Same store sales were down 2% (vs. guidance of a mid single digit drop) and gross margins came in at 34.7% compared to guidance of 32-33%. This produced earnings per share of $.05 versus analyst estimates of $-.06 (CBK was also helped by a tax benefit in the quarter). The results are certainly not overwhelming on an absolute basis, but they look good in light of what competitors like Talbot’s and Coldwater Creek have done lately.
CBK remained cash from operations positive, although they burned about $2 million in cash due to a $3.5 million capex spend on new store openings. I still don’t understand why they are being quite so aggressive on the new store openings this year (opening 31 new stores and closing 35 stores), but management says the new stores with the new formats are performing well.
Most notably, some product from the new design team was delivered to stores in May to a strong response. Sell through was 2-3X as fast as previous collections at a 20% higher price point. The turnaround hinges on the new design approach, and so far so good on that front.
For next quarter, CBK guided for same store sales to be flat to up slightly, which is encouraging given that Q2 last year was a decent quarter. However, they are guiding for gross margins to decline to the low 30s as they want to be sure to clear out old inventory for the full roll out of the new designs in Q3. They also guided for SG&A to be up slightly due to increasing store hours and marketing spend. The guidance appears to amount to about a break even quarter on an EPS basis.
The trend at CBK is certainly upwards and the thesis is starting to play out, but we won’t know all that much until Q3 when the product on the shelves more fully reflects the new design approach. In the meantime, it is nice to see the stock finally get a bump.
Disclosure: I own shares of CBK.
Elie Rosenberg runs a value investing research site at valueslant.com. You can sign up here for his free value investing newsletter and get his free ebook - 16 Ways to Find Undervalued Stocks.