Shoe Carnival's (SCVL) CEO Cliff Sifford on Q1 2014 Results - Earnings Call Transcript

| About: Shoe Carnival, (SCVL)

Shoe Carnival, Inc. (NASDAQ:SCVL)

Q1 2014 Earnings Conference Call

May 22, 2014 16:30 ET

Executives

Cliff Sifford - President, CEO, CMO

Kerry Jackson - COO, CFO, SEVP, Treasurer

Analysts

Jeff Stein - Northcoast Research

Chris Svezia - Susquehanna Financial Group

Jill Nelson - Johnson Rice

Mark Montagna - Avondale Partners

Sam Poser - Sterne, Agee

Operator

Good afternoon, and welcome to Shoe Carnival's Fiscal Year 2014 First 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 speaks 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.

Cliff Sifford

Thank you, and welcome to Shoe Carnival's first quarter 2014 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 will give the high level review of the company's performance for the quarter and Kerry will review the financial results along with second quarter guidance. And then we will open up the call to take your questions.

The first five weeks of the first quarter were disrupted with harsh winter storms that negatively affected traffic across the chain. However, during the second half of the quarter, more seasonal weather conditions and a later Easter allowed us to finish the quarter with a comparable store sales decrease of 1.7%. Traffic for the quarter was down low double digit, however, our strategy of elevating our branded assortment through the addition of better department store brands led to an increase in all other metrics we measure ourselves by.

Average unit retail and average transaction are up mid single digits, while conversion and units per transaction were up low single digits. Even though the increased commercial activity around Easter to elevate sale-through of certain underperforming product categories merchandise margins increased by 50 basis points over the prior year's first quarter. Our gross margin of 29.5% was basically flat the last year. However, we were not able to leverage our expense structure under our lower comparable store sales. This resulted in earnings per diluted share of $0.45 which was at the low end of our guidance. Although, we don't report ecommerce sales separately, we were pleased with the sales increases we experienced for the quarter. After the start of our national advertising strategy, we experienced a strong peak in both online traffic and sales.

As I mentioned on our last call, we are in a process of moving away from our third party fulfillment arrangement and transitioning to shipping from our distribution center and stores. We plan to have this transition completed by the end of the third quarter. This is beneficial in many ways, but most importantly it will allow us to increase both the breadth and depth of our selection on the site and will better utilize our store level inventory. We ended the quarter with inventory down slightly on per store basis. Although our plans call for slightly lower inventory levels we are pleased with the content and we believe we are well-positioned for second quarter sales.

Moving on to merchandise highlights for the quarter, in our women's non-athletic department, comparable store sales for the quarter were down low single digits. Dress shoes continued to decline as a category as our customers continued to favor canvas casuals, flat sandals and thanks to the weather boots.

In our men's non-athletic department, we ended the quarter with a mid-single-digit decline on a comparable store basis. Once again, it was all about casual boots which experienced high single digit sales growth on a comparable basis. Our children's non-athletic business ended the quarter with a low-single-digit comparable store sales increase. This increase was driven primarily by sandals and canvas.

In athletic, adults and kids combined comparable store sales were slightly negative for the quarter. Strong categories were boys' basketball, kids' canvas, running for men and women along with men's skate.

Turning now to store expansion, we continued to be focused on growth as we open seven new stores in the first quarter and closed one store taken us to a total of 382 stores in 32 states and Puerto Rico. For the second quarter of 2014, we will continue our accelerated store growth strategy by opening 16 new stores, a 11 of those 16 stores will be in advertising markets that we currently serve. But, in-filling these markets it allows to more effectively communicate to our customers through enhanced advertising plans.

For the year, we are still on plan to open between 30 and 35 stores. Our aggressive growth strategy requires detailed site selection analysis. To better support our decision-making process, we implemented a real estate modeling software program. This software takes our customer data and helps to better understand where the typical Shoe Carnival customer lives and shops. Our real estate team working closely with the executive team is utilizing this data to identify potential new signs. It will also provide us a better perspective under our existing stores and their long-term potential. This is an important tool as we continue our growth strategy of doubling the number of Shoe Carnival stores over the next decade.

Turning now to marketing. As we previously announced, we launched our first ever national cable television ad campaign, the first week of April. And we saw immediate results. Major cities across U.S. where we don't currently operate brick and mortar stores where now top ten traffic producers through our ecommerce site.

National advertising is a strategic initiative to enhance our long-term growth plans not only within our existing markets, but also to create main brand recognition with potential customers and new markets. This increase in traffic and sales for ecommerce reinforces our belief that we are on the right path. I'm also excited to report that we added almost 800,000 new members to our shoe perks customer loyalty program. We are on track to double our membership from 2013 to over 6 million members.

For the first quarter, shoe perks customers accounted for more than 40% of our total sales. We believe our shoe perks member shop us more often than non-members and we know on average they spend almost 35% more than non-members.

Looking at the second quarter, our customer continues to be affected by the microeconomic issues of higher fuel and utility costs left over from the harsh winter we all experienced. In addition, underemployment and unemployment continues to affect our middle to lower income customer base also as part of our national advertising initiatives we have shifted dollars from our traditional insert programs to a more aggressive television strategy, which we believe will drive our brand awareness and sales as we enter the back-to-school and second half of the year.

Therefore, we continue to look at comparable store sales for the second quarter cautiously. Sales month-to-date are currently running down mid single digits. It is our belief that this trend and the current uncertain economic environment will need to be more promotional as we navigate through this quarter.

Advertising trues up as we go through the latter part of the quarter and we are pleased with both the content and the message. We have set a great deal of time preparing with a back-to-school time period which begins in July for both the marketing and merchandise standpoint. So while we look at second quarter cautiously, we expect to see a more normalized trend for the second half of the year.

This completes my prepared remarks and now I would like to turn the call over Kerry Jackson for details on our financial results.

Kerry Jackson

Thank you, Cliff. I will discuss our first quarter financial results followed by information on cash flows then conclude with our outlook for the second quarter of fiscal 2014.

Net sales were $235.8 million for the first quarter of fiscal 2014 as compared to net sales of $232.3 million for the first quarter fiscal 2013, an increase of $3.5 million. This $3.5 million increase in net sales was driven by an increase of $10 million from the 39 new stores opened since the beginning of fiscal 2013 partially offset by the comparable store sales decline of 1.7% and a $2.6 million loss in sales from the eight stores closed since the beginning of fiscal 2013.

Gross profit margin for the quarter was 29.5% and remains flat from the prior year. Our merchandise gross profit margin increased 0.5% from Q1 last year, while buying distribution and occupancy expenses increased 0.5% as the percentage of sales. The increase in buying distribution occupancy was primarily due to higher occupancy. As a reminder, we typically need a 2% to 3% comp increase to leverage our occupancy cost at our current rate of new store growth.

Selling, general and administrative expenses increased $1 million in the first quarter of fiscal 2014 to $54.5 million. As a percentage of net sales, SG&A increased 10 basis points. The increase in SG&A was primarily due to a $2.3 million increase in expenses for new stores net of expense reduction stores that have closed since the beginning of fiscal 2013 another significant change in SG&A for the quarter was attributable to incentive compensation expense which decreased 963,000 in the first quarter of fiscal 2014 as compared to the same period last year.

Pre-opening cost included SG&A were $453,000 or 0.2% of sales in the first quarter of fiscal 2014 as compared to $717,000 or 0.3% of sales in the first quarter of last year. The decrease in expense was due to opening six new stores in Q1 this year compared to Q1 last year. The change in pre-opening costs included in buying, distribution and occupancy cost between the two periods was minimal. The effective income tax rate for the first quarter of fiscal 2014 was 39.7% as compared to 37.4% for the same period in fiscal 2013.

The increase in the effective income tax rate between periods was primarily due to the expiration of certain federal tax credits no longer available to us in 2014 and the passage of new tax legislation of Puerto Rico.

The annual effective income tax rate for fiscal 2014 is expected to be a little lower 39%. Net earnings for the first quarter of fiscal 2014 were $9.2 million or $0.45 per diluted share as compared to our expectations provided on March 20, 2014 of $0.45 to $0.52 per diluted share. For the first quarter of fiscal 2013, we reported net earnings of $9.5 million or $0.47 per diluted share.

Now, turning to our cash position and the information on affecting cash flow. 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 was $4.6 million in Q1; depreciation expense is expected to be approximately $20 million for the full fiscal year.

Capital expenditures for 2014 included actual expenditures during the first quarter are expected to be between $33 million and $35 million approximately $19 million of our total capital expenditure are expected to be used for new stores and $8 million to be used for store relocations and remodels. Leasing centers are anticipated to be $8 million to $9 million for the year.

My final comments today will focus on sales and earnings expectation for the second quarter of fiscal 2014. We expect second quarter net sales be in the range of $223 million to $228 million with comparable store sales ranging from flat to decline of 3%.

Earnings per diluted share in the second quarter of fiscal 2014 are expected to be in the range of $0.12 to $0.16. Included in the earnings estimates for the second quarter, as the expectation at the high end of our guidance, the gross profit margin will decline a little more than 1% and SG&A will deleverage by about 1%. Approximately half of the decrease in the gross profit margin will be as a result of being more promotional with seasonal merchandising Q2.

And the other half will come from deleveraging of occupancy and distribution costs due primarily the higher pre-opening costs. The deleveraging of SG&A is primarily due to higher advertising and pre-opening expenses. In the second quarter last year, sales were $216.4 million and our diluted earnings per share were $0.29.

This concludes our financial review. Now, I would like to open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We will take our first question from Jeff Stein with Northcoast Research. Please go ahead.

Jeff Stein - Northcoast Research

Good afternoon guys. First of all, I'm a little bit surprised about the current business trend, would have thought there would be some pent up demand, so I'm wondering if the weakness that you are seeing now regionalized or are you seeing it across the board? And then I have got a follow up question?

Cliff Sifford

Jeff, the majority of the decrease that we are running month-to-date has to do with shift in our advertising calendar, part of the way, we funded our national advertising campaign was through our insert program and we eliminated an insert or we cut an insert way back from our distribution standpoint at the beginning of this month.

The trend actually over the past several days have been much better, it's just that going against that insert beginning of this month that is a little bit of a hole.

Jeff Stein - Northcoast Research

Cliff given the fact that television advertising tends to build over a very long period of time, when it would be fair to say that as you kind of move through the year, you are going to continue to see this kind of trend because well, we are just seeing that that's kind of how it would seem it is going to play out?

Cliff Sifford

I think in any promotion where we have eliminated or cut back drastically an insert, we are going to see a decrease in sales for that particular time period. Fortunately, for the second half of the year, the majority of those inserts are intact. Back-to-school is intact, as we move through holiday that's intact particularly eliminated one insert in the fourth quarter and cut back on an insert later in the fourth quarter.

So Jeff, to be honest I think that the reason I feel better about the second half is because the marketing trues-up.

Jeff Stein - Northcoast Research

So how many circulars, how much you are cutting back on your circular program in the second quarter overall. So looking ahead for the rest of the quarter and can you comment at all in terms of the number of BOGO weeks that you would expect to see this year in Q2 compared to last year.

Cliff Sifford

I can tell you that we have not had normally, we are not changing BOGO in anyway but to be honest, Jeff, I rather not comment on our marketing plans, our competition does listen in our calls and I just assume not comment on the marketing plans second quarter. Suffice to say that we built that into the guidance any insert decrease that we are going to have.

Jeff Stein - Northcoast Research

Got it. And one question for Kerry. Kerry, I'm wondering is there any slippage in your store expansion program in my model originally I planned about 19 stores for the second quarter and it looks like you are a bit shy of that?

Kerry Jackson

We are. Just moving between quarters, we are still expecting 30 to 35 for the year. There is still some fluctuation stores at the end and certain stores that were anticipated begin in the second quarter have pushed into the – late in the third, early into fourth.

Jeff Stein - Northcoast Research

Okay. Thank you.

Operator

We go next to Chris Svezia with Susquehanna Financial Group.

Chris Svezia - Susquehanna Financial Group

Hey. Good afternoon guys. I guess my – just in the context of the second quarter, I think (indiscernible) last year, any color around what the calendar shift brought in terms of revenues or earnings, can you just give us any color in and around that at all from last year?

Cliff Sifford

That would have been the 52 weeks versus – 52 versus 53.

Chris Svezia - Susquehanna Financial Group

Right. Back-to-school weeks within the second quarter, I think it drove revenues and I think it drove the earnings upside, I'm just trying to understand what that was?

Kerry Jackson

It was. I don't have that with me. This year we are confident of that. So it won't – this year compared to last year you won't have significant issues. To the best of our knowledge at this stage, the back-to-school and tax-free days are fairly similar.

Cliff Sifford

There is one change Chris that tax free, our North Carolina eliminated their tax free last week of the quarter, or actually it's the last weekend of the quarter. Normally in the past, what we have seen and in cases like that is that over the period of back-to-school, you don't lose the sales, just lose the sales from that one event.

Chris Svezia - Susquehanna Financial Group

Okay. Okay. Can you just remind me -- again, I'm trying to understand why did you guys change your advertising coming into this second quarter, just go through that one more time, I was just a little confused about that?

Cliff Sifford

Yes. What we did Chris; we take a look at every avenue that we use as an advertising vehicle. And if this did not get the return on investment, then we either cut it back or eliminated it. And that was a decision now the return on investment is obviously different than the sales have produced. It's going to produce sales, but not necessarily the profitable base on the cost of the insert. So we eliminated those inserts. And to be honest with you we felt that there would be a decrease in sales during this time period of the insert. But that with a more normalized weather pattern this was – last year as we were making these decisions that we would avail to make that up during the – throughout the quarter.

To be honest with you, the loss in sales that we took at the beginning of this month was a little north of where we thought we were going to lose.

Chris Svezia - Susquehanna Financial Group

So much for best intentions I guess, its going to hurt you anyway at the end of the day?

Cliff Sifford

Well, I will tell you what's going to happen the fact that Jeff Stein was absolutely correct, television is a building – from a marketing standpoint builds over time and as we continue this program and we back that program up with the key inserts like back-to-school time period and holiday. We feel we will get nice results out of that. That's again the reason I feel better about the second half of the year.

Chris Svezia - Susquehanna Financial Group

Did you see anything at all as you started doing national advertising in April, when that clicked on in-store and you commented online, did you see any or are you trying the results anything that happened in stores in some of these markets?

Cliff Sifford

I cannot give you a solid – any results from the in store. We had Easter versus Easter. We were flat, dead on flat Easter versus Easter. If you eliminate the first week of March, and look at the March and April because if you remember the first week of March was rather snowy. And we had a quite a number of stores that were closed during the first few days of that month. We were actually just better than flat for that time period.

Chris Svezia - Susquehanna Financial Group

Okay. Q2, last question, one just on product, athletic you mentioned that it was down slightly in the quarter, but called out pretty much every product category they are under the sun, basketball running, like what was the count?

Cliff Sifford

Boys' basketball, women's basketball was not stellar during that time period. The basketball category is just working right now in adults is all in the mall. It’s all the prestige products. But sake as far as non – as far as leather skate product was not good. The canvas skate product was good. So there were – we saw increases as I said, in running, we saw increases in boys' basketball and boys and canvas in both girls and boys. But there were decreases in other categories such as women's skate, women's basketball, men's basketball past the canvas stuff.

Chris Svezia - Susquehanna Financial Group

Okay. And Kerry, just what's the comp progression as we go through the second quarter, I just had a big recollection you are comping really strong coming into the second quarter last year and then obviously it slowed up as the quarter progressed. So what – just kind of give us context of what we are up against?

Cliff Sifford

We had a good April last year, excuse me, good May, good June and our July was slightly down a little over a percent.

Chris Svezia - Susquehanna Financial Group

Okay. All right. Thank you very much. All the best.

Operator

We go next to Jill Nelson with Johnson Rice. Please go ahead.

Jill Nelson - Johnson Rice

Good afternoon. Can you just kind of talk about your inventory content, it sounded like you increased promotional activity around Easter to drive sales, but then you are talking about anticipated higher promotions for second quarter, can you just talk about kind of your inventory content for now?

Cliff Sifford

Well, Jill, let me talk a little bit about increased promotion second quarter, I have been seeing that economy had some – its not entirely the insert program that hurt our sales in the first quarter, I think the economy also played a major part in that. The customers seem to respond better at least to our customer as you get a little more commercial. So our plan is to get a bit more promotional as we head into the second quarter as we continue through the second quarter.

But, as we entered into Easter, when you saw that Easter was not progressing the way we had it planned, we did get a little bit more commercial, so we can keep our inventories clean. And that's one of the things that I think we do well. We react quickly to issues whether good or bad, if sales are good we get back into that product category and if sales don't trend the way we expect until we get our markdowns taken and we keep our inventories clean. So therefore we ended our quarter with inventory slightly down.

Jill Nelson - Johnson Rice

Okay. And then could you just talk about some progress on the women's non-athletic, you said dress was down, but I know you have expanded with some better fashion brands, just give us an update there?

Cliff Sifford

We are real pleased with the fashion brands. We have them currently in just over 100 stores, for fall we will expand that selection to about 140 stores. But, we are excited about what's happening there. Our customer is reaching up and buying. And when you think about – when I talk about the economy and how it's affecting our customer, our customers are higher end customers for us – higher little income customer. She is out there and she is buying that's the reason our average price unit retail is up, our average transaction is up. And our average payers per transaction are up. So that tells me that the customer – that customer is not getting hurt and the economy near as much as the middle to lower income consumer.

Jill Nelson - Johnson Rice

Okay. And then just last one on the real estate modeling software program you mentioned, I'm kind of wondering when -- as you work through the data that its giving you, when will that impact kind of your store selection data base, it sounds like its kind of a work in progress right now?

Cliff Sifford

It is definitely a work in progress. We are getting familiar with all software programs. But, we have already made several decisions based on information that we derived from the reports that we are running. So but I do believe that to your point that it's going to take some time for us to really understand everything this does for us. And but, and its going to help us actually with our existing store base as well.

Jill Nelson - Johnson Rice

Okay. Thanks so much

Operator

(Operator Instructions) We go next to Mark Montagna with Avondale Partners.

Mark Montagna - Avondale Partners

Hi. Just question about the shift from leather footwear to canvas with that shift you are going to I would imagine lower retails. And I'm wondering how much of that would be the factor, how much of that would have contributed to the disappointing comp? And then your comp guidance for the second quarter, is it a big…

Cliff Sifford

Actually our average – Mark, our average unit retail is up. So I don't think – our vendor base is pretty proud of their canvas product. So that product – the canvas product sells for a little less than the leather product. But overall, our average unit retail was up for the quarter. So I don't really attribute the switch to canvas product to the – if our loss was driven primarily from a customer traffic standpoint.

Mark Montagna - Avondale Partners

Could the traffic being an issue of maybe some prices have gotten too high and because and they are up average unit retail is up pretty high amount over the past three, four years. Is it possible that maybe you let things creep a little bit too high?

Cliff Sifford

Well, we ask ourselves the same question Mark. And we did a store-by-store assessment on traffic versus unit – average unit retail. And we found that that's definitely not the case. Our traffic is pretty much down across all spectrums of our business, the higher in stores and the lower in stores. The higher in stores where we have the better product, however, as selling product at a higher retail price and that's helping to mitigate your loss.

Mark Montagna - Avondale Partners

Okay. And then, last question just deals with sandals, on the last call, you had mentioned that sandals, I think you said where up mid teens, I might have missed it. But, did you address how sandals finished in the first quarter?

Cliff Sifford

I have said that sandals were up, I did not talk about how much. But our women's sandal business was just shy of double digit.

Mark Montagna - Avondale Partners

That was first quarter?

Cliff Sifford

Yes.

Mark Montagna - Avondale Partners

Okay. Okay. All right. That was all I needed. Thanks.

Operator

We go next to a follow up from Jeff Stein with Northcoast Research.

Jeff Stein - Northcoast Research

So guys, when you're looking at where you're locating your new stores, it seems like you have a bifurcated real estate strategy now where you have the biggest chunk of your stores catering to more of this urban customer, very moderate customer. And then you've got these 100 stores soon to be 140 that are targeted more towards that upper middle-income customer.

So where are these 30 to 35 new stores that you're opening this year? How many of those would be in markets that are suited for that better fashion product? And on a go forward basis, doesn't it make sense to have all of your stores that you're opening in markets that would accept that type of product? Just to eliminate some of the volatility that you guys seem to see whenever we get into a slower economic environment?

Cliff Sifford

Well, Jeff, first of all, the better products going into about 30 of the store – the 30, 35 stores we open up this year. So I'm not sure that you are correct that the majority of our stores are in urban markets. It is about 40% either African American or Hispanic, the rest we consider to be suburban. I don't know off the top of my head the break down of the 35 stores this year. But, my guess and I'm looking at Kerry right now that my guess is that we are up probably 70% suburban and 30% African American or Hispanic. And that might be 60:40, but I'm not far off from that.

Jeff Stein - Northcoast Research

Sure. So I guess the question would then be and I stand corrected, why wouldn't you want to open all of your new stores in the better markets?

Cliff Sifford

Well, let me say this. Our best volume stores, our largest volume stores in the company are in markets that are either 30 to – somewhere between 30% to 40% African American or Hispanic. So we consider those Hispanic or African American stores that they hit that kind of percentage. But those are all our largest volume stores, so I guess, we get hurt and turn economic downturns for that but when that happens, but our best stores continue to be in those markets. And that is one of the strengths of our company as that we can market and merchandise our stores for that customer.

Jeff Stein - Northcoast Research

Kerry, I'm wondering if you could tell us in the first quarter what the comp store sales were in those 100 locations, if you were to just isolate those?

Kerry Jackson

I don't have the --

Cliff Sifford

I don't have the 100 that's the minimal we can definitely get. I can tell you that the comp store sales between the suburban store what we can call suburban, what we call Hispanic, and what we call African American are pretty much the same across the board.

Jeff Stein - Northcoast Research

Okay.

Cliff Sifford

We doesn't have bigger decreases and the African American stores or the Hispanic stores and we did in our suburban stores.

Jeff Stein - Northcoast Research

You did or did not? I'm sorry.

Kerry Jackson

Did not have significant differences between them. Keep in mind that while we do have certain stores that over indexed to a certain ethnicity, very few of our stores are going to be considered completely suburban. In every store we are going to have we would typically mimic the population, which is going to have some African American, some Hispanic and majority suburban. So that's why when we look at our numbers that's what we are saying, we are seeing traffic slowdown across the board because we are going to have every – virtually every store influenced by a moderate to low-income consumer whether that be a different ethnicity of AA, Hispanic or suburban. We think it's more related to income as supposed to ethnicity.

Jeff Stein - Northcoast Research

Okay.

Kerry Jackson

I will make a comment on the real estate is that when we are making real estate decisions; we started looking at sites sometimes up to two years ahead of time. We might time – we try to time the lease at least nine month ahead of time. The slowdown that we are seeing right now is that has been affected for the – it has been fourth quarter and first quarter, so really all these things we made on real estate for 2014 almost all previously made.

Jeff Stein - Northcoast Research

Right. Okay. All right. That makes sense. Just one comment, one question on ecommerce, you mentioned that you saw a pretty sharp increase in sales once television was turned on. And I'm wondering what have you seen in the way of conversion rates, in other words people are visiting your sites, but are they have the propensity to buy, since television is turned on, increased, decreased or remained about the same?

Cliff Sifford

Over conversion rate is way up. That is something we are very proud off. So not only is our traffic up, the conversion is up too. But that's conversion actually began to increase in our ecommerce site after we had our new ecommerce VP. And we corrected some of the issues with the site. We started seeing conversion rates increase immediately after that. And they have continued to climb. So fairly happy with our conversion rates Jeff, but it was incredible to us to see the spike almost over night and these markets that we don't serve markets like New York and LA and Philadelphia. The traffic in those – traffic and sales in those markets spike and in some cases into the top ten.

Jeff Stein - Northcoast Research

Are you including your ecommerce sales in comps?

Cliff Sifford

Yes. We are.

Jeff Stein - Northcoast Research

Okay. Because in effect and if you are getting up a big chunk of your sales from markets where you currently do not have stores that kind of inflates the reported comp to some degree. I mean is there anyway to isolate for us what percent of your ecommerce sales are coming from markets where you have stores?

Cliff Sifford

A small numbers to get – the small numbers, our ecommerce business has not been – not had an effect on our comps and it had a very minimal effect on our comps this quarter.

Jeff Stein - Northcoast Research

Got it. Okay. Thank you very much.

Operator

We go next to follow up with Mark Montagna with Avondale Partners.

Mark Montagna - Avondale Partners

Hi. Just kind of following along with the ecommerce question. It sounds like you guys are doing pretty low with your ecommerce, and I would image that it's going to continue to do well and keep growing. What caused you to rethink average size of your new stores going forward on leases on that you haven't quite signed yet?

Cliff Sifford

I don't – I could tell you that ecommerce has made us rethink that. But I won't tell you that as we get to familiar with this new software program. And as we look at the kind of volumes we can expect on some of these markets we are rethinking our store size.

Mark Montagna - Avondale Partners

Okay. And you wouldn't be able to impact store size and can you actually impact it next year or things….

Cliff Sifford

We have been able to impact it on some other sites that we looked at that we signed before the latter part this year and we – that is definitely part of our strategy going into 2015.

Mark Montagna - Avondale Partners

Okay. That sounds great. Thank you.

Operator

And we go next to Sam Poser with Sterne, Agee. Please go ahead.

Sam Poser - Sterne, Agee

Hi. Thanks for taking my question. Good afternoon guys. Couple of things, number one, the new store, can you give us an idea of what the new store productivity is looking like right now. And how you see that rolling out throughout the year?

Kerry Jackson

Sam, anytime our existing comp base is not performing where we had the negative 1.7%, we will see in our newer stores where they have got less developed customer base perform more underneath our expectations. So still early for the stores we have opened this year. And the stores that we have opened in the second half of last year, we have now gone into two quarters where we had difficult time with weather, economy et cetera. So it's really hard to judge new store performance right now from what we expected to be the longer term. But, right now it's underneath what we would have expected under more normalized conditions.

Sam Poser - Sterne, Agee

So it's under the pro forma?

Kerry Jackson

That's a relative statement. There is a lot more to a conversation than the pro forma sales. But --

Sam Poser - Sterne, Agee

Okay. Okay. Yes.

Kerry Jackson

Go ahead.

Sam Poser - Sterne, Agee

You were going to say but so sounds like you want to say.

Kerry Jackson

But the general statement is that against what we were expecting the store to do it has underperformed as a group.

Sam Poser - Sterne, Agee

Okay. And then you mentioned that how many people do you have signed up on the shoe perks thing to this point?

Cliff Sifford

We are little over 3 million, I believe the exact number that's over 3 million and we expect in this year at 6 million or better.

Sam Poser - Sterne, Agee

And I guess my question to you is, you said added 800,000 in the quarter, is that correct?

Cliff Sifford

Correct.

Sam Poser - Sterne, Agee

I mean you are adding customers, I assume those customers as you add them are shopping. So if you add 800,000 and 40% of your – I mean how many of the perks customers are actually coming back, I mean because you added – I assume most of the 800,000 people that you added shopped, which is already close to 40% increase over what it were – I mean it's close to a 40% increase over what it was.

Cliff Sifford

I think this time last year we were talking about and I don't have the prepared remarks in front of me. But I believe shoe perks members last year first quarter that kind of little over 20%, that I wouldn't want that go into a report until I can verify the number. But, I believe I'm close to right.

Sam Poser - Sterne, Agee

But, I guess my question is, are the customers coming back and being loyal now or are you just getting the benefit of adding more people – as those people are shopping?

Cliff Sifford

Customers we added for the first quarter, I can't tell you whether those customers came back. During the first quarter, they are going to come back-to-school, but the advantage to adding these customers Sam is that we get to talk to them and we have their email address, we get to market and tell them what's going on. So the goal is get them back to talk to them and get them back into our stores often is possible. But, I can't tell you that the customer 800,000 that we added for the first quarter have come back/

Sam Poser - Sterne, Agee

I assume they shop; the question is how many of the previous 2.2 million came back in the quarter?

Cliff Sifford

Don't have that answer. I can tell you –

Sam Poser - Sterne, Agee

That's what I'm trying to figure out.

Cliff Sifford

I can tell you that 2, it’s kind of a 40% and I believe and I will verify this for you that I believe that this time last year it was slightly over 20.

Sam Poser - Sterne, Agee

Okay. Thanks. And then can you talk – I just want to clarify what's in what categories. When you talk about women's casual, you are not putting our friends from Manhattan Beach in – they are not in athletic, correct or most of them are not in athletic, is that correct?

Cliff Sifford

We have – as you put it, relative to Manhattan Beach in every category and every department we do business in.

Sam Poser - Sterne, Agee

But, I mean the increase in the women's casual that – you didn't drive it – they probably drove some of those increases there versus driving in athletic?

Cliff Sifford

Sam, I'm not going to talk about experience.

Sam Poser - Sterne, Agee

I just – I got to give it a go.

Cliff Sifford

I know.

Sam Poser - Sterne, Agee

And then one last question – one last thing about your ad, we saw the ad. I mean it looks like the ad and I was very suburban, is that – what was the intent of the ad itself. I mean the ad I saw online was very – it was very suburban. It's that – was that – is that the intent? I mean how do you think about hitting your customers whom you are aiming out with the market against and so on?

Cliff Sifford

Well, the intent of the ad was to talk about Shoe Carnival and the fun shopping experience and the great selection of product. And the ad does it very well with our customer across all ethnicities. So what you are asking is, did we leave a customer out net add, I can't tell you that we did, it tested positively across. I thought that the add communicated exactly what we wanted it to communicate that Shoe Carnival is a great fun place to shop, it's got a great selection of shoes and the product that the young lady was modeling for her family. We created a family experience and showed great product.

So and as I said we tested the ad before we ever ran it. And it tested well against all ethnicities.

Sam Poser - Sterne, Agee

Thanks. Have a great day.

Operator

And we have a follow up question from Chris Svezia with Susquehanna Financial Group.

Chris Svezia - Susquehanna Financial Group

I just have two things. One just on the decision not do the insert, what was the internal plan in terms of what you thought either the degradation in comp would have been? What is the anticipated comp impact that you originally expected that to have on the business going to second quarter?

Cliff Sifford

We planned our business. We had the week that the insert we eliminated inserts whether we eliminated entire insert, we eliminated stores from the inserts in order to cut cost. We planned those weeks down. And that was built into our guidance. I'm not sure I want to tell you how much from a percentage standpoint or a dollar standpoint we plan our business up or down for inserts and/or any kind of advertising. Again, I think that's too granular.

Kerry Jackson

Our guidance was flat, we were down 3%. We took much more into consideration than just whether we ran inserts or not. We are seeing the trend. We are seeing how the customer is shopping at other avenues and recognizing that it's going to be a little promotional and there is some inventories out there its going to have pushed through. So the marketplace, so there is more in that guidance in just those numbers. In fact, that wasn't a large part of it. Because we are expecting to see once we start into July and start the back-to-school where we got the television advertising and the inserts going – that July – the end of July starts our back-to-school push. While most of that push is in August, we expect to see some better results into the quarter.

Chris Svezia - Susquehanna Financial Group

Okay. Thanks. I guess I'm just trying to figure out at the end of the day, if you're saying you're down kind of mid single digits to the guidance in the second quarter. I'm just trying to decide for much of that is just your initial assumption, how much you thought you might have been down because the change in the inserts and how much is actually – the environment or macro or difficult comparisons or whatever, just trying to get some color about how to think about that?

Kerry Jackson

We expect it to – like we said, we are having the first couple of weeks we think were affected larger than we expected from a comp standpoint that's going to get diluted out as the quarter progresses and that's why we are looking at the high end being flat.

Cliff Sifford

And I had one more thing to that Chris. That's one of the reasons, you are being cautious because we don't – we are not really sure, we believe that the first couple of weeks were affected by – a large part by the insert. But, again, we are not sure how much of that is a microeconomic issue. So we are being cautious.

Chris Svezia - Susquehanna Financial Group

Okay. But you are not seeing as you said you saw – I would assume coming through this week, you saw – it looked like this week is the best week that you have had so far.

Cliff Sifford

That is correct. That is correct.

Chris Svezia - Susquehanna Financial Group

Okay. All right. And since you are the General Merchandise Manager or Chief Merchandising Officer, I forgot what the title was – but still what, I guess, at the end of the day when you look out, what gets you excited, and I know that comps have been kind of all overt the map. But what gets you excited about your ability to drive comp whether pricing, whether it wins initiative, what you see in athletic, advertising to drive traffic, I'm just trying to get some sense as you because I'm just trying to balance that against inventory and purchases and just sort of how comps have sort of unfolded over the past couple of quarters. Not exactly what you expected. So I'm just trying to get a sense as to what's kind of given you that confidence to think about the back half of the year?

Cliff Sifford

And I will say that's a very good question. Let me answer it this way. I think that microeconomic issue and our customer is again affected by utility bills and gas prices that was utility bills created in the February and March time period that's going to be behind us as we enter into the – later in the spring and summer. That's a little of my thought process. And when I take a look at what we have got coming in for the back-to-school time period and the strength of what we are seeing right now in the canvas product, whether it be fashion or vulcanized or skate or even comfort that canvas. I think you understand where I'm going with that.

What I see going on with Memory Foam and with junior flats and then, most of which, when I see what's happening in our women's boots as we go into the second half. I'm actually – I'm much more positive about our second half than I'm about the second quarter. So I don't want to over sell it. I just – I have seen the promotion. I know that that we don't have the non-comp events of not running inserts as we go into key time periods at the second half. So I believe that when you add all of that together I think we stand to see much better comps in the second half than what we are seeing right now.

Chris Svezia - Susquehanna Financial Group

Okay. That's all I have. All the best to you guys. Talk to you soon. Thanks.

Cliff Sifford

Thanks Chris.

Operator

And it does conclude today's question-and-answer session at this time. I would like to turn the call back over to your presenters for any additional or closing comments.

Cliff Sifford

I appreciate – I do appreciate everybody being on the call. We look forward to talking to you again on our second quarter conference call in August. Thanks again.

Operator

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

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