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01/10 20:14
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Despite efforts to address merchandising missteps and store optimization strategies, the earnings call reveals significant challenges. The decline in cash position, increased net loss, and reduced EBITDA margin signal financial strain. Q&A insights show persistent issues in core product categories and lack of recovery in key areas. Management's vague responses further contribute to uncertainty. While store closures may improve margins long-term, current financial health and guidance indicate a negative short-term outlook.
Net Sales Net sales for the third quarter were $235.2 million compared to $263.8 million in the prior year, representing a year-over-year decline of 10.8%. The decline was driven by an 8.3% drop in comparable sales and a 400 basis point impact from the temporary pause in the shoe category due to elevated import costs.
Gross Profit Gross profit was $82.2 million versus $95.2 million last year, reflecting a year-over-year decline of 13.6%. The gross margin decreased to 34.9% from 36.1% in the prior year, primarily due to higher promotions and deleverage on the lower sales base.
SG&A Expenses SG&A expenses were $66.3 million for the quarter compared to $74.9 million a year ago, reflecting a reduction of $8.6 million or 11.5% year-over-year. This improvement was attributed to store optimization initiatives and a focused approach to reducing fixed costs.
Adjusted EBITDA Adjusted EBITDA was $9.8 million, representing a 4.2% margin versus $19.6 million and a 7.4% margin a year ago. The decline was due to softer demand in the digital channel and higher-than-planned promotional activity.
Net Loss Net loss for the quarter was $6.4 million or $0.06 per share compared to a net loss of $1.2 million or $0.01 per share last year. The increase in net loss was driven by lower sales and higher promotional activity.
Inventory Inventory totaled $128.8 million, down 6.8% from last year, reflecting both lower receipts and a reduced store base.
Cash Position The company ended the quarter with $17.2 million in cash compared to $44 million last year. The decline in cash was attributed to lower sales and increased promotional activity.
Product Assortment Enhancement: Missteps in tops and jackets category led to sales decline. Corrective actions include rebalancing investments and focusing on core fabrications and silhouettes. Chase orders initiated for key franchises, with products arriving in January 2026.
Sub-brand Growth: Sub-brands are on track to deliver $80 million in sales this year, attracting new and reactivating lapsed customers. These sub-brands broaden the customer base and drive attachment rates to core categories.
Footwear Reintroduction: Footwear category reintroduced in mid-November after a pause due to tariff-driven cost pressures. Expected to scale back to historical sales levels of $40 million in 2026 with improved profitability.
Intimates Innovation: Three new bra launches planned for 2026, representing significant innovation in the category. Bras drive strong customer acquisition and loyalty.
Opening Price Point Strategy: Approximately 30% of the assortment will be at opening price points in 2026 to increase market share and customer acquisition.
Marketing Expansion: Increased digital media investment, influencer strategy, and in-person activations planned for 2026 to enhance brand visibility and customer engagement.
Store Optimization: Closed 15 stores in Q3, with 74 closures year-to-date. On track for 180 closures in fiscal 2025. Strong customer retention metrics and significant adjusted EBITDA margin benefits expected in 2026.
Cost Management: SG&A expenses reduced by $8.6 million in Q3, reflecting disciplined cost structure and store optimization benefits.
Digital Channel Focus: 70% of demand originates online, driving a shift towards enhanced digital capabilities and reduced physical footprint.
Customer Loyalty Programs: Improved loyalty program and private label credit card to expand customer lifetime value.
Assortment Mix Missteps: The company faced challenges due to a shift towards fashion-forward designs at the expense of core assortments, leading to a significant sales miss in the tops and jackets category. This misstep impacted customer satisfaction and financial performance.
Footwear Category Pause: The temporary pause in the footwear category due to tariff-driven cost pressures resulted in an estimated $12.5 million in lost sales, with a significant impact during the peak boot selling season. This also affected overall basket sizes and transaction frequency.
Higher Promotional Activity: Softer demand in the digital channel required deeper-than-planned promotional activity, pressuring adjusted EBITDA and gross margins.
Store Closures: The ongoing store optimization strategy, while reducing costs, involves closing up to 180 stores in fiscal 2025. This could pose risks related to customer retention and potential revenue loss from physical locations.
Economic and Tariff Pressures: Tariff-related cost pressures have impacted categories like footwear, leading to strategic pauses and restructuring, which could affect profitability and operational flexibility.
Inventory Management Challenges: The company ended the quarter with inventory down 6.8% compared to last year, reflecting lower receipts and a reduced store base. This could pose risks in meeting customer demand effectively.
Product Assortment Enhancement: The company is addressing assortment gaps by initiating chase orders for key franchises, focusing on core fabrications and silhouettes. These products will begin arriving in January, with sequential improvement expected by the end of Q4 and accelerating momentum into Q1 2026.
Spring/Summer 2026 Strategy: A comprehensive review of the buying strategy has been completed, rebalancing investments to deliver the right mix across categories, fits, fabrics, and end users.
Footwear Category: The company reintroduced a curated footwear assortment in mid-November, expecting to scale back to historical sales levels of approximately $40 million in 2026 with improved profitability.
Sub-Brand Strategy: Sub-brands are on track to deliver approximately $80 million in sales this year, with plans to strategically balance the assortment architecture in 2026, including 30% opening price points.
Intimates Business: Three new bra launches are planned for 2026, representing significant innovation in the category.
Marketing Initiatives: Increased digital media investment, a robust influencer strategy, and in-person activations are planned for 2026 to expand community and brand-building efforts.
Store Optimization: The company plans to close approximately 180 stores in fiscal 2025, with closures expected to contribute significant adjusted EBITDA margin benefits in 2026.
Revenue Expectations: Full-year net sales are expected to range between $995 million and $1.002 billion.
Adjusted EBITDA: Full-year adjusted EBITDA is projected to range between $59 million and $62 million.
Capital Expenditures: Capital expenditures are expected to range between $13 million and $15 million for the full year.
Store Optimization Impact: Store closures are expected to deliver substantial adjusted EBITDA margin expansion and liquidity benefits in fiscal 2026.
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The earnings call reveals increased net loss, declining EBITDA, and reduced cash position, reflecting financial strain. Store closures aim to improve margins, but merchandising missteps and high promotions indicate internal challenges. The Q&A highlights ongoing issues with product categories and lack of recovery in key areas like tops and shoes. Management's vague responses on margin expansion and guidance add uncertainty. Despite some strategic adjustments, the overall sentiment is negative due to financial and operational difficulties, suggesting a likely negative stock price reaction.
Despite efforts to address merchandising missteps and store optimization strategies, the earnings call reveals significant challenges. The decline in cash position, increased net loss, and reduced EBITDA margin signal financial strain. Q&A insights show persistent issues in core product categories and lack of recovery in key areas. Management's vague responses further contribute to uncertainty. While store closures may improve margins long-term, current financial health and guidance indicate a negative short-term outlook.
The earnings call reveals mixed signals: strong sub-brand performance and an active share repurchase program are positive, but declining sales, gross profit, and net income, coupled with economic uncertainties, are concerning. The Q&A section highlights management's optimism about sub-brands and limited customer pushback on price increases, but also reveals unclear responses and tariff impacts. Overall, these factors balance out, suggesting a neutral stock price movement.
The earnings call reveals declining financial performance, with net sales and net income down year-over-year, and a decline in gross margin. While there are efforts to optimize stores and diversify sourcing, the lack of a share repurchase program and unclear management responses in the Q&A raise concerns. Additionally, the pause in shoe offerings and competitive pressures, along with cautious consumer behavior, suggest challenges ahead. Despite some positive developments like new sub-brands and digital channel strength, the overall sentiment leans negative, likely leading to a stock price drop of 2% to 8%.
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