Tillys Inc (TLYS) 2012 Q3 法說會逐字稿

Good day, and welcome to the Tilly's Inc. third-quarter fiscal 2012 results conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Anne Rakunas of ICR. You may begin.

Thank you. Good, afternoon everyone. Thank you for joining us today to discuss Tilly's third quarter 2012 earnings results. On today's call are Daniel Griesemer, President and CEO; and Bill Langsdorf, Senior Vice President and CFO. A copy of today's press release is available in the Investor Relations section of Tilly's website, at tillys.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days in the Investor Relations section of the Company's website.

I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Tilly's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Tilly's business. Accordingly, you should not place undue reliance on these forward-looking statements.

For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our third-quarter 2012 earnings release which was furnished to the SEC today on Form 8-K, as well as our filings with the SEC referenced in that disclaimer.

We also note that this call contains non-GAAP financial information. We are providing that information as a supplement to information prepared in accordance with generally accepted accounting principles. And you can find a reconciliation of these metrics to our reported GAAP results in the reconciliation table provided in today's earnings release.

Also, for today's call, we have a limit of one hour. So when we get to the Q&A portion, please limit yourself to one question at a time to give others the opportunity to also have their questions addressed.

And with that, I will turn the call over to Daniel Griesemer, Tilly's President and Chief Executive Officer. Dan?

Thank you, Anne, and good afternoon, everyone. Thank you for joining us on today's call to discuss Tilly's third-quarter earnings results. Before I begin, I would like to extend our deepest sympathies to anyone on our call, and the millions of others who have been affected by Hurricane Sandy. We were fortunate that none of our sales associates or managers were injured, and our hearts go out to everyone still displaced and recovering. The impact of the storm on our business is relatively small, and Bill will provide a bit more detail shortly.

On our call today, I'll provide you with an overview of our third-quarter performance and the key factors that drove our results. Bill will then review our financial results in more detail, and provide our outlook for the fourth quarter and for full-year 2012. I'll provide a few closing comments, and then we will open up the call for your questions.

Our results for the third quarter reflect our continued emphasis on sustainable, long-term, quality growth. During the quarter we delivered net sales growth of over 16%, Anchored by a strong back-to-school selling period, as our broad and deep selection of relevant brands and styles delivered the desired fashion to our target customers. Despite more A challenging operating environment after the back-to-school period, we achieved slightly increased gross margins as we sharpened our initial margins and kept our promotional activity similar to the third quarter last year.

Strict adherence to our long-term pricing discipline and cost control led to a slight increase in our adjusted operating profit margins, even as we opened seven new stores during the quarter. Overall, we delivered a 19% increase in adjusted earnings, with adjusted EPS at the high end of our outlook range. These results exemplify the business philosophy that has guided Tilly's success over the past 30 years; which is to remain focused on our brand integrity and the quality of our earnings.

I'm pleased with what we accomplished, given the variability during the quarter. And we remain focused and on track with our key long-term growth initiatives of expanding our store base; of driving comparable store sales increases; of growing our e-commerce business; and of increasing our operating margins. Turning to each other these key growth drivers quickly -- as of the end of the third quarter, we've opened 22 new stores this year. As a group, these new stores continue to perform above our expectations, as the unique Tilly's brand concept clearly resonates with our target demographic on a national basis.

During the third quarter we opened seven new stores, including stores in three new states -- Michigan, Ohio and North Carolina. These new stores are also off to a good start. This brings our total store count at the end of the third quarter to 161. Subsequent to the close of the third quarter, we have now opened the remaining seven stores we planned to open in fiscal 2012, including our first two stores in Massachusetts, bringing our total store count as of today to 168 stores in 28 states.

While our third-quarter comparable store sales growth of 1.9 was below our expectations, this represents high quality growth at healthy margins. Sales were strong during the back-to-school period, but then softened materially across the country; and particularly due to unusually warm weather in Western markets that represent the large portion of our business.

Sales trends returned to more normal levels in the latter part of the quarter. During this period of variability -- and as we have done in the past, based on our conviction in the strength of our business fundamentals -- we chose not to pursue a course that would deliver a higher comp at the expense of earnings. In taking this approach, we are confident that our actions are right for the brand, and will benefit us well beyond the current quarter.

Turning to our online business, e-commerce sales grew 17%, and e-commerce growth continues to outpace growth in our overall business. During the back-to-school period, we delivered catalogs to our customers in our growing proprietary database of over 2.6 million, which serve to drive traffic to our website as well as our stores. During the quarter we launched several digital initiatives designed to further increase traffic, and I look forward to giving you more detail on this once we are a bit further along and have more results to share.

And, finally, we achieved a 20 basis point increase in our adjusted operating margin in the third quarter, which contributed to our 19% increase in adjusted net income. These results are a testament to the strength and uniqueness of our business model and strategy, which are designed to leverage our dynamic merchandise model and best-in-class infrastructure for long-term, profitable growth.

And I would now like to turn the call over to Bill Langsdorf. Bill?

Thank you, Dan. Good afternoon, everyone. I'll begin by reviewing the details of our third-quarter results, and then provide our outlook for the fourth quarter as well as our updated outlook for the full-year 2012. For the third quarter, net sales increased 16.4% to $124.9 million, driven by a 1.9% comparable store sales increase, and 27 net new stores opened since the third quarter of 2011. Our overall comp was led by our mens, juniors and accessories categories. As Dan mentioned, our e-commerce sales, which are included in our comparable store sales, grew 17%. Comps in the quarter were driven by an increase in the average transaction value, offsetting a decline in the number of transactions.

Gross profit increased 16.6% to $41.8 million, or 33.5% of net sales, and represented a 10 basis point increase over last year. We increased our merchandise margin rate by 20 basis points, reflecting slightly higher IMUs, while markdowns were at a similar rate as last year. This improved product margin was partially offset by a 10 basis point decrease in our buying distribution occupancy cost reflecting those costs increasing faster than the increase in comp sales.

On a GAAP basis, selling, general and administrative expenses totaled $27.9 million or 22.4% of net sales, which compares to $23.5 million or 21.9% of net sales in last year's third quarter. The higher SG&A rate in this year's third quarter primarily reflects the $670,000 non-cash stock-based compensation charge in this year's third quarter that was not incurred last year. On an adjusted basis, assuming a similar non-cash stock-based compensation charge in the third quarter of 2011, our SG&A rate declined 10 basis points, even as we opened seven stores during the quarter, reflecting how we continue to diligently control our operating expenses.

The increase in our gross profit rate, and slightly lower SG&A cost as a percentages of sales, led to a 20 basis point expansion in our operating margin on an adjusted basis; and drove a 19% increase in adjusted operating income to $13.9 million, or 11.1% of net sales, from $11.7 million or 10.9% of net sales in the third quarter of last year.

On a GAAP basis, our income tax expense was $4.5 million and reflects an effective tax rate of about 32.8% for the quarter, and an expected 32.9% for the fiscal year. This compares to an expense of $140,000 in the third quarter of last year when we were filing as an S corporation. Our GAAP net income for the third quarter was $9.3 million, or $0.33 per diluted share, based on a weighted average share count of 28.1 million shares. This compares to GAAP net income in the third quarter of 2011 of $12.2 million, or $0.59 per diluted share, based on a weighted average diluted share count of 20.5 million shares.

On an adjusted basis, net income for the quarter increased 19% to $8.3 million, or $0.30 per weighted average diluted share, which is at the high end of our outlook range. This compares to an adjusted net income of $7 million, or $0.34 per weighted average diluted share in the third quarter of 2011. The adjusted results assume an expected long-term effective tax rate of 40% for both this-year and last-year periods; and add back a charge for ongoing non-cash compensation expense for stock options of $670,000, before tax, to the third quarter of 2011 -- which equals the charge for ongoing non-cash compensation expense in the third quarter of 2012.

Turning to the balance sheet, our financial position remains strong, with cash and marketable securities of nearly $50 million; no debt; and no borrowings outstanding under our revolving credit facility. Capital expenditures during the quarter totaled $9.1 million, compared to $5.5 million in the third quarter of 2011, and were primarily related to new stores opened during the quarter and new stores under construction during the quarter that were scheduled to open in the fourth quarter.

Quarter-end inventory increased 11% to $49.9 million compared to $45.1 million at the end of the third quarter last year; and reflects an increase in retail store count from 134 stores at October 29, 2011, to 161 stores October 27, 2012. Inventory on a per-square-foot basis decreased 9% compared to the third quarter last year, and reflects a shift in the timing of receipts to early November this year compared to late October last year. We began the fourth quarter with both the level and composition of inventory well-positioned for the holiday season.

Now I'd like to turn to our outlook for the fourth quarter and the full-year 2012. As a result of our conversion from an S corporation to a C corporation filing status early in the second quarter, we anticipate an effective tax rate of about 32.9% in the fourth quarter of 2012, reflecting an expected full-year effective tax rate of about 32.9%.

And as a reminder, for fiscal year 2012, the Company's retail calendar includes a 53rd week compared to a 52-week year in fiscal year 2011. We expect the 53rd week to contribute pretax income of approximately $750,000, which is included in our fourth quarter and annual outlook.

So moving on, for the fourth quarter, given some recent variability in sales, we have moderated our sales expectations. Regarding the impact of Hurricane Sandy, we had 17 stores directly impacted, each closed from anywhere between one day and more than a week. The sales and profit impact to the fourth quarter from the hurricane is expected to be minimal, with the comp sales impact in the quarter for the chain as a whole being less than 1%.

For the fourth quarter, we are assuming comparable store sales growth in the range of 1% to 3%, which is slightly below our long-term target. This is on top of a 4.9% comp sales increase in the fourth quarter of 2011. SG&A in the fourth quarter will include an ongoing non-cash stock-based compensation expense of between $700,000 and $750,000 before tax; as well as estimated ongoing public company costs of between $300,000 and $400,000, neither of which were in the fourth quarter of last year.

Adjusted net income in the fourth quarter is expected to be in the range of $8.4 million to $9.2 million, or $0.30 to $0.33 per diluted share. This assumes a 40% tax rate which is consistent with our first, second, and third quarter adjusted disclosure, as well as the effective tax rate expected after this year. And it assumes a diluted share count of 28.2 million shares compared to 20.5 million shares in the fourth quarter of last year. On a GAAP basis, using an anticipated tax rate of 32.9%, our GAAP net income for the fourth quarter is expected to be in the range of $9.3 million to $10.3 million; or $0.33 to $0.36 per diluted share.

Moving on to the full year -- our full-year comp sales forecast reflects third-quarter actual results and the more conservative fourth-quarter sales projection. Therefore, we are assuming our full-year comparable store sales growth will be in the range of 2.5% to 3.5% this fiscal year, on a 52-week versus 52-week basis.

Adjusted net income for fiscal 2012 is expected to be in the range of $0.88 to $0.91 per diluted share, which is slightly below our previous outlook. Our adjusted outlook excludes the one-time charge in recognition of life-to-date stock-based compensation; as well as the one-time tax benefit stemming from the S corporation to C corporation conversion that we recorded in the second quarter of 2012. It includes ongoing non-cash stock-based compensation expense in SG&A for the last three quarters of 2012, totaling an estimated $2 million before tax, which was not charged in the prior year. It also includes an estimated $1.1 million of incremental public company costs for the year, before tax. It assumes a 40% adjusted effective tax rate for the full year. And it assumes a diluted share count of 26.1 million shares for the full year this year, compared to 20.5 million diluted shares last fiscal year.

On a GAAP basis, net income for fiscal 2012 is expected to be in the range of $0.90 to $0.93 per diluted share. We continue to expect capital expenditures for fiscal year 2012 to be in the range of $35 million to $40 million, with approximately $25 million related to the opening of 29 new stores; less one store closure; as well as for remodels of existing stores. The balance is expected -- is related to expenditures on material handling equipment and systems for the Company's new e-commerce distribution center expected to open in 2013, as well as for IT and other infrastructure improvements.

Overall, our business was solid and continued to generate positive operating cash flows, providing the resources to further our growth initiatives.

Now, I would like to turn the call back to Dan for some closing remarks.

Thanks, Bill. I'm proud of the business performance in the third quarter, which demonstrates the strength and uniqueness of our business model. Through disciplined execution on the controllable elements of the business, we delivered quality earnings despite some variability in our sales trends. And we exited the quarter with our pricing, inventory, and overall strategies well-positioned for the holiday season.

Given the recent variability and the importance to the fourth-quarter results of our upcoming holiday period that begins on Black Friday, we believe it is prudent to be a bit more cautious in our near-term outlook. As always, we remain disciplined in managing the controllable elements of our business. I am confident that the fundamentals of our business, the strength of our business model, and a disciplined execution of our management team will enable us to make steady progress on our long-term growth initiatives. Our business is financially strong, and generating positive cash flows. And we are prudently investing in the continued growth of our business.

I would now like to open up the call for your questions. Operator?

(Operator Instructions). Betty Chen, Wedbush Securities.

Thank you. Good afternoon, everyone. Nice progress in a tough environment. I was wondering if you could speak a little bit to the -- more color in regard to the month-to-month variability in the third quarter. It sounds like back-to-school was very strong. I don't know if you can share with us what comp trends were running at that point, before perhaps, the weather impact hurt the West Coast.

And then, can you speak a little bit more in terms of the sales variability you're alluding to for early Q4? Is it really just the Northeast, or are you seeing that in other parts of the country? And then also in terms of regional variability, any additional color you can give us would be really helpful in terms of Q3 performance as well. Thanks.

Super. Yes, I'll take that, Betty. Thank you. A little bit more on the quarter, we -- in the all-important back-to-school time period, definitely got our share. We had -- our sales were within the range that we were anticipating; very pleased at the execution and the performance of the business. Then we saw, as I mentioned, across the country some softness, some material softness that swung the business softer; and then return to more normal levels in the latter part of the quarter.

So without giving the exact numbers by week, you can generally say if we were in the range in back-to-school, and then softer in most of September; and then returned to more normal levels, which would be considered generally in the range in the latter part of the quarter, that kind of gives you an idea of softness. It was across-the-board. And I think the important thing to take away here, for us, as we look at the business and as we remain focused on the components that we could control -- there were no store groups, no regions of the country that led this in any particular way other than what we said, which was particular softness we saw in the Western markets that represent such a large part of our sales.

You know, we are in a transition between a regional to a national brand. And we are heavily dependent on a store base that is largely based in Western markets, and that was definitely affected by weather. But I think what we want to communicate is that we saw this variability not simply due to weather, but kind of across-the-board; after the all-important back-to-school period.

To the degree that we can talk about the variability in the fourth quarter -- while we are not going to get into a habit of kind of talking about specifics within the quarter that we are currently running in -- I will say that as we've all seen, and have seen the communications and reports about general softness in early November, that variability that we are talking about would be assumed to have continued on into that time period for us as well. And the whole season is -- really depends on Friday threw a few days post-Christmas.

So we are very bullish about our strategies. We feel very confident in our merchandise offerings, the brands we carry, the preparedness of the team, the marketing strategies in place. But the truth be told, it all depends on what happens from Friday onwards. So we just think it's prudent to assume a slightly more conservative posture going into that time period.

That's very helpful, Dan. I was wondering, in terms of as we look out into the fourth quarter, should we also assume that management will continue to pursue high-quality sales dollars as we saw in the third quarter? And that that certainly will continue to position the brand and focus that customer around full-price selling for the longer-term?

Yes. Thank you for that kind of tee-up, in that it's exactly the way we've been running the business from the start. And for the past 30 years, we've talked about it quite a bit as we've gone out and met with investors in various conferences around the country. This is the way we run the business. We stay focused on the things that we can control. And we do what's right for the business, and for the brand, long-term. So you should expect us to continue to do that.

Thanks so much. And the stores do look good. So, best of luck.

Lorraine Hutchinson, Bank of America.

Thank you, good afternoon. Can you talk about any particular product callouts, either on the strong side or the weaker side, and if there were any sort of fashion mistakes that led to softer sales?

We talked -- and I think Bill's comments talk about the business generally being led by the all-important categories of mens, juniors and accessories. The softness or, say, maybe flattish or slightly under performance would be in the footwear and boys and girls business by default. Those are the ones that are left. And it's important to note that our model, our business model, is so broad and diverse, with hundreds of brands representing the broad-based lifestyle to a broad-based demographic, we really are not dependent on individual trends or individual directions that brands may take.

And that I think you can kind of think that the fundamentals of the business model are well intact and in place. That's how we're looking at it. That's what gives us great confidence as we head into the fourth quarter; into the holiday season. So no, no exposure there.

Then as we think about gross margins, both for the fourth quarter and longer-term, where do you see the opportunities there?

Yes, Lorraine. It's Bill. As we've mentioned before, there is mild opportunity, we believe, in the product margin side of it. And we saw a little bit of that in the third quarter. As we continue to focus on the quality of earnings, and our brand image out in the marketplace, and do not try to react to promotional opportunities out there by -- that are in the market in general. So there's mild upside in that.

But as you know, we are a branded -- generally, a branded -- third-party branded retailer, so it's mild upside in that. If there is an opportunity to leverage our costs, like we even did a little bit of the third quarter, despite the sales being -- comp sales being a little less than we would've expected, then there is opportunity there, as well.

So those costs would be -- if the comp rate is below our 3% to 4% comp rate, it would be more in the G&A section of SG&A than it would be in, for instance, occupancy costs that would leverage at that point. So the fourth quarter could -- in this 1% to 3% comp range -- could look somewhat similar to the way the third quarter results turned out for leverage.

Great, thank you.

Dave King, ROTH capital.

Thanks. Good afternoon, guys. I guess first off, Dan, some of your peers in the action sports space have I guess either shown a slowdown, or have noted that the whole surf skate business, et cetera. is having a tough time. I'd just like to get your thoughts on that, and see if you had -- you think any of that is having an impact on what you've shown so far, maybe over the past quarter, and maybe in the month of November so far, et cetera.

Yes, I can't really talk too much about -- or don't want to talk too much about -- peers or other people in the sector. What I can say is that we know we have a very unique customer, a unique brand positioning, and a unique business model. We've talked a lot about this; it's really hard to pigeonhole us into any one set of peers. Yes, we share an action sports-inspired lifestyle kind of platform with a whole lot of people. But as you well know, that has migrated significantly. And so we feel very good -- I'm very confident in our approach to the business going forward.

I look at all of the fundamentals of the business, and all of the analytics that I can see. There's nothing that tells me there's anything materially wrong here. And I'm completely confident in what we are doing to control the things we can control to affect the results. We delivered top-of-the-range profit quarter. We're going to continue to focus on the things we can control. And this is a unique business with a unique customer. I think we're going to continue to make sure we communicate that, so people resist the temptation to pigeonhole us into one particular category.

Fair enough. And then maybe, Bill, the inventory increase this quarter -- looks like it was up about 37%, I think, year-over-year; and sales were up about 16% or so (multiple speakers).

No, actually, you may have been looking at, maybe, a year-end number or something (multiple speakers). Versus third quarter of last year, it was up about 11%. But on a per-square-foot, basis it was actually down 9%. But that down is more reflective of just the timing of shipment receipts between the end of the third quarter last year and the first couple weeks of the fourth quarter this year.

Okay. So it was my mistake. And then I guess, maybe then -- actually, I had a good question on that, but I'll come back to it afterwards. Thank you.

Jeff Van Sinderen, B. Riley Investment Bank.

Good afternoon. Can you talk a little bit about the transaction count during peak back-to-school during those peak weeks, where you were running on-plan -- was the transaction count running positive, then? Or how should we think about the transaction count?

It was running negative, but not as materially -- not as much as it was during the off-period, where we saw the softer sales following back-to-school.

Okay. And was there a difference, or are you seeing a difference, in transaction count trends in your off-mall versus your mall stores?

No, it really is not -- we don't see a difference there between the mall and non-mall; or, in fact, regionally we don't see much of a difference either.

Okay. And I think you mentioned inventory per foot was down at the end of the quarter, but you feel well-positioned going into holiday. Just wondering if you can give us kind of a sense of what you're running in inventory per foot as we stand today.

So after the first couple weeks of November -- when we look at mid-November this year versus last year, we're very similar on a per-square-foot basis.

Okay. And then, I know someone asked the question about leverage and comps. But can you just give us a sense if you're running a 1% or 2% comp, you can leverage occupancy, is that correct? And what comp do you need to leverage SG&A?

In general, we would say that G&A is probably the first area where we would tend to leverage. Occupancy cost is a little tricky, because it depends how many stores we are opening with dark store rent, and other things before we open -- TY, versus the same period LY. So I would say the first area that would generally leverage would be G&A costs, followed by buying and distribution costs. Then it would be more the selling and occupancy costs, would be the last to leverage, generally speaking.

Okay. Just to clarify; on your comments on Q3, I think you said there was not any difference in performance, generally, in your off-mall versus mall stores. Is that right?

Correct.

Good to hear. Thanks very much. And good luck for the rest of the quarter.

Stephanie Wissink, Piper Jaffray.

Hi, guys. Good afternoon. Just a couple of questions from us. First and foremost we would like to hear how you're thinking about this week and in particular, because of the competitive environment around Black Friday and the subsequent days. And then, stepping back and just looking at those stores you opened most recently in some of those newer markets, can you talk a little bit about the strategy to densify those markets and what you're seeing in terms of opportunity in those states? Thanks.

Okay, super. I'll take those. Well, we feel very good about our strategies for this coming weekend. And throughout the entire holiday season we have -- we are executing, and will be executing towards a planned promotional strategy. There will be a lot of effort behind marketing and communicating these segments and the breadth of the assortment and the brands, the relevance of the brands we carry, and the key categories that are most important our customers.

We have -- our destination, our store, is a destination for our target customer on Black Friday. There's a lot of excitement that happens around there. We've got stores opening at all hours, as everybody is very well aware. And we are very confident in our strategies for the weekend, and then on into Cyber Monday and things that we have going on there to keep the business going in that regard. So it really -- I feel very good; we all feel very confident in the overall strategies that we have for the entire holiday season. And Black Friday is a really powerful weekend. That whole weekend is very powerful for Tilly's.

Onto the stores -- in terms of new stores we are seeing, and continuing to be shown, tremendous amount of respect by the landlord community in both mall and off-mall venues, and are very encouraged by the caliber and quality of the real estate pipeline. We take each individual deal on its own merits. And it has to meet a very rigid -- strict requirements to be even considered. And then it's -- let the best deal win, because these are long-term commitments. So we are looking at opportunities all over the nation, and very encouraged by the pipeline that's ahead of us.

Just one follow-up, Dan, if I could. If you could talk a little bit about the merging of the e-commerce strategy with the store strategy; does it change -- the growth in e-commerce business -- does that change how you think about the prototyping of those new store models?

Well, we are looking at the entire enterprise. We have an internal term for it. And we are looking at the entire value chain and how best to communicate this incredibly compelling Tilly's brand offering across all of the tools and all of the access points that our customer might have. And so every decision we are making is with an understanding that our customer -- we want our customer to get the same great Tilly's brand experience across every channel, every access point; be it social media, or mobile, or in-store, or online, or through our catalog, or e-mails, or whatever else -- events, or all kinds of things. So we are very aware of it. We've got some very exciting things that we are rolling out and have in the works. And we will be continuing to evaluate this kind of progression towards a fully integrated experience.

Thank you. Good luck.

Sharon Zackfia, William Blair.

Good afternoon. Bill, I was hoping you might be able to quantify the actual impact of the heat in California during the quarter on your sales.

Well, we can see what it did on a week-by-week basis. And the largest impacts were in the middle of the quarter, from about Labor Day forward to through the first week of October. And so those were also the periods of time where we saw the greatest -- the softness, in the middle of the quarter. So they happened generally at the same -- over the same week's periods. As far as being able to quantify with a certain degree of real confidence, no; we can't really -- we are just uncomfortable -- we obviously, we try taking multiple stabs at it internally, and we have an idea. But it's very difficult to know what was -- whether what was gas, gasoline prices; what was just general economic effects that we saw across-the-board. So can't tell you exactly what it was, but it was definitely an impact. We could see it in those markets.

Is it fair to say that the gap between California and the rest of the country widened during that timeframe?

Absolutely.

Okay. And then, on footwear, you're not alone in the space. I'm starting to see footwear soften. Was that a surprise in the quarter? And what do you think is happening in the footwear category, and how do you address that?

There were no real surprises. It was only slightly negative. And there are actually some really exciting things happening with our footwear business that give us good confidence going into the fourth quarter, as well as kind of a taking off point into next year. So no, nothing real material there that I can point to specifically. And it wasn't a huge surprise. And our business relies much more on the guys, the juniors, and the accessories category. Those are all -- any one of those is bigger than the other three combined.

And one last question, just because you're so California-based, still, at this point; do you have any initial thought process on what Prop 30 might mean for your business going in to 2013?

We don't -- frankly, there are quite a few things that could, in a macro sense -- whether it's the overall political environment; the fiscal cliff; the economic issues may be related to it. It's hard to know how much each of those, if any, will have an effect on us. So, in general, the California economy has been mildly recovering. And we are certainly hopeful that there is nothing that's happened recently, in a fiscal or monetary policy, or other things that will derail that. We have no reason to think that that's the case at this point, that California will suffer more. But we don't know, honestly.

Okay. All right, thank you.

Janet Kloppenburg, JJK Research.

Hi, everybody. Congratulations on a nice quarter. Dan, I was wondering if you could address whether or not there was variability in the e-commerce business, or if you just saw it in the retail store channel. And maybe if you expect that the footwear business to be more challenging than last year -- I guess I don't understand why it would be, except maybe that you had a very tough comparison in it. And maybe you could help us understand why that would get better.

And then just, lastly, I was wondering if we should expect -- I know you said you were very excited about your promotional -- or your strategies, marketing strategies for the holiday. But particularly for this coming weekend, should we expect you to be promotional, in terms of pricing? Or will there be planned promotions in place? And will be comparable to last year? Thank you.

Sure. Onto the e-com variabilities, yes; e-commerce business performed similarly to the total business. So that it was a tied kind of an environment. On the --

You saw some weakness in California -- in those Californian markets, where gas and heat were a problem.

Yes, correct. All relative; relative variability. On the footwear, let me make sure I'm clear. I did not expect it to be a more challenging season because of a tougher LY comparison. I'm not entirely --

I just made that up. I thought that might have been one of the reasons, yes.

Yes. Not entirely surprised by certain categories' softness or certain things that happened with the business; it was only minorly down. And based on some of the strengths that we see, it gives us confidence going forward. So it's not a material swing one way or another. And on the promotional strategy (multiple speakers) --

Do you feel better about the category, then, for the fourth quarter and going forward?

I feel good about all of our categories going forward. Yes.

Okay. Great. Okay.

And on the promotional strategy, we have planned promotions, very similar to last year in terms of scope and strength, with a great marketing machine behind it, and a lot of energy out in the stores to create a great experience. So this is all planned. There's nothing that we are adding or doing incremental; this is the strategy that we've planned all along.

Great. Okay. Well, lots of luck for the season. Thank you.

(Operator Instructions). It appears that there are no further questions. I'd like to turn the call back over to management for closing remarks.

Okay. Great. Thanks again for joining us. We look forward to seeing many of you at the ICR Xchange, I think, on January 16; and discussing our fourth-quarter results with you in late March. So, have a good evening. Thank you.

This does conclude today's conference. We thank you for your participation. You may now disconnect.