Shoe Carnival Inc (SCVL) 2008 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 materially differ from those projected in such statements. These forward-looking statements should be considered in conjunction with the discussion of risk factors included in the Company's SEC filings and today's press release.

Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date. The Company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the forward-looking statements talked about during this conference call or contained in today's press release 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 2008 earnings conference call. 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 Vice President of Store Operations.

The second quarter found us again challenged by the slowdown in consumer spending. We believe the economic stimulus program helped to mitigate our year-over-year decline in comparable store traffic during June and early July. However, as the influx of this additional disposable income tapered off, the consumer once again retreated to a very conservative shopping pattern in the last two weeks of July. We're seeing a better trend in August for stores where schools have reconvened, but it is obvious that the back-to-school shopper is waiting as long as possible, even shopping after schools go back.

As we have stated before, one of our initiatives for 2008 has been to increase the net realized price on our footwear sales. During the second quarter, we were able to achieve a nice year-over-year increase, particularly within our adult and children's athletic categories. And despite the declines in traffic, this price increase enabled us to generate positive comparable store sales of athletic footwear for the second quarter in a row.

Our second quarter performance reflected the same strong inventory management and effective expense control we demonstrated in the first quarter of 2008. Our merchants reduced year-over-year inventory on a per store basis by approximately 7%, and actually improved merchandise margins over the prior year. Despite a 1% decrease in comparable store sales, we were able to leverage our Selling, General and Administrative expenses by 20 basis points.

Three primary factors played into the $1.00 increase in SG&A costs. Number one, the incremental expense of operating 19 additional stores during the quarter versus last year. Number two, a substantial increase in health care costs, resulting primarily from several very large medical claims. And number three, these two additional costs were offset somewhat by a 25% reduction in advertising costs in the second quarter. This year-over-year media savings contributed significantly towards our control over store level selling expenses.

We realized a level of economic uncertainty currently within the US marketplace is altering the spending habits of all our consumers. We believe our targeted moderate income consumer will continue to experience a negative effect on their disposable income as a result of rising fuel and food prices, issues in the home mortgage industry, and rising unemployment in many markets. Additionally, as you well know, the footwear industry is one of the industries facing the rising cost of Chinese imports.

Our strategies for mitigating the effects of all these challenges remain unchanged and are summarized as follows -- number one, inventory control.

Priority one for us over the past several quarters has been the tight control of our inventories, and this will continue on a go-forward basis. As I mentioned at the beginning of this call, our merchants have successfully reduced our inventories approximately 7% on a per store basis as compared to the end of the second quarter of last year. They will remain focused on further decreasing inventory levels per store and improving the turnover in 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 our gross margins. We are continuing our efforts to reduce the overall SKU count within the stories inventory in order to provide greater depth in size runs for our customers, and yet maintain lower, cleaner inventories. We have talked at length about the importance of being in-stock with sizes in key core shoes, and our merchants are executing these initiatives.

Number two, pricing. We will continue to try to increase the net realized price of our footwear throughout the remainder of this year and into 2009. We were successful in this initiative in the second quarter, with the exception of women's, dress and casual product, which prices were flat with last year. This initiative, as we have said in the past, depends largely upon the promotional cadence of our competitors in the footwear marketplace. We place great emphasis on increasing market share, not losing it.

Number three, expense management. As with any difficult sales period, we have taken the time to step back from our operations to take yet another look at areas for expense savings. Over the course of the last year, we have reassessed our store level operations on a line-by-line basis to determine the optimal level of controllable expenses that will enable us to maintain our desired approach to total customer service.

We have renegotiated service-based contracts, both at the store and corporate headquarters, to obtain the best pricing for the highest level of service. Additionally, we are enhancing our distribution logistics to minimize the impact of rising fuel prices.

We have selected new vendors for a number of services, which we believe view our relationship more as a partnership and are willing to go that extra mile for both of us to succeed. And we have continued to prioritize those information technology projects, which we believe will provide the greatest return on investment in the future.

Number four, speaking to the consumer. During this difficult retail period, the importance of redefining Shoe Carnival in the eyes of the consumer has become all the more apparent. We realized that we must deliver a single, consistent message and we must continue to differentiate ourselves from our competitors in order to create an experience unique to Shoe Carnival. We have shared this philosophy with you many times over the course of the last six months, and we're pleased with the changes that have been implemented and that are on the horizon.

Late in the second quarter, in conjunction with our new agency, 22squared, we introduced a more contemporary look to our television and circular advertising and back-to-school in-store graphics, to better deliver our value and fashion proposition to the consumer. I believe these changes will resonate with the customers throughout the back-to-school and holiday sales periods.

Additionally, we have also made changes to our website to incorporate the new look of our advertising and in-store graphics. Coming in the third quarter, we will be pricing and we will be adding pricing and availability of selected merchandise to the site. This will provide the consumer the ability to locate a shoe of their choice and in their size at a nearby Shoe Carnival store.

Late in 2008 or early 2009, we anticipate launching a new customer loyalty program to further solidify our relationship with our core repeat customer base. However, we are not looking to move into the eCommerce world in the near future.

With respect to in-store graphics and updated fixtures, we have decided to roll out additional graphics, incorporating the new look and color palette to all of our stores over the next nine months. Additionally, we are making limited changes to our store layout and fixtures to better feature our women's non-athletic product. It is our plan to have these changes in place by early 2009. We are currently analyzing a more extensive remodeling program for older stores over the next three years that will incorporate more of these design tweaks.

Number five, store expansion. While we recognize the immediate profitability of newly opened stores will be impacted by the current difficult economic environment, we remain committed to taking full advantage of real estate opportunities during a down retail market. We believe this is a prudent, long-term strategy, especially when those store locations will back-fill our existing underpenetrated markets. We have opened 14 stores so far in 2008, and we now expect to open a total of 24 new stores this year. 15 of those new stores will be located in large and small markets and existing geographic regions.

We have identified 11 underperforming locations to close this year. Two of these close during the second quarter, and one is expected to close in September. Eight are expected to close in late January. Collectively, for the first two quarters of 2008, these 11 stores generated $7.1 million in sales and $1.1 million in operating losses, which includes the acceleration of certain expenses, such as rent and depreciation in accordance with Generally Accepted Accounting Principles. This also does not include impairment charges we incurred in fiscal 2007.

In looking forward to fiscal 2009, we currently expect to open 20 to 25 new stores. We have 13 leases finalized and good visibility on a number of additional sites, primarily in existing large and small markets. We remain committed to our site selection criteria and will not select sites merely for the stake of expansion.

We believe that these operating difficulties caused by the current macroeconomic environment afford us the opportunity to make our business stronger and increase market share. Our solid cash position affords us the flexibility to make investments in our business that we believe are necessary to deliver enhanced performance of both a short-term and long-term basis. Importantly, we remain committed to a conservative approach to managing our business in the future.

I'd now like to turn the call over to Kerry Jackson for more detail on the quarter.

Thank you, Mark. Let me begin by discussing the results for the second quarter and the first six months, followed by information on cash flows, and ending with certain expected Q3 financial metrics.

Our net sales for the second quarter increased $3.7 million to $158.5 million compared to $154.8 million for the second quarter of 2007. Our same store sales declined 1% for the second quarter.

Gross margins for the second quarter of 2008 increased 0.6% to 26.6% over the same period last year. As a percentage of sales, the merchandise margin increased 0.9%, while buying, distribution, and occupancy costs increased 0.3%. Last year, we took most of our aggressive mark-downs on spring and summer merchandise during the second quarter, resulting in a 1.5% decline in our merchandise margin in Q2 last year.

This year, our mark-downs were more balanced between first and second quarters, resulting in a 0.9% improvement in our merchandise margins in Q2 this year. The 0.3% increase in buying, distribution, and occupancy costs was all attributable to the de-leveraging of our occupancy costs.

Due to tight expense controls, during the second quarter this year, Selling, General and Administrative expenses only increased $543,000 to $40.7 million. As a percentage of sales, we decreased our SG&A expense by 0.2% to 25.7% for the second quarter. Preopening costs in the second quarter were $406,000 compared with $268,000 in the second quarter last year.

We opened 12 stores in the second quarter compared to opening six stores in the second quarter of '07. Store closing costs included in SG&A were $387,000 for the second quarter of fiscal 2008 as compared to $375,000 for the second quarter last year. The amounts recorded in the second quarter of fiscal 2008 include closing costs for stores to be closed in future quarters.

The effective income tax rate for the second quarter decreased to 34.3% from 38.8% in the second quarter of '07. For the year, we expect our tax rate to be around 38%.

Net income for the quarter rose to $977,000 from $167,000 in Q2 last year. EPS for the quarter was $0.08 versus $0.01 earned in prior-year second quarter. Our weighted average diluted shares outstanding were 7% lower for the Q2 than the same period last year. This decrease was primarily due to the 1.2 million shares repurchased in 2007 as part of our $50 million buyback program. No shares were repurchased in the first half of this year.

Now transitioning to results of the first half. Net sales increased to $320.6 million compared to $320.5 million in the first half of 2007. Same store sales decreased 3% for the first six months of 2008.

Gross margins for the first half of 2008 decreased to 27.8% compared to 28.1% last year. The merchandise margin remained flat, and buying, distribution and occupancy costs as a percentage of sales increased 0.3% due to higher occupancy costs.

Pre-opening expenses for the first half were $440,000 compared to $556,000 in the first half last year. Year-to-date, we have opened 14 stores versus opening 13 stores in the first half last year. Store closing costs included in SG&A in the first half of 2008 were $672,000 or 0.2% of sales compared with store closing costs of $430,000 or 0.1% of sales in the first half of 2007.

Now let me discuss information affecting cash flow. Capital expenditures for the first six months of 2008 were $6.7 million, detailed as follows -- we spent $2.6 million on remodeling and relocation of stores; $3.2 million on 2008 new stores; $556,000 on software and information technology, with all other additions of about $360,000. Additional capital expenditures of approximately $11 million will be incurred during the second half of this year for the opening of new stores, store remodels, and various other store improvements, along with continued investment technology and normal asset replacement activities. This brings total expected capital expenditure in fiscal 2008 to between $17.5 million and $18 million.

Depreciation expense for Q2 was $4.2 million and $8.3 million for the first half of 2008. For the full year, we expect depreciation to be just under $17 million.

My last comment on cash flow is to note that despite the continuation of a difficult retail environment in 2008, we still were able to generate free cash flow in the quarter with approximately [$17 million] in cash and had no long-term debt. With cautious management of our 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.

My final comments today are on certain financial metrics we expect in Q3. We will continue to control the areas of the business we can, primarily expenses and inventory levels. With tight expense controls, we currently expect our SG&A in total dollars to increase less than 4% in Q3 compared with Q3 last year.

With our belief that consumers will continue to be cautious in Q3, thereby creating a promotional retail environment, by controlling our inventories, we expect our merchandise margins in Q3 to be flat with last year. However, we expect to see our occupancy costs increase as a percentage of sales, similar to what we incurred in the first quarters of this year.

This concludes our financial review of the second quarter. I'd now like to open up the call to Cliff.

Thank you, Kerry. As Mark mentioned, as expected, we experienced a decline in customer traffic during the second quarter. Average unit retails were up, as well as average transaction, while conversion was flat. Total comparable store sales for the quarter were down 1%. The decline for the quarter came primarily from our women's non-athletic department, where the lack of fashion drivers contributed to a continuing lackluster season.

Our men's non-athletic department ended the quarter flat on a comparable basis, while the children's and adult athletics all enjoyed low single digit increases.

As we reported on our last conference call, we continue to see positive results out of our athletic business. These increases have been driven by performance product, which is continuing to play a larger part of our overall athletic business. This category has been instrumental in helping us to achieve higher average unit retails in all athletic categories.

In addition to performance product, we also experienced sales gains from Converse Chucks, Girl's Low Profile, and Boy's Skate. Overall inventories ended the quarter down 7% on a per-door basis.

Our plan over the next year is to run our business with less inventory on a per-door basis while selling product at a higher average unit retail. In an uncertain retail environment, this strategy will allow us to maximize our gross margins. We experienced this for the second quarter with merchandise margins for the quarter showing a 90 basis point improvement. All departments showed improvement with the exception of our women's non-athletic, where we continued to aggressively sell through the remains of our spring season clearance.

And now for a brief update on back-to-school. We have definitely seen a continuation of the customer shopping very close to need. In many cases, individuals store's back-to-school sales peaks have not occurred until just before the actual back-to-school date, and continuing after the start date. We have also seen the customer look for value; whether it's tax-free incentives or coupons, she is definitely value-conscious.

Our average unit retail of units per transaction and total transactions are all running higher than last year. We are currently 3.5 weeks into a seven-week season, and although we have seen a continuation of the children's and athletic trend, it is too early to get a read on our women's non-athletic business.

We have, however, seen some positive signs out of our women's junior boot department, as casual boots and booties are selling in greater numbers than last year. In men's non-athletic, we continue to see positive sales from the traditional categories of boat shoes and hand-sewns. With all of that said, sales are currently down 0.7% on a comparable store basis.

Sales gains in athletics have been driven by Chucks, Nike, and most traditional performance athletic brands such as Asics and [Sokani]. Also our children's business has been very strong, especially in athletics, as Skate, Girl's Low Profile, and Running are performing ahead of plan.

But more importantly, our recent trend in athletic has been driven primarily by higher average unit retails. These higher average unit retails are a result of both the increases in cost of product coming out of China that we previously spoke to, and our strategy to buy more performance product and performance brands, which commend a higher retail.

In closing, we believe that we will continue to face an uncertain economy at least through the end of the year. Accordingly, we have planned our inventories to be down in excess of $10 million by year-end, and our buyers are executing to that plan. However, one of the things that make this Company great is our ability to quickly react. Our inventory levels, strong position in the marketplace, and sound financial position, will allow us to quickly react when we sense an uptick in business.

Now I'd like to turn the call over to the Operator for questions.

(OPERATOR INSTRUCTIONS). Chris Svezia, Susquehanna Financial.

Susquehanna Financial. Thank you very much, and congratulations, gentlemen. Nice job in terms of execution in a difficult environment.

I was wondering -- I guess, first of all, could you possibly -- Mark, maybe you can just quantify maybe what the impact was from the tax rebates during the quarter? You mentioned it benefited you during July -- excuse me, during June and July. Can you maybe just quantify what that impact was? Was that meaningful?

From a sales standpoint, no, I can't. But we saw traffic that was in the high single digit declines in the first part of the quarter turn into traffic declines that were low, low, low single digit, even breakeven for a couple of weeks. Really until the last two quarters of July, and then like most people saw traffic turned it way off in the last two weeks of July.

So, I think, in the end of June and the early part of July, it really resulted in traffic counts that were a whole lot better than April, significantly better than April -- I mean May.

Okay. I see what you're saying. And then on the SG&A costs, you guys have done a tremendous job so far in the first half. And I know, Kerry, you had talked about third quarter seeing an increase in SG&A dollars year-over-year. I guess maybe just talk about what the driver to that increase is -- why during the third quarter? Are you doing something different from a marketing perspective? Or is it just switches in terms of what happened in the first half relative to the second half? Why don't you maybe just quantify what's happening there during the third quarter?

Chris, what we -- in the first two quarters, we controlled a lot of expenses, but one of the big things that we could effect was rationalizing our advertising a little bit and making it -- what we thought were more prudent buys in the first half.

Now, given that we have such an important period in the third quarter of back-to-school and in the start of fall season, we have not reduced our advertising expense near to the extent we did in the other two quarters prior. We felt we need to be out there advertising.

So that's why we're not seeing as big a reduction on a year-over-year basis. We will continue to control those other costs, though.

Chris, let me add one thing -- this is Mark -- let me add one thing. We expect to open about nine stores in the third quarter. So, with the additional stores that we're going to be operating, which are significant, SG&A or selling costs at store level are inherently going to go up. So, that's probably the bigger piece of it than any kind of reduction in advertising.

Okay. All right. That's fair. I mean, you guys have been opening up stores pretty nicely in the second quarter. I know you opened up a lot of stores and it was relatively flat -- I mean, it was up slightly in terms of dollars, but you did a nice job there, so --

Well, the more stores we open, the more costs we're going to incur, just as inherently.

Sure. And I guess just in terms of -- you've done a great job on the inventories. It looked like you were in great shape here going into the third quarter. I mean, I guess you guys are talking about maybe seeing a flat merchandise margin.

I know during the third quarter last year, you were much cleaner relative to the second quarter. I guess that's certainly part of it to some degree; but are you also getting a sense that potentially the environment could be become more promotional if traffic continues maybe to deteriorate? Or what are your major concerns as you look to the third quarter, given how will the merchandise margins have improved so far?

Well, there's no question that that back-to-school period has been more promotional. And when I say promotional, when we look at our competitors' ads and what competitors are doing with discounts and coupons and so forth, it has become more promotional than, we think, than back-to-school last year.

We're still putting upward pressure on price points, meaning our net realized price is out the door. And we expect to continue that upward pressure. Everybody in the industry has been incurring cost increases out of China. So what we're hoping is that competitors are fairly rational about pushing those price increases or those cost increases through.

But like I said, we will be as promotional as we need to be to maintain our market share. We think that as we get through back-to-school and into the third and fourth quarters, more deeply in the third and fourth quarters, that the promotional activity may die down a little bit. But again, we're prepared with our cost structure to be as promotional as we need to be.

Okay, fair enough. And then, I guess, Cliff, for you, obviously the athletic piece continues to do very nicely for you guys, obviously driven by the type of product that you're getting and the price points. I guess, maybe you can talk a little bit about -- you mentioned the Low Profile trend, and I'm just curious, has that started to come back a little bit? Or is it just strictly focused in terms of the Junior category or the Girl's category in terms of where you're seeing that strength again?

For the second quarter, we were not happy with the performance of our Low Profile products, especially outside of the athletic business. It's almost -- you have to answer it two ways. We have Low Profile within our athletic business from Puma and from several other vendors, but -- and that product has performed well. And then in our non-athletic business, we have Low Profile, and that product has not performed as well through the second quarter.

Now, when we got into the back-to-school season, Low Profile picked back up. And we've been very happy through the month of August with the sale of Low Profile, both athletic and non-athletic.

Okay. All right. Does Skechers play a part? Because I know you classified it two different -- both athletic, I guess, and non-athletic, depending on what it is. Is Skechers a part of that?

Well, it depends upon which brand you're speaking of. Skechers is part of our non-athletic Low Profile but then you've got Rhino Red, which also has Low Profile product and that is classified within the athletic environment.

Okay. All right. Fair enough. Thank you very much, gentlemen.

Jeff Stein, Soleil Securities.

Kerry, wondering if you could talk a little bit about your expected SG&A trend in the fourth quarter. Would you see it above or below the year-on-year trend that you're looking at in Q3?

No, it will just -- I would think it would be more -- closer to the increase we're expecting to see in Q3 than we saw in the increases in Q1 or 2. And it's primarily, like Mark was saying, we will have opened all of our new stores at that point in time, so we'll have the full effect of those costs that we're going to have to hold on to; though I think that we'll see similar to a 3% to 4% increase on a year-over-year basis in Q4.

Got it. Okay. And with respect to cost of goods, can you talk about on like product, how much your product costs are up on a year-on-year basis?

Jeff, for the back-to-school time period, our cost is up right at 5%.

And as you move into spring of 2009, Cliff, do you see that accelerating even more?

Slightly. I think that as we go through the rest of the fall time period, it's going to be up somewhere around 6% to 7%. And I've talked to the vendors about this, so it really -- I think once the Olympics are over, we're going to get a clear sense of what's going to happen for spring. Factories get back to work, everything settles back down; we'll have a clearer picture. We, at this point, don't have all our costs in for spring. So that's very difficult for me to answer that right now.

Okay. Cliff, once the back-to-school season ends, a couple of things -- your -- plan your inventories down about $10 million for the year. And clearly you're funding your athletic business right now and that's strong. Once back-to-school ends and the athletic category subsides, what are the categories that you're really going to be funding the most or focusing on the most for fall?

Well obviously, the funding will shift into the women's area. We feel, Jeff, that we're going to have a good boot season. And some of the early results on fur-lined boots and casual boots are beginning to prove that out; obviously, it's really, really early. And so we have to -- we won't know -- we won't see real results of that until October. But we think that -- we think we're going to have a good boot season.

The other thing that's happening right now too is that we're seeing an uptick in our women's dress business. Part of the issue with our women's business over the past year to 14 months has been the dress category. And it's really been down-trending. And over the past few weeks, we've seen a nice uptick, particularly in the Junior dress business. So we'll be funding that business as well.

And I think that we'll continue to fund our men's business, which over the past year, has actually performed fairly well. So again, we won't know answers to whether this women's business is going to turn for us until the weather turns cooler, but we do feel real strong about the women's dress business and the women's boots business.

Okay. And final question, and this goes back to Kerry. Kerry, in your fourth quarter last year, you guys did not have a very good sales order and your margins were down over half a point. And I'm wondering, based upon the way you're planning your inventories for the back half of the year and if you meet your internal sales plan, do you believe that you will be able to hold your merchandise margins about flat in the fourth quarter as well?

Jeff, I'd hate to start speculating on Q4 right now. We're taking it one quarter at a time. We need to see how the people are going to respond to fall product. We've got the preliminary reads on back-to-school, which Cliff talked about.

But I think right now we want to -- I'd rather not try to comment or guesstimate what that margin might be. It would really be dependent on how well we can execute that inventory strategy, how clean we're able to -- or how well we're able to keep turning that fall non-athletic inventory right now. So, I'm going to defer that until the fourth quarter.

Got it. Have you guys been surprised at what you've seen on back-to-school so far?

I'd like to address that, Jeff. We mentioned back in the first quarter when we saw our athletic business begin to turn, that it could bode well for back-to-school. So, we geared up for that. And we had the product and the advertising in place to have a good back-to-school or to have a comparable store gain from back-to-school. So, I can't tell you that we've been surprised.

Got it. Okay, thank you.

Heather Boksen, Sidoti & Company.

Most of mine have been answered. Just had a question -- you talked about remodeling. I know several years back you moved, you did a remodel where you moved the women's department in a lot of the stores to the front of the store. Is that what we're talking about still? Or are we talking about bigger changes?

Well, we're in the process of updating a number of fixtures that we put in our stores. We're in the process of updating a number of the in-store graphics and visuals that we put in the stores. So we're really talking about, primarily from a fixturing standpoint, doing a better job with showing our women's product than we have in the past -- with displaying that women's product, I should say -- than we have in the past, both at the store front as well as inside the store. So, that's primarily the changes that we're talking about.

We are currently analyzing what stores we want to remodel and when we want to remodel those older stores, and update them with more current fixturing. We haven't made any definitive conclusions yet about an extensive remodel program. And I don't expect to do so until partway through 2009.

All right. But there's not going to be any large scale changes to the footprint, be it square footage of the stores or the layout of them in general?

No. In fact, we spent the last few years rationalizing the size of the store to the customer base. So we still expect to open between 8,000 and 12,000 square foot stores with that average probably falling right around the 10,000 square foot number.

All right, great. Thanks, guys.

Jill Caruthers, Johnson Rice.

Could you possibly quantify the impact from Florida not holding the sales tax holiday? And if that's -- we look for that to be a material impact to comps for the third quarter?

Jill, this is Cliff. You know, this is not the first time that Florida has taken the tax-free holiday away. Did it once a couple of years ago. And what we found is that it only impacted the time period for the tax-free holiday. All the tax-free really does is consolidate the sale or bring the sales into a tighter timeframe. So, as schools go back there, just like in any other state, that business should come back.

Jill, let me add that we've already seen the impact in our numbers so far. So the less than 1% comp store decline that Cliff talked about earlier reflects the impact of not having Florida tax-free days already, so.

Okay.

You know, the bigger issue I think in Florida is us, like a lot of other retailers, are not experiencing very good sales in Florida because of the economic conditions in the housing market and all the problems that they have down there. So, I think that's a bigger issue over the long-term than the sales tax holiday.

Okay. And given the consumers spending less and you commented more kind of event-driven, promotional-driven, what are you doing for this back-to-school season? Are you holding more BOGO events? Or just maybe talk a little bit about that.

We actually -- other that we've changed the creative for the way that we talk to our customer, both electronically and from a print standpoint, we have not been -- we are not more promotional than we were last year. We felt we'd let the product do the talking and let the creative do the talking. And so far, that seems to -- the customer seems to be responding.

Okay. And then just last question, you mentioned the change to the loyalty program. Maybe is this providing you possibly more insights to how the customer shops or what categories? Maybe to give you more tools to have direct mailings or direct communication with the customer?

We hope it does all of those. Like I said, it won't be rolled out until later this year, first part of 2009. So, to say that we have seen that is a misnomer, because we haven't even put the new program in place yet. Do we expect to see those kinds of things? Absolutely. But it's primarily intended just to bolster our communication to our core consumer.

Sam Poser, Sterne, Agee.

Cliff, could you talk a little bit about, give us some more details on the athletic business? And exactly what you're seeing? And if you think it's an overall trend or if this is an item-driven situation?

Well, Sam, it's been -- our women's athletic business -- I hate to talk about history, but -- started turning around in the first quarter of '08. And continues to be fairly strong. And that's all performance driven, whether it be running or -- mainly running, but it's all performance.

In the second quarter, our men's business and our kid's business turned on. And again, in our men's business, it was performance-related and especially in performance running. And in kid's, it was Chucks and it was Skate and it was also performance running.

So, those -- I can't tell you that it's item-driven; it's category driven, whether it's, as I said before, Chucks or running or performance-related product in general. One thing we have seen is that Skate in adults is not performing the way it did a year ago, although Skate in kid's is trending better than last year.

Okay. And then what percent of the back-to-school business do you currently have in or what percent is still ahead of you?

We feel we have another 3.5 to four weeks to go. You know, back-to-school has been extended over the past couple of weeks till -- excuse me -- past couple of years to -- once the kid goes back, sees what's going on and then they come back in either the week of back-to-school or the week after back-to-school. So, we think that back-to-school extends until the mid part of September.

And is that where you expect -- I mean, would you expect acceleration in dollars sales going towards that? I mean, as a --?

What we're seeing -- I think I know where you're going with that, Sam -- what we've seen is that the areas where schools go back, several days prior to the actual start date, business takes off. And it continues on for the next week or two in those stores. And we have -- we track our stores by back-to-school dates and we have proven that out.

And what percentage of your stores have gone back-to-school so far?

Roughly half.

So, you're halfway in and half have gone?

We're right at 60% of our schools.

And then, how much -- going back, if I can just back up one more time to athletic -- how much of this running business is being driven by the better Nike allocations or the better Nike product?

Well, obviously, that's the premier part of our performance running category, but it's not just Nike. I mean, Nike is a very important part and probably the most critical part, but we're getting great performance out of brands like Asics, [Sokani] and several others.

Thank you. Continued success.

(OPERATOR INSTRUCTIONS). And there appears to be no further questions at this time. I would like to turn the conference back over to Mr. Lemond for any additional or closing remarks.

Thank you. Just to close, I just want to reiterate that we are encouraged by the start of the back-to-school sales period. But while not robust, we are seeing a better trend than we saw in the second quarter.

Like I mentioned before, it appears the consumer is waiting until the last possible minute to shop, and they do seem to be driven by value. So, consequently, we will contain to tightly control expenses and tightly control inventory until this economy improves.

Thank you for joining us and we look forward to talking to you next quarter.

And ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect.