Shoe Carnival Inc (SCVL) 2013 Q2 法說會逐字稿

Good afternoon and welcome to Shoe Carnival's fiscal year 2013 second-quarter earnings conference call. Today's call is being recorded and also being broadcast on a 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 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 begin.

Thank you and welcome to Shoe Carnival's second-quarter 2013 earnings conference call. Joining me on the call today is Kerry Jackson, Senior Executive Vice President, Chief Operating and Financial Officer.

For today's call I'll give you a high-level review of the Company's second-quarter performance and provide some insight into the back-to-school season. Carrie will review the second-quarter financial results along with third-quarter guidance and we'll open up the call to take your questions.

As a reminder the 53rd week of fiscal 2012 caused a one-week shift in our fiscal 2013 calendar. This resulted in the second quarter of fiscal 2013 ending one week later on August 3 versus July 28 last year. We adjusted our reported quarterly and year-to-date comparable store sales results for fiscal 2013 to reflect this calendar shift.

Now to focus on our results for the second quarter in a little more detail. Comparable store sales increased 2.6%, driven primarily by women's non-athletic and children's footwear. Traffic was down low single digits while conversion, average transaction and average units per transaction were all up low single digits. Merchandise margins were down 70 basis points, partly due to the first week of back-to-school shifting from August to July.

Even though sales were just under our expectations, our profit margin of 28.9% was higher than the second quarter last year. Our selling, general and administrative expenses were well-managed, and as a result we were able to report second-quarter earnings of $0.29 per share. This performance was at the high-end of our guidance of $0.26 to $0.30 and exceeded our second-quarter earnings last year of $0.14 per share.

We ended the quarter with inventory up approximately 2% on a per store basis, which was in line with our expectations. We will continue to put pressure on our per store inventories as we move through the remainder of the year which supports our strategic plan to increase inventory turns.

Moving on to merchandise. As we reported on our last conference call, once spring arrived in late April, early May, the sales of traditional spring and summer products escalated. We experienced double-digit comparable store growth for the second quarter in categories such as molded footwear, canvas casuals and sport sandals. These categories drove comparable store sales increases in both the women's non-athletic department as well as the children's department.

Drilling down by department, in our women's non-athletic department, sales for the quarter were up high single digits on a comparable store basis. We were able to produce these results even though we continue to see sales declines in the dress category. We are very happy with the double-digit sales growth in our sport casual and boot sub departments.

The sport casual categories were driven primarily with molded footwear, sandals and canvas casuals, including a shift to canvas boat shoes from the more traditional leather versions. In boots we were happy with the performance of Western and the sport booty classifications.

In our men's non-athletic department, we ended the quarter with low single digit decrease on a comparable store basis. After a slow start to the sandal business in this department, we ended the quarter flat on a comparable store basis due to the strong performance of soccer slides. In addition to soccer slides, we did drive increases in the canvas casual classification but not enough to overcome the comparable store sales decline in boat shoes and the men's casual sandal categories.

Our children's business ended the quarter with a high single-digit comparable store sales increase. We experienced double-digit growth in children's non-athletic footwear as sandals for both boys and girls posted a comparable store sales increase in the high 40s.

In addition to sandals, we also experienced high single-digit growth in our children's athletic department as both boys and girls colorful running shoes continued to perform well.

In adult athletics comparable store sales were down low single digits for the quarter. The classification of product driving the losses in adult athletic for the second quarter were women's running and basketball, along with men's basketball and skate. The athletic business trended up from May and June. However we began to see a general slowdown in sales as we approach the comparable dates to the Olympic time period last year.

Turning now to store expansion. We ended the quarter -- second quarter of 2013 with 370 stores, operating in 32 states and Puerto Rico. The eight new stores we opened in the second 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 one store, expanded one and closed two. 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 remainder of 2013, we will continue our accelerated store growth with the opening of 11 new stores and relocation of five stores. We plan to close an additional three stores at the end of the year. For the year we expect to open a total of 32 new stores, including an additional three stores in Puerto Rico. At this time we plan to close a total of five stores this year. However the number of stores we actually close will depend upon further negotiations with our landlords. Therefore, we expect to end fiscal 2013 with approximately 378 stores.

As we look forward to 2014, we'll continue to aggressively grow our store base. We are in the process of finalizing the entry into several new markets for 2014 and we expect to see growth approaching 40 new stores. We believe our strong unleveraged financial position leaves us well positioned for additional square footage growth averaging in the high single digits over the next decade.

Now for some insight into our back-to-school results. As of today, a little over 90% of our markets have gone back to school. Also as of today, we are experiencing a comparable store sales increase of approximately 1% for the month of August. This increase in sales comes on top of the high single-digit comp we generated last August. We believe there has been a shift in product demand in our women's business into canvas casuals from brands such as Skechers, Keds, Vans, Bob's, Sperry and Roxy. This classification is performing very well but at lower price points than the mid-more traditional women's nautical and athletic styles that would normally drive sales during the back-to-school season.

In addition to canvas we are pleased with the double-digit sales increases we are generating in junior boots as booties and lace up boots are both performing well. This shift in demand as well as the decline in traffic account for the comparable store sales increase of 1%.

Other than traffic, key metrics such as conversion, units per transaction and average transaction are all positive for the month which is an indication that our customers are reacting positively to our assortment for the family.

Lastly, as I mentioned on our last call, we have identified about 20% of our stores where we will begin to test select better brands in our women's non-athletic department. These brands will offer great trend right product at price points we believe will be compelling to the mom already shopping our stores.

The test will begin in earnest by mid-September, when new displays will create a strong visual element as you enter the store. The strategy behind this test is to add four new brands.

The four new brands are Anne Klein Sport, Calvin Klein jeans, Report footwear and Steve Madden. In addition to these four new brands we have added Merrell to 56 doors which we will expand to 100 doors for holiday.

And as importantly we are expanding the selection of six brands currently offered in-store that our customers have demonstrated a loyalty to. These brands include Bare Traps, Clark's, Earth Origen, Roxy, Madden Girl and Bandolino.

To fund this test we have reduced our selection of tertiary brands that were driving lower retails, limiting our gross profit potential. This long-term strategy is a key element to growing our women's nonathletic sales to 30% of our overall sales from 26% at the end of 2012. We plan to accomplish this through a combination of unit growth and higher AURs.

I think you'll agree that these 11 brands offer our customer affordable fashion and is a great step in reaching our goal of becoming her store of choice for the entire family. I'll continue to keep you posted on the progress of this test.

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

Thank you, Cliff. I'll discuss our second-quarter financial results in more detail followed by information on cash flows and then conclude with our outlook for the third quarter of fiscal 2013.

Our net sales increased $34.2 million to $216.4 million during the second quarter ended August 3, 2013, an 18.8% increase as compared to net sales of $182.2 million for the second quarter ended July 28 for the second quarter ended July 28, 2012. Of this increase, $15.7 million was attributable to the one-week shift in the calendar due to 2012 fiscal year being a 53-week period.

Let me elaborate a little bit more on what Cliff discussed at the beginning of the call. Last year, our second quarter ended on July 28. As a result, the first week of Q3 of last year represented the start of back-to-school, and more importantly the second-largest sales week of the year.

Due to the calendar shift in 2013 our second-quarter ended on August 3, thereby pulling those back-to-school sales into the second quarter this year and out of Q3. The other components of the second-quarter sales increase included a comparable store sales increase to $7.3 million, and sales from new stores net of closings of $11.2 million.

Comparable store sales for the 13-week period ended August 3, 2013, increased 2.6% compared to the 13-week period ended August 4, 2012. The gross profit margin for the quarter increased 0.2% to 28.9%. As Cliff mentioned, our merchandise margin decreased 0.7%, while buying distribution occupancy costs decreased 0.9% as a percentages of sales. Approximately half of the decrease in the merchandise margin was attributable to the one-week shift in the back-to-school selling period into the quarter. As many of you know, the back-to-school selling period is highly athletic-driven and is a promotional period. The shift of this high-volume back-to-school selling week into the second quarter diluted the merchandise margin.

The leverage of buying, distribution and occupancy cost was primarily the result of significant increase in sales, most noticeably in occupancy costs. Selling, general and administrative expenses increased $5.3 million in the second quarter of fiscal 2013 to $53.0 million. The increase in SG&A was primarily due to a $3.1 million increase in expenses for new stores net of expense reductions for stores that have closed since the beginning of the second quarter of fiscal 2012, along with an increase in advertising expense to support the back-to-school sales in the last week of the quarter.

As a percentage of sales, SG&A expenses decreased 1.6% to 24.5% as our sales gain enabled us to leverage these costs for the quarter. Preopening costs included in selling, general and administrative expenses were $594,000 in the second quarter of fiscal 2013 as compared to $764,000 in the second quarter of last year. The decrease is based on lower average cost per store, and opening three less stores in the second quarter versus the same period last year.

The effective income tax rate for the second quarter of fiscal 2013 was 38.7% as compared to 38.3% for the same period in fiscal 2012. The annual effective income tax rate for fiscal 2013 is expected to be a little over 38%.

Net earnings for the second quarter of fiscal 2013 were $5.8 million or $0.29 in earnings per diluted share as compared to net earnings of $2.9 million or $0.14 per diluted share for Q2 of fiscal 2012.

Now turning to our cash position information affecting cash flows. During the first two quarters of fiscal 2013, we declared and paid in both quarters a cash dividend of $0.06 per share to our shareholders. This continues our quarterly dividend program initiated during the second quarter last year, and represents a 20% increase over the quarterly dividend rate in 2012. No purchases have been made this year under our share repurchase program.

We currently have $20.3 million available under our existing repurchase authorization. Depreciation expense was $4.3 million in Q2, and $8.4 million on a year to date basis. Depreciation expense is projected to be approximately $17 million for the full fiscal year.

Capital expenditures for 2013 include -- including actual expenditures during the second quarter are expected to be between $30 million and $31 million. Approximately $12 million of our total capital expenditures are expected to be used for new stores and $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 expectations for the third quarter of fiscal 2013. We expect third-quarter net sales to be in the range of $236 million to $240 million with the comparable store sales increase in the range of [1.0 to 2.5 million] -- or -- I mean percent. We currently expect comps for the fiscal month of August to be approximately 1% and the combined September/October period to range from 1% to 4%.

Earnings per diluted share in the third-quarter fiscal 2013 are expected to be in the range of $0.51 to $0.55. Included in the earnings expectations estimates for the third quarter is the expectation that the high end of our guidance, the merchandise margin would be relatively flat, buying distribution occupancy cost would delever a little more than 1%, primarily due to occupancy costs. And SG&A as a percentage of sales will show moderate leverage.

As a reminder, in the third quarter last year sales were $244.4 million and diluted earnings per share was $0.60. The lower sales in diluted earnings per share projected for the third quarter this year are a result of the calendar shift which as we have discussed moved an important back-to-school sales week into the second quarter this year from the third quarter of 2012. This shift had a positive effect on sales and earnings in Q2 but will adversely affect Q3 when compared with the prior year quarterly results. This concludes our financial review, now I'd like to open up the call for questions.

(Operator Instructions). Jeff Stein, Northcoast Research.

Good afternoon, guys. So Kerry, I'm wondering first of all if you could quantify the value of the sales shift in terms of cents per share.

We decided that at the beginning of the year that there was going to be too many judgment calls to be put into that to try to drive it down to an EPS number. We felt that we could give you exact numbers on the shift on a comparative basis on the top line, so we will give the sales. But the estimated EPS we're not going to give at this time.

Okay. I'm wondering if you could talk a little bit about a couple of merchandising issues. One is that you mentioned you're starting to see a slowdown in athletic, and I'm wondering, everybody knew you're going to go up against the Olympics. Were you kind of expecting that, or is this slowdown over and above something that you would've expected?

And as well, you also indicated in the ladies area you're seeing some growth in increased growth in canvas casual. It seems to be cannibalizing some of your higher price point product in other fabrics. I guess leather I would presume. And wondering if you've got the right mix of product heading into the fall or whether you need to make some midcourse corrections here.

There's a lot in that question. Let me attempt it. We went into the first quarter after last year 2012 a little worried about our athletic business because we had such a great first quarter. And we had a nice increase in athletic first quarter this year against first quarter last year.

So, to answer your question, we -- after March, April, May and June of showing nice increases in athletic footwear, we did not expect to see a slowdown in July and August in athletic. Let me be real clear. The slowdown is primarily in women's athletic, not in the other genders.

And what's happened there is in women's athletic, the customer has migrated more to the canvas casuals. And you've got to be careful in the way that you judge our athletic business against anyone else's, because when you -- you don't know how they classify certain products.

That's the reason I broke the rule today and talked about brands. So that you could understand -- try to help you understand that where we classify some things as nonathletic, and women's brown business, other retailers classify them as athletic. So I caution you not to judge too much on the women's athletic side. Although based on the way we judge athletic, our business has weakened in women's athletic.

As far as -- let's move onto product. Actually, the reason we are planning our -- the reason we are guiding between 1 and 2.5 points up for the third quarter is because of the positive things that are happening outside of athletic. As soon as we get through this weekend and into the middle part of September, back-to-school primarily is over. And at that point, the dependence upon the athletic assortment goes down considerably.

And we are really happy with the way that we see the nonathletic part performing, especially when you look at the fall product in the boot category. So I am -- half of our business for the quarter is done in the month of August. And we are up 1% going into today. And we are given guidance of 1% to 2.5% mainly because we are happy with the performance of our nonathletic department.

Very good. Kerry, I'm wondering -- or Cliff, if you could talk about the new markets that you're planning to enter next year.

Jeff, I don't really feel comfortable today, knowing that I've got competitors listening in on telegraphing the new markets that we are opening. I'd rather do that as we get closer to the new year.

Got it. Okay, thank you very much.

Jill Caruthers, Johnson Rice.

Good afternoon. Could you talk about boots? Clearly you even pleased with first-half performance, did you take any additional SKUs or anything, just given the trends going in favor of short booty and whatnot, and how are you positioning that category in the back half?

We certainly took additional SKUs in short booties. We were short there last year. Not to -- that's kind of a pun, I guess. But we were not happy with our inventory selection in the short booties last year, so we definitely increased our selection this year. And the whole lace-up booty program is working well and we did not have as many of those last year as we wanted.

What we did, Jill, I [can't] tell you that we increased our inventory levels going into the back-to-school, but what we did is we change the inventory from -- primarily high shafted boots to we did bring in some Ryder boots because we've seen an increase in the Ryder category. But we also brought in the short booties and the lace-up boots.

So I guess I'd call it more of a change in direction for back-to-school than an increased inventory level. However, now, as you move into the back half of the year, I am getting -- I've got to temper my comments, Kerry will get excited if I get too excited. But I'm getting pretty excited about what's happening in boots and the fact that the new boot assortment seems to be working. And we have actually asked our buyers to go back and look for additional boots. Based on that.

That change in the boot mix, is it a significantly variance in the price, or not really?

Not really. I wouldn't call it significant change. I think it will be a change as we move later into the year because we won't be as dependent upon that promotional sport boot category. But for August there wasn't a significant change.

Okay. And last question on eCommerce. You hired a VP to kind of run that back in June. If you could talk about any new progress there, clearly --

I don't know if you had an opportunity to get on our site, but we actually update our site about a month ago. It's almost all new, and I'd encourage you to get on there and take a look around. He really hasn't other than updating the site and improving some of the metrics in the performance of the site, he really hasn't had a chance to put a lot of his knowledge and his -- some of the things that he wants to do at the site, so therefore I didn't really talk about it in my prepared remarks. I think we will have more to say on eCommerce. Today it's just not really accretive to our comps either positively or negatively. So I don't have a lot to say.

We are excited, and as you know I think I've talked to you about this. We are excited to have him on board, we are excited about his vision for that site.

All right, I appreciate it so much. Thanks.

Scott Krasik, BB&T Capital Markets.

Hey Cliff, hey Kerry, how are you doing? I have a couple questions. So I guess I underestimated the impact on the merchandise margin from the weekly shift. So to the extent you can talk about Q3, and also the various shifts in Q4, will that have any impact on the merchandise margin one way or the other?

Well, I said in my remarks that we expected our merchandise margin should be relatively flat for the third quarter. And we've made the comment that in the second half of the year we expect merchandise margins to be relatively flat. As we are seeing higher priced product in the consumer gravitate to that, we expect to hold those margins relatively flat. So from that standpoint that's built into the guidance.

Is that -- since you lost the low margin high athletic, high BOGO week, would that be conservative then to even be at the high-end of the guidance, to still be sort of (multiple speakers)

The first week of back-to-school that we lost was not a high-margin week.

Right, I'm saying. You lose it out of the third quarter. So that should be good for the third-quarter margin.

I think it all depends on how consumers respond. If we end up with the 1 comp or the 4 comp, it really is going to depend how they come out of the shop for fall, when does the weather turn. So there's a lot of factors involved in that. So we felt that this -- while we still have that dilution in the second-quarter margin, because it is a nice margin quarter, and that diluted it by about half of our loss. It's hard to say right now looking forward.

The other thing I would like to add to that is we are really excited about this test in women's. We think it's going to be -- we think we have an opportunity for it to be accretive to margins. There's a lot of unknown there.

And so, we have been talking from the beginning that we are going to plan the margins flat so that we can address any of that product that may not move right up front. So I think a conservative plan based on the fact that the women's athletic business is not where we want it to be, and the fact we are wanting to be conservative on this women's test we're running, so we are conservative, but that's the reason.

Okay, that's helpful, thanks. Kerry, would there be any -- I know you're not giving Q4 SG&A guidance, but is there any preopening expenses associated with this big group of stores for next year going to be in Q4 this year?

A limited amount. All you will have is similar to what we had this year in the fourth quarter or in the last year in the fourth quarter was some preopening rents where we take possession of a store in order to build it out. We have to start recording some rental expense, so it's not significant.

Okay. And then just lastly --

(multiple speakers) we are looking to accelerate our growth around that 40 store is probably going to be more at the back-to-school level, so you're probably going to see the first quarter be a similar growth or in the range of what we had before. But a large increase will be back-to-school.

Okay, that's really helpful. And was this the quarter where we expect to be -- the earnings growth to be up year over year. Q3 you guided it down. Is it realistic given the benefit from the week last year to expect earnings growth in the fourth quarter?

We are -- we don't have earnings guidance. What we want to do is look at how the consumer response to our fall product. There's a lot of questions about how strong the consumer is right now. Is it just they're a little tired of athletic and we have some very difficult comps and we see a turnaround nicely? As we expect when we built that into the high-end of our guidance, if we can come out there with some strong comp increases because people are responding to the fall product, we are -- and relatively flat margins along with some leverage of the SG&A, we can give you those metrics of how we are perceiving the business under the idea that the consumer is going to be responding at the higher end of our guidance. But we are not at this stage going to put out an EPS number.

That's fair. Okay, thanks and good luck.

Sam Poser, Sterne Agee.

Good morning or good afternoon. Thanks for taking my call. A couple of things, Cliff. Since you've made the exception of speaking about brands, where do you have like GO Walk and stuff like that categorized? Is that in athletic or is that in somewhere else?

That's in the women's nonathletic department. We consider that to be a casual.

Okay. But like GO Run would be an athletic, I assume?

That is correct.

Okay. You said it very quickly, the men's boats shoe business had slowed down?

I want to caution you on the men's boat shoe business, because that was not the primary brand that you're thinking about. That was some tertiary brands that we decided to exit so that we could concentrate on the primary brand.

So we actually -- just for your clarification on that, we had an increase in the second quarter on the primary brand in men's shoes. So --.

We've heard the back-to-school business has been running later. Has there been a change in the way the month has progressed from a comp basis, and there's probably another 2.5 weeks left of back-to-school. Have you seen acceleration from week one of August 2 now, and that's part of the reason you're guiding the way you're guiding for the quarter?

That is an excellent question. And what's happening is exactly that. We see the two or three days, even -- we talked about this, I think this is the third year we've talked about it. But even more so this year than I can remember over the past couple of years. We tracked this right down to the market into the individual school, but right -- we see two, three days prior to school starting back that business accelerating unbelievably. And then it stays that way for about a week to 10 days, and then it normalizes back out.

So two things happen to us in the month of August. One, that what I just explained. And number two, Texas tax-free moved a week earlier that it was a year ago, which took it a week further away from their back-to-school, if that makes sense. So the Texas tax-free wasn't as important for us as it has been in the past. It was a great event, but it didn't produce the kind of comps that we would've expected.

Now Texas has gone back to school, and the numbers accelerated going into back-to-school and continue to accelerate afterwards. So there's a lot of ins and outs on back-to-school, and you really don't have a firm grip on it until the first or second week of September.

And then three more things. Number one, the calendar shift, just a follow-up on Scott's question. The week ending November 3, November 2, that additional week, how does that week compare as far as size to the week ending February -- the last week of the year? In the general sense, how do you think about that because you got hurt extremely badly last year in the last week, I think you said you comped down 17% because of the shift of the tax refunds. And so on.

So how should we be thinking about that, just from a numbers basis based on the weights of the various weeks?

Are you asking what might be the differential effect of the shifting weeks and also losing a week out of the period? Are you looking for that number?

The additional week -- you told us -- yes. I'm looking for sort of trying to zero in on that -- yes. I'm trying to zero in on that.

If you're looking at the effect of the Q4, we are guessing it's right around $12 million between the loss of the week and the shifting of weeks of one going out and the one coming in. Because at the beginning of the quarter, the weeks are a little bit stronger than at the end of the quarter, just because you're in the prime of the fall selling season versus the clearance period in late January, early February. So that's what the number would be is a year-over-year effect of about $12 million.

On the negative.

Correct.

To that respect. But then you have the bad comps (multiple speakers)

Really that's because you've got 14 weeks versus 13 weeks.

Correct, but then you had the horrible comp the last 10 days of last year. How does that work into that sort of -- assuming that taxes go back to normal? Is that a few million dollars the other way?

They don't change things at the end of the year like they did last year, it's certainly an opportunity.

Okay. And the Merrell -- how many styles of Merrell are you getting in these 50-some odd stores, soon-to-be 100?

It's a broad selection, a very broad selection in both men's and women's. I can't give you the number of styles because to be honest with you, I don't know the answer to that off the top of my head. But it is a broad selection. We stand -- when you walk in our stores, the 56 stores that have Merrell today, we know -- you know we are in the Merrell business.

And lastly, your inventory levels are clean relative -- they're in line with last year and so on. What is like your long-term inventory turnover goal here? Because you are really not turning the goods that fast, I know it's somewhat to the nature of your business but there's probably some significant opportunities there.

In actuality, for public companies that report, we probably -- there's only one company that beats us from a turnover stand -- annual turnover standpoint, so -- we turn our inventories pretty quick. We think there's a lot of opportunity there, okay? And that's one of the reasons that I mentioned in my prepared remarks that we were going to continue to put pressure on inventory. So we plan on increasing our inventory turn over the next year, the year after and the year after that.

Thank you guys very much. (multiple speakers) thank you and good luck.

Chris Svezia, Susquehanna Financial Group.

Hey guys, good afternoon. I'm just curious, the cadence. Can you just (inaudible) the cadence for the third quarter versus last year from a comp perspective? Just how did it -- remind us how it progressed as the quarter unfolded, what you were up against?

We were high single digits for the month of August. High single digits. And most of that came at the end of August. In fact if you were to compare the three weeks of August that we just -- we are going to complete tomorrow -- the four weeks of August we're going to complete tomorrow against the four weeks -- the same four weeks a year ago, we were up low teens. So, just to give you an idea of the kind of comps we were driving towards the end of August.

Then September was mid-singles in October was long singles. Am I right on that? So we were not very happy with our October performance last year after coming off a strong August and a somewhat strong first half of September.

You probably don't remember, but when we had our third-quarter conference call, we talked about the fact that we stayed strong through the middle of September, and then, towards the tail end of September and October we were not happy with the way things went. So even though we produce a low single digit comp in October, we think there's opportunity there, we think there's opportunity in the nonathletic business in women's, primarily.

And the other thing obviously to add to that is our kids business has been on fire since the beginning of the year. We don't see that slowing down either.

Okay. And then -- thank you. And what -- are you making any assumptions for the change in the women's -- the new brands you are getting in your comp assumption, or are you just assuming the comp progression gets easier, some of the boot and nonathletic business continues to accelerate? Is that the general assumption because (multiple speakers)?

We -- obviously when we came out with our guidance, part of that guidance was the fact that we thought the women's nonathletic business would accelerate as we got through the quarter. So yes, we are looking for increased activity in women's nonathletic.

Okay. Just a quick question on advertising. Remind us, I know you guys are doing national advertising next year, bit are you guys planning any test for national advertising? And if so, when is that?

We are planning a test in several of our regions. Emulating a national buy. We're going to do that in September, in fact that starts in two weeks.

Okay. Good. And then, just lastly, the fourth quarter -- I know everyone keeps holding you guys to the fourth quarter, but I'm going to throw my hat into the ring here. When we think about last year, you had really significant increase into SG&A. And that was in part, I assume, to the extra week.

How do we think about it optically this year? Does it completely reverse itself? Say, you do a two comp for the fourth quarter, for an example? Does that give you a substantial amount SG&A leverage because you don't have the cost associated with that extra week? How do we think about that?

You're right about that cost falls out. But you have to also keep in mind that we've continued to grow. So now we have the effect of -- for any store you're going to open in the fourth quarter will be at the very beginning of the quarter, so we'll have the full-year effect.

We are also going to have a grand opening for those stores, so somewhere between the end of the third quarter beginning of the fourth, we're going to open around 11 stores. So we will have higher dollar-wise SG&A on a year-over-year basis.

However, if we can get in that mid-single-digit range as we are projecting on the high end for the second half of the third quarter, then we should be able to see some flat SG&A as a percentage of sales to possibly slightly leverage.

Okay. Okay, thank you very much guys, and all the best.

(Operator Instructions). Mark Montagna, Avondale Partners.

A question about the focus on inventory turn. I think this is the first time I've heard you discuss that as an objective where you've really called it out. And I'm wondering how you plan on doing that? Is that through smaller order quantities, trying to deliver more -- get more styles delivered more frequently so you have confidently get this sense of change? Or is eCommerce factoring into that in any way?

There's -- basically going to approach this two ways. One, we're going to change the way we flow the merchandise, not bring so much in toward the first of the quarter, but flow it in closer to the way the customer shops us. That's number one.

Number two, we're going to rightsize the inventory in our smaller volume stores. That's one of the issues that we've had as the inventories in our smaller volume stores have not been at the right quantity. So, we are going to -- we've done a lot of study on that, so we're going to rightsize the inventory there.

And I think those are the first two big initiatives this year and as we move into next year. Here's one thing we don't want to do, so that I'm really clear on this. One of the things that makes Shoe Carnival special helps us against the other competitors within our grid, is the fact that we have a broad selection of product. We're going to continue to have a broad selection of product. And then, the product that we truly believe in, we have deep runs. So that the customer sees the value when they walk in our store. There is a value to the fact that she doesn't go store to store to store to find sizes.

We are committed to both of those things. But we probably -- not probably, we know that we, in some of our smaller volume stores, we've carried too much inventory, and we have not flowed the inventory the way we should flow it. So those are the two initiatives for this year.

All right. So then with those smaller volume stores, if you reduce the inventory, are you looking to reduce the style choices or just reduce the depth of the product?

I'm going to tell you we will probably do both.

Okay. Then yourself, and it sounds like the rest of the industry is very focused on shorter boots versus taller boots. How would that play out if we actually have a cold fall for a change?

(multiple speakers) can I -- I want to clear that up a little bit. We're very excited about what's happening with shorter boots today, and we think boots and booties are going to be really important. We think lace booties are going to be important as we move through the fall, but I'm going to tell you, we are getting some very good reaction to Ryder boots and dress boots with higher shafts on them. So it's not all about -- maybe they don't come all the way up to the knee, but midcalf. But it's not all about shorter boots. I think we're going to be fine there.

I think the way you're going to see the difference is in the sport -- what we call the sport boot classification. And those are the sueded boots, with the fur line. I think you're going to see a major -- a big difference in the assortment there.

When you say a big difference, are you talking less assortment or (multiple speakers)

We're moving product -- we are moving pairs out of that category into shorter booties and lace-up boots and midcalf dress and past midcalf dress into Ryder boots.

You had mentioned customers gravitating to higher priced product. Is that really another way of saying they're gravitating more towards fashion versus basic?

It really depends upon how you want to classify basic product. Some of the brands I called out that we are going to buy -- we're going to expand like Clark's and Bare Traps and even Earth Origen, those are -- you would consider those more basic in nature. But they drive a price point in the high 40s, high 50s.

So, I don't know. We've seen a lot of action with those brands, and are pretty excited. So, I think what -- what we have done in the past is we've carried a large selection of product that retails under 30 and under 25. We're going to cut some of that product back because we don't think we need all the styles that at those retails that limits the amount of gross profit that we can earn on every pair we sell.

So, and we're going to expand that into product that the customers have already voted on that I just mentioned like Bare Traps, Earth and so on and so forth. That's -- when we say gravitate to higher priced product, that's what we mean, I believe.

And just lastly, if next year you're going to look to open 40 new stores, are you expecting the average preopening cost of those stores to be essentially the same as this year, but when you look out to next year obviously you're going to be entering some new markets, are we also going to deal with what we dealt with last year where you entered Dallas and Puerto Rico and you have just higher associated preopening expenses?

We are still working through -- the big volatile item when we have a growth like that especially in new markets is advertising. We're still working through how the benefits of being a national advertiser versus the grand opening of concentration we have, so it's highly likely that the average cost per store for grand opening will be higher. I don't know that it will be as high as it went in 20012 when we opened Puerto Rico and Dallas.

Okay. (multiple speakers)

We will have a handle on that as soon as we finalize the major cities that we are going to enter.

Okay.

We are in the process of doing that now.

Could that be three major cities or you're just looking at two?

There is a possibility that a third major city could come in there. That's one of the things we are working through right now.

Perfect, thank you.

There are no further questions at this time. I'd like to turn the conference back over to your speakers for any additional and/or closing comments.

We really do appreciate your joining us today, and we look forward to speaking with you again on our third-quarter call. Thanks very much.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation.