Shoe Carnival Inc (SCVL) 2011 Q4 法說會逐字稿

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

This conference may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the Company's actual results to materially differ from those projected in such statements. These forward-looking statements should be considered in conjunction with the discussion of risk factors included in the Company's SEC filings and today's press release. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date.

The Company disclaims any obligations to update any of the risk factors or to publicly announce any revisions to the forward-looking statements talked about during this conference call or contained in today's press release to reflect future events or developments.

I will now turn the call over to Mr. Mark Lemond, President and Chief Executive Officer of Shoe Carnival for opening comments. Mr. Lemond, please begin.

Thank you, and welcome to Shoe Carnival's fourth-quarter and fiscal year 2011 earnings conference call. Joining me on the call today are Kerry Jackson, our 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 in more detail. We'll then open up the call to take your questions.

After posting near-record earnings in the first three quarters of 2011, Mother Nature threw us the proverbial curveball in the fourth quarter. As we mentioned in our early January updated guidance release, the earnings shortfall in the fourth quarter relative to the prior year resulted from the decline in the gross profit margin realized on boot sales. If you remember, last year's boot season weather was about as good as it gets. That cooler weather in 2010 aligned with what was the third year of a good boot run.

This year, the warm weather in most of the country caused a drop in consumer demand for fall and winter product, particularly in the boot category. Given our annual strategy of making sure our inventories are clean going into the spring season, our merchants did a good job of liquidating the excess boot inventory in the fourth quarter of 2011 and February of 2012. However, this liquidation effort came at the expense of gross margins, and consequently, earnings in the fourth quarter.

Our fourth-quarter sales of $181.9 million were in line with the revised guidance we gave in January. However, our net earnings of $3.3 million or $0.24 per diluted share exceeded that guidance by $0.01 per diluted share. For the full fiscal year of 2011, sales grew 3.2% to $672.5 million from $739.2 million in 2010 and comparable store sales increased by 0.7%.

Although our sales and earnings for the fourth quarter, and consequently, the 2011 fiscal year, did not meet our original expectations, we still recorded the second-best annual earnings in the Company's history. In fact, the $1.97 earnings per diluted share in 2011 exceeded by 14% the $1.73 we earned in 2006, which was the next best year, and occurred prior to the current economic downturn. In short, I am pleased with our earnings performance in 2011 and the way our management team executed our overall strategy, especially in the face of continued economic headwinds and certain tough product comparisons.

Our gross profit margin declined to 28.3% in the fourth quarter of 2011 from 30% in the fourth quarter of 2010. The merchandise margin declined by 150 basis points, while buying, distribution and occupancy costs rose by 20 basis points. The decline in the merchandise margin, as well as the decrease in the comparable store sales of 3% for the fourth quarter, was attributable to the sales and margin declines in the boot category.

Selling, general, and administrative expenses for the fourth quarter decreased 1% or $463,000. As a percentage of net sales, these expenses decreased to 25.5% from 26.1% in the fourth quarter of 2010. The decrease was primarily attributable to a decline in incentive and equity compensation, resulting from the decline in earnings, partially offset by the cost of operating more stores in the fourth quarter of 2011 compared to 2010.

For the full fiscal year of 2011, SG&A expenses increased approximately $3.6 million compared to 2010, due to the opening and operating more stores in 2011. However, we were once again able to leverage these expenses, and as a percentage of sales, they declined to 24% in 2011 from 24.3% in 2010.

On the topic of tough product comparisons, the toning category also negatively impacted 2011 results. We recorded a decrease in toning sales of $18.7 million for fiscal 2011 compared to fiscal 2010. Excluding toning sales, comparable store sales for the year would have increased 3.4%. For the fourth quarter, this decrease was approximately $5.3 million and represented about a 3% decline in total comparable store sales.

Despite these declines in the toning category, our athletic merchants did a great job of identifying product to replace those sales, primarily running footwear, including the new important lightweight and minimalist running shoes. Consequently, our comparable store sales in the athletic category as a whole was basically flat in the fourth quarter, and increased by 1% in fiscal 2011. Cliff will speak more in a few minutes to the impact of toning in terms of sales and gross profit.

Our inventories were $24.7 million higher at the end of fiscal 2011 than at the end of fiscal 2010. A number of factors played into this increase. The largest impact came from operating 13 additional stores at the end of the year compared to the prior year; an increase in inventories in transit for an earlier Easter and new stores opening in spring 2012; e-commerce inventories; and the acceleration of inbound athletic inventories to take advantage of early season athletic sales. On a per store basis, inventories were about 7% higher than the end of 2010. Overall, our inventories were in great shape heading into spring, and put us in a good position to take advantage of the warm weather patterns we are currently experiencing.

In 2011, we ended the year with $70.6 million in cash and cash equivalents, and we remain free of interest-bearing debt. Our goals in 2012 and future years include accelerating our store growth and continuing to generate free cash flow.

We completed our store expansion plans for 2011 by opening one store in the fourth quarter for a total of 17 store openings in the fiscal year. We also closed one store in the fourth quarter, and we ended the year with 327 stores in operation. The store openings, closings, and relocations resulted in a net increase of approximately 165,000 square feet or 5% over the end of 2010. With the exception of two small markets in Wyoming and Montana, all stores opened in 2011 filled in existing marketplaces.

As we look ahead to 2012, we are excited about the growth opportunities in Shoe Carnival. Importantly, it appears that the economy is beginning to pick up a little steam. Although we continue to be concerned about the recent increase in gas prices and an unemployment rate above 8%, I believe the recent decline in unemployment rates directly benefits our core customer.

When we look at the spending habits of the middle-income consumer, they seem to be fairly resilient to economic headwinds, particularly in the last couple of months. We have seen recently that when our customers have cash in their hands, whether due to tax refunds or otherwise, they are willing to spend it and spend it in Shoe Carnival stores. I believe this bodes well for the rest of 2012 and beyond.

The impact of weather, its change of seasons, cannot be emphasized enough. While the warm weather in the fall and winter certainly negatively impacted sales last year, warm weather patterns coming out of winter tends to accelerate and lift sales of athletic product and sandals in the spring.

As far as product line opportunities in 2012, we certainly expect that given a more normal weather pattern in the winter, boot sales -- and, more precisely, boot gross margins -- represent significant upside potential. Additionally, as Cliff will explain later, the toning comparisons we were going against in 2011 become increasingly less significant as we move through 2012. It seems that color is everywhere -- from athletic product to sandals to dress and casual product, the excitement generated by color is unparalleled in the last few years. Historically, any time the retail soft goods industry sees color as a major trend, increasing sales trends normally follow.

For fiscal 2012, we will accelerate our store expansion plan. We currently anticipate opening approximately 30 new stores with over one-third of these stores to be located in two new large markets -- the Dallas-Fort Worth Metroplex and Puerto Rico. This past Saturday, March 16, we celebrated the grand opening of six stores in the Dallas market and one in El Paso, Texas. This is the first time we have ever been able to open six stores at one time in a major market. We should be able to get at least two more stores open in the Dallas-Fort Worth market over the next 12 months, so that will give us eight stores in Dallas-Fort Worth approximately 12 months from now.

This coming Saturday, March 23, we will celebrate the grand opening of five stores in Florida -- three in Orlando, and one each in Sarasota and West Palm Beach, and one store in Chicago, our 21st in that market. As you can see, we are focused on filling in our existing markets where we are underpenetrated to leverage advertising and other expenses.

We are also excited to once again target some new markets, but this time with a group of new stores at one time to take advantage of advertising efficiencies. We believe we can absorb an increase of $3.2 million in store opening costs in 2012 compared to 2011, and still generate an increase in net earnings. We have opened 13 stores in the first quarter, and plan to open 11 stores in the second, and six stores right at the end of the third quarter or the beginning of the fourth.

Currently, we plan to close five stores in 2012. The net result would be store growth of 25 stores and would represent a square footage increase of approximately 8% or 280,000 square feet in 2012. Looking forward, we are optimistic that fiscal 2013 will yield the same or greater new store growth opportunities.

During fiscal 2012, we plan to relocate 10 stores to better locations in the same markets. We will continue to review opportunities to upgrade our store locations in existing markets in future quarters, as leases come up for renewal. Please keep in mind our expected store openings -- our expected store closings for 2012 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.

And we will continue to enhance our store productivity with investments in our existing store base, focusing on in-store visual graphics, including signage updates to focal walls and end caps. Additionally, in fiscal 2012, we plan to remodel approximately 20 stores, depending upon successful lease negotiations. We believe that 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.

We launched our e-commerce site on September 28 of 2011. We had not previously sold our product over the Internet, but an e-commerce platform offers a tremendous opportunity for Shoe Carnival to reach an increasing number of new and existing customers with our broad assortment of value-priced footwear for the entire family. Our management team has worked hard to develop an e-commerce platform that incorporates the DNA of our Shoe Carnival stores, especially the promotional aspect.

Although the e-commerce initiative was a drag on earnings in 2011, we expect that if sales materialize the way we expect them to, it will be slightly accretive to earnings in 2012. We will continue to invest in upgrades to the site as well as a big advertising push this year. Again, Cliff will speak more about some of these planned enhancements in a few minutes.

Our consistent financial performance gives us the confidence to remain optimistic about our first quarter of fiscal 2012 outlook, despite the fact that we were up against difficult comparisons. We believe our business model of providing the right product assortment for the entire family at a compelling value is especially effective in this current economic environment.

Combined with increased store growth, our e-commerce initiative, and our management team's consistent focus on managing the controllable aspects of our business, we are confident that this business model will continue to generate long-term profitable growth and free cash flow. Therefore, for the first quarter of 2012, we expect comparable store sales to increase in the range of 5.5% to 7%, and earnings to range from $0.75 to $0.78 per diluted share. Due to the acceleration of store openings in the first quarter of this year, pre-opening costs, including pre-opening rent expense, are expected to increase $1.3 million or $0.06 per diluted share. This increase is included in our first-quarter guidance.

Now I would like to turn the call over to Cliff for more details on our merchandise performance. Cliff?

Thank you, Mark. As Mark stated, our total comparable store sales for the fourth quarter of 2011 were down 3%, while comparable store sales for the year were up [seven-tenths of a percent]. Traffic for the quarter was down 3.5% and conversion was up slightly. Average transaction in units per transaction for the quarter were both down low single digits compared to the prior-year period.

Merchandise margins were down 150 basis points, due primarily to the clearance of boots and winter-related footwear. However, this allowed us to end the year with inventory in boots flat to last year on a per-door basis. As we stated in the press release, excluding the effect of the decline in sales and gross profit margin in boots, our fourth-quarter comparable store sales and gross profit would have been even to last year.

In addition, the decline in sales of toning footwear continue to have an unfavorable effect on our overall comparable store sales for the quarter. Total toning sales in our athletic department for the fourth quarter were down in excess of 80% on a comparable store basis from fourth-quarter 2010.

Now I would like to review each merchandise category to provide you with better clarity on our sales performance in the fourth quarter. In our women's non-athletic department, the unseasonably warm weather for the fourth quarter was a catalyst for our boot sales delivering a double-digit comparable store sales decline for the quarter.

As we stated in our third quarter call, we experienced declining sales in September and October, and we felt, with cooler weather in the fourth quarter, we would see more favorable results. But as November ended and a more seasonal weather pattern had not materialized, we reacted very quickly and began an aggressive clearance program to keep our boot inventories in line. This strategy paid off, as we ended the year with units of women's boots flat to last year on a per-door basis.

It is important to point out that our losses in boots were driven primarily out of the cold weather, including fur-lined, foul weather, and the tailored fashion classification. Authentic Western, riding, and junior flat boots all performed well. Our women's non-athletic comparable store sales, excluding the boot category, were up low single digits, with increases primarily out of the sport casual classification. This increase was driven by molded footwear, athletic sandals, boat shoes, and campus casuals.

In our men's non-athletic department, we ended the quarter with a mid-single-digit decrease on a comparable store basis. This loss was a result of a double-digit comparable store sales decline in the casual and urban boot categories. Outside of boots, we continue to see positive results with traditional casuals, soccer sandals, and traditional hikers.

Our children's business ended the quarter with a low single-digit comparable store sales decrease. Losses were driven primarily by girls ornamented canvas, and girls and boys winter and weather boots. As you would expect with the warmer weather, we saw nice increases out of our girls and boys running and infant's athletics.

In adult athletics, comparable store sales were basically flat for the quarter. As I stated earlier, the toning category within adult athletics experienced a comparable store sales decline of over 80%. Inventory ownership of toning in this department is down in excess of 80% versus the end of the fourth quarter last year, which is in line with both the sales trend and our expectation. As we move through 2012, toning becomes less of an impact to our comparable store sales. In the first quarter of 2011, toning as a category accounted for over 3% of our overall sales. That percentage drops to just over 2% in the second quarter and just over 1% of toning sales for the third quarter.

Comparable store sales in adult athletic, excluding the toning category, would have increased by high single digits. Two classifications of product drove double-digit comparable store sales gains for the quarter, men's and women's running, and men's and women's basketball. Other key classification in athletic include skate and vulcanized canvas for men and women, and retro basketball for men.

As Mark mentioned, color has become the lead story in running shoes for both men and women. We see this trend not only continuing but getting stronger, as we move through back-to-school and beyond. Inventories on a per-door basis ended the quarter up 7.2%, primarily due to a strategic decision to move forward receipts from February of key athletic product from our most important athletic vendors. This shift allowed us to get additional product into our stores for the all-important Rapid Refund time period.

With the warmer weather that we had experienced throughout the fourth quarter, we felt February could be an opportunity for increased sales if the weather held. By shifting February orders into January, it allowed us to test this theory with very little risk. We have been very pleased with the results of this shift, as our athletic business is running up low double digits for the quarter to date on a comparable store basis. As stated earlier, our overall boot inventory ended the year flat to last year on a per-door basis. Our aged inventory remains low, and we are well-positioned for the first-quarter sales period.

Lastly, we are making progress with our e-commerce site, which was open for four months in 2011. We are experiencing nice growth month-to-month in sales and traffic. We also continue to grow our loyalty program both online and through our brick and mortar stores, which is so important for a healthy online business. We are using the site to not only sell shoes and accessories online, but to also drive customers to our brick and mortar stores. We see tremendous opportunity as we continue to enhance the site with new technologies, such as mobile.

In addition, our plans include the installation of kiosks in many of our stores, which will give our store personnel the opportunity to share the broad assortment found online with their customers. This strategy will be another component in improving conversion and transaction size in those stores, and we'll be working with the vendor community to utilize their inventory to fulfill our e-commerce orders, giving us the added advantage of offering a much broader assortment without the risk of inventory ownership.

We continue to use the site to test new brands and styles, which has already helped us identify product to expand to our brick and mortar stores. We believe the increased brand awareness derived through our e-commerce initiative will enable us to leverage our marketing spend on new store openings, and adds one more valuable vehicle to introduce Shoe Carnival to new customers and new markets.

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

Thank you, Cliff. Let me begin by discussing the results for the fourth quarter and the full-year fiscal 2011, followed by information on cash flows, and ending with our outlook for the first quarter of fiscal 2012.

Our net sales for the fourth quarter increased $2.0 million to $181.9 million, a 1.1% increase over the prior year's fourth quarter net sales of $179.9 million. Our new stores, along with e-commerce, contributed an additional $7.9 million in sales during the fourth quarter. This increase in sales was partially offset by a comparable store sales decrease of 3% or approximately $5.2 million. Additionally, we experienced a decline in sales $807,000 as a result of closed stores.

Gross profit decreased $2.4 million to $51.6 million as compared to gross profit of $54.0 million in Q4 last year. The gross profit margin for the quarter decreased to 28.3% from 30.0% for the fourth quarter last year. Our merchandise margin decreased 1.5%, while buying, distribution and occupancy costs as a percentage of sales increased 0.2%. Selling, general, and administrative expenses decreased $463,000 in the fourth quarter. As a percentage of sales, these expenses decreased 0.6%.

Significant changes in expense between the comparative periods include the following -- selling expenses increased $2.6 million over Q4 last year. The increase in these expenses was primarily due to increases in wages and advertising, resulting from operating more stores, and our e-commerce. We also experienced a year-over-year increase in self-insured healthcare costs of about $482,000. The increases in SG&A expenses were partially offset by a $3.2 million reduction in incentive compensation for the fourth quarter as compared to the prior year when, you'll remember, record-breaking financial performance drove material increases in performance-based compensation.

The portion of store closing costs and non-cash asset impairment charges included in selling, general, and administrative expenses for Q4 of fiscal 2011 was $137,000 or 0.1% as a percentage of sales compared to $622,000 or 0.4% as a percentage of sales for Q4 last year. Our effective tax rate for the fourth quarter was 33.9% as compared to 37.8% for the fourth quarter last year. The rate was lower in Q4 this year, due to the favorable resolution of certain tax positions.

Our net sales -- now let me transition to the full-year results. Our net sales for fiscal 2011 increased $23.3 million to $762.5 million, a 3.2% increase over net sales of $739.2 million for fiscal 2010. This increase in sales resulted primarily from a $22.5 million increase in sales generated from the stores opened during fiscal 2010 and 2011, along with our e-commerce business, which was launched in the third quarter of fiscal 2011. Additionally, our comparable store sales increased $5.3 million or 0.7%.

These increases were partially offset by a $4.7 million loss in sales resulting from the 11 stores closed since the beginning of fiscal 2010. For the year, the gross profit margin decreased to 29.5% from 30.0% in the prior-year period. The merchandise margin decreased 0.5%, and buying, distribution, occupancy expense remained unchanged as a percentage of sales.

Our selling, general, and administrative expenses increased $3.5 million in fiscal 2011 to $182.7 million. However, as a percentage of sales, our sales gain enabled us to leverage these costs by 0.3% to 24.0%. The more significant changes include an additional $7.8 million expense to support our sales growth, expanded store base, and e-commerce initiative.

During fiscal 2010, we experienced a significant decrease in the average cost of health claims per participant as compared to recent historical periods. Our average claims per participant returned to a more normalized level in fiscal 2011. And together, with a small increase in current employees, we experienced a year-over-year increase in self-insured healthcare costs of $1.7 million.

I would like to remind everyone that the costs related to our self-insured healthcare programs are subject to significant degree of volatility, and we'll continue to carry the risk of material variances between reporting periods. The increases in selling, general and administrative expenses were partially offset by a $6.6 million reduction in incentive compensation for fiscal 2011 as compared to last year, when record-breaking financial performance drove material increases in performance-based compensation.

Operating income for the year was $42.1 million compared to $42.4 million last year. Our operating margin declined slightly to 5.5% from 5.7% last year. Our effective tax rate for the year was 37.1% as compared to 36.6% for fiscal 2010. Included in income tax expense for both fiscal years were benefits related to favorable resolution of certain tax positions, which lowered our effective income tax rate as compared to other historical periods.

Now let me discuss our cash position and information affecting cash flows. Depreciation expense was $3.7 million in Q4 and $14.5 million for the year. Capital expenditures were $21.3 million in fiscal 2011, with approximately [$6.2 million] spent for new stores opened in fiscal 2011, and expected to open in the next fiscal -- in the first quarter of the fiscal 2012.

$9.7 million was for remodeling and relocations, and $1.9 million was used towards implementation of our e-commerce business. The remaining capital expenditures for the year were used for continued investment in technology and normal asset replacement activities. Lease incentives received from landlords were $5.9 million. We opened 17 new stores, relocated 9, and closed 4 stores during fiscal year 2011. We remodeled approximately 8% of our store base.

Capital expenditures are expected between $22 million and $23 million for fiscal 2012. Approximately $10 million of our total capital expenditure are expected to be for new store construction; $3 million for store relocations; and $4 million for the remodel of stores. Lease incentives to be received from landlords are expected to be in the range of $5 million to $6 million. We currently have authorized a $25 million share repurchase program. However, no shares have been repurchased under this program.

My final comments today will focus on sales and earnings expectations for the first quarter of 2012. We expect first-quarter net sales to be in the range of $219 million to $222 million, and comparable store sales to increase in the range of 5.5% to 7.0%. Earnings per diluted share are expected to be in the range of $0.75 to $0.78. The low end of this range is equal to what we earned in the first quarter last year.

Included at the high end of our EPS guidance is an expectation that our gross profit margin will decline approximately 60 basis points. While we should be able to leverage our buying, distribution and occupancy costs against the higher sales base, our merchandise margin will decline for the quarter, due to the final liquidation of fall and winter product, primarily in February.

Despite incurring additional pre-opening costs, we should be able to leverage our SG&A expenses against the higher sales base. Total pre-opening costs are expected to be approximately $1.8 million in Q1 this year, an increase of $1.3 million over last year's first quarter. This increase in pre-opening costs over Q1 of last year equates to a reduction of EPS in Q1 this year of approximately $0.06 per diluted share. Of the total pre-opening costs in Q1, $1.4 million will be included in SG&A, and another $370,000 of pre-opening rent will be included in occupancy costs, which is included in our cost of sales.

In Q1 last year, we incurred $415,000 of pre-opening costs in SG&A and an additional $76,000 in pre-opening rents. In prior years, we haven't included pre-opening rent as a component of pre-opening cost. Due to the acceleration of store openings, this amount is becoming significant enough to warrant inclusion in our total pre-opening costs.

This concludes our fourth-quarter financial review. Now I'd like to open the call up for questions.

(Operator Instructions). Scott Krasik, BB&T Capital Markets.

Thanks for taking my question. So, just first on the comp quarter-to-date, I think last year, you had an issue with a lot of the tax refunds coming later. Cliff, can you try and rank the catalyst for this pretty good comp from weather, the tax refunds, the early receipt of some Nike merchandise, I believe, maybe rank those?

Well, number one, that's the early receipts of the product; we couldn't have sold them if we didn't have them. And the fact is that -- we felt that February could be strong because the Rapid Refund was going to be a little earlier this year than last year. But -- so that's the reason we moved those receipts forward. That's number one.

Number two without a doubt is the weather. Because even though we talk a lot about athletic but our sandal business is up as well. So it's definitely a weather issue is number two.

And then the Rapid Refund has to come in third. Although last year, we didn't see the increases for the quarter until the end -- until we got toward the end of February and then to March, and this year, that was not the case. Business took off in February with the refunds.

So any sense how much business you're actually just pulling forward out of April and May, relative to there's just more interest in some of these categories?

I don't -- Scott, I don't believe the customer that would have shopped in April and May, because again, last year, Rapid Refund, what happened with Rapid Refund last year is that H&R Block couldn't give the checks immediately. So the government, if you file electronically, you get your check a week later. So all it did was shift the business that we were doing in the first quarter or in February and March to later in February and earlier in March.

And this year, it came early and stayed because of the weather. That's why I give weather the second -- bringing in the athletic product in early was the number one catalyst, and the weather is number two, because as long as the weather stayed warm, which it did throughout February, and then through today and beyond, hopefully, the business continued. So -- go ahead, Mark.

Scott, this is Mark. The one thing that we're experiencing now is, like Cliff said, the general warmer weather patterns are definitely helping sales. When the customer has money in their pocket, they're definitely willing to spend it, whether it's tax refunds or unemployment checks or whatever the case may be.

We've had a lot of discussion recently whether the increase in gas prices is going to impact -- negatively impact consumer spending. You've got to say that at some point in time, it does negatively impact, but gas prices have risen and we're still seeing very nice increases. And again, it goes to a couple of different factors. You've got to look at the warmer weather and the change of seasons, and the fact that we -- that our merchants brought the merchandise in early and put ourselves in a great position to take advantage of it. So even though we expect gas prices to have an impact, we're not seeing it at this point in time.

Right and you don't expect a 5.5 to 7 comp the entire spring, I would assume?

That's our guidance for the quarter.

Right. Okay. Well, let me dig in a little more, Kerry, I know you don't want to give guidance beyond that, but to the extent that you can talk about the quarters, do you expect any quarters to actually be down in earnings, especially given the higher pre-opening expense in Q2 versus a year ago?

Well, we're not wanting to give specific EPS guidance, but what we will give you is some metrics in general. And these are -- and we stated these before. For the year in general, we are expecting to see low single-digit comp increase.

Now what we're going to see is high pre-opening costs on a year-over-year basis in Q1 and Q2. Q2 is just slightly less an increase than Q1. So -- and then you're also going to see for the -- so we're going to have a hard time leveraging our SG&A in Q2 and in Q4 because of the lower sales productivity of those two quarters. And so we're going to have a high pre-opening cost.

And then in fourth-quarter, I talked about in my remarks -- in Q4, benefited by a significant reduction in incentive compensation. We would not expect to see that number repeated on a normalized basis. So that will cause a little bit of difficulty in leveraging SG&A.

From a gross profit standpoint, in Q's 2 and 3, we would expect to see flattish, maybe slightly up. In Q4, that's where we see the opportunity for increasing gross profit dollars -- or in gross profit percent, I'm sorry, both dollars and percents. You know, we gave up a lot as we just said in the call, our merchandise margins were down 150 basis points. We think there is a good chance of recapturing a good deal of that lost amount if we see more seasonable weather. So those are some metrics to help you understand what we're thinking about without giving you specific EPS guidance.

I appreciate that, Kerry, so just one last one on that. I mean to follow up on Q2, it looks like flat to slightly up gross margin, you know, moderating comps, all of this pre-opening expense, it looks like it will be tough to grow EPS in Q2?

Q2 would be a tough one to grow.

Okay.

And a lot of that is because we are opening those stores in Q2 with high pre-opening expenses. And Q2 being the clearance period and we're getting ready for back-to-school, the sales productivity in that quarter is lower. So that makes it harder to overcome that increased expense for the pre-opening.

Scott, let me add one thing to that -- a little bit of color as far as pre-opening costs. We'll incur those primarily in July, so right at the end of Q2. Typically, we like to open stores in the middle of July to take advantage of back-to-school. However, it does have the tendency to suppress the sales generation in Q2 versus Q3. So a lot of those stores will open right at the end of Q2, and obviously, we won't generate the sales necessary to overcome the pre-opening expenses.

At the end of Q2, we will have opened, if everything goes according to plan, 24 new stores versus a total year total of 17 in 2011. So we are really setting up the back half of this year to be pretty significant, and hopefully, pretty significant increases relative to 2011. So we're excited about the back half of this year. We're excited about the first half of this year, but we're even more excited about the second half of this year.

No, that's a big deal. Thanks. And then, Cliff, you know, obviously all of the conversation around Nike and some of this performance athletic lightweight running has been talked about, but can you call out any other trends you have heard recently that some of the casual athletic might be sparking again? And what you're expecting for the next six months, so to speak?

Sure. We actually -- as we ended the year in '11 and began 2012, saw very nice increases in our basketball business. I called out retro because that happened to be the strongest for 2011, but we're seeing basketball, especially in men's basketball, continue to climb in importance.

The other thing that we are seeing, Scott, is that canvas has not slowed down at all. In fact, every time we believe that we might see a moderation in a canvas product, it picks right back up and that -- you know where that comes from, as far as vendor community.

And then I can't say it enough -- the running shoe businesses -- and I know I call it out -- but the running shoe business is it's not just lightweight. It's performance running. It's a higher end technical running, which we call out as a separate classification. That's all working well.

And that is, again, I think I say this every conference call, but that's one of the advantages we had with toning, is that it proved to the athletic community that family channel and particularly Shoe Carnival could sell product that retailed over $75. And we're getting our share of that. And you'll see, as we move forward in 2012, our average price move up in athletic.

All right. Well, congratulations. I hope it keeps up.

Thanks.

Mark Montagna, Avondale Partners.

Couple questions just about the store growth. Mark, you had mentioned the elevated store unit growth going forward. So I'm wondering what are you looking at for 2013 and beyond? And are you looking at entering new markets for 2000 -- maybe 2013, 2014?

We're taking a look at a couple new markets for 2013, Mark. You know, we haven't signed very many deals, if any, for 2013 at this early stage. But we're hopeful that 2013 is going to yield as many stores as what we're seeing come available, or as many sites as what we're seeing come available for 2011.

So preliminary plans right now for us is in the 30 new store range for 2013. If we enter into a new larger market, it will probably be only one. But we're looking at some mid-sized markets in 2013 at the present time. So we're looking at keeping the growth pattern right around that 30 to 35 new store number for 2013 as well.

Okay, that's great. And then, Cliff, you had mentioned color being important for back-to-school. Not sure if you were referring just to athletic, but I am wondering what are you seeing for fall in terms of color?

We are seeing -- you know we are seeing color in the women's product from flats to dress. In fact, we think dress is going to actually gain in importance as we go through fall. That was one of the downturn in categories this past fall. And in boots. You know, boots, other than the fur-lined boots, boots in general have, for us, have always been about black; but this year, we think that you're going to see a lot of browns because of the strength of riding boots and Western continuing to escalate.

And so we're pretty -- we're excited that it gives us a new dynamic in the boot wall; it's not so black and dark as you walk down. So, pretty excited about color. Primarily, though, the real bright colors are going to come out of flats, especially canvas or fabric flats, and out of the athletic industry.

Okay. So when you're talking about the boots for the fall, it sounds like you're expecting some newness. Would you say that the newness for 2012 is a greater year-over-year increase in, say, the measure of newness, whatever measure that could be, versus the perception of newness that the customer might have seen for 2011 versus the prior year in the fall?

I think there's no question about that, after what happened this past 2011 with fur-lined boots. And some of the winter weather boots and stretch boots, I think the vendors got busy and -- at least our vendors got busy and came up with new looks. So again, the Western influence is going to be strong. Riding influence is going to be strong. Shorter shafts, flat heels -- it's really across the board. And less attention paid on the fur-lined product.

Okay.

Not that it goes away, Mark. Not that that goes away. It's just it's not going to play the part that we had planned it to play this past year.

Okay. That's good. Then just lastly, in terms of -- you had mentioned some of the kiosks in the store. Could you just walk us through what you're doing there? Is it going to be a test in certain stores, that -- and then how many kiosks per store? When do you start to roll this out?

At this point, we're planning one kiosk per store. That's the easy answer to the questions you asked. The other answer is that we want to start this -- actually going to go opposite of what you would think. We're going to start this in our smaller volume stores, because that's where -- based strictly on volume, where they have the assortment that's not as broad as our larger volume store. That's just common sense.

But -- so what we thought about putting these kiosks in, and customers that may have previously walked because they didn't have the broad assortment that they normally would see in a Shoe Carnival store, you can turn that customer at the door, or turn that customer before they ever -- you know, they walk in, turn that into a sell, because you can open up the assortment of our e-commerce store, which happens to be the broadest assortment in the Company, and enhance the sell. So we hope that not only we turn customers but that we sell them a second or third pair, because they're able to see the broad assortment that we carry on e-com.

So do you think you're -- within the stores, are you going to have some sort of signage that indicates, okay, here you see the shoe in brown and black, but something to indicate that there's three other colors online if they so choose -- if they want (multiple speakers) online?

Not only that. We'll have signage as they come into the store that announces to the customer that the kiosk is available for a broader assortment. We won't put signs -- I don't see us putting signs in the aisle that say more colors available online. Not at least initially. But we have an advantage that other people don't have, and that's that our -- we have the mic person making announcements. And the mic person can certainly talk about the fact that there is a broader assortment online in the kiosk than they see in the aisle.

All right, that sounds great. Thank you.

Jeff Stein, Northcoast Research.

Question for Kerry first. Kerry, what is the extra week going to be worth to EPS? What do you estimate that to be? And do you have an estimate for depreciation and amortization? And also maybe you can just kind of walk us through pre-opening costs by quarter, once you get beyond Q1.

Well, that's pretty specific guidance you're asking for there on future periods. What -- right now, we're not going to get too specific on that 53rd week. What we'll give you guidance on is some generalities. We incurred about a benefit of $0.05 in EPS on the last time we had a 53rd week. And we expect it to be a little bit more beneficial to EPS in the fourth quarter this time.

From a depreciation standpoint for the full year, somewhere north of -- just north of $16 million for the year would be reasonable. And from a pre-opening standpoint, I'm going to give it to you in two numbers so you can track it in your models.

Like I mentioned in my comments, we're now including, in our total pre-opening costs, pre-opening rents because it's becoming a material amount. In Q4, we'd expect to see pre-opening costs included in SG&A of about $1.2 million, and then about $400,000 in pre-opening rents. In Q3, pre-opening costs of about $550,000 and pre-opening rents of about $175,000. And in Q4, pre-opening SG&A of about $600,000 and pre-opening rents of about $300,000.

Now that -- the fourth quarter pre-opening rents may have more volatility than the rest of the quarters, because it really depends on when we open the 2013 stores -- how early in the quarter they open; how many we're going to open; how many we have to take early possession of, et cetera. So that's a best estimate right now, but that one will have some variability to it.

So for the full year, let's see, pre-opening expense is about what you had indicated back in January, around $4 million -- still the same number, just allocated a bit differently?

Well, a little bit high, maybe rounded. What you should see is about pre-opening costs in SG&A of about $2.5 million and then pre-opening rents of about $700,000 (multiple speakers) -- increase. I'm sorry. In total, it would be what's included in SG&A of about $3.7 million and about $1.3 million in pre-opening rents.

Well, that's $5 million in total. For the year?

Yes.

And that would compare against what last year? $1.1 million? Or is it -- or now that you're including pre-opening rents, would that make it different?

It does. We incurred about $1.2 million in pre-opening costs and SG&A, which we reported, but we had another $500,000 in pre-opening rents last year. So a total of about $1.7 million in total pre-opening costs that we'll be comparing 2012 against in 2011.

Okay. Now is this -- it sounds like it's a bit higher than you had estimated back in January. Is there any specific reason for that?

Well, the difference is the pre-opening rents. It was -- we had not -- you're probably talking about a presentation we made at one of the conferences, where we put a slide up and showed some pre-opening costs. The big difference between that is when we really started trying to think about how to explain the cost increases in 2012, and the effect of the accelerated growth on our earnings, we recognized that really the pre-opening rents to become a very material factor, going from $500,000 to $1.3 million. And that's the big difference between the previous numbers we reported.

Got it. Okay. Real estate costs. Can you talk to us a little bit about what's going on there? Are rents beginning to escalate as you look at new locations? And as you look at the Dallas market, how many stores do you think that market ultimately can accommodate?

The answer to the last part, Jeff, is we think we can get about 15 stores in the Dallas market -- Dallas-Fort Worth Metroplex. Our rents right now are somewhat stabilized. You know, we started to see a decline in rents. And then the past couple of years, we started to see somewhat of an escalation as retailers started to expand again. You know there's competition for that 10,000 square foot box.

So right now, we're starting to see some stabilization on the rent exclusive of triple nets. Triple nets obviously depend upon geographic and other factors. But as far as net minimum rentals, we're starting to see some stabilization.

Okay. And, Mark, any help in terms of how you're modeling those new stores relative to the immature store? Are you modeling them any differently today than you did, let's say, last year or the year before?

Again, Jeff, it depends on where the store is located and how effectively -- when I say effectively, how much advertising we're able to spend in a particular market. For example, in Dallas, we opened six stores at one time, and that's the first time we've ever been able to open six stores in a marketplace at one point in time. Our brand opened six stores at one time.

And we spent a pretty good sum of money advertising in that marketplace. You know, the obvious intent with that increased advertising spend is to generate additional benefit as we move forward through periods where we don't advertise. So in other words, create that consumer knowledge of Shoe Carnival, if you will, and create that word of mouth advertising, as we get more consumers in at Grand Opening.

Had a good Grand Opening weekend with six stores in Dallas and one store in El Paso. In fact, the El Paso store was actually better than the Dallas stores. So we're pretty excited about the way Dallas -- the whole Dallas market operated from Grand Opening standpoint. So what we're modeling is around a $190 to $200 per square foot sales number in new stores in the initial couple of years of operations. (multiple speakers) That compares to about $215 to -- Kerry, what was our sales per square foot last year?

$221.

$221. So about 90%. 85% to 90% of what a mature store average would be.

Okay, that's helpful. One last question, Mark. Can you talk a little bit about the e-com business and how that has been ramping up, in the sense -- have you had any execution issues? And some of the things that you can and can't do. In other words, can you return product to stores at this point in time?

We can return product to stores. We are not shipping product to stores to -- for customers to pick up at this point in time. But customers can return it to stores. And we actually encourage that for obvious reasons, is to convert that return to a sale. That's been in place since day one.

In terms of opportunity with our e-commerce initiative, we've got plenty of opportunity. We had some initial problems with programming. We had some initial problems with putting in, as I call it, the DNA of our stores into the e-commerce solution, particularly with respect to promotions. It was a little bit more difficult to program than what we'd originally thought, particularly short-term, timed, spontaneous kind of promotions that we run at the store level. We want that to flow through our e-commerce initiative the way it flows through our stores. And that's been a little bit difficult to bring up to speed.

Our mobile initiative is not as -- not nearly as good as we'd like to see it at this point in time. We've got a lot of work to do there. We've got a lot of work to do, as Cliff mentioned, on expanding that assortment via the kiosk idea to our smaller stores in particular and to all stores in general.

So we've got a lot of -- again, we've got a lot of things that we can do to make that e-commerce initiative a lot better than it is today, and we're working on those things as we speak. That's not to mention an increased push from an advertising standpoint -- search, digital, et cetera, in the e-commerce world.

So we've got all the room to gain right now in our e-commerce solution. We are excited about the opportunity. We're not happy with the sales generated so far, but we are very, very, very excited. As we get some of these issues under control that we experienced at the outset -- and we are getting them under control. We're really excited about the ramp-up in e-commerce for the rest of the year.

Got it. Thank you very much.

Chris Svezia, Susquehanna Financial Group.

(multiple speakers) Quick question, Cliff, for you, the athletic business, up low-double-digits. I guess so far in Q1 that includes toning, correct?

Yes, that does include toning.

Okay, and I am sure that's -- the only thing that has changed really is obviously the weather, the fact you brought in the athletic product early into February, et cetera. Correct?

It's that plus you know the money got into the hands of the consumer earlier this year than it did last year. We believe in momentum and once the momentum starts, it kind of rolls. And so we were able to take advantage of it.

Okay. When you think about fall and boots, given how things unfolded, and yes, there is a Western look and good boot trends still occurring in the marketplace, how are you thinking about planning boots for fall at this stage? Planning up?

We are going to plan boots up. We think boots -- the boot category owes us not only sales but margin. And at this point, we're planning boots up high-single-digits.

Okay. And then when you look at -- overall, when you look at just the footwear business in general, given the pricing increases you are seeing in athletic, and I'm sure to some degree that will continue in the non-athletic category. How are you thinking about ASPs versus units as you think about inventory and buying for this year?

I think that the ASP and units in athletic will be up for the year. Units slightly vary, but the ASP is going to help drive the overall comps. In the other departments, women's and men's non-athletic, I think units are going to be slightly down. ASPs are going to be up.

Okay. And then with regard to -- on the inventory itself, I guess you have gotten through most of the clearance in terms of what you want to clear in boots. You said that you did most of that in February. So as you sit here today, your inventories are very clean, and theoretically, product margins, for the most part, have I guess flattened or are starting to improve. I mean, is that -- I'm trying to understand where you are in the inflection point on inventory.

That would be a true statement. Our boot inventory is actually down. I believe it's down mid-single digits and I'm positive about that, from a year ago. So we are very happy with where we are in boots and our margins are improving.

Okay, that's good. And the last question I have is just as you think about the percentage weightings from a revenue perspective for February, March, and April, are they pretty consistent? I mean, are they consistent? What are the weightings for those from a percentage of sales?

I'm sorry, Chris, you're going to have to ask that one more time. I'm not sure I followed you.

The percentage of sales as relates to Q1 between February, March, and April, is one significantly bigger than the other? Just are they pretty evenly balanced?

Christopher, on that one, March is a five-week period and also you have Easter moving earlier. So it is definitely overweighted. You will see February and April about equal in total sales, with April just slightly below February. But March is the big one.

Okay.

(multiple speakers) Because of (multiple speakers).

All right. Right, I got you. All right, sounds good. Congrats and all the best.

Thanks, Chris.

Jill Caruthers, Johnson Rice.

A follow-up on the comments you made on higher ASP. Could you talk about what you are seeing on the cost inflation, I guess, in the current spring period as well as Fall 2012?

It's difficult to be definitive, Jill, on athletic product because we're getting higher cost mainly because we're upgrading product. Yes, the athletic vendors are raising costs, in some cases 5% to 6%; but the true rising cost has to do with the fact that the product categories that we're buying are higher level. So, more technical in nature.

So that is what we're seeing in athletic. That is the reason I am so convinced that we are going to have higher ASPs. So far we have been over able to pass those costs right over to the consumer. And women's, I actually don't believe that we are going to have higher cost, but not like we incurred last year and that is due to the way that we are buying the product. We won't have as -- our boot product, although will be nice, will not be leather as far as the fur-lined product is concerned, so that we can be more promotional with that. And so that will help maintain the cost in boots.

And then in our men's non-athletic area, our cost will go up mid-singles. And we'll be able to pass that over to the consumer.

Okay. And then just a follow-up question on e-commerce. I believe you had estimated it was going to be a $0.05 to $0.06 EPS hit in 2011. Just wondering if it was within that range? And then I guess comment again, you are expecting if sales do pick up, that you could break even to post a profit for that this year?

Jill, we're expecting, if we can hit our sales expectation for e-commerce for that to be accretive for the full year -- not significantly but accretive.

(multiple speakers) Okay. And was the estimate of (multiple speakers) --

Understand, Jill -- understand that that EPS accretion includes an increased investment in the e-commerce solution itself in terms of advertising, in terms of some of the things that we want to do to incorporate that Shoe Carnival promotional activity and so forth. So that includes that extra spend, if you will. That extra investment.

Okay. And then my estimate of a roughly $0.05 hit in 2011. Is that way off? Or is that around the ballpark of the impact you felt?

Well, we didn't -- that would be -- that was what we incurred before we started going live with the sales. After that, we blended that into our non-comp stores and we didn't break it out separately.

Okay. All right. Thank you.

(Operator instruction). Sam Poser, Sterne, Agee.

I just have a couple of things. You mentioned the gross margin. Can you walk through the gross margin expectation again by quarter? I just missed that when you talked about it.

Kerry?

In forward-looking, that is, in Q2 and Q3, we would expect to see a flat to slightly up. In Q4, as you know, we gave back -- our merchandise margins were down 150 basis points. We would expect to reclaim a significant portion of that decline we had in Q4 this year in Q4 next -- this current fiscal year, fiscal 2012.

And what about Q1 -- in the first quarter?

In first-quarter, our guidance was that overall gross profit was going to be down about 60 basis points. We would find some leverage on our buy and distribution occupancy cost, but our merchandise margins were going to be down. And it was primarily due to the final liquidation of our winter product in the February time frame. Like Cliff said a few moments ago, that our margins have increased nicely from that, once we got past that nice clearance period that was primarily February.

Got you. And then, Cliff, you mentioned that your -- I mean, you mentioned a couple -- we've been talking a lot about athletic, but you talked in women's, I believe, you talked about molded footwear doing well?

Yes.

Was that also true in kids and men's? And is that the brand we think that is?

(laughter) That is the brand you think it is, Sam. And it's doing well in men's and it's doing well in women's. You know, we're having really nice increases in the kid's area, but I still think there's opportunity there to increase our business. So I'm not as -- even though we're having nice increases and double-digit increases in kid's, I'm not as excited about our kid's business as I feel like I should be.

Okay. And then lastly, Kerry, the tax rate for the year -- or the quarter, however you want to answer it?

We expect it to be more -- on a quarter and an annual basis, to be a more traditional rate of -- somewhere in that 38.5 to 39 tax rate.

(multiple speakers) Okay.

(multiple speakers) I add one more thing? I want to make sure that you realize when I said I wasn't as excited about the kid's business, I was talking specifically about molded footwear. (laughter) Okay.

And is that the same issue that you had before regarding basically that the value proposition for the men's and women's is better? And that maybe just a little expensive for your customer as a child -- as a kid's item?

You know, I'm not ready completely to say that. That's the first thing that comes to my mind when I look at the sell-throughs, but we just may not be showing them off as well as we should be. You know, we have the best product that they offer and I would expect to see higher sell-throughs than what I'm getting.

So you're doing much better than double-digit -- you're doing high double digits in men's and women's, and kid's is double digits (multiple speakers) --?

Well, I'm above 20% there and I'm not above 20% in kids. Let's say it that way.

Okay, great. Well, continued success. Thank you, guys.

Thanks, Sam.

Mark Montagna, Avondale Partners.

Kerry, just a quick follow-up on the question about gross margin. You just mentioned that first-quarter would be down in terms of merchandise margin because of the spill-over merchandise. But what about if you were to compare just this year's spring product versus last year's spring? Is that tracking at least to last year's merchandise margins? Or perhaps even better?

Mark, we're not going to get into trying to parse that out by category there. I think we'll leave it at our overall guidance for the quarter. But recognizing that the shortfall was related to the winter product that we got aggressive and got clean on early in the quarter. And like the comps and the margins are reflecting well right now. So people are voting that the product we have is good.

Okay. That sounds great. Thank you.

Our final question will be from Jeff Stein, Northcoast Research.

Okay, I'm going to ask a dumb one. Kerry, how about the share count? What should we be assuming for the year?

For the full year, I would look at -- and this is prefaced as if there is no repurchases. That is going to be just slightly up around the [13] -- [end] the year at [13.3].

Okay. So that's -- we should use [13.3] -- and what was the average shares outstanding for the fourth quarter and for the year in 2011?

For the -- and this is fully diluted -- for the fourth quarter is [13,251,000] and for the full year is [13,129,000].

Okay. Great. Thank you.

Ladies and gentlemen, this concludes today's question-and-answer session. For closing remarks, I'd like to turn the conference back to Mr. Mark Lemond.

Well, thank you. I'd like to thank our Chicago associates for their efforts in generating our near-record results in 2011. And, as always, we appreciate the support from our vendors and working with our merchants to create compelling product, tailored to the specific needs of our diverse customer base.

We're pleased with the consistent strength of our financial performance in fiscal 2011, despite the downturn of the boot margins in the fourth quarter. And we are excited about our outlook for the first quarter and the growth opportunities in fiscal 2012. As always, we'll continue to manage our business conservatively. And we look forward to delivering continued increases in sales and earnings on a year-over-year basis.

Thank you for joining us today, and we'll talk to you in May.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation. You may disconnect at this time.