Shoe Carnival Inc (SCVL) 2014 Q3 法說會逐字稿

Good afternoon, and welcome to Shoe Carnival's FY14 third quarter earnings conference. 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 presentation over to Mr. Cliff Sifford, President, Chief Executive Officer of Shoe Carnival for opening comments. Mr. Sifford, please begin.

Thank you, and welcome to Shoe Carnival's third 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 the Company's third quarter performance and provide some insight into the holiday season. Kerry will review the third quarter financial results along with fourth quarter guidance, and then we will open up the call to take your questions.

We are pleased to report with our comparable store sales for the third quarter increased 2.3%, driven primarily by the power of the fashion boot category for the family. Although store traffic was down low single-digits, increases in average unit retail were significant, resulting in mid single-digit increase in our average transaction. Strong boot sales at higher margins allowed us to increase our overall merchandise margin by 20 basis points while continuing to clear out the last of our spring and summer merchandise. We believe that our key initiatives including national advertising, better brands in our women's department, and a reinvigorated e-commerce presence are helping us to bring new customers to our store and our website.

Gross profit was flat to sales versus third quarter last year while SG&A was deleveraged by 60 basis points as a percent of sales, resulting in EPS for the quarter of $0.54 which is above the previously stated guidance of $0.45 to $0.51. We ended the quarter with inventory down approximately 0.6% of a percent on a per store basis, which is in line with our expectation. I continue to be pleased with our merchants' execution of our turn initiative as they lowered inventory levels in our smaller volume stores while maintaining depth of key seasonal items in core basics. Although we don't report e-commerce sales separately, we are very pleased with the sales increases we experienced for the quarter. On September 16, we transitioned away from our third-party fulfillment arrangement and moved to a ship from store fulfillment model. Our stores' associates have embraced this strategy and are executing at a very high level. Today we have 250 Shoe Carnival stores capable of fulfilling e-commerce orders every day.

As this business continues to grow, we will add additional stores to this program, eventually expanding ship from store to all stores. This initiative of not only expanded the selection of the styles, but it also increased the depth of sizes available online, which in turn improved conversion. For Thanksgiving and Black Friday, we also utilized our Evansville distribution center to fulfill promotional products, relieving pressure on our stores during this very important sales period. In addition to ship from store, we also launch our first-ever mobile app during the month of September. This app gives our e-commerce team the ability to interact with our customers through games and contests in addition to giving us a new avenue for target marketing.

The Shoe Carnival loyalty program, Shoe Perks, continues to contribute to our overall results with members shopping more frequently and spending more on average than non-members. The Company added approximately 750,000 new members in the third quarter, an increase of 58% compared to the same time period last year. With a total of 5.6 million active members, third quarter sales from the Shoe Perks members increased 104% to represent 43% of total sales as compared to 23% for the same time period last year. For the year, we have added over 2 million members to this program.

Continuing with marketing, although we generated a comparable store sales increase all three months of the quarter, I am most pleased with the 2.6% comp store increase in October which was on top of last year's October comp store increase of 5.4%. We feel this is a direct result of our national advertising campaign which highlighted our large selection of fashion boots for the entire family giving us terrific momentum as we entered into the key selling season for boots.

Moving onto merchandise, early this year we identified boots as a key opportunity for the second half of the year. Our merchants plan for it, our marketing team built their plans around it, and our stores have boots prominently displayed. I believe our boot assortment is the best selection of boots we have ever offered and the strategy is working. Season-to-date, sales in boots for the family are up in the high 20s on a comparable store basis. This strong boot trend continued throughout the month of November as boots for the family produced a comparable store sales increase in the 30s.

Looking at each department now, in our women's non-athletic department, sales for the quarter were up low single-digits on a comparable store basis. Boots were the primary story here with comparable store sales increase in the mid-20s. Although dress shoes ended the quarter flat on a comparable basis, we did see a sequential improvement in the sales as we progressed through the quarter. Other strong categories were junior flats and vulcanized canvas. We continue to experience a downward trend in boat shoes, athletic sandals and sport sandals.

In our men's non-athletic department, we ended the quarter down slightly on a comparable store basis. Although we continue to see decreases in boat shoes and soccer slides, which have traditionally been the drivers for back to school, this year we experienced a shift to canvas casuals and fashion boots, both of which drove double-digit comparable store sales increases for the quarter. Our children's business ended the quarter with a mid single-digit comparable store sales increase. For girls, the quarter was all about boots and canvas. For boys, basketball, running and canvas were the key categories. In adult athletics, comparable store sales were up low single-digits for the quarter. We experienced a nice quarter in men's and women's running, men's and women's canvas, along with men's cross training.

Turning now to store expansion. We ended the third quarter of 2014 with 404 stores operating in 33 states and Puerto Rico. For the quarter, we opened seven new stores, including our first store in the Philadelphia market, and we closed one store. For the remainder of 2014, our plans call for opening one more store by year end, which will bring our new store total for the year 231. We will close an additional five stores to end FY14 with approximately 400 stores.

As I mentioned in our last call, we are spending a great deal of time comprehensively reviewing our entire store base. This review is helping us understand not only the best markets for near-term expansion, but also identify underperforming stores with little or no growth opportunity. As part of our 2014 review efforts, we have identified five stores for closure in the fourth quarter of 2014 and six stores for closure in 2015. Additionally, we recorded impairments during the third quarter on the fixed assets associated with six marginally performing stores. With regards to near-term expansion, we look to open 20 to 25 stores in FY15 concentrated either in the large markets we currently serve or single store markets within our current footprint.

Lastly, I'd like to address the guidance we gave within the press release. As I stated earlier, we believe that our strategic initiatives surrounding women's better branded merchandise enhanced marketing, and our reenergized e-commerce site has attracted a new, more affluent consumer. We see this with the sell through of our better branded shoes and boots and the higher average retails in their respective categories. In addition, we still have the brands, strong promotions and our unique store environment keeping our core customer a loyal Shoe Carnival shopper year after year. Our results in November are evidence of this as we continued our positive comparable store sales trend on top of a record-breaking November last year.

Now, as we enter the balance of the fourth quarter, our expectations are based on how our customers have reacted to our trend right product assortment all season. This combined with our strong marketing cadence should deliver an improvement in customer traffic and sales for the quarter versus the same time period last year. Therefore, we believe the fourth quarter will come in with a comparable store sales increase of 3% to 5% and EPS of $0.06 to $0.10 a share versus EPS of $0.03 per diluted share in the same time period last year. Kerry will offer more insight with this with in his prepared remarks. 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 third quarter financial results in more detail, followed by information on cash flows and then conclude with our outlook for the fourth quarter FY14. Net sales were $254.7 million for the third quarter ended November 1, 2014 as compared to net sales of $235.8 million for the third quarter ended November 2, 2013. An increase of $18.9 million. This $18.9 million increase in net sales was driven by an increase of $15.9 million from the 41 new stores opened since the beginning of the third quarter of FY13 and a comparable store sales increase of 2.3%, partially offset by a $2.3 million decline in sales from the seven stores closed since the beginning of the third quarter of FY13.

Gross profit margin for the quarter was 30.1% which was unchanged compared to third quarter of FY13. Our merchandise margin increased 0.2% from Q3 last year while buying, distribution and occupancy expenses increased 0.2% as a percentage of sales. The increase in buying, distribution, occupancy was primarily due to higher occupancy costs. Selling, general and administrative expenses increased $5.8 million in the third quarter of FY14 to $59 million. The $5.8 million increase in SG&A was primarily due to a $3.7 million increase in expenses for new stores net of expense reductions for stores that have closed since the beginning of third 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 0.6% between periods. Total preopening costs for Q3 were $621,000, a decrease of $391,000 over the third quarter last year. Of the total preopening costs incurred in Q3, $321,000 is included in SG&A and $300,000 is included in cost of sales for preopening rent and freight.

In Q3 last year, we incurred $1 million of total preopening expense, of which $521,000 is included in SG&A and $491,000 is included in cost of sales. The effective income tax rate for the third quarter of FY14 was 39.1% as compared to 38.6% for the same period in 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 third quarter of FY14 were $10.8 million, of $0.54 per diluted share, as compared to our expectations provided on September 3, 2014 of $0.45 to $0.51 per diluted share. For the third quarter of FY13, we reported net earnings of $10.9 million, or $0.54 per diluted share.

Now, turning to our cash position, information on affecting cash flow, during the quarter we purchased approximately 244,000 shares under our share repurchase program at an aggregate cost of $4.5 million. We currently have $12.8 million available under our existing repurchase authorization. Depreciation expense was $5.2 million in Q3. Depreciation expense is projected to be approximately $20 million for the full fiscal year. Capital expenditures for FY14, including actual expenditures during the first nine months of the year, are expected to be between $33 million and $34 million. Approximately $16 million of the total capital expenditures are expected use by new stores and $9 million will be used for store relocations and remodels. These incentives are anticipated to be $9 million for the year.

My final comments today will focus on sales and earnings expectations for the fourth quarter of FY14. We expect fourth quarter net sales to be in the range of $218 million to $222 million, with comparable store sales increase in the range of 3% to 5%. This range takes into account the November comp store sales increase of 5.8% and the expectation of a comp increase ranging from 1.5% to 4.5% for the combined December/January period. Earnings per diluted share in the fourth quarter of FY14 are expected to be in the range of $0.06 to $0.10.

In the fourth quarter last year, sales were $200.3 million and diluted earnings per share were $0.03. Included in the earnings estimate for the fourth quarter is the expectation that at the high end of our guidance the gross profit margin will be down 0.3%. We anticipate lower merchandise margins due to being more promotional the remainder of the quarter, but we will partially offset the decline by leveraging our buying, distribution, occupancy costs due to the expected comp store sales gain. We should leverage our SG&A expenses by over 1% due to controlling expenses and the leveraging effect of the comp store sales gain.

Just one additional note. Our guidance includes additional freight costs of approximately $0.01 per share we expect to incur in Q4 related to the port slowdown. This concludes our financial review. Now, I'd like to open up the call for your questions.

Yes. Thank you.

(Operator Instructions)

Mark Montagna, Avondale Partners

Hi, good afternoon. Question about the fourth quarter EPS guidance at $0.60 to $0.10. According to my notes, the prior implied guidance was $0.05 to $0.16 and I'm just wondering, is that accurate? And if so, why would the top end of the guidance come down from $0.16?

Mark, that's -- the high end of that guidance, to be honest with you, I don't have that with me, that sounds a little high. I don't remember us guiding to that level. But what we've taken, we have adjusted our actuals, taken into account what we did achieve in December and looking at the fact that it's going to be a promotional quarter for the rest of the quarter and reflecting that in our margins. And right now, between a comp increase and a slightly reduced margins, we're looking at the top end of our range being $0.10.

Okay, then next question dealing with national advertising. With the national ads, did you see an immediate impact from literally the day those things started to run?

We began national -- Mark, this is Cliff. We began national advertising back in March, and we said at that time it was going to be a building process over the course of the year. We did see an immediate impact in March to our e-commerce business, but our store traffic didn't begin to improve until we actually exited out of August and into September and October. The October ad, however, that we -- the advertising we ran during the month of October, we saw almost immediate results in our boot category at that time.

Okay, so October you had much more of a call to action that would have led to that more immediate reaction. Okay, and then the last question dealing with fashion boots. Did you say that they were strong throughout the month? And then I have was wondering -- throughout each of the months. And then I was wondering if there was any sort of variance between tall versus shorts or any other types of variance. Because I know it was more fashion boots as opposed to, say, weather-related boots.

As the season progressed, we were selling shorter booths early in the season and as the season progressed and into November, taller shafted boots got stronger. I will tell you that during the month -- excuse me, during the third quarter, our boot business in total was up in the 20s. We had a great November where our boot business was up in the 30s, but we've seen the boot business get better and better as we progressed through the second half of the year.

Okay. Thank you.

Mark, to qualify what I said earlier, that I believe our guidance at the top end for the -- when we gave guidance for the second half would've been implied at $0.13. And the difference in that is the anticipation of being promotional and lowering our margin a little bit and taking the actual sales into account. I believe that would account for the difference between the $0.13 and the $0.10 we guided.

Yes, that would work. I was looking at the midpoint of third quarter. That's how I got the $0.05 to $0.16. So, yes, I can see the $0.13. Thanks.

Chris Svezia, Susquehanna Financial Group.

Good afternoon, guys, nice job on the quarter. I guess first question is just as it pertains to promotional cadence, is there any particular category or area you expect to get promotional? I'm just curious, your inventory is in good shape, seems to be closing the gap on the product margin, your boots performing well. Is there just a certain category you expect to get promotional or just preparing for the worst? I'm just curious about your thoughts there for the fourth quarter.

It's closer to the second, Chris. As we've listened to calls, and I know that you have as well, everybody is talking about the promotional environment. Business -- it doesn't appear that business was that great in the third quarter for many retailers, department stores and others. And we anticipate a promotional fourth quarter, and so we wanted to be prepared to be promotional as well. So, it's really a case of being prepared in case we don't want to be caught with someone taking -- some retailer taking our business during the fourth quarter.

Okay, have you seen any of that into November? You generated that 5.8% comp, did you have to get more aggressive or promotion cadence kept the same relative to the third quarter?

No, our promotional cadence stayed exactly the same in the month of November. In fact, we cut back one of our insert programs early in November and still were able to generate the increase that we generated. But -- so we were no more promotional than we have been in years past.

And Kerry, remind me, December and January, what kind of comp are you up against versus last year?

Both were negative. Last year we were down mid-singles in December and just into double digits in January.

Okay. And then just quickly on the dress category, I'm just curious, first time you mentioned it flattening out. Is that just cycling some easy comparisons, is that just favorability with the better women's brands? Just maybe talk about what you are seeing there.

Chris, I think it's a little bit of both. The comparisons are weaker, to your point. But we have a couple of categories that are just performing really well. A category we call [Shoedies], which is the low, kind of ankle, looks like pumps, just comes up a little up toward the ankle. And then pumps both -- and tailored dress shoes, all three of those categories are performing very well. And that is actually extended into November, our women's dress businesses is up mid single digits for the month of November.

Okay, how many stores right now have the better women's brands? I think before it was 108 at from a comp or something along those lines, just where do you stand there?

It's between 140 and 150 stores. We started out with, if you remember, with 75, we added 25 and then as we added new stores, we continued to add better brands to most of our new stores and then over the course of the year, a store here and there. So, we're between 140 and 150 stores.

Okay. All right. I'll let someone get on. All the best. Thanks, guys.

Jeff Stein, Northcoast Research

Hey, guys, I have another question on gross margin. Cliff, it sounds like you're gross margins were pretty good in November, and I'm still struggling to understand why December and January is going to be tougher. Are you -- as you've moved into December now, are you becoming more aggressive on your promotions, or are you going to wait to react to see how competitors -- what competitors do with their pricing? In other words, are you proactive or reactive?

It's a little bit of both, all right? And I'm going to hesitate telling you when, but we do have an additional promotion planned over last year. So, in that particular case, we are being reactive -- excuse me, proactive. And then we will be reactive if we see that -- especially the department stores, if they get very promotional in the month of December with them -- as you know, with our concept, we can react to that pretty quickly.

Have you seen the -- I'm sure you've looked at the Black Friday ads of your competitors. Based on what you have seen today, and for those that perhaps started a little bit earlier, before Cyber Monday, what's your feeling today versus where you were a couple weeks ago with regard to the promotional environment?

If I read -- first of all, I don't think the department stores were any more promotional this past Thursday/Friday than they have been in years past. There was a new player in town, a very promotional department store that wasn't as promotional last year. But the -- if I believe everything I read, business was not great for the department stores over Thursday or Friday. And in that regard, they own the product so they are going to have to get promotional on that product as they go through December.

And that's providing, of course, that footwear was one of the underperforming categories, so --

Exactly, and they don't call that out, Jeff. All I know is that if I believe everything I read today, business was not good in those stores over the weekend.

If you were above a competitor on a particular item and a customer comes to you and says, Kohl's is $10 cheaper, will you match Kohl's?

In the markets where we go against them, we will match them, but not in the entire Company.

Okay. Just a couple questions on e-commerce. Can you tell me how you -- how do you determine which store an order is pulled from, and is there any concern that this could create issues as you get into a little bit deeper into the selling season, having sufficient in stock on key items if you pull too much inventory from a particular store?

The system looks at two things. First, it looks at multiple things, but the first two things is the stores -- how close the store is to the customer so that once the shoe ships, it gets to the consumer faster, if that makes sense. And number two, it looks at sell through of the item in the store, and it will not take the shoe from a store with a high sell through. It's always looking to take the product from stores that aren't selling as well, if that makes sense. Those are the first two criteria that the system looks at, and there are multiple things that it -- iterations that it goes through, but those are the first two.

Okay, and final question, do you recall how many store days were lost due to bad weather last year? Because it seems to me that the plan is to be more promotional, but you also lost a considerable amount of selling days last year because of all the weather issues.

There's -- I do not recall exactly how many; it was significant, however.

Is January a higher volume month than November?

I'm sorry, I didn't hear the question.

Is January a higher volume sales month normally than November?

No. January is the lowest volume month of the quarter.

Okay. Got it. Thank you very much.

Sam Poser, Sterne Agee

Good afternoon. A couple things, can you give us -- you gave the comp for October up 2.6%, can you give us August and September as well, please?

We gave October comp only as a comparison so you can understand what the natural advertising was doing. Can I say this? Sam, is that the month -- the business got better every single month to the quarter, it increased a bit more -- well that's not true. September was the best month of the quarter.

We've already given out all this to you. When we released our Q2 information, we said we were up 0.8, and we're up mid singles in September.

Do we really care? I'll tell you, we were up 4.3 in the month of September.

Thank you, that was complicated.

A lot more complicated than it needed to be, Sam, sorry

All I did was ask the question. Anyway, I guess the question is your gross margin was down 70 basis points in Q4 last year with a lot of crazy stuff going on with weather and all. It sounds to me like a lot of what you are talking about here is extremely defensive. Because if I heard you correctly, the business quarter to date is no more promotional than what you had originally anticipated going in. Is that a fair statement? And you're -- and basically your guidance is maybe protective of that, that it may not stay that way?

Our -- that is correct. November was no more promotional than in years past, and we were not displeased with our margins in November. The -- however, again, we are not going to take any chances with December. December is a big month, it's a five week month, it's the holidays and we're not going to take any chances. And I would rather be -- I would rather err on the side of caution on December than tell you that margins are going to recover to last year -- to higher than last year and be wrong.

There is a lot of people that share that sentiment. I just want to follow up on Jeff's question about November and January. If you basically take out the -- if you take out Thanksgiving week, like on a week by week basis, does January -- is January about the same as November, if you just 86 out Thanksgiving? Because -- on of weekly basis?

Kerry is looking at that now.

No. January is just a very small month. It gets very quiet after the new year, and it doesn't compare to November.

Even if you take out Thanksgiving? And then can you -- even if you took the first three weeks on a weekly basis and thought of January as the same thing, would it still be, on a weekly basis, smaller if you didn't include the big pop you get from the last two days of the month?

I haven't looked at it that way. I am looking at it right now, seeing if that would compare. If you took out the entire last week, you would get much closer to the January number.

That makes sense. And then about product, you talked about the boots. When you were saying the fashion boots, you are talking about over-the-calf kind of things that are more in the casual dress mode versus cold weather product and so on and so forth?

When I say fashion boots, I am taking out workbooks from that scenario.

But would you include bear paw in fashion boots?

Yes I would. I would include every boot we sell with the exception of workbooks. Work boots are a year-round category.

Can you give us some idea within that boots business, within that non-work boot business, what were the real highlights? You don't have to be specific for brand, but just any kind of fashion look that you might have taken better advantage of than you did a year ago and possibly than your competitors?

Not sure really how to answer that question. I will tell you this, that it was -- it started off with mid shaft boots and low boots selling well early in the quarter and it progressed to high shaft boots later in the quarter and into November. And that, along with anything that was fur lined, worked as well.

All right, and lastly, what drove the athletic business that you talked about that was pretty good?

It was actually, our running business was good. The fashion athletic business, as you know and as others have reported, is on fire. Plus, we did have a pretty good quarter in running.

Thank you very much -- in basketball. Thank you.

Thank you.

(Operator Instructions)

Jill Nelson, Johnson Rice.

Good afternoon. Follow up on the women's non-athletic initiatives, I think in the previous two quarters you had said that that -- those stores with the new product had comped about 200 basis points above of Company averages. Is that the trend you saw in the third quarter?

Jill, the minute this conference call started, I realize I don't have that number. And I apologize for that. We should, since we've talked about it the last two quarters, but we will look that up and get back to you on that.

Okay, and then related to that, your comments, I think you mentioned you are seeing definitely that new better brand assortment as well as the national TV advertising is attracting a more affluent customer. Are you seeing even more traction kind of gaining in third quarter? Relate those comments versus past previous quarters?

What we're seeing is that in years past, we have not been able to sell better branded boots. Actually, in years past, we haven't really been able to sell better branded women's product, and that changed last year we started putting the product in and started marketing and prominently displaying that product at the front of our store. This year we extended that product selection into a better branded boot assortment which, to be perfectly honest with you, made me just a little bit nervous. The sell through on that product has been very good. My only assumption on that, and of course, I can't quantify the fact that a more affluent customer is coming in, we were just -- it leads us to believe that that is happening is because all of a sudden these -- all the better brands, whether it's in casuals or dress are now, inclusive of boots, are selling through a really good rates.

Okay, and then just a comment, I think you mentioned taking some impairment charges during the quarter for some additional closed doors or something of that nature. Could you -- was that material on the numbers basis?

Not on a year-over-year basis. Total impairment charges and successive write-offs were about $700,000 this year compared to about $500,000 in the prior Q3. So, it increased about $200,000.

Okay, and then just last one. You have been very lean on the inventory management and whatnot, could you talk about how do you look, it seems as though boot inventory likely up where the categories that are down pretty significantly year-over-year.

Boots are up, you called that correctly. We're down in some of the casual categories. As you can imagine, when I call out the fact that we have some categories that aren't working, and most of those categories like boat shoes, we are down significantly over last year. Basically, what we've done is we have taken a look at our business, and it's really not hard, and the categories that are underperforming, we've brought the inventory down significantly.

The big deal here, Jill, is the fact that we're right sizing the inventory based on store volume. We've talked a lot about the fact that we average -- used to talk a lot about the fact that we averaged 32,000 pair per store and today, we average somewhere between 27,000, 28,000 pair per store. And the reduction is all coming out of smaller volume stores, and it allows those stores to actually -- they don't have to clear through as much product and therefore, we should be able to get margins on a long-term basis up in those stores.

Okay. Thanks so much.

Jeff Stein, Northcoast Research

Cliff, I'm wondering if you could -- I know you don't disclose your e-commerce sales, but can you at least tell us what e-commerce is contributing to the comp store sales increase?

Here is what I am prepared to tell you, is that we had obviously a comp store increase in e-commerce, but we also had a comp store increase in brick-and-mortar stores. So, it wasn't -- this increase was not driven entirely by e-commerce.

Okay. What are your thoughts on advertising as we move into next year? Is that going to be leverage point for you? Obviously --

We don't plan on increasing the percent to sales that we generated this year in marketing, but we don't plan on decreasing it either. We believe strategically, Jeff, that this is a long-term strategic initiative that is going to continue to get the Shoe Carnival name out there, especially in the large markets that we have entered over the past several years but they don't know us as well as customers know us in the Midwest.

Okay, and the final question is a real estate question. Is the 20 to 25 stores you're opening next year, because that does represents a slowdown from this year, is that related to just being cautious about the environment? Or is it a lack of availability of suitable real estate at the price you are willing to pay?

Jeff, it's more about the former. We want to be cautious as we are growing. We have opened some large markets in the past years, we want to continue to focus on backfilling those. If we wanted to continue to open large markets, we could accelerate that growth, but I'm not sure that would help our profitability. What we are going to do is focus on the markets Detroit, Miami, the Buffalo areas that we have opened up. We are going to open Philly as a new market which would be a big part of our expansion next year, but want to be careful about not overextending ourself.

So, Philadelphia will be new for next year?

It is. We opened our first stores in Philly this quarter, however, the bulk of the store openings will come next year. The market entry.

Got it, got it, got it, okay. As far as circulars are concerned, you mentioned that you are adding a circular in the fourth quarter. Other than that, is your media spend pretty much expected to be flat as a percent of sales? I know TV is going to be a headwind of 15 to 20 basis points for the year, but I'm just trying to understand what we're looking at for the fourth quarter for a combined basis on your marketing spend as a percentage.

I want to be real clear on that, we're not adding a circular for the fourth quarter. We are adding a promotion. We have been proactive in adding a promotion, but at this not an insert. And as far as next year is concerned, we'll keep pretty much the same promotional cadence that we had this year.

Got it, and Cliff, it's the additional promotion, can you tell us anything about it is, is it an in-store promotion, is it an online promotion?

Jeff, unfortunately, part of this call is either the transcripts are read by my competitors or listened to by my competitors, so I would just as soon not talk about what it is.

Okay. Thank you.

And with no further questions, I would like to turn the call back to Mr. Sifford for closing remarks.

We want to thank you guys for joining us today, and we look forward to talking about our fourth quarter results in March. Thank you so much.

This concludes today's call. Have a wonderful day.