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Executives

Marie Hirsch - Director of IR

Daniel Griesemer - President and CEO

Tim Martin - SVP and CFO

Georgia Shonk-Simmons - President and CMO

Analysts

Michelle Tan - UBS

Mark Montagna - C.L. King

Liz Pierce - Roth Capital Partners

Marc Bettinger - Stanford

Richard Jaffe - Stifel Nicolaus

Roxanne Meyer - Oppenheimer

Chris Kim - JPMorgan

Lyn Walther - Wachovia

Eric Beder - Brean Murray

Holly Guthrie - Janney Montgomery Scott

Mark Cooper - Wells Capital

Jeff Black - Lehman Brothers

Crystal Kallik - D.A. Davidson

Liz Dunn - Thomas Weisel

Coldwater Creek Inc. (CWTR) Q4 2007 Earnings Call March 5, 2008 4:45 PM ET

Operator

Welcome to the Coldwater Creek Investor quarter conference call. Today's call is being recorded. With us today we have Mr. Dan Griesemer, President and Chief Executive Officer; Ms. Georgia Shonk-Simmons, President and Chief Merchandising Officer; Mr. Tim Martin, Senior Vice President and Chief Financial Officer; and Ms. Marie Hirsch, Director of Investor Relations. Ms. Hirsch, please go ahead.

Marie Hirsch

Thank you, Paula. Good afternoon and welcome to Coldwater Creek's 2007 fourth quarter and fiscal yearend conference call. If you've not received the copy of the release distributed this afternoon, please contact our offices at 208-265-3977 and we'll send one out to you immediately. We'll begin with a few formal comments from management and then open up the lines for your questions.

During the course of this conference call, we may make forward-looking-statements regarding future events or performance of the Company, including forward-looking-statements and projections about our operation result, business initiatives, growth opportunities, and prospects. We want to emphasize that any projection involves judgment and that individual judgments may vary. Any projections we make today are based on information available to us now, which is subject to change as the quarter progresses. Actual results may differ substantially from what we say today, and no one should assume later in the quarter that the comments we provide today are still valid. Moreover, we are not undertaking any obligation to provide update in the future.

The documents the Company files from time-to-time with the Securities and Exchange Commission, including our most recent Form 10-K and Form 10-Q, contain an identify important factors including the risks and uncertainties described under Risk Factors that could cause actual results to differ materially from those contained in any forward-looking-statements.

The call will archived approximately one hour after the call ends until Wednesday March 12th of this year. The replay can be accessed by dialing 719-457-0820 and giving the PIN number of 2717467. The replay and the transcript of the call will also be available in the investor relations section of the Company's website.

And now, I'd like to introduce Daniel Griesemer, President and Chief Executive Officer.

Daniel Griesemer

Thank you, Marie. Good afternoon, ladies and gentlemen, and thank you for joining us today as we discuss our results for the fourth quarter and fiscal yearend February 2, 2008. Today, I'll briefly review those results and then spend sometime talking about our strategic and tactical plan to position Coldwater Creek on a path to sustainable and profitable growth. Tim will give you additional detail on our operating and financial results, and Georgia will then provide an update on our merchandising initiatives, and then I'll discuss our guidance for 2008 before taking your questions.

In fiscal 2007, we delivered sales of $1.15 billion and a net loss of $0.03 per basic and diluted share inline with revised guidance we gave in January, but a disappointment to me and our entire management team. While the challenging macro environment negatively impacted our customer's willingness to shop and spend, we also suffered from an over-assortment of merchandise and a lack of newness or differentiating product. As a result, we were more promotional than we would prefer, in order to ensure that we maintained clean inventories.

We now have a clear understanding of what went wrong and we feel good about the changes we've made so far. We are confident that we are moving in the right direction, and despite our soft sales, we maintained a strong cash position and have been able to continue to grow without borrowing to fund that growth. We are particularly pleased that, in spite of slower consumer spending, we decreased inventory at retail including the DC by 9.3% per square foot.

In a moment I will discuss some of the other specific initiatives we are implementing to improve our business. But first, it's important to note that we firmly believe that our fundamental business model is intact in the large and lucrative opportunity to bring our great brand to retail centers national-wide remains the same.

We are still targeting the same baby boomer demographic-women, 35 and older. We are very focused on this core customer, who is the fastest growing demographic in the country. And we are not looking to grow by changing our target customer demographic or adding other businesses.

In short, our destination is the same. It's how we are going about getting there that needs to change. Historically, we have focused on service operations and our channels of distribution. Going forward, our guiding principles have evolved to the point where the product and the customer experience are at the foundation of all decision-making at Coldwater Creek.

By keeping these two critical aspects of our business in front of mind at all times, we position ourselves to achieve sustainable profitable growth over the long-term. We are working to ensure that every functional area of the Company is in alignment in regards to understanding and implementing our guiding principles, and we are well on our way to making sure this happens.

Over the past several months, we held extensive offsite strategic planning sessions and our entire senior management team left these meetings energized about our company, our directing and our prospects to effectively compete and succeed in our sector. Additionally, both I and members of the senior management team are in the process of meeting with all 13,000 Coldwater Creek employees to discuss, unify, and rally them around our new philosophy.

We've already developed and prioritized the specific goals and objectives, and are now in the process of ensuring that they are implemented at all levels. We are confident the entire organization will benefit from our efforts to empower our employees and ensure that each individual feels ultimately connected and intimately connected to our company's growth and success.

We recently conducted extensive research on our customer to help us reconfirm product needs and lay the ground work for our merchandising, creative and marketing initiatives. Our research confirmed what we knew from years of capturing customer information from catalog, internet and in-store purchases, that when she shops, she is in search of fit, quality, comfort and style. We were pleased to find the research supports division for our brand which Georgia will discuss later.

We've always been closely connected with our customer, but the difference is now that our research, combined with our goal to return our brand’s heritage, will drive our product and customer experience. Our merchandising team has already begun incorporating this concept into our upcoming collections. Given the current consumer environment, we are cautiously optimistic about the back half of 2008.

While you'll begin to see some incremental improvements in the summer, our stores will really start to look different and our product will be more differentiated by the fall in holiday of 2008. We are confident that we will then begin to hit our stride, and our stores will show the combination of all our efforts and better reflect the essence of our brand. We expect the benefit of our strategic initiatives will begin to reflect in our financial results in the second half of the year, with further improvements in 2009, as our stores and merchandise more fully reflect the adjustments we're making to restore our brand.

Next, I would like to share some of our key strategic initiatives for sustainable growth and long-term profitability. First improve our product; our number one priority is improving our product. We believe that our success hinges are on product and having the most compelling and appropriate offerings for our customer. Recently we moved away from our true brand heritage, started to chase trends, and watched as our product became homogenized with those of our peers. We are committed to returning to the look and feel that Coldwater Creek brand stands for: rooted in the west, comfortable and casual, with a focus on quality, fit and consistency.

Additionally, we are committed to ensuring that all touch points of the brand will reinforce this fundamental theme. Along with changes to our products assortment, we are also making major changes to better align inventories with demand and positively affect our product margins.

Now, turning to some of those specific margin initiatives, first, we are lowering our SKU count by at least 20% in order to provide a more focused and cohesive offering. We believe we will benefit from directing our efforts towards fewer categories and executing them extremely well. This SKU reduction will begin to show itself with our summer deliveries, with the full impact of the initiatives showing in the back half of 2008, when we roll out the fall collection. Second, we are committed to decreasing our retail inventories per square foot by an average approximately 15% in 2008. Conservatively managing our inventory levels is a critical component of improving margins and returning to full price selling.

Given the necessary merchandise lead times, we anticipate the back half of the year will show the full impact of our improved product assortments on inventory level. Third, we are expanding our direct sourcing from 50% in 2007 to approximately 60% in 2008, giving us the ability to achieve higher initial margins. This expansion in our direct sourcing is a multi-year initiative, and will ultimately result in approximately 70% of our inventory [resourced] directly. And fourth, we are working towards restoring the regular prices heritage to our brand, by more improvement with our levels of promotional activity and discounting going forward.

Specifically, we will be limiting the frequency, lengths, duration and amount of our overall promotion cadence. We will also be refining our promotional approach to feature fewer but more targeted campaign. Our next big initiative is to improve operating efficiency. We've carefully evaluated our entire organization to determine where we can improve operational efficiencies. While we do not believe our primary problems are expense control issues, we do believe that we can be more efficient and cost effective as we were to turn the business around.

In total, we have eliminated 65 positions at our home office, not specifically a cost savings measure, but rather the first step in refining the focus on our product and our customer experience. However, this did result in approximately $6 million in cost savings for fiscal 2008. We will be reducing our catalog circulations from approximately $130 million to $104 million, in order to be more cost effective while still driving our business. On the marketing side, historically we have used a very broad based strategy of national magazine advertising, testing on television, and over the last several years significant increases in catalog circulation.

Now we are shifting to a more point-of-sale in-store focus. Our efforts will be focused on maintaining and better engaging our best customers, as well as attracting new customers through select advertising placement. You will notice a significant reduction in Coldwater Creek ads that carry a promotional discount. And net savings will be over $35 million from both our catalogs circulation reduction, and our more focused marketing initiatives.

Overall, we anticipate $50 million to $60 million in aggregate annual cost savings from the combination of all these initiatives just outlined. In addition, we've reevaluated all of our capital expenditures and eliminated where possible, and deferred where appropriate resulting in a $30 million to $40 million reduction in CapEx in 2008.

We also believe that our SKU count reduction initiatives will have a cascading effect in reducing expenses throughout the entire organization, including design, sourcing and creative departments, as well as inventory control and administrative costs. We also expect that positive impacts will be felt at the store level from a lower SKU count.

And finally, we will prudently manage our growth. We have a strong balance sheet and a healthy working capital that will only improve as we continue to reduce our inventory per square foot. And we believe a prudent use of our capital is to continue our store growth plans in top locations.

In light of the credit soft retail environment, we have tempered our growth plans with a reduced store opening pace of approximately 50 premium stores per year going forward. This number is not a quota we are looking to meet, but rather what we think is best for maximizing the Coldwater Creek brand opportunity. Ultimately, we believe our chain target is somewhere between 500 and 550 stores.

We believe there are several compelling reasons we should continue to open new stores, in spite of the challenging macro environment. Our store economics are quite attractive. And this has proven to be an ideal time to expand our national footprint and take advantage of opportunistic leases. We're continuing to be selective with our real estate and only locating in base sites. We're being offered prime locations in top-tier centers, and we believe investing in store growth is the best use of our cash. Finally, we are positioning ourselves to take advantage of our growing boomer demographic.

Opening a new store is not a strain on our liquidity or infrastructure. We only use our existing cash and free cash flow to fund store growth, and we're not in debt to fund our retail expansion. Our build-out expenses are approximately a $150 per square foot, but on an average we received 50% in tenant allowances, thereby, significantly reducing our out-of-pocket expense, and leaving the total Coldwater Creek investment per unit at approximately $450,000, assuming 6,000 square feet stores. Based on our planned 50 stores in 2008, this is a total of approximately $22.5 million in net store build cost. We expect to end fiscal 2008 with more cash than we ended 2007, even with the addition of 50 new stores.

Now, to summarize the net effect of these initiatives, as I mentioned earlier, we expect the benefits of these initiatives will begin to reflect in our financial results in the second half of the year, with further improvements in 2009 as our stores and merchandise more fully reflect the adjustments we are making to restore our brand.

Once the initiatives discussed are fully implemented, we expect to see the following results; average transactions values will be up since we've restored our brand's full price heritage; conversions will improve due to better more unique and more differentiated product offerings to our core customers; margins will increase since there will be fewer SKUs, less inventory per square foot, more direct sourcing and a significant reductions in promotional, discounting and sales activity; inventory will be down on a per square foot basis and we will have significantly reduced our comparable SG&A costs.

As you can see, the net effect of all these initiatives is a healthier and more profitable company. Overall, our growth will be tempered, but we believe we are taking the right steps for the long-term interest of the business and shareholders. Although the next few quarters appear challenging, particularly as we see no immediate external stimulus to improve spending, we're confident that by executing on the strategic initiatives I've discussed, over the long-term, we will return to sustainable profitability.

I would now like to turn the call over to Tim.

Tim Martin

Thank you, Dan. Looking at our fourth quarter results, we incurred a net loss for the three-month period ending February 3, 2008 of $17 million or $0.19 per share, compared with a net income of $15.9 million or $0.17 per share for the same period a year ago. Consolidated net sales in the fourth quarter decreased 5.7% to $345.5 million from $366.6 million in the fourth quarter of 2006.

Net sales from the retail segment, which includes our premium retail stores, outlet stores and day spa test concept locations, were essentially flat in the fourth quarter at $226.3 million, compared with $224.3 million in the fourth quarter of 2006. Retail segment net sales represented 66% of the Company's total net sales in the fourth quarter, compared with 61% in the fourth quarter of 2006.

The Company opened 12 retail stores during the quarter, for a total of 306 premium retail stores in operation at the end of the period, compared with 239 premium retail stores at the end of last year. Comparable stores sale decreased 19.2% for the fiscal fourth quarter, compared with a 2.3% increase in the prior year period. Comp store traffic was down in the mid single-digit range, while our conversion rate was up at approximately 80 basis points.

Direct segment net sales decreased $16.2 million to $119.3 million in the quarter, from $142.3 million in the fourth quarter of 2006. Direct segment net sales represented approximately 34% of the Company's total net sales in the quarter, compared with nearly 39% in the fourth quarter of 2006. Gross profit for the fiscal 2007 fourth quarter was $103.7 million or 30% of net sales, compared with $149.8 million or 40.9% of net sales for the fiscal 2006 fourth quarter.

The decrease in gross profit rate was primarily due to increased promotions related to clearance activity, and $7.9 million write-down related to aged and slow moving inventory, as the Company positions itself through inventory levels in the current environment.

Selling, general, and administrative expenses for the first fourth quarter were $133.9 million or 38.7% of net sales, compared with a $125.8 million or 34.3% in net sales for the fourth quarter of 2006. This 440 basis points increase in SG&A as a percentage of net sales was primarily driven by the decrease in comparable store sales, accompanied by the cost associated with the retail expansion. We incurred a loss from operations for the fourth quarter of $30.1 million. This compares to the income from operations of $24 million in the fourth quarter of 2006.

Briefly reviewing our full year results, net sales were up approximately 9% in the year to $1.15 billion, versus $1.05 billion last year. The company reported a net loss for the year of $2.5 million or $0.03 per basic and diluted share, compared with net income of $55.4 million or $0.59 per diluted share in 2006. Once again the effectiveness of our triple channel business model allowed us to end the quarter with premium retail inventory, including retail inventory to distribution centre down 9.3% per square foot, compared with that of the prior period.

Total inventory increased $30 million or 10.3% to $140 million at the end of the fourth quarter, from a $127 million at the end of the fourth quarter of 2006. This increase was primarily attributable to the addition of 66 premium retail stores since the end of last fiscal year, and a 33.2% retail square footage growth.

At the end of the fiscal year, the company continues to have no borrowing on its bank facility and a cash position of $62.5 million, compared with a $148.7 million at the end of the fourth quarter of last year. The reduction in our cash position reflects the acceleration in payment for approximately $36.4 million in inventory purchases to take advantage of prompt-pay discounts offered by our vendors. In addition, the cash balance represents approximately 25 million in common stock repurchase activity during the year. The company's working capital was $115.8 million at the end of the fiscal year, down from approximately $173.3 million at the end of last year.

Looking at capital spending for the year, CapEx was a $121.3 million and capital expenditures related new store construction were approximately 65% of total CapEx. Depreciation and amortization was approximately $52.5 million. In summary, we will continue to focus on our cost savings initiatives, we will aggressively manage our inventory levels, and we will prudently manage our cash position.

With that, I'd like to turn the call to Georgia for an overview of the merchandise.

Georgia Shonk-Simmons

Thank you, Tim. Good afternoon everyone. As Dan mentioned, our fall and holiday merchandise suffered from a lack of newness and exciting differentiating features. Similar to the last couple of quarters, we are part of what I call the circle of sameness, among ourselves and our peers, and as a result, our product became less relevant with our core customers, as we were not offering her the exciting, compelling, unique product she expects from us.

Our number one priority is to intensely focus on our merchandise by delivering what she wants. We are confident we have the knowledge, experience and the people to do so. Our vision for the brand is to use our heritage as a competitive advantage. Our customers are mostly connected with the essence of the west, and our goal is to enable her to express this and feel the connection to her clothing and accessories. A Coldwater Creek women, appreciates the sense of adventure, opportunity and natural beauty that west offers her, and it is reflected in her desire for clothing that is eclectic and unique, while always being comfortable and casual at the same time.

We are reclaiming our heritage, which is rooted in the west, by ensuring that we remain consistent with our merchandise, and deliver the Coldwater Creek brand vision in combination with current fashion trends. This will position the brand to successfully differentiate ourselves from others. Our marketing research that Dan alluded to earlier truly supports this vision, and allows us to get back on the brand wagon and move forward with confidence. What our customers have told us is that her experience and expectations of us are not about age but about attitude, and the role fashion plays in her life.

Our goal is for the overall brand vision to uniquely resonate with each woman who shops with us. We have begun, and we'll continue, to incorporate this more detailed research into our products, and by doing so, we'll reconnect our merchandise with the brand that she loves. Approximately nine months ago, starting with December collection in 2007, we began delivering some products that drove our brand, when we should have been letting our brand drive our products. This continued through the holiday season.

As soon as we recognized this, we took collective actions to the design, development and merchandising process, and the associated implementation needed at the store level. Given the lead times necessary for these changes, it will take some time before you'll see the impact from these initiatives. That said, we have learnt a great deal over the past several quarters and have found several products that do resonate well with our core customer.

With our merchandising team intact, and with our recent learning, we are committed to delivering our brand promise. Our summer collection will hit the stores in early April, and will reflect some initial improvements with the complete brand vision fully incorporated in our fall collections and even more refinement continuing through holiday.

We are building off some successes from our holiday collections, and such as, our new innovations in fabrics and jeans silhouettes and adapting them for the summer collections, all the way are remaining true to our brand vision. For the summer, you will see bright and colorful crop pants, tops and flip flops, highlighting our original casual comfortable styles. We have put together looks with more novelty detail and unique prints that we believe will resonate with her.

To allow us to achieve and maintain the consistency throughout our collections, we have reduced our SKU counts by at least 20%, as Dan discuss earlier. We will focus on buying key items and more depth, without moving the eclectic nature of the brand. As part of this strategy, we have made the decision not to move forward with the spirit test collection.

We achieve significant learning from the collection, which was featured in approximately 50 stores. It was a higher price point line, more sophisticated point of view. Rather than pursuing a potentially distracting initiative at this time, we will incorporate those learnings, namely, from a detailed jackets and pants, and incorporate them into the core collections of the Coldwater Creek brand at better price points.

I am extremely confident that we'll be able to deliver the merchandise that she expects from Coldwater Creek. We believe that we'll restore customer's emotional connection with the brand, and recapture the sense of adventure and magic that she experiences when shopping with us.

I look forward to updating you in the future about our product and merchandising progress. And with that, I'd like to turn the call back over the Dan. Dan?

Daniel Griesemer

Thank you, Georgia. I will now provide guidance for 2008. Net sales for the full year in fiscal 2008 are expected to be in the range of $1.05 billion to $1.13 billion. In regards to our earnings per share guidance, diluted earnings per share for the full year in fiscal 2008 are expected to be in the range of $0.20 loss to breakeven. Diluted earnings per share for the first quarter, expected to be in the range of $0.17 to $0.14 loss, for the second quarter $0.09 to $0.03 loss, for the third quarter $0.02 to $0.07 profit, and for the fourth quarter $0.04 to $0.10 profit.

The capital expenditures for the full year fiscal 2008 are expected to be approximately $90 million, primarily associated with the Company's retail store expansion and store related expenditures, and to a lesser extent, investments in information technology and other corporate related capital expenditures. As previously discussed, the Company plans to open a total of approximately 50 stores for the full year of fiscal 2008.

In closing, we are extremely optimistic about the future of our business and the product improvements we are making. We have a strong well-established brand, a large market opportunity and a very little customer base. Although there is much work to be done to refine our products and customer experience, we are completed committed to making the necessary changes.

We have an enthusiastic and experienced management team, and 13,000 empowered employees dedicated to our long-term success. And by keeping our brand vision at the forefront of our mind, and focusing on our products and customer experience, I know that we can restore greatness to the Coldwater Creek brand. And we look forward to continuing to actively communicate and report positive changes to you throughout the coming year.

This concludes our prepared remarks. I'd now like to turn the call over to the operator for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). First, we'll go to Michelle Tan with UBS.

Michelle Tan - UBS

Great. Thanks. I just had a question on the cash flow plans for the year. I guess considering there is $90 CapEx that you're talking about and a lower operating plan this year versus last year, you did $50 million or so in operating cash flow here. Help us understand how this is going to play out through the year, what your peak seasonal borrowing looks likes when that comes and when you expect to generate cash flow for the year?

Tim Martin

Yeah. I'd be happy to take that question for you. I think the first component of it is taking a look at the ending balance in cash for fiscal 2007, that number is depressed by approximately $37 million of prompt pay discounts. So with that, as we move through working capital, we'll start to turn off around.

Michelle Tan - UBS

Is that not showing up in the working capital, so because your working capital was down a lot for this year, right?

Tim Martin

It's actually reduction of cash and an inventory amounts. So it's a reduction of 80 and an increase of inventory and reduction in cash.

Michelle Tan - UBS

Okay.

Tim Martin

So, that's how that works. The gross number that Dan referenced in CapEx is gross of the tenant allowance, that actually also goes to working capital and is shown in our operating cash flow. So that is gross number when you look at that, you need to factor that into your models. And then the other component to consider as you look at our cash flow forecast is, as we're adding stores over the last few years and really recent growth in fixed assets, the incremental depreciation on a year-over-year basis is a fairly large growth and so modeling that out will help you get basically the number that Dan referenced for cash.

Michelle Tan - UBS

And then out of your existing cash balance do have any exposure to any of these auction rate securities or anything that we should be concerned about in terms of being able to access I guess?

Tim Martin

We do not have any auction rate security investments.

Michelle Tan - UBS

Okay. Great. Thank you

Operator

(Operator Instructions). Moving on we'll go to Mark Montagna with C.L. King

Mark Montagna - C.L. King

Hi. Just a question about the prompt-payment purchases that you made. Did you have any last year, because this year you had 36. Were there any opportunities last year at the same time period.

Tim Martin

No, we did not take advantage of any prompt-pay discounts last year.

Mark Montagna - C.L. King

Okay, and what is your cadence for new store openings this year by quarter?

Tim Martin

Well we put in the release, but I will view real quickly for you

Mark Montagna - C.L. King

Oh I see it right here.

Tim Martin

Okay you got it.

Mark Montagna - C.L. King

Okay. Yeah I got a [tug] on that. Then can you also tell us on what was your dollar spend on national magazine ads in 2007 and the dollars spend on catalog and then the marketing spend on items for in-store signage?

Daniel Griesemer

Well maybe we should take some of that detail off line. We had approximately a $30 million spend in national advertising in '07, we'll be spending about $10 million this year. Catalog spend was about $78 million or so on a $130 million in [circ] and that’s going to be around $62 million.

Mark Montagna - C.L. King

Okay. But the $30 million that you're talking about, I thought, is that for the national magazine ads?

Daniel Griesemer

A majority of that is national magazine ads.

Mark Montagna - C.L. King

Okay. Okay. All right that’s all I need then. Thanks

Daniel Griesemer

Okay, thanks

Operator

And moving on, our next question will come from Liz Pierce with Roth Capital Partners.

Liz Pierce - Roth Capital Partners

Good afternoon. Just a couple of house-keeping questions and then a couple of product questions. Tim what should we be looking for on the share count. Actually you bought back stock, as we are looking at this numbers for the first couple of quarters. Should we use like 99? I guess that was the ending share-count.

Tim Martin

Our ending share count in our release was 90, weighted averages was [99.54] for the quarter.

Liz Pierce - Roth Capital Partners

Right.

Tim Martin

12 month 92.8. I think, given the current levels, I don't expect a ton of option exercises and we do have a sizeable portion of our option population that is under water, will not be dilutive. What I would give you in sort of guidance and that’s more of a guidance on our share re-purchase program is that while we will be pro-active, we will also be the managing that with the mindset of preserving cash and been very prudent with that use of cash throughout the year. So you can translate that to however you like to on the share re-purchase and model that in your model.

Liz Pierce - Roth Capital Partners

Okay. And then can you break out the sales for us between the catalog and Internet?

Tim Martin

For actual sales, I can if you give me one moment.

Liz Pierce - Roth Capital Partners

Maybe I can ask Georgia something and - -

Georgia Simmons

Sure.

Liz Pierce - Roth Capital Partners

In the mean time, hi Georgia.

Georgia Simmons

Hi.

Liz Pierce - Roth Capital Partners

When you talk about the heritage being rooted in the west, and I know for competitive reasons you probably don't want to give us too much. But maybe for those of us that may be don't have five plus year's experience with Coldwater. Help me visualize? Can you articulate what exactly that means?

Georgia Simmons

Well I think what it means is; is really we are known and have been seen in the eyes of our customers as the casual brand. And the casual brand with again I think the emotions rooted in the west which really means more natural fibers, and ease, the comfort and we got away from that a bit . So I think it's not cowboys and Indians, it is really - but it is about refocusing far more on the casual side of our business.

Liz Pierce - Roth Capital Partners

Okay. Okay.

Georgia Shonk-Simmons

Is that helpful?

Liz Pierce - Roth Capital Partners

It does. Yeah, that opens up a window, a kind of thought process on where you go. And I know you address this a little bit, but in terms of your focused groups and what are your employees telling you about the product. Is it the same validation?

Georgia Shonk-Simmons

Yeah, absolutely. We're getting the same validation all the way around. Now as I said we've had some - even in a disappointing extraordinarily disappointing couple of seasons, we have gotten again complete consensus on where we need to move with again the customers total reinforcement, but we always -- we have also done gotten some good takeaways we can build on.

Liz Pierce - Roth Capital Partners

Okay, because I know high percentage of your customer -- your employees have been customers right?

Georgia Shonk-Simmons

Oh, absolutely.

Liz Pierce - Roth Capital Partners

Okay. All right. Dan do you have those numbers or not?

Daniel Griesemer

Yeah, absolutely. For the quarter the internet was approximately $89 million in revenue.

Liz Pierce - Roth Capital Partners

Okay.

Daniel Griesemer

Catalog was approximately 31.

Liz Pierce - Roth Capital Partners

Okay. And what was the actually ending comp for the year. I didn't see that?

Daniel Griesemer

We do not disclose anything other than quarterly comps.

Liz Pierce - Roth Capital Partners

Okay. And then I think that might -- that's it for now. If I had one I'll get back in. Thanks.

Daniel Griesemer

Great. Thank you.

Operator

And moving we'll be now go to Marc Bettinger with Stanford.

Marc Bettinger - Stanford

Hi, everyone. Tim what are the comp assumptions for 2008?

Tim Martin

Sure. Basically in the first half of the year we're expecting the same challenging comp environment that we're seeing right now with soft traffic and the challenging macro economic environment. As you start to transition towards the back half of the year and our new merchandising initiatives take effect in Q3, we'll see that trend improving, we expect to see that trend improving. And we expect the end of the fourth quarter with a slightly positive compensation.

Marc Bettinger - Stanford

So Q4 is slight positive?

Tim Martin

Yes.

Marc Bettinger - Stanford

Okay. And then so for the first half should we look for down mid-teens?

Tim Martin

Yes.

Marc Bettinger - Stanford

Okay. Also Dan, if you see the $60 million in savings that you referred to, how of that do you expect to be realized in 2008?

Daniel Griesemer

Well, that's all 2008.

Marc Bettinger - Stanford

Okay. So if I have it right, I think even the low end equates to about $0.30, $0.35 a share and does that resonates, if I sound right?

Daniel Griesemer

I have to take a look at our …

Marc Bettinger - Stanford

Okay. Well just tax effecting $50 million on 90 million shares. So I am trying to figure out is this, you have $0.30 of $0.35 in savings, if you just added the $0.03 you had, that you did in 2007, you should be up somewhere around $0.30 positive, so what am I missing of what's continuing to decline?

Tim Martin

One of the things that you'll miss is that the reference for the cost savings initiatives, some of those initiatives actually took place in 2007 and is the change on the run rate of the business that would have occurred in 2008. So, just to give you some more guidance in cost structure, we're expecting SG&A for the year to be flat on an absolute dollar basis for 2007.

Marc Bettinger - Stanford

Okay. So SG&A is flat year-over-year?

Tim Martin

Yes.

Marc Bettinger - Stanford

Okay. And lastly was the direct sourcing for 2008 initially 70%?

Georgia Shonk-Simmons

Yes, we had made that statement that it was going to be around 70%. But as we move the inventories down, and as we refocus the product, we're being more conservative and so we're going to go to the 60%

Marc Bettinger - Stanford

Okay, great. Thank you very much and best of luck.

Georgia Shonk-Simmons

Thank you

Operator

And next we'll go to Richard Jaffe with Stifel Nicolaus

Richard Jaffe - Stifel Nicolaus

Thanks very much. I guess a question for Georgia. We've sort of been here before last Christmas, let's say Christmas '06 didn’t work out well. We talked about some of the initiatives being put in place to get back to your identity, and could we talk about what went wrong this Christmas, what you've learned and how it’s going to be different this time around. I understand being on the expense side of the equation being managed better or less inventory, more forced inventory, but really in terms of product and product direction how do you break the circle of sameness and what is encouraging you? I guess that was one of the comments in the press release that you are encouraged. If you can you give us some specifics about what is encouraging to you that will be great.

Georgia Shonk-Simmons

Okay. I would say that if I look at holiday of '07, I would say that some of the very successful things we've done in the past, we did one too many times without a lot of newness and the newness we added was dressing. And our customer doesn’t see us as a dressy brand, she sees us as a casual brand. So it doesn’t mean that we won't have some exciting jackets and tops, and one of our big misses was in jackets. So and I think again we have realigned how we're approaching our jackets, we've realigned how we look at this brand as being more casual, and that will mean an entirely different look for holiday of '08 from anything we've done in the past and not really repeating any of the sameness.

Richard Jaffe - Stifel Nicolaus

And the part that you're find encouraging already

Georgia Shonk-Simmons

Well, I think the part that is encouraging already is not to fall off the brand wagon as far as how our customers views us and what she want from us, she doesn't want Dressy, Holiday clothes from us. And that has become perfectly clear.

Richard Jaffe - Stifel Nicolaus

So it's…

Georgia Shonk-Simmons

It's really…

Richard Jaffe - Stifel Nicolaus

Listening to your customer more and optimism that you listen more carefully this time rather than specific sales through the product or categories, that are performing well.

Georgia Shonk-Simmons

It's both. It's the combination. So listening to our customers, our pants initiatives last fall was the one thing that, in fact, really worked for us. But if you think that our number one category really is jackets and that was really where our shortfall was, we really miss that by being again not just novel and unique you about too, too dressy, so we've great pants learning that we can take forward and absolutely expand upon.

And, again, I think in our sweater business, I don't think were noble enough. I don't think we were interesting enough. And I think that it's really just having a very intense focus not only on the product details but on where she wears, that how she wears, how it fits into her life and how it fits into the segmentation that we're doing through our marketing. And so I think we have a lot more intelligence than we've had in the past. And I think that the clarification of getting back on the brand wagon, but being her casual brand is still driven by pants and jackets, is a place we're moving to very as quickly as we can.

Richard Jaffe - Stifel Nicolaus

Great. Thank you very much.

Georgia Shonk-Simmons

You're welcome.

Operator

And next from Oppenheimer, we'll go to Roxanne Meyer.

Roxanne Meyer - Oppenheimer

Great. Good afternoon.

Georgia Shonk-Simmons

Good afternoon.

Roxanne Meyer - Oppenheimer

My first question is from Georgia. Thanks for providing us details on your vision for the brand. You and Dan mentioned that customers from your research want fit quality, comforts and style. And certainly, it sounds like the style is being altered. I just wanted to see are there changes needing to be made along those other dimensions or are you to currently happy with the set? Obviously, in the pants, its sounds like you are a bit quality and comfort as well.

Georgia Shonk-Simmons

I think that as we go forward we'll be putting in lot more details in everything to enhance the fit and turning the garment inside now and how well it looks. We'll be actually doing better piece goods and we are exploding our fit initiatives beyond pants into all the other categories taking on jackets as we speak.

Roxanne Meyer - Oppenheimer

Okay. Great. And will that also require a lot of changes to where you source your goods?

Georgia Shonk-Simmons

No, it really has to do with the specifications in the grading on patterns.

Roxanne Meyer - Oppenheimer

Okay. And then just a question on inventory, as you mentioned that they are going to be down 15% for the full year per square foot, is that a constant across the quarters or it'll vary by quarter?

Georgia Shonk-Simmons

No, actually if you think about what we have been saying, one of the issues we have is that we couldn't really change Q1 or the spring assortment, and so we knew we were going to already be over-inventoried in spring. So you see it coming down throughout the year more so in the second half.

Tim Martin

Averaging 15.

Roxanne Meyer - Oppenheimer

Okay.

Georgia Shonk-Simmons

Yeah. An average of 15% and that will be on top of last year's average of 11%.

Roxanne Meyer - Oppenheimer

Okay. Great. And then last that, certainly, you're committed to opening stores where you've got the opportunity and I know it's certainly early, but do you have any indication as to what your store gross might look like for 2009?

Tim Martin

Well, we said that we're going to run at approximately 50 stores, and again, that's not a hard number. We're going to managing it prudently and appropriately and if things change significantly, we will be back to you with the change in that. But we like that rate. We think it takes advantage of the opportunity we have as a brand and doesn't put a strain on the finances of the Company, but is appropriate. So we're going to move forward with that for now.

Roxanne Meyer - Oppenheimer

Okay. Great. Well, thank you very much and good luck.

Tim Martin

Thank you.

Georgia Shonk-Simmons

Thank you.

Operator

(Operator Instructions). Moving on our next question will come from Chris Kim with JPMorgan.

Chris Kim - JPMorgan

Hi, thanks. Dan, I was wondering if you could talk about, I mean it looks like your budget for marketing spend in magazine is down substantially for '08. Could you kind of kind of talk about the relationship between the traffic driving component of the marketing, the coupons associated with it and tie that kind of into brand loyalty and brand equity et cetera?

Daniel Griesemer

Sure. We have as we've been driving the business through a market share strategy historically. We had continued to increase the amount of marketing spend in discounting activity in order to fuel that growth and essentially where we find ourselves with a macro economic environment that has changed significantly is that those efforts are actually back firing and the quality of customer that the significant discounting was retaining was not really sustainable. We could not continue to sustain the rate of discounting with the brand that experienced particularly in the last year.

So this is really about focusing our energies and efforts on our core customer, and retaining engagement of that core customer. But remember the catalog is the primary driver of traffic to the brand. And we are still going to mail over a 100 million catalogs and have a significant investment in that in order to remain very targeted and focused at driving traffic, but do it in a more efficient way that's prudent to reduce the overall level of discounting in order to restore the vendor price heritage but also reflects cutbacks in SG&A given the overall climate.

Chris Kim - JPMorgan

Okay. And any chance that you guys would introduce a royalty program outside of the credit cards with some of the savings, if there seems like a pretty big opportunity?

Daniel Griesemer

Yeah. We launched in the late summer our one Creek royalty programs. It is in addition to the preferred credit card program. We're looking that's fairly new. It's only really been in existence for about seven months or so. We're continuing to look at that and see how to best utilize that program as well as the other things that we have targeted at our core customer to ensure a complete engagement and retention of our customers. So we have it and are looking for modifications to rollout through 2008.

Chris Kim - JPMorgan

And for Georgia, we've been hearing a lot about some pressures on the cost side of the business and sourcing, and what are you seeing there and how are you reacting to that?

Georgia Shonk-Simmons

I think overall, we have been especially on our base product. We know that costs are going up and, again, especially in China. But on our base product, we have been out there with owning our gray goods for a long time. So we have taken this information, which we've known quite a while ago and it is already embedded in the plan. So I think that we're very comfort with where we're going and very comfortable in maintaining our IMUs.

Chris Kim - JPMorgan

Okay. All right. Thanks very much and best of luck.

Georgia Shonk-Simmons

Thank you.

Operator

And next from Wachovia, we'll go to Lyn Walther.

Lyn Walther - Wachovia

Hi. Thanks, guys. A couple of questions. I understand that you're reducing SKU count, given that are you still confident that 6,000 square feet is the right size for the stores, are you considering for '09 maybe reducing that somewhat? I just want your thought there.

Daniel Griesemer

Sure. We still like the 6,000 square foot store size. We do see an opportunity to maybe be just slightly smaller than that, but that is the appropriate size. We've been testing various sizes at stores over the last five years and we've zeroed in on that one because we believe it provides us actually an advantage to various aspects of our lifestyles. We'll be able to arrange product in way that's compelling. It gets through the breadth with both sizes and unique product offerings. And we feel good about that.

Lyn Walther - Wachovia

Okay. And Dan, you mentioned restoring right price selling being more prudent with your promotion. Can you give us a little bit more detail on how we should be, what we'll be seeing? Any plans to move away from, from your big quarterly sales or how you're looking at that?

Daniel Griesemer

Yeah. There is two components to that. The disposition or sale activity, we will continue to have our four major sale periods in our premium stores each year. We'll continue to have sales on our website and use our outlet website to clear residual inventory. We use our outlet stores and wear appropriate our sale catalogs.

That's one piece in where as we remain committed to maintaining clean inventories, as we've done even in this challenging businesses climate, we're going to continue to do that appropriately going forward. But you would see a significant reduction as we go through the year in the level of clearance activity as we get inventories inline with the overall business climate. That's one piece.

The second piece is the promotional activity over and above clearance or sale activity that has been used historically to-drive traffic or to create in-store promotions. And what you're going to see there with the significant reduction in the national magazine advertising, you're going to see a reduced amount of coupon and that's associated with the $25 of the 100 or more promotions that we've been running through national magazines advertising. But we will also see shorter, more focused windows of promotion.

So it's not like we're going to not have promotional activity or discounts in our story, we will be doing that in order engage our customer and retain our core customer. But the levels need to be reduced to the levels that are more historical, that are more reflective of the regular price heritage the brand is enjoyed for years, and now significantly reduced from '07 levels.

Lyn Walther - Wachovia

Can you remind us or give us what percentage of your sales have been down with some sort of coupon last year?

Daniel Griesemer

We haven't disclosed that in the fourth quarter information, and here's what I can say, it's not something we are wanting to continue. We know the level of discounting either through promotional activity or clearance is not sustainable, and so we're focused on restoring the regular price heritage and to discrete brand and so you're going to see a reduction from the historical levels.

Lyn Walther - Wachovia

Okay. And lastly just give us an update on Spa? Thanks.

Daniel Griesemer

The Spa experience continues to be a very good when we continue to get great comments from our customers that are experiencing it. We have nine open to date, we have no plans fro nay new spas to be opened, and we are looking to the middle of this year to determine whether this is an investible proposition, where we would want to have more in the future or we're going to stick with the ones we have. So look for more communication. As we've indicated before it's really the middle of '08 where we want to get the - so what we did, we opened in the back half of the year that reflected all the changes in programming and all that. But the experience is great, it's just whether it make sense to invest in more of them.

Lyn Walther - Wachovia

Thanks. Good luck.

Daniel Griesemer

Thank you.

Operator

And next from Brean Murray will go to Eric Beder

Eric Beder - Brean Murray

Good afternoon

Daniel Griesemer

Good afternoon

Eric Beder - Brean Murray

Could you talk a little bit about the potential productivity of I suppose the newer stores or is there any difference in productivity with some of the initial openings and the new openings you have now, or you will look at the comps from other areas of this business.

Daniel Griesemer

No, it’s across the board store type and storage.

Eric Beder - Brean Murray

Okay. And I've noticed that you have at the store levels done a number of things in terms of bottoms, could you talk a little bit about what the thought about that is? I think you kind of put them in to different classes and what the response has been to the customer to that?

Georgia Shonk-Simmons

Actually our pants initiative has been the one highlight that we've seen especially in the back half of ’07 and continuing in to early spring. And again, part of that is fit, part of it is that it has everything in stretch and comfort, and again a refocusing on denim, so that has been very positive. So we will expand innovations in pants as we go forward and add more to it as its been really a highlight.

Eric Beder - Brean Murray

Great, good luck

Georgia Shonk-Simmons

Thank you.

Operator

And moving on our next question will come from Holley Guthrie with Janney Montgomery Scott.

Holly Guthrie - Janney Montgomery Scott

Great, thank you. I was wondering if you could share with us what new comments came out from your customer focus groups this time period.

Daniel Griesemer

Sure, I will take that. You know it was really a reinforcement of a lot of things, we already knew, but its sure its great to hear again directly from the customer and then infuse back throughout the organization to help in decision making. But it was really around the importance that fit and quality and comfort and style play in her decision making, what she comes to us for in terms of casual apparel and the importance that plays. The connection that she has with the brand and what she thinks. So this is all very, very positive, but there is nothing earth shattering, it was just a reinforcement and a confirmation of the things that we knew we needed to do to get the brand back on track

Holly Guthrie - Janney Montgomery Scott

Any comments regarding her economic situation, her challenges, cost going up that may have impacted her spending?

Daniel Griesemer

Yeah the Coldwater Creek customer spends a lot on apparel, she spends almost double the average of the demographic. We really see and saw that as you think about the customer not so much by age but by the role, fashion apparel plays in her lifestyle, you can see that spend go up considerably. And you know what was on top of mind was the price of things, but there needed to be a value – a priced value equation in there, and so she needed to make sure if she was getting the quality and the look and feel and style that she wanted and then she is willing to pay for it

Holly Guthrie - Janney Montgomery Scott

Was you know adjusting her concern with the price value, did that go into the decision to not go forward with the spirit line, and then a follow-up to that, did that got in to any decisions on how you're going to price the product just everyday pricing going forward?

Georgia Shonk-Simmons

Well I think the real decision to not go forward was fear, it really had everything had everything to do with the fact that it wouldn’t be prudent for us to take on a new line when the core business needs to be fixed. So that really was the issue. The second issue is that I totally agree that the thing that we need to get back to, in total, is really a true price value relationship in the product. What is it really worth, what is really worth to her today in this environment and what is it really worth to her based on the construction and the details that are in it. And so we will be very cautious on how we price everything that it really looks like what we are actually putting the price points on. So, we are actually going through a process of when and how we see product before it hits the floor to make sure we're happy with those relationships

Holly Guthrie - Janney Montgomery Scott

Okay, great. Thank you, good luck.

Georgia Shonk-Simmons

Thank you.

Operator

Next we will go to Mark Cooper with Wells Capital.

Mark Cooper - Wells Capital

Given the environment that you are in, in terms of macro economic which actually didn’t spend a lot of time on you, seem to point to your internal or your company specific issues. But why go after (inaudible) stores this year? Why not just protect the balance sheet and shut it out? What's the downside of doing that?

Daniel Griesemer

Okay, I'll take that. We didn't spend time talking about the macro environment because we feel, we've talked a lot about that over the --.

Mark Cooper - Wells Capital

That's a point well taken then.

Daniel Griesemer

And this is really - the tone of business to talk about what are we going to do, what's within our control? We cannot control the macro environment, we're going to focus on the things we can control, and that's in making sure we have an intense focus on our product and our customers experience. Why continue to open stores? I think to simply put a freeze on store openings given what is a short-term macro environment or our own execution issues would be imprudent. We indicated and I indicated in my opening comments that we believe that opening new stores is the best place this company can use it's cash.

The overall economics are extremely advantageous, the economic model is advantageous, given our build-up cost and the contributions we get from landlords and tenant allowance, and we have a demographic that we are continuing to target that is increasing in population. And there are still hundreds of locations throughout this country where we know we can have a store, a lot of our competitors have stores and when we go head-to-head it is centered with one of our competitors, we do more business than they do. So we believe there is still a significant amount of opportunity and we've reflected a reduction going from 66 this past year and 65 in '06, down to approximately 50 and we may be somewhere even slightly below that. But that's we think a prudent reflection of the overall environment.

Mark Cooper - Wells Capital

Are you financially committed to opening the 50 stores.

Daniel Griesemer

No, I think there is approximately half that have fully executed leases.

Mark Cooper - Wells Capital

Okay.

Daniel Griesemer

And as I said we are not, we have no intentions of borrowing in order to fund that growth, and we believe that with that 50 number, we will still end the year with more cash on the books that we ended this year. So I am not concerned.

Mark Cooper - Wells Capital

Dan, one last question. I think in one of the conferences that you attended recently, you were asked about the store or the store contribution of the retail stores and they were all positive. My guess is in February that's not the case, is that true or not?

Daniel Griesemer

Well, you mean for any one month or on an annual basis?

Mark Cooper - Wells Capital

On the fourth quarter. And the question that I am getting to is, given sort of your plan or your thinking coming into the year which I understand you're a bit cautious and concerned about that, is there a level of contribution in the stores? Somebody asked a question earlier about topline performance, is the contribution level at all different among store classes or anything like that in this last quarter?

Daniel Griesemer

Well, lifestyle centers generally have a higher four wall contribution simply because of the economics and they are preferred venue by our customer, but they are lot of all also extremely productive and efficient mall stores. So it's not a general rule. The economics and the volume expectations and the cost structure we put in there is reflective of what we think the whole portfolio needs to perform at. We do not have any stores that are not positive in the four wall contribution or even close. So it's even with these volumes level.

Mark Cooper - Wells Capital

Even with the volumes levels here that we saw, I guess the comps are down,

Daniel Griesemer

Correct.

Mark Cooper - Wells Capital

Okay. Thank you.

Daniel Griesemer

Yeah.

Operator

With Lehman Brothers, Jeff Black has our next question.

Jeff Black - Lehman Brothers

Yeah. Hi. Good afternoon, guys. I guess just to drill down on the question everyone seems to want to get answered is the new stores, these things used to cost 800,000 bucks to open, correct, and they are expected to reach around 500 and so per square foot in the third year of operation.

What are the stores you're putting down this year, I mean do they still cost 800 and when are we going to see that 500 and so per square foot, because it would seem, A, is very difficult market to get any reads on, but B, what gives you the confidence to keep building these things with the model that I would argue is nowhere near proved out guys?

Daniel Griesemer

Well, I think the store construction costs are still in that relative range. That obviously depends on the size of the box. We do still feel very strongly with the fact that all of our stores are cash flow positive and four-wall contribution positive, but we do think the model actually does work. And we are still seeing more attractive economics as we move forward to expansion and better and better locations.

We have a very good idea where our customer is and factors of demographics. And that's where we're locating these stores. So you know with all those factors, we actually tend to believe this is a very effective model and move forward. I think it's more along getting our margin rates and our margin and inventory levels at the right place, and weathering the macroeconomic conditions.

Jeff Black - Lehman Brothers

In terms of the store base itself are there going to be any changes with where you're locating these stores? I mean I know you've been in lifestyle centers with pre-locations, mall with better -- any good change in the mix of locations to look forward to?

Daniel Griesemer

I think you can see and expect an overall increase in lifestyle centers but there are still a lot of very compelling mall locations, the overall mix will be slightly in favor of lifestyle centers. But these and all of our stores that have a four to five years proven track record and that the model works. We're focused on the things we need to do to get the business back on track and when that happens then these questions won't be there.

Jeff Black - Lehman Brothers

And then, finally, -- and I do appreciate you're answering them. You've got a fairly spread out footprint of stores versus what we would argue with the traditional retail hub and spoke model, are there areas where you would consider pulling back areas that are performing differently then the overall base? And I guess the other side of the question, are there regions where you want to get a lot more importance and is that what we're doing with these new stores and the 50 stores is adding them to regions where you've already got better traction.

Daniel Griesemer

Well, I guess I would take issue with the assumption that the appropriate strategy is a hub and spoke. I think that puts operational efficiency over the long-term investment opportunity that these leases and these opportunities present. We are a national brand. We know that because we know where our customer lives and we have a 23-year heritage from the direct marketing side. We know where she lives. We know what she spends. We've a national market strategy, and we are taking the most opportunistic and financially viable real estate locations in selecting those as the ones to go in regardless of the region or the particular area in the country.

If we strategize where the opportunities are and we have, we've scoped between 550 -- 500 and 550 locations trade areas where we want to have stores. As an opportunity presents itself then we look at it on the merits of it as a deal among all other deals that we are entertaining at the same without trying to say that we could maybe save on a district manager's salary by locating two more stores in a district. That's not what's driving it. It's long-term access to this brand to a national customer.

Jeff Black - Lehman Brothers

All right. Fair enough. Good luck guys.

Daniel Griesemer

Thank you.

Operator

Crystal Kallik with D.A. Davidson has our next question.

Crystal Kallik - D.A. Davidson

Good afternoon. Dan, I know often an area that you've targeted so much in the past is the direct business and sometimes you guys see some pretty significant differences in the business strength in direct versus retail. Was that the case for Q4?

Daniel Griesemer

We've seen generally dresses perform better in the direct business. We see pants generally perform better in the retail business, but no significant differences there. It was across kind of across the board.

Crystal Kallik - D.A. Davidson

Okay. Okay. Tim, could you tell us your thinking as far as what an ideal cash balance on the balance sheet you would want to have kind of on a go-forward basis?

Tim Martin

Well it's a very, very complicated question to answer because of a number of different variables, but for us its really a about making sure we prudently managed the cash, the cash investment which fund the appropriate growth and manage working capital appropriately, and there is no point at which in 2008 I am uncomfortable with my cash flow forecast.

Crystal Kallik - D.A. Davidson

Okay. I guess is it safe for us to assume that somewhere around where you ended Q4 would probably be a reasonable range of where you would maintain it throughout the year?

Tim Martin

I think I am really not comfortable giving a specific cash balance at any point time in the quarter, because there is fluctuations based on inventory flows, stores, build-out constructions in that front. But I think the simple answer is there is no point in time during fiscal 2008 that then I feel we a have cash balance I am uncomfortable with.

Crystal Kallik - D.A. Davidson

Okay. Okay, fair enough. And I know either Tim or Georgia, in the past you've told us what kind of IMU benefit you got in the quarter from direct sourcing, could you give us especially for Q4?

Georgia Shonk-Simmons

Q4 was pretty much the same thing we have been talking about from an IMU perspective, which certainly didn’t happen in the margins. It was really either 150 to 200 basis points.

Crystal Kallik - D.A. Davidson

Okay. Okay and so that's pretty much the same amount for full year as well, right.

Georgia Shonk-Simmons

Correct.

Crystal Kallik - D.A. Davidson

200 basis points, okay. And then we would expect, since you are going up another $0.10 as far as direct sourcing next year, a similar range slightly higher than that thus far.

Georgia Shonk-Simmons

I think actually what you are going to see is that it will be slightly lower than that, because one of the things we are really going to with less promotional activity and with really final pricing items as we see them as being really looking there is going to be a price-value relationship, I think what you will see is, that will be about flat or slight higher based on the fact we want to make sure that we are retailed correctly for the price value relationship.

Crystal Kallik - D.A. Davidson

Okay, so you're passing on some of the benefits to the customers at this point.

Georgia Shonk-Simmons

Yes, absolutely.

Crystal Kallik - D.A. Davidson

Okay, fair enough. And then just finally, Tim do have a Spa EPS impact for us for the year?

Tim Martin

For fiscal 2008, it will be a little bit less than $0.01 per quarter.

Crystal Kallik - D.A. Davidson

Okay. And then where did it end up coming in for '07 on a total basis?

Tim Martin

Somewhere roughly in that $0.01 per quarter range.

Crystal Kallik - D.A. Davidson

Okay. Great.

Tim Martin

A little bit more in a couple of quarters or a [little bit less].

Crystal Kallik - D.A. Davidson

Thank you very much.

Daniel Griesemer

Okay. I think we got a time for one more question.

Operator

We will take that question from Liz Dunn with Thomas Weisel.

Liz Dunn - Thomas Weisel

Well, great, and under the wire. My questions are about the reduction in marketing. What's your estimation of how much that hits the comp? And remind me, I think you booked those coupons as marketing expense not as a reduction to sales or in gross margin. I also want to get an understanding of when you talk about your four-wall profitability, does that include that marketing expense because I think you are calling national marketing expense coupons that customers walk into the store with. So I just want to sort of flush that out and how is it going to hit the comp? I mean is there a risk really that we're sitting here a year from now talking about an unforeseen hits the comps because of the reduction in marketing? Thank you.

Tim Martin

Yeah, sure. It's not unforeseen at all. We're very aware of the implications that these reductions are going to have on comp and comp traffic and we're building that into our overall plans, and it's been taken in to consideration as we communicated our guidance for the year. We do not book those as a marketing expense, we book them as actually a margin hit when the revenue is recorded at the sale or the time of redemption.

So we have a significant reduction, but it is more efficient when we say we're going to do them for a shorter windows of time period, we're going to do them when it's the most appropriate time throughout the year, and then the overall level needs to come down and we know we can track and see what kind of activity each campaign that we run creates and we've taken that in to consideration of building the entire year's plan and the strategy. But it's really about restoring a sustainable level of growth in the regular price heritage to this brand.

Liz Dunn - Thomas Weisel

Okay, great. Thanks.

Tim Martin

Thank you. Okay, and that's it. Okay listen I just wanted to thank everybody for joining in the call, we clearly know we need to do. We've taken the aggressive actions and we're focusing intensely on our product and our customer experience. We're improving the product, we're improving our operating efficiencies, and we are prudently managing our growth, and we're completely focused on returning to a sustainable growth and profitability. Thanks and we look forward to updating you throughout the coming year on this progress.

Operator

And thank you everyone that does conclude today's conference. We do thank you for your participation. On behalf of today's speakers, I would like to wish everyone a great day.

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Source: Coldwater Creek Incorporated Q4 2007 Earnings Call Transcript
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