Shoe Carnival, Inc.
Q4 2017 Earnings Call Transcript

Published: 27 Mar 2018

[Operator:]

Good afternoon, ladies and gentlemen. And welcome to Shoe Carnival's Fourth Quarter Fiscal 2017 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 the discussion of risk factors 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. During this call, we’ll refer to certain non-GAAP financial measures, including adjusted SG&A expenses, adjusted net income and adjusted diluted earnings per share. The non-GAAP financial measures are provided in addition to and add as alternatives for our reported results determined in accordance with GAAP. A reconciliation of our reported results determined in accordance with GAAP to the non-GAAP financial measures is included in the financial tables of our earnings release. I'll now turn the call over to Mr. Cliff Sifford, President and Chief Executive Officer of Shoe Carnival for opening remarks. Mr. Sifford, you may begin.

[Clifton Sifford:]

Thank you. And welcome to Shoe Carnival's fourth quarter and fiscal year-end 2017 earnings conference call. Joining me on the call today is Kerry Jackson, Senior Executive Vice President, Chief Operating and Financial Officer. Before we begin, I would like to remind everyone that fiscal 2017 consisted of 53 weeks while fiscal 2016 consisted of 52 weeks. References to annual comparable store sales are for the comparable 52-week period ending January 27, 2018. In addition, the fourth quarter of 2017 consisted of 14 weeks while the fourth quarter 2016 consisted of 13 weeks. References of fourth quarter comparable store sales are for the comparable 13-week period ending January 27, 2018. On today's call, I'll provide a brief overview of annual company's operating highlight and our fourth quarter sales results, as well as an overview of our fiscal year 2018 guidance. Kerry will review the financial results in more detail. Then we'll open up the call to take your questions. 2017 was a transitional year for Shoe Carnival. Our team further refined our strategic direction in order to position us for long term growth. The evolution of consumer purchasing habits has resulted in us consistently making important changes and strategic investments across our business. These are already evident in terms of how we engage with Shoe Carnival customers and the multiple opportunities we provide to them to find our assortment of footwear for the entire family whether they are in our stores, online or on a mobile device. In addition, we are excited about the ways in which we will continue to better utilize our Shoe Carnival customer data to create it even more fun, exciting and memorable shopping experience. Before I get into the more detail about the progress we've made on our strategic initiatives, I'll only give a brief overview of our annual sales. For the year, net sales increased $18.1 million to $1.19 billion compared to fiscal 2016. Comparable store sales for fiscal 2017 increased 0.3% compared to the prior year and we reported adjusted earnings of $1.49 per diluted share at the high end of our expectation of $1.42 to $1.49. GAAP earnings per diluted share for fiscal year 2017 were $1.15. Kerry will provide more detail on the difference between the GAAP and adjusted earnings per diluted share in his prepared remarks. In addition, we used approximately $35 million during the year to enhance shareholder value through share repurchases and our dividend programs. Our Board of Directors and management team remain committed to returning excess capital to shareholders. We are pleased our Board of Directors in December announced a new $50 million share repurchase program for 2018. As many of you may recall, we had a difficult start to fiscal 2017 as tax refunds were delayed in the first quarter and later in the year, Shoe Carnival stores in Southern U.S. and Puerto Rico were affected by three major hurricanes. In addition, during the fourth quarter we strategically pulled back on our promotional cadence, including the decision to close our doors on Thanksgiving Day. Despite the external challenges and our promotional changes when the consumer had need to buy they shop Shoe Carnival. Our merchants did a great job during the important shopping seasons like back-to-school. We are very pleased with our inventory position at fiscal year-end, which was down 5.2% on a per store basis, in line with our expectations. And both our gross profit margin and merchandize margins improved 140 basis points for the fourth quarter compared to the prior year period. Now, I'd like to add a little color on fourth quarter sales. On a comparable 13-week basis, traffic declined mid-single digit, while conversion, average transaction and units per transaction increased low single digit. Focusing on our fourth quarter comparable store sales by department, our women's non-athletic department ended the quarter, down mid-single digits on a comparable basis. As we expected and planned for, women's boot sales were down high single digits due to our decision to be less promotional, which again included closing our stores on Thanksgiving Day. Margin in boots improved 310 basis points. But more importantly, we reduced per store inventory in women's boots at year end in excess of 20%. The men’s non-athletic department ended the quarter, down low single digits on a comparable basis. The decline was also due to the reduction of our promotional cadence, primarily in our seasonal boot category. Margin in men’s seasonal boots improved by approximately 140 basis points. Children shoes were up mid-single digits on a comparable basis. Children's athletic increased high single digits, while non-athletics was down mid-single digit. Children’s boots decline mid-single digit, while margins increased 260 basis points. Adult athletic was up low single digits on a comparable basis, while our men’s basketball category continues to struggle we are very pleased with the performance of women's athletic. I am proud of the way the merchant team executed our strategy to reduce promotions in the fourth quarter. As a result, we entered 2018 with less seasonal products and we believe we have a good opportunity to realize better merchandise margins for the year. Now, I would like to spend a few minutes to review the key strategic initiatives, our Shoe Carnival team executed during fiscal 2017. First, as many of you know, we decided to exercise patience with opening new stores. We continue to expect better real estate opportunities in the near future as we look to benefit from the evolving specialty retail landscape, including retail consolidation and store closures. We believe this and our implementation of our CRM strategy will enable us to once again ramp up store growth. Second, we engaged a strategic partner who specializes in creating a more holistic approach to focus the entire organization on a more customer centric model. As part of this strategy, we utilized our loyalty program, Shoe Perks, and the tremendous data we have on our 12 million most loyal customers to develop customer segmentation. We’ve been then identified our highest value customers to better understand how they shop with us by channel and product categories. We believe this will begin to transform how we connect with consumers and fuel future sales growth. I’ll go into greater detail on this in a minute in terms of our outlook for 2018. We also created a new platform for our digital store front to enhance performance and reliability online and we are pleased with the results thus far. Additionally, we re-launched our mobile app to become more user-friendly for customers that want to shop online from their mobile phone, check weekly promotions and also allow our Shoe Perks member to see how close they are to earnings rewards. At the end of fiscal 2017, 70% of our e-commerce traffic shopped Shoe Carnival via a mobile device and approximately half of our brick and mortar sales came from customers who have engaged Shoe Carnival through their mobile device. We expect this trend to continue to grow in the years to come. And to increasingly connect with our customers, we’ve also launched an SMS program in the third quarter that gives our customers the ability choose how they want to receive up-to-the-minute information on Shoe Carnival’s latest offer or new product introductions. We are pleased with our initial launch. And as we roll out Shoe Perks 2.0, we believe the growth in customers who prefer to receive SMS communication will continue to accelerate. As we look forward into 2018, we’ll continue to implement and evolve our CRM strategy. We believe that the change in retail environment one-o-one or direct communication with our Shoe Carnival customers is critical to long-term success. As I mentioned earlier, we have taken Shoe Perks data and we developed customer segmentation for all our high value shoppers. With the diversity of our stores, we are in the process of taking this further and breaking it down to the individual store level to get a more definitive understanding of each store’s high value shopper. We have very rich data that our analyst team will mind help our marketers, our merchant team and our real estate team, achieve the goals we set with them. Once this process is complete, we will leverage customer insights to better serve our customer and further differentiate the Shoe Carnival brand down to the store level. We are really excited about how this will shape our future growth. During the second quarter of fiscal 2018, we will be launching Shoe Perks 2.0, which is designed to incentivize our high value customers and to make Shoe Carnival their store of choice for all their family footwear purchases. We believe the customers who maybe shopping us once or twice a year will recognize the benefit of becoming a high value shopper. We will launch our vendor drop-ship initiative. Our goal is to have vendor drop-ship ramped up by the end of the second quarter. This technology will allow our customers the opportunity to seamlessly view and select from a broader brand and style selection than currently offered at ShoeCarnival.com. For Shoe Carnival, we get to test styles, brands and expand sizes without the risk of inventory ownership. In February of this fiscal year, we launched our first brand landing page with our largest brand. We believe brand landing page will enhance our site and make us more relevant in the marketplace. And our merchant team will continue to analyze our footwear assortment with the goal of reducing per store inventories through SKU and brand reduction while also increasing depth in key items. I am very pleased with all the decisive strategic actions our teams have taken to further differentiate Shoe Carnival for our future growth. The investments we have made in technology and customer engagement are incredibly important as we take Shoe Carnival to the next level of growth with today’s consumer. We accomplished a lot in fiscal 2017 and we believe our efforts will yield benefits in fiscal 2018 and even greater value in fiscal 2019. Moving on to real estate. We entered the fourth quarter with 408 stores in 35 states in Puerto Rico. During the quarter, we closed 16 underperforming stores for a total of 26 stores for the year. I'm pleased to report that since our last call, we have reduced the number of store closures for '18 through a combination of improved performance and better terms with certain landlords. We continue to work diligently on each store on the closing list with the goal of improving the metrics of each of these stores, thus reducing store closures from the current number. Currently, our real estate plan for fiscal 2018 includes the closure of 25 to 30 stores, particularly if we cannot improve the performance for those stores to our minimum contribution expectation. Even though this would reduce our overall store volume near term, we expect to realize long term operating income and EPS improvements. New store openings for 2018 will be in the low single digit range. Although, we are not providing guidance beyond 2018, I wanted to mention that we do not expect continue the level of store closures we have experienced over the past several years and 2019. Finally, I'd like to give a little color on our expectations for fiscal 2018. We continue to plan our business conservatively in order to more efficiently manage inventory and margin. Since Easter shifted out of April into March, I will not give quarter-to-date sales. I will say we are happy with the performance of our seasonal product categories and the continuation of the strong athletic and at leisure trend we have been experiencing over the past year. We believe this trend will continue through the back-to-school time period. Our merchant team has done a terrific job of identifying key items and categories for the spring season and back-to-school. And we believe we have built appropriate depth in those items and categories to achieve our goals. Based on these expectations, we expect fiscal 2018 net sales to be in the range of $1.13 billion to $1.23 billion with the comparable store sales of low-single digits. We expect earnings per diluted share to be in the range of $1.85 to $2. That concludes my overview. I would now like to turn the call over to Kerry.

[Kerry Jackson:]

Thank you, Cliff. Fourth quarter net sales increased $9 million to $243.2 million compared to the fourth quarter of last year. Of this increase in net sales, $13 million was attributable to the extra week included in the fourth quarter of fiscal 2017 compared to Q4 last year along with an increase of $4.9 million in sales from the 23 new stores opened since the beginning of the fourth quarter of fiscal year 2016. These increases were partially offset by a loss in sales of $7.9 million from the 30 stores closed over the same period of time and a decrease in comparable store sales of $1 million or 0.5%. Our gross profit margin on a GAAP basis for the quarter was 28.9% compared to 27.5% in the fourth quarter last year. The merchandized margin increased 1.4% while our buying distribution and occupancy expense were flat as a percentage of sales. Included in the gross profit in the fourth quarter this year was $3.3 million gain on insurance proceeds related to hurricane affected stores. Excluding the gain on insurance proceeds, our adjusted gross profit margin would have been flat for the fourth quarter. SG&A expenses on a GAAP basis increased $4.1 million in the fourth quarter of fiscal 2017 to $70 million. As a percentage of net sales, these expenses increased to 28.8% compared to 28.1% in the fourth quarter of fiscal 2016. We estimate approximately $2.9 million of the increase in SG&A expenses was due to the extra week included in Q4 this year. SG&A in Q4 this year also included non-cash impairment charges of $3.4 million for 30 underperforming stores and $1.9 million increase in stock-based compensation expense due to enactment of the U.S. Tax Cuts and Jobs Act of 2017, and its impact on the anticipated vesting of the company’s outstanding performance-based restricted stock. SG&A in Q4 last year included non-cash impairment charges of $3.6 million for seven Puerto Rico stores. Excluding the non-cash impairment charges in Q4 this year and last year and the additional stock-based compensation expense recorded in Q4 this year, adjusted SG&A expenses increased $2.4 million to $64.7 million. As a percentage of net sales, adjusted SG&A expenses were flat with Q4 last year at 26.6%. Store closing costs on a GAAP basis included in both cost of sales and SG&A in Q4 this year were $4.3 million compared to $4.6 million in Q4 last year. Store closing costs primarily consist of impairments, fixed asset write-offs, severances, lease termination fees and store tear down and clean up. These costs are partially offset by the reversal of accrued rent expense for leases with rent escalations. On a GAAP basis, income tax expense in Q4 this year $4 billion compared to an income tax benefit of $607,000 in Q4 last year. The December 2017 tax law change reduced the Company’s corporate statutory tax rate from 35% to 21%. The Company re-measured its deferred tax assets and liabilities using the new lower tax rate which resulted in $4.4 million additional charge to income tax expense in the fourth quarter of fiscal 2017. Excluding this additional charge of income tax expense and excluding the tax effects of the gain on issuance proceeds, non-cash impairment charges and additional stock-based compensation expense I referenced earlier, the adjusted income tax expense for Q4 this year was $432,000 and $739,000 in Q4 last year. We expect our effective tax rate for fiscal 2018 to be approximately 24.5%. This is a significant decrease from our historical effective rate of between 37.5% to 38%. This decrease in taxes paid should result in higher EPS and cash flow. We intend to utilize the additional cash flow to fund higher store wages and company initiatives such as CRM. On a GAAP basis, the net loss for Q4 this year was $3.9 million or $0.24 per diluted share compared to a net loss in Q4 last year of $920,000 or $0.05 per diluted share. Excluding the effect of the previously discussed unusual item in Q4 this year and last year, adjusted net income for Q4 this year was $1.7 million or $0.11 per diluted share compared to adjusted net income in Q4 last year of $1.3 million or $0.07 per diluted share. Weighted average shares outstanding in Q4 this year decreased 1.4 million shares or 8%. Total shares outstanding at the end of Q4 this year were 16,947,000. The extra week included in Q4 2017 had an immaterial effect on net income and diluted earnings per share on both a GAAP and adjusted basis. We have included in our earnings release today a GAAP to non-GAAP reconciliation table illustrating and describing the adjustments to earnings. Now turning to cash position and information affecting cash flow. We ended the year with $48 million in cash and cash equivalents and no cash borrowings on our $50 million line of credit. Cash generated from operations after purchases of property and equipment were $20.7 million. In fiscal 2017, we repurchased 1.3 million shares of common stock at a total cost of $29.8 million. No shares were repurchased in the fourth quarter. However, quarter-to-date in the first quarter of 2018, we have repurchased through our 10b5-1 program 475,000 shares at a total cost of $11 million. We currently have $39 million available under our share repurchase authorization, which runs through December 31, 2018. In addition, for fiscal 2017, we returned $4.8 million to shareholders through a quarterly cash dividend. Depreciation expense was $5.9 million in Q4 this year and $23.8 million for fiscal 2017. Capital expenditures for fiscal 2017 were $19.7 million with $13.5 million used for new stores relocation and remodels. Lease incentives were $4.8 million for the year. My last comment today will be to discuss the calendar shift in fiscal 2018. Due to the fact that fiscal 2017 was a 53-week year, the fiscal 2018 quarterly calendar ends one week later than it did in 2017. While the shift affect each quarter during the year, it is most apparent in Q2 and Q4. Let me explain. For fiscal 2017, our second quarter ended on July 29th and the very next week, the first week of Q3, our back-to-school sales accelerated significantly. Due to the calendar shift, in 2018, our second quarter will end on August 4th, thereby pulling in those sales for back-to-school into the second quarter and out of Q3 and fiscal 2018. If the 2017 calendar was restated to 52 weeks and reflected the 2018 ending dates, we would increase 2017 sales in Q1 by $5.1 million, increase Q2 sales by $23 million, decrease Q3 sales by $24.9 million and decrease Q4 sales by $15.7 million. The net effect of the calendar shifts and having one less week will reduce fiscal 2017 sales by $12.6 million. This concludes our financial review. Now, I'd like to open up the call for questions.

[Operator:]

Thank you. Ladies and gentlemen the question-and-answer session will be conducted electronically [Operator Instructions]. And your first question will come from Mitch Kummetz with Pivotal Research.

[Mitch Kummetz:]

Kerry, I just want to drill down on the gross margin a little bit. So for Q4, it was flat if you ex-out the insurance gains. And that's with merch margin up 140 bps and volume flat. I'm trying to understand, can you reconcile that for me. Where did you lose 140 basis points when you’re taking those two other pieces into consideration?

[Kerry Jackson:]

Well, I don't think -- from the liquidation of the closing stores was the primary component of that, which you have -- there is 30 basis points worth of gain in the fourth quarter from the closing of or from the gain of the insurance settlements for the hurricane stores. And the only other item that really flowed through there was the liquidation of stores in the fourth quarter.

[Mitch Kummetz:]

So what was the impact of liquidation of stores and is that not part of the 140 basis points in merch margin?

[Kerry Jackson:]

That's what's included in that and that's what reflected in merch margin.

[Mitch Kummetz:]

I can always follow up with you guys afterwards. Let me ask you on boots. Cliff, could you say -- I know that you guys, you planned boots down in the fourth quarter. So could you say what percent of your sales in Q4 were boots? And then how did boots -- you broke down boots across men’s, women’s and kids. I'm just curious how boots comp is a group and then what was the comp on the non-boot piece in Q4?

[Clifton Sifford:]

You would have to allow me to get the comp and the non-boot piece. But boots were down in total high singles. And as a percent of total, I think you were asking that question as well. Last year -- 2016 for the fourth quarter, boots were of 25% of our total sales in this year in 2017, 23%. So we lost 200 basis points, I guess the total.

[Mitch Kummetz:]

Can you guys say what the impact on comp was for not being open on Thanksgiving this year?

[Clifton Sifford:]

We can but we would rather not. For competitive reasons, we just really wouldn’t like to get the volume really. But I will tell you this that we would have been positive for the quarter.

[Mitch Kummetz:]

And then lastly Kerry, on the guidance, what share count is that EPS range based on, because you guys obviously have the buyback and you bought back some stock already in Q1 to-date? Is there any buyback implied in the guide?

[Kerry Jackson:]

It is. We’re using weighted average diluted shares on an annual basis of about $15.2 million. I now received your question, I should have -- I thought you were saying some here. The entire 140 basis point gain into Q4 merchandise margin was the $3.3 million gain on insurance. So when you strip that out, it was flat on a year-over-year basis.

[Mitch Kummetz:]

So the merch margin was flat, but merch margin on boots were up but then you lost some of it. So what did you lose the merch…

[Clifton Sifford:]

The entire loss of margin, first of all, we didn’t put boots into the closing stores but they were going to close in the fourth quarter. I didn’t think we’ll lose seasonal boots into a clearance store. So the clearance stores did not have the clear through that boot product. So the entire loss from a margin perspective was the closing of the 16 store.

[Operator:]

Next question will come from Chris Svezia with Wedbush.

[Chris Svezia:]

I guess first question I have is just on the comp guidance. In the press release for the year, you say flat to low single-digit positive, but Cliff, in your optimism you said low single-digit I think for the year. Just curious what should…

[Clifton Sifford:]

We expect to be up low single-digit for the year. If I missed that the press release you said that, I apologize for that, but we expect sales to be up low singles.

[Chris Svezia:]

And then just on the math for the year in terms of revenues, revenues being I think the midpoint roughly flat despite not having extra week and despite all the store closings. Just mathematically Kerry maybe you can just walk through how you’re getting there and maybe you would have thought you would have sale down slightly given store closures. Just maybe walk through how you’re thinking about that?

[Kerry Jackson:]

Well, the small comp stores, there’s low single-digit comp store increase is the primary piece of it. Now, keeping in mind that when we close a store, we basically force out the inventory, so whatever is left we end up closing to the wall. So what we see is that we have a fairly substantial fit to gross profit margin in the store. But we see limited sales decline because of that store closing because you’re artificially pushing the shoes out of the door through accelerated discounts.

[Chris Svezia:]

Shoe Perks, just when you -- are you assuming or any benefit related to whatever you’re going to do there in the second quarter in terms of comp, in terms of the business or maybe just talk about what you plan on doing. Are you targeting emails? I don’t think you were doing that before. And just maybe a little more color on what you’re doing in Shoe Perk and how you think about that?

[Clifton Sifford:]

We are going to be targeting our email more effectively, I do believe that. We are going to improve Shoe Perks program, our offering levels that allow our customers to get to a VIP level. And we do believe that it could be accretive to our sales comps and in fact that’s part of what we’ve built into our low single-digit comp. But we don’t believe that this is going to be up and active until the latter part of the second half. So the sales increase that we expect to get will be as we go through the third and fourth quarter.

[Chris Svezia:]

And just on when you said, Kerry, talking about merchandise margins being up for the year in terms of fiscal year ’19. How the other elements to the P&L pointing to that, buying and occupancy, SG&A and just some color on those parameters?

[Kerry Jackson:]

What we call will be the current year the fiscal 2018, so you’re asking what’s baked in our annual guidance. What you’d expect to see would be from a GAAP basis comparison is that your merchandise margin would be down and it’s primarily due to the fact of two things; one, the hurricane effect the gain on that, which was in the prior year will not be repeated; and then you have some effect of the decline in the merchandise margin. We should be able to leverage our SG&A costs again to small comp store sales increase plus we won’t have as many store opening costs nor store closing costs in ‘18. It’s just the improvement in operating margin for the year. Then the rest of the gains from an EPS standpoint is going to come from the lower tax rate.

[Chris Svezia:]

But you said that was on a GAAP basis. What about non-GAAP? What about on $1.49 as you look at for the year?

[Kerry Jackson:]

GAAP versus non-GAAP gets very difficult our attorneys are helping us understand, because the SEC is such a high issue. I’d rather reconcile from the GAAP to GAAP for you and then you can look at the adjusted. Now, keep in mind as I said that part of the gross profit piece of it, part of the decline is not repeating that gain but there’s the other piece of the decline in the gross profit margin is going to be from the cost of the liquidation of the merchandise for the 34 stores -- the 20 to 25 stores -- 25 to 30 stores that we have planned.

[Operator:]

[Operator Instructions] From Susquehanna we will hear from Sam Poser.

[Sam Poser:]

Do you all expect -- how do you think -- you talked about gross margin a little bit. But can you give us the breakdown of expenses and gross margin for the year ‘18, how you’re thinking about that?

[Clifton Sifford:]

I didn’t hear you -- I can’t hear you.

[Kerry Jackson:]

You’re saying what are qualitative piece of the guidance for 2018?

[Sam Poser:]

Yes, I mean could you give us some idea. I mean, are you expecting to see gross margin growth, given your inventory is so clean and then you continue investing. So as you see some deleverage at SG&A, but expect gross margin to grow or I mean some direction there.

[Clifton Sifford:]

Sam, I think we have an opportunity to improve the margin on product as we go through the year, because we enter the year in incredibly clean with our boot inventory down. In total in the 20s, our seasonal boot product down in total in the 20s. So I think it gives us some opportunity for growth through the year. Additionally, if we don't -- if we can continue to work on the stores that are supposed to close in the fourth quarter and we can save a few more those stores, which we think is a possibility then that is also going to help our gross margin. Right now, we are scheduled to close, if I remember correctly, almost 20 stores in the fourth quarter. And that would have an effect on fourth quarter gross margin. But if we can reduce that store count and we are very hopeful that that will be the case if we can do that. I am sure that that's a little bit in the air because of the number of store closures. But I think when you combine the two, there is a distinct opportunity to see improved margin on product.

[Sam Poser:]

And then on the investment side, you're investing in a lot of these new systems and so on. Does that mean that that -- I mean I guess the question is how much investment do you need to continue to improve your relationship with your customers? And then how much investment do you continue to need on top of everything you've already done to continue improving that communication with your customers?

[Clifton Sifford:]

Well, Sam we don't know today, I can't give you the number on the investment for the CRM software. We’re still in the process of letting that. I can tell you that the fact that we've chosen not to open up new stores and use our capital this way has built into -- partially built into the budget or mostly built into the budget.

[Sam Poser:]

So I mean we could say carrier or to simplify this, you're expecting modest growth in gross margin offset by probably if you comp way at the high end, you might get leverage in SG&A but it's unlikely you'll see SG&A leverage. Is that a fair way to think about it?

[Kerry Jackson:]

If you're comparing our guidance to the adjusted numbers each of those categories are relatively flat as a percentage compared to…

[Sam Poser:]

…compared to last year. So on an adjusted basis.

[Operator:]

[Operator Instructions] And we have a follow up from Chris, Wedbush.

[Chris Svezia:]

Could you define by any chance what low single digit store growth is for this year, or are you just talking three stores, four stores? Or is that just anything from one to nine?

[Clifton Sifford:]

It's anything less than five, actually low single digit, we say anything under 3.5. So such you can’t open half a store. I’ll tell you it's going to be somewhere in that range.

[Chris Svezia:]

And with regard to just -- I am just curious. Given the fact you get a benefit a little bit in Q1 and obviously a lot in Q2 from the time of the extra week. From an earnings perspective, is it fair to say that you would see the majority of your growth, pretty significant growth, earnings growth in the second quarter and then obviously essentially less or slight decline potentially in the back half of the year just given the timing of the calendar?

[Kerry Jackson:]

I think you're going to see increases in both Q1 and Q2. Remember, we had a very difficult Q1 last year with a negative 3% comp numbers, 3.9% comp number where we’re guiding to not repeat that. And the shift, the important back-to-school week into Q2 helps the profitability significantly there. And then you'll see, most likely to see declines in Q3 and Q4 due to the shifts.

[Chris Svezia:]

And I guess, Cliff, the weather is treating you pretty well.

[Clifton Sifford:]

Right now, it's raining like son of a gun.

[Chris Svezia:]

You know where I was trying to go with that. So I know you’re not going to [multiple speakers]. Thank you very much guys. I appreciate it.

[Operator:]

We’ll take a question from Greg Pendy with Sidoti.

[Greg Pendy:]

Just I guess big picture. Can you just -- as you would hold out for possible better real estate opportunities. I mean, just as we think about that. Does that mean -- would you consider maybe increasing your footprint in malls right now where at least we're hearing maybe there are some opportunities and your penetration is low or are you going to maintain your current footprint?

[Clifton Sifford:]

Greg, we have slightly over 20 stores and malls today. And to be honest with you, we're not in any in A mall, we are in a few Bs and a few Cs. We’d really like to see the fall out in malls before we start making the commitment. And that really is part of the entire strategy is that there are so many retailers that have closed around this or rumor to be closing around this that we really need to see where the fallout is before we start, especially before we start entering into B malls or C malls.

[Operator:]

From Pivotal Research, we’ll hear from Mitchel Kummetz.

[Mitchel Kummetz:]

Just had a quick follow-up. Cliff, you’re still obviously enthusiastic on the athletic trend. And I'm just curious, how much of that is just a function of -- you see that as a strong trend broadly versus you're continuing to get better access to more products from the brands. I mean, if I’m not mistaken, you just talked about continuing to extend some price points with more of a focus on the family channel. And I am just -- and maybe you could talk a little bit too, but I know you’ve done some Nike shops and just wondering where you’re at there and where that’s trending for 2018. And I know you’ve done a little bit with Puma and Adidas as well. And I am curious how that’s progressing?

[Clifton Sifford:]

We are getting better product from all our key vendors. You mentioned several. We’re getting a family channel level of signature product in basketball. We’re getting better product selection from all the vendors that you just mentioned. I hate to talk specifically about vendors on the call. But we do believe that’s part of the growth that we’ve seen and the continuing growth that we expect to see that the product just keeps getting better. But one of the key elements to what’s going on is our buyers have done an excellent job, and I am just absolutely proud of the way that they look at the product and have done a great job of identifying the key items of buying depth in it. So we don’t disappoint many customers and that’s a good thing. And then to answer your question about shops, we plan on opening -- and I won’t get specific on the brands. But we expect to open minimum of 25 additional shops this year. In fact 25 additional shops this year and next year. So we’re very pleased with the performance of these shops and what they’ve brought to our athletic business and to the percentage of that athletic becomes of the stores where put the shops in.

[Operator:]

And at this time, there are no other questions. I would like to turn the conference back over to management for any additional or concluding remarks.

[Clifton Sifford:]

Thank you for joining us on the call today. And we look forward to speaking to you again in May on our first quarter results. Thank you and have a good week.

[Operator:]

Ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation. And you may now disconnect.