Destination Maternity's (DEST) CEO Anthony Romano on Q3 2016 Results - Earnings Call Transcript

| About: Destination Maternity (DEST)

Destination Maternity Corporation (NASDAQ:DEST)

Q3 2016 Earnings Conference Call

December 8, 2016 16:30 ET

Executives

David Courtwright - Senior Vice President and Corporate Controller

Anthony Romano - Chief Executive Officer and President

David Stern - Executive Vice President and Chief Financial Officer

Analysts

Bill Wolfenden - Cottonwood Investments

Stephen Rabinowitz - Private Investor

Michael Wasserman - Moors & Cabot

Logan Brown - Davenforth Investments

Operator

Good day, ladies and gentlemen and welcome to the Destination Maternity Corporation Third Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to introduce your host for today’s conference, Mr. David Courtwright, Senior Vice President and Corporate Controller. Sir, please go ahead.

David Courtwright

Thank you, operator. Good afternoon, everyone and welcome to Destination Maternity’s third quarter fiscal 2016 earnings call. The earnings release that was disseminated earlier this afternoon is available on the Investors section of our website. Additionally, we will file our 10-Q today with the SEC. The earnings release contains definitions of various financial terms as well as reconciliations of certain non-GAAP financial measures we will be discussing in today’s call. If non-GAAP financial information is provided on this call, a reconciliation of the non-GAAP information to the most comparable GAAP financial measure is available in our press release.

This call will include certain forward-looking statements within the meanings of the federal securities laws. These statements relate to expectations, beliefs, projections, trends and other matters that are not historical facts and are subject to risks and uncertainties that might affect future events or results. Descriptions of these risks are set forth in the company’s SEC filings. Also, I would like to remind you that today’s call cannot be reproduced in any form without the expressed written consent of Destination Maternity.

Joining me on the call today is Anthony M. Romano, our Chief Executive Officer and President and David Stern, our Executive Vice President and Chief Financial Officer. Tony will open with an overview of the quarter and the progress we have made toward our long-term plan. Dave will follow with additional commentary on our financial results, then Tony will provide closing remarks, and afterwards, both Tony and Dave will be available to take your questions.

It is now my pleasure to turn the call over to Tony.

Anthony Romano

Thank you, Dave. Good afternoon, everyone. We appreciate you investing your time with us today. While we continue to make progress on many of our initiatives, the third quarter was challenging as both our sales and earnings did not meet our expectations and we were unable to drive year-over-year improvement, as we did in the first two quarters of fiscal 2016. Adjusted EBITDA before other charges decreased to $4.7 million from $5.1 million in the third quarter last year. Although we continued to see year-over-year improvements in gross margin and expenses in Q3, these improvements were not enough to offset weak top line results versus last year. Despite the Q3 challenge, year-to-date EBITDA, adjusted EBITDA and operating income are all better than last year.

During the quarter, we experienced a number of headwinds, most notably sales pressure, driven by decreased store traffic, disruption in our ability to receive shipments to our retail stores and licensed brand partners caused by the Hanjin bankruptcy and temporary store closings driven by Hurricane Matthew. Comparable sales declined by 5.2% during the quarter, 1.1% of which was directly attributable to the one-time event headwinds in the quarter, with store traffic declines being partially offset by a slight increase in conversion rates. Total sales declined 14.2% driven by the 5.2% comparable sales decline as well as exits from owned stores and certain leased partner locations and our brand license partner door.

On a positive note, I remain encouraged by the progress we as a team are making to reposition our brands for growth, while managing expenses and inventory tightly. This was best demonstrated during the quarter by our better inventory management, our improvement in gross profit margin, our reduction in SG&A and the continued growth in our e-commerce sales, despite the challenges and limitations in our current digital technology.

We continued our disciplined approach to inventory management. Inventory was $6.5 million lower than last year, reflecting a 9% reduction in overall units. While inventory continues to improve, we are still not at optimum levels, as shipping delays stemming from the Hanjin bankruptcy, caused our licensed partner to cancel orders, which left us with some excess inventory at quarter end. In addition, we took back inventory from exited lease partners throughout the year, including all Sears and Gordmans stores and 32 closed Macy’s locations, as well as the final remnants of our reserved excess inventory that we had been aggressively working to sell through over the past 2 years.

Regarding Motherhood product, we reset our Motherhood stores as we entered the third quarter to focus our assortment on the core wardrobe basics that are essential elements of each new mom-to-be’s maternity wardrobe. We tagged these categories as the five fundamentals and they include: on-trend denim, side ruched tees, the perfect shirt, comfy leggings and great fitting bras. Overall, the core wardrobe basics performed best, but were not as productive as planned. We achieved the strongest selling in our knit-top category, as we set a T-shirt bar in front of our fitting rooms, which drove sales in not only our side ruched T-shirts, but also in graphic Tees and all other basic T-shirts. Nursing tops also performed well. On-trend denim was all about the skinny silhouette, which resulted in underperformance in all our boot-cut bottoms. The weather stayed warmer for a bit, which resulted in some missed sales opportunity in our shorts program and slowed legging sales, which kicked in during October as the weather turned a bit cooler. Additionally, we could have used more dress choices to help drive up the fashion component of our inventory.

In our A Pea in the Pod brand, we had a slightly different challenge, as we experienced insufficient full-priced sales to compensate for significantly less aged and markdown inventory versus last year. We had flat comp sales on our regular price offerings and while we turned faster, this was less than planned and insufficient to exceed last year’s sales, which were primarily driven by necessary, but less than healthy promotional activity. This is a balance we believe we have achieved for the first quarter of fiscal ‘17.

In PE, the strongest performer was our private label LE denim – LED denim program, while our biggest disappointment was our woven blouses. Finally, in our intimates category, sleepwear had a breakaway quarter, while our bras suffered as a result of poor stock position because of the Hanjin bankruptcy. Fortunately, the Hanjin delivery problems were behind us by November week 2. Overall, the qualitative and quantitative improvements we have made to inventory drove 240 basis points of the gross margin improvement in the quarter versus last year.

As we look to year end, we expect the composition of our fiscal 2017 beginning inventory to be more appropriately balanced with fashionable, spring-forward inventory and less fall end-of-season merchandise as compared to last year, which we believe will enable us to begin to build sales momentum as we move into the critical spring selling season. We also continued our efforts to tightly manage SG&A and consistent with our first half of the year, expense dollars declined during the quarter. However, the reduction of $5.9 million from the prior year did de-leverage to 53.2% from 50.6% in the prior year due to lower sales.

Lastly, we are generally pleased with our e-commerce sales growth even as we aggressively work to transition to new technology by the end of the year. I would like to now provide a few comments on our strategic initiatives. In regards to our web initiatives, as we have previously shared, increasingly, our mom-to-be is a digitally savvy millennial with high expectations for engagements through technology. While we clearly have a sizable sales opportunity in the e-commerce space, the launch of our new platform is also critical to addressing our in-store traffic challenge. Specifically, with the new technology, we will be able to incorporate omni-channel capabilities such as ship from store and pickup from store. These new features and initiatives will help to improve customer satisfaction as we are able to meet her needs wherever and whenever she shops, while improving overall inventory productivity.

In addition, our new capabilities will also provide us with a platform to introduce additional services such as appointment scheduling. This will further differentiate our brick-and-mortar asset with an unparalleled customer experience in specialty retail. We also expect the new site will provide an immediate and significantly improved mobile experience to take advantage of our ever increasing share of millennial moms, who want to transact on their mobile devices. In fact we see a continued significant shift of online traffic via mobile devices.

Our new web platform will provide us the ability to elevate our mobile experience and improve our mobile checkout, which has historically been sub-par. We believe this will lead to increased conversion rates on mobile and be a driver of future sales. The new platform will also provide a foundation to address several operational challenges to help improve our conversion rates, including offering our customers virtual gift cards, simpler checkout and improved ease with which to sign up for our Perks program. The site will also provide a more dynamic, stable and efficient back end management system to allow us to more quickly adapt digital marketing messages to the retail environment. Further, we have been identifying opportunities for web only product extensions across multiple categories to extend the breadth of choice and year round availability to the widest customer base via our e-commerce platform.

With respect to our product allocation initiatives, we utilized our new allocation technology for all classes for the first time in the third quarter. The tool was instrumental, as we reset our Motherhood floor with the aforementioned five fundamentals, placing us in a superior stock position versus prior year. Additionally, as we rolled out this new tool, we have seen improved visibility into inventory at the store level. Through store level visibility, a significant opportunity was identified in size curves by products and geography, which will be factored into future assortments. Historically, this data was not readily available to the team. We had some measurable success with the tool in Q3. We were able to allocate more of our core wardrobe basics inventory in-store versus having it sit in our DCs, as was the case a year ago. We had reduced reliance on reverse logistics this year, moving 23% fewer units in the quarter as compared to last year, resulting in lower costs and less unproductive inventory in transit. We were able to proactively prepare our stores for planned promotions. And finally, we were able to effectively direct inventory to each unique channel, which helps the team proactively manage receipts and products well.

We expect to further improve in-stock rates and drive sales as we enter the fourth quarter, as we turn auto replenishment on for more than 800 styles, giving us the ability to replenish our most productive styles 3x per week. We are confident that the allocation tool will be a significant asset in getting the right product to the right place at the right time. That said, this improvement will be incremental as we must integrate the learnings of assortment allocation challenges into our buying activities. We will also continue to see benefits from our system as we obtain more historical information along with customer preferences and size profile improvements. Finally, while our third quarter performance did not demonstrate the financial improvement we would like to see, we are focused on delivering progress on our strategic initiatives, as we position our company for long-term profitable growth.

I would now like to turn the call over to our Executive Vice President and Chief Financial Officer, David Stern. Dave?

David Stern

Thank you, Tony and good afternoon to everyone on the call. This afternoon, I will review our results for fiscal 2016 third quarter, our year-to-date performance and key items on our balance sheet. Sales for the third quarter were $102.6 million, a decline of $17.0 million or 14.2% from the comparable quarter last year. This decrease was primarily driven by the previously referenced changes to our lease department relationships specifically the exits from Sears and Gordmans, the reduction of the licensed brand relationship with Kohl’s preceding the exit of that business in February of 2017 and the net closure of 28 stores since the beginning – I am sorry since the end of the third quarter of last year.

Comparable retail sales for the quarter declined by 5.2% driven predominantly by decreased traffic. Gross margin for the third quarter was 52.9%, an increase of 240 basis points from the comparable quarter last year. This improvement was primarily driven by reduced promotional activity. Gross profit for the third quarter was $54.3 million, a decline of $6.1 million or 10.1% from the comparable quarter last year, as the decline in sales was partially offset by the improved gross margin.

Selling, general and administrative expenses for the third quarter were $54.6 million, a decline of $5.9 million or 9.7% from the comparable quarter last year. This decline was primarily driven by reduced employee costs, lower occupancy expense and less marketing spend. However, as a percentage of sales, SG&A increased by 260 basis points to 53.2%. Adjusted EBITDA before other charges for the third quarter was $4.7 million, a decrease of $0.4 million from the comparable quarter last year. The net loss for the quarter was $1.5 million or $0.11 per share compared to a net loss of $1.3 million or $0.09 per share for the third quarter of 2015.

Turning to our year-to-date results, sales for the three quarters ended October 29, 2016, were $333.5 million, a decline of $46.9 million or 12.3% from the comparable period last year. This decline was primarily driven by the previously referenced decreases in our store counts, lease department relationships, the licensed brand relationship and a decrease in comparable sales of 4.5%. Gross margin through the first three quarters was 52.9%, an increase of 370 basis points from the comparable period last year. This increase was primarily driven by reduced promotional activity. Gross profit for the first three quarters was $176.4 million, a decrease of $10.7 million or 5.7% from the comparable period last year. This decline was driven by reduced sales, partially offset by the increased gross margin.

Selling, general and administrative expenses for the three quarters were $170.0 million, a decrease of $16.2 million or 8.7%. This reduction was primarily driven by reduced employee costs, lower occupancy expense and less marketing spend. However, as a percentage of sales, SG&A increased 210 basis points to 51.0%. Adjusted EBITDA before other charges for the three quarters was $21.2 million, an increase of $1.6 million from the comparable period last year. The prior year results included the benefit of $4.1 million related to a store lease termination. Net income for the first three quarters was $26,000 or zero cents per share compared to a net loss of $1.4 million or $0.10 per share for the comparable period last year.

Turning now to the balance sheet, at quarter end, inventory was $73.5 million, a decrease of $6.5 million or 8.1% from the comparable point last year. And debt net of cash was $43.9 million, an increase of $1.4 million from the comparable point last year. Through the first three quarters, we have opened 9 stores and closed 19 stores for a net reduction of 10 locations. We ended the quarter with 526 stores.

Turning to our outlook for the full year fiscal 2016, we currently expect comparable retail sales for the fourth quarter and full year to be down in the mid single-digits. Gross margin to increase approximately 280 basis points to 320 basis points year-over-year, as inventory productivity initiatives continue to generate more profitable sales. Selling, general and administrative expenses continue to decline but de-leverage as a percent of sales on a full year basis. Capital expenditures are expected to be in the $14 million to $16 million range, a reduction of $13 million to $15 million compared to last year. Excluding the prior year capital expenditures related to the relocation of our corporate headquarters and distribution center, current year projected capital expenditures are $4 million to $6 million below last year.

Current year spend is primarily the result of modest store investments, as we optimize our real estate portfolio as well as investments in systems. The investments in systems mostly relate to our inventory management approach as well as our web re-platform and represent a measured, revenue-focused approach to capital expenditures that will continue as we move forward. Finally, we plan to open 10 stores and closed 32 stores during the year, resulting in a net reduction of 22 stores.

With that, I will turn the call back over to Tony for closing remarks.

Anthony Romano

In summary, as I reflect on our progress to-date, I am encouraged by the progress we are making even with the bump in the road we experienced in our third quarter. Our efforts over the past 2 years have provided significant improvement in our culture and our focus on the customer and in our overall retail disciplines with improved tools and enhanced visibility. This, in turn, has led to improved product assortment, elevated visual inventory both in stores and online, disciplined inventory management, faster lead times and better product flow. While these improvements are not entirely visible in our latest quarterly results, year-to-date earnings are improved and I remain confident that we are working on the right areas and are focused on the right strategic growth and efficiency initiatives to place us on the right path to deliver sustained long-term success.

Specific to the fourth quarter, we believe our stores and offerings have us well positioned to capitalize on gifting and our consumers’ self-purchase needs during the holiday season. While we expect the headwinds of the mall traffic declines and store and lease exits to continue to pressure our top line in the final quarter of the year as reflected in our outlook, we expect to continue to achieve progress towards our initiatives in our ongoing efforts to drive value for our shareholders. I would like to thank all of our team members for their hard work and dedication throughout the year.

Before turning the call over to the operator to begin the question-and-answer portion of our call, I would like first to address our continued conversations with Orchestra. As you know, our largest shareholder, Orchestra-Prémaman SA, has expressed an interest in a transaction with our company. I can confirm that discussions are ongoing. However, there can be no assurances that there will be a transaction. We will not have any further comment or take questions on the Orchestra matter at this time.

And now, I would like to turn the call over to the operator to begin the question-and-answer portion of our call.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Bill Wolfenden with Cottonwood Investments. Your line is now open.

Bill Wolfenden

Hi, good afternoon. Can I just elaborate a little bit please on the same-store sales? You mentioned the store traffic is down. You cited some one-time things, but said that they were only responsible for about 1.1% of the comp decline. So, is this a macro issue? Is it a competitive issue? I know birthrates are up. I am just trying to figure out what’s going on?

Anthony Romano

Yes. So Bill, while our comps sales are negative, we did outperform the store traffic declines. In our case, units per transaction, conversion rates, average selling prices are all slightly up or relatively flat, and we did better with our negative comp sales than the overall negative traffic that we had experienced in the quarter.

Bill Wolfenden

What’s driving the negative traffic? The birthrates are up and so there is a fixed number slightly growing year-over-year of women that are pregnant. So, it leads me to believe that either women are buying as many clothes when they are pregnant or there is a competitive issue out there?

Anthony Romano

Well, certainly, the competitive environment, especially on e-commerce is quite active. That’s why it’s extremely important for us to get the re-platforming and the launch of our e-commerce off to a good start here at the end of the year. Our brick-and-mortar stores should be a competitive advantage. Again, that’s why we think that the digital play is important to drive customers to the stores, allow them to do things like make appointments, also ship to store for free and pick it up. But in general, we are seeing and experiencing similar traffic declines of what we see in the mall traffic overall in specialty retail.

Bill Wolfenden

Okay. And what are the competitive sites that are you think you are losing business to? Are there other maternity sites or sort of specialty online-only maternity stuff?

Anthony Romano

Yes. So, there is a host of small players in the space that, again, our millennial mom is very comfortable with just searching online and not afraid to take – place orders with any size version of them. So, there is a handful of players in that market for sure.

Bill Wolfenden

And what percentage of revenue is e-commerce right now, please?

Anthony Romano

Our e-commerce is – again, we don’t cite it specifically for competition purposes, but about 12% to 14% would be our online. And we would like to see to drive it with a new website up to 20%, but we would like to try to do so while maintaining slightly modest comp store traffic. So, that’s the challenge we have is to win online, at the same time, make sure that we are just not cannibalizing our own stores.

Bill Wolfenden

And when do you anticipate the new web platform to rollout?

Anthony Romano

Right now, it’s scheduled to launch before the end of the fiscal year, so in January, the end of January.

Bill Wolfenden

Great. And then next, is there any visibility on when you guys anticipate to start becoming free cash flow positive and stop increasing the debt?

David Stern

Sure. We have improved free cash flow over the prior year. Year-to-date, it’s improved by approximately $15 million. And so our metrics – our income metrics have improved relative to last year as well as operating income, income before taxes, net income, EPS, EBITDA and the adjusted EBITDA that we provide as well. So, all of those have moved in the right direction and that’s been a result of the decline in sales being more than offset by the improved gross margin rate and our reduced SG&A. And also this year, we reduced our capital expenditures and mentioned we continue to be conservative with capital as we move into next year as well.

Bill Wolfenden

You mentioned that – you mentioned some sort of revenue-based CapEx program, can you elaborate a little bit on that for fiscal ‘17, please?

David Stern

Sure. It’s the focus of our CapEx. So, when we look at our capital expending year-to-date, about a third of it is on IT and that is focused on revenue-generating products and customer-facing products. And what we – the remainder of the CapEx is real estate. Again, that’s to as we opened a modest number of new stores, some relocations and some remodels. And so when I mentioned our capital expenditure focus, it is on revenue-generating, customer-facing projects.

Bill Wolfenden

Okay, alright. So, do you expect in fiscal ‘17 the debt level to not go up anymore?

David Stern

We haven’t given guidance for ‘17 yet. As a point of reference, our net debt is relatively flat to last year. It’s up less than $1.5 million. So, it’s been a very small increase this year and we have not yet given guidance for next year.

Bill Wolfenden

Yes. I mean, I am not really looking for guidance, I am just looking for sort of generally, do you guys anticipate generating cash anytime soon on a yearly basis, not quarterly specific?

David Stern

Right. I understand what you are asking, but we haven’t given guidance for ‘17 yet. But as I mentioned, we obviously continue to monitor our cost. With the rollout of the new web platform, we anticipate stronger web sales and we also are using that platform to drive her to our brick-and-mortar locations and we will continue on the cost cuts and continue to drive gross margin improvements.

Bill Wolfenden

Great. And then last question, please. Since this is sort of the ultimate public form, with regard to Reg FD, I am just wondering why we’re not discussing a little bit more this Orchestra thing, which is now dragged on for several quarters. I am just trying to figure out what it is that’s being proposed and what it is that the discussions are – without getting into specifics, just on a big picture level, I feel like you owe your investors an explanation as to exactly what’s going on here?

David Stern

Sure. In fiscal 2017, we received an unsolicited non-binding merger agreement and we previously, on March 15, entered into a non-disclosure agreement with them to exchange information, engage in discussions. As was known, they are our largest shareholder. Discussions are ongoing, as Tony mentioned. But we don’t have any further comments at this point, which I think is typical as other companies are in a process similar to what I outlined.

Bill Wolfenden

I don’t disagree with that, but I – it’s not typical to have these discussions going on for roughly 10 months?

David Stern

Right. We continue – as Tony mentioned, we are continuing the discussions with them.

Bill Wolfenden

Alright. Thanks a lot.

David Stern

Thank you.

Operator

Our next question comes from Stephen Rabinowitz, Private Investor. Your line is now open.

Stephen Rabinowitz

Hi good afternoon. Two quick questions, do you expect any learning curve issues once you launch in January the new digital platform or do you have to retrain your store staff, etcetera?

Anthony Romano

Yes. Hi Steven, it’s Tony. Yes. So I think again, one of the things I feel like we learned in the third quarter with the launch of the allocation system. While the launch went smooth and didn’t really have any disruption, clearly there was more for us to learn how to really maximize that tool. And I expect similar with the launch of the website. Two things usually happen with the launch of the website. You have to reestablish your URLs and all the ways that Google and the algorithms find you. But it is meant to be an optimum site and in that regard, should happen reasonably quickly. And given that the technology is much easier than the current in-house dated technology, it should be easier and quicker to learn. But I do think it’s realistic to say that there absolutely can be some ramp-up and learnings that are part of that system. So we would expect the second half of the year growth to be more significant than the first half, as it relates to the e-commerce launch.

Stephen Rabinowitz

Okay. And then one last question, could you just give the percentage online sales for Q2 this year?

Anthony Romano

Q2 or Q3, the one we just finished?

Stephen Rabinowitz

No, the one – no, the previous one, just to see if there is growth there or shrinkage?

David Stern

Sure. I can tell you. Tony mentioned earlier, at 12% or 14% range and it has increased a little bit each quarter this year. And so while we don’t get specific, it is growing as a portion of our total business. And of course, we expect that increase to ramp up significantly with the rollout of the platform.

Stephen Rabinowitz

And when you talk about 20% goal, will that be achieved say, by the end of the next fiscal year?

Anthony Romano

Stephen, I think we are probably in a 30-month type cycle to get there. I don’t think we are going to go from 12% to 14%, straight to 20%. I think a couple of points, 200 basis points, 300 basis point a year should be the type of penetration we can ultimately see.

Stephen Rabinowitz

And in terms of cannibalization of existing store sales, will those percentages be applied to a lower – I mean are you going to make it up on the digital sales and grow or are we going to have a tug-of-war between same-store sales and digital sales cannibalizing part of it?

Anthony Romano

Yes. We have to be cautious with that. I think a lot of retailers see it. How we are going to try to manage that is to be a little bit more balanced between the offer differentials that happen online versus in-stores. I think a lot of retailers and at times, we have done it, Stephen which is, we offer a more aggressive online offer, which forces the cannibalization between stores. In our case, we want to have the right promotions that are reasonably consistent between the channels, with the thought process to try to let’s keep those stores flat to modest comp and let’s not steal, I mean just totally erode the comp sales problem there, be very sensitive to it.

Stephen Rabinowitz

Okay. Thank you very much and happy holidays.

Anthony Romano

Thank you.

David Stern

Thank you, Stephen.

Stephen Rabinowitz

Okay. Bye-bye.

Operator

Our next question comes from Michael Wasserman with Moors & Cabot. Your line is now open.

Michael Wasserman

Yes. Hi Tony.

Anthony Romano

Hi Michael, how are you?

Michael Wasserman

Okay. Thank you. Since you joined the company, other than the trend to more e-commerce, what changes have occurred in women’s shopping habits compared to what you would have expected?

Anthony Romano

Yes. I think a couple of things, Michael. I think first of all, absolutely, this propensity and complete lack of fear of ordering online. As you mentioned, it’s probably the biggest thing. The other thing that we are experiencing significantly and I think it has to do with that we are specifically serving the millennial consumer. I think a couple of things that relates to that and experience is much more important to her than a thing like apparel and that sort of thing. So she is spending her money on experience, number one. And number two, value is so important and she is trying to determine a value of how long she is going to wear maternity and therefore, how much she is willing to spend for it. So again, I think there has been a changing landscape in general, specific to our customer that’s aging into this price point. She is fearless online. She wants more experiences and she is looking for – she doesn’t want a cheap outfit. She wants a high quality outfit cheaply. And so we are working to try to find the right balance of price point, quality and value that we could deliver to her and still drive the right sort of comp sales.

Michael Wasserman

Okay. Totally unrelated question, given that there may be Board members whose individual tastes are more aggressive than most of the shareholder tastes, how can the rest of us be reasonably assured that whatever negotiations are going on are in the best interest of the company on a risk adjusted basis as opposed to individual’s risk preferences?

Anthony Romano

Michael, yes.

Michael Wasserman

Michael.

Anthony Romano

I am sorry, Michael. Sorry Michael. I think first of all, the company does employ outside counsel to help advise us, so we have legal counsel, we have banking counsel. And the dialogue all the time in the room absolutely is about the fiduciary responsibility and what is right for shareholders, with lots of discussion on terms of what risks are we seeing, what is our probability of success. So I feel the right sort of discussions are ongoing and the intents are in the right place and that we have the right sort of guidance and counsel to bring us there.

Michael Wasserman

Okay. Lastly, the recent drop in the stock from the 8s to the mid-6s, kind of brings up the concern that perhaps as the numbers were being computed, somebody somewhere might have gained access to information that not everyone else had, given that the rest of the market was going up and the stock kind of slid rather violently in the last several weeks, do you have any concern that somebody might have mentioned something to somebody about this quarter’s results?

Anthony Romano

Not to the best of my knowledge, I don’t believe so.

Michael Wasserman

Okay, thank you.

Anthony Romano

Thank you, Michael. Happy holidays.

Michael Wasserman

You too.

Anthony Romano

Thank you.

Operator

Our next question comes from Logan Brown with Davenforth Investments. Your line is now open.

Logan Brown

Hi, this is Logan. I appreciate you guys having the call today. Our question is related to the Macy’s closings, we didn’t see that mentioned in the press release, so it came as somewhat of a surprise that 32 locations at Macy’s were shutting down, I was wondering if you could add some color to that?

Anthony Romano

Yes. Logan thanks for your question and also for the clarification here. So last year, you might recall, in January, Macy’s had announced closing of 40 stores that was similar to the announcement they made this year about the 100 doors. So 28 doors of those 40 doors were – 28 stores of our 32 stores that closed were a result of that 40 store announcement from last year, but that announcement came as a surprise, so the extra inventory related to that and that’s why that was – is existing in our pipeline and that’s why that quote was made. The other four stores with Macy’s are happening in the normal course of business, as they are remodeling or they are making changes occasionally, we exit doors there. So we have – again, in the interest of being complete, when I was talking about the inventory, we are just mentioning the types of doors that we have exited throughout the year, which was the 475 Sears doors, the 100 Gordmans and the 32 Macy’s closures, all of that inventory, of which we have had to absorb back into the normal flow this year.

Logan Brown

Got it. And then for the excess inventory that you guys pulled back from the other store closings and the flow coming back from the stuff from Kohl’s, is there a plan for that excess inventory, what are you guys thinking about – how you are thinking about that and was that still a mix of sort of the old inventory that you have been continuously trying to get either out through sales or markdowns or etcetera?

Anthony Romano

Yes. So your commentary is the right comment. It’s all that mixed together. I think I have mentioned on some other calls, perhaps as part of Q&A as well, but we are really cautious about how we liquidate that inventory. As you guys know, the off-price guys are doing very well in this marketplace in general, the TJ Maxx’s, the Ross’ of the world. So we have been very cautious about despite their potential interest willing to drop it off to the discounters. And then in that regard, we have been absorbing it and carefully trying to figure out how to post and liquidate it into our population without creating too much of a negative impact in our overall sales. So we do flash sales. We do find vehicles in which we pump it through. We have done some deals with Zulily, with Amazon. So we work to kind of let it out, let the air of the balloon slowly, so that it doesn’t disrupt the market overall. So that’s what we continue to do and plan. And we will have to do so again a little bit throughout 2017.

Logan Brown

Great, that’s all we had. Thanks Tony.

Anthony Romano

Thank you, Logan.

Operator

[Operator Instructions] I am showing no further questions in queue at this time. I would like to turn the call back to Mr. Romano for closing remarks.

Anthony Romano

Thank you, again for joining us today. We wish all of you a happy and healthy holiday season and looking forward to speaking with you in the New Year, when we report our fourth quarter results in March. Thank you. Have a great day.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone have a great day.

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