Shoe Carnival Inc (SCVL) 2009 Q4 法說會逐字稿

Good afternoon and welcome to the Shoe Carnival's fiscal year 2009 fourth quarter and fiscal -- full fiscal year earnings conference call. Today's call is being recorded and is also been broadcast via live Webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. This conference may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the Company's actual results to be materially different from those projected in such statements. These forward-looking statements should be considered in conjunction with the discussion of risk factors included in the Company's SEC filings in today's press release.

Investors are cautioned not to place undue reliance on these forward-looking statements which speak only as of today's date. The Company disclaims any obligation to update any of the risk factors or to publicly announce any 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 fiscal 2009 earnings conference call. Joining me on the call today are Kerry Jackson, Chief Financial Officer, Cliff Sifford, Executive Vice President and General Merchandise Manager, and Tim Baker, Executive Vice President of Store Operations. Following my opening remarks, Cliff will review our merchandise performance and then Kerry will review the financial results for the quarter in more detail and provide our outlook for the first quarter of 2010. I will then provide some closing remarks and we'll open up the call to take your questions. Strong execution of our strategic plan allowed us to report better than expected results for the fourth quarter of 2009. On our fourth quarter call last year, we communicated a strategy to raise the net realized price of our footwear, to maintain lean and fresh inventories, to manage capital spending and to increase our free cash flow generation through a reduced capital spending plan.

We're extremely pleased to report that despite the economic challenges in 2009, Shoe Carnival consistently improved upon each of our strategic initiatives, which resulted in significantly increased earnings. Following a strong performance in the third quarter, we were able to generate a fourth quarter sales increase ahead of our updated expectations, which we provided on January the 11th, 2010. Fourth quarter 2009 net sales increased 8.8% to $170.8 million compared to the same period last year. And above our expectations for net sales in the range of $168 million to $169 million. A comparable store sales increase of 8.8% was better than updated expectations for an increase in the range of 7% to 8% and significantly above our original plan for an increase in the range of 3% to 5%.

Our sales increase combined with the continued increase in the gross profit margin and improved leverage on selling, general and administrative expenses resulted in an increase in earnings per diluted share to $0.20 in the fourth quarter from a loss of $0.24 per share in the fourth quarter of 2008. This very strong earnings performance, coupled with our strategic emphasis on tightly controlling inventory and fixed assets, enabled us to generate cash flow of $19.4 million over the last 12 months and we ended the fourth quarter with $44.2 million in cash and equivalents. Now, focusing on our fourth quarter results in more detail, as previously -- as I previously mentioned, our comparable store sales increase of 8.8% was significantly above our expectations for a low to mid-single digit comp increase.

From the very beginning of the fourth quarter, our customers responded well to our business model of providing the right product assortment for the entire family at a compelling value and in a fun shopping environment. Our positive sales results were broad-based, with almost every operations region and each broad footwear category delivering a comparable store sales increase for the fourth quarter, as compared to the same period last year. Our early category strength in women's boots in the third quarter continued through the fourth quarter of 2009. And in line with our historical trend, November and December were still our strongest boot months. In addition, we realized continued strength in the athletic and Wellness categories, with two significant product lines, Skechers Shape-Ups and Reebok Easy Tone Shoes, which were not available in our stores in the fourth quarter of 2008.

Once again, we were successful in implementing our strategy of raising the net realized price of our footwear in each broad merchandise category. We continue to see a favorable product mix shift to sales of higher priced footwear, which Cliff will provide more detail on in a few minutes. In the fourth quarter of 2009, our merchandise margin increased by 2.8% of sales, due to the realization of increased unit prices, partly the result of less clearance activity. Due to our cost saving initiatives and distribution center operating efficiencies, we were able to actually lower distribution and occupancy costs in the fourth quarter of 2009 compared to last year. These efficiencies, combined with increased leverage due to higher net sales and the improvement in our merchandise margin, resulted in a 400 basis point increase in the overall gross profit margin. Our management group continues to do a great job of controlling expenses.

In fact, selling, general and administrative expenses for the fourth quarter only increased slightly on a dollar basis and as a percent of net sales SG&A expenses decreased 170 basis points compared to the fourth quarter of 2008. And finally, as I mentioned earlier, we continued to improve our balance sheet over the prior year period. Our cash position increased to $44.2 million and we remain free of interest-bearing debt at the end of the fourth quarter of 2009. We ended the quarter with inventory up 1.9% on a per store basis. We feel this lean inventory position is one of the keys to our current and future success. As a result, we will be able to increase inventory in categories where we see strength in order to maximize our business during fiscal 2010. Our ability to improve our key financial metrics reflects the continued strength of our business model and the commitment and hard work of our associates in our stores, in our distribution center, and at our Company headquarters.

Turning now to store expansion. Our 2009 new store opening plan was completed in the third quarter. We opened four stores during the third quarter and a total of 16 new stores in 2009. We closed six stores in the fourth quarter of 2009 and ended the year with 311 stores operating in 30 states, compared to 304 stores at the end of last year. The majority of the cost involved to close these stores were recorded in prior periods when we made the decision to close these specific locations. We will continue to review our annual store growth rate based on our view of the internal and external opportunities and challenges in the marketplace. We believe our strong unleveraged financial position leaves us well positioned for additional square footage growth as the retail real estate market improves over the next several years.

Looking forward to 2010, as we discussed in our third quarter 2009 conference call, we expect little incremental store growth net of closures, due primarily to the lack of new lifestyle and strip center development. While we expect to open between 10 and 15 new stores, we will continue to strengthen the profitability of our comparable store base by closing 13 stores. We constantly evaluate our unit profitability and when economically feasible, close stores that underperform our cash flow expectations. In 2010, six of the 13 anticipated store closures will happen at the end of their natural 10-year lease term and we expect to incur minimal closing costs for these stores in 2010. For the seven other underperforming stores, we intend to avail ourselves of negotiated kick-out or co-tenancy clauses. We have already recorded the majority of these clauses -- we've recorded the majority of these costs to close these stores.

We continue to enhance our Shoe Carnival in-store productivity with capital reinvestments in our existing store base, focusing on in-store visual graphics, including signage updates to focal walls and end caps. We believe reinvestment in our existing store base, combined with strong marketing and advertising campaigns, will continue to make Shoe Carnival the footwear destination for the entire family. Now, looking ahead to fiscal 2010. We are very encouraged by the continued momentum we have seen at the beginning of the first quarter of 2010 and our outlook for the Spring selling season. Our lean inventory position enables us to increase our merchandise assortment in the key categories where we see strength in order to maximize sales. As a result, in the first quarter of 2010 we expect to continue to capitalize on key fashion trends, particularly in the athletic and toning categories.

We remain optimistic about our sales trends for the remainder of the first quarter. And although we are at -- only at the very beginning of the important Easter selling period, we currently expect first quarter comparable store sales to increase in the range of 8% to 9% and net sales to be in the range of $181 million to $183 million, compared to the same period last year. As a result, we expect net earnings to be in the range of $0.54 per share to $0.58 per share, compared to $0.33 per share in the first quarter of 2009. In closing, I would like to reiterate once again that our management team remains intently focused on managing the controllable aspects of our business, improving profitability, generating positive cash flow, and gaining long-term market share. Now I'd like to turn the call over to Cliff for more details on our merchandise performance.

Thank you, Mark. As Mark stated, our total comparable store sales were up 8.8% for the fourth quarter of 2009 and 3.5% for the year. Also for the fourth quarter, comparable stores average unit retail was up 7.1%, traffic was up 5.6%, and most importantly, merchandise margin improved by 280 basis points with every department showing improvement. We recorded an increase in average unit retail in every department as our customers responded positively to our fourth quarter merchandise mix. A combination of the right boots and favorable weather patterns kept boots a hot category in all departments throughout the quarter. We believe that our commitment to offering our customers a broad assortment of trend-right product, along with our value proposition, has made us a key destination for family footwear. Now I'd like to take you through each department and share with you the trends that drove our business in the fourth quarter.

In our women's nonathletic department comparable store sales were up high single digits. This increase was driven primarily from the boot category, as fur lined, suede casuals and western boots all sold through at a much higher rate than the same time period a year ago. As we said during the last conference call, boots did become the new sport shoe for the season and we see this trend only getting stronger as we look toward the fall season of 2010. In our men's nonathletic department, our comparable store sales were up double-digits as we saw our increase in average unit retail account for close to half of our total increase. In addition, we once again experienced strong double-digit comparable store sales in our men's boot category. The children's combined business also ended the quarter with comparable store sales up mid single digits.

This increase was driven primarily from the nonathletic categories, with girls' boots and fashion canvas in the girls' department both selling well. The other key drivers of this increase were boys' running, basketball, and fashion athletic. In adult athletics comparable store sales were up low double-digit for the quarter with women's athletic up mid-teens and men's athletic up high single digits. This performance was not one dimensional, as several categories of athletic footwear performed well. Our largest increases in women's athletic came from categories such as vulcanized canvas, performance running and trail running. In men's athletic we were pleased with the performance of vulcanized canvas, men's basketball, retro basketball, cross training and trail running. Of course no conversation is complete without a report on the toning category. As we reported on the last call, we were able to get this classification of footwear into all stores by the end of October. The results have been outstanding.

For Shoe Carnival there are currently two key brands, Reebok and Skechers, and although Skechers is in all stores, we are still in the process of rolling out Reebok to all doors. There is no doubt that the strong sales we have experienced in toning category helped drive our comparable store sales in the quarter, but even if we excluded the benefit from this category, we would have still driven a mid-single digit comparable store increase for the total Company and a mid-single digit comparable store increase in athletic. It is important to point out that although toning had a small impact on average unit retail for total footwear, we would have still set a new record high for the quarter and the year even without the toning category. This speaks to the fact that our customers were responding well to our overall assortment. We believe that the toning category will continue to gain momentum in our stores as we continue to roll out additional stores and styles from the key brands.

We also believe marketing has helped drive the toning category. We will continue to support the brands that have existing marketing investments in the category. We expect to realize continued strength throughout the 2010 year with brands -- expanding brands that were not in all stores at the end of 2009. Our overall inventories ended the year up 1.9% on a per door basis. We continue to do a terrific job of controlling our aged inventory, which is running well below last year. With the strong liquidation rate of fall product, especially boots, we started a new year with inventories well positioned for Spring. We have trend right athletic styles and Spring sandals in stock and more on the way just in time for warmer weather. The early reads on several key trends for Spring have been strong. We haven't had enough warm weather yet to ignite the sandal business, but we do believe that we will see that classification take off in the coming weeks.

Other classifications that are working in women's nonathletic are flats, wedges, and vulcanized canvas. We are very bullish on the vulcanized canvas category for men, women and children and our early reads in February support our positive outlook. In athletic, in addition to toning, we are seeing strong sales from running, trail, men's basketball and, of course, vulcanized canvas. In closing, I would like to re-emphasize that our increases are being driven from every department with key items in classifications that are not only driving higher out-the-door average retails but also higher margins. Our buying staff has done a great job of identifying these trends and items and buying into them in sufficient depth so that Shoe Carnival can remain the destination store for family footwear. Now I'd like to turn the call over to Kerry Jackson for details on our financial results.

Thank you, Cliff. Let me begin by discussing results for the fourth quarter and fiscal 2009 followed by information on cash flows. Our net sales for the fourth quarter increased $13.9 million or 8.8% to $170.8 million, compared to $156.9 million for the fourth quarter of fiscal 2008. The increase in sales resulted from our 8.8% comparable store sales gain, plus a $6.0 million increase in sales generated by our new stores opened since the fourth quarter of fiscal 2008. These increases were partially offset by a $5.0 million loss in sales resulting from stores closed during the past four quarters. Gross profit margin for Q4 increased to 28.7% from 24.7% in Q4 last year. The merchandise margin increased 2.8%. Buying, distribution and occupancy costs as a percentage of sales decreased 1.2%. The merchandise margin benefited from improved merchandise managed inventory management, resulting in less promotional selling, along with strong sales of boots and athletic wear.

The leverage of our buying, distribution and occupancy cost was a result of our significant increase in sales combined with incurring less expense for the quarter compared with Q4 last year. Distribution expense decreased on a dollar basis during the quarter and as a percentage of sales declined 0.4%. The reduction was due to decreases in freight expense to our stores and reduced expenses in our distribution center due to increased efficiencies and labor costs. Occupancy expense was down slightly for the quarter, but as a percentage of sales decreased 0.7%. We recorded a decrease in occupancy costs in comp stores primarily as a result of co-tenancy violations at a number of stores and less store closing expense as compared to Q4 last year. These decreases were mostly offset by additional rents for the new stores opened this year, as well as the full year effect of the 2008 new stores as compared to last year's Q4, net of store closings.

Our selling, general and administrative expenses increased $940,000 to $44.5 million in Q4 this year. However, our Q4 sales gain enabled us to leverage these costs as a percentage of sales by 1.7%. The $940,000 increase in SG&A expense was primarily the result of additional cost related to incentive compensation and employee benefits and to a lesser extent to advertising. These increases in expense were partially offset by a decrease in non-cash asset impairment and disposal charges as compared to the prior year period. Incentive compensation increased $1.9 million on a year-over-year basis, primarily due to our improved financial performance. Expenses related to employee benefits increased $322,000. For Q4 last year, we recorded a $229,000 loss on investments in our non-qualified deferred compensation plan, due to a decline in the stock market.

During Q4 this year, we recorded earnings on investments of $93,000, resulting in the increase in expense of $322,000 compared to last year. Also, advertising increased $805,000. These increases were partially offset by a decrease of $1.9 million in non-cash asset impairments and disposals charges associated with store closures. The portion of store closing costs included in SG&A were $350,000 in the fourth quarter of fiscal 2009, compared to $2.4 million in the fourth quarter of fiscal 2008. Operating income for the quarter was $4.4 million compared with a loss of $4.8 million in Q4 last year. Our operating margin for the quarter improved to 2.6% from a negative 3.1% in Q4 last year. Our effective income tax rate for the fourth quarter was 41.9% as compared to 36.8% for the fourth quarter last year. The income tax rate in Q4 last year was lower, primarily due to the federal tax rate falling below the statutory 35%.

Our effective income tax rate in fiscal 2010 is expected to be approximately 39%. Net income for the quarter was $2.6 million compared to a net loss of $3.0 million in Q4 last year. Diluted EPS was $0.20 for Q4 this year compared to a loss of $0.24 last year. Approximately half the loss in net income and diluted EPS for Q4 last year was due to store closing costs. Now transitioning to year-to-date results. Our net sales for fiscal 2009 increased $34.8 million to $682.4 million compared to $647.6 million in 2008. Our sales gain occurred in the second half of the year. During the first six months of fiscal 2009, our comparable store sales declined 3.3%. However, customer traffic began to increase significantly at the beginning of the back-to-school selling season in August and we saw sustained increases through the remainder of the year, which drove a 9.5% comparable store sales gain in the six-month period.

For the full year, our comparable store sales increased 3.5%. This sales gain was largely driven by an increase in average selling price of our footwear. Our gross profit margin increased to 28.4% from 26.9% in 2008. Well-controlled inventories and strong fashion trends resulted in a merchandise margin increase of 0.8%. Buying, distribution and occupancy costs decreased 0.7% as a percentage of sales, due to leveraging effect of higher sales and a $932,000 decrease in expense. Our expense savings were primarily related to cost reduction initiatives within our supply chain, which resulted in a 15% reduction in distribution logistics expense. SG&A expenses increased $2.5 million to $168.5 million in fiscal 2009 from $166.0 million in fiscal 2008. However, our sales gain enabled us to leverage these costs by 0.9% as a percentage of sales. The increase in SG&A on a dollar basis was primarily related to increased incentive compensation and employee benefit expenses.

These increases were partially offset by a decrease in non-cash asset impairment and disposal charges associated with store closings, along with operational cost savings. Operating income was $25.1 million compared with $8.4 million last year. The operating margin increased to 3.7% from 1.3% in 2008. Net income was $15.2 million compared to a net income of $5.3 million last year. Diluted EPS for the fiscal year increased to $1.20 as compared to $0.43 in the prior year period. Now, let me discuss information affecting cash flows. We opened 16 stores and closed nine stores during fiscal 2009, ending the year with 311 stores. By slowing our store growth and tightly controlling all other capital expenditures, our total capital expenditures decreased $8.4 million from the prior year to $9.8 million.

Of the fiscal 2009 capital expenditures, approximately $5.3 million was used for new stores, $1.4 million was used for remodels and relocations, and $1.3 million was used to replace the software controlling the material handling equipment in our distribution center. The remaining capital expenditures for fiscal 2009 were used for continued investments in technology and normal asset replacement activities. Lease incentives received from landlords were $2.2 million. Approximately $500,000 of the lease incentives received from landlords in fiscal 2009 represented monies that were negotiated for fiscal 2010 new stores and remodeling activities. Depreciation expense for fiscal 2009 was $15.0 million. Depreciation in fiscal 2010 is expected to decline to approximately $14.1 million. The decline is due to opening fewer net new stores over the past several years, along with tightly controlling capital expenditures.

We generated free cash flow of $18.1 million and ended the fiscal year with $44.2 million in cash and cash equivalents and no interest-bearing debt. We entered into a new unsecured credit agreement effective January 20, 2010, which provides up to $50 million in cash advances and commercial and standby letters of credit with borrowing limits based on eligible inventory. The credit agreement expires April 30, 2013. For 2010, capital expenditures are expected to be in the range of $13 million to $15 million. We intend to open approximately 10 to 15 stores at an expected cost of $3.2 million to $4.8 million and we will spend up to $4.8 million on remodeling activities. Lease incentives to be received from landlords are expected to be approximately $1.3 million. As part of our long-term strategy to grow our store base and increase our distribution capabilities, we are in the process of redesigning certain elements of the material handling system in our distribution center.

Accordingly, we anticipate spending $1.5 million on these elements during fiscal 2010 to complete the multi-year effort to remediate our distribution center. The remaining capital expenditures are expected to be incurred for various other store improvements, along with continued investment in technology and normal asset replacement activities. This concludes our fourth quarter 2009 financial review. Now I'll turn the call back to Mark for a few final comments.

Thanks, Kerry. I would like to conclude our prepared remarks this morning or this afternoon by thanking our employees for our achievements to date and thanking our valued customers for their continued support. We are very excited about our future and look forward to delivering improved results in the first quarter and the remainder of 2010. Operator, you can open the call up for questions.

(Operator Instructions) And we'll take our first question from Ken Stumphauzer with Sterne Agee.

Good afternoon. It's Sam Poser. Hi, guys. A question on the -- how do we look at the gross margin looking ahead into 2010, gross margin, SG&A? You had a killer fourth quarter there.

We're not giving full year gross margin, but I will tell you this that our margin for first quarter last year, Sam, was down 130 basis points and we feel that we can more than make that up and that doesn't include any savings or any margin build from buying, distribution and occupancy.

And SG&A, same kind of thing?

From an SG&A stand -- .

-- on those kind of comps.

From an SG&A standpoint, Sam, we're going to need a mid single digit comp to leverage our SG&A. If you remember last year, we had cut our expenses very tightly in the first half while we were incurring negative comparable store sales and we limited -- we did not have -- we had very limited if any incentive compensation based on the performance of the Company. This year in Q1 we will be incurring incentive compensation. We'll be increasing our compensation to our employees now that the sales trend's much better. So it's going to -- we're looking at a mid single digit increase for the comp to be able to leverage that in the first quarter.

And so when we look at the back half it gets easier because you started to fund it?

Exactly. It's going to take a mid single digit comp in the first half of the year to leverage SG&A. And in the second half of the year it should take a low single digit comp to leverage it.

And then can you give us any numbers as to where you are specifically to date right now?

No, Sam, we gave guidance for the first quarter. That incorporates where we're at right now, plus an estimate of the March, April time period when the Easter selling season really gets into full blown gear.

Then just one last thing for Cliff. On the Shape-Ups versus the Easy Tones, how are you seeing that play out and how do you like what you've seen looking forward into the balance of the year and how do you see the momentum of that, the category and then by brand moving through 2010?

Sam, what we're experiencing is the product really sells best when it's being marketed and as you know, it was marketed heavily in the fourth quarter and will be marketed again as we move through first quarter. So momentum has continued to build almost on a weekly basis. And as we roll out the Reebok product to all stores, and there may be one or two other brands that look like they're going to market the product and that we will add, we see that playing out very positively as we go through the year.

Thank you guys very much. Good luck.

Thanks, Sam.

And now we will open the floor up to Jeff Stein with Soleil Securities.

Hey, guys. On the toning category, how confident are you that prices are going to hold? I would imagine as the competition begins to heat up, we're probably going to be seeing some lower price point product coming to market and do you think you'll be able to maintain full priced selling through the Spring?

What I think, Jeff, is that the companies that market the product, such as Reebok and Skechers, are creating demand for their product and that product's selling and we have not seen any slowdown even as lower price product has been marketed around us. We've seen no slowdown of that product. In fact, we've seen momentum build on that product. So we think prices are going to hold up just fine throughout the year on those two brands. Now, it remains to be seen on any other brands that we may add as to how prices hold up on that product, but those two brands are definitely the drivers for us.

Okay. And I'm just kind of curious. I mean, you guys are typically very conservative in your guidance. 8% to 9% is a pretty bold prediction when you consider that you still have the vast majority of Easter and really more than, probably more than half the quarter ahead of you yet from a sales standpoint. I guess what gives you conviction that, that strong a conviction that the sales trend is going to hold at or above that level?

Well, a couple things, Jeff. Number one is if you take a look back at February of last year, we had a pretty good February and it was -- I mean, a lot of it was attributable to the athletic side of the business. We see that athletic trend picking up steam right now. Not only because of the toning category, but other products as well. So as we look into the back half of March and into April, so much depends, and I hate to be a weather man, but so much depends upon the weather trends and whether sandals are going to really kick in gear in April, but we certainly see a lot of the trends in the athletic footwear continuing through the first half of the quarter. So it's a combination of a couple things. I think the consumer has had a certain amount of pent-up demand. We're seeing them spend on footwear and apparel right now.

Hopefully the economy won't take a dive or take a second dive and we'll see some money out there. But that pent-up demand I don't think is going to be satisfied just in the first half of the first quarter of 2010. Certainly shoes and apparel are a lot more affordable than cars and I think that's why the retail industry and the footwear and apparel has kind of picked up speed as we've gone through the back half of last year and the first quarter of this year and again, like I said, I don't think that pent-up demand has been satisfied. Particularly when you combine that with the trends that we're seeing in the footwear industry today. So that's why we think or we hope, anyway, that we'll see some favorable weather patterns to really kick sandals into gear and that will impact positively the back half of March and the April time period.

Two more questions real quick, guys. One, do you see toning and are you playing toning as an incremental sale or are you playing it as in part a cannibalization of traditional athletic? And then some retailers are talking about boots being a fashion item extending into Spring and wondering if you're capitalizing on that trend and you see boots, as well, as a driver this Spring.

First question's first. We've been watching toning to see how it's affecting the rest of athletic and to be honest with you, Jeff, we haven't seen a down trend in any classification in athletic other than the ones we planned down. So right now, we're treating it as mostly incremental. As far as boots as a category for Spring, we did plan boots, especially Western boots, to be a good category for the Spring season and so far we have witnessed that. We do think that boots as a fashion item and as the new sports shoe, as I said in my prepared remarks, for fall will be a strong, strong category for us as we move forward.

Thanks a lot, guys.

(Operator Instructions) And now we'll hear from Chris Svezia with Susquehanna Financial Group.

Good afternoon, everyone, and congratulations. I just want to follow up, Cliff, on the boot category for a moment. Continues to be a strong emphasis, I think, in 2010 as we go into fall. Just kind of your thoughts about how you're planning that business, either from an inventory perspective, a comp door perspective, are you willing to chase the product? Just kind of curious about your perspective and can you clarify what you mean by sport shoe? Is that toning? Just curious what you mean by that.

Yes, Chris, the -- we are planning our inventories in boots to be basically flat on a per door basis versus last year, but our sales to be up. We think that we'll drive a little higher average out the door based on the trends that we're seeing out there. And so we're actually planning boots up low to mid single digits for fall, even on the strength of the boot -- after the strength of the boot category this past season. And the reason for that is when I say boots are the new sports shoe, you just look at whatever -- what everyone's wearing today with the leggings and the tight leg jeans and boots with that, over-the-knee boots, all the different fashion elements of the boot category, she's buying that instead of sports shoes in years past and we saw that happen this past fall. We're seeing it on the streets today, even for Spring, and we see it going forward this fall.

Okay. Thank you for that clarification there. When you guys look at the athletic business and casual athletic, you mentioned running and obviously running continues to do pretty well here. Basketball seems like you continue to get better product. Obviously those continue to be a driver there. You mentioned vulcanized canvas and I am just curious if you can extrapolate to what degree that is. Is that still Chuck Taylor's or is there something else going on in the vulcanized canvas business.

We are pleased with our Chuck Taylor business. We were just a little nervous about it going into Spring because we had such a good Spring last year. But we're experiencing double-digit increases on top of the increases we had last year in Chuck's. And we think that's going to move forward at least through the Spring season and back-to-school, at least, we are still planning it up. It won't be the kind of driver it was, we don't think, this past back-to-school, but it will be a strong driver for us.

Okay. And then when you guys think about average unit retail, was up 7% or thereabouts in the quarter. And again, referencing your comments about boots and what you're seeing from a pricing perspective, how much higher, if you can quantify or if you're willing to, can that go as you look at planning your business and planning your inventory buys in 2010?

We're looking to drive -- it's definitely a focus of ours to drive higher average out-the-door retails and minus toning, because I'd like to take toning out of that. We think we can drive mid single digit average out-the-door increases for the fall. If you're asking about the fall season, for the year as well.

Okay. And the last question I have is just your initial thoughts, I know back-to-school is pretty far out there, but just your initial thoughts and how you think that may or may not play out between later back-to-school, tax-free holidays, it's just been certainly over the years has been a little bit of a trip up in terms of what it's performed. So just curious your initial thoughts in terms of how you might think that would play out, whether from an industry perspective or just from Shoe Carnival's perspective.

We're just now getting all the tax-free Holiday dates and as it looks right now it appears that they're comping up pretty close to where they were a year ago. If that's what you're asking about. As you know, some tax-free last year moved from the second quarter into the third quarter, but it looks like they're stabilizing this year. But we're still in the process of getting all those dates and getting all the back-to-school dates finalized. So not completely prepared to give you an answer on that.

Okay. All right. Well, best of luck. Congratulations. Thanks.

And now we'll hear from Jill Caruthers with Johnson Rice.

Good afternoon. If you could talk a little bit more about what will motivate you to accelerate unit growth. I know you're talking about seeing -- you want to see improvements in the real estate market. Is there any internal metrics that you're looking to see improve before you really ramp up that growth, perhaps like sales per square foot productivity or other metrics?

We don't have any hard and fast guidelines, Jill, but we would like to see a little bit better sustained economic environment than what we have seen, even though, as I mentioned before, retail consumer has picked up somewhat. But I'd like to see a little more sustained movement in that respect. Again, the retail real estate industry is still tough right now. So in terms of new strip center development, within our current geographic footprint, there hasn't been that much and we would like to see it pick up or, conversely, we would like to see some better development, redevelopment of existing centers with space that needs to be filled. So far, that hasn't happened to a great extent, anyway, with economically feasible rents and construction money. So when those things start to happen, we would absolutely love to regenerate or to accelerate our store expansion plans again. So we're kind of waiting on the -- both make sure that we've got a sustained economic uplift as well as the retail real estate industry.

And if you -- it seems as though your new stores over the past few years has been more of a fill-in type basis versus entering a new market. Could you talk about how the new store economics vary between filling in an existing market versus a new market and what you think ?

Jill, I don't have those statistics at hand. It will vary store by store and market by market. Just depends on whether the markets that we're trying to fill in have been hit harder by this economic crunch that we've seen over the past couple years, by the type of consumer that we're trying to get in those particular markets, and certainly with respect to new markets it's been tougher than the fill-in markets, I can tell you that, because it's more difficult to get our name out from a marketing standpoint in new markets when you're going through an economic cycle like we've been through the past couple of years.

What we are seeing now in the first quarter, however, is the non-comp stores, so in other words stores that we've opened in 2008 and 2009, are starting to produce some results that are pretty encouraging. So on a percentage basis, anyway. So like I said, we're seeing, I believe, some pent-up demand across most of the regions that we're in, so hopefully that will continue into the second quarter as well or the remainder of the first quarter and the second quarter and I think you'll see our non-comp stores start to pick up as well, which obviously will start to generate, hopefully will generate comp store increases in the back half and into 2011.

Thank you.

(Operator Instructions) We have a follow-up question from Jeff Stein.

Two questions, Mark, and Kerry. Could you talk about the number of leases that are coming up for renewal this year? And just generally, the trend that you're seeing just in your rent expense? In other words, is rent expense with a relatively flat store base expected to be up, down or about flat for the year?

As far as renewals, Jeff, we're going to -- I think we've got about 35 to 38 renewals coming up in 2010 and slightly less than that in 2011. Now, we'll touch more leases than that because of potential to kick out of certain stores or to renegotiate leases in some underperforming units. We've been very successful doing that over the past year as well. So we will touch more leases than the 37 or 38 renewals in 2010 and the 30 stores or so in 2011.

Okay. And as far as rent expense in dollars year on year, do you see that being flat, up or down?

Jeff, we expect occupancy cost to be up next year. They were -- they increased last year also, '09 versus '08, and due to the new stores we opened. We expected -- a lot of our store closings are going to occur later in the year and we will expect to have rent expense on those. So we should -- a low single digit comp should be able to leverage the occupancy cost, even though they'll be up slightly on a dollar basis.

Got it. And can you talk then about the use of cash, because it looks like we could be in for a prolonged commercial real estate slump here and you guys, according to at least my cash flow projections, are certainly going to really begin to pile up the cash this year and next year, so have you entertained any thoughts to possibly a share buyback.

Well, Jeff, our thoughts aren't any different on this call than they were on the last call. I'm not going to use the word entertain. We certainly look at alternative uses of cash, but at the end of the day we keep coming back to the fact that when the markets do open up, and when I'm talking about the markets the real estate markets, and the consumer does show some sort of sustained recovery, we want to open new stores and grow this chain. That's what we're anticipating using cash for.

Got it. And one final question. I know you didn't provide any guidance beyond the first quarter, but I guess it's hard not to look ahead to Q3 and Q4 where you really do begin to lap tough comparisons. Unless we see -- let's say hypothetically we don't see the economy take a step backwards, do you think you'll be able to lap these comparisons and continue to show positive comps in the back half of the year?

Boy, I hope so. I'm being glib and I didn't mean to sound that glib, Jeff. But the fact of the matter is, there's a lot of nice trends happening in the footwear industry today. I should say for the past seven or eight months and today. You've got the toning piece of it or the Wellness piece of it, whatever you want to call it. And that really doesn't comp itself until October, November time period, into the, late into the third quarter and the fourth quarter. You've got the other pieces of the athletic business that are starting to pick up and I think that that's going to continue. You've got a consumer that's been dormant for the, especially in the mid-tier, that's been dormant now for a couple or three years. So -- and on top of that you've got some fashion things going on in the women's and men's side of the business with, as Cliff mentioned, with boots and some of the fashion, apparel fashion trends happening. So there's a lot of positive things that could lead to continued momentum into the third and the fourth quarter.

So we're not taking a Draconian approach to the third and fourth quarter, even though we had a very nice second half of last year. We're not in the process of cutting costs. We're not in the process of down-sizing our employment. We're not in the process of cutting inventories. We want to continue to keep our inventories lean, but we'll build those inventories as we go through the year on a month to month basis. And quite frankly, our merchants have done a nice job identifying those trends that are hot in the industry and building the inventories where we need to build it. So I applaud them for that. We'll continue the same strategy all the way through 2010. One key initiative that we have, as Cliff mentioned, is to continue to increase the average unit retail out the door.

Now, when you're -- I was going to -- you said as a follow-up question, Mark. Is that a conscious strategy or is that just a reality because of the favorable mix you were seeing with more toning and more boots, which are higher average unit retail? So is it a function of mix? Is it a function of just lower markdowns or are you just trying to upgrade and bring in higher quality product?

Yes, all three. We are recognizing an increase because of the toning product that's higher priced than our average product. But we're seeing increases in the other categories of footwear as well, pretty much every other category of footwear. And yes, like I said, the merchants have done a great job keeping the inventories under control. We've recognized fewer markdowns. A great example of that is our boot category. We enjoyed some nice margins going into the first quarter of 2010 because, quite frankly, we didn't have the boots to liquidate. So as Cliff mentioned, we expect to make up that full 130 basis point decrease that we saw in the margin of last year's first quarter and a big reason for that is we haven't had the liquidation product to deal with in the first quarter of 2010. So yes, it is a matter of all three.

Got it. Thank you.

And now we'll take a follow-up from Ken Stumphauzer.

Hi. It's Sam Poser again. Just a question. Cliff, how much can you attribute of the increased ASPs to the toning product in the fourth quarter?

Sam, it's a very small percentage a And I really didn't want to put that percentage out but it's very small.

And then what trends are you seeing on the men's boots side of things? What trends are you seeing there? You mentioned they did very well. And how are you seeing that into 2010 and any specific brands or styles that you see becoming important?

We actually have seen increases in all the boot categories for men and that's something that also I think we're going to see as we move into fall is become a fashion trend in the men's area as well. So it's pretty much across the board, Sam, in men's boots.

All right. Well, keep it going. Have a great one.

Thanks, Sam.

And there is no further questions in the queue. I'd like to turn it back over to Mr. Mark Lemond for any closing remarks.

Well, I'd just like to thank everyone for joining us on this call today. As you can tell, we're pretty excited about the business right now and we're pretty excited about the trends we see in the footwear industry going forward. Look forward to talking to you after our first quarter call. Thanks.

Ladies and gentlemen, that does conclude our conference call for today. Thank you for your participation.