Bon-Ton Stores' CEO Discusses Q4 2010 Results - Earnings Call Transcript

Mar. 9.11 | About: The Bon-Ton (BONT)

Bon-Ton Stores (NASDAQ:BONT)

Q4 2010 Earnings Call

March 09, 2011 10:00 am ET

Executives

Byron Bergren - Chief Executive Officer, President and Director

Jean Fontana - Integrated Corporate Relations

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

Anthony Buccina - Vice Chairman and President of Merchandising

Analysts

Spenser Samms

Grant Jordan - Wachovia

Emily Shanks - Lehman Brothers

Leah Hartman - CRT Capital Group LLC

Colleen Burns - Oppenheimer

Trey Schorgl

Carla Casella - J.P.

Edward Yruma - KeyBanc Capital Markets Inc.

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's Bon-Ton Stores Inc. Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] And now I'd like to turn the conference over to Jean Fontana from ICR. Please go ahead, ma'am.

Jean Fontana

Thank you. Good morning, everyone, and welcome to Bon-Ton's fourth quarter and full year 2010 conference call. Today, Mr. Bud Bergren, President and CEO; Tony Buccina, Vice Chairman and President of Merchandising; and Keith Plowman, Executive Vice President, Chief Financial Officer and Principal Accounting Officer will host the call. You can access a copy of the company's earnings release at the company's website at bonton.com, and you may also obtain a copy of the earnings release by calling (203) 682-8200.

As a reminder, the statements contained in this conference call, which are not historical facts, may constitute forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1985 (sic) [1995]. Actual results may differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the company’s filings with the SEC.

With that, I'll turn the call over to Bud Bergren, President and CEO.

Byron Bergren

Good morning, and thank you for joining us. I'll begin with some general comments on the fourth quarter and full year 2010 and then touch upon our perspective regarding some key points for 2011. Keith will provide details on the fourth quarter and full year 2010 financial results and outline the financial guidance and assumptions for 2011. Tony will discuss the quarter's merchandise results and the merchandising initiatives for 2011. After that, I will make some closing remarks and then we'll be available to address your questions.

Let me begin by saying that I'm extremely pleased with our merchandise, operational and financial accomplishments during 2010. We were able to improve our operating income by nearly 56% over the prior year to $135.1 million, compared with $86.7 million for 2009. We generated an increase of excess borrowing capacity through 2010 that positioned us to repay our $75 million second-lien term loan in early 2011.

In addition, we announced three exclusive strategic alliances: Casual Male [Casual Male Retail Group, Inc.], which will bring big and tall merchandise to our customers; John Bartlett, an excellent designer for our men's updated private brand; and Mambo [Mambo Graphics PTY LTD], one of the top surf and skate brands in the world, which would be exclusively to us at United States. I believe these initiatives further set us apart from the competition.

We closed three underperforming stores after careful evaluation and announced the opening of a new location at the Minneapolis/St. Paul market, targeted for fall 2011. I want to thank the entire Bon-Ton team for their contributions, not only in 2010 but over the prior three years, as we successfully managed our company through a challenging economic period.

Now let me cover some highlights from our fourth quarter. Comparable-store sales rose 0.8%, while operating income increased $11.8 million to $113.2 million. Our fourth quarter results drove an EBITDA increase of $5.4 million. For the fourth quarter, our best performing markets were Detroit, Des Moines, Omaha and Minneapolis. Our softest markets were Lehigh Valley, Buffalo and Harrisburg.

We continue to deliver positive results in our franchise businesses, private brands, key items and incredible value programs. We continue to generate outstanding growth in our eCommerce business. Sales were up 108% in the fourth quarter compared to the prior year. Tony will provide greater detail on merchandise accomplishments and initiatives a little later in the call.

Before I discuss our perspective regarding some key points for 2011, I'd like to provide some color, given rising commodity and labor cost. We are committed to managing the challenges these bring. To begin, it's also important to remember we haven't seen inflation in retail in a long time, and I believe there are some positives to price increases.

In spring 2011, we saw price increases in the range of 3% to 5% of our total buy. Price increases in the third quarter were in the range of 8% to 10%. We expect price increases in the fall of 2011 and early spring '12 to be in the range of 10% to 15% range. This is primarily due to increase in cotton prices; the increase on fuel, which will impact transportation and shipping. We will book early spring 2012 at the end of this month.

We're focused on containing price increases through early commitments, off-peak product production and focused buys. Sourcing shifts to other companies -- other countries, excuse me. China is now less than 40% of our 2011 production. In 2009, it was almost 60%. And we are also increasing shipments from duty-free countries. We'll also be using blended fabrics. This not only reduces costs, but enhances performance.

Fashion update assortments allows us for more pricing elasticity; therefore, we believe we are in a position to pass through some of these rising costs through selective price increases, given the high level of exclusivity and differentiation in our assortments, while maintaining our value proposition. And working with our strongest vendors and making production more efficient by taking out unnecessary costs of the production life cycle.

We do expect further price pressure in the range of 10% to 15% of our total buy, as we enter the early spring '12 commitment cycle as cotton prices continue to rise. But it is really too early to predict, especially if the cost of oil continues to increase. We will monitor our customers' reaction to prices and we'll target retail pricing to demand. We will price our merchandise to be competitive and offer our customer the fashion, quality and value she expects from us.

We spent a lot of time in 2010 planning for 2011 and beyond. I believe we have the right plan to guide our future. It consists of the following: We're going to continue to drive our franchise or headquarter businesses. We're going to increase the penetration of differentiated and exclusive product, which includes further development of our private brands. We're going to drive key item programs, including our Incredible Value Program. We're going to maintain our core customer base while developing a younger-attitude customer with some new, updated, merchandise brands.

We're going to continue to grow eCommerce with a minimum of 1% increase on our comparable sales each year. We're going to focus on tailoring our merchandise assortments by store and expanding our successful merchandise optimization program to store planners. We're going to reallocate some square footage in our stores, expand and emphasize growth businesses, both with assortments and visual enhancements. We're also going to expand our digital advertising, which includes the emerging media markets, including mobile, email and text. We'll also be looking at clothing stores that cannot contribute to our profitability by putting capital in stores that will give us a return.

We believe we have the financial strength to support our future growth. All of our initiatives underscore our niche to being the provider of fashion and quality at a great value, because we understand the local market and talk directly with the customer.

And with that, I'd like to turn the call over to Keith to review the financials.

Keith Plowman

Thank you, Bud, and good morning to everyone. I will review our financial results in the fourth quarter and full year 2010, and provide our guidance and assumptions for 2011. First, I would like to note, we are pleased with the improvement in our results in 2010 as compared to 2009, and we believe we have further strengthened our financial position.

Of notable accomplishments in the fourth quarter include: our comp-store sales increased 0.8%. Operating income increased $11.8 million to $113.4 million as compared with $101.4 million in the fourth quarter last year. Operating income in the fourth quarter of fiscal 2010 and fiscal 2009 included non-cash charges of $1.5 million and $5.4 million, respectively, to reduce the value of long-lived and intangible assets.

Our EBITDA, defined as earnings before interest, taxes, depreciation, amortization, including amortization of the lease-related interests and other impairment charges, increased to $140.7 million as compared with $135.3 million in last year's fourth quarter. Please note: For a reconciliation of EBITDA to net income, we ask you to refer to our earnings press release.

At the end of the fourth quarter, our excess borrowing capacity under our revolving credit facility was approximately $472 million. This positioned us to repay our $75 million second-lien term loan on January 31 of 2011. Our total debt levels decreased by $99 million or approximately 10% below the prior year levels and our debt to EBITDA ratio improved to 3.8x from 4.9x in the prior year period.

We further addressed the debt structure of Bon-Ton and we announced we have commitments to amend and restate our credit facility agreement for a five-year period, subject to customary closing conditions. The terms, which will be disclosed when the facility closes, provides for reduced interest rates and fees, and generally more favorable terms to the company.

Moving to the details of our fourth quarter. For the fourth quarter comparable-store sales increased 0.8%. Total sales increased 0.8%, also, to $1,010,000,000. Other income in the fourth quarter was $21.7 million compared with $22 million the fourth quarter of 2009.

Our gross margin dollars in the fourth quarter decreased $8.3 million to $374.2 million. Our fourth quarter gross margin rate decreased 110 basis points to 37% of net sales compared to 38.2% in the prior year period, and this primarily reflects increased net markdowns and increased delivery cost.

SG&A expenses decreased $13.9 million to $255.2 million, compared with $269.1 million in the fourth quarter of fiscal 2009, the result of effective cost controls and timing of incentive compensation accruals. The SG&A expense rate for the fourth quarter of fiscal 2010 was 25.3% compared with 26.9% in the prior year period.

Depreciation and amortization expense, including amortization of lease-related interests, decreased $2.5 million to $26 million, compared with $28.5 million in the fourth quarter of fiscal 2009.

Interest expense, net, decreased $2.2 million to $27.3 million, compared to $29.5 million in the fourth quarter of fiscal 2009.

We recorded an income tax provision of $879,000 in the fourth quarter of fiscal 2010. This compares with an income tax benefit of $8.4 million in the fourth quarter of fiscal 2009.

Net income was $85 million or $4.41 per diluted share in the fourth quarter of fiscal 2010, compared with net income of $80.3 million or $4.34 per diluted share for the fourth quarter of fiscal 2009. In the fourth quarter of each fiscal 2010 and 2009, the company recorded non-cash impairment charges of $1.5 million and $5.4 million, respectively, and recorded a favorable tax carryback of $6.3 million in the fourth quarter of fiscal 2009.

Looking at the full year of fiscal 2010, comparable-store sales increased 0.9%. Total sales increased 0.7% to $2,980,500,000. Our gross margin rate for fiscal 2010 improved by approximately 50 basis points to 37.6% compared with 37.1% in the prior year. SG&A expenses for the year decreased $21 million compared with the prior year period, the result of our cost control efforts.

Operating income increased $48.4 million to $135.1 million, compared with the operating income of $86.7 million in fiscal 2009. Operating income included non-cash charges of $1.7 million and $5.9 million in fiscal 2010 and fiscal 2009, respectively, to reduce the value of long-lived assets and intangible assets.

EBITDA in fiscal 2010 increased to $34.5 million to $243.6 million, compared with $209.1 million last year. And net income for fiscal 2010 was $21.5 million or $1.12 per diluted share, compared with the net loss of $4.1 million or $0.24 per diluted share in fiscal 2009. These numbers include the previously mentioned non-cash impairment charges as well as a favorable tax carryback of $6.3 million in the fourth quarter of fiscal 2009.

Moving to some key ratios and balance sheet amounts. Our total balance sheet inventory at the end of the fourth quarter increased 3.5% as compared with the prior year. Our accounts payable increased $11.6 million, reflecting strong vendor support. And our letters of credit were $5.5 million at the end of fiscal 2010; comparably, they were $18 million in 2009.

Total debt, including capital leases, was $930.5 million at January 29, 2011, compared with $1,029,300,000 at January 30, 2010, a reduction of approximately $99 million or 10%. Our debt to EBITDA ratio, as mentioned before, improved by 1.1x from 4.9x to 3.8x. And our fiscal 2010 capital expenditures, not reduced by third-party contributions, were $46.3 million compared with $32.3 million for the prior-year period.

Regarding our full year fiscal 2011 guidance, we are providing the following: EBITDA in the range of $235 million to $255 million, income per diluted share in the range of $1 to $1.50 and cash flow is expected to be in the range of $45 million to $60 million. For a definition of cash flow as used here, please refer to our press release, Note 2.

Assumptions reflected on our full-year guidance are comparable-store sales in the range of 1 1/2% to 3 1/2% increase; gross margin rate, flat to down 30 basis points to fiscal 2010; SG&A expense as a percent of sales, flat to fiscal 2010; effective tax rate of 38%; capital expenditures not to exceed $80 million, net of external contributions; and an estimated 19.5 million to 20 million average shares outstanding.

A few additional callouts in our guidance, as noted in our press release: provided guidance does not reflect the potential income tax benefit of reducing the valuation allowance currently recorded for deferred tax assets. If the company achieves the results, as provided above, in the fiscal 2011 earnings per share guidance range, a favorable adjustment to the valuation allowance on deferred tax assets is expected. Additionally, the tax rate, as noted here in our guidance, is 38%. If you refer to the information on our press release this morning, you can see that 2009 was at a rate of about -- excuse me, 2010 was at a rate of about 6%.

And additionally, one other callout is, as we have announced, we have paid off our second-lien term loan that was outstanding on the first day of fiscal 2011. The company incurred an approximate $8 million of onetime charges to get out of the facility, to terminate and pay it off in full, and those charges will be recorded in the first quarter of fiscal 2011. They are inclusive in our guidance, but will distort interest cost higher in the first quarter versus the remainder of the year.

We will continue to control our expenses, manage our capital spending and inventories and balance our current and future growth of top line sales with our profitability goals. Our Form 10-K for fiscal 2010 will be available around April 14.

At this time, I'd like to turn the call over to Tony.

Anthony Buccina

Thank you, Keith. We were pleased to achieve a comp-store sales increase of plus 8/10% for fourth quarter and a plus 9/10% comp sales increase for the full year. November was the strongest month, led by the largest-volume Black Friday sales in our company's history.

We also had positive comp sales in December and January, despite above-average snowfalls hitting several of our biggest sales base. Transactions in the fourth quarter were slightly down compared with the prior-year period, but the average retail per transaction was up from the prior-year period. For the year, transactions were slightly up (8/10%) and the average retail transaction was slightly down (7/10%).

Our gross margin rate for the fourth quarter decreased 110 basis points, coming off of a record high rate of 38.2% in the fourth quarter of 2009. The pressure on gross margin was the result of increased net markdowns to drive sales growth, and to move through some slower-selling merchandise, as well as higher delivery costs. For the year, the gross margin rate was the highest annual rate in the history of our company, with gross margin dollars higher than the plan and prior year.

Retail inventory, on a comp-store basis at the end of January, was up 5.8% over last year and on plan. As planned, we brought in more transitional spring merchandise to support early-spring selling, and support our merchandising strategies to grow sales in eCommerce, private brands, shoes and cosmetics, as well as more impactful setups of new, expanded Incredible Value Programs. 80% of our comp-store inventory increased in our most current category -- is in our most current category of less than 90 days old.

Looking at our sales performance by category, our best performing categories in the fourth quarter were fine jewelry, the home store, shoes, ladies outerwear, better ladies sportswear, better men's sportswear and cosmetics. We also had strong double-digit growth in watches and luggage.

Top four performing areas were moderate sportswear; petites and large-sized sportswear; dresses; and suits. Private brand grew to 19.2% of total sales, without furniture and fine jewelry, from 18.6% last fourth quarter. The best performing private brands were Kenneth Roberts, Ruff Hewn and Relativity Career. For the year, our private brand penetration grew to 20.2% of total sales, without furniture and fine jewelry, compared to 19.6% prior year.

Franchise businesses were down slightly in sales, 6/10% in the fourth quarter, compared to prior-year fourth quarter, even with increases in ladies shoes, cosmetics and moderate update sportswear. Franchise businesses were negatively impacted by weakness in petites, large-size sportswear and social dresses. For the full year, franchise businesses grew faster than total store and beat gross margin dollars and rate, compared with the prior year.

We continue to have strong success with our storewide key-item strategy. Key items grew sales over 10% in the fourth quarter compared to prior-year period, and penetrated at 35.2% of total company, compared to 31.9% penetration prior year. Our IVP (incredible value key item program) increased sales plus 9 1/2% over the prior year period and penetration grew to 9.1% of total company, compared to 8.3% prior year. And for the full year, sales of our Incredible Value items grew plus 9% and grew in penetration to 9.1% of total store from 8.4% prior year.

Overall product differentiation was down slightly to 32.3% of total store in the fourth quarter compared with 32.6% in prior-year period. But for the full year, unique product penetration was up 90 basis points to 33.4%. Private brand accounted for 60% of differentiated merchandise annually, same as the prior year.

We definitely are seeing a shift in sales from moderate merchandise to better merchandise. The better area significantly outperformed the moderate areas in the fourth quarter. Customers are also moving toward more updated styles versus traditional, which affects both the moderate and the better zones. eCommerce sales were very strong in the fourth quarter, more than doubling the prior-year period. eCommerce sales finished the year with a larger volume than any brick-and-mortar store.

Looking ahead to 2011, our merchandise strategies have performed well, and we expect them to continue to do so in 2011. We plan franchise businesses to grow faster than the total company. Ladies shoes and moderate update sportswear are planned with the largest increases for spring. We are also adding the children's category to our list of franchise businesses this year. Growth in children's will come from private brands and new brands, like the recently announced Mambo alliance. We plan to increase children’s space in our stores, dollars in marketing and inventory beginning in the fall.

We plan private brand sales to grow faster than the company. Store rollouts and new product categories that began last fall will continue into spring. We're planning big growth in Kenneth Roberts and Paradise Collections in men's. We are planning big growth in Ruff Hewn across men's, missy and children's. We are planning big growth in Relativity Career and we are planning big growth in Ramped Up for boys.

We expect continued growth in our storewide key-item initiatives, including our Incredible Value Program. We expect unique merchandise will account for a third of our total sales, with private brand being about 63% of differentiated merchandise.

eCommerce growth is a focus initiative with us and we anticipate continued strong growth in 2011. We are prepared for the growth with the improvements we made in 2010 to our website, as well as the expansion of our distribution centers. We are investing aggressively in receipts, inventory and marketing to drive eCommerce. Fine Jewelry has also been a big winner for us since we took it over last fourth quarter and we have significant opportunities for sales growth.

Finally, we're excited about the new opportunities with Casual Male, John Bartlett and Mambo. Casual Male big-and-tall merchandise is available on our website and will be in selected doors in the first quarter. The private brand men's merchandise designed exclusive for us by John Bartlett will arrive near the end of the second quarter, and provide our men's sportswear zone with affordable, fashionable and more update sportswear.

Merchandise from our Mambo initiative will arrive just in time for back-to-school selling. Mambo is one of the top surf and skate brands in the world. This merchandise from Mambo will bring excitement to our younger categories of business in kids, junior's, and young men's, while differentiating us from competition and driving incremental sales. We believe our merchandise strategies and our message of fashion, quality and value will drive top line in 2011.

Customers are already responding to new spring assortments, including some areas that were tough performers in the fourth quarter. We will continue to expand our partnership with key vendors. We appreciate the strong vendor relationships and know they will always be one of our keys to success.

I will now turn the call back over to Bud.

Byron Bergren

Thank you, Tony. We are pleased with our performance in 2010 and are excited about the opportunities we believe will drive top line growth in 2011. We have positioned our company for the future, and are confident we have the right initiatives in place to accomplish our goals. With that, we'll be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Edward Yruma from KeyBanc Capital Markets.

Edward Yruma - KeyBanc Capital Markets Inc.

My question, kind of a longer-term question, but in terms of square footage, I know that you closed two stores in 2010 and you interestingly announced the opening -- or a new store for 2011. How should we think about longer-term square footage growth for the company?

Byron Bergren

Ed, I would look at -- for new stores, we're looking at one or two new stores a year, and it depends on the timing of when leases expire and so forth. But overall, I'd look at, maybe, a minor increase if not flat.

Edward Yruma - KeyBanc Capital Markets Inc.

Got you. And your guidance of flat to down 30 basis points gross margin. What type of unit velocity does that assume? And how much of the higher cost, that you kind of detailed, do you expect to pass along to the customer?

Anthony Buccina

I think that we're seeing...

Byron Bergren

Go ahead, Tony.

Anthony Buccina

We're up against that high watermark margins that we achieved record high margins in '09. We achieved record high margins in 2010. We really want to focus on getting top line growth more than just on margin growth, and that's what we planned in the fourth quarter and that's the way we see our plans going forward. The price increases that we're having, we are smartly pricing our goods according to where we think the customer will respond. There are certain categories that are up, and there's certain categories that we believe we have to keep the same price. So it's a fine balancing act and it's really trying to make smart pricing decisions.

Edward Yruma - KeyBanc Capital Markets Inc.

Got you. And, Keith, maybe...

Anthony Buccina

We will be working on -- to answer your question on units, we will be working on a dollar basis and so you will start to see less units.

Edward Yruma - KeyBanc Capital Markets Inc.

Got you. And one final question. Keith, could you at least give us a little bit of color in terms of the difference in interest expense, year-over-year? And I know you don't want to provide the interest rate yet, but any color would be very helpful.

Keith Plowman

I understand that. And, yes, we definitely see a significant benefit here. At the time we did the 2009 refinancing, you know it was a very difficult market out there. Again as we noted at that time, it showed the partnership with the banks and the banking group and the support we got in the second-lien term loan. We appreciated all the support as we showed in the market, but market conditions are decidedly different today and we'll be coming out in the next couple of weeks with more detail. But we definitely view this as being very advantageous to the company, both in the term of rates as well as fees associated with the facility.

Operator

Moving on, we'll take our next question from Grant Jordan from Wells Fargo.

Grant Jordan - Wachovia

So just thinking about the pace of the year, is there anything we should think about in terms of year-over-year comparisons, first half versus second half, as to some of the price increases start to roll through?

Byron Bergren

I think what we talked about earlier was when we saw the price increases happening. And that's a -- you'll see more in the second half than you'll see in the first half.

Grant Jordan - Wachovia

Okay. And so is it your anticipation that you'll kind of see the -- I guess, really trying to understand some of your assumptions behind the volume, which you went over for us, and that's helpful that you expect lower units. But as you see some of these higher prices, you're talking about mid- to high-single-digit price increases to pass along the higher cost. So just trying to get -- are you expecting that units will really fall off that much as you move throughout the year? Or am I not thinking about that correctly?

Byron Bergren

No. We are, as Tony said, we are buying the dollars. We're not buying the units. So in the spring we see the spike right now. We see price increases from 3% to 5% and then in the third quarter 8% to 10%. So you will see fewer units on the floor.

Keith Plowman

The price increase isn’t going to impact all product.

Byron Bergren

Right. Yes. That's not a -- Keith is right. It doesn't hit everybody the same. Different areas have different issues.

Grant Jordan - Wachovia

Okay. And then on the working capital, so would you expect to make a net investment working capital, kind of, above and beyond the level of sales growth you're expecting? Or is it really that you're just targeting dollars and you're going to keep working capital fairly close?

Keith Plowman

No. I think what you saw at the end of the year is, as you know, we were up, Grant, about 3 1/2% on a total-inventory basis and that was really Tony and his team going out and buying merchandise to position themselves well for the spring season and having the right merchandise on hand, especially as you look back to where we were in position in 2009, 2008, years that were more pressured as far as product in our stores. So we see that we're in a good position at the end of the year. We think that we will keep inventory in line with what sales trend is, and actually, we would look to manage a little bit below that as we go forward to try to improve turnover a little bit in 2011.

Grant Jordan - Wachovia

Okay, that's helpful. And my last question, you guys did a lot better than we were expecting on the SG&A line in Q4. You mentioned some incentive accruals. Was that onetime in nature? Or is this a good run rate?

Keith Plowman

Yes. What we really ran into and if you look back, Grant, you might see that we had talked about this in previous quarters. What really happened is in 2009, very difficult year, there was no accrual for incentive compensation in the first few quarters. There was a small dollar amount put in the third quarter of 2009, but the majority of it was accrued in the fourth quarter of 2009. The difference was we started 2010 well and continued that momentum as we went through the year; therefore, we were accruing the bonus or the incentive accrual as we went through the year. And really, what you're getting into is, we accrued more dollars for the first three quarters of '10 versus '09 and then had the benefit of not accruing those dollars in the fourth quarter.

Operator

Moving on, we'll take our next question from Michael Exstein from Crédit Suisse.

Trey Schorgl

Hi, this is Trey Schorgl in for Michael Exstein. We were just wondering if -- I think you might have addressed this a little bit with the first caller, so I apologize if I'm repeating this, but we were wondering if you could give any more background on interest expense for next year in light of the five-year credit facility agreement and second-lien term loan, the paying that off in the first quarter, just in terms of dollars -- if you could shed any light on that?

Keith Plowman

Got it. I think in round terms, what you should look out for 2011 is we should be down somewhere around 10% on our interest costs as we see them in 2011 versus 2010. Again, remember my earlier comment, as I went through, that we will have about $8 million of recorded charges in the first quarter for the exiting fees and costs for the second-lien term loan. But obviously, we'll have increased interest savings or substantial interest savings off of that, as well as we get the new facility in place for a revolver. We'll get that interest savings there. So that's what we would see pretty much for 2011.

Operator

Moving on, we'll take our next question from Emily Shanks from Barclays Capital.

Emily Shanks - Lehman Brothers

Hi, I have a follow-up on just the outlook commentary regarding the tax comments around the deferred tax assets. That's 100% non-cash, right?

Keith Plowman

That is correct.

Emily Shanks - Lehman Brothers

Okay. I just thought [indiscernible] ...

Keith Plowman

What you said is exactly correct. And obviously, we would spike it out as an unusual item, Emily, and make sure everyone's aware of it, but we just felt in full disclosure, because we're a company, that we ran into -- as you know, we put deferred tax valuation allowances in place. They're always there, but we put a substantial piece and essentially reserving for 100% in 2008. And we are just making the point that as we go through 2011, if we hit to what we've given here as guidance, there is strong potential -- or if we hit the guidance we will and do expect to make adjustments to those valuation allowances. They are non-cash, but they would be income reported items.

Emily Shanks - Lehman Brothers

Okay. So in terms of cash taxes, can we assume that they'll be roughly flat? Or do you mean zero? Or...

Keith Plowman

No. I think what you can go with -- these are two separate pieces. What we gave you in the guidance was 38% as to an effective tax rate. That's what I think you should consider more to be the cash taxes. It will be rough terms within that area. And obviously, Emily, you get into the timing of when you make your estimated payment, so forth, so that all impacts the cash flow. But I think, overall, if you just use that as the effective rate and as the cash tax rate, then on top of that there is potential to have this valuation adjustment which will be non-cash. We’ll spike it out for you and you would know that, that does not impact the cash flow of the company.

Emily Shanks - Lehman Brothers

Okay, great. And then my final question is just around the amendment and extension of the revolver, will that allow for paying down the ten-and-a quarters [10.25% senior notes] at maturity or will there be just a springing maturity feature in that new revolver?

Keith Plowman

I really can't go through anything on that, Emily, at this point. It will just be a couple of weeks. That will come out. But just, certainly, all that is considered in what we're putting in place.

Operator

And your next question from Carla Casella from JPMorgan.

Carla Casella - J.P.

Hi, my questions -- one, I just didn't hear the tax rate. You said it was at 32% or 38%, that you were saying to use?

Keith Plowman

Well, what you should use is 38%. That's 32% higher than where we were in 2010, Emily -- or I'm sorry -- Carla. I’m just trying to take that point. So what we're looking at here is you have an incremental rate of 32% as you go forward year-over-year, and just to Emily's question that she had a couple of minutes ago, that is a cash item.

Carla Casella - J.P.

Right, okay. And then on the CapEx, the step up in the CapEx for the year, is that largely projects that you've been holding off on through the recession? Or are these you just -- regular store maintenance fees? Can you talk about the timing of CapEx and what it's going to?

Keith Plowman

Well, I think as you look at it, it is a substantial increase, obviously. And we've talked about the decrease in controlling costs and everything. We said that we were definitely in defensive mode the last couple of years, and we're getting more offensive as we go forward here. And definitely, we'll invest in the future of the company. Some of it will be opportunities we have identified in the past. Some of it are opportunities we've been developing as we're going forward and what we're identifying this year. We still believe our maintenance capital is in that $40 million range as an average. As you look at 2010, just shy of $40 million is what we spent on maintenance capital, which we always include IT in there and systems. And then the balance would have been on things like store visuals, so forth. In 2011, we see holding to about that same amount and the balance going to some minor remodels. We're looking at shoe expansions, our fixtures, our visuals, eCommerce, private brand. We have some targeted growth initiatives. We have a lot of things out there that we're pretty excited about.

Carla Casella - J.P.

Okay. So you said they're more than $80 million in those and the timing of that then, is it pretty evenly across the year?

Keith Plowman

I mean, usually what happens, Carla, is we do end up with more of it hitting towards the back end of the year. So I think, that will be consistent in this year that you'll have more of it that will be incurred as we get to the mid-season and get to the back end of the year. But certainly, a good portion of it will be in place, prior to hitting the fourth quarter. You'll have the majority of the dollars spent out as we finalize the fourth quarter, but we'll have a good portion in before that.

Carla Casella - J.P.

Okay. And Mambo, what is Mambo replacing on the floor space?

Anthony Buccina

Actually, our survey says that it's actually a void in our assortment in both kids and young men's and in juniors. It's really the surf-skate category that we really haven't been able to get fully assorted in all of our stores in meaningful quantities, and position ourselves in that business. We saw the opportunity with them to make this a big deal in our assortments. And they're not -- we're exclusive in the United States with Mambo, and we’ll start seeing those goods come in, in the second quarter. So we see that as a real, non -- it really doesn't compete with anything currently in our assortments.

Carla Casella - J.P.

So are you eliminating any other brands or cutting down jean space or anything else specific? Or will it be small tweaks across everything?

Anthony Buccina

Small tweaks. But it is a void in our assortment right now.

Carla Casella - J.P.

Okay, great. And then, just one last question on -- it sounds like you may be doing some forward buying to help reduce the cost increases this year. Is that correct? And will we see different inventory trends throughout the year than normal?

Anthony Buccina

Let me address the first question, is on -- yes, we are doing further buys out. We've been, over the past few years, really narrowing our resource structure down. And some of those resources are really not producing in low-cost producing countries like Cambodia and Vietnam and Jordan, as well as duty-free countries. We will be buying or giving them commitments for March 12 by the end of this month.

Operator

Moving on, we'll take our next question from William Reuter from Bank of America Merrill Lynch.

Spenser Samms

This is Spenser Samms in for Bill. I was just wondering if you could -- if you said, or maybe I missed it, the percent of Internet sales or eCommerce as a total. And where do you guys see that headed in 2011?

Byron Bergren

Right now it's about 2% of our total, and our plan is to increase it at least 1% every year. Last year was up 93%. So if you look at our sales at $3 billion, you're picking up $30 million a year.

Spenser Samms

Sure. And then also, do you expect any consolidation in the department store space? And would you be in acquire if the right assets came up for sale?

Byron Bergren

I mean, that's hard to predict. I don't think I can make a comment on it or predict what's going to happen in the future. You can't control those things.

Operator

Moving on, we'll take our next question from Colleen Burns, Oppenheimer.

Colleen Burns - Oppenheimer

Good morning. The overall competitive environment, kind of post-holiday, I know there hasn't been a lot of events, but would you say it's comparable to last year? Have you started to see a more promotional environment given some of the price increases expected?

Anthony Buccina

No. I would say that we really haven't seen it any more promotional than normal.

Colleen Burns - Oppenheimer

And then just you mentioned, on the comp inventory, that some of it was early spring buys. If you exclude that, would comp inventory up 1% or 2% at year-end versus 5.8%?

Anthony Buccina

Yes. Well, flattish, up 1% or 2%.

Colleen Burns - Oppenheimer

And I guess just lastly, of that, call it $30 million increase in CapEx, is a big part of that the eCommerce initiative to kind of make investments there? Or is it more remodel?

Keith Plowman

I think you'll now have a lot of dollar spent on eCommerce, you have quite a few dollars spent on private brand. Remodels, we're looking at five to 10 locations right now, shoe expansions, fixtures, visuals. I mean, everything that can be customer-facing that's going to attract her and bring her into our stores and let her have a good shopping experience. That's really the way we're looking at it.

Colleen Burns - Oppenheimer

That's great. And I'm sorry, just one last one. On the overall capital structure you obviously paid down the second-lien term loan and now dealing with the revolver. Are you comfortable the way it stands today? Do you have any other changes, lease buys, et cetera?

Keith Plowman

Truthfully, we've always been comfortable with our capital structure. We know that we have good partners out there. When you look at the difficult environment we went through, we always maintained a very strong excess capacity, and really had the company in good position. And we just continue to make that stronger and stronger. We do have our senior notes that come due in 2014 and we have the CMBS facility that comes due in 2016. And just as we keep addressing each piece, we'll continue to look forward and make decisions at the opportune time to address those.

Operator

And we'll take our final question from Leah Hartman from CRT Capital.

Leah Hartman - CRT Capital Group LLC

I just have a little bit more question regarding the maintenance CapEx of the budget. I think you're one of the few retailers that didn't starve your chain with CapEx over the last couple of years. So could you give us like a maintenance number of the forecast budget?

Keith Plowman

I mean, each year, we've talked about maintenance CapEx and we've always said that it's somewhere in the $40 million range. There is no question, We definitely cut back, as all retailers did, and pushed ourselves down towards more maintenance, making sure that we kept our stores in good repair and kept trying to take some initiatives as we could and also our IT and systems. And so the $40 million is what we've always spoken to as being our maintenance CapEx, but it didn't allow us to do as many things as we'd like to do for opportunities and such. And there's no question, but as talked in the past about we like to touch our stores every 10, 11 years and we've trended more towards 14 years here. So we do have some catch-up to do there. So these are all the items that we're going to address and pay attention to over the next several years.

Leah Hartman - CRT Capital Group LLC

Okay, that's very helpful. And if you could talk about the mix as you look forward, I mean, certainly, you've guided us to be cognizant of gross margin flat to maybe slightly down. Is there a change in the mix? Are you putting more into kind of the entry price points? Are you -- is that any change versus last year, both with respect to sourcing cost but also to what your consumer is seeking?

Anthony Buccina

Well, as I've said, we see a shift right now from more moderate businesses to better. They clearly have bigger increases for us in the fall season, particularly in the fourth quarter. And we also see a shift from more traditional businesses to more updated and modern styling, and we're adjusting that accordingly. If you were to look at our businesses that are planned up, our private brand business, that we've retooled a lot of our moderate brands right now. We have that growing up significantly faster than the store. We also have our shoe business growing much faster than the store, as well as our moderate updated business growing much faster than the store.

Leah Hartman - CRT Capital Group LLC

Great. And then my...

Anthony Buccina

And we think the alliance with John Bartlett is just perfect for us and taking the opening price point and making it more modern and more updated in our men's sportswear zone.

Leah Hartman - CRT Capital Group LLC

And then my final question is on the special sizing and the Casual Male, and you said that it is in a few select stores. Are you trying to do more of an integration with the website and into the stores that don't carry the merchandise? Are your sales associates comfortable and trained in pushing out those special sizes? I think, it could it be under certain...

Byron Bergren

We're pretty excited about this, to offer big and tall sizes to our customer with this strategic alliance. We've had it on the web, actually, up in the fourth quarter. We did about $160,000 worth of sales. By the end of March, we'll have it in 15 storewide locations. Our plan, we think it's pretty conservative, do about $1.5 million there. So if you take that plus the Internet, we'll do a little over couple of million dollars worth of business in the Casual Male, and we think that's pretty conservative.

Leah Hartman - CRT Capital Group LLC

Yes. It seems like that is a special opportunity for the team. So good luck.

Operator

That will conclude today's Q&A session. I'd like to turn the conference over back to Bud Bergren for any closing or final remarks.

Byron Bergren

Thank you for your questions and your interest in Bon-Ton. We look forward to speaking with you about the first quarter 2011 financial results on our conference call in May. As a reminder, we will be presenting at the Bank of America Merrill Lynch 2011 Consumer Conference tomorrow. Our presentation is at 11:20 a.m. Eastern time and will be webcast at www.bonton.com. Thanks for joining us this morning.

Operator

Thank you. That will conclude today's conference.

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