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Bon-Ton Stores (NASDAQ:BONT)

Q1 2011 Earnings Call

May 19, 2011 10:00 am ET

Executives

Byron Bergren - Chief Executive Officer, President and Director

Joseph Teklits - Senior Managing Director

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

Anthony Buccina - Vice Chairman and President of Merchandising

Analysts

William Reuter - BofA Merrill Lynch

Grant Jordan - Wells Fargo Securities, LLC

Michael Exstein - Crédit Suisse AG

Emily Shanks - Lehman Brothers

Leah Hartman - CRT Capital Group LLC

Carla Casella - JP Morgan Chase & Co

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. First Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. And now, I would like to turn the conference over to Joe Teklits with ICR. Please go ahead, sir.

Joseph Teklits

Thanks. Good morning, everyone. Welcome to Bon-Ton's First Quarter 2011 Conference Call. Mr. Bud Bergren, President and CEO; Mr. Tony Buccina, Vice Chairman and President of Merchandising; and Mr. Keith Plowman, Executive Vice President and Chief Financial Officer, will host today's call.

You may access a copy of the earnings release on the company's website at www.bonton.com. You may also get a copy of the earnings release by calling us at (203) 682-8200.

The statements contained in this conference call, which are not historical facts, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results might 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. And with that, I'll turn the call over to Bud.

Byron Bergren

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

All of our stores are located in northern states. Therefore, our sales can be positively or negatively impacted by sustained regional weather. In the first quarter of fiscal 2010, our markets had unreasonably warm weather, and our comparable store sales increased 3%. In the first quarter of fiscal 2011, our markets experienced unseasonably cold and wet weather, and our comparable store sales decreased 1.2%.

When we saw that the seasonal apparel was not selling at the projected rate, we responded by taking markdowns and making adjustments to our merchandise assortments to better align with customer preference. The weather has recently become more seasonable, and we are pleased with our recent sales performance in May.

Tony will go into more detail about our merchandise initiatives going into summer and for the remainder of the year. But first, some highlights for the first quarter. Comparable store sales decreased 1.2%, while operating income decreased $8.1 million to a loss of $2.5 million. We continued to monitor our selling, general and administrative expenses, resulting in a reduction, as compared with the prior year period.

Our best performing regions were Ohio, Western Pennsylvania, Michigan, Eastern Pennsylvania and Nebraska in west. Softest regions were Central Illinois, Indiana, Iowa and the south side of Chicago.

We generated outstanding growth in our eCommerce business. Sales were up 98% in the first quarter compared to the prior year.

During the quarter, we announced 2 real estate initiatives: a new location for our Kokomo, Indiana store, which should benefit with increased traffic and visibility and offer a very convenient location to our Kokomo customers; Also, our new Edina, Minnesota, Herberger's store in the Southdale Mall will bring the total number of Herberger's stores to 6 in the Minneapolis/St. Paul market, which continues to be an excellent market for us. We look forward to further expansion of the Herberger's brand in that area. Both locations are scheduled to open in November, in time for the holiday selling season.

On April 27, we introduced the collection from the partnership announced last fall with designer John Bartlett. The John Bartlett Consensus and John Bartlett Statements collections were extremely well received by the media, which attended the presentation in New York. We're very excited about the collection, which is exclusive to Bon-Ton and further differentiates us from our competitors. I think our customers will find it right on trend and offer terrific value. The merchandise will be in our stores and online in August.

We also look forward to our latest exclusive offering, Mambo, assortment gear to young men, juniors and kids areas. The line will arrive in time for back-to-school and, we believe, will generate excitement and differentiate us. We are pleased with the addition of Casual Male at selected stores this spring, providing our customers with Big & Tall merchandise.

Next, I would like to review with you several initiatives we have in place to drive growth for the remainder of the year. A summary of the strategic initiatives we announced on the fourth quarter conference call are, first, we want to drive our franchise businesses. Then, we want to increase the penetration of differentiated and exclusive product, which includes further development of our private brands. We will continue to explore new exclusive lines like Bartlett and Mambo to distinguish us in our markets. We'll drive our key item programs, including our Incredible Value Program. We're also developing a younger attitude customer with new updated merchandise brands. We'll continue to grow our eCommerce by at least 1% of total company sales each year, and we're focusing on tailoring our merchandise assortments by store and expanding our merchandise optimization program to more store planners.

We're re-allocating square footage in our stores, expanding and emphasizing growth businesses both with assortments and visual enhancements. And also, we're expanding our digital advertising, which includes emerging media channels, mobile, e-mail and texting to reach our customers her way.

I'd like to update you on our sourcing picture for fall 2011 and spring 2012. Price increases in the third and fourth quarter are in the range of 8% to 10%. We expect continued price pressure in the range of 10% to 15% of our total buy as we book spring '12. But we are working to moderate these as future cotton prices flatten or hopefully trend downward. We are also closely watching fuel prices and the level of freight bookings and will pursue opportunities to negotiate more favorable shipping rates.

Looking ahead, we are comfortable with our current inventory levels, and we believe that merchandising initiatives we have in place will generate improved performance. So as we enter the summer season and our apparel assortments change going into the fall, we believe we are well positioned to achieve profitable long-term sales growth. With that, I'd like to turn the call over to Keith to review the financials. Keith?

Keith Plowman

Thank you, Bud, and good morning, everyone. I will review our financial results for the first quarter of fiscal 2011 and then update our full year guidance and assumptions for 2011.

In the first quarter, EBITDA, defined as earnings before interest, taxes, depreciation and amortization, including amortization of lease-related interests as well as the loss on the extinguishment of debt, increased to $23.2 million, as compared to $33 million in last year's first quarter. A reminder for a reconciliation of EBITDA to net income, please refer to our earnings press release. We recorded a $9.5 million loss on the extinguishment of debt for fees and accelerating amortization term fees associated with the voluntary prepayment of the company's second lien term loan in the amount of approximately $8.2 million, and that was completed in February this year. Additionally, we had deferred fees associated with the amendment and restatement of our revolving credit facility in the amount of about $1.3 million, which was completed in March of this year.

At the end of the first quarter, our excess borrowing capacity under the revolving credit facility was approximately $411 million, and our total debt levels were $70 million or approximately 7% lower, as compared with the first quarter of 2010's levels.

Moving to the details of our first quarter. Comparable store sales decreased 1.2%, and total sales decreased 1.7% to $649.9 million. Other income was $14.6 million compared with $13.8 million in the first quarter of 2010. Gross margin dollars decreased $16.4 million to $230.6 million, and our first quarter gross margin rate decreased to 35.5% of net sales compared with 37.4% in the prior year period, primarily reflecting increased net markdowns due to an acceleration in the markdown cadence to address slower-selling spring merchandise and some increased delivery costs.

SG&A expenses decreased $5.9 million to $222 million compared with $227.9 million in the first quarter of fiscal 2010, as a result of effective cost controls and reduced incentive compensation accruals. The SG&A expense rate for the first quarter was 34.2% of sales compared with 34.5% in the prior year period.

Depreciation and amortization expense, including amortization of lease-related interests, decreased $1.7 million to $25.7 million compared with $27.4 million in the fourth quarter -- in the first quarter of fiscal 2010.

Interest expense, net, decreased about $5.2 million to $23.3 million compared with $28.5 million in the first quarter of fiscal 2010. The decrease reflects lower interest rates as a result of the company's prepayment of the second lien term loan and the amendments to our revolving credit facility.

We recorded an income tax provision of $700,000 in the first quarter of fiscal 2011. This compares with an income tax provision of $617,000 in the first quarter of fiscal 2010. And our net loss was $36 million or $2.01 per diluted share, compared with a net loss of $23.5 million or $1.33 per diluted share for the first quarter of fiscal 2010. The first quarter of fiscal 2011 includes a charge of $0.53 per diluted share associated with the loss on the extinguishment of the debt.

Looking at some key ratios and balance sheet amounts. Our total balance sheet inventory at the end of the first quarter increased 4.1%, as compared with the prior year, and our accounts payable also increased 4.1%. Our on-hand inventories remain fresh.

Total debt, including capital leases, was $964.3 million at April 30, 2011, compared with $1,034,400,000 at May 1, 2010, a reduction of $70 million or approximately 7%. And our first quarter fiscal 2011 capital expenditures, not reduced by third-party contributions, were $7.8 million compared with $6.6 million for the prior year period.

We remain focused on maximizing operating cash flow and investing capital to benefit our customers' shopping experience.

Moving to our guidance. We are revising our full year fiscal 2011 guidance as follows: EBITDA on the range of $235 million to $245 million, and income per diluted share on a range of $1 to $1.25. Additionally, our estimate for cash flow, as defined in Note 2 in our press release, is a range of $45 million to $50 million.

Assumptions reflected in our full year guidance are comparable store sales in a range of 1% to 2.5% increase; gross margin rate down 50 to 70 basis points from fiscal 2010; SG&A expense as a percent of sales flat with, or slightly below, fiscal 2010; effective tax rate of 38%; capital expenditures not to exceed $80 million, net of external contributions; and estimated $19.5 million to $20 million average shares outstanding.

Again, note: as we have discussed on our last conference call, to provide a guidance does not reflect the potential income tax benefit of reducing or removing the valuation allowance recorded for deferred tax assets. If the company achieves results within the provided fiscal 2011 earnings per share guidance range, a favorable adjustment to the valuation allowance or the deferred tax assets is expected to be recorded in the fourth quarter this year. Our Form 10-Q for the first quarter fiscal 2011 will be available around June 9.

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

Anthony Buccina

Thank you, Keith. For those of you who know me, you know I am not happy with the negative comp for Q1. Seasonal spring apparel was very weak, accounting for the majority of our sales loss. We had invested more inventory in transitional spring merchandise to build upon our success last year, but the business did not materialize, and I will take the hit for that. I am not going to blame everything on the weather. We made adjustments to our merchandise assortment to improve our sales performance that I will talk about later in my comments. Now, I would like to discuss our first quarter results.

Looking at our sales performance by category, our best performing areas in the first quarter were cosmetics, fine jewelry, home store, men's sportswear and better missy sportswear. Strong sales gains in cosmetics were driven by new technology in skincare and makeup. Furniture had its best quarter in years, which may signal improvement in the macroeconomic environment. Fine jewelry has been a big winner for us, and we have significant opportunities for sales growth. We also saw continued strong growth in fashion watches and luggage. We also saw the better merchandise areas gaining strength as the economy improved and the moderate areas weakened. Our IVP, incredible value key item program, increased sales in the first quarter, and penetration grew to 9.1% of total company compared with 8.7% for the prior year period.

We are very pleased with our eCommerce sales, which were extremely strong in the first quarter, almost double the prior year period. We are supporting big growth in eCommerce with website improvements, expansion of our distribution centers and increased inventory. We are also expanding our marketing efforts to drive eCommerce.

The weakest performing areas were moderate, traditional and Missy petites in women's sportswear; ladies suits; and intimate apparel.

Transactions in the first quarter were down 4.5% compared with prior year period, but the average retail per transaction was up 1.9% from prior year period. Gross margin rate for the first quarter was 35.5% compared with 37.4% in the first quarter of 2010. The pressure on gross margin was the result of increased net markdowns to drive sales in both seasonal and non-seasonal merchandise. We use aggressive pricing and marketing to get customers in the stores, but traffic was still soft due to the cold and wet weather. Our goal was to drive sales, given the conditions, and keep our inventory fresh for our customers.

Retail inventory in a comp store basis at the end of April was up 3.5% compared with last year. As planned, we brought in more inventory to support our merchandising strategies to grow sales in eCommerce, private brands, shoes and cosmetics. We also increased the inventory in our Incredible Value Program. All of our comp store inventory increase is between 0 to 90 days old.

Private brands sales were down. Private brands has highly penetrated in seasonal merchandise, which accounted for a large portion of its sales loss. Private brand penetration was 19.7% of total sales, excluding furniture and fine jewelry, compared with 20.3% in the prior year first quarter. The best performing private brands were Kenneth Roberts, Relativity Career, LivingQuarters, Ruff Hewn and Laura Ashley. The moderate traditional labels were the worst performers in the first quarter.

Our franchise businesses were down in sales compared to its prior-year first quarter, primarily due to the weaknesses in petites and large-size sportswear, ladies shoes and children's. These businesses were partially offset by strong increases in moderate updated sportswear and cosmetics.

Our storewide key item strategy continues to be a large part of our sales. Key items were down on the first quarter due to the lost in seasonal merchandise. Our key items penetrated at 28.1% of total company, compared with 28.8% penetration prior year.

Overall product differentiation was 32% of total store in the first quarter, compared with 32.9% in prior year period. Private brand accounted for about 62% of the differentiated merchandise.

Here are the actions we're taking to improve our sales in the second quarter. We have priced our seasonal categories to move and adjusted on order where we were heavy. We pulled back our traditional moderate inventories in Missy, petites and women's sportswear. We funneled more receipts into our better areas such as women's and men's and shoes and accessories. The trend to better merchandise started last fall, continued in the fourth quarter and is continuing in the spring.

We have strengthened our marketing calendar for second quarter to drive additional sales. Also, we expect the seasonal merchandise categories in apparel, shoes and accessories to improve their trends in the second quarter as the warmer weather finally arrives. We are already seeing improvement on our sales performance in May, since the weather became more seasonal.

Private brand will improve in the second quarter and fall as we shift receipts to more updated and better labels, including Ruff Hewn, Relativity Career and Kenneth Roberts. We're introducing 2 new updated labels in the second quarter: Mambo in young men's, junior's and Children's; and John Bartlett in men's. The Mambo line, exclusive to us in the U.S.A., will bring excitement to the younger categories of business while differentiating us from our competition and driving incremental sales. Mambo will arrive in time for back-to-school. The private brand men's merchandise designed exclusively for us by John Bartlett will arrive near the end of second quarter. It will provide our men's sportswear zone with affordable, fashionable sportswear.

We remain confident on our core merchandise strategies of franchise businesses, key items and differentiation. The shift from traditional moderate to updated and better merchandise will strengthen these categories. The recovery in seasonal businesses will also help to improve our sales trend. We believe the merchandise initiatives we're implementing will drive our top line for the balance of the year. And I can promise you we are working hard to identify opportunities based on the needs and desires of our Bon-Ton customers, and we will maximize these opportunities. I will now turn the call back to Bud.

Byron Bergren

Thank you, Tony. We are focused on driving profitable sales as we manage our inventories and expenses for the remainder of the year. We continue to offer our customers a compelling, differentiated merchandise assortment and at great value. We believe we are well positioned to achieve profitable, long-term sales growth. With that, we'll be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question, we'll hear from Ed Yruma with KeyBanc.

Edward Yruma - KeyBanc Capital Markets Inc.

Can you help us understand and try to reconcile your gross margin guidance? I know you've revised it to be down 50 to 70 basis points. How much of the margin weakness due to seasonal plans will persistent to 2Q? And what type of price increases does the margin guidance imply for the back half?

Keith Plowman

Good morning, Ed. This is Keith. As we look at it, what we see is, if you look at the 50 basis points in the back half, you'd be down 10 to 15 basis points for the remainder of the year on the gross margin rate. If you look at from the standpoint of being down to 70 basis points, we'd be down 35 to 40 basis points in the back half of the year. There's no question. As we look at the pressures we took in the first quarter, a significant portion of that has to be weather-related. Internally, we've looked at it, and we noted it as over 100 basis points of impact within the quarter that specifically goes to higher markdown rate and moving through the merchandise. So it's a substantial piece, and it goes beyond that, that we had to do and keep inventories fresh. When you look at where we are as far as the competent -- or the components of the inventory, Tony had mentioned that the 90 days categories were all our inventory increases. And that was very important to the company to make sure we are well positioned to start off the second quarter with the right inventory investment.

Edward Yruma - KeyBanc Capital Markets Inc.

Got you. I know that you've identified the women's moderate businesses as being your weakness and that you've made some adjustment to inventory. But how quickly can you adjust your order flow? And then I guess, second, do you believe that you're seeing some type of increased macro pressure that's affecting that type of customer?

Keith Plowman

Well, I'll tell you, Ed, we actually started to see the slowdown in the third quarter. We actually saw it accelerated in the fourth quarter, and at that point in time, we actually did adjust our spring plans, where we did take those businesses. We did plan them down less than the company. And we kind of got that, and we got a little bit more with the pressure on the seasonal categories. So we have effected that for the first quarter and for the second quarter, and you'll see that those businesses are planned down for the third quarter and fourth quarter as we move more of our investment into the better categories and more updated categories of our business.

Edward Yruma - KeyBanc Capital Markets Inc.

Got you. And one final question. I...

Keith Plowman

Ed, we actually were able to that domestically as well as our private brands. We actually did a job -- we were able to adjust our private brands that comprised a big piece of that business.

Edward Yruma - KeyBanc Capital Markets Inc.

Got you, and maybe one final question. I know it's been a while since you've opened your stores. How do you think about how those stores flow to the PNL both, I guess, from a pre-opening expense perspective, as well as how long do these stores tend to ramp?

Keith Plowman

And I'll take that one again. On the new stores that we have, we have the Kokomo, which is a relocation, and Edina that is opening up as a new location. We do put the pre-opening costs in there. What we really see as we open them up in the fourth quarter, they're pretty close to break even. We would expect a little bit of a contribution this year because of the fourth quarter volume, but the preopening offsets majority of that. And going forward, then, we would see benefit from those locations.

Operator

And next, I'm going to take Grant Jordan with Wells Fargo Security (sic) [Wells Fargo Securities].

Grant Jordan - Wells Fargo Securities, LLC

Clearly, you said that weather was an issue in the first quarter. Can you give us any comments in terms of how you think you compared in terms of market share in the first quarter?

Byron Bergren

Well, obviously we don't have any statistical facts or anything, but when I read or listened to some of the other retailers when they did their calls, just about everyone said their business was the most difficult in the Midwest and the Northeast. And they had their increases coming out of the south, Grant. We just happened to be fortunate to have all of our stores in the Midwest and Northeast, which affects us, so I can't say necessary that we lost market share.

Grant Jordan - Wells Fargo Securities, LLC

Okay. And then on the inventory line, as you've seen, weather in trends may be normalize a little bit. Has that number started to come down on a year-over-year basis?

Keith Plowman

Yes.

Grant Jordan - Wells Fargo Securities, LLC

Okay. How much of the inventory increase was due to increased investment in private brands?

Keith Plowman

Actually, it's -- we ended the private brand inventory up about 2.5% on a comp store basis.

Grant Jordan - Wells Fargo Securities, LLC

Okay. All right, great, that's all I had.

Keith Plowman

Yes, we were able to adjust and effect on our orders there that we saw pulling back in the fourth quarter.

Operator

Next in list is Michael Exstein with Credit Suisse.

Michael Exstein - Crédit Suisse AG

Two quick questions for you. Can you talk about your plans in the second half of the year in terms of units versus dollars of what you're placing right now? You were very kind enough to give us an idea what the pricing looks like, but just how are you thinking about units versus dollars of inventory commitment in the second half. And then can you talk about sub-competitive environment. I know Ed asked it a little bit earlier, but there is clearly one national player that seems to have turned around the momentum in their business and is it your perception that, that is impacting you or is doing something that you can emulate. Just talk about that dynamic right now.

Keith Plowman

Okay, I'll handle the inventory. We really are planning on a dollar basis, Michael. That's the way we look at it. And we actually monitor that very closely. And some of the price increases that we've taken in the first quarter on some national brands and our private brands, we've seen that. In some cases we have sold less units than the prior year, but we have had increases on the top line. And in some of our private brands, we've actually had increases in units as well as dollars. But we're watching that very closely.

Michael Exstein - Crédit Suisse AG

So you have not actually decided what you're going to do for the second half?

Keith Plowman

We're actually planning by dollars, not by units.

Michael Exstein - Crédit Suisse AG

So would you think dollars will be flat?

Keith Plowman

No, we think our dollars are going to be slightly up.

Michael Exstein - Crédit Suisse AG

Dollar's going to be up.

Keith Plowman

We think our sales dollars will be up, and our units will be slightly down.

Byron Bergren

And Michael, this is Bud. I'll take the question on the competition. I assume you're referring to Macy's. They have over 800 stores. We compete with them at about 135 of their 800 stores so we're not totally against them across all markets, and obviously, we don't have the Bloomingdale's label, either. Where we look at it, we compete with them mainly in Chicago, Minneapolis and Detroit. Detroit and Minneapolis are 2 of our best markets for the quarter, and they continue to be 2 of our best markets so I don't think we're losing market share to them. Chicago is a little different animal, we're very -- our business is very good on the north side of Chicago but we're getting hurt more on the south side of Chicago. So I don't think -- I think the initiatives that we have in place that are going to start changing a lot of our merchandise mix and the effort we're putting into our stores going into this fall season -- I think you're going to see a change in our sales trend also.

Operator

Next in list is Carla Casella with JPMorgan.

Carla Casella - JP Morgan Chase & Co

My question is about the private label versus the branded. Can you talk about -- as you see cost increases and your price increases coming through this year, is your margins -- are your margins in private label versus branded going to change dramatically? I mean, will we see more margin pressure on private label versus branded?

Keith Plowman

No, we don't really see that. We still see -- even though private brand did not make its plans in the first quarter, the margin on private brand was still, as it has been, a couple of hundred basis points higher than the domestic brands. As Bud said earlier, that we see the same kind of increases in private brand as we see from the domestic markets.

Carla Casella - JP Morgan Chase & Co

And that is the cost or the price?

Keith Plowman

Well the cost...

Carla Casella - JP Morgan Chase & Co

Are your price increases comparable? This is I'm asking.

Keith Plowman

Yes, yes, the price increases are comparable.

Byron Bergren

They're comparable. And where the merchandise is right and the customers accepts it there really hasn't been a problem selling goods when the price has gone up. If the product is not right, obviously it's not selling. So it really comes down if you have the right inventory and the right value that you're giving the customer.

Carla Casella - JP Morgan Chase & Co

Okay. And then did you give a dollar amount of how much you expect the increase marketing in the second quarter?

Byron Bergren

Marketing dollars will basically be the same as the previous year.

Carla Casella - JP Morgan Chase & Co

Okay, but they were down in the first quarter...

Byron Bergren

On a net basis, they were, but on a gross basis they were not.

Operator

And Leah Hartman with CRT Capital will have our next question.

Leah Hartman - CRT Capital Group LLC

I just have a couple of housekeeping questions, just the balance under the mortgage debt facilities and the level of letters of credit outstanding, and then I have a merchandising question.

Keith Plowman

Okay, I'll answer your first question. The mortgage facility, that's $236 million at the end of the quarter, and our outstanding letters of credit were a little under $4 million.

Leah Hartman - CRT Capital Group LLC

Okay, so that's off a little bit. And then moving to the merchandising side. Could you provide a little more information about why you think the special sizes were weak? I think I heard you say they were...

Byron Bergren

Heavily penetrated in moderate traditional merchandise. Case closed on that. And that's really would be effective with seasonal and the moderate traditional.

Leah Hartman - CRT Capital Group LLC

Okay. And it sounds like, on the prior comment, talking about Detroit and Minneapolis, you're not particularly seeing weakness in size of market as a callout, but the cities aren't up versus more rural or vice versa?

Byron Bergren

No, not at all. They're pretty equal. Whether it's an agricultural or auto or whatever, there really hasn't been a huge difference.

Leah Hartman - CRT Capital Group LLC

Okay. And just with respect to the incredible growth on the eCommerce side, are you finding that it's-- with investment and distribution centers and support to the eCommerce, are you finding a way to move your more seasonal merchandise to clear out an opportunity you think, looking forward, that in the event you get caught a little heavy on merchandise, that you're preserving the greater percent of margin than you would have going back a year or 2 ago?

Byron Bergren

eCommerce is up 98% last year, but still, it's only about 2% or 3% of our total store volume. So you can see it's not a vehicle that sort of would have moved that much clearance goods.

Leah Hartman - CRT Capital Group LLC

And are you willing to share with us, on a CapEx basis, the breakout of the dollars that you're putting into that broader eCommerce effort?

Keith Plowman

There's a couple of million dollars that we're putting into that.

Operator

And moving now, we'll hear from William Reuter with Bank of America Merrill Lynch.

William Reuter - BofA Merrill Lynch

You noted that the traffic was weak. I didn't hear a breakdown on traffic versus ticket. Did you guys provide that? And if not, can you?

Keith Plowman

We said that our average transactions were down 4.5% and our average -- the value of the transaction was actually up.

Byron Bergren

It was up 1.9%. But we don't do traffic counts.

William Reuter - BofA Merrill Lynch

Okay. In terms of the lower SG&A, you talked about some cost control efforts -- if you can give us more detail on what these were and whether these were changes that were made in response to your performance in the quarter or if these were planned?

Keith Plowman

Bill, this is Keith. I'll give you both. Essentially some of the cost savings, as we noted, was just potentially a standout comp, but that's not the majority of the piece. When you look at the expenditures we put into other initiatives, we did increase our spending on private brand and eCommerce and some other initiatives for the company that we think are longer-term. And that's part of why we said we would keep the SG&A rate constant on a higher dollar sales line. So we're continuing to invest there. But there was certainly reaction to the sales volumes, means that there's some payroll adjustments forward, but there's other things we're doing with investments in IT and other investments in the company that will help us in a long term basis to reduce those SG&A costs and trying to keep them in line. I think you remember that we produced some about $124 million since the level in 2007. We continue to control it there and are looking for ways to be more efficient as we go forward.

William Reuter - BofA Merrill Lynch

Okay. And then just lastly, I don't know if you've commented on this, but in terms of your same store sales guidance, I'm wondering how you expect that to trend over the last 3 quarters, whether the inflation that we're going to see in the back half of the year should cause an acceleration as we go through the year or if they should be relatively consistent by quarter.

Byron Bergren

We usually don't give guidance by quarter, but a lot of our initiatives that we put through will really start going into the third quarter and fourth quarter.

William Reuter - BofA Merrill Lynch

Okay, so maybe the same store sales trends could accelerate a little bit?

Keith Plowman

In the back half, yes.

Byron Bergren

Yes.

Operator

And next we'll hear from Emily Shanks with Barclays Capital.

Emily Shanks - Lehman Brothers

I just -- do you look at the inflationary pressures that you noted you'll be seeing in the second half of this year? Have you tackled any pricing increases in particular categories? And can you comment at all around how the consumer is responding...

Byron Bergren

Yes, I would say it's kind of a mixed bag. I would tell you -- I'll give you a couple of specifics. In our private brand, in Laura Ashley, which is still a traditional business for us, we've had price increases in there, and our units and our dollars are up in the first quarter. You could take that directly and say the same thing we've done in our Ruff Hewn brand, okay? The prices are up, as well as the units are up, okay? There are some areas where we have taken some branded domestic bottoms categories, and the units are actually down from last year, slightly, but we still have a sales increase there. So it has been a mixed bag, and we are watching it closely.

Emily Shanks - Lehman Brothers

Okay, great. And then my last questions is just around the inventory. You've given a lot of detail but as I look at inventories for average store on a year-over-year basis being up, can you give me a sense of how much of that works brands versus just sales not coming to fruition in the quarter?

Byron Bergren

Entirely planned. We're actually a little less than our planned inventory at the end of the quarter.

Keith Plowman

There is some additional inventory investment to support the eCommerce initiative and such, so we do have dollars that we've invested for other areas that would make your number look a little inflated.

Operator

And our final question, we'll take a follow-up from Michael Exstein with Credit Suisse.

Michael Exstein - Crédit Suisse AG

This is for Keith. Can you sort of give us some guidance to what you think the interest expense line will look like for the balance of this year?

Keith Plowman

Yes. I think, Michael, quite frankly, if you took other income, depreciation, amortization and interests, ignoring the loss in extinguishing a debt, which is striked out separately, I think those are all indicative of what you'll see as a trend overall for the year.

Michael Exstein - Crédit Suisse AG

So then the first quarter trend will be pretty much for the next 3 quarters?

Keith Plowman

Yes, it will be fairly close, yes.

Operator

And there are no further questions. I will turn the call back over to the speakers for any additional or closing remarks.

Byron Bergren

Thank you for your questions and your interest in Bon-Ton. We look forward to speaking with you about our financial results of the second quarter of 2011, our conference call in August. So thanks for being with us today.

Operator

And that does conclude today's conference. We thank you for your participation.

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Source: Bon-Ton Stores' CEO Discusses Q1 2011 Results - Earnings Call Transcript

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