Shoe Carnival, Inc.
Q3 2015 Earnings Call Transcript

Published: 1 Dec 2015

[Operator:]

Ladies and gentlemen please stand-by, we’re about to begin. Good afternoon and welcome to Shoe Carnival’s Fiscal Year 2015 Third Quarter Earnings Conference Call. Today’s call 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 speaks 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 and Chief Executive Officer, Chief Merchandising Officer of Shoe Carnival for opening remarks. Mr. Sifford, you may begin.

[Cliff Sifford:]

Thank you, and welcome to Shoe Carnival’s third quarter fiscal 2015 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’ll provide a brief overview of the company’s third quarter performance and an update on our fiscal year guidance. Kerry will review the third quarter financial results and our guidance in more detail. Then we’ll open the call to take your questions. We are happy to report a solid third quarter performance with our fifth consecutive quarter of positive comps. The quarter began very strong and we are able to maintain good momentum which led to a 6% comparable store sales gain for the quarter. This comparable store sales increase comes on top of a 2.3% increase for the same time period last year. As expected, our strong performance was driven primarily by robust athletic sales. However, we are also very pleased with our double-digit comparable store sales increase in the women’s boot category. In addition, we benefitted from a combination of higher conversion rates, average sales per transactions, and units per transactions which were offset by a low-single-digit decline in traffic. We ended the quarter with inventory up approximately 0.3% on a per store basis, in line with our expectations. As we’ve discussed on our last earnings call, we were aided by calendar shift that moved many of our early back-to-school dates and tax free holidays into August this year from July last year. This shift contributed approximately $7 million in sales to the third quarter from the second quarter. As a reminder, last year in the markets we served, 13 states have tax free holidays that were observed at the end of fiscal July, this year none of those states shifted their tax free holidays to fiscal August. We saw the momentum of this shift give us an early part of August continued throughout the month and into the reminder of the quarter. As a result, we experienced comparable store sales increases each month of the quarter in 11 out of 13 weeks during the quarter. The shift in back-to-school sales along with increased shipping costs associated with our multi-channel initiatives resulted in a 70 basis point reduction in merchandise margin compared to the third quarter last year. However, we are able to maintain the gross margin rate of 30.1%, which was flat to the same comp period last year. SG&A as a percent of net sales increased 140 basis points due to a shift in back-to-school marketing and an increase in equity compensation. Kerry will give more detail on this in his prepared remarks. Operating margin decreased 140 basis points. As a result of the net basis we produced, earnings per diluted share of $0.47, which was in line with our expectations. In the third quarter, we achieved a record number of loyal shoppers by adding over 847,000 members to Shoe Perks, our loyalty program. We now have over 8 million members who spend on average 23% more per transaction than non-members, and accounted for over 57% of our third quarter sales. Shoe Perks is quickly becoming our most important tool for communicating special promotion in sales events to our customers. In multi-channel, our sales initiative is working well and presents significant opportunities again. Our team is most excited about our latest step toward a seamless, endless aisle experience for our customer. As I mentioned on our earnings call last quarter, in July, we launched our SHOES2U initiative, which allows our store associates to increase conversion, by opening the overwhelming majority of our inventory assortment at every store through the point of sale. If a customer is looking for a particular size or style, the store does not have, the associate can order it on the spot and have it shipped directly to our customers home. By this launch of this technology, we’re converting sales that previously may have left our store and gone to a competitor. We continue to make improvement to our multi-channel capabilities. In the next few days, we will launch our new and improved Shoe Carnival app. This app will now allow a customer to purchase online directly from the app as well as scan a barcode in store to help find their size. We continue to make investments in our multichannel capability. Future enhancements include buy online, pickup in store along with buy online, ship to store are scheduled to launch in the first half of next year. Turning now to real estate, we firmly believe we have a tremendous opportunity to further grow our family footwear store base, and we’re excited to welcome Jeff Fink as Senior Vice President of Real Estate. Jeff started with us in mid-October and is now in charge of our store site selections and lease administration function. Jeff joins us with over 27 years of real estate industry experience across footwear and specialty retail. His contribution will be instrumental as we grow our existing presence in both large and small markets. During the third quarter, we opened up six stores and closed two stores. Our store growth plan continues to focus on strong trade areas within our current footprint and to take our underperforming stores that have minimal opportunity to improve, and either renegotiate lease, relocate, or close the stores. We ended the quarter with 404 stores in 34 states in Puerto Rico. This past weekend, we opened two additional stores and by year-end we will close one store ending the year with approximately 405 stores. We have now opened our first two small market stores, the first one in Blytheville, Arkansas and the second in Marion, Indiana. While it is very early in the lifecycle, we are happy to say both stores are performing above expectation. We expect consistent small market unit growth over the next several years as we take advantage of the opportunity to expand into new and build in existing markets with stores that are approximately 5,000 square feet. These small market stores are less than half the size of our current locations. This provides consumers in local communities a convenient shopping experience that builds upon Shoe Carnival’s strong track record of delivering moderately priced branded footwear for the entire family. In addition, our multi-channel strategy gives these customers access to the vast majority of our total assortment of millions of pairs, either while in our stores, through SHOES2U, or from the comfort of their home. Moving on to merchandise, as I mentioned earlier on today’s call, we started off the third quarter strong. And we were very pleased with the sales performance of our athletic department and women’s fashion boots. Focusing on sales by department for a moment. Women’s non-athletic ended the quarter flat to last year on a comparable basis. Women’s boots were up in the low-20s, which was even more impressive given the – this was on top of the mid-20s increase last year. The sandal category continued to perform well throughout the quarter posting a high single-digit comparable store sales increase. These increases were offset by decrease in women’s dress shoes along with women’s sport casuals, and Tailored Casual. Males non-athletic was up low single-digits driven primarily by men’s dress, canvas casuals, and boots. Kids was up half-single digits driven by athletic and sandals, and the Adult athletics were up low-double digits driven by men’s and women’s canvas and running along with men’s basketball. I want to close by offering some color on the remainder of the year. Once we entered into November, and the weather continued to be unseasonably warm, we began to see lower boot sales, especially tall shafted boots and cold weather boots. This continued through our Black Friday sale event this past weekend and comp store sales results that were below our expectations. As a result November comparable store sales were down less than 1%. As I stated earlier in the call, our boot business was very strong throughout the third quarter, this gives us confidence that once more seasonable weather returns boot sales will once again be a key driver of our sales. However, even though we have confidence that we’ll see sales in boots accelerate again, we will proactively step up the commercial patents of the category, so that we can ensure clean inventory position headed into – heading into the spring season. Based on our quarter-to-date results, we now expect comparable store sales for the year to be up approximately 3% with merchandise margins basically flat reducing all year EPS of a $1.38 to $1.43 a share. Kerry will give more detail on this in his prepared remarks. With that overview, I’d like to turn the call over to Kerry.

[Kerry Jackson:]

Thank you, Cliff. Third quarter net sales increased $15.0 million to $269.7 million, as compared to the third quarter last year. The net sales increase was driven by sales of $7.3 million from the 26 new stores opened since the beginning of the third quarter of fiscal 2014, and $14.2 million increase in comp store sales. This net sales increase was partially offset by $6.5 million loss in sales from the 20 stores closed since the beginning of the third quarter of fiscal 2014. Our gross profit margin for the quarter was 30.1%, which was unchanged compared to the third quarter last year. SG&A expenses increased $7.2 million in the third quarter of fiscal 2015 to $66.1 million. As a percentage of sales, these expenses increased to 24.5% compared to 23.1% in the third quarter of fiscal 2014. The majority of the SG&A expense increase was due to a $2.5 million increase in advertising in August of this year, and a $2.4 million increase in equity compensation. As we mentioned on our call, last earnings call, a shift in the back-to-school tax-free calendar resulted in sales and advertising expenses shifting out of the last week for the second quarter of last year, and ended the first week of the third quarter this year. Focusing on equity compensation expense for a moment. In the third quarter of fiscal 2014, certain performance-based restricted stock grants were deemed not likely to vest and as a result this expense was reduced by $2.3 million in the third quarter of last year. This reduction in equity compensation expense did not reoccur in the third quarter of fiscal 2015. Pre-opening costs included in both cost of sales and SG&A increased $59,000 in the third quarter of fiscal 2015 to $679,000. Store closing and impairment charges included both cost of sales and SG&A in Q3 this year for $405,000 compared to $594,000 in Q3 last year. The effective income tax rate for the third quarter of 2015 was 38.0% compared to 39.1% for the same period of fiscal 2014. For the full year of fiscal 2015, we expect our tax rate to be approximately 38.5%. Net earnings for the third quarter were $9.4 million, or $0.47 per diluted share. For the third quarter last year, we reported net earnings of $10.8 million, or $0.54 per diluted share. Now turning to our cash position and information affecting cash flow. In the third quarter of this year, we repurchased approximately 429,000 shares of common stock at a total cost of $10.2 million, the amount that remained available under our $25 million share repurchase authorization, as of end of Q3, was $14.8 million. Depreciation expense was $5.8 million in Q3. We continue to expect depreciation expense to be approximately $23 million for the full fiscal year. We expect capital expenditures for the full fiscal 2015 including actual expenditures year-to-date to be between $27 million to $28 million. Approximately $9 million of the total capital expenditures are expected to be for new stores and $9 million will be used for store relocations and remodels. And we expect the lease incentives in the range of $6 million to $7 million for the year. My final comment today will focus on adding little color on our sales and earnings expectations for the fourth quarter of this year. As Cliff said earlier, we expect our annual comps to increase approximately 3%. While our merchandise margin is expected to be about the same as last year due to leveraging our bond distribution and occupancy costs, we expect to see a slight increase in our gross profit margin. As a percentage of sales, expenses are expected to be flat at the high end of our sales expectations. These expectations should result in diluted EPS in the range of $1.38 to $1.43. This represents an increase of 9% to 13% over diluted EPS earned in last fiscal year. Included in our annual expectations, our Q4 expectations of comp store sales are flat to low single-digit, a decline in our merchandise margin in excess of the leveraging of our buying, distribution, occupancy costs and a moderate leveraging of our SG&A. While this may sound obvious, it bears emphasizing. We believe that we will ultimately – where we ultimately come out within the EPS range will be primarily determined on how our boot inventory sells during the remainder of the quarter. We further believe that if we see weather supportive of selling boots, we should achieve the high-end of our expectations, and without support of weather, we will trend to lower end of our expectations. Lastly, our expectations for the fourth quarter and the fiscal year do not include any impairment for our Puerto Rico stores. We operate nine stores in Puerto Rico with combined net book value of long-lived assets of $5.5 million. Puerto Rico is experiencing economic crisis characterized by a deep recession and defaults on its public sector debt. Our current estimate of undiscounted cash flows indicates that carrying amounts of the long-lived assets are expected to be recovered and therefore no impairments would be necessary. Our estimated cash flows might change in future periods pending further developments in the economic environment and possible further defaults into Puerto Rico. This concludes our quarterly review. Cliff and I are now available to take your questions.

[Operator:]

Thank you. [Operator Instructions] First question today comes from Jeff Stein with Northcoast Research.

[Jeff Stein:]

Good morning guys. Good afternoon, excuse me. First question is for Kerry. In the third quarter, Kerry, I think – in the second quarter conference call, I think you mentioned that you expected ad spending to be up $3.5 million, and I think you said today it was up $2.5 million. So I’m wondering did you reduce it as a result of the weaker trend that you saw and are you planning to spend that money in the fourth quarter or ? Or how should we think about that $3.5 million versus $2.5 million you actually spent?

[Kerry Jackson:]

Well we were – what -- I believe what I’ve referenced on the call was not as specific as what I’ve referenced in this call. I was talking about the full quarter. We were going to be up closer to $3.5 million. We were up over $3 million, but $2.5 million of that came in August. So the majority of the increase for the quarter was going to be related to just August itself. I don’t think our actual expenses for August by itself would have changed. It’s just I would made up – I think I have – I stated it better to more clarify it. It really was what that shift into August, those advertising costs specific to the back-to-school shift.

[Jeff Stein:]

Okay. So in other words your ad spend ended up being exactly what you thought it would be?

[Kerry Jackson:]

Well it’s little less than the $3.5 million, but it was close.

[Jeff Stein:]

Okay, all right. And can you…?

[Kerry Jackson:]

That won’t affect the Q4 numbers to answer your other question.

[Jeff Stein:]

Okay, terrific. And as far as your boot inventories – as a percent of your total inventories, what would boots account for? And then one more question would be can you refresh my memory in terms of how much the port slowdown cost you in the fourth quarter last year?

[Cliff Sifford:]

We reported last year that the port slowdown, I think I am right me on this, Kerry, you may have to correct me on it, was just over $300,000 in the fourth quarter.

[Kerry Jackson:]

Go back…

[Cliff Sifford:]

Go back – so we needed to go back and look at that Jeff, but that’s – from memory that’s what I remember. Boot inventory is – of the total is that women’s, men’s, and kids. We’ll look at that for you in just a second. I will tell you that boots account for roughly 25% of our total business in the fourth quarter.

[Jeff Stein:]

Okay.

[Cliff Sifford:]

I’ll give you the inventories on that in just a few moments.

[Jeff Stein:]

Great, okay. You could just answer that later and…

[Cliff Sifford:]

All right.

[Jeff Stein:]

Take the next question from next guy in queue.

[Cliff Sifford:]

All right, thank you.

[Operator:]

And next question comes from Eddie Plank with Jefferies.

[Eddie Plank:]

Great, thank you. Good afternoon guys.

[Cliff Sifford:]

Hi, Eddie.

[Eddie Plank:]

Just wondering can you remind us what – hi. Could you just remind us what the comp cadence was in the fourth quarter of last year by month? It’s a tough comp to last year. And I’m just wondering since you’re down a little in November, just trying to get a sense of where that opportunity is? Thanks.

[Cliff Sifford:]

Yes. I’ll give you that answer, Eddie, but I want to caution you that a lot of our fourth quarter comp last year was driven by the fact that we had really rough weather the year prior and the weather played out much better for us last year from a comp perspective. If you remember in 2013, we had hundreds of store close days in the fourth quarter. So we called that out in our fourth quarter conference call. But the way the earnings played out – or excuse me the way the comps played out in the fourth quarter of last year was we were up mid singles in November, high singles in December, and low doubles in January.

[Eddie Plank:]

Great, that’s helpful. And then Kerry to confirm, did you say a slight increase in gross margin for the year or for the fourth quarter?

[Kerry Jackson:]

For the year – for the fourth quarter, the reduction in the – the decrease in the merchandize margin will be in excess of what we leverage our BD&O. So we should see down – slightly down gross profit margin in Q4, but on the year, it will be up because of leveraging of the BD&O.

[Eddie Plank:]

Got it, okay. Thanks for clarifying that. And then just a real quick, lastly, just any update on the better brand strategy, Cliff? I mean kind of how it’s playing out the expectations or what the opportunity still is there? Thank you.

[Cliff Sifford:]

Well, actually, I’m glad you asked that question. I probably have to put that in my prepared remarks every quarter, but we’re still very pleased with the way better brands are working. Our comps in those stores are still running better than the comps in the stores that don’t have the better brands. And our percent of women’s business to the overall store has risen about 27.5. If you remember over the next three to four years, we expect to get it to 30 and we’re well on our way to do that.

[Eddie Plank:]

Great, thanks for that. All the best in the fourth quarter.

[Cliff Sifford:]

Thanks.

[Operator:]

Next question comes from Jill Nelson with Johnson Rice.

[Jill Nelson:]

Good afternoon. Just a question, could you talk about – it looks like you have very strong boot numbers for third quarter, but we saw quite a slowdown in November. Could you just maybe talk about it given – we really didn’t have any cold weather in Q3 to note of, just kind of that variance.

[Cliff Sifford:]

You know we – here is the way we look at, Jill, whether it’s right or wrong. We have to let you guys judge that, but we think that we have incredible strong assortment of booties for us – for second and third quarter and the customers reacted very favorable to that. As you get into November and into the fourth quarter and weather from the year before affects you, then as it did last year because November was a very cool month as was December and January and you don’t caught that coolness, all right, repeat the coolness if you would, then it makes the cold weather boots and the tall shafted boots a little more difficult to sell. And that’s the way we look at. We think that the customer has voted yes. They like our boots. We had a very strong comp in October of last year in boots and we comped positive against that this year and weather wasn’t that cool. So we believe that customers have voted yes. They are just waiting now for the weather to get cool. So that the cold weather, the fur-lined boots, all the boots that normally sell in the fourth quarter will pick up the momentum.

[Jill Nelson:]

Okay, I appreciate that commentary. And may be if you could just talk about November, Black Friday kind of weekend performance as your athletic and your canvas category, how that performance held in?

[Cliff Sifford:]

For the month – I’d rather give that for you about a month, I am not just specific about the Black Friday event itself. For the month, our athletic business continues to perform as did our canvas business. So we believe that – we absolutely believe we’re still on an athletic run and that will continue throughout the fourth quarter and into next year.

[Jill Nelson:]

Okay. And then just lastly, if you could give us an update on that ship-from-store capabilities, I believe you’re at 250 stores looking to get to 350 stores at year-end. Just kind of the update there and just some efficiency you’re seeing from that process. Thank you.

[Cliff Sifford:]

We are now shipping from – I believe every store in the company, in fact – except the store that we’re going to close at the end of the year, we’re shipping the product every store. Does that answer your question?

[Unidentified Analyst:]

Yes. Thank you.

[Operator:]

Next question comes from Sam Poser with Sterne, Agee.

[Sam Poser:]

Hi guys, a couple of things. Can you give us a breakdown of athletic between men's, women's and kids for further quarter?

[Cliff Sifford:]

I thought you would ask about boot Sam, so I don't have that right now. Breakdown as far as the concert is the total.

[Sam Poser:]

As far as the comp go, I mean how – where you're seeing the biggest growth within that nice comp you have in that product?

[Cliff Sifford:]

Believe it or not, it was fairly close it was less than 1%, we got double-digit growth out of our excuse me – out of our adult athletic with women's slightly outperforming men’s and we got very high single-digit growth out of our kid’s athletic.

[Sam Poser:]

Okay. Well, one boot question, did you want to answer, I’d be happy to ask.

[Cliff Sifford:]

I don’t know, I’ll let you to ask the questions and I’ll quit anticipating…

[Sterne Agee:]

Okay. I mean I guess the question is – how is your inventory, year over, it’s like, your boot business in the quarter was up, but it clearly slowdown at the beginning of Q – although it’s slow down at the beginning of Q4. So the question really is – where your – is your boot inventory, what part of your inventory is up that’s making you take these price actions which led you I guess to lower the full year guidance a bit?

[Cliff Sifford:]

Well, the boot sales in the month of November were below our expectations. Any time you have a performance like that for a month as large as November, which happens to be the second largest month of the quarter. Then you need to react to that, we can't just sit down and hope that the weather comes, that’s not a good strategy. Approximately and this will answer - also answer Jeff’s question from earlier, approximately 13% of our inventories and boots which is not – not bad when you consider the fact that the 25% of our business is done in boots for the fourth quarter. So however we do have categories that we feel we need to get a little more aggressive on and we're going to do that.

[Sam Poser:]

Okay. And then can you talk about some – any other brands that are driving things especially in athletic, in boots and other areas.

[Cliff Sifford:]

I still believe, you don't really talk about brand so as well as I won't. Sam, you’re right often about the key brands and the key brands that you recognize are our key brands as well.

[Sam Poser:]

Okay. And then what percent you mentioned that November is the second largest month of the quarter at least for boots. Could you give us in total maybe you can talk about last year what like when you look at November, December, January, how what the percentages whereby months as a percent of the total volume total revenue for the quarter?

[Kerry Jackson:]

Sam, November typically is about third of the sales for the quarter.

[Sam Poser:]

Right, and then like December is lot like 50 and then you're left with the rest in January?

[Kerry Jackson:]

Yes, I know we’ll breakdown each month, but December being a more important sales period plus it's a five-week period. It is significantly higher as a percent and then January is kind of quite month and that build. That percent will drop below the November number, even though they're both four-week period.

[Sam Poser:]

And have you seen, I guess, the question is the, let's ask it this way the double-digit increases you had in athletic in the third quarter has that continued with the same kind of velocity into Q4? And where you’re really…

[Kerry Jackson:]

And just Q4?

[Sam Poser:]

Yes.

[Kerry Jackson:]

Well, the athletic business was a very strong for the month of November. I don't really want to give a percent under the phone but I mean I’d really don't want to give a percent but let me just say it was up high singles.

[Sam Poser:]

Okay, all right. Thank you very much good luck. Have a great holiday.

[Kerry Jackson:]

You too.

[Operator:]

Next question comes from Chris Svezia with Susquehanna Financial Group.

[Chris Svezia:]

Good afternoon.

[Cliff Sifford:]

Good afternoon, Chris.

[Chris Svezia:]

So I've got some boot questions even though you probably take some boot questions. But I'll give you some boot questions that's what you want.

[Cliff Sifford:]

I'm glad to take them.

[Chris Svezia:]

So, boots – just remind us fourth quarter last year boots comped up high 20s something like that, what was the number again?

[Cliff Sifford:]

That’s correct.

[Chris Svezia:]

Okay.

[Cliff Sifford:]

That’s correct.

[Chris Svezia:]

And basically you're telling us in November, it didn't hit your plan, did it turn negative in November? The boot kind of…

[Cliff Sifford:]

Yes.

[Chris Svezia:]

Okay. And so, your expectation is for, in the fourth quarter to do mid single to low single digit comp? I’m just curious what do you expect; I’m just trying to get an idea of what kind of acceleration we need to see in the business?

[Cliff Sifford:]

Even with the loss, even with the loss we had a November, which I’m applying to weather because I really believe that is the case. I believe, if the weather does cooperate, we should see mid to high single-digit increases in the month of December and January. You got to remember, we’re not going to sit back and wait for the weather to get here that’s really not a good strategy. We have a plan in place to create increased interest in our boot category.

[Chris Svezia:]

Okay, and to get to that level of comfort December, that’s factor to do those promotions and add a promotional cadences is factored into that guidance to get better.

[Cliff Sifford:]

That is correct, that is correct.

[Chris Svezia:]

Okay. And just of the boot composition, is it mostly at this point just the cold weather product, you’re not sitting on a lot of tall shafted above the knee kind of fashion…

[Cliff Sifford:]

Now, we plan our tall shafted boot business down and we’re achieving that plans, so we were correct and sale in our inventories down in that category, because the customers have definitely shied away and go more toward booties and mid-calf boots, but it’s not working right now, if there’s anything that you’d primarily wear in the cold weather, we had high shafted or fur lined.

[Chris Svezia:]

Okay, okay. And then just on your year-end inventories, where do you expect total year-end inventory to be? I think beforehand you expected it to be down on a per-store basis, that’s still the process?

[Cliff Sifford:]

We expect it to be flat to slightly down.

[Chris Svezia:]

Okay, okay. And then on athletic, I’m just, you’re, just overall perspective Canvas has been strong for some time, running for your channel has been strong, the fashion athletic running piece has been strong. Just put your hat on for a sec as you start to think about early next year and what could drive still the athletic businesses, still primarily the categories?

[Cliff Sifford:]

Chris, I get the privilege, Carl, lets me go to some of the pre-lines and I’ve been through pre-lines with all the key athletic brands. And I guess I’m just going to say it, I’m just going to tell you, I don’t see a slowdown coming, I think the product as we go into spring 2016, is stronger than the product we have in our stores today, they’re grabbing the kind of comp that we just talked about. I see this is a continuing trend until you see an apparel trend now. We were at magic in August and we felt like the – we might start seeing a shift in denim – wide leg denim, but I have not seen that shift.

[Chris Svezia:]

Okay. And the pricing when you talk about the product looks better from a pricing perspective. Is that fair to say that those incremental higher as well?

[Cliff Sifford:]

That’s a good question. Our top brand continues to give us better product. So therefore you’ll see increasing AURs there. And we continue to buy better product from our other brands as well. So I think you'll see low single-digit AUR increases.

[Chris Svezia:]

Okay. Final question, Kerry for you. SG&A was, we think about the incentive comp those are true up a little bit here as we think about I don't want you to give guidance for next year but does that sort of level that out a bit for next year. Now that you, it's gone down now it's kind of jump back up again, I’m just sort of curious how we think about that that bucket?

[Kerry Jackson:]

Well, our thought process would be is that if we have accelerating earnings as EPS as a percent over the prior year, our equity, our compensation will go up – our incentive compensation, equity compensation will be relatively flat between the periods, you'll see some incremental increase. Most likely every year you'll see incremental increases but no dramatic changes like what we are seeing this year versus last.

[Chris Svezia:]

Okay. All right, that’s all I have. All the best to you guys, thank you.

[Kerry Jackson:]

Thank you.

[Operator:]

And we’ll take another question from just Jeff Stein with Northcoast Research.

[Jeff Stein:]

Yes. Cliff. It's Cyber Monday and I've been trying to get on your site all day. And it says it's down for maintenance. Is that a problem on my end or is – has there been a problem on your end?

[Cliff Sifford:]

Well, there has been an also known problem on our end, for much of the day the traffic on our site is overwhelming our service. So we are currently up and have been since we've been on the call. We have had occasional outages, as you know on any day where you have a big volume day like today.

[Jeff Stein:]

Okay. All right but nothing that should extend beyond today.

[Cliff Sifford:]

No.

[Jeff Stein:]

Assuming.

[Cliff Sifford:]

No.

[Jeff Stein:]

Okay. And how about, can you bring us up-to-date on what's going on in Texas. I think in the second quarter you mentioned that your sales in Texas that held up pretty well. How about Q3 is that still the case?

[Cliff Sifford:]

Our Texas stores are still holding up pretty well they are – we are experiencing issues on the border and about the Northern border and the Southern border actually and I think that’s something other people have spoke to, as well. But in a few of our cities where they are dependent upon oil, we’ve seen some issues. But overall our Texas business remains okay.

[Jeff Stein:]

Great, glad to hear. And then finally, I know your small market stores haven’t been opened very long, but any surprises and yearly takeaways from what you’re seeing there, besides the fact that it seems to be doing better than plan?

[Cliff Sifford:]

No, not yet. We’re watching those stores very, very closely and we are excited about it. I’m trying to contain myself on it, because I think that we have a tremendous opportunity based on the early results.

[Jeff Stein:]

Are you seeing a – I cover another company that operates in relatively small markets. And one of the advantages that they have found besides being kind of the only guys in town is that their lease expense is quite low. And I’m wondering if you could kind of give us some guidelines in terms of what you’re paying on a per square foot basis compared to your larger market stores.

[Cliff Sifford:]

Not – I really can’t do that, no, no, no, I really can’t do that. I will tell you that the advantage operating in the small market for us, not only is the leased opportunities are attractive, but the fact that we’re so well-known in the Midwest and the Southwest. And we open up store, we don’t – there’s no period where you’re trying to make the customer understand who we are. They know who we are immediately. And that’s a very positive thing. Jeff are you still there?

[Operator:]

He has disconnected sir.

[Cliff Sifford:]

Okay.

[Kerry Jackson:]

Jeff, a follow-up, on your question, you answered earlier about what the core effect on the additional strength slow port cost, in the fourth quarter we said there was $0.30 effect, so just to clarify what your question was from earlier.

[Operator:]

And we’ll go ahead and move to our next caller. [Operator Instruction] Our next caller is Steven Martin from Slater. Please go ahead sir.

[Steven Martin:]

Hi how are you guys? Couple questions, and thank you for buying back stock. Kerry on a ministerial level, can you give us the actual share count at the end of the quarter as opposed to the average?

[Kerry Jackson:]

Steve I don’t know that have that with me. I just have the averages.

[Steven Martin:]

Okay. When you look at there you closed a fair amount of stores this year. In the aggregate, did those stores lose money, breakeven or make money?

[Kerry Jackson:]

Lost money.

[Steven Martin:]

Okay. Is it something that will be meaningful when we get into 2016 as a, you know an increase in earnings or is it sort of marginal?

[Kerry Jackson:]

This could – the way this works is that when a store closes you – typically you’re losing money. But like we’ve talked about it before next year we’re going to have additional store closings. Well some – those stores will have store closing cost associated with some impairments. So we actually are probably not going to see ourselves get cleared of the cumulative store closing costs until sometime in 2017 and 2018. We’ll start to see those costs diminish. They’re not going to increase from what we had in 2015 in future years, but they’re not going to see a material decrease until possibly 2017 or 2018.

[Steven Martin:]

Okay. And that leads into my next question which was, when you look out 2016 now, what do you think your open close numbers are going to look like?

[Kerry Jackson:]

Right now we’re looking at the opening 20 stores to 25 stores, and we’ll have store closings similar to what we’re seeing this year. And we’re still looking at some of the stores and how many were closed, how many of them were really low ex cetera. So I’d rather give you a specific number, we’re just going to give you a general guideline there.

[Steven Martin:]

Okay. When – have you – with respect to the slowdown in sales, you know albeit weather related, two questions on inventory in the fourth quarter. Have you canceled orders that were pending to the fourth quarter? And last year’s port strikes slowed recedes in the fourth quarter and into the first quarter. So do you have an opportunity in let’s say the January through April period where you were missing product last year and you may not be missing it this year?

[Kerry Jackson:]

Actually the port slowdown last year hurt us more as we entered into the fourth quarter than it did as we entered into the first quarter. So they were pretty much back at work by the time we got to the – into the first quarter. So I don’t see that as a tremendous opportunity. I do however, think that there is opportunity in the fourth quarter especially in athletic, we’re having a very steady flow of athletic as we move through this quarter.

[Steven Martin:]

Okay and the order cancellation?

[Kerry Jackson:]

From cancellation standpoint, see we always react if there’s a downturn to business with canceling orders. That’s always up to the winner community, especially if they are ready to sitting on the dock ready to ship but we have canceled orders throughout the season.

[Steven Martin:]

Okay, with respect to e-commerce, when do you expect to be able shift from third party?

[Kerry Jackson:]

We’re looking to do that, right now, it’s on our agenda but it’s not on the forefront of the agenda and we will probably start building that capability by the end of next year for a launch in 2017.

[Steven Martin:]

For launch in 2017, okay.

[Kerry Jackson:]

We just believe that ship to a store, ship to a store and pick up in store is a big, big opportunity now. And that’s were we’re putting our emphasis.

[Steven Martin:]

Okay, and now that you’ve had sort of a full year of the national advertising program, can you give us, or almost a full year, can you talk about sort of what you’ve learned preliminary conclusions, things you thought what happened that didn’t?

[Kerry Jackson:]

We run, we have an agency that does research for us after every runoff TV. And what we’ve seen is that our aided and non-aided recognition for our name is going up and not just up but up in a positive way. Very hard Steve to quantify how TV affects the customer, not collecting coupon just, you’re not telling the customer to mention the ad when they here. It’s very hard to quantify exactly what TV is doing for us. So we have to do this research. And so far we’re finding that the customers are reacting positively, and their name is getting to be a better known and we’re known for exactly what we want to be known for, we’re known for brands, we’re known for fun, and exciting shopping experience. And those are the things that you want to be known. And then the research we’re doing compares us to not only looks at Shoe Carnival, but looks at all our competitors whether they’d be direct competitors or tertiary competitors, both we’re pleased with what we’re seeing.

[Steven Martin:]

Okay. One last one, when you look at your stores openings in 2016, are there new markets in there that you – we don’t know about or do you expect them all or most to be in existing market.

[Kerry Jackson:]

We’re going to take the current footprint and we’ll grow within that footprint. We’re not going to open any additional large markets until we complete with the large markets or at least further along with the large markets we’ve opened over the past couple of years. As you know we went into Dallas about four years ago Detroit, Miami, Philadelphia and Buffalo. And we need to make sure that we are backfilled in those markets before we start taking on the expense and advertising in the new large market.

[Steven Martin:]

Okay. Thank you very much.

[Operator:]

And it appears there are no further questions in queue. I’d like to turn the conference back over to today’s speakers for closing remarks.

[Cliff Sifford:]

Okay. I want to thank you for joining us today and we look forward to discussing our full year results with you in March. I hope everyone here has a terrific holiday season.

[Operator:]

And ladies and gentlemen, that does conclude today’s conference. We thank you for your participation. You may now disconnect. Have a great rest of your day.