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Finish Line (NASDAQ:FINL)

Q3 2013 Earnings Call

January 04, 2013 8:30 am ET

Executives

Edward W. Wilhelm - Chief Financial Officer and Executive Vice President

Glenn S. Lyon - Chairman, Chief Executive Officer and Member of Strategy Committee

Samuel M. Sato - President of Finish Line Brand and Member of Strategy Committee

Steven J. Schneider - President and Chief Operating Officer

Analysts

Taposh Bari - Goldman Sachs Group Inc., Research Division

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Kate McShane - Citigroup Inc, Research Division

Bernard Sosnick - Gilford Securities Inc., Research Division

Paul Trussell - Deutsche Bank AG, Research Division

Seth Sigman - Crédit Suisse AG, Research Division

Eric B. Tracy - Janney Montgomery Scott LLC, Research Division

Jeffrey Wallin Van Sinderen - B. Riley & Co., LLC, Research Division

John Zolidis - The Buckingham Research Group Incorporated

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Camilo R. Lyon - Canaccord Genuity, Research Division

Joseph Parkhill - Morgan Stanley, Research Division

Ben Shamsian - Sterne Agee & Leach Inc., Research Division

Operator

Good morning. My name is Steve, and I will be your conference operator today. At this time, I would like to welcome everyone to the Finish Line Third Quarter Fiscal 2013 Earnings Conference Call. [Operator Instructions] At this time, I would like to introduce the host of today's call, Finish Line Chief Financial Officer, Ed Wilhelm. Sir, you may begin.

Edward W. Wilhelm

Good morning, everyone, and thank you for joining us. On the call with me today is our Chairman and CEO, Glenn Lyon. In addition, Steve Schneider, President and Chief Operating Officer; and Sam Sato, President of the Finish Line brand, are with us for the question-and-answer portion of our call.

Before I get started, I need to remind you that this call may include forward-looking statements involving risks, management assumptions and uncertainties that could cause and therefore, actual results to differ materially from the statements expressed or implied. Such risks and uncertainties include, but are not limited to, product demand and market acceptance risks, the effects of economic conditions, the effects of competitive products and pricing, the availability of products, management of growth and other risks detailed in our news release and SEC filings. The forward-looking statements included in this call are made only as of the date of this report, and the company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

Now I will turn the discussion over to Glenn.

Glenn S. Lyon

Thanks, Ed, and good morning, everyone. Before I go into detailed analysis of our recent performance, I want to begin by saying that we're obviously disappointed in -- with our third quarter numbers, which were primarily the result of a shift within athletic footwear trends and some execution issues.

On today's call, I will walk through the specific factors that negatively impacted the third quarter and the adjustments we have made to improve our future performance. I'll then discuss our holiday results and update you on our long-term strategy. Ed will then review the third quarter financials and outline our updated guidance for the fourth quarter. After my concluding remarks, we'll be happy to answer your questions.

Three primary factors drove our lower-than-planned results. First, we are undergoing a change within athletic footwear trends characterized by a slowdown in running and a pickup in basketball. This began in mid-September, and we expect these trends to continue into next year. Running is our largest category. And while our second largest category, basketball, was up mid-teens in Q3, it wasn't large enough to offset the recent softness we've experienced in running, which was down mid-single digits on a comp basis in Q3. The result was a comp sales increase of 3.6%, with brick-and-mortar sales up 0.6% and digital, up 25%. While this was a slight improvement from September's results, it was below our forecast for mid-single-digit comp growth and was aided by higher-than-planned promotional selling.

As a category shift occurs within athletic footwear business, it requires us to adjust our assortments to capitalize on specific product strengths. During the third quarter, we began the process of transitioning our assortments to reflect the growing strength of basketball. To do this, we have to get more aggressive with markdowns to improve our inventory position ahead of the holiday season. This put pressure on third quarter margins, evidenced by the 110 basis point decline in our product margin. We have successfully navigated through transitional periods in athletic footwear before, and I am confident that we will do so again. But it will take some time for us to get the right mix of inventory into all of our channels.

The second factor that impacted our performance was internally driven. As sales trends slowed, we didn't react quickly enough to better align the variable component of our store and digital expenses with the lower sales levels, costing us approximately $1.6 million. We have taken steps to put in place the necessary cost controls that will allow us to better manage our expenses in line with our reforecasted sales expectations.

The third component of our underperformance was the decision to launch a new e-commerce site ahead of the holidays. As I said earlier, digital sales for the quarter were up 25%. However, we believe the new site, which came online November 19, cost us approximately $3 million in lost sales for the third quarter. Following the launch, it became apparent that the customer experience was negatively impacted, evidenced by a decline in several key performance factors -- indicators. Therefore, we made a strategic decision on December 6 to transition back to our previous site given the importance of the selling season. As part of our contingency plan, we had kept our previous platform up and running, parallel to the new site, so we were able to swiftly engineer a smooth return to the original site. This has generated improved results versus what we experienced during the 3-week period the new site was live. Our specific plans for the future of our website will be determined in the upcoming months.

While customers have responded favorably to the return of the earlier version, we are always striving to do better. We will incorporate the recent learnings into a plan that we are confident will achieve the long-term goals we have established.

Despite the recent setbacks, we remain firmly committed to the long-term omni-channel strategy that we outlined this year. The athletic cycle remains robust, and with the current strength coming from basketball, whereas a year ago, the business was being fueled primarily by running.

Finish Line is the leader in specialty running footwear, and our strong vendor relationships will ensure that we continue to offer the best product assortment in the marketplace. It's these strong vendor relationships that will allow us to also capitalize on the current strength of basketball by elevating our in-store and online assortments of the coveted Jordan, Nike and adidas product.

For the fiscal month of December to date, comp stores increased mid-single digits. While we're pleased to see an improvement over third quarter trends, some of December's gain was helped by a more favorable launch calendar from Jordan Retros. As a result, we are planning the business at a low-single-digit comp in line with Q3 levels, and we are adjusting our overhead and cost structure to better align with this outlook.

We remain steadfast in our belief that technology will continue to drive broad changes in the retail landscape. We are committed to our core systems investments and vision of developing a premier omni-channel business.

To further update you on our progress on the store technology front, we have substantially finished the rollout of handhelds and the new POS system, which are significant accomplishments. We are pleased with the initial rollout; and as planned, we'll be adding more functionality to the handhelds in fiscal 2014 to further enhance the customer experience. With regard to tablets and other in-store digital customer-facing technology, we are modifying the pace of these rollouts, as we conduct further software tests to ensure they achieve the desired results.

On the core systems side, our merchandising, supply chain and CRM investments remain on track. The backbone investments to facilitate the seamless customer experience that true omni-channel capabilities necessitate are being made. In fiscal 2014, we plan to implement these systems at The Running Company. Only after successfully operating these new systems in the live Running Company environment will they be implemented at Finish Line.

To be clear, the course of our transformation is intact. It's the speed of that, that is being changed.

With regard to our innovative partnership with Macy's, everything is progressing on plan towards our upcoming launch in April, at which time we'll be managing the athletic footwear inventory at all Macy's stores followed closely by the digital launch. We have a team in place that is solely dedicated to running this business, so it gets the full attention it needs to succeed. We expect to take roughly 18 to 24 months to roll out Finish Line shops to the 450 planned Macy's locations. Once fully ramped up, we believe this business in total will generate an incremental $250 million to $350 million in annual sales for our company. At the midpoint of this range, operating margins for this business are expected to approximate the company average, generating an EPS contribution of approximately $0.30 to $0.35 and a return on invested capital in excess of our long-term targets.

We continue to be optimistic about the long-term prospects for our company. This outlook was underscored by the board's decision to increase the current 5 million share repurchase program that authorized in July of 2011 by an additional 5 million shares.

With that, I'll now turn it over to Ed.

Edward W. Wilhelm

Thanks, Glenn. I'll begin this morning by discussing the performance of our Finish Line business followed by The Running Company and then discuss our consolidated results.

For Finish Line, the third quarter comp sales increase of 3.6% on top of a 7.7% increase a year ago was comprised of a 0.6% in comparable brick-and-mortar sales and a digital comp increase of 25%. Digital sales represented 14% of our sales mix in Q3 as compared to 10% for the same period last year.

With respect to cadence, comps were up 2.3% in September, up 5.2% in October and up 3.7% in November.

On the category side, footwear comps were up 3.1%, and the softgoods comp increased 6.1%. Footwear ASPs increased 7.8% during the quarter. Gross margin for Finish Line was 30.3% compared to 32.4% in the prior period.

Product margin net of shrink was down 110 basis points driven by higher markdowns. Occupancy expense increased low-double digits from the year-ago period and as a percent of sales, increased 100 basis points. We expect occupancy costs for the fourth quarter to increase in the low-double digits due primarily to new store growth and the signing of long-term leases for our best-performing stores in A and B malls.

SG&A expense of $87.8 million was up 7.6% from year-ago levels and was higher than planned as Glenn mentioned. As a percent of sales, SG&A expense increased 90 basis points driven by deleverage on the store side, partially offset by leverage on the digital sales increase. The dollar increase in SG&A was also driven by the planned strategic investments that we've outlined for the last 2 quarters. These include new store technology, the replacement of our core system, merchandising, supply chain, CRM systems, as well as variable costs associated with the 4.4% overall sales increase for Finish Line. These results drove an operating loss of $200,000 as compared to operating income of $7.8 million reported in the year-ago period.

Moving onto results for Running Company. Sales in the third quarter were $7.6 million, driven by a 19.9% comp increase. The net loss after minority interest was in line with our expectations at $325,000 and impacted consolidated EPS by $0.005. On a consolidated basis, third quarter loss was $107,000. EPS for the quarter was breakeven as compared to $0.11 in the third quarter of fiscal 2012.

Now on to our balance sheet. We ended the quarter with inventory up 6.3% at Finish Line and up 7.6% on a consolidated basis. For the quarter, capital expenditures totaled $18.2 million, and depreciation and amortization expense was $7.1 million. For the year, we expect CapEx to be in the range of $85 million to $90 million, inclusive of CapEx associated with the startup of our Macy's initiative. For the year, depreciation and amortization is expected to be approximately $31 million.

We ended the quarter with $168.2 million in cash and cash equivalents and had no interest-bearing debt on the balance sheet. During the quarter, we bought back 1 million shares, totaling $21.2 million. Year-to-date, we have bought back 2.5 million shares, totaling $53.6 million, which left us with 1.3 million shares remaining for repurchase under the current board authorization. And as we announced earlier today, the board has increased our current share buyback program by an additional 5 million shares.

Our store activity for the quarter was as follows: For Finish Line, we ended the quarter with 651 stores, including 14 openings and 1 closing. In addition, we relocated or remodeled 15 stores during the quarter. For The Running Company, we ended the quarter with 25 stores. During the quarter, we opened one new store and relocated one store. We also acquired 5 run-on stores based in Dallas, Texas.

Now moving on to our outlook. As a reminder, Q4 fiscal 2013 is a 13-week quarter compared to the 14-week Q4 for fiscal 2012, so our fourth quarter comparisons will be impacted by the extra week last year. For Q4, we expect comparable sales to increase low-single digit and EPS in the range of $0.74 to $0.78. On an apples-to-apples basis, this compares to $0.74 in Q4 last year, which excludes the $0.07 benefit associated with the additional week.

As you are modeling Q4 this year, keep in mind that there was minimal occupancy expense associated with last year's extra week of sale, which positively impacted year-ago Q4 gross margin by 60 basis points. And as a result, we expect occupancy deleverage in Q4 this year.

Fiscal month to date for December, comps were up mid-single digits. As Glenn said, the month benefited somewhat from a more favorable Jordan launch calendar versus a year ago. Our comp guidance for the fourth quarter of low-single digits reflects our updated, near- and medium-term outlook based on the current shift within athletic footwear trends.

Before I turn the call back to Glenn, I want to provide some additional detail on the initial start-up costs associated with the Macy's rollout that we'll incur in the fourth quarter and next year. Our plan is to spend approximately $1 million in SG&A during the fourth quarter of fiscal 2013 in preparation for approximately 12 to 15 pilot stores coming online in February and March. We'll begin rolling out to the rest of the Macy's stores in April. At which point, our start-up costs will start to accelerate, and sales will begin to ramp. For fiscal 2014, we anticipate the Macy's deal will be slightly accretive. This guidance excludes any potential onetime charges we may incur in the first quarter associated with the launch.

I'll now turn the call back to Glenn.

Glenn S. Lyon

So in summary, I hope we have made it clear today, the management team is not satisfied with the third quarter results we delivered. Our expectation that the product pipeline in running would continue to fuel strong sales trends for the foreseeable future did not play out in the third quarter. When we reported the third -- second quarter results in late September, we disclosed that we'd experienced a slowdown in the weeks following back to school, which based on industry results, so did the majority of retail.

At the time, we felt there was a blip. However, as we got deeper into the quarter, it became obvious that, for us, it was more than a blip. It was a shift within athletic footwear characterized by the growing strength of basketball and a slowing -- and a slowdown in running.

As I said earlier, we were slow to react to this shift, and I think part of the reason was the fact that running had been so strong, and therefore, we and our vendors didn't fully believe the early signs of the shift. Once we realized this was a trend, we took immediate steps to begin adjusting our expenses and inventory accordingly. While the shift cost -- caught us somewhat off guard, we've always anticipated that current running trends would slow. That's the nature of this business. Does this mean running is over? Certainly not. But for now basketball will be playing a larger role in driving comps based on current trends and upcoming product launches. We are doing everything to ensure we provide our customers with the merchandise they are looking for and expect from us. This current category shift has coincided with planned investments associated with our transformation into a multidivisional, omni-channel retailer, which has put additional pressure on our bottom line results. However, it's this transformation that will help us diversify our product and customer mix, reducing our dependence on any one specific category or channel and put the company in a much better position to successfully navigate through future peaks and valleys in the athletic footwear business.

I hope we have been equally as clear on today's call that we've reacted quickly to the learnings from the third quarter, and we are making the necessary adjustments to improve our financial performance. We've given you indications about what our future expectations include, such as low-single-digit comp growth, a leaner cost structure and a slower pace on our capital investments.

We are still in the planning stages for fiscal 2014, and we'll outline our specific guidance on our year-end call in March. We are fully aware of the issues at hand, and the entire organization is committed to delivering on today's promise of improved execution to drive increased sales and earnings, as well as greater shareholder value.

With that, operator, I'll -- we are now ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Taposh Bari from Goldman Sachs.

Taposh Bari - Goldman Sachs Group Inc., Research Division

Taposh Bari here. Glenn, you'd mentioned that there have been similar product shifts like this in the past, and you've been able to successfully navigate those. Can you give us an idea when something like that happened in the athletic footwear space first of all?

Glenn S. Lyon

Well, Taposh, we look back 10 years, and that's really we think the best data that's out there, the most consistent data that's out there. And the athletic footwear business has grown, on average, about 4% a year, and we have actually outpaced that over that period of time. The shifts that have taken place between running and basketball have been more dramatic, and the fact is, is that when running trends up, we tend to get advantaged on that more quickly, as the customer recognizes us as the authority. When basketball trends up, we're -- we'll come off of that quicker. So we -- it's clear to us that this -- what we thought was a blip in September, after all of the strong results and all the products that we had in the market that the customer preference has shifted. And although all the technology out there continues to come, it -- the customer has shifted to wanting it on basketball platforms. And that's the -- that's a simple fact.

Taposh Bari - Goldman Sachs Group Inc., Research Division

And if I can ask a follow-up, I don't know if Sam's on the line. But as I think -- as I look at the shift, the one thing that we're seeing in our work is that -- our observation is that Nike and Jordan are increasing the frequency and allocation or basically, the supply of Jordan Retro product to the market. I guess a, is that an accurate observation? And b, as you enter 2013, do you feel like there's enough juice in that Jordan basketball business to be able to anniversary some of those strong growth rates this year?

Samuel M. Sato

Yes, so Nike has always done a really great job of ensuring that they've managed the whole supply-versus-demand ratio. Obviously, they don't want to kill the demand by putting too much out there. As we look into our allocations all the way through now fall of this coming year, we're more than comfortable with where we're positioned in terms of allocations and matchups, specifically around Brand Jordan.

Operator

Your next question comes from the line of Bobby (sic) [Robbie] Ohmes with Bank of America Merrill Lynch.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

A couple of questions. For the shift that you're seeing, can you talk a little bit about how that's playing out in women's versus men's versus kids'? And then I got a few others.

Samuel M. Sato

Yes. I mean, obviously, within women's, we really don't have much of a basketball business there. The results you heard Glenn quote specific to running was pretty consistent across both genders. So the slowdown was close to equal. It was a little bit better in women's than it was in men's. And so to offset a little bit of that, we continue to see growth in our training category. In terms of kids', a large portion of that is driven by Jordan and basketball takedowns, and so as hot as Jordan and basketball category is in men's, it is equally hot in kids'. And because we have a smaller degree of running business in kids', the offset isn't nearly as great as what it is in adults.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Got you. And then how confident are you in those basketball allocations as you move into spring?

Samuel M. Sato

Confident that I'll receive them? I'm pretty confident.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Yes. Relative, maybe imminent [ph] . How can -- how do you feel versus the competition in your allocation outlook right now?

Samuel M. Sato

Oh. well, I mean, as you know, from a segmentation point of view, we have enjoyed a much more robust leadership position against the running category. And so as this trend has changed, it's really our focus to work with our brand partners to create a much more robust and broadened assortment around the basketball category to drive our comps and to help offset the slowdown in running. Robbie, that's not to suggest that we are planning or even accepting a decrease in running as we move forward. In fact, again, as Glenn stated, running's our largest category, and so we have to ensure that we're partnering with our brands to continue with the innovation pipeline around the running category, as well as drive the basketball business to its fullest potential. Telling incredible product stories, again, both around basketball and running, is going to be critical, as we move through this trend change into next year and a bit beyond.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

In the low-single-digit comp outlook, what is the ASP assumption in that versus -- maybe, Ed, you can remind me again what the ASP footwear growth was in the quarter you just reported.

Edward W. Wilhelm

Yes. Robbie, the third quarter footwear ASPs were up 7.8%, and we're probably looking at ASPs in the low to mid-single digits for Q4.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Got you. And last question actually, Ed, while I got you, the Macy's ramp-up next year, so you're saying it's modestly accretive or slightly accretive. Is it -- is that all weighted to the fiscal fourth quarter so that it would be most likely dilutive to that ramp-up during the first half of the next fiscal year?

Edward W. Wilhelm

All I would say to that is we're still developing our rollout plans now as we go, but the cost themselves will be incurred prior to -- and we're actually seeing some of that in the fourth quarter prior to the beginning of the rollout so -- and then sales will ramp as we roll out the 450 stores. So we don't have specific quarterly spreads done yet in terms of the rollout schedule, but I think you're thinking about things the right way.

Operator

Your next question comes from the line of Kate McShane from Citi Research.

Kate McShane - Citigroup Inc, Research Division

I -- my first question is surrounding the website. Can you just give us a little bit more specific detail on what you think were some of the hangups with the new website and what you're doing to try and fix that going forward?

Samuel M. Sato

So Kate, this is Sam. So 2 critical pieces: One is the timing of our launch prior to holiday in hindsight was a mistake given the importance of the holiday season. Secondarily, we had consumer experience issues that were primarily driven by the site design and functionality. And in fact, traffic on our new site did not change from its previous -- from our previous legacy site. In fact, it grew a tad. It was really about conversion that led us to make the strategic decision to move back to our legacy site and to ensure that we could preserve our important holiday selling season.

Kate McShane - Citigroup Inc, Research Division

Okay, great. And then my second question is on customer response to the absolute level of prices in the store. I know we've just been through a big year of inflation, and we're not really expecting to see something similar in 2013. However, I do know there has been a few product introductions, like the Air Max 2013, where the price point is significantly higher than last year's 2012. Have you seen any customer resistance to some of these higher prices, specifically in the running category? And could that be attributing to some of the slowdown?

Glenn S. Lyon

Kate, this is Glenn. I think you've heard us talk quarter in, quarter out about regular price sell-throughs, and that's really what happened over the last 60 to 90 days. The sell-throughs at regular price are just down a few ticks from what we were used to expecting. So when the trend changes, it affects us pretty dramatically, so especially in our running category where we were operating off of 3 -- and actually 3.5 platforms when you think back in terms of the full Air, the Lunar platform and Free, as well as our legacy Shox business, we had a tremendous amount of items in our assortment that would come in and sell through at pretty good levels at regular price. So the issue is now that this stuff is coming in, and it's not giving us 8% to 10%. It's giving us 6% to 8% sell-throughs. And although it's kind of marginally you think of it that way, but that can have a 10% and 20% impact on what's left over and what we've got marked down, and that's the impact. So we have kept pace. We're keeping the inventory current and fresh and receiving of new goods. But along those lines, that's where the 100-plus basis point diminution in our margins happen. Our inventory is in good shape. We're clean. We're fresh, and we look forward to the launching of the Flex knit product in February and March. But clearly, we're -- we've come to the conclusion that our aspirations of mid-single-digit comps based on -- to a great extent, based on the strength of our running business, had to be tempered. So we took 2%, 3% off of that, and we think that's appropriate.

Operator

Your next question comes from the line of Bernard Sosnick from Gilford Securities.

Bernard Sosnick - Gilford Securities Inc., Research Division

With regard to the breakdown of footwear sales, you were quite specific in the previous quarter where kids' shoe sales were up in the high 20s; men's, low-double digit and women's, mid-single digits. You're not as clear with regard to those breakdowns for the latest quarter. Could you spell it out in more detail please?

Samuel M. Sato

Bernie, this is Sam. So kids' was up double digits.

Bernard Sosnick - Gilford Securities Inc., Research Division

Up?

Samuel M. Sato

Up double digits. Women's was down mid singles. Men's was up low singles.

Bernard Sosnick - Gilford Securities Inc., Research Division

Okay. Now with regard to the running shoe softness, how would you summarize the disappointment with respect to styling? You were so confident about the styling and the innovations. What has been the weakness as far as you could judge?

Samuel M. Sato

Yes. I think to repeat a bit of what Glenn said earlier to Kate's question, running was really first about the multiple platforms that we were running. So we had a lot of new introductions on 3 or 4 different platforms. We still, within those 4 platforms, have items, and Free comes to mind. The Free platform continues to drive full-priced selling and sell-throughs year-over-year. The big difference is across the other 3 platforms, we don't have as many new introductions that are selling through at the same rate, again at regular price, that they were over the last couple of years. So it's kind of a perfect storm right now that we're coming out of a trend that was driven by 4 really great platforms and multiple products on each of those platforms to now having a handful of items per platform that are performing well. And the rest are selling through at lower rates.

Bernard Sosnick - Gilford Securities Inc., Research Division

Okay. Now the spring is the start of the running season. What are your thoughts then looking forward to the beginning of the spring season?

Samuel M. Sato

So again, as Ed gave some guidance into next year, I think that, that's a good place for us to be. Obviously, we're working hard with our brands to transition our assortments, to have a broader and deeper range of basketball products. We're being cautious about running given the trends in Q3 and what you're hearing out in the industry. We still believe that we've got a good assortment, and a lot of the products that are new to the market come January and February, we still think are terrific. Again, in totality, it's a smaller base than what we're -- what we've been seeing the last couple of years and certainly, the consumers telling us that their fashion taste is shifting towards basketball. So our efforts are going to be to continue to work with our brand partners to shift some of our offer.

Glenn S. Lyon

Let me help Sam here a little bit, Bernie. This is not something that the brands are not aware of. And our relationships with Nike and the -- and all of the people in the running business are fully recognizing that this isn't just about 4 platforms or new launches. This is about creating a more dynamic assortment in running, more selective -- more selection, greater depth than the best things, more focused stories. We're going to have to get tighter and better at that. And having said all of that, the major part of our decrease in sales expectations is coming from that category. If anything, our expectations on basketball is that the trends will improve. So we have no great expectations in the short term that we can get this thing back to running at the level in running to running it at the levels that we have been running over the previous couple of years.

Bernard Sosnick - Gilford Securities Inc., Research Division

My thought is I'm wondering about whether your ability to serve women will be as good as in the past, and perhaps there's a styling shift among women that is perhaps at the root of what you're talking about.

Samuel M. Sato

I think that's part of it for sure, Bernie. And as Glenn, again, said in his prepared remarks, part of our strategic decision to partner with Macy's was in part to address a greater female consumer through a broader range of products under the Macy's store group.

Bernard Sosnick - Gilford Securities Inc., Research Division

Okay. And finally, there was a mention of a charge in the fourth quarter regarding Macy's. What are you referring to there?

Edward W. Wilhelm

In the fourth quarter, Bernie, that's not a charge. Those are just the operating expenses that were starting to incur in relation to the pilot store rollout that will incur in the fourth quarter as well as to prepare for the full rollout that will begin in April. The reference to a charge was potentially in the first quarter of next year when we actually begin the rollout.

Bernard Sosnick - Gilford Securities Inc., Research Division

What kind of charge are you talking about?

Edward W. Wilhelm

We've got to get the assortments right, the inventory assortments right, which would include looking at -- starting with Macy's inventory assortment, as well as adjusting to what -- where we want to take it. So there may be, call it, charge -- not charge in relation to that.

Bernard Sosnick - Gilford Securities Inc., Research Division

In other words, are you taking over Macy's inventory assortment or -- and having to write down some portion of that?

Edward W. Wilhelm

We are taking over some of Macy's athletic footwear assortment, and we'll be assessing the quality of that and that could result in a first quarter charge.

Operator

Your next question comes from the line of Paul Trussell from Deutsche Bank.

Paul Trussell - Deutsche Bank AG, Research Division

Ed, Glenn, you all have spoken about a change in the speed of the capital plan and expenses. Can you give a little bit more color on how we should think about the leverage threshold for SG&A, for occupancy going forward? How shall we think about capital spend over the next 12 to 18 months given that you are outlining now what seems like a low single-digit comp environment?

Edward W. Wilhelm

Yes. So Paul, let me talk about that in the context of the fourth quarter and I'll talk a little bit about first look at next year as well. So for the fourth quarter, we have talked about lowering our top line expectations to a low single-digit comp. Based on that, we anticipate gross margins in the fourth quarter to be down due to continued product margin pressure that we're facing, as well as the occupancy deleverage that we talked about. But on the SG&A side, we're moving aggressively to making adjustments to our cost structure. And based on that low single-digit comp, we actually expect SG&A to be flat to slightly leveraged. And on an overall basis, operating margins in the fourth quarter are expected to be down, and then EPS flat to up mid-single-digit. As we look to next year, again, with that same top line expectation of low single-digit comp for the Finish Line business, again, moving aggressively to lowering our cost structure, we'd expect to leverage Finish Line SG&A on that low single-digit comp, and that's how we're building our budgets. We'll need slightly better than that comp performance, say, mid single digit to leverage occupancy. And again, putting that all together, putting together a plan, an overall plan can deliver EPS growth next year. On the CapEx side, we said this year we're going to end $85 million to $90 million. And again, as we're building our plans next year, you'll see a reduction in capital from primarily brick-and-mortar CapEx in next year's plans. So we had talked previously about a $70 million CapEx number for our total company next year, and that excluded Macy's. As we're building our plans now, we're expecting that $70 million number to come down primarily on the brick-and-mortar side of our CapEx.

Paul Trussell - Deutsche Bank AG, Research Division

Okay, that's helpful. And then really, just going back to kind of the main topic today. Certainly, running has slowed and it seems like your notion for thinking about the outlook for plus low single digits going forward is based on a continued strong trend in basketball. Can you give us a little bit more color on what you're seeing in the pipeline that gives you the certainty that, that trend will continue to be robust given that running was up mid-teens just a few quarters ago? Why is it that you think basketball will continue to accelerate going forward?

Samuel M. Sato

Paul, this is Sam. Basketball has been up double digits the last handful of quarters for us, and we continue to see that business trending consistently, and in some cases, escalating. As we look into our product offers for Q4, what we've got on the books, what we've got on the road as well as now we're bought up through fall of this coming year. All of the assortments that we're seeing and that we're writing certainly look to what to be innovative and exciting, and obviously, within the Brand Jordan piece, lining up the retro launches. In addition to some of the allocation increases that are coming through certainly give us the belief that this trend will continue. Certainly, we'll have the ammunition to fuel that trend.

Paul Trussell - Deutsche Bank AG, Research Division

Okay. And my last question is just on the promotional environment. How much of the markdown is taking place during this holiday period was due to your over assortment or over inventory levels in running versus what you're seeing in terms of pricing pressure across the industry? How much of this is a Finish Line problem versus an industry running issue right now?

Samuel M. Sato

Yes. Again, the promotional aspect of our business is not dissimilar to what it's been in the past. We're going to take aggressive markdowns on products that are performing quarterly. In terms of the running category, as you've heard throughout this morning's call, we've seen a slowdown and continue to see one. And so, as products hit our stores and they're not selling through at full price, we're taking appropriate price action. Conversely on the basketball side, we have a number of examples of where products are coming in and selling through at full price, and we're not getting any price resistance in that category. So we continue to believe that if the trends are right and the product innovation pipeline is on trend, products will sell through at regular price. So we're less concerned at this point about price pressures from a broad perspective versus the slowdown in running and the need for us to, as quickly as we can, shift our assortments to be one of a broader and deeper basketball offer.

Operator

Your next question comes from the line of Seth Sigman from Crédit Suisse.

Seth Sigman - Crédit Suisse AG, Research Division

Just a follow-up on the digital business, I just want to clarify, was it actually an issue with the front end, the creative, or are there some back end issues with integrating your systems that may have hurt the conversion or maybe both? And then, I guess, just wondering whether trends actually normalized when you reverted back to that legacy site, or was there any sort of lingering impact? .

Samuel M. Sato

Yes. Seth, this is Sam. So yes, it was both. We believe that conversion, customer experience and conversion being the metric is largely impacted by both site design as well as functionality of the back end. And so, as I've said earlier, traffic was not the issue. It was not impacted. In fact, in some week -- some days, it increased versus a year ago.

Edward W. Wilhelm

And once we revert it back, we got back to the same metrics that we were seeing on our old site previously. So there was no lingering effect.

Seth Sigman - Crédit Suisse AG, Research Division

Okay. And I may have missed this, but did you say when you're actually going to attempt to relaunch that site again?

Glenn S. Lyon

We will make that -- that's a critical decision obviously for us. We will make that decision within 90 days. So by the time we talk to you again in 90 days from now, we will be answering that question. It's critical that we're able to do that.

Seth Sigman - Crédit Suisse AG, Research Division

Sure. Okay. And regarding CapEx, you mentioned you're planning for lower brick-and-mortar spend next year. I mean, what are you betting there in terms of the remodeled prototypes that you've been focused on this year? And then on that topic, I mean, any color on how those performed this quarter relative to the rest of the chain? .

Steven J. Schneider

Seth, this is Steve. When we first started to put out these new remodels, we've got a nice pop in business. But what we saw in Q3 and what we've seen in December is it's been quite a bit lower and mixed. And because of that, we are adjusting, as we go forward, to be still very cautious as to which stores we remodel and which ones we reposition. So we're not going to be expanding that in terms of going further than we have before, but it's not been as good as we would like.

Operator

Your next question comes from the line of Eric Tracy from Janney Capital Markets.

Eric B. Tracy - Janney Montgomery Scott LLC, Research Division

I guess -- and I know you don't know if you can speak to this specifically, but in terms of flexing the assortment, I mean, how much can you kind of push on the basketball side? What -- I don't know if you can give us what percentage of the mix that can go to across the fleet?

Glenn S. Lyon

Let me answer that for you, Eric. We believe to be the best for our customers. We have to maintain leadership in the running category, which means all kinds of input from the brands, support from the brands, ideas from the brands as well as our people, so it's very important to us that we maintain that position of leadership. Having said that, you've got to respond to customer demand, and this is not something that Nike or the other brands don't get. So yes, I think you're going to see proportionally a bigger part of our inventory in the basketball category, and Jordan being included in that, than has been over the past 3 years. And I think that's just good retailing. And we have total support from the marketplace and adjusting so that we meet consumer demand.

Eric B. Tracy - Janney Montgomery Scott LLC, Research Division

Okay. And then given the trends in running, as we think about some of the investments and sort of the pathway to growth that you're layering in, be it The Running Company to even Macy's, how should we be thinking about that in terms of allocation of product, because again, obviously, these are levered to and geared towards the running category? Specifically with Macy's, I just wonder what the allocation is going to look like given the trends?

Glenn S. Lyon

I think that with -- first of all, with respect to The Running Company, that's a different consumer, and that consumer is still robust. And the running category from a performance standpoint continues to elevate as health and wellness continues to be omnipresent on people's minds. With respect to Macy's, we're venturing out into a different consumer. And we've said that all along that this is a more fashion-driven customer, it is more female, and we believe that when it's all said and done, perhaps 50% or more of the athletics business we do in Macy's is going to be female. Having said that, between the casual categories with the athletic brands and the performance categories, and then within the performance categories, fashion, colorations and material looks are going to be different, and that was always to be the case. So again, the women's category is challenged more than the men's because you don't have the basketball. But in women's, we always expected that the casual part of that assortment in Macy's, retros and new casual looks, heritage kinds of things will play a more important part, so that's not changing in our minds.

Eric B. Tracy - Janney Montgomery Scott LLC, Research Division

Okay. And as we think about the pace, you mentioned the 12 to 15 stores sort of test in February, March and then a broader rollout in April. Could we get a little bit of a quantification of what that broader rollout might look like?

Glenn S. Lyon

25 to 30 stores a month.

Eric B. Tracy - Janney Montgomery Scott LLC, Research Division

25. Just consistently kind of throughout the year?

Glenn S. Lyon

So we're going to operate close to 700 stores with Macy's. 450 of them will carry a Finish Line banner in them. And we will manage the staffing and the operations in the other 225 plus stores, we will merchandise them, and they will create the selling staff to operate the departments. So to get the 450 stores, we're estimating 25 to 30 a month. That will take us between 1.5 years and 2 years to be fully -- have our brand fully exposed in 450 Macy's locations.

Eric B. Tracy - Janney Montgomery Scott LLC, Research Division

Okay. And then maybe just lastly, Ed, for you, in terms of the -- how we should be thinking about the gross margin. You talked about occupancy deleverage or at least occupancy cost up maybe low double digits, what sort of embedded in the guidance from a markdown standpoint? I think you guys mentioned, you feel like you're clean from an inventory -- but how much sort of incremental markdown is embedded?

Edward W. Wilhelm

In our fourth quarter guidance, Eric, there's still some continued product margin pressure that's implied in that $0.74 to $0.78.

Operator

Your next question comes from the line of Jeff Van Sinderen from B. Riley.

Jeffrey Wallin Van Sinderen - B. Riley & Co., LLC, Research Division

As you think about the shift towards basketball, what other changes do you make to compete more effectively there aside from just shifting to basketball merchandise assortment or concentration into basketball?

Samuel M. Sato

Jeff, this is Sam. So that again falls under our own whole omni-channel strategy. We're going to have to ensure that we're equally ramping up our efforts around our storytelling efforts, our go-to-market strategy, which includes how we're messaging the consumer, whether it's through our website storytelling or mobile application. It's going to be an all-inclusive go-to-market strategy that obviously starts with basketball products but doesn't end there.

Jeffrey Wallin Van Sinderen - B. Riley & Co., LLC, Research Division

All right. And then, I guess, if we can maybe go back to the website for a minute, what did you do to try to resolve the issue with the website before you decided to revert back to the old website? And then maybe you can just say -- talk a little bit about what went wrong in the process of assessing the new website before it went live? And then I guess, how you prevent that sort of mistake in the future?

Glenn S. Lyon

So let me try and answer that one for you. As Sam kind of alluded to before, hindsight says, launching the website in November was a huge mistake. We -- now you get into the whole leadership and management scenario that says, "Did confidence outweigh reality of doing something like that at that time of the year?" We had so much confidence built into the fact that this platform was going to improve our business, never thinking that it could be decreasing our business. However, reality check was that we kept the other side alive, so we were able to come back after a short period of time. But we spent 10 days. We knew what was happening. We spent 10 days to make sure that we couldn't fix it and have it perform at a level that was acceptable at holiday time and then go forward with it, adjusting it on a go-forward basis. We felt like we had to go back to square one, and that's what you saw. Look, we are very confident that technology is impacting every part of consumers' lives. So whether we're talking about our systems, whether we're talking about the Internet and the idea of mobile commerce, the iPads, home computers, whether we're talking about technology in stores, we very much believe that ultimately, us playing a strong role for our customer in the technology space is critical. It's in every part of life that we talk about. The risks and rewards that we take and get from those things, we've been tempered. Our leadership team is challenged by this. And I constantly use the expression around here that we need to be confident, but we can't be cocky, and the fact is, we might have got a little out on our skis here. And we're admitting that to you and we're taking all of the proper -- we're taking all the proper actions to fix that.

Jeffrey Wallin Van Sinderen - B. Riley & Co., LLC, Research Division

Okay. And then, I think you made a comment about leverage on occupancy or deleverage on occupancy. So how should we -- what should we assume about gross margins for 2014? Should we assume that you will deleverage and gross margins will be down in 2014 based on your low single-digit comp plan? And I think you said mid -- you need mid single digit to leverage occupancy. How should we think about that? .

Edward W. Wilhelm

Yes, Jeff, the only -- I mean we'll be a lot more specific in our March call with our 2014 guidance. But the 2 areas that I called out previously to an earlier question was how we're building our budgets around the cost structure. And based on that low single-digit comp, as we pull down our cost structure, we would expect to leverage SG&A next year on a Finish Line basis. And then also on the occupancy side, we're going to need a little higher comp than that, say, mid-single-digit to lever on the occupancy side. So we're in the process of building out the rest of our budgets now, but -- and we'll have a lot more specifics for you on our March call.

Operator

Your next question comes from the line of John Zolidis from Buckingham Research.

John Zolidis - The Buckingham Research Group Incorporated

Quickly looking at the CapEx budget for next year, you talked about it coming down for the stores. Did you give us a magnitude for the whole budget? .

Edward W. Wilhelm

No, just directionally, John. Just -- again, we're building our plans now. But directionally, we're saying that our CapEx, the $70 million target that we had in our long-term goals that we talked about in May, that number is coming down next year. And the portion of the area that's coming down is on the brick-and-mortar side. Again, in March, we'll provide a lot more specifics on the details of our total CapEx spend, including the Macy's component, which was not included in that $70 million.

John Zolidis - The Buckingham Research Group Incorporated

Okay. And then did you give us an idea of the magnitude of the change towards basketball in your assortment that you think you can achieve or you think is appropriate for Finish Line?

Glenn S. Lyon

That's a work in progress and that's something that in our relationship with any of the brands, as we look at the athletic categories. But I think it's safe to say that we expect higher inventory levels in basketball and more productive inventories out of the running category having faced what we are facing in the back half of this year. So that is work in progress. The adjustments are going on every single day as we look at our futures with all of the brands right now in terms of the breadth and depth of what we're doing in each platform that they bring to market. And you can imagine that our relationships are built on this with the brands. And this isn't something that they don't understand to the levels that we do because they understand our inventories as much as we do. And they have plenty of people working on that to assure that we get the most productivity and the best profitability. Look, we are going back to post-back to school when I said on this call I thought it was a blip. And we were talking about high fives, and we were talking about post-back to school malaise and we were talking about an election coming up, the fact was that the consumer was changing their appetite, and that happens in this business as it happens in every other business between skirts and pants and wovens and knits and in any kind of retail business. This one caught us, we're admitting to that, the brands are admitting to that, and that's going to put us in a -- we're going to work that much harder to get this thing right and get the proportions right. But it's not just the simple plus 10, minus 10.

John Zolidis - The Buckingham Research Group Incorporated

I appreciate the candor. One last question. On Flyknit, you're -- Finish Line was one of the only retailers to really have that, but the amount of inventory that Nike put out there seems to be miniscule. Is that something that could expand as you move into '14 and maybe provide some resurgence for the running platform?

Samuel M. Sato

Yes, Flyknit -- John, this is Sam. Flyknit is actually one of the big, big positions we're taking as we move into spring. Actually they're launching it on a lunar bottom, so it's not on the same platform it was back in July, and that's an opportunity for us. We love the design and the colorations of that product, and certainly, the consumer responded well in July on albeit much smaller inventories. But we believe that that's certainly a next step in the running innovation pipeline, and we're anxious to see the early results of that.

Operator

Your next question comes from the line of Chris Svezia from Susquehanna Financial Group.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Just want to go back, I think, Steve, you might have mentioned this, just on the remodels. Can you just remind us again what's going on there? The new Castleton store and some of the other ones that you've done? Previously, you said double-digit comps. What are they doing now, and what's the update there?

Steven J. Schneider

Well, the results were mixed. When we first put them out, they were night [ph] pops in double-digit comps and things were looking strong. Since Q3 and so far in December, it's not nearly been as clear as it was early on. And because of that, we're taking a step back not to invest a ton right now until we get better feeling. All along, we said, we were going to evaluate results that we knew you couldn't re-evaluate it over a couple of months. So now, we're getting more data, and it's not as clear as we like it to be. I mean, they're beautiful stores, the consumers like it, but at the end of the day, it's the results that are important. However, the one thing that we clearly believe the consumers are enjoying is the mobility and the store technology we're putting in. We've got a lot more work to do there in terms of what we would do on tablets and maybe the service devices. But on the mobility, that has been a big help, too, especially during Thanksgiving into Christmas. We've got a lot of very good results showing that we're utilizing the mobile handhelds quite a bit, which helped really reduce the number of people in the lines. And when -- in the mobility devices, they only take credit cards, obviously, we don't take cash returns, et cetera, there. But on the credit cards, we were seeing anywhere from 20% to 30% utilization, so that's a very good start. And we've got a fair amount more yet to put in during this next year in terms of operational adds to those devices, so we know we're in the right direction on that.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Okay. Glenn, what do you, I guess, what do you hope to learn over the next 90 days from an e-commerce perspective the digital platform, what -- I mean, you've gone back to your legacy site. Is it a matter of just going back to the drawing board, you invest a lot of money and lot of emphasis into this? I mean what do you hope to get out of it? What do you hope to learn in 90 days you can't talk about right now in terms of a go forward on the e-commerce platform? .

Glenn S. Lyon

Well, we're back to the drawing board in terms of the legacy system that we ran and the upgrade of that system, which was an option, the utilization of demand wear and their ability to perform. Obviously, we were disappointed by the performance back at the end of November. So we have some options here, and we're going to get those out and more diligence over the next 90 days. So there is a lot of learnings to be done, including outside advisers and so on. So our confidence level, and that has been shaken a little bit. And as I said to you, reality reared its ugly head to us for the first time in a number of years in terms of initiatives that we've put out into our business. This was a tough one.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Let me -- if I can just ask a product question. Sam, for you. When you think about the running business, I mean, there's obviously segments of growth and areas of growth. You mentioned Nike Free continues to grow, I think Mizuno continues to grow, a lot of brands are working in the marketplace, ASICS, et cetera. Do you maybe think that there are some brands you maybe got a little too deep with or stuck to for too long a period of time that are causing a little bit longer for you guys to get out of this malaise in running specifically. Because others have mentioned that running slowed early in the year, we've kind of moved on, we're balancing that assortment. You guys seem to have stuck with it a little bit longer. Is it maybe some brand mix or no, that's not the case?

Samuel M. Sato

Well, I think it's really, Chris, more about consumer demand. So we're always going to be committed and focused on ensuring that whatever product category we're offering, we're doing our very best to assort our stores with the most relevant product based on what the consumer is telling us. So from a brand mix point of view, as Glenn mentioned earlier, the tech running space, they're doing extremely well with Brooks and Mizuno, for instance, as are we, but as a much smaller percentage of our total. And so it's not as simple as just shifting from one brand to another given our consumer profile and what they're looking for from us.

Glenn S. Lyon

We are constantly evaluating our assortment, good times or bad times, constantly, constantly working with the brands. This is -- and evaluating the levels of business we're doing with every brand. Customers don't come into our stores. All of our research says, they don't come into our stores looking for a particular brand. The brands that have the best product win the game, and that includes categories. So this is something that, as retailers, we get that trends are going to change. And this one caught us over a short period of time here. Our stock and trade will be how well we react to it, how we challenge our vendors with the going forward. But I assure you one thing. First of all, I have extreme confidence in this merchandising team; and second of all, they didn't get dumb in 30 days. That didn't happen. So we saw the consumer shift, we are moving rapidly to adjust our inventory levels and the assortments and the depth. But by the way, we do that on an ongoing basis.

Operator

Your next question comes from the line of Camilo Lyon from Canaccord Genuity.

Camilo R. Lyon - Canaccord Genuity, Research Division

Does this change in running alter your strategy with how to proceed with The Running Company?

Glenn S. Lyon

Not at all. Not at all. We believe that that's about health and wellness. It's a performance-driven business. Footwear is less than half of that business, so no. This is a -- we got involved in this business because it wasn't competitive. Let me remind you that comps were up 20% in the quarter that we just came out of. So the business continues to be good there, and I believe that, that we're talking to a different customer, the way we operate the stores, the way we engage the customers, the marketing we do, and our partners, Gart's, understand that business. So that's very different. Look, we're in the performance athletic business, but we drive fashion through those, through color and materials and trending of platforms, and we've always done that with our brand partners. And as we have maintained our ethic about everyday sport, which is a combination of performance, products and fashion coloration, that's what drives the Finish Line. So it's a very different customer. We haven't seen any blips along there, we continue to be aggressive, we made an acquisition during the quarter, we just made another acquisition yesterday, so the Gart's are starting to get into pace here. And we opened up a new store that's done well, so we're getting rolling on that, and we'll start to see some successes there in the near term.

Camilo R. Lyon - Canaccord Genuity, Research Division

Great. Got it. And then just shifting to basketball. How does that change or alter your ASP outlook? The ASPs in basketball are typically significantly higher than the running ASPs. Does that improve your ASP outlook, or how do you think about that?

Edward W. Wilhelm

As we said, Camilo, our outlook in the fourth quarters were low to mid single-digit ASPs, so the comps that we saw in the third quarter was down mid single in running and up high teens in basketball, and it's that mix that's driving that to ASP.

Camilo R. Lyon - Canaccord Genuity, Research Division

But on a longer-term basis, as you get a better allocation of the product, you pair down on running, I guess, the negative mix is going to hurt that ASP. It's going to weigh on the ASP outlook more than the health that you would get from basketball. Is that the right way to think about that? .

Edward W. Wilhelm

Yes, and in a low single-digit comp environment like we're planning, the expectation for ASPs is, again, low single digits. So it will be driven by that mix.

Camilo R. Lyon - Canaccord Genuity, Research Division

Okay. And then just lastly, on that low single-digit comp outlook, is that how we should think about your kind of longer-term comp growth relative to what you guys outlined at your Investor Day which, I believe, was in the mid-single-digit range? .

Edward W. Wilhelm

Yes. I'd say, at least as we're thinking about things today, Camilo, it's certainly fourth quarter next year that we're building our plans around that low single-digit comp environment. Let's see how things translate as we work our way through next year. But as we're thinking about things today and building our budgets for next year and lowering the cost structures as we talked about, it's 1 year at a time for that low single-digit environment.

Glenn S. Lyon

Camilo, don't lose sight of what we've talked about over the past couple of years. Our growth continues to come from a bigger portion of our Finish Line business being done in the digital world, and then the addition of some $500 million ultimately between The Running Company and Macy's. So those initiatives are still in place. We're still driving towards them. This change in trend is what we hope to be a short to midterm change in how we approach the customer.

Operator

Your next question comes from the line of Joseph Parkhill from Morgan Stanley.

Joseph Parkhill - Morgan Stanley, Research Division

Just wondering if you could comment on -- I mean, obviously, you've recognized the shift away from running, but how do you feel about your competitors, particularly smaller competitors if they have recognized that shift already, and if there's any risk that there's some increased promotional environment over the next several months?

Glenn S. Lyon

Yes. I mean, look, when you talk about competitors, the major competitor comes out of New York, and they have run their business on trends as well. And as running was stronger and basketball was a center of their leadership position, they have to do the same thing and bring running proportions up and control their basketball, and now, they are being advantaged in a world that's basketball driven. In terms of smaller accounts, there has relatively no effect. We deal with Nike and adidas and all of the brands at the highest levels of their company. So we're coming up with strategic ideas to build inventories, assortments, category, plans, SKU colors. And look, we've always said, "We focus on our business." The fact is that the market is pretty stable, it has been for a while, the promotional craziness 4, 5 years ago has gone away and I think we all have to execute our vision and our plan and recognize the shifts in trends, and then we'll all be successful.

Joseph Parkhill - Morgan Stanley, Research Division

Okay. And then just on the Macy's deal, could you talk about how long do you think it would take for you to get to maturity in a single store? And then how much higher do you think you can get to sales density versus what Macy's does today?

Glenn S. Lyon

Probably 2 years on an individual store and 4 years on the total business.

Joseph Parkhill - Morgan Stanley, Research Division

Okay. And your assumptions are that, that sales productivity will be higher than where Macy's is today?

Edward W. Wilhelm

Absolutely.

Glenn S. Lyon

Oh yes.

Joseph Parkhill - Morgan Stanley, Research Division

Meaningfully higher?

Glenn S. Lyon

Well, they didn't do this deal because they thought they could do it better.

Operator

Your final question comes from the line of Sam Poser from Sterne Agee.

Ben Shamsian - Sterne Agee & Leach Inc., Research Division

It's Ben Shamsian for Sam. Just a couple of -- trafficking ticket. Did you guys give those metrics out?

Edward W. Wilhelm

Yes. I'll give that to you, Ben. For the quarter, our store traffic was up a tick, 0.3%; conversion, down 2.8%; and average transaction, up about 4%.

Ben Shamsian - Sterne Agee & Leach Inc., Research Division

And inventory at year end, how can we think about that as you sort of -- as you try to get it cleaned up a little bit?

Edward W. Wilhelm

It'll be in line with sales, that's our expectation, Ben.

Ben Shamsian - Sterne Agee & Leach Inc., Research Division

Got it. And then just sort of on the basketball, the marquee basketball products for a few quarters now have been some of the best performing in all of athletic footwear. I mean, why wouldn't you have at least marginally taken up some of that regardless of what running was doing?

Glenn S. Lyon

We did. We've had double-digit comps, and in fact, quarters where we were in the 20s, so we've increased both our allocations and our inventory levels in general in there. But the running business is twice the level of business when you add in the women's business then -- and adults then is the basketball business. So the impact of double-digit increases in basketball just doesn't have the same effect on our business.

Edward W. Wilhelm

Thank you, all of you, for joining us today, and we look forward to updating you again with our fourth quarter results in late March.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

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