Shoe Carnival Inc (SCVL) 2005 Q2 法說會逐字稿

Good afternoon and welcome to Shoe Carnival's second-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 in 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 revision 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, for opening comments. Mr. Lemond, please begin.

Thank you and welcome to Shoe Carnival's second-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; and Tim Baker, Executive Vice President of Store Operations.

We are pleased to report higher sales and significantly improved earnings for the second quarter of 2005. Net sales for the quarter ended July 30, 2005 rose 7.6% to 148.7 million from sales of 138.1 million in the same period last year. Comparable store sales for the quarter increased 2.9%.

Net earnings for the second quarter were 2.7 million or $0.20 per diluted share. This was a 33% increase over net earnings of 1.9 million or $0.15 per diluted share in the second quarter of 2004.

While we were disappointed with early back-to-school sales in the very last week of the quarter, the fourth week of July, we are pleased with our business for the second quarter as a whole. We are excited about the operational and merchandising improvements we saw in the second quarter. Our earnings increase for the quarter was driven primarily by our fourth consecutive quarter of increased comp store sales, a continuing increase in gross profit margin, and lower selling, general and administrative expenses as a percentage of sales. Consequently our operating margin for the second quarter improved by 60 basis points to 3% from 2.4% in the second quarter of 2004.

Importantly the steps we have taken to improve our women's and men's dress and casual business have begun to yield enhanced results. For example during the second quarter, our women's non-athletic business grew to over 26% of our total business from 23.5% during last year's second quarter and both our men's and women's non-athletic businesses recorded solid comp store sales increases for the quarter.

I will let Cliff provide more merchandise details in a few minutes, but the improvements in the dress and casual categories bode well for the upcoming fall and winter seasons.

As with many other apparel and footwear retailers, we were disappointed with the slow start to the back-to-school season. But the trend we have seen this year closely follows the trend we saw last year. Customers in increasing numbers are shopping much closer to and after the actual back-to-school date. This trend is reflected in the sales numbers.

While we recorded a negative comp store sales in each of the first two weeks of August, the third week was almost double-digit positive, thus our August month to date comp store sales are up almost 1% through yesterday. In our southern markets where schools are back in session in approximately 80% of our stores, sales are very strong and exceeding our expectations. We now foresee this positive sales trend continuing into the last few weeks of the back-to-school selling season. If it does and if our northern market stores which generally go back-to-school later, follow a similar pattern, then we could exceed our current projection of 1 to 3% comp store sales for the third quarter.

Let me turn now to store openings and closings. We will continue to add new stores on an opportunistic basis, focusing our efforts on existing markets and geographic areas. This year we expect to open a total of 15 new stores. Seven stores were opened in the second quarter. We are also intent on closing unproductive stores as leases expire or when we are able to take advantage of lease kick out provisions. For fiscal 2005, we expect to close a total of eight stores, two of which will close in the very last week of January 2006.

One store was closed in the second quarter and three stores are expected to close in the third quarter. Store closing costs incurred in the second quarter were 369,000 or 0.2% of sales.

And our financial position continues to strengthen. Our merchants have done a good job controlling inventories. On a per store basis, inventories at the end of the second quarter were up about 1.7%; however, this entire increase was attributable to inventories in transit at the end of the quarter. Borrowings outstanding under our line of credit were almost $15 million lower than last year at the end of the second quarter. Thus we ended the quarter with a debt to total capital ratio of about 9.5%. We now expect to end the current year was no outstanding cash advances against this line and consequently for the first time in a very long time, debt free.

I would like to turn the call now over to Cliff Sifford to discuss more of the merchandise details.

Thank you, Mark. As Mark stated, we experienced a 2.9% comparable store increase for the quarter. For the next couple of minutes I'm going to share with you how our key categories and our departments performed during this quarter. I will also bring you up-to-date as to how our back-to-school selling season is progressing.

Just as in the first quarter, our non-athletic business in both the women's and men's department outperformed the Company. We have been talking for some time about the importance of increasing the penetration of non-athletic product in our stores. With the strengthening of our junior business in the growth of the low-profile category, we have seen this strategic direction come to fruition.

Our women's non-athletic business was up double-digit on a comparable store basis. Just as in the first quarter this increase was driven in both the dress and casual categories along with the junior and fashion urban classification. Each of these categories was up high double-digits on a comparable basis. The consumer is definitely telling us that we are trend right in our women's department.

Casual sandals continue to be soft for the quarter, ending down mid single digits on a comparable basis. However, we did see an improving sales trend as we moved to the warmer months of June and July with sales of casual sandals in July trending up mid single digits. The sales gain in women's non-athletic has continued through August with sales trending up mid single digits on a comparable basis.

In men's non-athletic, we also experienced mid single digit comparable growth for the quarter. We saw double-digit comparable store sales growth in the young men's and fashion urban categories. The low-profile product continues to build steam as the Midwest consumer gets more at ease with seeing this new look on more and more feet. Just as in women's, the men's non-athletic business continues to do well as we move through August with comparable store sales increases in the high single digit range.

Sales in our children's department were down low single digits for the quarter. Sales for the quarter started strong with mid single digit increases from May; low single digit increases for June; but as we entered into the last week of July, the athletic business just fell off the table, taking our July comparable store sales in children's athletic to a double-digit decrease for July.

It is interesting to note that the non back-to-school category of girl's dress and infants all performed well for the quarter. Our losses were strictly out of the traditional back-to-school categories of casual and athletics.

With that said, as we moved into August and schools started, our children's business has shown improvement. We are down very low single digits but I fully expect to be on the positive by the time the traditional back-to-school season is completed just after Labor Day.

In the adult athletics, our sales for the quarter were down low single digits on a comparable store basis. Again the sales for the quarter started strong and ended disappointingly. May comps were up mid single digits with June comps up low singles and July comps down high singles. Again the loss in July was driven by a dramatic decrease in sales the last week of July. These losses were driven out of fashion and basic classic product, men's crosstraining, as well as men's basketball. Conversely, performance running, skate, and women's athletic mules all showed strong gains for the quarter.

As we move through August we have seen some improvement in our adult athletic business, particularly in the women's athletic department where we are now positive for the month on a comparable store basis. Our men's business has shown some improvement but with the losses already suffered in the men's basketball and crosstraining classification, I don't believe we will see an increase in the men's athletic area for back-to-school.

In closing, I want to address the total back-to-school business. I believe that the consumer waited to buy their back-to-school shoes later than they have ever waited. We are seeing trends where the business does not peak until the schools actually start. I think part of the reason for this is the consumer is somewhat confused. They know that a new fashion trend is happening within the athletic arena and with low-profile, but they are not really sure what to where it with or how to pair it up with apparel that they want to wear. I think that they got to school and saw what was happening and now they are in our stores making their selection.

As you all know, the change in trend in athletic is away from traditional basketball, fashion classic and heavier crosstraining to more colorful technical running, skate, and athletically inspired low-profile. We feel we are poised to take advantage of these changing trends. We're seeing strong sales for this back-to-school season in each of these emerging categories. We also expect to see these categories gain in momentum as we move through this fall and into next spring. It is important to note that the low-profile product is classified in our fashion non-athletic business.

And lastly, we announced earlier in August that we entered into a license agreement with profit ProfitLogic for their retail price optimization solution. We are very excited about the benefits that this software solution will bring us in helping our merchants make timely or pricing decisions. We believe that this solution will help us raise overall margins and also allow us to offer the consumer a fresher selection of product each time they visit our stores. We will begin the implementation process over the next several weeks and will go live in February.

And with that, I would like to turn the call over to Kerry Jackson.

Thank you, Cliff. Our net sales for the second quarter increased 7.6% to $148.7 million, compared to $138.1 million for the second quarter of 2004. Our same-store sales were up 2.9% for the quarter. By month comparable store sales were up 7.1% in May; up 6.7% in June; and down 4.8% in July. The decline in July was completely due to a 14% decline in comparable store sales in week four July. We attribute the decline to a slow start to the back-to-school selling season.

Going into the fourth week of July, we had a low single digit comparable store sales increase. Gross margins for the second quarter of 2005 increased 0.2% to 27.9%, compared to 27.7% in the same period last year. This resulted from a 0.3% increase in our merchandise margin partially offset by a 0.1% increase in our buying, distribution, and occupancy costs.

SG&A expense as a percentage of sales decreased to 24.9% for the second quarter, compared to 25.3% in the same period last year. The decrease resulted primarily from the lower advertising costs as a percentage of sales during the quarter. The decrease in advertising expense was due to some of our advertising that ran in Q2 last year ran in Q3 this year due to shifts in our back-to-school promotions.

New store preopening costs incurred in the second quarter were $296,000 or 0.2% of sales, compared with $147,000 or 0.1% of sales last year. We opened seven new stores during the second quarter of 2005, compared to two stores in the second quarter last year.

During the second quarter this year we incurred 369,000 in store closing costs. This expense equates to about 0.2% of sales. Last year in Q2 we incurred $47,000 in store closing costs.

Operating income for the second quarter increased 33% to $4.5 million, compared with $3.4 million in the same period last year. Our operating margin increased to 3.0% in the second quarter versus 2.4% in the second quarter last year.

Interest expense decreased to $128,000 for the second quarter versus $179,000 last year due to lower average borrowings. The effect of income tax rate for the second quarter of 2005 decreased to 37.8% from 39% in the second quarter of 2004 due to lower state income taxes. We expect our income tax rate for the rest of the year to be about 38.5%.

Net income increased 39% to $2.7 million for the second quarter compared to $1.9 million last year. Diluted earnings per share rose 33% to $0.20 per share, compared to $0.15 per share last year.

For the first six months, net sales increased 9.1% to $309.4 million, compared to 283.6 million in the first half of 2004. Same-store sales increased 4.3% for the first six months of 2005. Gross margin for the first half of 2005 increased 0.4% to 28.8%, compared to 28.4% last year. The merchandise margin increased 0.3% and buying, distribution, and occupancy costs as a percentage of sales decreased 0.1%.

SG&A as a percentage of sales decreased 0.4% to 24.2%, compared to 24.6% in the first half of 2004.

Preopening expenses for the first six months of 2005 were 489,000 or 0.2% of sales, compared to a 876,000 or 0.3% of sales in the first half of 2004. Store closing costs in the first half of 2005 were $511,000 or 0.2% of sales, compared with store closing costs of 100,000 in the first half of 2004. Net income for the first half of 2005 was 8.6 million or $0.64 per diluted share, compared with net income of 6.5 million or $0.49 per diluted share last year.

We were in solid financial condition at the end of Q2. Our inventories were up 8.2% to $206.3 million due to the 16 additional stores operated from the end of Q2 last year and an increase in our in-transit inventories. Our long-term debt decreased to $17.7 million at the end of Q2 this year from $32.5 million at the end of Q2 last year. Long-term debt to total capital in the second quarter was 9.5%.

Depreciation expense for the second quarter and first half of 2005 was 3.8 million and 7.4 million respectively. Capital expenditures for the first half of 2005 net of cash lease incentives were 8.3 million broken down as follows. 2005 new stores were $2.9 million. The remodeling and relocation of stores cost $2.2 million. All other additions were $3.2 million. Capital expenditures for the full year net of cash lease incentives are expected to be about $15 million.

Our revised capital expenditure forecast includes among other things the capital expenditures related to our recent licensing of markdown optimization software from ProfitLogic.

I would now like to provide some guidance for the third quarter of 2005. Earnings per diluted share in the third quarter are expected to range from $0.43 to $0.45. This assumes a comparable store sales increase of between 1 and 3%. We expect gross margins to increase slightly and SG&A as a percentage of sales to decrease slightly.

This concludes our financial review for the second quarter. I would now like to open up the call for questions.

(OPERATOR INSTRUCTIONS) Jeff Stein, KeyBanc Capital Markets.

Mark, wondering if you might talk about the store closings you are anticipating for the year, if they are confined to any one specific market? What if any store closing costs might be incurred over the balance of the year? And what the annual sales of these closed stores mean to the top line?

They are not confined to one particular market, Jeff, although we are looking at certain markets for future closings. These stores are spread out across our chain.

In terms of store closing costs that we anticipate in the future for these stores are expected to be around somewhere around 120 to $130,000 for the remainder of the year. So not a significant number left for these store closings.

In terms of annual sales I'm going to have to let Kerry do some ciphering on that one because off the top of my head I don't know the collective annual sales of those stores.

And Mark, could you also address the issue -- were these stores a drag on profitability from a four walls standpoint?

The majority of those stores were a drag, Jeff. There's probably a couple there that were marginally productive -- I shouldn't say marginally -- marginally profitable stores maybe -- but very unproductive stores in terms of what our expectations are certainly to the cost of capital. So when they run at the expiration of their lease, we're going to close those types of stores.

Okay, and also I wanted to make sure I understand your comments that you made at the outset in your prepared remarks. You said that weeks one and two posted negative comps and week three was up high single digit?

Very, almost double digits.

In terms of the relative importance of each week of August, since it is your most important month, how would you weigh weeks one and two against three and four?

Weeks one and two were larger than weeks three and four. But again what we're seeing now is a continued -- actually an accelerated trend from weak three. There is no question I think that most retailers have said and are saying that back-to-school is coming later this year and we're seeing exactly the same thing. In fact we're seeing a number of areas where schools have gone back and sales are really very good relative to last year on a comp basis. So after the schools went back. I think that is a trend that we expect -- that is a trend we expect to see continue really through the mid part of September or at least through Labor Day.

Okay, thanks.

Chris Sakia (ph), Susquehanna Financial Group.

Cliff, a question for you first. Maybe if you can add a little color to explain exactly what you mean by low-profile particularly in the men's and women's non-athletic categories. I would assume that that is something related to maybe Steve Madden or Skechers -- maybe you can add a little color exactly what that is?

You would be right. You're right on the button, Chris. The low-profile you would probably know it as euro casual or even sport fusion but Skechers and Steve Madden and Skechers are the leaders to that today. Or if you were in a journey store, you would see it under Diesel or Puma.

Okay and that's what's been working for you on the non-athletic men's and women's side of your business?

It's very strong. And it is new for the Midwest. That is why we are very excited about it. We have been waiting for several seasons for the low-profile Sport Fusion product to make it to the Midwest and it does appear year that it has arrived.

Okay and then on the women's dress and casual side of the business, given the growth that you have seen, is that taking anything away from any other category within your business or is it just growing at a much faster rate than some of your other categories?

There's really two answers to that. We take the women's Sport Fusion or low-profile product and we classify that within the junior category of our women's business. Even though it is athletically inspired and I believe it is just an extension of what is going on in the athletic business, but it is creating sales increases in the women's department and probably hurting somewhat the sales trend in the athletic area. That's number one.

Never two, we're also seeing a huge move into dress shoes. Actually this is a continuation, the dress shoe business with us has been good for about 18 months and now our junior dress shoe business is absolutely on fire and we see that continuing. That is just in my mind that is just a plus business. They're not leaving athletic or athletically inspired shoes to move into dress. That is a new business, a business that we probably have not maximized well in the past but are today.

And you expect these trends to continue as you go into the back half?

It is just continuing to gain momentum. It was strong during the spring period and now we are at back-to-school, it is just getting stronger and stronger.

Last question I have is just on new store performance. I was wondering if you could provide a little color with regard to those stores that you opened roughly a year or so ago, in Denver and Houston and Milwaukee, have you had a chance to backfill into some of those markets and maybe if you can add a little color about any stores that you've opened recently in terms of their performance and relative to your plan at this point?

Denver we have had a hard time going back in and finding additional locations, although we have found one or two. Those stores are still not performing close to our expectations. Milwaukee has been soft and Houston we have put some additional stores in that market and they did respond to some additional advertising. So they are performing much better than they had. So still not up to our original expectations for that marketplace.

We are seeing good results in our Texas markets, so we do expect Houston to continue to gain in terms of their productivity.

With respect to the stores that we've opened this year, collectively they are about on plan. I think four of those stores have actually recorded a profit so far this year. So we are generally pleased with those stores collectively anyway. We've got a couple that we're not that happy with but collectively we are pleased with the performance of the new stores.

Okay, thank you very much. I appreciate it.

Sam Poser, Mosaic Research.

Cliff, did you pull the women's Sport Fusion out of the athletic or has it always been a separate business?

It has always been. We felt that the Sport Fusion business was going to hurt the or compete more with what we term sport casual. So -- first of all, let me say it another way. The athletic guys were really slow to get into this business. We still are not finding Sport Fusion product from any of the major athletic suppliers. It is all the fashion guys, the Steve Maddens of the world, the Skechers of the world that have got into the Sport Fusion product and we because it was driven through the casual end of the business, we put that into our casual junior and our casual young men's department. So to answer your question, it has been there all along.

Now the athletic business -- the core athletic business has been trending down with those few exceptions. Do you see that turning around or --?

I think you've got to look athletic as a whole and include the Fusion in it because I do believe that there has been a fashion trend change away from heavier athletic products to a lighter weight, meaning running and skate and Sport Fusion. And I believe that the technical running program is so strong that if we were as we increase our inventory levels on that product, we will start seeing our business in athletic catch up.

Conversely with the athletic guys have not looked at this trend toward Sport Fusion product and kept a blind eye to it. They are now trying to introduce new Sport Fusion product within the athletic category and I believe that is going to happen as we move into the fourth quarter and first quarter.

So I think that it is a temporary problem than core athletic with what's going on with crosstraining and basketball and that it will eventually fix itself. The athletic business though and I don't know any other way of saying it, we believe is still healthy because we think that Sport Fusion is just an extension of that.

Great and then what about the boots, the whole Western trend? What are you seeing? Are you actively in that and if so, how is it doing?

We have a smidgen of Western product in the stores today and it is selling very well. We will be to delivering additional Western product as we move into the fall. We think that the whole Western program is going to be a real phenomenon for this fall along with other types of boots. We are seeing sales already on tall shafted dress boots. We are seeing sales already on fur boots that are adorned with fur and in Western and along with riding boots. So we think we're going to have a pretty good boot year. We've planned it to be flat on a comparable basis. We think we may see some small increases.

Okay, great. Thank you very much.

David Turner, Branch Bank & Trust.

Mark, I think you had mentioned or maybe it was Kerry some of the SG&A or there was a shift in advertising from Q2 into Q3. Does that correlate with a change in promotional calendar as well or was it just strictly just a timing of advertising buys and execution?

The tendency in schools right now, David, is to go back-to-school later in the period than earlier. You are even seeing states legislate that into effect, for example North Carolina is going back later in August than earlier. So part of it was the shift in the timing of when we run promotions because of the shift of the back-to-school dates. Part of it was just a shift in the timing of the promotions relative to the back-to-school dates. In other words, a little bit closer to the back-to-school dates than what we did last year.

Again it is somewhat of a similar trend that we saw last year. We just did not expect to see the magnitude of the drop that we saw in the fourth week of July. So a lot of those sales are shifting into August in the latter part of August from July. I'm glad we shifted that advertising from the fourth week of July into the third and fourth weeks of August. So I think we're being able to take advantage of some advertising shifts right now in the third and fourth week of August whereas -- you hate to say advertising was wasted because it is never wasteful but it was not nearly as effective in the fourth week of July and the first two weeks of August as what we would've hoped.

So reading into that then, the increase, the spike in Q3 was not necessarily tied to increased promotional activity. You're not marking down product given the relatively late start to back-to-school or you haven't increased the activity?

No, again on an overall basis, no, that's correct. What we have done in the past and I've said it numerous times in the past and will continue to say it in the future, we look at specific product for markdowns on a continuous basis and we will continue to do that. Have we taken markdowns on certain products that did not sell early in back-to-school? We absolutely have. But I will say that our margins to date for the third quarter are higher than they were last year.

And I think it was about a 350 or so basis point increase in the non-athletic parts of the business, women's non-athletic. Does that -- the shift strictly due to decreasing the mix of athletic or what are you taking space away from in order to increase the non-athletic parts?

We've seen that trend, again, that has been a huge initiative for us as you well know to improve our women's non-athletic business as a percent to our total. Again, the main reason is that commands higher margins than the other categories of our business and that has been true in the second quarter or I should say was true in the second quarter and continues to be true in the third quarter, that that category is commanding higher margins.

So we have seen that trend all through the second quarter. Some of that trend was a result of a decline in the back-to-school business in the fourth week because a lot of that business is in athletic based business so certainly a portion of that increase was as a result of that decline. However we have seen women's non-athletic piece continue to generate incremental sales. I think Cliff mentioned a mid single digit comp through a period where the Company has only had about 1% comp in the early back-to-school and August. So we have seen an increase in that women's non-athletic category.

One last question, just curious about the pricing dynamic of the Fusion product. It that comparable to or better than ASPs versus what's flowing or I guess just is this a higher dollar volume proposition overall?

Dave, this is Cliff. The ASPs when placed against the athletic product that's slowing, especially in man's, the men's ASP for Sport Fusion is lower than the ASP for men's athletic, just slightly. And women's is very similar, very close.

Tonya Bleichhogan (ph), William Blair.

Most of my main questions have been answered but I just wanted to ask on ProfitLogic said that is going to go live in February. Is there are ramp up to that or is it immediate? How does that work and when do we see an impact from it?

Tonya, you’re talking about once we go live in February?

Right.

We expect to see results of that as we leave first quarter going into second quarter.

Okay, thank you.

(OPERATOR INSTRUCTIONS) and Virginia Genereux, Merrill Lynch.

This is a little redundant probably too, but Cliff, if you separate -- if you leave out the Sport Fusion stuff that you think you are thinking of as athletic, don't you -- and athletic was 52% of your business, you said athletic was 52% of your business in '04. Can you give us a sense where athletic will shake out for '05? Again, I guess this is athletic from the traditional vendors and where currently you would say it's going to be for '06 as a percent of the mix?

We ended the second quarter at almost 51% athletic to our total business. If I were to look at athletic for the remainder of the year or for the year, I would say that we would probably be somewhere around 50%. We will be right around there for next year, between 49 and 51% of our total business.

Again technical running and I don't think we should be underplaying this, what technical running can mean to our business, we have seen incredible increases out of that category and the athletic both men's and women's and that product drives a much higher average price out the door than the athletic product that is slowing down.

And this technical -- as you said technical running -- is that from vendors -- that's all the traditional vendors or is it --?

Yes, it is. It is traditional vendors (multiple speakers), people like Nike and Adidas and on and on.

Okay, thank you.

Jim Morton, Morton Jennings.

I've got two questions. It appears that you are gradually moving into a cash generating mode if your debt free at the end of the year and the way it looks you'd actually be generating cash next year. What will you be doing with this excess capital that would appear to be looming in the near future? Because I don't hear plans of phenomenal store expansion or something like that.

We anticipate opening approximately the same number of stores if we see the opportunities in the marketplaces that we are currently occupying. If we see more opportunities, however, within the Midwest and the South and the Southeast coast, then we'll open more stores. Certainly cash will be utilized doing that. But you are exactly right, as we go along and we open 15 doors a year or 20 doors a year, we are generating cash and throwing off cash. At this point in time, we have obviously talked about a number of things to do with that cash. We have not decided upon any one thing. So if you're looking for stock buybacks or dividend payments or any of those types of things, they are being talked about, but we certainly have not decided.

When we make a decision, if we make a decision on those -- let's just say when we make a decision on those types of things, we will certainly let the market know about it. But we are reviewing those options. We just haven't made any decisions regarding those.

Okay. The second question I have would be more towards Cliff. It would appear that the lighter shoe, whether it is called a technical running shoe or whatever, is taking precedence slowly or maybe rapidly over the heavier shoe. Is this anything to do with the type of apparel that is being worn, that maybe not such a clod-hopper type of thing looks better with the look that is moving in? Would that be the driving force behind it? In other words, the pants, the skirts, the blah, blah, blah that are being worn are dictating this or what?

I don't think there is any question to that, Jim. There is a huge trend in the denim business for narrower paint legs instead of the boot cut, and that screams for a lighter-weight athletic product instead of the heavy basketball and heavy classic product of the past. I believe we are seeing that. Whether it is just the change in denim or if it is other apparel-related changes, there is no question in my mind that that is what is driving the lighter-weight product.

If you watch the ads on television, all of the teenage kids are attempting to look like poor beat-up orphans from Third World countries. Does that look, the knee being out and the jean faded and beaten to death and costing over $100, does that look require this lighter-weight product?

That look would be more towards skate product, and we are still -- I mentioned in my prepared remarks about our urban business, urban fashion business, and men's being very strong, and that is heavier. That product is not lightweight. That is heavier product, which goes against some of the things I have been saying. But in the urban business, people like UGGs and so on, that business is continuing to be strong along with skate product. And that goes along with what you're asking about. But there has been a big change, been a big move over the past six to eight months to more preppy-influenced apparel, and we are seeing that throughout the marketplace. And it is that product that is driving the technical running and lighter weight.

Okay, thank you.

Jeff Stein, KeyBanc Capital Markets.

I was wondering if you might update us on your search for a new location for a distribution center and where you're at with regard to that?

We're in a phase right now where we are analyzing sites and talking to a couple of different states about the opportunities in those states. We have not identified a specific, definite go-to site yet, but we are analyzing that with the state governments at this point in time.

And how would you be building that in line with Jim's question -- how would you be building that into your plans for capital spending for next year?

I think the numbers that Kerry gave -- and Kerry, correct me if I'm wrong -- but I think the numbers that he gave you did not include expenditures for a D.C. The fact of the matter is next year would only be a small amount of work in progress or work in process for the D.C. It would really be a major expenditure for the end of 2006 and more so in 2007.

Okay.

We wouldn't see anything coming on line until -- even if we had a site identified today, which we don't have one particular one picked out, it would be the first quarter of 2007, even into the second quarter of 2007 before we were up and running.

Okay, thanks.

Steven Martin, Slater Capital Management.

Could you talk about any carryover boot inventory you may have had from last winter and what other than that Western that you discussed earlier may be different about the boot business this winter?

Steven, we had very little carryover from last winter. We did -- we do from time to time, not every year but from time to time carry over snow boots because they don't change that often as you know. And so there was a little carryover from weather-related utilitarian snowboots. But past that, I cannot think of any major carryover in boots. So none other than that.

Now as far as what is happening in boots as I mentioned the fact that we just had a small amount of Western in today. Western will be delivering as we move through September and into October, we have a pretty good select coming and we see that the sales trend today as I was just telling someone earlier today that the shortage of product at retail will do nothing but help Western be stronger when it does deliver the latter part of September to first part of October. So I think Western is going to be very, very strong as we move into the holiday period.

Past that, we are seeing some interest today in boots and tall shafted dress boots and riding boots and in boots with fur trim, not necessarily UGGs, but along that same influence with fur, not only on the inside of the boot but on the outside.

And some of your more traditional boot vendors of prior years you mentioned someone just before.

We do a lot of our -- when a customer comes in to look for boots, she's not necessarily looking for brands as much as she is looking for the style that she wants along with quality and construction. So we do a lot of our boot business either through private-label or through some of our pseudo brands.

Got you, okay, thank you.

A follow-up from Sam Poser, Mosaic Research.

Cliff, I just wanted to follow-up on the technical running product that you are talking about. Can you give me some ideas of what the average selling prices are? Is this stuff that would compete with the sporting goods guys as far as the type of product it is?

Sam, as you know we don't get access to some of the higher end technical product that the number one athletic guy produces but we do get a lot of the AIR product and some of the 360 AIR. And some product from Adidas that drive higher retail price points. So we're looking at 60 -- retail prices from 60 to $80.

And do you also do business with like ASICS and Brooks and those kind of guys?

We are not currently today doing any business with Brooks but we are doing business with ASICS and successfully so.

Great, thank you.

At this time there are no further questions. I would like to turn the conference back over to our speakers for any additional or closing remarks. Please go ahead, gentlemen.

I would just like to thank everyone for joining us on the call today and your interest in Shoe Carnival. Thank you.

This does conclude today's conference. We thank you for your participation and have a wonderful day.