Shoe Carnival Inc (SCVL) 2012 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Shoe Carnival's fiscal-year 2012 first-quarter earnings conference call. Today's call is being recorded. It is also being broadcast via live webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited.

This conference may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the Company's actual results to be materially different from those projected in such statements. These forward-looking statements should be considered in conjunction with the discussion of risk factors included in the Company's SEC filings and today's press release.

Investors (technical difficulty) 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 these forward-looking statements talked about during this conference call or contained in today's press release, to reflect future events or developments.

I will turn the call over to Mr. Cliff Sifford, Executive Vice President and General Merchandising Manager of Shoe Carnival, for opening remarks. Mr. Sifford, please go ahead. Mr. Sifford, we are not hearing you at this time.

Thank you, and welcome to Shoe Carnival's first-quarter fiscal 2012 earnings conference call. Joining me on the call today are Kerry Jackson, Chief Financial Officer; and Tim Baker, Executive Vice President of Store Operations. Mark is unavailable to join the call today, so I will review the Company's performance. And then Kerry will review the financial results for the quarter and our guidance in more detail. We will then open the call up to take your questions.

We are pleased to report a record first-quarter earnings of $0.54 per diluted share, compared to last year's first-quarter earnings of $0.50 per diluted share. Please bear in mind the three-for-two stock split which Kerry will address in further detail in a few minutes.

Customers responded favorably to our spring and athletic footwear assortment to help us generate a sales increase of 12.2% to $222.6 million, and a comparable store sales increase of 7.3%, which was at the high end of our guidance.

Although our gross profit margin of 30.8% was lower than the first quarter last year; and our selling, general and administrative expenses were higher on a dollar basis, these reported results were better than we expected for the quarter. As a result of this performance and our strong sales momentum, we were still able to report first-quarter earnings ahead of our expectations for the quarter, and generated the highest quarterly earnings in our Company's history.

This record earnings performance, coupled with our consistent emphasis on controlling inventory and fixed assets, enabled us to generate cash flow of $20 million. We ended the first quarter with an increase in cash and cash equivalents of approximately $23 million to $92 million compared to the prior year period, and we remain free of interest-bearing debt.

Now focusing on our first-quarter results in more detail -- as I previously mentioned, our comparable stores sales increase of 7.3% was at the high end of our expectation for the quarter. Our customers continue to respond well to our business model of providing the right product assortment for the entire family at compelling value. Traffic for the quarter was up 5.4%, and conversion was relatively flat.

Average transaction was up low-single-digits, with an average unit retail per transaction down slightly compared to prior-year period. Merchandise margins were down 70 basis points, due primarily to the final clearance of boots and winter-related footwear. Although the negative impact of the toning category to our comparable store sales is abating, our comparable store sales, excluding toning, would have been up 10.3%. Total toning sales for the first quarter were down in excess of 75% on a comparable store basis from the first quarter of 2011.

Our positive sales results were broad-based, with one exception -- every operations region delivered a comparable store sales increase for the first quarter, as compared to the same period last year. In the first quarter of 2012, our gross profit margin decreased 30 basis points to 30.8% from 31.1% in the first quarter of last year. As stated earlier, our merchandise margin declined by 70 basis points; and we were able to leverage buying, distribution and occupancy costs by 40 basis points.

Our management group continue to do a good job of controlling selling, general and administrative expenses. SG&A expenses for the first quarter increased by only $4.9 million; and as a percent of sales, decreased 30 basis points compared to the first quarter of 2011. And finally, we ended the quarter with inventory up approximately 5.2% on a per-store basis, in line with our plan to increase inventory in categories where we see strength, in order to maximize our business during fiscal 2012.

Our continued improvement of key financial metrics reflect the strength of our business model and the commitment and the ability of our entire team to execute on certain fashion trends currently driving consumer footwear demand.

Turning now to store expansion -- in the first quarter, we opened 13 new stores and closed three stores, to end the quarter with 336 stores operating in 32 states. Our new unit growth for the first quarter represents the largest number of new stores we have ever opened in the quarter. In addition, as many of you know, we entered Dallas, which is a new market for us, with six stores. We are extremely pleased with the grand openings of these stores, which exceeded our expectations. For the first time, we able to really leverage our sales and marketing efforts, as we have never entered a new market with this many new store openings.

The effort of our entire Shoe Carnival team, from our corporate headquarters to the store level, continues to be tremendous, as we execute on our robust unit growth strategy.

I would like to reiterate, our management team will continue to review our annual store growth rate based on our view that the internal and external opportunities and challenges in the marketplace. We believe our strong, unleveraged financial position leaves us well-positioned for additional square footage growth over the next several years.

For the second quarter of 2012, we will continue our accelerated our growth with the opening of 11 stores, including our first two stores in Puerto Rico. And we plan to close two stores. Including the 13 stores we opened in the first quarter, we continue to expect to open a total of 30 new stores this year, with a total of seven within the Dallas market and four in Puerto Rico. We also currently plan to close six stores this year. Therefore, we expect to end fiscal 2012 with approximately 351 stores. Please keep in mind the amount of stores we actually close will depend upon further negotiations with our landlords.

As we look forward to the remainder of 2012, we are encouraged by our new store openings and current sales momentum. We remain optimistic about our outlook for the summer, and especially the back-to-school season.

Moving on to merchandise -- there is no question that the unseasonably warm weather patterns of February and March was one of the catalysts for early sales of sandalized footwear and athletic shoes for all ages. In our women's non-athletic department, the sale of sandals and early spring product helped overcome a lackluster performance in traditional dress shoes.

Women's sandals posted a double-digit comparable store sales gain, while women's shoes as a whole have a low-single-digit comparable store sales gain for the quarter. Casual flats in colorful canvas and opened-up sandals both performed well. In addition, we saw strong gains in sport sandals and opened-up wages. The Americana trend, which covers looks from boat shoes to Western shoes and boots, also continues to be strong and a growing trend.

In our men's non-athletic department, we ended the quarter with a mid-single-digit increase on a comparable store basis. Sandals, canvas casuals, along with boat shoes were all up double-digit. Our children's business into the quarter with a double-digit comparable store sales increase. This increase was driven primarily out of sandals and girls and boys athletic. A great spring colors being the driver, the key category in kids' athletic were infants' athletic and girls' and boys' running.

In adult athletics, comparable store sales were up mid-single-digits for the quarter. Comparable store sales in athletics would have increased in the teens without the negative impact of toning. As I said in the last conference call, as we move through the remainder of 2012, toning becomes less of an impact to our comparable store sales. Toning as a category accounted for just over 2% of total sales in the second quarter of 2011; just over 1% of total sales for the third quarter; and just less than 1% of total sales in the fourth quarter. Inventory ownership of toning represents less than 1% of our overall inventory, which is in line with what the sales trend and our expectation.

The classifications of product driving the gains in adult athletics for the first quarter were -- men's and women's retro basketball, men's and women's performance and technical running, and men's and women's skate. As we mentioned last conference call, color is still 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 5.2%, which is in line with our expectations. As we mentioned in the last call, we shifted February athletic receipts into January to take advantage of the unseasonably warm weather patterns. This shift allowed us to get additional product into our stores for the all-important rapid refund time period. That decision was instrumental in driving strong high-single-digit comparable store sales growth for February, and also provided momentum to drive athletic business throughout the quarter.

With this success, we continue to push our key athletic vendors to deliver our orders earlier in the shipping cycle, which plays a very important role in keeping our product assortment fresh. I'm very pleased with the content of our inventory. And our merchants continue to keep our aged inventory low.

Moving to e-commerce, we continue to make good progress with our site, which has now been open for seven months. We continue to make improvements in the overall in performance of the site, including the successful implementation of PayPal. We have tripled our loyalty members, utilizing both our brick-and-mortar stores and our e-commerce site. We are in the process of building our mobile site, which we plan to launch prior to the back-to-school time period.

This is an important strategy, because mobile technology accounts for over 20% of all online purchases. This technology will help facilitate the installation of kiosks in many of our smaller stores, allowing our customers the opportunity to see the broad assortment found online while shopping our stores. This strategy will be another component in improving conversion and transaction size in those stores.

Over the longer term, we'll add enhancements such as order online and ship-from-vendor. This will allow us to utilize our vendors' inventory, resulting in increased turns and reduced risk. While there is still much work to be done, we are very excited about the full potential the site gives us to grow our customer base, which will result in stronger sales and profitability as we move through the remainder of this year and next.

Lastly, looking forward to back-to-school, we believe that we are in the midst of a strong athletic shoe cycle. This trend is being driven by a combination of factors. First, there is a growing commitment to a healthier lifestyle among all age groups and income levels. Secondly, the product has never been more exciting, with vibrant color, lightweight constructions, and new technologies. This strong trend shows no sign of slowing. And with the Summer Olympics set for the back-to-school time period, we believe it will just get stronger. In addition to athletics, colors have found its way into new casuals, both in flats and wedges.

The Americana trend continues to grow, and should be a must-have for back-to-school. Tax-free dates for most markets have been set, and there are no moves from quarter to quarter. Our marketing plans are in place and will reach our customers through multiple media channels. Back-to-school is our most important sales period, and we are well-positioned to take full advantage of our opportunity.

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

Thank you, Cliff. Let me begin by taking a few moments to review the effect of the stock split on our historical financial information. I will then discuss our first-quarter results in more detail, followed by information on cash flow, and concluding with our outlook for the second quarter of fiscal 2012.

On Friday, April 27, we completed our 3-for-2 stock split. Upon the completion of the stock split, the Company's outstanding shares increased from approximately 13.6 million to approximately 20.4 million shares. Beginning this quarter, and with all future financial press releases and SEC filings, Shoe Carnival's historical earnings per share and additional share information will be retroactively adjusted for all periods presented.

Now I'll focus on our financial results for the quarter. Our net sales increased $24.2 million, or 12.2%, to $222.6 million during the first quarter of fiscal 2012, compared to the prior year's net sales of $198.5 million. This increase was primarily due to a 7.3% increase in comparable store sales and an $11.8 million increase in sales generated by new stores opened since the beginning of last year, as well as our e-commerce site, which we'd launched in September 2011.

These increases were partially offset by a $2.0 million loss in sales from the seven stores closed since the beginning of fiscal 2011.

The gross profit margin for the quarter decreased 0.3% to 30.8%. A decline of 0.7% in our merchandise margin was partially offset by a 0.4% reduction in buying, distribution, and occupancy costs as a percentage of sales. The decline in buying, distribution and occupancy expense was primarily due to improved leverage on our occupancy costs associated with the higher sales in the quarter as compared to last year.

Selling, general and administrative expenses increased $4.9 million in the first quarter of fiscal 2012 to $50.6 million, from $45.6 million in the first quarter of last year. However, our sales gain enabled us to leverage these costs by 0.3% as a percentage of sales. The increase in SG&A was primarily due to a $3.8 million increase in expenses for new stores, net of expense reductions for stores that have closed. In addition, we've experienced an increase in self-insured health care costs of $1.4 million.

Our healthcare expense is subject to a significant degree of volatility, and will continue to carry the risk of material variances between reporting periods.

Total pre-opening costs for Q1 increased $1.1 million to $1.6 million. This increase in pre-opening costs over Q1 of last year equates to a reduction in EPS of a little over $0.03 per diluted share. Of the total pre-opening costs incurred in Q1, $1.15 million is included in SG&A, and $469,000 is included in cost of sales for pre-opening rent and freight.

In Q1 last year, we incurred $516,000 in pre-opening expense, of which $415,000 was included in SG&A, and $101,000 was included in cost of sales.

The effective income tax rate for the first quarter of fiscal 2012 was 38.5% as compared to 38.4% for the same time period in fiscal 2011.

Now let me discuss our cash position and information affecting cash flows. Depreciation expense was $3.8 million in Q1 and is projected to be approximately $16 million for the fiscal year. We expended $8.5 million in cash during the first quarter of fiscal 2012 for the purchase of property and equipment, of which $6.9 million was for new stores, remodeling and store relocation activities. The remaining capital expenditures were used for continued investment in technology and normal asset replacement activity.

Cash lease incentives received from landlords was $2.7 million for the first quarter of fiscal 2012. Capital expenditures for fiscal 2012, including actual expenditures during the first quarter, are expected to be between $24 million and $25 million. Approximately $11 million of the total capital expenditures are expected to be used for new store construction, and $8 million will be used for store relocation and remodels. Lease incentives to be received from landlords during the fiscal 2012, including the amounts received during the first quarter, are expected to be approximately $5 million to $6 million.

We currently have a $25 million authorized under our share repurchase program. However, today no shares have been repurchased under this program.

My final comments today will focus on sales and earnings expectations for the second quarter of fiscal 2012. We expect second-quarter net sales to be in the range of $179 million to $182 million, and comparable store sales to increase in the range of 1% to 3%. Earnings per diluted share are expected to be in the range of $0.08 to $0.11.

Included in this earnings expectation is an increase in pre-opening costs of $1.25 million. This increase in pre-opening expense equates to approximately a $0.04 reduction in EPS. Total pre-opening expense for Q2 is expected to be $1.7 million, compared to $450,000 in Q2 last year. Of these total pre-opening costs, we expect $1 million will be included in SG&A, compared to $315,000 included in SG&A last year. The remaining pre-opening costs are included in the cost of sales.

Due to the acceleration in our store growth this year, we expect to incur higher pre-opening costs in each quarter this year. Given these are a material increase in expense, and we believe we can reasonably estimate this expense, let me provide you with the expected pre-opening costs for the second half of 2012 and the prior-year comparison.

The prior-year comparisons are important, given that this year we've now identified the pre-opening rent and freight costs, which are included in cost of sales. Total pre-opening costs for Q3 are expected to be $900,000, with $550,000 included in SG&A and $350,000 included in cost of sales. Pre-opening costs in Q3 last year totaled $355,000, with $178,000 included in SG&A and $177,000 included in cost of sales.

In Q4, we expect total pre-opening costs to be about $700,000, with $400,000 included in SG&A and $300,000 included in cost of sales. Pre-opening costs included in Q4 last year totaled $518,000, with $295,000 included in SG&A and $223,000 included in cost of sales.

This concludes the first-quarter financial review. Now we'd like to open up the call for questions.

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

Just a couple questions -- since February-March, comp trend was so different than in April. Can you help us understand the difference, the magnitude of the difference, between Feb-March and April?

You have to remember that, April last year, it included three weeks for Easter, and this year only included one week. That's your main difference in the April number.

I'm sorry, if you gave me [that message], did you give it already?

I guess you're asking for a month-to-month comp increase. What I was saying is that Eastern last year was the third Sunday in April, which gave us three weeks of Easter sales in April. So we're going against much stronger comparisons in April than we -- and a lot of those sales shifted into March. Because Easter was the first Sunday in April this year.

I understand.

So it's not a fair -- I guess what I'm saying to you, Scott, is it's not a fair comparison. Because you're comparing Easter against -- a strong Easter time period against a shorter Easter time period this year.

Okay, let me ask (multiple speakers).

-- what we typically look at is that combining March and April together. And if you do that -- because then that takes out, obviously, the shift in Easter -- when you do that, the run rate was just slightly below the run rate for February on a percentage basis. We found the quarter to be, when you look at it that way, to be very consistent.

Okay. That's good. Can you give us the potential the comps are running, quarter to date?

We are pleased with our projection. And I think we are in line with that.

Okay, that's helpful. Kerry, can you talk about -- now that you are through the clearance part portion of boots and winter -- how do you look at merchandise margins now for the next few quarters? Are product costs still impacting you? And where does pricing come into it?

From an overall standpoint, what we built into the Q2 guidance at the high-end, the merchandise margin would be rather flattish. We've stated before that we thought in Q3 that an overall look at it would be -- it'd be rather flattish with the prior year. The real opportunity, from a gross margins standpoint, from a merchandise margins standpoint, comes from the standpoint of Q4, where we had to get so aggressive in liquidating that merchandise. If we get any weather at all, we would expect to see a nice improvement in our merchandise margin in Q4.

The leverage of the buying, distribution and occupancy -- any increase in Q2 and Q3 will really come out -- leveraging our buying, distribution and occupancy costs. It really would depend on the comps. We're projecting at the high end for Q2 to be 3%. We might get a slight leverage of 10 basis points on BD&O at that level. But as we've said before, it takes about a 3% comp -- 2% to 3% -- to get some leverage out of BD&O.

Okay. And then, Cliff, since you didn't did insinuate the running should be strong for back-to-school in fall, you guys really proved with toning that you could sell $100 footwear if there was really a demand from your customer. How do you see the pricing of some of these brands that are sold at athletic specialty -- and running specialty for that matter -- what is the price that your customers are looking to buy these sneakers at?

That's a great question. And that's one of the best advantages that toning brought us, is that it did prove we could sell more expensive footwear. And at that point, the vendors, especially our top vendors, all opened us up to better product with better technology. And the customers were responding well to that. We now sell product very well, at nice sellthrough each week, priced over $100 -- running products.

You may have heard in my prepared remarks, I talked about performance running and technical running. And for us, technical running is anything that retails over $85; $85 to $100 and above. That business is up, strong double-digits, and we see that continuing. This fitness -- what's going on with this new fitness lifestyle and the fact that people are really concentrating on getting back in shape and living a healthier lifestyle, has truly helped out. And they are looking for technical product. And they like to see the technology in the heel of the shoe, and that's helping us.

From a pricing standpoint -- to get back to your question -- from a pricing standpoint right now, we haven't hit the ceiling of what I think our customer will pay.

Okay. Congratulations. I'm not going to say you guys did a better job without Mark, but it could work. (Laughter).

We appreciate that.

Chris Svezia, Susquehanna Financial Groups.

Nice job. I'm curious, just want to go back to the product margin for a second. Just curious, with your inventories being as clean as they are, and I'm sure certain categories performing well, why wouldn't product margins start to show some improvement in Q2? Is it just because of input costs? Is it mix? Is it -- what's the conservativism around product margin?

Here's the decision we made, and -- the decision I made early in February, when our -- we talked about in last call, bringing all this athletic product in in January; the product that we had planned, originally, to bring in in February and some in March -- brought in January. And when that product took off in the first part of February, and our comps were up significantly, I said why wouldn't we just go ahead and continue to take further markdowns on the fall and winter product, including boots. Let's just get squeaky clean.

And that's exactly -- so our margins in February ran a little below last year; well, somewhat below last year. Then we were able to make up some ground in March and April. But the good news on that is, as we head into fall, inventories are much cleaner than we would have even anticipated.

Okay. So, okay.

Just a strategic decision, Chris, to make sure that everything -- we were happy with where we were, from the inventory ownership going in. But we could reduce that ownership even further, with the sales gain that we were experiencing.

Okay. Just as you -- I know you don't want to comment on the trend, that's starting, and I know you're going to a 1 to 3 comp for the second quarter, but anything -- you're commenting about pull-forward for some business because the Easter calendar shifted. Are you seeing anything out there, anything abnormal at all, or is it just normalization in May in terms of the business?

I'm just trying to get a sense, because there's a lot of concerns either about what's going from a macro or from a weather perspective. And from what I can gather, it seems to be business as usual for you guys. Is that a fair statement?

We do believe that the first quarter was driven, especially the early part of first-quarter, February and early March, were driven by unseasonably warm weather. We do believe that. It did ignite the customer to come in and buy sandals and athletic product. As we move through the second quarter, there's -- the weather patterns all become seasonal. The warm weather is seasonal.

So whereas it throwed customers to buy product that there wasn't fall last year in the first quarter, we think it'll turn back to a more normalized rate in the second quarter. And that's the reason for the 1-to-3.

Just on the fall -- as you get better visibility to boots, any update on that? Do you feel pretty good about that? I think you were planning it up for fall, any change to that thought process?

No, we're still planning boots mid- to high-single-digits, based strictly on an average price increase. We had to take average price down significantly last year due to the poor sales of boots. So this year, we expect to draw a higher average out-the-door price with fewer units and we think -- we do think the mix of those boots will change. There won't be as many fur-lined, kind of sueded boots that we've counted on in the past, and more toward more fashion, leather, riding kinds of books.

I see. Okay, and then, last question, just on product. When you talk about the Americana look, I assume nautical, boat shoes, Sperry Top-Sider falls into that category. Where in your I guess casual lifestyle business are you either taking, hoping to buy away from, to over-emphasize those quote Americana kind of categories?

Actually, what we did is, we've seen no weakness in our dress shoe business over the past couple of seasons. And we have taken open-to-buy away from that category to fund the casual and Americana. To be perfectly honest with you, we've overfunded the boat shoe category to maximize our opportunity there.

Okay. Okay. Thank you very much, and all the best.

Jill Caruthers, Johnson Rice Investments.

Question on the inventory -- you did talk about that you were taking investments in specific categories. I was wondering if you could talk about that, is that mainly athletic categories and whatnot?

Several categories, Jill. One, the old nautical or Americana category, as I called it in my prepared remarks, is a strong category. It continues to grow, and it continues to expand in its geographic reach, so we have funded that. We've funded the sport sandal category, which is a huge trend with college-age and high school kids. We see that as a continuing opportunity. And then in the athletic category, especially running, and as I mentioned earlier, retro basketball is a category that's continuing to grow along with skate.

Okay. Could you comment more on e-commerce? If you've been pleased with the sales ramp up, and expectations of what that business will do to your bottom line for 2012.

From a sales expectation, we're still working through that. I will tell you that we are not as happy as we hoped to be by this time. We have enlisted the help of our agency to work with us on SCOs and search terms to try to square that business along to get it to where we want. It's not from an impact to our bottom line, not going to have an impact this year. Kerry?

What we said previously is we thought that the e-commerce would be slightly accretive on an annualized basis, but it was not going to be material to us in a positive manner.

Okay, appreciate it. Thank you.

Sam Poser, Sterne Agee.

A lot of the questions have been asked and answered, but I have a few more. You talked a little bit, Kerry, about the deceleration of the same-store sales in Q2, and Cliff as well. It's a significant decel. And you did speak to the current trends at the end of the second -- end of the Q4. So can you give us some idea of where it's running right now? And is it looking more like April or is it looking more like March?

Well it sounds like there's a lot of concern. Multiple questions have been around that, as to whether we've seen a significant slowdown. We are actually trending slightly better than the top end of our guidance. But it's so early in the quarter. And there's a lot of different promotions that are going to happen throughout the quarter that we're not, we're cut -- like Cliff said when he started to call, is that we're comfortable with our earnings guidance and where we stand to date. But it's just too early in the call to draw too many -- or, too early in the quarter to draw to many conclusions.

Can you talk about traffic for the quarter being up 5%. How about if we just talk about traffic. Has the traffic sustained itself?

Our traffic is positive. And we would expect positive traffic, in order to generate comp store sales of 1-to-3.

Okay. And then, clearly, you're still feeling some pain. When do you think you'll be out of the pain of all the toning? When does that happen, in Q3?

I promised my women's athletic buyer just the other day that this is the last conference call will be able to talk about toning. (Laughter). As I said in my remarks, I think it accounted for 2% of our sales in the second quarter. And we believe, and I firmly believe this, that the athletic category will comp positive against that. So, toning should not be much of a factor as we move through the entire -- entirety of second quarter. It then becomes almost no factor as we go into the third and fourth quarter.

Okay. Can you talk about some of the brand drivers that are giving you this confidence? In athletic, as well as what's driving business over in sandals and more casual wear.

You know, we truly don't like to talk about brands for competitive reasons. But I'll tell you, Sam, our top brands are performing the best. And you know our brand strategy as well as anyone, and that continues to be the case.

Okay. And then, lastly, Kerry, can you give us what the share count was, since that wasn't in the press release?

For the first quarter, fully diluted was 19,971,000.

How should we think about that for the balance of the year?

What we typically see is slight creep in that throughout the year. And I'd expect to see the same thing. Not significant, just like --

Okay. Well thank you very much, and continued success.

(Operator Instructions). Mark Montagna, Avondale Partners.

Just want to follow up on the question regarding first quarter -- or, sorry, second-quarter comps. Is it possible that, considering how strong first quarter was, that you could have maybe a lack of spring and summer inventory to drive a powerful second-quarter comp?

Mark, I don't believe that to be the case. What we've done -- because a good bit of our increase was driven out of the athletic area -- and what we've done is work with our athletic vendors. And a year ago, I don't know if you -- I don't remember if you were on the call a year ago, but we were talking about having trouble getting delivery from some of our key athletic vendors. This year, that has not been the case. They have solved that problem in China and Vietnam. And we have not had any issue moving orders up.

So we were able to move orders out of February and into January. And in some cases, even out of March into January. And we've been able to continue to do that. What we've done is -- based on the strong performance we had in the first quarter, we continued to bring product in a little earlier than what we had originally placed the orders for. Our inventory in athletic and strong, and our inventory is fresh and clean. We see that continuing on.

Okay, so how much earlier, on a year-over-year basis, will your back-to-school setup the complete this year versus last year? And is that really just for athletic, and then you maybe set up that non-athletic in a more normalized pace?

Well, athletic for the back-to-school time period -- which is mainly August and the first part of September, is -- accounts for a very large percent of our total business during that time period. So the key component to getting ready for back-to-school is getting the athletic product in. We will have the athletic product here. As I said, they seem to have solved the issue of delivery. And that product is en route, or on the way, on the water.

I don't know that I'm prepared to tell you today that we're going to be set up much earlier. I'll tell you that we see no issue with being set up when we go into July. But we also -- let's skip past athletic, and talk about the fact that we think sandals will also play a major part of our back-to-school time period. Sport sandals have become a huge fashion trend. And we think that that category is going to perform well, along with casual flats and wedges and boat shoes, for back-to-school. That product is either in place, on the water, or will be in place, as we go into August.

Okay, and then as far as clearance at the end of the first quarter, would you say you were cleaner at the end of the first quarter this year, or perhaps equal to last year?

Our aged inventory is below -- is cleaner.

Okay. Then, just going back to the boot clearance that you had in February. If you had a more normalized boot clearance in February, could you have possibly posted a gross margin increase?

No. Because it was further than boots. It had to do with fall and winter product as well as boots.

Okay. Then just, last question dealing with dress shoes -- has your optimism for dress shoes, maybe, diminished for the second half? I think on the last call you had mentioned --

No, it has not. I think that we have an opportunity. When we went to market and shopped the market in February, very, still -- very encouraged about dress shoes as we go through the second half.

Okay, and was it women's that had the weakness? (Multiple speakers). -- men's also?

-- dress shoe business and the men's shoe dress shoe business has not been where we wanted to be for the past couple of seasons -- past couple of quarters. We feel, actually we feel pretty good about dress shoes as we move to the second half of the year.

All right, great. Thank you.

Scott Krasik, BB&T Capital Markets.

Just a couple follow-ups. Cliff, you alluded to it -- your largest kids' vendor having a problem delivering last year. If you look at that negative comp in Q2 last year, was that because July didn't get the benefit of having that brand kids' up there for early back-to-school?

It definitely affected the kids' comps last year. I think I called that out in the second-quarter call. But it would have had just a very small impact on the overall comps.

I think we talked about it last year, that May was cold and wet, and we really didn't start selling our spring goods until late May. And, really, it felt that June was the first time we were able to get some. So we started out the quarter with tough comp, and then we saw a nice acceleration in June. But then it tailed off, because of the lack of some of that athletic product at the very tail-end of July.

Okay, that is helpful. And then just by omission -- you didn't mention molded footwear as a strong contributor. Is there anything that changed in that trend?

I was actually waiting for one of you guys to ask that question. So you didn't disappoint. Molded footwear is still working very, very well.

Okay, thanks.

Sam Poser, Sterne Agee.

Well, Scott beat me to that question. It's a good -- let me just ask you a vague question then, just since we're asking predictable questions here. What about the primary toning vendor and some of their other products? Are you seeing anything, any light on the horizon there?

Not really sure who you are talking about.

Same one -- same as you are with the molded footwear vendor, I understand that.

We just got back from pre-lines with a good many of our vendors. You know, Sam, I'm not really prepared to talk, from the competitive standpoint, where we plan to take that business. But I would say that -- I would say this, they have moved on from toning.

And is that a good thing -- is that positive -- is that a positive thing? Or are they moving in the wrong direction?

In my opinion, it's positive.

Okay. Thank you very much, and good luck.

Jeff Stein, Northcoast Research.

Kerry, question for you on the performance of the new Dallas stores. This is your biggest market opening the you've had been quite some time. And it sounds like it went well. I'm just wondering, cumulatively, over the past couple of years, have you learned anything from launching in new markets, that perhaps may have helped you a little bit more, in terms of making this a success? And is there any way you can quantify for us, were you guys -- 110% of budget, 120% of budget? How should we be thinking about how the launch went?

Jeff, this is Cliff. We're not prepared to talk about how close or how over-budget we are. But I will tell you what we've learned. And that's that it's important for Shoe Carnival, as we enter into new markets, to be able to market the concept and advertise to the customers. Not only advertise to the customers, but advertise to the customer base that we feel is going to shop the store. And we were able to do that, and do it very successfully.

Actually, our grand opening insert down in Dallas was not one grand opening insert but two, so that we could talk to the different customer -- consumer bases that were -- that we expected to shop the store. And it really, truly helped us out. We always felt that was part of the issue opening up in new markets or new large markets, where we couldn't get enough stores open to advertise effectively. And that did not happen in Dallas. It was great learning.

Terrific. Question on average unit retail -- you mentioned it was down slightly in the first quarter. And I'm wondering, is that because of the liquidation of boots? Or was spring product, year-over-year, also down in AUR?

I think what I said was that the average transaction was up slightly. The average unit retail, I believe, was down slightly.

That's what I meant -- average unit retail down. And was that because of the boot liquidation? Or was like spring product -- year-on-year spring product -- also down in AUR?

I'm sorry, Kerry has corrected me. Average unit retail was up, very slightly, low single-digit. That was driven primarily out of the athletic business.

Okay, so entering Q2, you've got higher AURs and you've got positive traffic. Accurate?

Entering into the second quarter, yes.

Okay. Great, thank you.

Ladies and gentlemen, this does conclude the question-and-answer session. I'd like to turn it back to the speakers for any additional or closing remarks.

In closing, we are very pleased with our record achievements in the first quarter of 2012. I'd like to congratulate our Shoe Carnival associates for recording the highest quarterly earnings in the Company's history, and thank our valued vendors for their continued support. We really appreciate you joining us today, and we look forward to speaking about second-quarter results in August. Thank you.

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