Shoe Carnival Inc (SCVL) 2014 Q1 法說會逐字稿

Good afternoon and welcome to Shoe Carnival's fiscal year 2014 first quarter earning conference call.

Today's call is being recorded and is also being broadcast via live webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. This conference may contain forward-looking statements that involve a number of risk factors.

These risk factors could cause the Company's actual results to be materially different from those projected in such statements. These forward-looking statements should be considered in conjunction with the discussion of risk factors included in the Company's SEC filings and today's press release. Investors 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 first quarter 2014 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 will give a high-level review of the Company's performance for the quarter and Kerry will review financial results along with second-quarter guidance. And then we'll open up the call to take your questions.

The first five weeks of the first quarter were disrupted with harsh winter storms that negatively affected traffic across the chain. However, during the second half of the quarter, more seasonal weather conditions and a later Easter, allowed us to finish the quarter with a comparable store sales decrease of 1.7%.

Traffic for the quarter was down low double-digits, however, our strategy of elevating our branded assortment through the addition of better department store brands, led to an increase in all other metrics we measure ourselves by. Average unit retail and average transaction were up mid single-digits, while conversion and units per transaction were up low single-digits.

Even though we increased promotional activity around Easter, to elevate sell through of certain underperforming product categories, merchandise margins increased by 50 basis points over the prior year's first quarter. Our gross margin of 29.5% was basically flat to last year.

However, we were not able to leverage our expense structure under our lower comparable store sales. This resulted in earnings per diluted share of $0.45, which was at the low end of our guidance. Although we don't report eCommerce sales separately, we were pleased with the sales increases we experienced for the quarter. After the start of our national advertising strategy, we experienced a strong peak in both on-line's traffic and sales.

As I mentioned on our last call, we are in the process of moving away from our third-party fulfillment arrangement and transitioning to a shipping from our distribution center in stores. We plan to have this transition completed by the end of the third quarter. This is beneficial in many ways but most importantly, it will allow us to increase both the breadth and depth of our selection on the site and it will better utilize our store level inventory.

We ended the quarter with inventory down slightly on a per store basis. Although our plans called for slightly lower inventory levels, we are pleased with the content and we believe we are well-positioned for second quarter sales.

Moving onto merchandise highlights for the quarter. In our women's non-athletic department, comparable store sales for the quarter were down low single-digits. Dress shoes continued to decline as a category, as our customers continue to favor canvas casuals, flat sandals, and thanks to the weather, boots.

In our men's non-athletic department, we ended the quarter with a mid single-digit decline on a comparable store basis. Once again, it was all about casual boots, which experienced high single-digit sales growth on a comparable basis.

Our children's non-athletic business ended the quarter with a low single-digit comparable store sales increase. This increase was driven primarily by sandals and canvas. And athletic for both adults and kids combined, comparable store sales were slightly negative for the quarter. Strong categories were boy's basketball, kid's canvas, running for men and women, along with men's skate.

Turning now to store expansion. We continue to be focused on growth as we opened seven new stores in the first quarter and closed one store taking us to a total of 382 stores in 32 states and Puerto Rico.

For the second quarter of 2014 we will continue our accelerated store growth strategy by opening 16 new stores, 11 of those 16 stores will be in advertising markets that we currently serve. By in-filling these markets it allows us to more effectively communicate to our customers through enhanced advertising plans.

For the year we are still on plan to open between 30 and 35 stores. Our aggressive growth strategy requires detailed site selection analysis. To better support our decision-making process, we implemented a real estate modeling software program. This software takes our customer data and helps us to better understand where the typical Shoe Carnival customer lives and shops.

Our real estate team, working closely with the executive team, is utilizing this data to identify potential new sites. It will also provide us a better perspective on our existing stores and their long-term potential. This is an important tool as we continue our growth strategy of doubling the number of Shoe Carnival stores over the next decade.

Turning now to marketing. As we previously announced, we launched our first ever national cable television ad campaign, the first week of April. And we saw immediate results. Major cities across the US, where we don't currently operate brick and mortar stores, we're now top 10 traffic producers through our eCommerce site.

National advertising is a strategic initiative to enhance our long-term growth plans, not only within our existing markets, but also to create name brand recognition with potential customers and new markets. This increase in traffic and sales for eCommerce reinforces our belief that we are on the right path.

I am also excited to report that we added almost 800,000 new members to our Shoe Perks customer loyalty program. We are on track to double our membership from 2013 to over 6 million members. For the first quarter Shoe Perks customers accounted for more than 40% of our total sales. We believe our Shoe Perks members shop us more often than non-members and we know on average, they spend almost 35% more than non-members.

Looking at the second quarter, our customer continues to be effected by the microeconomic issues of higher fuel and utility costs, leftover from the harsh winter we all experienced. In addition, underemployment and unemployment continues to effect our middle to lower income customer base.

Also, as part of our national advertising initiative, we have shifted dollars from our traditional insert programs to a more aggressive television strategy; which we believe will drive brand awareness and sales as we enter the back-to-school and second half of the year.

Therefore, we continue to look at comparable store sales for the second quarter cautiously. Sales, month-to-date, are currently running down mid single-digits. It is our belief, that with this trend and the current uncertain economic environment, we will need to be more promotional as we navigate through this quarter.

Advertising trues up as we go to the letter part of the quarter and we are pleased with both the content and the message. We have spent a great deal of time preparing for the back-to-school time period, which begins in July from both a marketing and merchandise standpoint. So, while we look at second quarter cautiously, we expect to see a more normalized trend for the second half of year.

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

Thank you, Cliff. I will discuss our first quarter financial results, followed by information on cash flows, then conclude with our outlook for the second quarter of fiscal 2014.

Net sales were $235.8 million for the first quarter of fiscal 2014, as compared to net sales of $232.3 million for the first quarter of fiscal 2013, an increase of $3.5 million. This $3.5 million increase in net sales was driven by an increase of $10 million from the 39 new stores opened since the beginning of fiscal 2013. Partially offset by the comparable store sales decline of 1.7% and a $2.6 million loss in sales from the eight stores closed since the beginning of fiscal 2013.

Gross profit margin for the quarter was 29.5% and remained flat from the prior year. Our merchandise gross profit margin increased 0.5% from Q1 last year, while buying, distribution and occupancy expenses increased 0.5% as a percentage of sales. The increase in buying, distribution occupancy was primarily due to higher occupancy. As a reminder, we typically need a 2% to 3% comp increase to leverage our occupancy costs at our current rate of new store growth.

Selling, general, and administrative expenses increased $1 million in the first quarter of fiscal 2014 to $54.4 million. As a percentage of net sales, SG&A increased 10 basis points. The increase in SG&A was primarily due to a $2.3 million increase in expenses for new stores, net of expense reduction of stores that have closed since the beginning of fiscal 2013.

Another significant change in SG&A for the quarter was attributable to incentive compensation expense, which decreased $963,000 in the first quarter of fiscal 2014, as compared to the same period last year.

Pre-opening cost included in SG&A were $453,000 or 0.2% of sales in the first quarter of fiscal 2014, as compared to $717,000 or 0.3% of sales in the first quarter of last year. The decrease in expense was due to opening six fewer new stores in Q1 this year compared to Q1 last year. The change in pre-opening cost included in buying, distribution, and occupancy cost between the two period was minimal.

The effective income tax rate for the first quarter of fiscal 2014 was 39.7% as compared to 37.4% for the same period in fiscal 2013. The increase in the effective income tax rate between periods was primarily due to the expiration of certain federal tax credits, no longer available to us in 2014, and the passage of new tax legislation of Puerto Rico. The annual effective income tax rate for fiscal 2014, is expected to be a little over 39%.

Net earnings for the first quarter of fiscal 2014, were $9.2 million or $0.45 per diluted share as compared to our expectations provided on March 20, 2014, of $0.45 to $0.52 per diluted share. For the first quarter of fiscal 2013, we reported net earnings of $9.5 million or $0.47 per diluted share.

Now turning to our cash position and information on effecting cash flow. No purchases have been made this year under our share repurchase program. We currently have $20.3 million available under existing repurchase authorization.

Depreciation expenses was $4.6 million in Q1. Depreciation expense is expected be approximate $20 million for the full fiscal year. Capital expenditures for 2014, include actual expenditures during the first quarter, are expected to be between $33 million and $35 million.

Approximately $19 million of our total capital expenditure expected to be used for new stores and $8 million will be used for store relocations and remodels. Leases [expenditures] 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 2014. We expect second-quarter net sales to be in the range of $223 million to $228 million, with comparable store sales ranging from flat to a decline of 3%. Earnings per diluted share in the second quarter of fiscal 2014, are expected to be in the range of $0.12 to $0.16.

Included in the earnings estimates for the second quarter is the expectation, at the high end of our guidance, that gross profit margin will decline a little more than 1% and SG&A will deleverage by about 1%.

Approximately half of the decrease in the gross profit margin will be as result of being more promotional with seasonal merchandise in Q2. And the other half will come from deleveraging of occupancy and distributional cost, due primarily to higher pre-opening costs.

The deleveraging of SG&A is primarily due to higher advertising and pre-opening expenses. In the second quarter last year, sales were $216.4 million and our diluted earnings per share were $0.29.

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.

First of all, a little bit surprised about the current business trend, would've thought there would be some pent up demand. So I'm wondering is the weakness that you're seeing now regionalized or are you seeing it across the board?

And then I've got a follow-up question.

Jeff, the majority of the decrease that we're running month-to-date has to do with a shift in our advertising calendar. Part of the way is we funded our national advertising campaign was through our insert program.

And we eliminated an insert --excuse me, cut an insert way back from a distribution standpoint at the beginning of this month. The trend actually over the past several days has been much better. It's just that going against that insert beginning of this month, doug us a little bit of a whole.

Cliff, given the fact that television advertising tends to build over a very long period of time, wouldn't it be fair to say that as you move through the year you're going to continue to see this kind of trend? Because it -- well it would just seem that's how it would seem it was -- it's going to play out?

I think in any promotion where we've eliminated or cut back drastically an insert, we're going to see a decrease in sales for that particular time period. Fortunately for the second half of the year the majority of those inserts are intact.

Back-to-school is intact as we move through holiday, that's intact. I think we've eliminated one insert in the fourth quarter and cut back on an insert later in the fourth quarter.

So Jeff, to be honest, I think the reason I feel better about the second half is because the marketing trues up.

How many circulars -- how much are you cutting back on your circular program in a second quarter overall? So, looking ahead for the rest of the quarter and can you comment at all in terms of the number of BOGO weeks that you would expect to see this year in Q2 compared to last year?

I can tell you that we have not added nor will we -- we are not changing BOGO in any way. But to be honest with you, Jeff, I'd rather not comment on our marketing plans. Our competition does listen in on our calls and I just assume not comment on the market plan for second quarter.

Suffice it to say that we built that into the guidance any insert decrease that we are going to have.

Got it. One question for Kerry. Kerry, wondering is there any slippage in your store expansion program? In my model originally I had planned about 19 stores for the second quarter and it looks like you're a bit shy of that.

We are. It's just moving between quarters, we're still expecting 30 to 35 for the year. There's still some fluctuation of stores at the end. And certain stores that were anticipated to be in the second quarter have pushed into late in the third, early in the fourth.

Okay. Thank you.

Chris Svezia, Susquehanna Financial Group.

Hey, good afternoon guys. I guess just in the context of the second quarter, [I think run and carry] last year any color around what the calendar shift brought in terms of revenues or earnings? Can you just give us any color in and around that at all? From last year?

That would've been the 52 weeks versus --the 52 versus 53.

Right. Back-to-school week slipped into the second-quarter I think it drove revenues and I think drove some margin upside. So I'm trying to understand what that was.

It was, I don't have that with me. This year we're comp to that. So this year compared to last year, you won't have significant issues. To the best of our knowledge, at this stage, the back-to-school and tax-free days are fairly similar.

There's one change, Chris, the tax-free. North Carolina eliminated their tax-free event the last week in the quarter, or actually it's the weekend of the quarter.

Normally in the past what we've seen in cases like that is that over the period of back-to-school you don't lose the sales, you just lose the sales for that one event.

Okay. Okay. Can you just remind me again, I'm just trying to understand why did you guys change your advertising coming into this second quarter -- can you just go through that one more time, I was just a little confused about --?

What we did, Chris, is we took a look at every avenue that we use as an advertising vehicle. And if it did not give a return on investment that then we either cut it back or eliminated it. And that was a decision. The return of investment is obviously different than the sales it produces. It's going to produce sales, but not necessarily be profitable based on the cost of the insert.

So we eliminated those inserts. And to be honest with you, we felt that there would be a decrease in sales during this time period at the insert but that with a more normalized weather pattern -- this is last year as we were making these decisions, that we would be able to make that up during -- throughout the quarter.

To be honest with you, the loss in sales that we took at the beginning of this month, was a little north of where we thought we were going to lose.

So, so much for best intentions, I guess it's going to hurt you any way at the end of the day, it seems.

Well, I tell you what's going to happen. The fact and -- and Jeff Stein was absolutely correct -- television is a building -- from a marketing standpoint, builds over time. And as we continue this program and we back that program up with the key inserts like for the back-to-school time period and holiday, we feel we'll get nice results out of that. That's again the reason I feel better about the second half of the year.

Did you see anything at all as you started doing national advertising in April when that clicked on in-store? I know you commented online, but did you see any or can you draw any results to anything to happen in-stores in some of these markets?

No, I cannot give you a solid -- any results from in-store. We had -- Easter versus Easter, we were flat. Dead on flat. Easter versus Easter.

If you eliminate the first week of March and look at March and April, because if you remember the first week of March was rather snowy. And we had a quite a number of stores that were closed during the first few days of that month. We were actually just better than flat for that time period.

Okay, two last questions. One just on product. Athletic you mentioned that it was down slightly in the quarter. But I think you called out pretty much every product category there under the sun -- basketball, running, what --

Boy's baseball, men's basketball was not stellar during that time period. The basketball category is working right now in adults is all in the mall. It's all the prestige products. But skate, as far as the leather skate product was not good. The canvas skate product was good.

So we saw increases, and as I said, in running. We saw increases in boy's basketball and boy's and canvas for both girls and boy's. But there were decreases in other categories such as women's skate, women's basketball, men's basketball, past the canvas stuff.

Okay, and Kerry, just what's the comp progression as we go through the second quarter? I just had a vague recollection you were comping really strong coming into the second quarter last year and then obviously it slowed up as the quarter progressed. So --just kind of give us context of what we're up against?

We had a good April last year -- excuse me, a good May, a good June, and our July was slightly down a little over a percent.

Okay. All right, thank you very much. All the best.

Jill Nelson, Johnson Rice.

Good afternoon. If you could just kind of talk about your inventory content? It sounded like you increased promotional activity around Easter to drive sales, but then you're talking about anticipated higher promotions for second-quarter. If you could just talk about your inventory content for now?

Jill, let me talk a little bit about increased promotion for second quarter.

I do think that the economy had some -- it's not entirely the insert program that hurt our sales for the first quarter, I think the economy also played a major part in that. The customer seem to respond better, at least our customer, as you get a little more promotional. So our plan is to get a bit more promotional as we head into the second quarter, as we continue through the second quarter.

But as we entered into Easter, when we saw that Easter was not progressing the way we had it planned then we did get a little bit more promotional so we could keep our inventories clean. And that's one of the things that I think we do well. We react quickly to issues, whether good or bad. If sales are good we get back into that product category.

If sales don't trend the way we expect them to, we get our markdowns taken and we keep our inventories clean. Therefore we ended our quarter with inventories slightly down.

Okay and could you just talk about some progress on the women's non-athletic? I know you said dress was down, but I know you've expanded to some better fashion brands. If you could just give us an update there?

We're real please with the fashion brands. We have them currently in just over 100 stores. For fall, we'll expand that selection to about 140 stores. But we're excited about what's happening there.

Our customer is reaching up. And when you think about when I talk about the economy how it's affecting our customer, our customer that our higher end customer, for us, higher middle-income customers, she's out there and she's buying. So that's the reason our average price unit retail is up, our average transaction is up. And our average pairs per transaction are up.

So that tells me that the customer, that customer is not getting hurt in the economy near as much as the middle to lower-income consumer.

Okay and then just last one on the real estate modeling software program you mentioned. Wondering when, as you work through the data that it's giving you, when will that impact your store selection database? Because it sounds like it's a work in progress right now.

It is definitely a work in progress. We're getting familiar with the whole software program. But we've already made several decisions based on information that we derived from the reports that we're running.

But I do believe, to your point, that it's going to take some time for us to really understand everything this does for us. And, but -- and it's going to help us actually with our existing store base as well.

Okay, thanks much.

(Operator Instructions)

Mark Montagna, Avondale Partners.

Hi. Just question about the shift from leather footwear to canvas. With that shift you're going to, I would imagine, lower retails. And I'm wondering, how much of that would be the factor -- how much of that would've contributed to the disappointing comp? Then your comp guidance for the second quarter, is it a big--

Actually, our average, Mark, our average unit retail was up. So I don't-- our vendor base are pretty proud of their canvas products. So, yes a product, the canvas product sells for a little less than the leather product, but overall our average unit retail was up for the quarter. So I didn't really attribute the switch to canvas product -- our loss was driven primarily from a customer traffic standpoint.

Could the traffic be an issue of maybe some prices have gotten to high? Because I think they were up -- average unit retail was up a pretty high amount over the past three or four years. Is it possible that maybe you let things creep a little bit too high?

Well we ask ourselves the same question, Mark. And we did a store-by-store assessment on traffic versus unit -- average unit retail. And we found that that's definitely not the case.

Our terrific pretty much down across all spectrums of our business at the higher end stores and the lower end stores. The higher end stores, where we have the better product, however is selling product at a higher retail price and that's helping to mitigate their loss.

Then last question just deals with sandals. On the last call you had mentioned that sandals, I think you said were up mid-teens. I might've missed it, but did you address how sandals finished in the first quarter?

I said that sandals were up, I did not talk about how much. Our women sandal business was just shy of double-digit up.

In the first quarter?

Yes.

Okay. All right. That was all I needed. Thanks.

Jeff Stein, Northcoast Research.

Guys, when you're looking at where you're locating your new stores, it seems like you have a bifurcated real estate strategy now where you have the biggest chunk of your stores catering to more of this urban customer, very moderate customer. And then you've got these 100 stores soon to be 140 that are targeted more towards that upper middle-income customer.

So where are these 30 to 35 new stores that you're opening this year? How many of those would be in markets that are suited for that better fashion product? And on a go forward basis, doesn't it make sense to have all of your stores that you're opening in markets that would accept that type of product? Just to eliminate some of the volatility that you guys seem to see whenever we get into a slower economic environment?

Jeff, first of all, the better products going in to about 30 of the 30 to 35 stores we open up this year. So I'm not sure that you're correct that the majority of our stores are in an urban markets. It's about 40% are either African-American or Hispanic and the rest we consider to be suburban.

I don't know off the top of my head the breakdown of the 35 stores this year, but my guess, and I'm looking at Kerry right now, but my guess is that we're probably 70% suburban and 30% African-American. Or Hispanic -- I might be 60/40, but I'm not far off from that.

Sure. I guess the question would then be and I stand corrected, why wouldn't you want to open all of your new stores in the better markets?

Well, let me say this. Our best volumes stores, our largest volume stores in the Company are in markets that are either -- somewhere between 30% to 40% African-American or Hispanic. So we consider those, Hispanic or African-American stores. If they had that kind of percentage. But those are largest volume stores.

So yes, we get hurt during economic downturns for that, but -- when that happens, but our best stores continue to be in those markets. That is one of the strengths of our Company is that we market or market and merchandise our stores for that customer.

Kerry, I'm wondering if you could tell us in the first quarter what the comp store sales were in those 100 locations? If you would just isolate those?

I don't have that off the top of my head.

That's a number we can definitely get. I can tell you that the comp store sales between the suburban store, what we call suburban, what we call Hispanic and what we call African-America, were pretty much the same across the board.

Okay.

We didn't have bigger decreases in the African-American stores or the Hispanic stores than we did in our suburban stores.

You did or did not, I'm sorry?

Did not have significant differences between -- keep in mind that while we do have certain stores that over index to a certain ethnicity, very few of our stores are going to be considered completely suburban. And every store we're going to have we would typically mimic the population which is going to have some African-American, some Hispanic, and a majority suburban.

That's why I think when we look at our numbers that's why we're saying we're seeing traffic slowdown across the board. Because we're going to have every -- virtually every store influenced by a moderate to low-income consumer, whether that be in a different ethnicity of a, Hispanic or suburban. We think it's more related to income as opposed to ethnicity.

Okay.

And the comment I would make about the --on the real estate is that when we're making real estate decisions, we start looking at sites sometimes up to two years ahead of time. We might sign -- we try to sign the lease at least nine months ahead of time.

The slowdown that we're seeing right now that's been effected for -- has been fourth quarter and first quarter. So really all these decisions we've made on real estate for 2014 were almost all previously made.

Right. Okay. That makes sense. Just one comment -- one question on eCommerce. You mentioned that you saw a pretty sharp increase in sales once television was turned on.

And I'm wondering what have you seen in the way of conversion rates? In other words people are visiting your sites, but are they, has their propensity to buy since television was turned on increased, decreased, or remained about the same?

Our conversion rate is way up. That's something that we're very proud of. So not only is our traffic up, but conversion is up too. But conversion actually began to increase in our eCommerce site after we hired our new eCommerce VP. And we corrected some of the issues with the site. We started seeing conversion rates increase immediately after that and they have continued to climb.

So fairly happy with our conversion rates, Jeff. But it was incredible to us to see the spike, almost overnight, in these markets that we don't serve, markets like New York and LA and Philadelphia. The traffic in those -- terrific and sales in those markets spiked and in some cases into the top 10.

Are you including your eCommerce sales in comps?

Yes, we are.

Okay. Because in affect and if you're getting a big chunk of your sales from markets where you currently do not have stores, that kind of inflates the reported comp to some degree. I mean is there any way to isolate, for us, what percent of your eCommerce sales are coming from markets where you don't have stores?

A small number, beget the small numbers. Our eCommerce business has not been -- has not had an effect on our comps. And it had a very minimal effect on our comps this quarter.

Got it. Okay, thank you very much.

Mark Montagna, Avondale Partners.

Hi, just kind of following along with the eCommerce question. Sounds like you guys are doing pretty well with your eCommerce and I would imagine that it's going to continue to do well and keep growing. Does that cause you to rethink the average size of your new stores going forward on leases that you haven't quite sign yet?

I can't tell you that eCommerce has made us rethink that. But I will tell you that as we get familiar with this new software program and as we look at the kind of volumes we can expect in some of these markets we are we thinking of store size.

Okay. So that wouldn't -- you wouldn't be able to impact store size and can you actually impact it next year or are things too far in the pipeline?

No we've been able to impact it on some of the sites that we looked at, that we signed for the latter part of this year. And we definitely, that is definitely part of our strategy going into 2015.

Okay. That sounds great. Thank you.

Sam Poser, Sterne, Agee.

Hi. Thanks for taking my questions. Good afternoon, guys. A couple things. Number one, the new store -- can you give us an idea of what the new store productivity is looking like right now? And how you see that rolling out throughout the year?

Sam, anytime our existing comp base is not performing where we had the negative 1.7%, we'll see in our newer stores, where they've got a less-developed customer base, perform more underneath our expectations. So it's still early for the stores we've opened this year.

And the stores we open second half of last year we've now gone into a two quarters where we've had difficult time with weather, economy, et cetera. So it's really hard to judge new store performance right now from what we expect it to be the longer-term. So right now it's underneath what we would have expected under more normalized conditions.

Is it under the pro forma?

That's a relative statement. There's a lot more to a conversation than the performance sales.

Okay.

But--

Okay, yes.

Go ahead.

You were going to say but, so --

But the general statement is that against what we were expecting the store to do, it has under performed as a group.

Okay. Then you mentioned how many people do you have signed up on the Shoe Perks thing to this point?

We're a little over 3 million, I believe the exact number -- well it's over 3 million and we expect to end this year at 6 million. Or better.

I guess my question to you is, you said you added 800,000 in the quarter, is that correct?

Correct.

Are you -- are these -- you're adding customers. I assume those customers as you add them are shopping. So if you added 800,000 and 40% of your -- I mean how many of the Perks customers are actually coming back?

Because you added -- I assume most of those 800,000 people that you added shopped, which is already close to a 40% increase over -- it's close to 4% increase over what it was.

I think this time last year we were talking about -- I don't have the prepared remarks in front of me, but I believe Shoe Perks members last year first quarter accounted for a little over 20%. I wouldn't want that go into a report until I can verify the number, but I believe I'm close to right.

So I guess my question is are the customers coming back and being loyal now? Or are you just getting the benefit of adding more people to the list or those people are shopping?

Customers we added for the first quarter I can't tell you whether those customers came back. During the first quarter they're going to come back-to-school. But the advantage to adding these customers, Sam, is that we get to talk to them. And we have their e-mail address and we get to market and tell them what's going on.

So the goal is to get them back to talk to them and get them back into our store as often as possible. But I can't tell you that the customer the 800,000 that we added for the first quarter have come back.

No, what I'm saying is I assume they shop, the question is how many of the previous 3 million -- 2.2 million came back in the quarter?

I don't have that answer.

That's more what I'm trying to figure out.

I can tell you that Shoe Perks accounted for 40% and I believe, and I'll verify this for you, but I believe this time last year it was slightly over 20%.

Okay. Thanks. Then can you talk -- I just want to clarify what's in what categories. When you're talking about women's casual, you're not putting our Friends from Manhattan Beach -- they're not in athletic, correct? Or most of them are not in athletic, is that correct?

We have, as you put it, Friends from Manhattan Beach in every category in every department we do business in.

But I mean the increase in the women's casual, you didn't drive it, they probably drove some of those increases there versus driving in athletic

Sam, I'm not -- talking about Friends.

I've got to give it a go.

I know.

And then one last question -- one last thing about your ad. We saw the ad. It looked like the ad and I was very suburban. What was the intent of the ad itself?

I mean the ad I saw online, it was very suburban. Was that the intent? How do you think about hitting your customers, who you're aiming at with the marketing and so on?

The intent of the ad was to talk about Shoe Carnival and the fun shopping experience and the great selection of product. And the ad tested very well with our customer across all ethnicities. So if what you're asking me is did we leave a customer out in that ad, I can't tell you that we did. It tested positively across.

I thought that the ad communicated exactly what we wanted it to communicate, that Shoe Carnival is a great, fun place to shop. We've got a great selection of shoes and the product that the young lady was modeling for her family, created a family experience and showed great product.

And as I said, we tested the ad before we ever ran it and it tested well against all ethnicities.

Thanks. Have a great day.

Chris Svezia, Susquehanna Financial Group.

Just two things. One just on the decision not to do the insert, what was the internal plan in terms of what you thought either the degradation in comp would have been? What was the anticipated comp impact that you originally expected that to have on the business going to second quarter?

We planned our business -- we had the week that the insert we eliminated inserts --whether we eliminated the entire insert or we eliminated stores from the inserts in order to cut cost. We planned those weeks down. And that was built into our guidance, Chris.

I'm not sure I want to tell you how much from a percentage standpoint or dollars standpoint we plan our business up or down for inserts and or any kind of advertising. Again, I think that's too granular.

Chris -- our guidance was flat to down 3%. We took much more into consideration then just whether we ran inserts or not. We're seeing the trend. We're seeing how the customer is shopping at other venues and recognizing that it's going to be a little promotional -- that there's some inventory out there that's going to have a pushed through. So the marketplace. So there's more in that guidance then just those numbers.

In fact, that wasn't a large part of it because we're expecting to see once we start into July and start the back-to-school where we've got the television advertising and the inserts going, that July the end of July starts our back-to-school push. While most of that push is in August, we expect to see some better results at the end of the quarter.

Okay. Thanks. I guess I'm just trying to figure out if at the end of the day is you're saying you're down mid single-digits to the guidance in the second quarter, I'm just trying to decipher how much of that is just your initial assumption of how much you thought you might've been down because of the change in inserts? And how much is actually -- the environment or macro or difficult comparisons or whatever. Just trying to get some color about how to think about that.

We expect -- like we said the first couple weeks we think were effected, larger than we expected from a comp standpoint. But that's going to get diluted out as the quarter progresses and that's why we are looking at the high end being flat

I'll add one with thing to that, Chris. That's one of the reasons we're being cautious because we're not really sure -- we believe that the first couple weeks was effected by --a large part by the insert. But again we're not sure how much of it is a microeconomic issue. So we are being cautious.

Okay, but you have seen as you said you saw I would assume coming through this week you saw -- it looked like this week is the best week that you've had so far.

That is correct.

Okay. All right. And since you're the General Merchandise Manager or Chief Merchandising Officer, I forgot what the title was -- but still what, I guess, at the end of the day when you look out, what gets you excited? And I know that comps have been all over the map.

But what gets you excited about your ability to drive comp? Whether it pricing, whether it wins initiative, what you see in athletic? Advertising to drive traffic? I'm trying to get some sense -- because I'm just trying to balance that against inventory and purchases and just how comps have sort of unfolded over the past couple quarters. Not exactly what you expected. So I'm just trying to get a sense of what's given you that confidence as you think about the back half of year?

I'll say that's a very good question. Let me answer it this way. I think if it's a microeconomic issue and our customer is again effected by utility bills and gas prices, that was utility bills created in the February and March time period. That's going to be behind us as we enter into later in the spring and summer. So that's a little of my thought process.

Then when I took a look at what we have bought coming in for the back-to-school time period and the strength of what we're seeing right now in the canvas product, whether it be fashion or [volcanized], or skate or even comfort, that canvas, I think you understand where going with that.

What I see going on with Memory Foam and Junior flats and then, most of which, when I see what's happening in our women's boots as we go into the second half. I'm actually much more positive about our second half than I am about second quarter. So I don't want to oversell it. I've seen the promotion.

I know that we don't have the non-comp events of not running inserts as we go into key time periods of the second half. So I believe that when you add all of that together I think we stand to see much better comps in the second half than what we're seeing right now.

Okay. That's all I have. All the best to you guys. Talk to you soon. Thanks.

That does conclude today's question and answer session. At this time I'd like turn the call back over to your presenters for any additional or closing comments.

I appreciate -- do appreciate everybody being on the call. We look forward to talking to you again on our second quarter conference call in August. Thanks again.

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