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Executives

Anne Rakunas - IR, ICR

Dennis Pence - Co-Founder, Chairman and CEO

Jill Dean - President and CMO

Jim Bell - EVP, COO and CFO

Analysts

Roxanne Meyer - UBS

Liz Pierce - Roth Capital Partners

Alex Fuhrman - Piper Jaffray

Coldwater Creek, Inc. (CWTR) Q2 2012 Earnings Conference Call August 29, 2012 2:30 PM ET

Operator

Greetings and welcome to the Coldwater Creek Inc. Second Quarter 2012 Earnings Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host Anne Rakunas of ICR. Thank you, Ms. Rakunas, you may begin.

Anne Rakunas

Thank you. Good afternoon everyone and thank you for joining us as we discuss our results for the fiscal 2012 second quarter ended July 28, 2012. Participating in today’s call are Dennis Pence, Chairman and Chief Executive Officer; Jill Dean, President and Chief Merchandising Officer; and Jim Bell, Executive Vice President and Chief Operating and Chief Financial Officer.

Before I begin I’d like to remind everyone that the statements contained in this conference call that are not historical facts constitute forward-looking statements within the meaning of the securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties are described in the company’s filings with the Securities and Exchange Commission. No one should assume later in the quarter that the comments we provide today are so valid. Moreover, we are not undertaking any obligation to provide updates in the future.

And now I’d like to turn the call over to Dennis.

Dennis Pence

Thank you. And thank you for joining us today to review our second quarter results and our plans for the second half of 2012. After my opening remarks Jill will review our merchandised performance during the quarter and Jim will then discuss our second quarter financial results in more detail and provide guidance for the third quarter. After our prepared remarks we will turn the call over to the operator to take your questions.

Our second quarter performance was slightly ahead of the expectations we provided in May with encouraging results across the financial and operational metrics demonstrating that we are executing the appropriate strategies to improve our financial performance and generate consistent sales and earnings growth in the future.

I’d now like to draw your attention to some key data points. Our tight inventory controls and significantly lower markdown sales drove over 465 point basis improvements in merchandised margin. We also continued to tightly manage expenses resulting in a $4 million year-over-year reduction in SG&A expense in the quarter. These improvements resulted in a $10 million reduction in our net loss relative to a year ago.

Our product strategies drove improvements in several key top metrics during the quarter including our average unit retail which increased 2.5% and our conversion rate [comp] which was up 4%. As expected, traffic remained challenging during the quarter due primarily to a significant reduction in planned promotional activity in the month of June.

An important component of our turnaround strategy involves rationalizing our store base by either closing underperforming stores or achieving an optimal store size by downsizing existing venues. To-date we have closed 24 stores and are on-track to meet our plans to close up to a total of 45 by the end of fiscal 2013. These closures represent the majority of our underperforming stores.

We also expect to improve the sales productivity over existing store base by reducing our footprint. Our objective is to overtime bring the average store size down to approximately 4500 square feet from the current average of 5700 square feet. Jim will further discuss the improvements in productivity we see in this regard.

In regards to our factory outlet stores, for the past 18 months we have been growing the penetration of made for outlet product as part of our strategy to ship the focus of our outlet stores from one that utilizes the channel solely for the clearance of excess product to one that primarily sells made for outlet products. As a result of this initiative, we have seen a significant improvement in the profitability of this channel and believe further improvements are attainable. We believe that our factory outlet stores will contribute meaningfully to overall profitability in the future.

As we begin the third quarter, we are confident that we have a strong trend right offering both in our stores and online. Jill will speak about our fall assortment in more detail in a moment. In the direct channel, we are enhancing our online presence through our website, emails and social communications by adding richer content and developing session and product stories that motivate purchase. We are on-track to launch the next-generation of our mobile app in October. We have redesigned our website navigation, home page and landing page to formats that are easier to shop. Our catalogue has also been updated with the more compelling design, enhanced imagery and creative layout.

We were pleased with our catalogue performance for the first half of 2012, with profitability proved up significantly despite a planned decrease in circulation. This gives us confidence that we can moderately increase our circulation and significantly increase our page counts in the second half of the year. For fall, our catalogue circulation will increase 5% and our page count will increase over 40% as a result of the design and merchandising initiatives to significantly improve the breadth and appeal of our direct product offering. In addition, we have increased our investment in online advertising by 13% which will increase our online brand impressions to over 230 million. We believe that these investments will continue to drive brand awareness and improve traffic both to our stores and our website. Despite these investments, we expect to realize a meaningful year-over-year decline in total marketing expense for the second half of the year.

On our last call we shared with the initial results of our new loyalty program. We are pleased with the performance of this program which is now growing to 1 million members since we launched it in February. We are seeing that the program is driving a substantial increase in shopping frequency among loyalty program members.

And finally, during the quarter we announced the strategic investment and partnership with Golden Gate Capital which includes a five year $65 million senior secured term loan. We view Golden Gate’s investment in Coldwater Creek as a strong endorsement of our brand and our direction. Golden Gate Capital brings extensive retail expertise which we believe will be highly beneficial to us in the years to come.

In summary, we believe our results represent continued progress towards our strategic objectives. As we begin the third quarter we are highly encouraged by the early response to our fall merchandize. In the month of August we have seen a meaningful improvement in our traffic trends which are running positive for the first time in over two years. We believe our strength in assortments and increased brand marketing efforts along with our store optimization strategies and expense discipline have us well positioned to achieve our goals.

I’d now like to turn the call over to Jill.

Jill Dean

Thank you, Dennis. Our second quarter sales performance reflects progress in our key merchandising goal. Our offerings are increasingly reflecting a balance of top 30 styles, fashion and novelty that our customers are looking for with strength across several key product categories and our merchants are consistently identifying new growth opportunities for our business.

We made the strategic decision to not anniversary our store-wide 50% off sale in the month of June as compared to last year. While the tail back top line sales, this decision drove a significant improvement in our merchandize margin and was a substantial step forward in restoring our pricing credibility.

Let me share with you some additional details of the quarter. During the second quarter, our top category comp positive driven by strength in mid tops and sweaters. We also experienced a strong performance in dresses, skirts and jewelry although these remain relative small categories.

We continue to identify opportunities to improve our category performance. Our woven top business would have benefited from more newness in prints and no iron. We used the second quarter to liquidate our old pant programs ahead of our fall pant re-launch. And we could have invested more into our strong crop pant and short style to offset this volume decline.

Moving to fall, we believe that our collection offers the right balance of color, fashion and novelty at compelling price points combined with the strong cross-sell and merchandizing strategy that is clear and consistent. We have tested and build a strong foundation in our top 30 styles with updates and refreshes to our proven style.

We have focused our inventory investment on growing three key categories; pants, sweaters and woven tops and will be introducing a very exciting outerwear assortment. We have completely rebuilt our pants assortment with new fabrications, fits and leg shapes. We are currently rolling out our denim collection in new more sophisticated washes with improved trim and updated label packaging. After extensive research and testing, we are adding new curvy fit for fall in both pants and jeans. And color in pants is an important fashion focused in both the fall and holiday collections. We are very excited about the amount of newness in our pant assortment anticipate a strong customer response.

Sweaters have been our strongest growth category for the past several seasons especially in cardigans and novelty. We will be offering an expanded number of new cardigan styles with an exciting variety of layering options at good, better and best price points. Our novelty collection offers trend-right new styles with fashionable detailing, faux fur embellishment, and intarsia patterns.

In woven tops, we’re building on the success we had in spring with our no iron styles by adding more colors, fresh prints, patterns and novelty fabrics to build the collection. We have also experienced a great of success in the past few seasons in printed blouses in a variety of silhouettes and sleeve lengths and have continued that momentum in the fall assortment.

Outerwear is a brand differentiating opportunity for us. We are leveraging the success we had in this category last year in our direct channel by offering a compelling fashion assortment comprised of wools, quilted vests and coats, faux shearling and faux fur. Outerwear will be the feature of our windows in the fall fleet assortment we have added from mid September and also in our catalogue, print and online advertising.

While it is early in the quarter we are encouraged by the initial response to our fall collection which began arriving in stores at the beginning of August. Customers are responding to the key categories we have invested in particularly in cardigans and printed tops. We are pleased with the performance of our color jeans, our classic shaping jeans and our curvy fit. We believe that we are well positioned for the season and look forward to updating you on our results on our next call.

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

Jim Bell

Thank you, Jill. I will begin by reviewing our second quarter results, discuss some additional details on our recent term loan financing and provide our expectations for the third quarter.

During the second quarter we continue to make progress on our path to return Coldwater Creek to profitability as we realized meaningful improvements in several key financial metrics which led to a $10 million reduction net loss relative to the same period last year despite somewhat lower sales.

Consolidated net sales in the second quarter of 2012 were down 9.8% to 163.7 million to 181.4 million in the second quarter of 2011. Net sales in the retail segment which includes our premium retail stores, factory outlet stores and day spa locations were down 8.7% to 129.9 million from 142.2 million in the second quarter of 2011. These results were primarily driven by a 6.5% decline in comparable premium store sales and the impact of 12 net store closures since the end of the second quarter of 2011.

Our comparable premium store sales results included continued improvements across numerous key metrics, including the 4% increase in our conversion comp and a 2.5% increase in average unit retail as compared to the second quarter of last year. These improvements, however, were offset by a 12.8% decline in comparable store traffic which again was primarily a result of our decision not to anniversary the store wide 50% event that Jill spoke to earlier. This decision was supported by a significantly better inventory position this year and while comparable store sales volume was negatively impacted, we achieved the desired effects of a meaningful improvement in both regular price and markdown margins and an increase in gross profit.

In terms of contribution to total sales, the retail segment net sales represented 79.4% of consolidated net sales in the second quarter compared with 78.4% in the second quarter of last year. During the quarter, we closed four premium retail stores and ended the period with the total of 355 premium retail stores and 38 factory outlet stores and 9 day spa locations in operation.

Now turning to our direct segment. Direct segment net sales decreased 13.8% to 33.8 million in the second quarter from 39.2 million in the second quarter of 2011. The decline in the direct segment sales was primarily due to a 19% decline in order volume slightly offset by 5% increase in our average order value as again we realized meaningful improvements in our merchandize margins.

While our catalogue circulation was down 28% versus the prior year, we achieved a double-digit improvement in the profitability per book, providing a key indicator of improved marketing efficiency as a result of both the new product and creative directions.

Consolidated gross profit for the quarter increased $3.2 million to 48.5 million or 29.6% of net sales, compared to 45.3 million or 25% of net sales for the prior year period. The increase in profit was a result of 465 basis point increase in merchandize margins reflecting higher regular price sell-through and significantly lower markdowns versus Q2 last year in both our retail and direct channels. Additionally, it is important to note that while our total sales for the quarter were down 9.8% versus the second quarter last year, our occupancy cost leveraged slightly as a percentage of sales. As occupancy expense declined 11% reflecting the progress we have made with our store optimization program in the last 12 months.

Selling, general and administrative expenses for the second quarter declined 4.3 million to 65.7 million or 40.1% of net sales compared to 70 million or 38.6% of net sales in the second quarter of 2011. The reduction in SG&A dollars as compared to the year ago period was primarily related to lower marketing, variable and employee related expenses.

Our pre-tax loss was $17.6 million as compared to a pre-tax loss of 27.6 million in the second quarter of 2011. The pre-tax loss for this quarter included two items related to our term loan transaction. The first, a net gain of 1.3 million or $0.01 per share primarily due to the change in the fair value of the derivative liability related to the issuance of our Series A preferred stock in the quarter. A company will continue to incur losses or gains associated with the mark-to-market activity related to this derivative liability and I will talk more about that in a minute. Offsetting this gain in the second quarter was incremental interest expense of 1.1 million or $0.01 per share which was related to the closing of the term loan transaction in the second quarter. The combined effect of the gain on the derivative liability and the incremental interest expense related to the transaction was a net gain of approximately $200,000.

The income tax benefit for the second quarter totaled 43,000 and compares to an income tax expense of 71,000 in the second quarter of fiscal 2011. The provision continues to reflect the impact of the valuation allowance against our net deferred tax assets.

Our net loss for the three month period ended July 28, 2012 was 17.6 million or $0.14 per share on 121.8 million weighted average shares outstanding compared to a net loss of 27.7 million or $0.30 per share on 92.6 million weighted average shares outstanding in the prior year period. The increase in share count versus the second quarter of last year primarily reflects the impact of our public offering of 28.9 million common shares which was completed in October of 2011.

Now turning to our balance sheet. In July we announced the closing of a five-year $65 million senior secured term loan provided by an affiliate of Golden Gate Capital. The loan bears interest at a fixed rate of 13% per annum consisting a 5.5% to be paid in cash and 7.5% paid in time. In conjunction with the term loan, we issued the affiliated Golden Gate Capital 1,000 shares of Series A preferred stock that are convertible into approximately 24.4 million shares of common stock at an exercise price of $0.85 per share. As a result of the issuance of the Series A preferred stock, we recorded a derivative liability reflecting a fair value of these shares which I discussed earlier.

Concurrent with the closing of the Golden Gate term loan, we completed an amendment to our revolving credit facility with Wells Fargo which included the retirement of the $15 million term loan previously provided by Wells Fargo in May of 2011 and left the revolving credit facility of $70 million in place.

We ended the second quarter with total cash of 45.5 million compared to 31.5 million at the end of the second quarter last year. Our cash balance include $37 million of net proceeds from our term loan which includes the pay off of a $10 million outstanding revolver balance at the time of the transaction and a retirement of our previous $15 million term loan. At the end of the quarter we did not have any borrowings outstanding under our revolving line of credit.

Total inventory declined 12.2% to 133.6 million from 152.2 million at the end of the second quarter of fiscal 2011, slightly below our guidance of a mid to high teens decline. Premium retail inventory per square feet which include their inventory and the distribution center decreased approximately 3.8% of the second quarter of fiscal 2011.

Capital expenditures in the second quarter totaled 6.1 million and depreciation and amortization was 12.8 million for the second quarter of 2012.

I’d now like to provide a brief update on our store optimization program which involves a three part strategy. The first part of our program is related to the closure of underperforming stores that Dennis discussed earlier. The second part of our strategy is to opportunistically downsize stores as we have found these stores under 5,000 square feet having significantly higher four wall contribution than larger stores. Our long-term goal will be to reduce the average store size to approximately 4500 square feet from the 5700 square feet average at the end of the second quarter of 2012.

Finally, we continue to evaluate our opportunities to renegotiate lease terms of our existing retail locations to better reflect the current state of each market in which we operate. As I mentioned earlier, during the second quarter we began to see the impact of these initiatives on our gross profit and going forward we expect our ability to leverage occupancy cost to continue to improve as we realize additional benefits from these efforts.

Now turning to our outlook for the third quarter of fiscal 2012. We expect comp store sales to be flat to down in the low single-digits and while we are highly encouraged that August results were ahead of our expectation, it is our easiest monthly comparison within the quarter. And the majority of our sales for the three month period will be in September and October. We continue to expect gross margin rate expansion and we anticipated improvement of 150 to 250 basis points over the third quarter of last year. We expect our interest expense will be approximately 3.5 million reflecting the first full fiscal quarter of interest related to our new term loan. Net loss per share for the quarter is expected to be in the range of $0.16 to $0.20 on 121.9 million weighted average shares outstanding. This guidance excludes any quarterly impact of the change in the fair value of the derivative liability associated with our preferred stock due to the inherently variable nature of this financial instrument.

We expect total inventory at the end of the third quarter of fiscal 2012 to be down in the mid single-digits compared to the third quarter of fiscal 2011 as we began to anniversary improvement in our overall inventory levels during the third quarter last year.

For the full-year of fiscal 2012, we now expect to realize merchandized margin expansion of between 150 to 250 basis points. We continue to expect our SG&A expense to be down between 10 and 15 million as compared to fiscal 2011 with the majority of the back half reductions coming in the third quarter. We are on-track to close approximately 15 premium retail stores and open one premium store and one factory outlet store during fiscal 2012.

And finally, capital expenditures for the year expected to be between 12 and $16 million and depreciation and amortization will be approximately 52 million.

In summary, our second quarter results demonstrate we are making meaningful progress toward our goal of returning the business that is too sustainable and predictable profitable and growth. While we remain cautious given the uncertain macroeconomic environment, we believe that our fall and holiday collections will lead to further improvements in our results. And we are encouraged by our early reads.

With that I’ll turn the call over to the operator to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Roxanne Meyer from UBS. Please proceed with your question.

Roxanne Meyer - UBS

Just a couple of questions about some of the early reads from August so far, it sounds like you felt good about sweaters, I’m wondering how you feel at this point about your ability to offset the down trending jackets business. And if there is enough momentum in the sweaters business [you do sell]?

Jill Dean

Sure, I think we feel pretty good about that Roxanne, because as I said our sweaters has been our fastest growing category all the way since our last holiday. I think our strategy is the combination of sweaters and outerwear will offset last year’s jacket business. And I think we are pretty confident that that’s going to work.

Roxanne Meyer - UBS

And then are you starting to react to some of the best products that you have here at higher price points or is it too early to have a read on that?

Jill Dean

Well, I think as you know the focus of our August floor set windows and of the catalogue and the catalogue opening spreads was really focused on fashion. We made the decision to go with really a very wear now fashion story and of course, that does represent some of the higher price points in our assortments. So, with the products right, she pays us the price and she is proving that over and over again.

Roxanne Meyer - UBS

And then can you give us an idea of what the sales for average store that’s being closed has generated?

Jim Bell

Yes, roughly those closures are below about $200 a square feet on average and it really depends of course with some of them actually have are underperforming due to some of the expense structures rather than the top line, but an average of just below $200 a square feet.

Roxanne Meyer - UBS

And then just last, how should we think about your occupancy leverage point given the savings that you have generated and the continued focus on closing stores?

Jim Bell

Sure, I think again this is the first quarter where we really have seen some material effect of the last years where we worked around our occupancy costs and so if you use the second quarter as the guide post, where sales were down almost 10% and we leveraged slightly. I think that’s the good indicator of how we will project or would expect to see leverage benefits as we go forward. So, really the short answer is even with slightly negative sales, we should be able to continue to see some leveraging in the coming couple of quarters.

Operator

(Operator Instructions) Our next question comes from the line of Liz Pierce from Roth Capital Partners. Please proceed with your question.

Liz Pierce - Roth Capital Partners

Just a couple of questions, I’m going to maybe bounce over little different things, but Dennis on the ONEcreek, so it sounds like you now got a million in that first program, but how many have actually reached the threshold and converted to ONEcreek?

Dennis Pence

That’s a great question. We have seen in a relatively short time that we have now put, I think it's around 15% of those 1 million have made a purchase in this relatively short timer group of purchases that got them over the $400 horizon to enter the ONEcreek membership which is our deluxe or best vehicle for our preferred customer program. And so year-over-year our ONEcreek membership is now up pretty substantially over 100,000 more than we had last year in terms of ONEcreek membership. And this is going against of course this prior 12 months reduction in overall business. So, we are seeing a really nice movement here in terms of an increase in the number of our best customers combined with even the portal to the best customers, we are seeing an increase in shopping frequency. So, we are liking what we are getting out of the top 20% of our customer base now much better than we have in the past.

Liz Pierce - Roth Capital Partners

And if I’m not mistaken that, in that portal your couponing her or sending her different things right?

Dennis Pence

Yes, the idea is simply she comes in once a quarter and she receives a booklet that is for the loyalty program, the rewards program cadre of customers that is good for a special deal that changes one deal that changes each month for the next three months. and that strategy is of course increasing frequency. At the end of that quarter, the end of three months she comes back in for a next booklet that allows her to participate in the discounts for the next three months.

Liz Pierce - Roth Capital Partners

And have you ever disclosed how many members you have in the ONEcreek program or what percent of your sales comes from that?

Dennis Pence

We have not, no. It's something we will need to look at before we have a thoughtful discussion about that. It is significant and of course that make sense in any business, your best customers always have a very significant contribution towards the overall profitability of the business far exceeding their arithmetical number, that’s the case here.

Liz Pierce - Roth Capital Partners

And then in terms of circulation, I think you said it's going to be up 5% in Q3, But I think last quarter you kind guided 5 to 10% for the second half. So, should we expect it the Q4 will be up even more?

Dennis Pence

No, I see around the same amount, Jim you might have a feeling on that?

Jim Bell

Yes, I think that 5% number is pretty good for both the back half and Q3.

Dennis Pence

And what we are seeing is as I mentioned, we are seeing a really consistently better product for direct channel in the first half of this year and this was due to a change in strategy actually by Jill and Jerome in terms of the product for direct. And that’s really allowed us to take the page count up. So, this is as appose to being a hopeful idea, this is really based on the results we are seeing with much better product and it's allowing to take pages up and is I think a very, very safe way to increase traffic and to increase sales.

Liz Pierce - Roth Capital Partners

You said that you are going to increase a page count by 40%, is that coming off, I just couldn’t remember off a very low level last year?

Dennis Pence

Yes, and it's actually starting all the way back at the recession. We made significant reductions in terms of the page counts in 2008, and page counts had been up and down somewhat each successive year, but they have been significantly down. And to a great extent that was a first day reflection of the economic crisis and a cost savings, but up until recently that was reflection of the desirability of the product. So, this is a real positive trend change.

Liz Pierce - Roth Capital Partners

And then I think that also you are planning to mail deeper right into file given some of the responses you have seen, and that’ll be a trend that will continue?

Dennis Pence

Yes, and we need to be very thoughtful about that, it's very important to recognize that by far the preference is to increase email frequency and depth because of the zero associated incremental expense. So, bigger catalogues selectively a little deeper but primarily the increased contact is electronic.

Liz Pierce - Roth Capital Partners

So, Jill, it sounds like on the pants that, it looks like they are just starting to hit, we have seen a little bit of new fabrication, right, so we should be seeing more?

Jill Dean

We delivered for fall for our August floor set, we delivered our woven and knit denim programs, our color denim program, we delivered our new panty program, we delivered a new fabrication in poly/rayon/spandex. So, for our fall 2 floors that we are just setting this week and then the floors after this, we go into some of the heavier fabrics like the stretch flannel fabrications and the corduroys and things like that that are really more seasonally appropriate.

Liz Pierce - Roth Capital Partners

So, that’s what, I mean I saw all of the above, I thought there were maybe a couple of more.

Jill Dean

Yes, there are.

Liz Pierce - Roth Capital Partners

And what about jewelry, I still feel like I get mixed signals when I’m in the store on what jewelry where it could be for you guys?

Jill Dean

We have seen improvements in our jewelry business since May when the initiatives of the new merchant that we brought into the company really started to take hold in working in collaboration with the designer that we brought on board about a year ago. So, our jewelry business has been on the upswing since May. I think we think that there is an opportunity for us to continue to focus on the trend right. And certainly it has the opportunity to be a bigger contribution of our business and we are working on a lot of extensions and lot of testing to try o get it bigger faster.

Liz Pierce - Roth Capital Partners

And then Dennis, there is actually a one final question for you. I know it's very, very small, but is there any update on spa?

Dennis Pence

Spa is four wall positive from a financial perspective. We believe that our focus, so that’s good and solid. We believe our strategic focus needs to be very, very clearly on improving the sales in the premium stores in terms of sales per square feet, improving the profit, gross profit within those stores and improving the premium volume within the website as appose to the clearance volume. And we are happy with the work that our spa associates and management is doing, but the focus is on reestablishing the health of the business.

Liz Pierce - Roth Capital Partners

Okay, but it's not necessarily a drag at that point?

Dennis Pence

It is not a drag, Jim you may want to speak to that.

Jim Bell

Yes, and nor it has been since 2011. So, it's actually cash flow positive and contribution positive.

Operator

(Operator Instructions) Our next question comes from the line of Alex Fuhrman from Piper Jaffray. Please proceed with your question.

Alex Fuhrman - Piper Jaffray

I’m curious as to how the customer has been responding to some of these new pant sets that has been starting to hit the store, and how much of the pant assortment in reflect these new fit by the time it get to your end you think?

Jill Dean

We have one, where we have one new fit in the pant assortment that is our curvy fit; it has been introduced in both pants and jeans. It is projected to still be a smaller volume contributor than the natural fit and the classic fit which has been fit that we had in the assortment for quite some time now and have revalidated over and over. So, our emphasis this fall was really on updating those fabrications and the washes and the finishes in our two existing fits, natural and classic and introducing this new curvy fit.

Alex Fuhrman - Piper Jaffray

So, is the new fit, is this really geared for trying to recapture a customer if you are kind of fitting the way from over the last few years, or is this really more trying to get a new customer into the store?

Jill Dean

I’d say it really had to do with on assessment of whether we pant set disturbed the majority of our customer and we found by not offering the curvy fit, we were not able to service all of our customers in pants, so that’s why we worked on the testing process on it and wear test a product test for quite some time before we launched it.

Alex Fuhrman - Piper Jaffray

And then if you can also talk a little bit about the decline in traffic, you mentioned in the prepared remarks that traffic was up mostly due to the non-anniversary from the promotions in June. If you can give us a sense of where traffic trended, if you take out and really just look at the other months of the quarter?

Dennis Pence

Again I think we are not going to speak specifically to the other month within the quarter but suffice it to say that the primary driver behind the 12.8% traffic reduction was all in that decision related to not anniversary the 50% off the entire store sales which happened last year in the month of June. And so you have a significant change in that in an all store sale that didn’t exist now this year. And again even despite that I think important data point to that all of our comp trends continue to improve. And given this non-comp event even despite that if you will our gross profit was better year-over-year and I think that’s the true indicator of how we see the second quarter and how it takes us into the coming quarters ahead.

Operator

There are no further questions in the queue; I’d like to turn the call back over to management for closing comments.

Dennis Pence

Alright, thank you all very much and we look forward to updating you again in the future when we have results to share with you. Everyone have a great day.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation, you may disconnect your lines at this time and have a wonderful day.

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