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Shoe Carnival (NASDAQ:SCVL)

Q2 2013 Earnings Call

August 29, 2013 4:30 pm ET

Executives

Clifton E. Sifford - Chief Executive Officer, President, Chief Merchandising Officer and Director

W. Kerry Jackson - Chief Financial Officer, Chief Operating Officer, Senior Executive Vice President and Treasurer

Analysts

Jeffrey S. Stein - Northcoast Research

Jill R. Caruthers - Johnson Rice & Company, L.L.C., Research Division

Scott D. Krasik - BB&T Capital Markets, Research Division

Sam Poser - Sterne Agee & Leach Inc., Research Division

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

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

Operator

Good afternoon, and welcome to Shoe Carnival's Fiscal Year 2013 Second Quarter Earnings Conference Call. Today's call is being recorded and is also being broadcast via live webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited.

This conference may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the company's actual results to be materially different from those projected in such statements. These forward-looking statements should be considered in conjunction with the discussion of risk factors included in the company's SEC filings and today's press release. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date. The company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the forward-looking statements talked about during this conference call or contained in today's press release to reflect future events or developments.

I will now turn the call over to Mr. Cliff Sifford, President, Chief Executive Officer, Chief Merchandising Officer of Shoe Carnival for opening comments. Mr. Sifford, please begin.

Clifton E. Sifford

Thank you, and welcome to Shoe Carnival's Second Quarter Fiscal 2013 Earnings Conference Call. Joining me on the call today is Kerry Jackson, Senior Executive Vice President, Chief Operating and Financial Officer.

For today's call, I'll give you a high-level review of the company's second quarter performance and provide some insight into the back-to-school season. Kerry will review the second quarter financial results, along with third quarter guidance, and we'll open up the call to take your questions.

As a reminder, the 53rd week in fiscal 2012 caused a 1-week shift in our fiscal 2013 calendar. This resulted in the second quarter of fiscal 2013 ending 1 week later on August 3, versus July 28 last year. We adjusted our reported quarterly and year-to-date comparable store sales results for fiscal 2013 to reflect this calendar shift.

Now focusing on our results for the second quarter in a little more detail. Comparable store sales increased 2.6%, driven primarily by women's nonathletic and children's footwear. Traffic was down low single digits, while conversion, average transaction and average units per transaction were all up low single digit. Merchandise margins were down 70 basis points, partly due to the first week of back-to-school shifting from August to July. Even though sales were just under our expectations, our profit margin of 28.9% was higher than the second quarter last year. Our selling, general and administrative expenses were well-managed. And as a result, we were able to report second quarter earnings of $0.29 per share. This performance was at the high end of our guidance of $0.26 to $0.30, and exceeded our second quarter earnings last year of $0.14 per share.

We ended the quarter with inventory up approximately 2% on a per-store basis, which was in line with our expectations. We will continue to put pressure on our per-store inventories as we move through the remainder of the year, which supports our strategic plan to increase inventory turns.

Moving on to merchandise. As we reported in our last conference call, once spring arrived in late April, early May, the sales of traditional spring and summer products escalated. We experienced double-digit comparable store growth for the second quarter in categories such as molded footwear, canvas casuals and sports sandals. These categories drove comparable store sales increases in both the women's nonathletic department, as well as the children's department.

Drilling down by department. In our women's nonathletic department sales for the quarter were up high single digits on a comparable store basis. We were able to produce these results even though we continue to see sales declines in the dress categories. We are very happy with the double-digit sales growth in our sport casual and boot sub departments. The sport casual categories were driven primarily with molded footwear, sandals and canvas casuals, including a shift to canvas boat shoes from the more traditional leather versions.

In boots, we were happy with the performance of Western and the sport bootie classifications. In our men's nonathletic department, we ended the quarter with low single-digit decrease on a comparable store basis.

After a slow start to the sandal business in this department, we ended the quarter flat on a comparable store basis due to the strong performance of soccer slides. In addition to soccer slides, we did drive increases in the canvas casual classification, but not enough to overcome the comparable store sales decline in boat shoes and the men's casual sandal categories. Our children's business ended the quarter with a high single-digit comparable store sales increase. We experienced double-digit growth in children's nonathletic footwear, as sandals for both boys and girls posted a comparable store sales increase in the high 40s. In addition to sandals, we also experienced high single-digit growth in our children's athletic department, as both boys' and girls' colorful running shoes continued to perform well.

In adult athletics, comparable store sales were down low-single digits for the quarter. The classification of product driving the losses in adult athletic for the second quarter were women's running and basketball, along with men's basketball and skate. The athletic business trended up for May and June. However, we began to see a general slowdown in sales as we approach the comparable dates to the Olympic time period last year.

Turning now to store expansion. We ended the quarter of -- second quarter of 2013 with 370 stores operating in 32 states and Puerto Rico. The 8 new stores we opened in the second quarter were primarily in existing markets, as we continue with our strategy of opening new large markets on a biannual basis. In addition to our new stores, we relocated 1 store, expanded 1 and closed 2. The effort of our entire Shoe Carnival team, from our corporate headquarters to the store level, continues to be tremendous as we execute on our robust unit growth strategy. For the remainder of 2013, we will continue our accelerated store growth with the opening of 11 new stores and relocation of 5 stores. We plan to close an additional 3 stores at the end of the year.

For the year, we expect to open a total of 32 new stores, including an additional 3 stores in Puerto Rico. At this time, we plan to close a total of 5 stores this year. However, the number of stores we actually close will depend upon further negotiations with our landlords. Therefore, we expect to end fiscal 2013 with approximately 378 stores. As we look forward to 2014, we'll continue to aggressively grow our store base.

We are in the process of finalizing the entry into several new markets for 2014, and we expect to see growth approaching 40 new stores. We believe our strong unleveraged financial position leaves us well-positioned for additional square footage growth averaging in the high single digits over the next decade. Now for some insight into our back-to-school results.

As of today, a little over 90% of our markets have gone back to school. Also, as of today, we are experiencing a comparable store sales increase of approximately 1% for the month of August. This increase in sales comes on top of the high-single-digit comp we generated last August. We believe there has been a shift in product demand in our women's business into canvas casuals, from brands such as Skechers, Keds, Vans, BOBS, Sperry and Roxy. This classification is performing very well but at lower price points than the more traditional women's nautical and athletic styles that would normally drive sales during the back-to-school season.

In addition to canvas, we are pleased with the double-digit sales increases we are generating in junior boots, as booties and lace-up boots are both performing well. This shift in demand, as well as the decline in traffic, account for the comparable store sales increase of 1%. Other than traffic, key metrics such as conversion, units per transaction and average transaction are all positive for the month, which is an indication that our customers are reacting positive to our assortment for the family.

Lastly, as I mentioned on our last call, we have identified about 20% of our stores where we will begin to test select better brands in our women's nonathletic department. These brands will offer great trend-right product at price points we believe will be compelling to the mom already shopping our stores. The test will begin in earnest by mid-September, when new displays will create a strong visual element as you enter to store. The strategy behind this test is to add 4 new brands. The 4 new brands are Anne Klein Sport, Calvin Klein Jeans, Report Footwear and Steve Madden. In addition to these 4 new brands, we have added Merrell to 56 doors, which we will expand to 100 doors for holiday. And as importantly, we are expanding the selection of 6 brands currently offered in-store that our customers have demonstrated their loyalty to. These brands include Bare Traps, Clarks, Earth Origins, Roxy, Madden Girl and Bandolino.

To fund this test, we have reduced our selection of tertiary brands that were driving lower retails, limiting our gross profit potential. This long-term strategy is a key element to growing our women's nonathletic sales to 30% of our overall sales from 26% at the end of 2012.

We plan to accomplish this through a combination of unit growth and higher AURs. I think you will agree that these 11 brands offer our customer affordable fashion and is a great step in reaching our goal of becoming her store of choice for the entire family.

I'll continue to keep you posted on the progress of this test. Now I'd like to call to turn -- turn the call over to Kerry Jackson for details on our financial results.

W. Kerry Jackson

Thank you, Cliff. I will discuss our second quarter financial results in more detail followed by information on cash flows and then conclude with our outlook for the third quarter of fiscal 2013.

Our net sales increased $34.2 million to $216.4 million during the second quarter ended August 3, 2013, an 18.8% increase as compared to net sales of $182.2 million for the second quarter ended July 28, 2012. Of this increase, $15.7 million was attributable to the 1-week shift in the calendar due to 2012 fiscal year being a 53-week period. Let me elaborate a little bit more on what Cliff discussed at the beginning of the call.

Last year, our second quarter ended on July 28. As a result, the first week of Q3 last year represented the start of back-to-school, and more importantly, the second largest sales week of the year. Due to the calendar shift, in 2013, our second quarter ended on August 3, thereby pulling those back-to-school sales into the second quarter this year and out of Q3. The other components to the second quarter sales increase include a comparable store sales increase to the $7.3 million and sales from new stores net of closings of $11.2 million. Comparable store sales for the 13-week period ended August 3, 2013, increased 2.6% compared to the 13-week period ended August 4, 2012. The gross profit margin for the quarter increased 0.2% to 28.9%.

As Cliff mentioned, our merchandise margin decreased 0.7%, while buying, distribution and occupancy costs decreased 0.9% as a percentage of sales.

Approximately half of the decrease in the merchandise margin was attributable to the 1-week shift of the back-to-school selling period into the quarter. As many of you know, the back-to-school selling period is highly athletic driven and is a promotional period. The shift of this high-volume, back-to-school selling week into the second quarter diluted the merchandise margin. The leverage of buying, distribution and occupancy costs was primarily result of significant increase in sales, most noticeably in occupancy costs. Selling, general and administrative expenses increased $5.3 million in the second quarter of fiscal 2013 to $53.0 million. The increase in SG&A was primarily due to a $3.1 million increase in expenses for new stores, net of expense reductions for stores that have closed since the beginning of the second quarter fiscal 2012, along with an increase in advertising expense to support the back-to-school sales in the last week of the quarter.

As a percentage of sales, SG&A expenses decreased 1.6% to 24.5% as our sales gain enabled us to leverage these costs for the quarter. Preopening costs included in selling, general and administrative expenses were $594,000 in the second quarter of fiscal 2013, as compared to $764,000 in the second quarter of last year. The decrease is based on lower average cost per store and opening 3 less stores in the second quarter versus the same period last year. The effective income tax rate for the second quarter of fiscal 2013 was 38.7%, as compared to 38.3% for the same period in fiscal 2012. The annual effective income tax rate for fiscal 2013 is expected to be a little over 38%. Net earnings for the second quarter of fiscal 2013 were $5.8 million or $0.29 in earnings per diluted share, as compared to net earnings of $2.9 million or $0.14 per diluted share for Q2 of fiscal 2012.

Now turning to our cash position information affecting cash flows. During the first 2 quarters of fiscal 2013, we declared and paid in both quarters a cash dividend of $0.06 per share to our shareholders. This continues our quarterly dividend program initiated during the second quarter last year, and represents a 20% increase over the quarterly dividend rate in 2012. No purchases have been made this year under our share repurchase program. We currently have $20.3 million available under our existing repurchase authorization. Depreciation expense is $4.3 million in Q2, and $8.4 million on a year-to-date basis. Depreciation expense is projected to be approximately $17 million for the full fiscal year. Capital expenditures for 2013 include -- including actual expenditures during the second quarter, are expected to be between $30 million and $31 million. Approximately $12 million of our total capital expenditures are expected to be used for new stores and $13 million will be used for store relocations and remodels. Lease incentives are anticipated to be $8 million to $9 million for the year.

My final comments today will focus on sales and earnings expectations for the third quarter of fiscal 2013. We expect third quarter net sales to be in the range of $236 million to $240 million, with a comparable store sales increase in the range of 1.0% to 2.5%. We currently expect comps for the fiscal month of August to be approximately 1% and the combined September, October period to range from 1% to 4%.

Earnings per diluted share in the third quarter of fiscal 2013 are expected to be in the range of $0.51 to $0.55. Included in the earnings expectations, estimates for the third quarter is the expectation that the high end of our guidance; the merchandise margin will be relatively flat; buying, distribution and occupancy cost would delever a little more than 1%, primarily due to occupancy costs; and SG&A as a percentage of sales will show moderate leverage.

As a reminder, in the third quarter last year, sales were $244.4 million and diluted earnings per share were $0.60. The lower sales and diluted earnings per share projected for the third quarter this year are a result of the calendar shift, which as we discussed, moved an important back-to-school sales week into the second quarter this year from the third quarter of 2012. This shift had a positive effect on sales and earnings in Q2, but will adversely affect Q3 when compared with the prior year quarterly results.

This concludes our financial review. Now I'd like to open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Jeff Stein from Northcoast Research.

Jeffrey S. Stein - Northcoast Research

So Kerry, I'm wondering, first of all, if you could quantify the value of the sales shift in terms of cents per share?

W. Kerry Jackson

Jeff, we decided that at the beginning of the year, that it was going to be too many judgment calls to be put into that to try to drive it down to an EPS number. We felt that we could give you exact numbers on the shift on a comparative basis on the top line. So we will give the sales, but the estimate of the EPS, we're not going to give at this time.

Jeffrey S. Stein - Northcoast Research

Okay. I'm wondering if you could talk a little bit about a couple of merchandising issues. One is that you mentioned you're starting to see a slowdown in athletic, and I'm wondering, everybody knew you're going to go up against the Olympics. Were you kind of expecting that? Or is this slowdown over and above something that you would have expected? And as well, you also indicated in the ladies area, you're seeing some growth in -- increased growth in canvas casuals, it seems to be cannibalizing some of your higher price point product in other fabrics. I guess leather, I would presume. And wondering if you've got the right mix of product heading into the fall or whether you need to make some midcourse corrections here?

Clifton E. Sifford

There's a lot in that question, Jeff. Let me just attempt it. We went into the first quarter after last year, 2012, a little worried about our athletic business because we had such a great first quarter and we had a nice increase in athletic first quarter this year against first quarter last year. So to answer your question, we -- after March, April, May and June of showing nice increases in athletic footwear, we did not expect to see a slowdown in July and in August in athletic. And let me be real clear. The slowdown is primarily in women's athletic, not in the other genders. And what's happened there is that in women's athletic, the customer has migrated more to the canvas casuals. And you got to be careful in the way that you judge our athletic business against anyone else's, because when you -- you don't know how they classify certain products. That's the reason I broke the rule today and talked about brands. So that you could -- to try to help you understand that where we classify some things as nonathletic and on women's brown business, other retailers classify them as athletic. So I caution you not to judge too much on the women's athletic side, although we -- based on the way we judge athletic, our business has weakened in women's athletic. As far as -- let's move on to product. Actually, the reason we are planning, our reason we're guiding between 1 and 2.5 points up for the third quarter is because of the positive things that are happening outside of athletic. As soon as we get through this weekend and into the middle part of September, back-to-school primarily is over. And at that point, the dependence upon the athletic assortment goes down considerably. And we're really happy with the way that we see the nonathletic product performing, especially when you look at the fall product and the boot category. So I'm -- half of our business for the quarter is done in the month of August, and we are up 1% going into today. And we're giving guidance of 1% to 2.5%, mainly because we are happy with the performance of our nonathletic department.

Jeffrey S. Stein - Northcoast Research

Very good. And Kerry, I'm wondering -- or Cliff, if you could talk about the new markets that you're planning to enter next year?

Clifton E. Sifford

Well, Jeff, I don't really feel comfortable today, knowing that I got competitors listening in, on telegraphing the new markets that we're opening. I'd rather do that as we get closer to the new year.

Operator

Moving next to Jill Caruthers with Johnson Rice.

Jill R. Caruthers - Johnson Rice & Company, L.L.C., Research Division

Could you talk about boots? Clearly, you're even pleased with the first half performance. Did you take any additional SKUs or anything, just given kind of the trends going in favor of kind of the short bootie and whatnot? And how do you position that category in the back half?

Clifton E. Sifford

Well, we certainly took additional SKUs in the short booties. We were short there last year, that's kind of a pun, I guess. But we were not happy with our inventory selection in the short booties last year, so we definitely increased our selection this year. And the whole lace-up bootie program is working well and we did not have as many of those last year as we wanted. What we did, Jill, I can tell you that we increased our inventory levels going into back-to-school. But what we did is we changed the inventory from -- primarily high-shafted boots to -- we did bring in some Ryder boots because we've seen an increase in the Ryder category, but we also brought in the short booties and lace-up boots. So I guess I'd call it more of a change in direction for back-to-school than an increased inventory level. However, now as you move into the back half of the year, I'm getting -- I got to temper my comments. Kerry will get excited if I get too excited. But I'm getting pretty excited about what's happening in boots and the fact that the new boot assortment seems to be working, and we have actually asked our buyers to go back and look for additional boots based on that.

Jill R. Caruthers - Johnson Rice & Company, L.L.C., Research Division

Now that change in the boot mix, is it a significantly variance in the price? Or not really?

Clifton E. Sifford

Not really, no. I wouldn't call it significant change. I think it will be a change as we move later into the year, because we won't be as dependent upon that promotional sport boot category, but for August there wasn't a significant change.

Jill R. Caruthers - Johnson Rice & Company, L.L.C., Research Division

Okay. And then just last question on e-commerce. You hired a VP to kind of run that back in June. If you could talk about any new progress there, clearly...

Clifton E. Sifford

Well, I don't know if you had an opportunity to get on our site, but we actually updated our site about a month ago, it's almost all-new, and I'd encourage you to get on there and take a look around. He really hadn't, other than updating the site and improving some of the metrics on the performance of the site, he really haven't had a chance to put a lot of his knowledge and his -- some of the things that he wants to do with the site. So therefore, I didn't really talk about it on the -- in my prepared remarks. I think we'll have more to say on e-commerce -- today, it's just not really accretive to our comps, either positively or negatively. So I don't have a lot to say. We are excited, and as you know, I think I've talked to you about this, we are excited to have him on board. We are excited about his vision for that site.

Operator

We go next to Scott Krasik with BB&T Capital Markets.

Scott D. Krasik - BB&T Capital Markets, Research Division

I have a couple of questions. So I guess I underestimated the impact on the merchandise margin from the weekly shift. So to the extent that you can talk about Q3 and also the various shifts in Q4, will that have any impact on the merchandise margin one way or the other?

W. Kerry Jackson

What I said in my remarks, that we expected that our merchandise margin will be relatively flat for the third quarter. And we made the comment that we -- the second half of the year, we expect merchandise margins to be relatively flat, as we're seeing higher price product and the consumer gravitating to that, that we expect to hold those margins relatively flat. So from that standpoint, that's built into the guidance.

Scott D. Krasik - BB&T Capital Markets, Research Division

Is that -- I mean, since you lost the low-margin, high-athletic, high-BOGO week, I mean, would that be conservative then, to even be at the high end of the guidance, to still be sort of flat?

Clifton E. Sifford

Look, the athletic is not -- the athletic, the first week of back-to-school that we lost was not a high-margin week.

Scott D. Krasik - BB&T Capital Markets, Research Division

Right. I'm saying, yes. I mean, you lose it out of the third quarter. So that should be good for the third quarter merch margin?

W. Kerry Jackson

I think it all depends on how consumers respond. If we end up at the 1 comp or the 4 comp, it's really going to depend on how they come out and shop for fall, when does the weather turn, so there's a lot of factors involved in that. So we felt that this -- why we saw that dilution in the second quarter margin, because it is a nice margin quarter and that diluted it by about half of our loss. It's hard to say right now looking forward.

Clifton E. Sifford

The other thing I would like to add to that is we're really excited about this test in women's. We think that it's going to be -- we think we have an opportunity for it to be accretive to margin. We -- there's a lot of unknown there and so we have been talking from the beginning that we're going to plan the margins flat so that we can address any of that product that may not move right up front. So I think a conservative plan based on the fact that our -- the women's athletic business is not where we want it to be and the fact that we want to be conservative on this women's test that we're running. So we are conservative, but that's the reason.

Scott D. Krasik - BB&T Capital Markets, Research Division

Okay, and that's helpful. Kerry, would there be any -- I know you're not giving Q4 SG&A guidance, but is there any preopening expenses associated with this big group of stores for next year going to be in Q4 this year?

W. Kerry Jackson

Yes, limited amount. All you will have is similar to what we had this year in the fourth quarter, was a -- or in the -- last year in the fourth quarter, was some pre-opening rents, where we take possession of a store in order to build it out. We have to start recording some rental expense, so it's not significant.

Scott D. Krasik - BB&T Capital Markets, Research Division

Okay. And then just lastly...

W. Kerry Jackson

[indiscernible] increase that we're looking at for -- to accelerate our growth to that -- around that 40 stores is probably going to be more at the back-to-school level. So you're probably going to see the first quarter be a similar growth or in the range of what we had before, but the large increase would be back-to-school.

Scott D. Krasik - BB&T Capital Markets, Research Division

Okay, that's really helpful. And then was this the quarter where we expect to be -- earnings growth to be up year-over-year? I mean, Q3 you guided it down, I mean, is it realistic, given the benefit from the week last year to expect earnings growth in the fourth quarter?

W. Kerry Jackson

We don't have earnings guidance. What we want to do is look at how the consumer response to our fall product. There's a lot of question about how strong the consumer is right now. Is it just they're a little tired of athletic, and we have some very difficult comps and we see it turnaround nicely. As we expect, when we built that into the high end of our guidance, if we can come out there with some strong comp increases, because people responding to the fall product, we're expecting relatively flat margins, along with some leverage of the SG&A. We can give you those metrics of how we are perceiving the business under the idea that the consumer is going to be responding at the higher end of our guidance, but we're not, at this stage, willing to put out an EPS number.

Operator

Our next question comes from Sam Poser with Sterne Agee.

Sam Poser - Sterne Agee & Leach Inc., Research Division

A couple of things, Cliff, you -- since you've made the exception of speaking about brands, where do you have like Go Walk and stuff like that categorized? Is that in athletic or is that in somewhere else?

Clifton E. Sifford

That's in the women's nonathletic department. We consider that to be a casual.

Sam Poser - Sterne Agee & Leach Inc., Research Division

Okay. But like Go Run would be in athletic, I assume?

Clifton E. Sifford

That is correct.

Sam Poser - Sterne Agee & Leach Inc., Research Division

Okay. You said it very quickly, the men's boat shoe business had slowed down?

Clifton E. Sifford

Well, I want to caution you on the men's boat shoe business, because that was not the primary brand that you're thinking about. That was some tertiary brands that we decided to exit so that we could concentrate on the primary brand. So we actually, just for your clarification on that, Sam, we had an increase in the second quarter on the primary brand in men's boat [ph] shoes, so...

Sam Poser - Sterne Agee & Leach Inc., Research Division

Okay. We've heard the back-to-school business has been running later. Has there been a change in the way the month has progressed from a comp basis and there's probably another 2.5 weeks left of back-to-school. Are you -- have you seen acceleration from like week 1 of August to now, and then that's part of the reason that you're guiding the way you're guiding for the quarter?

Clifton E. Sifford

That is an excellent question and what's happening is exactly that. We see the 2 or 3 days, even -- no, we've talked about this. I think this is the third year we talked about it, but even more so this year than I can remember over the past couple of years, and we track this right down to the market and to the individual school, but right -- we see 2, 3 days prior to school starting back, that business accelerates unbelievably. And then it stays that way for about a week to 10 days and then it normalizes back out. So 2 things happened to us in the month of August: One, that, what I've just explained; and number two, Texas tax-free moved a week earlier than it was a year ago, which took it a week further away from their back-to-school, if that makes sense. So the Texas tax-free wasn't as important for us as it has been in the past. So it was a great event, but not -- it didn't produce the kind of comps that we would have expected. Now Texas will be, is going back-to-school and they -- the numbers accelerated going into back-to-school and continue to accelerate afterwards. So there's a lot of ins and outs on back-to-school. You really don't have a firm grip on it until the first or second week of September.

Sam Poser - Sterne Agee & Leach Inc., Research Division

Okay. And then 2 more -- 3 more things. Number one, the calendar shift, just a follow-up on Scott's question. The week ending November 3, November 2, that is the -- that additional week. How does that week compare, as far as size, to the week ending February -- the last week of the year? In the general sense, how do you think about that? Because you get hurt extremely badly last year in the last week. I think you said you comped down 17% because of the shift in the tax refund and so on? So how should we be thinking about that, just from a numbers basis, based on the weights of the various weeks?

W. Kerry Jackson

Are you asking what might be the differential effect of the shifting week and also losing a week out of the period? Are you looking for that number?

Sam Poser - Sterne Agee & Leach Inc., Research Division

Well, the additional week gave -- you told us -- yes, I 'm looking for a sort of, trying to zero in on that. Yes, I'm trying to zero in on that.

W. Kerry Jackson

If you're looking at the effect to Q4, we're guessing it's right around $12 million, between the loss of a week and the shifting of weeks of one going out and the one coming in. Because at the beginning of the quarter, the weeks are a little bit stronger than at the end of the quarter, just because you're in the prime of the fall selling season versus the clearance period in late January, early February. So that's what the number would be, is a year-over-year effect of about $12 million.

Sam Poser - Sterne Agee & Leach Inc., Research Division

On the negative, on the negative? To that respect?

W. Kerry Jackson

Correct.

Sam Poser - Sterne Agee & Leach Inc., Research Division

And then -- but then you had the bad comps, that...

W. Kerry Jackson

Primarily that's because you got 14 weeks versus 13 weeks.

Sam Poser - Sterne Agee & Leach Inc., Research Division

Correct, correct. But then you had the horrible comp the last 10 days of last year. So how does that work into it, sort of on a more -- assuming the taxes go back to normal? Is that a few million dollars the other way?

Clifton E. Sifford

If they don't change things at the end of the year like they did last year, it's certainly an opportunity.

Sam Poser - Sterne Agee & Leach Inc., Research Division

Okay. And then the Merrell, how many styles of Merrell are you getting in these 50-some-odd stores, soon to be 100?

Clifton E. Sifford

It's a broad selection, Sam. A very broad selection in both men's and women's.

Sam Poser - Sterne Agee & Leach Inc., Research Division

And then my last...

Clifton E. Sifford

I don't -- I can't give you the number of styles, because to be honest with you, I don't know the answer to that off the top of my head, but it is a broad selection. We stand -- when you walk in our stores, the 56 stores that have Merrell today, we -- you know we're in the Merrell business.

Sam Poser - Sterne Agee & Leach Inc., Research Division

And then lastly, your inventory levels are clean. I mean, relative, they're in line with last year and so on. But I mean, what's like your long-term inventory turnover goal here, because you're really not turning the goods that fast. It's somewhat to the nature of your business, but there are probably some significant opportunities there?

Clifton E. Sifford

In actuality, for public companies that report the -- we probably -- there's only 1 company that beats us from a turnover -- annual turnover standpoint. So we turn our inventories pretty quick. We think there's a lot of opportunity there and that's one of the reasons that I mentioned in my prepared remarks that we were going to continue to put pressure on inventory. So we plan on increasing our inventory turn over the next 3 -- next year, the year after and the year after that.

Operator

We go next to Chris Svezia with Susquehanna Financial Group.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

So I'm just curious. The cadence, can you just remind us, Kerry, the cadence for the third quarter versus last year, from a comp perspective? Just how did that -- remind us how it progressed as the quarter unfolded? What you're up against?

Clifton E. Sifford

We were high single digits for the month of August. High single digit. And then most of that came, Chris, at the end of August. In fact, if you were to compare the 3 weeks of August that we just -- we're going to complete tomorrow -- the 4 weeks of August that we're going to complete tomorrow, that gives 4 weeks -- the same 4 weeks a year ago, we were up low teens, okay. So just to give you an idea of the kind of comps we were driving toward the end of August. Then September was mid-singles and October was low-singles. Am I right on that Kerry? You're looking at it?

W. Kerry Jackson

Yes.

Clifton E. Sifford

So we were not very happy with our October performance last year after coming off a strong August. And a somewhat strong first half of September. You probably don't remember, but when we had our third quarter conference call, we talked about the fact that we stay strong through the middle of September and then toward the tail end of September and October, we were not happy with the way things went. So even though we produced a low single digit comp in October, we think there's opportunity there and we think there's opportunity in the nonathletic business, in women's primarily. And the other thing, obviously, to add to that is our kids business has been on fire since the beginning of the year, and we don't see that slowing down either.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Okay. And then what's -- are you making any assumptions for the change in the women's -- the new brands that you're getting in your comp assumption? Or you're just assuming, the comp progression gets easier, so the boot and nonathletic business continues to accelerate, is that the general assumption? Because the test is to the mom [ph]...

Clifton E. Sifford

Well, we obviously -- when we came out with our guidance -- we -- part of that guidance was the fact that we thought the women's nonathletic business would accelerate as we got through the quarter. So yes, we are looking for increased activity in women's nonathletic.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Okay. And then just a quick question on advertising. Are you -- remind us, do you guys -- I know you're doing national advertising next year, but are you guys planning any test for national advertising? And if so, when is that?

Clifton E. Sifford

We are planning to test in several of our regions, emulating a national buy. We're going to do that in September. In fact, that starts in 2 weeks.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Okay. Good. And then just lastly, the fourth quarter -- I know everyone keeps harping you guys on the fourth quarter, Kerry. But I'm going to throw my hat into the ring here. When we think about last year, you had really a significant increase in SG&A. And that was in part, I assume, to the extra week. How do we think about it optically this year? Does it completely reverse itself? Say, you do a 2 comp for the fourth quarter, for an example? Does that give you substantial amount of SG&A leverage because you don't have the cost associated with that extra week? How do we think about that?

W. Kerry Jackson

Well, you're right about that cost falls out. But you have to also keep in mind that we continue to grow and so now we have the effect of -- for any stores we're going to open in the fourth quarter will be at the very beginning of the quarter. So we'll have the full year effect. We're also going to have a grand opening for those stores, so somewhere between the end of the third quarter, beginning of the fourth, we're going to open around 11 stores. So we will have higher dollar-wise SG&A on a year-over-year basis. However, if we can get in that mid-single-digit range, as we're projecting at the high end at the -- for the second half of the third quarter, then we should be able to see some flat SG&A as a percentage of sales, that possibly slightly leveraging.

Operator

[Operator Instructions] We'll go next to Mark Montagna with Avondale Partners.

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

A question about the focus on inventory turn. I think this is the first time I heard you discuss that as a objective, where you really called it out. And I'm wondering how do you plan on doing that? Is that through smaller order quantities? Trying to deliver more style -- get more styles delivered more frequently so that you can confidently get the sense of change? Or is e-commerce factoring into that in anyway?

Clifton E. Sifford

Well, basically, the approach is 2 ways: One, we're going to change the way we flow the merchandise, not bring so much in toward the first of the quarter, but flow it in closer to the way the customer shops us, that's number one; number two, we're going to rightsize the inventory in our smaller volume stores. That's one of the issues that we've had, as the inventories in our smaller volume stores have not been at the right quantities. So we're going to -- we've done a lot of study on that, so we're going to rightsize the inventory there. And I think those are the first 2 big initiatives this year. And as we move into next year, here's one thing we don't want to do. Just so that I'm really clear on this, Mark, is that one of the things that makes Shoe Carnival special, helps us against the other competitors within our grid is, in fact, we have a broad selection of product. We're going to continue to have a broad selection of product, and we're going to have -- and then the product that we truly believe in, we have deep runs. So that the customer sees the value when they walk in our store, there's a value to the fact that she doesn't have to go store to store to store to drive -- to find sizes. We're committed to both of those things. But we probably -- not probably, we know that we, in some of our smaller volume stores, we've carried too much inventory and we have not flowed inventory the way we should flow it. So those are the 2 initiatives for this year.

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

All right. So then with those smaller volume stores, if you reduce the inventory, are you looking to reduce the style choices, or just reduce the depth of the product?

Clifton E. Sifford

I'm going to tell you, we'll probably do both.

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

Okay. And then, yourself, and it sounds like the rest of the industry, is very focused on shorter boots versus taller boots. And how would that play out if we actually have a cold fall for a change? Does that hurt demand?

Clifton E. Sifford

Well, can I -- I want to clear that up a little bit. We're very excited about what has happened to shorter boots today, and we think boots and booties are going to be really important. We think lace booties are going to be important as we move through the fall. But I'm going to tell you, we're getting some very good reaction to Ryder boots and dress boots with higher shafts on them. So it's not all about -- maybe they don't come all the way up to the knee, but mid-calf, but it's not all about shorter boots. I think we're going to be fine there. I think that where you're going to see the difference is in the sport, what we call the sport boot classification, and those are the sueded boots with the fur line. I think you're going to see a major -- a big difference in the assortment there.

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

When you say a big difference, you're talking less assortment or just a whole different variety?

Clifton E. Sifford

We're moving product -- we're moving pairs out of that category into shorter booties and lace-up boots and mid-calve dress and past mid-calve dress into Ryder boots.

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

Okay. Then let's see, you had mentioned customer gravitating to higher-priced product. Is that really another way of saying that they're gravitating more towards fashion versus basic?

Clifton E. Sifford

It really depends on how you want to classify basic product. Some of the brands that I called out that we're going to buy, we're going to expand, like Clarks and Bare Traps and even Earth Origin, those are -- you would consider those more basic in nature but they drop a price point in the high $40s, high $50s, high $40s to high $50s, so I don't know. We've seen a lot of action with those brands and I'm pretty excited. So I think what we have done in the past is we've carried a large selection of product that retails under $30 and under $25. We're going to cut some of that product back, because we don't think we need all the styles that -- at those retails, it limits the amount of gross profit that we can earn on every pair we sell, so -- and we're going to expand that to product that customers have already voted on that I just mentioned, like Bare Traps, Earth and so on and so forth. So that's, when we say gravitate to a higher priced product, that's what we mean by that, I believe.

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

Okay. And then just lastly, if next year, you're going to look to open 40 new stores, are you expecting the average preopening costs of those stores to be essentially the same as this year, but when we look out to next year, obviously, you're going to be entering some new markets, are we also going to deal with what we dealt with last year, where you entered Dallas and Puerto Rico and you did have just higher associated preopening expenses?

W. Kerry Jackson

We're still working through -- the big volatile item when we have a growth like that, especially in new markets, is advertising. We're still working through how the benefits of being a national advertiser versus the grand opening concentration we have. So it's highly likely that the average cost per store per grand opening will be higher. I don't know that it'll be as high as it went in 2012, when we opened Puerto Rico and Dallas.

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

Okay, all right...

Clifton E. Sifford

We'll have a better handle on that as soon as we finalize the major cities that we're going to enter. We're in the process of doing that now.

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

Could it be 3 major cities? Or are you still looking at just 2?

Clifton E. Sifford

There is a possibility that a third major city could come in there. That's one of the things that we're working through right now.

Operator

And there are no further questions at this time. I'd like to turn the conference back over to your speakers for any additional and/or closing comments.

Clifton E. Sifford

Okay. We really do appreciate you joining us today and we look forward to speaking with you again on our third quarter call. Thanks very much.

Operator

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation.

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