Stage Stores F2Q07 (Qtr End 8/4/07) Earnings Call Transcript

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Stage Stores (SSI)
F2Q07 Earnings Call
August 23, 2007 8:30 am ET

Executives

Bob Aronson - VP of IR
James Scarborough - Chairman, CEO, Chief Merchandising Officer
Andrew Hall - President, COO
Michael McCreery - EVP, CFO

Analysts

Bob Drbul - Lehman Brothers
David Glick
David Mann - Johnson Rice & Company
Paula Kalandiak - First Albany

Presentation

Operator

Good morning, and welcome to the Stage Stores conference call. At this time, all participants are in a listen-only mode. Later the company will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

I would now like to introduce your moderator for today's conference call, Mr. Bob Aronson, Vice President, Investor Relations. Mr. Aronson, please begin your conference.

Bob Aronson - VP of IR

Thank you, operator. Good morning and welcome to Stage Stores conference call during which we will review our second quarter financial results as well as our 2007 third quarter, fourth quarter and full year outlook.

This information is also contained in our press release, which went out this morning before the market opened. If you've not yet seen today's press release and would like to obtain a copy, please note that it can be accessed through the Investor Relations section of our website.

Speaking this morning from the company will be Jim Scarborough, Chairman and Chief Executive Officer; Andy Hall, President and Chief Operating Officer, and Mike McCreery, Executive Vice President and Chief Financial Officer. Please note that any reference to earnings per share during this morning's call will be a reference to diluted earnings per share.

Before they begin, I would like to point out that any remarks that may be understood to be statements about future expectations, plans, or prospects will be forward-looking statements within the meaning of the Safe Harbor provisions under Private Securities Litigation Reform Act of 1995. These include comments regarding the company's outlook and expectations for the third and fourth quarters of the 2007 fiscal year and full 2007 fiscal year, as well as comments regarding the number of stores that the company intends to open in the third and fourth quarters of the 2007 fiscal year as well as the 2008 fiscal year.

The company intends forward-looking terminology such as believes, expects, may, will, should, could, anticipates, plans, or similar expressions to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause the company's actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include but are not limited to those described in the company's most recent annual report on Form 10-K that's filed with the Securities and Exchange Commission and other factors as may periodically be described in other company filings with the SEC.

And now with that said I would like to turn the call over to Jim.

James Scarborough - Chairman, CEO, Chief Merchandising Officer

Thanks, Bob, and good morning, everyone. We appreciate you joining us today for our second quarter conference call.

I'll begin by providing a high level overview of both our second quarter financial results and our forward look for the second half of the year. Then Andy will follow with a quick review of our operational highlights for the quarter.

And after Andy's finished with his remarks, Mike will discuss our second quarter financial results and provide a detailed review of our third quarter, fourth quarter and updated full year '07 sales and earnings outlooks. And after Mike has finished with his comments, we'll open it up for questions.

As we reported this morning, unusually heavy rains and flooding conditions throughout much of June and July in many of our South Central markets negatively impacted our second quarter sales performance. As a result, our sales for the quarter came in at $359.2 million, which is just about $12 million short of the low end of our expectations.

Our comparable store sales were essentially flat during the period, increasing by only one-half of 1%. The good news is we correctly read the tea leaves and undertook a proactive approach in our inventory management process to ensure that our inventory levels would remain in sync with our sales trends during the period.

Due to those efforts, our inventories did remain at appropriate levels, which resulted in less aggressive promotional pricing of our clearance merchandise during the quarter than we would have originally anticipated. Because of our less aggressive clearance pricing activities, our gross margins came in much stronger than we had originally forecasted at 29.4%.

Mike will get into a more detailed discussion of our gross margin shortly, including a review of non-comparable charges included in last year's figures. However, when the two periods are put on a comparable basis and remembering that our Peebles division over-promoted their business last year despite lower than desired inventory levels, our year-over-year Q2 margin improvement is close to 195 basis points, which is a significant improvement.

So despite our sales miss for the quarter, our higher gross margins in combination with tight expense controls and the lower diluted share count related to our stock repurchase activities during the quarter, helped us achieve earnings that were in line with our Q2 guidance of $0.23 a share.

On the surface, our $0.23 EPS performance equates to 156 improvement versus last year's earnings of $0.09 per share. However, as you may recall, last year's result did include various non-comparable income and expense items that netted to a charge of $0.06 a share. But even when last year's reported earnings are adjusted to exclude those non-comparable items, our year-over-year earnings gain is very significant at plus 53%.

With regard to our merchandise inventories, we ended the quarter with $344.9 million this year versus $324 million last year, which included liquidation goods better than $6 million that were in the former BC Moore stores at the end of the period last year. The year-over-year increase of approximately $21 million is reflective of the fact that we now have 109 more stores in operation this year versus last year at the end of the quarter.

Before I turn the call over to Andy, I want to say I'm proud of the way that our management team and our dedicated associates throughout our company were able to effectively deal with the numerous business challenges brought on by the unusually heavy rains and flooding we experienced during the quarter.

In the month of July alone, here in Houston, we experienced 10 times the amount of rainfall we had last year, and we also broke a 20-year record for total rainfall, if you can imagine that.

Over the years, our customers have come to expect convenience, exceptional service and name brand merchandise selections at reasonable prices that meet their needs and aspirations, and even with the challenges that Mother Nature threw at us, we continue to meet those expectations.

Now as we enter the second half of the year, we look forward to making additional progress on our key operating initiatives and to further strengthening the bond between our company and our customers by providing highly appealing merchandise for the back-to-school and fall shopping periods, and by enhancing our store base through new remodeled, expanded and relocated stores.

Having said that, as we look forward to the second half of '07, based on our essentially flat comparable store sales performance during the first half of the year, we're now taking a more conservative approach and forecasting our comparable store sales for the second half of the year. Mike and Andy will provide additional color and commentary on our second half shortly.

But at this point, we feel that it's prudent to forecast our comp store sales could be flattish with the back half of the year, and therefore, for the full year as well. We believe that by forecasting our comps at flat levels that we'll be able to tightly manage both our inventory levels and our expenses just as we did in the second quarter, and we'll still have plenty of dry powder in the ability to react quickly by purchasing additional goods to build up our inventory levels should our sales exceed our expectations.

That concludes my remarks for now. So at this point, I'll turn the call over to Andy.

Andrew Hall - President, COO

Great. Thanks, Jim. Good morning, everybody. As we highlighted in this morning's press release, we did have some notable merchandising and operational accomplishments during the second quarter, which I will quickly review.

Jim mentioned that excluding non-comparable items, our gross margins were up over last year by close to 195 basis points, while both our Stage and our Peebles divisions achieved increases. Our Peebles division, as expected, recorded the greatest basis point gain versus last year.

Once again, recall that the results for our Peebles division in last year's second quarter were negatively impacted by their increased promotional activities, which were intended to drive foot traffic and sales versus their lower than desired inventory levels.

Despite our relatively small increase in overall same-store sales, we did achieve comparable sales increases in many of our key merchandise categories during the quarter. Dresses and cosmetics once again led the way with double-digit gains of 14.5% and 10.2% respectively. Other business categories that registered same-store sales increases during the period were accessories, children's, footwear, plus size and young men's.

With regard to our sales by market size, we achieved a comparable store sales increase of 2.6% in our small markets, which we define as market areas less than 50,000 people. This is both significant and encouraging as small markets continue to be the focus of our new store growth strategy.

As you can tell from our departmental results, our continuing rollout of Estee Lauder and Clinique counters is having a strong positive impact on our cosmetics business. To capitalize on additional sales opportunities during the second quarter, we completed the installation of one new Estee Lauder and one new Clinique counter in our Stage division, while we installed one new Estee Lauder and three new Clinique counters in our Peebles division.

Our second quarter additions brought the total number of Estee Lauder counters to 96 and our Clinique counters to 97. In the second half of the year, we currently plant to complete the installation of 28 new Estee Lauder and 31 new Clinique counters.

Of the 59 total new cosmetics counters that we're installing, 38 counters are going into existing stores and 21 counters are going into new stores. 18 of the existing store additions resulted from Estee Lauder wanting to replace lost distribution that they experienced when another retailer that carried their product went out of business in our markets.

We are excited about the ongoing potential of this category of business, and we are pleased and excited about the business opportunities of bringing these great cosmetics products to small-town America.

Turning now to our second quarter store-based activity, we opened two new stores, relocated two stores and expanded two stores. Of the two new stores that we opened, one was a Palais Royal store and one was a Stage Store. We also closed one store in Texas during the quarter due to tornado damage. We ended the quarter with 668 stores, comprising a total of 12.4 million selling square feet.

As we look ahead, we plan to open 21 new stores during the third quarter and additional 12 new stores during the fourth quarter. We also plan to expand our national presence to 35 states by opening new stores in Utah and Wisconsin. Including the 14 stores that we opened during the first half of the year, these 33 second half stores will bring the total number of stores that we anticipate opening in 2007 to 47.

With regard to next year, we continue to plan for 70 new store openings. And to date, we have already identified 27 potential locations. In July, we announced that we had selected Jeffersonville, Ohio, as the site for our third distribution center. This facility will occupy approximately 200,000 square feet, and we expect to invest approximately $12 million in 2007 and 2008 for new machinery and equipment. This distribution center will come online in mid-2008 and will be capable of supporting approximately 300 stores.

By the end of 2008, our total distribution capacity from our Jeffersonville, Jacksonville, Texas, and South Hill, Virginia distribution facilities will be over 1,100 stores across the country in support of our planned future growth initiatives.

During the quarter, we completed the installation of our new SAS Marketmax planning system. We have begun our spring 2008 merchandise planning in two pilot merchandise categories in each of the Stage and Peebles divisions. This new planning system will help us optimize our product assortments on a store-by-store basis.

At this point, I want to briefly bring you up to date on how our 69 former BC Moore stores are performing. Their performance is at the low-end of our expectations. For the second quarter, their sales were approximately $5 million below plan, resulting in breakeven earnings.

We are intensifying our marketing efforts to drive additional foot traffic and sales, and we are confident that our efforts will expedite the development of the traditional Peebles customer in these markets. Our fall guidance reflects a performance level from these former BC Moore stores, consistent with their performance in the second quarter.

Although the sales in these stores represent only about 5% of our total company sales, developing our customer base remains a high priority.

While the second quarter turned out to be more challenging at the topline level than we had originally anticipated, as I have highlighted, the hard work of our dedicated associates led to successes in many areas. As we enter the third quarter and as Jim alluded to, we are more conservative in our sales outlook.

Our inventories are at appropriate levels, and we are well-positioned to flow fresh fall merchandise to support our sales plans. If sales turn out to be better than we have forecasted, we can and will react quickly to chase the business.

We will also remain intently focused on controlling and further reducing our expenses where feasible. And as always, we remain committed to providing our customers with an exceptional shopping experience every day.

With that said, I'll now turn the call over to Mike.

Michael McCreery - EVP, CFO

Thanks, Andy. As we reported, our total sales in the second quarter were $359.2 million this year versus $362.1 million last year. Our comparable store sales were essentially flat at a positive 0.5% versus an increase of 4.5% last year.

In comparing our sales performance between the two years, we have highlighted the fact that our sales were negatively impacted by heavy rains and flooding conditions that were prevalent in many of our south central markets throughout much of June and July. Texas was particularly hard hit with the unfavorable weather patterns during those periods.

Although most of our recent new store openings have been in other states, our Texas-based stores still account for approximately 44% of total sales while they represent close to one-half of our comparable store sales base. As a result, our comparable store sales results are highly influenced by how our Texas-based stores perform.

We also previously highlighted the fact that last year's results included inventory liquidation sales of $32.4 million generated by the acquired BC Moore stores operating prior to the conversion of two Peebles stores. And as Andy discussed, so far this year, our sales performance in these converted BC Moore Stores is not meeting our expectations.

Our second quarter gross profit rate increased by 300 basis points, improving to 29.4% of sales this year versus 26.4% of sales last year. Recall that gross profit last year was negatively impacted by a charge to cost of sales of $3.8 million or 105 basis points for the cumulative effect of the correction of an accounting error related to distribution center handling credits.

Adjusting last year's reported gross margin for this non-comparable item means our year-over-year improvement is 195 basis points, which is still a significant improvement.

As Jim discussed, we prudently managed our receipt flows during the quarter when our topline sales began to soften. And this allowed us to be less aggressive in our clearance pricing activities. This is in sharp contrast to last year when our Peebles division increased their promotional pricing levels to drive sales given their lower-than-desired inventory levels.

Factors driving the improved gross margin rate include improvement in the mix of regular versus clearance business for the quarter, a higher average ticket-out-the-door and less aggressive pricing clearance as Jim and Andy mentioned. On the flip side, we did experience some deleveraging of the buying and store occupancy expense components of cost of sales due to our lower sales this year versus last year.

While our second quarter SG&A expenses came in below planned levels due to our focus on expense control, they were nevertheless higher than last year. Our SG&A expenses increased 70 basis points growing to 24.5% of sales this year from 23.8% of sales last year. Recall that our last year's SG&A expenses benefited from reimbursements that we had received for our hurricane-related losses totaling $2.1 million or 60 basis points.

On the other hand, included in last year's SG&A expenses were non-comparable costs equating to 160 basis points associated with the BC Moore stores, which included the fee earned by Hilco Merchant Services for its management of the liquidation sales process of these stores during the quarter. We did not have any similar fees in this year's second quarter.

Beyond these non-comparable items, as compared to last year, we had deleveraging of store payroll costs when we fell short of planned sales levels. We also experienced higher employee benefit expenses associated with healthcare costs and employee relocations. And lastly, our advertising costs were up as we spent more money in an effort to boost sales.

Store opening cost in the second quarter, which include costs related to the stores opened or relocated during the quarter as well as costs associated with stores that are scheduled to be opened or relocated in subsequent quarters were $486,000 this year versus $1.9 million last year.

The approximately $1.4 million reduction in cost primarily reflects our lower actual and planned store opening activities this year versus last year's second quarter when we were initiating the conversion of a number of former BC Moore Stores.

Interest expense was $1.1 million this year versus $1.3 million last year, reflecting this year's lower average borrowings under our revolving credit facility. For the quarter, our revolving credit facility borrowings averaged $41.8 million this year while they averaged $43 million last year.

Our borrowings were slightly higher last year primarily as a result of our funding of the BC Moore acquisition and associated working capital requirements, while this year's borrowings include the effect of $62.5 million expended on our share repurchase activities during the current year.

Our tax rate in the second quarter was 38.2% this year while it was 37.3% last year. The year-over-year increase is primarily reflective of a higher corporate income tax rate in the State of Texas due to a change in that state's laws enacted during the second quarter. Note that we expect the tax rate for the full year to be 37.8%.

And as our tax rate in the first quarter was 37.3%, the higher second quarter tax accrual was needed to bring our first half tax rate up to the expected full year level of 37.8%. Overall, we earned $9.9 million or $0.23 per share this year as compared to $3.9 million or $0.09 per share last year.

As we discussed, last year's second quarter was impacted by a number of non-comparable income and expense items, which equated to $0.06 of charges last year and should be considered in comparing the two periods. Our diluted share count this year was 43.4 million shares versus 43.5 million shares last year.

We had outstanding borrowings of $42.8 million under our revolving credit facility at the end of the second quarter, while our outstanding letters of credit, which reduced total availability, aggregated $20.9 million.

At the end of the second quarter, our excess availability under our credit facility was $160.1 million. Our capital expenditures for the second quarter, net of construction allowances received from landlords totaled $13.2 million this year versus $14.1 million in the second quarter of last year.

With regard to stock repurchase activities, during the second quarter using funds available to us under our previously announced $50 million stock repurchase program as well as available proceeds from employee stock option exercises, we repurchased approximately 2.6 million shares of our common stock at a cost of approximately $53.2 million.

That concludes my remarks for the second quarter. And at this point, I would briefly like to review our outlook for the third and fourth quarters of the 2007 fiscal year as well as our updated outlook for the entire year as was included in this morning's press release. We believe that our outlook for the periods reflects reasonable estimates based on information available to us at the time our estimates were developed.

As Jim and Andy have already discussed, based on our sales trends through the first half of the year, we have taken a more conservative approach in forecasting our sales for the second half of the year. This approach will help us plan our inventory levels and expenses accordingly, and at the same time, gives us the flexibility to raise inventory levels if sales are better than anticipated.

For the third quarter ending November 3rd, we currently anticipate reporting revenues in the range of $352 million to $358 million with the expectation of a comp store sales decrease in the low single digits.

By month, based on the current sales trends and the expected negative effect of how the 2006 and 2007 August calendars line-up, we currently believe that our August comparable store sales will be negative in the high-single digit range. We project that our September and October comps will be positive in the low-single digits leading to an overall forecast of a negative low-single digit comp sales performance for the full quarter.

With regard to total sales, note that sales in last year's third quarter included inventory liquidation sales of $11.5 million generated by the acquired BC Moore Stores prior to their conversion to the Peebles stores.

In addition to our more conservative overall view of comparable sales for the quarter, the way that this year's calendar falls versus last year is expected to have a negative effect on our same-store sales due to the changes in timing of events.

And lastly, we have lowered our sales expectations for our converted BC Moore Stores based on their performance to date. Our Q3 net income is projected to be in the range of $1.7 million to $3.4 million or earnings of $0.04 to $0.08 per share. This outlook compares to earnings of $2.8 million or $0.06 per share for last year's third quarter.

In comparing this year's third quarter projected results to last year's actual results, remember that last year's third quarter contained several non-comparable income and expense items, including income of $0.02 per share related to reimbursements we had received for our 2005 hurricane-related losses, an estimated net loss of $0.05 per share related to the BC Moore acquisition including transition costs and pre-opening expenses and charges of $0.02 per share from the Company's inventory methodology review process related to fees paid to third parties.

In projecting earnings per share for the third quarter, we used an estimated diluted share count of 42.4 million shares versus 44.4 million shares last year. For the fourth quarter ending February 2nd, 2008, we currently anticipate reporting revenues in the range of $480 million to $495 million with the expectation of comp store sales increases in the low-single digit range.

Our net income's projected to be in the range of $33.2 million to $36.1 million or earnings of $0.78 to $0.85 per share. This outlook compares to earnings of $39.6 million or $0.88 per share for last year's fourth quarter.

In comparing this year's fourth quarter projected results to last year's actual results, you should note that last year's fourth quarter results included $0.09 of additional non-comparable income items, including income $0.01 per share related to reimbursements that we received for our 2005 hurricane related losses, income of $0.02 per share estimated to have been produced in the 14th week of the quarter last year.

And income of $0.06 per share associated with the reduction of the estimated liability for old gift cards and merchandise credits issued to customers for which we believe the likelihood of redemption was remote. And projecting earnings per share for the fourth quarter, we have used an estimated diluted share count of 42.5 million shares versus 44.9 million shares last year.

Updating our outlook for the 2007 fiscal year ending February 2nd, 2008 to include our actual first and second quarter results as well as our current outlook for the third and fourth quarters, we currently anticipate reporting revenues in the range of $1.549 billion to $1.570 billion with an expectation of flat comps for the full year.

Our net income is projected to be in the range of $53.9 million to $58.5 million or $1.25 to $1.35 per share, which compares to our previous outlook of $1.33 to $1.41 per share as provided on May 24th.

In fiscal 2006, we reported earnings of $55.3 million or $1.25 per share. In comparing this year's projected results to last year's actual results, note that this year's results include a gain of $0.04 per share recorded in the first quarter related to the March 2004 sale of the Peebles private label credit card portfolio. In projecting our earnings per share for the full 2007 fiscal year, we have used an estimated diluted share count of 43.1 million shares versus 44.1 million shares last year.

That completes my remarks for now. And with that, we would like to open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Our first question is from Bob Drbul. Go ahead please.

Bob Drbul

Hi. Good morning.

James Scarborough - Chairman, CEO, Chief Merchandising Officer

Good morning, Bob.

Andrew Hall - President, COO

Good morning, Bob.

Bob Drbul

The first question I have is you gave the comp in the small markets for the quarter. Can you just give us the comp for the large markets and the mid-sized markets? And then the second question that I have is can you talk about has the tax-free holiday impacting the business at all in August? I thought it was supposed to.

James Scarborough - Chairman, CEO, Chief Merchandising Officer

I'll start with the last part first. I think Texas tax-free is less and less important every year. I think the first year we did it was like six or seven years ago, it was pretty outstanding and every year it's been a little bit of luster and importance for the sales line, Bob. Because it's -- you know it's a sale event if you think of it that way.

Andy has comps by state, certainly by market size. One thing I'd like to throw on is if you think of our comps in the month of July, our Texas comps because of weather were down about 4.5% versus the chain average of about 1.5%. So Texas has been impacted obviously severely by the rains and the flooding. Andy, do you have the market size?

Andrew Hall - President, COO

Yeah, before I get into that, I'll just amplify your comment about the Texas tax rate. Bob, we'll have a better read on the Texas back-to-school at the end of this week. Texas goes back-to-school Monday of next week. So Texas tax free was last weekend. This is going to be another big back-to-school week. So we'll have a better read once we get through this week.

Relating to the market sizes, we mentioned 2.6 positive for the small market, less than 50,000 for the quarter. That's similar to what it is year-to-date, as well. 2.6 year-to-date. The mid-size market's 50,000 to 150,000 population was minus 2.8% for the quarter and yet comparable for the first half of minus 2.7%. And the large market's greater than 150 was minus 1.4% for the quarter and minus 2.2% for the year-to-date.

Bob Drbul

And within the different market sizes, Andy, are you seeing different competitive postures, as you know, when you think about the promotional environment?

Andrew Hall - President, COO

Well, I think the large markets have always been -- in recent history have been ultra competitive. We have a lot of, you know, in the Houston markets and San Antonio and Austin you've got all the major players in town and they're highly promotional and it's a competitive landscape out there. In the small markets, the less than 50,000 for the most part were in towns without competition.

Wal-Mart's in town, there maybe a specialty like [Kedo], but for the most part, it's us and Wal-Mart. And I think that's reflective in the results in these small markets where your plus 2.6 in a small market and you're minus 1.4 in a large market.

Bob Drbul

Great. Thank you very much. Good luck.

Andrew Hall - President, COO

Yes. Thank you.

Operator

Thank you. Our next question is from David Glick. Go ahead, please.

David Glick

Good morning. I just wanted to focus a little bit more on your August projection. How much of it is due to the calendar shift of week-one into July? How much is kind of the reality of what's happening today and the uncertainty of the Texas back to school shift, maybe some weather prior to that tax-free event?

And maybe give us a sense of what your plan is on a calendar basis for August so we can interpret what single digits really means.

James Scarborough - Chairman, CEO, Chief Merchandising Officer

It's a good question. Most of the August phenomenon is a calendar shift where you're taking out a back-to-school week at the beginning of fiscal August that was there last year that's not there this year and you're replacing it with a lower volume week at the end of the month.

So most of what you're seeing with that large negative is related to the calendar shift.

David Glick

And on a calendar basis, would it be flat or --?

Michael McCreery - EVP, CFO

Yeah. It'd be positive low-single digits.

David Glick

It would be.

Michael McCreery - EVP, CFO

On a comparable calendar, so that calendar shift is important.

David Glick

That's very important for all of us to understand. Thank you.

Michael McCreery - EVP, CFO

Yeah. I had, I mean -- and we've talked, David, about the difficulty of a fiscal year calendar following a 53-week. And this is a good example of it.

James Scarborough - Chairman, CEO, Chief Merchandising Officer

Yeah, David, I think it's a fair question for August you know, that same question could be had for the entire fall season where if you look -- we're calling it flattish on a fiscal reporting basis for the fall season. If you look at it on a calendar adjusted basis, we're looking at low-single digit positives.

David Glick

Right. I guess when you look at September-October in Q4, all expecting low single digits, the August number really stood out. So, I appreciate that clarification.

James Scarborough - Chairman, CEO, Chief Merchandising Officer

Sure. Okay.

David Glick

Thanks a lot and good luck.

James Scarborough - Chairman, CEO, Chief Merchandising Officer

Yeah, thank you.

Operator

Thank you. Our next question is from David Mann. Go ahead, please.

David Mann - Johnson Rice & Company

Yes, thank you, good morning, Johnson Rice. Just to amplify further on the shift. If the August period was hurt by this fiscal calendar timing, why wasn't July helped more by it?

Andrew Hall - President, COO

Well, I think that's a fair question. I think, you know, July should have been held for. We missed our plan in July. We had a lot of movement in the sales performance calendar with July and August, not only because of the fiscal week shifts, but the Texas tax-free and the lead up to Texas tax free moving out of July and moving into August.

And we rearranged our sales promotion calendar in response to that. And I would tell you that we were very disappointed with our July results.

David Mann - Johnson Rice & Company

Okay.

Andrew Hall - President, COO

And I think we hate to keep going back to weather, certainly July was impacted by some weather. But we probably saw some underlying softness there, as well. And that's one of the things that gave us a pause to really look hard at the fall season and why we really think it's the right thing from a fiscal responsibility standpoint to look at fall flattish on a fiscal reported basis.

Manage our inventories. Our inventories are in good position. As I mentioned in my script, good position today, it's going to afford us to flow fresh fall receipts and go after the business in the fall.

I think it's the right thing to do and we'll manage our expenses better with this conservative approach. And the business comes, we're going to be able to chase it.

Michael McCreery - EVP, CFO

And we were positive on a, obviously, a fiscal basis against last year's July 4th week, David. It wasn't that it was a total flop. But Andy's outline the headwinds we had.

David Mann - Johnson Rice & Company

But it sounds like the shift in these promotions that are tied to the tax holiday. That it just seems like your expectation for them whether in this coming week or based on last week are a little less aggressive or excited about what that shift would have done for you.

Andrew Hall - President, COO

I think that's a fair summary.

David Mann - Johnson Rice & Company

Okay. In terms of your credit card relationships with your customers, can you just give us an update on what kind of penetration rate you have by the different store types meaning the stage group, the people's group, and maybe BC Moore and how that might be ramping up?

And then also along the same lines, has your -- has Alliance changed at all how they're approaching the granting of the credit in light of all the turmoil in the credit markets recently?

James Scarborough - Chairman, CEO, Chief Merchandising Officer

Well, we maintain a very close dialogue with Alliance. And I would tell you that for the most part, there is no bubbles that we see in the consumer aging in our consumer debt on our private label credit card. Alliance monitors it closely. So we don't see a tremendous key change in the credit granting policies going forward for the fall season.

The relationships for the second quarter between the different divisions were pretty consistent with what they have been historically. Stage was flat to last year at 35% penetration. Peebles ratcheted it up and broke through the 30.0 for the second quarter, that's 1.7 points better than last year.

And BC Moore, I talked a little bit about BC Moore, we are getting some traction over in BC Moore. It's just going to be a slower process than we originally had anticipated. BC Moore when they were owned by Moore had single-digit credit penetration. For the second quarter, the BC Moore penetration was 24.5%. So we feel good about that.

You know, our goal is to continue to get more up to into the 30s, as well. And we're seeing progress to that. It's interesting the customer that we get signed up and the customer since we've owned the Moore stores, those new credit applications look like the traditional Peebles customer.

And what we're trying to do in the fall season with Moore is, to continue to get our foot traffic up in the stores. That's clearly the issue right now. And getting them into the private label credit is certainly a big part of those plans.

David Mann - Johnson Rice & Company

Great. Thank you.

James Scarborough - Chairman, CEO, Chief Merchandising Officer

Thank you.

Operator

(Operator Instructions)

Our next question is from Paula Kalandiak. Go ahead, please.

Paula Kalandiak

Good morning. Nice job on the inventory control.

Michael McCreery - EVP, CFO

Thank you, Paula.

Paula Kalandiak

I have a few questions. One is with regards to your comments about your cautious approach to inventory, but that you would be able to purchase higher levels if you needed to. Just how quickly can you get new merchandise from your vendors if sales start to pickup?

James Scarborough - Chairman, CEO, Chief Merchandising Officer

Well, I think there's going to be some supply out there, Paula. I think it's a very good question. As we're in the market and as we're talking to vendors, they're articulating to us that there is a fair amount of cancellation activity out there, which means that there is going to be goods out there and potential for some off price buys.

So we feel good about, you know, if this thing turns on, obviously it's going to depend on the type of product that turns on that there's going to be -- there's going to be product to go out there and get. And it should be at fairly attractive prices.

Paula Kalandiak

Okay. Great. And would you pass some of that savings along to the customer?

James Scarborough - Chairman, CEO, Chief Merchandising Officer

Yeah. We'll do. You know, our interaction with the customer is going to be the right thing to drive sales.

Paula Kalandiak

Okay.

James Scarborough - Chairman, CEO, Chief Merchandising Officer

That gives us obviously a little more flexibility in how we can deal with the customer.

Paula Kalandiak

Okay. And then, with regards to BC Moore, are there any real estate issues there or is it more that people just don't -- it doesn't have the name recognition with Peebles?

James Scarborough - Chairman, CEO, Chief Merchandising Officer

Well, very good question. I think that it continues to be -- we're coming into these towns, these 69 towns, new guy into town, we changed the name, we changed the -- we really changed the assortment inside the store. And we're really targeting a different customer.

So we're going into these towns that have had BC Moore for, you know, anywhere from 60 to 90 years in these towns. So we're trying to change customers' perceptions and customers' behaviors. And I think that we're doing a good job, it's just slower than we would like to see.

You know, the results are at the lower end of our expectations. We'd like to see them at the higher end of our expectations. And we don't think that there's any underlying issue with the markets or the acquisition. We continue to believe it was a great acquisition got us into these new markets, got rid of the competitor.

And it's a little different business proposition than going into a new market. When you go into a new market, you're not trying to overcome your predecessor in the box. Here, we're trying to introduce them to Peebles, Peebles' brand of merchandise, Peebles' level of service and getting over the emotional attachment they had with the old brand name.

Paula Kalandiak

Okay. And then just finally, can you comment on what the weather in Texas has been like so far in August?

Andrew Hall - President, COO

Hot and humid.

Paula Kalandiak

Humid?

Andrew Hall - President, COO

Hot and humid.

Paula Kalandiak

Hot and humid. Okay. But has the rain and flooding ceased?

Andrew Hall - President, COO

Yes.

Michael McCreery - EVP, CFO

Yeah. We haven't had the periods of extended periods of torrential rains. You know, it rains this time of year, as Andy said, it's hot and humid, we get the gulf streams, but they're in and out kinds of storms.

Andrew Hall - President, COO

I mean the ground is still saturated. I mean so there was concern in southern Texas when Dean was coming across the Caribbean then you know, came up northern for a while there it looked like southern Texas, the border with Mexico might get a fair amount of rainfall.

You know, there was some concerns because the ground is saturated and that's right for flash floods. But it's been dry, ground is still saturated. We're still crossed our fingers and. We'll work through it.

Paula Kalandiak

Okay. Well thanks, and good luck.

James Scarborough - Chairman, CEO, Chief Merchandising Officer

Thank you, Paula.

Operator

(Operator Instructions)

I'm showing no further questions at this time. Sir, you may proceed.

Bob Aronson - VP of IR

Okay, operator, thank you. We'd like to thank everyone once again for participating on our call today. We look forward to speaking with you again after the conclusion of our third quarter. Have a great day.

Operator

Ladies and gentlemen, thank you for your participation. This concludes the conference. You may disconnect. And have a wonderful day.

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