The Bon-Ton Stores' (BONT) CEO Brendan Hoffman on Q2 2014 Results - Earnings Call Transcript

| About: The Bon-Ton (BONT)

The Bon-Ton Stores, Inc. (NASDAQ:BONT)

Q2 2014 Earnings Conference Call

August 21, 2014 10:00 ET

Executives

Jean Fontana - Investor Relations

Brendan Hoffman - President and Chief Executive Officer

Keith Plowman - Executive Vice President and Chief Financial Officer

Analysts

David Glick - Buckingham Research Group

William Reuter - Bank of America/Merrill Lynch

Ed Yruma - KeyBanc Capital Markets

Todd Harkrider - UBS

Steve Ruggiero - R.W. Pressprich

Hale Holden - Barclays

Operator

Good day and welcome to The Bon-Ton Stores Incorporated Fiscal Second Quarter 2014 Earnings Results Conference Call. Please note, today’s conference is being recorded. At this time, I would like to turn the call over to Ms. Jean Fontana for Bon-Ton. Please go ahead, ma’am.

Jean Fontana - Investor Relations

Thank you. Good morning and welcome to the Bon-Ton’s second quarter fiscal 2014 conference call. Mr. Brendan Hoffman, President and CEO and Mr. Keith Plowman, Executive Vice President and CFO 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 obtain a copy of the earnings release by calling 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, including those set forth in the cautionary note and the earnings release and all of which are described in the company’s filings with the SEC.

I would now like to turn the call over to Mr. Brendan Hoffman.

Brendan Hoffman - President and Chief Executive Officer

Good morning and thank you for joining us today. Before I begin the discussion of our second quarter results, I would like to take a moment to comment on the appointment of Kathryn Bufano who is the new President and CEO of Bon-Ton. I could not be more pleased that Kathy will be joining and leading the Bon-Ton team. I have had the pleasure of knowing her for almost 25 years and I know she will be a great leader in driving long-term success for the company.

Kathy’s most recent tenure and accomplishments as the President and Chief Merchant at Belk’s, reflects her in-depth understanding of the challenges and opportunities facing a regional department store in today’s world. As the native of Illinois, Kathy relates to our customer and is looking forward to living in the Milwaukee area. The vendor community knows Kathy well and has pledged their enthusiastic support. I look forward to working with Kathy during her transition period beginning next week.

Turning to the second quarter, we were pleased to achieve positive comparable store sales growth for the first time in five quarters, particularly given the challenging promotional environment and continuation of soft traffic trends. We accelerated the clearance cadence in our stores and our clearance centers, which moves some markdowns into the quarter, but allowed us to sell the goods at a higher value than we would be able to do later in the year. This along with deeper promotions in response to the competitive environment and the impact of e-commerce pressured our gross margin rate by 40 basis points.

We are pleased that our inventories are fresh and with the overall level flat to last year and our spring carryover down roughly 15%. This should benefit the third quarter. Our increase in SG&A includes additional investment in marketing as we want to ensure we maintain our share of voice in the highly competitive department store environment. As other retailers have increased their exposure, more media and stronger promotions including an additional Black Friday event as well as additional senior days helped to track and convert more summer traffic. We will continue to increase our marketing investments in strategic campaigns for key categories and brands, including active, Ruff Hewn and contemporary ready-to-wear.

E-commerce had a strong quarter, up 30% driven by increased conversion as we continue to invest in process improvements that shorten the time it takes us to load items to our websites. This fall we are launching a partnership with ShopRunner that will expose our sites to more consumers outside our geographic footprint as well as encourage our existing customers to participate in ShopRunner’s annual fee-based free 2-day shipping and returns program.

Turning to merchandise performance, we move fall receipts up in kids to support an earlier back-to-school launch, which combined with an incremental omni-channel campaign drove double-digit increases. Additionally, kids was the first family of business to launch our key item strategy and the fall goods are performing across all tiers of stores. We believe this is a great start to this initiative and are excited to see how it translates to all our merchandise categories as fall deliveries are now arriving on the sales floor.

We saw strong performances coming out of young contemporary dresses, women’s plus size, handbags, bedding and small electrics. In addition, we continue to gain strong momentum in our active, athleisure categories in the second quarter. We believe there is significant opportunity for growth across several zones in active, including ladies, plus size, men’s, kids and shoes. Men’s, petites and kids will see Exertek product, which has been so successful in ladies and plus sizes. All zones will also continue to grow national brands, including Champion, Reebok and Puma. Additionally, private brand had strong performances in plus size from Ruff Hewn and Relativity and Home from Casa by Victor.

There will be a new brand launch in ladies and men’s in spring 2015, Le Tigre sportswear, which we are very excited about. Business was softer in moderate sportswear, both ladies and men’s as well as cosmetics. We saw continued pressure in cosmetics and although sales stabilized somewhat by the end of the quarter, business remains below where we wanted to be. We are testing a new presentation of cosmetics in 11 doors geared to attract a younger customer. We are also adding new vendors as part of this strategy.

Our localization strategy continues to show success with newness and regionalization of our assortments. Most noticeable is the improvement in the performance of our small doors versus our bigger doors, as our smaller locations are benefiting from increased in targeted investment of inventory dollars as a result of this initiative. Our Let Us Find It initiative continued to be refined to deliver greater customer satisfaction, while shopping with us in stores. Our goal is to generate 2% of total sales through this initiative. We are at 1.4% at the end of the second quarter.

Standalone clearance centers are exceeding our expectations. We have two new standalone clearance centers opened in the spring, a second one in the Chicago area and the first one in the Minneapolis market bringing the total to four. The performance of these standalone centers, higher productivity and lesser discounts than clearance outlets within existing selling locations validates this initiative. We are looking at adding one more location for this fall.

A brief discussion about the back half of the year in addition to what I have already discussed. Sales will have easier comparisons in the fall season with expected improved performance. Top line should benefit from the initiatives we have put in place gaining traction as they continue to mature. Early read on fall is that the transition is in good shape and on track. Private brand is delivering merchandise and there are good early sell-throughs. Our private brand will build upon successful existing labels with the extensions such as Ruff Hewn Grey, a younger, edgier version of our popular Ruff Hewn label, Ruff Hewn jewelry, Ruff Hewn home décor and Exertek in men’s and petites.

As I mentioned, kids is performing very well with key item focus and a new mix and match collection from private brand. The customer will see newness in our assortments such as in young contemporary, which is expanding into our plus size business and Chaps which has been successful for us in men’s and is being introduced into ladies, plus size and kids in the fall. Yesterday, we had a grand reopening of our newly renovated Elder-Beerman store now in one great location at the mall at Fairfield Commons in Dayton, Ohio. We are excited to provide our loyal customers with a more convenient and exceptional shopping experience in this market. In September, we will celebrate a grand opening of our first store in Utah, in Logan, Utah to be exact.

In summary, our continued emphasis will be on top line growth. We believe our merchandising and marketing initiatives are sound and beginning to resonate with our customer.

I will now turn the call over to Keith.

Keith Plowman - Executive Vice President and Chief Financial Officer

Thank you, Brendan and good morning everyone. As Brendan mentioned, we are pleased with our comp store sales increase in the second quarter despite a challenging promotional environment and soft traffic trends. We believe we will continue to see improved sales in the back half of the year based on easier comparisons, particularly in light of the impact of the harsh weather beginning mid-December and continuing through the early spring on traffic and sales results in the prior year.

I will provide some highlights from the second quarter financial results followed by an update on our fulfillment center and cost savings initiatives and on our outlook for the full year fiscal 2014. Our comp store sales increased 1.6%. Total sales in the 13-week period increased 1.1% to $563.5 million. Our gross margin rate decreased to 36.6% of net sales from 37% of net sales in the prior year period, primarily the result of increased net markdowns in line with our focus on driving traffic in sales and managing inventory levels to allow us to begin the fall season cleaner than the prior year.

SG&A expenses increased $4.6 million to $215.8 million compared with $211.3 million in the prior year period, reflecting increased advertising expenditures and implementation costs, primarily professional fees and severance associated with the expense efficiency initiative. Our SG&A expense rate was 38.3% of net sales compared with 37.9% of net sales in the prior year period.

Net interest expense decreased $2.1 million to $15.4 million compared with $17.5 million in the prior year period due to reduced borrowing rates, average debt levels and amortization of deferred fees. Our net loss was $36.2 million or $1.86 per diluted share compared with the net loss of $37.3 million or $1.95 per diluted share for the prior year period. A reminder that 2013 results included $3.9 million of debt extinguishment cost associated with certain of the company’s senior notes.

Our balance sheet inventory at the end of the second quarter increased 0.5% compared with the prior year period. However, excluding the increase in in-transit merchandise, on hand inventory decreased slightly compared to the prior year. Our private label credit card penetration grew 2% to 50.9% for the quarter. We are pleased with this increase, which we believe demonstrate the strength of our loyalty program. And at the end of the second quarter, our excess borrowing capacity under our revolving credit facility was approximately $384 million.

Regarding other data, second quarter fiscal 2014 capital expenditures before netting external contributions were $37.7 million compared with $35.5 million for the prior year period. The components of our debt at the end of the second quarter were as follows: senior notes 2021 of $350 million; 2017 senior notes $57 million; revolving credit facility $237 million; CMBS mortgage facility $215 million; and capital leases $51 million for total debt of approximately $910 million. Our outstanding letters of credit approximated $5 million.

Turning to an update in our initiatives, our new e-commerce fulfillment center in West Jefferson, Ohio is on schedule. This is a built-to-suit site. Construction has begun and the walls are going up. The first shipment of customer orders from this facility is expected to begin in late spring 2015. Regarding our expense efficiency initiative, we are on track to achieve approximately $10 million of expense reductions in 2014, which will be realized primarily in the fall season. The reductions will be partially offset in 2014 by implementation cost of approximately $8 million, which is increased from our original estimate of $5 million, netting a benefit of approximately $2 million in savings this year.

Regarding the timing of these costs approximately $3 million was incurred in both the first and second quarter of this year with the balance of $2 million to be incurred in the third quarter. The increase in cost reflects the complexity of the initiatives as well as the level of diligence invested to ensure we are making sustainable adjustments that will benefit the company’s operations long-term. We believe that these actions and further actions in 2015 will yield an annual run-rate cost savings of approximately $30 million beginning in 2015.

Now, turning to our guidance, based on the estimated increase in implementation cost associated with our expense efficiency initiative, which I just discussed and expenses associated with the CEO transition, the combination of these will be about $4 million of aggregate cost and our first half results we are revising our fiscal 2014 guidance for adjusted EBITDA to a range of $165 million to $175 million. As a reminder, the reconciliation of adjusted EBITDA to net loss is in our earnings press release. We expect earnings per diluted share to be in the range of $0.25 to $0.55 and for cash flow as defined in Note 2 of our press release to be in the range of $15 million to $25 million.

Key assumptions reflecting our full year guidance are comparable store sales in the range of 1% to 2% increase, gross margin rate flat to up 20 basis points compared with 2013, and an SG&A expense rate up, flat to up 20 basis points inclusive of performance incentives compared with 2013. Our Form 10-Q for the second quarter of fiscal 2014 will be available by September 11. We would now be happy to entertain any questions you might have.

Question-and-Answer Session

Operator

Thank you so much. (Operator Instructions) Our first question comes from David Glick with Buckingham Research Group.

David Glick - Buckingham Research Group

Thanks and congrats on the progress on the top line in the quarter. Just wanted to understand the sort of relationship between sales and gross margin, your gross margin was flat to up the last four quarters. Prior to this quarter, it was down and your sales improved. I am just wondering are you leaning toward making more of a trade-off between sales and gross margin, obviously your guidance assumes that gross margins will not be down in the second half. But I am just wondering if you are thinking about that trade-off any differently, particularly given the $30 million run-rate in savings you are going to have in 2015?

Brendan Hoffman

Yes. Hey, David. Good morning.

David Glick - Buckingham Research Group

Good morning.

Brendan Hoffman

I think as I mentioned in my remarks, it was a combination of factors. I think the decision to accelerate some clearance markdowns into July, because we saw we could get higher average value through the life of the goods. That’s kind of a one-time decision that impacted Q2, because it’s a few million dollars here or there can impact it by a few bps, but we thought it was the prudent thing to do and that should come back positively to us in Q3. What we don’t know is what the continued promotional environment is going to be out there on new goods? It was kind of shocking how promotional everybody got on new receipts us included and we don’t feel we can be caught flatfooted there. So, we have factored that in that there is going to be continued pressure on the promotional activity of fresh goods, along with e-commerce, which as we everyone talks about pressures the gross margin. So, I think our guidance is solid. Hopefully, there will be some upside as we recognized the benefit of having reduced clearance inventories. But we felt it was important to make sure we weren’t getting out-promoted and lose ground in the top line.

David Glick - Buckingham Research Group

Okay, great. And just follow up comment, I mean it seems like every department store that has reported so far has talked about business accelerating in the last two weeks of July and into the first half of August. I think almost every retailer who has talked about it said their trend in those four weeks or so was above where they trended in the quarter. Now, your comp in Q2 was better than most. I am just curious if you have seen that acceleration is well, lot of companies talking about back-to-school areas being strong and does that help inform your confidence in your commentary about accelerating sales trends in the back half?

Brendan Hoffman

Well, as I mentioned in my remarks, we are very excited with the check we have gotten on back-to-school and some of the early fall goods. So, that’s a great indication of the customer liking what we are delivering and being anxious to convert into fall. Hopefully, we will get some cooler weather earlier, which will light a fire under her as well. You have to balance that out with having less clearance inventory, which are sales that you don’t mind giving up, but as I said in my remarks, we are pleased with the early results we are getting from our fall product really across all zones.

David Glick - Buckingham Research Group

Okay. And then finally, any anomalies in terms of the flow of your gross margin and SG&A in Q3 and Q4, I know you don’t give quarterly guidance, but just some things we should keep in mind if any sort of unusual items, you mentioned I think another $2 million in Q3 from sort of these one-time costs, which I guess won’t be there for Q4. But anything we should be thinking about Keith, differently as we kind of model out the balance of the year?

Keith Plowman

The only thing that I would point out, David is as you look back to 2013, we were up about 50 basis points in gross margin in the first quarter, 100 basis points in gross margin in the second quarter. And then as you look at the back half of the year, we were up slightly to flat I think up 10 basis points in the fourth quarter. So, not as much was driven last year and a lot of that because of the fourth quarter weather. So, I think there is more opportunities we get towards the end of the year in a gross margin rate as to what we can do on a year-over-year depending on the competitive environment. But from the standpoint of SG&A, you hit the right point that we really have additional cost one-time that I will hit here in the third quarter as well as the initiatives that we have in place. We talked about the $10 million primarily being realized in the back half of the year and most of that will really come forward in the fourth quarter. We are getting the initiatives in place and we are going to realize some benefit in the third quarter, but I would see the lion’s share of that coming in the fourth quarter.

David Glick - Buckingham Research Group

So, SG&A could be – dollars could be up a bit in Q3, but likely down in Q4, is that the way to think about it?

Keith Plowman

Yes. I think essentially it will be somewhat flattish in the third quarter because of the initiative benefit versus what happens from the standpoint of the expenses incurred to get the benefit and then we should see more benefit coming in the fourth quarter.

Brendan Hoffman

Just to be cleared on the SG&A dollars in Q4, it’s the rate that will really be leveraged with the additional sales.

David Glick - Buckingham Research Group

Right. And one other kind of observation and a question I mean you look at the balance sheet inventories of your competitors and even in specialty retail, it seems like inventories are in much better shape than they have been in probably six to nine months, a lot of retailers put their plans in place during January and February when sales were very challenging and not to be overly optimistic about, it’s still going to be a competitive and promotional environment, but does that make you feel a little bit better in terms of the environment being competitive, but maybe a little bit more rational?

Brendan Hoffman

I hope so. I hope so. Rational doesn’t always drive the environment though.

David Glick - Buckingham Research Group

Right. Okay, thank you very much and good luck.

Brendan Hoffman

Thanks, David.

Keith Plowman

Thanks, David.

Operator

And our next question comes from William Reuter with Bank of America/Merrill Lynch.

William Reuter - Bank of America/Merrill Lynch

Good morning, guys.

Brendan Hoffman

Good morning, Bill.

William Reuter - Bank of America/Merrill Lynch

In terms of the $3 million to $4 million of additional cost due to the expense efficiency initiatives in the CEO costs, am I understanding it correctly that those were not and will not be added back to adjusted EBITDA?

Keith Plowman

Bill, as we have done at the beginning, if you remember we provided guidance and all, we talked about some estimates, we put those numbers in. We know you guys adjust for it as we are talking about to not go back and forth between them. We just let the numbers flow through. But certainly as you guys are looking at a sustainable run-rate looking forward you should adjust for those and pull those out. In round terms, I would see total cost being somewhere in the $8 million to $9 million range. The CEO transition cost will primarily be incurred in the third quarter and then that will take care of everything as we see it for this year.

William Reuter - Bank of America/Merrill Lynch

Okay. And then you guys have laid out a run-rate goal of $30 million of cost savings in fiscal year ‘15 and you talked a little bit about what the costs are going to be in fiscal year ‘14 of those, will there be additional cash costs in fiscal year ‘15 for those?

Keith Plowman

I expect there will be some minimal cost associated. Again, we had given you some updates back I think in Q1 or it was fourth quarter we did our conference call and said there would be some additional costs that we would incur in ‘15. We think that having some third-party assistance in different areas is very beneficial as we look at the process and the program. But I don’t see those as being material cost and right now today I really couldn’t talk any further about them.

William Reuter - Bank of America/Merrill Lynch

Okay. And then just lastly from me, I am curious if you guys have looked at the performance of those stores that are competing against J.C. Penney and given their increase in sales whether that’s benefiting you guys or whether that’s being more challenging, anything in terms of that segmentation? Thanks.

Brendan Hoffman

No, I mean, I think the only color I can give there is they closed 10 or 11 stores in malls we are in and that’s been very helpful, but otherwise not any great impact one way or the other in the normal course of business.

William Reuter - Bank of America/Merrill Lynch

Okay, great. Thanks a lot.

Brendan Hoffman

Thanks, Bill.

Operator

And our next question comes from Ed Yruma with KeyBanc Capital Markets.

Ed Yruma - KeyBanc Capital Markets

Hi, good morning. Thanks for taking my questions. Just really two follow-ups on some of the previous questions. First, on the SG&A, Keith, I know you are embedding some increase in incentive comp to the back half year. Could you just remind us how the rhythm of that should fall throughout the year? I know that you didn’t pay, I believe in 4Q, you might have had a reversal last year and how that should impact the way you model SG&A for the balance of the year?

Keith Plowman

Yes. We would see most of that occurring, Ed, in the back half of the year. As you know, the first quarter was tough, because of what happened in weather. And in the second quarter, we are down a little bit to the prior year, but making some progress back. So, we would see the bulk of that being incurred in Q3 and Q4 and especially Q4 where we have the greatest opportunity because of the weather impacts of last year.

Ed Yruma - KeyBanc Capital Markets

Got it. And then the $30 million of cost saves for next year, is that a number that we should flow directly to the bottom line or is there potential for some of that’s being reinvested in things like e-com? Thank you.

Keith Plowman

I think absolutely, Ed that you should look at that is in certain cases reinvest and we will talk more about that as we talk about ‘15. We have invested more money this year in the IT, e-commerce areas and we are seeing substantial benefit. We are making things simpler. Quite frankly, it’s allowing us to realize some of these initiatives, expense efficiency initiatives we are talking about, because of improved programs, improved reporting, things that make us operate more efficiently. So, we are going to continue to look for ways to invest it. Obviously, we want to take it out of areas that aren’t necessary and what we think will be long-term and sustainable and benefit the company, but we will always look for ways to invest.

Ed Yruma - KeyBanc Capital Markets

Great, thanks so much guys.

Keith Plowman

Thanks, Ed.

Operator

And next we will move on to Todd Harkrider with UBS.

Todd Harkrider - UBS

Yes. I know you talked about inventory being fresh and inventory being flat year-over-year, but your inventory turns are only around 2.5 times when you used to be closer to 3 times and most of your competitors are north of that. Can you talk about if that slower velocity is one of the bigger drivers to gross profit dollars being down around 20% in the past five or six years? And if so, how do you get that velocity back, is it spending more advertising, is it bringing in new brand introductions like you did with Kors or any help there is appreciated?

Brendan Hoffman

Yes, I mean, it’s driving top line sales. I mean, we are very cognizant of that. We had to drive the top line sales. We got about 260 plus locations. We need to fill them with goods and we need to get more out of them. And that’s why my comments I said we were pleased with some of the results we were seeing in our smaller stores, which are where we have the particularly slower turns and where they have eroded over the last few years, but we need to do everything you just said to drive top line sales and get the inventory turn quicker. I mean, we feel very good now about where our inventory levels are. If you remember, we brought them down last year in fall, which turned out to be very fortuitous because of the way business ended up turning out, but we are very diligent on inventory management now and Keith and I spent – have monthly meetings with all the merchants to go through with our head of planning to make sure we are making the bets together and we are pulling back where we think we are heavy. So, we feel very good about where the inventory levels are and now we need to get the top line sales to get that turn up.

Todd Harkrider - UBS

And then do you think there is more opportunity in the smaller stores, is that where you are more of the pressure or is it pretty equal between the smaller and the big or is it the lower Midwest like Pennsylvania and Ohio versus up in Chicago or any help there is appreciated as well?

Brendan Hoffman

We think that as we have said before that the localization initiative should benefit the smaller stores to a greater extent. That’s where we have had the biggest falloff over the last five or six years and that’s where we have kind of neglected understanding those smaller markets and smaller stores. And we feel with our localization initiative, we have – we are taking great steps towards providing the right merchandise mix and marketing mix to those local, to those regions and with the smaller stores. We have some people in the field now that we have placed in, in December, that are giving us great feedback and we are starting to see differences in the way we are sorting the merchandise. So, I would say that that’s where there has been more emphasis, but at the same time, it also allows us to do special things for the bigger stores as well, because we don’t need to ensure that the marketing or the product works for smaller stores, because they are getting looked at separately.

Todd Harkrider - UBS

Got it. And then quickly on the mortgage facility, do you have an update for us on where a potential refinancing of that is?

Keith Plowman

We are still investigating through initiatives and opportunities there. I think we will have more information as we go forward this year. We know that facility matures in late March of 2016, very good rate there, but also associated as that make-whole provision we had talked about previously and it’s a very substantial number. So, right now, we are looking at opportunities and means to finance it in efficient way that gives the best benefit to the company.

Todd Harkrider - UBS

I appreciate it and good luck for the rest of the year.

Keith Plowman

Thank you.

Brendan Hoffman

Thank you.

Operator

(Operator Instructions) We will take our next question from Steve Ruggiero with R.W. Pressprich.

Steve Ruggiero - R.W. Pressprich

Thank you for taking my question. Regarding the $75 million in CapEx spending, what dollar amount is targeted for IT software initiatives?

Keith Plowman

In round terms, it’s usually around $30 million, $25 million to $30 million number. That number can certainly change as we are talking about the expense efficiency initiative and ways that we see to get paybacks. We are looking at things that can benefit us in operations in the stores as well as our merchant and planning and allocation areas, but I think if you use that as round terms, you are in the ballpark.

Steve Ruggiero - R.W. Pressprich

Okay. And you had some very good 30% growth in e-commerce sales this past quarter, is there any timeline for these initiatives to further benefit e-commerce and accelerate it even further, is there that potential?

Keith Plowman

Well, I mean, I think the initiatives we have in place have been in place really as we have gone through the years. We have had pretty substantial growth in e-commerce. We are close to 5% last year. We have guided that will be north of 6% between 6% and 6.5% this year. So, we really have been doing a lot of things to drive that forward. What we are focused on right now, because the growth is moving the way we would like it to. We said we would like to get to 10% as we go forward in the future is trying to make it more efficient. And we are looking at means to reduce take some of the cost out of operating the business. We talked about our West Jefferson facility, which will open up in late spring of 2015. Currently, today, we deliver out as many as four locations if you put an order online, which is very inefficient as we move to one fulfillment center and some other initiatives we have associated with that, we expect to be able to take cost out, give better service and make e-commerce perform better.

Steve Ruggiero - R.W. Pressprich

Okay. And if I could just ask one last follow-up question on your increased advertising expense, could you get more specific about that with our specific print campaigns that flowed through the P&L this quarter that took that number up?

Brendan Hoffman

No. It was just an overall roll of the dice to make sure we are not losing share of voice out there. We have seen since the back half of last year the national players greatly increasing their voice out there and we couldn’t get swallowed up in that. So, we over-invested a little bit there and we will continue to monitor that to see if that’s the right level of spend and we can pull back a little bit, but again, we want to drive top line sales and not get crowded out.

Steve Ruggiero - R.W. Pressprich

Great, thank you very much.

Brendan Hoffman

Thank you.

Operator

And our next question comes from Hale Holden with Barclays.

Hale Holden - Barclays

Thanks for taking the call. Keith, you called out higher shipping costs, I was wondering if that was just a function of increased e-com growth or if there was a change in shipping, kind of shipping baskets or free shipping offers in the quarter?

Keith Plowman

It’s more the e-com growth and it is a consumer who is smarter as she looks at things, she is looking for all opportunities to try and get a better deal. She is always very cognizant of what’s out there in the different offers. Brendan talked about we are moving to ShopRunner, which we think is going to bring in another customer that does not shop our site today and we are willing to incur those costs to grow that. So, we see e-commerce as being very important and we will continue to invest there to make sure we grow that business.

Hale Holden - Barclays

Okay. And then this question may not be totally fair, but I was wondering if any of you had any idea when Kathy would be in a position to kind of outline her plans for the business?

Keith Plowman

I mean, I think you have to give Kathy time to get on board and visit our stores, work through things. As Brendan said, she knows the business very well. She has been in this business for a long time and is very astute with what’s important, but she needs to get more of a flavor for the Bon-Ton. We certainly intend to get out and talk with everyone here as she gets her feet in the ground and gets a chance to work through things, but we are looking forward to it, very excited, and next week will be a great week.

Hale Holden - Barclays

Great, congratulations. Thank you.

Keith Plowman

Thank you.

Operator

And that concludes our question-and-answer session for today. At this time, I would like to turn the conference back over to Mr. Hoffman for any additional or closing remarks.

Brendan Hoffman - President and Chief Executive Officer

Thank you for your questions and your interest in the Bon-Ton. I would like to thank the investment community and the vendor community for all the support you have given me during my time here at the Bon-Ton. Thank you, again.

Operator

And this will conclude today’s conference. We thank you for your participation.

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