Shoe Carnival, Inc.
Q1 2019 Earnings Call Transcript

Published: 22 May 2019

[Operator:]

Good afternoon. And welcome to Shoe Carnival’s First Quarter Fiscal 2018 Earnings Conference Call. Today’s call 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-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. Forward-looking statements should be considered in conjunction with discussion of risk factors, including in the company’s SEC filings and today’s earnings press release. Investors are cautioned not to place undue reliance on those forward-looking statements, which speak only as of today’s date.

[Cliff Sifford:]

Thank you. And welcome to Shoe Carnival’s first quarter 2019 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 will provide a brief overview of our first quarter operating highlights and sales results, as well as review of our updated fiscal 2019 outlook. Kerry will discuss the financial results in more detail. Then we will open up the call and take your questions. As most of you that who followed Shoe Carnival over the years know like other retailers, our first quarter sales represent a shift in seasonal footwear from cold weather boots to more sandalized warm weather categories. In addition the timing and size of the tax refunds can also impact our rate of growth in the first quarter. This spring, we experienced a very cold and wet start to the quarter, and a delay in tax refunds, which resulted in a high single-digit comparable store sales decreased in February. That said, once our customers had a combination of warmer weather and tax refunds, we experienced some very positive change in the sales for March and April. We believe the best way to view the Easter selling season is a look at the sales for March and April combined. With that in mind, March and April comparable store sales increased 3.6%, which compares to the first quarter’s comp sales results, which were essentially flat. Traffic for the quarter declined mid-single digits, while conversion increased low-single digits and average dollar per transaction were down low-single digits. Average units per transaction were up low-single digits. We ended the quarter with inventories up 0.3% on a per store basis. Our merchants did a great job of controlling the seasonal inventory, which allowed us to keep merchandise margins relatively flat even though we were more aggressive in athletics due to the sales softness in February. BD&O increased 50 basis points as a percentage of net sales and SG&A deleveraged by 15 basis points. As a result, operating income decreased by 58 basis points. EPS for the quarter was $0.91 per diluted share, an increase of approximately 9.6%, compared to quarter one last year. Kerry will give you more detail on our financials in his prepared remarks.

[Kerry Jackson:]

Thank you, Cliff. Our net sales for the first quarter ended May for 2019 decreased $3.6 million to $253.8 million, compared to $257.4 million for the first quarter ended at May 5, 2018. Comparable store sales decreased 0.2% in the first quarter of fiscal 2019. The $3.6 million decrease in net sales was primarily due to a $3.9 million loss in sales from the 16 stores closed since the beginning of 2018 and a $639,000 decrease in comparable store sales. These decreases were partially offset by an increase of $883,000 from the three new stores opened since the beginning of fiscal 2018. Our gross profit margin for the quarter was 29.6%, compared at 30.0% in the first quarter of last year. This was driven by a 10-basis-point increase in our merchandise margin, offset by a 50-basis-point increase in our buying, distribution and occupancy expense as a percentage of sales. We deleveraged our occupancy expense for the quarter due to higher expense, primarily from higher property tax as a CAM adjustment pass through from the landlords and a reduction in sales for the quarter.

[Operator:]

Thank you. We will take our first question from Mitch Kummetz with Pivotal Research Group.

[Mitch Kummetz:]

Yeah. Thanks for taking my questions. I got a bunch. I will ask a few and then jump back in. Just on the quarter itself, I think, when you guys reported the last quarter you are pretty far into Q1. I know March was trending at a plan at that point February, obviously, was bad. I am just curious was -- did April miss your expectations.

[Cliff Sifford:]

April was positive because Easter

[Mitch Kummetz:]

Yeah

[Cliff Sifford:]

Easter moved into April. So April was positive. So it did not miss our expectations. As we just…

[Mitch Kummetz:]

Okay. I guess, I am surprised you are guiding to a low single-digit comp at that point unless…

[Cliff Sifford:]

Not…

[Mitch Kummetz:]

… we will seem to be…

[Cliff Sifford:]

Mitch, I believe what we said was that, we were guiding for the year at a low single-digit comp, and I believe, Kerry, even mentioned the fact that it -- that would be loaded toward the back half of the year.

[Mitch Kummetz:]

Got it. Can you say what Q2 to date looks like.

[Cliff Sifford:]

No. We are not going to talk about Q2 today.

[Mitch Kummetz:]

Okay. Fair enough. And then on Sandals I know Q2 is a big sandal quarter. Can you remind us what percent of sales it is in Q2, I want to say, it’s maybe in that 20% range and how you guys are planning to…

[Cliff Sifford:]

It is between 20% and 25% range

[Mitch Kummetz:]

Yeah

[Cliff Sifford:]

So we get a full year report that just in just a second but it is between that 20% and 25%.

[Mitch Kummetz:]

And it was a really strong standard quarter last year I am just wandering how you are thinking about lapping that. I mean you are guiding to the low single-digit comp on Q2, are you expecting more of that to be coming from the athletic side as you start to flow in some of those new Nike product or are you thinking that you can comp on sandals?

[Cliff Sifford:]

Well, we believe we can comp on sandals that’s number one and without giving you a quarter-to-date or even a season to-date we are not unhappy with our sandal performance. We do, however, expect and we don’t talk about -- really don’t want to get into brands, but we are excited about the product that we see coming in from back-to-school, which has begun, just slightly to flow in and will be coming in truly in the earnest in June and early July. So very excited about that and excited about what we have received so far.

[Mitch Kummetz:]

Okay. That sounds good. I will jump back in the queue. Thanks.

[Cliff Sifford:]

My pleasure.

[Operator:]

Thank you. We will take our next question from Greg Pendy of Sidoti.

[Greg Pendy:]

Hi, guys. Thanks for taking my question. I just, I guess, maybe a bigger picture you mentioned earlier 1,700 fewer stores. Can you kind of put that into context, I think, maybe two years back there was a big wave of store closings. I mean is this sort of the biggest wave you have seen or is this maybe going to be similar to maybe what you experienced in 2017 in terms of reduction of competition out there in the markets you serve?

[Cliff Sifford:]

Basically what we have seen over the past several years has been a reduction in department stores are closing and that was a big news in ‘17 and ‘18. This happens -- the reason I bring this up and the reason I believe this is compelling is the fact that this is a shoe retailer, which was a one-time the larger shoe retailer in America closing stores and we have a 1,700 of them are within a market area where we have a store.

[Greg Pendy:]

And then, I guess, just in ‘17 and ‘18, you guys had mentioned maybe the competent. Are the impacts from liquidation going on? Is that something that you are thinking about in Q2 just from competitors clothing stores?

[Cliff Sifford:]

Well, we are thinking about that in Q2 and that’s one of the reasons that I really didn’t want to talk about a quarter-to-date. The key retailer that is closing 1,700 stores at our market area will be gone by the end of June, namely 1,700 fewer stores to shop that come July.

[Greg Pendy:]

Yeah. That’s helpful.

[Cliff Sifford:]

By the way they are closing the stores throughout the quarter consolidating product into other stores and so we see that 1,700 as a building process, if that makes sense?

[Greg Pendy:]

Yeah. That makes sense. That’s helps a lot. And is that something you are thinking about in terms of I know right now your target is 2020 I think for returning to store growth, but are you kind of looking for real estate opportunities actively now. I know you are probably waiting for the CRM completion or more data that come from that. But are you -- you mentioned the real estate team kind of combining with the CRM, is that something that’s taking place now?

[Cliff Sifford:]

We have asked our real estate team to find the sites. But, unfortunately, if they were find the site today, these sites they find today and going forward most likely won’t open until 2020. So, unfortunately, well, I am continuing to say, unfortunately, it was a strategic move to put all store openings until we got our CRM program implemented and we felt like we are far enough along now and we have some incredible learnings on our customers to-date that we can start looking for store sites. So you will see growth out of us from a store -- new store perspective beginning next year.

[Greg Pendy:]

That’s helpful. Thanks a lot guys.

[Cliff Sifford:]

Thank you.

[Operator:]

Thank you. We will take our next question from Chris Svezia of Wedbush.

[Chris Svezia:]

Hey, guys. Good afternoon. I guess, first, I just want to start just with the comp cadence second quarter last year by month, can you just remind us what that is -- was?

[Kerry Jackson:]

So last year we had a low teens increase in May, a high single in June and a low single in July.

[Chris Svezia:]

And did liquidations at all have any negative effect or are you seeing any negative effect as Payless pulls out of -- to liquidate some of these stores. Are you seeing anything in these trading areas that are affecting your business or no, you are not?

[Cliff Sifford:]

We -- where we have stores that compete with Payless head-on within a short distance, our comps there are -- have been affected slightly. And conversely stores where Payless are further than 5 miles, 6 miles concept not been affected as much, in fact, it would have been a low single-digit comp.

[Chris Svezia:]

Okay. With regard to I am not sure I go back to athletic comments for February that was just a function of rebate tax not having money to spend therefore the biggest area of that pressure with your athletic business I mean your premium price athletic business for that urban shoppers is that how I characterize that for just February and that is improve…

[Cliff Sifford:]

Yeah. It improves as we move through the quarter, but the number one reason and you are on it, the number one reason was checks did not get out. We are affected. Our customer is moderate income and they are definitely affected by tax refund checks at the beginning of the year.

[Chris Svezia:]

And then just refer to, Kerry, just want to go back to your Q2, I guess, guidance, I am not really sure, just on the comments you are throwing out there. So just to kind of I know nail you down a little bit possible. So I understand so you are expecting gross margin net to be down, much like the margin BD&O more than offsetting it down or we talking similar to Q1 down and that sort of kind of 40 basis points or do you have some color about that and then I am kind of ask you about similar observation about SG&A?

[Kerry Jackson:]

Certainly, about right, it’s primarily like, I was trying to get some qualitative guidance for the quarter to help see the quarter as we are seeing it and with the relatively flat merchandise margin but that $1 million benefit that we have received in Q2 last year, which reduced the occupancy costs, if you calculate that you will find that’s about if you calculate that you will find that -- that’s about that 40 basis point reduction that we saw. So it will be similar to Q1. But we had such an increase in equity and incentive compensation in Q2 last year, which we don’t expect to have repeat. We expect to see some leverage in excess of the deleveraging of the BD&O, so that we have an increase in our operating margin for the quarter.

[Chris Svezia:]

Okay. So operating margin could be somewhere in this up 20 basis points to 40 basis points, am I in the right domain, when I think about that?

[Kerry Jackson:]

Yeah. It’s probably closer to the lower end of your scale.

[Chris Svezia:]

Okay. All right. Got it. And then just on last few things, just with regards to, your confidence as you go into back-to-school, you have got some big numbers, you go off against, you have got better athletic product from some of the major vendors. You are getting theme better access. You might be doing some things on loyalty. So I guess just stepping back your confidence level and the ability to hit at least low single-digit comp again to the July, August timeframe, just kind of maybe walk through confidence level around that if you could?

[Cliff Sifford:]

Well, we are in a process now putting together our marketing efforts of finalizing -- not putting together, but finalizing our marketing efforts. I can -- best way to answer that question Chris without telling everybody on the call exactly what we are doing is that we are -- we have high confidence that we can achieve the numbers that we have to go against for back-to-school.

[Chris Svezia:]

Okay. Okay. I will get back in the queue. Thanks guys. Congrats.

[Cliff Sifford:]

All right. Thank you.

[Operator:]

Thank you. We will take our next question from Sam Poser of Susquehanna.

[Sam Poser:]

Good afternoon. So I just wanted to -- for the full year -- thank you for taking my question. For the full year, are we looking -- what are we looking for gross margin to add first of all? I got a whole bunch of questions. So, I mean, on the -- as a --is that going to be -- are you planning to -- are you planning for gross margins to be flat or up a little bit for the full year?

[Kerry Jackson:]

We expect it to be flat to slightly down.

[Sam Poser:]

Okay. And then SG&A, I mean, you spent -- your SG&A was actually down in dollars in Q1, it’s going to be down in dollars again in Q2. Is that something that again should continue for the full year to be down likely with Q2 being down more than any other quarter, am I thinking about that right?

[Kerry Jackson:]

Well, for the full year we expect it to be slightly down in dollars, which will create some -- at the high end of our guidance will create nice leverage on our SG&A line.

[Sam Poser:]

To what degree, I mean, like, so what kind of leverage for the full year are you thinking about on SG&A sort of in the midpoint?

[Kerry Jackson:]

30 basis points to 40 basis points.

[Sam Poser:]

The midpoint. Okay. And then, the -- so we don’t have this problem again…

[Kerry Jackson:]

I just say, Sam, I am sorry, at the high end of that, that wouldn’t be midpoint, at the high end of our guidance that’s what we are -- that’s the leverage you might expect.

[Sam Poser:]

Okay. So higher this is 30 bps to 40 bps. All right. So we avoid the problem with that one-time event. I mean shouldn’t we just adjust -- I mean next year your tax rate for Q1 is going to be in that 25% range again and then you are going have to explain why your earnings are down. Why not just call it $0.78, $0.79 and move on. I know we can do that. But the problem is that your real tax rate was just under 25, I mean, why not just call it what it is and move forward and then just maintain your full-year guidance on a non-GAAP basis?

[Kerry Jackson:]

Sam, this is one-time issue, any time there’s a vesting, there will be -- there is an accounting change a couple of years ago. That -- setting these changes for tax purposes, it won’t run through retained earnings, but it will run through your income statement. Up till now we haven’t had anything that was a magnitude that would bring it took forward and bring attention to it. In Q1 next year, we are -- we would expect to be vesting some more stock. We don’t think it will be of the same magnitude. It also depends on what the stock price is as to what level of benefit or expense gets reported in the quarter. We will have more vestings the rest of the year but there will be immaterial. So we really haven’t broken amount. But next year, I’d expect it to be material but not to the level it is this year.

[Sam Poser:]

So, I mean, so we can always count on the tax rate in the first quarter theoretically being under like you take the midpoint, you call the tax rate 18%, 19% in Q1, as a number that work with, that captures some of that and could be a little higher, could be a little lower, is that the way to think about it because of the vesting?

[Cliff Sifford:]

Well, the problem with that Sam is that the benefit -- tax benefit or expense, it could be -- it depends on -- you compare your grant price against the best price and if there is an increase in price over time and depending on the magnitude that increase, that would create a benefit. If the grant price is higher than the best price then you have to record additional expense. Now…

[Sam Poser:]

Let me…

[Cliff Sifford:]

What we see…

[Sam Poser:]

Yeah. I understand. Maybe just -- this is something a totally out of your control. It’s abnormal. It’s isn’t part of ongoing operations or anything. It’s just your tax rate was better, so you have got a $0.13 benefit. You are going to raise your guidance on that. And then next year assuming whatever happens higher or lower. I mean it shouldn’t be just normalized at the normalized tax rate, we call it today, because it also happens with the deleverage in the BD&O, because the extra $1 million, you had this $1 million one-time last year that nobody took out. So, I mean, it shouldn’t we shouldn’t sort of be carving around all this and not and so we can really easily look at apples-to-apples and then understand that the tax rate -- the run rate tax rates 25%, 12% -- it’s 21.4% only because of the 12.8% in the first quarter?

[Cliff Sifford:]

Well, Sam, we will let you make that judgment as to how you want to characterize it and you are right. What I’d cautious it’s not as simplistic as you may be laying out, because the expense side of it, which is part of is it is included in the SG&A side of it. So it’s not like it’s all by itself it’s matching up to an expense but it may not be in the same quarter. So it over time the two pair up against each other. So we chose not to show it as adjusted earnings partly due to that reason and we will let the analyst characterize it as they see there.

[Sam Poser:]

Okay. And then, lastly, with Cliff with Payless. You commented that your athletic business was tough but your non-athletic businesses is really held it nicely, they didn’t get founded that much in relative to that product in February and they seem to outperform going forward. And Payless is athletic business, branded athletic is non-existent. So you are really competing with them on more fashion especially women’s fashion products. I mean, how much headwind could this really have -- are we at the beginning of this, in the middle of this, how much headwind could this really provide and how much headwind are you building into your second quarter guidance or your full year guidance for that matter?

[Cliff Sifford:]

We have taken that in consideration for our full year guidance and let me answer your last question first. Your first question is that, right now they are still believe or not taking shoes. Now there is people tell us that they are going to -- they are closing stores at the end of June, but they are still taking in shoes. So my guess is that and by the way and they are not as promotional today as I think they will be in another two weeks to three weeks. But they are going to sell a lot of pairs between now and the end of June.

[Sam Poser:]

And so, but, I mean, when -- and you are guiding with low singles that means 1%...

[Cliff Sifford:]

We are guiding with low singles for the year, Sam, it’s important that…

[Sam Poser:]

Me too, but did you expect, I think, Kerry said low singles in the second quarter too…

[Cliff Sifford:]

Yeah. That’s due to the bounce that we expect to get it back-to-school for July when there aren’t -- there is no -- there is 1,700 less for those stores…

[Sam Poser:]

So theoretically….

[Cliff Sifford:]

…along with the better product.

[Sam Poser:]

The low-single digits is -- you are really saying the low end of low-single digits in second quarter?

[Cliff Sifford:]

That’s correct.

[Sam Poser:]

Because of that, okay.

[Cliff Sifford:]

And Mitch asked about sandals and I didn’t have a number in front of us. But sandals represent about 14% of our total company’s volume and about 35% of our total women’s business. So we expect that business to continue to stay strong in the second quarter.

[Sam Poser:]

All right. Thank you very much and good luck.

[Cliff Sifford:]

Thank you.

[Operator:]

Thank you. We will take our next question from Mitch Kummetz of Pivotal Research Group.

[Mitch Kummetz:]

Yeah. Thanks for letting me take my follow-up questions. Kerry just on the guide -- on the earnings guide, it sounds like you are just -- you have taken the $0.13 tax benefit your flowing that through to year end. I am curious, how you are thinking about the share count, you guys buyback a lot of stock in the quarter. Has your view on a weighted average diluted share count changed for the year?

[Kerry Jackson:]

We are projecting a slightly lower number than we did at the beginning of the year.

[Mitch Kummetz:]

Okay. And then, I don’t know you quantify that, I don’t know what slightly lower…

[Kerry Jackson:]

No. Because…

[Mitch Kummetz:]

Another 100,000 shares or?

[Kerry Jackson:]

No. And the reason I want to be cautious about it is, because we had an estimate of what we are going to buy for the year and we accelerated and bought more than we had anticipated. We saw opportunity in Q1 and that may -- we may choose to limit our purchase later in year and stay within the original guidance. So all you are doing is shifting it between quarters.

[Mitch Kummetz:]

Right.

[Kerry Jackson:]

Now, if we buy to the level that we had originally expected in Q2, Q3 and Q4 as we put it in our guidance, we had over achieve what we had expected. That’s what is left to be seen. So I really don’t want to -- it’s fair to say that our original guidance was around 15 million shares outstanding, now we are expecting slightly lower than that, but it’s left to be seen how much likely will be.

[Mitch Kummetz:]

Got it. Cliff on the back half of the year, I mean, I know you guys are really bullish on that as well. I think you are bullish on the athletic business starting for back-to-school given some of the product that you are following. I am curious, how you are thinking about the non-athletic side, particularly boots, I am wondering, in order to fund some of the increases you might be expecting in athletic, are you pulling some dollars away from boots, are you finding some other categories that -- just you whether it’s dress or something like that that hasn’t -- that are working well for you and taken the dollars from there to go to athletic or?

[Cliff Sifford:]

You are right that we expect our -- to see a nice back-to-school from an athletic standpoint due to the some of our top vendors and what they have shown us. And as you know I don’t really talk about specific vendors on the call. As we leave August and move into September and October especially in the October timeframe, we absolutely expect that boots will start to accelerate and it’s going to come out of a lot of different categories. You mentioned one and that is true and we expect to see an acceleration of boots throughout the latter part of the second, excuse me, third quarter and fourth quarter.

[Mitch Kummetz:]

And then just my last question is, Cliff, any thoughts on tariffs and your exposure there? I don’t know what your -- what conversations you are having with your vendors, I don’t know how much you are bought for the back half the year. I don’t know how you are thinking about your ability to raise prices anything on tariffs would be helpful?

[Cliff Sifford:]

Well, I don’t know if you have heard of the organization called FDRA, but they represent the footwear business in Washington and I happen to be on the Board of that along with other retailers and wholesalers, and we are working very hard to try to make sure these tariffs don’t go through. We are I don’t know if you know this is, we are already the highest tariffs apparel industry…

[Mitch Kummetz:]

Yeah.

[Cliff Sifford:]

And it just makes absolutely no sense. But we can’t just sit back and hope that it doesn’t happen so wherever are making changes we are. We have begun to move product away from China and then to other countries and Southeast Asia. And you know the good news is that the much of our athletic product has already been moved out of there by the brands. So it -- we have taken a very proactive approach through FDRA and through our winter communities. So we can’t just sit back and hope that it doesn’t happen.

[Mitch Kummetz:]

Got it. All right. Thanks guys. Good luck.

[Cliff Sifford:]

Thank you.

[Operator:]

Thank you. We will take our next question from Chris Svezia of Wedbush. And Mr. Svezia, your line is open.

[Chris Svezia:]

Yeah. Sorry about that. Thanks for taking my call. Just following up on this Mitch’s question, it’s curious, how you guys actually planning business just kind of given the performance last year, inventories -- inventory levels locked in kind of fashion versus cold weather seasonal. Just any color you want to give about how you are thinking or planning about that that business be from comp perspective or anything around that?

[Cliff Sifford:]

I really hesitate given you that the plan of how we are going to -- where our increase is -- where our inventory increases. I will just talk with you, talking to the street that’s one thing, but I am also talking to my competition, I really, hey, given you that.

[Chris Svezia:]

All right.

[Cliff Sifford:]

I am going to pass.

[Chris Svezia:]

All right. You need for you just on the supply chain order management just maybe elaborate a little bit more on that, what are you doing, when does that take effect and just any color about that would be helpful, it sounds like something new so just curious?

[Kerry Jackson:]

We have recognized that in order to achieve our long-term goals of accelerating our digital sales and beginning to become a growth company, we need to have a better supply chain system put in place in order management system. So we are going to kick-off our program in June and that will be a multi-year program that will basically replace many -- our major components of our supply chain being our warehouse management system. We are going to bring in a more sophisticated transportation management system to help us control costs and get our pride to our distribution center in a more efficient manner and get it into your stores more efficiently. And we will replace the order management system on top of that to give us greater functionality and to be able to leverage the cost better as we accelerate those costs over time we will be able to show cost reductions by going to a new program. So we find it’s really exciting, it’s a long-term program, it’s not going to yield dramatic benefits if any this year. But it also set the stage for some long-term growth with some world class systems.

[Chris Svezia:]

Got it. Thank you. And just last thing, just on you didn’t talk too much about Shoe Perks customers their purchasing habits, e-commerce that kind of thing any color about that?

[Cliff Sifford:]

No. We are very happy with our Shoe Perks program, 72% of our first quarter sales came. The sales of our Shoe Perks customer actually up mid-single digits. Unfortunately, our non-member revenue fell. But we are -- we continue to put a lot of emphasis on our stores and getting customer signed up. Our Golf program is working very, very strong and I am excited about the growth we have there. So we are all happy about what’s going on with Shoe Perks even happier with how we have been -- how we are taking Shoe Perks data and the customer data and we are building the CRM strategy around it, which is allowing us, Chris, has talked to the customer, and I mentioned it briefly in my prepared remarks talked with the customers one-on-one based on their shopping patterns based on what they look to us for and I am very pleased with the way that is working.

[Chris Svezia:]

Okay. Thanks very much. All the best guys.

[Cliff Sifford:]

Thank you.

[Operator:]

Thank you. We will take our next question from Sam Poser of Susquehanna.

[Sam Poser:]

I have just one more. One, are you pulling orders forward into the second quarter with due to the threat of the tariffs, and two, do you have any information on tax free holidays and back-to-school thus far?

[Cliff Sifford:]

The answer to your first question is, yes. We are especially the price sensitive product. We are pulling as much of that forward as possible. So we have been working hard on that over the past several weeks. And tax-free holidays are pretty much comp this year versus last year. There’s one very small market that went away. But overall they are fairly comp.

[Sam Poser:]

And then, just to follow up on the inventory -- on the pulling orders forward. So Kerry how high, I mean, how far up, I mean, how, I mean, we are going to expect to see high elevated inventory levels for a good reason at the end of the quarter. So what degree do you think we are going to look at, I mean, your inventories were down year-over-year in Q1, but that doesn’t sound like that’s going to happen in Q2?

[Kerry Jackson:]

It will be up low-single digits on a per store basis, but to give a more specific answer it’s very difficult because we are still in the process of trying to see what we can do to move forward. So it’s determinant about how it’s -- how much we are going to be able to do that.

[Cliff Sifford:]

And much of the product that we are moving forward will move forward as September and October and into August. So that won’t show up in the second quarter. I do fully expect that our inventory levels at the end of August would be higher than we had originally planned.

[Sam Poser:]

But not at the end of July at the end of the quarter or

[Cliff Sifford:]

Well, part of the reason for that -- okay. Thank you.

[Sam Poser:]

No. Go ahead. Go ahead. Go ahead.

[Cliff Sifford:]

Well, part of the reason for that, Sam, is that we build their inventories so dramatically for back-to-school that we really can’t bring out -- put a lot more product into our stores. Obviously because the whole sum in our distribution center, but by the way, the reason we call it a distribution center is because we don’t hold a lot of product there. But so our call right now is to move as much a product as we can in to August before that before the tariffs hit.

[Sam Poser:]

If they had which we hope they don’t?

[Cliff Sifford:]

That’s correct.

[Sam Poser:]

Thank you.

[Cliff Sifford:]

Thank you.

[Operator:]

And at this time we have no further questions. I will turn it back to speakers for closing remarks.

[Cliff Sifford:]

All right. Thank you for joining us today and we hope that you all have a very enjoyable Memorial Day weekend. We look forward to talk to you about second quarter results in August.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today’s conference. You may now disconnect.