Good afternoon, and welcome to Shoe Carnival's Fiscal Year 2015 Third Quarter Earnings Conference Call. 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 will now turn the call over to Mr. Cliff Sifford, President and Chief Executive Officer, Chief Merchandising Officer of Shoe Carnival, for opening remarks. Mr. Clifford [ph], you may begin.

Thank you, and welcome to Shoe Carnival's Third Quarter Fiscal 2015 Earnings Conference Call. Joining me on the call today is Kerry Jackson, Senior Executive Vice President, Chief Operating and Financial Officer. On today's call, I'll provide a brief overview of the company's third quarter performance and an update on our fiscal year guidance. Kerry will review the third quarter financial results and our guidance in more detail. Then we'll open the call to take your questions. We are happy to report a solid third quarter performance with our fifth consecutive quarter of positive comps. The quarter began very strong, and we were able to maintain good momentum, which led to a 6% comparable store sales gain for the quarter. This comparable store sales increase comes on top of a 2.3% increase for the same time period last year. As expected, our strong performance was driven primarily by robust athletic sales. However, we're also very pleased with our double-digit comparable store sales increase in the women's boot category. In addition, we benefited from a combination of higher conversion rates, average sales per transactions and units per transactions, which were offset by a low single-digit decline in traffic. We ended the quarter with inventory up approximately 0.3% on a per-store basis, in line with our expectations. As we discussed on our last earnings call, we were aided by a calendar shift that moved many of our early back-to-school dates and tax-free holidays into August this year from July of last year. This shift contributed approximately $7 million in sales to the third quarter from the second quarter. As a reminder, last year in the markets we serve, 13 states had tax-free holidays that were observed at the end of fiscal July. This year, 9 of those states shifted their tax-free holidays…

Thank you, Cliff. Third quarter net sales increased $15.0 million to $269.7 million as compared to the third quarter last year. The net sales increase was driven by sales of $7.3 million from the 26 new stores opened since the beginning of the third quarter of fiscal 2014 and a $14.2 million increase in comp store sales. This net sales increase is partially offset by a $6.5 million loss in sales from the 20 stores closed since the beginning of the third quarter of fiscal 2014. Our gross profit margin for the quarter was 30.1%, which was unchanged compared to third quarter last year. SG&A expenses increased $7.2 million in the third quarter of fiscal 2015 to $66.1 million. As a percentage of sales, these expenses increased to 24.5% compared to 23.1% in the third quarter of fiscal 2014. The majority of the SG&A expense increase was due to a $2.5 million increase in advertising in August of this year and a $2.4 million increase in equity compensation. As we mentioned on our call -- last earnings call, a shift in the back-to-school tax-free calendar resulted in sales and advertising expenses shifting out of the last week of the second quarter of last year and ended the first week of the third quarter this year. Focusing on equity compensation expense for a moment. In the third quarter of fiscal 2014, certain performance-based restricted stock grants were deemed not likely to vest, and as a result, this expense was reduced by $2.3 million in the third quarter last year. This reduction in equity compensation expense did not reoccur in the third quarter of fiscal 2015. Preopening costs included in both cost of sales and SG&A increased $59,000 in the third quarter of fiscal 2015 to $679,000. Total store closing and impairment…

[Operator Instructions] First question today comes from Jeff Stein with Northcoast Research.

First question for Kerry. In the third quarter, Kerry, I think -- in the second quarter conference call, I think you mentioned that you expected ad spending to be up $3.5 million, and I think you said today, it was up $2.5 million. So I'm wondering, did you reduce it as a result of the weaker trend that you saw? And are you planning to spend that money in the fourth quarter? Or how should we think about that $3.5 million versus the $2.5 million you actually spent?

Well, we were -- when I -- I believe what I referenced on the call was not as specific as what I referenced in this call. I was talking about the -- for the full quarter, we were going to be up closer to $3.5 million. We were up over $3 million, but $2.5 million of that came in August. But the majority of the increase for the quarter was going to be related to just August itself. I don't think our actual expenses for August by itself changed. It's just I may have -- I think I -- I stated it better to more clarify it that it's really with that shift into August, those advertising costs specific to the back-to-school shift.

Okay. So in other words, your ad spend ended up being exactly what you thought it would be.

Well, it's a little less than the $3.5 million, but it was close.

Okay. All right. And can you...

That will -- that won't affect the Q4 numbers, to answer your other question.

Okay. Terrific. And as far as your boot inventories, as a percent of your total inventories, what would boots account for? And then, one more question would be, can you refresh my memory in terms of how much the port slowdown cost you in the fourth quarter last year?

Well, we reported last year the port slowdown -- I think I'm right on this, Kerry. You may have to correct me on it. It was just over $300,000 in the fourth quarter.

I have to go back...

We need to go back and look at that, Jeff. But that's -- from memory, that's what I remember. Boot inventory is -- of the total, is that women's, men's and kids?

I'll get it.

We'll get that for you in just a second. I will tell you that boots account for roughly 25% of our total business in the fourth quarter. I'll give you the inventories on that. Just give us a moment.

Great. Okay. You can just answer that later and take the next question from the next guy in queue.

And next question comes from Eddie Plank with Jefferies.

Just wondering, can you remind us what -- could you just remind us what the comp cadence was in the fourth quarter of last year by month? It's a tough comp to last year, and I'm just wondering, since you're down a little in November, just trying to get a sense where that opportunity is.

Yes. I'll give you that answer, Eddie, but I want you to -- caution you that a lot of our fourth quarter comp last year was driven by the fact that we had really rough weather the year prior. And the weather played out much better for us last year from a comp perspective. If you remember, in 2013, we had hundreds of store close days in the fourth quarter. So we called that out in our fourth quarter conference call, but the way the earnings played out -- or excuse me, the way the comps played out in the fourth quarter last year, we were up mid-singles in November, high singles in December and low doubles in January.

Great. That's helpful. And then, Kerry, to confirm, did you say a slight increase in gross margin for the year or for the fourth quarter?

For the year. For the fourth quarter, the reduction in the -- the increase in the merchandise margin will be in excess of what we leverage our BD&Os, so we should see down -- slightly down gross profit margin in Q4, but on the year, it will be up because of the leveraging of the BD&O.

Got it. Okay. And then just real quick lastly, just any update on the better brands strategy, Cliff? I mean, kind of how it's playing out, the expectations -- or what the opportunity still is there?

Actually, I'm glad you asked that question, Ed. I probably ought to put that in my prepaid remarks every quarter, but we're still very pleased with the way better brands were working. Our comps in those stores are still running better than the comps in the stores that don't have the better brands, and our percent of women's business to the overall store has risen to about 27.5%. If you remember, over the next 3 to 4 years, we expect to get it to 30%, and we're well on our way to do that.

Next question comes from Jill Nelson with Johnson Rice.

Just a question. Could you talk about -- it looks like you have very strong boot numbers for third quarter that you saw quite a slowdown in November. If you can just maybe talk about it, given we really didn't have any cold weather in Q3, to know doubt just kind of that variance.

Jill, we -- there's a -- here's the way we look at it, Jill, whether it's right or wrong, I'm going to have to let you guys judge that, but we think that we had an incredible strong assortment of booties for second and third quarter and the customers reacted very favorable to that. And so -- as you get into November and then to the fourth quarter and weather from the year before affects you, then -- like as it did last year because November was a very cool month and -- as was December and January. And you don't comp that coolness. We beat the coolness, if you would, then it makes the cold-weather boots and the tall-shafted boots a little more difficult to sell. And that's the way we look at it. We think that the customer has voted yes. They like our boots. We had a very strong comp in October last year in boots, and we comped positive, I guess, to that this year, and the weather wasn't that cool. So we believe the customers have voted yes. They're just waiting now for the weather to get cool so that the cold weather, the fur-lined boots, all the boots that normally sell in the fourth quarter will cut the momentum.

I appreciate that commentary. And maybe, if you could just talk about November, Black Friday kind of weakened performance of athletic and your canvas category, how that performance held in.

So for the month, I'd rather give that to you by the month and not get specific about the Black Friday event itself. For the month, our athletic business continued to perform as did our canvas business. Though I'm -- we believe that -- we absolutely believe we're still on a athletic run and that, that will continue throughout the fourth quarter and into next year.

Okay. And then just lastly, if you could you give us an update on the ship-from-store capabilities. I believe you're at 250 stores looking to get to 350 stores at year-end. Just kind of the update there and just some of the efficiency you're seeing from that process.

We're now shipping from, I believe, every store in the company. In fact, except for the store that we're going to close at the end of the year, we're shipping product every store. Did that answer your question?

Yes, it did.

Next question comes from Sam Poser with Sterne Agee.

A couple things. Can you give us -- can you give us a breakdown of athletic between men's, women's and kids for the quarter?

I thought you would ask about boots, Sam. So I don't have that right now. Breakdown as far as comps or as the total?

No, as far as the comps go, I mean, where you're seeing the biggest growth within that nice comp you had in athletic?

Believe or not, it was fairly close. It was within 1%. We got double-digit growth out of our -- excuse me, out of our adult athletic with women's slightly outperforming men's. And we got very high single-digit growth out of our kids athletic.

Okay. I mean, I guess the question is, is how is your inventory year over -- like, your boot business in the quarter was up, but it clearly slowed down at the beginning of Q -- although, it slowed down at the beginning of Q4. So the question really is, is where are your -- is your boot inventory -- what part of your inventory is up that's making you take these price actions which led you, I guess, to lower the full year guidance a bit?

Well, the boot sales in the month of November were below our expectation. Any time you have a performance like that for a month as large as November, which happens to be the second-largest month of the quarter, then you need to react to that. We can't just sit by and hope that the weather comes. That's not a good strategy. Approximately -- and this will answer -- also answer Jeff's question from earlier, approximately 13% of our inventories in boots, which is not bad when you consider the fact that 25% of our business is done in boots for the fourth quarter. However, we do have categories that we feel we need to get a little more aggressive on, and we're going to do that.

Okay. And then, can you talk about some -- any of the brands that are driving things, especially in athletic and boots and other areas?

I could, but we don't really talk about brands, so I won't. Sam, you write often about the key brands, and the key brands that you recognized are our key brands as well.

Okay. And then what percent -- you mentioned that November is the second-largest month of the quarter, at least for boots. Could you give us in total, or maybe you can talk about last year, what -- like when you look at November, December, January, how -- what the percentages were by month as a percent of the total volume -- total revenue for the quarter?

Sam, November typically is about 1/3 of the sales for the quarter.

Right, and then like December is what, like 50%, and then you're left with the rest in January?

Yes. I know you break down each month, but December being a more important sales period, plus it's a 5-week period, it is significantly higher as a percent. And then January is kind of a quiet month. And that percent will drop below the November number, even though they're both a 4-week period.

And have you seen -- I guess the question is the -- let's ask it this way. The double-digit increase you had in athletic in the third quarter, has that continued with the same kind of velocity into Q4? And where you really...

Into Q4?

Yes.

Well, the athletic business was very strong for the month of November. I don't really want to give a percent over the phone. But I mean, I really don't want to give a percent, but let me just say it was up high singles.

Next question comes from Chris Svezia with Susquehanna Financial Group.

So I've got some boot questions, even though you probably took boot questions, but I will give some boot questions, if that's you want.

I'm glad to take them.

So boots last -- just remind us fourth quarter last year, boots comped up high 20s, something like that? What was the number again?

Yes. That is correct.

Okay. And basically, you're telling us that in November, it didn't hit your plan. That it turned negative in November, the boot category, women [ph]?

Yes. It did.

Okay. And so your expectation is for it in the fourth quarter to do mid-single -- low single-digit comp, mid-single -- I'm just curious, what you're expecting. I'm just trying to get an idea what kind of acceleration we need to see in the business.

Even with the loss we had in November, which I'm applying to weather because I really believe that is the case. I believe if the weather does cooperate, we should see mid- to high single-digit increases in the month of December and January. You've got to remember, we're not going to sit back and wait for the weather to get here. That's really not a good strategy. We have a plan in place to create increased interest in our boot category.

Okay. And to get to that level of comp for December, you -- that's factored -- to do those promotions that added promotional cadence is factored into that guidance to get there?

That is correct. That is correct.

Okay. And just of the boot composition, is it mostly at this point just the cold-weather product? I mean, you're not sitting out a lot of tall shafted, above-the-knee kind of fashionable inventory.

We planned our tall-shafted boot business down, and we're achieving that plan. So we were correct in planning our inventories down in that category because the customers have definitely shied away and going more towards booties and mid-calf boots. What's not working right now is anything that you would primarily wear in cold weather. We have high shafted or fur lined.

Okay. And then, just on your year-end inventories, where do you expect total year-end inventory to be? I think beforehand, you expected it to be down on a per-store base. That's still the thought process?

We expect it to be flat to slightly down.

Okay, okay. And then on athletic. I'm just -- your -- just overall perspective, canvas has been strong for some time. Running for your channel has been strong. The fashion athletic running piece has been strong. Just put your hat on for a second. As you start to think about early next year and what could drive still the athletic business. Those still primarily in categories?

Chris, I get the privilege -- carl lets me go to some of the pre-lines. And I've been through pre-lines of all the key athletic brands. And I'm just going to tell you -- I'm just going to tell you, I don't see a slowdown coming. I think the product as we go on to spring '16 is stronger than the product we have in our stores today that are driving the kind of comp that we just talked about. I see this is as a continuing trend until you see an apparel trend. Now we were at Magic in August, and we felt like the -- we might start seeing a shift in denim, wide-leg denim, but I have not seen that yet.

Okay. And the pricing. When you talk about the product, looks better from a pricing perspective. Is that fair to say that goes incrementally higher as well?

That's another good question. Our top brand continues to get us better product. So therefore, you'll see increasing AURs there. And we continue to buy better product from our other brands as well. So I think you'll see low single-digit AUR increases.

Okay. Final question, Kerry, for you. SG&A, as we think about the incentive comp, though, that trued up a little bit here. As we think about it -- I know you don't want to give the guides for next year. But does that sort of level it out a bit for next year now that it's gone down, now it's kind of gone back up again? I'm just sort of curious how we think about that, that bucket?

Our thought process would be is that if we have accelerating earnings as a -- EPS as a percent over the prior year, our equity -- our compensation will go up. Our incentive compensation -- equity compensation will be relatively flat between the period. You'll see some incremental increase. Most likely every year, you'll see incremental increases but no dramatic changes like what we're seeing this year versus last.

And we'll take another question from Jeff Stein with Northcoast Research.

Yes. Cliff, it's Cyber Monday, and I've been trying to get on your site all day, and it says it's down for maintenance. Is that a problem on my end? Or has there been a problem on your end?

No. It's been an off-and-on problem on our end. For much of the day, the traffic on our site is overwhelming our servers. So we are currently up and have been since I've been -- we've been on the call. We have had occasional outages as you go on any day where you have a big volume day like today.

Okay. All right. But nothing that should extend beyond today, assuming.

No. No.

Okay. And how about can you bring us up-to-date on what's going in Texas? I think in the second quarter, you mentioned that your sales in Texas had held up pretty well. How about Q3? Is that still the case?

Our Texas stores are still holding up pretty well. We are experiencing issues on the border and both the northern border and the southern border, actually. And I think that's something other people have spoken to as well. But in a few of our cities where they are dependent upon oil, we've seen some issues. But overall, our Texas business remains okay.

Great. Glad to hear. And then finally, I know your small-market stores haven't been open very long. But any surprises, any early takeaways from what you're seeing there besides the fact that it seems to be doing better than planned?

No, not yet. We're watching those stores very, very closely, and we are excited about it. I'm trying to contain myself on it because I think that we have a tremendous opportunity based on the early results.

Are you seeing -- I cover another company that operates in relatively small markets. And one of the advantages that they have found, besides being kind of the only guys in town, is that their lease expense is quite low. And I'm wondering, if you could kind of give us some guidelines in terms of what you're paying on a per square foot basis compared to your larger market stores?

No, I really can't do that. No, no, no. I really can't do that. I will tell you that the advantage of operating in a small market for us, not only is the lease opportunity is attractive, but the fact that we're so well known in the Midwest, in the Southwest. And we open up the store, we don't -- there's no -- there's no period where you're trying to make the customer understand who we are. They know who we are immediately. And it's a very positive thing. Jeff, are you still there?

He is still connected, sir.

Okay.

Jeff, let me follow up on your question that we answered earlier about what Q4 effect on the additional strike or slow port cost. In the fourth quarter, we said that it was a $0.03 effect. So that's just to clarify what your question was from earlier.

And we'll go ahead and move to our next caller. [Operator Instructions] Our next caller is Steven Martin from Slater.

A couple questions. Kerry, on a ministerial level, can you give us the actual share count at the end of the quarter as opposed to the average?

Steve, I don't know that I have that with me. I just have the averages.

Okay. When you look at the -- you closed a fair amount of stores this year. In the aggregate, did those stores lose money, break even or make money?

Lost money.

Okay. Is it something that will be meaningful when we get into '16 as an increase in earnings? Or is it sort of marginal?

It's good -- the way this works is that when a store closes, typically, you're losing money. But like we've talked about before, next year, we're going to have additional store closings. Those stores will have store closing costs associated with them, impairments. So we actually are probably not going to see ourselves get clear of these cumulative store closing costs until sometime in '17 and '18, we'll start to see those costs diminish. They're not going to increase from what we had in '15 in future years, but they're not going to see a material decrease until possibly '17 or '18.

Okay. And that leads into my next question, which was, when you look out to 2016 now, what do you think you're open, close numbers are going to look like?

Right now, we're looking at opening 20 to 25 stores. And we'll have store closings sooner to what we're seeing this year. And we're still looking at some of the stores and how many were closed, how many are really low, et cetera. So rather than give you a specific number, we're just going to give you a guideline there.

Okay. Have you -- with respect to the slowdown in sales, albeit weather-related, two questions on inventory in the fourth quarter. Have you canceled orders that were pending for the fourth quarter? And last year's port strikes slowed receipts in the fourth quarter and into the first quarter. So do you have an opportunity in, let's say, the January through April period where you were missing product last year and you may not be missing it this year?

Actually, the port slowdown last year hurt us more as we entered into the fourth quarter than it did as we entered into the first quarter. So they were pretty much back at work by the time we got into the first quarter. So I don't see that as a tremendous opportunity. I do, however, think that there is a opportunity in the fourth quarter, especially in athletic because we're having a very steady flow of athletic as we move through this quarter.

Okay. And the order cancelation?

And from a cancelation standpoint, Steve, we always react at the downturn to business with canceling orders. That's always up to the newer [ph] communities, especially if they're ready to -- sitting on the dock, ready to ship. But we have canceled orders throughout the season.

Okay. With respect to e-commerce, when do you expect to be able to ship from third party?

We're looking to do that. Right now, it's on our agenda, but it's not on the forefront of the agenda. And we will probably start building that capability by the end of next year for launch in '17. We just believe that ship-to-store, ship-to-store and pick-up-in-store is a big, big opportunity now, and that's where we're putting our emphasis.

Okay. And now that you've had sort of a full year of the national advertising program, can you give us -- or almost a full year, can you talk about sort of what you've learned, preliminary conclusions, things you thought would happen that didn't?

Well, we run -- we have an agency that does research for us after every run of TV. And what we've seen is that our aided and nonaided recognition for our name is going up, and not just up but up in a positive way. It's very hard, Steve, to quantify how TV affects a customer. You're not collecting coupons. You're not telling the customer to missing the ad when they come in. It's just very hard to quantify exactly what TV is doing for us. So we have to do this research. And so far, we're finding that, that the customers are reacting positively and that our name is getting to be better known. And we're known for exactly what we want to be known for. We're known for brands. We're known for fun and exciting shopping experience. And those are the thing that you want to be known. And the research we're doing compares us to -- not only looks at Shoe Carnival but looks at all our competitors, whether they be direct competitors or [indiscernible] competitors. But we're pleased with what we're seeing.

Okay. One last one. When you look out at your store openings in 2016, are there new markets in there that we don't know about? Or do you expect them all or most to be in existing markets?

We're going to take the current footprint, and we'll grow within that footprint. We're not going to open any additional large markets until we complete with the large markets or at least further along with the large markets we've opened over the past couple years. As you know, we went into Dallas about 4 years ago, Detroit, Miami, Philadelphia and Buffalo. And we need to make sure that we are back-building those markets before we start taking on the expense and advertising in the new large market.

And it appears there are no further questions in queue. I'd like to turn the conference back over to today's speakers for closing remarks.

Okay. I want to thank you for joining us today. And we look forward to discussing our full year results with you in March. I hope everyone here has a terrific holiday season.

And ladies and gentlemen, that does conclude today's conference. We thank you for your participation. You may now disconnect. Have a great rest of your day.