On the surface, Coldwater Creek’s direct operations took a hit during the company’s most recent fiscal year. Direct channels racked up $256.2 million in fiscal 2009, down 6.1% from the $272.9 million they pulled in a year earlier. Average order values fell by 9.2% from the company’s online business, and by 11% from its phone and mail operations.
Add in a $5.5 million drop in shipping revenue due to the lower order sizes, and all signs would point to a pretty bad year for direct sales. But all signs are wrong, thanks to aggressive cost containment.
According to just-released SEC documents, Coldwater Creek’s direct sales generated $41.8 million in operating income during fiscal 2009, compared with $42.1 million in fiscal 2008. To save wear and tear on calculators, here’s how that shakes out: Operating income for direct sales, which was 15.4% of revenue a year ago, jumped to 16.3% of direct revenue for fiscal 2009.
There are a few factors feeding into this. First, the company pulled nearly $3 million out of its direct response advertising costs, which dropped from $57.3 million a year ago to $54.5 million. Coldwater creek includes both catalog and national magazine advertising that includes a tracking code in its direct response expense calculations.
Additionally, according to the SEC documents, the direct segment pulled back on overhead costs and employee-related costs. Cutting either of these would, of course, boost margins.
Coldwater Creek’s non-direct advertising expenses, which include store and event promotions, signage and other activities, dipped slightly from $22.9 million in 2008 to $22.3 million in 2009.
The company didn’t say so explicitly, but it’s a pretty good bet most of the direct advertising chop came from national magazines. Coldwater Creek mailed 6.3% more catalogs during 2009 than it did in 2008. The drop in direct revenue, combined with the higher margin, might also mean the catalogs featured smaller, lower-cost, higher-margin items.
There was one more tidbit of note hidden in the SEC papers: Coldwater Creek’s list rental income fell from $1.2 million in 2008 to $513,000 in 2009, while its list rental expense dropped from $169,000 to $68,000.
What does the future hold? Coldwater Creek had previously said it increased marketing expenses during the most recent fourth quarter, and in fact its fourth-quarter direct sales reflect this, rising from $83.5 million in 2008 to $97.3 million. The company did not issue guidance on whether it would continue to maintain this level of spending in 2010.
In 2009, Coldwater Creek racked up $1.04 billion in retail and direct sales, up from $1.02 billion in 2008. Sales from the retail segment amounted to $782.4 million for 2009, versus $751.4 million in 2008. The company took a net loss of $56.1 million, compared with a net loss of $26 million in 2008. The 2009 results include a $25.3 million non-cash income tax charge.
