Shoe Carnival Inc (SCVL) 2011 Q2 法說會逐字稿

Good afternoon, and welcome to Shoe Carnival's fiscal year 2011 second quarter earnings conference call. Today's call is being recorded and is also being broadcast via live Webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited.

This conference may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the Company's actual results to be materially different from those projected in such statements.

These forward-looking statements should be considered in conjunction with a 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. Please begin.

Thank you and welcome to Shoe Carnival's second quarter fiscal 2011 earnings conference call. Joining me on the call today are Kerry Jackson, Chief Financial Officer; Cliff Sifford, Executive VP and General Merchandise Manager; and Tim Baker, Executive VP of Store Operations.

Following my opening remarks, Cliff will review our merchandise performance and then Kerry will review the financial results for the quarter for more detail. I will then provide closing remarks and we'll open up the call to take your questions.

Our performance in the second quarter of 2011 quite simply fell short of our expectations. Sales were impacted by the decline in customer traffic which we believe was due in part to inclement weather conditions in many of our markets, early and again late in the quarter.

Additionally, we were up against a record second quarter results achieved last year including an 8.3% comparable store increase that was driven by higher-priced toning footwear. Excluding toning sales, comparable store sales would have been up 3.2% in last year's second quarter and positive 1.8% in this year's second quarter.

Over the course of the past several years, we have remained diligent in regards to managing the controllable aspects of our business. Our planning surrounding the back-to-school season has included enhancing our merchandise assortment to insure we deliver fresh fall product, particularly in the athletic category.

And planning our pricing and promotional strategies in such a way as to optimize sales and margin. I am pleased to report that our efforts for the back-to-school season are beginning to yield substantial results.

Our traffic and sales have improved significantly in the early back-to-school period with comparable store sales up 6% thus far in the month of August. And despite the promotional nature of the season, our realized prices continue to increase and our month to date merchandise margin is exceeding last year's.

Before I discuss our expectations for the third quarter, I would like to review the results for the second quarter in more detail. Second quarter net sales increased approximately 1% or $1.3 million to $166.7 million from the previous second quarter record of $165.4 million last year.

Our comparable store sales decrease of 1.1% was finally below our guidance for comparable store sales result of flat to up 2%. On a comparable store basis, footwear units sold declined by 4.5%, while we recorded a 3.3% increase in the average price of footwear units sold.

This price increase was achieved despite the precipitous decline in the price of toning product which, as most of you will remember, played a significant role in last year's second quarter sales. As I mentioned earlier, excluding toning, our comparable store sales in the second quarter of 2011 increased 1.8%. Cliff will provide a more detailed merchandise review in a few minutes.

Despite the sales shortfall, our management group continued to control the merchandise margin, and selling, general and administrative expenses, mitigating the impact to the bottom line. SG&A expenses for the second quarter increased by only $1.5 million. And as a percent of net sales, increased only 60 basis points compared to the second quarter of 2010.

Finally, we continue to improve our balance sheet over the prior year period. Our cash position increased to $44.1 million and we remain free of interest-bearing debt at the end of the second quarter. We ended the quarter with inventory up 5.7% on a per store basis. Our plan has been and continues to be the increased inventory in categories where we see strength in order to maximize our business during fiscal 2011.

Now, focusing on our outlook for the third quarter. For the month of August we are seeing a definitive increase in traffic trends which has helped us generate a 6% comparable store sales increase to date. I've said many times, and I continue to believe, that when consumers have a need to buy such as the back-to-school period, they are increasingly shopping Shoe Carnival for the right product assortment, for the entire family at a compelling value.

Despite the economic headwinds impacting consumer discretionary spending today, we are pleased with our sales results thus far. Although we are planning the second half of the quarter slightly more conservatively with September and October comp store sales increases of between 1% and 3%, we can see some upside if we get a normal transition in fall weather patterns.

This is particularly true in the boot category which, in certain classifications is showing some nice increases versus expectations. As a result, we currently expect third quarter comparable store sales to increase in the range of 3.4% to 4.4%. And net sales to be in the range of $217 million to $219 million, or up 6% to 7%. As a reminder, our comparable store sales increase of the third quarter of last year was 7.2%.

At the high end of our guidance, we expect gross profit margin to be up slightly and we are looking for slight SG&A leverage. Consequently, we expect third quarter net earnings to be in the range of $0.77 to $0.81 per diluted share.

We believe Shoe Carnival is well positioned for growth, as our focus on value-priced family footwear resonates well with today's customer. We expect to end fiscal 2011 with around 327 stores. Our current plan for 2011 includes opening a total of 17 new stores and closing 4. Year-to-date through the second quarter, we have opened 9 and closed 2.

It has been an aggressive year for us in respect to store locations and remodeling activities, as well. As of the end of the second quarter, we have completed all 9 of our planned relocations, as well as 50% of our planned store remodels.

As I have shared with you in the past, our real estate team, along with senior management, regularly evaluates unit profitability. Depending on this evaluation, a store which underperforms against our cash flow expectations may be identified for closure or relocation.

High-performing stores are reviewed at each lease action date to determine an appropriate investment plan that, when combined with strong marketing and advertising campaigns, we believe will continue to make Shoe Carnival the footwear destination within its trade area. Currently, for fiscal 2012, we expect to open 25 to 30 new stores, close approximately 5, and relocate 5 stores. Please keep in mind, however, the amount of stores we actually close will depend upon future negotiations with our landlords.

I'm very excited about the upcoming launch of our newest store, Shoe Carnival.com, our e-commerce site. The new site not only represents an additional long-term growth vehicle but it also provides us with an opportunity for national brand exposure.

This increased brand awareness will enable us to leverage our marketing spend on new store openings and should enable us to more quickly ramp up sales in new markets. Finally, I would like to reiterate that just as we have consistently done every quarter, our executive team remains intently focused on managing the controllable aspects of our business for long-term 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 second quarter of 2011 were down 1.1% due in part to a low single digit decline in traffic. Additionally, while conversion rates were flat, average unit retail and average transaction size were both up.

Merchandise margins were basically flat due primarily to margin increases in our women's and men's non-athletic categories. Although sales in the traditionally strong summer categories of sandals and running were up, we were unable to overcome the decline in sales of the toning category due to the decrease of both payers and average unit retail. As Mark mentioned comparable store sales for the second quarter excluding the toning category would have posted a 1.8% store increase.

For the next few minutes I'm going to take you through each merchandise category to provide you with better clarity on our business performance in the second quarter. In our women's non-athletic category, comparable store sales were up low single digits.

Molded footwear, sandalized wedges, sports sandals, athletic sandals and canvas flats were all drivers of our overall business. In line with our plan, dress shoes continue to show weakness. As I mentioned last call, our merchants shifted inventory dollars away from the dress categories into the more seasonally relevant categories I just mentioned which produced higher overall sales and margin.

In our men's non-athletic category we ended the quarter with a low single digit increase on a comparable store basis. As in women's, dress shoes continued to show weakness in the quarter whereas casual lifestyle product like soccer slides, sport sandals, boat shoes, vulcanized canvas and traditional hikers all performed well. In this category as in women's, we shifted inventory dollars away from dress into the casual lifestyle footwear categories which helped drive both sales and margin.

Our children's business ended the quarter with a mid single digit comparable store decrease. Declines were driven primarily from 3 areas. Late delivery on important second quarter athletic styles, cool rainy weather in May and June which suppressed sandal sales and the girls canvas casual category.

I am pleased to report the majority of key back-to-school product has now arrived and we are now experiencing positive comparable store sales increases for back-to-school.

In adult athletics, comparable store sales were down low single digit. Sales excluding the toning category would have increased in the mid single digit range. The toning category experienced a comparable sales decline in the mid 50% range. This was driven by both a unit decline and a decline in average unit retail in excess of 30%.

Inventory ownership of toning is down in excess of 50% versus the end of the second quarter last year. And down in excess of 60% at our peak inventory which is both in line with our expectation. As anticipated outside of toning, our adult athletic business for the quarter was driven primarily by the men's and women's running category with comparable store sales increases in the teens.

Trail performance running, which includes lightweight, and technical running categories were the key classifications. In addition to running, we continue to see increases in skate for men and women along with men's and women's vulcanized canvas.

We ended the quarter with inventory up 5.7% on a per door basis due to increased unit cost, increased depth on key categories such as running, skate, and sports sandals, as well as an inventory build for e-commerce. Aged inventory remains low and we are well-positioned for the remainder of the back-to-school season and fall sales period.

Now I'd like to give you some insight into the exciting things that we are experiencing thus far for back-to-school. To date, for the month of August, comparable store sales are up 6%, with every department running ahead of last year on a comparable store basis.

This performance comes on top of the high single digit increase we ran last year and the double digit increase from 2009. Customers are telling us through their purchases they like our selection of boat shoes, hikers, canvas flats, western boots, and skate shoes for kids and adults along with running and vulcanized canvas.

As of last night, the school year has begun in a little over 80% of our markets. Even more than years past, we continue to drive increases in markets not only just prior to the school year beginning but also after school starts.

Even though we have seen a somewhat more promotional environment, our margins were running ahead of last year due to the positioning of our inventories in the categories and the items I just mentioned. As we move into fall, I am encouraged by the early performance of boots for both men and women, and sports shoes including the hiking category in both athletic and non-athletic departments.

We believe that running will continue to gain market share in athletics as we move through fall and we are very excited about the basketball assortment from our most important basketball brands. The loss in toning will be much easier to comp against as average prices fell by this time last year and the expected loss impairs should be transferred to the running classification.

Lastly, we are very excited about the launch of our e-commerce store within the next 2 weeks. We have built the site to offer a wide selection of styles with all of our top brands. We will have over 1,000 style colors which represents a slightly larger assortment online than in our largest store.

And we will use the learnings from this store to help grow our brick-and-mortar business. Most importantly, we have retained the excitement and spontaneity that is such an important part of our brick-and-mortar stores' DNA. We believe this will help draw customers to the site and will help make Shoe Carnival.com the place to shop for shoes online.

We will continue to look for ways to make not only our e-commerce store fun and exciting but also allow the customers in our brick-and-mortar stores to experience that excitement in store, as well.

The exposure we receive through the enhanced digital marketing, driving customers to our site, will also have a positive impact on our brick-and-mortar stores as new customers become more familiar with our model, which is not only based on value, but also on a wide selection of the best brands in the family channel. We are very excited about the opportunity to better serve our new and existing Shoe Carnival customers.

Now, I'd like to turn the call over to Kerry Jackson for detail on our financial results.

Thanks, Cliff. Let me begin by discussing the financial results for the second quarter and the first half followed by information on cash flows. Our net sales for the second quarter increased $1.3 million to $166.7 million or 0.8% increase over the prior year's second quarter net sales of $165.4 million.

This increase was due to a $4.4 million increase in sales generated by new stores open since the first quarter of last year. This increase was partially offset by a $1.3 million loss in sales from the 6 stores closed since the first quarter of last year, along with a 1.1% decrease in comparable store sales.

Gross profit margin for the quarter decreased 0.5% to 27.8%. Almost the entire decrease was due to an increase as a percentage of sales and occupancy costs. Approximately half of the increase in occupancy costs was due to deleveraging effect of lower same-store sales.

While another 0.2% of the increase was due to store closing costs included in occupancy. In a somewhat unusual event for us, we closed the store before the lease period was over and in accordance with the accounting rules accrued approximately $400,000 representing the present value of the remaining lease payment as an expense in Q2.

While our merchandise margin was flat with last year, included in our cost of sales for Q2 this year was a $435,000 writedown for the value of our toning inventory to reflect current market conditions. The writedown of the inventory reduced our diluted EPS in Q2 by approximately $0.02.

Our selling, general and administrative expenses increased $1.5 million in Q2. As a percentage of sales, SG&A increased 0.6% primarily due to the deleveraging effect of the comparable store sales decline. Significant changes in expense during the quarter compared with the prior year second quarter are as follows.

We incurred an increase of $964,000 in healthcare costs. A heavier than normal claims experience in Q2 this year was in contrast to a significantly lower claims experience we incurred in Q2 last year. E-commerce implementation costs during the quarter were approximately $235,000.

Store closing costs included in SG&A were $295,000 or 0.2% of sales for the second quarter of this year, as compared to $39,000 for the second quarter last year. The majority of the store closing costs in Q2 this year stem from a non-cash asset impairment for 2 stores.

Pre-opening costs were $315,000 or 0.2% of sales for the second quarter this year as compared to $162,000 or 0.1% of sales for the second quarter last year. These increases in expense were partially offset by incurring $1.3 million less in incentive compensation in Q2 this year as compared to Q2 last year.

Our effective tax rate for the second quarter was 33.2% as compared to 30.8% for the second quarter last year. The tax rate for both quarters was below our expected norm due to the favorable settlement of state tax positions.

Net income for the second quarter decreased to $2.7 million or $0.20 per diluted share compared to $4.1 million or $0.32 per diluted share for the second quarter last year.

Now transition to year-to-date results. Our net sales for the first half of fiscal 2011 increased to $365.1 million compared to $354.9 million for the first half of fiscal 2010. This increase in sales resulted primarily from a 1.3% comparable store sales gain plus an $8.3 million increase in sales generated from new stores opened since the beginning of fiscal 2010.

These increases were partially offset by $2.7 million loss in sales resulting from 9 stores closed since the beginning of fiscal 2010. Year-to-date, the gross profit margin decreased to 29.6% from 29.9% in the prior year period.

The merchandise margin decreased 0.2%. And buying distribution and occupancy costs increased 0.1% as a percentage of sales. Our selling, general and administrative expenses increased to $2.9 million in the first half of fiscal 2011 to $87.9 million.

However, as a percentage of sales, our sales gain enabled us to hold these costs flat to last year at 24.0%. Our effective tax rate for the first half of the year was 37.3% as compared to 36% for the first half of fiscal 2010. Net income for the first half was $12.6 million or $0.94 per diluted share compared to $13.4 million or $1.04 per diluted share in the first half of last year.

Now let me discuss information affecting cash flows. Depreciation expense for the first half was $7.1 million. We expended $12.2 million in cash during the first half of fiscal 2011 for purchases of property and equipment.

Of which $2.9 million was for new stores, $1.2 million was for the e-commerce initiative, $6.6 million was for remodels and relocations, and all other additions for $1.4 million. Cash lease incentives received from landlords were $2.4 million. Capital expenditures for the remainder of fiscal 2011 are expected to be in the range of $8 million to $9 million.

We intend to open an additional 8 stores, and expect a total cost of about $2.2 million and intend to expend up to $2.8 million in remodeling activities. The remaining capital expenditure expected to be incurred for various other store improvements, the continued implementation of an e-commerce platform, investment in technology and asset purchases and construction costs for 2012 new stores.

Additional lease incentives to be received from landlords for the remainder of the year are expected to be approximately $2.8 million. We currently have a $25 million share repurchase program authorized. However, we did not repurchase any shares during Q2, nor have we repurchased under the program to date.

This concludes our second quarter financial review. I'll now turn the call back to Mark.

Operator, you can open the call for questions.

(Operator Instructions)

Scott Krasik from BB&T Capital Markets.

Mark, a year ago, you were running at about the same level of comps, 6%, and you ended up a little over 7%, I think, for the quarter. In your guidance for 1% to 3% comps in September and October, is that just because the comparisons are more difficult? Are you changing your promotional cadence in any way? Can you go through that?

Sure. First of all, we aren't changing our promotions in any way. Last year was a pretty good boot season in -- early. Trimmed it off a little bit in October, I believe.

Like I said, Scott, if we see a pretty decent transition to fall weather, we think there's upside to that 1.3%. But we're planning our business, we're planning our inventories and we're planning our cost control for a more conservative outlook. Given the uncertainties that we're seeing in the economy today and all of the things going on, on a macro basis, we think it's just prudent to plan a little more conservatively.

We've got the inventory that we need. If we see the boots start taking off, we think there's upside if we get normal weather patterns, which as you know has a major impact on third quarter business.

And just looking at September and October, is there any difference between the 2 monthly comps one way or the other in a big way?

No.

And then flat merchandise margin this quarter, guiding is up slightly next quarter. It sounds like you aren't having any pricing resistance because the costs have come at you a little bit, is that right?

As I said in my prepared remarks, we're seeing an increase in price so far. We saw a 3.3% increase in the average unit price for second quarter. That's footwear only, by the way. And we're seeing an increase in price about the same trend or slightly higher than that so far in the third quarter.

So whether you want to call it no price resistance, I don't know if you can call it that as promotional as the back-to-school period has been. But we're certainly able to realize the price that we're shooting for.

And then do you want to give any type of projections or metrics around the e-commerce launch?

No. And I don't mean to be glib. We're not splitting out sales nor are we splitting out inventory either on a forward-looking basis or when we get the site up and running on a historical basis.

So again, we are trying to make this e-commerce site integrated with our stores. And as we go along in the process, we'll have it more and more integrated with our existing store base. So we think it's important to not look at e-commerce as a single individual asset like you would a brick-and-mortar stores, but more of a connector, if you will, with the customer in our brick-and-mortar stores.

Kerry, just I know you're not giving guidance for the fourth quarter but just as you look at the fourth quarter gross margin from a year ago 30%, I think that was a record. Is that pretty daunting in your eyes in terms of being able to grow year-over-year?

I think, one, it depends on how strong the boot sales are and also just how the overall macro economy is. I think those are the 2 biggest components in there. I don't think it's -- It is a big number, it's not unachievable to get back to that but I think if we have good comps, then we should be able to get back there.

Chris Svezia from Susquehanna Financial Group.

When you think about your e-commerce business, did you put that at all in your third quarter sales assumption? I'm assuming not.

Yes. We have put the e-commerce business in the third quarter assumptions, as well as fourth quarter.

And then when you look at the third quarter by month, August, September, October, I assume August for you is the biggest. Can you just give us any idea of what the weighting is between those months?

August is just under half of the full quarter from our expectations.

And then September and October, are they pretty even?

No, September is a 5-week month, Chris. Sorry, this is Cliff. So September would be slightly larger than October.

And when do you guys typically see, I'm curious on this transition to fall in the boot business, when would you typically expect to see the boot business really start to kick in for you guys? Is that more late September into October? Where does that typically fall?

Chris, that has everything to do with the weather. Last year, if you'll remember, September came in cooler than normal and we had a great September. October came in actually a little warmer than normal and the sales fell off a little, as Mark just mentioned. But whichever month cools down is the month where you get the largest hit in boots.

And from a fashion standpoint, western boots are selling well right now. And actually tailor boots are selling well right now. But the fact is that from a fashion standpoint, you'll sell boots, you just get a peak in the month where the weather gets cool. That's the way the third quarter plays out.

The fourth quarter plays out a little differently than that because it's usually cool. And the weather usually is very cooperative in the fourth quarter.

And then I'm just curious, when you made the statement about the promotional cadence and you did a nice job of holding your margins here in the second quarter. But making some reference about just the increased intensity. As you guys look at your business, and I know Mark earlier you made a comment you're not expecting to make any changes there, is it anything unusual?

Is it anything a little bit more than what you're seeing out there? Or is it just pretty much what you expect this time of the year transitioning to back-to-school from a competitive perspective?

It's not a lot different than last year, Chris. You'll expect to see the promotion with private stores be promotional. And you'll expect to see the family footwear guys be promotional. And you see inserts, as you do every year. In today's economy when you see BOGO plus percentages off it becomes a little more difficult.

Jill Caruthers from Johnson Rice.

Cliff, you talked about strategically moving some inventory dollars in the dress categories of both men's and women's. I was wondering, what's the lead time of how quickly can you shift those mid quarter, if you see a type trend develop?

The lead time for buying shoes is right at 6 months anymore. Used to do it a little faster than that.

What we do, Jill, is take a look at how your business is performing today and where we think it's going to be. And you try to test something toward the end of the season. Like last year, we were testing casual footwear flats and such. And anyway, that gives you an indication on where the customer's going.

And if you do your homework and you go to market and you get into the marketplace, you can take the calculated risk of changing -- moving inventory dollars around. We saw a slight decline in ladies dress and in men's dress toward the end of the fourth quarter last year so it actually became an easy decision for us to move dress dollars into casual.

And then just to dig a bit more into kids category performance in the quarter, it looked a bit disappointing versus the other categories and given how that's a main back-to-school sector. Can you talk about some of the issues?

Yes, I'm glad to talk about it. There are really 2 mitigating issues. Our largest vendor did not do a very good job of shipping second quarter product. And we were able to get that in just part of the back-to-school and within the first week of back-to-school. It didn't all make the second quarter. That was 1 issue.

And number 2 issue is that we saw a large decline in canvas footwear for girls. I don't like to talk negatively about vendors so I'd rather not mention a vendor but canvas product for girls had a double digit decline.

Mark Montagna with Avondale partners.

Curious about the August comp. You said it was up 6%. Has that accelerated throughout the month?

It's been pretty stable but week one, two, we're pretty close to that 6%. And then week three and so far in week four it's accelerated slightly.

And then you had mentioned that the comp was 1.8%, if you were to exclude toning. And everything else was on plan. So if we excluded toning, would your earnings have really hit your guidance?

I don't have that answer off the top of my head, Mark. I'd have to calculate that and get back to you. I don't think that it would but what I was trying to do was just give some color around what happened with the top line.

The reason why we didn't hit the guidance was obviously because of the top line. Part of that was toning driven but some of the pieces of the business were softer than what we expected, quite frankly, for the second quarter.

As we moved into the third quarter, however, it's almost like somebody turned a light switch on at the beginning of August. Once we got through that period from last year with the toning sale, once we got through that this year and moved into the August time period, our traffic started to solidify and our traffic patterns started to solidify and our sales took off. Prices increased and consequently gross margin increased so we're pretty happy with the way the back-to-school period has progressed.

And would you -- in the second quarter, didn't you also have somewhat about a $0.02 hit on that one store that you had to take some accelerated write-downs on because you closed it earlier than when the lease would have run out?

Yes, we included that in our occupancy costs. Where we went dark on it, we had to accelerate all of the rents through the end of the lease. That was about $400,000 we included in occupancy costs, equivalent of about $0.02 diluted EPS.

And then with regard to your sandals and open toe spring/summer type merchandise, are you comfortable with where you are heading into the third quarter? Or actually at this point in time, that you're not carrying over excess markdown inventory and that's all in line?

This is Cliff, Mark. We are very comfortable with where we are in sandals. The largest ownership right now in our sandal category happens to be in sports sandals and athletic sandals which are showing very nice increases through August. And we actually see sports sandals continuing into September.

Okay, what about private label penetration? I know you have some private label product. Are you seeing an increased penetration in the private label?

No. In fact, if anything it's staying flat to just slightly down. We've been very fortunate with the performance we've had over the past several years and the fact that I think we've done a very good job of adding brands.

We actually have had more brands approach us. This past year we added DC. Reef Sandals just came to us and we put them in for fall and spring of 2012. So actually the branded product in our stores probably increased in penetration just slightly.

And then just lastly looking out to the first half of 2012, are you seeing similar cost pressures to what you have in the second half of this year? Or perhaps are those pressures coming down a little?

From a cost of product standpoint? Just to make sure I'm clear.

Yes.

Costs will continue to escalate throughout this year as we take in more boots. It was the boot classification where we saw the largest price increases. So price will continue to escalate this year as those boots come to market.

We looked at spring of 2012, and we just got back from Magic yesterday, and we don't hear, it's no longer the topic of conversation, first thing you hear when you walk into a vendor's boot. Not saying that prices aren't going to escalate further but we have not seen the kind of escalation for spring of 2012 that we saw for fall.

So we could be looking at spring of 2012 at less than 5%.

At this point, I would say 5% or less. At this point. We're still in the process. I want to be cautious on that because we're still in the process of putting our buy together.

(Operator Instructions)

Brett Hendrickson from Nokomis Capital.

Kerry, I think I wrote it down wrong. At first I thought you were saying 20 bips of accelerated occupancy, accelerated rent from the store you closed. But then did you just say it was $0.02?

The equivalency of it. If you look at it from strictly as a percent of sales, because were up 50 basis points in buying, distribution and occupancy costs. 20 basis points of that was from this $400,000 rent acceleration we put in there. The equivalent, so I'm hitting multiple avenues here, so $400,000 from an EPS standpoint is equivalent to about $0.02 per share.

So I'll write down for my notes $400,000 pre-tax was the absolute number.

Correct.

And then in addition, there was just the normal store closing costs that runs, not through occupancy which is in cost of goods, but runs through SG&A. Could you tell me what that number was? It was $39,000 last year. What was it this year?

$295,000. And the majority of that was we impaired 2 stores. We did asset impairments on 2 stores in the quarter. They were non-cash asset impairments. That was the majority of the $295,000.

It's funny, usually I get annoyed with companies that, we joke around the office, they have recurring non-recurring charges. And they're very aggressive with the way they cut out charges. I'd say you guys, it's refreshing but you guys are at the other end of the pendulum where you are maybe too hard on yourselves. You put out the $0.20 number or whatever it was without calling a whole lot of attention in the press release to these items that really were one-time.

Brett, it's all in the matter of how you run the business. We consider that to be part of our ongoing business model. And we talk about it from the standpoint of letting you and the rest of the street know what it is. But to continue to show, like you said, recurring non-recurring charges seems to be a little redundant.

Yes, I don't think I'm complaining at all. I just want to make sure we were calling it out. And then also, but in fairness, like you guys said, you rarely, if ever, will have a store go dark before the lease runs out. So that is pretty one-time. And then you also have the writedown.

Were either of these 2 things, with the SG&A from the store closing and the accelerated rent expense or the writedown on the toning, which I think you said was $0.02, Kerry, were those contemplated in the guidance? Probably partially.

The markdown on the toning was not. We saw a pretty significant change in the market conditions during Q2 and felt we needed to do that to reflect the current market conditions. The $400,000 was built into the original assumption. It wasn't called out but it was built into it.

Sorry for these housekeeping questions. Just 2 others. And this might be just my lack of technical accounting and understanding. Kerry, I'm seeing $2.6 million in the cash flow statement for purchase of treasury stock, but you guys said you didn't buy any stock back.

What that is, is we have to record -- in March of each year, if we hit certain targets into prior year, we'll have restrictive stock that vests. Because of the strong performance we had last year, we had a significant amount of restricted stock vest and it was much more than most of our people could pay cash for the taxes. So our program allows you to trade in shares to pay the tax equivalence because taxes are owed on the day of vesting. What that represents is the value of the shares that our employees traded in to cover the taxes on the vesting of their shares.

And then last question, I think your largest market, Chicago, or the whole state of Illinois, went without tax-free. In the past, when someone goes without a tax-free weekend, does that tend to spread business, all other things equal, I know it's hard to slice and dice it? But it probably tends to spread business out all the way past school starting in September when that happened in other states in the past, right?

It doesn't happen often, Brett. But when it does happen, it does -- it happened in Florida. And 1 year when it happened in Florida it spread the sales out over a longer time period. The next year when it happened, we actually had a loss in Florida, so you really don't know. It appears in the case of Illinois that it's just spreading the sales out.

Yes, my memory was Hibbett Sports and you guys a few years ago getting a spread out back-to-school in Florida from that. But you're putting up 6% despite that, so sounds good. I'll get off the call but thanks guys.

Jeff Stein with Ticonderoga Securities.

Wondering if you could talk a little bit about how the trend played out during the second quarter from a comp store sales standpoint. Was it choppy? Was it tougher in May when the weather was not good? Can you talk a little bit about that?

Yes, it was, Jeff. That's actually what happened. It was choppy and it was tougher in May when we had all those storms rolling through and all the tornadic activity.

June got better. In fact, June was positive, small positive comp store increase. And then July fell back to negative comps.

Again, we think it's partly -- I don't want to blame the weather on everything but when you take a look at the really unusual weather patterns that we've had across particularly our areas in the Midwest, South and Southeast, I think it did have an impact on it. But, importantly, we had that big toning sale in July of last year that I really think impacted business, especially toward the latter part of July.

The reason I bring it up is we're just hearing from a lot of companies that when the customer has a reason to buy, like now, back-to-school, they come in and buy. But the rest of the time it just seems to be very choppy. So I'm wondering what gives you the conviction that once this back-to-school season ends, where we're right now seeing very strong mid single digit growth, it's not going to drop back to flattish again.

That's one of the reasons why we've been more conservative in our guidance for September and October, Jeff. Even though we're seeing 6% comp store trend right now, I gave guidance of 1% to 3% for September and October.

Right, but do you think that might be a little bit aggressive?

No. I think, like I said in my prepared remarks, I think that if we see a normal weather transition, which plays a big part in the sale of fall product, that we could see some upside to that. Now, there's a lot of uncertainty in the economy right now.

So if I could predict what Congress is going to do next or what the Fed is going to do next or what the consumer is going to think about what Congress or Fed, all those things that are going on right now that affect consumer sentiment, I could be a little more confident in that 1% to 3%. But, like I said before, when you have a change in seasons, the big impact on business is driven by the weather change as well. So if we see a change in fall weather on a normalized period, then I think we could see some upside to that 1% to 3%.

And just on the subject of real estate, what gives you confidence you can get 25 to 30 locations open next year? It just doesn't seem like there's really been an acceleration in construction.

I think the jeopardy that we run next year, because in that 20 to 25 we've identified specific sites, obviously, by this time, in negotiating leases. But I think the jeopardy that we run is somewhat the same jeopardy that we ran this year in that we had 3 stores that we had expected to open this year that are moving into 2012.

So whether deals get done or not is not so much of an issue as exactly when the developers will get the store turned over to us. Right now, the way that we've negotiated with landlords and the store schedule that we're calling for on a specific store basis, we're seeing that 25 to 30 new store number.

And final question. On the subject of e-commerce, are there any styles or categories that you're going to carry on your site that you are not showing in your store?

Not necessarily categories, Jeff, but there are going to be styles that we'll carry online. And there are a couple of brands, actually, that we'll have online that we are not currently carrying in our stores.

And we're going to use it as a laboratory because we think we can learn a lot. We're going to learn a lot from different parts of the country. And we think that we can take the learnings from our online store and push those learnings right into the brick-and-mortar.

Cliff, are vendors willing to sell you product that will be on your site that they would not sell you for your store?

Probably the best answer to that is no. Maybe 1 or 2 vendors would but for the most part, most of what we're buying online we could buy in our stores. We could offer the stores.

We may choose not to because it may be a little higher priced than what we're used to or a category that we haven't been successful with in the past. So we're going to use the online store to test.

My thought would be this. This gives you a national presence and there are customers that have never shopped Shoe Carnival and don't even know what Shoe Carnival is. And if you were to offer, let's say, some better goods that you typically don't carry in your store with the thought that you're getting incremental customers, why not give that a shot?

And that is what we're doing. I'm obviously not doing a good job of explaining. There are price points that we don't feel comfortable in our store. Better goods that we don't feel comfortable, from the brands we are actually already buying from.

This gives us an opportunity to put it online and see where in the country that is migrating to those shoes or those styles and price points. And then we can then move that product or buy that product in the future into those brick-and-mortar stores.

Sam Poser with Sterne, Agee.

I've just got a couple of questions. Number one, has back-to-school shifted later? Besides the weather and all that, some other people have talked about that back-to-school continues to move back later and later.

And do you think that influenced July? To what degree may that have influenced July?

Sam, I think back-to-school may be marginally later than it has in the past, but it's pretty much comparable. Like I said, we saw a slight acceleration in the third week of the month. But the first 2 weeks were right in the range of that 6%, maybe slightly less.

So I don't know that it's really shifted that much later. And I'm saying the back-to-school dates themselves. What I think you might be referring to or alluding to is, is the customer shopping after they go back-to-school more and more. And in certain cases we have seen that. But on an overall basis, this August has been pretty much, not a flat but it's been pretty much the same week after week with a slight acceleration in the third week.

And then Cliff, you talked about, when you were discussing the merchandise, you talked about, more traditional dress, men's and women's was underperforming more contemporary products in the non-athletic categories. Has there been a change?

Is there a point there where outside of the back-to-school time period that you're just getting a younger clientele in? And may need to really reduce the amount of more traditional footwear that you carry in your store and contemporize and make your assortment more contemporary?

Sam, I hope that's not the way that came across. In dress shoes, when I mentioned the fact that dress shoes have comp store declines, it's across the categories. It's the junior, it's what we would consider to be urban or fashion and traditional. There's just been a change in the customers' buying habits. They're looking for casual, they're looking for boat shoes, looking for canvas casuals and flats and sandalized product.

You were in Vegas this week and I know you saw it, but this whole new casual -- and I wouldn't even call it new but just a casual lifestyle environment right now with jeans and everything customers are wearing. There's just not a lot of dress out there regardless of age.

So that vintage Americana with boat shoes, I would assume it's more distressed western that you're seeing sell early on the lower boots and stuff like that. Is that a fair way to look at it?

Exactly right. But still casual. And we see that continuing. And that's a good thing because you drive higher price points out of casual footwear in our stores -- in Shoe Carnival than we do in dress.

Do you see any regional differences there? Where junior dress or more traditional dresses is performing better where that hasn't occurred yet?

Dress right now is not a category that we're seeing increases in any of our regions. I'll tell you what we are seeing, however, is that a year ago we were talking about boat shoes. And we were doing maybe 70% to 80% of our boat shoe business in about half of our stores. And today boat shoes are good in every store. So that just gives you an indication of what's happening with more preppy or Americana kinds of looks out there.

Mark Montagna from Avondale Partners.

Yes, I just wanted to follow-up on the new store openings for next year. Are you going to be going into any new markets or all just current existing geography?

There may be 1 or 2 new markets that we're not willing to divulge at this point in time.

At this time we have no further questions in the queue. I'd like to turn the call back over to Mr. Lemond for closing remarks.

Thank you. In closing, I'd just like to reiterate that we believe our Company is well-positioned for the rest of the back-to-school season and the remainder of the third quarter. We think we have the right product assortment, value-priced footwear for the entire family, and that's what the customer is looking for now.

We are looking forward to the launch of Shoe Carnival.com and we anticipate growing our store base faster in 2012. Thanks for joining us today and we look forward to talking with you at the end of the third quarter.

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