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Stein Mart (NASDAQ:SMRT)

Q2 2013 Earnings Call

August 22, 2013 10:00 am ET

Executives

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

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

Analysts

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

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

Operator

Welcome to the Stein Mart Inc. Second Quarter 2013 Conference Call. 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 annual 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, Stein Mart Inc.

Jay Stein

Good morning, and thank you all for joining us today. I'm going to make some opening comments and then turn this meeting over to Greg Kleffner, our CFO. And certainly, we'll take messages after that.

First and most importantly, I am extremely pleased with our operating performance thus far this year, as we have continued to build on our fiscal 2012 momentum. We have made substantial progress in all areas of our business, as seen in our improved comp store sales, our margins, our earnings and most of all, our merchandise.

Our second quarter was just great. Not only did we achieve a 6.4% comp sale increase, but our sales were a lot more profitable, with a significant increase in the gross profit rate. The increased sales at higher margins and continued expense control just drove our higher earnings. We also managed our pricing, our inventory levels and our markdowns, I think, extremely well. Most importantly, our customers just loved our merchandise, which is the best spring season assortment that we've had in many years.

Home area continues to outperform, and many other categories experienced a very strong sales growth as well. Our customers have embraced and understands our value pricing, and she loves our designer and national brands, as well as our limited private label brands.

We've received extremely positive comments in recent customer surveys. Not only has she noticed our better merchandise assortment, but she's having a store experience that is extremely favorable, the results of store enhancements, including things like fitting rooms -- new fitting rooms, carpet, lighting, displays and positive and more frequent interaction with our sales associates. We love to hear from our customers. We do it very, very frequently. They write us all the time, and we take what they have to say very much to heart.

So we're looking forward to introducing our fall assortment to our friends. This will be done through a fall preview this month, followed by a fall fashion week in early September. Across all lines of business, our customers will see new and upgraded brands and fantastic colors that all will resonate very well with her.

So we're excited about a number of things. First, most importantly, the launch of our eCommerce over the next few weeks. This business has been 2 years in the making, and we're confident that our customers will just love it. I want to personally thank our eCommerce and the IT teams for their hard work in making this possible. Not only will this venue allow us to reach new customers in areas that do not have a Stein Mart store, it will allow our snowbirds to shop year round and provide a perfect platform for customers to view our merchandise, which certainly will increase store traffic. It's a big deal. It's a big deal for all of American retail. We expect it to be a big deal for us as well.

So we're on track to open a total of 4 more stores this year, new stores this year, all this fall. The new stores are in California, Georgia, New Jersey and Texas. We also expect to relocate 2 stores this fall, Anaheim, California, Colorado Springs; and close 2 Florida stores, Gainesville and Tequesta, all in the third quarter.

We are constantly studying various real estate opportunities to identify those locations that meet our needs in terms of location and economics. As far as closing stores, we have a very, very, very few remaining poorly performing stores. In other words, our house is very much in order.

Looking forward to the fall, our goal is to achieve strong sales on top of the great comps that we experienced last fall. I'm confident that our momentum will continue because we remain firmly focused on those things that will increase value to our customer. We have found that the right balance between our everyday value and our strategic promotions is getting to be very firm, and we'll continue to showcase our great merchandise values in all our media and execute our store events wisely. Our customers just love our promotions. For that, we are very thankful. And she will certainly enjoy the right variety of short-duration events that we've got planned this fall.

So in short, these promotions will continue to drive sales and reduce the need for end-of-season markdowns. I want to reiterate one more time, all of us, all of us at Stein Mart, are excited about these opportunities that this fall has to offer with us.

Now with that, I look forward to updating you on our progress later this season. Now Greg Kleffner will go over our operating results. Greg?

Gregory W. Kleffner

Thank you, Jay, and good morning, everyone. I'll walk through our results for the quarter, the highlights for the first 6 months and then discuss our balance sheet, our store activity and our expectations for the remainder of the year.

Net income for the second quarter of 2013 was $3.4 million or $0.08 per diluted share compared to net income of $2.3 million or $0.05 per diluted share in 2012. As outlined in our press release, our 2012 results included an item impacting comparability to fiscal 2013, and that was in the second quarter of 2012. We had a $2.1 million breakage income item for unused gift and merchandise return cards that resulted from changes in our breakage assumptions. This equates to $1.3 million after tax or $0.03 per share. Excluding this item, our 2012 second quarter adjusted net income would have been $1 million or $0.02 per diluted share, and adjusted EBITDA would have been $7.3 million. Reconciliations of GAAP to non-GAAP adjusted amounts and our EBITDA amounts are attached to our press release.

EBITDA for the second quarter was $12.8 million compared to $7.3 million as adjusted in 2012. Comp sales for the second quarter of 2013 increased 6.4% from 2012, while total sales increased 3.8%. Same-store sales increase was driven by an increase in average unit retail and a slight increase in average units per transaction, partially offset by a slight decrease in the number of transactions.

From a merchandise category standpoint, the strongest performers for the quarter were home, ladies' casual sportswear and ladies' boutique. Home area had positive results in all categories, driven by region-appropriate bright color assortments and led by top of bed and sheets, as well as home entertaining and furniture.

In casual sportswear, sales were driven by our branded collections, our Attitudes department, autumns and swimwear. In ladies' boutique, our Peck & Peck brand did extremely well, as did our national brands.

More challenging categories for the quarter were men's sportswear, ladies' special sizes and jewelry. In men's sportswear, Alan Flusser and Island Life did well, but early spring season unfavorable weather impacted seasonal categories such as golf and shorts. In ladies' special sizes, weaker trends continued this quarter, but we're expecting an improvement this fall as we introduce a better balance in our casual and career assortment and match more of the brands that we carry in the ladies' area.

Consistent with national trends, sales of fashion jewelry have been soft. However, we expect improvement this fall as we're upgrading both product and price points and expanding our brands in this area.

Shoe sales in our ladies department increased at a slightly lower rate than for our chain, and I just want to remind everybody that commissions on shoe sales are now reported in our net sales line.

Gross profit for the second quarter increased $6.5 million to $80.3 million. Our gross profit rate increased 130 basis points to 27.6% of sales from 26.3% of sales in 2012. This increase was the result of lower markdowns and slightly higher markup as we continue to execute our pricing strategy with the improved product that Jay talked about.

Occupancy costs increased due to somewhat higher utility costs but were slightly lower as a percentage of sales due to leveraging these fixed costs with our higher sales. These increases in the gross profit rate were slightly offset by increased allocated buying and distribution costs, coming from increases in incentive compensation and a slight increase in our IT costs supporting key initiatives.

SG&A was $74.5 million or 25.6% of sales for the second quarter. The second quarter of 2012, again, includes the $2.1 million higher breakage income that we discussed earlier. Excluding this item, which lowered expenses last -- which lowered expenses, last year's adjusted SG&A was $72.1 million or 25.7% of sales. The $2.4 million increase over last year's adjusted SG&A includes: first, a $1.5 million increase in depreciation expense, due to increased capital spending; second, $750,000 of incentive compensation that was paid to senior leadership, not including Jay, and based on our higher stock price; third, $700,000 of startup costs for our eCommerce launch and supply chain transition; and finally, wage and other expense increases. These SG&A increases were partially offset by a $1.9 million decrease in health care costs, which was the result of favorable claims experienced, and slightly higher credit card program income driven by our new private label card launched in June of 2012.

Now I'll touch on our first half results. Comparable store sales for the first half increased 3.6% and total sales increased 3.8%. Gross margin increased $12.6 million to $178.3 million, and our gross profit rate increased 100 basis points to 29.1% of sales. The gross profit rate increased due to lower markdowns, slightly higher markup and slightly lower occupancy cost as a percentage of sales, again, due to the leverage with the higher sales. These increases in the gross profit rate were slightly offset, again, by increased allocated buying and distribution costs, coming from mostly increases in incentive compensation with a slight increase in IT costs.

SG&A expenses were $148 million or 24.2% of sales for the first half. This compares to adjusted SG&A for 2012 of $145 million or 24.6%. The $3 million increase over last year's adjusted SG&A includes: first, a $3.2 million increase in depreciation expense; second, $1 million of startup costs for our eCommerce launch and supply chain transition; third, the $750,000 incentive compensation from the second quarter; and fourth, $700,000 in professional fees in the first quarter of 2013, associated with our restatement; and lastly, we had other wage and expense increases. These SG&A increases were offset by a $2.3 million decrease in health care costs, which resulted from favorable claims experience and higher credit card income, again, primarily from our new private label card.

Our effective income tax rate for the first half was 39.8%. This compares to 42.2% for 2012, which was unfavorably impacted by nondeductible expenses for our postretirement life insurance benefit, which we eliminated in the fourth quarter last year. Our effective tax rate for fiscal 2013 is expected to be consistent with our first half 39.8% rate.

Earnings per share for the first half of 2013 was $0.41 compared to adjusted earnings per share of $0.27 in 2012. EBITDA for the first half was $44 million compared to $33.5 million in 2012 or $31.4 million as adjusted.

Taking a look at the balance sheet, our financial position remains strong with $48 million in cash and no debt. Cash is down from the $94 million balance at the end of the second quarter last year, primarily due to dividend payments. Remember, we paid a $44 million special $1-a-share dividend in last year's fourth quarter and then resumed, in the first quarter, our quarterly dividend, and that was $2.2 million or $0.05 a share. That was -- the first one of those was in July. As a reminder, we announced the resumption of that at our shareholders' meeting in June.

Inventories increased 5.4% to $251 million this year, and these higher inventory levels have been supporting our higher sales.

Capital expenditures so far this year have totaled $19 million compared to $20.6 million last year. Expenditures are slightly higher -- were slightly higher last year, actually, due to the greater investment in information systems, including the Oracle merchandise information system, which went live in June of last year, and also some of the store remodeling costs which were higher last year. We continue to expect capital expenditures for this year to be approximately $34 million, including $14 million for continuing information systems upgrades and $5 million for distribution center equipment and software, with the remainder for new and relocated stores, store remodels and new fixtures.

Moving on to real estate. This past spring, we relocated 2 stores and closed 1 store. As Jay said, most of our real estate activity this year is in the fall, when we plan to open 4 stores, relocate 2 more stores in their respective markets and close 2 more stores. We'll talk more about future store opening plans at the end of this year. And as Jay indicated, we have very, very few remaining poorly performing stores, so you can really expect a low number of closings as we move forward in future years.

Before I talk about our outlook for the remainder of the year, let me comment briefly on the SEC investigation relating to our restatement and change in auditors. We're at the beginning of a process on this, and other than to tell you what we've previously disclosed, and that's that we're fully cooperating with the SEC, there's really little more to say on this. And as is typical for any SEC investigation, we will not be commenting further until such time that, based on the advice of counsel, we have a material update.

Now I'd like to provide you with our outlook for the remainder of 2013. We don't provide sales guidance, but there are several items regarding our year-over-year sales growth that we want to point out for the second half. First, our eCommerce initiative will not be a significant factor impacting our sales in the second half. Additionally, last year included a 53rd week, which fell in January. Our sales for that additional week last year were $16 million. The 53rd week in fiscal 2012 also created a timing shift, so similar to the first and second quarters, we expect our comp sales for the third quarter will be lower than our total sales increase, and that this will reverse itself in the fourth quarter.

As we said in the press release, we now anticipate that our gross profit rate will be 50 to 100 basis points higher than our fall 2012 rate. And to date, our margins have been quite good due to the success of our higher sales requiring fewer clearance markdowns. Our future success is dependent upon our ability to maintain strong sales and to clear seasonal merchandise, particularly at the end of the holiday selling season.

Excluding the $4 million of legal and accounting fees from last year's fourth quarter, we expect SG&A expense will increase slightly in the second half, impacted by several factors. First, we'll incur approximately $0.5 million in remaining startup costs relating to the launch of our new eCommerce business and the final transition of our supply chain from third-party to company-operated. Second, depreciation will increase by approximately $1 million this fall compared to last fall as a result of recent years' investments in capital. And lastly, we'll have normal wage and other expense increases.

Now I'd like to update you on the transition of our supply chain from third-party operated distribution centers to our own company-operated centers. First, let me say that our supply chain team has just done a tremendous job on this project. We've completed the transition of our Atlanta and Dallas centers during the second quarter with absolutely no disruption in our merchandise distribution. Our Atlanta DC is our largest center, and Dallas is our second largest center. We expect to transition our smallest and last of our DCs that's in Los Angeles early next year with the same success. As I've stated before, the change to company-operated distribution centers will result in cost savings in future years and will additionally give us some operational opportunities and advantages as we move forward with those operations.

For eCommerce, we're on schedule to launch online selling over the next few weeks. We're excited about this business and happy to be able to serve our customers who like to shop online. Our initial launch will ramp up through September as we have more merchandise and marketing. The online assortment will include a significant selection of our store's merchandise and have some offers that'll be unique to our online store.

Our business partner in this, which is eBay Enterprise and was formerly known as GSI Commerce, is providing our technology platform, as well as customer service and fulfillment support. The integrated site will allow our customers to have merchandise shipped to an address of their choice in the United States. Returns will be accepted at all of our stores or can be sent back by our customers to the fulfillment center. As a reminder, this initiative will have a negative bottom line impact this year, primarily from the startup costs, with our expected initial sales levels. In addition to that, margins will be lower than for our bricks-and-mortar stores due to the fulfillment costs, which are included in our cost of sales. We expect our eCommerce business to provide us with significant future benefit as we grow those sales, and we'll keep you updated as our rollout proceeds. This launch is really not an end but just the beginning, and we still have a lot to learn in the eCommerce area, so this is going to be a work in process as we move forward.

This concludes the prepared portion of our comments, and 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 Dave Mann with Johnson Rice.

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

A couple of questions. I mean, first of all, obviously, most apparel retailers, other than, perhaps, the largest off-pricer, are talking about a tough apparel environment coming out of the second quarter into the back half. Can you talk about, first, how you're looking at your ability to traverse that promotional environment? And then secondly, maybe comment on your ability to take advantage of increased availability of merchandise.

Jay Stein

David, thank you. I mean, first, go in context. I mean, this business, we haven't caught up to what our potential is by any stretch of the imagination. I mean, we've had a number of years of laggard sales. So we're just trying to get back what is owed us, number one. This isn't new ground. This is trying to get back what has been misplaced in the past. I mean, we're always focusing on name brands. We have more than we've ever had. Our marketing is, which you'll see in the next several weeks, is just really, really well done. So we're trying to put together a combination of great merchandise, great product and market it in the right channels. And we feel that our momentum will continue. I mean, we have no reason to believe that what we have put together for the fall will be any less dimension we've seen for the first 2 months. I can't give you a better answer than that, except it's all product-driven, and we realize that.

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

And in terms of the availability of goods, are Brian and his team, are they able to increase opportunistic purchases, or is that not necessarily going to be a focus?

Jay Stein

It will be somewhat of a focus. It is less and less so, but the availability of merchandise has never been a problem with us. Although frankly, there is less and less opportunistic goods for all of us. The manufacturers are getting smarter about that as well.

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

One other question. In terms of the comp improvement, you did say that traffic, I think, was down slightly. You had said that in the first quarter. I'm curious, given the improvement in the assortments and your merchandising and your marketing, do you expect traffic, as measured by transactions, to start picking up going forward? And do you think you're starting to gain some new customers into the store?

Gregory W. Kleffner

Dave, this is Greg. First, we didn't say traffic was down. We said transactions were down slightly, although I'd say that we then could tell you that traffic and transactions tend to pretty much sync up for us. We're definitely focused on that because we're getting great results out of primarily unit prices and the increase, and that's really the increase that Jay talks about in the quality of our product out there. We're not increasing prices on existing product; it's better product. So while we'll continue to have that focus, we are, all of us, thinking and working on getting better traffic in the stores. And that will be just on top of what we've already experienced because the increases we've had have been largely driven, as we've told you, by the better product.

Jay Stein

David, we focus every day on enhancing our mailing list, enhancing new customers. I mean, it is clearly the biggest priority we have. We know where our increase is going to come, and it's going to come from new people in the door to see what kind of retailers we are.

Operator

Your next question comes from the line of Mark Montagna with Avondale Partners.

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

Jay, you, in your opening remarks, you'd commented and really emphasized about, it sounds like, a fall product launch in September, but you already have some fall product in the stores. Are you going to be doing a major marketing kickoff? That's the way it sounded, and if so, when would that be?

Jay Stein

Yes. Yes, we are. I mean it'll begin -- it will begin within the next 2 weeks, and we've got -- and I want you to pay, I mean, close attention to it. We've got some great fashion books coming out in the next 2 weeks. I mean, I have not seen any kind of products like this that we've ever done in the past. But yes, it'll begin soon. And every month this fall, we will have something.

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

Okay. Will that include TV and radio?

Jay Stein

It will. Especially for special promotions like 12-hour special sales. I mean, we have found that -- Mark, transactional TV advertising works better for us than institutional.

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

Okay. So with the -- are you increasing the number of 12-hour sales this year for the fall?

Jay Stein

No, no. Same, apples to apples. We'd like to decrease it. We just can't.

Gregory W. Kleffner

Yes, Mark, as a reminder, we decreased 2, and we're down to 7 for the year now. As Jay says, we'd love to maybe take one more out. It's a matter of getting the right opportunity to do that without damaging ourselves.

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

Okay, and brands have really improved a lot. So I'm wondering, is there more room for improvement, like, do you have newer, additional brands banging on your door now saying, we want to be in your store?

Jay Stein

Sure, we do. We do. I mean, listen. We do, clearly. I mean, I don't want to -- we can't name them, but absolutely. I mean, with our business trend right now, obviously, it's contagious. People would like to be in our stores. There are very few brands that we cannot get -- there's a couple that we'd like to have, but very few, and we're blessed with that. And we respect -- and we're very thankful and we respect our partners a great deal for it.

Gregory W. Kleffner

And Mark, one thing I'd add on the brands, and leave to the non-merchants to talk about this, but our merchants, I think, have been great at increasing -- we're banging on their doors, too. They're looking at the brands we want to have in our stores and making sure we're pursuing those, not just sitting back and waiting for the phone to ring.

Jay Stein

Good point.

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

Okay. And then your presentation that you have on the website today shows national and designer brands, 65% of sales. But how does the other 35% break down in terms of regional and private brands?

Gregory W. Kleffner

Mark, we've got 11% -- I think right at 11% private brands, and then you've got that middle ground in there is -- frankly, they're probably -- they're not private, but they're not major brands. It's really more what I think the industry would call sort of labels and not really different than probably most retailers out there. I think the big difference for us, frankly, is getting up to the 65% in national brands. I don't want to necessarily say that's the peak, but that's a huge increase for us and really has been driving a lot of the increases that we're talking to you about today.

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

So could those middle ground, nonmajor brands be -- that's where you have the opening to allow more bigger brands in. Would that be accurate?

Gregory W. Kleffner

Yes, although at some point, you want some of that because they offer you ability to price point and promote in there -- is important, too. And you don't want to -- the one thing we're not going to be doing is increasing our private label. So I mean, I think you look at that 65%, yes, we'd love to increase that maybe a little more, but we're not totally unhappy with where our mix is right now in all those areas.

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

Okay. And then the eCommerce and DC hit to -- how much was that in the first quarter?

Jay Stein

I think if you do the math, I think it's $300,000, because we said $700,000 second quarter, $1 million in the first half.

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

Okay, alright. And then I'm just curious how you're able to do the DC project and the eCommerce project at just a $3 million SG&A cost. It just seems incredibly low.

Jay Stein

Well, I'd say there's a couple of things on that, Mark. I would say, frankly, a little more of that is probably on the eCommerce side because that took a little more of an investment. The supply chain, I don't want to -- hey, our group did a great job. That group was largely in place before. We were managing a third-party network, a supply chain that was done through a third-party network. In a lot of ways, this doesn't really change a lot for a lot of what our guys do, so it was effectively taking facilities that existed but were run by third parties and converting them into our facilities run by us. In 1 of those 3 cases, the biggest facility, we didn't even move facilities. So we just basically -- sort of one day, it was us running it. Not quite that simple, I know. But the -- so that project wasn't overly intensive on upfront costs. There were upfront investments in that, certainly, but those get amortized over or depreciated, and those are largely IT, a little bit of actual facility costs for conveyors and things.

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

All right. So then you've spent the CapEx on these 2 items for this year, and CapEx for this year is down pretty impressively from last year. I assume it's logical that we should be looking at CapEx for next year to be down pretty substantially versus this year.

Jay Stein

We are going to -- we don't talk about it till year end, but I think it's certainly logical to say that it's not going to -- I think the trend that you're seeing is going to continue. The question is sort of where we'd sort of level out here in the future. And we'll talk more about that as we get towards the end of the year here.

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

Okay. And then is GSI Commerce going to manage the website also?

Jay Stein

Yes. eBay, by the way, now. They changed their name.

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

Right, right. And where is that center located?

Jay Stein

Philadelphia.

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

Philly, okay.

Jay Stein

I was getting information on the side. I knew it was up the East Coast, but...

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

Yes, okay. So then the eCommerce expense, once it's running, is that going to be -- are those expenses under both gross margin and SG&A, or how does that split?

Jay Stein

Are you talking about the one-times or the upfront?

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

No, no, just the ongoing expenses once it's up and running.

Jay Stein

Well, what you've got is you've got -- Mark, if you look at eCommerce -- and remember, for the second half, we're not talking about a ton of volume here, but, so let's -- I want to sort of set the table for that. What you've got is the fulfillment piece of eCommerce is all up in cost of sales, so basically, not a surprise. The way eBay/GSI works on this is they charge us a percentage for the fulfillment. That percentage, because of the nature of that, is up in our cost of sales. So it effectively -- equate that to, like, our store expense, our occupancy expense for our bricks-and-mortar stores, which is up in cost of sales and comes out of gross profit. Then you've got the shipping income and shipping expense are all up in either sales or cost of sales, too. You then have an SG&A component, which is our people, largely our people running -- that run this. It's not a huge group, but it's not an insignificant group either. And there's also some depreciation down in there with some of the systems and things.

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

Okay. And, let's see. The $3 million hit that we're looking at this year for DCs and eCommerce, I'm assuming we get all of that back next year, but probably, initially, eCommerce will maybe not be so profitable at the beginning of the year. And do you expect eCommerce to be profitable on the full year basis and we get that whole $3 million back?

Jay Stein

Mark, a couple things. First, on the $3 million, the $3 million is what we said at year end. So if you go back and look at our -- what we talked about for this year at year end, we said that we thought we'd have $3 million in onetime costs. If you look at what we have now, we said we have $1 million in the first half, and we said it's $700,000 for the second half. That's $1.7 million. So effectively, we're telling you that the $3 million didn't come in that high. And our guys just did a great job. I don't think we were, frankly, overly conservative there. We're a little conservative. Our guys did a great job, and it's just come in better. If you look at eCommerce going forward, what I said in the past, I'm going to just stick with it is -- this is -- we've got to get good volume levels to really make money on this. I would not look at this as a moneymaker, certainly, in '14. I would say we'll be doing good here for a while to, frankly, break even on this. So I would look at it that way for a while. But also, I'll say, let's -- we'll talk more about this as this proceeds. I mean, we're going to, 3 months from now and certainly, 6 months from now, have a lot better feel for how this is proceeding from the sales side because really, how profitable that is going to be driven by our volumes to a large degree. We're just starting, so...

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

I'm sorry, is eCommerce up and running right now?

Jay Stein

ECommerce will be up and running in the next several weeks, as we said.

Operator

[Operator Instructions] Your next question comes from the line of Michael Exstein with Crédit Suisse.

Unknown Analyst

This is Charlene Wong [ph] on behalf of Michael Exstein. So just with Nordstrom Rack and others going to pack away, does that affect the availability of your branded goods at all?

Jay Stein

No. I mean, it does not. I don't believe that it does. We are buying, certainly, the vast majority of our goods is upfront at a negotiated price. We buy less and less pack-aways, in fact, very, very few. Our customer appreciates them less, I think, than perhaps, the Nordstrom customer does.

Operator

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

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

A couple of questions. First, in terms of the home category, obviously, that's been one of your strong categories, as you say, with on top of bed. Can you just talk about some of the progress you're making in terms of the other more hard goods-oriented part of the home category? And where do you think home can be in terms of percentage of sales over the next couple of years?

Gregory W. Kleffner

Dave, let me start on the percentage of sales. I believe we're at 12%, as we indicate in our investor presentation that's online now, and we were down, I believe, to 10%. We were up in the -- if you go back into the 2004, 2005 periods, I think we were right about 20% or so of our sales. Now 2 things happened [indiscernible] say you go 12% to 20%, but the other thing that's happened is our overall sales came down. So 12% of that number is a way lower dollar amount than 20% of a much higher number. So a lot of opportunity there. And I think it goes back to what Jay talked about in one of the first questions and just -- we've got a lot of making up to do on things. I don't know that 20% is something we would think is totally reasonable. I mean, you've got a different competitive landscape and other things, and it's harder to gain back things than it is to lose them in the first place, unfortunately. But certainly, that's an area that we're working really hard on and is doing well. I mean, coming from 10% to 12% is great. We want to continue that up and get closer to that -- a lot closer to that 20% where we used to be.

Jay Stein

Listen, David, it is -- we have an immediate goal, and our immediate goal is to get to 15%, 16%. We feel very comfortable with that.

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

Great. And then one last question on capital allocation. It looks like while cash is below last year at this point in time, it looks like you're going to be having that unfortunate problem of building up some more excess cash, at least be closer to last year's balances. So I'm wondering what your thought process is, first, about, perhaps, another special dividend in addition to what you're doing quarterly. And then secondly, given that your store performance is so good, what's the thought process about accelerating net new store growth for next year?

Gregory W. Kleffner

Dave, a couple of things. Obviously -- I'll give you the boilerplate that says we obviously continually assess how to return cash and value to our shareholders. We obviously have a bit of a history on special dividends, but we also now, again, started up the quarterly dividend, so that's using some of our cash. Clearly, we look at investing in the business as our first priority, making sure we're doing the right thing from a business standpoint, and we don't feel at all constrained. I mean, the constraints we have there is making sure that our investments pay off good, not that we have to fit into a size on our investments internally. And real estate's a big piece of that, but, and I want to caution everybody again, as I always say, we don't use a lot of cash opening stores. I mean, we lease all our stores. A lot of the inventory in a new store is financed with the accounts payable. So our net investments in new stores are relatively small. They're not nothing. And I think we're going to -- we're certainly looking at real estate and would like to be able to be more aggressive in our openings going forward. We'll talk more about that as we get to the end of the year. I mean, it's a tough real estate market, but that's certainly an area we're looking in.

Jay Stein

David, we don't have any constraints on real estate. We will take as many stores as we think is advisable in both location and price.

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

In terms of the cash, is there a certain cash level, a base level that you feel you'd like to keep and would characterize some level above that as excess? I mean, is it $75 million, $100 million, $50 million?

Gregory W. Kleffner

I think it's more judgmental than that, David. I think we talked about it. It pretty well gets talked about in every board meeting. We certainly think and talk about it internally. We've obviously gotten comfortable with going from that sort of $100-plus million level of cash down into the $50 million range. So I mean, I think you're going to have to sort of look at that and sort of use that as a gauge as to how we think about cash, at least in the current level.

Operator

[Operator Instructions]

Jay Stein

If not, I thank you all for being here today. We thank you for being our partners. Thank you for being fans of our company. We will not disappoint you, and we look forward to the remaining part of this fall. Thank you.

Operator

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

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