Stage Stores Inc. (NYSE:SSI) Q2 2016 Earnings Conference Call - Preliminary Transcript

Aug 18, 2016 • 08:30 am ET

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Stage Stores Inc. (NYSE:SSI) Q2 2016 Earnings Conference Call - Preliminary Transcript

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Presentation
Operator
Operator

Good morning, and welcome to Stage Stores Conference Call. At this time, all participants are in listen-only mode. Later, the company will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

I would now like to introduce your moderator for today's conference call, Mrs. Randi Sonenshein, Senior Vice President of Finance and Strategy. Mrs. Sonenshein, please begin your conference call.

Executive
Randi Sonenshein

Thank you, operator. Good morning. With us on the call is Michael Glazer, President and Chief Executive Officer, Oded Shein, Chief Financial Officer and Steve Lawrence, Chief Merchandising Officer. Michael and Oded will begin with prepared remarks, and then Steve will join for questions.

Our comments this morning include adjusted results not derived in accordance with GAAP. Non-GAAP results have been adjusted to the impact of severance charges related to workforce reduction and strategic store closures. Reconciliations of GAAP results to non-GAAP adjusted results are included in this morning's earnings release, which is available in the investor relations section of our website. Our discussion this morning will also include forward-looking statements. Various factors may cause our actual results to differ materially from those projected in the forward-looking statements.

For more information, please refer to the risk factors discussed in our most recent Form 10-K, our other filings with the SEC, and this morning's earnings release. Forward-looking statements speak only as of today's date, and we undertake no obligation to update those statements.

I will now turn the call over to Michael.

Executive
Michael Glazer

Thank you, Randi. Good morning, everyone. Thank you for joining us today. I'll begin by commenting on our recent performance, and then provide some thoughts on the fall season. Oded will follow with financial details, and Steve is also here, as Randi mentioned, to help answer all of your questions.

The second quarter was challenging with choppy sales throughout leading to a negative 9.8% comp. May was our most difficult month, and June was our best month. Stores in Texas, Louisiana, Oklahoma, and New Mexico continued to suffer from the impact of depressed oil prices, and the weak peso. Comp sales in these stores were roughly 500 basis points lower than the balance of chain.

On a positive note, direct to consumer grew during the quarter, as we continued to make progress on our initiatives in this important channel. Our team continues to effectively manage the soft sales environment in every conceivable way. Our merchandise margins were flat to last year and our inventories were well controlled. We are pleased to have ended the quarter with inventories down 6%, and down 9% if you exclude cosmetics.

Aside from reducing inventory and controlling markdowns, the merchants did a terrific job aligning receipts to our back-half sales forecast. As a result, we feel great about our current inventory level, and the freshness of our merchandise as we transition into the fall. From an SG&A standpoint, we reacted promptly and thoughtfully by cutting expenses by more than $10 million or about 11%