Shoe Carnival Inc (SCVL) 2015 Q3 法說會逐字稿

Good afternoon, and welcome to Shoe Carnival's FY15 third-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'll now turn the call over to Mr. Cliff Sifford, President and Chief Executive Officer, and Chief Merchandising Officer of Shoe Carnival, for opening remarks. Mr. Sifford, you may begin.

Thank you, and welcome to Shoe Carnival's third-quarter FY15 earnings conference call. Joining me on the call today is Kerry Jackson, Senior Executive Vice President, Chief Operating and Financial Officer. On today's call I'll provide a brief overview of the Company's third-quarter performance, and an update on our fiscal year guidance. Kerry will review the third-quarter financial results and our guidance in more detail. Then, we'll open the call to take your questions.

We are happy to report a solid third-quarter performance with our fifth consecutive quarter of positive comps. The quarter began very strong, and we are able to maintain good momentum, which led to a 6% comparable store sales gain for the quarter. This comparable store sales increase comes on top of a 2.3% increase for the same time period last year. As expected, our strong performance was driven primarily by robust athletic sales; however, we were also very pleased with our double digit comparable store sales increase in the women's boot category.

In addition, we benefited from a combination of higher conversion rates, average sales per transactions, and units per transactions, which were offset by a low single digit decline in traffic. We ended the quarter with inventory up approximately 3/10% on a per-store basis, in line with our expectations.

As we discussed on our last earnings call, we were aided by a calendar shift that moved many of our early back-to-school dates and tax-free holidays into August this year from July last year. This shift contributed approximately $7 million in sales to the third quarter from the second quarter.

As a reminder, last year in the markets we serve, 13 states had tax free holidays that were observed at the end of fiscal July. This year, nine of those states shifted their tax free holidays to fiscal August. We saw the momentum that this shift gave us in the early part of August continued throughout the month, and into the remainder of the quarter. As a result, we experienced comparable store sales increases each month of the quarter in 11 out of 13 weeks during the quarter.

The shift in back-to-school sales, along with increased shipping costs associated with our multi-channel initiatives, resulted in a 70 basis point reduction in merchandise margin, compared to the third quarter last year. However we were able to maintain the gross margin rate of 30.1%, which was flat to the same time period last year.

SG&A as a percent of net sales increased 140 basis points due to a shift in back-to-school marketing, and an increase in equity compensation. Kerry will give more detail on this in his prepared remarks. Operating margin decreased 140 basis points, as a result of the net basis, we produced earnings per diluted share of $0.47, which is in line with our expectations.

In the third quarter, we achieved a record number of loyal shoppers, by adding over 847,000 members to SHOE PERKS, our loyalty program. We now have over eight million members who spend on average 23% more per transaction than non-members, and accounted for over 57% of our third-quarter sales. SHOE PERKS is quickly becoming our most important tool for communicating special promotion and sales events to our customers.

Our multi-channel sales initiative is working well, and presents significant opportunities ahead. Our team is most excited about our latest step toward a seamless, endless aisle experience for our customers. As I mentioned on our earnings call last quarter, in July, we launched our shoes to you initiative, which allows our store associates to increase conversion by opening the overwhelming majority of our inventory assortment to every store through the point of sale.

If a customer is looking for a particular size or style the store does not have, the associate can order it on the spot, and have it shipped directly to our customer's home. Since the launch of this technology, we are converting sales that previously may have left our store and gone to a competitor.

We continue to make improvement to our multi-channel capabilities. In the next few days, we will launch our new and improved Shoe Carnival app. This app will now allow the customer to purchase online directly from the app, as well as scan a bar code in store to help find their size.

We continue to make investments in our multi-channel capability. Future enhancements include buy online, pick up in store, along with buy online, ship to store, are scheduled to launch in the first half of next year.

Turning now to real estate, we firmly believe we have a tremendous opportunity to further grow our family footwear store base, and we are excited to welcome Jeff Fink as Senior Vice President Real Estate. Jeff started with us in mid-October, and is now in charge of our store site selections and lease administration functions. Jeff joins us with over 27 years of real estate industry experience across footwear and specialty retail. His contribution will be instrumental as we grow our existing presence in both large and small markets.

During the third quarter, we opened up six stores and closed two stores. Our store growth plan continues to focus on strong trade areas within our current footprint, and to take our under-performing stores that have minimal opportunity to improve and either renegotiate lease, relocate, or close the stores. We ended the quarter with 404 stores in 34 states and Puerto Rico. This past weekend we opened two additional stores, and by year-end, we will close one store, ending the year with approximately 405 stores.

We have now opened our first two small market stores. The first one in Blytheville, Arkansas, and the second in Marion, Indiana. While it is very early in the life cycle, we are happy to say both stores are performing above expectations. We expect consistent small market unit growth over the next several years as we take advantage of the opportunity to expand into new and fill-in existing markets with stores that are approximately 5,000 square feet.

These small market stores are less than half the size of our current locations. This provides consumers and local communities a convenient shopping experience that builds upon Shoe Carnival's strong track record of delivering moderately priced branded footwear for the entire family. In addition, our multi-channel strategy gives these customers access to the vast majority of our total assortment of millions of pairs, either while in our stores, through SHOES2U or from the comfort of their home.

Moving on to merchandise. As I mentioned earlier on today's call, we started off the third quarter strong, and we're very pleased with the sales performance of our athletic department and women's fashion boots. Focusing on sales by department for a moment. Women's non-athletic ended the quarter flat to last year on a comparable basis. Women's boots were up in the low 20s, which was even more impressive, given that this was on top of a mid 20s increase last year.

The sandal category continued to perform well throughout the quarter, posting a high single digit comparable store sales increase. These increases were offset by a decrease in women's dress shoes, along with women's work casuals and tailored casuals. Men's non-athletic was up low single digits, driven primarily by men's dress, canvas casuals, and boots. Kids was up high single digits, driven by athletic and sandals, and adult athletics were up low double digits, driven by men's and women's canvas, and running, along with men's basketball.

I want to close by offering some color on the remainder of the year. Once we entered into November and the weather continued to be unseasonably warm, we began to see lower boot sales, especially tall shafted boots and cold weather boots. This continued through our Black Friday sale event this past weekend, and with comp store sales results that were below our expectation. As a result, November comparable store sales were down less than 1%.

As I stated earlier in the call, our boot business was very strong throughout the third quarter. This gives us confidence that once more seasonable weather returns, boot sales will once again be a key driver of our sales. However, even though we have confidence that we will see sales in boots accelerate again, we will proactively step up the promotional cadence of the category so that we can assure a clean inventory position heading into the Spring season.

Based on our quarter-to-date results, we now expect comparable store sales for the year to be up approximately 3%, with merchandise margins basically flat producing full year EPS of $1.38 to $1.43 a share. Kerry will give more detail on this in his prepared remarks. With that overview, I'd like to turn the call over to Kerry.

Thank you, Cliff. Third-quarter net sales increased $15.0 million to $269.7 million, as compared to the third quarter last year. The net sales increase was driven by sales of $7.3 million from the 26 new stores opened since the beginning of the third quarter of FY14, and a $14.2 million increase in comp store sales. This net sales increase was partially offset by a $6.5 million loss in sales from the 20 stores closed since the beginning of the third quarter of FY14.

Our gross profit margin for the quarter was 30.1% which was unchanged compared to the third quarter last year. SG&A expenses increased $7.2 million in the third quarter of FY15 to $66.1 million. As a percentage of sales, these expenses increased to 24.5%, compared to 23.1% in the third quarter of FY14. The majority of the SG&A expense increase was due to a $2.5 million increase in advertising in August of this year, and a $2.4 million increase in equity compensation.

As we mentioned on our last earnings call, a shift in the back-to-school tax-free calendar resulted in sales and advertising expenses shifting out of the last week of the second quarter of last year, and into the first week of the third quarter this year. Focusing on equity compensation expense for a moment, in the third quarter of FY14, certain performance-based restricted stock grants were deemed not likely to vest, and as a result, this expense was reduced by $2.3 million in the third quarter last year. This reduction in equity compensation expense did not recur in the third quarter of FY15.

Pre-opening costs included in both cost of sales and SG&A increased $59,000 in the third quarter of FY15 to $679,000. Total store closing and impairment charges included both cost of sales and SG&A in Q3 this year were $405,000 compared to $594,000 in Q3 last year.

The effective income tax rate for the third quarter of 2015 was 38.0%, compared to 39.1% for the same period in FY14. For the full year of FY15, we expect our tax rate to be approximately 38.5%. Net earnings for the third quarter were $9.4 million, or $0.47 per diluted share. For the third quarter last year, we reported net earnings of $10.8 million or $0.54 per diluted share.

Now turning to our cash position and information affecting cash flow. In the third quarter of this year, we repurchased approximately 429,000 shares of common stock, at a total cost of $10.2 million. The amount that remained available under our $25 million share repurchase authorization at the end of Q3 was $14.8 million. Depreciation expense was $5.8 million in Q3.

We continue to expect depreciation expense to be approximately $23 million for the full fiscal year. We expect capital expenditures for the full FY15 including actual expenditures year-to-date to be between $27 million and $28 million. Approximately $9 million of total capital expenditures are expected to be from new stores and $9 million to be used for store relocations and remodels. And we expect lease incentives in the range of $6 million to $7 million for the year.

My final comment today will focus on adding a little color on our sales and earnings expectations for the fourth quarter of this year. As Cliff said earlier, we expect our annual comps to increase approximately 3%. While our merchandise margin is expected to be about the same as last year, due to leveraging or bond distribution occupancy costs, we expect to see a slight increase in our gross profit margin.

As a percentage of sales, expenses are expected to be flat, at the high end of our sales expectations. These expectations should result in diluted EPS in the range of $1.38 to $1.43. This represents an increase of 9% to 13% over diluted EPS earned in last fiscal year.

Included in our annual expectations our Q4 expectations of comp store sales of flat to up low single digits, a decline in our merchandise margin in excess of the leveraging of our buying, distribution and occupancy costs, and a moderate leveraging of our SG&A.

While this may sound obvious, it bears emphasizing. We believe that we will ultimately -- where we ultimately come out within the EPS range will be primarily determined on how our boot inventory sells during the remainder of the quarter. We further believe that if we see weather supportive of selling boots, we should achieve the high end of our expectations, and without supportive weather, we will trend to the lower end of our expectations.

Lastly, our expectations for the fourth quarter and the fiscal year do not include any impairment for our Puerto Rico stores. We operate nine stores in Puerto Rico, with combined net book value of long-lived assets of $5.5 million. Puerto Rico is experiencing an economic crisis characterized by a deep recession, and defaults on its public sector debt.

Our current estimate of undiscounted cash flows indicate that carrying amounts of the long lived assets are expected to be recovered, and therefore, no impairments would be necessary. Our estimated cash flows might change in future periods, pending further developments in the economic environment, and possible further defaults in Puerto Rico.

This concludes our quarterly review. Cliff and I are now available to take your questions.

(Operator Instructions)

First question today comes from Jeff Stein with Northcoast Research.

First question, for Kerry. In the third quarter, Kerry, I think in the second quarter conference call, I think you mentioned that you expected ad spend to be up $3.5 million, and I think you said today it was up $2.5 million. So I'm wondering, did you reduce it as a result of the weaker trend that you saw? And are you planning to spend that money in the fourth quarter, or how should we think about that $3.5 million versus the $2.5 million you actually spent?

Well, what I believe what I referenced on the call was not as specific as what I referenced in this call. I was talking about for the full quarter. We were going to be up closer to $3.5 million. We were up over $3 million, but $2.5 million of that came in August.

A majority of the increase for the quarter was going to be related to just August itself. I don't think our actual expenses for August by itself changed. It's just I may have -- I think that I stated it better to more clarify it, that it really was that shift into August, those advertising costs specific to the back-to-school shift.

Okay, so in other words, your ad spend added up being exactly what you thought it would be?

Well it's a little less than the $3.5 million, but it's close.

Okay and--

That won't affect the Q4 numbers, to answer your other question.

Okay, terrific. And as far as your boot inventories, as a percent of your total inventories, what would boots account for? And then one more question would be, can you refresh my memory in terms of how much the port slowdown cost you in the fourth quarter last year?

We reported last year that the port slowdown, I think I'm right on this, Kerry. You may have to correct me on it. It was just over $300,000 in the fourth quarter?

I have to go back.

We need to go back and look at that, Jeff. But from memory, that's what I remember. Boot inventory is, of the total, is that women's, men's and kids? We'll get that for you in just a second. I will tell you that boots account for roughly 25% of our total business in the fourth quarter. I'll give you the inventories on that in just a few moments.

Great, okay, you could just answer that later, and take the next question from the next guy in queue.

Thank you.

Next question comes from Eddie Plank with Jefferies.

Just wondering, can you remind us what the comp cadence was in the fourth quarter of last year, by month? It's a tough comp to last year, and I'm just wondering since you're down a little in November, just trying to get a sense of where that opportunity is? Thanks.

Yes, I'll give you that answer, Eddie. But I want to caution you that a lot of our fourth-quarter comp last year was driven by the fact that we had really rough weather the year prior, and the weather played out much better for us last year, from a comp perspective. If you'll remember in 2013, we had hundreds of store closed days in the fourth quarter, so we called that out in our fourth-quarter conference call. But the way the earnings or comps played out, or excuse me, the way the comps played out in the fourth quarter last year was we were up mid singles in November, high singles in December, and low doubles in January.

Great, that's helpful. And then Kerry, to confirm, did you say a slight increase in gross margin for the year, or for the fourth quarter?

For the year. For the fourth quarter, the reduction and the decrease in the merchandise margin will be in excess of what we leverage our BD&O, so we should see slightly down gross profit margin in Q4, but on the year, it will be up, because of the leveraging of the BD&O.

Got it, okay. Thanks for clarifying that, and real quick, lastly. Just any update on the better brand strategy, Cliff? How it's playing out its expectations, or what the opportunity still is there? Thank you.

Actually, I'm glad you asked that question. I probably ought to put that in my prepared remarks every quarter. But we're still very pleased with the way better brands are working. Our comps in those stores are still running better than the comps in the stores that don't have the better brands, and our percent of women's business to the overall store has risen to about 27.5%. If you'll remember over next three to four years, we expect to get it to 30% and we're well on our way to do that.

Great, thanks for that. All the best in the fourth quarter.

Next question comes from Jill Nelson with Johnson Rice.

Just a question, could you talk about, looks like you have very strong boot numbers for third quarter, but you saw quite a slowdown in November. If you could just maybe talk about it, given we really didn't have any cold weather in Q3, to note of. Just that variance?

Here is the way we look at it, Jill, whether it's right or wrong, I'll have to let you judge that. But we think that we had an incredible strong assortment of booties for second and third quarter, and the customers reacted very favorable to that. As you get into November and into the fourth quarter, and weather from the year before affects you, then, as it did last year, because November was a very cool month, as was December and January, and you don't comp that coolness, repeat the coolness, if you would, then it makes the cold weather boots and the tall shafted boots a little more difficult to sell, and that's the way we look at it.

We think that the customer has voted yes, they like our boots. We had a very strong comp in October of last year in boots, and we comped positive against that this year, and the weather wasn't that cool. So we believe the customers have voted yes. They are just waiting now for the weather to get cool, so that the cold weather, the fur-lined boots all of the boots that normally sell in the fourth quarter, will pick up the momentum.

Okay, appreciate that commentary. And maybe if you could just talk about November, Black Friday weakened performance of athletic and your canvas category? How that performance held in?

So for the month, I'd rather give that to you by the month, and not get specific about the Black Friday event itself. For the month, our athletic business continued to perform, as did our canvas business. So we believe that, we absolutely believe we're still on an athletic run, and that will continue throughout the fourth quarter and into next year.

Okay, and then just lastly, if you could give us an update on the ship from store capabilities, I believe you're at 250 stores, looking to get to 350 stores at year-end, the update there, and some efficiencies you're seeing from that process? Thank you.

We are now shipping from, I believe, every store in the Company, in fact, except for the store that we're going to close at the end of the year, we're shipping product out of every store. Did that answer your question?

Yes it did. Thank you, sorry.

Next question comes from Sam Poser with Stern Agee.

A couple things. Can you give us a break down of athletic between men's, women's and kids for the quarter?

I thought you'd ask about boots Sam, so I don't have that right now. Break down as far as comps or the total?

Well, no, as far as the comps go, where you're seeing biggest growth within that nice comp you had in athletic.

Believe it or not, it was fairly close. It was within 1%. We got double digit growth out of our, excuse me. Out of our adult athletic, with women's slightly outperforming men's, and we got very high single-digit growth out of our kids athletic.

Okay, well what boot question did you want to answer? I'll be happy to ask it.

I don't know. I'll let you ask the questions, and I'll quit anticipating.

Well no okay, I mean, I guess the question is, how is your inventory -- your boot business in the quarter was up, but it clearly slowed down at the beginning of Q. Although it slowed down at the beginning of Q4. So the question really is, where is your boot inventory -- what part of your inventory is up that's making you take these price actions, which led you to lower the full-year guidance a bit?

Well, the boot sales in the month of November were below our expectation. Any time you have a performance like that for a month as large as November, which happens to be the second largest month of the quarter, then you need to react to that. We can't just sit by, and hope that the weather comes. That's not a good strategy.

Approximately, and this will answer also answer Jeff's question from earlier, approximately 13% of our inventory is in boots, which is not bad when you consider the fact that 25% of our business is done in boots for the fourth quarter. So however, we do have categories that we feel we need to get a little more aggressive on, and we're going to do that.

Okay, and then, can you talk about any of the brands that are driving things, especially in athletic and boots and other areas?

I could, but we don't really talk about brands, so I won't. Sam, you write often about the key brands, and the key brands that you recognize are our key brands, as well.

Okay, and then what percent, you mentioned that November is the second largest month of the quarter, at least for boots. Can you give us in total, maybe you could talk about last year, like when you looked at November, December, January, what the percentages were by month as a percent of the total volume, of total revenue for the quarter?

Sam, November typically is about a third of the sales for the quarter.

And then like December is what, like 50% and you're left with the rest in January?

I'm not going to break down each month, but December, being a more important sales period, plus it's a five-week period, it is significantly higher as a percent, and then January is a quiet month, and that percent will drop below the November number, even though they are both a four-week period.

And the question is -- let's ask it this way. The double digit increases you had in athletic in the third quarter, has that continued with the same velocity into Q4?

The athletic business was very strong for the month of November. I don't really want to give a percent over the phone, but I mean, I really don't want to give a percent. But let me just say it was up high singles.

Okay, all right. Thank you very much, good luck. Have a great holiday.

You, too.

Next question comes from Chris Svezia with Susquehanna Financial Group.

So I've got some boot questions, even though you probably are sick of boot questions, but I'll give you some boot questions, if that's what you want.

I'm glad to take them.

So boots, just remind us, fourth quarter last year boots comped high 20s, something like that?

That is correct.

Okay, and basically, you're telling us that in November, it didn't hit your plan. Did it turn negative in November? The boot category?

Yes, it did.

And so your expectation is for it in the fourth quarter to do mid single, low single digit comp? I'm just curious what you expect. I'm trying to get an idea of what acceleration we need to see in the business.

Even with the loss we had in November, which I'm applying to weather, because I really believe that is the case, I believe if the weather does cooperate, we should see mid to high single digit increases in the month of December and January. We've got to remember, we aren't going to sit back and wait for the weather to get here. That's really not a good strategy. We have a plan in place to create increased interest in our boot category, if you know what I mean.

Okay and to get to that level of comp for December, that's factored, to do those promotions, that added promotional cadence, is factored into that guidance to get there?

That is correct.

Okay, and just of the boot composition, is it mostly at this point just the cold weather product? You aren't sitting on a lot of tall shafted above the knee fashion inventory?

No we planned our tall shafted boot business down, and we are achieving that plan. So we were correct in planning our inventories down in that category, because the customers have definitely shied away and gone more toward booties and mid-calf boots. What's not working right now, if there's anything that you would primarily wear it in cold weather, be it high shafted or fur lined.

Okay, and then just on your year-end inventories, where do you expect total year-end inventory to be? I think beforehand, you expected it to be down on a per store basis. That's still the process?

We expect it to be flat to slightly down.

Okay, and then on athletic, just your overall perspective, canvas has been strong for some time, running for your channel has been strong, the fashion athletic running piece that been strong. Just put your hat on for a second as you start to think about early next year, and what could drive the athletic businesses. Are those still primarily the categories?

Chris, I get the privilege, Carl lets me go to some of the pre-lines, and I've been to the pre-lines of all of the key athletic brands, and I'm just going to tell you, I don't see a slowdown coming. I think the product as we go into Spring 2016 is stronger than the product we have in our stores today that are driving the comp that we just talked about. I see this as a continuing trend, until you see an apparel trend. Now we were at Magic in August, and we felt like we might start seeing a shift in denim, lined-leg denim, but I have not seen that yet.

Okay, and the pricing, when you talk about the product, looks better from a pricer perspective. Is that fair to say that goes incrementally higher, as well?

That's a doggone good question. Our top brand continues to give us better product, so therefore, you'll see increase in AURs there, and we continue to buy better product from our other brands, as well. So I think you'll see low single digit AUR increases.

Okay, final question, Kerry, for you. SG&A, as we think about incentive comp, does it true up a little bit here? As we think about it, I don't want you to give guidance for next year, but does that level it out a bit for next year, now that its gone down, now that its gone back up again? I'm just curious how we think about that bucket.

Well, our thought process would be is that, if we have accelerating earnings as an EPS as a percent over the prior year, our equity, our compensation would go up, our incentive compensation, and equity compensation will be relatively flat between the periods. You'll see some incremental increase, most likely every year you'll see incremental increases, but no dramatic changes like what we're seeing this year, versus last.

Okay, all right. That's all I have. All the best to you, thank you.

We'll take another question from Jeff Stein with North Coast Research.

Yes, Cliff, it's Cyber Monday, and I've been trying to get on your site all day, and it says that it's down for maintenance. Is that a problem on my end, or has there been a problem on your end?

It's been an off and on problem on our end for much of the day. The traffic on our site is overwhelming our server. So we are currently up, and have been, since I've been, we've been on the call. We have had occasional outages. As you do on anything where you have a big volume day like today.

Okay, all right, but nothing that should extend beyond today?

No.

Assuming -- and how about, can you bring us up-to-date on what's going on in Texas? I think in the second quarter you mentioned that your sales in Texas had held up pretty well. How about Q3? Is that still the case?

Our Texas stores are still holding up pretty well. There are, we are experiencing issues on the border, and both the Northern border and the Southern border, actually, and I think it's something other people have spoke to, as well. But in a few of our cities, where they are dependent upon oil, we've seen some issues, but overall, our Texas business remains okay.

Great, glad to hear. And then, finally, I know your small market stores haven't been open very long, but any surprises, any early takeaways from what you're seeing there, besides the fact that it seems to be doing better than plan?

No, not yet. We are watching those stores very, very closely, and we are excited about it. I'm trying to contain myself on it, because I think that we have a tremendous opportunity, based on the early results.

Are you seeing a, I cover another Company that operates in relatively small markets, and one of the advantages that they have found, besides being the only guys in town, is that their lease expense is quite low, and I'm wondering if you could give us some guidelines in terms of what you're paying on a per square foot basis compared to your larger market stores?

I really can't do that, I really can't do that. I will tell you that the advantage of operating in a small market for us not only are the lease opportunities are attractive, but the fact that we're so well known in the Midwest, and the Southwest, and we open up a store, we don't, there's no period where you're trying to make the customer understand who we are. They know who we are immediately, and it's a very nice positive thing. Jeff, you still there?

He is still connected, sir.

Okay.

Jeff let me add a follow-up on your question that we answered earlier about what Q4 effect on the additional strike or slow port costs. In the fourth quarter, we said that it was a $0.03 effect, so that, just to clarify what your question was from earlier.

We'll go ahead and move to or next caller.

(Operator Instructions)

Our next caller is Steven Martin from Slater.

Couple questions, and thank you for buying back stock. Kerry, on an administerial level, can you give us the actual share count at the end of the quarter? As opposed to the average?

Steve, I don't know that I have that with me. I just have the averages.

Okay. When you look at the -- you closed a fair amount of stores this year, in the aggregate, did those stores lose money, breakeven, or make money?

Lost money.

Okay, is it something that will be meaningful when we get into 2016 as a increase in earnings, or is it marginal?

The way this works is that when a store closes, typically you're losing money, but like we've talked about before, next year we're going to have additional store closings. Those stores will have store closing costs associated with them, impairments, so we actually are probably not going to see ourselves get clear of these cumulative store closing costs until some time in 2017 and 2018, we'll start to see those costs diminish. They are not going to increase from what we had in 2015 in future years, but they aren't going to see a material decrease until possibly 2017 or 2018.

And that leads into my next question, which was when you look out to 2016 now, what do you think your open/close numbers will look like?

Well right now, we're looking at opening 20 to 25 stores, and we'll have store closings similar to what we're seeing this year, and we're still looking at some of the stores, and how many were closed, how many are relocated, et cetera. So rather than give you a specific number, we're just going to give you a guideline there.

Okay, have you, with respect to the slowdown in sales, albeit weather-related, two questions on inventory in the fourth quarter. Have you cancelled orders that were pending for the fourth quarter? And last year's port strike slowed receipts in the fourth quarter and into the first quarter, so do you have an opportunity in, let's say, the January through April period, where you were missing product last year, and you may not be missing it this year?

Actually, the port slowdown last year hurt us more as we entered into the fourth quarter than it did as we entered the first quarter, so they were pretty much back at work by the time we got into the first quarter. So I don't see that as a tremendous opportunity. I do, however, think that there is opportunity in the fourth quarter especially in athletic, because we are having a very steady flow of athletic as we move through this quarter.

Okay, and the order cancellation?

From a cancellation standpoint we always react if there's a downturn to business with canceling orders. That's always up to the (inaudible -- technical difficulties) community, especially if they are ready to -- sitting on the dock ready to ship, but we have canceled orders throughout the season.

Okay, with respect to e-commerce, when do you expect to be able to ship from third party?

We're looking to do that, right now, it's on our agenda, but it's not on the forefront of the agenda, and we will probably start building that capability by the end of next year, for launch in 2017.

For launch in 2017. Okay.

We just believe that ship to store and pick up in store is a big, big opportunity now, and that's where we are putting our emphasis.

Okay, and now that you have had a full year of the national advertising program, can you give us -- or almost a full year, can you talk about what you've learned, preliminary conclusions, things you thought would happen that didn't?

We run, we have an agency that does research for us after every run of TV, and what we've seen is that our aided and unaided recognition for our name is going up, and not just up, but up in a positive way. There's very hard, Steve, to quantify how TV affects the customer. You're not collecting coupons, you aren't telling the customer to mention the ad when they come in.

It's just very hard to quantify exactly what TV is doing for us, so we have to do this research, and so far, we're finding that the customers are reacting positively and that our name is getting to be better known, and we are known for exactly what we want to be known for. We are known for brands, we are known for fun and exciting shopping experience, and those are the things that you want to be known. The research we're doing compares us to -- not only looks at Shoe Carnival but looks at all our competitors, whether they be direct competitors or tertiary competitors, so we're pleased with what we're seeing.

Okay. One last one. When you look out at your store openings in 2016, are there new markets in there that we don't know about, or do you expect them all or most to be in existing markets?

We are going to take the current footprint, and we'll grow within that footprint. We aren't going to open any additional large markets until we are complete with the large markets or at least further along with the large markets we've opened over the past couple of years. As you know, we went into Dallas about four years ago, Detroit, Miami, Philadelphia, and Buffalo, and we need to make sure that we are backfilled in those markets, before we start taking on the expense and advertising them in new large markets.

Okay, thank you very much.

It appears there are no further questions in queue. I'd like to turn the conference back over to today's speakers for closing remarks.

I want to thank you for joining us today, and we look forward to discussing our full-year results with you in March. I hope everyone here has a terrific holiday season.

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation. You may now disconnect. Have a great rest of your day.