Q1 2011 Conference Call Excerpts - Part 1: Opening Remarks

Christine Day: We are again very pleased with our start to fiscal year 2011. Given our inventory constraints, combined with our focus on transitioning our e-Commerce platform, we approached the plan for the first quarter conservatively. However, thanks to our strong partnerships with our manufacturers, we were able to source additional inventory for April and maximize the productivity of the inventory we had to work with, both in sales and gross profit dollars.

And although we had a few bumps in the road given the complexity of the e-Commerce project, for the most part we saw a relatively smooth transition to our platform, thanks in a big way to our new CIO Kathryn Henry and our e-Commerce team. It took a little longer than expected to merchandise our online catalog by about 2 weeks, but we are now to a point where our online store is matching our retail stores about as much as we want it to. Our online store inventory will be in a good position to support a strong back half of the year. So while we planned e-Commerce down as a percentage of revenue through the transition, we already see it climbing back towards a 10% run rate and expect to be close to 10% of total revenue for the full year.


Looking at the performance of our retail stores, they also performed as expected for the quarter. February was strong but inventory constraints held back sales in March and then April rebounded as we were able to chase inventory. Our same-store sales comparison of 16% drove our trailing-12-months average sales per square foot in comp stores to new highs, just over $1,800, up from $1,428 a year ago. We believe there is room for continued productivity increases as we build our inventory position, invest in our stores and our people, and execute our strategy.

Our second quarter product mix is still somewhat transitional, as chasing products for April had some impact on the optimal mix of products in stores today, but we are in a better position overall in Q2 than we were in Q1.

 Looking ahead, our richest opportunity is maximizing the size curves and seasonal allocation of product to our stores. We also continue to innovate our yoga and run lines, which are the major drivers of our sales growth.

We are in the fortunate position of being able to manage the rate of innovation and keep a strong pipeline ready for execution. New fabrics, construction and styling are how we continue to evolve our core lines. Our exploration into various new categories, such as our small cycling collection this summer, have received a strong response and is an example of a growth opportunity we can pursue in the future.

Christopher Ladd (Head of E-Commerce):

The transition by all accounts was an incredibly successful one [uh, ok] and I personally want to thank Kathryn Henry, our CIO, and all the teams across the company for making such a complex project a great success. We successfully mitigated the business risk and managed the guest experience in line with our expectations [must have been low expectations] while adding some key functionality like one-page check out, merchandising and search capabilities [you got rid of search by color], rich imagery enhancements and core-business-process stabilization.