Coldwater Creek Management Discusses Q2 2013 Results - Earnings Call Transcript

Sep.10.13 | About: Coldwater Creek, (CWTR)

Coldwater Creek (NASDAQ:CWTR)

Q2 2013 Earnings Call

September 10, 2013 4:30 pm ET

Executives

Lyn Rhoads Walther - Divisional Vice President of Investor Relations

Jill Brown Dean - Chief Executive Officer, President and Director

James A. Bell - Chief Financial Officer, Chief Operating Officer and Executive Vice President

Analysts

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

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

Robert Schwartz - Cooper Creek Partners Management LLC

Operator

Greetings, and welcome to the Coldwater Creek Inc. Second Quarter 2013 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Lyn Walther, Investor Relations for Coldwater Creek Inc. Ms. Walther, you may begin.

Lyn Rhoads Walther

Good afternoon, everyone, and welcome to Coldwater Creek's Second Quarter 2013 Conference Call. Our press release this afternoon includes details regarding our second quarter results. Participating in today's call are Jill Dean, President and Chief Executive Officer; and Jim Bell, Executive Vice President and Chief Operating and Chief Financial Officer.

We will provide certain information on an adjusted basis during today's call. We have provided information on these adjustments in the schedule titled GAAP to non-GAAP Reconciliation of Selected Measures, included with the second quarter earnings release issued today. As a reminder, we will continue to record quarterly noncash losses or gains associated with the mark-to-market activity related to the derivative liability, primarily as a result of fluctuations in our stock price. In general, an increase in our stock price will result in additional noncash losses, whereas a decrease in our stock price will result in gains.

During today's discussion, we will make forward-looking statements within the meaning of the securities laws. These forward-looking statements are based on management's current expectations, estimates, assumptions and projections that are subject to change, and actual results may differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially include those risks and uncertainties described from time to time in our most recent filings with the Securities and Exchange Commission. Any forward-looking statements are made only as of this date, and we do not assume any obligation to update any forward-looking statements.

Now I would like to turn the call over to Jill.

Jill Brown Dean

Good afternoon, everyone, and thank you for joining us. For today's call, I'll start off with an overview of our second quarter results and provide an update on our 2013 initiatives. Jim will follow with the more detailed review of the quarterly financial results and our outlook for the third quarter. After our prepared remarks, we will turn the call over to the operator to take your questions.

While our second quarter bottom line results were in line with our guidance, we were not satisfied with our overall sales performance, largely due to disappointing sales in July. We have made progress on a number of strategic initiatives this quarter, and we continue to see positive customer response in the areas of our assortment that are aligned with our brand positioning strategy, which give us confidence that we are on the right track with the changes we are making. However, we continue to struggle with inconsistent traffic patterns and this trend continued in the second quarter.

Sales for the second quarter were softer than expected, declining 7.3% on a same-store basis. Our sales results were highlighted by the positive performance of our June summer sale event. As we discussed on our last conference call, we reintroduced this event this year as we saw an opportunity to drive incremental sales. It did, in fact, deliver positive results, and going into July, we were in line with our expectations quarter to date. However, similar to other retailers, we experienced a material deceleration in the month of July.

In hindsight, we believe that part of this deceleration was due to reduced marketing spend for the month and a change in the timing of our high summer floor set. In addition, our high summer floor set did not align with our newly defined brand filters as we lacked the appropriate balance of color and print. We delivered too much color and not enough neutral, and our print assortment was skewed too heavily towards trend-driven prints and not enough florals and no-print prints, which are the foundation of our DNA.

Sales in the direct channel were down 8%. However, margins increased year-over-year due to higher full-priced selling. Going forward, we have made several website enhancements to improve the shopping experience online, including easier navigation tools, new search functionality and additional fashion content.

We relaunched our rewards program in July, with strong messaging in-store and online. With the introduction of our new tiering program, we are seeing customers progress to elite status at a healthy rate. Over the past year, we have seen significant improvement in the quality and composition of the annual spend of our loyalty members, as well as in their shopping frequency. This month, we will reintroduce private sale events to our most loyal customers, with enhanced benefits, as well as exclusive merchandise preview opportunities and access to personal stylists. We have aggressive plans for our loyalty program as we expect to end the year with approximately 2 million members.

For fall, we are excited about our jean shop, which figures our -- features our redefined 5-pocket business and showcases jeans in a variety of washes and fabrications and in 3 different fits, with our signature shaping technology. We believe that we have a better breadth of classic and fashion-inspired jeans that appeal to a broader customer base. Our fall marketing and creative strategy reinforced our authoritative position on jeans, with strong and consistent tri-channel messaging. We have created compelling and integrated visual merchandising and promotions that are designed to drive traffic and enhance the store experience by making it easier to navigate and shop. And we are continuing to deliver newness on the jean assortment throughout the fall and holiday seasons.

In addition, we have tested and rolled out several new promotions this quarter, which are focused on driving traffic and increasing our average transaction value. We are testing several digital and social media programs to optimize our marketing spend and increase new-to-file customer capture. We remain focused on reacting to trending categories and improving our ability to chase goods, which is an important component of our speed-to-market strategy. In response to the uncertain macro environment we experienced earlier this year, we chose to keep more open-to-buy dollars than we have historically done in order to position us to chase the trending categories in the back half of the year. In fact, we have identified several new trending subcategories and are actively reinvesting in them for the fourth quarter.

We recognize that improving customer engagement and driving traffic are critical to the long-term success of our business, and we've made 2 important announcements recently that underscore our commitment to these imperatives. First, we further expanded our talent pool, announcing that Deb Cavanagh recently has joined us as Chief Marketing Officer. Deb brings a tremendous amount of experience in building and repositioning consumer brands, and we are confident that she will introduce new and innovative marketing strategies while continuing to work with us to optimize our existing platforms.

We also announced a strategic partnership with Alliance Data, a leading provider of loyalty and marketing solutions. We believe that we will be able to leverage their capabilities to strengthen and broaden our customer engagement, improve customer loyalty, and ultimately, drive incremental sales. Jim will talk more about this in his prepared remarks.

Regarding the third quarter, we believe it is prudent to remain cautious in our outlook, given that we have not seen a material change in traffic trend from July and as we continue to face a challenging and promotional environment. In closing, our return to more consistent sales results has been slower than expected, and we are clearly not satisfied with our performance. What we are focused on is continuing to execute our strategic initiatives and to driving top line growth, strengthening the position of our brand in the marketplace and creating a disciplined approach to providing our customers with trend-right, age-appropriate fashion and a consistent multichannel experience.

Now I will turn the call over to Jim to discuss the financial details.

James A. Bell

Thank you, Jill. While returning to more consistent top line performance remains our top priority, we continue to realize some positive financial benefits related to our efforts to prudently manage expenses and inventory, as well as in the optimization of our real estate portfolio.

In regard to our top line, as Jill mentioned, improving customer engagement and specifically increasing traffic to our stores is our key area of focus. To that end, we were pleased to announce our new long-term agreement with Alliance Data Systems. We chose to work with ADS because of their significant retail experience and sophisticated consumer data analytics. We intend to utilize their capabilities to enhance and grow our credit card and loyalty programs, which we believe will create a stronger, deeper connection with our existing customers, as well as attract new ones to the brand by significantly broadening the reach of the platform.

We believe this partnership enabled us to unlock a meaningful revenue opportunity from our credit card portfolio, improving the share of annual spend of our current cardholders at Coldwater Creek stores and online. The contract includes $25 million in upfront incentive payments that we will receive as certain milestones are achieved. The last of which is a $2 million incentive payment that is anticipated to occur in the first quarter of fiscal 2014 with the launch of our private label credit card. Separately, we also signed an agreement for ADS to lease one of our buildings in Coeur d'Alene, Idaho, which they plan to use as a call center to support their credit card operations.

Now turning to our inventory management initiatives. As an organization, we have worked diligently to develop many inventory management disciplines in recent years, but we're lacking adequate tools to fully maximize our inventory investment. This past March, we completed the implementation of a new Oracle-based inventory planning system. The capabilities of this new system are significantly more robust than anything we've used in the past, providing a level of transparency that represents a meaningful opportunity for us to drive more consistent sales and margin improvement over time as we become more proficient with this new capability.

During the second quarter, we continued our efforts to improve our inventory position, ending the quarter with total inventory down 7.3%, in line with our expectations. Inventory per square foot was down 7.5% for the quarter.

Now moving to an update on our real estate optimization work. We are on track to complete the initial store closure phase of this program by the end of this fiscal year. As a reminder, that means that we will have closed all 45 of the stores we originally targeted in mid-2011 when we began this work. Our efforts in this area continue to show positive results and in the second quarter, yielded 50 basis points of occupancy leverage despite an 8.5% decline in our total sales.

Looking ahead to fiscal 2014, we plan to continue this initiative and have over 65 potential lease actions that are being evaluated for either closing, downsizing or renegotiation of lease terms. While we expect there to be some additional store closures over the next year, we anticipate, through the bulk of our upcoming lease actions, we'll be weighted more towards downsizings and lease term renegotiations. As you know, we have been very pleased with the performance of our downsized stores and continue to believe that the optimum average store size is approximately 4,000 square feet.

Turning to a review of the second quarter. While sales were softer than anticipated, we maintained our disciplined expense management and delivered results that were in line with our guidance. Our adjusted net loss for the 3-month period was $0.72 per share compared to an adjusted net loss of $0.62 per share in the prior year period. As compared to the previous guidance, our results were negatively impacted by a change in revenue recognition timing related to our deferred credit card revenue. Specifically, in order to facilitate the transition from Chase to ADS, we extended the Chase agreement term. As a result, there were $1.7 million or $0.06 per share of revenue shifting out of the quarter. This revenue will instead be recognized over the next 4 quarters.

Specifically, our results for the second quarter were as follows. Consolidated net sales were down 8.5% to $149.7 million. In the retail segment, sales declined 8.7% due primarily to a 7.3% decline in comparable premium store sales. On a comparable basis, our conversion remains strong, increasing 5% for the quarter. However, this was offset by a 5% decline in traffic. Due to both the planned and unplanned increases in promotional and markdown activity, our average unit retail was down 5% for the quarter.

Second quarter sales in our direct segment declined 8%. We were pleased to see higher full-priced sales, which drove strong increases in average transaction value in this channel. The improvement in average trends was offset, however, by lower web session traffic and conversion rates. And it's important to note that we continue to expect somewhat lower traffic and conversion rates on the web as we continue to shed less profitable clearance sales.

Total gross profit margin declined 20 basis points to 29.4% as occupancy expense leverage was slightly more than offset by lower merchandise margins. We anticipated a certain degree of margin pressure due to the addition of the June sale event, but softer sales trends in July prompted heightened promotional activity, primarily in the retail channel. Margins were higher year-over-year in the direct channel driven by significantly higher full-priced selling and lower clearance sales.

Selling, general and administrative expenses declined $3.1 million to $62.6 million or 41.8% of sales due to lower marketing and employee-related expenses. Interest expense related to our term loan was $3.6 million for the quarter compared to $1.7 million a year ago. Last year's relatively lower number reflects a partial quarter of expense as we closed our term loan agreement in early July of 2012.

Now turning to our balance sheet for the quarter end. Total cash was $17.3 million compared to $45.5 million last year. At the end of the second quarter, we had $15 million of outstanding borrowings under our revolving credit facility and $43 million of remaining availability. It is important to note that due to the 53rd week, the timing of payments for certain rents and other accounts payables shifted, which reduced our comparable cash balance this year versus last year by approximately $10 million.

Capital expenditures for the quarter totaled $2.9 million, and depreciation and amortization was $11 million. During the quarter, we closed 3 premium retail stores and 1 factory store, ending the period with a total of 344 premium retail stores, 36 factory stores and 8 day spas.

And finally, we continued to diligently manage expenses, generating savings of $12 million in the first half of fiscal 2013. We now expect to reduce total SG&A expense for the year by between $18 million and $23 million as compared to our previous guidance of between of $12 million and $14 million reduction. In addition, we now expect full year capital expenditures to be between $10 million and $12 million, down from our previous guidance of between $15 million and $18 million.

Now turning to our third quarter outlook. We expect comp store sales to be down in the high-single digits and gross margins to be flat to slightly down. We expected our adjusted net loss per share to be in the range of $0.55 to $0.75. This guidance excludes any quarterly impact of the change in the fair value of the derivative liability associated with our preferred stock. And finally, we expect total inventory to be down in the mid- to high-single digits as compared to the third quarter of fiscal 2012.

In summary, we continue to make progress on our operational initiatives involving inventory, expense management and store optimization, and we expect to continue to realize further meaningful benefits from these strategies. That being said, our outlook for the third quarter is cautious, driven by the variability in the return of more consistent top line performance. As I mentioned at the start, delivering this consistent top line performance is our top priority, and we're actively taking steps to address all of the elements that are within our control to achieve that end.

With that, I'd now like to turn the call back over to the operator and open it up to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is coming from the line of Neely Tamminga with Piper Jaffrey.

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

I have a couple of questions for you guys. Jill, if you could just discuss a little bit for us on some of the August deliveries that we have seen. It would appear that the store level did show some improvement while what we're hearing from you here is that there has not been an improvement. Just wondering if you could actually scorecard kind of what you see currently in the August assortment and whether or not there are changes or adjustments that can be made in September -- by August, I mean, kind of the late August, early September delivery? Could you give us a sense of how you would score the assortment?

Jill Brown Dean

Sure. It's certainly too early for us to get a full read on fall. I think overall, from the time we set our first fall floor set in August and now into our second floor set, we've been pleased with how our jean assortment is tracking. I would say across the board, our performance in jeans, whether they be classic or fashion, is the most balanced and well-rounded assortment that we've ever had between the 2. And our investment there seems to be paying off and we are pleased with that. I think our opportunity in August, as we reflect on it, would have been that we transitioned to fall too quickly, so an opportunity for more wear now in both print and in color. We were too heavily invested in sweaters as opposed to knit and woven tops. We've had success -- really strong success in sweaters over a number of quarters and pursued it a little too aggressively at this time period versus the more wear now knits and wovens. And then I would say we have some really key emerging trending categories that we're chasing very, very aggressively for holiday.

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

So Jill, on the other side at Labor Day, we're just not seeing improvement. Is that the takeaway here?

Jill Brown Dean

Traffic remains our challenge.

James A. Bell

But I think it's important also to note, though, that we saw or are seeing improvements in our average transactions as we progress in the quarter, as well. So there's a lot of moving parts.

Jill Brown Dean

We continue to have healthy conversion, improvement in average trends, and yes, those have been the biggest changes in the last few weeks.

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

Okay, that's helpful. And then, Jim, I guess related to traffic, I know that there's a lot of things in flux here with the changeover to ADS and what have you. And you guys, I think, have launched your -- relaunched your loyalty program, and there's a lot going on with that. Could you give us a sense of kind of any sort of more granular contextualization of your customer metrics? Where are you guys on your loyalty program today versus maybe a year ago? And kind of what is the average engagement level or spend or maybe the comp trends in that group relative to the kind of the non-Coldwater Creek loyalty members -- the not yet Coldwater Creek loyalty members?

James A. Bell

Sure. Let me just kind of give you some general context there. We continue to add members into the loyalty program at a great clip. It's -- we -- this represents a little bit north of sort of 50% of the sales. This is a number that we continue to focus on growing in terms of their contribution to our total sales effort, which is why this is important for us to continue to engage that part of the customer base, both the existing part of the customer base, as well as bringing, for lack of a better phrase, new-to-file customers into the loyalty program, which is why this partnership with ADS is really one of the more important linchpins as we go forward. It enables us to do a lot of customer data analytic that we didn't have the -- we have quite a lot of capability, but this adds even greater capability for us to understand these consumers and really engage in a -- not only in engagement with respect to the credit card program, but the brand in totality. And it gives us another platform to continue to communicate all of the work we've been doing with our brand strategy development.

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

I guess let me switch gears a little bit and just ask one more question, and then I'll pass it off to the next questioner. If we think about some of the Oracle system that you indicated that you were bringing here online, it sounds like inventory is the primary subject matter that you could see some relative rate of improvement. Could you give us a sense as to, financially, will we see that ultimately through just better deployment of inventory, so therefore just reduced markdowns? Or is it intel around kind of what the initial pricing should be? Could you give us a little bit or more of what might be the intended benefit and identified benefit from the Oracle system might be and contextualize for us kind of what the opportunity is, maybe even the timeline?

James A. Bell

Yes, absolutely. I'll share some comments, and then Jill will probably may have maybe some color as well. The primary element here is really -- we look at it in 2 parts, Neely, and that is preseason planning and the ability to look at historical performance in a way that we haven't before in terms of transparency to that. And then more importantly, creating those plans on weekly levels and really dissecting the progress that we make throughout any particular season. And then the second bucket is in-season and the ability to utilize the capabilities and visibility that we have to read and react in a much better way as we're inside of a season. So it's both the pre- and in-season capabilities. I think those are the critical factors. The endgame, what it means is buying more efficiently upfront, but also being much more efficient in terms of the management of any particular item throughout its entire life cycle -- when to go to a first mark, how deep to go to that market, et cetera, how is it performing at full price, how long do you keep it there, et cetera, on a weekly basis. These are all capabilities that we've been employing, but not with the level of transparency that this system gives us. Having said that, the first really -- the first season that we did preseason planning utilizing the system was our holiday assortment upcoming.

Jill Brown Dean

What I would add to that is the -- Neely, if you remember, we have spoken now for quite some time about our top 30 assortment architecture. And honestly, our business goes with the flow and the track record and the trend of these top 30 styles, and that's the key to us for consistency. And what this system really gives us is the precision to plan floor set by floor set, week by week to ensure that each of our big businesses and each of our key categories is appropriately positioned in the preplanning phase and then appropriately reacted to, whether it is promotions, slowing down inventory in the supply chain, moving up inventory, the whole read-and-react thing. So it's giving us a precision around these big top 30 styles, which, as you said, really when we're successful, they're half our business. And it's just giving us a tremendous level of insight and visibility that we have not had.

Operator

Our next question is coming from the line of Mr. Jeff Van Sinderen with B. Riley.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Maybe you can just comment, is there officially a process underway to sell the company? Or have you not said anything about that officially?

James A. Bell

Look, Jeff, as a matter of policy, we don't comment on that kind of rumor or speculation.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Got it, okay. And let me ask, maybe you could just talk about how business -- what sort of the progression was when you started Q3. I know you mentioned -- you talked about July, you said things haven't gotten better so much in August. Is it -- I mean, has there been anything with the weekly progression that you could speak to? Maybe you could talk a little bit about how we should think about merchandise margins for Q3, a similar magnitude of decline that we saw in Q2. And then also are you going to be more or less promotional, do you think, in Q3 this year versus last year?

Jill Brown Dean

You want to start?

James A. Bell

Sure. I think, first of all, in terms of progressions, I mean, we're not and haven't been and don't feel compelled to really kind of breakdown the weekly flow inside this quarter. We've got a lot of the quarter to go. September represents a big part of the quarter, so I think everything that we feel today is accurately reflected on our guidance for the quarter. And by the way, I think that with the -- I think some of the information we've given historically in terms of where the occupancy leverage comes relative to the top line, I think you can get a sense of -- well, we haven't given particular guidance to merchant margin, you can get a sense of where that would sit relative to our overall total reported gross margin guidance of flat to slightly down.

Jill Brown Dean

I think in terms of the marketing programs, as I said in my earlier remarks, we continue to test for new promotional marketing ideas and traffic drivers. We're doing digital marketing testing. We're doing some social media testing. So we continue to actively test a variety of marketing mediums to help us drive traffic. I think that the external environment is certainly very challenging in the level of promotional activity that's out there. And it is certainly our intention to be promotional, but I don't know that I expect it to be a significant change year-over-year as we move through the quarter.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Okay. So we should assume basically roughly a flat promotional cadence to last year?

James A. Bell

I think that's fair.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Okay. And then, Jim, I know you touched a little bit on real estate. I'm just wondering, on the 4,000-square-foot stores that you have open now, maybe you could remind us how many stores that is. Are those stores positive contribution at this point? Just maybe lay out the context of that for us? I know you said that's what you're gravitating towards. And maybe how many of the 60 -- I think, you said 64, 65 stores that -- I mean, do you think the bulk of that could be shifted down to 4,000 square feet?

James A. Bell

Yes. I think, over time, of course. We can address -- given the ages of fleet and the growth rate, if you go back over the course of the last decade, when we -- the time frames in which we actually built the stores, you see there's a number of lease actions that are occurring -- 65 in the next year, as an example, is what I talked about. So it's really a fine balance of managing what capital it takes and the payback in each and every individual store. But the reality is, and this is what's probably most important to think about here, is that -- or highlight, is that the performance, the full operating performance of the stores that are in the 4,000 square feet, plus or minus range is significantly better than those that are at the larger end of the spectrum. And so ultimately, that means that while we haven't spoken about specifics or numbers that are within that or profitability, et cetera, it gives you perspective that it's anywhere between 5 percentage points and 8 percentage points of operating margin on a store 4-wall basis that you can see improvement, if not a little bit more. So it really just depends on the location. So it's ultimately, I think, also tied to, in an ancillary way, our inventory strategies. Those stores were built with a very different assortment strategy 10 years ago in this business, and it was built where there was a number of different aspects, not just clothing but really in terms of other accessories items, home accessories, et cetera. That's not who we are, and that's not what this brand is about as we go forward. It's important to continue to align the store footprint with that assortment strategy to be an apparel retailer as we go forward.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Okay. And Jim, can you just remind us, I'm sorry, how many of the 4,000-square-foot stores do you have now?

James A. Bell

We -- I haven't talked about that, and I don't have the number right off the top of my head, Jeff.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Okay, got it. And then just maybe -- I know you touched on inventory being down. I think you said 7.5% per foot for the quarter. Is that sort of where the level we should expect you to be when you end the quarter going into Q4? Or how should we think about comp inventory? I guess...

James A. Bell

I think -- sorry, go ahead.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

I was just going to say also just thinking along the lines of your ability to drive a comp or to mitigate the comp declines of your inventories down that much, if it's the quality of inventory, that sort of thing.

James A. Bell

Yes. I think you hit the nail on the head. It's all about quality of inventory. And ultimately, we're -- there's total inventory. The older product, the older markdown product is really where we're making a lot of headway. We don't have any problem in our ability to drive any sort of upside in the sales, if those trends show themselves, and we can continue to read and react. So that's not an issue at all. We expect to continue to see gains in the overall levels of inventory in terms of bringing them down because, again, it's continuing to improve the quality of the construction of the inventory more than it is having full-line product. And so our guidance for the end of the quarter is in the mid- to high-single digits down year-over-year on inventory. The other thing is it's important for us to -- what we do know and what we continue to build inside of our assortments and our inventory buys is maintaining a freshness in the floral product as we go across, obviously, through every season and in particular, into holiday, and that's what we're focused on. The best part about that is, again, with these disciplines, we're having good open-to-buy disciplines, we're able to read and react and really use the supply chain and working in some of these trending categories that Jill talked about.

Operator

Our next question is coming from the line of Ms. Liz Pierce with Ascendiant Capital Markets.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

So more like piggybacking on Neely's question, Jill. If you had the Oracle system in and everyone was a lot more experienced and understood kind of how to use it, would that have been the gatekeeper in terms of as you look at the summer and the assortment in terms of your comments on color? And I don't remember what else you said, sorry.

Jill Brown Dean

So I think, Liz, as you -- as we look at pockets of the second quarter, the second quarter is a quarter -- a tail of kind of different periods. You have the month of May, which is a significant month for us and then June, July, which is so much about sales. So there are periods in the second quarter where having had this planning system visibility would have been extremely beneficial to us. And I would also say that is true of the entire back half of the year, to have this kind of visibility and this kind of focus is very, very helpful. And as we built and bought for the holiday season, we were able to really use that tool to give us the precision that I was really speaking to. In terms of the color and the pattern, Liz, that is, again, more about understanding that not only is it important to know what our customer values in terms of color print and pattern or what our brand filters are, but how we consistently deliver against them. An example of that would be how long we really went without a neutral floor set in the second quarter. It was way -- it was much, much too long. So we have now precision around how often we have to deliver certain color palettes and what the majority of our print patterns need to be focused on in order to really be -- perform consistently, which is really what we're striving for.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

So just to make sure that I understand, so you're saying it's kind of a yes-and-no answer. Like, would -- I mean it seems to me it's more on inventory, keeping open-to-buy, looking at your sell-throughs and so forth, so you can react on quantities and less maybe on attributes. Is that fair?

Jill Brown Dean

It is also the preplanning part. It's both, Liz. It starts all the way upstream in the design phase. You're really designing into the precision by floor set, timed with demand, driven to key categories, optimizing your winners and your successes from last year. Honestly, it's pretty fundamental stuff but it's a place where we just haven't had the visibility.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

Okay. And I don't remember if it's what was Neely was asking, like the scorecards in terms of how well is everybody -- how proficient is the team that's using it at this point?

James A. Bell

I'd say it's really in the early innings. They're getting very good at it every day. Part of that is you plan your first season, our preseason planning effort, and that was for holiday and we're utilizing it somewhat in the context of in-season work that we're doing here in fall today.

Jill Brown Dean

And there's a repetition now to how often you re-forecast, which is frequently, how often you re-forecast, react to what's going on in the business. Gut check it over and over and over and over, which is something we weren't able to do in the past.

James A. Bell

Yes, so pretty good. Our teams are in pretty good shape. We're having a system that are -- it's a couple of months old in their hands, and the repetition is important, it's like anything else.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

Right, right. And that -- so I mean, without you saying it, it seems that there would be some upside here longer term, huge upside, I would have to believe, on margins.

James A. Bell

We believe so.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

And Jim, a couple of questions for you, you mentioned, on CapEx and SG&A, significant reductions. Could you just kind of tell us where those reductions are coming from, like classify what bucket?

James A. Bell

Sure. On the SG&A front, it's really everywhere except for -- I would give the caveat that it's not in line with, really, any sort of big material reductions in our marketing, and that's important. This is really all about the refinement and effectiveness of our marketing spend, in that the reductions really are from other parts of the business and really everywhere. And that goes for our CapEx. I mean, it's just a function of really evaluating each and every dollar and managing it appropriately.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

And on those 65 stores, did you -- if I didn't catch it, did you give a time frame on -- or is that a multiyear kind of open ended?

James A. Bell

No, that's just for next year, next fiscal year.

Operator

Our next question is coming from the line of Mr. Rob Schwartz with Cooper Creek Partners.

Robert Schwartz - Cooper Creek Partners Management LLC

Just had a quick clarification question on the whole ADS relationship. The two $11.5 million payments, have any of those been received yet? And if not, can you sort of walk us through the timing?

James A. Bell

Yes. What I can say on that is the first one has, and we expect the second one is imminent. Outside of that, Rob, it's probably not appropriate for me to talk further about that, just given the way that these -- the way that these stage gates work, and -- but that's really where we are.

Robert Schwartz - Cooper Creek Partners Management LLC

Okay, that's great. And the first one was received after the quarter end, so it wasn't on the balance sheet you gave us?

James A. Bell

That was received when we executed the agreement with ADS.

Robert Schwartz - Cooper Creek Partners Management LLC

Was that before the. . .

James A. Bell

That was before the quarter end.

Robert Schwartz - Cooper Creek Partners Management LLC

Okay. So the first $11.5 million is in there, the second is not?

James A. Bell

Correct.

Operator

Ladies and gentlemen, at this time, we have reached the end of our question-and-answer session. I would like to turn the floor back over to management for any closing comments.

Jill Brown Dean

Thank you for joining us today. We look forward to updating you on our progress on our next earnings call.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you very much for participating.

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Coldwater Creek (CWTR): Q2 EPS of -$0.72 misses by $0.09. Revenue of $149.7M misses by $13.11M. Shares -1.09% AH. (PR)