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Christopher & Banks Corporation (NYSE:CBK)

Q4 2013 Results Earnings Conference Call

March 13, 2013, 08:30 AM ET

Executives

Jean Fontana - Managing Director

LuAnn Via - President and CEO

Pete Michielutti - SVP and CFO

Analysts

Neely Tamminga - Piper Jaffray

Janet Kloppenburg - JJK Research

Jeremy Hamblin - Dougherty & Company LLC

Operator

Good day and welcome to the Christopher & Banks’ Corporation Fourth Quarter 2013 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Jean Fontana of ICR. You may begin.

Jean Fontana

Thank you. Good morning, everyone. And thank you for joining us today to discuss Christopher & Banks' earnings results for the fourth quarter and full year 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 during today's conference call are forward-looking statements. They 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 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 or similar terms or variations.

All the company's outlook and financial expectations, as well as the 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 and other SEC filings made since the date of that report, all of which are available on the Investor Relations section of the company's website at www.christopherandbanks.com. They are applicable to the statements made during today's conference call.

I will now turn the call over to LuAnn Via.

LuAnn Via

Thank you, Jean. Good morning, everyone and thank you for joining us today to discuss our fourth quarter and full year fiscal 2013 earnings results.

I will begin with the highlights from the quarter and provide an update on our strategic plans as we move into fiscal 2014. Pete will then discuss our fourth quarter financial results in more detail and provide our outlook for the first quarter and the full fiscal year.

While temporary store closings and challenging traffic trends caused by the multiple snow storms and arctic temperatures resulted in our comps coming in slightly below our expectations, we continued to build momentum in the business and delivered on our financial goals for the fourth quarter.

Traffic was down in the high single-digits. However, our conversion rates, UPTs and AURs all trended up as compared to last year's fourth quarter. This is a testament that the improvements we have made in our merchandise assortment continue to resonate with our customers.

Moreover, despite being surrounded by aggressive promotional activity over the holiday season by most retailers, we did not deviate from our preplanned promotions. The go-forward content of our December-January assortment allowed us to be less promotional. As a result, we saw an approximately 400 basis point improvement in merchandise margin over last year's fourth quarter.

This combined with modest SG&A leverage, led to a net loss per share of $0.01 for the fourth quarter versus an $0.11 per share loss in the prior year's fourth quarter. Overall we continued to make progress on our strategic initiatives during the quarter and we’re positioned to continue our momentum into 2014.

I'd now like to take you through some of the operational highlights from the fourth quarter, starting with our evolving merchandise assortment. As we have said in the past, the most important factor in our success is providing a merchandise assortment that offers style, versatility, quality, and value.

During the fourth quarter, we saw positive response to several apparel categories including vests, layering tops, blouses and jackets. This is part of our effort to expand our wear-to-work offering, which was a strong category for us in the past and we see a big opportunity here as we refine our assortment.

We were also pleased with our bottoms business which showed positive results, with strong response to our core assortment led by denim, as well as our versatile double-weave pants. Our denim wall, which we set in mid-December, has resonated with our customers as an easy to shop destination and we will continue to refine this presentation going forward.

We also have expanded our pants selection to ensure that throughout the year we have long-leg options in multiple programs and in core colors. If you recall, we had previously eliminated full length bottoms during the summer months, missing a key opportunity to address her wear-to-work needs year round. We also saw strength in our core knits category, led by our Layer Your Look value price program.

Finally, accessories performed exceptionally well in the quarter as we continue to focused on presenting her with great outfitting ideas. As an outfit completer, we saw particular strength in our jewelry and scarves categories.

Interestingly, in our annual customer survey taken in November, our overall satisfaction scores increased significantly, with the largest year-over-year gain for improvement in our outfitting and in offering appropriate fashion and style. This speaks well of what the team has accomplished over the past year.

As we head into spring, we’re in a better inventory position than we were at this time last year. We have built our assortment in core and go-forward merchandise, which carry very low markdown risk and have created a better balance between basics and fashion.

As we look forward, we will continue to expand our core offerings, including our bottoms, layering knit tops and year round perfect cardigans, along with our solution based programs including wrinkle-resistant shirts, signature slimming pants, weekend wear, and travel knit dressing.

We have increased our inventory investment in these categories to ensure that we’re maintaining our in-stock position on key styles and sizes in meeting her needs in everyday essentials.

In fashion, we’re adjusting the assortment to offer greater breadth and a little less depth, which we believe will create a sense of urgency to buy, while mitigating our markdown risk.

We also continue to refine our marketing strategies to more effectively leverage our promotional events and direct marketing campaigns. We tested new strategies to support our in-store events during the quarter including gift card giveaways and mystery discounts with great response.

For example, our Holly deal scratch off event gave customers a chance to get up to 50% off a full item or 15% off their entire purchase. We reached a significant number of customers with this offer.

And participants in the promotion, regardless of the actual discount received, spent about 50% more. Going forward there's an opportunity to further leverage these types of compelling promotions.

We continue to monitor trends around our CRM database. Our total 12-month active file at 2.5 million was down approximately 4%, due in part to operating approximately 8.5% fewer stores. That said, we continued to see our customers visiting more frequently, up 5% and spending more each visit, up 6% as compared to the prior year 12-month file. Additionally, we saw an upward migration of customers based on frequency of visits.

Finally, we experienced increased customer retention of 170 basis points with all segments showing increases over the prior year and the largest gains in new and reactivated groups. We sent 3.4 million direct mail pieces in the fourth quarter, twice the amount we sent last year. And the mailers generated almost double the incremental revenue that they did in last year's fourth quarter.

We saw a strong response to the December mailer, which included a compelling free $20 off coupon along with a note from me thanking her for shopping with us and wishing her happy holidays. This mailing also targeted historically non-holiday shoppers which generated positive response.

Overall, we generated an increase in traffic, incremental sales, and gross margin dollars. We believe that there is an opportunity to leverage this type of offering periodically in order to drive traffic and sales.

Going forward, we’re evaluating the most productive ways to utilize direct mail to attract targeted segments into the store.

Our private label credit card continues to offer us the opportunity to drive shopping frequency and increase ADS. We ended the fiscal year with more than 550,000 accounts. Cardholders accounted for almost 23% of sales for the year and continue to spend more than non-PLCC customers.

During the fourth quarter, we held our first VIP event which offered cardholders a 35% discount on their purchases, while others received 25%. This event generated new card accounts and increased customer awareness of the benefits of our private label credit card program, with cardholders representing 36% of overall sales during the event.

Now, let's turn to our e-commerce channel. Our sales were up during the holiday season, but were down in January, resulting in slightly lower sales for the quarter as compared to last year. We attribute this to two factors.

First, nearly one-fifth of our e-commerce sales are generated in-store. And as I noted previously, we experienced an overall decline in store traffic during the quarter.

Second, we significantly decreased our level of clearance inventory as compared to last year, resulting in fewer overall topline sales. However, our gross margin rate for the channel was up 470 basis points, and gross margin dollars were up 11%.

For 2014, we have several planned enhancements to our site, including simplifying her ability to find what she is looking for with streamlined navigation, enhancing the visual display, and easing the checkout process.

With the platform upgrade completed, we have increased our investments in the paid media channel to drive customer acquisitions and existing customer retention, including paid search, display advertising and affiliate programs.

Finally, we continued to optimize our real estate portfolio during the quarter. We have been executing our missy-petite women's strategy with positive results. The format has worked well and we’re aggressively expanding this concept. That said, we’re being disciplined and strategic about where and when we open stores, and see considerable opportunities for MPW expansion in 2014 and beyond.

At the end of fiscal 2013, we had 61 MPW stores. And we expect to have approximately 150 by the end of fiscal 2014.

We’re also continuing to expand our outlet base, as well as refining the merchandise that we offer at these locations. During 2014, we expect to open at least 12 outlet stores. As previously discussed, we’re now creating product exclusively for the outlet channel and expect that this will account for approximately 25% of our outlet product offering by the end of fiscal 2014.

Overall, despite the current challenges in the retail environment, we’re extremely pleased with the progress we made during the fourth quarter and throughout fiscal 2014.

Our key strategies are working as our customers are responding well to our merchandise assortment and our inventories are current. Our marketing is resonating and she is responding. Our e-commerce enhancements are starting to take hold and our real estate strategies are driving higher store sales and margin productivity.

As we enter 2014, we believe we’re well-positioned to deliver another year of topline sales growth, improved gross margins and operating income growth.

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

Pete Michielutti

Thank you, LuAnn, and good morning everyone. My financial review today will cover the 13 and 52-week periods ended February 1st, 2014 compared to the 14 and 53-week periods ended February 2nd, 2013 except as otherwise noted. I will also provide some general comments regarding our outlook for the first quarter and for fiscal 2014.

Let's start with the fourth quarter results. Total net sales were $104.9 million in the fourth quarter of fiscal 2013 compared to $116 million for the same period last year. The 14th week in the fourth quarter of fiscal 2012 contributed approximately $5.1 million in net sales. We operated on average 6.9% fewer stores in the fourth quarter of this year than during the comparable period last year.

Same-store sales decreased 1.4% for the 13-week period ended February 1st, 2014 as compared to the 13-week period ended February 2nd, 2013. This compares to a comparable same-store sales increase of 18.5% in the fourth quarter of last year.

The decrease in sales versus last year's fourth quarter was primarily the result of temporary store closings, delayed openings and lower traffic due to the unseasonably cold weather and snow that impacted the entire country in January of this year. Nearly 100% of our store base was impacted at one point or another by weather during the fourth quarter.

For the fourth quarter, traffic declined by approximately 9%. However, conversion rates were up 5.6%, while UPTs increased 1.5% and average unit retail rose 1.4%, suggesting the merchandise assortments continued to resonate well with our customer, especially in light of the highly promotional environment.

e-commerce sales were down slightly during the quarter. The decrease is a result of the 53rd week which if excluded, would flip the e-commerce sales to a 3.8% increase.

As LuAnn noted, lower store initiated sales due to weather issues and lower clearance inventory muted e-commerce sales results in the fourth quarter.

Gross profit decreased slightly to $34.1 million in the fourth quarter as compared to $35 million in the comparable period last year. Gross margin was up 230 basis points to 32.4% as compared to 30.2% for the fourth quarter of last year. This was ahead of our expectations as we required fewer markdowns to drive sales and continue to show IMU improvement.

Selling, general, and administrative expenses decreased 10% to $31.4 million or 29.9% of net sales compared to $34.8 million or 30% of net sales in the same period last year. Approximately $2 million of the decline was the result of the extra week in the prior year's fourth quarter.

While we continue to invest in marketing, particularly direct mail, we reduced our store payroll expense to align with lower mall traffic trends. Also in the fourth quarter, marketing as a percent of sales was approximately 2.8% as compared to 1.7% last year, reflecting our increased investment in direct mail.

Depreciation and amortization expense was $3.2 million in the fourth quarter compared to $4.2 million last year. Operating loss was $500,000 in the fourth quarter compared to an operating loss of $4 million in the fourth quarter of 2012.

At the end of the quarter, we maintained a full valuation allowance on our net deferred tax assets. As a result, we had an income tax benefit in the third quarter -- fourth quarter of approximately $277,000 due to reserve releases offset by minimum fees and taxes. In the fourth quarter of the prior fiscal year, we had an income tax benefit of $76,000.

Net loss for the quarter totaled $300,000 or $0.01 per share. Net loss for the fourth quarter of last year totaled $4.1 million or $0.11 per share. Overall, while we were slightly below plan in our comp sales due to weather disrupting traffic trends, we’re very pleased with our ability to exceed our gross margin and SG&A expectations.

Now, let me turn to the full year. For the 52 weeks ended February 1st, 2014, total net sales were $435.8 million compared to $430.3 million for the same period last year. Comparable store sales for the 52 weeks rose 8.1%.

Operating income rose to $9 million compared to an operating loss of $16 million last year. This is the first time since fiscal 2007 that we reported positive operating income. Net income for fiscal 2013 was $8.7 million or $0.23 per diluted share compared to a net loss of $16.1 million or $0.45 per share last year, which included a $0.15 per share benefit related to restructuring charges.

Now, turning to our balance sheet, we ended the year with approximately $57.2 million of cash, cash equivalents, and investments, this compares to $40.7 million at the end of fiscal 2012.

Total inventory was $44.9 million as of February 1st, 2014 compared to $42.7 million at February 2nd, 2013, an increase of 5.2%.

Inventory per square foot, excluding in-transit and e-commerce inventory ended the quarter approximately 16.4% above the level at February 2nd, 2013. The increase in inventory is primarily attributable to our investments in the core programs mentioned by LuAnn.

Total inventory per square foot at the end of the year was $16.43 compared to $14.13 at the end of fiscal 2012. Core inventory increased by $4.04 per square foot while fashion and seasonal inventory declined by $1.74 per square foot.

The composition of the inventory at the end of the fourth quarter was very current with approximately 92% of the inventory being represented by December or forward lifecycle products or core inventory. Our December lifecycle products reflected seasonal merchandise last year, but was made up of transitional and reserve wear in the current fiscal year.

We had no outstanding borrowings on our revolving credit facility during the 13-week period ended February 1st, 2014 and have not drawn on the facility other than to open letters of credit in the normal course of business.

Capital expenditures for the fourth quarter totaled $2.2 million.

During the fourth quarter, we closed 49 stores. 28 of the stores that were closed were converted into 14 MPW stores. We also opened one new outlet store and one new MPW store. As of February 1st, 2014, we operated 560 stores, consisting of 333 Christopher & Banks stores, 135 CJ Banks stores, 61 MPW stores, and 31 outlet stores.

Now, I'd like to update you on our outlook for the first quarter of fiscal 2014. We expect same-store sales for the first quarter to be relatively flat to last year's first quarter. This follows a comparable store sales increase of 23.4% for the first quarter of last year. This represents an acceleration and a two-year stacked comp store sales growth from the fourth quarter.

The guidance for the first quarter sales is based on improved weather over the remainder of the quarter. We expect approximately 50 to 70 basis points of gross margin improvement in the first quarter as compared to the comparable period last year, driven by improved merchandise margins.

The impact of weather on sales has had a slight deleveraging effect on the fixed cost component of gross margin.

February sales results, particularly the first two weeks, were significantly impacted by the extraordinarily severe winter weather in areas of the country where we have the majority of our stores.

We expect SG&A dollars to be relatively flat compared to the $32.7 million of SG&A expense reported in the first quarter of last year. Included in the first quarter of 2014 is approximately $900,000 of increased marketing expense.

We expect to recognize a nominal tax expense for the first quarter and this expense represents minimum taxes and fees. We expect our inventory levels to remain higher than the prior year at a level similar to the increase at the end of fiscal 2013.

A couple of factors are in play. First, we will be adding CJ product to approximately 50 CB stores at the beginning of the second quarter. So, this inventory will be on hand at the end of the first quarter.

Second, it will take a couple of quarters of sales performance before we optimize our core inventory level.

We anticipate opening two new outlet stores in the first quarter. We also plan on converting 16 CB and CJ stores to eight MPW stores and closing three CB stores and replacing them with three new MPW stores.

Now, I'd like to provide you with some of our expectations for the full fiscal year. We expect average store count to be down approximately 7% for the full fiscal year and average square footage for the fiscal year to decline by approximately 4% as compared to the prior year.

Capital expenditures are expected to be approximately $23 million to $25 million, reflecting new store openings, MPW relocations, and adding new fixturing in all stores.

We expect to have a significant amount of store activity in fiscal 2014. During the second quarter, we anticipate adding CJ product to approximately 50 CB-only stores and converting them to our MPW format.

Also during the year, we plan to close 20 CB and CJ stores and convert them into 10 MPW stores in the existing space. To close 16 CB and CJ stores and relocate to right new MPW stores. And to close 10 CB stores and replace each with a new MPW store in new location.

In addition, we currently have identified 20 sites for new stores in 2014, eight MPWs and 12 outlets.

We’re looking to open up at least another 10 stores based on availability of locations that meet our criteria. We expect to end the year -- end the fiscal year with 550 to 560 stores, which will equate to a 2% increase in total square footage as compared to the end of fiscal 2013.

I want to note two things to keep in mind as you're thinking about sales for the full year. First, as we convert stores to the MPW format, they are considered new stores and therefore drop out of the comp base for a period of 13 months.

And second, depending on the type of MPW store conversion, the impact on sales will vary.

We anticipate a sales increase in stores where we introduce CJ product for the first time. The collapse and combine stores are generally modeled to happen an overall initial drop in sales, but higher sales per square foot in floor profitability. And relocations are generally modeled for improved sales productivity with no initial meaningful change in store volume.

Depreciation and amortization for the year is expected to be between $12.5 million and $13 million. The effective tax rate for the year is subject to minimum fees and taxes, reserve releases, and an evaluation of the need for a continued valuation allowance on our deferred tax assets.

While we will not be paying any cash taxes other than minimums, the potential exists given our return to profitability, as evaluation reserve may be reversed in fiscal 2014. We will provide an update on our next earnings call.

Overall, while the weather hindered our results over the last few months, there is still great momentum in the business. And we believe that we’re well-positioned to continue our growth trajectory and meet our three-year growth objectives.

Now, I'd like to turn the call back to LuAnn.

LuAnn Via

In closing, I would like to recognize, congratulate and personally thank the entire CBK team and our Board of Directors for their support and contributions that delivered a successful 2013.

Going forward, we’re encouraged by our current momentum and remain on track to deliver on our three-year growth plan.

As a reminder, we expect to deliver an average mid-single-digit annual comparable store sales growth, an additional 300 to 400 basis points of gross margin expansion, and a high single-digit operating margin by the end of fiscal 2016. We strongly believe that we have the right strategies in place to drive growth and achieve these goals.

I would now like to turn the call over to the operator for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions)

And our first question we’ll hear from Neely Tamminga with Piper Jaffray.

Neely Tamminga - Piper Jaffray

Great. Good morning, and congratulations on navigating through what is admittedly one of the hardest retail seasons I think we have ever seen in a while from a weather perspective. So, -- okay a couple questions from me, if I may. LuAnn could you walk us through a little bit some of the merchandise initiatives, I know that you have indicated some here on the call and you've talked about some in the past at conferences.

Some of these programs are a product that your customers have really never seen you guys offer before. And I just want to get a sense of the complexion. Are the ASPs trending a little bit higher on some of these value-add items? And how should we be thinking about the margins as they onboard into the assortment either in dollars or rates? Just kind of if you could contextualize that a little bit.

And I guess what I'm driving at -- and this really for Pete, is if we're estimating a flat comp for Q1, what are some of the key metrics behind that flat comp? If you could give us some ideas there and I'm sure I’ll have one or two more follow-ups. Thanks.

LuAnn Via

I think I can really start with the flat comps. As Pete articulated in the script is that basically the flat comps are coming from the beginning of February, which was extremely challenging for us as the weather continued out of January into those first two weeks.

So, I think that's basically where it's coming from and as it relates to the product content and to the margins. As I said in the past, Neely, and we've talked about, we really are focused on maintaining our core basics, and being in stock where we really had run out of inventory over the past -- actually couple of years as it related to sizes and basic colors within core bottoms specifically.

So, that's really a key initiative for us is to drive the bottoms business where we've been under penetrated. And not just in basic double-weave or PRS or dress pants, if you will, but also within our denim category.

So, denim has in the past been very strong for us. We set the denim wall which has been extremely productive and we believe that we have continued opportunity as it relates to not only building everyday denim, but also building solutions-based signature slimming, which is a category that you know we have not been in.

The rest of it does come from core as well as it specifically relates to basic tops, coordinate tops, and synthetic tops that actually complement. Although they are basics, they complement our wear-to-work jackets.

We talked about our jacket business, which is something that had been very strong for us in the past and we really walked away from this business. This does carry a higher average selling price and thus an average AUR that has increased, which is obviously driving up that ADS.

The second piece -- the third piece is really in our weekend wear, which is a category we've not been in. And then our soft travel knit dressing, which has been a category that we've been out of, as well.

And then the wrinkle-resistant shirts and our basic shirting program, again, key core basics, however, a great complement to our wear-to-work business.

So, those are really the key areas that we're working to drive that ADS up. And to have that repeat customer able to come in and really buy those key core items on a daily basis and be in stock.

The other categories, our accessories business, which I believe can continue to grow. It ended at close to 7% of our business and we do believe that based on the momentum that we have, we have the opportunity to expand that as we move forward. And it carries obviously the highest margin in the total company and it also increases since the ADS based on the outfitting opportunities in those layering pieces.

Pete Michielutti

So, sort of tying that back to the comp question is we continue to expect traffic to be down significantly year-over-year. But all of those things that LuAnn talked about, that's going to drive increase in UPTs, conversions and ADS and will bring us back to a flat comp.

Neely Tamminga - Piper Jaffray

Okay, that's helpful. I guess then related to the comp, if we may, I don't think I heard you guys contextualize the pattern of performance. But are you also following the same sort of performance of pre-Valentine's Day underperformance, big time in traffic post-Valentine's Day -- not spectacular, but certainly better, is that the same sort of traffic pattern that you're seeing in your stores?

Pete Michielutti

Our traffic pattern is really -- and I think the thing about Valentine's Day is the weather changed after Valentine's Day. So, our traffic patterns are really linked directly to what's going on from a weather perspective. And the weather got better after Valentine's Day, our sales followed and then there was about four or five days of poor weather again. So, it's more looking at the weather than a calendar.

Neely Tamminga - Piper Jaffray

It's going to be 40 degrees in Minneapolis today so--.

LuAnn Via

Heat wave.

Neely Tamminga - Piper Jaffray

Let's just say -- it's a heat wave. It's veritable tube top weather. Let's go. All right, congrats.

Pete Michielutti

Thanks.

LuAnn Via

Thanks Neely.

Neely Tamminga - Piper Jaffray

Thanks.

Operator

And next we move to Janet Kloppenburg with JJK Research.

LuAnn Via

Hi Janet.

Janet Kloppenburg - JJK Research

Hi. And I wanted to congratulate you on a really great year and a wonderful performance. I had a couple of questions. I understand why the inventory levels are up. And I'm just wondering if we should expect the trend to continue to be up at these kinds of levels on a quarterly basis going forward, because of the investment in core, et cetera. Should this kind of increase be expected as we go through the year?

LuAnn Via

So, we're evaluating it very carefully. Here's really the issue. We have invested in the core business and I think everyone knows that last year, we overinvested in double-weave pants that we had run out of the year before.

We came into the third quarter and we thought we were extremely well-positioned. We oversold in the third quarter these pants again and really had a need in the fourth quarter.

So, I think the answer is we don't really know at this point how high can possibly go in our core business, because we don't really have the history yet to see because it seems as though the more we put in, the more we sell.

And we’re under-penetrated as it relates to NPD data and to our historical performance in bottoms, Janet. So, I'm trying to let it seek its level. However, we’re looking at it very carefully. And even though it doesn't carry markdown risk, we're staging goods offshore and have the ability to adjust the grade and to move as we flex the sales piece.

So, I wish I knew the answer to that. It just seems that -- and I would just tell you in denim, for example, we -- while our business was as you see in the fourth quarter down, our denim business was up high double-digits. So, we're trying to follow that and play catch up to where it is.

So, I would suspect, as Pete articulated, that our inventories in core will remain above where we had been in the past through the end of Q1. And we're evaluating it week-by-week. And then I really want to be in position on those core categories as we enter Q3. So, it's kind of a work-in-progress here.

Janet Kloppenburg - JJK Research

And just so I can get a feeling, I know that some of your competitors have really peak shopping weeks, some of the biggest shopping weeks of the year right before the Easter holiday. And I'm wondering if you have those high volume weeks ahead of you and if there's an opportunity for comp acceleration as we move into those weeks?

LuAnn Via

Well, I think there's a couple of things. Obviously, we have a couple of key events, pre-Easter obviously is one of them. Right now we're in our Friends & Family Event, which is another one of those.

And I think, Janet, it will help with the movement of Easter, and obviously with the weather patterns as they've been, as long as we see that movement in weather out as we approach Easter. But I think that could be helpful. Pete do you have a--?

Pete Michielutti

In addition, in April, we'll have our Fashion Show. That will be the first week of April. So, we have a number of events planned. And we have direct marketing planned around trying to boost sales as we get through the quarter to make up for some of the weather-related impacts early on.

LuAnn Via

And having that fashion event pre-Easter will also bode well for us.

Janet Kloppenburg - JJK Research

Just a couple more questions. Is the Fashion Show and the Friends & Family; are they comparable to last year?

Pete Michielutti

No, they are flipped. Last year -- they're switched, because we'd like to see the Fashion Show right before Easter. So, with the shift of Easter, we moved Fashion Show to April and Friends & Family to March.

Janet Kloppenburg - JJK Research

Okay, got it. And then I wanted to ask a question about new customer acquisition. I know your existing customers are spending a great deal of time and money in the stores. But I think there's an opportunity to drive your customer base, both in-stores and online. And I'm wondering if there’s a -- I know your direct marketing efforts are up, are you extending that to prospecting customers as well?

LuAnn Via

We’re, in fact, right now we're doing a deep-dive into our CRM database as it relates to the opportunity for new acquisitions, yes.

Janet Kloppenburg - JJK Research

All right. Okay. And what are you seeing in terms of cost of acquisition per customer? Is it coming down or what trends have you looked at there?

Pete Michielutti

We haven't done enough to really say from the trends. We've done some testing into it. We're working internally to develop a more thorough look at what we've done to-date, as well as put together a plan for the future. So, just we’re --

LuAnn Via

We've engaged an outside company--.

Janet Kloppenburg - JJK Research

I think you have 61 MPW stores right now. I know you gave us the number of where you'll be at the end of the year, I can't remember.

LuAnn Via

150.

Janet Kloppenburg - JJK Research

150, right. So, what should it be at the end of 2016? How much more conversion should we expect?

Pete Michielutti

I mean that's a good question. We keep on finding opportunities from both a real estate standpoint and within our existing store base to move that number a little bit faster than we originally anticipated.

The biggest opportunity is probably the CB stores that do not currently have a CJ store in the same mall. And we're adding CJ product at 50 of those stores beginning in the second quarter. That still leaves us a lot of CJ stores.

And it's really dependent upon lease expirations. And that number, could it double by the end of 2016? It could double by the end of 2016, but it really depends on a lot to do with availability of real estate and lease expirations.

LuAnn Via

I chuckle a little bit, Janet, because Pete and I have this ongoing, with the MPWs, that every week I come up with another store that I want to convert because they have an opportunity to put plus in. So, all of a sudden we're now at 150 stores and every day he looks at me and says -- do we have any more? Where the opportunity exists?

Janet Kloppenburg - JJK Research

Well, keep going. Lots of luck for a good Easter holiday and I'll speak to you guys later.

LuAnn Via

Okay, Janet. Thanks much.

Operator

(Operator Instructions)

Next we’ll move to Jeremy Hamblin with Dougherty & Company.

Jeremy Hamblin - Dougherty & Company LLC

Good morning.

LuAnn Via

Good Jeremy.

Jeremy Hamblin - Dougherty & Company LLC

And I'll add my congratulations to the really strong results.

LuAnn Via

Thank you.

Jeremy Hamblin - Dougherty & Company LLC

Pete, I wanted to just see if you could add a little additional color around the impact from weather. It seems like -- clearly it's been pretty tough in January and February. And it sounds like maybe January in and of itself might have been 300 or 400 or maybe even more basis points impact to your comp. Would you be able to just add some additional color around the estimated impact in Q4?

And then -- or maybe said in a different way, the number of operating hours or days that were lost in the quarter because of temporary closures?

Pete Michielutti

Sure. When we look at the quarter, there is always weather, all right. So, in November and December there wasn't really anything from an extraordinary standpoint from weather that had any lasting effect on store openings and closings other than what's normal.

As the quarter progressed, our best month was December from all aspects -- from a traffic aspect, from a comp aspect, from a margin aspect. The big hit which really took us from a positive to a negative was the month of January.

And interesting you ask the question like that because I asked our store folks to give me that specific information. So, if you take all the hours that stores can be open in the month of January, or store days is how we did it, 35% of the total amount of days that stores can be open, stores were either closed or had shortened operating hours.

So, 35% of the store hours in total. Then another 30% of the hours were impacted by weather in a market, where the weather was bad, the store was open but not a whole lot of traffic coming from that.

So, 65% of the hours stores were open had some impact to weather, some hours more than others. And that excludes anything related to the fact that it was just really cold. This was weather that inhibited people from getting to a store.

Jeremy Hamblin - Dougherty & Company LLC

Okay, great. That's actually very helpful. And then, LuAnn, I wanted to just come back to some of the newer merchandising programs. It sounds like denim is going really well. Can you talk a little bit about your slimming fit pants and wrinkle-resistant tops, kind of the relaxed, restyled efforts, and kind of where you're seeing -- or the types of results that you're seeing with those programs thus far?

LuAnn Via

So, out of the box we've had strong responses to all of those categories. And again, we delivered -- the denim wall was set on everyday denim in mid-December. But at the -- in January and February is when we really delivered the first full set of weekend wear and the wrinkle-resistant shirt, et cetera, and we're extremely pleased with those results.

So, we do believe that we have opportunity. And this is obviously what we laid out in our strategic plan, is that these are key categories that have been missing from our assortment that our customer is really wanting to buy. So, we're very pleased with those.

Jeremy Hamblin - Dougherty & Company LLC

Great. And then just as a follow-up on the competitive set that you're seeing, we've heard from a number of your competitors thus far and I think everybody has talked about the weather, but I think one of the things that has been interesting is it sounds like some of your competitors are not getting more aggressive on their promotions.

It sounds like they had, in some cases. But how would you characterize the competitive environment on promotions? Obviously it's always tough, but does it seem like it -- is it up year-over-year, is it down, from your perspective, or is it just flattish?

LuAnn Via

So, I would say in the fourth quarter it was up. In the third quarter, it was up. In the first quarter and second quarter of last year, it was up. And we all know the weather we had in the first quarter of last year and then what happened with the clearance and what happened in second quarter, et cetera. So, I would say 2013 it was up significantly.

As we're in the beginning of Q1, I still see significant clearance in some of our key competitors. While I believe that -- and as Pete has articulated, we're in a much better position than we have been previously and our inventories are clean.

From an overall promotional activity, I see it about the same as it had been. So, I don't think it's increasing at this point as we see Q1.

Now, as we look at what's transpired in the month -- end of January and February, I don't think we're going to be able to determine if there will be accelerated promotions until we get in the next couple of weeks of March and the beginning of April, because that's when you would need to liquidate if you had excess inventory that would be seasonal.

Jeremy Hamblin - Dougherty & Company LLC

Okay. And so does that then present an opportunity maybe in the second quarter on a year-over-year basis versus again -- because Q2 last year was tougher on promotions, certainly from your competitors?

LuAnn Via

I would say so. Yes.

Jeremy Hamblin - Dougherty & Company LLC

Okay, great. And then just in terms of the marketing plans and making sure I have it calibrated right, I know that you've increased the direct mailings certainly in the third and second quarter of last year.

As we look forward and comparing the full year 2014 versus 2013, can you give us a sense of what the dollar figure difference on the marketing spend might be? I mean is 2014 versus 2013 going to be relatively flat on a dollar basis or should we expect it to be up?

LuAnn Via

It's up.

Pete Michielutti

You've got to think of it by quarter, Jeremy. We basically accelerated our direct marketing starting in mid-second quarter of last year. So, third and fourth quarter year-over-year, we don't really anticipate it being up. First quarter, I've already indicated that we will be up about $900,000 in the marketing spend in the first quarter. And we'll probably be up about half of that in the second quarter and then we'll be at a level that we believe is appropriate.

Jeremy Hamblin - Dougherty & Company LLC

Great. And then one last question. In terms of the sign-up for your private label credit card program, are you continuing to see robust growth in that? Or is that something where because traffic was impaired that that slowed down a little bit over the last few months?

Pete Michielutti

I think we continue to see very good sign-ups on a week-in and week-out basis. Obviously, it's correlated to how many people are coming in the store and what your sales are. But kind of as a ratio of the sign-ups versus traffic, we continue to maintain nice pace on signing up new customers.

Jeremy Hamblin - Dougherty & Company LLC

Can you give us a number? I think you had quoted maybe in early December 500,000 private label cardholders.

LuAnn Via

550,000.

Pete Michielutti

550,000 at the end of the year.

Jeremy Hamblin - Dougherty & Company LLC

550,000?

Pete Michielutti

Yes.

Jeremy Hamblin - Dougherty & Company LLC

And in terms of percent of total sales year-to-date?

LuAnn Via

23%.

Jeremy Hamblin - Dougherty & Company LLC

Okay. Thanks so much.

Pete Michielutti

All right. Thank you, Jeremy.

LuAnn Via

Thanks Jeremy.

Operator

And there are no further questions. At this time, I would like to turn the call back over to LuAnn Via for any additional or closing remarks.

LuAnn Via

Thank you for joining us today. We look forward to updating you on our progress at our next earnings call. Have a great day.

Operator

And that will conclude today's call. We thank you for your participation.

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