Shoe Carnival, Inc.
Q4 2014 Earnings Call Transcript

Published: 19 Mar 2015

[Operator:]

Good afternoon and welcome to Shoe Carnival's Fiscal Year 2014 Fourth Quarter Earnings Conference Call. Today's conference is being recorded and is also being broadcast via live webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. This conference may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the Company's actual results to be materially different from those projected in such statements. These forward-looking statements should be considered in conjunction with the discussion of risk factors included in the Company's SEC filings and today's press release. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date. The Company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the forward-looking statements talked about during this conference call or contained in today's press release to reflect future events or developments. I’ll now turn the call over to Mr. Cliff Sifford, President, Chief Executive Officer, Chief Merchandising Officer of Shoe Carnival for opening comments. Mr. Sifford, please begin.

[Cliff Sifford:]

Thank you, and welcome to Shoe Carnival's fourth quarter fiscal 2014 earnings conference call. Joining me on the call today is Kerry Jackson, Senior Executive Vice President, Chief Operating and Financial Officer. For today’s call, I'll give a high-level review of the Company's fourth quarter performance and provide some insight into our fiscal 2015s earnings guidance. Kerry will review the fourth quarter financial results and then we'll open-up the call to take your questions. We are pleased to report that our comparable store sales for the fourth quarter increased 9.5%. Our positive sales performance in the fourth quarter along with our 2.3% comp increase in the third quarter drove the second half comparable store sales gain at 5.6%. This increase for the quarter was broad-based with all merchandised departments contributing. Store traffic for the fourth quarter was flat to the same period last year, which is an improvement to the trend we have experienced over the past several years. The combination of moderate weather patterns which generated strong athletic sales along with a very strong boot trend growth sales throughout the quarter. Conversion rates at our comparable stores were up 150 basis points which drove the mid single-digit increase in the number of transactions. Units, average transaction and average unit retails all showed positive growth for the quarter. Although weather played a role in our overall comps, we saw sequential improvements in the comparable store sales increases as we moved through each month of the quarter. We believe that our key initiatives of national advertising, better brands in our women’s department and our aggressive multi-channel initiatives continue to bring new customers to our stores, e-commerce site, and mobile touchpoints. Gross profit margin for the company increased by 10 basis points while SG&A decreased by 140 basis points resulting EPS for the quarter of $0.15 versus $0.03 for the same time period last year. Merchandise margins were down 40 basis points due primarily to an increase in inbound rate expense due to the slow down of the West Coast ports and the acceleration of our e-commerce business. We ended the quarter with inventory down approximately 5% on a per store basis which was inline with our expectations. Our focus on inventory management continues to be a significant initiative. We are still committed to be on the destination store of choice for key brands and categories we believe will drive our business. Our current strategy is about reducing inventory in those areas that are either duplicative or eliminating items and categories which are not produced in the sales and margins we have come to expect. As I reflect on 2014, many of the initiatives we have been talking about over the past year or so are beginning to reflect in our results. First, we launched a national advertising strategy that introduced Shoe Carnival's to new customers and new markets. It also gave us exposure in current markets that may not have gotten TV advertising in the past. Throughout 2014, we continue to tweak the messaging and in October we began to see the results and we believe it was driver of our business for the fourth quarter. Second, we continue to focus our store management and e-commerce teams on the importance of bringing new customers into our Shoe Perks loyalty program. We started the year with approximately 3 million to Perks members accounting for just over 22% of our sales. We ended the year with more than 6 million members who accounted for over 43% of our business. The growth of this program is an essential element to our overall marketing strategy. Third, we took a few steps on building a compelling online presence by opening up our store level inventory to our e-commerce store. Today we have 250 stores capable of fulfilling e-commerce orders everyday. This initiative not only expanded the selection and styles, but it also increased the depth of sizes available online which in-turn improved conversion. Our ship from store scenarios is the first step to creating an analyst outlook experience for our customers. Our most important initiative for 2015 is to give our store personnel the ability through our POS system to find the item or size the customers looking for and have that item shipped to the customer's home. We remain committed to establishing Shoe Carnival as a world-class multi-channel retailer. The growth of our e-commerce business remains strong and will continue to make enhancements to both capitalize on our increasing traffic and optimize conversion rates. Additionally, we will make significant improvements to our mobile site to mobile app which have become a meaningful part of our overall online sales. Our customers expect the seamless shopping environment with both a broad selection and our depth of sizes regardless of how they choose to shop. Our multi-channel strategy is making that possible. Our e-commerce store is the fastest growing store in our fleet. Fourth, we change the way we look at real estate by utilizing technology to fund where our customer's live and where the best place is in any given market to open a Shoe Carnival store. We are utilizing this technology that help us identify new trade areas for growth, as well as identifying current trade areas where we may have a small volume store with little opportunity for growth. Our real estate team utilizes this information to negotiate terms with landlords, look for relocation opportunities or falling sales recommend closing the location. In addition, with the better understanding of the volume of potential site can produce, we will negotiate a box size that will allow us to achieve higher average sales per square foot. Through these actions over the next few years, we should see improved operating margins and accelerated EPS growth. As part of our 2014 review efforts, we closed five stores in the fourth quarter of 2014 and opened one in the year with a total of 400 stores in 33 states in Puerto Rico. With regards to near term expansion, we look to open 18 to 22 stores in fiscal 2015, concentrated in either the large markets we currently serve or single store markets within our current footprint. As of today, we've identified 11 stores for closure in 2015. Moving on to merchandise. As I stated on our last call, we prepared for it and achieved a very strong boot run. I'm pleased to say that this success we reported for the third quarter continued through the fourth quarter with boots for men, women and kids posting a comparable store sales increase in the mid 20s, but as I said earlier in this call, the increase we reported for the fourth quarter was broad-based touching every major department. For instance, athletic shoes which accounts for approximately half of our overall sales on a annual basis, delivered a high single digit comparable store sales increase for the quarter. In our women's non-athletic department, sales for the quarter were up in the low teens on a comparable store basis. Our women's boots continued their phenomenal run with the comparable store sales increase in the 30s. In addition to boots, we were very pleased with the double digit comp increase in dress shoes. In our men's on athletic department, we entered the quarter up low single digits with dress shoes and boots each producing comparable store sales gains. Our children's business ended the quarter with a high single-digit comparable store sales increase. For girl's, the quarter was all about boots and canvas, for boy's boots, basket ball, running, and canvas were the key categories. In adult athletics, comparable store sales were up high single digits for the quarter. We experienced a nice quarter in men's and women’s running, men’s and women's canvas, along with men’s cross training. Lastly I would like to address the guidance we gave within the press release and the West Coast port issues. First the ports, as we all know the slow down in the West Coast ports finally came to an end on later part of February. Even though the resettlement has taken some time to get caught up with containerships that were backlogged and to reposition them to containers, we're still experiencing up to two week delays on many of the orders we have slighted for February and March deliveries through the West Coast. We began utilizing East Coast ports were containers delivering in mid March in port to ensure more timely delivery. It is believed that it will take 60 to 90 days before the West Coast issues get fully resolved. We are monitoring the progress at West Coast ports and we'll begin utilizing them again as we see the situation improving. Now on to our guidance. For the past few years, it has been our policy to issue guidance one quarter at a time. This year we will transition to issuing full year guidance and updating that guidance as necessary as the quarter’s progress. 2015 got up to a very strong start until the second half of February, when winter snows moved through the Midwest in Southern regions. Much like last year's late January and early February, we experienced over 400 closed or partially closed store base. However, as soon as the weather moderated we saw an immediate lift in sales similar to what we were experiencing throughout the fourth quarter. We believe with the current momentum in sales we will finish the quarter with the low single digit increase on a comparable store basis. As we look forward to the rest of the year, we will continue to plan conservatively but with the ability to react quickly the opportunities as we did in the second half of last year. This strategy allows us to continue to control our inventory and expenses which should result in double-digit growth and earnings. Therefore, we expect full year net sales to be in the range of $977 million to $991 million with the comparable store sales increased in the range of 1.5% to 3%. Earnings per diluted share are expected to be in the range of $1.40 to $1.48. Included in these earnings estimates for the fiscal year, is the expectation that the high-end of our guidance, the gross profit margin will increase slightly due to leveraging our buying, distribution, and occupancy cost and SG&A will decrease slightly as a percent of sales. Now I'd like to turn the call over to Kerry Jackson, for details on our financial results.

[Kerry Jackson:]

Thank you Cliff, and good afternoon everyone. Net sales for the fourth quarter of fiscal 2014 were $227.6 million as compared to net sales of $200.3 million for the fourth quarter last year, an increase of $27.3 million. This increase in net sales was driven by an increase of $18.3 million in comparable store sales, an increase of $11.7 million from the 34 new stores opened since the beginning of the fourth quarter of fiscal 2013, partially offset by a $2.7 million decline in sales from the 12 stores closed since the beginning of fourth quarter of fiscal 2013. The gross profit margin for the fourth quarter of fiscal 2014 increased 10 basis points to 28.6%. Our merchandise margin decreased 40 basis points, while our distribution and occupancy expenses decreased 50 basis points as a percentage of sales. While we were able to leverage our volume and occupancy cost, a combined 70 basis points due primarily to higher sales base driven by our comp store sales increase and net new store growth, our distribution cost deleveraged by 20 basis points due to higher cost related to West Coast port congestion issues. We estimate the extra cost included in gross profit due to the port congestion decreased diluted EPS by approximately $0.03 in Q4. In our original guidance, we have estimated a penny of additional cost. Selling, general and administrative expenses increased $4.4 million in Q4 to $60.5 million. This increase was primarily due to a $2.5 million increase in expenses for new stores, net of expense reductions for stores that closed since the beginning of fourth quarter fiscal 2013. Other significant changes in SG&A for the quarter were attributable to an increase in incentive compensation, offset by reduction in advertising. As a percentage of net sales, SG&A decreased to 140 basis points between periods. Total pre-opening costs for Q4 were 379,000, a decrease of 98,000 over Q4 last year. Of the total pre-opening cost incurred in Q4, 108,000 is included in SG&A and 199,000 is included in the cost of sales for pre-opening rent and freight. In Q4 last year, we incurred 477,000 of total pre-opening expense of which 286,000 was included in SG&A and 191,000 was included in cost of sales. The effective income tax rate for the fourth quarter of fiscal 2014 was 34.6%, compared to 40.9% for the same period in fiscal 2013. Net earnings for the fourth quarter of fiscal 2014 were $3 million or $0.15 per diluted share, which was above our guidance of $0.06 to $0.10 per diluted share. For the fourth quarter of fiscal 2013, we reported net earnings of 598,000 or $0.03 per diluted share. I'd like to transition to our full year fiscal 2014 financial results. Net sales increased $55.4 million and $940.2 million for fiscal 2014, a 6.3% increase from the net sales of $884.8 million for fiscal 2013. Comparable store sales increased 1.8% for the year. The increase in net sales for the year was driven by an increase of $50.2 million for the 63 new stores opened since the beginning of fiscal 2013, and an increase of $15.4 million in comparable store sales partially offset by $10.4 million decline in sales from the 14 store closed since the beginning of fiscal 2013. Our merchandise margin remains flat between the years, while buying, distribution, occupancy cost as a percentage of sales increased 20 basis points. SG&A expenses increased $16.2 million for the year due impart to $11.9 million increase in net new store expenses partially offsetting the increase was a decrease in incentive compensation of $2.4 million as compared to last fiscal year. Total pre-opening costs for fiscal 2014 were $3.7 million, an increase of $235,000 over last fiscal year. Of the total pre-opening costs incurred in 2014, $2.1 million was included in SG&A and $1.6 million was included in cost of sales for pre-opening rent and freight. Pre-opening cost average $118,000 for the 31 stores opened during fiscal 2014, as compared to an average of $107,000 for the 32 stores last year. Store closing cost and non-cash impairment charges including SG&A expenses for fiscal 2014 were $1.5 million compared to $1.2 million at fiscal 2013. Now turning to our cash position and information affecting cash flow. We declared and paid in each quarter of fiscal 2014, a cash dividend of $0.06 per share to our shareholders. The cumulative amount returned to shareholders in fiscal 2014 was $4.8 million. During the fourth quarter, our Board of Directors authorized a new share repurchase program up to 25 million of our outstanding - $25 million of our outstanding common stock effective January 1, 2015. New share repurchase program replaced the prior $25 million share repurchase program that was authorized at fiscal 2010, and expired in accordance with these terms on December 31, 2014. At expiration, the prior repurchase program had repurchased approximately 625,000 shares at aggregate cost of $12.2 million. Depreciation expense was $5.4 million in Q4, depreciation expense was $20.1 million for the full fiscal year. During fiscal 2014, we have spend $33.5 million for the purchase of property and equipment of which $27.2 million was for new stores, remodels and relocations. Incentives received from landlords were $8.5 million. We opened 31 new stores, relocated three and closed seven stores during fiscal 2014. We remodeled approximately 7% of our store base. Capital expenditures are expected to be $23 million to $24 million at fiscal 2015. As Cliff mentioned, in 2015 we expect to open between 18 and 22 stores which will account for approximately $9 million to $10 million of our total capital expenditures. Approximately $7 million of the total capital expenditures will be used for store relocations and the remodeling of approximately 6% for existing store base. Incentives we received from landlords are expected to be approximately $6 million to $7 million. This concludes our financial review. Now I would like to open the call for questions.

[Operator:]

[Operator Instructions] We'll go first to Eddie Plank with Jefferies.

[Eddie Plank:]

Hi good afternoon guys. Thanks for taking the question. I guess could you talk a little bit more about what you’re seeing with respect to the better brand strategy, where you are in that phasing and where you think you can take it going forward, is it – do you think you take it to more stores than you initially thought and then I have a follow up?

[Cliff Sifford:]

Okay, no problem. We started this process about 18 months ago with 75 stores. This past year we increased the number of stores to 140. We'll probably take it somewhere between 150 and 170 this year, and we think that in total if you look at our total store base, we can probably get it to 200 stores now as we grow new stores, we will obviously add it to most new stores. What we’ve seen is in the stores that have the better brands and women's and comp increases in those stores are significantly better than the comp increases in the other stores, all stores were - the stores without were also up for the quarter and for the season but stores with the better brands has significantly better increases.

[Eddie Plank:]

Great, that's helpful. And then I guess just to clarify on the start of this year, you said it trailed off with the weather in the back half of February, but can you break out in more detail like did February start-off at a similar run rate as the fourth quarter. If you could just give a little bit more color around the comps between the two -

[Cliff Sifford:]

February actually started off at a better run rate than the fourth quarter, in fact a much better run rate than the fourth quarter. And then towards the tail-end of the second week along with third and fourth week and the first week of March, the weather moved in and we saw declines in our business for those particular weeks. But since last week, I guess beginning of last week when the weather finally moderated to a more spring like temperatures and sunshine, which we needed in the Midwest, we saw a significant improvement that actually was little better than our fourth quarter run rate. So we’re feeling really good about the first quarter as long as the weather continues to cooperate.

[Eddie Plank:]

Great, that's very helpful guys. Thanks and all the best in 2015.

[Cliff Sifford:]

Thank you.

[Operator:]

We'll go next to Jill Nelson with Johnson Rice.

[Jill Nelson:]

Good afternoon. It looks like just from your previous outlook on 2015 store openings, it looks like you'll have I guess net fewer new openings. Could you just kind of talk about that revision and some factors behind that?

[Cliff Sifford:]

One of the things that we gained when we started using the technology for helping us find sites, is that we were able to get insight to some of the store locations that we have that - had been struggling and take a look at whether we felt like there would be opportunity for growth in those stores. And on the stores where there - were growth and there was a kick-out or an opportunity to get out of the store because of lease in, we would have it and exercise that. So this particular year, we will - we are going to close 11 stores there. We are closing, we have identified today the 11 stores that might be one or two more before the end of the year. But at this point because we - in addition to that, we have our real estate team concentrating on looking at real estate and market set that we've grown over the past couple of years. If you take a look at, we have entered into Dallas, we entered into Detroit, we entered into just recently into Philadelphia and Miami, we need to backfill those stores with additional locations. So we have our real estate team pretty much focused on those four major cities along with markets we currently serve.

[Jill Nelson:]

Okay. And then you could just talk about - you definitely got some good traction of your national TV ad, I mean first time I think you said store traffic was flat and that's probably a pretty good number for the past two, three years? If you could just talk about more called action messaging, your thoughts on 2015 just on that?

[Cliff Sifford:]

There is no question that once we add in the call action to our national advertising the customers responded. We want to have a balance between telling the Shoe Carnival brand story, because we have a good story to fill and call of action. And I think we executed that really well actually beginning back-to-school but it really resonated with the consumer beginning in October. We feel that we - the increases that we generated in October were pretty much industry leading even with the department stores and that momentum just continued through November, December, and January each month getting better and better from a comp store increase.

[Jill Nelson:]

Okay. And then just last one, the port issues and disruptions hit fourth quarter by $0.03. If you could talk about kind of what you’re seeing for first quarter given it seems like it will take some time for you to catch up on the shipment?

[Cliff Sifford:]

The biggest issue in the first quarter is the delay in product getting to the stores. We're running about two weeks behind on the orders that we can control, which are some of the branded orders that we bring in from the West Coast and some of our own product label. We moved port of entry into the East Coast that we just couldn’t take any more chance with the hit we took in fourth quarter $0.03 that was significant hit. So we said let’s just move to the East Coast so that we can get the product here a little quicker. Unfortunately some of our major vendors didn’t do that, so we’re seeing up to two weeks delay on get the some of the product in. I don’t think we’re any different than anyone else, in fact we may actually have an advantage because we move to the East Coast pretty quickly. But I don’t think there’s any difference in a way product is flowing in than what you’ve already heard on previous calls.

[Jill Nelson:]

Okay. Thanks.

[Cliff Sifford:]

Thank you.

[Operator:]

We’ll go next to Chris Svezia with Susquehanna Financial Group.

[Chris Svezia:]

Good afternoon guys and congratulations on the earnings growth. So anyway I’m curious to comp, could you just remind us what do you do March and April of last year in the first quarter from comping, what are you up against?

[Cliff Sifford:]

We’re definitely going against weaker comps for the - actually for the first half of the year. I don’t look it importantly what the comps were for March and April. It is tough to say because of the Easter. Easter was in - at the end of the second week of April last year and this year actually it's at the third week of April last year, and this year its at the after the first week of April. So your comp sales move around, March will be stronger than it was last year, April be weaker from a comp comparison. But the first quarter we were down.

[Kerry Jackson:]

1.7 for the quarter.

[Cliff Sifford:]

1.7.

[Chris Svezia:]

Okay. So let me ask you this way, if you were comping in the beginning of the first quarter sort of about where you were comping in the fourth quarter, then it’s slow I guess an aggregate return negative slightly for February and then into March you've started to see an acceleration, you’re kind of indicating maybe low single-digit comp for the first quarter. So I’m just trying to figure out I mean right now you just barely those single and just assuming at the same flat level or I’m just trying to get a little more color about where you are at Dallas?

[Cliff Sifford:]

The reason regarding it low singles for the first quarter - the reason we're mentioning low singles, we really still grew the first quarter you have concern really – I haven’t heard anyone else talk about this, but this is actual issue. We don't know what’s the weather is going to be like between now and the end of April. We could have significant weather issues between now and then. We have that built into our guidance. We feel that with that - with what is happening today and where we feel we’re going to be at that we should in the quarter at least up low single-digit.

[Chris Svezia:]

So you are assuming that snow is for Easter I guess?

[Cliff Sifford:]

Well I don't know, that's the point Chris as you don't know. I'll try to be a weather man but it's just not the expertise.

[Chris Svezia:]

Do you assume e-commerce in your comp is it that meaningful to move the comp needle and is it in that comp forecast or no?

[Cliff Sifford:]

It is in the comp forecast and it is moving the needle slightly.

[Chris Svezia:]

Okay. Just from a merchandise margin for the year, I assume - what do you expecting to be flat for the year or -

[Cliff Sifford:]

Basically we're expecting it to be flat. And the reason for that is - the main reason for that is the e-commerce growth throughout the year.

[Chris Svezia:]

Okay. So it seems like with your inventories being the way they are strengthen the dress business, which I want to ask you about, just seems like you can have some opportunity to drive it, but I guess what you’re saying is e-commerce is going to more than offset that based on what you’re thinking?

[Cliff Sifford:]

I’m not sure I understood that I have an opportunity to drive -

[Chris Svezia:]

Like as I'm saying, your inventories were down, you’re seeing good growth like for example in women's dress, which I assume is higher margin in some other categories. So it seems like you had an opportunity or have an opportunity to drive higher merchandise margins.

[Cliff Sifford:]

The offset is e-commerce. The margins in e-commerce is for various reasons, whether it will be promotional aspect of e-commerce or whether be the shipping cost mainly that's the main reason is helping to drive that margin there, keep the margin flat.

[Chris Svezia:]

Okay. And women's dressed up double digits, what’s difference between the stores that have the better brands and the stores - I mean you’re still seeing, is that the one differentiator or as even though stores that don't have the better brands are seeing really strong comp growth in women's dress.

[Cliff Sifford:]

Actually that's not the differentiator because the better brands are mainly in the casual end of our business. We do have some dress shoes there but what we’re seeing is their categories within dress and I really don't want to get specific within the categories if I can but there are categories in dress that are driving really nice increases and have been for a couple of quarters.

[Chris Svezia:]

Okay. That's all I have for now. Thank you and all the best.

[Cliff Sifford:]

Thanks Chris.

[Operator:]

We'll go next to Sam Poser with Sterne Agee.

[Sam Poser:]

Good afternoon, gentlemen. So your consumer was probably hurt more with the high gas price in the economy, are you seeing sort of that customer loosening up a little bit and combined, can you quantify that at all are you seeing that.

[Cliff Sifford:]

I don't know how to quantify that but I feel like there is a lot of moving parts in the way the business has turned. One, I believe, I’m going to give you a couple of reasons. I believe that we executed the boot business as well as - as well as ever had and probably better then many other retailers. So that helped our business. The fact that gas prices were down had to play a part, in fact, weather was much more moderate in the fourth quarter then it was last year had to play a part a factor, income taxes were not - refunds were not delayed had to play a part. There were all kinds of moving parts into that but as you always tell me Sam, that always stars and ends with the stores and with the merchandise and I feel the merchandise selection was right, definitely the boot selection was on part, there is no other way to explain 30 plus increase in women’s boots after we had a double digit increase in women's boots last year, it had to be a merchandised selection opportunity.

[Sam Poser:]

Before I continue, I'm glad you listened to me, but the - the mobile app, I mean you talked about it being – certainly your e-commerce started to be somewhat material. At one point you were saying it wasn't as big as a single store, can you give us an idea 100 stores that were today.

[Cliff Sifford:]

No, we're just not going to talk about the volume of our e-commerce business. I’ll tell you that it is – it was slightly accretive to our increase for the fourth quarter and we believe that it will be to our increases this year.

[Sam Poser:]

A lot of the sort of - in selection in your comps, decides the improved execution seem to inflect around the introduction of your mobile app, was that just co-incidental, or do you think there was something there?

[Cliff Sifford:]

I think it was two things but I don't believe that was a mobile app near as much as I believe that was shipment store scenario that we implemented in September. Once we were able to fulfill e-commerce orders almost at a very close to a 100% - customers began coming in higher numbers - not only our e-commerce site but into our stores as well. I got to believe that it was, I believe I wish I could quantify to this, I believe that our national advertising played a part to get customers only in our stores within e-commerce site. I believe that the digital advertising that we added to our e-commerce store as the business improved, grown customers not only to our e-commerce store but to our stores. So I think once we launched the shipment store scenario that was the real turning point of our business.

[Sam Poser:]

Thank you. And then I got two more things. Number one, what percent of the orders have you been able to reroute to the East Coast?

[Cliff Sifford:]

Well it would be our private label and anything that we control from the West Coast and that would be somewhere less than 20%.

[Sam Poser:]

Okay. And then what type of product - I mean are you seeing that your seasonal product is jammed up, are you seeing it more athletic basic products that's jammed up?

[Cliff Sifford:]

I think it's pretty much across the board. I mean you know branded vendors whether it would be in the athletic side or in the non-athletic side, are all struggling to get product through the ports, it’s not – it's definitely not just us and -

[Sam Poser:]

No, I understand but my point is that, are you going to have less seasonality risk if some sneakers got delayed two weeks. But if sandals get delayed there could be significantly more seasonality risk that's more of my point?

[Cliff Sifford:]

And you would think that, but if everyone's sandals are delayed, it does delay the ability for the customers to buy sandals to buy couple of weeks whether it would be us or one of our competitors. So I will tell you that our sandal business is pretty good.

[Sam Poser:]

Okay. And then two more things the earlier Easter does that help to jump start the season assuming how the inventory supported theoretically?

[Cliff Sifford:]

I have heard it couple of ways, some people say that a later Easter is better for the business because it's warmer, but I don’t know the answer to that Sam, I like the earlier Easter but I think no, I’ve heard and experienced it both ways. The first quarter is all about weather, if the weather stays like it is - like it has been in the past two weeks, we will have a really nice Easter.

[Sam Poser:]

Okay. And then lastly the ship, you talked about shipping cost hurting you with your e-commerce but when you can ship from store, but - and the margins hurting on e-commerce. But if theoretically if you can ship from store, doesn’t that mean you can go to the store - like if you have a $50 shoe that isn’t available then you're pulling from a store and don’t you pull from the store that is one of the reasons you pull from the store is because they maybe at the biggest risk for selling at markdown, so you end up with get a regular price sale out of that where something else might - pulling from the right store?

[Cliff Sifford:]

That is certainly the strategy. But again part of the margin issue is not the pricing which we sell the product, but the expense getting the product to the customer. So I imagine this, if customer comes in and buys two or three pair unless you can ship all three of those pair from the same store, then you have an increased cost in shipping.

[Sam Poser:]

Are you looking to get to a big enough size with the e-commerce platform a year or two whenever it is to be able to work more closely let's say with UPS or somebody to get different rates, is that all develop as it scales up?

[Cliff Sifford:]

Well, it does develop but we have pretty doggone good rates today. I don’t want to get into what we pay but we have good rates.

[Sam Poser:]

Thank you, gentlemen. Good luck.

[Cliff Sifford:]

All right. Thank you, Sam.

[Operator:]

[Operator Instructions] We'll go next to Jeff Stein with Northcoast Research.

[Unidentified Analyst:]

It's [indiscernible] calling in for Jeff. Based on the comp guidance you guys gave today, can you guys talk a little bit about all the various components of it -- AUR, traffic, and mix? And secondly on wage pressures, can you just talk about wage expense going forward -- how we should model that and how we should look at that going forward in the next year or two? Thank you.

[Cliff Sifford:]

Well from a traffic standpoint, traffic was basically flat for the quarter. We had increases in our average unit retail, we had increases conversion rates were flat, conversion rates were up 150 basis points and we had an increase in transaction units. So we show positive growth on most metrics from a transaction standpoint. As far as wage - you asked about wage inflation?

[Unidentified Analyst:]

Yes, I did.

[Cliff Sifford:]

That's obviously a concern but so far we’ve been able to absorb whatever wage inflation we have experienced as far as what happens next year and the year after. I really can’t address that at this point those - I really don’t know what is going to happen a year or two down the road but the wage inflation that has taken place for this year, we have been able to absorb.

[Unidentified Analyst:]

And as far as the comps, I was looking about - more of the comp guidance for 2015, maybe what you are looking at for mix and traffic and AUR, when you're looking at the comp guidance.

[Cliff Sifford:]

I think AURs are going to be flattish maybe up low single digits. We haven't seen a lot of cost increases in the product that we sell. But I think that we believe that we're going to see a pretty strong athletic business based strictly on what we’ve seen so far this year and as we went through the latter part of last year. We think that we have an opportunity for very strong sandal season because of some of the things that we’ve seen so far in this year. And actually at the latter part of last year as well. So through the first half strong sandals and athletic and our dress shoes we expect to see continuing comp store increase there.

[Unidentified Analyst:]

All right. Thank you very much.

[Operator:]

And there are no further questions at this time. I will turn the conference back over for closing remarks.

[Cliff Sifford:]

In closing I want to thank the entire Shoe Carnival team who work hard to deliver great product and excellent customer service, which led to our record annual sales. And I want to thank you for joining us today and we look forward to speaking to you about our first quarter results on our next call in May. Thank you very much.

[Operator:]

This does conclude today's conference. Thank you for your participation.