Coldwater Creek's Stock Runs Hot as Summer Nears

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There's nothing cold about Coldwater Creek's stock price these days. The Sandpoint, ID-based multichannel retailer of women's apparel, accessories, jewelry and gift items posted a 33 percent increase in its share value between April 26 and May 31, improving from $16.87 to $22.47.

The big news came in a May 25 announcement that net income rose $3.2 million, or 60 percent, to $8.5 million for the first quarter of fiscal 2005, covering the three months ended April 30. Also, net sales increased 25 percent to $155.6 million in the period.

"People are saying the company is for real," said Mark Montagna, senior research associate at Wells Fargo Securities, New York. "There's tremendous operating margin upside on top of last year when they also had tremendous operating margin upside."

Gross profit for Q1 totaled $72.8 million, or 46.8 percent of net sales, compared with $54.2 million, or 43.5 percent of net sales, last year. The increase resulted mainly from improved merchandise margins on sales in all channels and partly from improved leveraging of the company's full-line retail store occupancy costs, the company said in a May 25 press release.

"We are reiterating our 'buy' rating and 12-month price target of $25 on the shares of Coldwater Creek and maintaining our 27.5 percent ongoing earnings growth rate projection," Montagna wrote in his May 26 analyst note. "The company also finished the quarter with what management termed as the cleanest inventories they had ever had. We see this as a major positive for 2Q, since the markdown carryover inventory should be at a minimum."

Montagna also wrote that management said the 68-page store mailer has been an effective sales and traffic driver.

"The mailer arrived at homes on April 25, and, as a result, the sales and traffic benefit management alluded to is almost exclusively impacting 2Q," he wrote. "The mailer includes only items sold in stores, whereas a typical catalog includes approximately 50 percent of items not sold in stores. These mailers were sent only to customers living in the trade area of a local store. Currently, approximately 50 percent of its customers live in a trade area of a local store."

Net sales from Coldwater Creek's retail segment increased 48 percent to $83.8 million in Q1 from $56.5 million last year. The company had 119 full-line retail stores at the end of the quarter, up from 71 last year.

"We continue to leverage the dual role of catalogs as both a sales vehicle and our principal means of print advertising to shift customers to our retail store and Internet channels, while promoting the brand in an effective and affordable manner," Coldwater Creek chairman/CEO Dennis Pence said in a statement.

Direct segment net sales increased 6 percent to $71.9 million in Q1 from $68 million last year. Internet net sales rose 18 percent to $41.1 million in the quarter from $34.9 million. Catalog net sales decreased 7 percent to $30.8 million from $33 million.

In other news, ADC Telecommunications Inc. (ADCT) was adjusted for a 1-for-7 split.


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