Good afternoon, and welcome to Shoe Carnival's Fiscal Year 2014 Second 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 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 will now turn the call over to Mr. Cliff Sifford, President, Chief Executive Officer and Chief Merchandising Officer of Shoe Carnival for opening comments. Mr. Sifford please begin.

Thank you, and welcome to Shoe Carnival's Second 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 will give a high-level review of the company's second quarter performance and provide some insight into the back-to-school season. Kerry will review second quarter financial results, along with third quarter and second half guidance, and then, we'll open up the call to take your questions. Comparable store sales for the second quarter decreased 2.1%, driven primarily by the decline of traffic in our brick-and-mortar stores. Traffic was down high single digits for the quarter, driven by 3 components: the industry-wide lack of fashion drivers in the nonathletic side of the shoe business; the uncertain economic environment for our consumer; and a change in our circular advertising strategy. The losses incurred during the 2 weeks affected by the change of our circular strategy accounted for approximately half of our comparable store sales loss for the quarter. This particular marketing change helped fund a more aggressive television strategy for the back-to-school time period. I'll address that shortly. Conversion, average units per transaction, average unit retail and average transaction were all positive for the quarter. Merchandise margins were down 20 basis points as we continued our markdown strategy on slow-selling spring and summer styles. Gross profit decreased by 90 basis points as a percent of sales, while SG&A was deleveraged by 160 basis points as a percent of sales, resulting in EPS for the quarter of $0.13, which was within our previously stated guidance of $0.12 to $0.16. Although we don't report e-commerce sales separately, we were pleased with the sales increase we experienced for the quarter. As I mentioned on our last call, we are in…

Thank you, Cliff. I will discuss our second quarter financial results in more detail, followed by information on cash flows, and then conclude with our outlook for the third quarter and the second half of fiscal 2014. Net sales were $222.1 million for the second quarter of fiscal 2014, as compared to net sales of $216.4 million for the second quarter of fiscal 2013, an increase of $5.7 million. This $5.7 million increase in net sales was driven by an increase of $12.2 million from the 42 new stores opened since the beginning of second quarter of fiscal 2013, partially offset by comparable store sales decline of 2.1% and a $2.2 million decline in sales from the 8 stores closed since the beginning of the second quarter of fiscal 2013. Gross profit margin for the quarter was 28.0%, a decrease of 0.9% compared to the second quarter of fiscal 2013. Our merchandise margin decreased 0.2% from Q2 last year, while buying, distribution and occupancy expenses increased 0.7% as a percentage of sales. The increase in buying, distribution and occupancy was primarily due to higher occupancy and distribution costs, including the slight de-leveraging effect of higher preopening costs in the current year. As a reminder, we typically need 2% to 3% comp increase to leverage our occupancy costs at our current rate of new store growth. Selling, general and administrative expenses increased $5 million in the second quarter of fiscal 2014 to $58 million. The $5 million increase in SG&A was primarily due to a $3.6 million increase in expenses for new stores, net of expense reductions for stores that have closed since the beginning of the second quarter of fiscal 2013. Other significant changes in SG&A for the quarter were attributable to increases in advertising and employee health care expense,…

[Operator Instructions] And we'll take our first question from Jeff Stein with Northcoast Research.

You're looking for flat gross profit margins in Q3. I know you had to be more promotional to move sales, drive sales in Q2. It -- that -- it kind of sounds to me like you're not expecting that to repeat again in Q3, despite the fact that it sounds like your customer continues to be under pressure. So just some thoughts on why you think you can hold your gross profit margin flat.

Jeff, we weren't happy -- necessarily that happy with our gross margin last year, so holding it flat is actually, probably, a little lower than we normally would run in a third quarter scenario. But we feel that the margins we have planned allows us to be promotional in the areas where we need to be promotional. And we think that -- we believe that boots, being in the category that they are, in the higher-margin product category, will help us overcome any promotions we have to run in the non-boot categories.

Got it. Can you talk about your plans to scale back your store expansion for next year? Any -- is it related to the current environment, real estate availability or both?

I would say it's more -- that's related to 2 things: one, we're doing a very deep dive into our current store base and entire fleet of stores, I mentioned that earlier in my prepared remarks. To look at our all our stores and the potential for those stores for further growth, especially our underperforming stores. So while we're doing that, and we have our real estate team literally focused on that today, that keeps them somewhat out of the market to look for new sites. But as we're doing it, we instructed them to concentrate strictly on the large markets. We opened up Dallas. We opened up Detroit. We opened Miami and Buffalo. So we need to fill in all of those markets. So that should be our #1 priority and then, to look at small markets where we have historically always done well. So this is really a two-pronged approach.

Okay. And final question, and this ties into that answer. It would seem that one of the reasons why you decided to launch a national cable TV advertising program was to expand more aggressively and leverage your fixed costs, one of those being advertising. So it would seem with, perhaps slower growth, that you're not going to -- you're probably unlikely to get as much leverage on the advertising line next year as you otherwise would have. Is that correct?

Well, I'll answer that this way, Jeff. We opened up 34 stores this year. We're opening an additional 20 to 25 stores next year. That national advertising is to help all 50-some-odd stores, 54 to 59 of those stores as well, as they continue to ramp up. So we have not put the marketing plan in place for 2015, so I can't answer at this point whether it's going to be leveraged. But it'll -- we need -- because we are growing 20 to 25 stores next year and we did grow 34 this year, we need to continue to support those stores with advertising.

Jeff, let me also add to that. Right now, the way it looks like, the 20 to 25 stores we'll open next year, we're very much front-loaded into the first quarter. So we're looking to open 10 to 12 of those stores in the first quarter of next year and then the remaining stores will be opened through the second and third quarter, into the third quarter, being into fourth like normally. What we've allowed ourselves to do is that if we find that we're able -- the economy is supportive of a faster growth and we put our plans together and finish our analysis and our learnings from that, we could accelerate at the back end, if necessary. We're not anticipating it right now, but if we find the economy's more conducive to it, we can add stores in the back half.

And we will now go to Mark Montagna with Avondale Partners.

A question about the higher tier of women's -- the stores that have the higher team -- the higher tier of nonathletic footwear. I'm guessing that, that number's now 108. And are you still tracking to try to get to 200 stores or 230?

I think -- basically, we are definitely, Mark, at 108 stores today. That's actually 108 comp stores today. We opened up -- out of the 34 stores that we opened this year, we also put them in 30 of those stores. And I think that number is right, it's 30, 31 stores. So we're actually at about 130, 132 stores with that better product. And as we continue to open up stores, we'll expand into those stores. And there are additionally comp stores that we will expand into. So I don't think that we'll hit 200 next year. I think that over the next several years, over the next 2 years, we should be closer to 200 stores.

So looking at those higher ends, the higher end demographic stores, are you seeing the divergence in their overall comp performance? It sounds like you are. Is that for all of those types of stores? And is there a divergence in profitability...

As a total... as a total -- I'm not going to tell you every one of those stores are performing better than the company. But I can tell you, as a total, they are. And I believe that they're showing this. I mentioned several times in my prepared remarks that our customer is being, from an economic standpoint, is being challenged. And in these higher-income demographic stores, not as much. The sales there, as a total, are better and the traffic is not near as depressed.

Okay. And then, just regarding that fulfillment, how you're changing the way you're fulfilling e-commerce. Is there an ultimate goal in terms of what percentage of the product will be done through the vendor fulfillment? Is it mostly athletic or can it spread to nonathletic? And any idea on the basis point savings or maybe the millions of dollars of savings that you might be able to get?

That second question is a very good one, one that I'm not prepared to answer today. But the first question, we have not entered in with -- an agreement with any vendor, at this point, to ship from vendor. What we're doing within -- before the end of the quarter, there's a ship-from-store scenario, where our stores will fulfill about 90%, maybe even a little higher than that, of our total e-commerce fulfillment. In key time periods or key promotional time periods we'll stock product in our distribution center here in Evansville, and that distribution center will fulfill those orders. We are probably -- Jeff, we're probably -- excuse me, Mark, we're probably -- we're some time away. I don't want to put a time limit on it before we implement a ship-from-vendor scenario.

And we'll take our next question from Sam Poser with Sterne Agee.

It's Ben Shamsian for Sam. I wanted to dig in a little bit into the circular -- switch from circular to national TV. You said that, I believe, half of the comp loss was -- you're attributing it to that move. Do you consider that sort of like a onetime situation? As you go forward, things will normalize? Or how can we think about that sort of as we lap it moving forward?

Ben, we look at that as a onetime situation this past spring. It normalizes more as we go through the fall time period. We did not make -- first of all, we don't run as many inserts in the fall as we do in the spring time period. So we'll not have that kind of effect in the fall time period. We feel we have the inserts circular program set as we did it this past spring, so it will not be a reoccurring issue next year.

And then, for the fourth quarter, how can we think about gross margin increase? And is that going to be all because of the comp? Or can we see some merch margin increases as well, given that you're pretty bullish on the boots?

Are you talking about fourth quarter?

The fourth quarter, yes.

Adhering to that guidance in the fourth -- we gave in the second half, but when you run your models, you'll find that we expect to see some increase in our gross profit margin. And part of this is because there was -- the gross profit margin in Q4 last year was so depressed. And we also see some nice leverage compared -- on our SG&A compared to last year also, keeping in mind that we incurred a 2.5% comp decline in the fourth quarter last year. So we lost a lot of leverage due to the sales decline.

Okay. So you're not assuming much of a merch margin lift?

Well, it will be enough to notice. You might see around a 40-basis-point improvement in what we're modeling out or given as guidance.

Okay, in terms of merchandise margins. Okay, and then just e-commerce. How big is it right now as a percentage of sales? And sort of where do you think it can get to in the next 2 or 3 years?

Ben, that's just a number we do not give out. Let me say that we are focused on our e-commerce business and we -- that's definitely a growth vehicle for us, but we do not give out separate e-commerce numbers.

We'll take our next question from Jill Nelson with Johnson Rice.

Could you quantify the advertising expense increase you're incurring this year?

Well, the -- go ahead, Kerry.

Jill, directionally, we'll give you indicators of if it's an increase or decrease. We've given overall increase as a -- we said we might increase 15 to 20 basis points at the beginning of the year in total ad spend. But on a quarter-by-quarter basis, we really don't want to give out detailed information like that for competitive reasons.

Okay. I was just wondering because you had mentioned that you -- it sounded like you ran more TV ads than initially planned. So I just was wondering if that's kind of your outlook on [indiscernible].

No, Jill. We ran exactly the amount of television and payment we had planned for the year. We did not increase it during the year.

Okay. All right. And then, if you could just talk about maybe the boot inventory, how that stands? It seems like you're getting some strong early sales trends in that category. If you can just talk about the inventory plan when it comes to the back half?

The -- let me start off by saying it's really early, okay? And although we're very encouraged by the increases that we're having, and we hope -- we believe that that's an indication of what's going to happen in boots as we go forward, it is early. So -- but we think -- we believe that we are going to see significant increases in boots and as we go through, especially, the second half of this -- of the fall time period, fourth quarter. So we have planned our inventory up. And I would really rather not say how much, but we planned our inventory up and we planned our sales up on a comparable basis significantly in boots.

Okay. And then, just last one. Given the very strong strength you saw in canvas for second quarter and into back-to-school, could you talk more about what categories are really suffering and kind of losing ground versus that canvas product?

I can tell you, I mentioned that in my prepared remarks 2 categories, directly boat shoes and soccer sandals, took big hits. I feel like -- and just to expand on that, I feel like sometimes we get punished a little bit from a sales perspective because we're so aggressive on items that are big. So like last year, we owned the soccer shoe business last year -- soccer sandal business last year. In fact, for the past couple of years, soccer slides have been something that I've talked about almost every conference call. We owned it. I don't want to talk about the numbers of pairs, but it was significant. And then, over the past several years, we owned the boat shoe business. And when that -- when you get double-digit declines in that category for 2 years in a row, that's hard to make up with $49 canvas shoes. So it -- although canvas has been very, very good, when you look at -- when you compare that to the average price of boat shoes, it's kind of tough to make up. However, I do have to say this, our average price for the month -- our average unit retail for the month of August was up, up slightly. And the way I explained that is that -- if you look at the average price of soccer sandals and the average price of boat shoes, they average out about the same retail price as canvas shoes. So that's the reason we were able to maintain our average retail price.

And we'll take our next question from Scott Krasik with Buckingham Research.

I just wanted to follow up on a couple of things you said. So first, just on the boat shoes. The acceleration in the decline, is that -- I think previously, you had said the girl's business was bad, your boy's business was holding up. So did that now even out, so to speak?

No. I think what I've said in the past is that our adult business is not good, but that children's boat shoe business is good. What happens is, we were -- we did not grow the kid's business in boat shoes near as quickly as we did the adult business, so a lot of the growth we're seeing in our kid's boat shoe business has to do with the fact that we are expanding store base, whereas, in our adult boat shoe business, we already had that in all stores. So our adult boat shoe business has been a declining business for almost, like I said to Jill, almost 2 years.

Okay. And then, it sounded like -- a lot of comments, so it sounded like maybe your performance athletic business was okay, whereas, a lot of people are seeing declines and shifts over to Skechers and some of those other things. So is that just the way you're classifying these brands or...

That could have -- that, absolutely, could have something to do with it because we do classify some of the brand that you just mentioned in our women's nonathletic area. But to answer your question specifically, we were pleased with the performance athletic business in our -- especially in our women's department, women's athletic area. And we were flat in our performance business in men's.

Okay. And then just last, is it prudent to guide merchandise margins up in the fourth quarter when, on a 2-year basis, you're still over 100 basis points up in the fourth quarter?

Well, if you really look at it compared to -- we're up from '13, but even with that guidance, we'll be down from what we achieved in Q4 2012. So we're really not making up the losses we took last year. We're just expecting to be a little bit better than it was.

Okay. I thought in Q4 '13, I thought your merch margin was down like 40 bps, is that not right -- or down 20, I mean?

What I'm getting is gross profit margin...

Okay, including the leverage.

Right.

And we'll take our next question from Chris Svezia with Susquehanna Financial Group.

Kerry, just for you. Comps last year, can you just remind us how -- what the trajectory was for the third quarter last year, August, September, October?

We started out -- we even gave this, in August, we were up just under 1 point last year when we came out of August. We had a really quiet September. And then, as part of our cautiousness this year, just like last year, we had negative comps. Then October rebounded nicely. When it started getting cool, we started selling our fall product nicely.

Okay. So your guidance... Go ahead.

And we were up mid singles in October.

Okay. So based on your guidance for the third quarter, I mean, you're sort of assuming kind of a trend. Did things unnecessarily get worse in here and don't necessarily get that much better from here, even though you got October is -- probably not a big month for you necessarily, but you got a tougher comparison in October.

That is correct. We believe that we have opportunity in September, but we are a little cautious on that positive tougher comparison.

Okay. Then in -- did November accelerate pretty significantly, if I'm not mistaken? I'm just trying to go over [indiscernible].

Yes, it did. But we've -- I got to tell you, we feel we still have opportunity in November. We definitely have opportunity in December and January.

Right because it's slow there -- I guess, just kind of walk through why you feel that confident. I guess, first, just kind of go -- and as the quarter progresses, for you to kind of hold where you are and then, secondarily, just kind of feeling that good about fourth quarter. Obviously, you called out boots, that's a piece of it. Your inventory seemed pretty clean. Maybe just talk about some other thoughts about why we see that confidence.

Chris, I'd be glad to talk about it. Again, our customer shops at need or at an event, I guess, is the best way to say it. And there really is no driving reason for the customer to come in and for a customer to get excited in September. If the weather turns cold or cool, she'll be here because she'll need our boots. And in the month of October, it's the same thing, if the weather is cool, she'll shop for boots just as she did last year. In November and December, those are event-driven months. I mean, you have the big day and -- well, you have Veterans Day. You have the big day in the end of the month. And then you have holiday to help drive that business. That, plus our overwhelming belief that boots are going to be, again, the item of the season, we feel strong about the fourth quarter.

Chris, we're really at the high end of our guidance only talking about recapturing what we lost last Q4. And at the low end of our guidance is that we're, in the fourth quarter, is that it -- we won't recapture it, but just a little bit of it. So it -- it -- a lot of this, in the comparison, are being down 2.5% in the fourth quarter last year and our belief that boots -- we are very well positioned for boots.

Okay. Are you assuming any change in traffic trends or are you assuming higher averaging at retail or improving conversion as you go through the balance of the year?

We believe that we'll see improving traffic trends in, especially, in the latter part of the fourth quarter. Unless there is another frigid December and January, like it was last year, where no one could even get out, the traffic trends would have to improve.

Okay. What -- I don't know if you want to talk about it, so what are the stores which had the women's better brands? Can you maybe just give us -- I don't know if you can give us, not the comp but just what's the delta between that and the aggregate of Shoe Carnival stores? Like, you're comping down 2%, what were those stores actually doing? Did they comp positive in aggregate? Were they flat? Just some color about those stores.

They were just under flat, just under flat, in aggregate. So they weren't down 1%. They were about 200 basis points better than the -- non-better brand stores which, Chris, was exactly what happened to us in the spring -- in the first quarter. So the numbers maintained itself.

Okay. And then, lastly, just from a product margin perspective, in Q3, you're not expecting -- I mean, it's pretty much flat or you're expecting to be down slightly as you maybe still tweak some inventory or is it just -- how should we think about Q3 from a product margin perspective?

Strictly from a merchandise perspective, it's going to be flat. And the reason for that is, again, there's not enough -- there's not an event for the customer to come shopping. So you know what? We want to make sure we convert everybody that comes in. We'll probably be a little more promotional. But we can be promotional on some product because of the fact that we have boots selling the way they are at a higher margin. So we believe we can maintain a flat margin.

Okay, last thing, are boots increasing as a percentage of your mix as you go into the back half for the year? Because I think you ran out of some product fourth quarter last year, if I'm not mistaken or...

Yes. The answer to that is yes. I don't really want to get to a percentage, but yes, it's increasing as a --.

[Operator Instructions] And we'll take a follow-up question from Sam Poser with Sterne Agee.

It's Ben Shamsian again. A couple of product questions for you. Do you -- what do you expect in terms of potential offset to the strength in boots in back half?

I'm not -- oh, you -- what product categories are we planning down, is that what you're asking?

Correct.

I'm not sure I really want to get into that, Ben. Let's just -- I'll say this. We believe we're going to have a strong boots season, and let's leave it at that.

Okay, that's fair. And your friends in Manhattan Beach, how are you seeing them these days? And if there's any color there?

We saw them in July and I saw them again at Magic [ph]. I don't talk -- we don't talk about individual brands, so I apologize for that. But that's just a policy we have.

And it appears that we have no further questions at this time. I will now turn the call back over to Mr. Sifford for any additional or closing remarks.

We really appreciate you joining us today, and we look forward to speaking to you again on our third quarter call in November. Thank you. Speak to you then.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now disconnect.