Shoe Carnival Inc (SCVL) 2008 Q4 法說會逐字稿

Good afternoon and welcome to Shoe Carnival's fiscal year 2008 Q4 and full fiscal year earnings conference call. Today's call is being recorded and is also being broadcast via live webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. This conference may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the Company's actual results to be materially different from those projected in such statements. These forward-looking statements should be considered in conjunction with the discussion of risk factors included in the Company's SEC filings 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 fourth quarter and fiscal 2008 earnings conference call. Joining me on the call this afternoon is Kerry Jackson, our Chief Financial Officer, and Tim Baker, Executive Vice President, Store Operations. Cliff Sifford, our Executive VP and General Merchandise Manager, is normally on the call, but will not be with us today. Faced with a difficult economic climate, we operated all aspects of our business in a conservative fashion during 2008. This included implementing cost control initiatives, maintaining lean and fresh inventories, managing capital spending, and applying conservative balance sheet and liquidity management policies. These initiatives enabled us to reduce per store inventory levels by almost 10% at year-end, generate free cash flow of $13.9 million during the year, and end fiscal 2008 with $24.8 million in cash and cash equivalents and no interest bearing debt.

As you no doubt have heard too many times prior to this conference call, the soft goods retail environment continued its downward spiral during and after the holiday selling season. And needless to say, we were not happy with the way our business trended in the fourth quarter. We saw significant decline in store traffic during the quarter, which resulted in a very low double-digit decrease in footwear unit sales on a comparable store basis. However, our average unit retail in footwear actually increased by low single digit percentage. This combination resulted in a comparable store sales decline of 8.3% for the fourth quarter. Due to the promotional nature of retail during the quarter, our focus on clearing seasonal goods to maintain fresh inventories and the deleveraging of occupancy costs against a lower sales base, our gross profit margins dropped to 24.7% for the fourth quarter from 27.5% last year.

As a result, we recorded a net loss of $3 million or $0.24 per share, which included store closing costs of $2.4 million before tax or $0.12 per share after tax. Of these costs incurred for stores closed or scheduled to be closed in the future, $1.9 million before tax or -- or excuse me, $0.10 per share after tax, was for non-cash impairments to fixed assets. From the product side, our women's non-athletic product recorded a low single digit decline. Double-digit declines in the dress and casual categories were partially offset by a nice double-digit increase in boots, particularly fur lined sport boots and cold weather boots. Additionally we saw a resurgence in the performance of our junior product led by the dress and boot categories. Our men's non-athletic product was down almost double-digits for the quarter.

We saw growth in our children's dress and boot business, but due to a decline in athletic shoes, our overall kids' business was down by a mid single-digit number. We were pleased with the performance of certain key looks in the adult athletic category, particularly Converse Chucks, urban fashion styles from Nike, and performance running from several brands. However, this was not enough to overcome other poor performing athletic categories and consequently our adult athletic product in total recorded a double-digit comp store sales loss for the quarter. During our third quarter conference call, we stated four strategic initiatives for the fourth quarter of 2008 and the 2009 fiscal year. The first was increasing the net realized price of our footwear. Despite the promotional nature of the retail industry and the holiday period, we accomplished this goal, achieving a low single-digit percentage increase in the fourth quarter.

We also said we intended to continue to put downward pressure on our inventory levels and we did exactly that. Although our fourth quarter margins suffered as a result of our in season clearance efforts, we ended the year with inventories down 10% versus last year on a per store basis, exactly the goal we communicated. I would also note that last year's inventories were down about 5% versus the year before on a per store basis. We stated that we would continue to control expenses and we did that as well in the fourth quarter. SG&A expenses were flat to last year, despite operating an average of 17 more stores when compared to last year's fourth quarter. We were able to achieve this result by reducing advertising costs by $2 million. Partially offsetting this reduction was an increase in store closing costs of $1 million over last year's fourth quarter. And finally, we continued to improve our balance sheet.

We ended the 2008 fiscal year with a cash position of $24.8 million, an increase of $15.6 million over the end of the prior year. Importantly, we had no interest bearing debt on the balance sheet at the end of 2008. With lower inventories and improved liquidity, I feel really good about our financial position at this time. It puts us in a great position to take advantage of opportunities in 2009. During the fourth quarter, we opened two new stores and closed eight underperforming units. For the full fiscal year 2008, we opened 24 new stores and closed 11 stores. These 11 stores recorded a combined loss of $2.9 million in fiscal 2008, without consideration of impairments of fixed assets. During the year, we opened three stores in the Salt Lake City market, two in Boise, Idaho, two in the Omaha, Nebraska market, one each in Grand Junction Colorado and Rapid City, South Dakota, all new markets for us.

The remainder of the new stores back filled existing larger markets or were opened in small markets within our existing footprint. The stores opened during fiscal 2008 averaged 8700 square feet, slightly smaller than our chain average of 11,100 square feet. We managed our business conservatively in fiscal 2008 and we will continue that strategy in the current year. We will focus on slightly reducing inventories from 2008 levels, controlling expenses, and reducing capital expenditures, thereby generating cash flow and maintaining a debt free balance sheet. We think that these are appropriate strategies during this recessionary climate. Our plans for 2009 call for low single-digit comparable store sales decline and our inventory strategies reflect this lower expectation. We are in a great position with lean inventory levels and strong liquidity to take advantage of excess inventory buys that key vendors may have at significantly reduced prices.

We have seen a recent uptick in availability and we have taken advantage of several of these buying opportunities. Surprisingly, we have seen a reversal of the 2008 sales trend in the first part of 2009, with February comp store sales increasing in the high single-digit percentage range. A couple of cautionary notes regarding this trend, however. First, the retail environment continues to be promotional and the first half of February was very clearance-driven and while we are certainly pleased with these improved sales, we really don't expect to get a true read on this trend until late in the first quarter due to the three week shift in the Easter selling period into April. With regards to our expense control, we expect to be able to take advantage of the cost saving initiatives we implemented in 2008, particularly in the areas of store lease costs and certain distribution costs. In 2008, we significantly curtailed our advertising expenditures in each quarter, reducing the full year by more than $6 million. We do not plan to repeat that in 2009. We have planned advertising expenditures at the same cost to sales ratio as 2008.

However, we may shift certain costs between quarters, depending upon shifts in sales periods. For 2009, we have lowered our new store opening plans and have reduced total capital spending plans in order to continue to generate significant free cash flow. We have cut back our new store expansion to approximately 15 stores. With one exception, these new stores will be located in existing large markets and small markets in our existing geographic areas. Ten of these new stores will celebrate grand openings on March 28th. We have 10 stores currently scheduled to close during fiscal 2009. We will continue to review underperforming store locations for potential closure, especially those with expiring leases or kick-out opportunities. We have adjusted and 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 within our current geographic footprint. We will continue to look for opportunities in the real estate market to take advantage of favorable lease terms. With the consolidating nature of the retail industry today, we expect to see those opportunities, particularly in 2010 and 2011. In conclusion, just as I said last quarter, we believe that despite the current economic downturn, we have the management discipline, the correct operating strategies and the financial stability to operate profitably, generate free cash flow and gain long-term market share. Now I'd like to turn it over to Kerry for a discussion of the financial picture.

Thank you, Mark. Let me begin by discussing the results for the fourth quarter and the year, followed by information on cash flows and ending with certain expected 2009 financial metrics. Our net sales for the fourth quarter decreased $7.4 million to $156.9 million compared to $164.3 million for the fourth quarter of 2007. An increase of $7.4 million in new store sales was offset by an 8.3% comparable store sales decrease for the quarter and to a lesser extent a decline in sales in stores we've closed. Gross margins for the fourth quarter of 2008 decreased 2.8% over the same period last year to 24.7%. The merchandise margin decreased 2.0%, while buying, distribution occupancy costs increased 0.8% as a percentage of sales. The decrease in the merchandise margin was due to a more promotional holiday sales period and our aggressive clearance of seasonal product in order to lower our inventory levels at year-end.

The 0.8% increase in buying distribution occupancy costs was attributable to higher occupancy costs due to the combination of higher costs due to operating additional stores during the quarter and the deleveraging effect of lower sales. SG&A expense for the quarter was $43.6 million. These expenses declined $67,000 for the quarter, despite operating additional stores at the end of Q4 compared with Q4 last year and incurring additional store opening -- excuse me, store closing costs during the Q4 this year of $1.1 million. While expense savings were widespread, reductions in advertising and employee incentive expenses were the primary savings that offset the increase in costs of the additional stores operated during the quarter and the additional store closing costs. Store closing costs included in SG&A in Q4 this year were $2.4 million, of which $1.9 million was a non-cash impairment to store assets for stores we expect to close in the future.

In the fourth quarter of 2007, we incurred $1.4 million of store closing costs, of which $1.2 million was a non-cash impairment to store assets. The effective income tax rate for the fourth quarter increased to 36.8% from 29.4% in the fourth quarter of '07. The Q4 rate in 2007 was lower due to adjusting prior year tax accruals to what was actually paid. We incurred a net loss for the quarter of $3 million, compared to net income of $1.1 million in Q4 last year. Diluted EPS for the quarter was a $0.24 loss versus $0.09 earned in the prior year fourth quarter. Approximately half of the loss in net income and diluted EPS for this year's fourth quarter was due to store closing costs. Net sales for the year decreased to $647.6 million, compared to $658.7 million in 2007. Same store sales declined 4.6% from the prior period last year. Gross margins for 2008 decreased 1.3% to 26.9%.

The merchandise margin decreased 0.8% and buying, distribution and occupancy costs as a percentage of sales increased 0.5% due to higher occupancy costs. Year-to-date, we have decreased our SG&A expenditures by $764,000, even though we were operating additional stores and incurred an additional $1.4 million in store closing costs. Store closing costs including SG&A for 2008 were $3.3 million, or 0.5% of sales, compared with store closing costs of $1.9 million or 0.3% of sales in 2007. Preopening expenses for the year were $970,000, compared to $1 million in 2007. We opened 24 stores this year versus opening 25 stores in the prior year. The effective income tax rate for the year increased to 36.5% from 34.5% last year. Our taxes were lower in fiscal 2007 because we received significantly higher state tax incentives than we did in 2008, for the 2007 investments in our new distribution center and our corporate headquarters.

Net income for 2008 fell to $5.3 million from $12.8 million last year. Diluted EPS was $0.43 this year, versus $0.97 in the prior year. Now let me discuss information affecting cash flows. Capital expenditures for 2008 were $18.2 million, detailed as follows. We spent $7.3 million on new stores, $4.3 million on remodeling and relocation of stores, $1.3 million on software and information technology, and all other additions totaled $5.3 million. We also received $2 million in cash incentives from our landlords last year. Depreciation expense for Q4 was $4.3 million and $16.8 million for the year. Inventory levels decreased by $11.3 million for 2008, compared to an increase of $4.1 million in the prior year. No shares have been repurchased this year under the share repurchase program authorized by the Board of Directors in December 2006. This program was originally set to expire in December, 2008. However, recently the Board extended the program by one year. It now expires in December, 2009.

My final comments today are on certain 2009 metrics for Q1 and the full year. Currently, we expect to keep the growth in dollars spent in SG&A for the full fiscal year over the prior year to about 1%. However, due to various factors, including the shifting of store openings by quarter, we expect SG&A dollars spent in Q1 to increase between 5.5% to 6% over what we spent in Q1 of last year. Our effective income tax rate in fiscal 2009 is expected to be about 38%. Depreciation in 2009 is expected to decline by $1.8 million, to approximately $15 million. This decline is due to opening fewer stores, fewer net new stores in both 2008 and 2009, and tightly controlling our capital expenditures. Capital expenditures in fiscal 2009 are expected to be between $9 million and $12 million, net of landlord cash incentives. We intend to open approximately 15 stores at an expected aggregate cost of about $4.5 million. We also expect to spend up to $3 million in 2009 to remediate our distribution center.

The remaining capital expenditures expected to be incurred to relocate one store, necessary store remodels and various other store improvements, along with continued investment in technology and asset replacement activities. My last comment is a note that while we don't expect to be able to reduce working capital net of cash again in fiscal 2009 as we did in fiscal 2008, we do expect to be able to control the growth. This, along with significantly reducing our capital expenditures from last year, should allow us to generate significant free cash flow in fiscal 2009. This would be our sixth consecutive year to generate free cash flow. This concludes our financial review for the fourth quarter. I'd now like to open up the call for questions.

(Operator Instructions). We'll take our first question from Jeff Stein from Soleil Securities.

Hello, Kerry. I joined the call a little bit late and I just want to make sure I have something straight here. SG&A you said there were $2.4 million in store closing costs, which included $1.9 million of non-cash charges. How does that tie in to the $1.1 million of store closing costs? I guess I'm a little bit confused on how much is impairment and how much would be other.

I'm lost on the 1.1. What we incurred -- let me just repeat. For the full quarter, all store closing costs were $2.4 million. Now, included in that $2.4 million was a non-cash impairment charge of $1.9 million.

Got it.

So the remainder, $500,000, were cash-based store closing costs.

Okay. Got it.

That represented various items.

Okay. I thought I heard a $1.1 million number. Maybe I just was -- maybe I just misunderstood. Question with regard to your assumption. If you're modeling a low single-digit negative comp, what would that do -- what kind of buying and occupancy deleverage would you see on that type of number?

Well, Jeff, given -- it's going to deleverage. We're going to do a good job of controlling our costs from the standpoint of we're actually -- while we incurred additional occupancy costs, without a doubt, because we'll have more stores opened, we'll get the full year effect of the occupancy costs of stores we opened last year, plus the new stores this year. The net new stores. But we should be able to reduce our buying and distribution costs. However, we're still going to incur anywhere from 1% to 1.5% increase in actual costs year-over-year. Given a low single digit, you should see some deleverage, 10, 15, 20 basis points, depending on your comp assumption.

Okay. And -- okay. So 10 to 20 basis points. And you saw 80 in the fourth quarter on an 8% plus comp decline, correct?

Yes.

Okay. Now, you mentioned that February was a very good month for you. But you also said it was a clearance month and I just want to make sure I understand. Were you very promotional in February? Because it sounded like you did everything you could to clear your inventories by the end of January. Did you end up having some carry-over or were there other factors that we should be considering here?

Jeff, this is Mark. Certainly we continue to clear product in February. You're always going to clear boots in -- two primary months for clearing boots are January and February. So definitely we continue to clear product in February of 2009. Absolutely. And it was very promotional.

Okay. And as far as how you're approaching the customer for 2009, if you look at your assortment as kind of a good, better and best assortment, would you be tending to try to skew your opening price points a little bit lower this year or how are you kind of thinking about marketing to a much more value-driven consumer?

Well, we'll skew our opening price points a little bit higher this year. And obviously that takes into account a whole raft of issues, not the least of which are increased costs in certain cases. Although we are starting to see a level-off -- a leveling off and even in certain instances a decline in particularly non-athletic product. But as far as opening price points, we don't expect to see a decline. However, as you well know, you've been associated with this Company or you've been involved with this Company for a long, long time, we are very promotional at store level and we gear our marketing efforts and our advertising efforts around promotions off of regular retail price. So we'll continue to react to the nature of retail as we had -- as we did in 2008.

Okay. So the scenario sounds to me like we should expect buying and occupancy deleverage and continued pressure on the merchandise margin line.

We will continue to put pressure on merchandise margins, if we need to. And again, that's going to depend upon what our competitors do and how they react, particularly in the high selling seasons of Easter, back-to-school and holiday period.

Sure.

With this concept, that's one of the advantages of this concept, is we can be reactionary. One thing we are continuing to focus on, and I want to make this very clear, is we'll continue to focus on keeping our inventories lean, fresh and low. Now, we don't expect to reduce inventory levels the same 10% we saw at the end of this past year versus year before, but we'll continue to put pressure on the inventory, not let it ride up over the same periods of the year before.

Okay. And one final question, Mark, if I may. You alluded to the fact that you're beginning to see product costs level off somewhat, particularly in non-athletic. What I'm hearing from some of the other family footwear retailers in the industry is that for the back half of the year, they are expecting a fairly sizable drop in product costs and I'm wondering if you are kind of planning the same thing?

Jeff, I'm not going to say that we're expecting a -- I'm not going to get into what we would consider a sizable reduction in costs per unit, but we are expecting to see an overall decline in the costs per unit of non-athletic product. We don't expect to see that same sort of reduction in athletic product.

Okay. Thank you.

We'll the take our next question from Sam Poser from Sterne Agee.

Good afternoon. Can you walk through the comps, November, December, January?

Sam, we don't normally give that out. They weren't significantly different, except for January was much worse than November and December.

And then the comp that you mentioned, that was February clean or is that to date that you're running up single digit, up high singles.

That was February. I will tell you that with the shift in Easter, it's very difficult from a strict comp store sales in order to get a read on -- or with the shift in Easter it's very difficult to get a clean comp store sales number in the first part of March as we start to enter the Easter selling period. I think Easter last year was the third week in March, I believe, if I'm right, around the 20th or 21st. So from a comp standpoint those sales will be shifted into April this year.

And then the second half of February, what drove the increase for the second half of February to come up high singles, you still must have had good -- . What was driving the sales other than from the promotional

I don't know, Sam. I've heard all kinds of reasons why.

No, like what product? What product was driving it?

Oh, from a product standpoint?

Yes.

We continue to see athletic product perform very nicely. Even boots and women's performed -- continued to perform very nicely in the month of February, although a lot of that was at clearance prices. People were willing to come in and buy boots. Our children's product has performed very nicely in February, continues to perform nicely in the early Easter season. So just as we thought would happen, with the downturn in the economy, athletic seems to have picked up and our children's business has become very good.

And then on the -- on your leases, do you have -- you mentioned kick-outs and expirations. Do you also have co-tenancies?

Correct, yes, we do.

And are you seeing benefits from that? And are you seeing opportunities for percent rents and things of that nature?

Yes, we are.

And even with -- and how many, and about how many of your stores do you perceive that you're going to be able to touch in 2009?

Oh, Sam, I don't have that number with me. Touch in terms of -- ?

Of be able to renegotiate a lease for whatever reason.

Because of co-tenancy.

Just in general, between the three.

Oh, I don't have that number. I'd hate to conjecture as to a number right now, Sam.

I mean, because we're hearing from other people that especially in similar markets than yours in the strip centers, that you're a major anchor and with some of the major guys having problems like Goodies and so on and so forth, I'm not sure how much you overlap with them.

Certainly Goodies, Circuit City, Linens 'n Things were major players in our strip centers and yes we do have co-tenancy clauses tied to, in a number of cases, those three players particularly. So there's a decent amount of stores. I just don't have the number right now, that we've been able to negotiate either off of a co-tenancy clause or just because of renewals or any other reason. I just don't have that number at the tip of my fingers right now.

Even with that -- be that as it may, the existing store base included, with those included, I mean, the -- you're going to be able to -- you can lever -- it sounds like if you're going to be down low single, let's say down 2% for the year, you're going to delever occupancy slightly, 10 to 20 bps is what you said, correct.

Buying, distribution and occupancy costs, the combination of the three. We don't split those out.

But I would think if you -- on a flat basis, if you came in flat, you might be able to breakeven or possibly even lever that, because of all the changes going on in this?

Possibility. A lot -- and I will -- I want to add that not all of those negotiations have been finalized at this point in time. So that's something that's yet to come to a conclusion in 2009, certainly as we move through 2009.

And then can you talk about any brands that -- the major brands that are outperforming or not even major brands but think where you see -- where there's some light here, where you're seeing some light, considering the negative comps you suffered in the fourth quarter?

Well, I talked a little bit about those in my prepared remark Converse Chucks has done very nicely, a lot of the -- some of the urban product, street product from Nike has done very nicely. We're seeing Nike product continue to perform well into the first part of 2009. Performance running from a number of the important brands in the running category have performed very nicely.

All right. Well, thank you and good luck.

Our next question comes from Chris Svezia from Susquehanna Financial Group.

Good afternoon, everyone. A couple of questions. I guess first, Mark, can you maybe just comment on your average selling price trend in terms of what you might anticipate as you look to 2009 after a reasonably strong performance last year? Just kind of your thoughts about what you think you might be able to do here in the current fiscal year.

Chris, I think our AURs are going to continue to -- they're not going to increase significantly, because I still expect that 2009 is going to be a very promotional year. But we are continuing to put upward pressure on average unit retails. So I'm not looking for a very high increase. The increases that we're going to get and the increases that we have seen recently have come from unit sales increases as opposed to increases in retail prices. Having said that, our retail prices in the early part of 2009 are up slightly.

Okay. All right. And if you continue to plan your inventories the way you're planning them, kind of down low single-digits, and the pricing, average unit retails continue to have some support, when you look at your merchandise margins, just assuming everyone is relatively sane this year, is it fair to assume that maybe you can actually see an improvement in your merchandise margin or would there possibly be some pressure on that?

We hope to see increasing merchandise margins. That's kind of a BGO. Again, I think that the way we planned our business is we're not planning for big increase in merchandise margin. The way we're planning our business is to increase our margins over this past year, but not significantly. To that end, we're not allowing our cost structure to elevate and we're being very cautious with the way we are spending our money from a capital expenditure standpoint. When you take all those three things combined, we're not looking for a big increase in margins but we're offsetting that with control of expenses and control over capital expenditures to continue to generate that cash flow we keep talking about. That is our primary focus is generation of cash flow.

Okay. All right. Yes, and you guys have done a nice job there. Just on the opportunistic buys, can you maybe just talk about maybe what percentage of your inventory now as you look to opportunistic buys and just kind of what you're seeing out there in the market at this point?

Well, I'm not going to talk in terms of percentage of the inventory because that really -- that changes so dramatically from day-to-day and when you make the buys, but we are seeing more opportunity in the marketplace today than I think we've seen over the past really two years. So it seems that -- well, I mean, it's -- you've got a shrinking retail base, obviously. And that's playing into the availability of product to the more important retailers and I consider Shoe Carnival to be one of the more important footwear retailers out there today. Because of that shrinking retail base, I expect that we may continue to see opportunities in the marketplace for buys, either because of excess inventory or just because of better cost opportunities than what we saw last year.

Okay. And then last question I have here is just any thoughts about -- I don't know if it's too early at this point, if you got a read, but just in some of those markets where you might have seasonal product, particularly on the sandal end of the business, any thoughts about open toe in terms of how that might be performing early going at this point or do you have to wait until you get a little closer to Easter to see, to get any good quantitative results there?

I think we've seen good results in our very, very, very southern-most markets, but I think it's going to -- we're mainly concentrated, besides Florida and Texas, in the very south of our marketplace, we're concentrated in the Midwest and towards the northern part of the United States, so I think it's going to take a little bit further -- well, it's going to take a little bit warmer weather as we get into April, but it's going to take a little bit more of a selling period as we get closer to Easter to see the full impact of what the sandal season is going to turn out to be. So I'm not placing a lot of reliance upon early season sandal sales at this point in time. However, what I am very pleased with up to this point in time is the sale of athletic product that we saw down-trending in the fourth quarter. So seems like that may be coming back a little bit. Now, getting back to my incorrect beginning of an answer to Sam Poser's question, I've heard all kinds of different reasons for business being better in February.

You've got pent-up demand. You've got rising mortgage delinquencies. You've got early refunds of tax checks or tax refunds. So I mean, there's a number of reasons why people are attributing -- which are attributing to better sales in the early part of 2009. I don't know that -- most of those reasons are not sustainable, obviously. So we're being very cautious about, still about how we plan our inventories and about going out. We're not loading up with inventory. We're not loading up with those opportunistic buys but we are taking advantage of a very lean inventory position at Shoe Carnival right now and a very liquid position in terms of the cash versus debt formula. So we'll continue to do that, but we're not -- I want to caution everyone that we're not going out and spending a tremendous amount of money on close-out buys at this point in time.

Mark, does athletic, just given how it's performing and it probably seemed like it performed reasonably well in February, does that incrementally increase as a percentage of your buys at all or does that pretty much stay even at this point?

Well, we've stated before that we expect to shift that purchase out of the -- I don't want to say this the wrong way, but out of the brown shoe industry, into the white shoe industry, into the athletic industry. We expected that that purchasing shift would happen. It did happen and we're seeing athletic products start to take off in the early part. But, again, I want to be cautionary when I make those statements because I would rather see a more definitive trend as we get through the Easter selling period.

Okay. All right, fair enough. Thank you very much, guys, appreciate it.

We will now move on to Jill Caruthers from Johnson Rice.

Good afternoon. If you could talk about the 10 store closings you're planning this year, perhaps when those closings will occur and kind of where the markets are more in terms of were these small one store markets or some markets where you had a handful of stores?

Well, in terms of the markets, they're both, Jill. Obviously for a number of reasons I'm not going to get into specific store locations. But they're in both large and small markets and I would -- as opposed to 2008 where we closed 11 of our -- or excuse me, eight of our 11 stores in the fourth quarter and very late in the fourth quarter, these seem to be more spread out throughout the year. And again, most of these closings, well, most of the closings are as a result of termination of leases for one reason or another. Either a natural termination or kick-outs or whatever the case may be, but they're more spread out during the year than 2008. I think there are still -- I think it's still back half loaded, though, in terms of the closings. I think six out of the -- six out of the 10 are probably in the back half.

Okay. And then just to follow on that, I know all stores are suffering from just the tough economy right now, but where are you seeing better performance, kind of in the larger markets, smaller town markets or are you seeing a big difference between those two?

It's really store specific. I mean, we're seeing some very good results out of stores in larger markets and just same way, we're seeing good results in stores in smaller markets. So it's -- I wouldn't make that generalization that it's large market versus small market, north versus south. It's more store specific.

Okay. And then just last question. Digging into the merchandise margin hit of 200 basis points in the fourth quarter. I know you entered into the quarter with 8% less inventory per store and your merchandise margin declined from third quarter, I know it's a promotional environment. Maybe if you could talk about where you felt the biggest hit. Was it more on the women's non-athletic side? Just a little bit more into that since we saw a further deterioration in the merchandise margin.

Well, certainly was more in the women's non-athletic side. But that's a matter of the nature of the business. We feel that we have more fashion risk in that product than we do in the athletic product and therefore we'll clear that product faster than we will athletic product, although we clear athletic product pretty fast. We consider that to be the most risky piece of the business, certainly in terms of carry-over. So definitely the biggest or the largest hits from a margin standpoint came out of the women's dress and casual business.

Okay. And that part of the business is shrinking, correct, for '09 given that you talked about where the -- a shift to more athletic.

But Jill, I don't -- when we say we're putting more of our purchasing power behind athletic product, we're talking in terms of a few percentage points, so we're not talking about a tremendously huge swing between our dress and casual business, either in men's or women's or children's and the athletic side. Quite frankly, some of the close-outs that we're seeing are in the women's fashion piece of the business, so we're going to take advantage of that as well as any close-outs or opportunistic buys in the athletic piece of the business. So we're not looking for big swings in that trend, but we are going to finance and fund the athletic business a little more than we funded it in 2008.

Okay. Thank you.

We'll now take a follow-up from Sam Poser from Sterne Agee.

Just real quick. Can you just give us exactly what your total square footage was for the quarter, Kerry?

At the end of the quarter?

Yes.

3,365,000.

Thanks. That was it. I do appreciate it.

(Operator Instructions). We'll now --

Sam, let me -- operator, let me clarify that. I gave Sam a wrong number. At the end of '08, it was 3,332,000. Thank you, operator, you can continue.

Thank you. We'll now take our next question from [Adrienne Yanus] from Land Consulting.

Yes, I was wondering what your position was in opening and really furthering your website to really include eCommerce sales?

At this point in time, we're not going to put an effort behind eCommerce, p Particularly or primarily because of the start-up cost and the costs associated with getting that up and running. Additionally, even though we've implemented significant improvements in our distribution center regarding per pair picks for our store base, we're not in a position to implement Internet fulfillment at this point in time.

Is that single largest challenge is the fulfillment aspect?

No. The single largest challenge is the capital commitment behind starting that process at this point in time.

Okay. Thank you.

And at this time, there are no further questions in the queue. Mr. Lemond, I'll turn the call back over to you for any additional or closing remarks.

I would just like to thank everyone for joining us on the call and we'll look forward to hopefully communicating better results for the first quarter of 2009 in a couple months. Thank you very much.

And that does conclude today's conference. We thank you for your participation. Have a wonderful day.