Shoe Carnival, Inc.
Q1 2020 Earnings Call Transcript

Published: 20 May 2020

[Operator:]

Good afternoon, and welcome to Shoe Carnival's First Quarter Fiscal 2020 Earnings Conference Call. Today's conference is being recorded. It is also being broadcast via webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. Management's remarks may contain forward-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. Forward-looking statements should also be considered in conjunction with the discussion of risk factors including -- included in the company's SEC filings and today's earnings 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 discussed on today's conference call or contained in today's press release to reflect future events or developments.

[Cliff Sifford:]

Thank you, and welcome to Shoe Carnival's 2020 first quarter earnings conference call. Joining me on today's call is Mark Worden, President and Chief Customer Officer; and Kerry Jackson, Senior Executive Vice President, Chief Financial and Administrative Officer. On today's call, I'll provide an update on the ongoing COVID-19 pandemic and the impact it has had on our business as well as updates on our store re-openings and expectations as we move forward. Mark will then discuss our strategic initiatives and how our historic investments have positioned us well to weather this storm, followed by Kerry, who will discuss the quarter's financial results. We'll then open the call for your questions. Let me start off with a business update on the impact of COVID-19. First and foremost, we hope you and your loved ones are staying safe and healthy. When we last spoke, the initial impact of the COVID-19 pandemic was just starting to materialize. Since then, we have been met with unprecedented challenges as we look to protect our customers, store employees and corporate staff. The fiscal first quarter was really a tale of two completely different environments. The quarter began well with solid traffic driving a comparable store sales increase of 3.9% through the 12th of March. As COVID-19 virus spread quickly, by mid-March, it became clear that our employees, customers and the communities we serve were at risk. As a result, on March 18, we made the difficult decision to temporarily close our stores. Further, as soon as we saw evidence of traffic declines in our stores, we immediately shifted our marketing efforts toward our e-commerce platform to ensure our loyal customers knew that we were able to continue to meet their needs even in a virtual world. This strategic decision has clearly paid off, which I will discuss in a moment. I would be remiss to not, first and foremost, thank our employees for their hard work and dedication during this incredibly uncertain time. During this period where our stores were closed, we continue to pay our employees and to date, we have not furloughed a single person. This was incredibly important to us and something we are very proud of as our store associates are what makes Shoe Carnival so special. Our store environment is unique by being fun and entertaining. It is supported by team members that have been trained to operate our stores the Shoe Carnival way. As a result, the decision to not furlough our store employees has been a clear competitive differentiator as we have reopened our stores.

[Mark Worden:]

Thank you, Cliff. Last quarter, we discussed our four strategic initiatives, including the CRM, brand and customer experience, e-commerce sales and store development. The investments we have made continue to drive meaningful ROI, particularly in this current environment. With digital marketing being as important as ever, the enhancements we have made to our marketing programs have proved instrumental, and our new branding and design has resulted in stronger customer engagement. We've also utilized our CRM and Shoe Perks loyalty program insights to effectively align our marketing efforts to our customers' needs. As a result, we have seen continued membership growth in our loyalty program, which increased nearly 10% in the first quarter. The investments we have made in marketing and CRM have driven significant gains in our e-commerce sales amid this challenging environment. Not only are we capturing new members, we're converting traditional in-store buyers to e-commerce buyers. E-commerce sales achieved all-time week, month and quarter highs while our stores were closed, with sales growth over 350% for the second half of the quarter, resulting in over 160% sales growth for the total Q1. To provide some perspective, e-commerce represented approximately 5% of corporate revenues in the fiscal first quarter of 2019. However, our fiscal first quarter 2020 e-commerce revenue would have represented nearly 15% of fiscal Q1 2019 revenues. While we do not anticipate our e-commerce growth rate to slow down until after we reopen our whole store fleet, we are confident that we have materially expanded our e-commerce shopper base. This expanded customer base will lead to a new normalized growth rate considerably higher than it was pre-COVID-19. As an example, for the last four weeks ending May 16, we grew our e-commerce sales over 500%. We are confident that our investments have us well positioned to achieve our long-term e-commerce sales target years ahead of the long-term strategic plan we've defined. Turning to our store re-openings, between May 1 and May 6, we reopened over 50% of our store fleet, and as of today have 318 stores, representing over 80% of our stores open. Pending any government changes, we're on track to have opened over 95% of our stores by the second week of June. Early results from the reopened stores are very encouraging. As Cliff mentioned, nearly 70% of our sales in our stores have come from loyalty members, consistent with our prior year results and indicating our customer base is strong and ready to shop with Shoe Carnival in person again.

[Kerry Jackson:]

Thank you, Mark. As Cliff mentioned, this quarter was a tale of two very different environments. The quarter began well with sales up modestly year-over-year before we temporarily closed all brick-and-mortar stores midway through the quarter. We were able to quickly shift our focus to e-commerce, which increased triple digits in the first quarter of fiscal 2020 compared to the prior year. On the expense side, we controlled expenses where we could, eliminating discretionary spending, reducing executive board compensation and deferring capital expenditures. This pivot to a focus on driving cash flow and preserving liquidity allowed us to manage through this crisis without adding any debt to the balance sheet and maintaining sufficient liquidity. Taking a closer look at the first quarter financial results, net sales decreased 41.9% to $147.5 million compared to the first quarter of last year. Gross profit margin for the quarter was 21.3% compared to 29.6% in the first quarter of last year. Merchandise margin decreased 190 basis points, primarily due to higher shipping costs associated with the increase in e-commerce sales, while buying, distribution and occupancy expenses increased 640 basis points as a percentage of sales due in part to this deleveraging effect of lower sales primarily related to occupancy costs. During the time our stores were closed, we worked with our landlords to defer certain payments. But in accordance with GAAP we expensed the full amount of the rent for the quarter irrespective of the payment schedule. SG&A expenses decreased $4.8 million in the first quarter of fiscal 2020 to $54.7 million. As a percentage of net sales these expenses increased to 37.1% compared to 23.4% in the first quarter of fiscal 2019 due to the deleveraging effect of lower sales.

[Operator:]

And our first question comes from Mitch Kummetz with Pivotal Research.

[Mitch Kummetz:]

Yes. Thanks for taking my questions. I hope you guys are doing well and congrats on getting all the stores open. Let me start Kerry on, one of the last things you said in terms of comps by month. So May, you're looking for a mid-single-digit comp. I just want to make sure I understand what's in that number. Is that just the stores that are open? If you're at 82%, you expect to get to 95% by like the middle of June? Does that include the stores that aren't open, or is it just the comp on the stores that are open plus your digital business?

[Kerry Jackson:]

So, the way we report comps is, all of our stores, plus our digital business. And what we're giving is not an adjusted compared to the prior year is the full prior year of all stores opened compared to the stores we do have open today, the part month and plus the digital expenses or sales.

[Mitch Kummetz:]

Okay. So even with stores closed again, I want to make sure I'm thinking about this right, you're -- some stores closed, you're still looking for a mid-single-digit comp in May?

[Kerry Jackson:]

Yes. As Mark said that, as of today or as -- that we have a comp increase for the month, even though we have approximately 100 stores still closed and as we continue to open them up throughout the rest of the month, that's where we're getting our expectations.

[Mitch Kummetz:]

Okay. And when you look at the comp trends that you're seeing in stores as you've opened the stores, I don't know if there's any way you can slice or dice that a little bit. I'm just curious, if you're seeing any differences across markets maybe stores in large markets versus small, maybe stores in markets with a lot of COVID cases versus few stores in red states versus blue. I don't know if you're sort of dissecting the data to see if you're noticing any trends. Or is it just everybody is kind of doing the same?

[Cliff Sifford:]

Mitch, I'm going to let Mark take that question. But whether -- in the markets where COVID was exponentially higher, we're still not open. So like in Philadelphia, certain markets in New York, we're still not open. So, the Midwest, we really were not affected the way -- sadly the way the Northeast and the East Coast was. So, Mark why don't you?

[Mark Worden:]

Hi, Mitch. As Kerry was saying, with all the open and closed stores, we're plus 7 -- over 7% at this point for the month of May through yesterday. And what we're seeing is results that far exceeded our expectations of how the customer would come out across states, across the states that governors have relaxed or opened up, whether it's from Texas to Florida, we're seeing double-digit gains after we open up. And Cliff alluded to it, traffic is down double-digit. But what we're learning is the customers that come out are ready to purchase, and conversion is up extremely high growth and units per transaction are also up very high. So we're having strong success.

[Mitch Kummetz:]

Okay. And Cliff or Mark, do you think that you're seeing any current benefit from the fact that you guys maybe opened your stores faster than some of your competitors, maybe within the family channel or even that you guys are in locations that were allowed to open where maybe some malls are not open, and you're taking market share away from some of those mall stores.

[Mark Worden:]

I think it's both and because malls are not open. We were open -- we got our stores open pretty quickly. And I hate to compare this to a hurricane market, but that is typically what happens. As soon as we prepare so well prior to a hurricane, that once the hurricane passes through, we're usually the first retailer to open up, and I feel we did the same thing in this particular -- during the pandemic. We were so well prepared and continue to prepare during the close time that as soon as we got the orders from the governors, we were able to open up. And a lot of that, Mitch, has to do with the fact that we chose not to furlough our employees.

[Mitch Kummetz:]

Right. And then last question. I'm just, so, Kerry, you kind of gave the numbers sort of May, June and sort of how you're thinking about July depending on what back-to-school looks like. I don't know if you could provide any color on how you're thinking about the holiday season, especially maybe how you're planning the boot business. I don't know if you're planning it conservatively because maybe it's a riskier category given the seasonality, and you're not quite sure what the marketplace might look like, but I'm just kind of curious if you have any sort of initial thoughts on holiday.

[Kerry Jackson:]

Mitch, I know that everybody would be interested in how we might proceed to the second half, but we really need to see how back-to-school starts and what's going to happen there, how the shopper is going to react. We gave some near-term ideas because we have better visibility. Longer term, we're just not comfortable yet until we have more information from our consumer, how they're going to shop and how back-to-school is going to open, etcetera, how GOB sales are going to occur. There's a lot of unknowns out there that make us reticent to make any comment on that.

[Mitch Kummetz:]

Got it. Fair enough. All right. Thanks guys. Appreciate all the color.

[Mark Worden:]

Thanks, Mitch.

[Operator:]

And our next question comes from Sam Poser with Susquehanna.

[Sam Poser:]

Hi. I'll get my brother on in a second, whoever that was.

[Mark Worden:]

How are you doing, Mr. Poser?

[Sam Poser:]

I am well. How are you? Good to talk to you guys. All right. So let me get right to it. How much of your business -- I mean, it's great. Your digital was up 160%, is up over, was it month-to-date up over 500% is what you said, I believe?

[Mark Worden:]

That's right, Sam.

[Sam Poser:]

Last year, in fiscal 2019, what percentage was e-commerce of total sales? Well, we have some idea for the year, what are we dealing with here? What do these numbers mean? Can you give us -- can you let us hone in on how meaningful all that is or -- just so we can understand how meaningful it is, and now that you're expecting it to keep going, how meaningful it potentially will be?

[Mark Worden:]

Sure, Sam. Great question. If we look just at Q1 of last year, e-commerce represented approximately 5% of corporate revenue. If you take what we just sold this Q1, that would have represented approximately 15%. And so...

[Sam Poser:]

Of last year?

[Mark Worden:]

Of last year's that is. Q1. If you look at all of fiscal 2019, e-commerce exceeded 8% of company revenue for the first time. If you remember, I've shared that in the last quarterly call. As we talk about having over 500% growth during our fiscal May and having over 75% of our fleet open, this has far exceeded our expectations of how consumers have responded to our CRM, to our marketing investment, to the assortment. And we couldn't be more pleased. Like I said in the prepared remarks, we do foresee that percent to slow down as all of our store fleet opens up and consumers' shopping behavior reverts back to something more normal. But our -- but we are very confident that our e-commerce business has -- leads years ahead of our strategic plan and certainly represents a much larger portion of our business on a go-forward basis.

[Sam Poser:]

I mean -- I mean I assume you think that in sort of on a normalized basis after this event on an annual 8 last year, you're probably thinking I would think like 10% to 12% sort of normal -- making up for this new normal and the jump-start that your e-commerce got this quarter. Would that be like a fair way to think about where your head's at for this year on whatever that number is going to be? I mean for instance if last year -- if this had happened the year before last and last year where you did 8% that number likely be in the 10% to 12%. I assume that's where you're thinking.

[Mark Worden:]

We're going to learn a ton over the next eight weeks, Sam. Our long-term goal was to drive well beyond 10% of corporate revenues into the teens. And so it's yet to be seen where that is. But we couldn't be more pleased with the response we've seen during the period of time our stores were closed. And even now like I said with over 500% growth during the fiscal month of May, we're excited how consumers are reacting and we're even more excited to learn how this plays out over the months ahead.

[Cliff Sifford:]

I will tell you this we are -- just to add to that. We are -- we know based on the fact that we have new customers shop in our site that have not shopped it before that we are introducing a lot of people to our e-commerce site. So we expect that the e-commerce just in total should accelerate.

[Sam Poser:]

Got you. And then when you're thinking about -- well let me ask you this. This -- I've heard from quite a few people who have opened stores even a handful of stores that their business has been pretty good. I guess how much of that do you think has to do with the government money in people's hands? I mean they're not necessarily -- it's like when they get the tax breaks or the income tax refunds. How much of it is maybe just okay I have money and now I'm coming in and spending it and that goes away when that money stops coming?

[Cliff Sifford:]

Well there's no question that our customer and we've talked about it ever since, I've been with the company that when they get a check from the government for whatever reason, tax refund or rebate or whatever reason; they like to come in and buy shoes they like to come in and buy anything. But -- so yes that is fueling it. But I will tell you that we took that in consideration as we talked about the way we thought that May and -- excuse me at June and July would come in. So we would -- if we thought the government money was going to continue to be part of what they were spending, we would have guided much further off than what we did. I mean so we took that in consideration.

[Sam Poser:]

Okay. All right. I've got a couple more. One when you're thinking about -- and if I'm not asking the same question Mitch did about planning the back half of the year, but just planning your mix in general. How much narrower from a brand and item perspective, given that uncertainty are you going to get? How much are you going to be even focusing more on key items maybe eliminating categories such as dress shoes because I don't know when the next time anybody is going to sell a dress shoe and so on? What are you doing sort of to really hone in on sort of the way consumer -- this apparent change sort of to comfort that has really taken another step forward during this pandemic?

[Cliff Sifford:]

Well I'd love to walk you through our merchandise assortment so that our competition knows exactly what we're doing. But I do think you're 100% right that dress shoes are not going to mean anything as we go forward or very little, especially for our customers it's going to be more casual. And I think that's going to equate even to the boot category when that comes on. But I feel confident that as long as there's not a second wave that our inventory position and our product mix of casual boots and booties for the fall time period is going to be good. Right now it's just -- as I mentioned in my prepared remarks, it's all about athletic and certain casual sandal categories. But -- and I think that's going to continue for the near term at least up until -- and maybe even through September. Then at that point I believe you'll see the casual food market come in strong.

[Sam Poser:]

Right. But I mean like, generally, if you think about next spring, just you're going to remix no dress shoes and things like that. I mean it's going to be hard to imagine that the casual comfort piece of your business doesn't stay sort of even become more top of mind to the consumer.

[Cliff Sifford:]

Absolutely. I agree with you. I agree with that 100% that lifestyle is going to be much more casual going into next year.

[Sam Poser:]

And how is your clog?

[Cliff Sifford:]

One other thing too Sam, you got to remember we're not a very good -- we -- our customers do not flock to the dress market -- to the dress the house. We have -- that's not a very strong category for us in women's. And so, we have always been known for our casual and what we call sport casual categories. And I think that might be part of the reason. Our business has been stronger than we even anticipated once we got our stores open because customers know that they need casual product, casual sandals especially -- and athletic. We're the place to come.

[Sam Poser:]

Okay. And then clog business and then I'm finished.

[Cliff Sifford:]

Clog business? We don't talk about brands on this call and that was a really good try, a really good try. I do have to give you credit.

[Sam Poser:]

I mean I know you carry at least three brands of clog. So, all right, thank you guys very much and good luck and we’ll talk later.

[Operator:]

Thank you. And our next question comes from Greg Pendy with Sidoti.

[Greg Pendy:]

Hi guys. Thanks for taking my questions. Kerry, I think when you were talking about the monthly same-store sales trends, correct me if I'm wrong, but you haven't factored much in for going out of business sales. And just can you remind us, last year you had a major competitor or a company I guess closed down. When did they kind of wind down as we anniversary that event? And how big picture are you thinking about going out of business sales maybe an early pain from liquidation before you can grab market share? What are you seeing in the landscape this year?

[Kerry Jackson:]

Well, it's hard to tell. Last year we had a competitor going out of business and they completed theirs by the end of June. Now, if you look at our comps through the first half of last year, you could say that you couldn't see an effect. But in the second half, I felt like, we had an accelerated comp particularly in certain categories last year, which we started to believe that was the benefit of that customer being dislocated. This first half it's going to be hard to judge right now until we actually see how they open up and what they're liquidating what their pricing is. To make a comment, it's something we've taken into account and that's one of the reasons, I mentioned that we're not giving guidance for the second quarter or the remainder of the year because it's hard for us to gauge that -- what that's going to do to margins and how much that's going to overlap our market areas what product categories et cetera.

[Greg Pendy:]

Okay. That's helpful. And then just one final one. Do you have any exposure -- kind of to the oil patch region area you think? And how does the consumer look, if so, in those types of areas, given the volatility we've seen?

[Cliff Sifford:]

It's really hard to tell because we had -- as you know all our stores were closed. And once we open up our stores even in those regions, we saw an accelerated growth. And once we opened up our stores even in those regions, we saw an accelerated growth. I haven't been able to say it's because it's a region or not. So, we've seen accelerated growth wherever we've opened up store.

[Greg Pendy:]

Okay. Great, that's helpful. Thanks a lot.

[Cliff Sifford:]

Thank you.

[Operator:]

Thanks. And our next question comes from Christopher Svezia with Wedbush.

[Christopher Svezia:]

Good evening, gentlemen. I'm glad you're all well.

[Cliff Sifford:]

Good evening, Chris.

[Christopher Svezia:]

Great, it's a great job managing for Q1, really impressive.

[Mark Worden:]

Thank you.

[Christopher Svezia:]

So a couple things, I guess for me number one. Just what are you assuming for e-comm in June, Exactly? Given the 500% plus percent growth in May just what are you assuming in a low-single digit positive comp total company what's e-commerce makeup effect?

[Mark Worden:]

Hi, Chris, it’s Mark.

[Christopher Svezia:]

Hi, Mark.

[Mark Worden:]

We see low-triple digit will continue during this period of time, for the first half of the quarter. And we believe we have a line of sight, so low-single digit continuing at least until we get to the back of the school season. Just Kerry shared in his remarks we're not ready to declare where would the consumer we'll go, until we learn more about the back-to-school season. But low-triple digit, we foresee continuing.

[Christopher Svezia:]

Okay. Okay. And just on -- the any color on margins for e-comm sales I know it gets extremely distorted in Q1 with revenues going on. But just help us understand given the growth that you're seeing any color about the margin profile, that you see on your e-commerce business? And maybe year-over-year, just what you're seeing at this point on that segment?

[Mark Worden:]

Chris, are you talking about Q1 margin comments or are you talking about Q2? Q1, Q2, any color that you want, I mean I guess I'm assuming historically, it's roughly in line with stores. But given the acceleration, I don't know if there are just leverage components. I don't know more sales are being done at full price. Just any call about the margin profile on e-commerce is done e-commerce only.

[Kerry Jackson:]

And Chris I said in my remarks on Q1 is that, there are a lot of gives and takes on the merchandise margin. It was down to 190 basis points. However, the biggest factor to that decline was additional shipping, due to the e-commerce being at the tail end of the quarter, the half of the quarter being the primary driver. But and so, it was hard to tease out, but that was the real reason for the decline on a year-over-year basis.

[Mark Worden:]

And then on a more qualitative approach, our pricing and promotion strategy was to drive profitable revenue and drive a higher ROI through the e-comm channel, while we were moving inventory into cash flow during Q1. So, we also provided our consumers free shifting during the quarter, for joining our loyalty program. And we found that to be transformational in the number of consumers that we've been able to engage with, learn more about them. And to have become long-term potential buyers, which gives us great confidence in that triple digit, e-commerce sales growth continuation. But I'm very proud in the merchant team. The assortment they put together in this new world, where we didn't have stores open and that our pricing and promotions were statistically profitable versus a fire sale.

[Christopher Svezia:]

Got it, that's helpful, I'm curious just on the inventory with your inventories where they are, you're comfortable not bringing in additional product in June, just any color you can provide about how we think about the margin profile, as you move forward the promotional activity whether you -- what you see in the market. What you see in those stores that have opened relative to what the competition's doing. Just, it seems like potentially might not have to be as aggressive on promotion to move product to generate calm. Just any color, about how we should think about that.

[Mark Worden:]

Chris, to be honest with you, the only margin an issue that we would have is that, I believe that relative to become a larger percent of our overall business for the short-term. Because until everybody gets back to work I think we're going to see a strong athletic trend. And that runs a margin just slightly less than the brown shoe business. So that might have a small effect. We really felt like we were going to have to become truly promotional during this time period to get our inventories back in line, but the customers read between what we were able to do with the vendor community, that's number one. And I can never thank them enough with the cancellation and the movement of product into later receipt months. And the reaction of the customers not only to our e-commerce platform, but once we open our stores I feel like our inventories are in line. I would have never dreamed that I would be telling you that as of this past Saturday night our inventories were actually down in this last year. We're looking for inventory. We're looking for product. And we're thankful that so many people canceled a lot of products so we can actually get our hands on some.

[Christopher Svezia:]

So just to be clear on all this, what you're observing is really from a margin perspective on gross margin is really a mix hit if anything, not specifically price promotion. It's just more of a mix situation you see going forward?

[Mark Worden:]

It's two things, Chris. Our women's margins are down from a year ago, and that has more to do with the fact that we did not have the Easter, and we had to get through the dress shoes and dress sandals that would have sold during that time period. We didn't also Mother's Day was for all practical purposes canceled. So again, I had to get through some of that. So margins in women's non-athletic was a little lower. Margins in athletic is not lower, and we're doing a good job there. So I think that's all temporary. At least, we had to get through that product. As you know we always -- our number one thought every day, there's inventory and making sure that we stay clean. So as soon as we saw that Easter wasn't going to happen Mother's Day wasn't going to happen, we did get a little more promotional. So I think that solves itself as we move into the second half of the year when category shoes become more important.

[Christopher Svezia:]

Got it. Okay. And last thing for me. Just on June and maybe Kerry, if you just recap what you said about late July. But in June, if e-com is still triple-digit growth, you have potentially almost all your stores open. You're assuming a comp moderation relative to May. Is that just because more competitive doors open up? And Kerry just remind me again what you said about the last week of July again? Just walk through that one more time.

[Kerry Jackson:]

You're correct on June. We're assuming that more of our competitors should be open. There also maybe some pressure from GOB sales. So we felt that directionally to slow down the comp. Even though we're expecting a nice acceleration in e-com, we don't want to overestimate what we'll do in this time frame. What I said in July is that taking last year as a comparison in the last 10 days of fiscal July last year, we started to see the ramp-up in our back-to-school. That represented about 50% of our sales. We're concerned, because we don't have the information yet that if the schools continue to do e-learning or they go back to school later, so they decide to pick a later date in August, and shift those sales that we could -- out of July into the third quarter, we could see up to a high single-digit decline in July, which would lead to a low single-digit decline in comps for the quarter. However, if we see a traditional back-to-school tempo then we believe that for the quarter we could see -- based on the strength of May and June, we could see a low to mid-single-digit increase for the quarter from a sales standpoint. But it's unknown right now because the schools are evaluating what they're going to do right now. They don't have -- they haven't announced plans.

[Christopher Svezia:]

Got it. Okay. Helpful, I have for now. Thank you and all the best.

[Mark Worden:]

Thanks, Chris.

[Operator:]

And our next question comes from Mitch Kummetz with Pivotal Research.

[Mitch Kummetz:]

Yeah. I've got some follow-ups. So first just along the lines of one of Chris' questions, on inventory. It sounds like you're pretty happy there, Cliff. But I am curious given kind of the outperformance of athletic, I don't know, if some of that came at the expense of the sandals, do you feel good about your sandal inventory right now kind of, where you are in the season having missed a couple of key dates, but obviously, going into Memorial Day weekend?

[Cliff Sifford:]

I do. You know, the largest -- I alluded to this in my prepared remarks. The number one selling month for sandals is June. That's two reasons. One is warmer, obviously. And two, it's a five week month. So we feel we're in very good shape for the month of June and even for July. So, no, I'm not very concerned about sandals at this point. We are except that -- I want to be clear and I mentioned this in my prepared remarks, we are selling sandals. We're selling footbed sandals, really well selling soccer and a lot of the athletic sandals anything that they can wear while they're working from their home offices, I guess, but --it's amazing. Anyway, addressing your sandals where we solve the issue and we addressed that quickly through the product.

[Mitch Kummetz:]

And then Cliff on these bankruptcies you got Stage, Modell's, JCPenney stores are closing. As you kind of look at maybe those as a group like where do they overlap with your business either like category or price point? Where is the opportunity for you to kind of steal share as some of those stores go off-line?

[Cliff Sifford:]

Well, I'd tell you Modell’s is going away is going to help us tremendously in the Northeast from Pennsylvania up through New York. So I'm -- I hate to say excited but because that means people are out of work, but no I think we have a great opportunity there. And as far as Stage is concerned we have a very strong presence in Houston and throughout Texas. And as Texas as I believe our number one state so we see opportunity there as well. Again, I hate to use the word excited, but I think there are opportunities from a product standpoint that will help us in the athletic in the Pennsylvania, Northeast market with Modell's, obviously. And then Stage, they weren't very strong in athletic. They have -- actually not very strong in any category. But where they did do well I guess would be casual women's. And anyway that's all I'm going to say about that.

[Mitch Kummetz:]

Okay. And then on the marketing spend, I'm just curious, how are you guys managing that? I mean it seems like you guys are outperforming some of the competition at least currently. Is this an opportunity to maybe ramp it up as some others are taking down their marketing in order to kind of really go for a market share grab in this environment? I'm just curious how you're thinking about that.

[Mark Worden:]

This is an opportunity for us to gain market share for sure and we are in the e-commerce space, in particular, during this period of time. But we also see with the revenue down as I reported, we are looking to reduce our cost structure this year and we are looking to reduce our marketing investment commensurate with the level of revenue we see. And I'd say we're being very nimble with it. As things are responding and generating a positive ROI we're investing more. And as we learn more about the consumer during this pandemic, we'll continue to be able to have the nimble flexibility to invest in things that are generating ROI and getting market share and pull back on things we think are not useful. And for example, we shut down some things specifically directed towards store traffic like circulars during the period of time we were closed that were able to generate some savings for the year, as an example.

[Mitch Kummetz:]

Okay. And then Kerry on the – again, kind of, thinking about the comps for May and June, the mid-single and then the low single, a lot of that's going to be driven by e-comm. So how do you think about occupancy? I assume you're anticipating deleverage for those months despite positive comps.

[Kerry Jackson:]

So at the higher end of the estimates we gave for the second quarter, we'll still see some leverage. At the lower end it could be much more significant yes, but nowhere near the 640 basis points we saw in Q1.

[Mitch Kummetz:]

Got it. Okay. And then Cliff, Sam was clearly out of line asking about clogs. But I don't know if you have any comments about shoes with holes in them. I mean that's -- you guys sell lots of shoes with holes in them. I don't know if you have anything to say about that?

[Cliff Sifford:]

Some of the shoes you can actually buy decorative -- that's right. That's right.

[Mitch Kummetz:]

Thanks.

[Operator:]

And our next question comes from Sam Poser with Susquehanna.

[Sam Poser:]

Well, good news. I don't want to follow up on his follow-up. So the -- but I do want to know I mean, are you planning to open stores this year? And if so what is your store openings and closings look like?

[Mark Worden:]

Hi Sam, we are planning. We have currently four stores with signed leases in hands that we're planning to proceed with. Because of the various states that we're opening in having different shutdown periods the timing has been fluid and we're not ready to share yet what quarter they're opening as we still work through permitting and a variety of topics. But yes, we're very excited that as we shared earlier in the year we are in the reopening process and we have stores we're energized to engage with as the year progresses.

[Sam Poser:]

And then -- and closings what do you foresee closing this year?

[Mark Worden:]

Closing, we have put a range of 7 to 10 stores out there of stores that are delivering low ROIs and we see not being accretive to continuing on with.

[Sam Poser:]

And would we assume that most of those closings would happen in Q4, just given sort of the timing given you could hit holiday and get out of them and with everything else going on, or would that -- you foresee that happening prior to holidays to buy inventory for them?

[Mark Worden:]

There are some early in the year. For example we've closed two already this quarter of those. And then you are correct to assume a large amount of them are in the back half of the year. We do not foresee having any inventory challenges. These are all well planned for and how the team is buying.

[Sam Poser:]

And then looking ahead into next year do you foresee yourself net opening stores at that point on a more normalized basis?

[Mark Worden:]

I'd love to be able to give you visibility to that, but I can't at this point in time give you guidance on that far out yet Sam. We'll be able to be as soon as possible and we are assessing the opportunities as fast as they present themselves, particularly with the many GOBs and the CRM we're learning, but we're not ready to commit to that at this stage.

[Sam Poser:]

Got you. And then two more, -- I mean you sort of talked about it. You're sort of assuming that there's going to be -- are you seeing -- how much excessive or abnormal promotional activity relative to other years are you seeing now, or are things certainly come and you think once the stores start reopening that's where it's going to happen? And to what degree have you worked that into sort of the direction you provided for the balance of the quarter?

[Mark Worden:]

Right now things are calm, but not all stores are open yet. Most of our competitors have opened some stores not all. And we just don't see a lot of competitive issues out there today. And again with our inventory levels at where they are Sam we're not going to get overtly promotional. There's just no reason to -- in fact we're on the lookout for additional product to fulfill the customers' needs.

[Sam Poser:]

Okay. And then lastly how are you doing with the product that comes from DUY Colorado?

[Cliff Sifford:]

I hope you're doing well. I think the call we've taken up our hour.

[Sam Poser:]

Mitch has a follow-up to that. All right, thank you guys.

[Cliff Sifford:]

Thank you. Same here.

[Operator:]

All right. Gentlemen that concludes today's question-and-answer session. At this time I'll turn the conference back to you for any additional or closing remarks.

[Cliff Sifford:]

Okay. Thank you. I would again like to thank everyone for joining us today and I hope you all stay well. While this has been one of the most difficult operating periods in the company's history, I am very proud of what we've been able to accomplish as a team. We reacted quickly to protect our customers and employees and worked closely with our vendor partners to ensure, we maintained appropriate inventory levels for both near and intermediate term. We're -- at the same time our ongoing commitment to financial strength and flexibility will ensure we can weather this storm and emerge a stronger company. And we look forward to speaking to you again in August. Thank you, operator.