Genesco Inc (GCO) 2011 Q2 法說會逐字稿

Good day, everyone, and welcome to the Genesco second-quarter fiscal year 2011 release conference call.

Just a reminder, today's call is being recorded.

Participants in the call expect to make forward-looking statements; they reflect the participant's expectations as of today, but actual results could be different.

Genesco refers you to this morning's earnings release and to the Company's SEC filings, including the most recent Form 10-K and the first quarter 10-Q for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made during the call today.

At this time for opening remarks and introductions I would like to turn the call over to Mr.

Bob Dennis, Chairman, President and Chief Executive Officer of Genesco.

Please go ahead, sir.

Good morning and thank you for joining us for our second-quarter earnings call.

With me today, as always, is Jim Gulmi, our Chief Financial Officer.

You probably noticed that we posted Jim's detailed review of the quarterly financials when we made the release this morning.

We thought this approach would make it easier for you to digest the details and free up more time on the call for explanations of our performance and outlook, discussions of our strategic initiatives and Q&A.

As such, Jim will talk about the financial highlights for the quarter and our forward outlook, and then I'll follow that with some comments about each of our individual businesses and how we see the back-to-school season unfolding.

But first I'd like to start with some strategic and operational highlights from the second quarter.

We turned in our performance essentially in line with our expectations and saw some signs of strength in our core operating dynamics, despite an economic environment that is obviously still choppy.

We also made continued progress on our strategic objectives.

Total sales for the quarter were up 9% and our consolidated sales comp increase for the quarter was 3%.

Lids continued to lead with another strong comp performance, but we also saw another positive comp at Journeys which we believe is now operating with an improved merchandise position.

Our overall direct business experienced some softness in Q2 versus its strong trend going into the quarter.

Direct sales were off 3% in the quarter, but the stronger trend resumed in August with direct sales up 14%.

Earnings per share was a $0.02 loss in the quarter, adjusted for the items referred to in Schedule B to the earnings release compared to a $0.02 loss last year.

This was in line with our expectations and reflects an improvement in the fundamentals of the business versus last year, masked by bonus accrual additions this year because of improving performance against bonus reversals last year when performance was deteriorating.

When we look at the business' baseline performance before these bonus adjustments, we were clearly able to leverage expenses on a 3% comp in the quarter, a leverage opportunity we expect will continue into the second half.

Our operators have worked hard on every expense line and this hard work is paying off.

Jim will review this dynamic in more detail in his comments.

We are pleased with our early start to back to school.

Our sales comp for the month of August was up 8% and we are hopeful this momentum will continue through the Labor Day weekend.

However, throughout this extended recession our customers have shown the greatest appetite to spend during event periods like back to school.

Thus, we are not assuming this strong comp trend will persist throughout the entire quarter.

However, our back-to-school performance has generally been a good barometer for holiday; when our assortments are right for back-to-school they generally carry over to the fourth quarter.

This is a reason for optimism.

Obviously, the wildcard going forward is the economic recovery, or lack thereof.

Just a note on the effect of the supply chain difficulties that you have heard about throughout the industry and our business.

Fortunately, to a large extent, we were able to dodge the short-term delivery problems through the second quarter and we don't currently see a significant negative impact on most of our businesses in the second half.

However, having said that, longer-term conditions in the supply chain will likely extend some upward pressure on pricing next year.

But overall we expect that the relative size of our major businesses will position us well to deal with these issues.

Strategically we have continued to move forward with our growth initiatives.

During the quarter, we completed the acquisition Brand Innovators, a team dealer based on the West Coast which added to our Lids Team sports business.

Since the end of the quarter we completed the acquisition of Anaconda Sports, an East Coast focused team dealer.

We also anticipate closing shortly on the acquisition of Sports Avenue, a chain of 47 stores which further builds out our strategy to expand Lids Locker Room.

This particular acquisition places us squarely in the related space of running fan shops and e-commerce sites in partnership with professional sports teams and colleges, another venue for selling licensed sports merchandise that leverages our inventory and infrastructure.

We are also driving growth at Journeys where we opened our first three stores in Canada and, while it's still early, the initial results from these stores are very encouraging.

Ultimately, we think this could prove to be a significant market for Journeys as it has been for Lids.

The balance sheet remains strong and easily supports our growth plan.

We ended the quarter with no debt and $49 million in cash after buying back $11 million of stock in the quarter.

Now I'd like to turn the call over to Jim to provide some highlights on our financials.

As Bob mentioned, much of the detailed financial information about the quarter that I usually cover on the call has been posted online, so I will only be making a few comments.

The second-quarter results essentially came in where we had expected.

Even though we did not give specific second-quarter guidance, we did talk at length about the tough earnings comparison we had this quarter due to the bonus accrual adjustment.

As you may remember last year after a very strong first quarter, when we substantially added to our bonus accruals, same-store sales fell 8% in the second quarter.

Much of the added bonus accrual from the first quarter was reversed in the second quarter.

That made this year's comparison with last year's second-quarter earnings very difficult, especially in a quarter which is seasonally the lowest sales quarter of the year.

As we've said in online commentary, the swing in these accruals in the second quarter amounted to about $0.12 per share, or about $4.8 million pretax, which was split about evenly over the second quarter of both years.

Since these bonus accruals had such an impact on individual quarters in the first half of the year, we believe a better way to look at our performance is to compare the first half of this year to last year.

For the six months sales increased 8% to $765 million from $705 million last year.

Same-store sales increased 4% compared to the negative 3% last year.

We earned $0.40 per share this year compared to $0.15 per share last year in the first half.

These numbers are consistent with the detailed breakout in Schedule B attached to our press release.

Getting back to the second quarter this year, same-store sales increased 3% led by Lids with a 7% increase and Journeys with a 2% increase.

Gross margin was essentially flat at 50.7% compared to 50.8% last year after adjusting for a one-time purchase accounting item as referenced in Schedule B -- in the Schedule B attachment to our press release.

Adjusted for all the items broken out in the attachment to the press release, but including a negative impact from the bonus accrual comparison, expenses were essentially flat as a percent of sales with last year.

As in recent quarters we did see good leveraging of occupancy expenses and [depreciation].

Sales were up to 9% for the second quarter, and inventories increased 13% which was in line with our expectations.

We planned on a higher inventory level at July month end in preparation for a solid back-to-school season beginning the first week of August.

We feel fortunate to have accelerated our receipts at the end of the past quarter in light of the inventory issues many retailers are experiencing.

The month to date comp of 8% is obviously a great way to start the second half.

I would also like to talk about our cash flow.

I'm particularly pleased with our cash flow over the past 12 months.

At quarter end, cash was $49 million with zero bank debt compared with $21 million in cash and $24 million of bank debt last year at this time.

This increase in cash year-over-year also reflects cash usage of $13 million to buy in stock and $27 million on acquisitions over the past 12 months ending July.

Finally some comments on guidance.

At this point we are maintaining our guidance for the full year.

We ended the second quarter about where we had anticipated and the start of back-to-school is looking good.

However, in light of the general volatility all retailers have been experiencing, we think it is prudent to reiterate guidance until we get further into the back half.

Our comp guidance for the back half of the year is based on low single-digit same-store sales.

Even though we are running ahead of that now, we have seen events similar to the back-to-school season drive traffic only for it to subside when the event ends, so we continue to be somewhat conservative in our outlook.

Now I'll turn the call back to Bob.

Thank you, Jim.

I'd like to now turn to each of our businesses briefly and give you some additional color.

At the Lids Sports Group we continue to have terrific momentum.

Total sales at Lids Sports were up 22%.

Overall comps in the second quarter were up 7% and August comps were 13%.

The hat business continues to benefit from continued industry consolidation, positive product trends and our continued rollout of embroidery.

In the quarter we got a nice little pop from the Blackhawks winning the Stanley Cup and our early read on this year's NFL hats is positive.

One cautionary note -- the Yankees winning the World Series last year is going to add some headwinds in the back half of the year.

We estimate their victory added roughly 2% to last year's second-half comp.

And while we have terrific momentum right now, it is hard to see an equally big World Series event with the Cubs seemingly out of it.

I would like to spend a few moments talking about the transformation of this division over the past year and our plans going forward.

As you know, earlier this year, Hat World was renamed the Lids Sports Group, which consists of Lids, our retail had business; Lids Locker Room, our more broadly assorted retailer of licensed product; Lids Team Sports, a wholesaler of athletic team gear; and Lids.com.

Our strategy for Lids Sports, simply put, is to become the largest retailer of licensed athletic product in the US with a multi-channel strategy that pulls from a common inventory and uses one infrastructure.

We believe building upon our already strong position in license retailing will give us considerable scale advantage in buying, distribution and operations.

We note that the licensed athletic business is estimated to be a $10 billion to $14 billion market, so there is plenty of growth to be had for us in this marketplace.

Let me review each leg of the business beginning with Lids which is still the heart of the group with more than 800 hat and stores.

We think the potential exists to open at least another net new 200 stores while at the same time expanding our embroidery program beyond its current penetration of about 500 stores.

Next we have Lids Locker Room.

This concept builds on our acquisition of Sports Fan-Attic last November and will soon be expanded through the pending Sports Avenue acquisition.

These stores sell a broad array of licensed merchandise including men's, women's and children's apparel such as jerseys and T-shirts, hats and accessories as well as a wide variety of home decor and novelty products.

We envision the opportunity to grow at least 300 to 400 stores in this format.

Our pending purchase of Sports Avenue is important to us for a couple of reasons and is our second of hopefully many acquisitions in this space.

The acquisition includes 47 stores and 12 websites.

While the deal adds stores to the Lids Locker Room concept, it also brings the complementary format to Lids Sports, the single team fan shop which represents another channel for licensed product.

For example, we will operate under licensed fan shops of the New York Yankees, St.

Louis Cardinals, Los Angeles Dodgers and Chicago Cubs.

We are also excited to add a dozen team specific websites that we will eventually unify with our infrastructure.

We believe we can do a terrific job for these teams based on our strong vendor relationships, infrastructure and operational expertise and hope to add more teams and colleges down the road in this format.

Then we have Lids Team Sports, this is a wholesale model and involves bringing products to athletes that play on organized teams, a market that is estimated to be somewhere in the range of $3 billion to $5 billion.

This is a very fragmented market that we believe will benefit from economies of scale given our growing sports platform, especially in the use of technology.

We recently bolstered our team sports presence with the acquisition of Brand Innovators on the West Coast and Anaconda on the East Coast, which gives us a sales presence in 43 states and the potential to build that presence out to 49 states.

While the overall business is not yet contributing economically the way we ultimately envision, we continue to make progress in streamlining the operations.

Once we complete the realignment of these businesses, we feel there is very good upside potential for a major national player in this space.

These two acquisitions solidify our position as the number two team dealer in the United States and provide a solid infrastructure on which to build a truly distinctive business.

Finally, it all comes together at Lids.com.

While this has historically been just a headwear site, we are adding a full range of licensed merchandise to take better advantage of the cross-selling opportunities this broader market affords us.

We are branding these businesses all under the Lids umbrella.

We intend to make Lids the first brand that people think of whether it's the teams they play for or the teams they root for.

With respect to Journeys, we're confident that our team has built an effective assortment for back-to-school and the early result is proving that out.

Journeys' comps in Q2 were up 2% and in August were up 7%.

In Q2, while we were down slightly in our athletic business, our casual business delivered a strong increase, highlighting a fashion shift that is occurring with teens, both boys and girls, that is very much in our favor.

This fashion position is squarely in Journeys' sweet spot and the relatively more limited distribution of casual product places it outside the box for many of our mall-based competitors in the athletic market moving Journeys toward the more distinctive merchandise position that has served it well in the past.

At the same time we are also pleased to see the skate category continue to perform nicely.

And to paraphrase Mark Twain, we believe the death of skate has been greatly exaggerated, at least in the case of Journeys.

We believe we are also having success with a better match of our assortment with the needs of kids who wear uniforms to school, which is an increasing trend.

We have committed to a strong good assortment for holiday and have received a small amount of early deliveries which are already providing us with positive signals.

For back to school, we have chosen to be a bit more promotional this year to create demand and provide a greater sense of value.

We are doing this in a way that will not significantly reduce gross margin and we are still more full price oriented than most of the Mall in keeping with our legacy and brand position.

I also briefly mentioned Journeys' entry into Canada.

This is a natural extension of Journeys' business which is able to draw on Lids' experience in the market.

The initial results seem to validate our thesis that there is an underserved market for Journeys in Canada and we think the market may support in the range of 80 to 120 Journeys stores providing the business with a nice avenue for further growth.

In the US we've planned minimal net store growth, but expect that the continuing opportunity to close underperforming stores in the weakest US malls will enhance operating margins.

Journeys Kidz and Shi by Journeys performance have been improving.

Journeys Kidz comps in Q2 were plus 4% and comps for August were plus 10%.

Likewise, Shi comps in Q2 were 8% and were up 3% in August.

With respect to Underground Station, the demographic it serves continues to be under a great deal of pressure from the economy, but the business remains cash flow positive and we continue to manage it down to a profitable core.

We closed one store in Q2 and now operate 162 stores, 14 fewer than this time last year.

The nice news on Underground is while their comp was down 4% in Q2; their comp was positive 4% for August.

Johnston & Murphy Group sales were essentially flat for the quarter, but fewer markdowns and less promotional activity led to a nice improvement in gross margin and in operating income.

Comp sales were flat for the quarter, but trends improved toward the end of July and have continued into August.

Consumer traffic remains stronger in outlet stores then in malls, consistent with general shopping patterns.

New product initiatives within the casual footwear category have resonated strongly with consumers as men's casual footwear was up 46% in retail stores, helping to offset continued weakness in the dress footwear category.

Johnston & Murphy women's business also continued to resonate and attract new consumers to the brand.

Inventory continues to be well below last year, although last year we were too heavy.

This year we are below optimal levels related to, first, unanticipated demand at the beginning of the year because our wholesale customers began to rebuild their assortment; and two, we were negatively affected by some of the supply chain issues I mentioned earlier.

However, we expect inventory at Johnston & Murphy to be back on plan by the end of Q3 and the third quarter is off to an encouraging start with comp sales up 5%.

The Licensed Brands business continued to show positive momentum in the second quarter with sales up 11% and delivered a strong operating margin.

This business is still experiencing supply-chain issues, however, and will probably be hurt somewhat by delayed shipments during Q3.

We have recently updated our annual five-year strategic plan for the Company.

As before, this was an integrated planning effort that examined each of our core businesses and explored their longer term organic growth potential.

The results of this planning effort confirm and quantify our solid potential for the top-line and bottom-line growth.

The big assumptions for total Genesco over this period were, first, a 3% to 4% comp but a higher level of increase in our e-commerce business; second, adding roughly 300 net new stores which are heavily concentrated in Lids Sports and Journeys in Canada; and third, continued leverage on rent and depreciation for the same reasons we have cited for several quarters now.

The result is topline sales growth of 8% annually and operating earnings growth of roughly 15% to 20% annually, which would bring our operating margin back to 8%, the level at which we operated for several consecutive years before the recession impacted the business.

This plan also leads to substantial cash generation even after funding this growth.

We will go into greater detail on this plan at investor conferences over the next several months but let me briefly describe the plan for our two largest businesses.

For the Journeys group, the plan takes sales to about $1 billion on low single-digit comps.

We plan to open roughly 100 net new stores, a substantial chunk of these in Canada.

We also get a nice bottom-line improvement from closing roughly 70 underperforming stores.

The operating margin for the Journeys Group rises to 9% which is a substantial improvement over recent performance, but is well short of its historic high.

At Lids Sports Group, we plan to grow the business to about $840 million.

We expect to add 220 net new stores with some of these probably coming as a result of acquisitions and achieve solid growth in our Lids Team Sports wholesale business, some of which might also become from acquisitions.

As a result of this growth, we expect operating margin expansion from today's 10% to 11% to 12% to 13%.

Overall our business right now is fundamentally strong.

We are seeing nice growth opportunities and our profitability has continued to improve steadily.

Each of our major businesses is well-positioned from a trend and an economic standpoint and each has good growth opportunities.

We're especially excited that the Lids Sports Group is developing an unequaled leadership position in its market and we believe that will generate a variety of additional opportunities for us over the long term.

All of our businesses have leadership teams in place with deep industry knowledge, a long history of managing through economic ups and downs and a thirst for uncovering new growth opportunities for the Company.

Our balance sheet gives us the flexibility for the strategic path we have set out for ourselves and we are dedicated to doing everything appropriate to generate value for our shareholders.

Thank you and, operator, we are now ready to take questions.

(Operator Instructions).

Steve Marotta, C.L.

King & Associates.

Good morning.

I've got two questions, the first is on inventory, given how the quarter ended up 13% with sales up 9%, but you mentioned that this was planned for and that obviously August comp was 8%.

Can you comment at all on the inventory levels at the end of August?

How inventory flowed say during August?

And the second question is, as it relates to the 7% comp that Journeys put up in August, can you talk a little bit about how much was boot related, AURs and directionally how boots as a percent of mix is acting within Journeys?

Thanks.

Sure, on inventory, we're not going to disclose monthly inventories, but we will say we're in good shape.

We had -- we bought for a plan, and obviously we're a little ahead of that plan.

But as Jim Gulmi noted, we have this history of having strong sales when there's an event period.

So we think we're inventory right sized at the moment and we're bought right for our holiday expectations.

So I think on inventories we'll leave it at that, we're in good shape.

Boots didn't move the needle.

We didn't buy enough boots in the second quarter and even in August to be a major component of what we're doing.

What we were talking about in that section is that what little amount of boots we brought in thus far bode well for what's ahead of us.

And so what we wanted to do -- everybody always has some interest in understanding whether boosts will be another strong category.

We have bought for that to be the case.

And the initial indication, based on what we have in the stores right now, is indicating that the customer agrees with us.

That's great.

Thanks a lot.

Scott Krasik, BB&T Capital Market.

Thanks, good morning, guys.

Bob, you normally give I think some sort of color in terms of how like the month-to-date comparisons look versus a year ago.

And also, what do September and October look like by division on the monthlies?

Do you mean what are we expecting?

No, what are the comparisons?

Do they get more difficult, easier, etc.?

I'm not sure we've broken out comp by month.

I'll have Jim address it.

We really haven't, but last year at the same conference call we mentioned that our comps through August 24 were negative 4%, actually ended up a little worse than that for the full month.

And the number we gave you today was actually for the full month of August, the timing is a little different.

So essentially what we're saying is that we had a nice positive comp this year and last year we had a negative comp of around 4% for August.

Okay, and then at least directionally, you typically do say that September October get more difficult or get easier.

I think last year you said that September and October, relative to the year before, actually looked easier so you felt confident giving an above trend comp.

I'm not sure we've really gone into -- I'm not sure we've ever really gone into the monthly comps.

I don't need a number, but do September and October, relative to the negative 5 or whatever August was a year ago --?

Scott, you're right.

Last year when we got through August when we did the release and we disclosed the minus 4, we did say that we had expectations that it would get better.

And last year it did get better in September and October, so they were better than (multiple speakers).

(multiple speakers) the quarterly comp?

Last year was negative about 2%.

So we were at minus 4% and we ended up at minus 2%, so the plug is obviously the remaining part of the quarter was much better, it pulled it up.

And you probably had positive -- right, and September and October are bigger -- September is probably bigger.

October is probably smaller, right?

In terms of sales?

Yes.

No, no, because for us, we go four weeks, four weeks, five weeks, so October was five weeks.

So sales were a little higher in the month of October.

Okay, all right.

You're right on a run rate basis (multiple speakers) business slows down, but the fifth week is what makes a difference in October.

All right, that's -- no, that's helpful.

And then just a little bit more commentary.

You actually gave some good stuff in terms of the trend at Journeys regarding skate and casual.

Do you feel more confident, less confident or sort of equal in terms of the newer product you brought in where you feel like it will allow you to differentiate yourself beyond the athletic business that you've been doing?

Well, Scott, let the facts speak for themselves.

We obviously tilted the business into the casual area, which is a trend we called out on our last call.

We got a very nice comp off of that at Journeys and we gave you the numbers on athletic being down slightly and casual up strong.

So certainly our merchants did a terrific job in identifying a trend and getting on it.

And then also, as we spoke to on the call, we have a history that generally says from an assortment standpoint when we get it right in back to school it's usually a good indicator for holiday.

And of course, the wild card is the economy.

Sure, and then to generate positive comps in the back half of the year, in Journeys you build inventory to sort of have a flat or slightly negative comp in athletic?

And then make it up in (multiple speakers)?

We're not going to parse our inventory plan for you, certainly not the forward plan.

That's competitively sensitive.

Okay.

Just lastly on the new Lids Locker Room, when do we start to see that inventory come in where you're actually buying it better and we really -- you're able to parse out when you move the needle in the margins on the buying side?

It's already beginning.

We're already in motion in terms of using our size and our leverage to get better deals.

Obviously, it came most quickly in the hat business within the Locker Room stores because, no surprise, there was a big delta there.

But our guys are finding out when they go to the shows and they even visit on categories that we have not really carried in any quantity in the hat stores.

We go to the shows and talk to the potential of what we're building; even the potential is attracting vendors who want to get positioned well with us because they can see where we're headed.

So we're really getting nice traction across the board.

Obviously we have to rotate through the inventory we own, which is subject to purchase accounting, before it hits the P&L.

So in the Sports Fan-Attic case we're pretty much through that.

We're now selling inventory that we have bought and we haven't even closed on Sports Avenue yet, so that's still in the hopper.

One other point on Sports Fan-Attic, the acquisition we made last year in November.

That business is very much a back half business.

And specifically very heavily fourth-quarter weighted.

So really some of the benefits that Bob's talked about in terms of our buying in all the advantaged we have there we really haven't seen in the first half.

We really won't see that until some in the third quarter and more of it in the fourth quarter because it's so heavily weighted to be back half.

Any thoughts -- that's helpful, Jim.

Any thoughts on -- I know you like to shy away from the low- to mid-teen operating margins you were doing when you first acquired Hat World, but what the impact of this could be for Hat World as a whole, adding embroidery?

I mean, could we see 12% to 13% operating margins again?

Well, that's what Ken and his team have laid out in our five-year plan, which we cited in the release.

Ken -- they're running a little over 10%.

That's what their run rate is and they believe -- we believe they're right, that the potential is to get to 12% to 13%.

Okay, thanks.

Sean Naughton, Piper Jaffray.

Hi, thanks.

You guys had nice leverage on the occupancy in the second quarter, it sounds like, with the 3% comp.

Can you talk about how low you take that leverage point today in order to still get some sort of leverage on a comp number there?

And then also give us some metrics that made up the comp in the second quarter?

Well, we generally have had a leverage point in the old world.

We were always citing 3% to 4% was the leverage point and now we think it's more down to the 1% to 2% range.

On the strength of the rent reductions we're getting which affects overall rent and then lower depreciation which is tied to the fact that we're not rebuilding all our renewed stores and also our construction team has done a great job and our operators in holding down just construction costs in general.

Jim, do you want to add any color to that?

No, I just -- we've talked a lot about how we've lowered that leverage point and we estimate it's around 2%, so (multiple speakers).

I think the relevant thing is to think about how long do these two things last.

And when you hear that American Eagle has pointed to store closings, Abercrombie has pointed to store closings, it gives us -- we've always been of the belief that this difficulty in occupancy for the landlords at the lower end of the mall spectrum is going to persist, then as long as that persists those two opportunities will still be there for us.

And then anything on the metrics for the comp for the second quarter?

I'm sorry, I don't understand the question.

Anything on the metrics for the comp -- that made up the comp in the second quarter in terms of (multiple speakers)?

The transaction?

Yes.

Well, the only thing that we -- we don't have ASPs for the total Company, but we've talked about Journeys was down about -- ASPs were down about 2% in the quarter.

Okay, and it sounds like that's maybe consistent here heading into the third quarter as you've been a little bit more promotional in order to drive some of that comp in August?

Yes, that 2% isn't necessarily a margin issue, even though Journeys' margins were affected a little, it's also a mix issue.

We've talked about that a lot, so there are a lot of different things going on there.

It's partially mix and then partially a little more on margins, margins (inaudible).

Okay, and then you are starting to expand a little bit more internationally.

Can you talk about any differences in lease terms or profitabilities that you see in this market versus the domestic market?

And can you leverage the domestic infrastructure that you have to service this market or will there be any additional investments there that you need to service the business?

Well, international for us right now is primarily Canada.

We've been up there now for four or five years with Lids, and that's the model.

We went up -- we leveraged most of our infrastructure here to run the Canadian business, operations reports up the line.

The merchants in Indianapolis do the buying with input from the field in Canada.

Which, by the way, this is a different market and so the assortment changes a lot, but it is still the same, primarily the same vendor group, so we're buying for that.

And the one big difference from infrastructure is in the case of Lids we put a warehouse up there because of the duty consequences.

You want to land as much of the product as you can directly into Canada, so we have a warehouse there.

And we will follow a similar track with Journeys.

Right now we're servicing Canada out of the United States and taking the hit until we get to a critical mass, at which point we will put distribution infrastructure into Canada.

And probably do it in a way that does it in concert with Lids so we get the benefit of being a portfolio company and probably having one warehouse that serves multi-brands just to get some scale out of it.

Okay, makes a lot of sense.

And then in terms -- lastly, in terms of the store closures you talked about, these conversations are ongoing with the landlords.

Sounds like you're getting some nice rent reductions, and you also mentioned that we're starting to hear from American Eagle and Abercrombie and obviously Gap doing some things with rationalizing the real estate portfolio.

Are these conversations getting increasingly more difficult or maybe any color on how those are going today with a lot of people looking to potentially bring down the size of their portfolio domestically?

Thanks.

Sure.

Well, one thing -- I'm not sure how the others are going at their store closing program.

Ours, we are only tying with a few exceptions, but primarily we're tying it to lease events, so either the lease is over or we have a kick out or we have a covenant violation that gives us an opportunity to address the lease.

We think it's very difficult to actually go in and close a store outside of having a lease event.

And so -- or it's very expensive.

And so we're not going that route.

So we're tied really to a lease event and in those situations, what we've observed is at the beginning of the recession where that started this was essentially new territory for landlords and it was a little more of a hassle to get that kind of negotiation done, and it's become a little more business as usual, unfortunately, for them.

And that's particularly in the world of rent reduction.

Because we have found that when have a store closing target for a year we end up closing fewer than we expected because the landlord shows up with rent concessions that are satisfactory to us and we're happy to run a short lease on a mall that's troubled if we can get a rent that allows us to make money.

And the landlords are actually getting much better and smoothing the process for that to happen.

Okay.

Thanks for the detail and congrats on a good start to the third quarter.

Thanks.

Mitch Kummetz, Robert W.

Baird.

Yes, thank you.

A few questions.

First, on your guidance for the year, your outlook for the back half is a low single-digit comp.

Jim, can you kind of take us through your expectations by concept?

You're a broken record, Mitch.

How many times in a row is this now?

Yes, okay.

Overall, we said -- this is really very little variation.

Overall as we said for the back half, low single-digits, in the 3% range or so, a little above, a little below.

And if you look at the individual businesses, Journeys is essentially on that.

Lids is maybe a little bit below that in the fourth quarter due to the Yankee comparison.

Underground Station is a little above that trend line and Johnston & Murphy is about there, maybe a little bit above.

But that's essentially it.

All right, that's helpful.

And then that low single-digit comp for the back half, is that pretty comparable across Q3 and Q4?

You've got a slightly tougher comp in Q4.

Yes, it is.

It is.

Got it.

For the overall Company it's about flat.

Okay, and then on the bonuses, you had about -- a little less than a $5 million swing in the second quarter.

Can you talk about what your expectation is for the balance of the year in that area?

Yes, you know, we usually don't call out bonuses as a reason why the numbers have been impacted.

But the extent of the swing was so great this time around that we felt like we needed really to call that out.

Any other factor that was really contributing to it was that it was such a low quarter.

We do about -- from a sales standpoint -- about 21% of our business in the second quarter versus about 30% op the business in the fourth quarter.

So the swing in bonus accruals really impacted -- really impacted the second quarter.

Even with comps up a little bit we just couldn't make up for that swing in the bonus accruals, so that's one thing.

To answer your question, no, the swing in bonus accruals in the second quarter, was greater than it's going to be in the third and fourth quarters.

We had a big reversal in the second quarter and that big reversal we don't have in the third and fourth quarter.

We did not have in the third and fourth quarter last year because again the trend last year was a good first quarter, a terrible second quarter, so we reversed a big accrual in the second quarter.

We are not anticipating that traversal.

We did not have that reversal last year in the back half, so the swing of $4.7 million is less in the third and fourth quarter.

Got it.

That's helpful, thanks.

And then on the Journeys performance in Q2, you mentioned the positive trends on casual.

Could you quantify that to some degree?

Could you talk about casual versus athletic, either the comps in those two businesses for the quarter or what percentage of sales they made up versus a year ago?

Mitch, I'm going to frustrate you here.

I know that you guys want to get as much detail on the assortment, what's working and where we're headed.

I'm going to duck all that because competitively we think the less said is better for the advantage of the Company, so we're going to leave it at that.

We've got a swing going from athletic to casual (multiple speakers).

Okay.

That trend is in our sweet spot and let's leave it at that.

All right, fair enough.

And then last question.

I don't know if you talked about this on the call or in your press release, but your real estate outlook for the balance of the year?

What are you guys opening, closing?

Yes, I'll tell you what, I can give you -- I'd be glad to give you for each of the quarters, but I can just give you, if you like, kind of for the full year --

Yes.

-- what we're looking at.

And you have to tease out -- most of the stores that we've added in the way we're thinking about the business are going to be the acquired stores.

We're closing a lot of stores, we're opening some stores.

Jim will give you the number now.

(inaudible) to it.

I'm just going to give you the -- right now we're planning to open 65 stores and our plan right now is to -- for the full year is to close 69 -- open 65, close 69, so a net reduction of four.

And that's for the balance of the year, or is that for (multiple speakers)?

That's for full year.

Okay.

That's the full year not including acquisitions.

Not including acquisitions.

All right, and how many stores do you pick up again on the acquisitions?

Well, we -- Sports Avenue, anywhere -- it'll be in the low -- 42.

No, it's 47.

45.

47 stores, I think.

All right.

47, (multiple speakers) 47.

Great.

Thanks, guys.

Good luck.

Thanks.

Jill Caruthers, Johnson Rice.

Good morning.

If you could talk about -- you highlighted in your five-year plan Journeys, you were looking to close 70 underperforming stores.

If you could talk about it, do you feel that that's mainly real estate issues or kind of what's the fact that's kind of dragging you on that group of stores?

Well, we can just rank our stores by profitability, Jill, and like a lot of retailers, there are a bunch of stores at the bottom of the list, and they in general are sitting in malls that are in decline.

So if you opened a store in a mall 10 years ago and everybody else is closing and traffic is going down, that ends up being a mall that you can no longer make money in.

And so we've just flagged them all as stores that we are unlikely to renew.

And counter to that when you look at Journeys is they still have 10 to 20 or so A malls that they've never found the right location so they'll have opportunities to open there.

And they've had nice success opening stores in city streets which was new territory for us a couple years ago and that success is driving --.

So there's really sort of a net number.

We're thinking about it as net, so over five years we're going to close 70, but the net number for Journeys in the United States probably won't change all that much.

And then the big growth opportunity as we called out is what we think is a terrific upside for them in Canada.

All right.

And if you could talk about -- I know your Lids platform you're working on kind of umbrella'ing all the customers under the three divisions.

Could you talk about maybe possibly -- maybe down the road tying in customer base, that you have a Journeys, let's say, to your Lids customers somehow cross marketing those divisions?

Have you started that or is that kind of a two-, three-, four-year goal?

We've not started that and it's an opportunity we look at a lot.

It's operationally challenging.

It is a common customer and, to be honest, right now we've looked at a lot of other things which represent upside for us in terms of business improvements we can make and we haven't worked our way down to that on the list yet.

It's probably an opportunity, it just hasn't made the list of things we need to get done this year.

Understood.

Thank you.

Robin Murchison, SunTrust.

Thanks very much.

Good morning, everybody.

First of all, let me say it seems to be my experience that most companies that are in a store rationalization mode are letting them close with natural lease expirations.

It seems that that's kind of the trend right now.

Yes, that makes sense.

But I wanted to ask you, so Underground Station, how much -- if you look at your Underground Station stores, how much time is left on your -- the one with the longest lease?

How far out is that?

We've got some leases out there that go seven probably.

Probably around -- I think we stopped building (inaudible).

Yes, we have a grid that basically says what's the lease event on each Underground Station store by year and then we divide that group into stores we want to keep, stores we went to close.

Over the five-year period, we almost clean it up.

There are a couple of stores still hanging out there.

So when we did the five-year plan, when you look at it, we can deal with most of the stragglers and then some of the others maybe a lease event will come up through a covenant violation.

Because, as you know, Underground Station is concentrated in some pretty difficult malls.

So we're thinking over the next five-year period we deal with it.

The key to Underground Station that we need to -- we always keep in mind is we have a profitable core.

And so as we continue to peel off the bad stores we end up with a core of stores that can actually make money.

Got you, okay.

Also, you tested toning shoes.

Are you completely out of this now?

No, it's going to be in the assortment, it just isn't going to be a breakout event that it has been for some of the other retailers.

It resonates mostly with women as opposed to girls, and so we do have a little bit of that business, but it isn't going to be a breakout event.

Okay.

And then for Jim, just -- if he could just remind me, ASPs in athletic versus casual or vice versa?

Well, I won't give numbers, but I can tell you athletic was down and casual was up.

Okay, but -- okay, all right.

ASPs.

Okay, good.

And then lastly, let me try this one; I'm not sure you'll answer it, but let me kind of put this out there.

There is a lot of newness, clearly in shoe trends.

There's a lot of newness in apparel.

We certainly see a move away from denim into twill, khaki, military, sort of dictating a different shoe that you wear with that.

That's probably more clear on the women's side of the business than it is on the guy's side of the business.

So, when you talk about boots for the second half of the year, should we expect that that includes the booty shoes, clogs, that sort of thing on the women's side?

And then what's the interpretation on the guy's side?

You're right, we're not going to answer that.

I thought I'd try.

Okay.

Thanks, guys.

You bet.

Thanks.

(Operator Instructions).

Sam Poser, Sterne, Agee.

Good morning.

Just a couple questions.

Everything has pretty much been answered.

Just to clarify, the 47 stores from the Sports Avenue acquisition, when do you expect that acquisition to close?

And those sales from those stores I assume are not in your guidance right now?

They -- in terms of the closing, we're not putting a date on it.

There are a series of approvals that are required, as you can imagine, with all these stores under license and we're still in the process of that and it really is, because of that, difficult to set a date, Sam.

And I'll let Jim speak to the guidance question.

No, it is not in our guidance for the back half of the year.

So basically that net closing of four stores, three stores, whatever it is, is how we read it off the comp.

If those stores get opened in the near term that would be upside to the topline to some degree?

That is correct.

Okay.

And then I guess the one thing that I saw -- you talked to some degree about the ASPs being down at Journeys.

Would we expect, looking at the back half of the year, given mix and what you're seeing so far, overall to see the average selling prices go up, to turn around and start going up given your history of selling a lot of the foods and things like that and the trend moving in that direction right now?

Sam, I honestly say I don't know.

It will obviously depend upon -- the biggest swing factor is the one you called out, is how much boot business do we do this year over last year.

As you know, boots were a big part of our business last year.

And so it will depend on a year-over-year basis and it will tie to the mix within that as well, and I don't want to talk to the mix, as you know, and I actually couldn't do the math in my head on the ASPs.

We don't manage the business to ASPs.

We manage to a sales plan and we could back into it I guess but we don't manage the business that way.

One quick fine point (multiple speakers).

Let me just ask (multiple speakers).

Sam, let me just jump in and say one thing.

Oh, I'm sorry.

When we talk about ASPs we're not talking about sequential, we're talking quarter-over-quarter.

So we had boots last year and we have boots this year.

But if you're talking about the third versus the fourth quarter, second versus third, obviously there's a difference in mix.

But again, we're talking quarter-over-quarter and we had boots last year.

So I'm talking about year-over-year as well.

I understand.

Right.

And then with the -- I guess the mix shift, though, athletic sounds like -- while you said the report of the death of skates may be greatly exaggerated, at the same time your athletic -- it sounded like it underperformed your casual and it's probably continuing to do so so far for the quarter.

That mix -- and casual would generally sell at higher ASPs and we've gotten the idea that you're working with some new vendors that may have some products outside of boots that will replace -- outside of the higher ASPs than you currently have some items on your floor.

I'm asking it in a vague way so you can answer the question.

Well, first of all casual -- the ASP of casual, except for boot season, casual is not higher than athletic, so --.

So I guess my question is, I'll use the women's pumps as a -- or women's sandals or dress shoes as an example.

You have a lot of shoes on your floor between $29 and $49 right now.

From what I understand those products may be going up in price given some new additions maybe brands and so on and so forth.

Is that going to be just a very small test of some higher price points there?

Or is that something where you believe that you might -- that there might be some further opportunity given some other I'll call it brand loyalties that you currently have carried?

Sam, we're testing stuff all the time.

Some of it's high price points, some of it's lower price point, where there's no strategy that's saying let's go explicitly test higher price points for that purpose.

So we're testing a lot of stuff.

We naturally don't talk about what tests we're running and what results we're seeing for competitive reasons.

So again, as you noted, there was a swing into casual.

There was a decline -- a slight decline in athletic and now we're calling out that the skate part of athletic held up just fine, so it was the rest of athletic that experienced more of a decline.

And in terms of price point, both of those categories have prices that are high and low, and we test a lot of stuff and there's just lots of mixed movement that drives ASPs.

And then lastly -- okay, thank you.

And lastly, the Shi business sounded like it really turned around in the quarter.

Can you just talk about what happened there?

And are you near a point where you may -- looking forward may look at -- has enough happened there to make you maybe look at starting -- restarting the store openings or making a decision on how you want to approach the Shi business given it sounded like it outperformed quite nicely in the quarter and it's off to a decent start in the third?

Yes, I'll take the second half of that question.

No, we're not at the point where we're ready to roll stores.

We're really pleased to see the improvement.

We need several, several quarters of that kind of comp improvement in order to really start rolling it, so we've got a ways to go.

And they've just continued to work the assortment.

It's a little lower athletic, a little more of casual and dress and a little more -- they're working, I think, better in some of our own label products.

So there are lots of different things moving there but we have a ways to go.

Okay, at this time we have no further questions.

I'd like to turn it back to Mr.

Bob Dennis for any closing or additional remarks.

Well, we appreciate you all joining us for this call and we look forward to talking to you again about third quarter out in November.

We'd like to thank everyone for their participation.

That does conclude today's conference.