Shoe Carnival Inc (SCVL) 2002 Q4 法說會逐字稿

Good afternoon, and come to Shoe Carnival's fourth quarter earnings conference call. Today's call is being recorded and is also being broadcast visa live web cast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. This conference may contain forward-looking statements that involve a number of risk factors, these risk factors can cause the company's actual results to be materially different from those projected in such statements. The forward-looking statements should be considered in conjunction with the discussion of respecters included in company's SEC filings and today's press release. Investors are cautioned no to the place undue reliance on these forward-looking statements. Which speak only as of today's date. The company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the forward-looking statements talked about during this conference call or contained in today's press release to reflect future events or developments. I would now turn the call over to Mr. Mark Lemond, President and Chief Executive Officer of Shoe Carnival. Please go ahead, sir.

Thank you, welcome to Shoe Carnival 2002 fourth quarter and year end earnings conference call. Joining me on the call this afternoon is Kerry Jackson, our Chief Financial Officer, Cliff Sifford, our General Merchandise Manager, and Tim Baker, Executive Vice President, store operations. We are pleased to announce record sales and earnings for the fourth quarter and full year of 2002. Net earnings increased 44% for the fourth quarter of 2002, and 26% for the full fiscal year. These results were achieved despite a very difficult and promotional retail retail environment. Net sales for the fourth quarter Rose 6.1%, to 128 million, from sales of 120.6 million in the same period last year. Earnings per share increased 44% to 13 cents per diluted share in the fourth quarter. Compared to 9 cents per share in the fourth quarter of 2001. This increase in earnings was on top of a 50% increase in the fourth quarter of 2001, and a 100% increase in 2000. Traditionally, the fourth quarter is our weakest quarter. We believe the substantial earnings increases we have seen in the fourth quarter the past three years are the result of our overall strategy of taking early in season markdowns and actually reducing the amount of seasonal product in our inventory.

We intend to continue that strategy in 2003. During the fourth quarter, our same store sales decreased 3.9%, the majority of this decline coming from the 10.4% drop in January comps. January business is typically driven by clearance, and due to our stringent inventory focus throughout the year, we had less winter clearance product than last year. In addition, due to a very warm weather in January, 2002, we realized robust athletic and early spring sales last year. That pattern didn't repeat this year as winter storms and cold weather impacted the majority of our marks through early March. As we have discussed before, we exited the apparel business in 2002. This negatively impacted comp store sales throughout the year, and particularly in the fourth quarter, due to liquidation sales of that product, which began in the fourth quarter of 2001. Footwear comps for the fourth quarter of fiscal 2002 were down only 2.9%, and were slightly positive for the full year of 2002. We were able to offset this decrease in comparable store sales with stronger than anticipated gross margins and tight expense controls.

Our fourth quarter gross margins increased by 110 basis points to 26.9%. Although the store selling expense ratio increased due to the comp store sales decline, we were able to significantly leverage administrative costs as a percentage of sales. This led to the strong 44% increase in net earnings per diluted share for the fourth quarter when compared to the same period last year. Net sales for the full year of 2002 Rose 9%, to 519.7 million, from sales of 476.6 million in the comparable period. Same store sales for the full year declined 0.4%. Earnings per diluted share rode 21% to 1.22, when compared to $1.01 for the full year 2001. Our year end inventory levels were down about 5% per store. Cliff will speak more about the inventory position in a minute.

But in short, we believe our inventory is very well positioned going into the spring season of 2003. Now, we just need some warmer weather and a resolve to some geo political issues to be able to prove it. At the beginning of the year we told you a major initiative for Shoe Carnival was to raise the level of our women's nonathletic business. We made considerable progress in that regard throughout the year and that program -- or that progress accelerated in the fourth quarter in the early spring season. With the number and quality of the new brands we added last year, we are excited about the women's division prospects for 2003. All 25 of our new stores were opened in the first three quarters of the year, and we ended the year with 207 stores. During the year, we entered several new marks, Milwaukee, Cleveland and New Orleans.

Continuing the trend we have seen for the past few year, new stores are still averaging about 2.3 million dollars in sales with a cash on cash return of approximately 20% in the initial 12 months of operations. This includes the expense of preopening costs, which has averaged about 67,000 dollars per store. This average new store return on investment increases to about 30% in the second full year of operation. We then build a new updated store design in New Orleans in August of 2002 with the first store in the market. Although I won't attribute all of its success to the new store look, this store has trended a sales rate 30% better than our average store's first year sales. This new store design incorporates contemporary color pallet, dramatically improved visual graphics and an enhanced way finding system to improve the shop ability of the store. Importantly, this new store format is less costly to build out.

We expect to reduce our per store capital expenditure outlay for new stores by about $30,000 in 2003. We will open all new stores in 2003 with this updated store design, and we will remodel existing stores as leases are renewed or stores are relocated. We are really excited about that new store design. Our 2003 plans call for 40 new store, and with, can given to about four store closures, two of which should close on the last day of this coming fiscal year, we should end 2003 with approximately 243 stores. This would equate to a net square footage growth of about 18%. We continue to believe we have just scratched the surface in terms of store openings and seen a substantial opportunity to continue expansion into new marks and backfill within our current geographic footprint. This should afford us the ability to grow square footage 15-20% for the foreseeable future. While net earnings grew by 26% last year, we are even more pleased with the growth in operating cash flow which grew about 24%. This has allowed us to continue reducing long term debt and consequently reduce interest costs significantly while we accelerate the new store openings. With that, I would like to turn the call over to Cliff Sifford to give you more detail on the merchandising strategies.

Thank you, Mark. As Mark said, I will take the next couple of minutes and give you a recap of each product category performance for the quarter. For the quarter, we continued to see a strengthening of the women's business. Our women's business increased as a percent of total by almost 2%. This trend is also continuing as we head into spring. Comps for the quarter were up low single digits, driven from our casual and sports departments. Comfort were up double digits as were clog, including eurocasual clog, the rugged sports shoe business also performed well as grunge and emerging trend and cords as a fashion item gained momentum. We see continued growth here. And lastly, we're very pleased with our comfort walking business as one of our newer brands continues to perform. Additionally, we saw price point improvement of mid single digits. Our disappointment came out of the boot category, boots did not perform in December or January. For the quarter, we were down double digits.

I believe weather played a part of this performance, but I also feel we had some product misses. Over the cap stretch was one of the better performers, and we ran short of this category. Additionally, we were short in junior fashion boots. I don't believe that these two categories would have turned our fourth quarter comp positive, but I do look at these categories as opportunities for fall, 2003. In men's, our comps were down mid to single digits. Margins were down slightly. Losses in men's shoes came mainly from the urban boot and casual categories, as expected holiday sales never materialized. On a positive note, we did experience robust growth in rugged sports shoes, with very high double digit increases. This growth can be attributed just like the women's growth to the continued growth of grunge and cords. This trend is also fueled growth in the sport hiker category.

In kids, we experienced double digit decline of sales. We also saw a decline in margin as we accelerated markdowns to keep our inventories clean. This loss was driven out of the kid's athletic category. Colder weather in January played a key roll to this loss. As some of you may remember, a milder fourth quarter last year grew comps in this category by double digits. Weather however was in the the only culprit. The lack of fresh product and the decline of the alternative closure product is an important category also played a part in this loss. We have been over the past six months working closely with vendors to freshen the product, and I believe we will see this business rebound as we move forward in the spring.

In adult athletics or business has been in the very low single digits. Margins in this department were very strong due to the closeouts we bought into help drive our fourth quarter business and due to the fact that we took early receipts of fresh spring product. We saw high double digit growth in fashion white, classic product, for both genders. Men's basketball and women's walking also grew at double digit rates. We were, however, disappointed in the men's walking, and the women's running category. In adult athletic, much like kids, alternative closure and slip-ons showed double digit declines. The accessory business was down double digits. Most of this loss occurred due to exiting of a very unprofitable apparel business. And due to a planned roll back of handbags in just a few stores. One of our initiatives this year, now that we are out of the apparel business, is to raise the accessory business as a percent of total. Our stores have been challenged to place stronger emphasis on this category.

In closing, I want to make two observations. First, I want to congratulate the buying team on reacting to business conditions, as quickly and as thoroughly as they did. Early reaction allows us to maintain the price points even in declining categories, and also keeps our inventories fresh. Our strategies of planning higher turns and our ability to react quickly to business conditions, resulted in inventories that are much fresher than ever before. And women's shoe, for instance, carry over product is down in excess of 50 on a per door basis. Second as the weather warms in the midwest and the southeast we have been encouraged by some of our early reads. For instance, in our deep south stores, Florida, Mississippi, Alabama, and Texas, we have seen sell throughs on spring styles that are significantly higher than the rest of the company. I believe that when spring arrives this trend will continue through the rest of the company. Thanks for your time this afternoon. Now I turn the call over to Kerry.

Thank you, Cliff. I'll start off with the income statement and then work my way down the balance sheet. Net sales for the fourth quarter increased 6.1%, to $128 billion, compared to 120.6 million for the fourth quarter of 2001 (million) our same store sales were down 3.9% when compared to last year. Comparable store sales were 0.5% in November, down 3.4% in December, and down 10.4% in January. Gross margins for the fourth quarter of 2002 were up 110 basis points to 26.9%, compared to 25.8% in the same period last year. This increase resulted from 170 basis point increase in the merchandise margin, partially offset by a 60 basis point increase in buying, distribution, and other costs. The improvement in the merchandise margin was driven by less clearance price than a year ago and a higher concentration of opportunistic buys during the quarter.

SG&A expense as a purge of sales, increased 70 basis points to 24.7% for the fourth quarter. Compared to 24% in the same period last year. The increase in SG&A expense as a percentage of sales is due to higher advertising expense, and the deleveraging effect of the negative same store sales. Operating margin for the fourth quarter increased 40 basis points, to 2.2%, compared to 1.8% last year. The increase in operating margin was a result of 110 basis point improvement in gross margins, offset somewhat by a 70 basis point increase in SG&A expense. Interest expense declined to 160,000 for the fourth quarter, versus 364,000 last year. Due to substantially lower debt levels, and a lower effective interest rate. Net income increased 44% to 1.7 million dollars for the fourth quarter. Compared with 1.2 million last year. Diluted earnings per share increased 44% also. To 13 cents per share compared to 9 cents per share last year. For the full year of 2002, our net sales increased 9.1%, to 519.7 million dollars. Compared to 476.6 million dollars in 2001. Our same store sales were down 0.4% for the year. The entire loss was due to the discontinuation of athletic apparel in all stores, and handbags in certain stores.

Footwear sales in comparable sales were up 0.1% for the year. Gross margins for the year 2002 were up 40 basis points to 28.8% and SG&A expense as a percentage of sales was up 10 basis points to 23.8%, due to higher preopening costs. Preopening costs for the year were $2 million, or 0.4% of sales. Compared with 1.2 million dollars, or 0.3% of sales last year. Our operating margin increased 30 basis points for the year to 5%. Interest expense for the year 2002 was 785,000 dollars. Compared to 2.3 million dollars last year. Again, due to the lower debt level, and a lower interest rate. Net income for 2002 Rose 26%, to 15.8 million dollars, compared to 12.6 million dollars last year.

Diluted earnings per share for 2002 increased 21%, to $1.22 per share, compared to $1.01 per share in 2001. Our balance sheet as of February 1, 2003, was in excellent shape. Our inventories were up 7.7%. To $146 million. But down 5% on a per store basis. Long-term debt was down to 15.5 million dollars versus 27.7 million dollars at the end of 2001. Long term debt, total capital stood at 10.6% at the end of the year versus 19.8% last year. Cash flow generated from operating activities for the fiscal year 2002 increased 24% to 27.7 million dollars. Compared to 22.3 million dollars in fiscal 2001. We continue to believe that internally generated cash flow will be sufficient to fund most of our store expansion program in 2003. Depreciation expense for the fourth quarter at fiscal year ended 2002 was 3.3 million dollars and $12.5 million respectively.

Capital expenditures for the full year of 2002 were 17.7 million dollars. Broken down as follows. 2002 new stores were $9.1 million. 2003 new stores were $1.2 million. The remodeling and relocation of stores cost $1.1 million. Computer software and hardware cost $2.7 million. We spent $560,000 on the dish recent distribution center for conveyor, technology and other equipment. All other additions were $3 million. I would now like to provide some guidance for the first quarter and full year of 2003. I want to remind everyone, this is the first time we have provided sales and earnings guidance for 2003. We currently expect sales in the first quarter to increase year over year between 10-12%. Inherent in this sales assumption are comp store sales of flat to down 2%. This expectation takes into account the neg ative comp store sales realized in February.

We expect our gross margin and SG&A to be flat to slightly up over last year's first quarter. Included in the SG&A assumption is an increase in preopening costs for the 11 stores expected to open in the first quarter versus six stores opened last year. We currently expect earnings per diluted share of 46 cents to 50 cents per share for the first quarter. Thus far, weather, geo political issue, and a struggling economy have affected the first quarter. While the weather will certainly get warmer, we are unable to predict the effect on the performance if the geo political and economic issues are not resolved soon. The sooner we get past the issues currently overhanging the economy, for the full year, we would expect earnings per diluted share to be in the range of $1.45 to $1.53 per share. Also, we expect depreciation expense to be $14 million, and capital expenditures to be 17 to 19 million dollars. By continuing to aggressively manage our working capital, we expect in fiscal 2003, with long term debt, close to where it was at the end of fiscal 2002.

One last comment of 2003 earnings. In September, 2002. We had a store in the Indianapolis area virtually destroy bid a tornado and expect a gain of between 1 and 1 1/2 cents per share is not included in the earnings guidance. I would now like to turn it back to Mark for some additional comments.

Thank, Kerry. In closing I would just like to say we are extremely proud q-and-a.

Today thank you today's question and answer session will be conducted electronically, if you would like to answer us, please signal by pressing the star key followed by the number one on your touch-tone phone. If you found your question has been answered, you may remove yourself by -- asked and answered you may remove yourself by pressing the pound too. Use a hand set to allow your signal to reach the -- give aus melt to assemble the roster. And we will go first to Harry Ikeen with first Albany.

Congratulations, everybody.

Thank you.

Couple questions. First on some changes that we see going on in the -- from the apparel side with den im slowing and khakis coming back, and it seems to me that this is probably going to more of a shift to brown shoe, and from athletics, and I wonder if you could comment that someone may comment on the expectations on that and how it might impact business versus how much between brow shoe and athletic and second with the women's progressing could you give more as far as expectations going forward as far as average prices and which are the hotter brands and a little more detail on it going forward. Thanks a lot.

No problem, Harry. First, the first question, first, the resurgence of khakis into the apparel, we are -- we are aware of that and obviously involved toward. That not unlike '98, when khakis, when Gap made khakis the apparel of choice. And our brown shoe business took off, we were also able to drive our athletic comps by making special buy, you know, as our business takes off in ground, the mall-based business or some of the athletic specialty business slows down and that makes opportunistic buys available to us and we were able to take advantage of that in 98 andtrive our athletic comps along with our brown comps. So I don't see a decline as you put it, in the athletic comps. I do see an opportunity to pick up some brown shoe business, and I think we've already begun to see some of that. As far as our women's business is concerned, we're not -- we don't want to talk about specific brands. We are looking to raise our price points at a minimum of 5% this year. That is a goal I've set forth with the buyers and that should be very easily attained.

Kerry, let me add to that, I know Cliff, we want to -- don't want to talk about specific brands but we have brands that we feel are porn for 2002, the nine west, easy spirit has become a big business for us, clark's, the comfort area has become a tremendous business for us, and we see that impact -- well, we have seen the impact already in the fourth quarter. With an increase in percent of business in our women's nonathletic category. We're seeing it even in the firk. Even though we've had this goofy weather pattern in the midwest and southeast. And and we really do expect to make major headway the women's nonathletic side in 2003.

Thank you I have one other question that I wanted to bring up. In reference to the systems and change that you put in, one of them was to be able to add to the store profiles, size requirements. Could you talk about how much of a benefit you will get from that and where you are, is it toward the early part of the benefit,, are you halfway there and how much benefit are you getting from able to be able to do that.

We're about six months into it and we've seen tremendous benefit. One of the problems inherent in any system you put in, it is only a goosed a the system you, have if you have McCallum Texas and you haven't had many files in McCallum Texas and the system doesn't know it needs fives. So we still, we still are gathering information as quickly as humanly possible and feeding it into the system, but based on history, it is now recommending or writing orders by size by location. Now, in a case ife like I've just used in McCallum, we can go in and add the fives and tens in other locations we need to add but the system by mid year this year will be revolutionary in the way we size our stores.

Do you have any idea on how much it will help you with stock that would you have had without the system?

From a stock out position, we look at that two way, stock outs being what you just described, not putting in the sizes, putting in the sizes that a particular location may need, but we also look at stock out positions on model stock programs, where we're looking for weekly fill-ins and we also track data, that's something you and I have not discussed in the past, but we track days out. And on all our model stock program, and that tracking, which is brand new to us, we just began that about a month ago, will be a huge help in keeping us in stock on all our basics, so those are the shoes that the customers have already voted on.

Okay. Thank you very much. It sounds like it should be a great help to further advance your already great inventory management.

Great, thanks.

And we'll go next to Dave turner with VBT capital markets.

Thank, good afternoon. Just a couple of quick questions, I wanted to drill down into gross margin a little bit. You had said merchandise margins were up 170 basis points. Was there -- was that mainly from the improved margins on women's? Or the clearance or closeout product in athletic that led that?

Yes. Both.

Yes to both. Very good.

And I want to make sure I got -- Cliff, you had mentioned I think you said the women's percentage of business increased 2%; that correct --

Very close to 2 percentage point, that's correct.

So the -- that part of the business has trended down the past couple years and now it's growing again, you're getting better margins out of it. Is there a thought behind what you want to take it back to? Or is it kind of work in progress?

It is definitely a work in progress. We do have a long term goal, that this year, it's definitely a work in progress.

I gotcha. And the 30% improvement in the -- well, the stores -- I think you opened six or so, in February. Are there any early feedback from the stores that were opened, you know, opened in early February, I guess that would give a level of -- or an indication of sales trends at those new stores?

Yeah, certainly, you can't quantify, you know, just after opening after a few day, but we've had some really good opening, one of which was probably the best opening that we've had in five years. Now, again, I don't want to attribute all of that to a new store design, which we -- which we don't consider to be that impactful, but we think the new store design is certainly going to lead to a much better productivity and new stores -- in new stores as we go forward.

Was the one that was best in five years in a new market or in a backfill?

It's -- I don't want to get into bigger than a bread box guessing game on where the store is at, but it's a small market for us, but geographically it fills in in a territory.

Okay. Thank you.

We'll go next to Ellen Schlotzberg of William Blair.

Thanks, hi, everyone. Couple questions, first of all, Cliff, you mentioned your initiative this year to bring up the accessories business as a percent. Can you comment on where it is and where you want it to go and what your strategy is and how it may look different from where it was in the past? Obviously aside from getting rid of apparel.

This year, we're -- no problem, Ellen. How are you doing? This year, we're at 4% and our goal is to take it to 5. Eventually, in fact we would love to see it at 6 and we will get there, that's -- that is one of our long-term initiatives. And the second question, I'm sorry?

Just kind of comment about, you know, what -- how you envision the accessories area to look like, different than the way it has been before.

Well, we still carry handbags in most stores. So that did not go away. The only place we took -- the only stores we took handbags out of were stores that were inherently tight from a product standpoint. So we would rather have shoes in those stores than handbags. But all other stores have handbags and we expect to see growth out of that category. Additionally, we are going to grow our sock business. It's a very, very profitable business for us. And we think that there is a lot of room to grow. We have many stores out there that do huge percentages of their business in socks. And we just need to get all of our stores in the same practice.

The categories of socks that you're just not in so you expand your offering or just depth of inventory or how do you do that?

A greater emphasis at the store level. We have the inventory, we have the socks, will is a greater emphasis at a store level. Kind of going into McDonald's, and ordering a hamburger and they suggest fries. Same way, if you buy a pair of shoes you will be sold a pair of socks.

And Cliff, I was just curious what your open to buy looks like for spring and sum mer there is room for opportunistic buys, if you are seeing opportunistic buys still available in the marketplace and how this season and the next season will look from a mix standpoint, with opportunistic buys versus just regular buys compared to the fall season or holiday.

First of all there is always money for opportunistic buys. We save money. That is part of our business plan is to put money aside and that is dependent upon the department. And that can go anywhere from 5% in kids to 15% in athletics. So -- the second part of your question there, there are not a lot of opportunistic buys available today. But that -- it is still early in the season and there are a lot of people just waiting to see how business trends, as soon as the weather warms. If business does not jump considerably, I foresee opportunistic buys available to us within the next 3-45 days. From a percentage standpoint -- 30-45 days. From a percentage standpoint, Ellen, we stock anywhere from, as I said, 5% to 15% and I don't see that number changing.

. Okay. Great. And then, when you mentioned that you were -- you're shooting for lifting women's price points up 5%, will we see that throughout the course of the year or just for fall? And how does the whole flip flop thing build into that?

We -- I expect to see price increases of 5% throughout the year. In fact it may even escalate a bit more in the fall, because we are going to upgrade our boot assortment considerably. So I see the opportunity to raise our price points by more than 5 in the fall. But as far as the flip flop, that's obviously a concern for every retailer and we are going to stock flip flops to retail from anywhere from five to 50 dollars but I don't think that will do a thing to our price points at this point.

And when you said you're going to upgrade the boot assortment, does that mean higher end brands or just product within the brands that you carry?

Yes.

[ LAUGHTER ]

I will let someone else go.

All right. Thanks.

Thank you, we will go next to John Shanley with Wells Fargo.

Good afternoon, guys. Either Mark or Cliff, can you break out for us, the quarter's sales by major merchandise category? I know you mentioned that there was some shifts of a couple percentage points here and there. But it would be helpful to just have a kind of a pie chart in terms of where the sales actually fell on the quarter.

John we typically don't do that by quarter, but Karen Kerry I don't know if you have it for the full fiscal year or not. But what we saw in the fourth quarter was again, a shift upwards in the women's nonathletic business of about a point and a half. To 2%. And a decline, a small decline in the kids and children's athletic business. So for the full fiscal year -- here's for full fiscal year, John. 24 1/2% women's, 16.2% men's, and 16% -- excuse me, athletic, excuse me, children's, 39 a little over 39% for athletic, and right at 4% for accessories.

We added the kid's athlete Tacoma the 39%, what would that give you in total athletic?

Just over 50%, 50.5%.

Okay. Great. That's helpful. Cliff, also, on the merchandising strategy, and issues you mentioned about, are you adding any new significant brands in any of the merchandise categories? And are you realigning any of the pricing in terms of some of the products that you may be adding in or dropping out?

I'm going to take the second part of your question first. One of the ways we're going to raise our average price points, we have gone back and done a lot of study on the brands that are driving not only our best sales, but the most sales, but our best price points, and we just created our matrix, we worked our matrix for spring and for fall to concentrate and build grand assortments, -- brand assortments, brand statements with those brands. And so far that seems to be paying off. It really started in the second half of 2002. We got real momentum for the fourth quarter. And now, for the first quarter 2003, we're continuing to see that pay off. We dropped quite a few brands due to that. The brands that were driving -- not driving the counter price points and/or margins that we need. The second part of that, one brand we are proud to announce that we have added and it will be here for back to school is Dr. Martin. Doc Martin, that brand has been on the decline for I guess two years, and they have completely revamped the brand and I think it looks just outstanding for back to school. And we bought the brand to put in 70 store great. That stuff did look good. I took a look at it. It looked exciting for the first time in a long time. Cliff, anything in terms of you mentioned, some of the things happening in the athletic market, you see classic and retro product trends continuing within Shoe Carnival stores, you think that thing has run its course? What is your general sense on that and how big a product category is that at Shoe Carnival?

In my mind, John, it is still too strong for me to say it's run its course. We have getting increases out of that product every day, double digit, high double digit increases out of that product and I see that increasing at least through the end of the year, and definitely through back to school. From a purge to my total standpoint, I don't have that number. So I couldn't share it with you.

Are your margins more attract ive that part of your athletic business than what you get on the --

Obviously it is. Anything that is hot, anything that is that hot will drive very high margins.

Great. Mark, I wonder if you can take us through that new exciting New Orleans store. What -- how big is it? Is it different? Is it in a different retail environment? Than some of your other stores? Is there anything significant in terms of the the way you set up the merchandise categories?

Well, it's -- first of all, John, it's the first store in the New Orleans marketplace. So it's not the most expensive part of town. It's in a little bit lower end from an income standpoint part of town. So it was almost contrary to what we intended the new concept of the new store design to do, which was, you know, provide a much more up to date contemporary, as I said in my prepared remark, color scheme. You know, it's -- what it's going to allow us to do is complete the initiatives that we set out with our women's product, or enhance the initiatives that we set out with the women's product which is to allowing us to show women's nonathletic product in a better format that we have in the past. For example, the women's nonathletic product is now at the very front of the store instead of being pushed back behind the cash registers in most store, we think that it is a little -- it's not so subtle change in retail but a little subtle change like that will continue to enhance the brand presentation that we put in our stores. So it's things like that, you know, way finding systems within the stores, is going to make the store, you know, easier to shop. The one in New Orleans actually is -- it was the first prototype that we rolled out of this new store design. We have since changed it to incorporate a couple of the things that we had done well before, like a center power aisle in our stores. We found that our stores are easier to operate from a store operation standpoint with that center power aisle, center power aisle, than with two power aisles or two center aisle, the way we set up the New Orleans store. So we have taken the New Orleans store, made some certain changes to it, to incorporate some of the better things that we used to do in the old stores, and we think we've got a pretty decent little store design right now.

Is it still in the same 12,000 or so square foot box.

The store in New Orleans was actually slightly smaller than 12,000 square feet, maybe it's 11,500 square feet. We still expect to average, in fact we averaged new store openings last year about 11,600 square feet. The 2003 stores that we're going to open average right around that 11,500 square foot footprint. So we're still expecting 10 to 12,000 square foot going forward per store. And the last --

And the last question I have I wonder Mark if you or Cliff could give us a sense of the current promotional environment within the family footwear sector. Do you think it's declining? Is it more intense mow? Just some kind of sense of what you're experiencing so far as we get into the '03, and what your anticipation is in terms of promotional environment going into the back half of the year.

I don't know that it's a whole lot different than what it has been in the very recent past, John. It is still a very promotional environment in the retail marketplace today. Certainly with the weather impacting, you know, most retailers business in a negative way. In the first quarter. You know, I expect that it's going to continue to be very promotional. If we see a weather pattern continue during the latter parts of March that's cold, wet, rainy, and not conducive to, you know, opened up footwear sales and athletic footwear sales, then I think it's going to become as promotional as it was during the very promotional period was 2002. But you know, having said that, you know, retailers, especially apparel and footwear retailers should benefit from a three-week later Easter this year, you know, so you know, we're hoping, hoping, crossing our fingers that the weather, actually the weather is starting to warm up in most of the areas right now so we're pretty happy with that and we will see what happens this weekend but we think with the later east er year, a later weather pattern should bring back some demand. We think there is certainly some pent-up demand for spring product out there right now so we will see what happens.

Historically, does a late Easter generally generate a better first quarter for you or does it make that much of a difference?

Well, if you've got early season weather, early season warm weather, then you're going to recognize some of those sales in February, some of those spring season sales in February, early March. If you've got a weather pattern -- you know, I hate to sound like a weatherman all the time, but if you've got an early spring season or a late winter season, you know, cold weather, snowy weather, all the storms, and ice storms we've seen this year, then that later Easter is going to allow you the capability of recouping some of those sales when the weather does turn warm because most of the sales in -- or most of the spring sales in the first quarter are done, you know, in the two, three weeks immediately prior to Easter. So when you've got that later Easter, it allows you the possibility to recoup some of the lost business.

Great. Thank you very much. That's very helpful.

Thank you, we go next to Steve Martin with Slater capital management.

Hi, guys. I think at this point most of my questions have been answered but congratulations on a good quarter and a tough environment.

Thanks, Steve.

Once again that is star one if do you have a question. And we go next to trass vis film of RBC Capital Markets.

Good afternoon. Thank you for taking my call. Could you talk about your marketing plans this year versus last year as regards your plan promotions time and media spent. Are there any major differences compared to last year?

Travis, that -- you know, from a broad brush, it's not significantly different than what it was last year. We'll continue to look at the amount of ads spent as we go along this year. It depends on how promotional the environment gets. From an overall standpoint, we plan -- we've planned our advertising and marketing expenditures, actually a little bit -- just very, very, very slightly less than what what it was last year, but again, we react very quickly to, you know, to business condition, as we go along through the period. You know, a lot of what happens, a lot of what is actually going to transpire, I think in the marketing arena is going to depend upon when and if and we go to war. So that could play a big impact on advertising spending in the first -- in the first quarter. Or first half.

Okay. Great. Thank you very much.

Thank you. We'll go next to Helen Schlotzberg with William Blair.

I wanted to ask a couple of advertising questions, too. One is if you could give us the color of the magnitude of the change in the fourth quarter. You said that that was part of the drain to SG&A, and then also Mark, I know that you've been focusing your advertising on comp stores and I wonder if your strategy is going to change at all for '03, to focus some more on the new stores.

The answer to the first question, Ellen, was about .4 to .5 of a percent increase of advertising in the fourth quarter of last year. Now, that was for two different reasons. Number one was the somewhat of an increase in dollar spending and the result of lower comp store sales decline, or the comp store sales decline, particularly in January. So, you know, there is a two pronged effect there. What was the second question?

You know how you typically -- or you have been focusing your advertising dollars on the comp stores?

Yup.

And are you going to continue to do that? Or are you going to shift more of it to the new stores?

No we absolutely will continue that focus on comparable store sales, or comparable store marks, particularly the markets where we're most profitable in. I don't expect 2003 to be a very robust economic year. Regardless of what happens with the war, regardless of what happens in the immediate term with the weather, et cetera, et cetera. So we'll continue to place our advertising dollars where we think they're most effective from an overall profitability standpoint and that's in our larger comp store markets so we will continue that push.

Okay. Great,. And then can you guys share with us time schedule by quarter for the '03 stores, and maybe you mentioned, Mark, the two will close on the last day of the year but when do you expect the other two to close and how many of the 40 are signed?

We've got about 25 leases executed -- fully executed right now. We've got about -- between eight and ten that are in either -- we've signed the lease and it hasn't come back yet or we're preparing drafts of the lease right now. We're expecting 11 stores in the first quarter, 11 new stores in the first quarter, about 16 stores in the second quarter. Around 12 stores in the third quarter. And one in the fourth quarter. Now, having said that, let me caution you that those stores do move around during the year depending upon, you know, what happens with the developers plans and so forth. So that's -- that's going to constantly be a moving target but that's the plan schedule as it stands right now.

And when do those other two stores close?

Kerry, do you have the other?

One will be at the end of August and one will be at the end of December.

Okay.

And then, too, at the very end of the fiscal year. -- and then two at the very end of the fiscal year.

Right. Okay. Kerry you guys did a nice job increasing your payables but then I know you've had an initiative to ex tend the dating and do you think there is more room there or how far along are you on that initiative?

This is Mark. We've -- we've picked that low hanging fruit I guess is the best way to say it. We certainly are going to continue to put -- not undue pressure but we will continue to work with our better partners in terms of -- in terms of the dating of the payable, particularly with respect to merchandise payables. So, yeah, it's going to continue to be a focus. But we certainly don't expect our cash flow to increase as much as it has, because of that particular issue. We do expect our cash flow to continue to increase as these stores themselves throw off additional cash. But not because of that -- not a significant increase, anyway, because of that particular issue.

Okay. And then lastly, did any preopening dollars for the first quarter stores hit in the fourth quarter? Or did you have any preopening expense at all?

There was a minimal amount. 10, 15,000 was it.

Okay. Thanks.

Thank you, and we'll go next to Jim Morton of Morton tin partners.

I guess Kerry, the question would be for you. You mentioned that SG&A percent would probably be up in the first quarter. And you specifically mentioned the preopening. If I calculate 67,000 dollars and five additional stores, it's a little bit over $300 and some odd change differential. If you X that out, would your SG&A, given the kind of forecast that you made, would your SG&A be as a percent of sales flat, still up, or down?

Well, our guidance for the first quarter is the SG&A flat to slightly up. Depending on the sales expectation and how they turn out. So, yes, the higher end of the sales expectation, you could -- excluding preopening you see some leverage. And a lower end of the range would be flat.

I guess really the question would be more along the lines, if you were able to leverage it last year with a negative, and you're talking, you know, maybe flat, if everything works out, you would think there would be leverage in the new year.

Yes, but keep in mind, our sales guidance for the first quarter is flat to slightly down.

I understand that. I understand that. It's a very hard time to know what's going to happen in term of same store sales. Okay. Thank you very much.

And gentlemen, there are no further questions at this time. I'll turn the conference back over to you for any additional or closing comments.

Well, this is Mark Lemond again. Notwithstanding the current uncertainties considering the economy and geo political issues worldwide we are still predicting a pretty good year at Shoe Carnival nonetheless. We want to thank everyone for joining us this afternoon.

This does conclude our conference call. You may disconnect at this time. We do appreciate all of your participation.