Good day, and welcome to the Genesco Second Quarter Fiscal Year 2013 Conference Call. Just as a reminder, today's call is being recorded. Participants in the call expect to make forward-looking statements. They reflect the participants' expectations as of today, but actual results could be different. Genesco refers you to this morning's earning release and to the company's SEC filings, including the most recent 10-Q filing, for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made during the call today. Participants also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial measures referred to in the prepared remarks are reconciled to their GAAP counterparts in the attachments to this morning's press release and in schedules available on the company's homepage under Investor Relations. I would now like to turn the call over to Mr. Bob Dennis, Chairman, President and Chief Executive Officer. Please go ahead, sir.

Good morning, and thank you for being with us today. With me today is Jim Gulmi, our Chief Financial Officer. As a reminder, Jim's detailed review of the quarterly financials has been posted to our website, along with the press release from earlier this morning. I'll begin the call today with a few remarks about the second quarter and then I will turn the call over to Jim for a review of the numbers. Then I'll return to provide some color on our operating segments before we open the call up for your questions. Our results for the second quarter were ahead of the expectations, with adjusted earnings per share of $0.50 compared with $0.22 last year. This strong performance reflects solid expense leverage on a 4% comp gain which came on top of a 14% increase a year ago. We believe our Journeys and Lids merchandise was well positioned for Back-to-School, as evidenced by a 9% increase in overall August comps for Genesco. To be fair, the August comp reflects some favorable comparisons against Hurricane Irene which hurt sales for several days last year. But even taking that into account, our customer seems to want what we're offering for the fall, and results at Journeys and Schuh in particular were very strong even after accounting for the weather. And you're all familiar with the retail axiom that a strong Back-to-School usually means our merchandise mix is in good shape for holiday in our teen-focused businesses, with boots in our Journeys and Schuh businesses being the biggest difference in the seasonal assortment. While we are obviously pleased and encouraged by the strong start to the quarter, we are continuing to base our guidance for the balance of the year on more modest comp assumptions, given tough comparisons to a very strong second half last year and uncertainty in the economy. As we note in the press release, we have raised our full year guidance to a range of $4.88 to $5, up from the previous range of $4.70 to $4.82. Jim will cover our guidance in more detail in his part of the call. During the quarter, we were active in buying our stock, purchasing about 346,000 shares at a total cost of just under $21 million or about $60 per share. As you will have seen in the earnings release, our board has put in place a new repurchase authorization of $75 million which replaces the balance left on our old authorization. These recent purchases and the new repurchase authorization reflect our confidence in the strength of our business and in our prospects for growth, which I'll touch on later in the call. But first, I'll turn the call over to Jim for a brief review of our numbers.

Thank you, Bob. Much of the detailed financial information for the quarter has been posted online, so I will only be making a few brief comments. As Bob pointed out, second quarter overall performance exceeded our expectations. Comp sales were up 4% for the quarter. This compares with 14% comps in the second quarter of last year. The Journeys Group had a 6% comp increase on top of a 15% increase last year. Comps in both periods for the Journeys Group have been adjusted to reflect the integration of 133 Underground by Journeys stores. Comps for Schuh, our U.K. business, are now included in our total comp sales as of July 2012. Comps were 9% for Schuh for the month of July. The Lids group had a 2% comp increase on top of a 12% increase last year, and Johnston & Murphy had a 2% comp increase on top of a 17% increase last year in the second quarter. I remind you that these comp sales do not include our direct business, that is e-commerce and catalog sales. Genesco's overall direct business increased 29% in the quarter due in large part to the incremental addition of Schuh's e-commerce sales in the first part of the quarter. Excluding Schuh, direct sales increased 2% in the quarter. August same-store sales for Genesco overall increased 9% and direct sales increased 8% on a comparable basis. Consolidated net sales for the quarter were $544 million, an increase of 15% over last year. This includes sales of $81 million for the quarter from Schuh, which was acquired in June of last year. Schuh sales for the partial quarter, it was owned by Genesco last year, were $34 million. Excluding Schuh in both years, Genesco sales increased 6% in the second quarter. We earned $0.50 per…

Thanks, Jim. Turning now to a discussion of our individual businesses. A general theme for the quarter is that we're on the same track we've been on for some time and we continue to like the track we're on. Journeys remains the go-to source of footwear and accessories for the teen customer and has enjoyed another strong quarter driven by favorable fashion trends in teen footwear. ASPs in the Journeys stores were up 8% in the quarter, reflecting the cost increases from our suppliers we have been talking about for several quarters. ASP should be a positive factor in the third quarter as well since we anniversary most of the price increases in the fourth quarter. We are especially pleased with the continuing strong performance in Journeys Kidz and Shi by Journeys where comps were up 16% and 12%, respectively, for the first half. We have now converted 127 former Underground Station locations into Underground by Journeys stores, and the plan to re-merchandise these stores fully in time for the holiday selling season is proceeding on schedule. As we mentioned, Journeys assortment really resonated with teens for Back-to-School. August comps for the Journeys Group were up 11%. Turning to Schuh. Despite a challenging economic environment in the U.K. markets, the business has continued to perform above expectations, driven by essentially the same fashion trends that Journeys has seen. Schuh's August comps were up 14% following a very strong August last year. As we have said before, one of the benefits of the economic slowdown in the U.K. has been the increased availability of attractive retail locations. The Schuh team opened 4 new stores during the second quarter and remain on schedule to open a total of 17 stores this year. Now remember that the average Schuh store sales are roughly…

[Operator Instructions] And we'll take our first question from Scott Krasik with BB&T Capital Markets.

Bob, maybe help us understand your comment about Journeys that boots is the biggest seasonal difference. Are you implying that boots aren't a big portion of Q3 but are of Q4? Or are you saying that they've started out strong in Q3? I was confused.

I'm not going to -- no comments about trends. As you know, Scott, we don't comment on category trends, or on the mix or on the brands, for that matter. So what I'm really commenting about is, yes, the volumes for boots are much higher for us in the fourth quarter than in the third quarter. And as such, we get a bit of an early read in the third quarter, but the fourth quarter is what is important. Now that said, we're in the business, we offer a really broad assortment to the teenager. And so fashion keeps moving and what our merchants are really good at is moving it around, as necessary. Our record's pretty good at figuring out what we think the right mix is and reacting to the marketplace appropriately. But we're -- as I said, we're not going to comment on what our commitment is other than to say that boots, again, will be a significant part of our business.

Okay. No, that was a good clarification. Then if we look at August last year, your Journeys comp was 8, and then you reported a much stronger comp for the quarter. So is that Hurricane Irene or is there something else? Is that how we should view the order of magnitude for the hurricane? Or is there something else at play?

No, don't overplay the hurricane. It -- we're just calling it out because we know, in -- I think it was in the last week, we had more stores closed last year than we had this year, obviously. And I don't want to, like, make a big deal of weather. I mean, look, a hurricane is about to hit now, and so it goes up and down year-over-year. So the thing about the rest of the quarter, and we're conservative just because we're very pleased with August. But we look forward, and as we said, it's a choppy marketplace. And so back when there was a recession, Scott, you'll remember that the pattern for us and, I think, some other retailers was we did really well during periods where people had a real reason to buy, like Back-to-School. And we did well at holiday. And the softer periods for us were those sort of troughs in between event buying periods. So we're very alert to that. Now with that said, Back-to-School for us started pretty late and so we finished August with some pretty nice momentum. So lots of things going on. We're going to remain conservative, but we're buying to preserve some opportunity to get some upside.

Okay. And then just 2 quick ones. The 8 JAS, 3 LSU and 1 Texas Tech store, because just sort of the timing of when you buy them, do they move the needle for this year?

No. I mean, single stores don't move the needle. We're calling those out not as much to say anything moves the needle but to highlight the fact that we're consistently following the strategy to consolidate that space of broadly assorted licensed sport stores. And we're doing it, as we have said before, both through acquisition and through opening new properties.

Sure, okay. And then, Jim, I know you're not giving guidance for next year, but the $12 million in bonuses that we're excluding this year, is that a good number to think about for Schuh for next year?

Yes, that's a good number.

We'll take our next question from Mitch Kummetz with Robert W. Baird.

Jim, I'll start with you. It's kind of a question that was asked to you. So on your outlook for the back half, 2% to 3% comp, can you just give us a little help as how should we -- we should think about that maybe by quarter and then also by concept?

Okay. As we've said, we started on August pretty strong, and the month of August is an important month for us in the quarter. And so the beginning of the month, the beginning of the quarter certainly has an impact on the third quarter. So we're looking at around 4% in the third quarter and 1% to 2% in the fourth quarter for the overall company. And then if you look at the different segments of our business, Journeys is in the range of 5% to 6% in the third quarter, 1% to 2% in the fourth quarter. Schuh is in the range of 7% in the third quarter, 1% to 2% in the fourth quarter. Johnston & Murphy, 3% to 4% in the third quarter, around 2% in the fourth quarter. Lids is 1% to 2% in the third quarter and 1% to 2% in the low end of that in the fourth quarter. And as I said, around 4% for the third quarter, for total Genesco, and 1% to 2% for the fourth quarter.

Okay, that's helpful. It sounds like you were prepared for that question.

No. How would I be prepared?

And then, Bob, on the Journeys business, you mentioned that ASPs were up 8% in Q2. You said that you expect ASP to remain positive in Q3 and then you start to anniversary some price increases in the fourth quarter. So how -- I mean, how do you think -- I mean, at this point, as you look into the back half, I mean, are ASPs not quite as strong in Q3 as Q4? I guess it all depends on mix and how that plays out, but how do you see comp being driven in the fourth quarter as you start to anniversary these ASP increases?

Well, you said it right. It's hard for us to predict ASPs because mix has always been a major effect, and as you know, for many years, it brought ASPs down. And as we said, we anniversary the price increases, which started to roll in, in sort of October-ish and roll through the rest of the year, so that's why we're calling out the fact that we anticipate third quarter to still have an ASP increase. I'm not going to pin it down to being the same as the last quarter, but it should still be a factor. When we think about comp, we buy to a comp number in mind. We buy dollars, not units. We're not paying attention to ASPs because we're paying attention to an overall buy budget. And so the whole company, including the Journeys team, is being thoughtful about this economy and buying reasonably conservative. So now that said, and we've said this before, the Journeys team has the advantage, partly because of their size, to be able to buy a little north of what that plan might be and then adjust as necessary, if necessary, down the road. And they have a history of being able to make those adjustments through a range of techniques and working with our vendors. So we're -- you heard Jim's guidance: We're being conservative but we're preserving a little bit of the upside with our buying patterns.

Got it. Okay, that's helpful. And then maybe one last question for Jim. Jim, you mentioned in your comments that, on the SG&A leverage, rent was one area where you saw some good leverage. On a 2% to 3% comp over the balance of this year, how much opportunity do you see on the rent side in order to drive additional leverage in the back half of the year just kind of given where you've seen those rents go?

Well, we think that -- right now, we're looking at, based on the numbers we've thrown out, that we will be able to leverage rent in the third and fourth quarters. So the number still reflects continued leveraging of rent in the back half.

And our next question will come from Steve Marotta with CL King & Associates.

Are the early Back-to-School markets performing better in August than the chain averages, either for Journeys or Lids?

I'm not sure what you're asking, Steve.

Well, there are some markets that are Back-to-School earlier than others. A lot of the southern states and western states there are pockets of Back-to-School that really start kicking in, in the first and second week of August, for instance, which is earlier than what the nationwide average is. Have you looked at geographic differentials within the comp in August as it relates to those Back-to-School trends? And I'm just wondering if the early Back-to-School markets are performing better than the average, again either at Journeys or Lids or both.

Steve, that's really hard to tease apart. I don't have the numbers by region here. The thing that we noticed is that, in total, Back-to-School moved back a little. And we know that there were some parts of the country where it moved. Texas moved -- was the big one, it moved back a week, and so that moved the needle in that part of the country. But there's also a pattern, it's very hard to prove this, but -- and we didn't invent this idea, but we seem to see a little bit of it, of kids buying closer to need and, in some instances, even waiting with some of their budget until they get back to school so they can see what the other kids are wearing to get really confident on their purchases. So we saw a lot of shifting around at -- with sales moving later into the month. But there's a lot of different things going on in that pattern, and I don't have the regional differences here to help you out. Maybe later, Jim can give you some color on that.

That'd be cool. Do you think that Schuh benefited from the Olympics in the second quarter?

No. It's funny, the Olympics did -- surprised a lot of people in what it did in London. The mayor of London had repeatedly told everyone to stay home who live at London, and they did. Everyone was scared of the traffic. And so retail in London actually suffered because the Londoners stopped shopping even though there was some tourist -- additional tourist traffic related to the Olympics. So it was sort of a funny pattern and not quite what everyone had expected.

Okay. Lastly, what's the benefit, the net benefit of the 53rd week to EPS -- to, actually, sales and EPS?

On the EPS side, if memory serves me right, I'm looking for the number. I think it's around about $0.04, okay, a share. And on the sales side, I believe it's about $24 million.

[indiscernible]

$34 million? I'm sorry, $34 million.

We'll move on to Sam Poser with Sterne Agee.

Can you talk -- in your prior guidance, you hadn't had any accretion from the Underground Station consolidation. However, you did see a really nice pop in your EBIT on the combined entity versus last year. Can you tell us where you are there?

Well, the Underground Station consolidation is underway. And as we have called out in the past, Sam, it was not an expense play. So the consolidation of Underground didn't drive a reduction of expenses. So what we're looking for is -- the result we're looking for is a comp increase in Underground stores in excess of what cannibalization might occur in Journeys stores that are in the same mall.

And are you seeing that yet? I mean...

Well, it's early, Sam. We haven't even finished assorting the Underground stores. So we're tracking it, but it is way too early to come out and comment on how it all adds up. We're very pleased with how the Underground stores look. The landlords fully cooperated on the re-signing. The team upstairs did a terrific job working through the reorganization pretty seamlessly. So it's all systems go, but we'll have a lot more color on it on the next call, I would expect.

Yes, let me just add onto that one thing, one point. As you called out, the segment improvement at Journeys was considerable in the quarter, and certainly, Underground Station by Journeys contributed to that. But I would not in any way believe that most of it came from the improvement in Underground. It -- Journeys itself showed strong improvement in the quarter, Journeys by itself.

A few more things. The impact of the later Back-to-School versus the impact of the hurricane, what's more important to the current trend?

I would say, later Back-to-School is the more important part, Sam. There was a real late-August increase in -- now part of that was driven by Texas. But there -- all of the things I just spoke about in the earlier question, about a combination of later Back-to-Schools and just the buying patterns of kids possibly getting later so they have fashion assurance, there seems to be something going on that's moving sales for back in -- further back in the season. And so I'd say that's the more important thing to pay attention to.

And then lastly, I know you don't like to talk about specific trends. However, last year, you did see 80 stores in Southern California receive a brand that will go unmentioned, that I would assume helped drive some incremental sales in the fourth quarter of last year. Now you're lapping that, I mean, how much of that is adjusted into your Journeys business, on the lapping of that unnamed brand? Because that was incremental to how it definitely helped the fourth quarter of last year, I would assume.

Sam, we got a whole lot of different brands in our business. One brand in 80 stores doesn't move the needle enough. We've given the guidance for the low single-digit comp for the balance of the year and that's really the relevant thing to look at, at Journeys. And they will -- they were -- they will assort their way into a mix that they think works for that. Is that helpful to you?

Sort of, yes. And lastly -- well, sorry, one lastly again. Can we assume, I mean, for a lot of the other retailers, August equals about 40% of the third quarter sales. Is that a similar number for you?

It's in the ballpark, maybe a little lower, it's running at 37%, 38%, but in that range.

And then it would be -- September would be the next, given its 5-week month, and then October.

No, it's -- ours is different. We go 4, 4, 5. So actually, September is much lower, and then we pick up in the month of August -- October because it's 5 weeks.

October is your 5-week month, okay.

Right, yes. And also we have a little bit of wholesale business and so we have a lot of shipments for Back-to-School on the wholesale side of the business in October.

Christmas.

For Christmas, yes.

[Operator Instructions] We'll move on to Stephanie Wissink with Piper Jaffray.

Jim and Bob, it's striking to me how nicely you're leveraging your operating expenses. And I think Mitch asked about rent relief, but can you give us an update there? Are the negotiations continuing? And what are you forecasting, Jim, for the back half in terms of savings?

I'll give you just a color, and then maybe Jim can give you more specifics. The -- first of all, on rent, understand that a lot of the really low-hanging fruit has been plucked. And in many instances, in the malls that we regard as the most challenged malls in the U.S., we went on short lease terms and what we're finding is, in most of those, when we roll over that very short lease, we're preserving in general the reduction that we got. So for a lot of the malls that we jumped on in terms of opportunity, we're now preserving the position, that's the first point. That said, as you know, the other retailers continue to announce store closings, and so we're being very vigilant about the status of malls. We're making sure that relative to the covenants we have in our leases, that we're taking full opportunity of what comes our way with the restructurings in the mall. At the other end of the scheme, A malls are very healthy, A malls challenge us all the time. And so we've got that going on as well. So the net-net is, when we look at our ability to manage rent, it is still so much better than it was in the last decade but maybe not quite the reductions that we got in the last, say, 2 years. And I'll ask Jim to give you more color.

Stephanie, we're talking about rent here. There's also some other items in the back half that allow us to leverage a little because we do expect to get some leverage in the back half. But let's talk a minute about, as you said, rent. What we were saying about 4% comp in the third quarter and we expect to be able to get some leverage on rent in the third quarter as a result of that. And also, we should see some leveraging of our selling expenses and possibly some bonus accruals. In the fourth quarter, we're talking about 1% to 2% comp. We really are not getting much leverage in rent in the fourth quarter itself even though, for the back half, we do get a little leverage on rent. At 1% to 2% comp in the fourth quarter, it's going to be hard to leverage rent and so we won't get very much. Probably, flat right now is what we're looking at. But we find, for the 2 quarters, we do expect to get some leverage on rent. Now the selling expenses, we do expect to get some leverage in both quarters on selling expenses. So even with the lower comp in the fourth quarter, we do expect some leverage. And it won't be as much rent there as some of the other items, selling expenses and potentially bonus accruals.

Okay, that's really helpful. Bob, if you could just talk a little bit about your forecast for Lids, guiding the third quarter on a comp basis to a 1% to 2%. That's a little bit less than what I would have anticipated with what you're talking about on the NFL in the New Era product changes. So can you give us just some sense on the conservatism there?

Yes. There's 2 big things going on at Lids and the NFL is 1 of them. And then the other 1 is this whole trend in snapbacks, which for now, 1 year in the change, 1.5 years or so, has been a very, very strong trend for us. And as we said on the call, it's maturing. It's still a really, really hot category for us, but we can see the distribution pattern on it has broadened, not with our core vendor necessarily but others who are essentially imitating the trend. And so the result of that, and we've seen this happen before, is it'll start to mitigate a little bit of how hot it is for us. And that also is a pattern that usually starts to signal the end of a trend, and we're being cautious given that. But there's a couple of things. If you look back to -- the best parallel to that would be when trucker hats got crazy hot. And you'll remember a brand that I think you can even find in the market anymore called Von Dutch, which was the go-to brand. We were in that big, we were in that early. We did a huge business on it. Trucker hats got over-distributed, it started to fade and then eventually the kids moved on to the next thing. And we're good with that because we're in that pattern and our challenge is to look at what comes next. So and the other thing that we know is the kids who were trading in to snapback hats were trading out of other categories that we have. So our expectation is that they'll trade back in. So what we're looking at is, on the one hand, we like the position of the NFL, but on the other hand, we're going to stay cautious with respect to what's going on in that other sort of item-driven category and just making sure we're being careful about it. Last comment is on the snapback hat. The interesting about it, it's very -- merchants will shoot me for saying this, an easier category to manage because it's not sized, it's a one size fits all, almost by definition. And so first, that's what allows others to get into the category a little more easily. And at the end of the day, we prefer the businesses that are hard because our business model is built for that. Because it's an easier category, our inventory is very well under control. Our sales percent is much higher than our inventory percent. So we really have no exposure to worry about, on that basis. So long story, it's a mix of NFL and snapbacks that gets us to that feeling.

Okay. And then just a last question is if you look at Journeys business, how comfortable are you with your current inventory position and then your ability to chase into trends? Are you getting some support from your vendors in terms of kind of where we are in the footwear cycle?

Sure. The Journeys team, as I said, has a terrific history of being able to be a little more aggressive with their buys. And then should it not develop, the business not develop to that level, a combination of pushing out receipts, working on possibly some return to vendors, little markdown support. They went through this, whatever, 2 years ago for holiday wear. We were probably over-aggressive in our buy as we went into the recession. And when the team said, "We need to hit an inventory target by the end of holiday that's sensible for us. Let's figure out what we can do," they in fact overshot the mark. And so there's lots of opportunities for our team to find ways to work their inventory down. And that leaves us pretty confident that they can be a little more aggressive and still come out okay.

We'll take our next question from Jill Caruthers with Johnson Rice.

Could you address the $0.18 upside you saw in the second quarter that you forwarded to the annual guidance? Could you talk about the biggest variance there versus your internal plan?

I'm sorry, you cracked up a little bit. You -- can you try that again? And how are things down there?

Still have power, surprisingly, but we're doing okay. Sorry about the bad connection. Just wondering about the $0.18 upside versus your internal plan in the second quarter. What was the biggest, I guess, surprise for you versus your internal plan?

Yes, it really was sales were a little higher than we had anticipated, but we picked up a little bit in gross margin. Gross margin came a little bit better than we had anticipated. And then the biggest pickup was leverage. We leveraged more than we had anticipated. So it was mostly leverage but a little bit of gross margin and also some additional sales.

Okay. And then just last question, just a follow-up on the Lids question with a new NFL vendor products and whatnot. Could you remind us how big that category is for you at the Lids and Locker Room divisions? Appreciate that.

It's a business -- I'll give you the color. And I don't know if we have that number, but it's the -- it kicks in, in September in a bigger way and then it grows right through December. It gets bigger every month. That's our headwear experience. We're newer in the Locker Room business. And we're very fortunate to have the Jets as a partner, so we've got exposure there as well. So I don't know the total -- the percent to total. It just becomes a -- it's a very seasonal business and it's very important in those really 4 months. The hat business, it was probably somewhere high-single digits sneaking into low double digits, in that range. It's big but not -- it doesn't take over the store, and that's in hats.

We'll move on to Chris Svezia with Susquehanna Financial Group.

Just to go back to the prior question. When you talk about high single to low double digits in hats, is that just for that – that's just for that period of time, correct, in the fourth quarter?

Yes, it's for the -- we're talking about the third and fourth quarters.

Okay. And then, I guess, Bob, a question for you. When you think about how the NFL was assorted in hats last year, given Reebok getting out of the business, just how do you think about it this year in terms of how product is assorted? I mean if you're talking also pricing up 35%, how are you thinking about units as well? I know you don't plan to a unit number, but just some thoughts about assortments and maybe some thoughts about units as well in the back half.

Yes. We're -- consistent with what we do at Journeys, we're not going to show our whole hand on how we're playing out the category, but suffice to say that we're playing it up because, when you have a price increase of that amount, it's hard not to. And at the same time -- because we're expecting some elasticity of demand, it's -- if we end up taking price up by 1/3 and we get the same unit sales, we'll be delighted, but it's a little hard to bank on that. So we're not going for the whole amount, but we're certainly going up. Sorry, I just don't really feel like we should be more specific than that.

Okay, fair enough. And then just, Jim, a question for you. When you -- I think you made a comment about third quarter, and if I caught it correctly, you mentioned, looking at consensus, you thought it was too high. And I'm just curious, in what context, if you had any color? I mean, you talked about the ability to do a 4% comp. It seems like you'd still get some leverage in the business. I'm just kind of curious if you had any color about that thought process there?

We -- I think that we do expect to get some leverage in the business. And if you look at -- one way of looking at it is look at the -- on a comp basis, I think our increase last year in the third quarter was greater than our fourth quarter. And so I think the amount that we've got to increase this year, we just don't -- based on the number that are out there right now, based on the increase we saw last year, I just think it's a little weighted, the overall back half is a little weighted too heavily in the third quarter. We get most of our other -- get the sales increase, the benefits and the leverage in the fourth quarter. And we've got some additional expenses, increased expenses this year in the third quarter that we didn't have last year which is the contingent bonus accrual for the Schuh business, which will impact us in the third quarter. There's a bunch of things going on. And it's not a dramatic difference, but it just -- looking at the numbers, I just think you guys were a little high in the third quarter, when you factor all that in.

Okay, fair enough. And then last question I have is just on going back to the Lids business one last time here. Just when you look at the leveragability of that business at 2% comp, and I don't know the exact number but you got some nice leverage out of it, what -- I mean, is that -- how sustainable is that at a 2% comp? Or is there anything unusual going on? Maybe talk about anything that you're doing internal in terms of the business or processes that's driving better leverage out of the business at a 2% comp?

Well, I'll start and I'll hand it to Jim. Remember, we're also adding square footage. So leverage comes both at the store level -- comp leverages store expenses and central expenses, and then you've got square footage which leverages central expenses. So you think about our model, you've got a core machine: a core distribution center, you got a core group of buyers. And we're able to grow square footage at a rate higher than we have to grow that part of SG&A. So that's one point of leverage. Jim?

I -- it -- Chris, this is really nothing new for Lids in that -- I remember, when we bought them in 2004 and we were talking about the Lids team felt that they could leverage 2% to 3%, and it really has been consistent since then. We've always felt that. It's nothing different. Just based on their business model, the size of the stores, they seem to have the ability -- they have had the ability to comp in the 2% to 3% range. And certainly on -- even 2% or 2.5%, they've been able to comp. So it's nothing new, it's just a model and it's worked consistently.

Moving on to Robin Murchison with SunTrust.

Guys, when you -- Bob, this is for you. So when you look at the third quarter retail landscape, what gives you the confidence that it's just a late Back-to-School? It seems like we've heard that from everybody this quarter or at least on the second quarter calls. So first, is this just a slowdown or a more cautious Back-to-School? And I recognize, your quarter-to-date comp is pretty strong and it sounds like that you kind of only recently got there, but can you just comment on the environment?

T Yes. I think you just summarized it. We saw a growing Back-to-School over the course of the month. We were very pleased to see that. We think we're getting possibly more than our fair share, so to speak, sort of share of wallet because the footwear category is so important to the teenager right now. And so I'm not sure I understand the question. We -- August was strong, we finished with momentum. We're a little cautious about the rest of the way because this pattern we've seen in the past, when the retail landscape gets difficult, we do best in the event periods and we soften in the other periods, so we're alert to that but we're pretty pleased with our trend.

And we'll take a follow-up question from Scott Krasik with BB&T Capital Markets.

Just a couple quick ones. With the double-digit comp at Shi in the first half of year, how close are you to the achieving hurdle rates to really grow that business?

Closer, but not there yet.

Okay, like another couple quarters and we're there? Or there's just no goal this year [ph]?

Yes, there's a lot of factors to consider, Scott. It's what the comp is, can we sustain it. And we have to really think about what's getting us there and is that sustainable. So we're very excited about it, the team's doing a great job. We're delighted with the results, but we're not ready to commit to an expansion yet.

Okay. And then you called out the ASP lift starting in Q4 last year. Do you expect to return to declining ASPs? Or should they just flatten out from here? What are the puts and takes?

Well, there's a bunch of factors, right? So there's mix and there's absolute price. And the cost pressures in China haven't gone away completely, they've mitigated a whole lot. So we're expecting that, maybe not this year, but if you think longer term, there will continue to be some pressure on absolute prices which would flow through to the consumer, which would drive ASPs up. And then there's mix, and mix is the wildcard. And that just depends on what the kids choose to buy. Our ASPs, as you know, fluctuate a lot by quarter. They're higher in the fourth quarter because the boot business kicks in, but in terms of the change quarter-over-quarter, it's just been historically hard for us to predict. And as I've said before, we don't buy to that. We buy to what the kids want. And ASPs are derivative: We buy to a dollar number. So if we do business with more units or less units, the kids will tell us. We prefer higher ASPs operationally, it's an easier business to run for us, but we'll do what it takes to serve the customer.

How -- I know when you had soccer slides and flip-flops growing that, that really impacted you. How do the next few quarters look after we get through this boot period?

On ASPs?

For mix, yes.

Yes, again, we don't -- I mean, you -- people find this hard to believe: We don't do the math. I could. I guess we could back and look at the total buy plan if someone wanted to go through the effort and say what's the derivative ASP once you look at everything we bought in terms of units and what our target price is, but we don't go through that exercise.

I guess it's more a fashion question. Are you gearing more towards closed-toe, more expensive footwear? Or is open-toe, lower-price-point footwear the outlook?

And as you know, we're not going to comment on forward trends on how we're buying. Sorry.

And we'll move on to Stephanie Wissink with Piper Jaffray.

Just one follow-up on your long-term 2016 outlook, if you could just help us, Jim, think about the mix between gross margin and operating or operating expenses, how you're thinking about the relationship between those 2 margin items?

Yes. We've been pretty consistent in saying that in our 5-year plans that the opportunity for us is mostly in SG&A leverage. There could be some upside in the gross margin, but we feel our gross margins for each of our businesses are already pretty strong. So really, the opportunity is to leverage SG&A and that is the main driver getting us from 7% last year to the FY '16 operating margin of 9%, which has been the -- which has been -- a couple years ago, we were at 5.5%, 7% last year. And if you look at the numbers, the driver was leverage. And we expect to get leverage going forward.

And that looks like all the time that we have for questions. I will turn the conference back over to the speakers for any additional or closing remarks.

Appreciate you all joining us for our call and we'll see you in 3 months. Thank you, everybody.

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation. And have a great day.

Thank you.