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WIKI ANALYSIS
With its casual to dressy skirts, pantsuits, and dresses, Coldwater Creek (Nasdaq : CWTR) targets over-35 middle to upper-middle class women. The clothing retailer originally sold its products solely through catalogs. Since 1999, however the company has opened a growing number of retail and outlet stores. Since Coldwater's first retail store opened in 1999, new store openings have been the primary source of revenue growth, contributing to a doubling in revenue between 2004-2007. At the end of 2007, the company had over 330 stores in the United States.
Unlike other clothing companies that will distribute clothing through department stores, Coldwater Creek is the sole retailer of its products. As a result, Coldwater controls its pricing and brand, but its expansion has been slow in comparison to other brands that sell their wares through a ready network of department stores. As a result, the company's future growth relies on the continued expansion of its store base and further increases in its marketing budget.
Company Overview
Revenue Breakdown
Coldwater's revenue comes from to main sources: retail sales and direct sales.
Direct sales: For most of the company's history direct-to-consumer sales via mailed catalogs formed the core of Coldwater's business. The company mailed 30 million catalogs customers in FY2007 (up from 12 million in FY2005)[3]. However, in 1999 the company launched a website where customers can place orders for merchandise. Since then, internet sales have grown much more rapidly than catalog sales.
Retail sales: Retail sales constituted the bulk of Coldwater's growth in recent years. Since the opening of the first Coldwater store in 1999, the company has expanded to over 300. The success of these stores has altered the company's business model, with retail sales accounting for some two-thirds of sales in FY 2007.
Recent Earnings
Coldwater more than doubled its revenue from 2002-2007. Growth has come largely as a result of new retail stores, with 120 stores opening in the past two years alone. These stores have performed well, with same-store sales up 11% over the past two years [5]. As a means of decreasing expenses, the company is also re-examining its purchasing practices. In the past, Coldwater has purchased its products from foreign countries through an intermediary. Starting in 2004, the company began to purchase directly from the product manufacturers, with half of its merchandise being "directly sourced" in 2007[6].
While the company has grown significantly, it has done so largely with no assumption of debt: growth was funded entirely by generated cash flow and the issuance of publicly-traded common stock. Currently, Coldwater has a total of $1 million in debt as a result of maintaining a $60 million line of unsecured credit with Wells Fargo Bank in February 2007[7].
Trends and Forces
New store openings expose Coldwater to declines in mall traffic: Many of Coldwater's retail stores are located in malls and shopping centers across the United States. But in recent years, traffic at the nation's malls has been declining--Customers shop less at malls and shopping more at specialty stores and online. For example, for the first week of December 2007, U.S. mall traffic was down 4.7% from the last year[8], while online shopping was up 19% for the holiday 2007 season compared to the previous year[9].
Although the company's thus far has had impressive growth via its new retail stores, it is clear that the company is susceptible to the troubles plaguing shopping centers nationwide. Recently, the company missed analyst's FY2007 Q4 earnings estimates of $358.3 million as sales for the quarter fell almost 6 percent to $345.5 million. In its earnings call, the company attributed the earnings slump largely to reduced foot traffic in its retail stores[10]. While some of this weakness was certainly due to a soft U.S. economy, it shows that Coldwater's retail development renders the company more vulnerable to the fluctuations that come with operating physical stores.
CWTR and competitors seek higher margins in a global market: Historically, Coldwater has purchased its merchandise from domestic importers who served as intermediaries between manufacturers and Coldwater. However, as a means of increasing profit margins, Coldwater began in 2004 to deal directly with the companies that produce the apparel as a means of gaining "improved control over the production, quality and transportation" of the merchandise[11]. In 2006, Coldwater directly sourced 30 percent of its merchandise, with plans to more than double that figure to 70% by the end of 2008[12]. This strategy has the potential to increase profit margins on the company's products, but at the same time renders the company more directly vulnerable to fluctuations in the value of the U.S. dollar, as well as the instability (financial, political, and otherwise) in developing markets like India and Central America.
CWTR positioned to benefit from increased Baby Boomer spending: The Baby Boomer generation has grown much faster than the general population, with a commensurate increase in spending power. Boomers are retiring later and accumulating more wealth over the course of their lifetimes than their predecessors. Companies like Coldwater may benefit by targeting these working woman who have greater discretionary income than previous generations. Coldwater also has a edge in that it that it fills a particular fashion niche by providing dressy casual apparel for the middle-aged woman at a moderate price point.
Competition
Coldwater competes with companies like J.C. Penney, Chico's FAS, and Talbots that target middle-aged female customers seeking to purchase casual and dressy apparel.
| Operational Metrics, 2006[13] | Coldwater Creek | Chico's FAS | J.C. Penney | ||
|---|---|---|---|---|---|
| Same-Store Sales Growth | 11.1%[14] | 2.1%[15] | 3.7%[16] | ||
| Revenue | 1.15B | 1.71B | 19.86B | ||
| Return on Assets | -1.11% | 6.58% | 8.75% | ||
| Operating Margin | -0.93% | 7.09% | 9.51% | ||
| Net Income | $55.372M | $91.15M | $1.11B | ||
References
- ↑ Figures in graph may not add to 100% due to rounding.
- ↑ Graph data from Coldwater Creek's 2007 10-K (filed April 4, 2007), p. 30.
- ↑ Coldwater Creek 2007 10-K (filed April 4, 2007), p. 6.
- ↑ Data from Coldwater Creek's 2007 10-K(filed April 4, 2007), p. 30
- ↑ Data from Coldwater Creek's 2007 10-K(filed April 4, 2007), p. 34
- ↑ Data from Coldwater Creek's 2007 10-K(filed April 4, 2008), p.6
- ↑ Data from Coldwater Creek's 2007 10-K(filed April 4, 2007), p.25 and 39.
- ↑ Holiday shopping hits the skids, December 11, 2007.
- ↑ Comscore press release: 2007 Online Holiday Shopping Season Surpasses $29 Billion In Sales, Up 19 Percent Versus Year Ago, January 7, 2008.
- ↑ Coldwater Creek swings to 4Q loss, revenue misses Street estimates (March 5, 2008)
- ↑ [Coldwater 2006 10-K http://www.secfilings.com] (filed April 7, 2007) p, 6.
- ↑ [Coldwater 2006 10-K http://www.secfilings.com] (filed April 7, 2007) p, 6.
- ↑ Unless otherwise noted, the figures in the table below come from Yahoo! Finance
- ↑ From Coldwater Creek 2007 10-K
- ↑ From Chico's FAS Wikinvest article
- ↑ From J.C. Penney Wikinvest article
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