverage.

Selling, general and administrative expense dollars rose 6.1% to $32.7 million or 30.1% of net sales compared to $30.8 million or 32.9% of net sales in the same period last year. Increases in SG&A in the first quarter were primarily attributable to 3 areas: marketing, incentive compensation and executive retention plan.

First, we substantially increased our direct mail and online marketing efforts compared to last year, when we were focused more on moving through non-go forward inventory rather than driving traffic. Second, we began accruing performance-based incentive compensation under the expectation we will be awarding cash incentive bonuses for the first time in a number of years. Third, the company put on a management retention plan in July of 2012, the cost of which is being expensed ratably over a 12-month retention period ending in July 2013.

As we have previously indicated, SG&A is going to grow on an absolute dollar basis this year, albeit at a slower pace than sales as we invest in our business. Depreciation and amortization expense was $3.4 million in the first quarter compared to $5 million in the comparable period last year.

We recorded a $140,000 noncash impairment charge related to 1 underperforming store in the first quarter. During the first quarter of 2012, we recorded an $800,000 credit or $0.02 per diluted share associated with approximately $1 million more favorable lease termination settlements than originally accrued, which was partially offset by the recognition of approximately $100,000 of asset impairment charges related to 5 underperforming stores and $100,000 of miscellaneous closing costs related to stores closed in the first quarter of last year.

Income from operations was $782,000 or $922,000, excluding the noncash asset impairment charge. For the first quarter of 2012, our loss from operations was $13.4 million or $14.2 million, excluding the impairment and restructuring credit.

Provision for income taxes totaled $90,000 in the first quarter. At the end of the first quarter, we maintained a full valuation allowance on our net deferred tax asset. As a result, our income tax provision in the first quarter was due to the assessment of minimum fees and taxes in certain jurisdictions. In the first quarter of the prior fiscal year, we recorded an income tax provision of $60,000, again, primarily due to the assessment of minimum fees and taxes.

Net income for the quarter totaled $629,000 or $0.02 per diluted share. Excluding a noncash impairment charge, net income was $751,000 or $0.02 per diluted share. The net loss for the first quarter of last year totaled $13.4 million or $0.38 per share, including the $0.02 per share credit related to asset impairments and restructuring charges.

Now turning to our balance sheet. We ended the first quarter with approximately $40.5 million of cash, cash equivalents and investments. This compares to $40.7 million at the beginning of the year and $33.7 million at the end of the first quarter a year ago. Total inventory was $43 million at May 4, 2013, compared to $44.5 million at April 28, 2012, a decrease of 3.2%.

Inventory per store, excluding in-transit and e-commerce inventory, ended the quarter approximately 6.9% above the levels at April 28, 2012. This increase is to ensure that we have sufficient inventory to drive our expected sales increases in the second quarter as compared to last year. The composition of the inventory at the end of the quarter was very current. Approximately 75% of the inventory was represented by April and forward life cycle product or core inventory. This compares to 72% at April 28, 2012.

We had no outstanding borrowings under our revolving credit facility during the 13-week period ended May 4, 2013, and have not drawn on the facility other than to open letters of credit in the normal course of business.

Capital expenditures for the quarter ended May 4, 2013, totaled $1 million. During the first quarter, we closed 8 stores. Four of the 8 were converted to the 2 MPW stores, what we previously called dual stores, but include missy, petite and women, and we opened 1 new MPW store. As of May 4, 2013, we operated 603 stores, consisting of 379 Christopher & Banks stores, 156 CJ Banks stores, 43 MPW stores and 25 outlet stores.

Now I would like to update you on our outlook for the second quarter and full fiscal year 2013. We expect same-store sales for the second quarter to increase in the 8% to 10% range for the 13 weeks ended August 3, 2013. This compares to a comp of a positive 8.9% for the 13 weeks ended August 4, 2012. We expect approximately 450 to 550 basis points of gross margin improvement in the second quarter as compared to the comparable prior year period, 3/4 of which reflect improved merchandise margins and 1/4 resulting from positive leverage and occupancy expense.

We expect SG&A dollars to grow due to increased investments in marketing and store systems, as well as accruals for performance-based incentive compensation and the remaining accrual for the management retention bonus put in place last July. As a result of these items, we expect SG&A as a percent of sales in the second quarter will be between 30.5% and 31% as compared to 29.6% in the last year's second quarter. We expect our inventory growth in the second quarter to be in line with our anticipated increase in same-store sales for the quarter.

Now I'd like to provide you with some of our expectations for the full fiscal year. We expect to see slight positive leverage on SG&A as a percent of sales for the full fiscal year. We expect to recognize a nominal amount of tax expense for the year, as company's tax provision will continue to be affected by the valuation allowance on our deferred tax assets in fiscal 2013. And we expect average store count to be down 9% for the second quarter and 8% for the full fiscal year as compares to the comparable prior year period.

We are increasing our capital -- our anticipated capital expenditures to approximately $10 million to $10.5 million as we are now planning to open additional stores, as well as convert a total of 12 stores to 6 MPW stores. In addition to the conversions for the year, we expect to open 5 outlet stores and 2 new MPW stores. Depreciation and amortization for the year is expected to be between $14 million and $14.5 million.

Overall, we believe we are well-positioned to benefit from the initiatives we have been executing over the last year, and we're very excited about the opportunities that lie ahead as we continue to build upon this foundation.

With that, I would like to turn the call back to the operator to open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Neely Tamminga with Piper Jaffray.

Neely J.N. Tamminga - Piper Jaffray Companies, Research Division

So I would love to just dig into a few details from the call, if we may. First, a little bit more on the pilot store program. Great strategy overall. Sounds like you guys are definitely doing a good job of executing some of those learnings into the balance of the store chain. Just wondering, specifically, around the timing of some of those deployments. I mean, are you doing this in waves across the organization? And would Q1 have been impacted by that to the positive? Or is that something for like a Q2, Q3, Q4 sort of potential upside as you deploy those strategies?

Luann Via

So Neely, I'll start, and then I'll let Pete fill in a little bit. We, actually, have been analyzing this program more specifically over the last year and have gained a lot of learnings from it. We did add 32 stores, I believe it is, in the first quarter, and we're continuing to look at it. But as we've really evaluated it, we've really seen the talent that we've put in, the upgrading of the talent, the incentive bonuses, the increased payroll where it made sense in certain stores from a volume perspective in servicing the company and the customers, and the inventory levels, where they were appropriate in certain stores, we've seen, obviously, lifts from that. So as we continue to evaluate that, we are now starting to really just incorporate it into our total DNA, and that is utilizing the upgraded systems that we have within our planning and allocation to really say, okay, we're going to start actually putting this into the company on a day-to-day basis. So I would say that it's really not in waves. It's really more seeing it weaved in as we're working through our next year plan, our 3-year plan, and really pushing through the key ingredients on an individual store basis, based on the needs and the learnings that we've seen by this pilot. Pete?

Peter G. Michielutti

Neely, as LuAnn said, we added 30-some stores in the first quarter. And when we sat back and analyzed the various groups that we did last year, we learned a lot on the payroll side. And it really just stratified, based on volume, the need for payroll based on the sales productivity on a store-by-store basis. And so we've got 101 stores in there, and as we'll be working through volume groups as we go through the year from a parallel [ph] standpoint and just slowly -- rather than doing it in big chunks, we're going to feed the stores slowly. And as they earn more payroll, they'll get more payroll, and some stores will earn, and some stores won't. As it relates to the inventories, as LuAnn mentioned, the JDA system and the upgrades that we did there, they will feed those stores more as the sales productivity continues to improve. Rather than trying to force it, we'll be able to -- with more science than art -- feed additional inventory in there.

Neely J.N. Tamminga - Piper Jaffray Companies, Research Division

That's really helpful, you guys. So another related question to this. So as we think about the CapEx, also increased overall on the stores, it sounds like that's really the delta, and you've given the expectations around DNA for the balance of the year. Just wondering if there could be further opportunities to open up more stores in the back half. Or now that we're on this side of ICSC, is that kind of locked in for 2013? And maybe if there were going to be additional stores, that's going to be more of a 2014 sort of initiative?

Luann Via

Well, Neely, I think there's a couple of things. First of all, we're taking a very methodical approach to our real estate portfolio, as you know, and we're evaluating it continually. And as our strategy is to grow outlets and to also really convert into MPW stores, we really increased our CapEx this year, because we were -- we have availability to actually open new stores. So it really kind of depends on the real estate that comes available. So we're -- if, in fact, something comes that we firmly believe is really relevant for our portfolio, we would take a second look at it. But as we move a little bit further, quite frankly, the timing is kind at the point now where we would have to get started, really, to go to the actual opening in '14.

Neely J.N. Tamminga - Piper Jaffray Companies, Research Division

Okay, that's helpful. And then just one other follow-up. On the quarter, in Q1 specifically, could you flesh out a couple of more details around the traffic patterns? Just, obviously, having the store base that you guys have, relative to the upper Midwest, it was horrific out there from a weather pattern perspective, and it's amazing that you've generated the comps that you did kind of like traffic was negative. Was that primarily due to the overall traffic being negative because of the back half of April? Or were there periods of ebb and flow to the traffic overall? And then if you could layer in also some conversation around what you saw specifically from your fashion rewards customers in this quarter, how they're behaving and any way, any of the metrics of frequency or spend, that would be helpful.

Luann Via

Sure, Pete, why don't you talk a little about the traffic and the penetration between the West and the South?

Peter G. Michielutti

Right. So the traffic, there were ups and downs. A lot of it, the ups and downs, doing the changing of Friends and Family from March to April, so as opposed to anything else going on. Traffic, when you push those things back together, we were down slightly in traffic all quarter. We ended up being down maybe about 1% for the quarter. And April, because we are in the upper Midwest, did impact us to a significant extent. We see ebbs and flows. We'd have a snow day, traffic would go down, we pick it back up earlier in the quarter. So in going back and analyzing it, probably the best thing is looking at the quarter as a whole, and looking at it by regions. So the South and the West had the minimal weather impact compared to the other regions. The South outperforms the East and the Mideast by 400 basis points. It outperformed the Midwest by 800 basis points in comp. So the weather, obviously, had a big impact on those 2 regions. As it relates to the rewards customer, we did not see any significant change in their pattern. Probably, most importantly, we continue to build momentum on the private label credit card, moving that up to 375,000 customers and 21% of sales at this point in time. And we expect that to continue to move up as we get through the year.

Operator

We'll take our next question from Jeremy Hamblin with Dougherty & Company.

Jeremy Hamblin - Dougherty & Company LLC, Research Division

I wanted to just get into a couple of things on your guidance. Pete, I'm wondering if you could just help clarify for me. You mentioned in the press release that the guidance for Q2 was 8% to 10%, but that was measured against a plus 8.9% from last year...

Peter G. Michielutti

Correct.

Jeremy Hamblin - Dougherty & Company LLC, Research Division

Versus your reported 5.5%. Is that a shift in the retail calendar that's accounting for that? Or is that actually just the stores that were closed?

Peter G. Michielutti

No, that is a shift in the retail calendar. As you know, we gained momentum in sales throughout the year. So by shifting the calendar one week, we actually drop off a week that was down 18. And we picked up a week that was up 18. So it had a dramatic impact in what our comp is making that period go from 5.5% to 8.9% by the one week move.

Jeremy Hamblin - Dougherty & Company LLC, Research Division

Okay. And then I just wanted to into get more detail about your online business and how that performed in Q1. I know that you really didn't touch it in 2012 as you made a great turnaround in the store business. And you mentioned that it was kind of flattish year-over-year or maybe slightly better in 2012. But you also made changes to your website-hosting platform at the end of April. I was just wondering if you could shed a little more light on how that business, in particular, is performing.

Luann Via

So our e-commerce business, Jeremy, was positive in the first quarter. We did launch our new v11 platform, as we call it, this past quarter. So we believe that this platform is going to really support 4 critical priorities for the company. And that's really about enhancing our multichannel experience. I think I told you initially that I had hired a VP of E-commerce and Digital Marketing. We are planning to put a strong focus on e-commerce. We want to expand it through growing our investment in digital media platforms, as well as other channels. We are looking at really optimizing our assortments within the merchandise mix to really focus on our key volume drivers, key categories. We will continue to have a mix of exclusives within that, which would extend beyond with our brick-and-mortar offer. And we're continuing to really use that platform also from a testing perspective, as well as others. And we're continuing to look at improving that experience for the customer, which is, obviously, why we went into the enhanced platform. So I would say that as we move into the back half of the year and we start really measuring where we are against the performance of our brick and mortar and our e-commerce, that we have tremendous opportunity to grow this business, really more multichannel than just online as well.

Jeremy Hamblin - Dougherty & Company LLC, Research Division

Great. Has it changed at all in terms of the cadence of your emails and the promotions that you're running? The hosting platform, has that changed the cadence? Are you able to do it more frequently, now that you have better control over the website?

Luann Via

Well, we really didn't have an issue prior to even the launch of that as it relates to us generating what we needed to during the time frames that we wanted to. So it really doesn't have any impact on that. It's really more flexibility. Obviously, we have the ability to control it at our end, so we're really looking at enhancing the site, really looking to build micro-sites, if you will, within it to really expand on our outfitting, really provide her with an experience that's easy to navigate and really will complete [indiscernible] -- and, obviously, driving ADS online is a major objective.

Jeremy Hamblin - Dougherty & Company LLC, Research Division

Great. Pete, I was wondering if you could just add a little bit more color on the comps in Q1. And we talked a little bit about traffic and so forth. Can you just shed a little more color in terms of units per transaction or AURs on how the composition was in Q1?

Peter G. Michielutti

Sure. The AURs were up slightly in the first quarter, as well as UPTs, which is really what was driving the improvements on the sales side. Obviously, given that traffic was down, I think ADS was up, I believe [indiscernible] -- give me one second. ADS was up a little over 10% in the quarter. And UPTs were up about the same, because AUR is up a couple points.

Jeremy Hamblin - Dougherty & Company LLC, Research Division

Great, and then just one last thing. It doesn't seem like we can really escape the weather. And again, it's really impressive what you guys are doing in the face of every -- almost every other retailer, really struggling through it. But here we are with kind of another event on our hands coming into a weekend. And I just wanted to get a sense for tropical storm Andrea. How -- in terms of how many stores you think could be impacted? Are there any stores you're going to have to close, because you're concerned about it, just any other color in planning for that event?

Peter G. Michielutti

I mean, it's -- obviously, we had the event last fall, and we had a significant amount of stores impacted in the -- during that timeframe. And we obviously follow whatever is going to provide our associates the best safety. And based on what's going on in local communities, we will be conservative and make sure of their safety. We have more stores in the Midwest, which, obviously, hurt us more in the first quarter. In this case, less stores in the East will minimize the impact.

Operator

And we'll go next to Justin Ruiss with Sidoti & Co.

Justin Ruiss - Sidoti & Company, LLC

Just -- I just had a quick question. Can you just review some of the sourcing methods that you were using for the first quarter? It seems like -- maybe if you're doing more key item orders on stuff like the wovens, and what have you, might help the margin out a little bit.

Luann Via

Well, there are several pieces to that, Justin, from a margin perspective. Number one is our focus on driving the right combination of good/better/best, which we feel is appropriate now. About half of our business is in the good price point, so that was the beginning, as you know, from the previous year of really making sure that we have the price value equation. The other is really driving our core business, which, obviously, with basics and key items, that business is, obviously, much more stable. When you're driving big volume items, obviously, you have cost advantages, so you can leverage raw materials in production. But also, at the same time, it's really about maintaining the right balance of core and fashion. And as we look at -- as we move forward, there are some key core programs that we believe that we can maximize in the next year to 3 years, quite frankly, and key programs that we've been successful with in the past, that we really kind of walked away from. So we believe [indiscernible], obviously, mitigate markdowns. And then the other piece is in the fashion piece, our customer does like fashion. She wants to make sure that it's validated fashion. But at the same time, what we have to do is manage the best [ph] of inventory that we have and take appropriate markdowns on a timely basis.

Justin Ruiss - Sidoti & Company, LLC

Perfect. And then just another question. I see this a lot with some of the other retailers, but how is the denim line performing?

Luann Via

Actually, denim is doing very well. In fact, we are looking to expand that piece of our business. So we are very encouraged, not only from denim, but also the rest of our bottoms business, which we see is -- has been a void in the past in completing her outfit. So I think that if you're in our stores, you'll see that we do not have the proper balance of long-leg bottoms as we do to capris and shorts, et cetera. And we do believe that there is a long -- so obviously, there is a long-leg business year-round. So we think that's another piece of the business that can be an opportunity for us going forward.

Operator

And we'll go next to Jay Li with Trafelet.

Jay Li

I, actually, had a question regarding the guidance as well. One of the items -- you guys mentioned that you want -- SG&A dollars are going to grow, but at a slower pace than sales growth. But when I look at last year's quarter, it's about 29.6% of sales, and then I think you guided for 30.5% to 31%. So I was just trying to reconcile the 2.

Peter G. Michielutti

Well, sales are going to grow 8% to 10% in the quarter.

Jay Li

Okay. So I -- sorry, I guess, I was -- because I guess I was thinking your store count will be down. I think you guys mentioned an average of 9%. So I mean, who knows whatever machinations what that ultimately be at a sales level? I guess, I'm just trying to figure out how that leverage goes.

Peter G. Michielutti

For the full year, we're going to have a slight positive leverage on SG&A. Right. And on a quarter-by-quarter basis, there may be a deleverage in one quarter, obviously, in the second quarter, it's a deleverage. It's related to specific items, which is marketing, the incentive comp and the remaining accrual on the retention amount. And so -- but if you look at the absolute dollar basis -- sales -- the 8% to 10% sales, comp sales increase will be more than the anticipated percent increase in SG&A dollars.

Jay Li

Okay. I guess, I'm just -- so the right way to think about it is sort of on a per-store basis, that's what you'll be expecting to get a little bit of leverage on?

Peter G. Michielutti

Correct.

Jay Li

Okay. And then just on my math here, I was just trying to parse out the performance of the pilot stores versus the rest of the chain. You guys mentioned that the pilot stores outperformed by about 1,500 basis points. My rough -- I mean, I guess, the way I break that down to then the rest of the chain, sort of the non-pilot stores performed at something in sort of a 21 percentage comp range. And then the pilots are sort of in the 36% range, is that...

Peter G. Michielutti

That is a reasonable calculation.

Operator

It appears there are no further questions at this time. I'd like to turn the conference back to our speakers for any additional or closing remarks.

Luann Via

Thank you very much. We continue to see a positive about the long-term potential for growth of the company, and we're confident we have the right strategies in place to return the company to profitability. We look forward to reporting on our progress at our next conference call. And thank you, all, for your continued interest. Have a great afternoon. Thanks, everyone.

Peter G. Michielutti

Thanks.

Operator

This does conclude today's conference. Thank you for your participation.

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Source: Christopher & Banks Management Discusses Q1 2013 Results - Earnings Call Transcript

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