Shoe Carnival's (SCVL) CEO Cliff Sifford On Q3 2014 Results - Earnings Call Transcript

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Shoe Carnival, Inc. (NASDAQ:SCVL) Q3 2014 Earnings Conference Call December 1, 2014 4:30 PM ET

Executives

Cliff Sifford - President, CEO and CMO

Kerry Jackson - SEVP, COO, CFO and Treasurer

Analysts

Mark Montagna - Avondale Partners

Chris Svezia - Susquehanna Financial Group

Jeff Stein - Northcoast Research

Sam Poser - Sterne Agee

Jill Nelson - Johnson Rice & Company

Operator

Good afternoon and welcome to Shoe Carnival's Fiscal Year 2014 Third Quarter Earnings Conference. Today’s call is being recorded and is also being broadcast via live webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited.

This conference may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the Company's actual results to be materially different from those projected in such statements. These forward-looking statements should be considered in conjunction with the discussion of risk factors included in the Company's SEC filings and today's press release. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date. The Company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the forward-looking statements talked about during this conference call or contained in today's press release to reflect future events or developments.

I’ll now turn the presentation over to Mr. Cliff Sifford, President, Chief Executive Officer of Shoe Carnival for opening comments. Mr. Sifford, please begin.

Cliff Sifford

Thank you, and welcome to Shoe Carnival’s third quarter fiscal 2014 earnings conference call. Joining me on the call today is Kerry Jackson, Senior Executive Vice President, Chief Operating and Financial Officer.

For today’s call, I’ll give a high-level review of the Company’s third quarter performance and provide some insight into the holiday season. Kerry will review the third quarter financial results along with fourth quarter guidance and then we’ll open-up the call to take your questions.

We are pleased to report that our comparable store sales for the third quarter increased 2.3%, driven primarily by the power of the fashion boot category for the family. Although store traffic was down low-single digits, increases in the average unit retail were significant resulting in mid single-digit increase in our average transaction.

Strong boot sales at higher margins allowed us to increase our overall merchandise margin by 20 basis points while continuing to clear out the last of our spring and summer merchandise. We believe that our key initiatives including national advertising, better brands in our women’s department, and a reinvigorated e-commerce presence are helping us to bring new customers to our store and our Web site.

Gross profit was flat as a percentage of sale versus third quarter last year, while SG&A was deleveraged by 60 basis points as a percent of sales, resulting in EPS for the quarter of $0.54, which was above the previously stated guidance of $0.45 to $0.51. We ended the quarter with inventory down approximately 0.6% on a per store basis which is inline with our expectations.

I continue to be pleased with our merchants’ execution of our current initiative as they lowered inventory levels in our smaller volume stores while maintaining depth of key seasonal items in core basics. Although we don’t report e-commerce sales separately, we’re very pleased with the sales increases we experienced for the quarter. On September 16, we transitioned away from our third-party fulfillment arrangement and moved to a ship from store fulfillment model.

Our stores’ associates have embraced this strategy and are executing at a very high level. Today we have 250 shoe carnival stores capable of fulfilling e-commerce orders everyday. As this business continues to grow, we will add additional stores to this program eventually expanding shift from store to all stores.

This initiative not only expanded the selection and styles, but it also increased the depth of sizes available online which in turn improved conversion. Well thanksgiving and Black Friday we also utilized our Evansville distribution center to fulfill promotional product relieving pressure on our stores during this very important sales period.

In addition to shift from store, we also launched our first ever mobile app during the month of September. This app gives our e-commerce team the ability to interact with our customers through games and contests, in addition to giving us a new avenue for target marketing.

The Shoe Carnival loyalty program, Shoe Perks continues to contribute to our overall results with member shopping more frequently and spending more on average than non-members. The Company added approximately 750,000 new members in the third quarter, an increase of 58% compared to the same time period last year. With a total of 5.6 million active members, third quarter sales from Shoe Perks members increased 104% to represent 43% of total sales as compared to 23% for the same time period last year.

For the year, we’ve added over 2 million members to this program continuing with marketing. Although we generated a comparable store sales increase all three months of the quarter, I’m most pleased with the 2.6% comp store increase in October, which was on top of last year’s October comp store increase of 5.4%. We felt this is a direct result of our national advertising campaign which highlighted our large selection of fashion boots for the entire family given us terrific momentum as we entered into the key selling season for boots.

Moving on to merchandise. Early this year, we identified boots as a key opportunity for the second half of the year. Our merchants plan for, our marketing team built their plans around it and our stores have boots prominently displayed. I believe our boot assortment is the best selection of boots we have ever offered and the strategy is working.

Season to date, sales in boots for the family are up in the high 20s on a comparable store basis. This strong boot trend continues throughout the month of November as boots for the family produced a comparable store sales increase in the 30s.

Looking at each department now, in our women’s non-athletic department sales for the quarter were up low-single digits on a comparable store basis. Boots were the primary story here with comparable store sales increase in the mid 20s. Although dress shoes ended the quarter flat on a comparable basis, we did see a sequential improvement in the sales as we progressed through the quarter. Other strong categories were Junior Flats and Vulcanized Canvas. We continue to experience a downward trend in boat shoes, athletic sandals, and sports sandals.

In our men's non-athletic department, we ended the quarter down slightly on a comparable store basis. Although we continue to see decreases in boat shoes and soccer slides, which have traditionally been the drivers for back-to-school, this year we experienced a shift to canvas casuals and fashion boots both of which grow double-digit comparable store sales increases for the quarter.

Our children’s business ended the quarter with a mid single-digit comparable store sales increase. For girls, the quarter was all about boots and canvas, for boys, basketball, running, and canvas were the key categories.

In adult athletics, comparable store sales were up low single digits for the quarter. We experienced a nice quarter in men's and women’s running, men’s and women’s canvas, along with men’s cross training.

Turning now to store expansion, we ended the third quarter of 2014 with 404 stores, operating in 33 states and Puerto Rico. For the quarter, we opened 7 new stores including our first store in the Philadelphia market and we closed one store. For the remainder of 2014, our plans call for opening one more store by year-end, which will bring our new store total for the year to 31. We will close an additional five stores to end fiscal 2014 with approximately 400 stores.

As I mentioned in our last call, we’re spending a great deal of time comprehensively reviewing our entire store base. This review was helping us understand not only the best markets for near-term expansion, but also identify underperforming stores with little or no growth opportunity.

As part of our 2014 review efforts, we have identified five stores for closure in the fourth quarter of 2014 and six stores for closure in 2015. Additionally, we recorded impairments during the third quarter on the fixed assets associated with six marginally performing stores.

With regards to near-term expansion, we look to open 20 to 25 stores in fiscal 2015 concentrated either in the large markets we currently serve or single store markets within our current footprint.

Lastly, I’d like to address the guidance we gave within the press release. As I’ve stated earlier, we believe that our strategic initiatives surrounding women’s better branded merchandise, enhanced marketing and our reenergized e-commerce site has attracted a new more fluid consumer. We see this with a sell-through of our better branded shoes and boots and the higher average retail in their respective categories.

In addition, we still have the brands, strong promotions, and our unique store environment keeping our core customer a loyal Shoe Carnival shopper year after year. Our results in November are evidence of this as we continued our positive comparable store sales trend on top of a record breaking November last year.

Now as we enter the balance of the fourth quarter, our expectations are based on how our customers have reacted to our trend right product assortment all season. This combined with our strong marketing cadence should deliver an improvement to customer traffic and sales for the quarter versus same time period last year. Therefore, we believe the fourth quarter will come in with a comparable store sales increase of 3% to 5% and EPS of $0.06 to $0.10 a share versus EPS of $0.03 per diluted share the same time period last year. Kerry will offer more insight on this within his prepared remarks.

Now I’d like to call -- turn the call over to Kerry Jackson for details on our financial results.

Kerry Jackson

Thank you, Cliff. I’ll discuss our third quarter financial results in more detail followed by information on cash flows and then conclude with our outlook for the fourth quarter of fiscal 2014.

Net sales were $254.7 million for the third quarter ended November 1, 2014, as compared to net sales of $235.8 million for the third quarter ended November 2, 2013, an increase of $18.9 million. This $18.9 million increase in net sales was driven by an increase of $15.9 million from the 41 new stores opened since the beginning of the third quarter of fiscal 2013, and a comparable store sales increase of 2.3%, partially offset by a $2.3 million decline in sales from the seven stores closed since the beginning of the third quarter of fiscal 2013.

Gross profit margin for the quarter was 30.1%, which was unchanged compared to the third quarter of fiscal 2013. Our merchandise margin increased 0.2% from Q3 last year, while buying, distribution, and occupancy expenses increased 0.2% as a percentage of sales. The increase in buying, distribution, and occupancy was primarily due to higher occupancy costs.

Selling, general, and administrative expenses increased $5.8 million in the third quarter of fiscal 2014 to $59 million. The $5.8 million increase in SG&A was primarily due to a $3.7 million increase in expenses for new stores, net of expense reductions for stores that have closed since the beginning of the third quarter of fiscal 2013.

Other significant changes in SG&A for the quarter were attributable to increases in advertising and employee healthcare expense offset by a reduction in incentive compensation. As a percentage of net sales, SG&A increased 0.6% between periods.

Total pre-opening costs for Q3 were $621,000, a decrease of $391,000 over the third quarter last year. Of the total pre-opening costs incurred in Q3, $321,000 is included in SG&A and $300,000 is included in cost of sales for pre-opening rent and freight. In Q3 last year, we incurred $1 million of total pre-opening expense, of which $521,000 was included in SG&A and $491,000 was included in cost of sales.

The effective income tax rate for the third quarter of fiscal 2014 was 39.1%, as compared to 38.6% for the same period in fiscal 2013. The annual effective income tax rate for fiscal 2014 is expected to be 39.3%, an increase of approximately 1% over the prior year. This increase in the annual rate will primarily be due to the expiration of certain federal tax credits not currently available to us and the passage of new tax legislation in Puerto Rico.

Net earnings for the third quarter of fiscal 2014 were $10.8 million, or $0.54 per diluted share, as compared to our expectations provided on September 3, 2014 of $0.45 to $0.51 per diluted share. For the third quarter of fiscal 2013, we reported net earnings of $10.9 million or $0.54 per diluted share.

Now turning to our cash position, information on affecting cash flow, during the quarter repurchased approximately 244,000 shares under our share repurchase program at an aggregate cost of $4.5 million. We currently have $12.8 million available under our existing repurchase authorization.

Depreciation expense was $5.2 million in Q3. Depreciation expense is project to be approximately $20 million for the full fiscal year. Capital expenditures for fiscal 2014, including actual expenditures during the first nine months of the year are expected to be between $33 million and $34 million. Approximately $16 million of the total capital expenditures are expected to be used for new stores and $9 million to be used for store relocations and remodels. Lease incentives are anticipated to be $9 million for the year.

My final comments today will focus on sales and earnings expectations for the fourth quarter of fiscal 2014. We expect fourth quarter net sales to be in the range of $218 million to $222 million, with comparable store sales increase in the range of 3% to 5%. This range takes into account the November comp store sales increase of 5.8% and the expectation of a comp increase ranging from 1.5% to 4.5% for the combined December January period.

Earnings per diluted share in the fourth quarter of fiscal 2014 are expected to be in the range of $0.06 to $0.10. In the fourth quarter of last year, sales were $200.3 million and diluted earnings per share were $0.03. Included in the earnings estimate for the fourth quarter is the expectation that at the high end of our guidance, the gross profit margin will be down 0.3%.

We anticipate lower merchandise margins due to being more promotional for the remainder of the quarter. But we will partially offset decline by leveraging our buying, distribution, occupancy costs due to the expected comp store sales gain. We should leverage our SG&A expenses by over 1% due to controlling expenses and it will end the leveraging effect of the comp store sales gain. Just one additional note, our guidance includes additional freight costs of approximately $0.01 per share we expect to incur in Q4 related to the port slowdown.

This concludes our financial review. Now, I’d like to open-up the call for questions.

Question-and-Answer Session

Operator

Yes, thank you. [Operator Instructions] And our first question from Mark Montagna with Avondale Partners.

Mark Montagna

Hi. Good afternoon. Question about the fourth quarter EPS guidance at $0.06 to $0.10. According to my notes, the prior implied guidance was $0.05 to $0.16 and I’m just wondering is that accurate? And if so, why would the top end of the guidance come down from $0.16?

Kerry Jackson

Mark, the high end of that guidance, to be honest with you, I don’t have that with me.

Mark Montagna

Okay.

Kerry Jackson

That sounds a little high. I don’t remember us guiding to that level. But what we’ve taken, we’ve adjusted our actuals taken into account how we -- what we did achieve in December and looking at the fact that its going to be a promotional quarter for the rest of the quarter and reflecting that in our margins and right now between the comp increase and a slightly reduced margins we’re looking at the top end of our range being $0.10.

Mark Montagna

Okay. The next question dealing with national advertising. With the national ads, did you see an immediate impact from literally the day that those things started to run?

Cliff Sifford

We began national -- Mark, this is Cliff. We began national advertising back in March.

Mark Montagna

Right.

Cliff Sifford

And we’ve said at that time that it was going to be a building process over the course of the year. We did see an immediate impact in March to our e-commerce business, but our store traffic didn’t begin to improve until we actually exited out of August and into September and October. The October ad, however, that we -- the advertising we ran during the month of October, we saw almost immediate results in our boot category at that time.

Mark Montagna

Okay. Yes, so October you had much more of a call to action that would have led to that more immediate reaction?

Cliff Sifford

Sure.

Mark Montagna

Okay. And then, just the last question dealing with fashion boots. Did you say that they were strong throughout the month and then I was just wondering -- throughout each of the months and then I was wondering if there was any sort of variance between tall versus short or any other types of variance? Because I know its more fashion boots as opposed to say weather related boots?

Cliff Sifford

As the season progressed, we were selling shorter boots early in the season. And as the season progressed and into November, taller shafted boots got stronger. I will tell you that during the month of -- excuse me, during the third quarter our boot business in total was up in the 20s. So we had a great November where our boot business was up in the 30s, but we’ve seen that the boot business get better and better as we progressed through the second half of the year.

Mark Montagna

Okay. Thank you.

Cliff Sifford

Mark and to qualify what I said earlier that I believe our guidance at the top end through the -- when we gave guidance at the -- for the second half would have been implied at $0.13 and the differences in that is the anticipation of being promotional and lowering our margin a little bit and taking the actual sales into account. I believe that would account for the differences between the 30 and the 10 we guided.

Mark Montagna

Yes, that would work. I was looking at the midpoint of third quarter. That’s how I got the $0.05 to $0.16. So I can see the $0.13. Thanks.

Operator

And our next question comes from Chris Svezia with Susquehanna Financial Group.

Chris Svezia

Good afternoon, guys. Nice job on the quarter. I guess first question is just as it pertains a promotional cadence, is there any particular category or area you’re expecting to get promotional. I’m just curious, I mean, your inventory is in good shape, seems to be closing the gap on the product margin, your boots performing well, is there just a certain category you expect to get promotional or just preparing for the worst. I’m just curious about your thoughts there for the fourth quarter.

Cliff Sifford

That is closer to the second, Chris. As we’ve listened to calls and I know that you have as well, everybody is talking about the promotional environment, business -- it does not appear that business was that great in the third quarter for many retailers, department stores, and others. And we anticipate a promotional fourth quarter and so we wanted to be prepared to be promotional as well. So that’s really a -- that’s really a case of being prepared in case we don’t want to be caught with someone taking our -- some retailer taking our business during the fourth quarter.

Chris Svezia

Okay. Have you seen any of that into November? I mean you generated that 5.8% comps did you have to get more aggressive or promotional cadence kept the same relative to the third quarter?

Cliff Sifford

No, our commercial cadence stayed exactly the same in the month of November. In fact we cut back one of our insert programs early in November, and still we’re able to generate the increase that we generated, but -- so, we were no more promotional than any -- than we have been in the years past.

Chris Svezia

And can you remind me. December and January, what kind of comp are you up against versus last year?

Cliff Sifford

Both of them were negative. Last year we were down mid singles in December and just into double digits in January.

Chris Svezia

Okay. And then, just -- quick for you, just on the dress category I’m just curious, first time you sort of mentioned it flattening out. Is that just cycling some easy comparisons, is that just some favorability with a better women’s brands just maybe talk about what you’re seeing there?

Cliff Sifford

Yes, I think it’s a little bit about -- the comparisons are weaker to your point. But we have a couple of categories that are just performing really well. Category we call Shooties, which is a low kind of ankle, it looks like pump, just comes up a little up towards the ankle. And in pumps both, and tailored dress shoes that all three of those categories are performing very well, and that has actually extended into November. The women’s dress business is up mid single-digits for the month of November.

Chris Svezia

Okay. How many stores right now have the better women’s brands? I think before it was a 108 from a comp and something along those lines, just where do you stand there?

Cliff Sifford

It’s between a 140 and 150 stores. We started out with, if you remember 75, we added 25. And then as we added new stores we continue to add better brands to most of our new stores, and then over the course of the year a store here and there. So we’re between 140 and 150 stores.

Chris Svezia

Okay. All right. I’ll let someone else get on. All the best. Thanks guys.

Cliff Sifford

Thank you.

Operator

And we’ll go next to Jeff Stein with Northcoast Research.

Jeff Stein

Hey, guys, I have another question on gross margin. So Cliff, it sounds like your gross margins were pretty good in November, and I’m so struggling to understand why December and January is going to be tougher? Are you -- as you’ve moved into December now, are you becoming more aggressive on your promotions? Are you going to wait and react to see how competitors -- what competitors do with their pricing? So in other words, are you proactive or reactive?

Cliff Sifford

Little bit above, all right. We do have -- and I’m going to hesitate telling you when, but we do have an additional promotion planned over last year. So, in that particular case we are being reactive -- excuse me, proactive. And then we will be reactive if we see that especially the department stores if they get very promotional in the month of December win, and as you know with our concept we can react to that pretty quickly.

Jeff Stein

Have you see the -- I’m sure you’ve looked at the Black Friday Ads of your competitors. Based on what you’ve seen today and for those that perhaps started a little bit earlier before Cyber Monday, what's your feeling today versus where you were a couple of weeks ago with regard to the promotional environment?

Cliff Sifford

Jeff, first of all I don’t think the department stores were any more promotional this past Thursday, Friday than they have been in the years past. There was a new player in town, a very promotional department store. The one that has promotional last year, but the -- if I believe everything I read, business wasn’t that great for the department stores over Thursday and Friday, and in that regard they owned the product. So they’re going to have to get promotional on that product as they go through December.

Jeff Stein

And that’s providing of course that footwear was one of the underperforming categories. So you know …

Cliff Sifford

Exactly, and you know, they don’t call that out, Jeff. All I know is that, if I believe everything I read today, business was not good in those stores over the weekend.

Jeff Stein

If you were above a competitor on a particular item and a customer comes to you and says, Kohl’s is $10 cheaper, will you match Kohl’s?

Cliff Sifford

In the markets where we go against them we’ll match them, but not in the entire company.

Jeff Stein

Okay. Just a couple of questions on e-commerce. Can you tell me how you -- how do you determine which store in order is pulled from? And is there any concern that this could create issues as you get into a little bit deeper into the selling season having sufficient in-stock on key items, if you pull too much inventory from a particular store?

Cliff Sifford

The system looks at two things. First it looks at multiple things. But the first two things is, the stores -- how close the store is to the customer, so that we can -- once the shoe ships it gets to the consumer faster, that makes sense. And number two, it looks at the sell-through of the item in the store, and it will not take the shoe from a store with a high sell-through. So it’s always looking to take the product from stores that aren’t selling as well if that makes sense. So those are the first two criteria that the system looks at and there is multiple things as it, the iterations that it goes through, but those are the first two.

Jeff Stein

Okay. And final question, do you recall how many store days were lost due to bad weather last year? Because it seems to me that, yes, the plan is to be more promotional, but you also lost a considerable amount of selling days last year because of all the weather issues.

Cliff Sifford

There is -- I don’t -- do not recall exactly how many. It was significant however.

Jeff Stein

Is January a higher paying month than November?

Cliff Sifford

Sorry, I didn’t hear the question.

Jeff Stein

Is January a higher volume sales month normally than December?

Cliff Sifford

Oh, no. January is just the lowest volume month of the quarter.

Jeff Stein

Okay. Got it. Thank you very much.

Operator

And we’ll go next to Sam Poser with Sterne Agee.

Sam Poser

Good afternoon. A couple of things; can you give us -- you gave the comp for October up to 2.6. Could you give us August and September as well, please?

Cliff Sifford

We gave October comp only as a comparison so that you can understand what the national advertising was doing. Can I say this, Sam is that, the month -- the business got better every single month for the quarter; it increased a bit more, well that’s not true. September was the best month of the quarter.

Kerry Jackson

We’ve already given out all this to you when we released our Q2 information, we said we’re 0.8 and we’re up mid singles in September.

Cliff Sifford

Do we really care? I mean, I’ll tell you, we’re up 4.3 in the month of September.

Sam Poser

Thank you. That was complicated.

Cliff Sifford

It’s a lot more complicated than it needed to be Sam. Sorry.

Sam Poser

Well, all I did was ask the question. Anyway, I guess the question is your gross margin was down 70 basis points in Q4 last year with a lot of crazy stuff going on with weather and all. I mean, it sounds to be like a lot of what you’re talking about here is extremely defensive because it -- I mean, if I heard you correctly the business quarter to date is no more promotional than what you had originally anticipated going in. Is that a fair statement and basically your guidance’s maybe protective of that that it may not stay that way?

Cliff Sifford

That is correct. The November was no more promotional than years past, and we were not displeased with our margins in November. However again we’re not going to take any chances with December. December is a big month. It’s a five week month, it’s the holidays and we’re not going to take any chances and I would rather be -- I would rather air on the side of caution on December than tell you that margins are going to recover to last years to higher than last year, then be wrong.

Sam Poser

There is a lot of people that share that spent. I just want to follow-up on Jeff’s question about November and January. If you basically take out the -- if you take out Thanksgiving week, like on a week-by-week basis does January -- is January about the same as November if you just 86 out Thanksgiving? I mean because -- like on a weekly basis?

Cliff Sifford

Kerry is looking at that now.

Kerry Jackson

No, January is just a very small month. It gets very quite after the New Year, and it doesn’t compare to November.

Sam Poser

Even if you take out Thanksgiving?

Kerry Jackson

Even if you take out.

Sam Poser

I mean, even its like, if you took the first three weeks on a weekly basis and thought of January as the same thing, would it still be on a weekly basis smaller if you didn’t include that the big pop you get from the last two days of the month?

Kerry Jackson

I haven’t looked at it that way. I’m looking at it right now, see if that would compare. If you took out the entire last week, you would get much closer to the January number.

Sam Poser

That makes sense. And then about, I mean, about product. You talked about the boots. When you’re saying the fashion boots, I mean are you talking about over the calf kind things that are sort of more in the casual dress mode versus cold weather product and so on, so forth?

Cliff Sifford

Well, when I say fashion boots, I’m taking out work boots from that scenario.

Sam Poser

But would you include like Bearpaw in fashion boots?

Cliff Sifford

Yes, I would. I would include every boot we sell with the exception of work boots. Work boots are our year around category.

Sam Poser

So could you give us some idea within that boot business, what within that non-work boot business sort of what were the real highlights? You don’t have to be specific for brand, just any kind of fashion look that you might have taken the better advantage of the year ago and possibly the new competitors?

Cliff Sifford

Well, I’m not sure really how to answer that question. I can tell you -- I’ll tell you this that it was -- it started off with mid-shaft boots and low boots selling well early in the quarter and it progressed to high-shaft boots later in the quarter and into November. And that along with anything that was fur lined, worked as well.

Sam Poser

All right. And lastly, what drove the athletic business that you talked about that was pretty good?

Cliff Sifford

It is actually -- our running business was good. The fashion athletic businesses as you know and as others have reported, it is on fire plus we did have a pretty good quarter in running.

Sam Poser

Thank you very much guys.

Cliff Sifford

And in basket.

Sam Poser

And in basketball. Thank you. Thank you.

Cliff Sifford

Thank you.

Operator

[Operator Instructions] We’ll go next to Jill Nelson with Johnson Rice.

Jill Nelson

Good afternoon. A follow-up on the women’s non-athletic initiative; I think in the previous two quarters you had said that, that those stores with the new product had comp about 200 basis points above company averages. Is that kind of the trend you saw in the third quarter?

Cliff Sifford

You know Jill, the minute this conference call started I realized I don’t have that number. And I apologize for that. We should since we’ve talked about last two quarters, but we’ll look that up and get back to you on that.

Jill Nelson

Okay. And then just kind of related at your comments, I think you mentioned you’re seeing definitely that new better brand assortment as well as the national TV advertising is attracting a more affluent customer. Are you seeing even in more traction kind of gaining in third quarter? Just kind of relate those comments versus past previous quarters?

Cliff Sifford

Well, what we’re seeing is, is that in years past we have not been able to sell better branded boots. Well actually with New Years past, we haven’t really been able to sell better branded women’s product, and that changed last year when we started putting a product in and started marketing and prominently displaying that product in front of our store. This year we expanded that product selection into better branded boot assortment which to be perfectly honest with you, made me just a little bit nervous. But the sell-through on that product has been very good. So my only assumption on that and of course we’ve -- I can't quantify the fact that a more affluent customer coming in. We’re just -- it leads us to believe that that’s happening, that is because all of a sudden these all the better brands whether it’s in casuals or dress or now inclusive of boots are selling through at really good rates.

Jill Nelson

Okay. And then just a comment, I think you mentioned taking some impairment charges during the quarter for some additional closed stores or something of that nature. Could you -- was that material on a numbers basis?

Kerry Jackson

Not on a year-over-year basis. Total impairment charges and fixed asset write-offs were about 700,000 this year compared to about 500,000 in the prior Q3, so increased about 200,000.

Jill Nelson

Okay. And then just last one, you’ve been very lean on the inventory management and what not. Could you talk about kind of how do you look? It seems as though boot inventory likely up kind of where the categories, that are down pretty significantly year-over-year.

Cliff Sifford

No, boots are up, you called that correctly. We’re down in some of the casual categories as you can imagine when I call out the fact that we have some categories that aren’t working and most of those categories like boat shoes we are down significantly over last year. So, basically what we’ve done is we’ve taken a look at our business and then on every -- it’s really not -- it’s not hard, and the categories that are underperforming we brought the inventory down significantly. The big deal here Jill is the fact that we are rightsizing the inventory based on store volume. We talk a lot about the fact that we average -- used to talk a lot about the fact that we averaged 32,000 pair per store, and today we average somewhere between 27,000 and 28,000 pair per store. And the reduction is all coming out of small volume stores, and it allows old stores that actually -- they don’t have to clear through as much product and therefore we should be able to get margins on a long-term basis up in those stores.

Jill Nelson

Okay. Thanks so much.

Cliff Sifford

Thank you.

Operator

And we’ll take a follow-up question from Jeff Stein, Northcoast Research.

Jeff Stein

Hey, Cliff I’m wondering if you could -- I know you don’t disclose your e-commerce sales, but can at least tell us what e-commerce is contributing to the comp store sales increase.

Cliff Sifford

Here’s what I’m prepared to tell you is that, we had obviously a comp store increase in e-commerce, but we also had a comp store increase in brick-and-mortar stores. So, it wasn’t -- this increase was not drive entirely by e-commerce.

Jeff Stein

Okay. What are your thoughts on advertising as we move into next year? Is that going to be a leverage point for you? Obviously you don’t take …

Cliff Sifford

We don’t plan on increasing the percent to sales that we generated this year in marketing, but we don’t plan on decreasing it either. We believe strategically Jeff, that this is a long-term strategic initiative that’s going to continue to get the Shoe Carnival name out there especially in the large markets that we have entered over the past several years where they don’t know us as well as customers know us in the mid-west.

Jeff Stein

Okay. And the final question is a real-estate question. Is the 20 to 25 stores you’re opening next year because that does represent a slow down from this year. Is that related to just being cautious about the environment? Or is it a lack of availability of suitable real-estate at the price you’re willing to pay?

Cliff Sifford

Jeff, it’s more about the former. We want to be cautious as we’re growing. We’ve opened some large markets in the past years. We want to continue to focus on backfilling those. If we wanted to continue to open large markets, we could accelerate that growth, but I’m not sure that would help our profitability. So what we want to do is focus on the markets Detroit to Miami, the Buffalo areas that we have opened up. We opened Philly as a new market, which would be a big part of our expansion for next year, but we’re going to be careful about not over extending our self.

Jeff Stein

So, Philadelphia will be new for next year?

Cliff Sifford

It is. We opened our first stores in Philly this quarter. However the bulk of the store openings will come next year, the market entry.

Jeff Stein

Got it. Okay, and as far as circulars are concerned. You mentioned that you are adding the circular in the fourth quarter. So other than that, is your media spend pretty much expected to be flat as a percent of sales. I know TV is going to be kind of a headwind to 15 to 20 basis points for the year, but I’m just trying to understand what we’re looking at in the fourth quarter on a combined basis for your marketing spend as a percent.

Cliff Sifford

I want to be real clear on that. We’re not adding a circular for the fourth quarter. We are adding a promotion. We have been proactive in adding a promotion, but that’s not an insert. So, and as far as next year is concerned, we’ll keep pretty much the same promotional cadence that we had this year.

Jeff Stein

Got it. And Cliff, it’s the additional promotion, can you tell us anything about it? Is it an in-store promotion? Is it an online promotion?

Cliff Sifford

Jeff, unfortunately part of this call is, either the transcripts are read by my competitors or listened to by my competitors. So, I just should not talk about what it is.

Jeff Stein

Okay. Thank you.

Operator

And with no further questions in queue. I would like to turn the call back to Mr. Sifford for closing remarks.

Cliff Sifford

We want to thank you guys for joining us today, and we look forward to talking about our fourth quarter results in March. Thank you so much.

Operator

This concludes today's call. Have a wonderful day.

Cliff Sifford

Thank you.

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