Shoe Carnival Inc (SCVL) 2012 Q4 法說會逐字稿

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

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

The Company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the forward-looking statements talked about doing this conference call or contained in today's press release to reflect future events or developments. In the Company's earnings release and in the prepared remarks on this call, the Company will refer to adjusted earnings per diluted share for the fourth quarter of fiscal 2012, which financial measure has not been calculated in accordance with the United States Generally Accepted Accounting Principles, or GAAP. This non-GAAP measure limits the impact of a special cash dividend paid by the Company in December 2012 to earnings per diluted share in that quarter. The Company believes that adjusted earnings per diluted share for the fourth quarter of fiscal 2012 is a useful measure of its performance and allows the Company and investors to analyze the financial and business trends related to the Company's results of operations separate from the impact of the special cash dividend. More information on this non-GAAP financial measure including a reconciliation to the Company's GAAP results is included in the Company's earnings release.

I will now turn the call over to Mr. Cliff Sifford, President and Chief Executive Officer, for opening comments. Mr. Sifford, please begin.

Thank you and welcome to Shoe Carnival's fourth quarter of fiscal 2012 earnings conference call. Joining me on the call today are Kerry Jackson, Senior Executive Vice President, Chief Operating and Financial Officer; and Tim Baker, Executive Vice President of Store Operations.

Before we begin, I would like to remind everyone that fiscal 2012 consisted of 53 weeks while fiscal 2011 consisted of 52 weeks references to annual comparable store sales for the comparable 52-week period ended January 26, 2013. In addition, the fourth quarter of 2012 consisted of 14 weeks while the fourth quarter of 2011 consisted of 13 weeks. References to fourth-quarter comparable store sales are for the comparable 13-week period ending January 26, 2013.

For today's call, I will review the Company's overall performance and provide some insight into the coming year, and Kerry will review the financial side of the business. We will then open the call to take your questions.

As you are all aware, the fourth quarter was a tough quarter for us but we still reported record sales and earnings for the year. After posting record earnings for the first three quarters of 2012 we experienced unseasonably warmer weather from the first week of November through the third week of December, and this played a major role in suppressing sales of seasonal products in the fourth quarter. Once more seasonal weather arrived in the latter part of December through January, sales of seasonal product escalated.

The government's delay to act on tax policy and their subsequent decision to raise payroll tax withholding rates had an immediate impact on our consumer. The decision the IRS made to delay accepting tax returns until January 30 also had an immediate and calculable impact on our sales results for the last 10 days of the quarter. As a result, comparable store sales for the fourth quarter increased only 0.5%.

Although traffic for the quarter was down mid-single digits and conversion was approximately 1%, our average transactions were up mid-single digits, driven entirely by average unit retail. Our merchants did a good job of managing through the seasonal product and as a result the gross profit margin of 29.3% was 100 basis points higher than the fourth quarter last year.

Unfortunately, we were not able to leverage our expense structure under this slower than anticipated sales volume and report adjusted earnings per diluted share of $0.16 as comparable to last year. GAAP earnings per diluted share for the fourth quarter of fiscal 2012 were $0.13. Kerry will provide more detail on the difference between the GAAP and the adjusted earnings per diluted share.

While we are disappointed in our fourth-quarter results, we are very proud of our many achievements in fiscal 2012. Achieving $855 million in sales was a record. Our operating income was 14% higher than our previous record high in fiscal 2010 and our $1.43 in diluted earnings per share was 4% higher than our previous record in fiscal 2010. These results were driven primarily by our 4.5% comparable store increase along with a 63 basis point improvement in gross margin as compared to the same period last year. The past three years represent the first, second and third highest earnings per diluted share in the Company's history. Our customers continue to respond well to our business model of providing the right product assortment for the entire family at a compelling value.

Our positive sales results for the year were broad-based with every major department reporting a comparable store sales increase. The best performing categories were sport casuals for men and women along with athletic for men, women and kids. We ended the year with inventory of approximately 6.7% on a per-store basis due to the combination of higher average unit cost; a later Chinese New Year which forced us into January deliveries of Easter shoes; product for our 12 new stores that opened in March of 2013 as well as the decrease in athletic sales the last two weeks of the year. Our merchants continue to do a good job of managing our overall inventory.

Moving on to merchandise, in our women's nonathletic department comparable store sales for the fourth quarter were down low-single digits with losses incurred in dress shoes, tailored casuals and boots. Looking further at our boot performance, we drove very strong increases in riding boots, Western boots and bootie classifications. Increases in these classifications were not enough to overcome the loss in sport boots and weather boots. It is important to point out that our women's boot inventory excluding Western ended the quarter down in the mid teens.

Dress shoes continue to be a challenge as pumps seem to be the only category that is showing consistent strong growth. We are continuing to see nice comparable store sales increases from nautical, vulcanized canvas and molded footwear. For the fiscal year 2012, women's nonathletic comparable store sales were slightly positive.

With the addition of our new GMM Carl Scibetta to our executive team, we are strategically analyzing the product offering in our women's nonathletic department. During 2012 we conducted quite a bit of research on our customer that pointed to a void we believe we can successfully fill. To begin that process we have identified about 20% of our stores where we will begin to test better brands which offer great fashion-right product at price points that will be compelling to the mom we know is shopping for her husband and children. We are in the process of designing a visual program that will highlight this product for the customer as soon as she enters our store. We are very excited about the opportunity to capture this important customer, who is already shopping in our stores for her athletic shoes and for her family. For competitive reasons I won't identify the brands we are adding, but product will begin arriving for third-quarter sales and we will keep you posted on the progress.

In our men's athletic department, we ended the quarter with a very low single-digit decline on a comparable basis. This loss was driven entirely by low double-digit loss in the fashion boot categories. Sandals, nautical and Western boots all posted double-digit sales increases on a comparable basis. For the fiscal year 2012, men's nonathletic comparable store sales increased low-single digits.

Our children's business ended the quarter with mid-single digit comparable store sales increase. This increase was driven primarily out of girls and boys athletic. In addition, we also saw increases in the sandal and girls campus casual categories. For the fiscal year of 2012, children's comparable store sales increased high-single digits.

In adult athletics, comparable store sales were up low-single digits for the quarter. The classification of product driving the gains in adult athletic for the quarter were women's skate, men's and women's performance running and men's retro basketball. Color continues to perform and we continue to like the excitement it brings to our assortment. For the fiscal year of 2012, adult athletics comparable store sales increased mid-single digits.

Turning now to store expansion, for 2012 we opened up 31 stores and closed seven, ending the year with 351 stores in 32 states and Puerto Rico. As you know, we entered two major markets -- Dallas, Texas with 7 stores, and Puerto Rico with 4. We are pleased with the performance of both these markets and we will spend the next few years filling in these markets so they can reach their full potential.

Looking ahead for 2013, our plans call for opening 30 that 35 stores and we could potentially close 5 to 7 additional stores. Three weeks ago, we celebrated the grand opening of 12 new stores. We are very pleased with these grand openings and we look forward to July for our next wave of openings. During 2013, our strategy is to open stores in existing large- and medium-sized markets to leverage our advertising costs more than small new markets where advertising costs are more affordable.

During fiscal 2013, we will relocate seven stores to better locations than the some markets. Three of those seven stores celebrated their re-grand opening in mid-March. We will continue to review opportunities in our legacy stores to upgrade our store locations in existing markets as leases come up for renewal.

Additionally, we continued to reinvest in our existing store base, focusing on in-store graphics, including signage updates to focal walls and endcaps. Also in fiscal 2013, dependent upon successful negotiations, we plan to remodel approximately 30 stores. Investing in our existing store base combined with strong marketing and advertising campaigns will continue to make Shoe Carnival the footwear destination for the family. Our management team will continue to review our annual store growth rate based on our view of 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. The effort of our entire Shoe Carnival team from our corporate headquarters to our store associates continues to be tremendous as we execute on our robust store growth strategy.

Moving to e-commerce, we just completed our first fiscal year with our e-commerce site. We were able to improve the capabilities of our site throughout the year by adding sites for mobile and tablet use, and we just recently began rolling out a kiosk program in certain of our smaller volume stores to help increase sales and meet customer expectations. Although we don't report e-commerce sales separately, we are pleased with the sales increases we are experiencing.

Now I would like to address our current sales trend. Last year at this time, we were enjoying the results of an extremely early spring season across our entire chain. The early sales of sandals and athletic product assisted in keeping the margins at an accessible an acceptable level while we executed the final clearance of fall product. This year, we have experienced cold, wet weather across the chain, although not as severe in the South as in the Midwest and the north Midwest.

As a result, we have experienced robust sales in our fall and winter boot and shoe categories and much slower sales in our spring sandals and athletic categories. The lack of sales in the higher-margin categories has resulted in margins that are 140 basis points lower than this time last year. In addition, we are projecting that quarter-to-date sales will be down at the end of March in the mid-to high-single-digit range. With improving weather patterns on the horizon, we believe April is an opportunity for a better trend, and we are projecting comparable store sales for the quarter will be down between low- to mid-single digits.

At the same time, we are pleased to report our Southern region has generated mid-single digit comparable store sales increases with every merchandise department reporting gains. This leaves us confident that as more seasonal weather arrives across our markets, we are well positioned with the right product assortment to meet the spring footwear needs of our customers. Based on the performance of our southern stores and the belief that spring will eventually arrive, we are expecting second-quarter comparable store sales to increase low- to mid-single digits.

Lastly, I would like to talk about our new marketing initiative. As I mentioned earlier, we have over the past year done extensive research on our customer and how she interacts with us either digitally or in our brick-and-mortar stores. We studied her wants, her likes and her dislikes of our store experience, our marketing campaign and our product selection.

I'm happy to report that, for the most part, our customers love us. They like the broad assortment, the depth of sizes and the exciting store experience. Through this research, it became evident to us that we had an opportunity to better communicate to our new customers, especially in new markets, to educate them on what makes Shoe Carnival a unique and differentiated place to shop for family footwear.

With that in mind, our marketing team along with our advertising agency went to work to build a campaign around the in-store experience. It is too early to talk about results of this campaign, but if you would like to experience the campaign for yourself, you can view our brand spot as part of the Shoe Carnival's Facebook page.

In addition, we have strengthened our digital campaign, which allows us to reach an expanded market area at an affordable cost. Most importantly, I'm very happy with the progress of ShoePerks, our loyalty program. We relaunched this program in late 2011 and, to date, we have seen sales from our loyalty members grow from 8% of our total sales to over 15% of our total sales. These members shopped us more often and on average spend almost 40% more than nonmembers. We have set a very aggressive goal of doubling the number of ShoePerks members by the end of 2013.

This completes my prepared remarks, and now I would like to turn the call over to Kerry Jackson for details on our financial results.

Thank you, Cliff.

Our net sales for the 14-week fourth quarter increased $23.8 million or 13.1% to $205.7 million as compared to $181.9 million for the 13-week fourth quarter of fiscal 2011.

Comparable store sales for the 13-week period ended January 26, 2013 increased 0.5%.

Of our $23.8 million increase in net sales, $14.5 million was from the increase in sales generated by new stores opened since the beginning of the fourth quarter last year; $10.7 million was recorded in the extra week and $890,000 was a comparable store sales increase.

These increases were partially offset by a $2.3 million loss in sales from the eight stores closed since the beginning the fourth quarter of fiscal 2011. The gross profit margin for the quarter increased 1% to 29.3%. Our merchandise margin increased 1.4% and volume, distribution and occupancy cost increased as a percentage of sales by 0.4%.

The increase in buying, distribution and occupancy cost was primarily in our occupancy costs. Typically, we need 2% to 3% comp increase to leverage our occupancy costs.

Selling, general and administrative expenses increased $8.4 million in the fourth quarter of fiscal 2012 to $54.9 million. The increase in SG&A was due in part to a $4.6 million increase in expenses for new stores net of expense reductions for stores that have closed since the beginning of fiscal 2011.

In addition, we experienced an increase in incentive and equity compensation of $1.1 million due to the Company's improved financial performance. As a percentage of sales SG&A expenses increased 1.2% as we were unable to leverage the increase in expenses due to our lower-than-expected comparable store sales increase.

The effective income tax rate for the fourth quarter of fiscal 2012 was 38.2% as compared to 33.9% for the same period in fiscal 2011. The rate was significantly lower in fiscal 2011 due to the favorable resolution of certain tax positions.

Net earnings for the fourth quarter of fiscal 2012 were $3.2 million or $0.16 in adjusted earnings per diluted share as compared to net earnings of $3.3 million or $0.16 per diluted share in the fourth quarter of 2011. Earnings per diluted share for the fourth quarter of fiscal 2012 computed in accordance with GAAP were $0.13.

While our payment of a $20.4 million special cash dividend December 2012 had no effect on fourth quarter or annual net income or annual diluted earnings per share, the results for the fourth quarter of fiscal 2012 included a $0.03 reduction in earnings per diluted share due to the application of the two-class method of computed earnings per share in connection with this dividend. We have included in our earnings release today a GAAP to non-GAAP reconciliation table illustrating and describing the adjusted earnings.

Now I would like to transition to our fiscal 2012 financial results. Net sales increased $92.5 million to $855 million for fiscal 2012, a 12.1% increase over net sales for fiscal 2011. Comparable store sales for the 52-week period ended January 26, 2013 increased 4.5% compared to the 52-week period ended January 28, 2012. Of our $92.5 million increase in net sales, the 48 new stores that opened since the beginning of fiscal 2011 and our e-commerce operations contributed $58.2 million in increased sales. Sales also increased within our comparable store base by approximately $32.7 million and $10.7 million were recorded in the extra week of fiscal 2012.

These sales increases were partially offset by a decline in sales of $9.1 million from the 11 stores closed since the beginning of fiscal 2011.

Gross profit increased $32.6 million to $257.5 million fiscal 2012. The gross profit margin in fiscal 2012 increased to 30.1% from 29.5% in the prior fiscal year.

Our merchandise margin increased 0.4% while buying, distribution and occupancy cost as a percentage of sales decreased 0.2%.

Selling, general and administrative expenses increased $26.3 million in fiscal 2012 to $209 million. The increase in SG&A was due in part to a $17.1 million increase in expenses for our 48 new stores net of 11 stores closed at the beginning -- since the beginning of fiscal 2011 and our e-commerce initiative.

Additionally, we experienced an increase in incentive compensation of $3.9 million due to our improved financial performance as well as an unusually high increase in self-insured healthcare costs of $1.8 million. Also included was the net expense of $1.2 million related to Mark Lemond's retirement.

Total preopening cost for fiscal 2012 were $4.1 million, an increase of $2.4 million over last year. Of the total preopening cost incurred in fiscal 2012, $2.7 million was included in SG&A and $1.4 million was included in cost of sales for preopening rent and freight.

In fiscal 2011 we incurred $1.8 million of preopening expense, of which $1.2 million was included in SG&A and $637,000 was included in cost of sales.

During fiscal 2012, we opened 31 new stores for an average reopening expense of $133,000 per store. During fiscal 2011, we opened 17 new stores at an average of $108,000 per store. The increase in the average expenditure per new store was primarily a result of increases in preopening freight, particularly in Puerto Rico, and advertising.

Our effective income tax rate for fiscal 2012 was 39.2% as compared to 37.1% for the fiscal 2011. Approximately 1.3% of the increase in our effective tax rate between comparative periods was due to the nondeductible portion of compensation attributable to Mark Lemond's retirement.

Net earnings for fiscal 2012 were $29.3 million or $1.43 per diluted share compared to net earnings of $26.4 million or $1.31 per diluted share last year. As Cliff noted at the beginning of the call, the $1.43 per diluted share represents a new Company record.

In addition to the sales and earnings records we achieved in fiscal 2012 there were several other significant items that occurred for Shoe Carnival. We completed the 3-for-2 split of the shares of our common stock, which was effective in the form of stock dividend during April 2012. This increased our shares outstanding by approximately $13.6 million to approximately $20.4 million.

We initiated our first-ever quarterly dividend, cash dividend of $0.05 per share to our shareholders during the second quarter of fiscal 2012.

A special cash dividend of $1 per share was also paid to our shareholders during December 2012.

In total, we returned $23.5 million to our shareholders in fiscal 2012 through our quarterly and special cash dividends. Also during fiscal 2012 we returned additional capital to our shareholders through the repurchase of approximately 220,000 shares of our common stock for a total investment of $4.7 million.

Now turning to our cash position information, expense and cash flow, depreciation expense was $4.2 million for the fourth quarter and $16 million for the full fiscal year. During fiscal 2012 we expended $26 million for the purchase of property and equipment, of which $21.5 million was for construction of new stores, remodeling and relocations. Lease incentives received from landlords were 7.2 million.

We opened 31 new stores, relocated 6 and closed 7 stores during fiscal 2012. We remodeled approximately 5% of our store base.

In fiscal 2013 capital expenditures are expected to be between $28 million to $29 million. Approximately $12.5 million of the total capital expenditure expected to be used for new store construction, $2.5 million used for store relocations and $8.3 million will be used to remodel approximately 10% of our existing store base.

Lease incentives received from landlords are expected to be approximately $8 million to $8.5 million.

We currently have $20.3 million available under our authorized share repurchase program.

My final comment today will focus on sales and earnings expectation for the first quarter of fiscal 2013. We expect first quarter net sales to be in the range of $226 million to $232 million with comparable store sales decrease in the range of 2% to 4%.

Earnings per diluted share in the first quarter of fiscal 2013 are expected to be in the range of $0.36 to $0.44. In the first quarter of fiscal 2012 comparable store sales increased 7.3% and the Company earned $0.54 per diluted share.

Included in the earnings estimates for the first quarter is the expectation that our gross profit margin will decline from 120 to 160 basis points and SG&A will deleverage due to the comparable store sales decline from 50 to 120 basis points.

One additional point on fiscal 2013 -- due to the 53-week period in fiscal 2012, the fiscal 2013 calendar ends one week later than it did in 2012. While this shift affects each quarter during the year, it is most apparent in Q2 and Q3. Let me explain. Last year, our second quarter ended on July 28 and the very next week, the first week of Q3, our back-to-school sales accelerated significantly. Due to the calendar shift, in 2013 our second quarter will end on August 3, thereby pulling in those sales for back-to-school in the second quarter this year and out of Q3.

If the Q2 calendar was restated to 52 weeks and -- to reflect the 2013 ending dates, we would reduce -- we would decrease sales in Q1 last year by $900,000, increase Q2 sales by $17.6 million, decrease Q3 sales by $21 million and decrease Q4 sales by $11.7 million. The net effect of the calendar shifts and having one less week will reduce prior-year sales by $16 million.

This concludes our financial review. Now I would like to open up the call for questions.

(Operator instructions) Jill Caruthers, Johnson Rice.

If you could talk about last year in the first quarter your merchandise margins were impacted I believe 70 basis points down given some heavy fall boot liquidation you did. I know sales are weak quarter-to-date this year, but could you talk about the greater pressure on the gross margin that you're forecasting?

Jill, this as Cliff. The margin from last year was -- may have been impacted somewhat from the final boot liquidations in February, but they were held up by the strong sales of very high-margin sandals and boots.

If you remember, I think we talked about it -- you may have even asked the question -- but we talked about it last year -- that we shift sales out of second quarter in the first quarter on sandals with the warm weather? We were not sure whether that had happened or not, but it was evident as the spring moved on that had indeed shifted sales out of second quarter into the first quarter.

This year, just the opposite has happened, in our opinion, is that we have shifted sales out of February and March and more into April and May due to the cold weather. Unfortunately, because we were not able to sell the high-margin sandals and in some cases the high-margin athletic shoes, the sale of fall product and boot product in that final clearance stage drove the margins down early in the quarter.

A long-winded response to your question, but that is exactly what happened.

Okay, okay. And if you could talk a bit more about the opportunities you see in the women's nonathletic, I believe you said 20% of your store base will receive some of this new product. Could you talk about maybe -- is it more units or a higher price point that you think is the opportunity in that select category?

What we're going to do -- and I'm glad you asked that question -- what we are going to do is, we have gone to -- Carl has -- or go to some of the brands that actually over the past several years we have kind of coveted ourselves, and he has been able to talk to these brands on selling us at prices in which we can do business. And it is really in the casual and sport casual category. We don't demand a high retail price out of our dress shoe assortment, but we can get higher price points of casual and sport casual. One of the largest brands -- one of the best brands we carry in our sport casual category is Clark's, and if you take that product and you add additional brands around it from the department stores, that's the kind of brands that we are talking about. It will be casual in nature. It's that mom who is coming in here with -- coming into our stores with her kids and her husband, and she is able to buy her athletic shoes from us and she is buying her kids' shoes and she is buying her husband's shoes. She is just not able to find those sport casual and casual shoes that she would normally find in a department store.

Okay, thank you.

Scott Krasik, BB&T Capital Markets.

So, Kerry, should I chalk the 140-basis-point merch margin improvement to just an easy comparison from a year ago, or were there some other things that you did you to get that improvement?

For the year, you are saying?

No, in Q4. Didn't you say it was up 140 bps in Q4; the merchandise margin increased 1.4%?

Yes. It was primarily the seasonal product. If you remember in Q4 last year we ended up getting outpositioned in our boot category and we also had weather issues, if you remember. The weather did not cooperate. For two years in a row we have had a warmer-than-expected November-December time frame.

We also had bought our boot inventories thinking prices -- department stores would take the prices up, and we took our prices up. What happened is they took their prices down and got down and dirty and we ended up having to liquidate those boots at a significant margin. If you remember us talking in our Q3 call that we were going to have to get aggressive and mark those boots down to get rid of them and we're going to do it while the customers were shopping in December. We did that and we came out of the quarter reasonably clean compared to the position we had last year.

Now, this year it was a total different position. We were not going to be outpositioned either when the department stores opened for day after, nor were we going to be outpositioned on price points on boots. We also shifted our inventories to have a larger percentage in the western and the riding boots. I probably shouldn't be talking about merchandise as much as I am, but we were better positioned in the seasonal product. Even though we did not get weather to support the sales of that, we did have a significantly better day after because we were much better positioned from a price point on the boots and then the fashion content of it. So it was a combination of factors that drove that better gross profit margin in Q4.

But in terms of projecting it, it was more just you had a very easy comparison in Q4 from the year before because of those seasonal issues, hence (multiple speakers)?

(inaudible) comparison plus we had a much better merchandise assortment. We went into the quarter much better prepared to take advantage of the sales we had during the quarter.

Scott, additionally, we were able to buy -- because we focused our boot buy -- and it really revolves around boots -- but because we focused our boot buy on a narrower selection and we were able to derive better cost on our boots so that if we had to get as low as we did a year ago, we would benefit from lower margins. The fact is we did not have to go as low from a pricing standpoint. Once the weather cooled down, we were able to drive a higher average outdoor price on our boots.

Okay, and it gets a little nuance-y, but, obviously, back-to-school has been shifting later so thank you for that detailed that Q3 would be impacted by $21 million. But is there any way to look at it from -- I would assume two years ago it was probably greater than that. So to the extent that we are shifting out another year, shouldn't it be less than that $21 million that would have been impacted last year because people are just shopping closer to the school time?

That's a great question and the issue with answering that question is we don't know when schools are going to start yet. One of the reasons that it's shifting later is that schools are shifting later. In North Carolina, for instance -- I'm going to give you a for-instance -- you can't open up the schools before August 25. In the past one of the shifts that you just mentioned was that those schools opened up around the 4th or 5th of August.

You take that into consideration along with tax-free, which has also shifted a later, and we don't know when those dates are yet because each year they have to be approved by each state's legislature, and we just don't know yet. So what we are telling is what we know and, hopefully, by the time we do our first quarter conference call we can give you a bit more guidance.

Relative to the numbers you gave, though, that sort of a -- I mean, it shouldn't be more -- things shouldn't shift earlier; I mean, there's no evidence --

No, we don't anticipate it shifting earlier. We do anticipate that if there are shifts, it will be slightly later.

So, Scott, what we are trying to do is instead of projecting out what the sales differences would be for Q3 this year, we were trying to restate the prior year, so fiscal 2012, restating those for the calendar changes we will experience so you at least have a baseline to understand the effect to last year's sales, and then you can project off of that.

Yes, okay, and then just last -- thanks, Gary. And then just last, Cliff, how meaningful -- you alluded to basketball, I think, once or twice in your script. How meaningful is this basketball shift to your customer and the brands and style that you carry? Then what does that imply for running for back-to-school this year? And, thank you very much.

No questions, no problem. Basketball is really important to our customer. Right around 34% of our business is African-American or Hispanic, and we do a great core business, whether it's basketball or whether you want to look at what we term as fashion basketball, which is more retro in nature. We do a good business.

Now, basketball this year was all about launches on the mall, but even with that, in the fourth quarter we had a pretty good basketball run going. What affected us in the first quarter, however, is the lack of tax refund checks, and that directly affected our basketball business negatively.

Now, as you move forward in the back-to-school, we still feel very strong about running, especially the performance running category, and not necessarily the technical running but strictly the performance running and all the color that's there. We have looked at all our -- in fact, we have already placed orders on all our major plans and we are very excited about that category as we move forward in back-to-school.

Okay, thanks and good luck.

Chris Svezia, Susquehanna Financial Group.

Hey, Kerry, the SG&A de-lever in the first quarter -- can you say that number again? You said it was about how much -- 52 --?

We are expecting the 50 to 120 basis points in Q1 --

Why is the (multiple speakers)?

-- and then based on a 2% to 4% comp store decline. So it is really a relationship -- we opened a lot of stores in Q1 so we have incurred a good chunk of preopening costs. The real difference between -- it wasn't that we overspent on our SG&A; it's really the lack of sales productivity because we have not been able to get those spring sales. Last year when we shifted the sales into Q1 it helped to offset the increase in the preopening cost last year.

Okay, and then the gross margin being down that much is just because you are selling more clearance product, your spring high-margin business has not kicked in yet; that's probably the reason why the gross margin is down that much, correct?

That's exactly right, 100% right as a matter of fact.

Okay, so then, Cliff, for you, do you start to -- at some point in time do you feel like you need to cancel any on orders? Do you need to -- I don't know -- do you get any concerns about if and when the weather comes -- or at this point, I'm sure you're pretty confident about your inventory position right now.

We -- two issues -- first of all, we don't believe -- we truly believe that we shifted sales out of the second quarter into the first quarter last year. We really believe that. We believe that this is actually, although it's the coldest March in some time up here, but we actually believe that it's more normalized early spring and that as soon as spring arrives, when it does and, as you just said, if it does, we believe we will sell sandals and we will sell running product again, just the way we have in the past.

As far as canceling product, a good bit of our business is done on a first-cost basis, so a lot of that product is either here or on the way here. Any product that is not has not been bought on first cost basis, we are reviewing all of that product to see if we feel we're heavy -- heavy or not. But to be honest with you, Chris, we are really not going to know the answer to that until we actually get our first warm week, which we have not experienced to date.

Okay, switching gears, just any thoughts about pricing and average selling prices this year versus last year, what you anticipate increases, just any thoughts around that?

We think we are going to increase our average outdoor price low-single digit. I don't believe that -- we have not seen the kind of cost increases we have seen in the past, so we believe prices are going to remain stable.

Some of the work you are doing on the women's nonathletic piece to the business, what you anticipate for the fall, is that -- a price that you can sell at -- how is that in relation to your existing women's nonathletic pricing at this point? Is it the same, or is it slightly (multiple speakers) (inaudible)?

No, it's higher than what we are averaging out the door in women's nonathletic because women's nonathletic includes sandals and dress shoes which don't demand higher prices. These were casual and sport casual products which will sell under $50 but well above our average out-the-door price in women's.

Okay, that's pretty much all I have. All the best to you guys, thanks.

Jeff Stein, Northcoast Research.

So, for Cliff and Kerry, if you have this sales shift out of Q1 into Q2 because of the weather, I presume that your margins will still be impacted, because the later you sell into the season I presume you are going to have to take greater markdowns. So even if the sales come later, would you incur a margin hit in Q2?

We don't want to give this guidance for Q2, but I would be glad to give some directionality. We do expect to see our gross profit margin, inclusive of buying, distribution and occupancy, to be flat to slightly up, depending on the level of sales productivity we have.

Okay. And basically what you are seen on the sales shift because of the calendar is that we should be looking at adding -- what normally you would see in the second quarter, we should add about $17.5 million?

Yes, in last year's numbers so you can build your model off of it, you would be shifting $17 million into Q2 because of the calendar shifts and you would be shifting --

Right.

-- about $21 million out of Q3.

Right, of last year's number, right, okay. How much did the actual week add to earnings per share?

It was extremely nominal, very immaterial.

Okay (multiple speakers).

To add a little color on that, in prior years we had seen a 3% to 4% -- $0.03 to $0.04 of EPS out of that. Because last week was the week that was very much affected by the athletic sales that Cliff had spoke about earlier, that the $10.7 million was a not very productive level of sales that week, and therefore it became immaterial in any EPS accretion.

Okay, you mentioned that you are seeing a sharp increase in your ShoePerks program. I'm just kind of curious, can you disclose how many members you have at year end and how that compared with prior year?

I cannot disclose -- I'm not going to disclose how many we had at year end. I can just tell you that we have grown it from 8% of our total sales, almost doubled it to 15% of our total sales. And we think -- I'm just going to be honest with you, Jeff, we are behind our competition here and we got a late start to this program, but it probably is our number one focus from a marketing standpoint today is to get our ShoePerks members up to above 50% of our total sales.

Great, and, Cliff, I'm wondering if you could possibly discuss the performance of your new markets this past year. I know you mentioned that Dallas and Puerto Rico you were satisfied, but when you look at how those stores performed relative to, let's say, stores outside of the market and then look at your class of 2011 and 2010, how did those stores perform relative to what you would normally expect from a new store?

And then using as a benchmark -- say, for example, your average new store does 70% to 75% of what a mature store does; how would it have stacked up on that basis?

I think that -- I think I understand your question here. It takes about three years for a store to ramp up to our average store size, okay?

Right.

So we do start off and we are not disappointed at all in our 2012 stores. They all started pretty much exactly the same way with the exception of one or two markets that has actually launched at higher than this rate, but about 70% to 75% of our total. And then it ramps up to next year and then the third year they usually -- is when we expect it to hit the normal. In 2012, it was no different than that.

Okay, so you were in that 70% to 75% range in both Puerto Rico and Dallas, or was one better than the other?

No, I don't want to get down to specific markets, Jeff. All I can tell you is that we had some markets that performed much better than others. And I just assume not --

Sure, sure. Can you tell us how many of your 31 new stores this year, Cliff, will be in Dallas and how many will be in Puerto Rico?

Right, today, our plan is -- we have identified -- now, remember, we're still looking for this year, but we have identified one additional store in Dallas and two and, we think, three additional stores in Puerto Rico.

Okay, so as of today you would finish this year with eight stores in Puerto Rico and maybe six to seven --

No, just (multiple speakers) eight stores --

Eight stores in Dallas?

That's correct, and six or seven stores in Puerto Rico.

In Puerto Rico? Correct, okay, thank you.

Sam Poser, Sterne Agee.

I have a lot of questions. Thanks for taking my call. I just want to understand this number -- I just want to talk about the 53rd week effect. So if it's $17 million off the $182 million you did last year, you're basically shifting -- you have got about a 9.5% positive help to Q1 versus last year and about a -- on a comp basis and about a 9.5% -- Q2 and then a 9.5% hurt to Q3, if I'm thinking of it from a revenue perspective. If all other things being equal, forget about the new stores and all that other stuff.

Well, that's why we are giving you the numbers so you can calculate what -- rather than -- we're not giving guidance at this point in time, so we will let you put it in your model, let you calculate it from there. But yes, obviously it's a significant shift and that is why we are highlighting those numbers. We would rather give you the exact number than a percentage.

But my question there is, though, if the -- so in Q2 you could run a flat comp and have revenues up a lot of just because of the calendar shift?

Well, keep in mind from a comp standpoint we are going to shift -- when we report a comp to you, we will report it on a comparable week-to-week basis.

Right, I understand that.

So like you just said, the comp could be relatively flat and we could still have a significant increase in Q2 in overall sales from the standpoint that we are shifting the weeks that are within the quarter.

So on a flat comp, you would see big leverage in occupancy both on the -- and on SG&A, while in Q3 if you ran a flat comp it would go completely the other direction, you would de-lever both of those quite a lot on a flat comp just because of the shift in the calendar.

Right, (multiple speakers) big or little, but yes, directionally, you are exactly right is that because you are shifting a lot of sales into Q2 but the expenses are not -- especially the fixed cost, now we will shift some advertising into Q2 along with those sales for back to school but the fixed cost like rent you will be able to leverage nicely in Q2. But then you will have a harder time, depending on what your comp is in the third quarter because of that shift in sales productivity.

Right, okay. How much of the inventory did you like versus last year did you receive early? Of that -- your inventory is quite high right now. How much of that inventory came in early because of the shift versus last -- shift of Chinese New Year? And could you tell us has your inventory -- is your inventory more normalized at this point in the quarter?

Well, Sam, here's what I can tell you on inventory is that we ended the year down in boots on a per-door basis, just like I said in my prepared remarks. We ended the year actually flat to slightly down on a per-door basis on fall product, sport shoes and such, and we ended the year up with athletic product mainly because of the sales that we lost the last two weeks of the year. And we had more dress product and more what you would term Easter kinds of shoes going into the first part of the year.

Now, you ask about where we are today, our sales, as we have been saying in the first quarter, are down, so our inventories are not back where we want them to be. We need to -- we've brought in -- we have sandals in the store out to sell. We have our athletic product is -- some of our running shoes are still in the store. So we're not quite where we want it to be. We are continuing to work on it. But we anticipate that our inventories will be somewhat where they are today at the end of the quarter from a percentage.

I guess my question is, is your sales were up slightly in Q4 but your inventory was up a lot more than your sales. Would you --

What you are asking me is, was the product fresh or not fresh? And I can tell you that the product was fresh. That's the question I believe you are asking is how much of the product from the increase in inventory was aged and/or fall product. I can't give you specifics on that, but I can just tell you that based against the previous year, it was down.

Okay, all right, well thanks very much and good luck.

Mark Montagna, Avondale Partners.

Just trying to understand in terms of just your promotions -- you had a good first -- your first quarter is obviously off to a weaker start. I'm trying to understand year-over-year because last year did so well, if you were to look at your promotions right now versus last year, would you say that you are promoting just as steep as last year, or are you even steeper than last year at this point?

We are promoting pretty much the same exact way we did last year, no steeper, no more aggressive at this point. The reason for that, Mark, is that we truly believe that the issue is weather-related. As soon as we get some warm weather and we can start selling some sandals, then that will determine -- and open up footwear -- that will determine whether or not we need to get more promotional. But at this point, it does us no good to get more promotional when the customer is not -- our customer, you have followed us for some time. Our customer buys today what she is going to wear tonight. It's a buy-now/wear-now kind of consumer, and she has not needed sandals and/or opened-up footwear of any kind. So there's no reason to get more promotional on that product.

Okay, and then with the tax refund checks that should be rolling in by now, have you seen any sort of positive impact from that? Is it possible for you to determine that?

That's a great question and here's what happened. Early in February, when the tax refunds weren't out, we saw a decrease in business. By the third week of February, when tax refunds started to arrive, we saw a nice bump in business and then the weather did turn very nasty from a snow and ice standpoint and that business slowed down on us. So we have not seen the full effects of more money in the marketplace at this point.

Okay. And, Kerry, what are the comp leverage points this year terms of occupancy and also SG&A?

Well, it's going to be different than it would normally be. Just like the conversation I was having with Sam about this shift in the sales -- is the productivity by quarter is going to change the normal ability to leverage activity. For example, while we could have a small comp in Q2, because we are shifting that big week of back-to-school into Q2 and there are not as much in the way of significant expenses to follow it, that we could see approximately 150 basis points of leverage in SG&A in Q2 -- if you take into account the shift of those sales, of $17.5 million, moving them into Q2.

So that's what I'm saying that, from a comp standpoint, we are going to give you the guidance one quarter at a time but, obviously, it's going to be a little different than it has been in prior years, what those leverage points are.

Okay, and then just lastly, last year, Kerry, you gave really good detailed guidance on preopening costs and how -- that it would impact gross margin and SG&A. Can you walk us through maybe some similar details for this year? Because you're opening a lot of stores, but it seems like you should have some opportunity on the cost line just because you are not in new markets. I'm wondering if you can help us understand the positive benefits for this year.

Well, one reason we went into it last year in such detail -- it was going to be a significant hit to earnings because of the acceleration and the growth. We're going to probably spend approximately the same amount of preopening costs in 2013 that we did in 2012. However, there's not going to be that acceleration. So you can build it in your model -- what was built into 2013 expense structure -- or 2012, was built into 2012, is going to be about what we are going to spend in 2013. So I didn't go into detail on the numbers because I don't see it as a big penalty because it is already built into the expense structure.

The difference, even though we opened several large markets and they took a lot of preopening cost, what we are seeing now is that we are going to open -- we're going to invest in existing marketplaces with additional advertising, like in Puerto Rico. When we open those two to three stores, we're going to spend a significant amount of dollars to open those doors because we don't have market penetration to leverage that advertising in. Same when we open one store in Dallas; we are going to see a significant amount of preopening costs in that market. In addition to that, we are opening in a lot of smaller markets or filling in smaller markets where we will still have a lot of advertising and other preopening costs. They won't be as high as on a per-store basis in those smaller markets that we saw in the prior years, but because there is more of them, more of those markets that we are going to be reinvesting in, more smaller markets that we are going to open up, that's why the preopening costs are about the same.

Okay, alright. Lastly, if you look out all the way to 2014, are you still looking at that year as a year of possibly opening up to two new markets?

Yes, we are. We are exploring that right now and we feel comfortable we can get at least one large market and possibly two. If we don't get a large market open, we would be looking at opening maybe some medium-sized market, one large and a couple of medium-sized markets. So we are still putting together our 2014 plan, but that would be the expectation of it.

Okay, great, thank you.

That does conclude our question-and-answer session. At this time, I'll turn it back over to you, Mr. Sifford, for final closing remarks.

Alright, thank you. Throughout my prepared remarks I touched on several initiatives that we are working towards 2013. I would like to take just a second and highlight them once again.

We'll enhance our brand and offering in women's nonathletic to capture the moms who are shopping our store for their athletic shoes and for their shoes for their kids and husbands.

Number two, we will plan to add 30 to 35 stores in the existing medium to large markets or new small markets. Back-filling existing markets will allow us to leverage advertising in markets that are under penetrated. We are reinvesting in our existing store base with 30 remodels and 6 relocations and, finally, we will introduce a re-energized marketing campaign that focuses on the family and showcases our exciting in-store experience.

We really do appreciate you joining us today and we forward to speaking to you about first-quarter results in May. Thank you again.

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