From the 2Q Earning Conference Call Q & A Session:
Q: Can you talk about the performance of your new outlet store [in NY State] and if you’ve had to rethink your outlet strategy given your constraint on inventory?
A: No. The reason that we’ve always chosen to really what’s going to be a four corners strategy,
we’ll have one ultimately in the four corners of the US so we can move product out quickly and efficiently. We very definitely say that it is our clearance merchandise; we do not buy for that channel. What’s available is what’s available which is why we report it in other and not included in our comp base or in our retail sales.
It really is just designed to clear merchandise as we need to so that we can maintain our full price strategy in the stores. It’s worked very well for us and then as you know, in Canada we use the warehouse sales and very pleased with our response that there are marketing activity as much as they are anything else to our loyal guests in Canada. We feel very comfortable with our outlet strategy and the fact that we’ve been moving more products through at full price.
Q: On the sales trends, did you see acceleration in both markets sustain as the quarter unfolded or were there inventory constraints that you can call out that may have inhibited the comps as the quarter unfolded?
A: We did see both markets respond very strongly. We probably starved the US a little bit more because of the sales trends being lower there. We definitely see that increased traffic there we could have done a better job with product in the US. That said we were very pleased with the sales and results that we’ve seen there. As we said, we’re going to lean into it and believe that we have positive momentum there.
What we really saw was when we delivered fresh new product in we saw positive comps the days that it arrived and as soon as it ran out we went back to kind of a flat. We believe that with more product we could have hit a positive comp for the quarter.
Q: You’re in an interesting position because your sales trends have started to improve. Essentially you’re going to have to make a bet as to how you want to plan for the inventories for the holidays or how are you assessing the risk of maybe building inventories to capture upside versus inventory obsolescence if you can give us some insight into the thought process.
A: Let me talk about the thought process without giving guidance because John will kick me under the table if I try to do that. What we’ve done is we’ve increased orders for Q4 and we’ve done it in what we think are the healthiest products.
Historically we’ve run out of running in the December, for gift giving which typically most people start training in January for the marathons and the running season.
What we’ve done is we’ve decided to bring those modules that we had for the first set which we were planning on doing earlier in January into the December period so that we have that product available to draw and if sales momentum doesn’t materialize we can move the running products back into that January. It will increase our inventories in the December period but we feel it’s a very low risk strategy because it’s still fresh and our highest demand product that we have. [No wonder so much running stuff is showing up now]
Q: Using the 10-Q that you published this morning
it looks like your ecommerce business must be almost grotesquely profitable. Am I reading that right with your operating margin from your other division and is that a sustainable level of profitability?
A:
Ecommerce is a very high margin even through we had a healthy payment to our outsourcing partner. [I
s the website outsourced? No wonder it has so many errors.] It is a healthy margin to ecommerce.
Q: Given the sales trends showing such nice signs of improvement how do you see your customer changing, whether its age, frequency, men’s business, and the difference between ecommerce and retail?
A: You also asked about ecommerce, what we’re seeing there is we’re tracking unique new guests plus loyal guests and both in ecommerce and
in the stores we see our most loyal guest shops us weekly and she’s always popping in for what’s new.[
That's me!] I think that’s the other thing we’re pretty excited about is we see tremendous loyalty once somebody adopts the product, they really stay with us and becomes a big part of their wardrobe which is very exciting for us.
Q:
Do you see introducing new categories over the next year or making some categories bigger or smaller?
A: Clearly running has become enormous for us. We do see making more of the pipe growing in that direction but really staying focused on the healthy yoga business which for us is the big end we have to stay focused on that core market. We’re seeing really nice response to the organic lines so I think that gives us both the yin and yang of yoga meaning that we have the soft kind of natural line plus we have the high performance line and that’s been really well responded to and brought back a lot of things the traditional yoga shopper to us which has really strengthened that line.
We definitely see both of those platforms continuing to be our mainstay and I don’t think we need a lot of innovation to entice people in other then the work we’re doing with style function and design within those product lines.
