Shoe Carnival Inc (SCVL) 2005 Q1 法說會逐字稿

Good afternoon and welcome to the Shoe Carnival's first-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 call contains 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 a 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 to reflect future events or developments.

I will now turn the call over to Mr. Mark Lemond, President and Chief Executive Officer of Shoe Carnival.

Thank you and welcome to Shoe Carnival's first-quarter 2005 earnings conference call. Joining me on the call this afternoon is Kerry Jackson, our Chief Financial Officer. Cliff Sifford, our General Merchandise Manager, normally joins us on this call (technical difficulty) currently in an airport somewhere and is in a listen-only mode this afternoon.

We are pleased to report higher first-quarter sales and the highest quarterly earnings in the Company's history. Net sales for the first quarter of 2005 rose 10.5% to 160.7 million from sales of 145.5 million in the same period last year. Comparable store sales for the quarter increased 5.5%. Net earnings were 5.9 million, or $0.45 per diluted share, in the first quarter, a 31% increase over net earnings of 4.5 million, or $0.34 per diluted share, in the first quarter of 2004.

The earnings improvement for the first quarter was driven primarily by our third consecutive quarter of increased comp store sales, a continued improvement in gross profit margin and leveraged selling, general and administrative expenses. Consequently, our operating margin for the first quarter improved to 6% from 5.2% in the first quarter of 2004.

I believe that certain of the operational changes we discussed on our last conference call are having a positive impact on our business. Particularly, these changes involve enhancing the fashion mix of our merchandise assortments and implementing a new and fresh advertising campaign.

While comp store sales for the chain were up 5.5% for the quarter, we saw a pretty dramatic disparity between our warmer southern markets and our more northern regions, which experienced a much cooler than normal spring season, particularly in March and April. Although our total sandal business was depressed by the cooler weather, we nice increases in men's and women's dress and casual product, along with men's, women's, and children's athletic.

Our women's nonathletic business was up mid single digits on a comparable store basis, with increases in both the dress and casual categories. We have been talking over the past few quarters about an increased emphasis on being fashion right in both silhouettes and color. This emphasis is driving our increases in these two departments. Low-profile or Euro casual silhouettes are selling very well, particularly in the junior category. Additionally, shoes with new material interest, new toe characters and myriad embellishments sold through at very good rates. Mirroring a trend in the apparel industry, the performance of our junior and more fashion-forward categories has been exceptional.

The one disappointment in women's was our casual sandal department. Dress sandals, slides, and even clogs sold well for the quarter, but the cool spring did inhibit the sale of casual sandals.

We also saw a mid single digit comp store sales growth for the quarter in men's nonathletic product. Most of the same classifications that drove our business in the fourth quarter continued to do so in the first quarter of 2005. We are still pleased with the growth in our young men's fashion dress category. As we said last quarter, we expect this category to continue to be strong for the next several seasons.

We also saw continuing growth in the men's casual classification, particularly with the low-profile or Euro casual product. We feel this trend will continue to gain acceptance in the Midwest and will be a key look throughout the spring and fall seasons.

Our children's nonathletic business was not very good, a result we think was directly attributable to an earlier Easter and cooler than normal weather. Just as we saw in the adult departments, our children's sandal business for the early spring season was disappointing. However, our children's athletic business was good, comping up mid single digits. In total, our children's business for the quarter was up low single digits on a comp store basis.

Our adult athletics continued to exhibit strength, with sales for the quarter rising by mid single digit comps. Overall, we had strong growth in the fashion basketball and performance running categories in women's athletic, and equally strong sales in the skate and running categories in men's. We are noticing that our customer is moving to a more technical running product. This trend has allowed us to raise our average out-the-door price with our three top athletic brands, and this, along with the improving performance of our largest footwear vendor, should keep our athletic momentum moving forward as we approach the back-to-school season.

All in all, I would like to say that I am very pleased with the progress we are making in our merchandising efforts. Our buyers have done a better job this year of identifying trends and reacting to them. While our sales improved in all of our major categories in the first quarter, it is particularly encouraging to see a big improvement in our women's division.

Our gross profit margins showed a nice 50 basis point improvement in the first quarter as well, and our inventories remained tightly controlled, increasing by less than 1% on a per-store basis at the end of the first quarter versus last year's first quarter.

I am also happy with introduction of our new Red Nose advertising campaign. We fully expect this type of image campaign to yield greater long-term benefits than very short-term sales spikes. However, when the weather has cooperated, we have seen our recent advertising efforts entice that female customers back into our stores.

We also changed our grand opening promotion for the 2005 new store openings, again highlighting the women's side of the business and targeting a female consumer better than we did in prior years. This has worked very well in the five first-quarter grand openings. For fiscal 2005, we now expect to open about 14 new stores and close six stores.

Our business in the early part of May has continued pretty much along the same trends we saw in the first quarter. Although both our southern and northern markets are realizing positive comp store sales, our southern markets are clearly outperforming their counterparts in the cooler northern states. Overall, comp store sales thus far in May are up in the mid single digit range. Now I'd like to turn the call over to Kerry for more financial analysis and before we open it up for Q&A.

Our net sales for the first quarter increased 10.5% to $160.7 million, compared to $145.5 million for the first quarter of 2004. Our same-store sales were up 5.5% for the quarter. By month, comparable store sales were up 13.3% in February, 13.0 in March, and down 9.9% in April. Our March sales benefited from an earlier Easter and, conversely, the April comparable store sales decrease was attributable to the Easter shift.

Gross margins for the first quarter of 2005 increased 50 basis points to 29.6 percent compared to 29.1% in the same period last year. This increase resulted from a 0.2% increase in our merchandise margin and a 0.3% decrease in our buying, distribution and occupancy (ph) cost, primarily due to the leveraging of occupancy cost against a higher sales base.

SG&A expense as a percentage of sales decreased to 23.6% for the first quarter, compared to 23.9% in the same period last year. Lower preopening costs during the quarter were partially offset by higher health care costs. New store preopening costs incurred in the first quarter were 193,000 or 0.1% of sales, compared with 729,000 or 0.5% of sales last year. We opened five new stores during the first quarter of 2005, compared to opening 11 stores in first quarter last year. We expect our preopening costs to average about $50,000 per store this year, compared to 70,000 last year.

Operating income for the first quarter increased 29% to 9.8 million compared with 7.6 million in the same period last year. Our operating margin increased to 6.0% in the first quarter versus 5.2% in the first quarter last year.

Interest expense decreased $133,000 for the first quarter versus 194,000 last year due to reduced debt levels. The effective income tax rate for the first quarter of 2005 decreased to 38.6% from 39% in the first quarter of 2004 due to lower state income taxes. We expect our income tax rate for the rest of the year to be in the range of 38.5% to 39.0%.

Net income increased 31% to 5.9 million for the first quarter, compared to 4.5 million last year. Diluted earnings per share rose 32% to $0.45 per share, compared to $0.34 per share last year.

We were in solid financial condition as of April 30, 2005. Our inventories were up 5.5% to $176.3 million due to the 12 additional stores operated from the end of Q1 last year and a small increase in average on-hand inventories in our other stores.

On a per-store basis, our inventories were up 0.6%.

Our long-term debt decreased to $13.5 million at the end of Q1 this year from 26.1 million at the end of Q1 last year. Long-term debt to total capital at the end of the first quarter was 7.6%. Depreciation expense for the first quarter was $3.7 million. For the year, we expect depreciation expense to be about $15 million.

Capital expenditures for the first quarter of 2005 were $2.7 million, detailed as follows. 2005 new stores were $1.1 million; the remodel and relocation of stores cost $1.1 million, and all other additions were about $0.5 million. Capital expenditures for the full year are expected to be between 13 and $14 million.

I would now like to provide some guidance for the second quarter of 2005. Earnings per diluted share in the second quarter are expected to range from $0.16 to $0.18. This assumes a total sales increase of between 7 and 10% and a comparable store sales increase of between 2 and 4%. We expect gross margins and SG&A as a percentage of sales to both increase slightly. The increase in SG&A is primarily due to higher advertising and preopening costs. We expect to open five or six stores in the second quarter this year versus opening two stores in the second quarter last year.

Also included in the earnings estimate for the second quarter is a pretax charge of approximately $300,000 for the closing of two stores. The closing of these two stores and the associated charge was not included in our original guidance. An opportunity came to fruition this year which will allow us to close these two underperforming stores during the third quarter, but the charge for the closing will occur in the second quarter.

My final comment today will be on the correction of an error in the first quarter on how we previously handled cash discounts that our vendors allowed us. Let me stress that unlike some of the recent situations that are headlined in the news, these were discounts that certain of our vendors agreed to give us at the time we issued our purchase orders for the merchandise. Several of our vendors allow us to take a discount on the invoice at the time of payment if we pay for the merchandise by an agreed-upon date.

Previously, this discount would be included as a reduction in cost of sales at the time of payment. We have changed our accounting in first quarter of this year to now take the discount as a reduction in cost of sales when the merchandise is sold. The cumulative impact of the change was a reduction in net income of $235,000 or $0.02 per share (technical difficulty).

This concludes our financial review of the first quarter. I would now like to open up the call (technical difficulty).

(OPERATOR INSTRUCTIONS) Virginia Genereux, Merrill Lynch.

I've got a couple questions maybe. Kerry, on the cash discounts from vendors, do you get that back? I understand it is just a timing difference in terms of when you're recognizing that benefit. I'm trying to think if you would then -- if sometime after you anniversary it, would you pick up again? Do you know what I mean? Do you get a $0.02 benefit at some point?

Not really. It is now just a permanent timing difference between the way we used to handle it and the way we are going to handle it on a carryforward. It varies by the purchases on a quarterly basis, so it does fluctuate by quarter during the year. But it is really now a permanent timing difference versus the way we used to handle it.

Okay. So it's a penny or two pushed out effectively indefinitely, kind of -- quarter-to-quarter or year-over-year?

Compared to the prior years, yes.

Right. Just for the next four quarters.

Right.

And then, Mark, on the May comps, May comps are trending up mid-single and I think you said your comp plan was up 2 to 4.

Right.

Is there any reason May should be better than June and July, any seasonality that you're expecting, or is May in fact starting off better than planned?

May is coming in better than planned at this point in time, Virginia, and I will add that -- and pleasingly so, it's our women's business that is driving the increases, more so than any other category. And as we see the weather get warmer going from south to north -- and I hate to be a weatherman -- but we are seeing a pickup in our women's business the further into the warmer weather we get.

So that, I hope, will continue. And the reason I hope it will continue is not only does it benefit our business, but it certainly has to benefit the sale of sandals across the industry, and if that is the case, then we won't see any kind of dramatic promotional activity when you get into the June and July time period that we might have expected if we continued to see much cooler weather and a continued depressed sandal season. So not only is it good for sales, it is also good for margin as the roll into the liquidation months of July.

So are you seeing -- weather looks like it was indicated highly negative for May, Mark. Do you think are seeing -- it sounds like you are ahead of plan. Are you seeing a big negative weather impact?

As I mentioned in my remarks, we are seeing a big difference between our southern markets and our northern markets still, to the tune of about 6% comp difference in the south versus the north, if you want to look at it like that. Now certainly, there are some market specific issues that are going on. But as a general rule, we are seeing 6% better comps in the south than we are in the north, and again I attribute that to a warmer weather pattern in the south as opposed to the north. And we can see that difference show up in terms of sales and sales of our sandal categories. And that includes men's, women's, and children's sandals.

Right. Let me ask you this. Your remarks about maybe a less promotional June and July, if you had -- if weather has not been as good in the north and they are lagging the companywide comp trend, won't you have to promote in those markets anyway? If you don't get -- or do those generally come later for you anyway? Are you saying you have a window where weather could still get better in the north and you could see the full price selling you need here at May 19 or whatever?

We do anticipate that, yes. In fact, we're being careful about the markdowns that we do take to make sure they are targeted on product that has not performed in the southern markets and make sure that we're targeting our markdowns to that kind of product, instead of just saying let's go 50% off sandal promotion kind of thing. So we are taking markdowns on product that has not sold well in the South, anticipating that it is not going to sell well when the weather warms in the North.

But at the same time, we are not marking down all of our sandals because we do anticipate some full-price sandal sales yet to be generated from the northern stores. So as we see the weather continue to warm, we do expect sandal sales to get better in the northern stores.

So what I am saying is that sandals in the industry have not been that great in the early selling season, so I hope that it doesn't become very promotional very quickly and that we give the northern stores a chance as an industry to sell some product at full price.

Okay, and then lastly, I would have thought your EPS would be a little better with the sales guidance in the second quarter. And I know you said you'd get some SG&A leverage and some gross margin benefit too. It sounds like you are seeing -- if you get SG&A leverage -- to get to your number, I feel like I've got to have SG&A pressure. Is there a reason you would not see the gross margin expansion you got this quarter, or is there a reason you wouldn't see the gross margin expansion this quarter? And is it a material pickup in advertising year-over-year?

Virginia, I may have not said it very well in my speech, but what I was alluding to, we are expecting our gross margin percent to rise in the second quarter; but we are also expecting our SG&A percent to rise in the second quarter also, and it is primarily due to two points. One is additional advertising and two is additional preopening costs. We are going to be opening five stores in Q2 this year versus opening two stores last year. So you are right about your model. We are seeing our SG&A rise to get to those levels.

Can you tell me how much advertising is up on a percent of sales basis maybe?

No. I don't want to disclose that, but it is up a pretty good amount.

Understood, thank you.

Jeff Stein, Keybanc.

Mark, a question on new stores. Last couple of years you have had some disappointing performance, particularly last year, on new store openings. And I am wondering how have the five that you have opened on a year-to-date basis performed relative to plan?

In the aggregate, Jeff, they are performing about 15% better than the stores we opened last year and pretty close to plan. We opened one store that is a disappointment. The other four stores have been pretty nice.

And with regard to the average size of these locations, how would they compare relative to where you have been?

Just slightly down. We opened one 7200 square foot store, which drove the average down to probably right about 9500 square feet for the five that were opened -- maybe 9700 square feet. I don't have the exact number with me.

And an inventory question. In casual sandals, if your inventories on a per-store basis are up let's say just under 1%, where would your casual sandal inventories be? And in dollars, what kind of exposure do you have in that category?

Well, they are up more than what we would like to see at this point in time. As we mentioned, we are not happy with the sales of casual sandals, particularly in our northern stores. But as I mentioned to Virginia, as we see that warmer weather continue to go northward, if you want to look at it that way, like a wave from the south to the north, we are seeing our sandal business in the north continue to improve.

So we're not going to take drastic markdowns across our entire sandal categories at this point in time, but focus more upon specific product that hasn't sold well either in the north or in the south.

Okay, and a question again on advertising. Without divulging the absolute level of advertising, are you planning for the year if you hit your sales target to see your advertising percentage increase versus a year ago?

Only very, very, very slightly. I'm talking in the hundredths of a percent kind of number.

Final question, Mark. With regard to store expansion, you have ratcheted your expansion back this year. At what point would you make a determination in terms of where you take your store base next year?

As we go through the second quarter.

And if things continue -- if you continue to track in let's call it a 2 to 4% comp store range, would you be inclined to take your store expansion rate up in 2006?

I don't see us ramping it up dramatically. We are planning on about 14 new stores for 2005. I would expect somewhere close to that number in 2006. If we continue to see a continued improvement in that trend, then we may ramp it up another five stores or something along that line, Jeff. But I don't see going from 14 stores in 2005 to 40 stores in 2006.

So we're going to be -- and again, the number of stores that we open is really dependent upon where we are going to focus our new store efforts at. In other words, we are concentrated right now on our geographic markets that we are in currently and that focus is going to continue into 2006.

Okay. Historically, it seems that you have been very opportunistic. When the business seems to get really strong, you have become very, very aggressive, and you have always talked about a 15 to 20% rate of store expansion. I am just curious -- is this a change strategically or philosophically about the rate of new store growth on a going-forward basis or should we just look at this as being a near-term 2006 plan?

Really it's near-term, Jeff. And again, when we look at new store openings, we're not hung up on the absolute number of new stores nor the percent growth rate in number of stores. We are more hung up on where we are opening stores and where we are focusing those new store openings.

What we're trying to do, as I've said many times before over the past year, is ramp up the number of stores in our existing markets, especially those larger markets where we have had a hard time flushing out the number of new stores, and entering smaller one-store markets within that larger geographic footprint in the Midwest and South.

So for us, it is a matter of looking at where we can open stores as opposed to how many stores we can open. I can't stress that enough. It is a change from what we have done in the past in that we are focused solely on opening markets within existing geographic markets or geographic areas.

Okay, thank you.

David Turner, BB&T.

I have only got 20 questions, so I will be quick. I was curious about the minimum benchmark for generating SG&A leverage. You are guiding to 2 to 4. You're saying that SG&A going to be up because of advertising and preopening, but if you back those out, what would that equate to in terms of SG&A leverage?

Well, if you want to take your questions one of the time -- that one is dependent on the quarter. In Q2, it is somewhat unusual for us to be able to do a comp and not leverage our SG&A, but a couple set of circumstances play into it. If you look at our estimates for the year, the high and the low, you will see overall leverage on the SG&A. I think this is just a one quarter issue.

So basically the midpoint of your guidance, 3%, will generate leverage as you get past these circumstances in Q2?

Yes, typically they do in any quarter.

Okay. And then was curious about -- you had mentioned your AURs are increasing nicely. How does that tie in to merchandise margins? Is the increase in AUR tied to improved brands or is there an equal increase in cost of merchandise? Or should there be some improvement in merchandise margins as well?

What I said, David, was that our average price with our top three athletic vendors had improved, and that is primarily tied to -- again, we don't have very technical running product like the 100 and above kind of product, but we have in our inventory today more technical running product in the 70 to $75 range than we have had at any point in time in the past. And again, that has raised our average price with the top three athletic vendors.

It is a different issue with respect to women's, where our average price is down slightly. So I want to emphasize that it is our athletic prices with our top three vendors that have risen, and that is primarily, again, a result of the type of product that we are enjoying good sell-throughs on right now.

Okay. And then lastly, the new marketing campaign, I guess it's relatively early, but I was curious about what type of metrics you're looking at for the impact in mature markets versus impact in newer markets, where the brand may not be as well known or any type of feed back you have on improving productivity in your newer markets.

We really don't. As you well know, advertising is a difficult thing to measure because our sales are so much dependent upon other factors, rather than just that one advertising factor alone.

The reason why we developed more of an image campaign -- and the campaign is not totally image as opposed to current promotion or price, but it is more along the lines of an image campaign -- is for the long-term benefit, not the short-term sales spike. What we have noticed, though, is when we have been on TV, our sales have improved, where the other factors have fallen in line to allow our sales to improve. In other words, where we have seen a warming pattern -- and again, I hate to go back to weather but it does have a big impact in spring season -- where we have seen that warmer weather and we have been on television with this new advertising campaign, most of our markets have reacted very strongly.

So it is more -- there's more factors involved than just advertising by itself. I don't think I would ever point to advertising and say that alone is responsible for a 15% comp store spike on Thursday, Friday, Saturday of a midweek advertising campaign.

Okay, thank you.

John Shanley, Susquehanna Financial.

Mark, I realize Cliff is not with you, but I was hoping that you could give us an approximate percent breakdown in the merchandise mix in the first quarter, and whether or not there is likely to be any change in the percentage of your volume by different merchandise categories going towards the back half of the year?

The overall percentages didn't change by very much, John, very little. In fact, I think the largest change was our women's product was up about 0.2 of a point in terms of the percent of the total mix. But overall, every category was virtually the same as what it was in the year prior.

Going forward, again, we have said before that we fully anticipate that the effort that we're putting behind the women's product is going to yield more favorable results in the women's nonathletic category as opposed to some of the other categories; at least that's our intent. So it's happening right now very small impact, but I think that impact will grow as a go through the rest of the year (multiple speakers).

Are you getting a better product margin still on the women's side of the business than you do on some of the other merchandise categories?

Yes, we are.

Great. You have mentioned performance footwear is a growing element. Are you getting any of the marquee product, is that what you are referring to? Or is it just more of the regular mix from some of your athletic suppliers?

It is not marquee product at all. And when we talk about performance product, you are talking in the 65 to 75 or maybe $80 range. But it is more visible Air product from Nike that is selling very well. It is Acube technology from Adidas we have done very well with. It is gel technology with Asics. Some things like that -- you would probably call it low technology, but in our mid-market tier it is more technical product than we have had before.

That's great.

I will emphasize, John, it is not necessarily for the technical use of running, but it is the look. A lot of it has to do with much better upper treatment as well as the unit treatment.

Is that resulting in a somewhat expanded customer base that may be shopping in Shoe Carnivals since you have these products available now?

I think what we are seeing in the mid tier -- it's hard to say that we're drawing customers from another retail base like the department stores or out of the mall-based players like a Finish Line or Footlocker or the sporting goods channels. But I think if you look at some of our competitors in the mid tier have done much better with athletic product. Our athletic product has continued to sell at mid-single digit comps and we are enjoying an increase in price in that category.

I think what's happening is some of the luster may be off some of the highly technical product, the product above $100, and maybe the customer is transferring to a little lower price point, if you will. We have always been a preferred athletic retailer in the mid tier, so we are enjoying I think some of that transfer.

That's great. And in classic footwear, are you still doing well in that category as well?

Yes.

Okay. And then my last question -- what is a Euro casual and where does that fit in the merchandise mix?

It's what people are referring to as low-profile, Euro casual. It's kind of like Diesel product, although we don't carry Diesel. But Steve Madden has some of that product in the men's line. It's the little thinner outsole. It's not dress product, but it's not true athletic inspired product. And we are seeing a real surge in the sale of that product, both in athletic inspired low-profile product, as well as casual product like Skechers, like Steve Madden kind of product.

Got it. I just wasn't sure what the terminology was. Also, just on the six store closings, are they in scattered markets that are being replaced by new stores that are coming into the same markets or are you pulling out of any specific market?

We are pulling out of some markets. There is one store that we are replacing in a market. I don't want to get into specifics on that.

I don't need that, but are these some of the markets that you have been disappointed in?

Yes.

Thanks a lot. I really appreciate it.

Sharon Zackfia, William Blair.

A question on the remodeling program. Can you update us as to how money stores are now in the new format and how happy you are with their performance versus the older format stores?

We started the year with about 80 and we have only got 85 plus the five new stores, so about 90 stores with that new format. And again, I am not trying to dodge the question, but a lot of those stores are in the northern markets where the weather has not been conducive to much better sales. So can we attribute an increase in trend in the south where we have primarily opened new stores or is it a result of warmer weather? Is it a result of the new store look? We haven't gotten to that specific issue.

We have remodeled six stores so far this year, so we have just begun our remodeling projects for the 2005 fiscal year. I think we're going to remodel about 40 stores in one shape or another. So it's too early to tell in 2005 obviously the first quarter, because some of those remodels just got done in the latter part of April, so they would not have had any -- few, if any, selling days under the new remodel look.

Can you remind us what your ROI target is on the remodels?

We have not stated that before. But -- and again, we are not necessarily doing -- I want to make this point clear. We are not necessarily doing the remodels to hit a return on investment target. What we are remodeling the stores for is to attract more female customers into our store, which will allow us to generate more overall women's nonathletic business. That is the intent of the remodel, is to provide a venue that a female shopper is going to be comfortable in as opposed to our current Shoe Carnival format.

And what is the average cost of the remodel?

Well, we are doing two different phases of that. An average cost of a major remodel is going to be somewhere in the neighborhood of $300,000, 250 to $300,000. We're doing about 30 what we're calling minor remodels at about $75,000 per.

And is that just a difference in how old the stores are or how they originally looked? Why minor versus major, how is that decision made?

There's a number of stores out there with a number of different Shoe Carnival formats. And when I say that, Shoe Carnival is Shoe Carnival is Shoe Carnival. It's the same kind of look, but different fixture types and different signage types and so forth. So what we're doing is concentrating on two things. Our older stores, where leases are coming up for renewal and focusing our major remodels on those kind of stores, where we're replacing an entire look of a store.

In the minor remodels, we're focused on our newer stores that have somewhat the same fixturing package, somewhat the same signage package, but what we're doing is -- for example, we're moving our women's product to the front of the store and shifting the area of our cash wraps. So allow the woman to see the store, see the product that we want her shopping for from the window line and when she first comes into the store, instead of having to wait until they get back into the store to see the product that we are trying to sell to the female customer. So it's things like that that we're calling a minor remodel, and like I said, it's about $75,000 per store.

Thank you.

Sam Poser, Mosaic Research.

Good afternoon. I just wanted to ask you about any changes in shift by brands, especially in the athletic and women's casual. You mentioned some of the low-profile and Steve Madden. I wonder who else was driving that business and if there were any major changes from last year.

I did not want to give you the impression that we're selling Steve Madden. That is not the case. What I was trying to describe to John was something that most everyone is familiar with in terms of the look of the product. There really has not been a big shift in our resource space. There's going to be peaks year in, year out, but there really hasn't been a big shift, certainly in our nonathletic product. People like Skechers and it has that low-profile look. We're doing some private-label product on the men's side with the low-profile.

So that is a trend in the industry more so than a trend with Shoe Carnival.

From an athletic side, we are not seeing a huge shift, but we are seeing a much better business with our number one athletic vendor (ph), and that is real pleasing to see and that has been a long time coming in the mid tier sector. But I think a lot of our competitors are seeing that also. So I think just in the overall mid tier sector of our industry, our largest vendor is performing very well right now and that is a nice thing to see.

With your largest vendor, are you seeing that the moves that they've been making to segment their brand are really something that you see benefiting you dramatically?

No, I don't think I could say that that has benefited us dramatically. I think in the future it has the potential to do that. But so far -- it has been a fairly recent strategy and I can't say that we have seen any benefit from that. What we have seen a benefit from is the acceptance of the public in some of the 60 to $75 footwear that they're producing. That we have not seen before from that vendor.

In your specific channel?

In our channel. Correct.

Are you seeing a lot more special makeups and so on from them and others at the same time?

We're doing some SMU, but not that much other than different colorways, so not at this point in time. We try to do different colors with vendors. And we will, as we grow larger, continue to focus on doing certain shoes as an exclusive product, but we are not so hung up on that. Again, it's some styles that they're making for a lot of people in the industry that are selling very well right now.

Thank you very much.

Stephen Martin (ph), with Slater Capital Management.

Most of my questions have been answered, and, Mark, I won't ask you any of those tough brand questions since Cliff is not around. Kerry, you talked about preopening expenses in the second quarter. Can you talk about what they're going to look like in the back half?

Yes, we drop off. We opened nine stores in the back half of last year versus three in the back half this year, so they are going to fall fairly substantially.

Okay. Share count. Given the appreciation of the stock and you were up a couple hundred thousand this quarter, are we going to see an increase in the share count over the next couple of quarters?

I think it is going to be more moderate, as we have -- depending on the stock price, if the stock price moderates, then the increase in the weighted average shares outstanding will moderate a little bit, but will continue to go up.

Right, but if the stock were to stay here in the 20 to 22 level, what is going to happen over the next couple of quarters and what share count number are you using in your Q2 guidance?

Just slightly more -- about 50,000 shares more outstanding than we had into Q2, on a diluted basis.

And that is based on the current share price.

Yes.

All right, thank you very much.

(OPERATOR INSTRUCTIONS) Todd Cohen, MTC Advisors.

I wanted to ask about the technical product; had a couple questions around that on the athletic side. I was curious as to when you started to see a pickup in that business that's apparently at a higher price point than the average you had been selling in athletic, and when you made a bigger inventory commitment to that part of the business. And was it -- have you not been able to get that product previously? Is that a product that was not allocated to you before? Is it just a product that you chose to begin to have more inventory of and just went ahead and bought it?

I will answer the latter part first. If you're familiar with the mid tier or the family footwear side of the athletic industry, we are not available to the upper tier of product, particularly with respect to Nike. They have put a large emphasis on making better product, and when I say better product, putting more technical enhanced features into the units of footwear, the bottoms of athletic product, specifically in the running and they are also doing some basketball shoes.

But they have also enhanced their effort towards making more desirable uppers on that product as well. And I think that is really where we're starting to see some of the benefit, is more from the more exciting uppers on Visible Air product from Nike, particularly in the first quarter. The effort started last year, but we have seen a big pickup in the first quarter and we expect to see that continue. Some of the product that we have seen going forward is some great looking product. And again, this running category, not only for the mid-tier sector, but for all sectors of the athletic industry, is picking up steam at this point in time.

So the fact that we have enjoyed a very good running business but it has been more moderate footwear and now we are seeing some better upper patterns on some more technical bottoms is starting to lift the business pretty significantly in the first quarter. Do we have enough of that product? No, I wish I had a lot more of that product right now, so we're chasing it.

And then Nike pulling out of Sears, that should help you as well?

As I said, I'm not going to make any dramatic predictions on how Nike -- what their distribution is in terms of one particular retailer and the impact it has upon us. I am not sure that that is appropriate. But as they fine-tune their distribution and if they continue to make better product for the mid-tier sector, I think that is going to allow us to see a continued increase with the Nike brand, more so than them dropping out of any particular retailer. So much depends on the product, not where it is sold.

Thank you.

It appears there are no further questions at this time. I would like to turn the conference back over to Mr. Lemond for any closing or additional remarks.

I just want to say that we are pleased to report this good quarter and the good start to 2005, period. Thank you for joining us.

Thank you. That does conclude today's conference. You may disconnect at this time.