Welcome to Shoe Carnival’s second quarter earnings conference call. (Operator Instructions) 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 materially differ 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 will now turn the call over to Mark Lemond, President and Chief Executive Officer of Shoe Carnival for opening comments.

Joining me on the call this afternoon is Kerry Jackson, our Chief Financial Officer, Cliff Sifford, Executive Vice President and General Merchandise Manager, and Tim Baker, Executive Vice President of Store Operations. The second quarter found us again challenged by the slowdown in consumer spending. We believe the economic stimulus program helped to mitigate our year-over-year decline and comparable store traffic during June and early July. However as the influx of this additional disposable income tapered off, the consumer once again retreated to a very conservative shopping pattern in the last two weeks of July. We’re seeing a better trend in August for stores where schools have reconvened but it is obvious that the back-to-school shopper is waiting as long as possible even shopping after schools go back. As we have stated before, one of our initiatives for 2008 has been to increase the net realized price on our footwear sales. During the second quarter we were able to achieve a nice year-over-year increase particularly within our adult and children’s athletic categories. And despite the declines in traffic this price increase enabled us to generate positive comparable store sales of athletic footwear for the second quarter in a row. Our second quarter performance reflected the same strong inventory management and effective expense control we demonstrated in the first quarter of 2008. Our merchants reduced year-over-year inventory on a per-store basis by approximately 7% and actually improved merchandise margins over the prior year. Despite a 1% decrease in comparable store sales we were able to leverage our selling, general and administrative expenses by 20 basis points. Three primary factors played into the dollar increase in SG&A costs. Number one, the incremental expense of operating 19 additional stores during the quarter versus last year. Number two, a substantial increase in healthcare costs…

Let me begin by discussing the results for the second quarter and the first six months followed by information on cash flows and ending with certain expected Q3 financial metrics. Our net sales for the second quarter increased $3.7 million to $158.5 million compared to $154.8 million for the second quarter of 2007. Our same-store sales declined 1% for the second quarter. Gross margins for the second quarter of 2008 increased 0.6% to 26.6% over the same period last year. As a percentage of sales the merchandise margin increased 0.9% while buying, distribution and occupancy costs increased 0.3%. Last year we took most of our aggressive markdowns on spring and summer merchandise during the second quarter resulting in a 1.5% decline in our merchandise margin in Q2 last year. This year our markdowns were more balanced between first and second quarters resulting in a 0.9% improvement in our merchandise margins in Q2 this year. The 0.3% increase in buying, distribution and occupancy costs was all attributable to the deleveraging of our occupancy costs. Due to tight expense controls during the second quarter this year selling, general and administrative expenses only increased $543,000 to $40.7 million. As a percentage of sales we decreased our SG&A expense by 0.2% to 25.7% for the second quarter. Pre-opening costs in the second quarter were $406,000 compared with $268,000 in the second quarter last year. We opened 12 stores in the second quarter compared to opening six stores in the second quarter of 07. Store closing costs included in SG&A were $387,000 for the second quarter of fiscal 2008 as compared to $375,000 for the second quarter last year. The amounts recorded in the second quarter of fiscal 2008 include closing costs for stores to be closed in future quarters. The effective income tax rate…

As Mark mentioned and as expected we experienced a decline in customer traffic during the second quarter. Average unit retails were up as well as average transactions while conversion was flat. Total comparable store sales for the quarter were down 1%. The decline for the quarter came primarily from our women’s non-athletic department where the lack of fashion drivers contributed to a continuing lackluster season. Our men’s non-athletic department ended the quarter flat on a comparable basis while the children’s and adult athletics all enjoyed low single-digit increases. As we reported on the last conference call we continue to see positive results out of our athletic business. These increases have been driven by a performance product which is continuing to play a larger part of our overall athletic business. This category has been instrumental in helping us to achieve higher average unit retails in all athletic categories. In addition to a performance product we also experienced sales gains from Converse Chuck’s, girls’ Low Profile, and boys’ Skate. Overall inventories ended the quarter down 7% on a per door basis. Our plan over the next year is to run our business with less inventory on a quarterly basis while selling product at a higher average unit retail. In an uncertain retail environment this strategy will allow us to maximize our gross margins. We experienced this for the second quarter with merchandise margins for the quarter showing a 90 basis point improvement. All departments showed improvement with the exception of our women’s non-athletic where we continue to aggressively sell through the remains of our spring season clearance. And now for a brief update on back-to-school. We have definitely seen a continuation of the customer shopping very close to need. In many cases individual stores’ back-to-school sales peaks have not occurred until just…

(Operator Instructions) Our first question comes from Christopher Svezia - Susquehanna Financial Group.

First of all Mark if you could just quantify maybe what the impact was from the tax rebates during the quarter? You mentioned it did benefit you during June and July. Could you just maybe quantify what that impact was and was that meaningful?

From a sales standpoint, no I can’t. But we saw traffic that was in the high single digit declines in the first part of the quarter turn into traffic declines that were low single digits, even break-even for a couple of weeks really until the last two weeks of July and like most people saw traffic turn way off in the last two weeks of July. So I think in June and the early part of July it really resulted in traffic counts that were a whole lot better than May; significantly better than May.

On the SG&A costs you guys have done a tremendous job so far in the first half and I know Kerry you had talked about third quarter seeing an increase in SG&A dollars year-over-year. I guess just maybe talk about what the driver to that increase is. Why during the third quarter? Are you doing something different from a marketing perspective or is it just switches in terms of what happened in the first half to the second half? Why don’t you maybe just quantify what’s happening there during the third quarter.

In the first two quarters we controlled a lot of expenses but one of the big things that we could affect was rationalizing our advertising a little bit and making what we thought were more prudent buys in the first half. Now given that, we have such an important period in the third quarter for back-to-school and in the start of fall season we have not reduced our advertising expense near to the extent we did in the other two quarters prior. We felt we need to be out there advertising. So that’s why we’re not seeing as big a reduction on a year-over-year basis. We will continue to control those other costs though.

Let me add one thing. We expect to open about nine stores in the third quarter so with the additional stores that we’re going to be operating, which are significant, selling costs at store level are inherently going to go up. So that’s probably a bigger piece of it than any kind of reduction in advertising.

That’s fair. You guys have been opening up stores pretty nicely. In the second quarter I know you opened up a lot of stores and it was relatively flat; I mean it was up slightly in terms of dollars but you did a nice job there.

Well the more stores we open the more costs we’re going to incur just inherently.

Sure. And you’ve done a great job on the inventories. You look like you’re in great shape here going into the third quarter. I guess you guys are talking about maybe seeing a flat merchandise margin. I know during the third quarter last year you were much cleaner relative to the second quarter. I guess that’s certainly part of it to some degree, but are you also getting a sense that potentially the environment could become more promotional if traffic continues maybe to deteriorate or what are your major concerns as you look to the third quarter given how well the merchandise margin has improved so far?

Well there’s no question that the back-to-school period has been more promotional and when I say promotional we look at our competitors ads and what competitors are doing with discounts and coupons and so forth. It has become more promotional we think than back-to-school last year. We’re still putting upward pressure on price points meaning our net realized prices out the door and we expect to continue that upward pressure. Everybody in the industry has been incurring cost increases out of China so what we’re hoping is that competitors are fairly rational about pushing those cost increases through. But like I said, we will be as promotional as we need to be to maintain our market share. We think that as we get through back-to-school and more deeply into the third and fourth quarters that the promotional activity may die down a little bit, but again we’re prepared with our cost structure to be as promotional as we need to be.

And Cliff for you, obviously the athletic piece continues to do very nicely for you guys obviously driven by the type of product that you’re getting and the price points. You mentioned the Low Profile trend and I’m just curious, has that started to come back a little bit or is it just strictly focused in terms of the junior category or the girls’ category in terms of where you’re seeing that strength again?

For the second quarter we were not happy with the performance of our Low Profile product especially outside of the athletic business. You have to almost answer it two ways. We have Low Profile that’s in our athletic business from Puma and from several other vendors and that product has performed well. And then in our non-athletic business we have low profile and that product has not performed as well through the second quarter. Now when we got into the back-to-school season, low profile picked back up and we’ve been very happy through the month of August with the sale of low profile both athletic and non-athletic.

Does Skechers play a part? I know it’s classified in two different, both athletic I guess and non-athletic depending on what it is. Is Skechers a part of that?

Well it depends upon which brand you’re speaking of. Skechers is part of our non-athletic low profile but then you’ve got Ronno Red which also has a low profile product that is classified within the athletic environment.

Our next question comes from Jeffery Stein - Soleil-Stein Research LLC.

Kerry, I was wondering if you could talk a little bit about your expected SG&A trend in the fourth quarter. Do you see it above or below the year-on-year trend that you’re looking at in Q3?

I would think it would be closer to the increase we’re expecting to see in Q3 than we saw of the increases in Q1 or Q2. And primarily, like Mark was saying, we will have opened all of our new stores at that point in time so we’ll have the full effect of those costs that we’re going to have to hold onto, though I think that we’ll see it similar to a 3% to 4% increase on a year-over-year basis in Q4.

With respect to cost of goods, can you talk about on like product how much your product costs are up on a year-on-year basis?

For the back-to-school time period our cost is up right at 5%.

As you move into spring of 2009 Cliff, do you see that accelerating even more?

Slightly. I think that as we go through the rest of the fall time period it’s going to be up somewhere around 6% to 7%. I’ve talked to the vendors about this. Really I think once the Olympics are over we’re going to get a clear sense of what’s going to happen for spring. When factories get back to work and everything settles back down we’ll have a clearer picture. We at this point don’t have all our costs in for spring so it’s very difficult for me to answer that right now.

You plan your inventories down about $10 million for the year and thoroughly you’re funding your athletic business right now and that’s strong. Once back-to-school ends and the athletic category subsides, what are the categories that you’re really going to be funding the most or focusing on the most for fall?

Obviously the funding will shift into the women’s area. We feel that we’re going to have a good boot season and some of the early results on fur-lined boots and casual boots are beginning to prove that out. Obviously it’s really, really early so we won’t see real results of that until October. But we think we’re going to have a good boot season. The other thing that’s happening right now too is that we’re seeing an uptick in our women’s dress business. Part of the issue with our women’s business over the past year to 14 months has been the dress category. It’s really been down-trending and over the past few weeks we’ve seen a nice uptick particularly in the junior dress business. So we’ll be funding that business as well. And I think that we’ll continue to fund our men’s business which over the past year has actually performed fairly well. So again we won’t know answers to whether this women’s business is going to turn for us until the weather turns cooler, but we do feel real strong about the women’s dress business and the women’s boot business.

This goes back to Kerry. In your fourth quarter last year you guys did not have a very good sales quarter and your margins were down over half a point, and I’m wondering based upon the way you’re planning your inventories for the back half of the year and if you meet your internal sales plans, do you believe that you will be able to hold your merchandise margins about flat in the fourth quarter as well?

I’d hate to start speculating on Q4 right now. We’re taking it one quarter at a time. We need to see how the people are going to respond to fall product. We’ve got the preliminary reads on back-to-school which Cliff talked about but I think right now I’d rather not try to comment or guestimate what that margin might be. It would really depend on how well we can execute that inventory strategy, how well we’re able to keep turning that fall non-athletic inventory right now, so I’m going to defer that until fourth quarter.

Have you guys been surprised at what you’ve seen on back-to-school so far?

I’d like to address that Jeff. We mentioned back in the first quarter when we saw our athletic business begin to turn that it could bode well for back-to-school. So we geared up for that and we had the product and the advertising in place to have a comparable store gain for back-to-school. So I can’t tell you that we’ve been surprised.

Our next question comes from [Heather Boxin] - Sidoti & Company. [Heather Boxin] - Sidoti & Company: You talked about remodeling. I know several years back you did a remodel where you moved the women’s department in a lot of the stores to the front of the store. Is that what we’re talking about still or are we talking about bigger changes?

We’re in the process of updating a number of fixtures that we put in our stores and we’re in the process of updating a number of the in-store graphics and visuals that we put in the stores. So we’re really talking about primarily from a fixturing standpoint doing a better job with displaying our women’s product than we have in the past both at the store front as well as inside the store. So that’s primarily the changes that we’re talking about. We are currently analyzing what stores we want to remodel and when we remodel those older stores and update them with more current fixturing. We haven’t made any definitive conclusions yet about an extensive remodel program and I don’t expect to do so until partway through 2009. [Heather Boxin] - Sidoti & Company: But there’s not going to be any large-scale changes to the footprint, be it square footage of the stores or the layout of them in general?

No. In fact we’ve spent the last few years rationalizing the size of the store to the customer base. So we still expect to open between 8,000 and 12,000 square foot stores with that average provably falling right around the 10,000 square foot number.

Our next question comes from Jillian Caruthers - Johnson Rice & Company. Jillian Caruthers - Johnson Rice & Company: Could you possibly quantify the impact from Florida not holding a sales-tax holiday and if we look for that to be a material impact to comps for the third quarter?

This is not the first time that Florida has taken the tax-free holiday away. It did it once a couple years ago and what we found is that it only impacted the time period for the tax-free holiday. All that tax-free really does is consolidate the sale or bring sales into a tighter timeframe. So as schools go back there just like in any other state, that business should come back.

Let me add that we’ve already seen the impact in our numbers so far, so the less than 1% comp store decline that Cliff talked about earlier reflects the impact of not having Florida tax-free days already. The bigger issue I think in Florida is us like a lot of other retailers are not experiencing very good sales in Florida because of the economic conditions and the housing market and all the problems that we have down there. So I think that’s a bigger issue over the long term than the sales tax holiday. Jillian Caruthers - Johnson Rice & Company: And given the consumer’s spending less and you commented more kind of event driven, promotional driven, what are you doing for this back-to-school season? Are you holding more BOGO events or maybe talk a little bit about that?

Other than we’ve changed the creative for the way that we talk to our customer both electronically and from a print standpoint, we are not more promotional than we were last year. We felt we’d let the product do the talking and let the creative do the talking, and so far the customer seems to be responding. Jillian Caruthers - Johnson Rice & Company: You mentioned a change in the loyalty program. Is this providing you possibly more insights to how the customer shops or what categories and maybe to give you more tools to have direct mailings or direct communication with the customer?

We hope it does all of those. Like I said, it won’t be rolled out until later this year or the first part of 2009 to say that we have seen that is a misnomer because we haven’t even put the new program in place yet. Do we expect to see those kinds of things? Absolutely. But it’s primarily intended just to bolster our communication to our core consumer.

Our next question comes from Sam Poser - Sterne, Agee & Leach. Sam Poser - Sterne, Agee & Leach: Cliff could you talk a little bit about and give some more details on the athletic business and exactly what you’re seeing and if you think this is an overall trend or if this is an item driven situation?

Our women’s athletic business, I hate to talk about history but, started turning around in the first quarter of 08 and continues to be fairly strong. And that’s all performance driven, whether it be running or, mainly running, it’s all performance. In the second quarter our men’s business and our kids business turned on and again in our men’s business it was performance related especially performance running. And in kids it was Chucks and it was Skate and it was also performance running. So I can’t tell you that it’s item driven. It’s category driven whether it’s as I said before Chucks or running or performance related in general. One thing we have seen is that Skate in adults is not performing the way it did a year ago although Skate in kids is trending better than last year. Sam Poser - Sterne, Agee & Leach: What percent of the back-to-school business do you currently have in or what percent is still ahead of you?

We feel we have another 3.5 to 4 weeks to go. Back-to-school has been extended over the past couple of years to once the kid goes back, sees what’s going on, and then they come back in either the week of back-to-school or the week after back-to-school. So we think that back-to-school extends until the mid part of September. Sam Poser - Sterne, Agee & Leach: Would you expect acceleration in dollar sales going towards that?

I think I know where you’re going with that Sam. What we’ve seen is that the areas where schools go back, several days prior to the actual start date business takes off and it continues on for the next week or two in those stores. And we track our stores by back-to-school dates and we have proven that out. Sam Poser - Sterne, Agee & Leach: What percentage of your stores have gone back to school so far?

Roughly half. Sam Poser - Sterne, Agee & Leach: So you’re halfway in and half have gone.

We’re right at 60% of our schools back. Sam Poser - Sterne, Agee & Leach: If I can just back up one more time to athletic, how much of this running business is being driven by the better Nike allocations or the better Nike products?

Well obviously that’s the premier part of our performance running category but it’s not just Nike. I mean, Nike is a very important part and probably the most critical part but we’re getting great performance out of brands like ASICs, Saucony, and several others.

There appears to be no further questions at this time.

Just to close I want to reiterate that we are encouraged by the start of the back-to-school sales period but while not robust we are seeing a better trend than we saw in the second quarter. Like I mentioned before, it appears the consumer is waiting until the last possible minute to shop and they do seem to be driven by value. So consequently we will continue to tightly control expenses and tightly control inventory until this economy improves. Thank you for joining us and we look forward to talking to you next quarter.