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Stein Mart (NASDAQ:SMRT)

2012 Earnings Call

May 08, 2013 10:00 am ET

Executives

Jay Stein - Chairman, Interim Chief Executive Officer and Member of Executive Committee

Gregory W. Kleffner - Chief Financial Officer, Executive Vice President and Secretary

Analysts

Mark K. Montagna - Avondale Partners, LLC, Research Division

Jacqueline Commins

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Michael Richardson - Sidoti & Company, LLC

Robin Murchison

Operator

In the course of the presentation this morning and in response to your questions, statements may be made as to certain matters that constitute forward-looking information that is subject to certain risks and uncertainties. Additional information concerning those factors that could cause actual results to differ from those in the forward-looking statements can be found in the company's current report on Form 10-K for the year ended February 2, 2013. I would now like to turn the call over to Jay Stein, CEO of Stein Mart Inc.

Jay Stein

Thanks, Steve. Good morning, and thank you, all, for joining us. I'm going to make some opening comments, and then we'll turn this call over to Greg Kleffner, our CFO. And we'll take any of your questions after that.

First, let me say how excited I am to be speaking with you all today. I'm pleased that the restatement is now complete and the earnings communication blackout that we've all endured these past months is finally lifted.

We managed these distractions and the restatements well, staying focused on serving our customers and growing the business. And the results, frankly, speak for themselves.

Our sales performance in 2012 accelerated through the fourth quarter and ended in the best we've had in recent years. This was driven by an outstanding assortment of merchandise at very compelling prices and the right marketing to go with it, obviously.

Throughout 2012, we continued to selectively lower merchandising prices and limit the use of coupons on a regular basis. Not only did that new strategy drive sales, but it also resulted in better merchandise margins this year and particularly during the fourth quarter, which drove an understanding bottom line result.

As you know, our February and March sales were impacted by colder weather and the Easter calendar shift. Our customers have responded well to our spring merchandise, and now that we are seeing more real spring weather, we're truly satisfied with what this has done and is doing to our sales.

Now back to the 2012 results. We had a substantial cash balance at the end of the year with no debt, even after paying $1 per share in dividend in December, which totaled $44 million.

We are pleased that we were able to return value to our shareholders and still have a tremendously strong financial position as we have today. Looking forward, we will continue to build on sales increases that we experienced in 2012. In that regard, our strategy is to grow our designer and national brands each year to keep our customers enticed while maintaining the key names that she loves.

We're also excited about launching an expanded eCommerce program in the second half of this year. To date, as you realize, our comp store gains have come slowly from our brick-and-mortar stores. In the future, however, our comp store sales will have the positive impact from our eCommerce business that many other retailers have enjoyed in recent years.

We'll also continue to selectively lower prices and create more wild values when it drives possible sales volume and continue to satisfy our customers' appetite for coupons by offering them primarily on sale and cloth [ph] merchandise, where she will even get a better deal.

We all know our customers love color, and that's a big part of what Stein Mart is all about. You only have to come into one of our stores and see why. Color was really in last year, continues to drive fashion in 2013.

While I'm proud of our results across the entire store, I particularly want to call out our home area. Assortment, quality, color were key factors in this renewed success of this critical area in 2012, and our monthly sales release called out Women's as the leader across all merchandising categories for some time now, and we continue to expect much, much more from this line of business. Greg will share with you more information on merchandising categories shortly.

We have a renewed vigor in real estate as well, and we're looking at more opportunities than at any time in the last few years. That said, real estate in key markets is still very tight, but we're going to continue to be patient, making sure that we choose quality sites that we know can be successful.

As we indicated in our release, we plan to open 4 new stores this year and relocate another 4.

Before I turn the call over to Greg, I want you all know how thrilled I am to be running this company again along with a very, very strong executive team. As a key stakeholder, I have been and always will be actively involved in this company. Now Greg will go over our operating results.

Gregory W. Kleffner

Thanks, Jay, and good morning, everyone. It's great to finally be able to talk with you all again and especially great to have our wonderful earnings to go over. This morning, I'm going to discuss the status of our SEC filings in compliance with NASDAQ. We'll also explain the restatement adjustments and presentation changes in our income statement, walk through the results for the year and highlights of the fourth quarter, and finally, wrap up with a discussion of our outlook for 2013.

Last Friday, we brought our SEC filings up to date. We filed Form 10-Qs for the first 3 quarters of 2012 and our Form 10-K for the fiscal year 2012. The first quarter Form 10-Q was a 10-Qa, and that was an amended filing and restates what was previously filed.

Completing all of these SEC filings has brought us back into compliance with the NASDAQ Listing Rule. You can see in the schedules of the company at our press release that for 2011, the restatement resulted in a small increase in income. That was $175,000 before tax. Additionally, as reflected in our 2012 Form 10-K, the restatement increased our 2010 pretax income by $1.8 million. For both of these years, there were slight shifts in our income between quarters. And generally, this was seen as a reduction in first quarter income with increases in the second and third quarters' income. This was driven by the changes in our markdown and indirect overhead accounting.

I want to briefly discuss the major adjustments to our past statements, all of which result from practices that have been in place for more than 20 years.

First, we have recorded certain markdowns as permanent versus promotional. Second, we recorded landlord construction incentives as deferred rent credit versus reductions in fixed assets. Third, we established a vacation accrual. And fourth, we adjusted our indirect overhead costs that are applied to inventory on a quarterly basis versus just at year end.

Another change that you will notice is that we moved items that were previously included in other operating income. Our commissions on the shoe sales that we received from DSW were moved into the sales line. Our gift card breakage and our credit card program income were moved to offset SG&A. These changes did not impact income but simply changed where these items are being reported in the income statement.

Finally, there were less -- other, less significant restatement items that were previously determined to be immaterial and that were either not recorded or that have been recorded as onetime adjustments in prior periods.

We know that those of you that have forecasting models are going to need to adjust them to reflect how this changed in the seasonality of our income will occur in the future, and we would suggest that you go through the schedules attached to our press release, as well as those included in our 10-K and 10-Qs, that show the changes by line item from what we previously reported for our quarterly and annual income statements.

Now I'm going to move on to our financial results. And as I review the operating results, please note that any prior year amounts that I discuss will be the restated amounts for those prior years.

Net income for fiscal 2012 was $25 million or $0.57 per diluted share, and that compares to net income of $19.9 million or $0.44 per diluted share in 2011. EBITDA through the year of 2012 was $60.1 million and increased 18% from $51 million in 2011.

As outlined in our press release, our fiscal 2012 results include 3 items impacting comparability to fiscal 2011.

First, $4 million of accounting and legal fees related to the restatement were recorded in the fourth quarter. This was $2.5 million after tax or $0.05 per diluted share.

Second, $2.1 million of higher breakage income on unused gift and merchandise return cards as the result of changes in breakage assumptions was recorded during the second quarter of 2012. This was $1.3 million after tax or $0.02 per diluted share.

And third, we had a $2.5 million tax benefit in the fourth quarter resulting from the deductibility of previous non-deductible financial statement accruals relating to the elimination of our postretirement life insurance benefits, and this was a $0.05 per diluted share impact in the fourth quarter.

Excluding these 3 items, our net income would have been $23.8 million or $0.54 per diluted share, and our EBITDA would have been $62 million for fiscal 2012.

Total sales for 2012 increased 4.6%, while comparable store sales increased 2.7% compared to 2011. The comparable store sales increase was driven by increases in the number of transactions, the average units per transaction and average unit retail prices.

Gross profit increased $23 million to $342.6 million as the result of the higher sales and a higher gross profit rate. The gross profit rate increased to 27.8% of sales this year from 27.1% of sales in 2011. The increase in the gross profit rate is primarily from a higher merchandise margin rate, which increased due to the lower markdowns from our coupon reduction strategy, partially offset by lower markup due to the lowering prices on selected merchandise.

SG&A was $306.4 million for the year, an increase of $19.2 million from $287.2 million in 2011.

Corporate expenses were up $9.4 million, and this includes the $4 million of legal and accounting fees relating to the restatement, as well as the higher compensation and benefit costs.

Depreciation was up $5.3 million due to our recent increased capital spending. Our store expenses increased $5.2 million. This includes primarily a higher compensation cost, partially offset by the impact of lower debit card interchange rates. And credit card income is now included on SG&A and was $4.1 million lower due to the $1.6 million performance-based incentive from General Electric Capital Retail Bank that we received in the third quarter of 2011 and the elimination of new account fees in our new agreement that commenced in October 2011.

These SG&A increases were partially offset by a $3.7 million decrease in advertising expenditures due to reductions in certain media usage and also a -- or the $2.1 million increase in breakage income on the unused gift and merchandise return cards.

For the year, our effective income tax rate was 30.5%. This compares to 38% for 2011. And again, the year's tax provision includes a $2.5 million benefit resulting from the tax impact related to the elimination of postretirement life insurance benefits in the fourth quarter. Excluding this benefit, the effective tax rate for the year would have been 37.3%.

Now I'll highlight the fourth quarter results. Comparable store sales increased 6% compared to the same period in 2011. This increase drove our fabulous fourth quarter results. From a category standpoint, our strongest performers for the quarter were in women's, ladies boutique, men's furnishings and ladies' career sportswear. As Jay said, assortment, quality and color were key to the success of our linens area, where we had great results in all categories, led by top of bed and coordinating decorative pillows; sheets, particularly those in bold colors; and throws, both cold weather and gift giving.

Boutique sales were driven by national brands, especially Michael Kors, and our private label brand, Peck & Peck, as well as sweaters. All of men's furnishings and tailored clothing performed strongly. And also, there was success in our career sportswear with sweaters and branded suit separates, particularly the Kasper brand.

More challenging for the quarter were ladies' casual sportswear, accessories, petites and dresses. Casual sweater items and Attitudes casual collections were disappointing.

The accessories areas that did well included small leather goods. These were driven by designer minibags, wallets and our new Vera Bradley offerings, better handbags, fragrances, scarfs and sleepwear. However, these growth areas were offset by declines in jewelry, fashion watches, hair accessories and cold weather items.

Jewelry has been extremely strong for the past 2 years, and this trough is being felt industry-wide. Petites followed the casual trend, where sweaters were also weaker sellers.

And within dresses, our social and special occasion area struggled somewhat and were not fully offset by the balance of the department.

Operating income for the fourth quarter increased $7.9 million to $17.2 million in 2012. The increase is the result of higher gross profit due to the increased sales and a higher gross profit rate, particularly offset by higher SG&A expenses. The gross profit rate increased primarily due to the lower markdowns from decreased coupons and lower occupancy cost as a percentage of sales, offset by lower markup due to lowering prices on selected merchandise.

SG&A increased for most of the same items I mentioned for the year.

Net income for the quarter was $13.5 million or $0.30 per diluted share, and this compared to net income of $5.9 million or $0.13 per diluted share in 2011. Taking a look at the balance sheet. Our financial position remained strong with $67.2 million in cash and no debt. This is after our December $1-per-share dividend, which totaled $44 million.

Inventories were $243 million compared with $219 million last year. Year-end inventories were higher than last year, as we planned, due to an additional week of early-season spring receipts from the fiscal 2012 calendar shift involving the 53rd week as well as a strategy to increase wear-now merchandise to drive early first quarter selling.

Capital expenditures totaled $45.4 million for the year. This compares to $38 million last year. Capital expenditures in 2012 and 2011 include approximately $20 million each year for systems improvements, with the largest portion for our new merchandise information system.

Remaining amounts are for opening and remodeling stores, including upgrades to fitting rooms, lighting, flooring and fixtures in approximately 35 stores in 2012 and 40 stores in 2011.

In addition to the cash capital expenditure shown on the cash flow statement, we also had $1.9 million in 2012 and $9.7 million in 2011 in capital leases for our cash registers and related store equipment.

Moving on to real estate. During the fourth quarter, we opened 3 new stores in Tucson, Arizona; Charlottesville, Virginia; and Katy, Texas, which is the Houston market. We also relocated a store in San Dimas, California -- that's Los Angeles -- to an improved site. For all of 2012, we opened a total of 6 new stores, relocated 4 and closed 5 for a year-end total of 263 stores.

Now I'll walk through our outlook for 2013. For 2013, we're expecting our gross profit rate to be slightly lower than in 2012 as we continue to manage our selling prices and couponing from lower margins on eCommerce sales in the second half of the year.

eCommerce margins will be lower, as our third-party fulfillment costs are part of the cost of goods sold in that area. We're expecting SG&A to increase by $3 million to $4 million this year as the result of $3 million in the startup costs related to the launch of our new eCommerce business and the transition of our supply chain from third party to company operated; $3 million for increased depreciation expense from recent years' capital investments; and $2.1 million of higher breakage income on unused gift and merchandise return cards in 2012 due to the changes in the breakage assumptions. These increases are partially offset by the $4 million of 2012 legal and accounting fees related to the restatement that will not reoccur in 2013.

We expect our annual tax rate to be approximately 39.5% next year -- or in 2013. And our current plans are to open 4 stores, relocate 4 stores to improve locations in their respective markets and close 3 stores in 2013. As Jay mentioned, we're selectively seeking properties that strengthen our portfolio of stores in current markets. And if we can grow our volume and economics significantly, we will relocate a store even if the current location's operating results are good. We completed 2 of the 4 stores being relocated this year in March when we relocated our Williamsburg, Virginia and our Austin, Texas stores. Store closings are generally underperforming stores where we cannot locate a suitable replacement, and the rest of our planned store activity this year will be in the fall.

We'll be launching our new eCommerce business in mid-to-late 2013 with a representative merchandise selection. When we began selling selected merchandise offerings on the Internet in 2010 and expanded our offerings in 2011 and 2012. Later in 2012, we temporarily ceased selling merchandise on the Internet as we reassessed our strategy. This initiative will actually have a negative bottom line in 2013 from startup costs and margins that are lower than from our brick-and-mortar stores due to relatively high fulfillment costs at our initial expected sales volume levels. While we don't expect eCommerce will impact our business very much in 2013, this is the kickoff of an important initiative from which we expect significant future benefit as we grow our sales.

Beginning in this year's second quarter, we're going to begin the process of transitioning from third-party-operated distributed centers to company-operated centers. We currently utilize a third-party logistics network to move product through third-party distribution locations. Our distribution centers are located in Atlanta, Dallas and Los Angeles, and taking supply chain in house will not only provide us with future cost savings but will give us some operational opportunities and advantages. This change will not result in an immediate cost savings, due to startup cost in the initial capital investment in equipment and software. However, this initiative has an excellent return on investment and will have a positive impact starting in 2014.

Capital expenditures for 2013 are planned to be approximately $34 million. Approximately $14 million of this will be for continuing information systems upgrades. About $5 million will be for distribution center equipment and software, and most of the remainder is for new and relocated stores, store remodels and new fixtures in our existing stores. This concludes the prepared portion of our comments. Now we'll be happy to take your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Mark Montagna with Avondale Partners.

Mark K. Montagna - Avondale Partners, LLC, Research Division

So I do have questions on the gross margin rate. You mentioned that it should be lower for 2013. Is that entirely due the eCommerce in the second half?

Gregory W. Kleffner

Mark, this is Greg. A couple of things. We think a little bit may be on our continued selective reductions in pricing, but then also, the -- clearly, the eCommerce, which is in the second half, is -- both of those are not very big effects, but both effect going downward.

Mark K. Montagna - Avondale Partners, LLC, Research Division

And would you say that half of it is the price reductions and half is the eCommerce?

Gregory W. Kleffner

I don't really probably want to characterize it as that much. I'd just say it's not a very big reduction.

Jay Stein

I don't think it's -- not half. A bit more.

Mark K. Montagna - Avondale Partners, LLC, Research Division

So looking at the first half, could you possibly be -- I mean, are you looking at the first half as being flat then? Because you -- it doesn't seem like you're going to have too much eCommerce impact in the first half.

Gregory W. Kleffner

At this point, we're not breaking out in halves, Mark. I think just -- we're looking at the full year impacts and talking about them.

Mark K. Montagna - Avondale Partners, LLC, Research Division

Okay. And then this year, it sounds like you're going to be taking some more price reductions. I'm trying to understand from last year, I thought you had the big price reduction in the first quarter of last year. But it sounds like from Jay's comments that there was continued reductions throughout the year. I just wanted to make sure I had that accurate about the big one in the first quarter continuing throughout the year. And then this year, it sounds like you're going to continue to select the price reductions, but how does this year's magnitude of potential items being marked down compare?

Jay Stein

Much less. Much less.

Mark K. Montagna - Avondale Partners, LLC, Research Division

Much less?

Jay Stein

Yes, sure. I mean, hey, listen. It's done selectively when we believe it's in the best interest of our customers and sales. But much less. Much, much, much less.

Mark K. Montagna - Avondale Partners, LLC, Research Division

Okay. And then the current markdown inventories. It looks like it's pretty low in the stores. Would you agree that it's lower than last year? Or help us kind of understand what it looks like that versus last year.

Jay Stein

Greg, you have the numbers in front of you. Not same locations.

Gregory W. Kleffner

I think we're -- you got a lot of things going on this year right at the quarter end here, Mark, with the shift. I mean, you had with this Mother's Day and later calendar this year and things, so I think you can't really sort of look at the store this year versus last year on a specific basis. But in general, we're probably using promotional markdowns a little more than permanent in some cases. But I'd say we're pretty similarly marked down to last year.

Jay Stein

I would think so. Yes. I mean, we're what I would like to consider relatively clean of that. We're very current.

Mark K. Montagna - Avondale Partners, LLC, Research Division

Yes, I mean the store looked fantastic.

Jay Stein

Very current.

Mark K. Montagna - Avondale Partners, LLC, Research Division

The store here, I mean, Saturday, it was pouring, and you were -- the store was busy.

Jay Stein

Good.

Mark K. Montagna - Avondale Partners, LLC, Research Division

Impressive. Then last question, then I'll jump out of the queue. Expense leverage point. Wondering what that is of this year for comps in terms of SG&A and then buying and occupancy.

Gregory W. Kleffner

Yes, Mark. I've always -- I've said for probably couple of years now that I think it's around 2%, and I would hold with that answer at this point. With the further in we get, the more we'll sort of know on this, but I would stick with around 2%, maybe a tad less.

Operator

Your next question comes from the line of Michael Exstein with Crédit Suisse.

Jacqueline Commins

This is actually Jackie Commins, stepping in for Michael. So you mentioned the $4 million in legal and accounting fees that you incurred during the fourth quarter. What are you expecting these type of fees to be on a go-forward basis? And then secondly, what was the actual earnings impact from the $15.8 million in revenue from the 53rd week?

Gregory W. Kleffner

Yes, Jackie. So 2 questions. First, on the legal and accounting fees. We tried to get as much of those accrued as -- last year as, number one, the accounting rules allow, and number two, as we could. So most of that ended up falling in 2012. There will be a little coming into '13, and if it's anything substantial, we'll sort of -- we'll call that out, certainly, when we get it. But those were -- I'll call them sort of onetime fees related to restatement, not an ongoing thing. With respect to the 53rd week, there's sort of an art involved in computing the impact on that. Obviously, the sales, as you said was $15.8 million. You know that, that period of the year is not a very -- not a highly profitable period for us, but you do spread some expenses for that last month over 5 weeks versus 4 weeks. Depending on how you do that analysis, I'd say the impact was anywhere from maybe positive $0.01 to $0.04 a share.

Operator

Your next question comes from the line of David Mann with Johnson Rice.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

First question, sort of a big picture. Given that you stabilized operations in '12, what would the reasonable EBIT margin look like for this company? I mean, we look back towards '05, you were over 5%, I think. Even before that, you were targeting up to 7%. So maybe you can just talk about what you think about your ability to get back to north of 5% and maybe how you would get there?

Gregory W. Kleffner

Yes, David. This is Greg. We've had this discussion, I think, ongoing and it's -- number one, we look for it to improve, and I think the key is we need to improve that no matter where we are. And if you look, I think there's a couple of guys up in that sort of 10% range, that's a pretty heady area. I don't think it's reasonable for us to probably even aspire to that. I think in that sort of mid-single digits, that 5%, 6%, 7% range, is something that we ought to aspire to and certainly have as a goal. We're certainly not there, and we're doing all we can. A lot of that's going to be from sales leverage. I mean, if you look at -- just look at the fourth quarter and look at last year and see what that did with profitability, and that's just leveraging largely fixed expense base with the higher sales, which obviously just really came to the bottom line for us.

Jay Stein

David, it's all going to be top line driven, and -- it's going to be all top line/product driven. If we keep compiling mid-single comps, mid-single to higher comp store sales, the results will be self-evident.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Great. That's helpful. And in terms of the store growth potential, it sounds like you're wanting to grow, but you're having some obstacles finding good sites. Maybe you can just talk about how we should think about your ability to accelerate that, and what would be -- what's your latest thoughts on how many stores the chain can handle?

Gregory W. Kleffner

The last part of your question, David, I'm probably going to leave unanswered there, because it's...

Jay Stein

I don't think we've -- David, we're not there in the latest quarter. How many we can handle, we're simply not there.

Gregory W. Kleffner

The biggest challenge right now is availability of the right market opportunities. It's a very tight market in our box size, particularly where we right now want to grow. If you look at our initial focus areas, L.A., Chicago, Southeast Florida and the D.C. Metro, none of those are secrets but -- I mean, if you look at all those pretty tight real estate markets in our size box -- so we're looking at some other places where we don't have stores, but a lot of it is going to be driven by real estate opportunities because we're just going to make sure we're going at the location with the right economics for us. We can't bend those just to get store opening numbers.

Jay Stein

David, we have got a really superb, in my view, real estate person. First time we've had that in a long time. And I think we will see those opportunities exponentially. We're not going to take any risk any more than normal, but we've got someone that asks the right questions and has the right contacts.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Great. Let me ask one last question. I think, Jay, you called out the home business. We're seeing some nice things in the stores. It looks like from the K, to home business had a nice improvement 12% of sales, but it's still way below the highs last decade. So can you talk about the recovery there, how fast that business is growing, and maybe also just talk in general about maybe the Florida market given the housing recovery there, how you're doing in Florida?

Jay Stein

Well, listen. We don't quantify it, but it is -- the numbers -- the kind of growth that we have seen in home exponentially is staggering. It truly is. I mean, we look at home numbers every day and just blink, they're so good. It's because of talent, product, and we really are known to be -- known for our home assortment, which we have not had in years and years and years. In terms of Florida assortment, our home business is very good in Florida. Our business is very good in Florida. Anytime we've seen warm weather this season, we're doing a great deal of business. When we don't see the weather, obviously, we suffer from it. Having said that, home is not dependent upon a lot of sunshine like apparel is. So that business has been undaunted and very, very good.

Gregory W. Kleffner

And David, Florida outperformed slightly in 2012, which is I think a good weather. By the way, we're located down here in Florida, and I wouldn't say Florida's totally out of the woods and like real strong in housing. There's just some recovery.

Jay Stein

David, and we're fully aware about what we've dropped. We talk about it all the time in home. All the time. But we're making it up and going to make it up.

Operator

[Operator Instructions] Your next question comes from the line of Mike Richardson with Sidoti.

Michael Richardson - Sidoti & Company, LLC

Just a couple of quick questions for you. I understand you brought some inventory in early this year for the spring season and whatnot. I'm just wondering how we should be thinking about that, maybe at the end of this year, looking for that down a little bit from current levels. And I was wondering, how many stores are you planning on remodeling -- I guess, how many stores are left to be remodeled

Gregory W. Kleffner

Mike, 2 questions, one on inventory. I wouldn't characterize that we brought it in early this year as much as we were probably a little later last year than we'd like. So I guess, yes, it's earlier, but it was more that last year was the aberration than this year. And the other thing is, we carried some more wear-now, buy-now merchandise, and frankly, with the way the weather was, I think that really helped us in the early part with the cold weather. So that was done intentionally and we believe was a good thing and helped us. When you get to the end of season, they should all watch out. I mean, obviously we've got increased sales and so we need some increased inventory levels to support that. And then -- I'm sorry, what was your second question again on...

Michael Richardson - Sidoti & Company, LLC

The question -- the second question was on the number of remodels.

Gregory W. Kleffner

Yes. We're -- we did 40, I believe, and '11, 35 in '12. There are certainly some left, just not at those kind of levels. We're getting to the point where we're pretty happy with our store base in general, and obviously, we need to be selective in what we do with respect to lease terms coming up and things like that.

Michael Richardson - Sidoti & Company, LLC

Okay, just a couple of more, actually. What percentage of sales now are national brands? I know that you've been bringing in a lot more national brands, and that's been a driver of sales for you.

Gregory W. Kleffner

I think it's 65, Mike. It's in our...

Jay Stein

Greg, that's a low number. I would say probably 75 to 80 today. Mike, we have it only at about 10 stores now. We are relaying out gift department and we're putting -- as an example of remodeling, we're putting hardwood floors in our gift department. And it's new, but we're seeing sales increases in the 20% range just in gifts. On a store average of '12, we're seeing 20%, 25% increases. It's so nice and so good. It's going to be a while before we ramp that up, but obviously, those are the kinds of potentials that what we've got.

Michael Richardson - Sidoti & Company, LLC

Okay. And just one more on eCommerce. What are your sort of -- I guess, what are your goals for eComm and then, any brand limitations? Would there be any brand limitations?

Gregory W. Kleffner

Yes. First, I would say right now, don't want too [indiscernible], but our first goal is to get up and launched and get moving. We're not -- I think it's way too early for us to talk about projected future sales. We want to get up and moving, see what we do the later half of this year and really see how we do on this better-supported rollout. So I'd say that's more of a year-end discussion we can have on that. But certainly, multiple stores' worth of volume over a longer period of time. It's just a question of how many multiples.

Michael Richardson - Sidoti & Company, LLC

Any brand limitations, or is it going to be...

Jay Stein

This is Jay. Not that I've heard of. Not that -- the meetings that I've attended, not that I've heard of, which doesn't necessarily mean that there aren't some. But I mean, that's not a major issue. I'm sure there's going to be some, but it's that not a major issue.

Gregory W. Kleffner

Sometimes, Mike, the limitation will be how we can portray it online versus whether we can sell it online.

Operator

Your next question is a follow-up from Mark Montagna of Avondale Partners.

Mark K. Montagna - Avondale Partners, LLC, Research Division

When it comes to the new DCs, are you starting up your own DCs, or are you just taking over the property where it currently is?

Gregory W. Kleffner

Mark, it's sort of a combination of that. Actually, in Atlanta, we're taking over the exact same property. And in Dallas, it's a new property, about 2 blocks away, by the way. I would call these more of a shift from just the third-party to us versus startups. Really, it's -- while we'll manage them, we did have some people in place doing some of the very high-level management, anyway. So it's a shift, and this is a pretty low-risk operational shift for us.

Mark K. Montagna - Avondale Partners, LLC, Research Division

So is it going to be the same software systems and a lot of the same equipment? Are you transferring a lot of the employees?

Gregory W. Kleffner

Some of the employees. It's a small number, but a couple of key management people. We've had some of our managers in place before; those people stay. The actual software is actually going from their system to our system. That's, frankly, a big part of the future benefit for us, so that's a good thing. There's both the transportation system and a warehouse management system that will be more integrated with our business and allow us to get some efficiency. So those are both good things. And we're rolling these out in phases so that we can mitigate the operational risk of this.

Mark K. Montagna - Avondale Partners, LLC, Research Division

All right. So you're going to do 1 DC first, make sure it works?

Gregory W. Kleffner

Yes, we actually are starting with Dallas in just a week or so, and then we'll do this over the bulk of the year and even maybe into the first of next year with the 3 DCs.

Mark K. Montagna - Avondale Partners, LLC, Research Division

Okay. All right. That sounds pretty safe. So then the eCommerce fulfillment, are you doing that yourself?

Gregory W. Kleffner

No, that's -- GSI is actually our partner on that. And they're pretty much best-of-class in that area.

Mark K. Montagna - Avondale Partners, LLC, Research Division

Right. And then can you tell us what percent of the home category is soft home versus hard home?

Gregory W. Kleffner

It's about 50-50, I believe, Mark. I don't have...

Jay Stein

At the most. In terms of volume or inventory?

Mark K. Montagna - Avondale Partners, LLC, Research Division

Volume.

Jay Stein

65-35 being soft.

Mark K. Montagna - Avondale Partners, LLC, Research Division

Okay. And then with relaying some of the gift area, are you expanding the square footage in the category, because it seems like...

Jay Stein

No.

Mark K. Montagna - Avondale Partners, LLC, Research Division

No? Okay. And then if you go way back to early 2000s when you were so dominant in home, did you just -- did you have the exact same square footage as you have today, or is it much bigger, or did you just turn it faster?

Jay Stein

I've got to say that, listen, I'm sure we have a little bit less today. I'm sure one of the mistakes that we made, as home started deteriorating, we gave it less space. I would say it's not that much less, but it probably is a little bit today. A little bit. The space is now -- I think it's appropriate there. And we're going to do what we need to do. I'm sorry Greg.

Gregory W. Kleffner

No, that's okay. We just looked at the numbers, mark, and it is in that 60%, 65% range that Jay said.

Mark K. Montagna - Avondale Partners, LLC, Research Division

All right and then just last question. New store openings, can you tell us by quarter how many new store openings and closings there will be?

Gregory W. Kleffner

Well, right now, as we said, we're going have 4 openings. All 4 of those will be in the fall. Those will -- they're going to be right at the end of the third quarter. They'll probably be all at the end of the third quarter. The primary best times for us to open stores are in the fall or right at the end of the third quarter, so it should be right about then. And then all 3 closures will be in the fall, and those are based on when the leases come up and things. And then the relo-s, 2 more of those will be in the fall. Those will open in about that same end of third quarter period.

Operator

Your next question comes from the line of Robin Murchison with Satuit Capital.

Robin Murchison

I think you called out weakness in jewelry. Is that correct?

Jay Stein

Correct.

Robin Murchison

Is that a cycle issue, an assortment issue? And I think you also specifically said watches, and I'm just wondering, on the watch part...

Jay Stein

It's all of the above. It's all of the above. I mean, we're not without total fault, but it's also cyclical.

Robin Murchison

Would watches be sort of an exhausted trend? Pardon me?

Jay Stein

Say that again?

Robin Murchison

The watch comment, I'm wondering if that's sort of an exhausted or long-in-the-tooth trend?

Jay Stein

I cannot answer that.

Operator

Your next question is a follow-up from David Mann of Johnson Rice.

Michael Richardson - Sidoti & Company, LLC

In terms of the decline in spending in advertising, can you talk a little bit more about those efficiencies and any intention to remove additional 12-hour sales?

Jay Stein

Well, it was done in a very unscientific way. 50% of your advertising is, they say, is effective. The other half is ineffective. Until we find out exactly which is which, our instructions, my instructions, are to cut back -- on a limited basis, but to continue to cut back until we can find and pinpoint exactly where our advertising is more effective. There are no plans to cut it -- there are some plans to cut it, maybe a little further back, not a lot. But we're going to -- we need to let our product speak for itself and not drive sales by marketing the advertising as much as we have in the past. Also, don't forget, we're using the Internet an awful lot for our ads. We have 2.2 million or 2.3 million customers that we talk to almost daily. Obviously, it's a lot less expensive than it is running a big ad. To answer your question, we're going to run, I think, 7 sales this year. That's probably one more than I'd like to, but we're going to continue the process for right now. At our peak, we did 6.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

And in terms of the February removal of that sale, how would you characterize how that went for you?

Jay Stein

It went okay. I mean, it's not a big bottom line. There's a much more significant top line impacting this bottom line. You don't spend nearly as much, obviously. So you don't do quite as much business, but bottom line is about the same otherwise. But sales, I cannot tell you how out of control those sales had become, and we took that back. David, we're in the process of taking it back. February impacted our top line a little bit. It didn't our bottom line.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

And Greg, a question about the store expenses last year. You said they went up $5.2 million. Can you just clarify, was that mostly bonus and incentive-related compensation due to the strong performance? Or were you putting more store labor into -- more dollars into store payroll?

Gregory W. Kleffner

It was not more quantity, as my store guys will remind me, but it -- obviously, there were some increases in salary levels just from inflationary kind of things. There was an additional amount for incentive compensation, too, and then some benefit increases last year that we saw.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

And do you expect that kind of pressure again this year?

Gregory W. Kleffner

We'll probably have -- well, number one, since we did the incentives, I mean hopefully, if we had the same level incentives this year, that wouldn't be above -- it wouldn't have an increase. We'll certainly have some inflationary increases. I think wages are still going up a little bit. There's moderate inflation on that. Benefits is always a bit of a crap shoot. Our hope is that last year was a little aberrationally high. But to expect benefit just driven by medical a lot to go down probably isn't realistic, either.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Okay. And then in terms of the shift for the distribution centers, how should we think about the potential savings that you might see next year?

Gregory W. Kleffner

That's a good question.

Jay Stein

Why don't we get back to him on that.

Gregory W. Kleffner

Yes, I think that's just one we need to address when we get more into this year. But certainly, I think, will be pretty much full year worth of that benefit.

Operator

This concludes the question-and-answer session. I will now turn the floor back over to Greg and Jay for any closing remarks.

Jay Stein

Listen, you all. Thank you for your patience. Thank you for your patience for not only for what we've been through with the restatement, but in running this company and the challenges that we've had in the past 5 or 6 years. We don't intend to repeat those, and we're delighted to be talking to you on the heels of an 8% comp store gain, and we look forward to the future. Greg?

Gregory W. Kleffner

Thank you, and we'll talk to in a couple of weeks. Goodbye.

Jay Stein

Thanks. Goodbye.

Operator

Thank you. This concludes today's conference call. You may now disconnect.

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