Shoe Carnival Inc (SCVL) 2010 Q3 法說會逐字稿

Good afternoon and welcome to Shoe Carnival fiscal year 2010 third 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 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'll 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 third quarter fiscal 2010 earnings conference call.

Joining me on the call today are Kerry Jackson, Chief Financial Officer and Cliff Sifford, Executive Vice President and General Merchandise Manager. Following my opening remarks, Cliff will review our merchandise performance and then Kerry will review the financial results for the quarter in more detail. I will then provide some closing remarks and we'll open the call up to take your questions.

We are very pleased to report that Shoe Carnival delivered yet another record financial performance in the third quarter of 2010. This was the strongest third quarter in the Company's history and was the second best quarter overall, trailing only the first quarter of this year. Importantly, the Shoe Carnival team worked together to improve our key financial metrics and produce results above our expectations, even though we were up against a record earnings performance from the third quarter of 2009.

Our continued operational and financial success reflects the strength of our business model and the commitment and hard work of our associates in our stores, in our distribution center and in our Company headquarters. Consumers are increasingly looking to Shoe Carnival for the footwear selection and value they demand.

Our inventory levels and merchandise assortment led to success early in the back-to-school sales period. These positive sales trends continued throughout the quarter and allowed us to take full advantage of consumer demand for footwear as we benefited from increases in both customer traffic and conversion rates. Importantly, we saw strength across all aspects of our business as each major merchandise category and every operations region recorded a comparable store sales increase for the quarter.

Our consistent, positive, quarterly execution reflects the commitment and the ability of our entire Shoe Carnival team to focus on certain fashion trends currently driving consumer footwear demand and to ensure that our stores communicate those trends to best meet the needs of our customer's value, fashion and family footwear.

As a result, we generated a 6.7% increase in net sales to $204.4 million and a comparable store sales increase of 7.2% on top of a 10.2% comparable store sales increase in the third quarter of last year. These sales results were above our third quarter 2010 expectations, for net sales in the range of $196 million to $202 million and comparable store sales in the range of 3% to 6%. Our sales increase enabled us to achieve a 30 basis point improvement in the gross profit margin to 30.1%.

In the third quarter of 2010, selling, general and administrative expenses increased 4.9% or $2.2 million. However, as a percentage of net sales, we were able to leverage SG&A expenses by 40 basis points, to 23.0%. The quarterly gross profit margin expansion and improved leverage of SG&A expenses produced a 70 basis point operating margin increase as compared to the prior-year period.

As a result, we recorded an 18.6% increase in earnings per share to $0.70 in the third quarter of 2010, compared to $0.59 per diluted share in the third quarter of 2009. This represents the highest third quarter earnings performance in the Company's history and was above our expectations for earnings per share in the range of $0.63 to $0.66.

Our management team continues to be intently focused on managing the controllable aspects of our business. And the third quarter of 2010 was no exception as we improved our balance sheet over the prior-year period.

We ended the quarter with $43.3 million in cash and cash equivalents and we remained free of interest-bearing debt. We completed our store expansion plans for this year by opening four stores in the third quarter, for a total of ten new store openings in fiscal 2010. We closed one store in the third quarter and expect to close two stores in the fourth quarter for a total of 7 store closures this year. In addition, consistent with our strategy to review our store growth opportunities, based upon the internal and external opportunities and challenges in the marketplace, we relocated three stores in the third quarter of 2010 to better real estate locations in the same markets.

We will continue to review these opportunities to upgrade our store locations in existing markets in future quarters. For fiscal 2011, we plan to relocate 9 stores to better locations within their existing markets.

Furthermore, we still expect to ramp up our store expansion plan in fiscal 2011. We continue to anticipate opening approximately 20 new stores next year, the majority of which will be in existing markets. Currently, we expect to close three stores in fiscal 2011. A net store growth of 17 stores would represent a square-footage increase of approximately 5% or 181,000 square feet.

Looking forward, we are optimistic that we will see even greater new store growth opportunities in fiscal 2012. Please keep in mind, our expected store closings for both 2010 and 2011 may change depending upon the resolution of lease negotiations with landlords currently in progress. We continue to believe our strong unleveraged financial position provides a solid platform for additional square footage growth as the retail real estate market improves over the next several months and coming years. Now, let me speak briefly about our outlook for the balance of fiscal 2010. We are very encouraged by our year-to-date sales and earnings momentum as well as our outlook for the holiday shopping season. We believe that our current merchandise assortment has us well positioned for increased sales in the remainder of the fourth quarter. We expect category strength in women's boots to increase throughout the holiday season. As a reminder, historically November and December are our strongest volume boot months. In addition, we anticipate continued strength in both the athletic running and toning categories.

Therefore, based on our positive outlook, we expect comparable store sales to increase in the range of 4% to 6% in the fourth quarter of 2010. Last year, we achieved an 8.8% comparable store sales increase in the fourth quarter. In addition, we have increased our expectations for the fourth quarter and fiscal year 2010 net sales, comparable store sales and earnings. In a few minutes, Kerry will give further detail on our fourth quarter and full-year guidance.

Looking to fiscal 2011, we know Shoe Carnival and the overall footwear industry are up against difficult comparisons, but we remain confident in our business model of providing the right product assortment for the entire family at a compelling value and in a fun shopping environment. We believe this model, combined with increased store growth and our management team's consistent focus on managing the controllable aspects of our business will continue to set us apart from other footwear retailers for long-term profitable growth and strong free cash flow generation.

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 for the third quarter of 2010 were up 7.2%. In addition, traffic was up 4.5% and we experienced increases in both conversion rates and average transaction size. These strong metrics drove comparable store increases in each merchandise category.

We also recorded increases in total units sold in each category as our customers responded positively to our third quarter merchandise mix. Although we enjoyed a benefit from the toning business, our comparable store sales still would have increased mid single-digit for the quarter, excluding the toning category.

Now I'd like to take you through each merchandise category to discuss a few of the key trends that drove our business for the quarter. In our women's non-athletic category, comparable store sales were up mid single-digits. Similar to the second quarter, this increase was driven primarily from summer sandals with most of the sandal category selling at much higher rates than last year.

Additionally, we experienced double digit increases in boots for the first two months of the third quarter as our customers made this important category back-to-school essential. Although the boot business trended down for the month of October, I'm pleased to say the sales trend has reaccelerated for the -- and is now generating increases in excess of 40% for the first two weeks of November. As a result, we are right on plan to have a very strong boot season.

In addition to boots, we've also seen strong comparable store increases in women's sport casual, including hikers, vulcanized canvas and molded footwear. In our men's non-athletic category, we ended the quarter with mid single-digit comparable store increase. This is on top of a double digit increase last year. Sales continue to be driven from the boot and casual categories, including vulcanized canvas and sandals.

Our children's business ended the quarter with double digit comparable store increases. Just like the second quarter, increases were driven from girl's fashion canvas, girl's and boy's sandals and double digit increases in both girl's and boys running.

In adult athletic, comparable store sales were up high single-digits for the quarter. Our business was driven primarily from men's and women's running with the performance running category in both genders generating double digit increases in excess of 20%.

Toning continues to add to our overall comparable store increase in athletics. However, we would have still posted a low single-digit increase in athletics without the benefit of toning. As a percent to our total sales, toning's decline versus the first and second quarter of 2010. However, pairs sold for the third quarter as a percent of total stayed relatively flat to 2010's first and second quarter.

Average unit retail in toning declined 12% sequentially compared to the second quarter and 18% versus the first quarter of 2010 as retailers reacted to sales that leveled out after a few quarters of unprecedented growth. We certainly expect toning to continue to be a very important category in our overall business, including this holiday time period and we definitely expect the category to continue to have a positive impact on comparable store sales for the fourth quarter of 2010.

We will continue to add younger silhouettes and new technologies as they are introduced. Our key brands have committed to continue to market this product aggressively which will help keep the category in demand. In addition, even with the decline in average unit retail and toning for the quarter, our total average unit retail, including toning was flat for the quarter, and over the past several weeks has increased low single-digits. Our overall inventories ended the quarter up 12% on a per door basis, including toning.

Excluding toning, inventories were up mid single-digits on a per door basis which is in line with our non-toning sales trend. It is important to remember that our aged inventory remains at an all-time low and we are well positioned for the holiday sales period.

Looking forward to the holiday season, we are very encouraged by the early performance of boots. We believe this season similar to last year, boots will not only be the number one fashion trend of the season for women, men and children, but it will also be a very important gift item.

In addition to boots, we continue to see positive results in our women's non-athletic sport casual category, children's department, men's basketball and performance running for both men and women.

We feel that we are well positioned to continue the strong sales trends we have enjoyed over the past five quarters. Now I'd like to turn the call over to Kerry Jackson for details on our financial results.

Thanks, Cliff.

Let me begin by discussing the results for the third quarter and the first nine months of fiscal 2010 followed by information on cash flows, then our expectations for the fourth quarter and full year. Our net sales for the third quarter increased $12.9 million to $204.4 million, a 6.7% increase over the prior year's third quarter net sales of $191.5 million.

This increase was primarily due to a 7.2% increase in comparable store sales and a $3.7 million increase of sales generated by new stores opened since the second quarter of last year. These increases were partially offset by a $4.2 million loss in sales from the 14 stores closed since the second quarter of last year. Gross profit margin for Q3 increased 0.3% to 30.1% from 29.8% in the third quarter of last year. The merchandise margin decreased by 0.2%.

Buying, distribution and occupancy costs decreased 0.5% as a percentage of sales, due to the leverage associated with the comparable store sales increase. Our selling, general and administrative expenses increased $2.2 million in the third quarter of fiscal 2010 to $47.1 million. However, our sales gain enabled us to leverage these costs as a percentage of sales by 0.4%.

The $2.2 million increase in SG&A was primarily the result in the increase in performance based incentive compensation and incremental increases in store operating expenses. Operating income for the quarter was $14.4 million, compared to $12.2 million in Q3 last year. Our operating margin for the quarter improved to 7.1% from 6.4%.

Our effective tax rate for the third quarter was 36.7% as compared to 38.5% for the third quarter last year. Included in the third quarter 2010 tax rate, was a reduction in income taxes resulting from the favorable resolution of certain tax position. Without this tax benefit, our effective tax rate for the quarter would have been approximately 38%. Net income for the third quarter increased to $9.1 million, or $0.70 per diluted share compared to $7.5 million or $0.59 per diluted share for the third quarter last year.

Now transitioning to year-to-date results. Our net sales for the first nine months of fiscal 2010 increased $47.7 million, to $559.3 million. A 9.3% increase over net sales of $511.6 million for the first nine months of last year. This $4.7 million increase was primarily due to a 9.4% increase in comparable store sales, along with a $13 million increase in sales from new stores open since the beginning of last year. These increases were partially offset by a $11.4 million loss from the 14 stores that were closed since the beginning of last year.

Our year-to-date gross profit margin increased to 29.9% from 28.3% in the comparable prior-year period. The merchandise margin increased 0.9%, buying, distribution and occupancy costs decreased 0.7% as a percentage of sales, due to leverage associated with the comparable store sales increase.

Our selling, general and administrative expenses increased $8.2 million in the first nine months of fiscal 2010 to $132.1 million. However, our sales gain enabled us to leverage these costs as a percentage of sales by 0.7%. The largest increase on a dollar basis was a $5.3 million increase in incentive compensation due to our improved financial performance. Operating income for the first nine months of the year was $35.4 million, compared to $20.7 million the first nine months of the last year. Our operating margin rose to 6.3% from 4.0%.

Our effective tax rate for the first nine months of the year were 36.3% as compared to 38.8% for the first nine months of last year. We expect our effective tax rate for the fiscal 2010 to be approximately 36.7%.

Net income for the first nine months was $22.5 million, or $1.73 per diluted share compared to $12.6 million or $1 per diluted share in the first nine months of the prior year. Now let me discuss the information effecting cash flows. Depreciation expense was $3.4 million in Q3 and $10.3 million for the first nine months of fiscal 2010. Depreciation for the full year of fiscal 2010 is expected to be approximately $13.7 million.

We expended $10.3 million in cash during the first nine months of fiscal 2010 for the purchase of property and equipment of which $6.2 million was for new stores, remodeling and store relocation activities and $1.4 million was for improvements to our distribution center. Cash lease incentives we received from landlords during the first nine months was $1.8 million. We anticipate additional capital expenditures of $3.3 million for the remainder of fiscal 2010 of which approximately $2.1 million will be spent on new stores, remodeling and relocation activities.

The remaining capital expenditures expect to been incurred for various store improvements along with the continuing investment in technology and normal asset replacement activities. We expect to receive $1.2 million in cash lease incentives from landlords in Q4.

We currently have authorized a $25 million share repurchase program. However, we did not repurchase any shares during Q3 this year. My final comments today will focus on sales and earnings expectations for the fourth quarter and fiscal year 2010. We expect fourth quarter net sales to be in the range of $178 million to $182 million and comparable store sales to increase in the range of 4% to 6%.

Earnings per diluted share in the fourth quarter of 2010 are expected to be in the range of $0.30 to $0.32. Earnings per diluted share in the fourth quarter of fiscal 2009 were $0.20. Included in the high end of our EPS guidance, is the expectation for a modest increase in our merchandise margin, a slight leverage or a buying distribution occupancy costs due to the sales increase and SG&A dollars to increase about 4% over Q4 of last year. When combining our Q4 guidance with our year-to-date performance, fiscal year net sales would be in the range of $737 million to $741 million and comparable store sales are expected to increase in the range of 8.1% to 8.6%.

Earnings per diluted share for fiscal 2010 are expected to be in the range of $2.03 to $2.05 compared to previous expectations of earnings per diluted share in the range of $1.89 to $1.95. Earnings per diluted share for fiscal 2009 were $1.20.

This concludes our third quarter financial review. Now I'll turn the call over to Mark for a few comments.

Thanks, Kerry.

Obviously, we are very pleased with the strength of our financial performance in the third quarter of 2010. As I mentioned earlier, our outlook for the fourth quarter of fiscal 2010 is very positive and we look forward to delivering continued increases in both sales and earnings on a year-over-year basis. Operator, we are now ready for the question and answer session.

(Operator Instructions) And our first question will come from Scott Krasik from BB&T Capital Markets.

Hi, guys, it is actually Kelly calling in for Scott.

Okay.

You can just talk a little bit more about the toning category and just how it did this past quarter.

And also how are your planning the category going forward in terms of price relative to last year? And also are customers buying the new product more or the older product that is now cheaper?

This is Cliff, Kelly.

Toning category actually had a tremendous increase in the third quarter because we weren't going against a full year of being fully in stock. So toning category did add to our comps, although our comps would have still been up -- I think we said low single-digits without -- or low to mid single-digits without the benefit of toning.

But we expect toning to continue to add to the comps as we go through fourth quarter. It's still selling, still showing increases. All be it at a lower average retail price.

The market has reacted to the fact that inventories are a little bloated and brought price down in that regard. On the new product, we're seeing relatively good sell-throughs on new product at higher retail prices than the first generation. So we're pretty excited about that as well.

Okay. Great.

And my next question is in terms of without getting into specifics about 2011 guidance, how do you see operating margins trending next year?

Well, given the current trends in footwear and the current fashion trends, particularly in the athletic category and we think boots will probably be strong again, we're looking at operating earnings increasing next year as opposed to this past year.

Okay. And my last question would just be, you have guys tested higher retail prices in stores to gage customer sensitivity based on higher input costs next year?

Kelly, I'm not sure I understand the testing part.

We're generating, at least for the quarter, this past quarter, we generated flat average retail pricing based -- most of our prices were up, but when you take a look at the effective toning and the fact that sandals and -- played a larger part of our overall third quarter sales and we had expected average price was flat for the quarter. Dead on flat.

We do expect to see average retail price for the fourth quarter to rise in the mid single-digits.

Okay. Thank you very much.

Our next question almost could from Chris Vezia from Susquehanna Financial group.

Good afternoon, gentlemen and terrific job on the quarter and grade guidance, by the way, guys.

I guess first just -- I'm just curious, the merchandise margin rate in the third quarter was down because just the comparison to year-to-year or is it just a speaking span on that?

Chris, I think it was two-fold. Actually probably three-fold.

There was a categories that were strong last year that weren't as strong this year excluding toning, like vulcanized canvas and not as strong out of the athletics as last year. And we had to react to that. And that's number one.

Number two, sandals played a bigger part of our overall business than it did last year. It was a tremendous sandal run in the months of August and September, so that became larger percent of our total than it was last year.

And then obviously the toning had a little lower price point, not a little lower but at a lower price point than last year. All playing part in that 20 basis points.

Okay. And then just on -- I'm curious, when you look at product, you're getting a lot of new things that have been coming in, I'm just wondering f you can talk about as you look to fourth quarter as kind of looking forward and Nike and what's going with Free and I'm sure you're doing some things with Puma and maybe other products coming in and maybe you could talk about how that is driving the business as go through the fourth quarter or any color as you go to spring in terms of what you're seeing there?

I'll give you a couple of things. It's a little early yet to talk about Free because that product doesn't gets here and the marketing doesn't start for another week to two weeks away. It is a little to early to talk about Free.

I will talk, however, about light weight running and the performance running category and that's been incredibly strong as we move through back-to-school and continue to be strong as we move through fourth quarter and first quarter.

A year ago, Chris, we were not happy with our inventory levels in running. We felt that maybe toning category was going to effect running somewhat, especially in the women's area, and our inventory levels -- we let our inventory levels get a little too low in running. So we felt like we left business on the table.

Now that light weight running has come in and accelerated as it has, we feel that going to help drive our business as we move through the fourth quarter and definitely drive our business as we move through the first quarter. And that's not only by Nike but several other vendors as well. There is a whole light weight, as you're aware, running trend happening in the marketplace. We're very, very happy with that.

As far as the rest of the fourth quarter, we mentioned boots. And boots, last year, was representative of about 22-23% of our total fourth quarter sales and we expect that to come up to close to a quarter of our fourth quarter sales this year. And we are already seeing that trend happen as we move through November. So that's going to be a great item.

That doesn't necessarily effect spring as much, but it will affect January and February. So we think that's going to help carry us into the spring as well.

And then you take a look at the fact that Easter is a little later this year. Actually it's as late as it can get, which gives you a warmer time period in order to sell opened-up footwear for Easter. We think we're pretty happy with that as well.

Okay.

And I'll have to ask a toning question both from the fourth quarter and kind of how you think about it as you go into -- go into spring of next year, but just so I understand something, with -- you're expected to be still sort of a comp business, is it fair to say maybe to a lesser degree than what you've seen so far and just given your comfort in terms of being able to camp even though you're seeing ASP production is that because there is new brands are coming into the marketplace.

I'm trying to understand the ASP reduction and your commentary about your confident you could still comp that category and any thoughts as you look to spring in terms of how you're thinking about that business?

Well we're actually selling more -- the reason we're comping the category is we're selling more pairs because if you remember we weren't totally -- everybody was still gearing up for the toning category this time last year and that doesn't really complete itself until we got into the first quarter.

So we'll comp up just from the mere fact that we're in stock this year versus last year in the toning category.

As far as ASP's are concerned, that's just a competitive issue where the -- everybody was chasing this category as hard as we could chase it. And as it leveled out, and it did, it has not started the decline, it is still a percent of our total business from a pair standpoint is as strong as it was in the first and second quarter, but the average price has gone down as it has leveled out.

And that's going to continue -- I think that the price point has found its level and we'll see how that works for the fourth quarter. Fourth quarter was a -- for the inventory that we own last year was a good quarter in toning. I don't think many husbands gave them to their wives, but I think daughters gave them to their mothers and vice versa and we see that happening again in this year.

And think thoughts for spring?

For spring? You know there is new silhouettes, there is now technologies being -- that are being introduced and we still feel fairly good about toning as we move through spring.

But you know past toning, there is so much other things happening in athletic that will accelerate our business. Like, again, I can't tell you how important this light weight running category is to our business.

The high average out the door price which, if toning did anything for us, for the family channel, it showed the athletic industry that we could sell high out the door, high average price units and so Nike gave us light weight running and other vendors have given us light weight running and other categories.

We have a better selection of higher-end basketball shoes that retail well -- going well at retail, and those are the things that will help drive our business as we go through spring.

Okay. Well great.

Sounds terrific. And best of luck to you guys. Thank you.

Our next question will come from Sam Poser from Sterne Agee.

Good afternoon.

Can you give us the comps by month and how you're running so far in November. I might have said that but -- you might have said that I just didn't hear it?

Sam, we were up -- we were up high singles in August. Same in September. And down slightly -- not down, but moderate a little bit to mid singles in October.

You were up mid singles in October?

Yes.

And then how about -- what is going on month to date, if you'd like to tell us?

We're up double digit for the month.

And then Kerry, the tax rate, you've gotten a few tax rates that have been moving around a lot. How should we think of the tax rate for Q4? What's embedded in the guidance?

Embedded in the guidance, for the year we expected it to be 36.7% and that will get you around 38 and change rate for the quarter. We'll get you at 36.7% for the year.

And I know you're not giving us any color on 2011, but how should we think about that, the tax rate, in 2011? Around 38% or is it going to return to the high 38% or 38%, 39% it used to be?

I think what our base rate typically is, 38.5% if you typically model around that, it's very difficult to project how -- like what we've done this year, where we had some very favorable conclusion of certain tax positions that we've been able to lower our effective tax rate this year. Those cannot be projected into '11.

Okay.

And then, Cliff, you brought it up a little bit about how the toning product enabled you to sell -- to have access to higher-ticket product and better and better product.

Are you seeing that same kind of reception to higher ticket goods in the non-athletic product as well, I would say outside of boots? Sort of are you able to just sort of tweak up and add a better sort of a slightly better mix or a slightly more expensive mix of product?

Sam, seeing that in some departments.

I see it in our men's department where we're able to get some better men's non-athletic department, we're able to get better goods. And I think we're going to enjoy that as we move through the fourth quarter and the first quarter.

But in women's non-athletic, we were able to pick up a couple of additional brands which will help us drive higher average retails, but we're not going into the better, what you would consider, a better brands in our women's non-athletic.

You were able to drive higher ASP's.

That's correct.

And I failed to bring up the fact that we're talking about -- we were talking about basketball and light weight running, but also in the athletic area, we picked up a new skate brand, DC, for back-to-school and that's performing real well as well.

Well continued success, guys.

Thanks, Sam.

(Operator Instructions) And our next question will come from Jill Caruthers from Johnson Rice.

Good afternoon, congratulations on the quarter.

If you could talk about -- I think you mentioned the first two weeks of November, you said the boots were comping up 40%? Is that correct?

In excess of that.

Okay.

And I guess could you talk about -- I know you previously talked about boot inventory being up in the back half high single-digits, are you still comfortable where you are at right now in the boot inventory? Are you having to chase product?

We didn't mention today what our boot inventory was up, but we did talk in the last conference call that we thought boots were going to be up high singles. We actually believe we'll have just a little -- our boot business will be a little better than that as we move to the fourth quarter.

Okay.

And then just -- it's pleasantly surprising to see that your hoping merchandise margins will be up slightly in the fourth quarter. You're going up against very tough comparisons. Could you talk about that -- is that mainly higher AUR or strength in the boots or kind of what's the ---?

Jill, it's pretty simple.

It's boots -- first of all, let's talk about toning and ASP on that margins that's generating. All that's done is bringing the margin of toning down to where the regular the regular margin of athletic is, basically around there. Maybe just a tad bit lower.

So the athletic runs normally not as large a percent of our total business in the fourth quarter.

Boots, however, this year, is going to be a higher percent and that's a high margin category. And that along with I mentions sport shoes, women's sport shoes, and that's a high margin category. We feel that that's going to have a strong comparable store growth.

And then on top of that, even though athletic is not as large a percent, this -- I hate to be redundant, but the whole light-weight running and the running category and the fact that we left so much of that business on the table last fourth quarter and first quarter, we feel that we're going to regain some market share there in margins.

Okay, appreciate it. Thank you.

And next we'll go to Steven Martin from Slater Capital Management.

Well, all of my questions have been asked, believe it or not.

And Cliff, I would not put you on the hot seat. And congratulations. This was a great quarter with great guidance against a lot of skepticism out there.

Thank you, Steve.

And we do have a follow-up from Chris Vezia.

Hey, guys, just curious, still talking about 20 stores, you know, it looks like you guys, based on my estimates, will have close to $80 million in cash at year end.

What is the possibility that you either accelerate growth or you can buy back stock? There is a lot of options at your disposal. I'm just kind of curious more particularly on the growth aspect of the story is that the potential accelerate mark, what is your thoughts there?

As we talked before, we'll take advantage of whatever real estate opportunities we can avail ourselves of. We are not going to grow strictly to -- for growth sake.

We've maintained a strategy of going into existing markets primarily and filling those markets in. When good real estate becomes available.

In addition to that, we are planning on opening up a number of smaller markets, smaller new markets, for next year. For competitive reasons, I don't want to get into exactly where those are at.

But as we see real estate opportunities come available with good sites, we're going to take advantage of it. So, even though we expect to open up 20 stores, if we had 30 good real estate sites, we would open up 30 stores. So, it's not a limitation based upon cash or cash flow, it's limitation based upon the real estate selection that we're seeing in the markets that we want to enter.

Okay.

That's good to hear. It's the right approach.

And the last question I had is just, in answer to Sam's question you mentioned it seemed like you guys were comping up double digits or low double digits I think was your response.

If that's the case, then just kind of based on your comp projection for the quarter, are you assuming, as you get through and again the comps get tough for you from a comparison perspective or what are you thinking?

A couple of things. A couple of thoughts, Chris.

We're seeing a big increase in the sale of boots in the first two weeks of November and a big reason -- although the inventory is good, a big reason for that has been the change in weather. Whenever we see the change in weather we see a huge increase in the sandals in the spring and boots in the fall.

We did not have that weather in October, like we did a year ago. And quite frankly boot sales were not that strong in October.

But when we did see the weather change in early November, boot sales took off and it reconfirmed our position that boot sales for the fourth quarter are going to be a very, very strong category.

However, as we get into -- early November are the smaller weeks of the quarter, particularly of November, December, as we get into the BAT and the holiday season it remains to be seen how promotional that is in the market place.

We do not think it's going to be extremely promotional and that's why we're planning our gross margin slightly up, but we're not willing to make that call from a comp store sales standpoint at this point in time. So, what we're expecting is sales to moderate somewhat from that double digit increase that we've seen so far in November to that mid to high single-digit increase for the entire quarter.

Okay. That seems fair.

All right, thanks guys. Appreciate it.

And at this point we have no further questions in the queue and I'll turn the call back over to Mr. Mark Lemond for closing remarks.

Okay. In closing, I would like to thank our Shoe Carnival sales associates on their continued hard work and execution in the third quarter of this year and I'd like to thank our vendors and customers for all of their support.

Thank you for joining us today and we look forward to speaking to you again in a few months about our fourth quarter results. Thanks for joining us.

That does conclude our conference for today. Thank you for your participation.