10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 ____________________________________________________________

Form 10-Q

 ____________________________________________________________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended April 28, 2012

OR

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-21915

 ____________________________________________________________

COLDWATER CREEK INC.

(Exact name of registrant as specified in its charter)

DELAWARE	82-0419266
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

ONE COLDWATER CREEK DRIVE, SANDPOINT, IDAHO 83864

(Address of principal executive offices)

(208) 263-2266

(Registrant’s telephone number, including area code)

 ____________________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES  x  NO  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES  x NO  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer  o	Accelerated filer  x
Non-accelerated filer  o	Smaller reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class	Shares outstanding as of May 29, 2012
Common Stock ($0.01 par value)	121,757,524

Coldwater Creek Inc.

Form 10-Q

For the Fiscal Quarter Ended April 28, 2012

Table of Contents

		Page
PART I. FINANCIAL INFORMATION		3
Item 1. Financial Statements (unaudited)		3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations and Comprehensive Operations	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3. Quantitative and Qualitative Disclosures About Market Risk		20
Item 4. Controls and Procedures		20
PART II. OTHER INFORMATION		20
Item 1. Legal Proceedings		20
Item 1A. Risk Factors		20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		22
Item 3. Defaults Upon Senior Securities		22
Item 4. Mine Safety Disclosures		22
Item 5. Other Information		22
Item 6. Exhibits		23
Signatures		24
Exhibit Index		25

“We,” “us,” “our,” “Company” and “Coldwater,” unless the context otherwise requires, means Coldwater Creek Inc. and its wholly-owned subsidiaries.

2

PART 1.     FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

COLDWATER CREEK INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for per share data)

	April 28, 2012			January 28, 2012			April 30, 2011
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	22,989		$	51,365		$	24,046
Receivables	11,539			8,199			11,889
Inventories	127,684			131,975			158,190
Prepaid and other current assets	7,801			6,137			10,778
Prepaid and deferred marketing costs	3,824			3,273			7,728
Deferred income taxes	2,313			2,313			6,339
Total current assets	176,150			203,262			218,970
Property and equipment, net	196,523			206,079			246,737
Deferred income taxes	1,887			1,891			1,829
Other assets	1,795			1,883			1,183
Total assets	$	376,355		$	413,115		$	468,719
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	52,487		$	55,130		$	71,581
Accrued liabilities	71,696			74,915			82,305
Income taxes payable	1,147			3,260			3,386
Current maturities of debt and capital lease obligations	15,728			15,735			746
Total current liabilities	141,058			149,040			158,018
Deferred rents	96,723			101,384			112,639
Long-term debt and capital lease obligations	26,407			26,575			12,161
Supplemental Executive Retirement Plan	12,248			12,142			10,110
Deferred marketing fees and revenue sharing	3,781			4,402			5,433
Deferred income taxes	1,716			1,716			5,524
Other liabilities	1,393			1,443			1,652
Total liabilities	283,326			296,702			305,537
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 1,000 shares authorized, none issued and outstanding	—			—			—
Common stock, $0.01 par value, 300,000 shares authorized; 121,758, 121,669 and 92,541 shares issued, respectively	1,217			1,217			925
Additional paid-in capital	150,717			150,341			125,996
Accumulated other comprehensive loss	(2,204		)	(2,204		)	(464		)
Retained earnings (deficit)	(56,701		)	(32,941		)	36,725
Total stockholders’ equity	93,029			116,413			163,182
Total liabilities and stockholders’ equity	$	376,355		$	413,115		$	468,719

The accompanying notes are an integral part of these interim financial statements.

3

COLDWATER CREEK INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS

(Unaudited)

(in thousands, except for per share data)

	Three Months Ended
	April 28, 2012			April 30, 2011
Net sales	$	169,884		$	179,795
Cost of sales	115,493			125,182
Gross profit	54,391			54,613
Selling, general and administrative expenses	77,519			83,942
Loss from operations	(23,128		)	(29,329		)
Interest expense, net	561			414
Loss before income taxes	(23,689		)	(29,743		)
Income tax provision	71			285
Net loss	$	(23,760	)	$	(30,028	)
Total comprehensive income (loss)	$	(23,760	)	$	(30,028	)
Net loss per share — Basic and Diluted	$	(0.20	)	$	(0.32	)
Weighted average shares outstanding — Basic and Diluted	121,713			92,516

The accompanying notes are an integral part of these interim financial statements.

4

COLDWATER CREEK INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Three Months Ended
	April 28, 2012			April 30, 2011
Operating activities:
Net loss	$	(23,760	)	$	(30,028	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	13,752			15,135
Stock-based compensation expense	348			606
Supplemental Executive Retirement Plan expense	147			139
Deferred income taxes	4			(224		)
Valuation allowance adjustments	—			(501		)
Deferred marketing fees and revenue sharing	(652		)	(513		)
Deferred rents	(5,095		)	(3,889		)
Net loss on asset dispositions and other termination charges	1,226			520
Other	(90		)	749
Net change in operating assets and liabilities:
Receivables	(3,330		)	(2,328		)
Inventories	4,291			(1,709		)
Prepaid and other current assets	(2,215		)	2,102
Accounts payable	(4,292		)	(6,591		)
Accrued liabilities	(2,755		)	(3,664		)
Income taxes payable	(2,113		)	3,386
Net cash used in operating activities	(24,534		)	(26,810		)
Investing activities:
Purchase of property and equipment	(3,699		)	(1,359		)
Proceeds from asset dispositions	—			235
Net cash used in investing activities	(3,699		)	(1,124		)
Financing activities:
Borrowings on revolving line of credit	10,000			—
Payments on revolving line of credit	(10,000		)	—
Payments of long-term debt and capital lease obligations	(201		)	(137		)
Other	58			504
Net cash provided by (used in) financing activities	(143		)	367
Net decrease in cash and cash equivalents	(28,376		)	(27,567		)
Cash and cash equivalents, beginning	51,365			51,613
Cash and cash equivalents, ending	$	22,989		$	24,046

The accompanying notes are an integral part of these interim financial statements.

5

COLDWATER CREEK INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business and Organizational Structure

Coldwater Creek Inc., a Delaware corporation, together with its wholly-owned subsidiaries, headquartered in Sandpoint, Idaho, is a multi-channel specialty retailer of women’s apparel, accessories, jewelry, and gift items. We conduct business in two operating segments: retail and direct. The retail segment consists of our premium retail stores, outlet stores, and day spas. The direct segment consists of sales generated through our e-commerce website and from orders taken from customers over the phone and through the mail. Intercompany balances and transactions have been eliminated.

The accompanying condensed consolidated financial statements are unaudited and have been prepared by management pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. The condensed consolidated balance sheet as of January 28, 2012 was derived from the audited consolidated balance sheet as of that date. The condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented and should be read in conjunction with the consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

The condensed consolidated financial position, results of operations and cash flows for these interim periods are not necessarily indicative of the financial position, results of operations or cash flows to be realized in future periods.

References to a fiscal year are to the calendar year in which the fiscal year begins.

2. Significant Accounting Policies

Accounting Policies

The complete summary of significant accounting policies is included in the notes to the consolidated financial statements as presented in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and timing of revenue and expenses, the reported amounts and classification of assets and liabilities, and the disclosure of contingent assets and liabilities. These estimates and assumptions are embodied in our sales returns accrual, gift card breakage, inventory adjustments, stock-based compensation, impairment of long-lived assets, contingencies, and income taxes. These estimates and assumptions are based on historical results as well as management’s future expectations. Actual results may vary from these estimates and assumptions.

Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels related to the subjectivity associated with the inputs to fair value measurements as follows:

• Level 1 — Quoted prices in active markets for identical assets or liabilities;

• Level 2 — Quoted prices for similar assets or liabilities in active markets or inputs that are observable; and

• Level 3 — Unobservable inputs in which little or no market activity exists.

As of April 30, 2011, we held $5.1 million in money market funds that are measured at fair value on a recurring basis using Level 1 inputs.  As of April 28, 2012 and January 28, 2012, we did not have any amounts in money market funds.

We have financial assets and liabilities, not required to be measured at fair value on a recurring basis, which primarily consist of cash, restricted cash, receivables, payables, and debt.  The carrying value of cash, restricted cash, receivables, payables and

6

COLDWATER CREEK INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

borrowing on our revolving line of credit materially approximate their fair values due to their short-term nature.  The carrying value of our term loan materially approximates fair value at April 28, 2012, as the interest rate is a market-based variable rate that was reset with Wells Fargo Bank during the current quarter.

Advertising Costs

Direct response advertising includes catalogs, national magazine advertisements and other mailings that contain an identifying code which allows us to track related sales. All direct costs associated with the development, production and circulation of direct response advertisements are accumulated as prepaid marketing costs. Once the related catalog, national magazine advertisement, or other mailings is either mailed or first appears in print, these costs are reclassified to deferred marketing costs. These costs are then amortized to selling, general and administrative expenses over the expected sales realization cycle, typically several weeks. Direct response advertising expense was $11.0 million and $15.9 million for the three months endedApril 28, 2012 and April 30, 2011, respectively.

Advertising costs other than direct response advertising, including television, store and event promotions, signage expenses and other general customer acquisition activities, are expensed as incurred or when the advertising event first takes place. Advertising expenses other than those related to direct response advertising of $5.5 million and $6.3 million for the three months endedApril 28, 2012 and April 30, 2011, respectively, are included in selling, general and administrative expense.

Income Taxes

In assessing the realizability of deferred tax assets, we consider all available evidence to determine whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), and projected taxable income in assessing the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. Current or previous losses are given more weight than projected future performance. Consequently, based on all available evidence, in particular our historical cumulative losses and recent operating losses, we have a valuation allowance against a significant portion of our net deferred tax assets. In order to fully realize the deferred tax assets, we will need to generate sufficient taxable income in future periods before the expiration of the deferred tax assets governed by the tax code.

Stock-Based Compensation

Total stock-based compensation recognized primarily in selling, general and administrative expenses from stock options and restricted stock units (“RSUs”) consisted of the following:

	Three Months Ended
	April 28, 2012		April 30, 2011
	(in thousands)
Stock options	$	230	$	408
RSUs	118		198
	$	348	$	606

During the three months endedApril 28, 2012 and April 30, 2011, employees were granted 981,300 and 56,000 stock options, respectively.  The fair value for stock option awards was estimated at the grant date using the Black-Scholes option valuation model with the following weighted average assumptions: 

7

COLDWATER CREEK INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Three Months Ended
	April 28, 2012			April 30, 2011
Risk free interest rate	0.7		%	2.3		%
Expected volatility	89.6		%	78.6		%
Expected life (in years)	5.0			5.3
Expected dividends per share	$	—		$	—
Weighted average fair value per option granted	$	0.80		$	1.92

During the three months endedApril 28, 2012 and April 30, 2011, employees were granted 425,500 and 35,000 RSUs, respectively, at a weighted average fair value of $1.16 and $2.96, respectively.  During the three months endedApril 28, 2012, employees were also granted 494,000 performance RSUs at a weighted average grant date fair value of $1.16.  For the performance RSUs granted in fiscal 2012, half of the RSUs are subject to the achievement of earnings before interest expense and taxes (“EBIT”) targets for fiscal years 2012, 2013 and 2014 and half of the RSUs are subject to the achievement of sales targets for fiscal years 2012, 2013 and 2014. For performance RSUs granted in fiscal 2011, half of the RSUs are subject to the achievement of EBIT targets for the second half of fiscal 2011 combined with fiscal 2012 and half of the RSUs are subject to the achievement of sales targets for the second half of fiscal 2011 combined with fiscal 2012.  For performance RSUs granted in fiscal 2010, the RSUs are subject to the achievement of combined EBIT targets for fiscal years 2010, 2011 and 2012. No compensation expense has been recognized for the fiscal 2011 and 2010 performance RSUs as it was determined to be not probable that the performance conditions would be met. The number of shares actually awarded under performance RSUs will range from 0% to 200% of the base award amount, depending on the results during the performance period.

Interest expense, net

Interest expense, net, consisted of the following:

	Three Months Ended
	April 28, 2012			April 30, 2011
	(in thousands)
Interest expense	$	564		$	415
Interest income	(3		)	(1		)
	$	561		$	414

In fiscal 2012, we corrected the classification of other income, other expense and selling, general and administrative expenses. In previous years, other income and other expense was included with interest expense, net. For comparative purposes, other income, net, of $0.2 million for the three months endedApril 30, 2011, has been classified as selling, general and administrative expenses.

3. Receivables

Receivables consisted of the following:

	April 28, 2012		January 28, 2012		April 30, 2011
	(in thousands)
Credit card receivables	$	6,790	$	2,960	$	6,306
Tenant allowances	1,465		2,112		1,926
Other	3,284		3,127		3,657
	$	11,539	$	8,199	$	11,889

8

COLDWATER CREEK INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Credit card receivables do not bear interest and are generally converted to cash in two to three days. We evaluate the credit risk associated with our receivables to determine if an allowance for doubtful accounts is necessary. As of April 28, 2012, January 28, 2012, and April 30, 2011, no allowance for doubtful accounts was deemed necessary. 

4. Property and Equipment, net

Property and equipment, net, consisted of the following:

	April 28, 2012			January 28, 2012			April 30, 2011
	(in thousands)
Land	$	242		$	242		$	242
Building and land improvements	29,650			29,646			29,646
Leasehold improvements	265,473			273,039			290,094
Furniture and fixtures	117,989			119,656			124,298
Technology hardware and software	90,492			90,063			93,583
Machinery and equipment and other	34,978			35,129			37,168
Capital leases	12,805			12,780			12,706
Construction in progress	13,397			13,137			13,508
	565,026			573,692			601,245
Less — Accumulated depreciation and amortization	(368,503		)	(367,613		)	(354,508		)
	$	196,523		$	206,079		$	246,737

5. Accrued Liabilities

Accrued liabilities consisted of the following:

	April 28, 2012		January 28, 2012		April 30, 2011
	(in thousands)
Accrued payroll and benefits	$	12,553	$	14,134	$	9,424
Gift cards and certificates	17,203		21,560		29,389
Current portion of deferred rents	20,818		20,384		21,189
Current portion of deferred marketing fees and revenue sharing	4,367		4,398		4,363
Deferred sales royalty	3,287		3,511		3,030
Accrued sales returns	4,461		3,535		4,608
Accrued taxes	5,063		4,486		4,224
Other	3,944		2,907		6,078
	$	71,696	$	74,915	$	82,305

6. Debt and Capital Lease Obligations

Debt and capital lease obligations consisted of the following:

9

COLDWATER CREEK INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	April 28, 2012			January 28, 2012			April 30, 2011
	(in thousands)
Term loan	$	14,850		$	14,900		$	—
Revolving line of credit	15,000			15,000			—
Capital lease obligations	12,285			12,410			12,907
Total debt and capital lease obligations	42,135			42,310			12,907
Less:
Current maturities of debt	(15,200		)	(15,200		)	—
Current maturities capital lease obligations	(528		)	(535		)	(746		)
Long-term debt and capital lease obligations	$	26,407		$	26,575		$	12,161

In May 2011, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank with a maturity date of May 16, 2016, which is secured primarily by our inventory, credit card receivables, corporate offices in Sandpoint, Idaho and certain other assets. The Credit Agreement provides a revolving line of credit of up to $70.0 million, with subfacilities for the issuance of up to $70.0 million in letters of credit and swingline advances of up to $10.0 million. The actual amount of credit that is available from time to time under the revolving line of credit is limited to a borrowing base amount that is determined according to, among other things, a percentage of the value of eligible inventory plus a percentage of the value of eligible credit card receivables, as reduced by certain reserve amounts that may be required by Wells Fargo Bank.  The Credit Agreement also provided a term loan due on May 16, 2016. We have a future option to request an increase in the amount of the revolving line of credit for an additional $15.0 million, which if granted would result in a total of $85.0 million available, exclusive of the term loan.

As of April 28, 2012, the revolving line of credit was limited to a borrowing base of $70.0 million and we had $16.9 million in letters of credit issued and $15.0 million borrowed on our revolving line of credit, resulting in $38.1 million available for borrowing under our revolving line of credit. We believe we have sufficient cash and liquidity, including our revolving line of credit that we may continue to draw on from time to time, to fund our operations through the next 12 months. However, we have had recurring operating losses and if our future operating performance is below our expectations, or our revolving line of credit is not fully available to us, our cash and liquidity could be adversely impacted and it may be necessary to seek additional sources of liquidity. There is no assurance that debt or equity financing will be available in amounts or on terms acceptable to us. If we are unable to maintain adequate liquidity, we may need to further reduce our expenses or curtail our operations.

Pursuant to the Credit Agreement, borrowings issued under the revolving line of credit will generally accrue interest at a rate ranging from 1.00% to 2.50% (determined according to the average unused availability under the credit facility (the “Availability”)) over a reference rate of, at our election, either LIBOR or a base rate (the “Reference Rate”) with an interest rate of 2.50% as of April 28, 2012. Letters of credit issued under the revolving line of credit will accrue interest at a rate ranging from 1.50% to 2.50% (determined according to the Availability) with an interest rate of 2.25% as of April 28, 2012. Commitment fees accrue at a rate ranging from 0.375% to 0.50% (determined according to the Availability), which is assessed on the average unused portion of the credit facility maximum amount.  The term loan accrues interest at a rate of 6.00% over the Reference Rate, with an interest rate of 6.25% as of April 28, 2012.

The Credit Agreement has restrictive covenants that are limited to capital expenditure limitations, minimum amount of inventory to be held and minimum excess availability over the borrowing base that must be maintained. The Credit Agreement also contains various covenants relating to customary matters, such as indebtedness, liens, investments, acquisitions, mergers, dispositions and other payment restriction conditions, such as limits on our ability to pay dividends when we have outstanding borrowings on our revolving line of credit. As currently planned, the 35 to 45 store closures under our store optimization program and the related transfer or disposition of store assets are not limited by our Credit Agreement.  We were in compliance with all covenants for all periods presented.

The Credit Agreement contains customary events of default for credit facilities of this type. Upon an event of default that is not cured or waived within any applicable cure periods, in addition to other remedies that may be available to the lenders, the obligations under the Credit Agreement may be accelerated, outstanding letters of credit may be required to be cash collateralized and remedies may be exercised against the collateral.

10

COLDWATER CREEK INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7.NetIncome(Loss)Per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the combination of other potentially dilutive common shares and the weighted average number of common shares outstanding during the period. Other potentially dilutive weighted average common shares include the dilutive effect of stock options, RSUs and shares to be purchased under our Employee Stock Purchase Plan ("ESPP") for each period using the treasury stock method. Under the treasury stock method, the exercise price of a share, the amount of compensation expense, if any, for future service that has not yet been recognized, and the amount of excess tax benefits, if any, that would be recorded in additional paid-in-capital when the share is exercised are assumed to be used to repurchase shares in the current period.

The following table sets forth the computation of basic and diluted net loss per common share:

	Three Months Ended
	April 28, 2012			April 30, 2011
	(in thousands, except per share amounts)
Net loss	$	(23,760	)	$	(30,028	)
Weighted average common shares outstanding during the period (for basic calculation)	121,713			92,515
Dilutive effect of other potential common shares	—			—
Weighted average common shares and potential common shares (for diluted calculation)	121,713			92,515
Net loss per common share—Basic	$	(0.20	)	$	(0.32	)
Net loss per common share—Diluted	$	(0.20	)	$	(0.32	)

During the three months endedApril 28, 2012 and April 30, 2011, 6.2 million and 3.5 million, respectively, of stock options, RSUs, and shares to be purchased under our ESPP were outstanding but were excluded from the computation of diluted net loss per share because their effect were antidilutive.

8. Stockholders' Equity

On October 24, 2011, we completed an underwritten public offering of 28.9 million shares of our common stock.  We received net proceeds from the offering of $22.9 million after deducting underwriting discounts and commissions and offering expenses.  The net proceeds from the offering are used for working capital and other capital expenditures, including investments in our marketing strategy and supply chain, as well as other general corporate purposes.

9. Supplemental Executive Retirement Plan

Net periodic benefit cost of the Supplemental Executive Retirement Plan (“SERP”) consisted of the following:

	Three Months Ended
	April 28, 2012		April 30, 2011
	(in thousands)
Interest cost	$	138	$	139
Amortization of unrecognized net actuarial loss	9		—
	$	147	$	139

As the SERP is an unfunded plan, we were not required to make any contributions during fiscal 2012 and 2011. Benefit

11

COLDWATER CREEK INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

payments of $41,500 were made during the three months endedApril 28, 2012. No benefit payments were made during the three months endedApril 30, 2011.

10. Commitments and Contingencies

Operating Leases

During the three months endedApril 28, 2012 and April 30, 2011, we incurred aggregate rent expense under operating leases of $17.1 million and $19.1 million, respectively, including common area maintenance costs (“CAM”) of $3.5 million and $3.7 million, respectively, and excluding related real estate taxes of $2.6 million and $2.7 million, respectively.  As of April 28, 2012, our minimum operating lease payment requirements, which include the predetermined fixed escalations of the minimum rentals and exclude contingent rental payments, CAM, real estate taxes, and the amortization of lease incentives for our operating leases totaled $476.9 million.

Legal Proceedings

We are, from time to time, involved in various legal proceedings incidental to the conduct of business. Actions filed against us from time to time include commercial, intellectual property infringement, customer and employment claims, including class action lawsuits alleging that we violated federal and state wage and hour and other laws. We believe that we have meritorious defenses to all lawsuits and legal proceedings currently pending against us. Though we will continue to vigorously defend such lawsuits and legal proceedings, we are unable to predict with certainty whether or not we will ultimately be successful. However, based on management’s evaluation, we believe that the resolution of these matters, taking into account existing contingency accruals and the availability of insurance and other indemnifications, will not materially impact our consolidated financial position, results of operations or cash flows.

Tax Contingencies

Our multi-channel business model subjects us to state and local taxes in numerous jurisdictions, including franchise, and sales and use tax. We collect these taxes in jurisdictions in which we have a physical presence. While we believe we have paid or accrued for all taxes based on our interpretation of applicable law, tax laws are complex and interpretations differ from state to state. In the past, we have been assessed additional taxes and penalties by various taxing jurisdictions, asserting either an error in our calculation or an interpretation of the law that differed from our own. It is possible that taxing authorities may make additional assessments in the future. In addition to taxes, penalties and interest, these assessments could cause us to incur legal fees associated with resolving disputes with taxing authorities.

Additionally, changes in state and local tax laws, such as temporary changes associated with “tax holidays” and other programs, require us to make continual changes to our collection and reporting systems that may relate to only one taxing jurisdiction. If we fail to update our collection and reporting systems in response to these changes, any over collection or under collection of sales taxes could subject us to interest and penalties, as well as private lawsuits and damage to our reputation. In the opinion of management, resolutions of these matters will not have a material impact on our consolidated financial position, results of operations or cash flows.

Other

As of April 28, 2012, we had non-cancelable inventory purchase commitments of$110.8 million. 

11. Co-Branded Credit Card Program

Deferred marketing fees and revenue sharing

The deferred marketing fees and revenue sharing activity was as follows:

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COLDWATER CREEK INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Three Months Ended
	April 28, 2012			April 30, 2011
	(in thousands)
Balance at beginning of period	$	8,800		$	10,309
Marketing fees received	863			1,067
Marketing fees recognized to revenue	(1,075		)	(1,140		)
Revenue sharing recognized to revenue	(440		)	(440		)
Balance at end of period	8,148			9,796
Less — Current deferred marketing fees and revenue sharing	(4,367		)	(4,363		)
Long-term deferred marketing fees and revenue sharing	$	3,781		$	5,433

Sales Royalty

The amount of sales royalty recognized as revenue during the three months endedApril 28, 2012 and April 30, 2011 was $1.9 million and $1.7 million, respectively. 

12. Segment Reporting

The following table provides certain financial data for the retail and direct segments as well as reconciliations to the condensed consolidated financial statements:

	Three Months Ended
	April 28, 2012			April 30, 2011
	(in thousands)
Net sales (a):
Retail	$	131,202		$	135,262
Direct	38,682			44,533
Net sales	$	169,884		$	179,795
Segment operating income (loss):
Retail	$	923		$	(6,822	)
Direct	4,789			8,810
Total segment operating income (loss)	5,712			1,988
Corporate and other	(28,840		)	(31,317		)
Loss from operations	$	(23,128	)	$	(29,329	)

 ____________________________________________________________

(a) There were no sales between the retail and direct segments during the reported periods.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains various statements regarding our current initiatives, financial position, results of operations, cash flows, operating and financial trends and uncertainties, as well as certain forward-looking statements regarding our future expectations. When used in this discussion, words such as “anticipate,” “believe,” “estimate,” “expect,” “could,” “may,” “will,” “should,” “plan,” “predict,” “potential,” and similar expressions are intended to identify such forward-looking statements. Our forward-looking statements are based on our current expectations and are subject to numerous risks and uncertainties. As such, our actual future results, performance or achievements may differ materially from the results expressed in, or implied by, our forward-looking statements. Please refer to our “Risk Factors” in this Quarterly Report on Form 10-Q and other reports we file with the SEC. The forward-looking statements in this Quarterly Report are as of the date such report is filed with the SEC, and we assume no obligation to update our forward-looking statements or to provide periodic updates or guidance.

Overview

We encourage you to read this Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the accompanying condensed consolidated financial statements and related notes.  References to a fiscal year are to the calendar year in which the fiscal year begins.

Executive Summary

Net sales decreased to $169.9 million for the three months endedApril 28, 2012, compared to $179.8 million for the three months endedApril 30, 2011. This 5.5 percent decrease in net sales was primarily driven by the impact of store closures and a decrease of 13.1 percent in our direct segment sales. We had a decrease in comparable premium retail store sales⁽¹⁾ of 0.6 percent in our retail segment.

Gross profit was $54.4 million, or 32.0 percent of net sales, for the three months endedApril 28, 2012, compared to $54.6 million, or 30.4 percent of net sales, for the three months endedApril 30, 2011. This increase in gross profit margin was primarily due to an increase in merchandise margins reflecting improved product performance and lower overall inventory levels.

Selling, general and administrative expenses (“SG&A”) were $77.5 million, or 45.6 percent of net sales, for the three months endedApril 28, 2012, compared to $83.9 million, or 46.7 percent of net sales, for the three months endedApril 30, 2011. The decrease in SG&A dollars was primarily due to lower expenses in all categories, with the largest decline from marketing expenses.

Net loss was $23.8 million, or $0.20 per share on 121.7 million weighted average shares outstanding, for the three months endedApril 28, 2012, compared to a net loss of $30.0 million, or $0.32 per share on 92.5 million weighted average shares outstanding, for the three months endedApril 30, 2011. The increase in the number of shares versus the prior year period reflects the sale of 28.9 million shares of common stock on October 24, 2011.

We ended the first quarter of fiscal 2012 with $23.0 million in cash and cash equivalents compared to $24.0 million at the end of the first quarter of fiscal 2011.  As of April 28, 2012, we had $15.0 million of outstanding borrowings under our revolving line of credit.  Working capital was $35.1 million at the end of the first quarter of fiscal 2012, compared to $61.0 million at the end of the first quarter of fiscal 2011. Premium retail store inventory per square foot, including retail inventory in our distribution center, declined 31.4 percent compared to the first quarter of fiscal 2011. Total inventory decreased 19.3 percent to $127.7 million at the end of the first quarter of fiscal 2012 from $158.2 million at the end of the first quarter of fiscal 2011.

 ____________________________________________________________

(1)  We define comparable premium retail stores as those stores in which the gross square footage has not changed by more than 20 percent in the previous 16 months and which have been open for at least 16 consecutive months without closure for seven consecutive days or moving to a different temporary or permanent location. Due to the extensive promotions that occur as part of the opening of a premium store, we believe waiting 16 months rather than 12 months to consider a store to be comparable provides a better view of the growth pattern of the premium retail store base. The calculation of comparable store sales varies across the retail industry and, as a result, the calculations of other retail companies may not be consistent with our calculation.

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Company Initiatives

For fiscal 2012, we are focused on completing the initiatives that we believe are necessary to move the business beyond the turnaround phase and return to growth. We expect to demonstrate steady improvements in sales productivity and progress toward profitability through the course of fiscal 2012 as we emphasize three strategic priorities, including 1) continuing to evolve and elevate our merchandise, 2) strengthening our brand messaging, and 3) improving our marketing effectiveness to drive increased traffic to all channels.

 The first priority is to continue to evolve our product assortment to offer more compelling, unique fashions by offering a lifestyle focused collection that will enable us to broaden product appeal, improve inventory productivity, and strengthen our supply chain capabilities.

The second priority is to refine the Coldwater Creek brand messaging to enable us to expand our customer base. The brand messaging will highlight what makes Coldwater Creek unique, such as our distinctive looks, expressive colors, and fashion-right offerings. In the retail stores, the focus is on creating stronger key item and fashion story messages that are impactful, drive traffic, and elevate the brand perception. In the direct channel, the catalog will continue to evolve to reflect a more appealing look and layout, and the on-line channel will provide enhanced content and functionality.

The third priority is to improve overall traffic levels in all channels. In fiscal 2012, we plan to extend the reach and quality of our advertising platforms by developing differentiated, creative campaigns designed to extend the brand to new customers by using a combination of print and online advertising. In addition, in the second fiscal quarter of 2012, we are continuing to test the viability of television advertising as a medium to expand reach to new customers. In fiscal 2012, we also plan to expand our location-based marketing programs. As part of this initiative, we recently launched the next generation Coldwater Creek loyalty program. Over the course of fiscal 2012, we plan to add enhanced functionality to our e-commerce platform, continue to develop and evolve tablet and mobile applications, and improve the integration of our on-line and in-store shopping experience by providing customers with a view to product availability in stores.

As part of our ongoing store optimization plan that we announced earlier in fiscal 2011, we closed 15 premium retail stores in fiscal 2011 and we plan to close approximately 15 premium retail stores in fiscal 2012. We are on track to meet our expectations of closing between 35 and 45 stores between fiscal 2011 and fiscal 2013.

Outlook

We have made significant changes to both people and processes over the past two years to enable us to evolve the Coldwater Creek brand to what customers are looking for today. During the fourth quarter of fiscal 2011 and continuing into the first quarter of fiscal 2012, we began to see the benefits of these investments in the form of significantly higher merchandise margins and meaningful improvements in comparable premium retail store sales trends, which gives us confidence that we are moving in the right direction.

We expect that a competitive promotional environment will continue. In addition, weakness in consumer spending persists as a result of continued uncertain macroeconomic conditions reflected in reduced incomes and asset values, high unemployment and deterioration in the housing market. We believe these conditions continue to have a negative impact on our sales, gross margin and operating performance. Specifically, we expect that as a result of these factors, among other things, it will take an extended period of time to realize positive growth in traffic levels to our retail stores and website.

We remain committed to disciplined management of expenses and inventory and now expect to reduce SG&A year-over-year by $10.0 million to $15.0 million in fiscal 2012, taking into account that fiscal 2012 has 53 weeks. Also for fiscal 2012, we expect capital expenditures to be $12.0 million to $16.0 million and depreciation and amortization expense to be approximately $52.0 million.

If we are in a loss position for a quarter or the year, we do not expect to generate any significant federal income tax benefit due to our valuation allowance and we may incur a small expense as a result of various state taxation requirements.

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Results of Operations

Comparison of the Three Months EndedApril 28, 2012with the Three Months EndedApril 30, 2011:

	Three Months Ended
	April 28, 2012			% of  net sales		April 30, 2011			% of  net sales		$ change			% change
	(in thousands, except per share data)
Net sales:
Retail	$	131,202		77.2	%	$	135,262		75.2	%	$	(4,060	)	(3.0	)%
Direct	38,682			22.8		44,533			24.8		(5,851		)	(13.1	)
	169,884			100.0		179,795			100.0		(9,911		)	(5.5	)
Cost of sales	115,493			68.0		125,182			69.6		(9,689		)	(7.7	)
Gross profit	54,391			32.0		54,613			30.4		(222		)	(0.4	)
Selling, general and administrative expenses	77,519			45.6		83,942			46.7		(6,423		)	(7.7	)
Loss from operations	(23,128		)	(13.6	)	(29,329		)	(16.3	)	6,201			(21.1	)
Interest expense, net	561			0.3		414			0.2		147			35.5
Loss before income taxes	(23,689		)	(13.9	)	(29,743		)	(16.5	)	6,054			(20.4	)
Income tax provision	71			—		285			0.2		(214		)	(75.1	)
Net loss	$	(23,760	)	(14.0	)%	$	(30,028	)	(16.7	)%	$	6,268		(20.9	)%
Net loss per common share — Diluted	$	(0.20	)			$	(0.32	)			$	0.12		(37.5	)%
Effective income tax rate	(0.3		)%			(1.0		)%

Net Sales

The $4.1 million decrease in retail segment net sales for the three months endedApril 28, 2012 as compared to the three months endedApril 30, 2011 is primarily due to the impact of 13 net store closures since the end of the first quarter of fiscal 2011 as part of our store optimization program. Comparable premium retail store sales declined 0.6 percent, primarily due to an 8.9 percent decline in comparable traffic offset by an 8.0 percent increase in comparable average transaction value driven by a 6.3 percent increase in comparable average unit retail.

The $5.9 million decrease in direct segment net sales for the three months endedApril 28, 2012 as compared to the three months endedApril 30, 2011 is primarily the result of a 7.9 percent decrease in order volume and a 1.1 percent decrease in average unit retail. Direct segment net sales were also negatively impacted by a decrease of $1.0 million in shipping revenue during the three months endedApril 28, 2012 as compared to the three months endedApril 30, 2011.

Gross Profit

Gross profit margin increased by 1.6 percentage points during the three months endedApril 28, 2012 as compared to the three months endedApril 30, 2011.  Gross profit margin was favorably impacted by a 2.2 percentage point increase in merchandise margins reflecting improved product performance and lower overall inventory levels.

Selling, General and Administrative Expenses

SG&A decreased $6.4 million during the three months endedApril 28, 2012 as compared to the three months endedApril 30, 2011, primarily due to lower expenses in all categories, with the largest decline from marketing expenses. 

Loss from Operations

We evaluate the performance of our operating segments based upon segment operating income (loss), as shown below, along with segment net sales:

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	Three Months Ended
	April 28, 2012			% of Segment Sales		April 30, 2011			% of Segment Sales		%  Change
	(dollars in thousands)
Segment operating income:
Retail	$	923		0.7	%	$	(6,822	)	(5.0	)%	*
Direct	4,789			12.4		8,810			19.8		(45.6	)%
Total segment operating income	5,712					1,988					187.3
Unallocated corporate and other	(28,840		)			(31,317		)			(7.9	)
Loss from operations	$	(23,128	)			$	(29,329	)			(21.1	)

____________________________________________________________

*     Percentage comparisons for changes between positive and negative values are not considered meaningful.

Retail segment operating income rate expressed as a percent of retail segment sales for the three months endedApril 28, 2012 as compared to the three months endedApril 30, 2011 increased by 5.7 percentage points. Higher merchandise margins contributed a 3.4 percentage point increase to the retail segment operating rate.  The retail segment operating income rate was also favorably impacted by a 1.6 and a 1.3 percentage point increase due to lower occupancy expenses and marketing expenses, respectively.

Direct segment operating income rate expressed as a percent of direct segment sales for the three months endedApril 28, 2012 as compared to the three months endedApril 30, 2011 decreased by 7.4 percentage points.  Lower merchandise margins resulting from the sales mix within the direct segment contributed a 8.2 percentage point decrease to the operating rate, partially offset by a 2.1 percentage point increase due to lower marketing expenses.

Unallocated corporate and other expenses decreased $2.5 million for the three months endedApril 28, 2012 as compared to the three months endedApril 30, 2011, primarily due to a decrease in marketing costs as a result of a reduction in national magazine advertising campaigns.

Interest Expense, net

The increase in interest expense, net, for the three months endedApril 28, 2012 as compared to the same period in the prior year is primarily the result of higher amounts of debt outstanding.

Provision for Income Taxes

The income tax provision primarily reflects the continuing impact of the valuation allowance against our deferred tax assets and various state taxation requirements. 

Seasonality

Our results continue to depend materially on the November and December holiday shopping season. In anticipation of traditionally increased holiday sales activity, we incur certain significant incremental expenses, including the hiring of a substantial number of temporary employees to supplement our existing workforce. Additionally, as gift items and accessories are more prominently represented in the November and December holiday season merchandise offerings, we typically expect, absent offsetting factors, to realize higher consolidated gross margins and earnings in the second half of our fiscal year.

As with many apparel retailers, our net sales, results of operations, liquidity and cash flows have fluctuated, and will continue to fluctuate, as a result of a number of other factors, including the following:

• the composition, size and timing of various merchandise offerings;

• the timing and number of premium retail store openings and closings;

• the timing and number of promotions;

• the timing and number of catalog mailings;

• customer response to merchandise offerings, including the impact of economic and weather-related influences, the actions of competitors and similar factors;

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• the ability to accurately estimate our recorded sales returns accrual and inventory adjustments;

• market price fluctuations in critical materials and services, including paper, production, postage and telecommunications costs;

• the timing of merchandise shipping and receiving, including any delays resulting from labor strikes or slowdowns, adverse weather conditions, health epidemics or national security measures; and

• shifts in the timing of important holiday selling seasons relative to our fiscal quarters, including Valentine’s Day, Easter, Mother’s Day, Thanksgiving and Christmas.

Liquidity and Capital Resources

In May 2011, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank with a maturity date of May 16, 2016, which is secured primarily by our inventory, credit card receivables, corporate offices in Sandpoint, Idaho and certain other assets. The Credit Agreement provides a revolving line of credit of up to $70.0 million, with subfacilities for the issuance of up to $70.0 million in letters of credit and swingline advances of up to $10.0 million. The actual amount of credit that is available from time to time under the revolving line of credit is limited to a borrowing base amount that is determined according to, among other things, a percentage of the value of eligible inventory plus a percentage of the value of eligible credit card receivables, as reduced by certain reserve amounts that may be required by Wells Fargo Bank.  The Credit Agreement also provided a term loan due on May 16, 2016. We have a future option to request an increase in the amount of the revolving line of credit for an additional $15.0 million, which if granted would result in a total of $85.0 million available, exclusive of the term loan. As of April 28, 2012, the revolving line of credit was limited to a borrowing base of $70.0 million and we had $16.9 million in letters of credit issued and $15.0 million borrowed on our revolving line of credit, resulting in $38.1 million available for borrowing under our revolving line of credit.

Pursuant to the Credit Agreement, borrowings issued under the revolving line of credit will generally accrue interest at a rate ranging from 1.00% to 2.50% (determined according to the average unused availability under the credit facility (the “Availability”)) over a reference rate of, at our election, either LIBOR or a base rate (the “Reference Rate”) with an interest rate of 2.50% as of April 28, 2012. Letters of credit issued under the revolving line of credit will accrue interest at a rate ranging from 1.50% to 2.50% (determined according to the Availability) with an interest rate of 2.25% as of April 28, 2012. Commitment fees accrue at a rate ranging from 0.375% to 0.50% (determined according to the Availability), which is assessed on the average unused portion of the credit facility maximum amount.  The term loan accrues interest at a rate of 6.00% over the Reference Rate, with an interest rate of 6.25% as of April 28, 2012.

The Credit Agreement has restrictive covenants that are limited to capital expenditure limitations, minimum amount of inventory to be held and minimum excess availability over the borrowing base that must be maintained. The Credit Agreement also contains various covenants relating to customary matters, such as indebtedness, liens, investments, acquisitions, mergers, dispositions and other payment restriction conditions, such as limits on our ability to pay dividends when we have outstanding borrowings on our revolving line of credit. As currently planned, the 35 to 45 store closures under our store optimization program and the related transfer or disposition of store assets are not limited by our Credit Agreement.  We were in compliance with all covenants for all periods presented.

The Credit Agreement contains customary events of default for credit facilities of this type. Upon an event of default that is not cured or waived within any applicable cure periods, in addition to other remedies that may be available to the lenders, the obligations under the Credit Agreement may be accelerated, outstanding letters of credit may be required to be cash collateralized and remedies may be exercised against the collateral.

Net cash used in operating activities was $24.5 million during the three months ended April 28, 2012 compared to $26.8 million during the three months ended April 30, 2011. The $2.3 million decrease in cash flows used in operating activities resulted primarily from a decrease in net loss partially offset by the impact of lower depreciation and amortization expense and higher deferred rents. We also had higher use of operating cash from operating assets and liabilities as a result of payments made to taxing authorities.

Cash outflows from investing activities principally consisted of capital expenditures, which totaled $3.7 million during the three months ended April 28, 2012 compared to $1.4 million during the three months ended April 30, 2011. Capital expenditures during the three months ended April 28, 2012 and April 30, 2011 primarily related to premium retail leasehold improvements.

Cash outflows from financing activities were $0.1 million during the three months ended April 28, 2012 compared to cash

18

inflows of $0.4 million during the same period last year. The cash outflows during the three months ended April 28, 2012 were primarily due to payments of long-term debt and capital lease obligations.

As a result of the foregoing, we had $35.1 million in working capital at April 28, 2012 compared with $54.2 million at January 28, 2012 and $61.0 million at April 30, 2011. Our current ratio was 1.25 at April 28, 2012 compared with 1.36 at January 28, 2012 and 1.39 at April 30, 2011. As of April 28, 2012, we had $15.0 million outstanding under our revolving line of credit.

We plan to limit new store openings to one premium retail store and one outlet store in fiscal 2012, and will continue to evaluate real estate opportunities to improve the efficiency of our store base, including the potential of relocating stores to more favorable locations and reducing overall store size. Capital expenditures for fiscal 2012 are expected to be between $12.0 million and $16.0 million.

In line with our store optimization program announced during fiscal 2011, we closed 15 stores in fiscal 2011 and expect to close approximately 15 premium retail stores in fiscal 2012. We are on track to meet our expectations of closing between 35 and 45 stores between fiscal 2011 and fiscal 2013. The optimization program will be achieved through a staged approach based primarily on natural lease expirations and early termination rights. In total, when the program is completed, we expect these actions to generate approximately $8.0 to $12.0 million in annualized improvement in pretax operating results. We typically do not incur significant termination costs or disposal charges as a result of store closures. Early termination clauses generally relieve us of any future obligation under a lease if specified sales levels or certain occupancy targets are not achieved by a specified date.

Historically, we have relied on our cash resources and cash flows from operations to fund our operations. We have also used our revolving line of credit to securitize trade letters of credit and, more recently, from time to time for borrowings, both of which reduce the amount of available borrowings. The actual amount of credit that is available from time to time under our revolving line of credit fluctuates greatly and is limited to a borrowing base amount that is determined according to, among other things, a percentage of the value of eligible inventory plus a percentage of the value of eligible credit card receivables, as reduced by certain reserve amounts that may be determined at the discretion of the lender. Consequently, it is possible that, should we need to access any additional funds from our revolving line of credit, it may not be available in full. 

We believe we have sufficient cash and liquidity, including our revolving line of credit that we may continue to draw on from time to time, to fund our operations through the next 12 months. However, we have had recurring operating losses and if our future operating performance is below our expectations, or our revolving line of credit is not fully available to us, our cash and liquidity could be adversely impacted and it may be necessary to seek additional sources of liquidity. There is no assurance that debt or equity financing will be available in amounts or on terms acceptable to us. If we are unable to maintain adequate liquidity, we may need to further reduce our expenses or curtail our operations. Constraints on liquidity make us vulnerable to further downturns in our business or the general economy and a shortfall would have serious consequences for our business. Additionally, lack of capital could restrict our ability to react to changes in our business or to take advantage of opportunities as they arise, including opportunities designed to accelerate our turnaround. If we borrow additional amounts under our revolving line of credit or incur other debt, our interest expense will increase and we may be subject to additional covenants that could restrict our operations. The sale of additional equity securities or convertible debt securities could result in significant dilution to our current stockholders, particularly given our low stock price in recent periods. Newly issued securities may have rights, preferences and privileges that are senior or otherwise superior to those of our common stock.

Contractual Obligations

We have included a summary of our contractual obligations as of January 28, 2012 in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012. As of April 28, 2012, our minimum operating lease payment requirements, which include the predetermined fixed escalations of the minimum rentals and exclude contingent rental payments, CAM, real estate taxes, and the amortization of lease incentives for our operating leases totaled $476.9 million.  Total debt and capital lease obligations outstanding as of April 28, 2012 was $42.1 million.  As of April 28, 2012, we had non-cancelable inventory purchase commitments of $110.8 million. There have been no other material changes in contractual obligations outside the ordinary course of business since January 28, 2012.

Critical Accounting Policies and Estimates

Preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.  We base our estimates on historical experience and on other assumptions

19

that we believe are reasonable. As a result, actual results could differ because of the use of estimates.  The critical accounting policies used in the preparation of our consolidated financial statements include those that require us to make estimates about matters that are uncertain and could have a material impact to our consolidated financial statements.  The description of critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in our financial instruments represents the potential loss arising from adverse changes in interest rates.  We have not been materially impacted by fluctuations in foreign currency exchange rates as substantially all of our business is transacted in, and is expected to continue to be transacted in, U.S. dollars or U.S. dollar-based currencies. We do not enter into financial instruments for trading purposes and have not used, and currently do not anticipate using, any derivative financial instruments.

As of April 28, 2012, we had outstanding debt of $14.9 million under our variable rate term loan and $15.0 million under our revolving line of credit.  The impact of a hypothetical 10 percent adverse change in interest rates for our debt would have resulted in an immaterial amount of additional expense for the three months endedApril 28, 2012.

ITEM 4.CONTROLSANDPROCEDURES

Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Our management, with the participation of our Chairman, President and Chief Executive Officer and our Executive Vice President, Chief Operating Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of April 28, 2012. Based on that evaluation, our Chairman, President and Chief Executive Officer and our Executive Vice President, Chief Operating Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of April 28, 2012.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the first quarter of fiscal 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.     OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

See Note 10, Commitments and Contingencies, to our condensed consolidated financial statements.

ITEM 1A.RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the following risk factors which could materially affect our business, financial condition or future results. We have updated the following risk factors to reflect changes during the three months ended April 28, 2012 we believe to be material to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012 filed with the Securities and Exchange Commission. Other risks that we face are more fully described in our Annual Report on Form 10-K and in other reports we file with the Securities and Exchange Commission. Additional risks and uncertainties that are not currently known or currently deemed immaterial may also adversely affect the business, financial condition, or future results of the Company.

We must successfully gauge fashion trends and changing consumer preferences or our sales and results of operations will be adversely affected.

20

Forecasting consumer demand for our merchandise is difficult given the nature of changing fashion trends and consumer preferences. The specialty retail business fluctuates according to changes in consumer preferences dictated, in part, by fashion and season. In addition, our merchandise assortment differs in each seasonal flow and at any given time our assortment may not resonate with our customers. On average, we begin the design process for apparel nine to ten months before merchandise is available to consumers, and we typically begin to make purchase commitments four to eight months in advance. These lead times make it difficult for us to respond quickly to changes in demand for our products. To the extent we misjudge the market for our merchandise or the products suitable for local markets, our sales will be adversely affected. If the demand for our merchandise were to be lower than expected, causing us to hold excess inventory, we could be forced to further discount merchandise, which reduces our gross margins and negatively impacts results of operations and operating cash flows. If we were to carry low levels of inventory and demand is stronger than we anticipate, we may not be able to reorder merchandise on a timely basis to meet demand, which may adversely affect sales and customer satisfaction.

We continue to update our style orientation and reinvigorate our brand, which includes improving the balance of our assortment to address more aspects of our customers' lifestyle and rebuilding our under performing categories. If these changes do not resonate with our customers, our sales, gross margins and results of operations will be adversely affected.

We may be unable to improve the value of our brand and our failure to do so may adversely affect our business.

Our success is driven by the value of the Coldwater Creek brand. We are implementing a comprehensive marketing campaign, which includes television, national magazine advertising, and online media initiatives, to restore Coldwater Creek's brand value and to increase traffic to all channels. This campaign is designed to increase brand engagement and brand trial with a focus on expanding the reach to a broader segment of our target demographic. The value of our brand is largely dependent on the success of our design, merchandise assortment, and marketing efforts and our ability to provide a consistent, high quality customer experience. If we are not able to improve our brand perception, we may not fully realize the benefits of any improvements to our merchandise assortment and our business and results of operations may be adversely affected.

Continued material operating losses may require that we obtain additional financing from the capital markets to execute our business plan and such financing may not be available to us in amounts or on terms acceptable to us.

We believe we have sufficient cash and liquidity, including our revolving line of credit that we may continue to draw on from time to time, to fund our operations through the next 12 months. However, we have had recurring operating losses and if our future operating performance is below our expectations or our revolving line of credit is not fully available to us, our cash and liquidity could be adversely impacted and it may be necessary to seek additional sources of liquidity. There is no assurance that debt or equity financing will be available in amounts or on terms acceptable to us. If we are unable to maintain adequate liquidity, we may need to further reduce our expenses or curtail our operations. Constraints on liquidity make us vulnerable to further downturns in our business or the general economy and a shortfall would have serious consequences for our business. Additionally, lack of capital could restrict our ability to react to changes in our business or to take advantage of opportunities as they arise, including opportunities designed to accelerate our turnaround. If we borrow additional amounts under our revolving line of credit or incur other debt, our interest expense will increase and we may be subject to additional covenants that could restrict our operations. The sale of additional equity securities or convertible debt securities could result in significant dilution to our current stockholders, particularly given our low stock price in recent periods. Newly issued securities may have rights, preferences and privileges that are senior or otherwise superior to those of our common stock.

Our revolving line of credit contains borrowing base and other provisions that may restrict our ability to access it, which could impact our ability to access capital when needed.

We use our revolving line of credit to secure trade letters of credit and from time to time for borrowings, both of which reduce the amount available for borrowing. The actual amount of credit that is available under our revolving line of credit fluctuates and is limited to a borrowing base amount that is determined according to, among other things, a percentage of the value of eligible inventory plus a percentage of the value of eligible credit card receivables, as reduced by certain reserve amounts that may be required by the lender. Consequently, it is possible that, should we need to access additional funds from our revolving line of credit, the amount needed may not be available. Additionally, our revolving line of credit contains covenants related to capital expenditures, minimum inventory book value, and other customary matters. Our failure to comply with the covenants terms and conditions could cause the revolving line of credit not to be available to us. As of April 28, 2012, the revolving line of credit was limited to a borrowing base of $70.0 million with $16.9 million in letters of credit issued and $15.0 million borrowed on our revolving line of credit, resulting in $38.1 million available for borrowing under our revolving line of credit.

We may be unable to successfully realize the benefits of our store optimization program.

21

We continue to believe that retail expansion will be a key driver for our long term growth. However, due to our business performance and our focus on improving financial results, we are executing our store optimization program that we announced in fiscal 2011 based on an ongoing review of the performance of our premium retail stores. As a result, we closed 15 premium retail stores in fiscal 2011 and expect to close approximately 15 premium retail stores in fiscal 2012. We are on track to meet our expectations of closing between 35 and 45 stores between fiscal 2011 and fiscal 2013. The optimization program will be achieved through a staged approach based primarily on natural lease expirations and early termination rights. In total, when the program is completed, we expect these actions to generate approximately $8.0 to $12.0 million in annualized improvement in pretax operating results. However, there can be no assurance that the store optimization program will realize the expected benefits and we may incur delays and unexpected costs in its execution. Any miscalculations or shortcomings we may make in the planning and implementation of the store optimization program may adversely affect our financial position, results of operations and cash flows.

We may not be able to maintain our listing on the NASDAQ, which may limit the ability of our stockholders

to sell shares of our common stock.

Our common stock is currently listed on the NASDAQ Global Select Market and we are required to meet specified financial requirements to maintain this listing, one of which is that we maintain a minimum closing price of at least $1.00 per share for our common stock. Our common stock has recently traded below $1.00 per share. If we fail to maintain the $1.00 minimum closing price for 30 consecutive business days, we may be at risk of delisting. We cannot be assured that we can maintain or

would be successful in regaining compliance with the minimum price requirements in the future. Delisting, or even the issuance of a notice of potential delisting, could have a material adverse effect on the price of our shares and our ability to issue additional securities or secure financing. In the event of delisting, trading of our common stock would most likely be conducted in the over the counter market on an electronic bulletin board established for unlisted securities, which would adversely affect the market liquidity of our common stock, security analysts’ coverage of us could be reduced and customer, investor, supplier and employee confidence may be diminished.

Failure to comply with applicable laws and regulations may adversely affect our business and results of operations.

We have policies and procedures that are designed to help us comply with applicable laws and regulations, including those imposed by the SEC, NASDAQ, and other foreign, federal, state and local authorities. Any new or changes to laws and regulations that affects employment and labor, trade, product labeling and safety, transportation and logistics, healthcare, tax, privacy, environmental, or other areas applicable to us, may increase the complexity and the related cost of compliance. Failure to comply with applicable laws and regulations may adversely affect our business and results of operations.

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.     MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.    OTHER INFORMATION

None

22

ITEM 6.     EXHIBITS

(A) Exhibits: 

Exhibit Number	Description of Document
31.1*	Certification by Dennis C. Pence of periodic report pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2*	Certification by James A. Bell of periodic report pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32.1°	Certification by Dennis C. Pence and James A. Bell pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS^	XBRL Instance
101.SCH^	XBRL Taxonomy Extension Schema
101.CAL^	XBRL Taxonomy Extension Calculation
101.DEF^	XBRL Taxonomy Extension Definition
101.LAB^	XBRL Taxonomy Extension Label
101.PRE^	XBRL Taxonomy Extension Presentation

 ____________________________________________________________

*	Filed electronically herewith.
°	Furnished electronically herewith.
^	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability under these sections.

23

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sandpoint, State of Idaho, on this 1st day of June 2012.

COLDWATER CREEK INC.
By:	/s/ Dennis C. Pence
	Dennis C. Pence
	Chairman of the Board of Directors, President and
	Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ James A. Bell
	James A. Bell
	Executive Vice President, Chief Operating Officer and
	Chief Financial Officer
	(Principal Financial Officer)
By:	/s/ Mark A. Haley
	Mark A. Haley
	Vice President and Chief Accounting Officer
	(Principal Accounting Officer)

24

EXHIBIT INDEX

Exhibit Number	Description of Document
31.1*	Certification by Dennis C. Pence of periodic report pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2*	Certification by James A. Bell of periodic report pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32.1°	Certification by Dennis C. Pence and James A. Bell pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS^	XBRL Instance
101.SCH^	XBRL Taxonomy Extension Schema
101.CAL^	XBRL Taxonomy Extension Calculation
101.DEF^	XBRL Taxonomy Extension Definition
101.LAB^	XBRL Taxonomy Extension Label
101.PRE^	XBRL Taxonomy Extension Presentation

____________________________________________________________

*	Filed electronically herewith.
°	Furnished electronically herewith.
^	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability under these sections.

25

EX-31.1

Exhibit 31.1

I, Dennis C. Pence, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Coldwater Creek Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 

Date:	June 1, 2012
/s/ Dennis C. Pence
Dennis C. Pence
Chairman of the Board of Directors, President and
Chief Executive Officer
(Principal Executive Officer)

EX-31.2

Exhibit 31.2

I, James A. Bell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Coldwater Creek Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 

Date:	June 1, 2012
/s/ James A. Bell
James A. Bell
Executive Vice President, Chief Operating Officer and
Chief Financial Officer
(Principal Financial Officer)

EX-32.1

Exhibit 32.1

PERIODIC REPORT CERTIFICATION

of the Chief Executive Officer and Chief Financial Officer

I, Dennis C. Pence, Chairman of the Board of Directors, President and Chief Executive Officer of Coldwater Creek Inc. (the “Company”), certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the report of the Company on Form 10-Q for the quarterly period ended April 28, 2012, as filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. 

/s/ Dennis C. Pence

Dennis C. Pence

Chairman of the Board of Directors, President and

Chief Executive Officer

(Principal Executive Officer)

June 1, 2012

I, James A. Bell, Executive Vice President, Chief Operating Officer and Chief Financial Officer of Coldwater Creek Inc. (the “Company”), certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the report of the Company on Form 10-Q for the quarterly period ended April 28, 2012, as filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)  the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ James A. Bell

James A. Bell

Executive Vice-President, Chief Operating officer and 

Chief Financial Officer

(Principal Financial Officer)

June 1, 2012

XML

Accrued Liabilities

3 Months Ended

Apr. 28, 2012

Accrued Liabilities [Abstract]

Accrued Liabilities

Accrued Liabilities

Accrued liabilities consisted of the following:

	April 28, 2012		January 28, 2012		April 30, 2011
	(in thousands)
Accrued payroll and benefits	$	12,553	$	14,134	$	9,424
Gift cards and certificates	17,203		21,560		29,389
Current portion of deferred rents	20,818		20,384		21,189
Current portion of deferred marketing fees and revenue sharing	4,367		4,398		4,363
Deferred sales royalty	3,287		3,511		3,030
Accrued sales returns	4,461		3,535		4,608
Accrued taxes	5,063		4,486		4,224
Other	3,944		2,907		6,078
	$	71,696	$	74,915	$	82,305

XML

Property and Equipment, net

3 Months Ended

Apr. 28, 2012

Property, Plant and Equipment [Abstract]

Property and Equipment, net

Property and Equipment, net

Property and equipment, net, consisted of the following:

	April 28, 2012			January 28, 2012			April 30, 2011
	(in thousands)
Land	$	242		$	242		$	242
Building and land improvements	29,650			29,646			29,646
Leasehold improvements	265,473			273,039			290,094
Furniture and fixtures	117,989			119,656			124,298
Technology hardware and software	90,492			90,063			93,583
Machinery and equipment and other	34,978			35,129			37,168
Capital leases	12,805			12,780			12,706
Construction in progress	13,397			13,137			13,508
	565,026			573,692			601,245
Less — Accumulated depreciation and amortization	(368,503		)	(367,613		)	(354,508		)
	$	196,523		$	206,079		$	246,737

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Apr. 28, 2012	Jan. 28, 2012	Apr. 30, 2011
Current assets:
Cash and cash equivalents	$ 22,989	$ 51,365	$ 24,046
Receivables	11,539	8,199	11,889
Inventories	127,684	131,975	158,190
Prepaid and other current assets	7,801	6,137	10,778
Prepaid and deferred marketing costs	3,824	3,273	7,728
Deferred income taxes	2,313	2,313	6,339
Total current assets	176,150	203,262	218,970
Property and equipment, net	196,523	206,079	246,737
Deferred income taxes	1,887	1,891	1,829
Other assets	1,795	1,883	1,183
Total assets	376,355	413,115	468,719
Current liabilities:
Accounts payable	52,487	55,130	71,581
Accrued liabilities	71,696	74,915	82,305
Income taxes payable	1,147	3,260	3,386
Current maturities of debt and capital lease obligations	15,728	15,735	746
Total current liabilities	141,058	149,040	158,018
Deferred rents	96,723	101,384	112,639
Long-term debt and capital lease obligations	26,407	26,575	12,161
Supplemental Executive Retirement Plan	12,248	12,142	10,110
Deferred marketing fees and revenue sharing	3,781	4,402	5,433
Deferred income taxes	1,716	1,716	5,524
Other liabilities	1,393	1,443	1,652
Total liabilities	283,326	296,702	305,537
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000 shares authorized, none issued and outstanding	0	0	0
Common stock, $0.01 par value, 300,000 shares authorized; 121,758, 121,669 and 92,541 shares issued, respectively	1,217	1,217	925
Additional paid-in capital	150,717	150,341	125,996
Accumulated other comprehensive loss	(2,204)	(2,204)	(464)
Retained earnings (deficit)	(56,701)	(32,941)	36,725
Total stockholders' equity	93,029	116,413	163,182
Total liabilities and stockholders' equity	$ 376,355	$ 413,115	$ 468,719

XML

Significant Accounting Policies

3 Months Ended

Apr. 28, 2012

Accounting Policies [Abstract]

Significant Accounting Policies

Significant Accounting Policies

Accounting Policies

The complete summary of significant accounting policies is included in the notes to the consolidated financial statements as presented in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and timing of revenue and expenses, the reported amounts and classification of assets and liabilities, and the disclosure of contingent assets and liabilities. These estimates and assumptions are embodied in our sales returns accrual, gift card breakage, inventory adjustments, stock-based compensation, impairment of long-lived assets, contingencies, and income taxes. These estimates and assumptions are based on historical results as well as management’s future expectations. Actual results may vary from these estimates and assumptions.

Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels related to the subjectivity associated with the inputs to fair value measurements as follows:

• Level 1 — Quoted prices in active markets for identical assets or liabilities;

• Level 2 — Quoted prices for similar assets or liabilities in active markets or inputs that are observable; and

• Level 3 — Unobservable inputs in which little or no market activity exists.

As of April 30, 2011, we held $5.1 million in money market funds that are measured at fair value on a recurring basis using Level 1 inputs.  As of April 28, 2012 and January 28, 2012, we did not have any amounts in money market funds.

We have financial assets and liabilities, not required to be measured at fair value on a recurring basis, which primarily consist of cash, restricted cash, receivables, payables, and debt.  The carrying value of cash, restricted cash, receivables, payables and borrowing on our revolving line of credit materially approximate their fair values due to their short-term nature.  The carrying value of our term loan materially approximates fair value at April 28, 2012, as the interest rate is a market-based variable rate that was reset with Wells Fargo Bank during the current quarter.

Advertising Costs

Direct response advertising includes catalogs, national magazine advertisements and other mailings that contain an identifying code which allows us to track related sales. All direct costs associated with the development, production and circulation of direct response advertisements are accumulated as prepaid marketing costs. Once the related catalog, national magazine advertisement, or other mailings is either mailed or first appears in print, these costs are reclassified to deferred marketing costs. These costs are then amortized to selling, general and administrative expenses over the expected sales realization cycle, typically several weeks. Direct response advertising expense was $11.0 million and $15.9 million for the three months endedApril 28, 2012 and April 30, 2011, respectively.

Advertising costs other than direct response advertising, including television, store and event promotions, signage expenses and other general customer acquisition activities, are expensed as incurred or when the advertising event first takes place. Advertising expenses other than those related to direct response advertising of $5.5 million and $6.3 million for the three months endedApril 28, 2012 and April 30, 2011, respectively, are included in selling, general and administrative expense.

Income Taxes

In assessing the realizability of deferred tax assets, we consider all available evidence to determine whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), and projected taxable income in assessing the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. Current or previous losses are given more weight than projected future performance. Consequently, based on all available evidence, in particular our historical cumulative losses and recent operating losses, we have a valuation allowance against a significant portion of our net deferred tax assets. In order to fully realize the deferred tax assets, we will need to generate sufficient taxable income in future periods before the expiration of the deferred tax assets governed by the tax code.

Stock-Based Compensation

Total stock-based compensation recognized primarily in selling, general and administrative expenses from stock options and restricted stock units (“RSUs”) consisted of the following:

	Three Months Ended
	April 28, 2012		April 30, 2011
	(in thousands)
Stock options	$	230	$	408
RSUs	118		198
	$	348	$	606

During the three months endedApril 28, 2012 and April 30, 2011, employees were granted 981,300 and 56,000 stock options, respectively.  The fair value for stock option awards was estimated at the grant date using the Black-Scholes option valuation model with the following weighted average assumptions: 

	Three Months Ended
	April 28, 2012			April 30, 2011
Risk free interest rate	0.7		%	2.3		%
Expected volatility	89.6		%	78.6		%
Expected life (in years)	5.0			5.3
Expected dividends per share	$	—		$	—
Weighted average fair value per option granted	$	0.80		$	1.92

During the three months endedApril 28, 2012 and April 30, 2011, employees were granted 425,500 and 35,000 RSUs, respectively, at a weighted average fair value of $1.16 and $2.96, respectively.  During the three months endedApril 28, 2012, employees were also granted 494,000 performance RSUs at a weighted average grant date fair value of $1.16.  For the performance RSUs granted in fiscal 2012, half of the RSUs are subject to the achievement of earnings before interest expense and taxes (“EBIT”) targets for fiscal years 2012, 2013 and 2014 and half of the RSUs are subject to the achievement of sales targets for fiscal years 2012, 2013 and 2014. For performance RSUs granted in fiscal 2011, half of the RSUs are subject to the achievement of EBIT targets for the second half of fiscal 2011 combined with fiscal 2012 and half of the RSUs are subject to the achievement of sales targets for the second half of fiscal 2011 combined with fiscal 2012.  For performance RSUs granted in fiscal 2010, the RSUs are subject to the achievement of combined EBIT targets for fiscal years 2010, 2011 and 2012. No compensation expense has been recognized for the fiscal 2011 and 2010 performance RSUs as it was determined to be not probable that the performance conditions would be met. The number of shares actually awarded under performance RSUs will range from 0% to 200% of the base award amount, depending on the results during the performance period.

Interest expense, net

Interest expense, net, consisted of the following:

	Three Months Ended
	April 28, 2012			April 30, 2011
	(in thousands)
Interest expense	$	564		$	415
Interest income	(3		)	(1		)
	$	561		$	414

In fiscal 2012, we corrected the classification of other income, other expense and selling, general and administrative expenses. In previous years, other income and other expense was included with interest expense, net. For comparative purposes, other income, net, of $0.2 million for the three months endedApril 30, 2011, has been classified as selling, general and administrative expenses.

XML

Receivables

3 Months Ended

Apr. 28, 2012

Receivables [Abstract]

Receivables

Receivables

Receivables consisted of the following:

	April 28, 2012		January 28, 2012		April 30, 2011
	(in thousands)
Credit card receivables	$	6,790	$	2,960	$	6,306
Tenant allowances	1,465		2,112		1,926
Other	3,284		3,127		3,657
	$	11,539	$	8,199	$	11,889

Credit card receivables do not bear interest and are generally converted to cash in two to three days. We evaluate the credit risk associated with our receivables to determine if an allowance for doubtful accounts is necessary. As of April 28, 2012, January 28, 2012, and April 30, 2011, no allowance for doubtful accounts was deemed necessary.

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Apr. 28, 2012	Apr. 30, 2011
Net sales	$ 169,884	$ 179,795
Cost of sales	115,493	125,182
Gross profit	54,391	54,613
Selling, general and administrative expenses	77,519	83,942
Loss from operations	(23,128)	(29,329)
Interest expense, net	561	414
Loss before income taxes	(23,689)	(29,743)
Income tax provision	71	285
Net loss	(23,760)	(30,028)
Other comprehensive loss:
Total comprehensive loss	$ (23,760)	$ (30,028)
Net loss per share - Basic and Diluted (in dollars per share)	$ (0.20)	$ (0.32)
Weighted average shares outstanding — Basic and Diluted	121,713	92,516

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Document and Entity Information	3 Months Ended
	Apr. 28, 2012	May 28, 2012
Document And Entity Information [Abstract]
Entity Registrant Name	COLDWATER CREEK INC
Entity Central Index Key	0001018005
Document Type	10-Q
Document Period End Date	Apr. 28, 2012
Amendment Flag	false
Current Fiscal Year End Date	--02-02
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		121,610,008
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 28, 2012	Apr. 30, 2011
Operating activities:
Net loss	$ (23,760)	$ (30,028)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	13,752	15,135
Stock-based compensation expense	348	606
Supplemental Executive Retirement Plan expense	147	139
Deferred income taxes	4	(224)
Valuation allowance adjustments	0	(501)
Deferred marketing fees and revenue sharing	(652)	(513)
Deferred rents	(5,095)	(3,889)
Net loss on asset dispositions	1,226	520
Other	(90)	749
Net change in operating assets and liabilities:
Receivables	(3,330)	(2,328)
Inventories	4,291	(1,709)
Prepaid and other current assets	(2,215)	2,102
Accounts payable	(4,292)	(6,591)
Accrued liabilities	(2,755)	(3,664)
Income taxes payable	(2,113)	3,386
Net cash used in operating activities	(24,534)	(26,810)
Investing activities:
Purchase of property and equipment	(3,699)	(1,359)
Proceeds from asset dispositions	0	235
Net cash used in investing activities	(3,699)	(1,124)
Financing activities:
Borrowings on revolving line of credit	10,000	0
Payments on revolving line of credit	(10,000)	0
Payments of long-term debt and capital lease obligations	(201)	(137)
Other	(58)	(504)
Net cash provided by (used in) financing activities	(143)	367
Net decrease in cash and cash equivalents	(28,376)	(27,567)
Cash and cash equivalents, beginning	51,365	51,613
Cash and cash equivalents, ending	$ 22,989	$ 24,046

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Stockholders' Equity

3 Months Ended

Apr. 28, 2012

Stockholders' Equity Attributable to Parent [Abstract]

Stockholders' Equity

Stockholders' Equity

On October 24, 2011, we completed an underwritten public offering of 28.9 million shares of our common stock.  We received net proceeds from the offering of $22.9 million after deducting underwriting discounts and commissions and offering expenses.  The net proceeds from the offering are used for working capital and other capital expenditures, including investments in our marketing strategy and supply chain, as well as other general corporate purposes.

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Net Income (Loss) Per Common Share

3 Months Ended

Apr. 28, 2012

Earnings Per Share [Abstract]

Net Income (Loss) Per Common Share

NetIncome(Loss)Per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the combination of other potentially dilutive common shares and the weighted average number of common shares outstanding during the period. Other potentially dilutive weighted average common shares include the dilutive effect of stock options, RSUs and shares to be purchased under our Employee Stock Purchase Plan ("ESPP") for each period using the treasury stock method. Under the treasury stock method, the exercise price of a share, the amount of compensation expense, if any, for future service that has not yet been recognized, and the amount of excess tax benefits, if any, that would be recorded in additional paid-in-capital when the share is exercised are assumed to be used to repurchase shares in the current period.

The following table sets forth the computation of basic and diluted net loss per common share:

	Three Months Ended
	April 28, 2012			April 30, 2011
	(in thousands, except per share amounts)
Net loss	$	(23,760	)	$	(30,028	)
Weighted average common shares outstanding during the period (for basic calculation)	121,713			92,515
Dilutive effect of other potential common shares	—			—
Weighted average common shares and potential common shares (for diluted calculation)	121,713			92,515
Net loss per common share—Basic	$	(0.20	)	$	(0.32	)
Net loss per common share—Diluted	$	(0.20	)	$	(0.32	)

During the three months endedApril 28, 2012 and April 30, 2011, 6.2 million and 3.5 million, respectively, of stock options, RSUs, and shares to be purchased under our ESPP were outstanding but were excluded from the computation of diluted net loss per share because their effect were antidilutive.

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Co-Branded Credit Card Program

3 Months Ended

Apr. 28, 2012

Deferred Revenue [Abstract]

Co-Branded Credit Card Program

Co-Branded Credit Card Program

Deferred marketing fees and revenue sharing

The deferred marketing fees and revenue sharing activity was as follows:

	Three Months Ended
	April 28, 2012			April 30, 2011
	(in thousands)
Balance at beginning of period	$	8,800		$	10,309
Marketing fees received	863			1,067
Marketing fees recognized to revenue	(1,075		)	(1,140		)
Revenue sharing recognized to revenue	(440		)	(440		)
Balance at end of period	8,148			9,796
Less — Current deferred marketing fees and revenue sharing	(4,367		)	(4,363		)
Long-term deferred marketing fees and revenue sharing	$	3,781		$	5,433

Sales Royalty

The amount of sales royalty recognized as revenue during the three months endedApril 28, 2012 and April 30, 2011 was $1.9 million and $1.7 million, respectively. 

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Supplemental Executive Retirement Plan

3 Months Ended

Apr. 28, 2012

Pension and Other Postretirement Benefit Expense [Abstract]

Supplemental Executive Retirement Plan

Supplemental Executive Retirement Plan

Net periodic benefit cost of the Supplemental Executive Retirement Plan (“SERP”) consisted of the following:

	Three Months Ended
	April 28, 2012		April 30, 2011
	(in thousands)
Interest cost	$	138	$	139
Amortization of unrecognized net actuarial loss	9		—
	$	147	$	139

As the SERP is an unfunded plan, we were not required to make any contributions during fiscal 2012 and 2011. Benefit payments of $41,500 were made during the three months endedApril 28, 2012. No benefit payments were made during the three months endedApril 30, 2011.

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Commitments and Contingencies

3 Months Ended

Apr. 28, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Operating Leases

During the three months endedApril 28, 2012 and April 30, 2011, we incurred aggregate rent expense under operating leases of $17.1 million and $19.1 million, respectively, including common area maintenance costs (“CAM”) of $3.5 million and $3.7 million, respectively, and excluding related real estate taxes of $2.6 million and $2.7 million, respectively.  As of April 28, 2012, our minimum operating lease payment requirements, which include the predetermined fixed escalations of the minimum rentals and exclude contingent rental payments, CAM, real estate taxes, and the amortization of lease incentives for our operating leases totaled $476.9 million.

Legal Proceedings

We are, from time to time, involved in various legal proceedings incidental to the conduct of business. Actions filed against us from time to time include commercial, intellectual property infringement, customer and employment claims, including class action lawsuits alleging that we violated federal and state wage and hour and other laws. We believe that we have meritorious defenses to all lawsuits and legal proceedings currently pending against us. Though we will continue to vigorously defend such lawsuits and legal proceedings, we are unable to predict with certainty whether or not we will ultimately be successful. However, based on management’s evaluation, we believe that the resolution of these matters, taking into account existing contingency accruals and the availability of insurance and other indemnifications, will not materially impact our consolidated financial position, results of operations or cash flows.

Tax Contingencies

Our multi-channel business model subjects us to state and local taxes in numerous jurisdictions, including franchise, and sales and use tax. We collect these taxes in jurisdictions in which we have a physical presence. While we believe we have paid or accrued for all taxes based on our interpretation of applicable law, tax laws are complex and interpretations differ from state to state. In the past, we have been assessed additional taxes and penalties by various taxing jurisdictions, asserting either an error in our calculation or an interpretation of the law that differed from our own. It is possible that taxing authorities may make additional assessments in the future. In addition to taxes, penalties and interest, these assessments could cause us to incur legal fees associated with resolving disputes with taxing authorities.

Additionally, changes in state and local tax laws, such as temporary changes associated with “tax holidays” and other programs, require us to make continual changes to our collection and reporting systems that may relate to only one taxing jurisdiction. If we fail to update our collection and reporting systems in response to these changes, any over collection or under collection of sales taxes could subject us to interest and penalties, as well as private lawsuits and damage to our reputation. In the opinion of management, resolutions of these matters will not have a material impact on our consolidated financial position, results of operations or cash flows.

Other

As of April 28, 2012, we had non-cancelable inventory purchase commitments of$110.8 million. 

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Segment Reporting

3 Months Ended

Apr. 28, 2012

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

The following table provides certain financial data for the retail and direct segments as well as reconciliations to the condensed consolidated financial statements:

	Three Months Ended
	April 28, 2012			April 30, 2011
	(in thousands)
Net sales (a):
Retail	$	131,202		$	135,262
Direct	38,682			44,533
Net sales	$	169,884		$	179,795
Segment operating income (loss):
Retail	$	923		$	(6,822	)
Direct	4,789			8,810
Total segment operating income (loss)	5,712			1,988
Corporate and other	(28,840		)	(31,317		)
Loss from operations	$	(23,128	)	$	(29,329	)

 ____________________________________________________________

(a) There were no sales between the retail and direct segments during the reported periods.

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Nature of Business and Organizational Structure

3 Months Ended

Apr. 28, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Business and Organizational Structure

Nature of Business and Organizational Structure

Coldwater Creek Inc., a Delaware corporation, together with its wholly-owned subsidiaries, headquartered in Sandpoint, Idaho, is a multi-channel specialty retailer of women’s apparel, accessories, jewelry, and gift items. We conduct business in two operating segments: retail and direct. The retail segment consists of our premium retail stores, outlet stores, and day spas. The direct segment consists of sales generated through our e-commerce website and from orders taken from customers over the phone and through the mail. Intercompany balances and transactions have been eliminated.

The accompanying condensed consolidated financial statements are unaudited and have been prepared by management pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. The condensed consolidated balance sheet as of January 28, 2012 was derived from the audited consolidated balance sheet as of that date. The condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented and should be read in conjunction with the consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

The condensed consolidated financial position, results of operations and cash flows for these interim periods are not necessarily indicative of the financial position, results of operations or cash flows to be realized in future periods.

References to a fiscal year are to the calendar year in which the fiscal year begins.

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Debt and Capital Lease Obligations

3 Months Ended

Apr. 28, 2012

Debt Disclosure [Abstract]

Debt and Capital Lease Obligations

Debt and Capital Lease Obligations

Debt and capital lease obligations consisted of the following:

	April 28, 2012			January 28, 2012			April 30, 2011
	(in thousands)
Term loan	$	14,850		$	14,900		$	—
Revolving line of credit	15,000			15,000			—
Capital lease obligations	12,285			12,410			12,907
Total debt and capital lease obligations	42,135			42,310			12,907
Less:
Current maturities of debt	(15,200		)	(15,200		)	—
Current maturities capital lease obligations	(528		)	(535		)	(746		)
Long-term debt and capital lease obligations	$	26,407		$	26,575		$	12,161

In May 2011, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank with a maturity date of May 16, 2016, which is secured primarily by our inventory, credit card receivables, corporate offices in Sandpoint, Idaho and certain other assets. The Credit Agreement provides a revolving line of credit of up to $70.0 million, with subfacilities for the issuance of up to $70.0 million in letters of credit and swingline advances of up to $10.0 million. The actual amount of credit that is available from time to time under the revolving line of credit is limited to a borrowing base amount that is determined according to, among other things, a percentage of the value of eligible inventory plus a percentage of the value of eligible credit card receivables, as reduced by certain reserve amounts that may be required by Wells Fargo Bank.  The Credit Agreement also provided a term loan due on May 16, 2016. We have a future option to request an increase in the amount of the revolving line of credit for an additional $15.0 million, which if granted would result in a total of $85.0 million available, exclusive of the term loan.

As of April 28, 2012, the revolving line of credit was limited to a borrowing base of $70.0 million and we had $16.9 million in letters of credit issued and $15.0 million borrowed on our revolving line of credit, resulting in $38.1 million available for borrowing under our revolving line of credit. We believe we have sufficient cash and liquidity, including our revolving line of credit that we may continue to draw on from time to time, to fund our operations through the next 12 months. However, we have had recurring operating losses and if our future operating performance is below our expectations, or our revolving line of credit is not fully available to us, our cash and liquidity could be adversely impacted and it may be necessary to seek additional sources of liquidity. There is no assurance that debt or equity financing will be available in amounts or on terms acceptable to us. If we are unable to maintain adequate liquidity, we may need to further reduce our expenses or curtail our operations.

Pursuant to the Credit Agreement, borrowings issued under the revolving line of credit will generally accrue interest at a rate ranging from 1.00% to 2.50% (determined according to the average unused availability under the credit facility (the “Availability”)) over a reference rate of, at our election, either LIBOR or a base rate (the “Reference Rate”) with an interest rate of 2.50% as of April 28, 2012. Letters of credit issued under the revolving line of credit will accrue interest at a rate ranging from 1.50% to 2.50% (determined according to the Availability) with an interest rate of 2.25% as of April 28, 2012. Commitment fees accrue at a rate ranging from 0.375% to 0.50% (determined according to the Availability), which is assessed on the average unused portion of the credit facility maximum amount.  The term loan accrues interest at a rate of 6.00% over the Reference Rate, with an interest rate of 6.25% as of April 28, 2012.

The Credit Agreement has restrictive covenants that are limited to capital expenditure limitations, minimum amount of inventory to be held and minimum excess availability over the borrowing base that must be maintained. The Credit Agreement also contains various covenants relating to customary matters, such as indebtedness, liens, investments, acquisitions, mergers, dispositions and other payment restriction conditions, such as limits on our ability to pay dividends when we have outstanding borrowings on our revolving line of credit. As currently planned, the 35 to 45 store closures under our store optimization program and the related transfer or disposition of store assets are not limited by our Credit Agreement.  We were in compliance with all covenants for all periods presented.

The Credit Agreement contains customary events of default for credit facilities of this type. Upon an event of default that is not cured or waived within any applicable cure periods, in addition to other remedies that may be available to the lenders, the obligations under the Credit Agreement may be accelerated, outstanding letters of credit may be required to be cash collateralized and remedies may be exercised against the collateral.