Shoe Carnival Inc (SCVL) 2008 Q1 法說會逐字稿

Good afternoon and welcome to Shoe Carnival's first quarter earnings conference call. Today's call is being recorded and it 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 results to be materially different from those projected in such statements. These forward-looking statements should be considered in conjunction with the discussion of risk factors included in the Company's SEC filings and today's press release. Investors are cautioned not to place undue reliance on these forward-looking statements which speak as only of today's date. The Company disclaims any obligation to update any of the risk factors or publicly announcing any revisions to the forward-looking statements talked about during the conference or contained in today's press release to reflect future events and developments. I would now like to turn the conference over to Mr. Mark Lemond, President and Chief Executive Officer of Shoe Carnival. Please go ahead, sir.

Thank you. Welcome to Shoe Carnival's first quarter 2008 earnings conference call. Joining me on the call this afternoon is Kerry Jackson our Chief Financial Officer and Cliff Sifford, Executive Vice President and General Merchandise Manager. It is a reality that the retail sector is facing some of the toughest times in many years. We continue to fight through the challenging economic environment going into 2008 and have worked diligently during the first quarter to manage through this challenge with a combination of inventory management and expense control. Rising fuel and food prices along with the issues in the home mortgage industry are continuing to dramatically impact the cost of living of our targeted moderate income consumer. Discretionary frequent shopping has diminished as we like others have experienced declining traffic patterns during the quarter.

Seasonal merchandise sales were disappointing for our first quarter particularly in the sandals and open up dress shoe category, however I am pleased to report that our kids and adult athletic categories posted a low single digit comparable store sales gain. We ended the quarter with inventories on a per store basis flat with the end of the first quarter of last year. And our management team did a commendable job controlling selling, general and administrative expenses during the first quarter. These expenses were flat on a dollar basis year-over-year despite ending the first quarter with 15 more stores than the prior year.

Looking ahead we see a continuation of the difficult selling environment, however we view this as an opportunity to increase our market share in the family footwear sector. In order to do this as I have discussed in the forth quarter we have developed a hit list of strategic initiatives for fiscal 2008 and I am encouraged by our progress. We believe that with the current condition of our store inventories we can continue to turn our product at an acceptable rate without having to resort to drastic clearance sales to make room for new seasonal goods. Additionally, we believe the recent improvement in athletic sales bodes well for the back to school period especially with the Olympic emphasis this summer.

We recognize that being in stock with sizes and key core shoes is critical during periods in which we are seeing declining foot traffic. Therefore we will continue to move forward with our initiative of reducing the overall SKU counts in order to provide greater depth in size runs for our customers and yet maintain lower, cleaner inventories in our stores.

The brings us to one of our other top priorities, the expansion of our loyal customer base by delivering a truly memorable total shopping experience. When Todd Beurman, our new Senior VP or Marketing joined us in January, his initial recommendation was to increase and expand the consumer research effort we started in the fourth quarter of last year. This research and other internal efforts confirmed many of our assumptions regarding how consumers view Shoe Carnival and identified a number of new opportunities for improvement. Our first opportunity pertains to improving the effectiveness of a communication with our consumer before they walk in the door. We must deliver a single consistent message in order to develop an honest relationship with our customer.

Our message must resonate with the lifestyle and spending habits of both our customers and their peer groups. Additionally we will continue to differentiate ourselves from our competitors in order to create an experience unique to Shoe Carnival. To aid in these efforts and strengthen our competitive positioning we have retained a new advertising agency, 22 Squared and charged them with the task of implementing a fully integrated marketing approach. This approach will deliver distinctive brand positioning and will clarify our image across all consumer touch points. We expect the agency to aid in bringing the Shoe Carnival concept alive across all mediums such as broadcast media and print and to integrate our internet website, customer loyalty program, and in store graphics. Revamping in store graphics and certain design elements will be a key part of the process of enhancing the customers experience. Additionally we are currently analyzing all of the visual and audio elements of the Shoe Carnival store experience. As part of this analysis, we are refining the role of our Mic person and our total customer service approach.

Alt though we are contemplating many changes we approaching all of these initiatives with a sense of balance including taking a conservative approach to cash management. We do not expect that the visual and design changes I just referenced will mandate a full store remodeling program. Likewise, a balanced approach does not include making overly dramatic changes to a concept that has proven to deliver sales per square foot metrics superior to our competitors in the open stock family footwear sector. We firmly believe that taking advantage of real estate opportunities in a down retail market is a prudent long term strategy especially when those locations fill in our existing underpenetrated markets. While we recognize that the immediate profitability of our newly opened stores will be impacted by the current difficult macro economic environment we are continuing with our plan to open between 23 and 25 new stores during fiscal 2008 with approximately 15 of these new stores located in large and small markets in existing geographic regions. As discussed in the fourth quarter, we have identified nine underperforming locations that we intend to close yet this year.

We are pleased to see some life out of the athletic business right now and we expect to see this continue through the back to school period especially with the summer Olympics falling right in the middle of this important sales period. However, we will continue to plan and execute our business in a conservative manner. Our merchants will remain focused on decreasing inventory levels per store and improving the turnover and gross margin return on investment. Our plan is to allow inventories per store to fall throughout the remainder of the year thus generating cash flow and protecting gross profit margins. In addition to inventory control, we will remain focused on expense control and making investments and change that will yield the greatest amount of shareholder value for years to come. Now I would like to turn it over to Cliff Sifford for a more in depth discussion of the inventory and product sales.

Thank you, Mark. As Mark mentioned we continued to experience a decline in customer traffic during the first quarter. We did, however see an increase in conversion and average transaction. In addition we have seen some positive trends in April and so far in May that offer encouragement as we go back to school. Although there continues to be no fashion drivers in the women's nonathletic, we did see positive comparable store sales increases in our athletic business for the quarter particularly in womens athletic.

Total comparable store sales for the quarter were down 4.9%, the largest decline for the quarter came from our women's nonathletic department where the lack of fashion, the very early Easter and cooler weather led to a double digit comparable store sales loss. Our men's nonathletic department ended the quarter down very low single digits, while children sales were flat and adult athletics was up low single digits. We attribute part of our current positive trend in athletic to the initiative we first stated a year ago concerning the family channels lack of fashion product for the African American and hispanic consumer. Our buyers have been working closely with several of our key vendors on product that would appeal to this important segment of our business. Several styles have been delivered and we are happy with the results. These results give us confidence as we see economic conditions improve for this customer we will be well positioned to be the destination store and our channel for fashion athletics.

Other key athletic classifications and vendors for the quarter were skate and performance running along with Nike, Asics and Converse. Inventory ended the quarter plat on a per door basis. As always we have been aggressive in moving through slow selling product and as a result, merchandise margins ended the quarter down 80 basis points versus first quarter last year. We are taking a conservative approach to inventories for the remainder of the year with average per door inventories planned down high single digits.

Also, to update you on our other merchandising initiatives as we head into the important back to school season and beyond. First as you know, there has been inflationary pricing and manufacturing concerns on product coming out of China. We have not seen any distribution interruptions nor do we expect any significant delays due to factory closings or the devastating earthquakes in China. For the fall season we have experienced on average cost increases of between 5 and 15%. We do not anticipate these cost increases moderating until the Chinese factories have had a full year to factor in the new labor laws that were enacted this past February. We recognized that due to this inflationary pricing and current economic conditions we will sell fewer pairs in 2008 than we did in 2007. In order to succeed, the pairs we do sell must be sold at higher retails. Our strategy to meet this goal is to add value to our women's nonathletic product with better materials, more comfort features and even more brands.

At our athletic department our strategy is to fund those vendors that have proven to us that the customer recognizes their product for performance and value. These brands include Nike, Asics, Converse and New Balance among others. We have already seen some positive results of this strategy for spring as we have driven higher out the door retails in every department except women's nonathletic. Second, we mentioned on our last call that we had hired a new Senior VP of Marketing, Todd Beurman who comes to us with years of experience driving retail sales in both shoe stores and department stores. In the short time that he has been on board we have completed epigraphic research on our core consumer and hired a new ad agency. In addition you will see a 360-degree marketing program that encompasses new creative and all media inserts and in store visuals. We are also working toward a new customer loyalty program and a new look for our web site, both of which should launch in the latter half of this year. And lastly we made major changes to our women's nonathletic buying team with the addition of a new Vice President DMM along with several key buying reassignments that we believe will give us greater strength in the marketplace as we continue to improve our product and brand assortment. Now I would like to turn the call over to Kerry Jackson.

Thanks, Cliff. Our net sales for the first quarter decreased $3.6 million to $162.1 million compared to $165.7 million for the first quarter of 2007. Our same-store sales declined 4.9% for the first quarter. Gross profit margins for the first quarter of 2008 decreased 1.0% to 29.0. As a percentage of sales, the merchandise margin decreased 0.8% and buying distribution occupancy costs increased 0.2%. The decrease in merchandise margin as a percentage of sales was largely a result of lower margins on our women's casual and sandal product due to promotional selling. We experienced a 0.6% increase in occupancy cost as a percentage of sales as a result of lower sales for the quarter against our increasing store base. This increase was partially offset by decline in distribution costs both as a percentage of sales and in dollars.

In Q1 of last year we converted to our new distribution and incurred one time start up costs of approximately $936,000 or $0.04 per share. Despite operating 15 more stores during the first quarter of this year, selling, general and administrative expenses remained flat at $39.3 million. While we did incur additional expenses as a result of operating those 15 additional net new stores, these increases were offset by aggressive expense controls in other areas of our business. As a percentage of sales, SG&A increased to 24.2% for the first quarter compared to 23.7% in the same period last year due to lower sales.

Preopening costs in the first quarter were $34,000 compared with $289,000 in the first quarter last year. The decrease in preopening cost was primarily due to opening two stores in the first quarter of 2008 compared with opening seven stores in the first quarter of 2007. Store closing costs included in selling, general, and administrative expenses were $285,000 for the first quarter of fiscal 2008 as compared to $55,000 for the first quarter last year. No stores were closed in either period. The amounts recorded in the first quarter of fiscal 2008 represent closing costs for stores to be closed into future quarters. We expect to close nine stores during fiscal 2008.

Operating income for the first quarter was $7.8 million compared to $10.5 million in the same period last year. Our operating margin decreased to 4.8% in the first quarter from 6.3% in the first quarter last year. Net income decreased 35% to $4.8 million for the first quarter compared to $7.3 million earned in Q1 last year. Diluted earnings per share for the quarter declined 28% from last year to $0.38 per share. Our weighted average diluted shares outstanding were 10.2% lower at the end of Q1 this year compared with end of Q1 last year. This decrease was primarily due to the 1.2 million shares repurchased in 2007 as part of our $50 million buyback program. The reduction in shares outstanding increased EPS in Q1 this year by about $0.03. No shares were repurchased in Q1 this year.

The effective income tax rate for the first quarter of 2008 increased to 38.4% from 32.0% in the first quarter of 2007. The lower rate in Q1 last year was due to a reduction in state income taxes from state incentives related to our investment in our new distribution center in 2006 and 2007. The reduction in income tax expense relate today the tax incentives equated to a $0.05 increase in earnings per diluted share in the first quarter of last year. Capital expenditures for the first quarter 2008 were $2.6 million detail as follows.

We spent $1.4 million on the remodeling and relocation of stores, $600,000 on 2008 new stores. $200,000 on software and information technology, with all other additions of $400,000. Depreciation expense for the first quarter was $4.1 million. Additionally -- addition capital expenditures of approximately $10 million will be made over the course of fiscal 2008 for the opening of new stores, store remodels and various other store improvements along with continued investment in technology and normal asset replacement activities. Mark and Cliff mentioned earlier that we are in the process of developing ideas for changes to in store graphics and store design. The $10 million we expect to spend on CapEx for the remainder of the year does not include any expenditures that may result from those modifications to our concept.

The investment we made in our distribution centers last year has provided us the distribution capabilities to comfortably handle our distribution needs for at least the next 12 months. However at this time, we have not achieved the expected productivity from the new DC, productivity that we will need three to five years from now. Currently we have not paid a designer and builder of the material handling system the DC the contractual retention amount. That vendor, SDI Industries Inc. filed a demand for arbitration with the American Arbitration Association on April 22, 2008, seeking payment of the retention amount of $1.1 million along with interest and attorneys fees. We filed a counterclaim on May 22, 2008, denying SDIs claim and making a claim of at least $3 million to complete or reconfigure certain areas of the DC and to reimburse us for the extra labor we incurred due to the productivity shortfall. We are in the process of hiring a new firm to remediate the DC and tentatively expect to have those modifications complete within 12 months. We do not expect this issue to affect our distribution of product to our stores nor is it expected to affect our store growth plans.

My last comment is to note that despite the continuation of a very difficult retail environment going into 2008, we are still able to generate free cash flow at the end of the quarter, in the quarter with approximately $10 million in cash and have no long term debt. In 2008, with cautious management of inventories, expenses, and CapEx, we once again expect to be able to fund our store growth, generate significant free cash flow and end the fiscal year with no long term debt. While we expect limited use of our credit facility this year, to give us more flexibility in our capital structure, now and in the future, our bank group agreed subject to documentation, to increase our unsecured line of credit by $25 million for a total of $95 million available for cash advances and letters of credit. We wish to thank our bank group for their support and confidence in our Company. This concludes our financial review of the first quarter 2008, I'd now like to open up the call for questions.

(OPERATOR INSTRUCTIONS) We will pause for just a moment to assemble the queue. We will take your first question from Jill Caruthers with Johnson Rice.

Good afternoon. Wondering if you could talk about you mentioned there was some significant changes in the nonathletic women's merchant team. Maybe if you could talk about some lead time for when we see these new buys come in the store and just a little bit more on that?

Well, we began to make changes in that team actually at the end of '07 when we moved one of our buyers out of that team and into the allocation team who is a merchandise manager. We then made a reassignment of a divisional within our organization and to the womens buying responsibility and we hired a divisional from outside the Company. So, I think you are going to see the results of some of those changes as early as fall with the new fall product. And then, the rest as we move into fourth quarter.

Okay. And then, I guess the expense control is the very pleasantly surprised to see that you kept the dollar amount flat. I know in the last conference call you guided you were expecting to have expenses grow less than 3.5%. Have you ratcheted that down for year now given the results in the first quarter?

Jill, yes, we have. We had significant savorings in first quarter keeping our expenses plat flat. We don't expect our expenses to be flat in second quarter or third or fourth in actuality but we should do better than the 3.5 we originally projected.

Were there any one time benefits or anything in the first quarter?

No, it was just harder earned expense controls.

Okay. Then just kind of last question, the reanalyzing you are doing on the store front with the Mic person's role and what note, any type of guidance on when the timing of these changes will happen, or are you still pretty much in the process mode, this is more of an '09 implementation?

Jill, this is Mark. We are in the throes of deciding a number of different changes right now. I want to be first to say that we don't expect any of these changes that we are talking about whether from a visual standpoint, from any of the design elements to the way the Mic person operates to be any dramatic change but we are making small tweaks to incorporate some of the changes we think need to be made to service our customer better and to incorporate some of the ideas that customers gave us in certainly this ethnographic research that we did. So, there are not major dramatic changes that you as an analyst, for example would say wow this is a, this is really going to change the shape of Shoe Carnival in the future. It is more of tweaking our current operation to make it more accommodating to our customer. A lot of these changes are going to be made. Some of these changes have been identified and are in the process of being made. Certain others are being talked about and discussed as we speak.

Okay. Thanks for the clarification.

Our next question will come from [Heather Boksen] with Sidoti and Company.

Just had a quick question regarding the inventory you're planning for the remainer of the year. You said you were planning to have a trend down at least on a per store basis through the reminder of the year, with the inventory flat though at the end of the quarter just curious how you are planning on getting to that. Is it going to be -- do you need to take markdowns or continue to do promotional in the second quarter to achieve that or if not how are you getting there?

As far as taking markdowns we will continue to do it because our markdown cadence in women's nonathletic as that has been underperforming as we move through this quarter but I don't see the markdown cadence being any more aggressive than we did last year. If you remember last year we had a slow first quarter. We felt that was completely weather driven. So most of our heavy markdowns came in the second quarter. This year we didn't wait. We took heavy markdowns in the first quarter. We will just continue our cadence as we move into second quarter. It should be lighter actually than last year.

The fact is, is we believe, again and I see, I think we talked about this last conference call, that because of the rising prices out of China and inflationary prices, that we will probably, we are going to sell less pairs. We have seen the declining customer count in our stores now for right at a year and we feel that that decline is probably going to continue at least in the short term. So if you are going to sell less pairs then we should stock less pairs. So we have planned the inventories down not from a buy standpoint not through a markdown. Am I making myself clear on that?

That was what I was getting at because I know last year you guys took a lot of markdowns in the second quarter. I was just curious if you were planning a promotional cadence similar to last year?

We don't to be heavier than last year. Go ahead, Mark.

Heather, one other point I want to make is that we are intensely focused on reducing the SKU count in our stores and virtually every category but particularly the womens casual and dress category. So when Cliff talks about carrying less inventory, it is very much on a rifle basis with respect to particular categories rather than just a flat out statement that we are going to carry 10% less pairs. It is not that way. We are planning certain categories where we think we can generate a higher inventory turnover and a higher gross margin return on investment and targeting those categories for smaller inventories and harder working inventories. Obviously it is an attempt to keep the inventories cleaner, freshener as we move throughout the year.

The other impact that we expect to see is that we will be in size more often on our key core footwear, the way I look at the business, there's an under layman of product that we depend on a day in and day out basis. If we are in size -- I should say if we are out of stock less often, then we are going to see our conversion rates continue to go up towards. In the first quarter we had a pretty nice increase in price on a per pair basis which is encouraging for the rest of the year but we have seen a decline in traffic. We're combating the decline in traffic with a decline in the number of pairs that we're stocking and hopefully we'll see an increase in conversion rates as we carry our sizes in a better proportion to what we have right now.

Okay. And just shifting gears a little bit, are you seeing in terms of timing for back to school, I know last year, it wound up being an issue with the later back to school holiday, have you guys heard anything in particular regarding any states so far where that might be an issue?

So far, -- this is Cliff, Heather, and so far, no, the only significant change is that Florida has not enacted the tax free holiday that they had last year and it looks like that's going to go away. That happened to us, I don't know three or four years ago. All that does is shift the sales, the sales still come it just shifts them closer to back to school time period but Florida last year moved most of their tax free into August anyway so that we shouldn't see a significant change in August on that.

So it will all still fall into your third quarter anyway; correct?

It should, yes.

Okay. And lastly, here the 22 to 25 new stores, can you speak about how many of those are in existing markets and how many are new?

I think I said 15 are in existing larger and smaller markets. So 15.

All right, thanks, guys.

(OPERATOR INSTRUCTIONS) Our next question will come from Chris Svezia with Susquehanna Financial Group.

From Susquehanna Financial Group. Good afternoon, everyone, and congratulations for getting through a tough environment. You did a nice job.

Thanks.

I guess a couple of questions. First, I don't know if I missed this, but just on the comp, could you, Kerry, maybe just tell me what it was traffic versus ticket for the comp decline in the quarter?

This is Mark. I would tell you that unit sales on a comp basis were down a little over 8% and price was up about 3.5%. So, we do measure traffic conversion, ticket prices and the whole bit but the way we look at it on a comparative basis is a decline in units of 8% and an increase in price of a little over 3.5%.

Okay. Thanks and then I guess Cliff for you, when you look at your--?

Let me make one clarification.

Sure.

That's footwear only.

Okay. Excludes the accessories category?

Excludes accessories.

Okay. That's fine. Cliff, for you, when you look at your seasonal product and you have referenced in terms of what was weak, the sandal business, some of your open-toe footwear was soft. Have you cleared through most of that during the first quarter or do you still obviously anticipate that to continue to be somewhat of an issue here during the second quarter? What you are doing if anything you can do intraquarter to address that business at this point?

Chris, we did not clear completely through it in the first quarter nor did we expect it. We just started our clearance program much earlier this year than we did last year recognizing the fact that we didn't feel it was going to get any better and so far we have been right on the money on that. But again, like I said, earlier, the last year we waited until second quarter to begin that clearance process and this year we have started it much earlier. So I feel that many of the markdowns that we needed to take have already been addressed and are showing in the margins.

Okay. That's helpful. And when you look at the athletic business, which is obviously performing nicely for you and I guess broadly speaking within the industry, starting to show some signs of improvement, is that enough for you as you look to back to school to potentially generate a positive comp? I mean obviously that product has higher ASPs, however a lower overall merchandise margin. But is it enough for you guys to potentially generate positive comp if you continue to see these trends unfold in the athletic business you go back to school?

Well, we don't, we don't really give any forward-looking guidance. But the only way I know to answer that question is that athletic becomes a very important part of our business as we move into back to school especially in the August, the latter part of July, all of August and the first of September, athletic becomes a very big percentage of our business.

I think that benefit is going to be even greater this year because of the Olympic impact.

Right. And I'm assuming also the product, I guess the product offerings that you're getting whether it's skate or Converse or Nike et cetera, and addressing that sort of urban consumer in terms of what you are doing there is better than you had last year too. Is that fair to say?

I don't think there's any question about that. I got to tell you I think that part of what's going on is for the first time in about three years, the athletic industry has offered the customer something that they don't already have in their closet, new color, new silhouettes, new, just new product that they can get excited about.

Okay. That you good to hear. Just not to beat this to death here but just on what you are looking at in terms of the inventory reductions per store for the balance of the year, layering into that the cost increases coming out of Southern China whether they're 8 to 15%, whatever it is, plus you are actually going to be increasing pricing yourselves on some of this product as you add more value on a trust and casual land and I am sure on the athletic, you are seeing higher prices. I am just trying to go get an idea of how all this potentially will flow for the balance of the year with inventory per store down ut yet higher pricing, possibly higher ASPs on product. How does all this flush out for the balance of the year?

Flush out in terms of? I am not sure what your question is.

I guess what I am saying is your inventory per store is actually going down however your cost related to that inventory because of cost increases from Southern China is actually going up but your units are going down but at the same time you are at least hoping to get higher ASPs above the cost increases on those products you are seeing cost increases. Should we assume that ASPs potentially could increase for the balance of this year, however units are down? Is that how we should look at it overall?

That's exactly the plan. Now, the increase in average selling price is obviously going to depend on what the marketplace, what the marketplace holds as we move into back to school. Actually I should say as we move throuch the clearance periods of June and early July and into the back to school periods. I would suspect that there are not too many retailers in the footwear sector that are planning huge increases in inventory. I know that most if not all people that carry product sourced out of China are planning for those same cost increases that we are planning on. So I would expect that there wouldn't be as much pricing pressure in terms of particularly nonathletic product as we go through the back to school and the fall period that we have seen in the past. If there are, as I stated in the fourth quarter, then we have the capability of tightly controlling our cost structure and if we need to, maintain a lower gross profit margin to continue to reduce those inventory levels or to maintain a fresh inventory. We have the capability of doing that, probably moreso than some of our competitors.

That's fair. Then the last thing, I'll just ask Cliff, is there anything, I guess as you look at your product assortment you obviously spoke about athletic and you are making changes on the women's nonathletic end the business in terms of your buying teams et cetera. But is there anything from a product perspective as you look to fall that gets you excited outside of the athletic business?

Actually, when we look forward to the boot season, we think that with all of the excitement going on with casual boots and Sherling fur lined boots that we could end up with a fairly healthy boot business.

Okay. All right. Thank you, and good luck, guys.

Thanks.

Our next question will come from Jeff Stein with Soleil Securities.

Hey, guys, good afternoon. Mark, a question on real estate, we are beginning to hear from other retailers that the real estate market is beginning to loosen up somewhat and I wondering if you are beginning to see that in some of the deals you're seeing?

We just got back from the Las Vegas International Council Shopping Center deal making session last week, and I don't think I have ever seen a period of time where there are so many strip centers being planned for 2009, 2010, 2011. There are a tremendous amount of deals that are being planned at this point in time. However you have to temper that enthusiasm in the real estate industry with the fact that Target has slowed some of their growth, JCPenney is slowing down some of their growth. So you have got some strip center anchors that are pulling back a little bit in terms of real estate expansion. So how many of those record number of deals that are being planned actually get done remains to be seen. So, we are being fairly cautious on individual sites that we are currently hanging our hat on strictly for that reason.

I am referring more, Mark, to the cost of the real estate. Are you seeing developers trying to be more realistic in terms of what they're charging you per square foot?

I think if you look at new strip center development, Jeff, no we are not. I don't see any huge, I don't see much decrease at all in terms of the numbers that they're quoting. As we have moved forward and we finally get down to a negotiated rental rate then maybe that will, maybe my opinion of that will change in the future but right now the numbers they're quoting on new strip center development is still pretty high, particularly in some of the larger cities that we are looking at.

When you start talking about redevelopment, it really goes city by city. Some we are seeing become more reasonable in terms of the price that they're quoting and some if it is a -- if it is a typical supply and demand. If it is a strip center that could potentially be in high demand because of changing demographics in certain marketplaces then we are seeing rental rates that are still very high. But overall I would not say that as of right now we are seeing a wide sweeping decrease in the rates of retail rentals. In our particular size box. Let me throw that caveat in there, in our particular 10,000 to 12,000 square foot box.

Got it. Got it. Can you address the issue of store closing costs and what you might expect to see over the balance of the year with nine stores to be closed for the year?

Jeff, we incurred, like I said, $285,000 in Q1. That's going to be about what we incur in 2, quarters 2, 3 and 4. It actually goes down in the subsequent quarters but not significantly.

So each quarter expect around that same number, 285?

Next year, in Q2 this year it is going to come down to about 230,000. For the year we are expecting just under 1 million.

Got it. And Mark, you did allude to the fact, and this goes back to the store redesign and graphics and so forth, you did allude to the fact that some of the changes are already being made. Can you be a little bit more specific in terms of what we should be looking for?

Jeff, what we want to do is we want to make sure that we tie in and integrate our in-store graphics package with the advertising that we are going to see for back to school. That's part of the changes that we are currently in the process of making. When you start talking about changing graphics, it is not done overnight you don't spread that out to almost 300 stores from Monday to Tuesday but we should see those kind of changes for the back to school period. That's just an example of what I am talking about.

What different role, what kind of a change in role could you possibly have in mind for the Mic person because it would, it is my understanding and belief that that person has been probably the best promotional tool you have in the store. Are you planning in any way to diminish that?

Jeff, don't worry. We are not getting rid of the Mic person. It's part of the overall Shoe Carnival concept. We are not going to get rid of it. What we are thinking about are ways that we can contemporize that particular function and make it for appropriate for today's consumer. So, we are absolutely not getting rid of that very critical tool. I think that's one of the reasons why our sales per square foot are better than our competitor sales per square foot, because we are able to push the product out the door. What we are trying to do is make that Mic person more acceptable to all consumers and not just part of the consumer base that we think we are getting.

Got it. Okay. Thanks, Mark.

Okay.

(OPERATOR INSTRUCTIONS) The next question will come from Sam Poser with Sterne Agee.

Good afternoon. How should we look, just a couple of housekeeping and then I got another question. How should we look at the share count for the rest of the year?

It should be fairly steady with what we saw in the first quarter assuming that we don't buy back any additional shares.

Okay. And then would you, Cliff, would you expect to return more to normal -- because of the sort of -- it sounds like there's some mark down shifted from Q2 to Q1 compared to last year, I mean do we look like we should be returning to more normalized margins in Q2 just based on the earlier start of markdowns and the fact that you are not treating your inventory like fine wine? That was for Mark, that was actually for Mark.

Normalized margins if you are talking about comparative to last year or maybe even a better than last year, then the answer to that would be yes.

I'm just looking back a few years, and it looks like Q2 has, last year was abnormally low?

And it was. As I explained we waited until Q2 last year to take the lion share of our markdowns. We did not this year. So, I would expect to see better margins in Q2 but Sam, that all has to do with how the customers react to the markdowns we have already taken. The goal is to come clean but I anticipate margins to be higher than last year, yes.

Sam, I will tell you that we are not planning margins at the level they were two or three years ago strictly because of the economic issues that we're facing right now. So if you look strictly at the prior year, yes, we are planning higher margins, but not to the level that we saw a few years ago.

Got you. And then, hold on just a second. Can you, how is the quarters run so far. I mean in Q1 by month, can you give us a break down of that? I know you might have said it, I might have missed it. In the first quarter?

Sam, we don't give out monthly comps, we only give out quarterly comps. But we saw a very difficult March because it was a very early Easter. It was also cold and wet and we saw some of our most difficult time periods at that point in time, towards the end of the quarter when it started warming up and we had shoppers coming out to look at the spring product, we saw our business get better.

Sam, one of the reasons why we have gone to quarterly comps as you can well imagine are the changes in, especially at the -- changes in weather patterns at the very early part of the season, for example the first quarter, but additionally changes in holidays, key selling weekends, et cetera, et cetera, so it is one of the reasons why we have gotten away from monthly comps it really doesn't make much sense when you compare month to month until you get to quarter end.

I was really looking more towards what kind of momentum you might be gaining. A lot of other people out there have said that April started getting better and that it continued into the beginning of May. I was wondering if you were seeing the same kind of trend that lots of other people are seeing right now?

Well, you didn't ask about May, you asked me about monthly comps.

That's more what I was looking for and I thought I would walk into that.

Since you asked me about May I will tell you we are seeing a better trend. The comp store declines have moderated significantly. Whether that continues into the rest of the second quarter remains pretty much a function of our clearance and the markdown cadence that Cliff spoke to and quite frankly, pricing pressures created by competitors clearance. So, right now we are seeing a better trend.

And then, when we look out towards, let's say the end of the year or the end of the quarter I know you have talked about the inventory levels to be down on a per store basis and you're trying to push them down. But if we just look at it on a total basis what kind of target number would you be looking for from an inventory perspective? And to really -- just forcing up the turn with the reduced SKU count in the stores and everything else?

Again, we haven't given specific guidance, certainly not on a balance sheet basis, but what we are trying to go give the Street is our direction, our strategy and what we anticipate on a per store basis. You can extrapolate that, if you will, over the store base, understanding how many stores we're opening and closing so you can pretty much extrapolate the changes in inventory on a total basis. But Sam, we are not giving that guidance, certainly not with respect to inventory.

Then what about your age of goods right now, how are you looking on a relative basis?

From an age standpoint, Sam, we're in pretty good shape. Again my biggest concern at this point is the spring '08 product in womens nonathletic that did not perform in the first quarter.

Great. Thank you very much.

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

Well, I'd just like to thank you for joining us this morning. Hopefully we'll look better -- or look forward to a better second quarter when we talk to you next. Thank you.

This now concludes today's conference call. Thank you for participating and hope that you have a great day.