COLDWTR CRK : Coldwater Creek Announces Second Quarter 2011 Results and Launches Long-Term Strategic Operating Plan

SANDPOINT, Idaho, Aug. 31, 2011 -- Coldwater Creek Inc. (Nasdaq:CWTR) today reported financial results for the three-month period ended July 30, 2011, and announced a long-term strategic operating plan to return to sales growth and increase profitability, including a merchandising revitalization plan, a comprehensive brand marketing campaign, and a retail store optimization program.

Second Quarter 2011 Operating Results

• Consolidated net sales were $181.4 million, compared with $253.5 million in the fiscal 2010 second quarter. Net sales from the retail segment, which includes the Company's premium retail stores, outlet stores and day spa locations, were $142.2 million versus $195.4 million in the same period last year, primarily reflecting a decrease in comparable premium store sales of 30.6 percent. Second quarter net sales from the direct segment, which includes internet, phone and mail orders, decreased 32.6 percent to $39.2 million from $58.1 million in the same period last year.
• Consolidated gross profit was $45.3 million, or 25.0 percent of net sales, compared with $84.7 million, or 33.4 percent of net sales, for the fiscal 2010 second quarter. The decline in gross profit margin was primarily due to the deleveraging of fixed retail occupancy costs given the lower sales, and to a lesser extent, lower merchandise margins as a result of higher promotional activity.
• Selling, general and administrative expenses (SG&A) were $70.0 million, or 38.6 percent of net sales, compared with $82.5 million, or 32.6 percent of net sales, for the fiscal 2010 second quarter. The $12.5 million decline in SG&A was due primarily to lower variable and fixed operating expenses, lower employee related costs and lower marketing spend compared to the same period last year.
• Net loss was $27.7 million, or $0.30 per share, compared with net income of $1.5 million, or $0.02 per diluted share, for the fiscal 2010 second quarter. Net loss for the second quarter 2011 included a non-cash asset impairment charge of $2.4 million, or $0.03 per share, related primarily to eighteen underperforming stores.

Dennis Pence, Chairman and Chief Executive Officer, stated, "While we are disappointed with our second quarter financial results, we had expected the period to be challenging as our summer assortment did not fully reflect our new merchandise direction." Mr. Pence continued, "As we look to the back half of 2011, we will begin to see the collective efforts of our new design and merchandising teams reflected in our fall and holiday offerings, which will be supported by a comprehensive marketing campaign focused on driving traffic and conversion. We believe these actions, combined with our plan to close 35-45 underperforming stores, will allow us to more rapidly return our business to profitability."

Balance Sheet

At July 30, 2011, cash totaled $31.5 million, as compared with $72.3 million at July 31, 2010. Premium retail store inventory per square foot, including retail inventory in the distribution center, declined approximately 16.0 percent as compared to the end of the second quarter last year. Total inventory decreased 8.5 percent to $152.2 million from $166.4 million at the end of the second quarter last year.

Store Openings and Closures

During the second quarter of fiscal 2011 the Company opened two and closed seven premium retail stores, and ended the quarter with 366 premium retail stores. In the second half of 2011, the Company plans to open approximately three new premium retail stores, which had previously been committed to, and plans to close between seven to nine underperforming premium retail stores.

Long-Term Strategic Operating Plan

Over the past 12 months Coldwater Creek has made significant changes to its merchandising and design organizations adding key talent and implementing process changes to improve its product offering. With this foundation in place, Coldwater Creek is now implementing the second phase of its turnaround which is focused on three key areas:

• Continuing to execute the merchandise revitalization initiatives by creating collections with a modern fashion sensibility in vibrant colors, prints, and patterns, offering enhanced versatility and addressing more aspects of its customers' lifestyle needs. The Company is focusing on balancing its category investments and improving inventory productivity. Significant elements of the new merchandising philosophy are reflected in the Company's fall assortment, and will be even more fully incorporated into collections for holiday 2011 and fiscal 2012.
• Initiating a comprehensive brand marketing campaign to restore Coldwater Creek's brand image, which includes television, national magazine advertising, and online media. The campaign, which will be introduced this fall and holiday, is designed to increase brand engagement, traffic, and conversion with a focus on expanding the reach to a broader segment of the Company's target demographic.
• Improving overall financial performance, which includes a continued aggressive focus on expense and inventory management, as well as a store optimization program. This program involves the closure of approximately 35 to 45 underperforming stores over the next two years, including approximately 15 stores in fiscal 2011, and will be achieved through a staged approach based primarily on early termination rights and natural lease expirations. In total, over the last twelve months ended July 30, 2011, these 35-45 stores generated approximately $45-$55 million in annualized sales. When completed, the Company expects these actions to generate approximately $15-$20 million in annualized expense reductions and approximately $8-$12 million in annualized improvement in pre-tax operating results based on results over the most recent twelve month period.

Conference Call Information

Coldwater Creek will host a conference call on Wednesday, August 31, 2011, at 4:30 p.m. (Eastern) to discuss fiscal 2011 second quarter results. The call will be simultaneously broadcast on the Investor Relations section of the Company's Web site at http://www.coldwatercreek.com/ and will be archived from approximately one hour after the conference call until Wednesday, September 7, 2011. The replay can be accessed by dialing (877) 870-5176 and providing conference ID 375926. A replay and transcript of the call will also be available in the Investor Relations section of the Company's Web site.

Coldwater Creek is a leading specialty retailer of women's apparel, gifts, jewelry, and accessories that was founded in 1984 and is headquartered in Sandpoint, Idaho. The Company sells its merchandise through premium retail stores across the country, online at coldwatercreek.com and through its catalogs.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION:

This news release contains "forward-looking statements" within the meaning of the securities laws, including statements with respect to our ability to successfully implement our long-term strategic operating plan and restore profitability, which includes the planned closure of underperforming stores and the related expected reductions in expenses and increases in operating results. These statements are based on management's current expectations and are subject to a number of uncertainties, risks and assumptions that may not fully materialize or may prove incorrect. As a result, our actual results may differ materially from those expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, but are not limited to:

• the inherent difficulty in forecasting consumer buying and retail traffic patterns and trends, which continue to be erratic and are affected by factors beyond our control, such as the current macroeconomic conditions, high unemployment, continuing heavy promotional activity in the specialty retail marketplace, and competitive conditions and the possibility that because of lower than expected customer response, or because of competitive pricing pressures, we may be required to sell merchandise at lower than expected margins, or at a loss;
• potential inability to attract and retain key personnel;
• our new design aesthetic and merchandising direction may take longer to implement than expected or may not resonate with our customer demographic;
• our brand marketing campaign may take time to have an impact and may not be successful in improving traffic or conversion;
• our long-term strategic operating plan may not result in improved results of operations and cash flow;
• difficulties in forecasting consumer demand for our merchandise as a result of changing fashion trends and consumer preferences;
• the possibility that our sales and earnings expectations will not be realized, due to changing business and economic conditions;
• our potential inability to recover the substantial fixed costs of our retail store base due to sluggish sales, which may result in impairment charges;
• our potential inability to fund our operations with operating cash and available credit as a result of either lower sales or higher than anticipated costs, or both;
• delays we may encounter in sourcing merchandise from our foreign and domestic vendors, including the potential inability of our vendors to finance production of the goods we order or meet our production needs due to raw material or labor shortages; risks related to our foreign sourcing strategy; and the possibility that foreign sourcing may not lead to any reduction of our sourcing costs or improvement in our margins;
• increasing competition from other specialty retailers and companies that have introduced concepts or products similar to ours;
• difficulties encountered in anticipating and managing customer returns and the possibility that customer returns will be greater than expected;
• the inherent difficulties in catalog management, for which we incur substantial costs prior to mailing that we may not be able to recover, and the possibility of unanticipated increases in mailing and printing costs;
• unexpected costs or problems associated with our efforts to manage the complexities of our multi-channel business model, including our efforts to maintain our information systems;
• our reduced cash position may harm our ability to execute our business plan and may require us to seek additional financing;
• our revolving line of credit may not be fully available due to borrowing base and other limitations;
• the actual number and timing of store closures will depend on a number of factors that cannot be predicted, including among other things the future performance of our individual stores and negotiations with our landlords;

and such other factors as are discussed in our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission. You should not place undue reliance on forward-looking statements, which are based on current expectations and speak only as of the date of this release. We do not assume any obligation to publicly release any revisions to forward-looking statements to reflect events or changes in our expectations after the date of this release.

Contacts:

Lyn Walther

Divisional Vice President, Investor Relations