RTW Retailwinds, Inc. (NYSE:RTW), an omni-channel specialty apparel retail platform for powerful celebrity and consumer brands, today announced results for the fourth quarter and full year fiscal 2019 representing the 13-weeks and 52-weeks ended February 1, 2020, respectively. This compares to the 13-week fourth quarter and 52-week full year of fiscal 2018, which ended February 2, 2019.
“Reconciliation of GAAP to Non-GAAP Financial Measures”
Gregory Scott, Chief Executive Office of RTW Retailwinds, stated: “We continue our strategic transition to a digitally dominant retailer supported with a portfolio of celebrity and lifestyle brands that unlock distinct market opportunities. While we delivered near record results in 2018, we were disappointed with our fourth quarter and fiscal 2019 performance stemming from declines in store traffic and continued weakness in our casual lifestyle sub-brand. These challenges offset growth in our core New York & Company digital brand, celebrity brands and another double-digit comp increase for our Fashion to Figure business in excess of 50%, emphasizing the ability to adapt to the challenges we face as a business.”
Mr. Scott continued: “In light of our performance and given the current environment, we are taking decisive action and accelerating our strategic transformation agenda and have engaged an outside consultancy to assist with recalibrating our business to support a profitable and more balanced direct to consumer operating model. Today we are announcing our plan to permanently close up to 150 locations in the next 18 months as part of our transformation to a digital first portfolio of brands. In addition, we have re-aligned our internal Design and Merchandising organization to be product focused and away from two distinct lifestyle teams, allowing us to improve clarity of offer, optimize organizational efficiencies, and reduce development expense. Finally, we are reviewing our entire go-to-market process in conjunction with an external consultancy to identify additional opportunities to improve our operating model. These initiatives along with our previously announced customer first strategy and digital re-platform, will allow us to successfully adapt and navigate the retail environment of today and tomorrow.”
Commenting on RTW’s transformation to a digitally dominant retailer, Traci Inglis, President, Chief Customer and Marketing Officer added: “We have made significant investments in our Customer First initiative over the past 9 months, including paid digital marketing to support customer acquisition and relaunching all of our brands on a new digital platform this Fall to enhance and advance our customer experience. The combined impact of our strategies positions our portfolio of brands to compete in today’s dynamic retail environment, setting us up for success as we transition to being a digitally-dominant retailer.”
Regarding the first quarter, Mr. Scott added: “We opened the quarter with well-managed inventory levels declining (8%). While February and early March trends were largely in-line with our expectations, the recent developments surrounding the coronavirus (COVID-19) have negatively impacted mall traffic. We realize that the situation is evolving and the safety of our customers and associates is our primary concern. In the immediate term, we are temporarily closing all New York & Company and Fashion to Figure stores through March 28th, 2020 in response to the increased impact from COVID-19. We appreciate that the road ahead is a challenging one, but we believe that once the benefits of our strategy are fully realized they will add significant value to our portfolio of brands and to our shareholders.”
Fourth Quarter Fiscal Year 2019 Results (13-week period ended February 1, 2020 as compared to the 13-week period ended February 2, 2019):
As it relates to the fourth quarter of fiscal year 2019, the Company noted the following:
- Net sales were $224.0 million, as compared to $247.3 million in the prior year, reflecting a reduction in comparable store sales, and a reduction in store count, partially offset by growth in the Company’s eCommerce business and the Fashion to Figure brand.
- Comparable store sales decreased 7.4%, as compared to the same period last year, representing a decline in the Company’s brick-and-mortar business, partially offset by growth in the Company’s eCommerce business and the Fashion to Figure brand. All quarterly comparable store sales results are based on a 13-week comparable time period.
- Gross profit as a percentage of net sales decreased 460 basis points to 24.2% versus fiscal year 2018 fourth quarter gross profit percentage of 28.8%. The decrease reflects increased promotional activity, including $0.4 million of inventory markdowns related to the exit of the Uncommon Sense brand, decreased leverage of buying and occupancy costs on lower sales, and increased shipping costs primarily related to increased rates and partially from growth in the Company’s eCommerce channel.
- Selling, general and administrative expenses increased by $2.5 million to $74.3 million, or 33.2% of net sales, as compared to $71.8 million, or 29.1% of net sales in the prior year period. The increase primarily reflects an increase in marketing expense to drive sales and accelerated depreciation related to the re-platform of the Company’s existing eCommerce site, partially offset by a decrease in store selling expense.
- Loss from impairment charges were $19.8 million, or 8.8% of net sales as compared to $1.1 million, or 0.4% of net sales last year. During the current period, the Company recorded a non-cash charge of $11.8 million, representing the impairment of store operating lease assets established under the new lease accounting standard (ASC 842) that was adopted in fiscal year 2019, and non-cash fixed asset impairment charges of $8.0 million primarily related to the impairment of store level assets.
- GAAP operating loss for the fourth quarter of fiscal year 2019 of $39.8 million includes $19.8 million of non-cash asset impairment costs, $0.6 million of accelerated depreciation related to the Company’s existing eCommerce site, and $0.4 million of charges related to the exit of the Uncommon Sense brand, as compared to an operating loss of $1.6 million in the prior year. Excluding the non-operating charges, non-GAAP operating loss was $19.0 million, which compares to the prior year’s non-GAAP operating income of $0.1 million.
Please refer to the “Reconciliation of GAAP to Non-GAAP Financial Measures” in Exhibit 5 of this press release, which delineates the non-operating adjustments for the 13 weeks ended February 1, 2020 and the 13 weeks ended February 2, 2019. GAAP is defined as Generally Accepted Accounting Principles in the United States.
Full Fiscal Year 2019 Results (52-week period ended February 1, 2020 as compared to the 52-week period ended February 2, 2019)
- Net sales were $827.0 million for fiscal year 2019, as compared to $893.2 million for fiscal year 2018. The reduction reflects a reduction in store count, partially offset by the addition of Fashion to Figure and growth in eCommerce. Comparable store sales decreased 5.4%, as compared to the same period last year.
- GAAP operating loss was $61.9 million. On a non-GAAP basis, adjusted operating loss was $35.8 million. This compares to GAAP operating income of $6.5 million and non-GAAP, adjusted operating income of $10.2 million for fiscal year 2018.
Please refer to the “Reconciliation of GAAP to Non-GAAP Financial Measures” in Exhibit 5 of this press release, which delineates the non-operating adjustments for the 52 weeks ended February 1, 2020 and the 52 weeks ended February 2, 2019.
Other Financial and Operational Highlights:
- Total quarter end inventory decreased 8.1%, as compared to the prior year period, reflecting lower store count and decreased inventory in-transit, partially offset by an increase in eCommerce inventory.
- Capital expenditures were $3.8 million for the fourth quarter as compared to $4.8 million in the prior year period. Capital expenditures for the full fiscal year were $8.5 million for the current and prior fiscal years.
- During the fourth quarter, the Company closed 27 locations, and remodeled/refreshed 1 existing location ending the fourth quarter with 387 stores, including 116 Outlet stores (which includes 54 clearance stores) and 1.9 million selling square feet in operation.
- The Company ended the fourth quarter with $60.6 million of cash on-hand, no outstanding borrowings under its revolving credit facility and no long-term debt.
Outlook:
Regarding expectations for fiscal year 2020, the Company continues to invest in the transformation of its business from a traditional brick-and-mortar retailer into a digitally dominant retailer. The Company remains focused on growth in its digital sales and improving its operating results to drive increases in both annual operating income and EBITDA. In light of the rapidly changing environment with the COVID-19 virus and its potential implications on the supply chain and mall traffic patterns, the Company is refraining from providing specific earnings guidance on metrics but is evaluating and preparing for a variety of scenarios.
Comparable Store Sales:
A store is included in the comparable store sales calculation after it has completed 13 full fiscal months of operations from the store’s opening date or once it has been reopened after remodeling if the gross square footage did not change by more than 20%. Sales from the Company’s eCommerce stores, and private label credit card royalties and related revenue are included in comparable store sales. In addition, in a year with 53 weeks, sales in the last week of the year are not included in determining comparable store sales.
