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The Bon-Ton Stores, Inc. (NASDAQ:BONT)

Q2 2013 Earnings Call

August 22, 2013 10:00 am ET

Executives

Jean Fontana - Investor Relations

Brendan Hoffman - President and Chief Executive Officer

Keith Plowman - Executive Vice President, Chief Financial Officer and Principal Accounting Officer

Analysts

Edward Yruma - KeyBanc

Jonathan Hart - Buckingham Research

Michael Exstein - Credit Suisse

William Reuter - Bank of America Merrill Lynch

Grant Jordan - Wells Fargo

Colleen Burns - Oppenheimer

Hale Holden - Barclays

Rosemary Sisson - Lazard

Operator

Good day, ladies and gentlemen. Welcome to Bon-Ton Stores Incorporated Second Quarter Fiscal 2013 Results Conference Call. Just a reminder, today's conference is being recorded.

For opening remarks and introductions, I will turn the conference over to Jean Fontana. Jean, please go ahead.

Jean Fontana

Good morning and welcome to the Bon-Ton second quarter fiscal 2013 conference call. Mr. Brendan Hoffman, President and CEO, and Mr. Keith Plowman, Executive Vice President and CFO will host today's call. You may access a copy of the earnings release on the company's website at www.bonton.com. You may also obtain a copy of the earnings release by calling 203-682-8200.

The statements contained in this conference call which are not historical facts may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in such statements due to a number of risks and uncertainties, including those set forth in the cautionary note in the earnings release and all of which are described in the company's filings with the SEC.

I would now like to turn the call over to Mr. Brendan Hoffman.

Brendan Hoffman

Good morning. Thank you for joining us today. While we were met with several challenges that pressured our sales during the second quarter, we were pleased to achieve a 100 basis points of improvement in our gross margin rate and a reduction of our expenses, resulting in $1.6 million increase to EBITDA, compared with the second quarter of fiscal 2012, which on year-to-date basis is an increase of $12 million. We believe the adverse impact of inclement weather, higher gas prices and higher taxes, coupled with an unfavorable shift in consumer spending pattern, contributed to the overall sales weakness.

In addition, in the second quarter last year we added some new aggressive promotional events that lifted the top line, but at a reduced margin rate. We anniversaried the events this year, but tweaked them to make them more profitable without the same incremental lift. We believe these factors masked some of the progress we have made in our key initiatives. Overall, we are comfortable with our direction, but we will fine-tune the assortments, tweak our marketing plans and our store presentation as we strive to improve store productivity and drive profitability.

In the second quarter, we continue to refine our assortments to strike a better balance between merchandise for our core customer while having new brands and categories to attract the younger customer. We were pleased that our ladies ready-to-wear business trended better than the overall store in the second quarter. We had particular strength in dresses, women's apparel and casuals, casual being driven by both, denim and active.

We did well with the better brands that we have introduced or expanded throughout the store, including Michael Kors, Ralph Lauren and Calvin Klein. Growth in shoes outpaced the store despite a huge drop off in the sandal business.

We were pleased that our private brand business is getting healthier as we significantly increased our gross margin rates. Gross margin was driven by a strong performance from better brands like Ruff Hewn and Laura Ashley, and improvement in key moderate brand like (Inaudible) and Studio Works. We also pulled back in unsuccessful brands and reduced overall inventory levels, which in addition to lower costs enabled us to drive improved profitability.

Our cosmetic business is one of the weaker categories, which typically correlates to weakness in traffic. Overall, this remains a franchise category for us and we expect to see this business pickup as traffic begin to improve.

We saw solid sales growth in our proprietary credit card business during the second quarter. Our new loyalty program continues to be well received increasing our PLCC penetration. Our eCommerce business delivered outsized growth, driven primarily by an increase in traffic and our expanded offerings of fashion merchandise.

Our limited broadcast media exposure in the second quarter made it more difficult to impact the broader negative traffic trends contributing to the overall decrease in comps for the quarter. Based on general market level traffic data from ShopperTrak, our analysis showed most of our markets lagging national traffic trends by high single digits throughout the second quarter. Despite this, we were able to make significant progress in media optimization analytics and we are continuing to improve our core promotional events with enhanced offers and more clearly delineated focus on targeting for each event.

We are very pleased with the performance of our clearance store in the Milwaukee area and have received excellent customer feedback to-date. We have identified the location in the Chicago area for our second standalone clearance center, which is scheduled to open in early fall. Our revamped clearance strategy will move forward with a blend of in-store clearance floors and standalone centers. The overall inventory management strategy is working. We remain focused on reducing our inventory levels, particularly in our smaller stores as it result from lower end of season markdowns and improves our profitability.

At the end of the second quarter, our comparable inventory levels were 3.7% higher than last year. While we originally hope to have this reduced more, we believe, in light of the sales miss, we are in good shape with our inventory composition. We will continue to focus on this and drive the inventory levels down further in the fall. As we look towards the second half of the year, we will build upon our strategies, including maximizing growth in our eCommerce business and our commitment to IT investments.

In sales promotion and marketing, based on the result of cadence, content, and targeting tests conducted in the second quarter, we are aggressively adjusting our fall season media mix. We will have a more effective presence in broadcast, direct and digital allowing us to reduce our spend for the season. We are also making significant progress in defining our approach to localization. The merchants, store planning, marketing and visual teams have started to make the strategy come to life. This fall, we will begin to implement changes and test this initiative in many of our stores all to better reflect the lifestyle of the customer in a particular market.

Visual and merchandising initiatives will provide a consistent look and feel throughout the store will accomplish its goal. We are using a combination of field level input, historical results driven by new analytic tools and customer surveys and feedback to develop strategies by location and merchandise group. Included in this, is the ability to dynamically price by banner as appropriate.

The focus this fall is on ready-to-wear [shifts] along with creating dominant denim and active merchandising zones in all stores, but we are also working through other key categories. We will begin to version our marketing to better reflect the assortments, promotions and lifestyles of the different markets we serve. Much like merchandising, trying to develop advertising and sales events that work well for all our stores was not effective.

In the fall, we will begin to test an A/B version for many of our events and see if this allows us to better connect with our local customers. In addition, we will continue to look for ways to leverage our expense structure. We are excited about the IT projects that we will implement to help us move forward with this goal.

I would like to add that we are looking forward to the grand opening of two new stores in mid-September of Carson's in Fort Wayne, Indiana, and our entry into a new state with our Bon-Ton and [Portal]. In summary, we believe we have multiple opportunities to drive long-term growth and improved profitability. While we faced some challenges in the second quarter, we feel good about the direction of our business and look forward to improved results as we continue to make progress on our key priorities.

With that, I will now turn the call over to Keith.

Keith Plowman

Thank you, Brendan. Good morning, everyone. Some notable points for the second quarter, comp store sales decreased 6.4%. Our gross margin rate increased 100-basis point to 37%, compared with 36% in the second quarter of fiscal 2012. Operating loss improved by $2.2 million to $15.5 million, compared with an operating loss of $17.6 million in the second quarter, last year.

Adjusted EBITDA, which is defined and has a reconciliation provided in our earnings press release, increased $1.6 million to $8.7 million, as compared with $7.1 million, in last year's second quarter.

As Brendan mentioned, our private label credit card penetration improved and was 350 basis points above the second quarter of last year. At the end of the second quarter, our excess borrowing capacity under revolving credit facility was approximately $376 million a reminder that this reflects the company's redemption of $65 million of its 2014 senior notes in the first quarter this year.

Details of our second quarter which ended August 3, 2013 include the following. Total store sales decreased 6.3% to $557.1 million compared with $594.9 million in the prior year period. Gross margin dollars decreased $8 million to $206.1 million and our gross margin rate increased to 37% of net sales. The increase in the gross margin rate in the current year is largely attributable to reduced net markdowns and an increase in our cumulative markup percentage.

SG&A expenses decreased $8.2 million to $211.3 million, compared with $219.4 million in the prior year period. Our SG&A expense rate increased to 37.9% of net sales compared with 36.9% in the prior year period, reflecting the lower sales in the current quarter, and our net loss improved by $7.7 million to $37.3 million, or $1.95 per diluted share compared with a net loss of $45 million or $2.43 per diluted share for the second quarter of fiscal 2012.

A few notable points for the first six months of the year, comparable stores sales decreased 2.5% and total sales decreased 2.6% to $1.204 billion. Gross margin dollars decreased $2.2 million to $431.4 million. Our gross margin rate increased to 35.8% of net sales compared with 35.1% in the prior year period. The increase in the gross margin rate in the current year is largely attributable to reduced net markdowns and an increase in the cumulative markup percentage. SG&A expenses decreased $11.3 million to $436.3 million, compared with $447.7 million in prior year period. Our SG&A expense rate was even with last year at 36.2% of net sales.

Adjusted EBITDA was $23.9 million, an increase of $12 million to the prior year period and our net loss improved by $21.9 million to $64 million, or $3.37 per diluted share compared with a net loss of $85.8 million, or $4.66 per diluted share for the prior year period.

Looking at some key ratios and balance sheet amounts, our total balance sheet inventory at the end of the second quarter increased 5.4% compared with the prior year. However, approximately half of the increase reflects higher in-transit merchandise coming in for the fall season.

Second quarter fiscal 2013 capital expenditures before netting external contributions were $35.5 million compared with $38.9 million for the prior year period, and the components of our debt at the end of the second quarter were as follows. 2021 senior secured notes, $350 million. 2017 senior secured notes $57 million. Revolving credit facility, $219 million. CMBS mortgage facility, $222 million. And, capital leases and other debt, $56 million for a total debt of $904 million. Letters of credit outstanding were about $3.5 million.

Moving to guidance, we are revising our fiscal 2013 guidance for adjusted EBITDA in the range of $170 million to $190 million. For earnings per diluted share, in a range of $0.15 to $0.75, and for cash flow in a range of $10 million to $30 million. Key assumptions reflecting our full year guidance are comparable stores sales in a range of negative 2.5% to flat, gross margin rate in the range of 36% to 36.2% and SG&A expenses, including increased performance incentives, flat to down two-tenths as a percent of sales compared with fiscal 2012. Our Form 10-Q for the second quarter fiscal 2013 will be available by September 12th.

We will now be happy to entertain any questions you might have.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, the question-and-answer session is conducted electronically. (Operator Instructions) We will go first today to Edward Yruma with KeyBanc.

Edward Yruma - KeyBanc

Thanks very much for taking my question this morning. I guess, how should we think about the interplay between mark-downs and comps, Brendan? Obviously, this is a tough environment and it looks like your competitors have been very aggressive with markdowns. I guess, would you be willing to sacrifice incremental gross margin to achieve the comp guidance you guys have provided?

Brendan Hoffman

Ed, we are trying to optimize all components that make up EBITDA and sales gross margin are two of the most important obviously, and we will continue to play with those to see where we get the best optimization. I don't think anyone would accuse us of being uncompetitive when it comes to the promotions that we are currently running.

As I mention in my remarks, we probably went a little bit too far last year during Q2 to try and make sure we were energizing the top line and engaging customers. Now, as we have a better handle the business, trying to make sure that we moderated it a little bit or come up with more effective promotions, and as a I said in my remarks one thing we are very excited about is the opportunity to have some dynamic pricing and promotions out there for the first time.

This will start in September with our goodwill event, where we actually have two versions of our book going there because we have realized that the events work differently in our different regions and by our different store types and some of these has to do with the underlying promotions whether it's a dollar off sale or percent off sale, we feel we can fine-tune this.

So, I don't think from the customer standpoint, we will look any less promotional, but hopefully we will be more efficient with those promotions then equally important with the gross margin improvement is keeping the inventories in line and not having the end of season markdown glut that we have historically had.

Edward Yruma - KeyBanc

Great. Really thinking about your focus on national brands, I know that's been kind of one of your areas of focus since joining the company. At this stage, if you kind of give us an update on the balance of private label versus national brands and have you been able to get some of these national brands and maybe you are pursuing? Thanks.

Brendan Hoffman

I think it's not necessarily prioritizing one over the other. I think, again, it's finding the right balance. As I said in my remarks, we were very pleased with the performance of private brand this quarter, the profitability came roaring back from what was just an unacceptable levels over the last few years and part of that was pulling back on some unprofitable brands that we had, or categories within brands. But going after other categories, like I mentioned in casual with (Inaudible) of course Ruff Hewn that we think there is top line and bottom line potential.

So, the private brand team has done a great job working with the general merchant pool to figure out, how we can maximize the opportunity in private brand. Of course, as we mentioned, we feel very important to have a selection of national brands. But, again, this will vary by region too. I mean, in an area like Chicago, where we are competing against pretty much every other national retailer, feel very important to be able to have Michael Kors and Ralph Lauren, Calvin Klein.

We just added three people to a number of our stores that's just being delivered now. So, in the competitive areas for sure, we need to be on even playing field including the internet by the way, which we have talked about adding those brands as well in the past. Then as we get out from our more rural markets, where there isn't the same level of competition. It's appreciating that we can bring some of these national brands, but they can't get elsewhere, but certainly understanding that the mix of private brands needs to be at the right levels for the necessary price points and to fill in the gaps that we can get some private brands to some of our smaller stores.

Operator

We'll go next to Jonathan Hart with Buckingham Research.

Jonathan Hart - Buckingham Research

Good morning, Brendan.

Brendan Hoffman

Hi.

Jonathan Hart - Buckingham Research

Just trying to dig into the results a little bit more. Can you comment on some of the key comp metrics that you are?

Brendan Hoffman

Jon, I can't hear you. Can you speak up?

Jonathan Hart - Buckingham Research

Brendan, can you hear me now?

Brendan Hoffman

Yes. That's better.

Jonathan Hart - Buckingham Research

I was just trying to dig into the results a little bit more. Wondering if you could comment on some of the key metrics of comp AUR transactions, wondering if there were any merchandising categories that were positive in Q2?

Then lastly in terms of your comp performance by region, small stores, larger stores and in terms of where you overlap most closely with J.C. Penney?

Brendan Hoffman

Obviously in terms of the overall metrics, they were all pretty disappointing. Certainly in the back half of the quarter as we have got into clearance period, we are seeing an increase in AURs as we have a more efficient and effective clearance strategy, which I think you are seeing in the bottom line.

In terms of trends by region, it was pretty comparable throughout. There was a little bit more strength in some of the big cities like Chicago, Detroit was a little hard for us to measure because we had done the name switch from Parisian's to Carson's, so that that we had some growing pains there .

But, as I hear what some of the other department stores have been talking about in terms of regions where our store base is, as well as the vendors who have pretty good visibility into by store comparisons, I think that our comps were in line with the performance they saw in their regions as well, so we are trying to certainly understand that a little bit better to make sure that we are not losing market share in our regions despite the tough environment.

In terms of J.C. Penney's, again as I said last quarter, it was very inconsistent with how we performed with or without them in the mall. I mentioned in my remarks that our PLCC penetration was strong. We actually, as we look at our core customer, we actually saw growth in our core customer was our third-party charges, our non-core customer that really fell off and I think that's speaks to the natural traffic that just did not occur this past quarter into the malls, which we really count on.

So, certainly as we head into the fall and turn the corner fall always is a little bit advantageous for us where we are located, because it's a longer season and I think that played in the spring. That played into some of the dynamics of our customer with the weather staying cool for as long as it did. By the time the weather broke, she just didn't feel like there was a much of reason to invest in the spring wardrobe.

We are hoping we get a little bit of the opposite here as hopefully the weather gets seasonal over the next three or four weeks and our northern store base customer recognizes she can now invest in these in her wardrobe because she has seven or eight months to get used out of it. And, certainly in the first few weeks, we are pleased with the initial selling we are getting from our new fall receipts.

Jonathan Hart - Buckingham Research

That's very helpful. Just a follow-up in terms of your second half comp guidance, I guess the early results of your new receipts, are those giving you confidence to guide to that fairly big improvement in comps in the second half?

Brendan Hoffman

Well, I think that. Yes. As I said, we are seeing some early good selling in our early fall receipts, but it is a small piece of the business right now so I don't want to overstate that. But, certainly, for the reasons I just mentioned, we feel that there is hopefully a little bit more opportunity than there was in Q2. But as Keith said, we recognize that we have some work to do on all parts of the profit equation to make sure we can achieve our EBITDA numbers and sales being the thing that we are most focused on.

We hope that some of these comments I made about versioning our marketing, some of the merchandising changes we have made to better localize the assortments, well certainly not at full strength for fall, will start to get us some incremental sequential growth or improvement, I should say.

Jonathan Hart - Buckingham Research

Okay. Just lastly, I am just wondering how you are feeling about the current expanse phase of the company. Just wondering where we are in terms of the cost cutting initiative. Wondering if you are worried that you may be taking out too much cost out of the model, especially given the drop in sales during the first half?

Keith Plowman

Jonathan, this is Keith. I feel very good. I believe Brendan and I both, feel very good about where we are in our cost structure. We have pulled out the cost we talked about last year. Remember that $30 million benefits that year. And, then on the run rate, will be $40 million. You are seeing those costs come out. We are down $11 million in the spring season compared to the prior year. Those costs were very surgically defined as to where they are. There is no question some of them are reaction to volume drops. You had asked the question on AURs and transactions and such and when you look at where we were first quarter, we were down in the low-single digits, around a little over 2% in transactions.

As we go to the second quarter, we were down double-digit in transactions. She was just was not out shopping in the store and what we were seeing is the average transaction in both periods up offsetting some of the transaction decrease, but where I am heading with this is essentially we are reacting to what the sales trend is and how she is coming out to the floor. We are being very careful that we are not influencing that and harming the process whatsoever.

I mean, it was a tough quarter. We don't take anything away from that, but we do believe we are in the regions that were more impacted than others. And, certainly, I think you are hearing that as consistent theme and we will continue to address the expenses to respond to what the sales trend is out there and we are also going to continue to eliminate those expenses that we feel do not harm the business, that are surgical and that we think can benefit us in the long-term.

Jonathan Hart - Buckingham Research

Okay. That's very helpful. Best of luck for the fall season, guys.

Operator

We will go next to Michael Exstein with Credit Suisse.

Michael Exstein - Credit Suisse

Can we just follow-up on two things? One is, the comment about cosmetics. Just give us some feel as to why you think that business wasn't driving people into the stores, because it's a backbone of your stores. Also following up on the SG&A comment, are there more costs to take out, or have we hit sort of right [point] which the gross dollars can go down anymore?

Brendan Hoffman

Michael, yes, I think with cosmetics we get pretty good visibility into this with our peer group and it seem to be everywhere. That's something we were pretty much getting on weekly basis and we were really trending with the other department stores.

I think it was some of the people who have been in the cosmetic industry a lot longer than me, so they have just never seeing something like this were just shutdown in early May, and hopefully starting to come back a little bit now. There's certainly some good new introductions that we hope will energize the customer, but you are absolutely right. I mean, I think, one, it's a good reflection of overall traffic, but it's something that we count on to be an important part of our overall mix, so we need that business to come back strong in the back half of the year.

I think with the SG&A, I think Keith articulated real well. We are very comfortable with where we're at. We are always looking for ways to get more efficient and streamline the business. At this point, I think it will be done methodically and incrementally. No big great unveil at this point. If anything, we were hoping by now to be able to invest back in the business in certain parts of the organization to drive some of these initiatives and that's really still our hope as we hopefully get some increased performance.

Michael Exstein - Credit Suisse

Do you think the SG&A dollars will be sort of flat for the second half of the year?

Keith Plowman

Michael, this is Keith. As you look at the dollar there, we will continue to be able to bring the dollars down as we look at it as a percentage of sales. That's why we are giving guidance out there of being essentially flat or two-tenths down. On the essentially flat, that's assuming the upper end of the guidance range and that's going to have more incentive in there.

Just to frame that out a little bit, as you look at the first six months, I think you would remember last year we had in round terms about $7 million of severance costs that obviously didn't incur or recur this year to that level. But what we have done is, increased the incentive cost that we have that are built into the numbers you are seeing for the spring. We have some fee that we are investing. Brendon talked about localizations, some other, being smarter with the reports that we pull out of the company and IT investments to make the company better.

We are continuing to invest in those kind of items, so we really have moved those dollars over. Then we are looking for areas where we can pull additional dollars out of business that makes us more efficient. That, again, does not impact the business, but allows us to operate with the lower cost structure, because we are looking at the long-term as we start to drive that top line. It allows more dollars to follow the bottom line.

Michael Exstein - Credit Suisse

Great. Very helpful. Thank you so much.

Operator

We will go next to William Reuter with Bank of America Merrill Lynch.

William Reuter - Bank of America Merrill Lynch

Good morning guys. So, it seems like you guys have a pretty good sense of how traffic was in your stores based upon cosmetics. I am curious if you could talk a little bit about back-to-school. Anything either with regard to what you are hearing or what you are seeing in your stores in terms of whether traffic has improved?

Brendan Hoffman

Again, I mean all I can go by is some of the early fall selling. We are getting into areas like kids which we're pleased with. Again, I don't want to distort that. The lion share of our business during this time of the year is clearing out spring summer goods, so we don't have traffic counters yet although we are installing them in select stores. We do use a service called ShopperTrak as I mentioned in my remarks, which gives us regional traffic data. And, for the last three months every week the areas we trade in, we are just trending down almost double digits compared to the rest of the country. I think you see that in the results not only for us, but what people are saying in their Midwest regions.

William Reuter - Bank of America Merrill Lynch

Okay. Then you noted that the increase in inventory, half of it was due to in-transit. I guess, I am curious whether the remainder was heavy with regard to summer inventory or whether you guys were able to clear that pretty efficiently with your clearance set or whether this was kind of across all your categories.

Brendan Hoffman

I feel very comfortable with where our inventory levels, especially considering how much we dropped in sales. I think that was something we talked about in the last call. We wanted to get leaner and more efficient with our inventory. Obviously, that was with the expectation at this point our inventory levels would be flat or down to the prior year, but fortunately we did start the initiatives, so the inventories are as clean considering the drop off in sales.

In terms of what we call backwards inventory or carryover, is very comparable to last year. As Keith mentioned, the in-transit is up which is all new receipts and so we feel that where the inventory levels are and with the clearance centers and the new strategies we have to liquidate at that we are in good shape in terms of not having any negative overhang. Again, going forward, as we get to drive these inventory levels down, we hope that could be something that couldn't drive more incremental profit to the bottom line.

William Reuter - Bank of America Merrill Lynch

Okay. Then just lastly from me you talked a bit about eCommerce being strong. Is it still moving towards the 5% of sales that you guys had hoped or anticipated for this year?

Brendan Hoffman

Yes. I mean, obviously it wasn't at the levels we had hoped as the overall business dropped off, but in terms of the penetration of the business, yes. It's tracking right around there and doing so more profitably than it ever has in the past.

William Reuter - Bank of America Merrill Lynch

Thank you.

Operator

We will take our next question from Mary Gilbert from Imperial Capital.

Unidentified Analyst

Hi, Brendan. This is [Charlie] for Mary. Just a follow-up on the last question, you said the eCommerce sales are tracking right around 5%. I sense that you guys were pushing towards 10% over time, so is that case?

Brendan Hoffman

Well, yes. Over time, but we had said that this year we would grow from 3% in 2012 to 5% in 2013.

Unidentified Analyst

Got you. Okay.

Keith Plowman

We are on track for that. As a penetration and then, yes, we clearly feel that 10% is where we need to get to over the next few years, because that's where other department stores are at or exceeding. And, if we can hit the 5% this year, we should be well on our way to that over the next couple of years.

Unidentified Analyst

Right. And, also a further question is, how should we look at changes in working capital so far this year? I know obviously you talked recording your best inventory so far, but otherwise what else is new?

Keith Plowman

As Brendan mentioned, we are continuing a very diligent focus on inventory levels and we got caught pretty harsh in the second quarter of sales sell-through, but we have adjusted going forward. We feel that our inventory is very clean. As we look towards the end of the year, our intent is to continue to bring inventory back in line in line with the sales trends and to get ourselves to lower inventory levels, so I would see that we should have some working capital benefit from inventory as we go through the year. Other than that, I think you can consider everything pretty equal.

Unidentified Analyst

Okay. One more question. Do you have any plans right now to address the CMBS facility and any timing on that?

Keith Plowman

No. We really don't have any plans right now. As you know, that facility matures in March of 2016. We continue to look at strategies, how we might address it, but there is a make whole provision in that agreement and it's pretty substantial, so it's something where we will continue to look at strategies. We think we certainly have a lot of opportunities. I know on prior calls, I talked about essentially it was $325 million, 80% loan to value ratio, so we got a loan of about 260.

By the time it matures in 2016, it will be down somewhere below $200 million, which means it will be about 60%, and we think the opportunities as we watch the market we would have a chance to move back into another CMBS. We also believe we have a couple of other options we are looking at. But as it sits today, because of the make whole provision we are going to continue to look at strategies, but not make any moves until the time is appropriate.

Unidentified Analyst

Just one last question actually. Brendan, there have been like a number of press reports, obviously, citing you as an ideal candidate for the permanent [role at the] J.C. Penney, which of course is concerning Bon-Ton investors. Is there any way you could address that or do you have any comments there?

Brendan Hoffman

The company doesn't comment on rumors like that. I will just say that I am committed to the Bon-Ton and we have a lot of work to do here and I am enjoying the challenge, enjoying might be the wrong word, but more to the challenge of getting us to what we have been discussing here and earlier, so I will leave it at that.

Operator

We will go next to Grant Jordan with Wells Fargo.

Grant Jordan - Wells Fargo

Thanks for taking the questions. You talked a little bit about, you were present I think you said in broadcast media and that was part of the reason why your comps may have lagged. Can you expand on that a bit?

Brendan Hoffman

Yes. We did had some broadcast media, but what we realized was it's becoming a much more effective and meaningful part of driving new traffic to us. So, as I mentioned earlier in the Q&A, it wasn't so much our core customer PLCC customer that where we got hurt, in fact she was pretty good. It was that the rest of the traffic in the customer base that really fell off and so we found as we tested in certain markets TV can really have a bigger cast a wider net and so we have increased our penetration quite dramatically for broadcast.

In this back half of the year, we also feel like we have a much better handle on where we should be placing those advertisements, and so we have shifted around our media spend in the back half of the year to be able to fund more broadcast and hopefully that pays off with some of that increase in the traffic.

Grant Jordan - Wells Fargo

So, relative to maybe what was done a year ago, was broadcast down or you are just saying that there is more opportunity to increase it?

Brendan Hoffman

You are saying in Q2?

Grant Jordan - Wells Fargo

Right.

Brendan Hoffman

Yes. I don't think it was down. I think, we realized as we progressed later in the quarter that it was probably having the most dramatic effect driving traffic and so we had aggressively started to shift monies into broadcast.

Grant Jordan - Wells Fargo

Okay. My last question, it sounds like you guys expect comps to kind of pick back up as we move into the second half. Obviously, we have heard from a lot of retailers that clearly there is a lot of uncertainty. Do you have kind of a plan B promotional approach that you are thinking about at this point?

Brendan Hoffman

Well, I think first of all, to put into context, we are still guiding down and that includes the internet, so the brick-and-mortar is still even at the top end of the range guided down. So, I want to make sure we put that into context, but yes certainly we are preparing for many different ways business can go, including probably most dramatically with our inventory levels and driving the inventory levels and receipts down to protect us in case business is softer than we are anticipating at this point.

Likewise as I said earlier, we are going to be out there with A and B versions of our marketing and using some differentiated pricing by region, so we feel we have good flexibility to react if business is softer overall than we are predicting or projecting, I should say. That's also the benefit that digital has given us being a more complete player in eCommerce and digital gives us flexibility to change promotions on the fly, but we certainly did a lot of that in Q2. We feel like we have a better hand along things in Q3, and so we are hoping we don't have to be quite as reactionary. But, certainly, and all aspects of the dials we can play which we will be prepared to do so.

Operator

We will take our next question from Carla Casella with JPMorgan.

Unidentified Analyst

Hi. This is [Paul] on the line of Carla Casella. Thanks so much for taking my question. I just wanted to clarify one point you made one comment that sales were down double-digit for ShopperTrak for the past three months. Is that three months today or is it three months in 2Q?

Brendan Hoffman

As I said, they were trending ShopperTrak was indicating that the markets we were in, the traffic was down double-digit as compared to other parts of the country. I have not seen at the last two weeks, so it was more general statement through the end of July.

Unidentified Analyst

Got it. Thank you so much for clarifying that. Appreciate it.

Operator

We will go next to Colleen Burns with Oppenheimer.

Colleen Burns - Oppenheimer

Great. Thanks for taking the questions. I guess, first just to clarify, your broadcast media plans for the second half, do you expect that to be up year-over-year?

Brendan Hoffman

Yes.

Colleen Burns - Oppenheimer

Then just on the localization efforts that you are planning to rollout in the second half. I know you used the word test. Is it a small test or you are making a big push? How would you clarify it?

Brendan Hoffman

I think, we are trying to get more and more aggressive with it as we get deeper into it and realize that it's the right thing to do. They are trying to merchandise this as one group of like stores has just not served as well and it is just inconsistent with needs of our customer base, so it's kind of accelerating as we are getting into it. So, what was originally supposed to be just a small defined test, has grown a little bit.

Now, in the context of our overall merchandise mix, maybe you are talking about 7% or 8% of the overall merchandising mix, so it's still a relatively small piece. But, I think in terms of what you would eventually change, maybe it's about a third of the way there.

Colleen Burns - Oppenheimer

Okay. Great. Thank you.

Brendan Hoffman

Because, you are always going to have that consistency in a lot of the commodities and basics that aren't going to change from region-to-region, so if there is 20% to 25% of the assortment that maybe is out there to be flexed, maybe we are attacking about a third of it in the fall.

Colleen Burns - Oppenheimer

Okay. Then just a technology initiative to help with that localization, is that completed at this point in time?

Brendan Hoffman

We are just starting to rollout. A lot of it has to do with merchant reporting, which we were just behind the times with so the first of those reports are being delivered as we speak and to rave reviews from our merchant and planning organization. Again, just the initial reports are, they are coming to the realization of how much this can transform, what they spent their time doing. So, that will be on a rolling basis over the next 12 months and then we have other things for the store organization among others that we will be implementing in Q3 as well that we think can greatly enhance our business.

Colleen Burns - Oppenheimer

Okay. Great. Thanks for the color.

Operator

(Operator Instructions). We will go next to Hale Holden with Barclays.

Hale Holden - Barclays

Thanks for taking the question. Just two quick ones, I think I heard you Brendan in the script say, we talked about TV advertising, but I think you said that total advertising spend would be down in the second half but TV would be up. Those two normally work together?

Then the second question is just bigger picture, in your guidance is the assumption that the traffic trends stay as they were in the second quarter or did you see a return back-to-school at the more historical levels?

Brendan Hoffman

Well, yes, our overall ad and marketing spend will be down slightly. Again, we think we found ways to be a lot more efficient and that includes adding to T.V., so that will come out of some of the older more traditional media places. We feel very comfortable there. As we get a better read on how the different media placements are working, we will continue to refine and if we see an opportunity to increase our overall spend, because it's driving business we will look to do that as well, but, yes, your assumptions were correct.

In terms of overall traffic patterns, you know, we certainly hope that they are not as dismal as they were in Q2. I think, in part in Q2, as we look back to 2012, they were goosed up a little bit by the abnormally warm weather that we had in 2012 that we solely appreciate, So the fall of 2012, if you remember we had a lot of snowstorms, particularly in Q4, the weather wasn't particularly cooperative, so we don't think we are up against quite the traffic from the previous years. So, it's only for that reason we hope we narrow the gap a little bit. As I said earlier, playing in the north hopefully our customer recognizes she has seven or eight months to enjoy the wardrobe and feels a little bit more bullish about investing in it.

Operator

We will go next to Rosemary Sisson with Lazard.

Rosemary Sisson - Lazard

Thank you for taking the questions. Just a quick clarification of EBITDA, I wondered if last year I thought I recalled there was a one-time severance charge. I think, Keith, you mentioned earlier that was $7 million for the first half. Was it $4 million to add to the $7 million for EBITDA last year, if you wanted to add back one-time cost and whether if there are any one-time charges in the current quarter?

Keith Plowman

Okay. Are we talking to spring season or you are looking to the full year guidance?

Rosemary Sisson - Lazard

I was just talking about the second quarter number.

Brendan Hoffman

In the second quarter, there was about $4 million of severance that was paid out last year. That's why I was mentioning that between the incentive costs, some of the dollars that we are investing in the localization and the reporting and things like that and taking out the one-times last year, we had some unusual items that we got benefit from.

For the six months, we had the Rochester sale. We also had a settlement that had to do with some legal parts that got us some dollars. If you take all that noise out, essentially we were flat year-over-year in the second quarter taking those unusual items out. On a year-to-date basis, we actually have more cost this year than we did last year when we look at the incentives and the investments in the business.

Operator

With no other question in queue, Brendan, I will turn it back to you for closing remarks.

Brendan Hoffman

Okay. We thank you all for participating on today's call. We look forward to keeping you updated on our progress. Just as a reminder, we will be presenting next month at the Goldman Sachs Investor Conference, and you can find information about that on our website.

Thank you again for participating.

Operator

Ladies and gentlemen, thank you for your participation. This does conclude today's conference. Have a great rest of your day.

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