Shoe Carnival Inc (SCVL) 2007 Q4 法說會逐字稿

Good afternoon, and welcome to the Shoe Carnival's fourth quarter earnings conference call. Today's call is being recorded and 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. Those 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 to reflect future events or developments. I would now like to 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, Katie. Joining me on the call this afternoon is Kerry Jackson, our Chief Financial Officer; Cliff Sifford, Executive Vice President and General Merchandise Manager; and Tim Baker, Executive VP of Store Operations. Fiscal 2007 proved to be a difficult period for us and footwear retailers in general. We believe the constriction of the general economy directly affected our targeted consumer through higher gasoline prices, escalating food costs, housing and mortgage issues as well as increased debt loans.

After coming off two strong fashion driven years in the men's and women's dress categories of footwear our core customers did not respond to the style and color direction this past year. Additionally, athletic wholesale companies have been unable to identify a dominant fashion trend in recent years and as a result, sales of athletic footwear retailers have declined. Both the eroding macroeconomic conditions and lackluster fashion trends had a direct negative impact on traffic in our stores and consequently resulted in lower sales and earnings for fiscal '07. Despite the challenges we faced in fiscal 2007 there were a number of positive achievements.

First, our merchants did a good job of controlling inventories both in terms of quantity and composition. At the end of each quarter during fiscal 2007 our inventories were at or below the prior year on a per store average and we concluded fiscal 2007 down about 5% versus the end of fiscal 2006. Secondly, we continued with new store growth opening 25 additional stores. Consistent with our real estate strategy, these new stores are located in large and small markets in both new and existing geographic areas. We back filled larger underpenetrated markets with 16 of these new stores to improve the operating performance of the overall market. We also continued to enter smaller markets which we can fully penetrate with one or two stores. The stores opened during fiscal 2007 averaged 9,200 square feet, slightly smaller than our chain average of 11,000 square feet.

Third, where many in the retailer sector have experienced overwhelming challenges and product delivery interruptions during conversion to new distribution centers, we experienced minimal disruption of product flow to our stores during the final stages of conversion in Q1 of fiscal 2007. Although not operating at peak capacity yet, the new distribution center efficiency is more than satisfying our current product flow needs. Fourth, to support our store expansion plans and a continued long term of the Company, we completed and moved into our new corporate headquarters in the middle of 2007. Just as with the distribution center move, we experienced no down time from the standpoint of administrative support of our stores. This entire move was accomplished over the Memorial Day weekend. And lastly, we initiated a share repurchase program during fiscal 2007 with approximately 1.2 million shares repurchased at an aggregate cost of $28.1 million. Despite the significant outlay of cash we ended the fiscal year with about $9 million in cash and no outstanding long term debt.

While we anticipate that the retail environment will continue to be challenging in fiscal 2008, particularly in the first half, we do believe our strong brand name and existing markets along with the cost efficient operating model will provide us opportunities for market share growth and increased profitability. To accomplish this in today's competitive retail environment, we recognize that we must deliver the latest fashion, stay in stock with sizes, offer competitive pricing and provide a start to finish memorable shopping experience. If our management group executes these initiatives in 2008, we can continue building a loyal repeat customer base. Therefore, our primary focus in fiscal 2008 will be on enhancing store performance metrics and continuing our efforts to provide long term earnings growth to our shareholders. From a merchandise standpoint we intend to reduce the number of skews in our stores but maintain deeper size runs in order to reduce out of stock days in key products. Like most retailers, we are facing increases in the cost of products sourced from China, particularly in the second half of the year. We have chosen to take this opportunity to add additional features to certain private label product in order to create greater intrinsic value to our consumer. I'll let Cliff speak a little bit more about these merchandising issues in a few minutes.

We are also challenging management throughout the chain to ensure we are delivering the total shopping experience the consumer is looking for. We believe customer service is far more than just a helpful store associate. It is satisfaction with every facet of the Shoe Carnival experience. We are continuing our commitment of providing an in-store shopping experience that is not only fun and distinctive but leaves the consumer knowing that we are providing fashionable high quality footwear for their lifestyle at a competitive price.

In fiscal 2008 we expect to continue our store growth through the opening of between 20 and 25 new stores. These new stores will be located in large and small markets in both new and existing geographic areas. We have adjusted and we will continue to adjust our annual store growth rate based on our view of internal and external opportunities and challenges. The number of new stores we open is dependent upon the availability of desirable store locations primarily in our existing larger markets and small markets in our current geographic footprint. Real estate developers are beginning to show signs of a slowdown as the current macroeconomic environment is curtailing the expansion plans of many retailers, particularly those retailers that would serve as the anchor tenant to a strip center.

While we recognize that the immediate profitability of newly opened stores will be impacted by this difficult macroeconomic environment, we also believe that taking advantage of real estate opportunities in a down retail market is a prudent long term strategy especially when those store locations fill in existing underpenetrated markets. As most of you are aware, last week marked our 15th year as a publicly held and NASDAQ listed Company and we celebrated this achievement by ringing the NASDAQ opening bell Friday, March 14. This ceremony represented many things but most importantly, it provided me the opportunity to publicly thank the over 4,300 Shoe Carnival associates for their efforts and dedication they give this Company each and every day as I truly believe that we cannot have successfully evolved our concept across 293 stores in 27 states without them and it is with these efforts that we will continue to work to provide our shareholders with the best possible return we can deliver on their investment in Shoe Carnival in this challenging economic environment. Now I'd like to turn the call over to Cliff to discuss the merchandise initiatives in a little more detail.

Thank you, Mark. As Mark mentioned, we continued to experience a decline in customer traffic during the fourth quarter and although we experienced a slight decline in conversion rate, our pairs per transaction was up and our average price per pair was relatively flat for the quarter. There truly were no fashion drivers to excite the consumer and as a result, we experienced losses in every department.

The only categories to show significant increases were women's flats, weather boots in all genders, fur lined boots, boat shoes, men's work, skate and performance athletic. Inventories as a whole ended the quarter down 4.9% on a per-door basis. As always, we have been aggressive in moving through slow selling product. I'm very pleased that aged inventories continue to decline on a per-door basis versus last year and more importantly, we ended the season at an all time low in all seasonal boot categories. As stated in our last conference call, we are taking a proactive approach to turning around our sales and have implemented several initiatives to achieve this.

First, we continue to work very closely with several of our key vendors to develop and provide product that appeals to an important segment of the Shoe Carnival customer base, specifically the African American and Hispanic consumer. Nike and New Balance have been willing partners in this endeavor. Some of this product has now been delivered and is working very well at retail. We will expand the selection in our key fashion athletic doors for back to school.

Second, as most of you know, there have been pricing and manufacturing concerns on the product coming out of China. These issues primarily affect product that was scheduled to be produced after the Chinese new year. It also appears to be affecting direct -- factory direct orders at a higher rate than branded orders where a vendor brings a product to the U.S. and then distributes. What this means in the near term and probably even in the long term is that costs are going to escalate. Our strategy for 2008 is to accept the fact that we will sell fewer pairs in 2008 than we did in 2007. Therefore, we decided in our women's nonathletic department to add value to our product like better materials, more comfort features and even more brands. The end result with this strategy is that we will add costs to the product but will also realize a higher retail price out of the fewer pairs we sell. This same strategy will be used as we head into the fall season.

In our athletic departments we will fund these vendors that have proven to us that the customer recognizes their product for performance and value. These brands include Nike, Asics and New Balance among others. It is our belief that if it we tightly control our inventory levels which include reducing the number of skews our stores stock, increasing the depth of the skews we do stock, all while adding features and values to the product, it will set us apart from our competitors and give us an opportunity to capture market share. We have already seen positive results on this initiative in our athletic and our men's nonathletic departments.

Third, we have hired a new Senior VP of marking who comes to us with years of experience driving retail sales in both shoe stores and department stores. He has hit the ground running and is in the process of analyzing all aspects of our marketing strategy in order to implement a new plan that will not only allow us to capture the attention of our customer, but to also increase our share of market. And lastly, we are in the process of conducting a qualitative research program that will study both the current and past Shoe Carnival customer to determine strengths and weaknesses of our brand, product assortment and overall shopping experience.

In closing, I want to reiterate that our inventory is down 4.9% on a per-door basis and our merchandise gross margin was flat to last year for the quarter and the year. Given the challenging retail environment, our merchants are to be commended for these accomplishments. Now I'd like to turn the call over to Kerry Jackson.

Thank you, Cliff. Let me start by saying that we follow traditional retail calendar which means the fourth quarter of fiscal 2006 included an extra week and the full year included 53 weeks. With the exception of comparable store sales, all the numbers that I will discuss today will compare 13 weeks of sales and expenses in the fourth quarter of fiscal '07 against 14 weeks of sales and expenses in the fourth quarter of fiscal '06. The extra week of activity in fiscal '06 increased sales by $11.5 million and diluted EPS by $0.05 per share. The extra week is not included in the comparable store sales calculations for the quarter or the year. Our net sales for the fourth quarter decreased $12.9 million to $164.3 million compared to $177.2 million for the fourth quarter of '06. This decrease was primarily due to having one less week in this year's fourth quarter. The remaining $1.4 million of the decline was due to a comparable store sales loss mostly offset by the sales from the additional stores we operated during the quarter.

Our same store sales declined 5.7% for the fourth quarter. Gross margins for the fourth quarter of '07 decreased 0.6% to 27.5% compared to 28.1% in the same period last year. As a percentage of sales, the merchandise margin remained unchanged from last year's fourth quarter while buying distribution occupancy costs increased 0.6%. While we incurred 2% less expense in buying distribution occupancy costs in Q4 of '07, we deleveraged our buying distribution occupancy costs due to lower sales in the quarter. The decrease in total dollar spend in Q4 of '07 was due to having one additional week's worth of expense in Q4 of '06 and incurring conversion costs for our new distribution center in Q4 of '06. SG&A expense as a percentage of sales increased to 26.5% for the fourth quarter compared to 23.6% the same period last year. The increase in selling, general, and administrative expense was due to operating additional 20 net new stores during the quarter compared to the same period last year recording a noncash impairment charge for certain underperforming stores and the deleveraging effect of lower sales in Q4 of '07. Preopening costs in the fourth quarter were 37,000 compared with 34,000 in the fourth quarter last year.

Included in SG&A in Q4 '07 were $1.4 million of store closing costs of which $1.2 million was a noncash impairment charge for seven stores we expect to close. Last year during the fourth quarter we incurred 135,000 in store closing costs of which 100,000 was a noncash impairment charge related to one underperforming store. Operating income for the fourth quarter is $1.6 million compared to $7.9 million in the same period last year. Our operating margin decreased to 1% in the fourth quarter from 4.5% in the fourth quarter last year. The effective income tax rate for the fourth quarter of '07 decreased to 29.4% from 37.9% in the fourth quarter of '06. The decrease in the tax rate for the quarter was due to adjusting prior year tax accruals to what was actually paid. For the full year net sales decreased $23 million to $658.7 million from $681.7 million in fiscal '06. Half of the decrease was due to having one less week in fiscal '07 and the other half was due to a comparable store sales decline partially offset by the additional sales from the net new stores.

Same store sales for the comparable 52 week period decreased 5.2%. Gross margin for fiscal '07 decreased 1% to 28.2% compared to 29.2% last year. As a percentage of sales, the merchandise margin remained unchanged compared to the prior year and buying, distribution, and occupancy costs increased 1%. Deleveraging of the occupancy costs accounted for 0.6% of the increase with the remainder primarily coming from additional distribution costs. Preopening expenses for fiscal '07 were $1 million compared to $494,000 last year. Store closing costs included in SG&A in fiscal '07 were $1.9 million compared to store closing costs of $621,000 for fiscal '06. Operating income for fiscal '07 decreased to $19.1 million from $37.6 million last year. Our operating margin decreased to 2.9% this year from 5.5% in fiscal '06. The effective income tax rate for the year was 34.5% compared with 38.6% in '06.

The reduction in income tax rate was primarily due to state tax incentives received for the investment in our new distribution center and corporate headquarters. Net income for fiscal '07 decreased to $12.8 million compared with net income of $23.8 million last year. Earnings per diluted share for the year decreased to $0.97 from $1.73 per diluted share last year. Depreciation expense for the fourth quarter was $4.0 million and for the full year is $15.8 million. Capital expenditures for the year were $18.4 million detailed as follows. New stores were $7.6 million. The new distribution center was $4.4 million. The new headquarters building was $2.1 million. The remodeling and relocation of stores cost $1 million. Software and information technology cost $1 million and all other additions were $2.3 million. Also we received $663,000 in cash incentives from landlords for this year. During the fourth quarter of '06 the Board of Directors authorized a $50 million share repurchase program. Repurchases under this program during fiscal '07 totaled 1.2 million shares for a total cost of $28.1 million.

Previously we announced we would no longer give earnings guidance due to difficulty in predicting how the macroeconomic environment would affect consumer spending. However, I'd like to give a few metrics on how we're planning our business. We will continue to aggressively manage our expenses and we expect to keep the growth and dollar spend in SG&A over the prior year to 3.5% or less. In addition, we expect our effective income tax rate in fiscal '08 to be about 39%. Depreciation in fiscal '08 is expected to range from 16 million to $16.5 million and finally capital expenditures are expected to be between 12 million and $13 million. We intend to open 20, 25 stores and expect an aggregate cost between 5.5 million and $6.9 million. The remaining capital expenditures expect to be incurred for store remodels, various other store improvement along with continued investment technology and normal asset replacement activities.

My last comment is a note that despite the very difficult retail environment in fiscal '07 investing $6.5 million in a new distribution center and corporate headquarters and opening 25 stores, we were able to generate free cash flow for the year. In addition, we ended the year with about $9 million in cash and no debt. This concludes our financial review of the fourth quarter. I'd now like to open up the call for questions.

Thank you. (OPERATOR INSTRUCTIONS) And we will take our first question from John Shanley with Susquehanna.

Thank you and good afternoon, folks.

Hi, John.

Cliff, I wonder if you could break out for us the percentage of sales that each of your major merchandise categories had in fiscal '07? I'm particularly interested in athletic how it fared in '07 versus '06 as a percentage of total revenue?

John, we for the entire year of fiscal '07 49% of our business was done in athletic and '06 it was just over 49.5% So it lost a little ground.

Okay. How about the other major categories?

Women's accounted for -- women's nonathletic accounted for 27% of our total versus just over 26.5 a year ago. Men's accounted for just over 15% which was dead on flat to year ago and kid's nonathletic accounted for roughly 5% and so the total total about 47% on the [brown] side.

Not much of a change, then, in the merchandise mix between the various sectors?

Really wasn't, John.

Okay. And then can you give us an idea with the improvement or the increase in some of the pricing that you're planning, can you give us an idea of how much your ASPs are likely to increase in fiscal '08 versus '07?

I would think our prices are going to be -- we're planning our prices to be up somewhere between 7 and 10%. Right now our average cost is up just over 4, but that's for spring. We don't have all our costs back yet for fall, especially in the women's area. You know what's kind of funny, too John, is that and I mentioned in my prepared remarks, when you look at what's going on in the athletic arena, the prices are not up with the same degree that the prices are up in the direct -- product we buy direct from the factory. So it's really a women's brown, men's brown, and kid's brown issue and actually more of a women's and kid's issue because we buy more first costs there, but we see price points in our women's area going up north of 10%.

The price points in the athletic, do you think will stabilize or pretty much hold their own?

Well, so far they've done pretty well. Nike had a pretty good increase not too long ago, but so far they've been pretty stable. Where our prices will increase in athletic is the way that we buy the product. We're looking to increase it. Right now the strongest area of performance for us is in the performance footwear. I mean when you look at the brands like Asics and Nike and all their performance product and the sell throughs we're getting on that we'll raise are our price points just by buying more of that product and having more of that on the shelf for our consumer and the decrease against those vendors that historically drive a lower price point and lower margin.

Okay. That's very helpful, Cliff. I appreciate it. Mark--.

John, this is Mark. Let me add one thing because we talk a lot about this and with the increases that we're seeing coming out of China particularly that it's a very daunting task to increase price points in the kind of economy that we expect to see in 2008, particularly in the first half. What we intend to do is react very quickly to increased promotional activity in the marketplace. So we can do that we think in 2008. One of the things that we are very -- that we're working very diligently on is taking costs out of the product after it gets to the U.S. So we're working very hard on our logistics, particularly with our distribution costs, even though we're facing higher fuel costs we think that there are some areas that we can improve on from a logistics standpoint to take costs out of that product all the way through the pipeline. So we're looking at the cost structure as much as we possibly can to put ourselves in a position that we could be very reactionary in terms of promotional pricing as we go forward.

That's good to hear. Mark, I had a question on real estate. Can you give us an idea of has there been a change in the store size through either your major metro market locations or your smaller market locations? Has store size of the 20 to 25 stores that you're planning on opening going to be much different than what you have historically opened?

No. We don't anticipate that. In fact, this past year we -- the stores we opened averaged about 9,200 square feet. Part of the reason why is a number of those stores were opened in smaller metropolitan areas or areas that were -- of larger metropolitan areas that were still green in terms of population base. So we'll continue to rationalize the size of the store to the market area or the population of the market area that those stores are expected to serve. When we go into smaller population bases in smaller markets, we're going to open between 8,000 square feet and 10,000 square feet. As we go into population bases that are over a quarter of a million people, that's when we'll see the 10,000 to 12,000 square foot boxes, but overall we expect 2008 to be somewhere in that 9,500 square foot range.

Okay. That's very helpful. Thank you very much, appreciate it.

Thank you. We will take our next question from Jill Caruthers with Johnson Rice.

Good afternoon. Could you talk about -- I know on the last call I think you had mentioned the addition of a merchandise manager looking to allocate better at the store level. If you could maybe talk about that and maybe some of the improvements you've seen there?

We began that process, Jill, in February. We spent the final quarter of last year putting together the business plan to make this switchover successful. So it actually, everything changed as of the first week in February. So it might be a little early for me to give you a direct or quantitative results on that but we believed then and we still believe now that having a very, very strong merchant running that process and watching over the merchandisers who allocate, do the final allocations of product to our stores, is going to give us a long term benefit.

Could you maybe talk about how you allocated to stores previous to this new system as in allocation clusters or --?

The allocation process actually wasn't that much different. It's just the way we supervised that today and the way we break out responsibilities today that has changed, but we try to allocate product differently to each store based on the customer profile of that store. So if a store is heavily African American or Hispanic, then they will get a slightly different product mix than a store that has very strong suburban base. If the store has a strong junior clientele, maybe it's located in a college town, they'll get a higher concentration of junior product and we -- not only do we do it based on product, but we also have the ability to do it based on size. So if the store is a very left-handed store from a size standpoint due to the customer base, there our product allocation and size structure is left-handed, if you would.

Okay. And could you talk about if you're seeing any new exposure to new brands? I know one of your direct competitors had mentioned that they're getting availability to some new brands in the stores.

Without -- I understand which competitor you're speaking of and I actually understand which brand you're talking about. That brand is not going to -- we are not going to add that brand, although we are looking and have talked to many brands over the past three or four months. It seems that as I guess as a business in the department stores continue to slide, those brands are actually coming to our door as well. So we are adding additional brands to our assortment.

Okay. Thanks a lot.

Thank you. (OPERATOR INSTRUCTIONS) We'll go next to Sam Poser with Sterne, Agee.

Good afternoon, everybody. A quick follow-up on the question about the athletic assortment and so on. How has what athletic stands for as a mix within itself changed? I mean with the addition of Etnies and what -- you got -- it's held its share but how has the mix itself changed? What is in? What's out compared to a year ago?

That's a good question, Sam. Part of the issue is a change in the customer buying habits, but, in some ways our mix has changed because of decisions made by athletic companies themself. The classic product in total has slowed down regular white classic product over the past two or three years and a lot of that loss or a good portion of that loss is due to the decisions that the vendors made themselves in taking that product out of this channel. So that's one way that the product has changed.

The other way the product's changed is that we carry and sell a great deal more performance what this grid would consider to be performance athletic. That actually was led by Nike and now all the other or at least most of the other major vendors are jumping in on that program opening us up to more and more performance product. That has been probably the biggest change over the past two years. Additionally, as you know, about three years ago Skechers went into the low profile business and caught the athletic industry in my opinion a little flat footed. They have responded to that now and we have low profile product from several vendors that are actually selling very, very well. So as, where low profile from a casual standpoint may be flat or post peak, it certainly is enjoying a little resurgence in the athletic arena.

And then how about on the skate business?

Well, as you know, skate has been very, very strong this year, close to -- very close to triple digit increases both in women's, all in both women's, men's and kid's and we see that continuing on, but skate is a very seasonal business. It works fairly well in the spring and it works incredibly well at back to school, but the rest of the year it's just a good business. It's not a great business. We did add a one new brand this past fall, Etnies, and we've been pleased with the performance of that brand in our stores, but again it's been a very strong year for skate.

You brought up -- and then in your -- can you talk about some of the drivers in -- you mentioned, I believe, that the women's dress business, the women's flats and boot business and work was strong as well. Can you talk about how, what drove those business? Was it private label? Was it the brands and so on?

Well, it would be in all those strong categories it would be both branded and private brands. Flats get hot. I don't care who you buy flats from, you sell them and I want to be clear on one thing. When we said boots, I mentioned strictly weather boots. I mean it was not the best year for the boot category. Two categories of boots sold this year, weather boots and anything that looked like Uggs. Past that it was a tough boot environment. That's one reason we're so pleased with how clean we came out of the boot season.

Okay. Well, thank you very much, continued success.

And we will take our next question from Jeff Stein with Soleil Securities.

Good afternoon, guys, a couple questions. First with regard to the issue on higher product coming out of China. Given the comments you made, Cliff, do you believe that you'll be able to maintain your merchandise margins or are you even going to try to maintain your merchandise margins given the higher cost structure that you see coming?

We absolutely believe we can maintain our merchandise margins, Jeff. Here's the deal. We think just to buy the same product we bought last year and charge a higher price is not a good strategy. So if prices are going to go up, we felt that this was a year to add value to the product to give the customer a little something else that they can feel and touch and when they try it on, just understanding that yes, it may be a little higher price, but the quality is there and we believe and I truly believe this that as long as we plan our business correctly and as long as you recognize up front that you're probably going to sell fewer pairs on a per-door basis, so you buy fewer pairs on a per-door basis you don't have to be near as promotional and you put more touch and feel into the product and more quality then the customer will reach up and pay for it.

Roughly how are you planning your inventories for spring of this year on a per-door basis?

Down between 3 and of 5% depending upon the month.

Okay. Great. And a question relating, this would be more for Kerry and Mark on store expansion. Can you talk a little bit about the timing of openings and how you're planning your sales for new doors kind of on a per-door basis? I know historically you've been kind of 85% of a mature store. Do you see 80 and therefore planning 80 or 70? How do you exactly see things from a budgeting standpoint?

Well, first from a sales planning standpoint, Jeff, we take a look at each individual store and plan based upon what we feel that store can do and again, given the environment that we're working on. So more than likely we will probably plan sales south of that 85% that we had seen in the past couple of years. Strictly because it's going to take new stores a little bit longer to ramp up when there's not the familiarity in the particular -- in particular areas. So it would probably be a little bit south of that. We still think it's a prudent strategy to open stores because when we come out of this economic downturn, we're going to be a bigger stronger better Company for it, but so we are going to continue opening new stores. It will be at a slower rate than what we had intended maybe six to nine months ago, but that's primarily because we're seeing developments move from 2008 to 2009 or fall completely out strictly because the big box retailers are slowing down their growth or moving their store openings from one year to the next.

And, Mark, how about the timing of openings this year?

Well, I think we're opening two stores in the first quarter, Jeff, and then I don't know the exact number, but most of the stores that we open are going to be in the second and of third quarter and then maybe one or two in the fourth.

Okay. And then final question, there were a lot of timing issues last year with regard -- because of the shift in the retail calendar, the shift in back to school days. Do you see any events or timing differences this year that can cause sales to shift between quarters?

We got an early Easter. That's not going to impact the quarter. It going to impact the months of March and April, but as far as quarterly comparisons, I really don't see any. Obviously there are events within the year that will -- that could have an impact on sales and an impact on advertising. Obviously the election is one and -- are one and the Olympics is another event that could have an impact on retailers both positive and negative in 2008.

I'd like to add to that, Jeff, that as of today all the back to schools and all the tax holidays for that back to school time period have not been decided by the states and local governments. So that could have an effect between second quarter and third quarter.

The other obvious big event that's happening produced by the federal government is the tax rebate checks beginning in May, I believe. So that remains to be seen how much of that flows through to the retail economy, though.

You guys have any strategies? I know some retailers are trying to figure out ways to monetize that tax rebate by cashing checks in the store and so forth. Do you guys have any specific plan to capitalize on it or just hope that you get your fair share?

No. We're pretty much putting our heads in the sand and saying if it comes, it comes. Of course, Jeff, we are trying, just like we do with tax free days and the early distribution of tax refund checks at the beginning of the year we do try to develop strategies to get our share of that money, no question.

And finally, do you care to comment at all on sales trends in the first quarter?

We're not talking about sales in the first quarter yet.

Got it. Okay. Thanks.

We will take our next question from Heather Boksen with Sidoti & Company.

Good afternoon, guys. A lot of my questions have been answered. I actually had one question left on the tax rebate checks people are going to be getting soon. The last time the government did this did it have any impact on your sales?

It did. It impacted it positively. Don't ask me to quantify that number, though. I don't have that in front of me.

Okay, thanks. And one housekeeping question for you. You said you're going to open 20 to 25 stores in '08. Is that a net number and if not, how many closures are we looking at?

Right now we're looking at around eight to 10 store closings and no, it is not a net number. It is -- it would be 20 to 25 new stores. It looks like the number's going to be pretty close to 23 new stores unless we have -- unless developers move a couple of dates on us, but it's -- we began this process -- well, not began the process but about, oh, five or six weeks ago it looked like we had 38 or 37 stores that we were going to open in 2008 and between moves from developers or strip centers not being built because of the economic conditions it's now down to around 23 to 20 -- or I should say 20 to 25 and looks like the number may be pretty close to the middle of that. We think that somewhere around 20 to 25 is pretty solid right now the way we're looking at construction and the way we're looking at the retail developments. So we think that new stores will be in that range and again, we expect to close between eight and 10 stores this year.

Okay. And with respect to these lease agreements when you sign them, you have kickouts, right, for if an anchor chooses to not move into a center?

We typically are able to negotiate a kickout based upon either a sales number per square foot or co-tenancy provisions, yes.

All right, okay. Thanks.

(OPERATOR INSTRUCTIONS) We'll take our next question from Adam Comora with EnTrust Capital.

Hi, thanks. My first question is a follow-up to Kerry. I think you said that SG&A was going to increase no more than 3.5% from 2007. That's on an absolute dollar amount?

Yes, it is.

All right. So in theory if we have 5% additional square footage, does that mean we're going to leverage SG&A on a basically flat comp?

Yes, it would. One thing we recognize is that we've got a very difficult economy and one thing we can control is our expenses. So we've been very aggressive about managing those expenses in '08 and we could on a flat comp we'd be leveraged.

Okay. And in terms of when you guys were talking about this, I guess is Cliff and whoever, if ASPs are going to be up 7 to 10% in the back half and you guys said you were going to be starting to plan units down, are you planning units down that kind of magnitude as well or are you planning units down low singles so in theory, if you sell through what you're buying we're going to have a natural lift to comps from that ASP?

Adam, we're planning our unit down mid singles.

Okay, okay. And last question is store closing costs. I think you closed five stores last year and it cost you $1.6 million. Any idea what the eight to 10 could cost this year? It sounds like it's probably more than the $1.6 million.

No. We -- the charge we took in the fourth quarter of $1.2 million for the impairment covered the majority of those costs. So we'll incur some costs but not to that magnitude.

Okay. So it sounds like it's significantly less than the $1.6 million that we did in '07?

Yes. Keeping in mind that include in the $1.6 million was $1.2 million for the impairment of those stores we're going to close in '08 and beyond.

Got it. Terrific. Thanks a lot, guys.

Thank you and with no additional questions in the queue I'd like to turn the conference back over to Mark Lemond.

Well, we'd just like to thank you for being on the call today and we look forward to speaking to you next quarter. Thank you.

Thank you. That does conclude our conference call today. We appreciate your participation. You may disconnect at this time.