Highlights From TWB's Q2 Conference Call: CEO Comments on Merger Process with Dress Barn

August 19, 2009 12:23 PM EDT

This morning, Tween Brands (NYSE: TWB) reported Q2 loss of $0.16, ex-items, versus the analyst estimate of ($0.37). Revenue for the quarter was $205.1 million, versus the consensus of $198.86 million. Shares are up 3.0% today.

Highlights From TWB's Q2 Conference Call:

• Same store sales fell 12% during the quarter.
  
• (CFO) We reported a Q2 loss of $0.11 per share versus the $0.27 loss we posted last year.
  
• We had anticipated an incredibly difficult sales environment driven by the continued macro economic pressures in 2009.
  
• However, we believe the business is beginning to show improvement in response to consumer recognition of our value proposition and our strong back-to-school merchandize assortments.
  
• Net sales for the quarter were down 8.1% driven by a 12% decrease in comp sales stores as compared to last year.
  
• Gross income was 54.3 million for the quarter and gross margin was 26.5% down from the 61.8 million and 27.7% respectively in the corresponding 2008 period.
  
• The yar-over-year decline as a percentage of net sales is a result of our inability to leverage the 2.3 million decline in buying and occupancy cost against the 8.1% drop in sales during the period.
  
• Internal gross margin which includes merchandise margins, sourcing and other margin increased to 56.2% for Q2.
  
• Excluding the $3.5 million store impairment charge, internal gross margin increased to 57.9%, a 190 basis point increase from the prior year period.
  
• Excluding the 1.9 million of merger related expenses. SG&A as a percentage of sales decreased 130 basis points.
  
• With our cash and cash equivalence balanced at 71.5 million at quarter end and our 50 million revolving line of credit facility, our liquidity position at the end of Q2 stood at 121.5 million.
  
• Since the end of the second quarter of 2008 our total square footage has increased 1.3% to 3.78 million square feet.
  
• During Q2 of 2009, we closed seven stores and ended the period with 903 stores versus 895 last year.
  
• Our CapEx for 2009 is expected to be approximately 10 million net of cash tenant allowances received this year.
  
• (CEO) As I stated when we announced the merger on June, 25 joining forces with Dress Barn will allow Tween Brands to complete its brand transition in an environment where many of the external pressures and influences, we spend a lot of time addressing to-date will be eliminated. As a result we will be able to direct our efforts and focus toward the success of our fundamental operation ensuring that the product is exactly what our girl wants, making it available when she wants it and dialing in on the price point that is compelling to mom.
  
• We expect to complete the transaction in the fourth calendar quarter and are actively engaged in the required activities behind the scenes, to facilitate this.
  
• The brand transition appears to be gaining traction with consumers as evidenced by recent MPD data [ph], indicating that Tween Brands market share in the tween girls, 7 to 12 year old market, increased a 114 basis points for the 12 month period ended June, 2009.
  
• The $32 million in pre-tax cost savings that we plan to achieve in 2009 as compared to 2008 remained solidly in place.
  
• Our amplified marketing efforts in the second quarter also helped to mitigate top line pressure.
  
• By joining forces with the two concepts that are Dress Barn and Maurices that are very well known in the value specialty retail space, we believe we will be positioned to galvanize our value proposition. We're not out of the woods yet by any measure.
  
• (Q&A) I was just wondering if there- -you could discuss a little bit what's different about the BTS merchandize this year versus last year, is it--are there certain fashions, I know you talked about the
  prices already being compelling? (A)I think that when we talked about the merger I think we've talked
  about the best of both worlds. And I think that in a very short period of time our merchandizing and design team have been able to gel and come up with an assortment that offers the best and the basics in price areas that Justice was always good at. And also come up with the fashion, in leading fashion
  that limited to was at. So, I think we have an incredibly balanced assortment that covers pretty much every major market fashion trend that a tween girl would want, as opposed to being as one dimensional, as one of the brands might have been last year. Our inventories are turning at lightning speeds probably at all time records with the decreased inventory and I think that's evidence of the fact the our UPG's are up and our transactions dropped drastically in Q2 from Q1 and Q4. So I think it's a well balanced assortment that represents the fashion trends, represents the young girl and represents the slightly older tween as well.
  
• And then is it certain, are there certain categories you could comment on or is the improvement just kind of across- - (A)Our asset business has been excellent, all season and continues to be. Our denim assortment is off to a fabulous start. And when you're having a good denim season, you seem to have a much better level of business. The girly look of flat skirts have been absolutely off the charts, sublimation print tops have been spectacular, stars continue in accessories. Most of the assortment actually is doing quite well. It'd be hard actually to point out on a particular area that wasn't off to a good start at this point.
  
• And then just one last question, could you discuss a little bit the magnitude of the lift that you see from the 40% off events versus the 30%? (A)The magnitude of the 40 off is--I will say this that the August book that we just mailed, which was at the end of the July and beginning of August was the highest incremental return of any book that we have ever mailed. It was a coupling of obviously the new back-to-school assortment, the second delivery and 40% off for our customer. So we're starting to get reactions to our catalogs on incremental response that we have not seen before. The list are excellence and I think to share them specifically wouldn't make much sense.
  
• The first is now that Dress Barn has had a little bit more time to look over your portfolio of storage, wondering what the current view was on the number of closings, those mall based and off malls for this year and next year? And then secondly, Mike, I was wondering if you could talk about, why you think you've gained share. I mean is it- -you're doing a better job of marketing, is it better product, is it better prices or the competitors just doing the worst job currently? Thanks a lot. (A)On the store close and I think we just announced through the end of the second quarter was very carefully looked by us and our auditors and I think the Dress Barn folks over our shoulder a little bit. We only came up with 19 stores out of a fleet of 903 that needed to have an impairment. I think that makes one statement onto itself. Clearly impairment- -excuse me, 31 stores, which is also a very small amount. Clearly, impairment and store closings are not the same kind of calculation. We have said we would close somewhere between 30 stores, around 30 stores this year. I still think we're on track for that number. And I don't see any higher number than that as our business is starting to pick up and we're looking at the continued improved comps as we go forward. On the market share question, we were out again last week visiting stores in the mid-west and other markets outside Columbus and I think the answer to your question would be quite simply, go visit my competition and then go visit the Justice. I think that we are doing a really good job, sort of getting back to our old days of a single limited to a brand and I think my competition is well focused on other areas than tween girls, if we are talking about Kohl's, Penney's, Old Navy and those people. So, just take a trip to any of those stores on a weekend or any week and compare them to Justice and the answer will be self evident.

Tween Brands, Inc. and its subsidiaries operate as a specialty retailer for tween girls in the United States and internationally.

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