New York & Management Discusses Q2 2013 Results - Earnings Call Transcript

 |  About: New York & Company, Inc. (NWY)
by: SA Transcripts


Good day, and welcome to the New York & Company Second Quarter 2013 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Suzanne Rosenberg, Director of Investor Relations at New York & Company. Please go ahead, ma'am.

Suzanne Rosenberg

Thank you. Good afternoon. Before we begin, I would like to remind you that some of the comments made on today's call, either as part of our prepared remarks or in response to your questions, may contain forward-looking statements that are made pursuant to the Safe Harbor provision in the Private Securities and Litigation Reform Act of 1995. Actual results may differ from those projected in such forward-looking statements. Such forward-looking statements are subject to risks and uncertainties as described in the company's documents filed with the SEC, including the company's fiscal year 2012 Form 10-K.

On the call with me today is Greg Scott, Chief Executive Officer; Laura Weil, Executive Vice President and Chief Operating Officer; and Sheamus Toal, Executive Vice President and Chief Financial Officer. For today's call, Greg will review our second quarter results and discuss the progress we have made on our Six Keys to Success. Sheamus will then review our financial results in more detail and provide with our near-term financial outlook. Following our prepared remarks, we will open up the call for your questions.

With that I'd like to turn the call over to Greg.

Gregory J. Scott

Thank you, Suzanne, and good afternoon, everyone. We are pleased to continue our positive momentum in the second quarter and report positive comp store sales, expansion in gross margin and a significant improvement in operating loss as compared to the prior year, all of which were well within our expectations. Our performance continues to validate that our Six Keys to Success are working and moving our business forward.

In total, for the second quarter, comp store sales increased 2.1%, following a flat performance last year. Merchandise margin expanded 240 basis points and operating loss narrowed to $2.2 million.

During the quarter, our sales growth was led by our wear-to-work category, which is the cornerstone of our brand. Specifically, we saw strength in woven top, especially blouses and stretch shirts, as well as strong product acceptance of key items and novelty blouses. We saw a great response to woven pants, driven by shorts, ankle pants and a strong assortment of crops.

We were also pleased with the performance of our Love NY&C active collection, which was our former Active business that we rebranded and launched last year. We look forward to further expanding this business throughout 2013.

Throughout the quarter, we continue to make good progress in our Six Keys to Success. First, maximize sales during holidays and peak traffic times of the year. In the second quarter, we were highly successful with our Mother's Day strategy, which consisted of a 3-tier approach that focused on great fashion, a strong gifting assortment and compelling New York deals to drive traffic to our stores.

We also generated excitement around Memorial Day with our New York deals, providing our customers with amazing summer essentials at great prices.

In July, we implemented a new and successful strategy with our summer hot list, a Wear Now! assortment offered at sharp price points. This marked a departure from past years where we introduced our pre-fall collection in July.

Second, increase brand awareness and drive traffic to our stores. During the quarter, we issued 2 fashion books versus one last year, which proved successful in driving traffic in transaction to our stores and online. Our teams have also been hard at work, preparing for the September 19th launch of our collaboration with Eva Mendes. The launch of the Eva Mendes collection in stores and online will coincide with ads in Glamour, People StyleWatch, InStyle and Vogue magazine, which hit newsstands this month. We will also deliver a fashion book, focused on the new collection and we are opening up a pop-up shop in Soho to generate excitement around the launch.

On the eve of the launch, we'll host a red carpet event with Eva at our store on 58th and Lexington here in New York City in partnership with Vogue magazine. On September 19, launch day, we have a major public relations program in place, including TV appearances by Eva Mendes on morning shows such as Good Morning America and The View, which she'll also be wearing pieces from our new collection. That evening, Eva will also receive a style icon award from Vanidades magazine, one of the most popular Spanish-language women's lifestyle magazines in the U.S.

We continue to believe that this partnership will not only broaden our customer reach but also validate New York & Company as a trend right fashion destination.

Third, maintain dominant in wear-to-work while furthering our opportunity in the pants and denim category. The second quarter was very strong for wear-to-work pants, shorts and crops. As you know, one of our company's competitive advantage is that we are known for great-fitting pants. We continue to maximize this business by leveraging our dominant position in wear-to-work pants and extending into other categories, such as denim.

As we begin the third quarter, we have seen a strong start to our signature pant-and-denim event, particularly in fashion denim and our 7th Avenue pants. We continue to build customer loyalty in the category and see pants as a key strength, given our terrific value equation that includes a great fit, attractive style and sharp prices.

Fourth, reduce markdowns through business processes improvement. During the second quarter, we lowered our markdowns, which contributed to the 240-basis-point improvement in merchandise margin. Our progress he was led largely by improvements in planning and allocation, as we tiered our stores and better understood their different inventory [indiscernible] needs. We continue to focus on this key to success and expect improvement at merchandise margin as we move into the second half of the year.

Fifth, investing in technology to seamlessly integrate our business channels and ultimately deliver a compelling Omni-Channel experience. We are committed to meeting the shopping needs and wants of our customers, regardless of where they are in our store, online or on their mobile device. As a result, we're investing in technology and in our future in a strategic manner that will deliver profitable growth. We also continue to expand our access program, which we launched in 2010 to fulfill customers' orders when they can't find the item they are looking for in our stores.

Sixth, maximize our growth channels, eCommerce and outlets. During the second quarter, eCommerce was strong, with sales increasing over 20% from the year-ago period. In terms of its penetration rate to total company sales, eCommerce grew to a high single-digit percentage in the quarter.

Outlets were also a highlight of the quarter, performing ahead of our expectations. We saw strong sales increases along with strength of conversion, ADF and margins. We continue to increase the penetration of our Outlet-exclusive merchandise, which now represents approximately 62% of the Outlet business versus 33% last year. We expect Outlet exclusive to continue growth as a percent of the sales mix over time.

At year end, we expect to have over 50 outlets in operation, and longer term, we see an opportunity to operate over 75 outlets nationwide. Currently, our new store openings are focused on our Outlet business. However, we continue to remodel and downsize New York & Company locations where it is appropriate.

In the third quarter, we expect to complete 2 remodels, and we are particularly excited about the remodel of our store in the Columbia Mall in Colombia, Maryland, which will debut our brand-new store prototype. Through this new design, we will fully showcase New York & Company's brand vision by delivering the energy, excitement and style of New York City to women everywhere.

The new design will highlight our core sub-ramps, including our 7th Avenue Collection, Love NY&C and Eva Mendes, and feature them in dedicate shops within the store to convey a true sense of place. The fitting rooms have also been moved to the center of the store to allow for greater accessibility and improved customer service. Additionally, this store of the future will include the latest technology to provide an upgraded and seamless customer experience.

In summary, we are pleased to report another quarter of progress both in terms of our financial results and our keys to success. We are excited about the future. Our customers are responding positively to our merchandise initiatives, we are expanding our fast-growing outlet and eCommerce channels, and we have exciting new marketing and product initiatives underway, including the launch of Eva Mendes, all of which we believe will allow us to continue our improved performance in the second half of the year. And now, I would like to turn the call over to Sheamus to review our financials and guidance in more detail.

Sheamus G. Toal

Thank you, Greg. Good afternoon, everyone. Net sales for the second quarter of fiscal year 2013 decreased 2% to $223.1 million as compared to $227.7 million for the prior year period, reflecting our reduced store account, partially offset by increases in comparable store sales. As Greg mentioned, the company's eCommerce business produced continued growth, with sales increasing over 20% from the prior year period. This channel remains a highly profitable component of the company's total business, and we remain focused on growing eCommerce into a double-digit part of our business in the near term.

Outlets also continue to be a successful growth vehicle for the company, with this channel growing to over 10% of the business, up from 8% in the prior year period.

Total company comparable store sales for the second quarter of fiscal year 2013 increased by 2.1%. In the comparable store sales base, average dollar sales per transaction increased by 1.5%, and the number of transactions per average store increased by 0.6%.

Gross profit for the second quarter of fiscal year 2013 improved by 160 basis points to $60 million or 26.9% of net sales as compared to $57.7 million or 25.3% of net sales last year. This increase was driven by improved product cost and sourcing efficiencies, along with lower markdowns, partially offset by a slight increase in buying and occupancy costs. This resulted in the company's highest gross margin performance in the second quarter since 2008.

Selling, general and administrative expenses increased slightly to $62.2 million or 27.9% of net sales for the second quarter as compared to $62.1 million or 27.3% of net sales for the prior year. As we previously disclosed, the prior year selling, general and administrative expenses included a onetime benefit of $1.1 million from insurance recoveries. Excluding this benefit, selling, general and administrative expenses as a percentage of net sales were flat for the prior year.

Operating loss for the second quarter was $2.2 million, reflecting significant improvement from the prior year's second quarter operating loss of $4.4 million. Net loss for the second quarter was $2.7 million or $0.04 per diluted share. This compares to the prior year net loss of $4.3 million or $0.07 per diluted share.

Moving to our quarter end balance sheet, we ended the quarter with $59.5 million in cash compared to $39.4 million at the end of the last year's second quarter, reflecting the combination of improved operating results, increases in payment terms and various timing differences as compared to last year.

Total quarter end inventory at cost increased by 3.2% as compared to the end of last year's second quarter, reflecting an increase in in-transit inventory to support the company's pants and denim event in August. Importantly, we ended the quarter in a very clean inventory position, with increases in our fresh new goods.

During the quarter, we remodeled 1 store and closed 7 stores, ending the quarter with 512 stores, including 45 outlets and 2.7 million selling square feet in operation.

Capital spending for the second quarter was $4 million as compared to $3.7 million last year. The slight increase in capital reflects the remodel of existing locations and investments in information technology, including the company's eCommerce re-platform project.

Regarding expectations for the third quarter, we have provided the following guidance on key metrics. We expect total sales to increase by a low single-digit percentage despite operating 21 fewer stores than last year. Comparable store sales are expected to increase by a low to mid-single digit percentage.

Gross margin is expected to increase between 100 and 200 basis points from the prior year's rate, driven by the combination of sourcing efficiencies, lower levels of markdowns and leveraging our buying and occupancy expenses.

Selling, general and administrative expenses as a percentage of net sales are expected to be up approximately 100 basis points versus the prior year's third quarter. On a dollar basis, selling, general and administrative expenses are expected to increase between $3 million and $5 million from the third quarter of last year, due to the combination of marketing expenses associated with the launch of the Eva Mendes collection, along with expenses associated with the growth of our eCommerce and Outlet channels.

Operating results for the third quarter are projected to range between breakeven and an operating loss of $4 million as compared to an operating loss of $3.8 million last year. As we previously noted, these results are being impacted by 21 fewer stores in operation, along with the increases in marketing expenses and expenses associated with our growing eCommerce and Outlet channels.

The effective tax rate for the third quarter and full fiscal year is expected to be approximately 0%, excluding certain required state and local taxes, which are expected to be approximately $200,000 per quarter.

We expect total inventory at the end of the third quarter to be up by a mid to high-single digit percentage versus the end of the third quarter last year. Inventory per average store at the end of the third quarter is planned to be up between a high single-digit percentage and a low double-digit percentage, reflecting timing differences due to the shift in the retail calendar.

As you know, the balance sheet reflects only a point in time, and due to the shift in the retail calendar, our comparisons to last year are off one week, which causes a significant variance versus last year. As the company moves beyond the first week of the fourth quarter, inventory levels are expected to normalize.

Capital expenditures are expected to be between $10 million to $12 million for the third quarter, reflecting the opening of 6 new stores, remodeling of 2 existing locations and the continued investment in the company's information technology infrastructure, including the re-platform of our eCommerce site. This compares to $4.4 million of capital expenditures in the third quarter of last year.

Depreciation expense for the third quarter is estimated at $8 million.

With that, I would like to turn the call over to the operator to begin the question-and-answer portion of the call.

Question-and-Answer Session


[Operator Instructions] We'll take our discussion today from the coming from Neely Tamminga with Piper Jaffray.

Kayla Berg

This is Kayla Berg in for Neely Tamminga. Will the upcoming Eva Mendes line live in the stores through the end of holiday? Are there any discussions about extending it to spring possibly? Also, what are the average price points on the line versus the balance of the assortment and what space did it take over within the store?

Gregory J. Scott

So we are incredibly excited about the launch of Eva Mendes in September. As we talked about, we have really done a full court press in all aspects of marketing to make sure that everyone, all of our customers know about this exciting launch. The launch is in September 19 in stores and online on that day. This collection and this collaboration with Eva Mendes is actually a 3-year collaboration, and we actually plan to have collections in-store every quarter. So for instance, we launched in September 19, we also, for holiday, have a new collection, launching November week 1. And Eva Mendes collection will also have a great holiday refresh in her assortment in December week 1. We are already building the collection for spring of next year. Our relationship with Eva Mendes is bigger than just the Eva Mendes collaboration. She's also really the brand's face and ambassador of the New York & Company total assortment. And along with the Eva Mendes collection, you'll see Eva Mendes in our windows periodically representing the New York & Company collection. As we begin in September, we thought it's prudent to start a little smaller. And we will not be in every New York & Company store, but we are absolutely excited that all of our stores can use Ask Us to really engage our customers and sell the product, no matter where they are. So we're excited about that too. But I think ultimately, this collection and, we believe, this collaboration will be very -- will be a large collection and an important business for us as we move forward.

Kayla Berg

Great. And a follow-up, what space is it taking over within the store?

Gregory J. Scott

So each store is different. So what we -- when you'll open the collection on September 19, due to all the publicity and all the marketing initiatives we put beyond it, her being on Good Morning America, that morning and The View, and everything we have surrounding it, the Eva Mendes collection will be in our windows. It'll be the front moment in our store and will also, in those stores that carry the collection, take the front section in all of the stores. Going forward, that will move to a distinct location in the store that will be the consistent location for the Eva Mendes collection and will have its own visual presence and unique sense of place, as we believe this collection really is a slight departure from the New York & Company brand. It fits well within our brand architecture that we believe it is really appealing to a slightly more fashionable consumer, then we believe it will also appeal to our current customers. So we're excited about this, as you can tell, and I think what's so amazing is how much Eva has been involved in the collection personally, and how much she really, really tries every piece on, works every phase of the design process with us. This is uniquely her collection, and I think that's really going to cut through when our customers sees the collection in-store on September 19.


We'll take our next question from Edward Yruma with KeyBanc.

Jane Thorn Leeson - KeyBanc Capital Markets Inc., Research Division

This is Jane in for Ed. I was just curious how you're seeing such strong sales metrics given the tough general retail environment. And if you think that, that trend, this trend is sustainable to the end of this year into the next.

Gregory J. Scott

So one thing that I would say, and we've been clear about this when we talked about the keys to success over the last 2 years, we're a highly event-driven brand, whether it's unique holidays on the calendar, or events such as our semiannual pant and denim event that we created. We believe that these events create demand when sometimes demand might be there -- not be there naturally. We believe that these events really drive traffic and attention to our stores, such as the semiannual Pant Event in August or the Wear Now! summer steals event in July. And we really learned a great lesson about this as we move from 2010 to 2011. So we are definitely going in eyes wide open. We understand that price, it needs to be important. And we really build that into our promotion and into our buying when we do that. We are excited and I'm going to temper that by saying, I hear what's happening around us, and I will say, we have a very strong event calendar as we move into Q3 and Q4. We start with the semiannual Pant Event, pant and jean event, which really speaks to our 2 most iconic pieces of our business. We move into our wear-to-work event in early September which speaks to our 7th Avenue Collection, which our customer loves. September 19, we have the Eva Mendes launch, which is really exciting. We go into October with a great uniform statement, which I really don't want to disclose right now. And then, we head into holiday, and the teams have been working diligently on these plans. I will say, we have kind of myopic look at really our units our AUR, knowing that it's going to be a competitive, promotional environment as we move to Q4. We've seen this before, we don't think it's going to change. We just need to be on our game, on our promotions, our product and our price. That's just what we're looking at right now. So I really believe being really focused and maniacal about our event is really one of the reasons that we've been able to sustain that through Q2. And we hope that will continue for Q3 and Q4.

Jane Thorn Leeson - KeyBanc Capital Markets Inc., Research Division

Great. And just one follow-up. You mentioned the -- you had tiered inventory systems helping you. Are there any other systems, fairly new systems that you've had recently -- recent changes to?

Laura A. Weil

Jane, what we referred to was changes in our allocation strategy. And -- this is Laura, by the way. And we have a great team who have really reevaluated a number of our tools and processes. So among the things we've changed are our pre-packs and we've made them more flexible and adaptable to our individual store needs. And we've also rebalanced our inventory levels to better reflect demand and improve our turn. So we've done that for both our high-volume, as well as our low-volume stores, and we've definitely seen an improvement.


We'll take our next question from Mark Montagna with Avondale Partners.

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

Greg, you said the Pant Event has had a pretty successful start to the third quarter. Wondering if you're also seeing a similar success with the tops?

Gregory J. Scott

So, the pant and denim event, as I said, had started strong. We're also seeing strength in our woven top business and sweaters, which obviously aren't heavy sweaters right now, but we are seeing sweaters have kind of a -- as much stronger start than they did last year in August. So it's really that woven top business. Probably, the softer part of tops is knit tops. That has probably been something that is not new for us. But the woven top is very, very strong, both on our uptown wear-to-work and our downtown casual assortment. Sweaters are starting strong, and so those were 2 things that we have also been encouraged by early on in the month.

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

And throughout the quarter it seemed, just doing store checks, that a lot of the merchandise size runs were broken and I would notice it kind of early, soon after deliveries would hit. I'm just wondering, do you think you're starving your stores too much of inventory? Because I know -- and I understand why you did that before, but it seems like there's a little bit more room for inventory there.

Gregory J. Scott

So I think you can see in some of our inventory guidance that it's been up, it's going to be up slightly as we begin -- it is up as we begin Q3. Up slightly as we begin Q4. I have always taken a prudent approach to inventory, so has the entire company. A couple of things: Yes, we believe there's opportunity and you're not calling out something that -- you're right what you're saying. So what we did in the pant and denim event is our allocation team and leader of allocation really charged us with getting more size depth on the core sizes in our key stores in denim and pant. And I really think that strategy is now working through the pant and denim event. And that truly was driven by our allocation team about really driving us to do that. We didn't do it in every store. We did it in our top stores. We didn't take a wider risk maybe as we could have, but we -- I think we did it prudently. The good thing is, too, is we're doing free Ask Us right now, which is, if you're in a store, we don't have your size, we'll ship it to you free. That has been highly successful in a lot of stores that don't carry the depth in inventory. I would say that possibly, if we felt we were hearing better news all over, we may be a little more bullish on inventory. But we think right now it's prudent to be where we are and continuing to improve, as Laura mentioned, our buy process, meaning from a unit and pre-packs and allocation process so that the stores that need the product that will sell the unit have it, and that we have a much more balanced assortment throughout the chain in terms of stores. I think one thing we continue to be excited about is Ask Us because it allows us to utilize our inventory at GSI -- sorry, our eCommerce and distribution, and allows us to utilize that inventory for stores that might not have gotten something. And what it allows us to do is actually seek demand where we never could have seen demand before. So that allows us to prepare for the future. So you're right, you're not wrong, but I think we -- and we challenge ourselves on this all the time. And I think what you saw with that slight increase that's going into Q3 supporting pants and denim, what's the right thing going into the Pant Event and we have another slight increase going to Q4 really to support some of our initiative there also, along with Eva Mendes. So we'll continue to work on it. I think we're happy to see the improvements that were made in the planning and allocation side, really for the first time, really in the quarter but we're starting to see improvement in our markdowns through better allocation and better prepack. And I think we're going to continue to see that improve as we go on. And this was the first time really we saw that. And also think the strength of our Pant Event speaks to not only our products and our promotion, but how we were able to get the right size and the right pants, the right depth and the right stores. And I think that's starting to pay off a little.

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

Okay. And just to follow-up on that topic. When you said fourth quarter inventory up slightly, third quarter up slightly. But in...

[Technical Difficulty]

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

The increased inventory, mid-single and high single digits, is that attributable all to the Eva Mendes product? Or is there also the increased commitment to the non-Eva product?

Gregory J. Scott

It represents increased commitment to non-Eva Mendes product. Now in Q3, it really was about pants and jeans. And we felt that risk was prudent because these are businesses that live not just 1 month, 2 months. They live 3, 6 months, 9 months actually. So we felt that, that was the right prudent risk. As we went into Q4, the inventory is really to support Eva Mendes but also some of the business that we've seen strengthen, like denim, even -- that we think are still opportunity in some of our key gift-giving categories. We had an amazing performance with some of our active performing -- active area last year. We think there'll be some interesting incremental business we can do there for fourth quarter. And also, some of our gift-giving categories such as sweaters, where we believe there's some upside in Q4. Overall, Eva is, to our total percentage of our -- Eva Mendes collection, our total sales and units is still a very small percent overall, higher in certain stores. But I think the bigger picture is we look at Eva Mendes is what she brings to the overall brand, and in the future, what the collection can mean to our overall sales and profitability.


[Operator Instructions] We'll go next to Danielle McCoy with Brean Capital.

Danielle McCoy - Brean Capital LLC, Research Division

I was just wondering if you can provide us with an update on the new eCommerce platform. And also, when it comes to the new Wear Now! collection that you guys put forth in the second quarter, is this something that you think you will repeat next year? And is there anything would you would've done differently?

Laura A. Weil

Okay, Danielle, this is Laura. So I'm going to take your eCom question. We are in the midst of testing our new site and hope to have it up and running in the first quarter of next year. We're very excited about it, it's modern, clean, very easy to shop. We think it's very appropriate for the brand. It's going to have better navigation and search. And importantly, it's going to have a very robust mobile and tablet platform. Because we're very -- we're getting a lot of hits on mobile and tablet. And we think that's the future, so we're very excited about the changes we'll be making in the first half of 2014. It will also have improved payment options, such as PayPal, and it will accommodate international shipping. So it's a big project. As I said, it's moving along well. And we expect to launch it in the first half of 2014.

Gregory J. Scott

So in reference to your question about the Wear Now! Collection in July, I don't want to get give too much away about next year, that's so far ahead. And I will just say, we were very pleased with the results. It was the right move to go away from pre-fall to more Wear Now! Assortment, which makes logical sense, I think, to everyone. I think that we will expand it. I don't want to give too many details of how we're going to expanded but we were very pleased with the performance in the month of July.


We have a follow-up question coming through from Mark Montagna with Avondale Partners.

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

Sheamus, how is the clearance year-over-year at the end of the second quarter? How much was that down?

Sheamus G. Toal

Mark, so we don't actually get into disclosing the specific split-out of the inventory. That being said, I can certainly tell you that the increases that we have at the end of the quarter are largely due to in-transit inventory. So this is goods that is not even physically in our stores yet. As well, in addition to that, we also -- the goods that are in the stores, it is fresher, newer goods. So year-over-year, the combination of the increases in in-transit levels, combined with the fresher goods that are in the store, we are very pleased with the level of carry over in the stores and freshness. It is much improved versus last year.

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

Okay. that's what it looks like in stores in terms of -- clearance looks really low. So then this year, you've got somewhat of an SG&A headwind due to investing in eCommerce and Outlet. And I'm wondering how much has that hindered your SG&A in terms of basis points? And then looking out to the following year, is it correct that there won't be those investments next year? And we get all that money back in terms of expenses?

Sheamus G. Toal

Well, I guess a couple of things. First, in terms of the second half of the year, as we've commented all-year long, we do expect to make investments in Q3. We've issued guidance to say that we anticipate that SG&A, as a percentage of sales, will increase approximately 100 basis points. So in that $3 million to $5 million range. As we move beyond this year, we do believe that we're going to generate incremental growth as a result of these investments. And we will obviously be adjusting our SG&A expenses and our investments in marketing in future periods commensurate with the growth we're experiencing in terms of the responsiveness to those expenses. So while we fully anticipated that we're going to have an incremental investment this year that might take a little time to generate the top line growth associated with it, as we move beyond this year into future years, we fully expect that we will start to increase our level of marketing but expect to drive incremental sales and growth in our eCommerce and Outlet businesses as a result of that. So I would anticipate that as we move beyond this year, our leverage point in terms of the SG&A will start to move back closer to our traditional leverage point.

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

And then, what is the traditional leverage point? And then what is it this year?

Sheamus G. Toal

So for the second half of the year, obviously, we're making the significant investments. As we move beyond this year, we would need to drive comparable-store sales in the low to mid-single-digit percentages to leverage SG&A expenses at the level that we're anticipating increasing them.

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

Okay. And then, the fall transitional product, it sounds like you are -- you guys are quite happy with how well that sold in the month of July, which -- traditionally, wouldn't that be a pretty good litmus test as to how well it should sell in September and October and going forward?

Gregory J. Scott

So Mark, really, July was really, as we said, really a change in strategy, about really delivering Wear Now! versus fall. And so really, that product in July was really about Wear Now! transition, not necessarily summer but not really fall. That we were very happy with that. And as I said before, the early start of August, which is really more indicative of probably fall, pants, jeans, sweaters, tops -- we have been pleased so far with the early results we've seen in the first 2.5 weeks of August. Obviously, very early, but we are pleased with the early results in August.


And there are no further questions left in the queue. Mr. Scott, I'd like to turn the call back over to you for any closing remarks.

Gregory J. Scott

Thanks, again for joining us. We look forward to speaking with you when we report third quarter results during the first week of December. Thank you.


And ladies and gentlemen, this does conclude today's conference. We appreciate your participation.

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