Shoe Carnival Inc (SCVL) 2014 Q2 法說會逐字稿

Good afternoon and welcome to Shoe Carnival's FY14 second-quarter earnings 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 and Chief Merchandising Officer of Shoe Carnival, for opening comments. Mr. Sifford, please begin.

Thank you and welcome to Shoe Carnival's second-quarter FY14 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 second-quarter performance and provide some insight in to the back-to-school season. Kerry will review second-quarter financial results along with third-quarter and second-half guidance. Then, we will open up the call to take your questions.

Comparable store sales for the second quarter decreased 2.1% driven primarily by the decline of traffic in our brick-and-mortar stores. Traffic was down high-single digits for the quarter, driven by three components: The industry-wide lack of fashion drivers in the non-athletic side of the shoe business. The uncertain economic environment for our consumer. A change in our circular advertising strategy.

The losses incurred during the two weeks affected by the change of our circular strategy accounted for approximately half of our comparable store sales loss for the quarter. This particular marketing change helped fund more aggressive television strategy for the back-to-school time period. I will address that shortly.

Conversion, average units per transaction, average unit retail, and average transaction were all positive for the quarter. Merchandise margins were down 20 basis points as we continued our markdown strategy on slow selling spring and summer styles. Gross profit decreased by 90 basis point as a percent of sales, while SG&A was deleveraged by 160 basis points as a percent of sales, resulting in EPS for the quarter of $0.13, which was within our previously stated guidance of $0.12 to $0.16.

Although we do not report e-commerce sales separately, we were pleased with the sales increase we experienced for the quarter. As I mentioned on our last call, we are in the process of moving away from our third-party fulfillment arrangement and transitioning to us shipping primarily from our stores. We will utilize our Evansville distribution center for certain key items and promotional products during peak sales period. This initiative will vastly improve the selection of styles and ensure a depth of sizes available online, which should, in turn, improve conversions significantly. We are currently ahead of our plan to have this completed by the end of the third quarter.

In addition to our shipped from store initiative, within the next several weeks we will launch our first-ever mobile app. This will allow us to the opportunity to interact with our customers regardless of where they are in their daily lives. Our Shoe Perks customer loyalty program is on pace to exceed our stated goal of 6 million members by the end of the year.

I can't stress enough how important this initiative is as we navigate through the changing trends in marketing. Today's consumer is spending more time in the digital space. They interact with their friend and favorite retailers in all forms of social media. They receive the information that is important to them in their e-mail inboxes. We must be able to communicate with them personally and know their needs and shopping habits. Our loyalty program is the avenue to get us there.

For the second quarter, Shoe Perks customers, again, accounted for more than 40% of our total sales. Our marketing team and store personnel have done an outstanding job of growing this important program.

Continuing with marketing, as I mentioned earlier, with back-to-school being our most important time period, we initiated a strategy to be more aggressive with our television cadence. We felt that advertising on national cable television along with our normal marketing cadence would help re-energize our consumer and drive more traffic for this critical time period. There is no way to directly quantify the results of any television marketing. However, we did experience an immediate improvement in traffic and sales once we began the back-to-school television campaign. As a result, after mid-single digit comparable sales declines for May and June, our July comp store sales were up 1%.

We ended the quarter with inventory down approximately 2.2% on a per store basis, which was in line with our expectations. As we have stated in the past, we will continue to put pressure on our per store inventories in support of our strategic initiative to increase inventory turns. I am pleased with the execution of this initiative by the merchants, as they lowered inventory levels in our smaller volume stores while maintaining depth of key items as we headed into the back-to-school season.

Moving on to merchandise, after the unusually cold and wet first quarter, we were looking forward to a second quarter of sandal sales to lift our comparable store sales as the category did last year. We recognized within the first few weeks of May that the customer was not responding to this category as they did in 2013. With that knowledge, we addressed prices aggressively and we began to liquidate the product. I'm pleased to report that inventory levels in the poke and up footwear our down double digits on a per store basis as compared to the same time period last year.

Drilling down by department, our women's non-athletic department sales for the quarter were down mid-single digits on a comparable-store basis. In addition to sandals, we saw a decline in dress shoes and boat shoes. However, we did experience robust sales in comfort casual, molded footwear, and canvas casuals. Comparable store sales in our 108 brand stores, which are located in the higher income localities performed much better not only in women's non-athletic department but also in the overall store sales results. This initiative is working and we are continuing to roll it out to additional stores.

In our men's non-athletic department we end of the quarter with a high-single digit decrease on a comparable store basis. We did see increases in the canvas casual classification but not enough to overcome the sales decline in boat shoes and men's sandals.

Our children's business ended the quarter with a low-single digit comparable store sales increase. For girls, the quarter was all about canvas casuals and sandals. For boys, basketball, running, and canvas were the key categories. In adult athletics, comparable store sales were up low-single digit for the quarter. We experienced a nice quarter in women's running, men's and women's canvas and men's cross-training.

Turning now to store expansion. We ended the second quarter of 2014 with 398 stores operating in 33 states and Puerto Rico. We opened a record number of 16 new stores in the second quarter including the two new markets of Buffalo, New York and Miami, Florida. For the remainder of 2014, we expect to open an additional nine stores and relocate one store. Our current plans call for closing two stores by the end of the year, ending FY14 with approximately 405 stores. We could close an additional three to four stores by the end of the year depending on continuing negotiations with landlords.

As we look forward to 2015, with the implementation of our new real estate analytical software, we are in the process of doing a comprehensive review of our entire fleet of stores. This review will help us understand not only the best markets for near-term expansion but also to identify our underperforming stores with little to no growth opportunity. This process will give us insight on future store closings or relocations as well as the best possible markets for future expansion. As we complete this review, we will look to open 20 or 25 stores in 2015, concentrated in either large markets we currently serve or single store markets within our current footprint.

Now, for some insight on our back-to-school results. As of yesterday, all our markets have gone back to school. For the month of August we experienced a comparable store sales increase of 0.8%, but the last seven weeks, which comprises all our back-to-school activity, comp sales were up 1.2%. Canvas product was the category of the back-to-school season, with sales up 38% versus the same time period last year. This business accelerated at the expense of boat shoes and soccer slides.

Low single-digit comparable store increases for the time period were realized in children's, non-athletic shoes, and athletic footwear for the entire family. Canvas casuals along with skate and basketball performed well. We also saw increases in women's running, men's cross-training, and men's running.

Lastly, I will address the guidance we gave within the press release. For the last year we have seen an increasing trend with our customer being a event driven consumer. Our back-to-school results show that when presented with an event like back-to-school, she shops. When the need is not as present, she is less active. We believe this is a result of the current economic environment our customer is facing today.

Our merchandise assortment for fall is trend right and well-balanced led by a strong boot selection. We are encouraged by the early results in boots, where we are running double-digit sales increases so far this quarter. However, it is still very early in boots and we need to see how boot sales trend now that the back-to-school period is winding down.

As we look at the remainder of this quarter and next, we are taking the cautious approach to the third quarter as there is no event like back-to-school or holiday to motivate our consumer. We are looking at fourth quarter with more enthusiasm due to weather fueling boot sales and holiday sales.

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

Thank you, Cliff. I will discuss our second-quarter financial results in more detail followed by information on cash flows and then concluded with our outlook for the third quarter and the second half of FY14.

Net sales were $222.1 million for the second quarter of FY14 as compared to net sales of $216.4 million for the second quarter of FY13, an increase of $5.7 million. This $5.7 million increase in net sales was driven by an increase of $12.2 million from the 42 new stores opened since the beginning of second-quarter FY13 partially offset by comparable store sales decline other 2.1% and a $2.2 million decline in sales from the eight stores closed since the beginning of the second quarter of FY13.

Gross profit margin for the quarter was 28.0%, a decrease of 0.9% compared to the second quarter of FY13. Our merchandise margin decreased 0.2% from Q2 last year, while buying, distribution, occupancy expenses increased 0.7% as a percentage of sales. The increase in buying, distribution and occupancy was primarily due to higher occupancy and distribution costs including the slight deleveraging effect of higher pre-opening costs in the current year.

As a reminder, we typically need 2% to 3% comp increase to leverage our occupancy costs at a current rate of new store growth.

Selling, general and administrative expenses increased $5 million in the second quarter of FY14 to $58 million. The $5 million increase in SG&A was primarily due to a $3.6 million increase in expenses for new stores net of expense reductions for stores that have closed since the beginning of the second quarter of FY13. Other significant changes in SG&A for the quarter were attributable to increases in advertising and employee healthcare expense offset by a reduction in incentive compensation.

As a percentage of net sales, SG&A increased 1.6%, which includes the deleveraging effect of higher pre-opening costs related to store selling expenses in the current year. Total pre-opening costs for Q2 were $1.9 million, an increase of $956,000 over the second quarter last year. Of the total pre-opening costs incurred in Q2, $1.2 million is included in SG&A and $704,000 is included in cost of sales for pre-opening events and freight.

In Q2 last year, we incurred $913,000 of total pre-opening expense of which $594,000 was included in SG&A and $319,000 was included in cost of sales. The increase in pre-opening expense was due to opening eight more new stores in Q2 this year compared to Q2 last year.

The effective income tax rate for the second quarter of FY14 was 38.9% as compared to 38.7% for the same period of FY13. The annual effective income tax rate for FY14 is expected to be 39.3%, an increase of approximately 1% over the prior year. This increase in the annual rate will primarily be due to the expiration of certain federal tax credits not currently available to us and the passage of new tax legislation in Puerto Rico.

Net earnings for the second quarter of FY14 were $2.6 million, or $0.13 per diluted share, as compared to our expectations provided on May 22, 2014 of $0.12 to $0.16 per diluted share. For the second quarter of 2013 we reported net earnings of $5.8 million or $0.29 per diluted share.

Now turning to our cash position and information affecting cash flow. During the quarter, we purchased approximately 161,000 shares under our share repurchase program at an aggregate cost of $3 million. We currently have $17.3 million available under our existing repurchase authorization.

Depreciation expense was $4.9 million in Q2. Depreciation expense is projected to be approximately $20 million for the full fiscal year. Capital expenditures for FY14, including actual expenditures during the first half of the year, are expected to be between $32 million and $33 million. Approximately $17 million of the total capital expenditures are expected to be used for new stores and $9 million to be used for store relocations and remodels. Leasing incentives are anticipated to be between $9 million and $10 million for the year.

My final comment today will focus on sales and earnings expectation for the third quarter and second half of FY14. We expect third-quarter net sales to be in the range of $247 million to $252 million with comparable store sales ranging from down 1% to an increase of 1%. Earnings per diluted share in the third quarter of FY14 are expected to be in the range of $0.45 to $0.51. In the third quarter of last year, sales were $235.8 million and diluted earnings per share were $0.54.

Included in the earnings estimates for the third quarter is the expectation at the high end of our guidance the gross profit margin will be relatively flat and SG&A will deleverage to about 80 to 90 basis points. The deleveraging of SG&A is primarily due to higher advertising expenses. For the second half of the year, we expect net sales to be in the range of $462 million to $471 million with comparable store sales ranging from flat to up 2%. Earnings per diluted share in the second half of FY14 are expected to be in the range of $0.53 to $0.64. In the second half of last year, sales were $436.1 million and diluted earnings per share were $0.57.

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

(Operator Instructions)

Jeff Stein, Northcoast Research.

You are looking for flat gross profit margins in Q3. I know you had to be more promotional to drive sales in Q2. It sounds to me like you're not expecting that to repeat again in Q3 despite the fact that it sounds like you're customer continues to be under pressure. Just some thoughts on why you think you can hold your gross profit margin flat?

Jeff, we weren't necessarily that happy with our gross margin last year, so holding it flat is actually probably a little lower than we normally would run in a third-quarter scenario. We feel that the margin we have planned allows us to be promotional in the areas where we need to be promotional. We believe that boots, being the category that they are in a high-margin product category will help us overcome any promotions we have to run in the non-boot categories.

Got it. Can you talk about your plans to scale back your store expansion for next year? Is it related to the current environment, real estate availability or both?

I would say it's more -- it's related to two things. One, we're doing a very deep dive into our current store base, the entire fleet of stores. I mentioned that earlier in my prepared remarks. To look at all our stores and the potential for those stores for further growth, especially our underperforming stores. While we're doing that, and we have our real estate team literally focused on that today, that keeps them somewhat out of the market to look for new sites. But, as we are doing it we instructed them to concentrate strictly on the large markets -- we opened up Dallas. We opened of Detroit. We opened Miami and Buffalo. So, we need to fill in all of those markets. That should be our number one priority. Then to look at small markets where we have historically always done well. It's a really two-pronged approach.

Okay. Final question, and this ties into that answer. It would seem that one of the reasons why you decided to launch a national cable TV advertising program was to expand more aggressively and leverage your fixed costs, one of those being advertising? So it would seem with, perhaps, slower growth that you are probably unlikely to get as much leverage on the advertising line next year as you otherwise would have. Is that correct?

Well, the answer to that this way, Jeff, we opened up 34 stores this year. We are opening an additional 20 to 25 stores next year. That national advertising is to help all 50 some odd stores, 54 to 59 of those stores as well as with as they continue to ramp up. We have not put the marketing plan in place for 2015. I can't answer at this point whether it's going to be leveraged, but because we are growing 20 to 25 stores next year and we did grow 34 this year, we need to continue to support those stores with advertising.

Got it.

Jeff, let me also add that right now the way it looks like the 20 to 25 stores we opened next year, we're very much front loaded into the first quarter, so we are looking at open 10 to 12 of those stores in the first quarter of next year. Then, the remaining stores we open through the second and third quarter, into the third quarter, being the report like our normal is. What we've allowed ourselves to do is that if we find that we are able -- the economy is supportive of a faster growth and we put our plans together and finish our analysis and our learnings from that, we could accelerate at the backend if necessary. We're not anticipating right now, but if we find the economy is more conducive to it, we could add stores in the back half.

Okay. Thank you very much.

Mark Montagna, Avondale Partners.

Hi. A question about the higher tier of women's -- the stores that have the higher tier of non-athletic footwear. I'm guessing that that number is now 108. Are you still tracking to try to get to 200 stores or 230?

Basically -- we are definitely, Mark, at the 108 stores today. That's actually 108 comp stores today. We opened up -- out of the 34 stores that we opened this year, we also put them in 30 of the stores. I think that number is right. It's 30, 31 stores. We're actually at about 130, 132 stores with that better product. As we continue to open up stores, we'll expand into those stores and there are additional comp stores that we will expand into. I don't think that we'll hit 200 next year. I think that over the next several years -- over the next two years, we should be close to 200 stores.

So, looking at those higher-end demographic stores, are you seeing a divergence in their overall comp performance? It sounds like you are. Is that for all of those types of stores? Is there a divergence -- ?

As a total, I am not going to tell you every one of those stores are performing better than the Company, but I can tell you as a total they are. And I believe that it is showing us -- I mentioned several times in my prepared remarks that our customer is being -- from an economic standpoint, is being challenged. These higher income demographic stores, that not as much. The sales there, as a total, are better and the traffic is not near as depressed.

Okay. Regarding that fulfillment, how you are changing the way your fulfilling e-commerce. Is there an ultimate goal in terms of what percentage of the product will be done through vendor fulfillment? Is it mostly athletic or can it spread to non-athletic? Any idea on the basis points of savings or maybe the millions of dollars of savings that you might be able to get?

That second question is a very good one. One that I'm not prepared to answer today. The first question, we have not entered in with an agreement with any vendor at this point to ship from vendor. What we're doing, before the end of the quarter, is a shift from store scenario, where our stores will fulfill about 90%, maybe even a little higher than that, of our total e-commerce fulfillment. In key time periods or key promotional time periods, we'll stock product in our distribution center here in Evansville and that distribution center will fulfill those orders. Mark, we are probably some time away. I don't want to put a time limit on it before we implement a ship-from-vendor scenario.

Okay. Alright. That sounds great. Thank you.

Sam Poser, Sterne Agee.

Hi. It's Ben Stamsion in for Sam. Thanks for taking my question. I wanted to dig in a little bit into the switch from circular to national TV. You said, I believe, half of the comp loss was you were attributing it to that move. Do you consider that like a one-time situation and as you go forward things will normalized? Or how can we think about that as we lap going forward?

Ben, we looked at that as a one-time situation in this past spring. It normalizes more as we go through the fall time period. We did not make -- first of all, we don't run as many inserts in the fall as we do in the spring time period, so it will not have that kind of effect in the fall time period. We feel we have the inserts circular program set as we did it this past spring, so it will not be a re-occurring issue next year.

Great. Then, for the fourth quarter, how can we think about gross margin increase? Is that going to be all because of the comp, or can we see some merch margin increases as well given that you are pretty bullish on the boots?

Are you talking about fourth quarter?

The fourth quarter, yes.

Adhering to the guidance to the fourth -- we gave the second half, when you run your models you'll find that we expect to see some increase in our gross profit margin. In part it is because the gross profit margin in Q4 last year was so depressed, and we also see some nice leverage on our SG&A compared to last year, also, keeping in mind that we incurred a 2.5% comp decline in the fourth quarter last year, so we lost a lot of leverage due to the sales decline.

Okay. So, you're not assuming much of a merch margin lift?

Well, it'll be enough to notice. You might see around 40 basis point improvement in what we are modeling out or giving as guidance.

Okay, in terms of merchandise margins. Okay. Then, just e-commerce. How big is it right now as a percentage of sales, and where do you think you can get to in the next two or three years?

Ben, that's just a number we do not give out. Let me say that we are focused on our e-commerce business and it's definitely a growth vehicle for us, but we just do not give out separate e-commerce numbers.

Got it. Okay. Thank you very much. Good luck.

Jill Nelson, Johnson Rice.

Could you quantify the advertising expense increase you're incurring this year?

For the -- go ahead, Kerry.

Jill, what we've directionally will give you indicators of if it's an increase or decrease. We've given overall percentage -- increase as a percent -- we said we might increased 15 to 20 basis points, at the beginning of the year our total ad spend. On a quarter-by-quarter basis, we really don't want to give out detailed information like that for competitive reasons.

Okay. I was just wondering because you had mentioned that you -- it sounded like you ran more TV ad than initially planned. So, I was just wondering if that year outlook -- ?

No, Jill, we ran exactly the amount of television campaign that we had planned for the year. We did not increase it during the year.

Okay. Alright. Then, if you could just talk about maybe the boot inventory, how that stands? It seems like you're getting some strong, early sales trends in that category. If you could talk about the inventory plans for the back half in the boots?

Let me start off by saying it's really early. Although, we are very encouraged by the increases that we are having and we hope -- we believe that that's an indication of what's going to happen in boots as we go forward; it is early. We believe that we are going to see significant increases in boots as we go through, especially, the second half of the fall time period, fourth quarter. So, we have planned our inventory up. I would really rather not say how much, but we have planned our inventory up and we planned our sales up on a comparable basis significantly in boots.

Okay. Then just last one. Given the very strong strength you saw in canvas for second quarter and into back-to-school, could you talk more about what categories are really suffering and losing ground versus that canvas product?

I can tell you, and I mentioned in my prepared remarks, two categories, directly, boat shoes and soccer sandals took big hits. Just to expand on that, I feel like sometimes we get punished a little bit from a sales perspective because we are so aggressive on items that are big. So like last year, we owned the soccer sandal business last year. In fact for the past couple of years, soccer slides have been something that I've talked about almost every conference call. We owned it. I don't want to talk about the numbers of pairs, but it was significant.

Then, over the past several years, we owned the boat shoe business. When you get a double-digit declines in that category for two years in a row, that's hard to make up with $49 canvas shoes. Although canvas has been very, very good when you compare that to the average price of boat shoes, it's kind of tough to make up. However, I do have to say this. Our average unit retail for the month of August was up, up slightly. The way I explain that is that if you look at the average price of soccer sandals and the average price of boat shoes, they average out about the same retail price of canvas shoes. So, that's the reason we were able to maintain our average retail price.

Okay. Appreciate the commentary. Thank you.

Scott Krasik, Buckingham Research.

Yes. Hi gentlemen.

Hey, Scott. How are you doing?

Good. Thanks. Just wanted to follow up on a couple things you said. First, just on the boat shoes, the acceleration in the decline, I think previously you had said the girls business was bad but your boys business was holding up? Did that now even out, so to speak?

I think what I've said in the past is that our adult business is not good, but that the children's boat shoe business is good. What happens is that we did not grow the kids business in boat shoes near as quickly as we did the adult business, so a lot of the growth we're seeing in our kids boat shoe business has to do with the fact that we're expanding store base. Whereas in our adult boat shoe business, we already had that in all stores. So, our adult boat shoe business has been a declining business for almost, like I said, to til almost two years.

Okay. It sounded like a lot of comments, but it sounded like maybe your performance athletic business was okay, where as a lot of people are seeing declines and shifts over to Sketchers and some of those other things. So, is that just the way your classifying these brands?

That absolutely could have something to do with it because we do classify some of the brand that you just mentioned in our women's non-athletic area. To answer your question specifically, we were pleased with the performance athletic business, especially in our women's athletic area. We were flat in our performance business in men's.

Okay. Last, is it prudent to guide merchandise margins up in the fourth quarter when on the two-year basis you're still over 100 basis points up in the fourth quarter?

Well, if you really look at it compared to -- we are up from 2013 but even with that guidance, we'll be down from what we achieved in Q4 2012. We are really not making up the losses we took last year. We are just expecting to be a little bit better than it was.

Okay. I thought in Q4 2013, I thought your merch margin was down like 40 BPs, is that not right? Or down 20, I mean?

What I am giving is gross profit margin.

Okay. Your including the leverage.

Right.

Okay. Alright. Thanks, gentlemen. Good luck.

Thank you.

Chris Svezia, Susquehanna Financial Group.

Hey. Good afternoon, guys. Kerry, just for you. Comps last year, can you just remind us what the trajectory was for the third quarter last year, August, September, October?

We started out and we haven't gated this. In August we were up just under 1 point last year when we came out of August. We had a really quiet September. Then, in this part of our cautiousness this year, just like last year it got quiet, we had negative comps. Then, October rebounded nicely when it started getting cool. We started selling our fall product nicely.

Okay. So, your guidance -- go ahead.

And, we were up mid singles in October.

Okay. Based on your guidance for the third quarter, I mean you're assuming the trend that things do not necessarily get worse from here, do not necessarily get that much better from here, even though you got October's probably not a big month for you necessarily, but you got a tougher comparison in October?

That is correct. We believe that we have opportunity in September, but we are a little cautious on October because of tougher compares.

Okay. Did November accelerate pretty significantly, if I'm not mistaken?

Yes, it did. I got to tell you, we feel we still have opportunity in November.

Okay. And that's just --

We should have. We definitely have opportunity in December and January.

Right. Walk through why you feel that confident? First, as the quarter progresses, for you to hold where you are? Then secondarily, just feeling that good about fourth quarter, obviously you call out boots. That's a piece of it. Your inventories seem pretty clean. Maybe just talk about some other thoughts about why you see that comp?

Chris, I would be glad to talk about it. Again, our customer shops at need or at an event, I guess is the best way to say it. There really is no driving reason for the customer to come in and for the customer to get excited in September. If the weather turns cold or cool, she'll be here because she'll need her boots. In the month of October, it's the same thing. If the weather is cool, she'll shop for boots just as she did last year. In November and December, those are event-driven months. You have the big day and you have Veterans Day. You have the big day at the end of the month and then you have holiday to help drive that business. That plus our overwhelming belief that boots are going to be, again, the item of the season, we feel strong about fourth quarter.

Chris, we are really at the high end of our guidance. We're only talking about recapturing the amount we lost last Q4. At the low end of our guidance is that we are in the fourth quarter is that it -- we won't recapture but just a little bit of it. A lot of it's in the comparison of being down 2.5% in the fourth quarter last year and our belief that boots -- that we are very well positioned for boots.

Okay. Are you assuming any change in traffic trends or are you assuming higher averaging retail or improving conversion as you go through the balance of the year?

We believe that we'll see improving traffic trends, especially in the latter part of the fourth quarter. Unless there is another frigid December and January, like it was last year, where no one could even get out, traffic trends would have to improve.

Okay. I don't know if you want to talk about it, so what are the stores which have the women's better brands? Can you maybe just give us -- I don't know if you could give us bit of a comp, but what's the delta between that and the aggregate of Shoe Carnival stores? Like they are comping down 2%, what were those stores actually doing? Did they comp positive in aggregate? Were they flat? Just some color about those stores?

They were just under flat. Just under flat. In aggregate. They weren't down 1%. They were about 200 basis points better than the non better brand stores. Which, Chris, was exactly what happened to us in the spring -- in the first quarter, too.

Right.

The number's maintained itself.

Okay. Lastly, just from a product-margin perspective, in Q3 you're not expecting -- it's pretty much flat or you expecting it to be down slightly as you maybe still tweak some inventory? How should we think about Q3 from a product-margin perspective?

Strictly from a merchandise perspective, it's going to be flat. The reason for that is, again, there's not an event for the customer to come shopping so you know what? We want to make sure we convert everybody that comes in. We'll probably be a little more promotional, but we can be promotional on some product because of the fact that we have boots selling the way they are at a higher margin. We believe we can maintain a flat margin.

Okay, last thing. Are boots increasing as a percentage of your mix as you go to the back half for the year? Because I think you rand out of some product fourth quarter last year, if I'm not mistaken or -- ?

Yes. The answer to that is yes. I don't really want to get to a percentage, but yes it is increasing.

Okay. Got it. Thank you. That's all I have. All the best guys. Thanks.

Thanks, Chris.

(Operator Instructions)

Sam Poser, Sterne, Agee.

Hi. It's Ben in again. Couple of product questions for you. What do you expect in terms of potential offset to the strength in boots in back half?

I'm not sure -- oh, what product categories are we planning down?

Correct.

Is that what you're asking?

Correct.

I'm not sure I really want to get into that, Ben. Let's just say this. We believe we are going to have a strong boot season and let's leave it at that.

Okay. That's fair. Your friends in Manhattan Beach, how are you seeing them these days? If there's any color there?

We saw them in July and I saw them again at magic. We don't talk about individual brands, so I apologize for that. That's just a policy we have.

Okay. Thank you.

Thank you, Ben.

It appears that we have no further questions at this time. I will now turn the call back over to Mr. Sifford for any additional or closing remarks.

Okay. We really appreciate you joining us today, and we look forward to speaking to you again on our third-quarter call in November. Thank you. Speak to you then.

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