Shoe Carnival Inc (SCVL) 2003 Q3 法說會逐字稿

Good afternoon, and welcome to the Shoe Carnival's third quarter earnings conference call. Today's call is being recorded and is also being broadcast via live webcast. 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 could cause the company's actual results to be materially different from those projected in such statements.

These forward-looking statements should be considered in conjunction with the discussion of risk factors included in the company's SEC filings and today's press release. Investors are cautioned not to 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 reflecting future events or developments.

I will 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's 2003 third quarter and nine-month earnings conference call.

Joining me on the call this afternoon will be Kerry Jackson, our Chief Financial Officer, Cliff Sifford, executive Vice President, General Merchandise Manager, and Tim Baker, Executive Vice President, Store Operations.

We're pleased to report record sales and earnings for the third quarter of 2003. Although top line sales were not quite as high as our initial expectations we obtained the record earnings by improving gross profit margins and tightly controlling expenses where possible. Net sales for the third quarter increased 10.6% to $152.4 million from sales of $137.7 million in the same period last year. Earnings per share rose 10.5%, to 42 cents per diluted share in the third quarter, compared to 38 cents per diluted share in the third quarter of 2002.

Our same-store sales increased 0.3%, during the third quarter, which was at the lower end of our third quarter guidance. The month of August started off extremely strong, but began to slow down somewhat during the last two weeks of the month. These slower trends continued into the months of September and October.

We believe the strength in early August was driven by the combination of back to school need, tax rebate checks, a fresh desirable athletic inventory, and an effective marketing effort. The weaker trends experienced during the later half of the quarter was attributable, at least in part to warmer weather patterns in most of our geographic regions. These warmer weather patterns compared to 2002 negatively affected sales of our boot inventory, and due to the high price associated with boots it depressed overall sales volumes.

The difference was most pronounced in October, when boot sales in comp stores were off by about 30% and overall comps declined by 9%. That decline, however, was against a 13.7% comp store increase in October of 2002.

Once again, the trend we are seeing is that footwear purchases continue to be driven more by need than desire. We continue to be pleased with our ability to manage our inventories despite the rather sluggish overall sales trend, and the decline in the sale of seasonal product. Our inventories at the end of the third quarter were down about 3% on a per-store basis. During the last year the entire Shoe Carnival team has put a huge emphasis on clearing out seasonal goods in a timely manner so that inventories are fresh and current heading into the next season.

We see this as the key reason for the margin improvement and consequently improved earnings in the third quarter. With that in mind, we will be very aggressive with boot liquidation in December and January. While we believe that boot sales and for that matter sales of other fall product will start to accelerate as weather patterns turn cooler, we are already taking markdowns in anticipation of a very promotional fourth quarter.

During the first nine months of 2003 we opened 35 new stores. In the third quarter of 2003 we opened 11 new stores, closed 2, and relocated 1. We expect to open two and close three stores in the fourth quarter of 2003. We should thus end the year with 237 stores. We continue to plan for 35 to 40 new stores in 2004, which, when combined with four expected store closings will result in net square footage growth of between 12% and 15%.

As we stated on the second quarter call, we expect the majority of new stores will be in markets that we currently have a presence. Our marketing efforts in the past several years have focused on our comp markets to drive overall company profitability, but this focus will change somewhat in 2004. We are putting a tremendous effort into enhancing our marketing and advertising in some of the newer markets opened over the past 18 to 24 months.

We expect these marketing and advertising initiatives to help improve our overall sales and productivity of stores in newer and underpenetrated markets. We strongly believe that we have a unique and differentiated store platform that will continue to outperform the competition and afford us the ability to grow square footage at a 15% to 20%, over the long term.

I would now like to turn the call over to cliff to give more detail on product trends.

Thank you, Mark. As Mark stated we experienced a comp store increase of .3 of a percent for the quarter. For the next few minutes I'm going to review the results for the quarter by department. I will conclude by discussing our expectations for the holiday season.

In women's non-athletic our comp store sales for the quarter were down mid single digits. We experienced solid comp store sales increases in the women's dress shoe category due to the increases that women's apparel stores and department stores are seeing in their tailored clothing departments. We saw nice gains in almost every classification of women's dress, but pumps and special occasion footwear were especially strong.

Unfortunately, this trend did not translate into the women's boot department as fashion boots did not perform. Over 90% of our boot loss for the quarter came in October as the weather was not as favorable as last year for boot sales. We can't, however, wait for more favorable weather to kickstart the boot business. Our competition has become very, very promotional in the boot category, and we will be competitive.

With the sales loss in boots, our women's percent of total business was down slightly for the quarter versus last year.

In men's non-athletic our business was down high single digits on a comp store basis for the quarter. All categories had comp sales losses as this business continues to suffer.

Historically, as the economy improves, it is the men's business that is the last to recover. Therefore, we'll keep our inventories lean until we see a better trend start to develop. As part of this strategy we will continue to tighten our assortment and brand matrices concentrating on the brands that are driving sales and margins. We should begin to see fruits of this labor as we head into spring.

However, we do feel that the men's dress shoe category represents an area that we can see immediate growth. In our children's department we achieved a comp store increase of mid single digits for the quarter. Children's, as a percent of total sales was up for the quarter versus last year. We achieved gains in both the non-athletic and the athletic segment of our children's department.

Double-digit increases came out of our girls' athletic and infants' athletic classification. Classic product definitely drove these increases as we enjoyed (inaudible) double-digit increases, and white classic fashion product from several major vendors.

The other good news here is that we saw a real turnaround in our boys' athletic category toward the end of the quarter. Boys' basketball drove this turned around, showing high double-digit gains.

In the non-athletic business, we experienced mid single-digit growth in girls' dress, which overcame a mid single-digit loss in children's boots. I'm very happy with the gains in our children's business, as it marks a return of our core customer.

In adult athletic, we experienced a mid single-digit comp increase for the quarter. Increases were enjoyed by both the women's and men's athletic department. Robust sales were experienced in white fashion classic product running and men's basketball. We anticipate these trends continuing through the fourth quarter. In accessories, we experienced a low single-digit comp store loss for the quarter. We have now completed the cycle of decreasing comps due to the exit of apparel in all stores and handbags in some stores. We did experience low [to] single-digit comp increase in our stock department, and recent trends point to the overall accessory business recovery.

As I stated in my last conference call, in our last conference call, we remain very committed to increasing the business as a percent of the total of our overall business.

In closing, I want to touch on the fourth quarter. Market conditions dictate that we have to get more promotional in our boot classifications. This will obviously affect our profit margins in these categories.

However, it's important to note that we have businesses that are overachieving expectation in both sales and margin. We believe that these categories will remain strong through the fourth quarter and beyond. And due to that strength we believe we will mostly offset the heavy promotions that are coming in boots.

Now I'd like to turn the call over to Kerry Jackson.

Thanks, Cliff. Net sales for the third quarter increased 10.6% to a record $152.4 million compared to $137.7 million for the third quarter of 2002. Our comparable store sales were up 0.3% for the third quarter. Gross margins for the third quarter of 2003 increased 40 basis points to 29.8% from 29.4% in the same period last year.

The increase was due to a 60 basis point increase in the merchandise margins, offset somewhat by a 20 basis point increase in buying, distribution and occupancy costs. The merchandise margin improvement was due to a lower level of markdown. The increase in buying, distribution occupancy costs is mainly a result of the inability to leverage these expenses on a small comp increase.

SG&A expense, as a percentage of sales increased 40 basis points to 23.9% in the third quarter of 2003, compared to 23.5% in the same period last year. The increase in SG&A as a percentage of sales, was primarily due to health care costs and store closing and relocation costs.

Approximately $330,000 was incurred in the third quarter, (inaudible) close two stores and relocate one store. Preopening expenses during the third quarter of 2003 were $646,000, compared to $870,000 in the third quarter of last year. Interest expense was essentially flat, at $160,000, compared to $161,000 last year. In the third quarter.

Net income for the third quarter of 2003 increased 11%, to $5.5 million, or 42 cents per diluted share, compared with net income of $4.96 million, or 38 cents per diluted share in the third quarter of 2002. For the nine months ended November 1st, 2003, net sales increased 8.2% to $423.7 million compared to $391.7 million in the same period last year.

Same-store sales fell 2.6% for the 39-week period. Gross margin for the first nine months of 2003 decreased 30 basis points, to 29.1%, compared to 29.4% last year.

SG&A, as a percentage of sales increased 90 basis points to 24.4% compared to 23.5% in the same period last year. Preopening expenses for the first nine months of 2003 increased to $2.25 million, from $2.0 million the first nine months of 2002. Net income for the nine-month period ended November 1st, 2003, was $12.1 million, or 93 cents per diluted share, compared with net income of $14.17 million, or $1.09 per diluted share last year.

Our balance sheet continues to be in good shape. We ended the quarter with over 3 million in cash and working capital of $127 million. Our inventories were up 11.8% in total but down about 3% on a per store basis. Depreciation expense for the third quarter and first nine months of 2003 were $3.5 million and $10.3 million respectively.

Capital expenditures, net of lease incentives for the first nine months of 2003 were $14.3 million, which breaks down as follows. New stores net of lease incentives was $10.1 million. Store remodeling costs were $1.6 million. Store relocation costs were $830,000. And all other expenditures were $1.8 million. For the full year of 2003 we expect capital expenditure to be about $17 million and depreciation to be a little under $14 million.

I would now like to review our guidance for the fourth quarter of 2003.

We currently expect sales for the fourth quarter increase year over year between 14% and 16%, with same-store sales range of flat to up 2%. We expect gross margins to be flat to up slightly and SG&A to be slightly down at the high end of the sales range, and slightly up at the low end of the sales range. Earnings per diluted share are expected to range from 15 cents to 18 cents in the fourth quarter.

And now I'd like to turn the call back over to Mark for closing comments.

Thanks, Kerry. In closing I'd like to say that while the footwear environment remains challenging we believe we are in excellent position to capitalize on the current trends when the weather turns more favorable for selling fall product.

We will continue to closely monitor inventory levels and manage our expenses. I'd now like to turn the call over to the operator for the question and answer portion of the call.

Thank you, gentlemen.(Operator’s instructions) We'll take our first question from Jeff Stein from McDonald Investments.

Good morning, Mark. A couple questions. First of all, can you comment on the impact of store closing costs might have on the fourth quarter? I think you are planning to close about three locations. And is that baked into your forecast?

I think it's about a penny per share, Jeff. Kerry's checking it right now.

Okay. And can you talk a little bit about the boot situation in terms of what percent of your fourth quarter sales and inventory do boots consist of and what were some of the stronger categories that Cliff alluded to that you're expecting to offset the weakness in boots?

Jeff, this is Cliff. I don't have handy the boots representative of fourth quarter. It obviously gets stronger as a percent sale in the fourth quarter than it does in the third. I can get that for you and get back with you.

But the categories we're talking about are the ones that have been performing through the third quarter, and that's women's dress shoes. We think that the classic product in athletic is going to continue on. Basketball has really taken off. And our kids' business is still continuing strong.

You know, when you have a trend as strong as retro and a trend as strong as basketball, those are high-margin items, along with our kids' business and our women's dress shoe business.

Okay. And one last question. You alluded to the fact -- this would be for Mark or Kerry -- looking at SG&A expenses. Your SG&A was up as a percent of sales with relatively flat comps and you did call out increasing health care costs as being one of the issues.

And I'm just kind of curious, on a go-forward basis what do you believe your leverage point to be in SG&A, and are you beginning to see your health care cost increases on a year-over-year basis begin to abate somewhat?

Jeff, on the -- it depends on spikes in health care. We have been running fairly flat on health care year over year up until the third quarter. We had a big spike in the third quarter, and that's one reason we called it out as the year-over-year increases.

It's impossible to predict. These are sometimes unusual situations that occur that will cause a large claim. So it's hard for us to say anything about -- definitive about the health care.

Excluding the changes in health care, we can leverage on a very low comp -- I shouldn't say leverage. We should be flat on a very low comp, assuming health care isn't out of line and if we don't have unusual charges like the store closing and relocation costs we had.

Okay. Thank you.

Jeff, you asked a question about the fourth quarter. About $150,000 is what we're looking at for those store closing costs, and they are built into our estimates.

Okay. Thanks a lot.

We go next to Ellen Zikman with William Blair.

Thanks. Hi, everybody. A couple of questions. Cliff, maybe these are for you. I think that there have been some openings in your area, open buying jobs, and I was wondering if you could just comment on any progress there. And then also with respect to opportunistic buys versus last year, can you give us a sense of what percent of your inventory now is opportunistic and what percent of your fourth quarter receipts do you view as opportunistic versus last year?

Well, Ellen, we have had an opening. I've been looking for a Vice President to run the women's division. And we named during the third quarter -- I probably should have mentioned that during my remarks.

And we named, during the third quarter a Vice President. A gentleman by the name of Andy Chandler is going to run the women's business. He has been running the athletic business over the last five years. And as you all know, our athletic business has been the strongest part of our business. He's an excellent merchant, an incredible planner. And he definitely knows how to drive business.

So he's the gentleman that's going to be running our women's business. He took over about a month ago.

So is that a pickup of a new business, or is somebody now running athletics?

Today I'm running athletic. But I hope to name someone there in the next several weeks.

Okay.

Okay? We do -- we did lose a junior buyer this past week. I don't know if that's what you're referring to. And we are in the market to replace that position.

But -- no, that actually wasn't. So I was looking more to the women's role that you were talking about. So aside from that junior buyer the rest of the buying jobs are set right now?

Currently filled. That is correct.

Okay. And are there any new brands that you can talk to us about or brands that you'll be expanding or conversely, are you getting out of or reducing penetration in any that you can discuss?

None that I'm ready to discuss yet on adding. We're not -- I'm not prepared today to talk about that. We are, and one of the charges I gave Andy and I alluded to it in my comments on men's, is we are looking at brand of matrixes and we are making adjustments to that brand matrix as we speak.

We believe we have opportunity to take the brands that are really performing well for us and expand those brands to mean even more to our business, and a higher percent to our total and take the -- and this is just common sense. Take the brands that have been underperforming over the past season or two and eliminate them.

And I'm not prepared to talk about who they are, especially not on a conference call.

Okay. And then last thing, with respect to spring, if you can maybe talk just a little bit about what you're seeing out there with respect to fashion. Is there anything new and exciting out there that may really drive her to want to make a purchase? Or him.

I will tell you, the dress shoe business is about the most exciting thing we've seen in the past several years. It's -- you know, the lady woke up one morning, looked in her closet, and said what am I missing? And the dress shoe business just took off.

We believe that we have many more months of comp store gains in dress shoes. And we've pumped additional dollars into that category. And out of the categories that have underperformed for us historically. And I'm very excited about that.

Great. Thanks.

We go next to David Turner with BB&T capital markets.

Thanks. Good afternoon. Curious about the shift in marketing from -- kind of pulling out of comp stores or the more mature markets and the new markets. Is that a reflection of new store productivity or is it just as simple as a change in tactics? If you can just expand on that, I would appreciate it.

David, this is Mark. As you know, our new stores have performed recently, and when I say recently, this past fiscal year, at about 80% of our comp store sales level. They used to be 85%. We've gone into certain markets that are currently underpenetrated for us.

For example, the Denver market. The Houston market. Milwaukee. Cleveland. Some of those larger markets where we put anywhere from 2 to 6 stores that we really need a lot more stores than that. In conjunction with that we're also concentrating on smaller markets within the Midwestern footprint that we're dominant in--areas that we've been able to drive sales very successfully with one initial store with a good amount of advertising and consequently drive the profitability from those stores.

So what we're doing is, the real estate focus is going to be going back into those underpenetrated markets and adding new stores within those markets as opposed to going to major new markets and opening up markets that we're not familiar with right now. In conjunction with the real estate strategy, and they both go hand in hand, is an effort towards putting advertising more towards those underpenetrated markets as we fill back into those markets.

So it's not a single-prong strategy of just shifting the advertising from old markets to new markets. It's a matter of going back in, filling in the real estate in the newer, underpenetrated markets and in conjunction with that enhancing the marketing effort that we put behind those markets.

I got you. And then secondly, it sounds like you guys tried to hold price at least more so than your competitors, particularly late in the quarter. Was that always part of the plan or was that kind of a reaction to the accelerating pace? And if that's true, does that change your marketing plans or your inventory flow? Or, what is the impact of your -- I guess the shift to kind of -- there to be an attempt to hold price?

Well, I'm not sure what you're referring to as holding price. You know, what we saw during the quarter is that margins were not under quite the pressure that they were last year in certain categories. Boots, obviously, were not one of those categories, as we did not enjoy a good October relative to last October in the boot category. And again, I hate to sound like a weather man all the time, but weather certainly has an impact in the seasonal sale of footwear.

There well, just to clarify, what I was referring to, I think in your October sales you said you adopted a less promotional stance. And I just –wondered -- was that a reaction to the environment getting worse and/or does that change any impact on marketing or inventory?

Well, the inventory has had the biggest impact. Our strategy over the past couple of years has been to reduce inventory pretty significantly on a store for store basis. At the end of the third quarter last year I think our inventories were down about 5% relative to the year before, and at the end of the third quarter this past -- the third quarter that just ended they were down an additional 3% below that 5% decrease.

So over the past two years we've pretty significantly you know, decreased our inventory levels.

Absolutely.

The strategy has been to enhance the gross profit margins. So we're doing exactly what we intended to do, with reduction in inventory and the increase in the gross profit margin.

Thank you.

)) Operator: We go next to Travis Sells with RBC Capital Markets.

Good afternoon. Could you elaborate more on your marketing plans for the fourth quarter as it regards to plan promotions, timing, and the amount of the media spend? Is there much of a difference versus last year? Thanks.

You know, for competitive reasons I really don't want to get into that.

Okay. Then a maintenance question. Could you give us your square footage at the end of the quarter, please?

Yes. Just a minute, Travis. 2,750,000.

Great. Thanks, guys.

Okay

We go next to John Shanley, Wells Fargo securities.

Good afternoon. Either Cliff or Mark. I wonder if you could just drill down a little more for me on this boot issue. I assume it's just women's boots that are becoming more promotional. And is the promotions being driven primarily by Kohl's?

I can't help but notice -- fail to notice that they ran a circular today with all women's boots being 50% to 70% off. Where you're seeing this on a much wider spectrum of competitors.

John, all of our boots have been under pressure, and I think they pretty much will go for the entire footwear industry. It's not only women's. It's men's. And it's kids'. The one boot category that we've seen an increase in has been our girls' boots. And I believe that's just a matter of us doing a better job internally of putting inventory in that category.

But for the most part -- and again, it's difficult to sell seasonal product without appropriate seasonal weather. And I think that's an industrywide trend, not a Shoe Carnival trend. Particularly with those companies that have stores in the Midwest and south. So yeah, it's not in our promotional efforts in regards to boots in the fourth quarter are not going to be in reaction to any particular retailer.

I can tell you that there's been a number of retailers that have already gone 50 off on boots in late September and October. So I expect that very promotional activity to continue into the fourth quarter.

With respect to fall product, we're reacting to what our sales trends have been and will be with respect to that fall product, and we'll get more promotional.

Fortunately, as Cliff said, as Cliff mentioned, we've got categories that are performing very well, at better than anticipated margins, and we expect that those categories are going to help offset, if not completely offset, the margin hits that we take in the boot category.

And historically, on the boot area, Mark, when do you normally liquidate boot inventory in the fourth quarter? Is it done in December and January as opposed to what's happening now? I'm just trying to get some sense in terms of which months we're likely to see some signs of improvement once you get through whatever the promotional activity is.

Well, John, we at Shoe Carnival typically will begin liquidation in middle to early December in terms of fall product, but certainly that effort's going to escalate in the months of January and even into February. We've got a lot of opportunity in the northern markets to liquidate boots still with the margin in the months of January and February. So we'll look to that.

Last year in January we were -- we didn't have a lot of that clearance product to sell. So I think that's one of the reasons why we had a negative 10% comp last January, and certainly that's a little bit easier in comparison to go against this January.

Sure. Particularly if we get some cold weather.

Exactly.

In the women's dress shoe category is it primarily being driven by just the fashion trends you made reference to the women's tailored clothing and dresses and so on? Or is it being aided by additional women's brands or styles that you've been able to get access to this period as opposed to what you may have been able to do in previous quarters?

Yes.

Okay.

Both John -- we're seeing good sales of some of the new brands that we've added over the past several seasons. And we've seen increased sales in the brands that we were already carrying.

Even right down to our private label programs. It's just -- it is a trend that began actually early September, and it has just continued to gain momentum. And it's across all -- just about all brands. And definitely against all classifications.

All right. Sounds great. And then on the apparel, athletic side of the business just for a second, you mentioned the kids' classic is doing well. Are the adult classics doing equally well? And do you think that trend is likely to stay with us into spring '04?

We do. We don't see anything that's going to take at this point, that's going to slow that trend down.

The only thing that can slow it down is an overproliferation of that with the vendors. Everybody's trying to get into it. We'll control that by just doing business with the guys that brought us to the dance. But that obviously drove our business in the third quarter, in athletic. We see it continuing even today. And we see it continuing into spring.

Great. And lastly, on the real estate front, is there -- can you give me the number of stores that you're now planning for '04, and is there any regional sector of the country that you're planning to beef up a little bit more than -- because you're doing better in one area versus another, or is it pretty much just the same kind of fill-in strategy you mentioned before, Mark?

It's pretty much just the fill-in strategy, John. There's not really any particular region that we're trying to hit harder than others I will say that we put a major emphasis on the larger markets, but we've also put a big emphasis on finding smaller markets.

When I say a small market, I'm talking population of 100,000 to 150,000 thousand people, that we can go in with one store and make a huge impact from the outset. So that -- it's going to be 99.9% fill-in strategy with respect to 2004.

And would those smaller markets be with your typical blueprint in terms of square footage that you would come in, or is it different size formula that you're looking for some of these smaller markets at?

We look at a smaller market like that. We'll look at the retail sales within that market, also the footwear sales within that market, and adjust the size of the store to match that retail market.

Typically, in a town the size of 150,000 people, we'll look at somewhere between 8,000 and 10,000 feet. And the 12,000-square-foot stores, which is our average, right around 12,000 square feet, you know, would suffice for a market of about 200,000 people.

Okay. And then the total number of stores planned for '04?

we've got between 35 and 40 new stores planned, and we expect to close four or five stores.

And anything on renovations?

We're going to renovate probably a half a dozen stores. We may -- well, we anticipate relocating at this point in time four stores.

Okay. Great. Thanks a lot. Appreciate it.

We go next to Harry Ikenson, First Albany Capital.

Good afternoon. On several of the conversations so far you've mentioned that while boot sales are weak and being liquidated but there is several other items such as women's dress, quite strong, picking up the slack.

So my question is, why such a cautious outlook for comps for the fourth quarter when we have an -- or when the company has an easy comparison for last year? So could you explain that? Maybe it's a mixed issue. In a little more detail. Thank you.

You know, Harry, this is Mark. At this point in time until we get -- you know, pretty much the same conversation we had at the end of the second quarter.

Until we see a much stronger trend in terms of the overall footwear business and our footwear business in specific, I'm not willing to jump out and predict a much stronger comp than what we're expecting, which is you know, flat to up to 2%. I think we have an opportunity in particularly December, where we had negative comps last December, and even more so, particularly in January, for larger comp store increases.

But again, I want to see a better trend in the retail sector before I jump out there with a better number for the fourth quarter.

Okay. And then one follow-up. I know you didn't want to give specifics on marketing for competitive reasons for the fourth quarter. Would you talk a little bit about next year since you're going to be marketing with fill-in stores? Are you planning anything different or a new twist for marketing plans for next year?

We're currently in the process of -- I'm not going to say analyzing because we've analyzed it to death. But we're currently in the process of making some changes, both with respect to the way we advertise, and when I say way, I'm talking about specific mediums that we're utilizing as well as the content that we're utilizing for particularly radio and television.

So we are making some changes that I'm not willing to discuss at this point in time because we haven't finalized those. But it's very likely that we'll come out with some new advertising campaigns in 2004, particularly after we get past the first quarter.

And then finally, any plans to add any more brands, particularly in the women's area?

Well, Cliff mentioned a minute ago he's not willing at this point in time to talk about some of the new brands that we're thinking about. So at this point in time I'd have to say no.

Okay. Thank you very much.

We go next to Steve Martin. With Slater Capital Management.

Hi, guys. Most of my questions have been answered. In terms of the retro and classic product, you talked about white. How is the colored product doing? And I'd ask the same question about the boot area, the multicolored boots versus sort of the basic wheat?

Steve, the brown classic products performed very, very well. In fact, we're at this time trying to get more of that product in that performed well for us in brown. It did not perform in any other color. As far as the multicolored boots we're not open to that product. So, we weren’t privy to the multicolored, but I did hear it sold pretty well.

All right. Thank you very much.

We go next to Michael Schrekest (ph) with Delaware Investments.

Hey, guys. Can you just talk about what you're seeing on the competitive front with regards to the athletic shoe business? Are your competitors scaling back in that area, and do you think that's where you're catching some of that -- some of the better performance?

This is Cliff. I don't believe our competitors are scaling back at all. In fact, if anything, our competitors are getting stronger. In athletic. I think that, again, shoe business is all about trends, and right now this classic trend both in white and in brown, which we just mentioned.

And what's going on with basketball is just -- is what the customers are looking for. And the retailers that buy it in depth and own it and become a destination shop for those kinds of trends are going to get the customers. I've got to commend my guys, my buyers. They've done just that.

And do you see any specific geographic strength? Or were the sales pretty even across all the different segments of --

In the classic product we actually continued our strength in the north, but a good bit of our growth came out of the south which was new for this product. You know, as this product moved -- didn't move away from urban, as it expanded from urban into more mainstream, junior kinds of shoes, we've picked up additional customers for that as we moved into the south.

Okay. And just lastly, I believe you said that the men's dress business had just all of a sudden sort of taken off. What kind of brands do you carry in that area? And which ones have been strong?

Actually, I didn't say that. We have not seen increases at all in any category in men's to date.

Okay. That was just the women's dress?

That's correct.

Okay.

We do see a change in trend there where our losses have been reduced significantly in men's dress, and we think that is going to get much, much better.

Thank you.

We go next to Sam Poser with Mosaic Research.

Good afternoon. You mentioned that you were going to be narrowing, I guess narrowing the assortment that you carried in one way, and you don't want to mention on it by brand, but can you speak of category?

Actually, what I said was we're going to narrow the brand structure. We probably will not narrow the assortment significantly.

What we'll do is we'll buy into the strong categories like dress like pumps, like all the classifications that are working for us today, we'll buy into those classifications with fewer brands than we did this past year.

And I don't know about dress at this point. We haven't tied down whether that's a 5% reduction of brands or 3% reduction of brands. We just know we have brands that have not performed for us. And like any good retailer you constantly look at that every season and you reduce and add as necessary.

One other question. What percentage of your business is fashion versus replenishable? An automatically replenishable business basis.

You know, it would be just a guess at this point. I did not come prepared to answer that question. But I would say in my women's business somewhere around 25% is basic replenishable business.

And in your men's?

Much higher percent, closer to 50% or 60%.

Do you see that number changing going forward?

Actually, I don't. I see that number staying pretty constant.

Okay. Great. Thank you very much.

Uh-huh.

Due to time constraints, we'll take our final question from Marian Miglin from Goat Mountain Partners.

Oh. Thanks for taking my call. I want to inquire about price points in this ladies' shoe phenomenon that you're starting to see.

Are they higher than the price points that more of the -- than the average price point of the product that you were carrying previously?

Well, due to the fact that, Marian, due to the fact that we added new brands into this category, into the dress category, we are driving higher average costs out the door.

But that's strictly a brand -- well, two things causing that. One is, again, when you get a hot classification that takes off or a hot business, you can drive those out at a little higher margin or a much higher margin than you did the year prior.

Plus the fact we did add new brands, which will help us drive out higher price points. So the answer to that question is we are driving out somewhat higher price points.

Thank you.

In the dress business.

Yes.

And that does end our question and answer session. I'd like to turn the call back over to our speakers for any additional or closing comments.

Well, as I said before, we're really pleased to report that record quarter and look forward to talking to you after next quarter. Thank you.

That does conclude today's teleconference. Again, thank you for your participation. You may disconnect at this time.