Charming Shoppe. 10% Owner LEON G COOPERMAN bought 432600 shares on 3-28-2012 at $ 5.6
We are a specialty apparel retailer with a leading market share in women's plus-size specialty apparel. During our fiscal year ended January 28, 2012 (â€ś Fiscal 2011 â€ť) our business operations consisted primarily of three distinct core brands: LANE BRYANT Â® , FASHION BUG Â® , and CATHERINES PLUS SIZES Â® . These core brands operate retail stores and store-related e-commerce websites under our Retail Stores segment. Through our multiple channels, fashion content, and broad merchandise assortments, we seek to appeal to customers from a broad range of socioeconomic, demographic, and cultural groups. During Fiscal 2011 the sale of plus-size apparel represented approximately 84% of our total net sales. In addition to our Retail Stores segment we also derive revenues from sales of food and gifts through our FIGI'S Â® catalog and website, which operate under our Direct-to-Consumer segment.
LANE BRYANT is a widely recognized brand name in plus-size fashion. Through private labels such as LANE BRYANT and CACIQUE Â® , and select national brands, we offer fashionable and sophisticated apparel in plus-sizes 12-32, including intimate apparel, wear-to-work and casual sportswear, accessories, select footwear, and social occasion apparel. LANE BRYANT has a loyal customer base, generally ranging in age from 35 to 55 years old, which shops for fashionable merchandise in the moderate price range. Our 685 LANE BRYANT retail stores comprise 4.0 million square feet of real estate and are located in 46 states, in a combination of destination malls, lifestyle centers, and strip shopping centers. Our average LANE BRYANT store size is approximately 5,800 square feet. During Fiscal 2011 our lanebryant.com website averaged 2.7 million unique visitors per month with an established on-line community.
Our LANE BRYANT intimate apparel side-by-side store pairs LANE BRYANT's casual and wear-to-work sportswear assortments with an expanded line of CACIQUE intimates as well as additional national brands, presented in a double store-front. This larger footprint of approximately 7,200 square feet per combined store compares with the full-line LANE BRYANT store average footprint of approximately 5,500 square feet. Included in the 685 stores operated by LANE BRYANT as of January 28, 2012 are 136 stores operated in the side-by-side format.
LANE BRYANT OUTLET Â® is a national chain offering women's plus-size apparel in the outlet sales channel. Through our private labels we offer fashionable and sophisticated apparel in plus-sizes 12-32, including intimate apparel, wear-to-work and casual sportswear, accessories, select footwear, and social occasion apparel. Our 117 LANE BRYANT OUTLET retail stores comprise 0.7 million square feet of real estate and are located in 37 states throughout the country in outlet centers. Our average LANE BRYANT OUTLET store size is approximately 5,800 square feet.
FASHION BUG stores specialize in selling plus-size, misses, and junior apparel in sizes 6-30, serving women's lifestyle needs from weekend to business wear, as well as accessories, intimate apparel, and footwear. FASHION BUG customers generally range in age from 30 to 50 years old and shop in the low-to-moderate price range. Our 620 FASHION BUG retail stores comprise 5.4 million square feet of real estate and are located in 40 states, primarily in strip shopping centers. Our average FASHION BUG store size is approximately 8,600 square feet. During Fiscal 2011 our fashionbug.com website averaged 1.4 million unique visitors per month.
In December 2011 we announced that we are undertaking a comprehensive strategic and financial review of our operations to determine how best to enhance shareholder value. This review is continuing. As part of these efforts, we announced our plans to divest our FASHION BUG business and focus on the growth of our LANE BRYANT brand. We cannot assure that this review will result in any specific course of action or that the planned divestiture of FASHION BUG will occur. We have not reported a time frame for the completion of this strategic review. See â€śItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations; RECENT DEVELOPMENTS" and " OVERVIEWâ€ť below for further discussion of our management initiatives.
CATHERINES PLUS SIZES carries a full range of plus sizes (16-34 and 0X-5X) and is particularly known for extended sizes (28-34). CATHERINES Â® offers classic apparel and accessories for wear-to-work and casual lifestyles. CATHERINES customers are generally in the 45 years old and older age group, shop in the moderate price range, and are concerned with comfort, fit, and value. Our 435 CATHERINES retail stores comprise 1.8 million square feet of real estate and are located in 44 states, primarily in strip shopping centers. Our average CATHERINES store size is approximately 4,100 square feet. Included in the 435 stores operated by CATHERINES as of January 28, 2012 are 15 stores operated in outlet locations. In March 2011 we announced our plans to close the 30 CATHERINES stores operating in outlet locations. We closed 15 of these stores during Fiscal 2011 and expect to close the remainder during Fiscal 2012. During Fiscal 2011 our catherines.com website averaged more than 0.8 million unique visitors per month.
During Fiscal 2011 we further enhanced our Retail Stores segment e-commerce operations by offering an expanded selection of new brands through our SONSI Â® website and the launch of new online outfitting technology that makes personalized style and fit recommendations. Our customers can use these recommendations within the outfitting tool to facilitate viewing and buying of complete outfits. In addition, we announced the launch of an international shipping program that enables customers in over 100 countries and territories worldwide to shop our brands online.
FIGI'S markets food and specialty gift products through its Figi's Gifts in Good Taste Â® catalog, its figis.com e-commerce website, and through third-party retailers' stores and e-commerce websites. FIGI'S specializes in dairy cheeses, smokehouse meats, holiday fare, bakery, chocolates, nuts, sweets, and snacks. FIGI'S also offers special gift assortments, collectibles, and exclusive and personalized items. FIGI'S Â® Gallery offers home decor, bedding, housewares, jewelry, garden accents, apparel, collectibles, gifts and other items through its catalog and figisgallery.com e-commerce website.
Financial information by business segment for each of our last three fiscal years is included in â€śItem 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements; NOTE 16. SEGMENT REPORTINGâ€ť below.
Our retail store merchandise displays enable our customers to assemble coordinated and complete outfits that satisfy their lifestyle needs. We test and implement new store designs and fixture packages that are aimed at providing an effective merchandise presentation. We relocate or remodel our stores as appropriate to convey a fresh and contemporary shopping environment. We emphasize customer service, including the presence of helpful salespeople in the stores, layaway plans, customer loyalty programs, and acceptance of merchandise returns for cash or credit within a reasonable time period. Typically, our stores are open seven days per week, eleven hours per day Monday through Saturday and seven hours on Sunday.
Our retail stores operate under direct local management with guidance from our management operations team. Each store has a manager who is in daily operational control of and manages the specific location, including overseeing the duties of display, selling, and reporting through point-of-sale terminals. We employ district managers who regularly travel to all stores in their district to view store operations and provide guidance. Each district manager works with an average of 12 stores. Regional managers, who report to a Vice President of Stores, supervise the district managers. Generally, district managers are promoted from the pool of store managers and store managers are promoted from the pool of assistant store managers. Store management is motivated through internal advancement and promotion, competitive compensation, and various incentive, medical, and retirement plans. Store management also has access to centrally-developed resources on store operations, merchandising, and buying policies.
Merchandising and Buying
We employ a brand-specific merchandising and buying strategy that is focused on providing an attractive selection of plus-size apparel and accessories that reflect the fashion preferences of the core customer for each of our retail store brands. We believe that the specialization of marketers and buyers within each brand enhances each brand's identity and distinctiveness. We also use domestic and international fashion market guidance, fashion advisory services, and proprietary design. We seek to maintain high quality standards with respect to merchandise fabrication, construction, and fit.
We continually refine our merchandise assortments to reflect the needs and demands of our diverse customer groups and the demographics of each store location. At LANE BRYANT we offer a combination of fashion basics and current fashions in casual and wear-to-work apparel, footwear, and accessories and our CACIQUE brand of intimate apparel, as well as other national brand sportswear and shapewear that are designed to translate current trends into appropriate products for our customer. LANE BRYANT OUTLET features products developed exclusively for our outlet stores, which include updated key items and best-sellers from our full-line LANE BRYANT brand. Selected expanded categories, such as intimate apparel, footwear, social occasion, and accessories are also offered at LANE BRYANT OUTLET. At FASHION BUG we offer a broad assortment of weekend and business-wear apparel in plus, misses, junior, and junior plus sizes at low-to-moderate prices. FASHION BUG's merchandise typically reflects established fashion trends and includes a broad offering of ready-to-wear apparel as well as footwear, accessories, intimate apparel, and seasonal items, such as swimwear and outerwear. At CATHERINES we offer a broad assortment of plus-size merchandise in classic styles designed to provide â€śhead-to-toeâ€ť dressing for our customers. CATHERINES features casual and career sportswear, dresses, intimate apparel, suits, and accessories in a variety of plus-sizes, including petites and extended sizes. CATHERINES has developed a unique expertise in the comfort, fit, design, and manufacturing of extended sizes, making it one of the few retailers to emphasize these sizes.
We use our distribution capabilities to stock our stores with products specifically targeted to the store's customer demographics. Our merchandising staff obtains store-wide and brand-wide inventory information generated by merchandise information systems that use our point-of-sale terminals. The status of our merchandise can be tracked from the placement of our initial order for the merchandise to the actual sale to our customer. Based on this data, our merchandise managers compare budgeted-to-actual sales and make merchandising decisions as needed, including re-order, markdowns, and changes in the buying plans for upcoming seasons.
Our stores typically experience peak sales during the Easter, Memorial Day, and December holiday seasons. We generally build inventory levels before these peak sales periods. To maintain current and fashionable inventory we reduce the price of slow-moving merchandise throughout the year. Much of our merchandise is developed for one or more of our four seasons: Spring, Summer, Fall, and Holiday. End-of-season sales are conducted with the objective of carrying an appropriate amount of seasonal merchandise over from one season to another. Retail Stores segment sales for the four quarters of Fiscal 2011 , as a percent of annual Retail Stores segment sales, were 26.2% , 26.3% , 22.3% , and 25.1% , respectively.
Marketing and Promotions
We use several types of advertising to stimulate retail store customer traffic. We primarily use targeted direct-mail and e-mail advertising to preferred customers selected from a database of approximately 23.4 million private-label credit card, third-party credit card, and cash customers who have purchased merchandise from us within the past three years. We may also use radio, television, newspaper, internet advertising, fashion shows, social media, and other â€śgrassrootsâ€ť campaigns to stimulate traffic at certain strategic times of the year. We also use pricing policies, displays, store promotions, and convenient store hours and locations to attract customers. We maintain websites for our LANE BRYANT, FASHION BUG, and CATHERINES brands that provide information regarding current fashions and promotions and also provide internet shopping.
We offer our LANE BRYANT, FASHION BUG, and CATHERINES retail store customers various loyalty card programs. Customers who join these programs are entitled to various benefits, including discounts on purchases during the membership period. Customers join some of these programs by paying an annual membership fee. Other programs are offered that do not require the payment of a membership fee but allow cardholders to earn points for purchases using a private-label credit card, which may be redeemed for merchandise coupons upon the accumulation of a specified number of points. Additional information on our loyalty card programs is included in â€śItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations; Critical Accounting Policies; Loyalty Card Programs â€ť and â€śItem 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements; NOTE 8. CUSTOMER LOYALTY CARD PROGRAMSâ€ť below.
To meet the demands of our customers we access both the overseas and domestic wholesale markets for our Retail Stores segment merchandise purchases. We primarily source from outside of the United States and source merchandise both through our overseas sourcing operation, where we are the importer of record, and from domestic vendors that also source merchandise from overseas. This allows us to maintain flexible lead times, respond quickly to current fashion trends, and replenish merchandise inventory as necessary. During Fiscal 2011 we purchased merchandise from approximately 420 suppliers located throughout the world. We also purchase a portion of our LANE BRYANT merchandise from Mast Industries, Inc. (â€śMastâ€ť), a contract manufacturer and apparel importer that is an affiliate of Limited Brands, Inc. These purchases from Mast accounted for approximately 5% of our total Retail Stores merchandise purchases and approximately 10% of merchandise purchases for LANE BRYANT and LANE BRYANT OUTLET during Fiscal 2011 . No other vendor accounted for more than 3% of total Retail Stores segment merchandise purchases during Fiscal 2011 .
We pay for a majority of our merchandise purchases outside the United States on an open account basis. We pay for the remainder of our purchases outside the United States primarily through corporate-issued letters of credit where we are the importer of record. The geographic diversification of our sourcing network provides us with the flexibility to locate alternate sources for our products in order to meet our pricing targets.
To date, we have not experienced difficulties in purchasing merchandise overseas or importing such merchandise into the United States. Should events such as political instability or a natural disaster result in a disruption of normal activities in any single country with which we do business, we believe that we would have adequate alternative sources of supply.
See â€śItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations; OVERVIEWâ€ť below for a discussion of the impact on our operations of cost increases associated with cotton-based raw materials.
Distribution and Logistics
We currently operate two distribution centers for our Retail Stores segment. For our LANE BRYANT (including CACIQUE) and LANE BRYANT OUTLET stores we operate a distribution center in Greencastle, Indiana. This facility is located on 126 acres of land and contains a building of approximately 865,000 square feet. We estimate that this facility has the capacity to service up to approximately 1,800 stores. For our FASHION BUG and CATHERINES stores we operate a distribution center in White Marsh, Maryland. The White Marsh facility is located on 28 acres of land and contains a building of approximately 513,000 square feet that is currently designed to service up to approximately 1,600 stores.
The vast majority of our merchandise purchases are received at these distribution facilities, where they are prepared for distribution to our stores. Automated sorting systems in the distribution centers enhance the flow of merchandise from receipt to quality control inspection, receiving, ticketing, packing, and final shipment. Merchandise is shipped to each store principally by common carriers. We use computerized automated distribution attributes to combine shipments when possible and improve the efficiency of the distribution operations.
During Fiscal 2011 we realigned our distribution center operations to support opportunities for operational efficiencies and cost reductions. We moved the servicing of our LANE BRYANT stores from White Marsh to Greencastle and the servicing of our FASHION BUG stores from Greencastle to White Marsh, which was completed during January 2012. We also plan to move the servicing of our CATHERINES stores from White Marsh to Greencastle, which we expect to complete by the end of April 2012. The realignment does not affect the distribution of products for our e-commerce operations.
We expect this realignment to result in cost savings through transportation cost reductions and faster shipments to stores, as our distribution center operations will be closer to the geographic center of each brand's operations. In addition, combining LANE BRYANT and LANE BRYANT OUTLET operations in Greencastle allows for brand synergies, including shared inventory where possible, in support of our "One Brand One Vision" initiative.
The realignment also supports our decision to divest our FASHION BUG operations. Subsequent to moving the servicing of the CATHERINES stores, White Marsh will service only the FASHION BUG stores, while servicing of the LANE BRYANT and CATHERINES stores will be located in Greencastle. We expect that this will facilitate inclusion of the White Marsh facility in the anticipated FASHION BUG divestiture should the need arise.
Inventory and fulfillment activities for our store-related e-commerce operations are handled by a third-party warehouse facility in Indianapolis, Indiana, using approximately 310,000 square feet of space for merchandise receipt, storage, picking, packing, shipping, and returns processing. Approximately half of the merchandise received by this third-party facility is shipped from our Greencastle and White Marsh distribution centers.
Once the inventory arrives in our stores, our point-of-sale systems, software, and data networks enable us to track inventory from store receipt to final sale. During Fiscal 2012 we plan to invest approximately $30 million for a complete upgrade of distribution center equipment; store technology, including point-of-sale hardware, software, and data networks; the installation of a core merchandising platform, including enhanced planning and inventory capabilities; a new warehouse management system; and new purchasing and financial software. We expect to finance these capital expenditures through internally-generated funds. Such an upgrade has the potential to temporarily impair our ability to capture, process, and ship customer orders or may result in the incurrence of additional costs.
Our Direct-to-Consumer segment consists primarily of the operations of our FIGI'S business, which markets food and specialty gift products through our Figi's Gifts in Good Taste catalog and related e-commerce website as well as through third-party retailers' stores and e-commerce websites. We also operate FIGI'S Gallery, which offers home decor, bedding, housewares, jewelry, garden accents, apparel, collectibles, gifts, and other items through its catalog and e-commerce website.
FIGI'S peak sales period is during the December holiday season, with approximately 75% of its annual sales occurring during our fourth quarter. FIGI'S offers interest-free, three-payment credit terms over three months to its customers, with the first payment due on a defined date 30 to 60 days after a stated holiday.
We own a 125,000 square-foot automated distribution center facility in Marshfield, Wisconsin that serves as the main distribution area for our FIGI'S operations and ships approximately 2,400,000 packages per year. A 122,000 square-foot leased facility in Stevens Point, Wisconsin and a 46,000 square-foot owned facility in Neillsville, Wisconsin also service FIGI'S. We believe that these facilities will continue to provide adequate capacity for our FIGI'S operations for the foreseeable future.
The women's specialty retail apparel business is highly competitive, with numerous competitors, including individual and chain fashion specialty stores, department stores, discount stores, catalog retailers, and internet-based retailers, some of which may have greater financial resources, marketing capabilities, or brand recognition than we have. We cannot reasonably estimate the number of our competitors due to the large number of women's apparel retailers. The primary elements of competition are merchandise style, size, selection, fit, quality, display, and price; attractive website layout; efficient fulfillment of website mail orders; and personalized service to our customers. For our retail stores, store location, design, advertising, and promotion are also significant elements of competition.
As of the end of Fiscal 2011 we employed approximately 23,000 associates, which included approximately 17,000 part-time employees. In addition, we hire a number of temporary employees during the December holiday season. As of the end of Fiscal 2011 , 87 of our employees were represented by a union whose contract is currently due to expire in August 2012 and 14 of our employees were represented by a union whose contract is currently due to expire in August 2014 . We believe that our overall relationship with these unions and our associates in general is satisfactory.
MANAGEMENT DISCUSSION FROM LATEST 10K
With the exception of historical information, the matters contained in the following analysis and elsewhere in this report, including information incorporated herein by reference, are â€śforward-looking statementsâ€ť within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, but are not limited to, projections of revenues, income or loss, cost reductions, capital expenditures, liquidity, divestitures, financing needs or plans, store closings and openings, merchandise strategy, and plans for future operations, as well as assumptions relating to the foregoing. The words â€śexpect,â€ť â€ścould,â€ť â€śshould,â€ť â€śproject,â€ť â€śestimate,â€ť â€śpredict,â€ť â€śanticipate,â€ť â€śplan,â€ť â€śintend,â€ť â€śbelieves,â€ť and similar expressions are also intended to identify forward-looking statements.
We operate in a rapidly changing and competitive environment. New risk factors emerge from time to time and it is not possible for us to predict all risk factors that may affect us. Forward-looking statements are inherently subject to risks and uncertainties, some of which we cannot predict or quantify. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements, which speak only as of the date on which they were made. Given those risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Factors that could cause our actual results of operations or financial condition to differ from those described in this report include, but are not necessarily limited to, those discussed in this MD&A, in â€śPART I Item 1A. Risk Factors,â€ť above, and in our other filings with the Securities and Exchange Commission. We assume no obligation to update or revise any forward-looking statement to reflect actual results or changes in, or additions to, the factors affecting such forward-looking statements.
CRITICAL ACCOUNTING POLICIES
We have prepared the financial statements and accompanying notes included in Item 8 of this report in conformity with United States generally accepted accounting principles. This requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. These estimates and assumptions are based on historical experience, analysis of current trends, and various other factors that we believe to be reasonable under the circumstances. Actual results could differ from those estimates under different assumptions or conditions.
We periodically reevaluate our accounting policies, assumptions, and estimates and make adjustments when facts and circumstances warrant. Our significant accounting policies are described in the notes accompanying the financial statements included in Item 8 of this report. However, we consider the following accounting policies and related assumptions to be more critical to the preparation of our financial statements and accompanying notes and involve the most significant management judgments and estimates.
Our revenues from merchandise sales are net of sales discounts, returns, and allowances and exclude sales tax. We record a reserve for estimated future sales returns based on an analysis of actual returns and we defer recognition of layaway sales to the date of delivery. A change in our actual rates of sales returns and layaway sales experience would affect the level of revenue recognized.
Catalog and e-commerce revenues include shipping and handling fees billed to customers. These revenues are recognized after all of the following have occurred: execution of the customerâ€™s order, authorization of the customerâ€™s credit card has been received, and the product has been shipped to and received by the customer. We defer recognition of revenue for product shipped but not yet received by the customer based on an estimate of the number of days the shipments are in-transit. A change in the time it takes for customers to receive our products would affect the level of revenue recognized.
We sell gift cards to our Retail Stores segment customers through our stores, store-related websites, and through third parties. We recognize revenue from gift cards when the gift card is redeemed by the customer. Our gift cards do not contain expiration dates or inactivity fees. We recognize gift card breakage (unused gift card balances for which we believe the likelihood of redemption is remote) as net sales based on an analysis of historical redemption patterns. A change in the historical pattern of gift card redemptions would affect the level of revenue recognized.
Loyalty Card Programs
We offer our customers various loyalty card programs. Customers that join these programs are entitled to various benefits, including discounts on purchases, during the membership period. Customers join some of these programs by paying an annual membership fee. For these programs we recognize revenue as a component of net sales over the life of the membership period based on when the customer earns the benefits and when the fee is no longer refundable. Certain loyalty card customers earn points for purchases which may be redeemed for merchandise coupons upon the accumulation of a specified number of points. No membership fees are charged in connection with these programs. We recognize an accrual for discounts earned and not yet issued and discounts issued but not yet redeemed based on an analysis of historical redemption patterns. Costs we incur in connection with administering these programs are recognized in selling, general, and administrative expenses as incurred.
Our FIGIâ€™S food and gifts business offers credit to its customers using interest-free three-payment credit terms over three months, with the first payment due on a defined date 30 to 60 days after a stated holiday. A substantial portion of the FIGIâ€™S business is conducted during the December holiday season. We evaluate the collectibility of our accounts receivable based on a combination of factors, including analysis of historical trends, aging of accounts receivable, write-off experience, past history of recoveries, and expectations of future performance. Significant changes in future performance relative to our historical experience could have an impact on the levels of our accounts receivable valuation reserves.
We value our merchandise inventories at the lower of cost or market using the retail inventory method (average cost basis). We adjust the valuation of inventories at cost and the resulting gross margins in proportion to markdowns and shrinkage on our retail inventories. The retail inventory method results in the valuation of inventories at the lower of cost or market when markdowns are currently taken as a reduction of the retail value of inventories. The majority of these â€śpermanent markdowns,â€ť and the resulting adjustments to the carrying cost of our inventories, are recorded in our inventory costing system when the actual ticketed selling price of an item is reduced and are therefore not subject to significant estimates on the part of management. However, at the end of each quarter we perform a review of merchandise that is currently on promotional markdowns (which is considered a â€śtemporary markdownâ€ť) and identify the merchandise that will not be sold again above its current promotional price. Because we have not yet recorded such promotional markdowns in our perpetual inventory system as permanent markdowns, we record a markdown reserve to properly record the inventory at the lower of cost or market using the retail inventory method.
Our estimation of markdown reserves involves certain management judgments and estimates that can significantly affect the ending inventory valuation at cost, as well as the resulting gross margins. The markdown reserve will fluctuate depending on the level of seasonal merchandise on-hand, the level of promotional activity, and managementâ€™s estimate of our ability to liquidate such promotional inventory above its current promotional price in the future. Our failure to properly estimate markdowns currently could result in an overstatement or understatement of inventory cost under the lower of cost or market principle. Our total reserves for these types of markdowns were $16.4 million as of January 28, 2012 and $19.5 million as of January 29, 2011 . Historically, we have not had significant variances between our estimates of these markdown reserves and the actual markdown experience for which these reserves were established.
We perform physical inventory observations at least once annually at each of our stores. For stores with higher-than-average inventory loss rates, we may perform physical inventory observations more frequently. Actual inventory losses are recorded in our financial statements at the time these physical inventory observations are performed. During the periods between our physical inventory observations and our period-end reporting dates, we record a reserve for estimated inventory losses (shrinkage). Our estimates for shrinkage are based on actual inventory losses identified from the results of physical inventory counts at our stores and distribution centers. Historically, our physical inventory losses have averaged between 1% and 2% of our net sales. Our reserves for estimated inventory shrinkage were $2.0 million as of January 28, 2012 and $1.8 million as of January 29, 2011 .
We defer into inventory cash received from vendors and recognize these amounts as a reduction of cost of goods sold as the inventory is sold. We defer the recognition of cash received from vendors during interim periods in order to better match the recognition of the cash consideration to the period the inventory is sold.
Impairment of Property, Plant, and Equipment, Intangible Assets, and Goodwill
We assess our property, plant, and equipment and amortizable intangible assets for recoverability whenever events or changes in circumstances indicate that the carrying amounts of these long-lived assets may not be recoverable. We consider historical performance and estimated future results in our evaluation of potential impairment and compare the carrying amount of the asset to the estimated future undiscounted cash flows expected to result from the use of the asset. If the estimated future undiscounted cash flows are less than the carrying amount of the asset, we write down the asset to its estimated fair value and recognize an impairment loss. Our estimate of fair value is generally based on either appraised value or the present value of future cash flows. The estimates and assumptions that we use to evaluate possible impairment require certain significant assumptions regarding factors such as future sales growth and operating performance, and they may change as new events occur or as additional information is obtained.
We test goodwill and other intangible assets for impairment at least annually or more frequently if there is an indication of possible impairment. We perform our annual impairment analysis during the fourth quarter of our fiscal year because our fourth quarter results of operations are significant to us and are an integral part of our analyses. In addition, we prepare our financial plan for the following fiscal year, which is an important part of our impairment analyses, during the fourth quarter of our fiscal year.
The process of evaluating goodwill for impairment involves the determination of the fair value of our reporting units. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including our interpretation of current economic indicators and market valuations, and assumptions about our strategic plans with regard to our operations. Changes in the significant assumptions and estimates that we use to determine fair values for purposes of our impairment analysis could result in a material effect on our consolidated financial position or results of operations.
We principally use an income approach to estimate the fair value of our reporting units. We have consistently applied this methodology in previous goodwill impairment tests because we have concluded that the methodology is the most appropriate measure of fair value and is a methodology that market participants would use in valuing these reporting units. The income approach values a business enterprise by estimating annual future debt-free net cash flows available to the providers of the invested capital and discounting these cash flows to their present value at a discount rate that reflects both the current return requirements of the market and the risks inherent in the specific investment. The most significant assumptions used in estimating the fair value of our reporting units are the discount rate, the terminal value, and expected future revenues, gross margins, and operating margins, which vary among our reporting units.
For purposes of our annual impairment test of our goodwill performed as of January 28, 2012 we used a discount rate of 11.4% . Our estimates of future cash flows are based on our current budgets and are reflective of our current expectations as to sales growth rates and profitability. We believe that our estimates are appropriate under the circumstances. If actual results differ materially from our estimates, we may be required to recognize additional goodwill impairments. Given the significant excess of fair value over the book value of our reporting unit as reflected in our impairment analysis we have determined, based on the performance of various sensitivity analyses, that our conclusion would not be affected by other outcomes that are reasonably likely to occur.
Our identifiable intangible assets consist primarily of trademarks. These intangible assets arise primarily from the allocation of the purchase price of businesses acquired to identifiable intangible assets based on their respective fair market values at the date of acquisition. Amounts assigned to identifiable intangible assets, and their related useful lives, are derived from established valuation techniques and management estimates.
Consistent with prior periods and with the methodology used to initially establish and record the fair value of the trademarks noted above, we have applied the â€śrelief-from-royaltyâ€ť method of the income approach in measuring the fair value of our trademarks for the current-year impairment test. Under this method it is assumed that a company without the rights to the trademarks would license the right to use them for business purposes. The fair value of the trademarks is estimated by discounting the hypothetical royalty payments to their present value over the estimated economic life of the asset. These estimates can be affected by a number of factors including, but not limited to, general economic conditions and availability of market information, as well as our profitability. The most significant assumptions we use to evaluate the fair value of our trademarks are the discount rate, the royalty rate, and estimated future revenues associated with the use of the trademarks.
For purposes of our annual impairment test of our trademarks performed as of January 28, 2012 we used a discount rate of 11.4% and a royalty rate in the range of 4% â€“ 5% . Our estimates of future revenues associated with our trademarks are based on our current budgets and are reflective of our current expectations as to sales growth rates. We believe that our estimates are appropriate under these circumstances. Given the significant excess of fair value over the book value of our trademarks as reflected in our impairment analyses we have determined, based on the performance of various sensitivity analyses, that our conclusion would not be affected by other outcomes that are reasonably likely to occur.
Although we believe we have sufficient current and historical information available to us to test for impairment, it is possible that actual cash flows could differ from the estimated cash flows used in our impairment tests.
See â€śItem 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; â€śNOTE 10. IMPAIRMENT OF STORE ASSETSâ€ť below for information regarding impairment losses recognized during Fiscal 2010 and Fiscal 2009 .
Costs Associated With Exit or Disposal Activities
We recognize liabilities for costs associated with an exit or disposal activity when the liabilities are incurred. Commitment to a plan by itself does not create an obligation that meets the definition of a liability. We recognize one-time benefit payments over time rather than â€śup frontâ€ť if the benefit arrangement requires employees to render future service beyond a â€śminimum retention period.â€ť The liability for one-time benefits is recognized as employees render service over the future service period, even if the benefit formula used to calculate an employeeâ€™s termination benefit is based on length of service. We use fair value for the initial measurement of liabilities associated with exit or disposal activities. Severance payments that are offered in accordance with an on-going benefit arrangement are recorded no later than the period when it becomes probable that the costs will be incurred and the costs can be reasonably estimated.
We recognize the fair value of stock-based payments as compensation expense in our financial statements. Current grants of stock-based compensation consist primarily of stock appreciation rights (â€śSARsâ€ť) and restricted stock units ("RSUs"). We use the Black-Scholes valuation model to estimate the fair value of SARs. We recognize the related expense for stock-based compensation on a straight-line basis over the service period of the underlying awards except for awards that include a market condition, which are amortized on a graded vesting basis over their derived service period. Our initial estimates of compensation cost are based on the number of awards for which we expect the requisite service period to be completed. These initial estimates are revised if subsequent information indicates that the number of awards expected to vest differs from our initial estimates. We recognize the cumulative effect of such a change in estimated compensation expense in the period of the change.
The Black-Scholes model requires estimates or assumptions as to the dividend yield and price volatility of the underlying stock, the expected life of the award, and a relevant risk-free interest rate. Periodic amortization of compensation expense requires estimates as to the number of awards expected to be forfeited prior to completion of the requisite service period. The use of different option-pricing models and different estimates or assumptions could result in different estimates of compensation expense.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
With the exception of historical information, the matters contained in the following analysis and elsewhere in this report are â€śforward-looking statementsâ€ť within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, but are not limited to, projections of revenues, income or loss, cost reductions, capital expenditures, liquidity, divestitures, financing needs or plans, store closings and openings, merchandise strategy, and plans for future operations, as well as assumptions relating to the foregoing. The words â€śexpect,â€ť â€ścould,â€ť â€śshould,â€ť â€śproject,â€ť â€śestimate,â€ť â€śpredict,â€ť â€śanticipate,â€ť â€śplan,â€ť â€śintend,â€ť â€śbelieves,â€ť and similar expressions are also intended to identify forward-looking statements.
We operate in a rapidly changing and competitive environment. New risk factors emerge from time to time and it is not possible for us to predict all risk factors that may affect us. Forward-looking statements are inherently subject to risks and uncertainties, some of which we cannot predict or quantify. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements, which speak only as of the date on which they were made. Given those risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We assume no obligation to update or revise any forward-looking statement to reflect actual results or changes in, or additions to, the factors affecting such forward-looking statements.
Subsequent to the end of the Fiscal 2011 Third Quarter we announced that we are undertaking a comprehensive strategic and financial review of our operations to determine how best to enhance shareholder value. As part of these efforts, we announced plans to divest our FASHION BUG business and focus on the growth of our LANE BRYANT brand. This review is expected to focus on optimizing the use of our strong cash position to drive the potential of the LANE BRYANT brand, as well as evaluating other alternatives to further enhance shareholder value. The results of operations of our FASHION BUG business are not reported as discontinued operations as the requirements for treating the business as held-for-sale were not met as of October 29, 2011.
Our Board of Directors and management will explore a full range of strategic alternatives for the Company, and have engaged Barclays Capital as a financial advisor to assist in the process. We cannot assure that this process will result in any specific course of action beyond the planned divestiture of FASHION BUG. A time frame for the divestiture of FASHION BUG or the completion of the strategic review has not yet been determined. Additional discussion of our management initiatives is included in "OVERVIEW; Management Initiatives" below.
This overview of our Managementâ€™s Discussion and Analysis of Financial Condition and Results of Operations (â€śMD&Aâ€ť) presents a high-level summary of more detailed information contained elsewhere in this Report on Form 10-Q. The intent of this overview is to put this detailed information into perspective and to introduce the discussion and analysis contained in this MD&A. Accordingly, this overview should be read in conjunction with the remainder of this MD&A and with the financial statements and other detailed information included in this Report on Form 10-Q and should not be separately relied upon.
Results of Operations
Our Fiscal 2011 Third Quarter operating results reflect our continuing progress on our initiatives to increase inventory productivity and to improve overall profitability. Consolidated Adjusted EBITDA for the Fiscal 2011 Third Quarter increase d by $4.0 million to $8.0 million as compared to the prior-year period (see â€śRESULTS OF OPERATIONS; EBITDA and Adjusted EBITDAâ€ť below). This increase was driven by decreases in operating expenses as a result of the closing of under-performing stores and increased gross margins across all of our brands as a result of our disciplined inventory management. Our disciplined inventory management resulted in an 8% decrease in inventory at cost on a comparable store basis at the end of the quarter as compared to the end of the prior-year period.
Consolidated net sales for the Fiscal 2011 Third Quarter reflected the impact of 168 net store closings during the preceding 12-month period in connection with our store closing programs and a decrease of 4% in consolidated comparable store sales, partially offset by sales from new stores and a 10% increase in e-commerce net sales as compared to the Fiscal 2010 Third Quarter. Our Fall seasonal fashion inventory assortments were well received by our customers, resulting in improved average unit retails and average dollar sales during the Fiscal 2011 Third Quarter as compared to the prior-year period. However, Fiscal 2011 Third Quarter sales were negatively impacted by planned reductions in levels of clearance inventory as compared to the prior-year period as we continued to execute against our plan for tightly controlled inventories to drive higher gross margins.
Although the planned reductions in clearance inventory negatively impacted net sales, they contributed to an increase in gross margin for the Fiscal 2011 Third Quarter as compared to the Fiscal 2010 Third Quarter. This increase was driven by improvements across all of our brands, and benefited from improved seasonal assortments and disciplined inventory management, which resulted in fewer markdowns as compared to the prior-year period and faster sell-throughs of seasonal merchandise. We continue to seek the proper balance of full-price, promotional, and clearance inventories in order to maximize gross profit dollars. The decline in gross profit dollars was primarily driven by the net closure of 168 stores over the preceding 12 months in connection with our store closing program.
Our operating expenses (excluding restructuring and other charges of $3.5 million ) decrease d by $15.7 million , driven primarily by the impact of 168 net store closures and expense reductions across all of our brands. Our occupancy and buying expenses decreased both in dollar amount and as a percentage of net sales for the Fiscal 2011 Third Quarter as compared to the prior-year period, primarily related to lower rent expense as a result of the operation of fewer stores and the negotiation of store lease terms. Selling, general, and administrative expenses decreased in dollar amount for the Fiscal 2011 Third Quarter as compared to the prior-year period, primarily as a result of a combination of lower store payroll attributable to operating fewer stores and lower advertising expenses, but increased as a percentage of net sales, primarily as a result of negative leverage from the decrease in comparable store sales at our FASHION BUG brand.
Depreciation and amortization expenses decrease d by $2.8 million for the Fiscal 2011 Third Quarter as compared to the prior-year period primarily as a result of the operation of fewer stores and the write-down of store assets during the Fiscal 2010 Fourth Quarter.
Restructuring and other charges for the Fiscal 2011 Third Quarter were primarily for professional fees and retention costs related to our announced plans to divest our FASHION BUG business and to undertake a comprehensive strategic and financial review (see "RECENT DEVELOPMENTS" above), non-cash store impairment charges, and lease termination costs net of store-related deferred allowances in connection with our under-performing store closing programs. Fiscal 2010 Third Quarter charges were primarily for cash severance and non-cash equity compensation costs in connection with the resignation of our former Chief Executive Officer.
As discussed in prior quarters of Fiscal 2011 , our product pricing was affected by inflation in cotton costs that mostly impacted our Fall season. Our Fiscal 2011 Third Quarter average unit retail increased approximately 12%, which did not completely cover the increased product cost. However, our improved assortments and tighter inventory management resulted in a gross margin rate increase of 210 basis points. A decrease in the number of units sold indicated that many of the price increases were not sustainable in the current consumer spending environment. Looking ahead to the December Holiday and Spring seasons, we expect year-over-year price increases to subside into the mid to high single digits.
We continue to make progress on our initiatives to drive sustainable productivity and profitability. Although we are pleased with our progress, our results remain below our expectations. However, we are continuing to achieve better results through core fundamentals, including more fashionable, trend-right assortments coupled with disciplined inventory management, gross margin expansion, and decreases in operating expenses.
Financial Position and Liquidity
We ended the Fiscal 2011 Third Quarter with $158 million of cash as compared to $117 million as of the end of Fiscal 2010 and ended the quarter with a net cash position as compared to a net debt position as of the end of Fiscal 2010 . Our cash position increased primarily as a result of improved operating results during the first three quarters of Fiscal 2011 , disciplined inventory management, improved sell-through of our seasonal merchandise at each of our brands, collections of accounts receivable generated from December 2010 holiday season sales by our Direct-to-Consumer segment, and proceeds of $7.5 million from the sale of office premises.
As we continue to rationalize our store base, we expect to close approximately 230-240 unprofitable stores in 2011. The majority of these stores have natural lease expirations in 2011. Lease termination costs for Fiscal 2011 are projected to be approximately $4 million. During the first three quarters of Fiscal 2011 , we have closed 144 stores, including 80 FASHION BUG stores, and the majority of the remaining store closings will occur near the end of the fourth quarter.
On July 14, 2011 we entered into an amended and restated loan and security agreement for a $200 million senior secured revolving credit facility, which replaced our $225 million senior secured revolving credit facility and provides for committed revolving credit availability through July 14, 2016 . See â€śFINANCING; Revolving Credit Facility â€ť below for further discussion of the amended agreement. We ended the quarter with no borrowings against the revolving credit facility and a total liquidity position of $305 million .
We are currently engaged in a number of initiatives that we believe will further improve our business and enhance shareholder value (see "RECENT DEVELOPMENTS" above). The first substantive step is the divestiture of our FASHION BUG business. Although we have made progress in improving FASHION BUG's profitability, we believe that it does not fit within our future strategic plan. Concurrent with this process, we are assessing the appropriate expense structure for the Company that incorporates the planned divestiture of FASHION BUG.
We believe that our financial and operational resources are better spent on focusing on our more profitable LANE BRYANT brand. We expect to invest in and focus on that business, using its strong consumer franchise and leading market position to drive our sales and profits. We expect to achieve our vision for the LANE BRYANT brand as the premier brand for women's fashion plus apparel through a number of initiatives, including:
offering fashionable, on-trend, lifestyle merchandise collections;
enhanced CACIQUE intimate apparel brand awareness and merchandise offerings;
expansion to approximately 900 stores over several years, resulting in approximately 750 full-line LANE BRYANT stores and 150 LANE BRYANT OUTLET Â® locations; and
innovative digital sales initiatives like our recently launched "Fashion Genius" online outfitting technology.
Our plans for the next few years include approximately 125 new locations and 125 relocations from malls into power-strip and lifestyle centers with stronger operating metrics, while closing approximately 50 stores through natural lease expirations. Our current mix of LANE BRYANT stores in strip centers to malls is 55% to 45%, and we plan to improve this mix to 80% to 20% over the next few years. The operating metrics for LANE BRYANT stores in power-strip and lifestyle centers support increased profitability, with projected increases in sales and decreases in occupancy expenses as compared to malls, resulting in a projected improvement in sales productivity and Adjusted EBITDA.
Additionally, we are currently developing a new store design for the LANE BRYANT brand, reflective of our vision for LANE BRYANT as the premier brand for women's fashion plus apparel. The new store design will include visual packages that promote lifestyle storytelling experiences, and will be simplified for easy navigation to enhance our customers' shopping experience. We expect to launch our first new store under this design in Fall 2012. Following the execution of our broader plans for new and relocated stores, nearly one-third of our LANE BRYANT stores will be repositioned and represented by our fresh new store design.
Our CACIQUE intimate apparel brand, which offers key intimates categories and complementary products, has grown to approximately one-third of sales at our full-line LANE BRYANT chain. We are seeking to further grow CACIQUE revenue through enhanced product assortments. Further into the future we expect to explore additional sales distribution channels, such as potential mall-based stand-alone stores, sister brands, and international growth.
As a leading retailer in the women's plus-size apparel market in the United States, we are making the distinction that we are not a plus-size retailer selling fashion, but rather a fashion retailer serving the plus-size apparel market. We must continue our progress in identifying and relating to our target customers, creating fashion-right assortment offerings, and focusing on our LANE BRYANT brand.
We are poised for growth and improved profitability. Our performance will be driven principally by revenue enhancements at LANE BRYANT, through improved merchandise assortments and by transitioning real estate to higher-performing strip-center locations. We believe that our initiatives will create shareholder value.
RESULTS OF OPERATIONS
EBITDA and Adjusted EBITDA
We believe that Adjusted EBITDA, along with other measures, provides a useful pretax measure of our ongoing operating performance and our ability to meet debt service and capital requirements on a comparable basis excluding the impact of certain items and capital-related non-cash charges. We use Adjusted EBITDA to monitor and evaluate the performance of our business operations and we believe that it enhances our investorsâ€™ ability to analyze trends in our business, compare our performance to other companies in our industry, and evaluate our ability to service our debt and capital needs. In addition, we use Adjusted EBITDA as a performance metric in our compensation programs.
Although Adjusted EBITDA provides useful information on an operating cash flow basis, it is a limited measure in that it excludes the impact of cash requirements for interest expense, income taxes, capital expenditures, and certain other items requiring cash outlays or generating cash receipts. Therefore, Adjusted EBITDA should be used as a supplement to results of operations and cash flows as reported under Generally Accepted Accounting Principles (â€śGAAPâ€ť) and should not be used as a singular measure of operating performance or as a substitute for GAAP results.
Further information regarding our definition of EBITDA and Adjusted EBITDA is included in â€śPart II, Item 7. Managementâ€™s Discussion and Analysis of Financial Condition and Results of Operations; Results of Operations; EBITDA and Adjusted EBITDAâ€ť of our Annual Report on Form 10-K for the fiscal year ended January 29, 2011 .
Today's discussion will contain certain forward looking statements concerning the company's operations, performance and financial condition, including sales, expenses, gross margins, capital expenditures, comparable store sales, store openings and closings, and other matters. Such forward looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those indicated.
Information regarding risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K, quarterly reports on Form 10-Q and other company filings with the Securities and Exchange Commission. Our complete safe harbor statement and today's prepared remarks are available at www.charmingshoppes.com.
Our quarterly and annual income statements along with our balance sheet and cash flow statements are provided with today's press release. With us today are Jim Fogarty, our President and CEO, and Eric Specter, CFO of Charming Shoppes.
In my remarks today I will focus both on the fourth quarter and provide some perspective on the year. Over the last year we have had two primary objectives, first to stabilize and strengthen the capital base and liquidity profile of the company, second to stabilize and begin to grow the business.
As to that first task of stabilizing and strengthening the capital base and liquidity profile, goal accomplished. In July we refinanced our revolving credit facility well ahead of its expiration on favorable terms. Also in July we decided to end the exploration of the sale of our food and gift business, Figis, we could have folded and sold the business at fire sale prices but in retrospect, keeping the business was a prudent move as Figis was a solid contributor to our adjusted EBITDA for the year.
In August we entered into an agreement with Alliance Data to sell our private label credit card business, which dramatically improved the strength of our capital base and removed the financing risk associated with both the credit card receivable securitization program and the underlying credit card portfolio. We closed this transaction in October.
As a result of these actions at the end of the quarter and year, our liquidity totaled $328 million compared to $280 million one year ago, and we ended the year with a cash position of $187 million compared to $100 million one year ago. Our leverage reflected debt net of cash and investments of $33 million compared to $212 million in the prior year.
On to the quarter, our fourth quarter consolidated revenue declined $93 million or 15%, this 15% decline reflected 152 net store closings over the last 12 months, a comparable store sales decline of 12% and a 10% increase in ecommerce sales.
As to that second task of stabilizing and beginning to grow our business, we are a work in process. While we drove incremental adjusted EBITDA in the third and fourth quarters and for the year, our comp store sales were -13% in the third quarter and improved only modestly to -12% in the fourth quarter.
As you know, there are lead times for adjusting assortments in apparel. The fourth quarter showed only modest improvement and reflected very similar assortment issues to those we referenced in the third quarter, primarily a lack of focus on our core customer and a failure to provide her with a strong core tops and bottoms assortment.
During the third and fourth quarters we were working hard to better position our forward merchandise assortments. Our work though may be beginning to pay off. Our first quarter 2010 quarter to date comp through eight weeks was approximately -4%. While still lousy compared to the rest of the market, we improved across all of our brands from our fourth quarter comps and are making progress with our spring assortments.
By brand, Lane Bryantâ€™s quarter to date comp was -5%, Fashion Bug was -4% and Catherines was -1%. Our improvement has been aided by both our offensive assortment positioning and at least a temporal improvement in the consumer environment, somewhat offset by crummy weather experienced in February.
We are beginning to see strength in recent launches of core apparel programs which I will review in a moment. Further, our internet business was up 35% in that same period, benefiting from the August launch of new websites as well as the February launch of our universal shopping cart, linking our four apparel websites.
On to earning power. Our adjusted EBITDA for the quarter was -$12.9 million or -2.4% of the revenue compared to -$18 million or -2.9% of revenue in the prior year, a $5 million improvement year over year. Our latest 12 month adjusted EBITDA, also our full year, was $50.5 million or 2.4% of revenues compared to prior year adjusted EBITDA of $29.6 million or 1.2% of revenues, a $21 million full year improvement.
GAAP to non-GAAP reconciliations are available on our website, whatever measure one utilizes we do continue to make progress on EBITDA but we remain disappointed with the absolute levels of our profitable revenue and our earning power.
Some additional comments, recall our key priorities are: number one, focus on the customer, stabilize and begin to grow profitable revenue, increase EBITDA, increase cash flow, and number five, employee accountability.
Similar to the third quarter, and giving consideration to lead times to address forward assortments, in the fourth quarter we again fell short on our focus on the customer. We had relative strength in accessories and intimates but we did not provide our customer with a strong enough core tops and bottoms assortment. In addition, in the context of the current difficult economic environment we did not have a strong enough entry price assortment.
Finally, our bottoms assortment did not have sufficient depth and sizing and alternative lengths, that is petites and talls. As we said on our last call, we were and are listening more closely to our customer and better aligning our assortments as we worked into spring 2010 and beyond. We are working to hard to ensure that our early 2010 comps provide a long awaited pivot point for our business.
On to some results by brand. At Lane Bryant in the quarter, LB delivered $227 million of revenue and EBITDA of $7 million or 3% of revenue. Revenue declined 15% on a comparable stores basis, compared to a 14% comp decline in the third quarter. Our outlet stores represented 12% of the brands revenue in the quarter. EBITDA declined at LB $5 million to $7 million compared to a year ago and the EBITDA margin declined by 120 basis points to 3% driven by negative leverage on our comp sales decreases. For the year, Lane Bryantâ€™s EBITDA declined $7 million to $98 million for the year.
As discussed, our assortment issues are consistent with those in the third quarter. Iâ€™ll not repeat the more detailed Lane Bryant assessment I shared in the third quarter. In summary, what was working, Cacique intimates program, magalog marketing, accessories and jewelry and fashion denim. What was not working in the quarter, understanding of our customer and her need for fit and value, sufficient depth in sizing and lengths and lack of a strong core tops and bottoms assortment.
During the third quarter we executed an extensive study of our Lane Bryant customer and assortment. For our Lane Bryant customer, priority number one and the price of entries, product that fits, and second in a styling and at a value that works for her. With our spring and summer 2010 assortments we have a stronger core tops and bottoms assortment and improved value proposition through both our day in and day out price pointing and through our stronger promotional programs.
If you were to walk into our Lane Bryant store today I would note this focus in the following areas:
Our Supima cotton knit top program, marketing handle the cashmere of cotton with an everyday value at a $19.50 buy two or more price point.
Our woven shirt program, marketing handle the perfect shirt, everyday value at a $29.50 buy two or more price point.
Our recent $20 off all pants and $10 off all crops promotion.
Our new assortments in shoes, particularly ballet flats, swimwear in 200 stores and online, Seven7 denim and active. Additionally, Lane Bryant will be adding a broader footwear assortment to nearly 500 stores.
For the fall timeframe we will be re-launching and overhauled long length pant program including our right fit technology, but in traditional sizing in both denim and wear to work pants, and weâ€™ll add back petite lengths to all stores and tall length assortment to select stores.
As their first effort in this long length pant overhaul, Lane Bryant just launched a wear to work pant, the classic pant in our red fit, which is moderately curvy. For August, we plan to offer the classic pant in all right fits, yellow, red, blue, straight, moderately curvy and curvy. And weâ€™ll also offer in tall, average, and petite lengths.
On to the brand awareness front. We are getting behind our stronger assortment at Lane Bryant through a series of national television advertising spots during this springâ€™s American Idol. Lane Bryant will be showcasing two spots, one will be built around our sportswear assortment, and the second will be built around our Cacique franchise. It will run on every Tuesday and Wednesday from April 27th through May 18th. American Idolâ€™s Tuesday and Wednesday evening shows are the number one and number two rated programs in broadcast television for female viewers aged 25 to 54 which is perfectly aligned with our customer base.
This will be an important part of our efforts to bend the traffic curve at our key franchise. We will spend approximately $4 million on the campaign and yes, Eric and I expect the Lane Bryant team to drive an ROI from this support.
On to Fashion Bug. In the quarter, Fashion Bug delivered $161 million of revenue and EBITDA of -$18 million or -11% of revenue. Revenues declined 8% on a comparable store basis an improving trend compared to our 14% decline in the third quarter. EBITDA declined $8 million to -$18 million versus EBITDA of -$10 million in the same period of the prior year. For the year, EBITDA decline $9 million at Fashion Bug to $8 million for the full year. We recognize that the absolute level of Fashion Bug EBITDA for the year is lousy. I will discuss our 2010 Fashion Bug offense shortly.
As discussed, our assortment issues are consistent with the third quarter. Iâ€™ll again not repeat the more detailed Fashion Bug assessment shared in the third quarter call, but in summary what was working was accessories, intimate apparel, and footwear. What was not working was our core tops and pants assortments.
After we studied Lane Bryant during the third quarter, we turned our attention to studying Fashion Bug during the fourth quarter. Many of you may ask where are we going with Fashion Bug. I will focus on our key insights and actions.
Action area one, real estate. We have studied our real estate at Fashion Bug. First the basics, we have approximately 800 stores, 7 million square feet and on an LTM basis a paltry $89 sales per square foot. In our study, what became a key insight for us is that from a real estate standpoint we have two very different Fashion Bug chains. We have a metro chain of approximately 400 stores and a non-metro chain of approximately 400 stores.
Non-metro has an average population of 100,000 within a 10 mile radius while metro has an average population of 700,000 within that same 10 mile radius. Within those 10 miles the population in metro markets has 50 retail choices, while our rural non-metro markets have as few as three choices. We have strong market share with the women in these towns and we are an important resource to her and believe we can leverage that strength.
This insight and a broader understanding of our excess Fashion Bug real estate generally have led us tot he following actions. We will be putting Juniors back initially into approximately 280 stores in the back to school timeframe to provide needed assortment choices to our customers, particularly in non-metro markets. We will also be putting a Junior Plus assortment into approximately 50 Fashion Bug stores. We will be added extended assortments into approximately 100 stores with excess real estate, extended assortments will include our Essentials Plus assortment, footwear and intimate apparel.
We will also be testing approximately 20 to 25 stores in various scenarios including carrying sister brands as we call it, Lane Bryant and/or Catherines with Fashion Bug as well as conversions to those individual concepts.
Finally, we will be closing approximately 60 Fashion Bug stores during the year. This will leave us with approximately 740 stores and as appropriate we will continue to look at additional store closings over time. That concludes action area number one, all with the overriding goal to both better serve our customer and improve our Fashion Bug four wall economics.
One to action area number two, the Fashion Bug assortment itself. We have revisited our customer profile through research, input from our field organization, and input from longer tenured folks on the Fashion Bug product team. We had recently repositioned our product approach to be very cleaned up and traditional. You may recall she was called Felicia. We do have a customer who wants this product but the selling on this product has not been carrying our inventory investment nor our box.
The problem is we also had a customer who wanted relatively edgier or sexier product, not out there fashion but proven looks. Our customer profiling was not allowing us to take care of this customer need. We are positioning our customer profiles and attendant assortment to better address this need as we move through 2010.
Fashion Bug will be adding more fashionable, embellished denim and tops to its assortments and for fall we will also be re-launching right fit pant assortments both in wear to work and in denim, including petite lengths in all stores and tall lengths in select stores. Yes, in red, yellow and blue, and also all in traditional sizing.
Fashion Bug is also presenting a core assortment of bottoms in alternative lengths, i.e. capris, crops and shorts, as well as adding key items to its intimate apparel assortment such as the back smoother bra and shape wear. We believe these real estate and assortment action areas in concert will allow us to make solid progress at the Bug.
Now on to Catherines. In the quarter, Catherines delivered $66 million of revenue and EBITDA of -$3 million or -5% of revenue. Revenues declined 6% on a comparable store basis, the best comp sales performance of our three brands, deteriorating modestly compared to a 5% comp decline in the third quarter. EBITDA declined by $4 million to -$3 million versus last year and the EBITDA margin decreased 640 basis points.
We remain focused on stabilizing revenue and delivering improved earnings at Catherines. For the year, EBITDA improved slightly to $19.6 million compared to the prior year. In summary, what was working; sweaters, knit tops, active and cold weather accessories. What was not working; intimate apparel, coats, dresses, and swimwear.
We recently expanded our Catherines footprint in February opening an additional 28 stores in outlet centers which were our previous Petite Sophisticate outlet locations. These locations average 2,600 square feet compared to the 4,200 foot full line Catherines stores. Catherines remains focused on being the comfort and fit destination for its customers. For this spring, Catherines has expanded their sizing range to include size 0X which is a 14-16. The full range of sizes now to be offered at Catherines will be 0X â€“ 5X or 14-16 â€“ 34-36.
On to Figis team emerged from our sale process and proceeded to deliver a solid performance for the year. They delivered $105 million of revenue and EBITDA of $8.7 million or 8% of revenues. Revenues were comparable to the prior year period and Figis full year EBITDA of $8.7 million increased by $2 million or 33% versus last year.
Just a few more comments. Internet, our internet revenue across our three brands for the quarter was $27.8 million reflecting a 10% increase versus last year. Even more exciting, we reported our internet revenue trend improved to an increase of 35% in the first quarter to date.
During August, we launched completely rebuilt websites, all to make it easier for our customers to shop with us online. Last month we debuted a single checkout linking our four apparel websites, LaneBryant.com, Casique.com, FashionBug.com, and Catherines.com. This offers our customers the ease and convenience of shopping our entire family of brands online with one universal checkout.
Additionally, free shipping is available for customers who choose to pick up their packages at any of our companies 2,100 store locations with approximately 25% of our customers choosing ship to store. The feature is driving increased store visits and opportunities for further up sell in our stores. Shipping is also available to customerâ€™s homes for a flat $7 shipping rate.
The new functionality allows us to leverage the strength of our great brands while maintaining what is unique and compelling about each brands identity. We remain focused on growing profitable revenue in our internet business across all of our brands.
Sourcing, I was in Hong Kong in China last week with our sourcing team. Our sourcing team will help us execute both on our defense and our on our offense. On defense weâ€™ve been working hard to get our goods cheaper in 2010. On offense we are becoming more strategic, identifying core fabrics, positioning those fabrics at mills and factories, all to allow us to speed up those elements of our supply chain, and both more into and out of product more quickly.
Store base, we began the year with 2,301 stores and ended the year with 2,149 stores. Net closing 7% of our store base or 152 stores. During the year we opened eight previously committed stores and we closed 160 stores. We closed 97 Fashion Bugs, 39 Lane Bryants, 16 Petite Sophisticates, and 8 Catherines stores. Through these closures and downsizings we eliminated 1.1 million square feet or 7% of our space and we ended the year with 14 million square feet of space. These and other changes we have made and are making will continue to support our key priorities.
With that, over to Eric.
Iâ€™m going to give some color on the release of our fourth quarter earnings, talk through the one time charges and then some selected balance sheet information.
Starting with sales, net sales for the quarter were $539 million a decrease of $93 million versus a year ago, our comparable store sales declined 12%. For the quarter, average inventory decreased 6% on a same store basis while inventory increased 1% on a same store basis at the end of the period. Same store inventories represent increased receipt of spring product while fall and holiday inventory levels declined year over year.
By brand, comp sales declined by 15% at Lane Bryant, and comp inventory increased 2%. At Fashion Bug, comp sales declined 8% while comp inventory increased 3%. At Catherines, our comp store sales declined by 6% and comp inventory was down 4%.
As a housekeeping item, we do not normally update as to our interim same store sales nor our internet business. However, due to the increased elapsed time between year end actuals and reporting we have updated this morning. Going forward we will only be updating our comp store sales at year end as we are doing so today.
Gross profit was $235 million in the quarter a decrease of $29 million or 11%. The gross margin improved by 190 basis points to 43.7% of sales compared to 41.8% of sales for the year ago period. The increase was driven by improved gross margin in the companyâ€™s direct to consumer segment following the close of the Lane Bryant women catalog in the first half of fiscal year 2009 and lower average inventories resulting in reduced markdowns on seasonal merchandise at Lane Bryant, somewhat offset by increased markdowns on seasonal merchandise at the Fashion Bug and Catherines brands.
Total operating expenses excluding restructuring and one time charges decreased $36 million or 12%. Occupancy and buying expense decreased $16 million or 15% related to the operation of fewer stores and rent reductions related to lease renegotiations. Our SG&A expense decreased $17 million or 10% to $156 million in the fourth quarter compared to $173 million in the same quarter last year, primarily related to the lack of leverage on a declining sale base.
I would note that total operating expenses for the year excluding certain items were down $162 million or 13%. We surpassed our initial cost reduction program and approximately $136 million of the total expense reductions are associated with the companyâ€™s previously announced cost reduction program of $125 million for the 2009 fiscal year.
We recorded impairment and restructuring charges of $16 million in the quarter, primarily for the identification of 89 stores with asset carrying value in excess of their forecasted undiscounted cash flows. We also recorded a small residual charge as a result of the sale of the proprietary credit card receivable program in the amount of $900,000 primarily related to transaction related costs.
We continue to analyze our store portfolio to identify underperforming stores for closure. During the fiscal year ended January 31, 2010, we were often successful in achieving significant occupancy cost reductions through renegotiation of leases with our landlords, while sometimes unsuccessful, resulting in store closures. We expect to achieve further occupancy cost reductions through the continued negotiation of lease terms with our landlords and to the extent that improved terms are not possible through the closing of stores.
Accordingly, we are announcing a new program for the closing of 100 to 120 underperforming stores in fiscal 2010. We estimate the cost to execute the store closing program to be approximately $7 to $9 million primarily related to lease termination charges.
In summary for the quarter, gross profit declined 11% and total operating expenses excluding certain charges, declined 12% while allowed us to modestly improve adjusted EBITDA by $5 million.
Jimâ€™s comments included detail and profitability by brand. In summary, we experienced year over year profit declines in our retail store segment while our result that are direct to consumer segment improved over last yearâ€™s performance following the closing of the Lane Bryant women catalog in the first half of 2009. As we are committed to providing increased levels of transparency for our brands results, these performance metrics are more fully detailed in our Form 10-K which we have filed this morning.
Iâ€™d now like to provide some comments on our balance sheet and liquidity. Our balance sheet remains strong and our total liquidity was $328 million at the end of the quarter. Our liquidity includes $187 million in cash and net availability of $141 million on our fully committed and un-drawn revolving line of credit.
During the fourth quarter we repurchased $16.1 million of our convertible notes for a cash purchase price of $11.3 million or 70% of par. As of the end of the quarter the principal amount of the notes was $190 million which represents the original $275 million issuance less the $85 million face value for an aggregate purchase price of $51 million which we have repurchased from the beginning of the year through the end of the fourth quarter.
Year over year changes to our consolidated balance sheet related to the sale of our credit card receivables program include the monetization of investment in asset backed securities, an increase in cash, and a decrease in prepayments and other. As we said last quarter, we have no further financing obligations with respect to the credit card program.
Prior to the sale of the credit portfolio we routinely disclosed information about the profitability of the credit business unit. The credit card program is now operated by Alliance Data and we will no longer be providing that metric.
Our income tax benefit for the fiscal 2009 fourth quarter was $24 million as compared to a tax provision of $2 million for the fiscal 2008 fourth quarter. Our fiscal 2009 fourth quarter includes the impact of a net operating loss carry back in accordance with the worker, homeownership and business assistance act of 2009.
Iâ€™d like to recap the increase in our cash position for the year. The major components include an increase of $136 million related to the sale of a proprietary credit program, an increase of approximately $29 million related to income tax refunds, offset by our net loss for the year, a decrease of $51 million related to the repurchases of our convertible debt, and a decrease of $33 million related to capital expenditures.
For the fiscal year ended January 30, 2010, our gross capital expenditures were approximately $23 million representing a 59% reduction to the $56 million in gross capital expenditures for the fiscal year ended January 31, 2009. Expectations for capital expenditures for fiscal year 2010 are approximately $50 million for the opening of six to eight new stores, remodels and refurbishments to existing stores, to fund fixturing programs for new merchandise assortments in our three brands, and to test brand combinations and conversions, and for the implementation of information technology tools to assist in improving our business results.
Depreciation and amortization for fiscal year 2009 was $76.3 million a 19% reduction compared to $93.7 million in fiscal year 2008. The decrease is primarily related to operating fewer stores in the year ago period. Forecasts for depreciation and amortization for fiscal year 2010 are approximately $65 million.
Finally, while we continue to closely manage and plan our inventory levels, we are playing offense by strategically investing in inventory that supports the improvements we have made in our core merchandise assortments as well as investment in new assortments.
At this point weâ€™ll now open the call for question and answer period.