Shoe Carnival Inc (SCVL) 2013 Q1 法說會逐字稿

Good afternoon, and welcome to Shoe Carnival's fiscal year 2013 first-quarter earnings conference call. Today's call is being recorded and also being broadcast live webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited.

This conference may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the Company's actual results to be materially different from those projected in such statements. These forward-looking statements should be considered in conjunction with a discussion of risk factors included in the Company's SEC filings and today's press release. Investors are cautioned not to place undue reliance on these forward-looking statements which speak only as of today's date. The Company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the forward-looking statements talked about during this conference call or contained in today's press release to reflect future events or developments.

I will now turn the call over to Mr. Cliff Sifford, President, Chief Executive Officer, Chief Merchandising Officer of Shoe Carnival for opening comments. Mr. Sifford, please again.

Thank you, and welcome to Shoe Carnival's first-quarter 2013 earnings conference call. Joining me on the call is Kerry Jackson, Senior Executive Vice President, Chief Operating and Financial Officer. For today's call, I'll give a high-level review of the Company's performance and provide some insight for the back-to-school season. Kerry will review the first-quarter financial results along with the second-quarter guidance, and then we'll open the call to take your questions.

Before I start with my prepared remarks, I would like to let you know that our hearts and prayers go out to those suffering from the loss of life and property from the recent Oklahoma City tornadoes. We are thankful that all our employees are accounted for and that all survived this disaster. Now, on to the call.

It is important to note that the 53rd week in our fiscal 2012 caused a one-week shift in our fiscal 2013 calendar, resulting in the end of our fiscal 2013 first quarter being shifted one week later to the 4th of May, as compared to the 28th of April for the prior year. This shift will affect all quarters, and if there are seasonal influences near the respective quarter end dates, our year over year sales comparisons may be impacted. Our reported quarterly and year-to-date comparable store sales results for fiscal 2013 and our public disclosures are being adjusted for this shift.

After a slow start to the first quarter, we are pleased to report that sales improved dramatically during the latter part of the quarter. This improvement in the sales mitigated our comparable store sales loss for the quarter to 0.8%. This was better than our expectations for comparable store sales of down 2% to 4%, which we discussed with you at the beginning of April. This better-than-expected performance was driven primarily by a low single-digit increase in athletic footwear as more seasonable winter weather patterns suppressed sales of opened-up footwear. As a reminder, same-store sales were up high single digits for the first quarter last year.

Traffic for the quarter was down high single digits, and conversion was flat. Average transaction was up high single digits with average units per transaction up low single digits compared to the prior-year period. Merchandise margins were down 90 basis points, primarily due to the lower margins at both dress and dressier sandal product as we got more aggressive to accelerate sales in these categories for Easter. Although our gross profit margin of 29.5% was lower than the first quarter last year and our selling, general, and administrative expenses were higher on a dollar basis, these results were also better than we expected. As a result, we were able to report first-quarter earnings of $0.47 per share, which exceeded the top end of our expectation.

In our e-commerce store, we continue to improve the site and consumer experience to ensure brand consistency across all touch points. While we don't disclose sales or profitability of any individual store, we are pleased with the progress we continue to make in becoming an omni-channel retailer. And finally, we ended the quarter with inventory up approximately 5.2% on a per-store basis. On-hand unit inventory ended the quarter up 3.2% on a per-store basis with increases in children's shoes, which we believe will continue to outperform our plan, and certain categories of women's shoes that are producing strong sales. In a few moments, I'll provide more detail on this category strength when I review the women's non-athletic product performance.

Moving on to merchandise, there is no question that the combination of the change in tax policy along with the colder weather patterns of February and March had a negative effect to the early sales of opened-up footwear and athletic shoes. However, once we entered the second half of the quarter, our customers began to react favorably to our selection of athletic shoes for the family. In our women's non-athletic department, sales for the quarter were down mid single digits on a comparable store basis, as sales were impacted negatively by the lackluster performance of opened-up footwear. We were pleased with the performance of our women's junior classification as canvas and fabric shoes continued to produce robust sales results. As I mentioned on our last call, we have identified about 20% of our stores where we will begin to test select better brands which offer great trend-right product at price points we believe will be compelling to the mom already shopping in our stores. Shoe Carnival is already her favorite store when it comes to athletic shoes for her as well as footwear for every occasion for the rest of her family. We expect to deliver this product early in the third quarter, and I will continue to keep you posted on the progress of this test.

In our men's non-athletic department, we ended the quarter with a low single-digit decrease on a comparable store basis. Once again, losses were driven primarily from the sandal categories. As you would expect, the cold, wet weather helped drive a mid single-digit increase in the men's casual boot category. Our children's business ended the quarter with low single-digit comparable store sales increase. This increase was driven primarily from girls and boys athletic as our customers continued to react positively to color. The key categories in kids' athletic were infant's athletic and girl's and boy's running.

In adult athletics, comparable store sales were up low single digit for the quarter. The classification of product driving the gains of adult athletic for the first quarter were women's walking, men's and women's running, and men's retro basketball. As we have previously mentioned, color is still the lead story in running shoes for both men and women. We continue to be excited by the performance of our athletic business as we were able to produce a comparable store sales increase on top of a record-breaking first quarter last year. Although it is very early in the second quarter, we are pleased with our early results with comparable store sales increases in the high single-digit range. As expected, when more seasonable spring weather patterns arrived, in addition to athletics, customers have begun to respond favorably to our spring and summer non-athletic product.

Turning now to store expansion, we ended the quarter, first quarter of 2013, with 364 (sic - see press release "363") stores operating in 32 states and Puerto Rico. The 13 new stores we opened in the first quarter were primarily in existing markets as we continue with our strategy of opening new large markets on a biannual basis. In addition to our new stores, we relocated three stores. 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.

For the second quarter of 2013, we'll continue our accelerated store growth with the opening of 10 new stores, and we plan to close two stores. For the year, we expect to open a total of 33 new stores, including an additional three stores in Puerto Rico. At this time, we plan to close five stores this year. However, the number of stores we actually close will depend upon further negotiation with our landlords. Therefore, we expect to end fiscal 2013 with approximately 379 stores. We believe our strong unleveraged financial position leaves us well positioned for additional square footage growth over the next several years.

Lastly, looking forward to back-to-school, we believe that we continue to be in the midst of a strong athletic shoe cycle. As you all are aware, back-to-school is consistently driven by athletic footwear, and as a destination shoe store for back-to-school, we are encouraged by the continued strength in this category year to date. As I mentioned earlier, we have seen very positive results in our non-athletic department in fabric casuals, vulcanized canvas, and the nautical categories, and we feel very strongly that these categories will only get better as we move into the back-to-school time period. Our buyers have been laser focused on these trends and are committed to having adequate depth on our shelves to take advantage of these opportunities. Now, I would like to turn the call over to Kerry Jackson for details on our financial results.

Thank you, Cliff. I will discuss our first-quarter financial results in more detail followed by information on cash flows and then conclude with our outlook for the second quarter of fiscal 2013. Our net sales for the 13-week first quarter ended May 4 increased $9.7 million, or 4.3%, to $232.3 million as compared to $222.6 million for the 13-week first quarter of fiscal 2012 ended April 28. Comparable store sales for the 13-week period ended May 4, 2013, decreased 0.8% compared with the 13-week period ended May 5, 2012. Of our $9.7-million increase in net sales, an increase of $14.4 million from the 44 new stores opened since the beginning of fiscal 2012 was partially offset by a comparable store sales decline of $2.9 million and a $1.8-million loss in sales from the seven stores closed since the beginning of fiscal 2012. The gross profit margin for the quarter decreased 1.3% to 29.5%.

Our merchandise margin decreased 0.9%, and the buying, distribution, and occupancy cost increased as a percentage of sales by 0.4%. The decrease in our merchandise margin was primarily the result of comparatively slower sales of our high-margin open dress and sandal footwear categories. The increase in buying, distribution, and occupancy was primarily in our occupancy costs. Typically, we need a 2% to 3% comp increase to leverage our occupancy costs.

Selling, general, and administrative expenses increased $2.8 million in the first quarter of fiscal 2013 to $53.4 million. The increase in SG&A was primarily due to a $2.9-million increase in expenses for new stores net of expense reductions for stores that have closed since the beginning of fiscal 2012. Other significant changes in SG&A for the quarter were increases in compensation and advertising in comp stores and decreases in incentive compensation and healthcare expenses. As a percentage of sales, SG&A expenses increased 0.2% as we were unable to leverage the increase in expenses due to our comparable store sales decline. Pre-opening costs included in SG&A were $717,000, or 0.3% as a percentage of sales, in the first quarter of fiscal 2013 as compared to $1.2 million, or 0.5% as a percentage of sales, in the first quarter last year.

We opened 13 stores in the first quarter of both fiscal years. The decrease in expense between the comparative periods was primarily attributable to a decrease in advertising, as during the first quarter of fiscal 2012, six of our 13 new locations were in Dallas, Texas, which represented a new major market for us. The effective income tax rate for the first quarter of fiscal 2013 was 37.4% as compared to 38.5% in Q1 last year. The decrease in the effective income tax rate between periods was primarily due to certain discreet quarterly decreases in income tax expense recorded during Q1 of fiscal 2013. Net earnings for the first quarter of fiscal 2013 were $9.5 million, or $0.47 in earnings per diluted share, as compared to net earnings of $11 million, or $0.54 per diluted share, for Q1 of fiscal 2012.

Now, turning to our cash position and information affecting cash flow, during the first quarter of fiscal 2013, we declared and paid a quarterly cash dividend of $0.06 per share to our shareholders. This continues our quarterly dividend program initiated during the second quarter of last year and represents a 20% increase over the quarterly dividend rate in 2012. No purchases were made during the first quarter this year under our current share repurchase program. We currently have $20.3 million available under our authorized share repurchase program.

Depreciation expense was $4.1 million for the first quarter. We expended $6.9 million for the purchase of property and equipment, of which $6 million was incurred for new stores, remodeling, and relocation. Lease incentives received from landlords was $734,000. We opened 13 new stores and relocated three. No stores were closed during the quarter. Capital expenditures for fiscal 2013, including actual expenditures during the first quarter, are expected to be between $31 million and $32 million. Approximately $13 million of our total capital expenditures are expected to be used for new stores, and an additional $13 million will be used for store relocations and remodels. Lease incentives are anticipated to be $8 million to $9 million for the year.

My final comments today will focus on sales and earnings expectation for the second quarter of fiscal 2013. We'd expect second-quarter net sales to be in the range of $217 million to $220 million, with comparable store sales increase in the range of 3% to 5%. Earnings per diluted share in the second quarter of fiscal 2013 are expected to be in the range of $0.26 to $0.30. Included in the earnings estimate for the second quarter is the expectation at the high end of our guidance that gross profit margin will be up slightly and SG&A as a percentage of sales would decrease approximately -- would decrease approximately 150 basis points.

In the second quarter of last year, sales were $182.2 million and diluted earnings per share were $0.14. The calendar shift due to last year being a 53-week year is significantly affecting our Q2 sales and earnings compared to the prior year Q2. 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 back-to-school sales into second quarter this year and out of Q3. If the 2012 calendar was restated to reflect the 2013 ending dates, Q2 sales last year would increase by $17.6 million. This concludes our financial review. Now, I would like to open the call up for questions.

Thank you. (Operator Instructions)

At this time, we'll take a question from Scott Krasik with BB&T Capital Markets.

Hi, guys. This is Kelly in for Scott. Thank you for taking my question. I just want to talk about your outlook for the comps, and given that comps are running up in the high single digits in May, and you guide to a mid single-digit comp for the quarter, could you just talk about the cadence of the comps on a monthly basis for Q2?

Well, what I would rather tell you -- this is Cliff -- is that as we get closer toward the end of July, the numbers get -- we start going into back-to-school. So we're a little more cautious on the back-to-school numbers. As positive as we are about what's going to happen in back-to-school with the current trend in athletic, we want to be cautious on those numbers for July, so -- with moving school dates moving around and the whole bit. So that's the reason for the caution.

Okay. And then just around your margin assumptions that are built in, given -- from what we've heard in -- from other retailers in our own channel check, but there seems to be still some sandal inventory built up in the channel. Just how confident are you in your margin assumptions? And what are you hearing from other people in the space about having to pull the trigger on promotions and just your assumptions around that and how confident you are that you can make that, the high end of your guidance, on the margin assumption?

So far, we haven't -- we've seen some promotional activity on sandals, but we feel very confident on the margins for the second quarter and especially where sandals are concerned because we've already planned promotions into that margin. So I'm -- I feel confident that we're going to -- and we're very pleased with where -- as soon as the weather turned warm, what happened with our sandal business and the opened-up footwear, it did turn on. Last year, and not to elongate this answer, but last year we felt like we moved sandal business out of the second quarter into the first quarter. Remember, last year was unseasonably warm. This year, because the weather got more -- righted itself, it became -- it was colder than last year, which it probably should be for the first quarter, those sandal sales are going to move naturally back into the second quarter. So that's the way we're looking at it, and we planned our promotions accordingly.

Okay, and on the same note -- on that same note --

(Inaudible)

Yes, sure.

Margins, we are going to -- built into high end of our guidance is our merchandising margins are going to be down a little in Q2, and we'll see some leverage against the higher sales on our BD&O, which will cause the overall gross profit margin to be up slightly. So we've taken a little bit of a cautious approach in our guidance to begin with because of the seasonal product. But in addition, the sales that we're pulling in that last week of August, or July, which are the start of the back-to-school, that timeframe is a promotional -- back-to-school is promotional, and the margins, while good, are not as good as some of the spring seasonal product. So we've taken that into account in our guidance.

Okay, great. That's helpful. And then just on the same note, as you've seen the traffic pick up since the weather has turned. Can you talk just about replenishment of sandals and how you're viewing that in the quarter?

We're taking the same exact stance we took last year. We bought -- we own the sandals, and we will not replenish them because the season, as it changes into back-to-school and becomes more athletic, we want to transition out of back-to-school into more fall-relevant product. So we're not reordering sandals.

Okay, and is it sandals, or is that all seasonal footwear?

Well, that was specifically to sandals. There's canvas and fabric shoes that are selling very well, and that product, we feel, will carry into September and early October. So that product, if available, will be reordered.

Okay, great, guys. Thank you very much.

At this time, we'll take a question from Chris Svezia's line with Susquehanna Financial Group.

Good afternoon, guys. Nice job.

Thanks, Chris.

Just curious, traffic, what was it like in April? And is your traffic positive as you've gone into the second quarter?

In April -- traffic was down in April mainly because of the shift in Easter. But the traffic for the -- so far this month is up. And it's up slightly, but it's up.

Okay, that's good. And Kerry for you. I'm just curious. I know you're not going to talk about third quarter, but I'm just curious, given a calendar shift and the impact that's going to have to some degree on the third quarter, what level of comp would you need to leverage the business in the third quarter, assuming flattish product margin? Curious your thoughts about that.

Well, we -- if we get a -- our 2% to 3%, we typically talk about a 1% to 3%, 2% to 3% of comp increase. We can -- that's generally a level that we can leverage our SG&A numbers. And I would see that being able to do that, if we could pull out a comp in that 2% to 3% range, that would create BD&O to be more flattish, buying, distribution, and occupancy, because of the occupancy costs themselves.

Okay. Okay, and then on the inventory piece, you guys are pretty comfortable with your inventories are at this point in time, with the mix of the sandal business, what's currently going on. Are you guys pretty comfortable at this point?

We're -- Chris, I'm going to answer it this way. Since the middle of April, I've been very comfortable with our inventory position.

Fair enough, okay. Fair enough. And I'm curious, Cliff, you mentioned -- I want to understand what this is. You mentioned fabric casual, nautical, and something else as key, what you're seeing right now.

Vulcanized canvas, which is -- we don't like to talk about brands, so I'm going to have to think about how I'm going to answer this question, but it's a skate-type product.

Okay.

Vulcanized skate product, selling very well, along with -- I'm telling, just about anything with fabric, because of the color and -- it is selling very well.

Okay. All right. That's good for now. And lastly, I'm just curious, how are you thinking about, or how Carl is thinking about the boot business and your planning for that category for the fall, just after everything we've gone through, just your thoughts about how you're thinking about that business for fall?

Well, Chris, we are -- we actually believe that because of some of the changing trends that we're seeing, that boot business is definitely going to shift. It's going to be -- there -- it's not going to be as much work boots. It's going to be booties and lace-up boots. There's all kinds of trends happening in boots. And we are actually planning boots up slightly for the fall.

Does that hurt your ASPs at all, or is it pretty neutral at this point?

Actually, as promotional as boots were last year, I don't think it hurts ASPs at all this year.

Okay. That's good to know. All right. Well, thank you very much. All the best, guys.

Thank you.

And moving forward, we will hear the next question from Jill Caruthers with Johnson Rice.

Good afternoon. A follow-up on the last question. Just could you talk about overall your AURs? It seems as though you're seeing nice gains, especially quarter to date when you said comps are up high single digits, but your traffic was just up slightly. Are you seeing greater price increases in a certain category, such as, broadly speaking, athletic or where are you seeing the biggest gains there?

Actually, in athletic, we're seeing nice -- we're seeing some AUR. Our AUR was actually down in our non-athletic department for the first quarter. And that was because we had to get more promotional as we moved through the quarter. AURs in athletic actually have been somewhat flattish and up just very slightly. So I'm -- we drove -- any business we're driving there, we're driving through payers.

Okay, okay. And then could you talk about back-to-school? Are you doing anything differently on the advertising front, or are you taking in some new brands or something that you're excited about?

Well, we would rather not talk about how we're going to market our back-to-school season, especially this early. I'll tell you that we're very confident in the marketing approach that we're going to take. And as far as new brands, I'd like to hold that off until the next quarter for competitive reasons.

Okay, but you're definitely seeing enough newness in the market to keep you optimistic?

We are. I tell you, I'm confident about back-to-school for two reasons. One, we are seeing newness. That's number one. And number two, the continuation. Last year, for the first quarter, our athletic business drove our first-quarter business, and there was a lot of -- there were some people that questioned whether or not we could repeat with a comp increase in athletic for -- going against those numbers. And we were able to do that. And we were able to do that without being promotional. And that gives me great confidence for back-to-school.

I appreciate it. Thank you.

Yes.

At this time, we'll take a question from Jeff Stein with Northcoast Research.

Cliff, I missed a few things you said at the outset with respect to AUR, units per transaction, and number of transactions. Could you repeat that for the first quarter?

Yes, Jeff. Our units per transaction were up -- units per transaction -- when we talk about that, we talk strictly shoes, was up low single digit. And our average transaction was up high single digit for the quarter.

And AUR?

AUR was up, in total, low singles.

And this is all footwear?

That is correct.

Okay. Question on the shift between quarters. So you're accelerating, let's call it $18 million, $18 million to $20 million of business into Q2 from Q3. Is there any shift that you see from between Q3 and Q4?

Well, it -- a little bit. What you're going to see is if you restated Q4 -- I mean, Q3 2012 to correspond to our 2013 calendar, what you're going to see is a decrease, it's overall sales of about $20 million. So we're picking up about $17 million, as I said, on -- earlier in my speech. And then in fourth quarter, you lose the entire week. That 53rd week falls out. So you won't see Q3 sales affected by this shift. So we're shifting that one week of back-to-school from Q3 into Q2. It's going to have a positive effect for Q2, but obviously, a negative effect for Q3.

And that would be, what, around $20 million?

Yes, if you restate the prior year to the current calendar.

Yes, okay. Okay. So can you talk a little bit, Cliff, about what brands are going into the 20% of the stores that are going to be getting the better product?

Jeff, we're -- I'm not ready to disclose that. I promise you we're going to disclose that on the third-quarter call. But for competitive reasons, I just don't want to put those brands out there yet.

Okay, and--

And the reason for me bringing -- can I say this? The reason for me bringing that up is that we had -- obviously, we had a management change here in October and November, and we brought in a new GMM that brought in a new strategy for our women's business. And we're extremely -- we're excited about some of the things that we are doing there to improve our women's non-athletic business. So that's the reason I bring it up. We think it's a positive. We believe that this is a good first step to getting our women's non-athletic business to a percentage of our total that we believe it deserves.

And this will be -- will any of this show up in Q2, or is this third quarter/fourth quarter?

Actually, it delivers -- some of it delivers in August, so it's not going to have any effect at all in Q2.

Okay. And Cliff, on the subject of Puerto Rico, I want to make sure I understand clearly. You said you were going to have three more stores. Did you mean three more than you had expected previously, or there's going to be three in addition to what you finished last year with?

There's going to be three in addition to what we finished last year. I apologize for not being clear on that. I was recapping the number of stores we expected to open the rest of the year, and three Puerto Rico stores are going to be added to last year's total.

Okay. In the warm weather markets where you opened new stores in the first quarter, how did those stores perform relative to plan?

Jeff, I don't have that in front of me. I'll tell you that we were pleased with the grand openings of all of our stores that we had in the first quarter, but it's really too early to tell how they are going to perform. The grand openings were good. We planned those grand openings in March, and we actually -- even though our March business was not where we wanted it to be, the grand openings were very nice.

Can you talk about the comp performance in the midwest in the first quarter versus, again, the warm weather markets, the south and southeast?

Yes, I can tell you this, because this is the way we grade our business. We grade it south, central, and north, and our southern stores were up low single digits, and the other stores were down. In fact, I can -- they were -- the southern stores were up low, and the north and central stores were down low.

Down low, okay. All right, great. All right. Thanks a lot.

Jeff, I'm going to clarify something I said earlier. Actually, the shift in Q -- the decline in Q3 sales, if you restate the prior-year Q3, was actually $21 million, not $20 million as I said a moment ago. And if you looked at Q4, the decline of sales on a year-over-year basis would be $11.7 million. So that rounds out the full year for you.

Okay. So $11.7 million reflects the extra week?

Yes.

Last year.

The net effect of the primary piece of it is losing that extra week.

Got it, got it. Okay. And, Cliff, I know you've mentioned that your sandal inventory since mid April is in good shape, but just for the record, can you tell us what your comp inventory in sandals were at the end of April?

I'll tell you that my -- you take soccer sandals out of the equation because that goes into back-to-school, our sandal inventory is actually down slightly on a per-door basis.

Got it. Okay. Thank you.

Women's sandals. All right, thanks.

(Operator Instructions)

At this time, we'll take a question from Steven Martin with Slater Capital Management.

Hi, guys, and congratulations on a good performance in a sloppy quarter.

Thank you.

Kerry, pre-opening expense worked out to be about $55,000 for the store -- per store for the stores opened in Q1. Should that per-store cost hold for the rest of the year? Are there any markets that are -- you're opening in some more in Puerto Rico. Is it more expensive or anything?

We are going to see a decline in pre-opening costs for the year. Let me double check Q2. And the big piece is the -- we opened those two large markets, both Puerto Rico and Dallas, and they were heavy advertising. We will actually see Q2 pre-opening costs slightly up over the prior year, and we'll see Q3 slightly down probably.

(Inaudible) Okay. And now that it's new management, is it fair to ask the buyback question?

You can ask. (Laughter)

No, the stock traded rather weak at points during the quarter, and doesn't look like you guys bought any back. So is that related to the fact that you had just paid a big dividend, or was there something else?

Well, we did not buy back. I mentioned that in our -- in my prepared remarks. Keep in mind that because this is a later -- it's a Q4. We don't release the numbers. We didn't release them until April 1, that we were -- the Company was pretty much locked up most of the quarter in buying back shares. So there really wasn't a lot of opportunity time wise, which was a little unusual for -- and it's normal for this quarter but unusual for most quarters.

Okay, but there -- so there wasn't any other reason? You hadn't made a decision because of your big use of cash in the fourth quarter?

No, that -- we'll take it on a instance-by-instance basis. We're committed to utilizing our share repurchase program. What we're not going to commit to is that every quarter that we'll utilize it. But we do want -- we think long term, that's a pillar of our return of capital to our shareholders and in increase in ROI to shareholders, so we are committed to using it, but we'll use it at various degrees at various times.

Okay. Cliff, question related to back-to-school in the back half. Without getting into what brands you expect to be big, what do you -- when you look at the ASPs or AURs for the back half, what do you think?

You're talking strictly -- was that question in relationship to athletic or in total?

Well, you can answer by category, but it was really a more in total.

Yes, I probably won't answer by category, but I'll tell you that we expect the average price to be up in the low singles. I don't -- we're not seeing the kind of price increases that we saw a couple of years ago -- over the past couple of years, let me say it that way, and we expect to see prices increase just in the low single-digit range.

And that includes the fact that you're going to bring in some more expensive product for some stores, but it's so small, it doesn't move it?

That's a 75-store test. It's a 20% of our total fleet, and I'd be honest with you, I don't know how much that's going to affect overall price points.

Okay. Thanks a lot.

At this time, we'll take a question from Sam Poser with Sterne Agee. Please go ahead.

Good afternoon. Thanks for taking my question. A couple questions. Number one, when you were -- you said earlier you were nervous about inventory up till April. Since April, you're happy about your sandal inventories. You buy about 50% of your non-Slide sandals as private label, and you can't really cancel those. Have you had to make a maneuvers on the branded side of that? And how do you look at that, thinking about next year and so on, as far as how you buy that kind of seasonal product? Will you buy more branded goods to give yourself a little more flexibility?

That's a bunch of questions in there, Sam. But let me say this. We adjust our own order as we can. I don't want to get into specifics how we do that, with who, whether it's private brand or branded, but you understand the business. And we, as you know, Shoe Carnival reacts pretty quickly to a trend, any trend, whether it be up or down, and we did that, and I think that's reflective in the margin being down 90 basis points.

But you can't really cancel first-cost goods, so the only thing you can cancel is the branded stuff. Have you had to cancel some product that you otherwise wouldn't have cancelled due to fact that you had no -- limited to no flexibility on first-cost goods?

I'm not really sure how to answer that question. If it's product we think is going to sell, we don't cancel it. If it's -- if we had product that -- see, we buy product and then we back it up. So bring it in in February, maybe March or January, and then you back it up for March and April. If the first order didn't sell, then you have to react to that. But --

All right.

The one thing you want to do, and you know this as well as anyone, is that you want to keep fresh, new product flowing in at all times. So if you bought something that was to deliver in April, and it was fresh and new, then we delivered it.

And we're talking more about, like, backup stuff on existing product. Anyway, secondly, Kerry, the calendar shift, you commented, I believe, to Chris' question, that you could lever occupancy on a low single-digit comp, or a 3% to 4%, whatever it was, in the third quarter. But given that about $20 million is moving out of that quarter into the second quarter, that -- you're going to need a much higher comp than that on the adjusted comp line to do that in Q3, as you would need much less in Q2, I would assume, just because of the way -- because you pick up that strong week and then you lose that strong week in Q2, then Q3.

Well, I will stand by my initial comments that if we can pull out in Q2 -- in Q3 a 2% to 3% comp, and the comp is on a comparable week basis, we should be able to leverage our SG&A.

Comparable week, so, like, the week ending -- the quarter ending October 5 this year versus -- excuse me --November 2 this year versus the week ending November 3 last year, that would be the comparison or would be a -- the fiscal comp.

Correct. No. It is the week-to-week comparison.

But if you lose $20 million out of that, how can you do that? If you --

There's a lot of advertising that follows that $20 million.

But on the occupancy, that's -- the advertising is in the SG&A, isn't it?

Yes, but I wasn't -- I didn't say anything about BD&O.

But I thought that's -- I think you might have --

If we're going to be flattish on the BD&O.

Right. You're going to need a much higher comp to lever the BD&O. Or --

Correct, yes.

Okay. And as you don't need much of a comp in Q2 to lever the BD&O because of that shift.

Exactly. That helped significantly.

And then just since we don't like to talk about brands, Cliff, does -- would -- you talked about your walking business, bright color walking business. I assume those are $55 slip-on shoes. And then somebody named Robert has something to do with some of those canvas shoes. And you haven't mentioned anything about molded footwear this time, so I thought I would ask. So could you --

Well, we didn't mention molded footwear this time because it wasn't a driver, mainly because of the weather. The much warmer -- anything that was open like that, Sam, did not sell as well the first quarter as it did last year.

Understood. And then lastly, and I'm -- do you feel that you're new GMM is an upgrade from the prior person that held the job? (Laughter)

I refuse to answer that question.

Thanks very much. Good luck.

Thank you, Sam.

And at this time, it appears we have no further questions in queue. I'll turn things back over to Management for any additional or closing remarks.

All right. In closing, we're looking forward to the back-to-school time period as we feel confident that we're well positioned to take full advantage of that sales period. We appreciate you joining us today, and we look forward to speaking to you about second-quarter results in August. Thanks again.

And again, this does conclude today's conference call. Thank you all for your participation. You may now disconnect.