Coldwater Creek recorded a second-quarter net loss of $4.9 million, compared with net income of $3.1 million in second-quarter 2008. The company’s net sales fell from $241.4 million to $225.2 million during the same period. The most recent quarter ended Aug. 1.
The company’s net loss resulted primarily from rising cost of sales -- $149.5 million for the quarter just ended, compared with $145.8 million a year ago.
In second-quarter 2008, Coldwater Creek’s direct segment pulled in $41.8 million, with operating income of $8.5 million (20.3% of sales), compared with net sales of $52.1 million and operating income of $10.7 million (20.4% of sales) a year ago.
Within this, Internet sales dropped from $39.2 million a year ago to $31.2 million, and phone and mail sales slipped from $12.7 million to $10.6 million. The Internet sales drop was attributed to fewer orders and a 14.6% drop in average transaction value as a result of higher levels of markdowns. But Internet shoppers were matched and exceeded in frugality by phone and mail shoppers: Those orders fell by an average transaction value of 19.7%.
Retail generated $183.4 million, with operating income of $12.8 million (7% of sales), down from $189.4 million in sales during second-quarter 2008, and operating income nearly double that of the current quarter -- $24.3 million, or 12.9% of sales.
During its most recent second quarter, the company spent $8.4 million on direct response advertising, which includes catalogs and national magazine advertisements that contain identifying codes, slightly less than the $8.5 million it laid out a year ago.
Its non-direct response advertising costs, which include store and event promotions and signage amounted to $3.1 million, down from $3.6 million a year ago.
Coldwater Creek is undergoing a shift in its marketing approach. “Historically, we have used a broad-based marketing strategy of catalog circulation and national magazine advertising,” the company claimed in a recent Securities and Exchange Commission filing. “During fiscal 2008 and the first half of fiscal 2009, we shifted to a more point-of-sale, in-store focus through programs such as assisting customers through a personal shopper. In addition, we are developing traffic drivers through innovative e-mail campaigns, retail mailers and newspaper ads…”.
The direct/retail numbers are starting to bear this strategy out. Direct sales amounted to 21.6% of total sales in second-quarter 2008. By second-quarter 2009 this had fallen to 18.6%.
The Eavesdropper’s Take: Don’t mourn for Coldwater Creek’s catalog operations just yet. During an earnings call Daniel Griesemer, the company’s president and CEO, said the company was planning to boost its third-quarter catalog circulation by 40% over third-quarter 2008’s level (which Griesemer characterized as “a very depressed number”). But Griesemer called the catalog a “traffic driver”, and one wonders if he is looking to use it to benefit the retail channel. A concurrent national magazine advertising campaign seems to back up this theory: Rather than generate direct response sales or clicks, Griesemer talked about generating store traffic and showcasing the company’s recent changes to its merchandise mix.
