Good day, and welcome to the Shoe Carnival's Fourth Quarter Fiscal 2016 Earnings Conference Call. Today's call is being recorded. It is also being broadcast via webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. Management's remarks 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. Forward-looking statements should be considered in conjunction with the discussion of risk factors included in the company's SEC filings and today's earnings press release. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only 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 discussed on today's conference call or contained in today's press release to reflect future events or developments. I would now like to turn the call over to Mr. Cliff Sifford, President and Chief Executive Officer of Shoe Carnival, for any opening comments. Mr. Sifford, you may begin.

Thank you, and welcome to Shoe Carnival's Fourth Quarter and Fiscal Year 2016 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 will provide a brief overview of annual operating highlights and our fourth quarter results as well as an overview of our fiscal year 2017 guidance. Kerry will review the financial results, and then we'll open up the call to take questions. During this call, we'll refer to certain non-GAAP financial measures, included -- including adjusted SG&A expenses, adjusted net income and adjusted diluted earnings per share. These non-GAAP financial measures exclude the impact of noncash impairment charges related to long-lived assets associated with 7 of our Puerto Rico stores. The non-GAAP financial measures are provided in addition to, and not as alternatives for, our reported results determined in accordance with GAAP. A reconciliation of our reported results determined in accordance with GAAP to the non-GAAP financial measures is included in the financial tables of our earnings release. Fiscal 2016 represented a significant corporate milestone for us. Our net sales exceeded $1 billion. I am very pleased with this accomplishment, which reflects the hard work and dedicated efforts of our store associates and corporate team. Over the last several years, we have benefited from the execution of our strategic initiatives, including our disciplined store approach strategy, our strong merchandising efforts as we deliver a compelling offering of branded, moderately priced family footwear, our multichannel sales capabilities, our expanded digital and national marketing presence and our extremely loyal and growing customer base. Our relentless focus on efficiently managing our business through both favorable and challenging operating environments has served us well. Today, we currently have stores in 35 states, and we believe the future…

Thanks, Cliff. And good afternoon, everyone. Fourth quarter net sales increased to $234.2 million compared to $233.7 million in the fourth quarter last year. The net sales increase was driven by sales of $5.0 million from the 21 new stores opened since the beginning of the fourth quarter of fiscal 2015. This net sales increase was partially offset by a $2.8 million decrease in comp store sales and a $1.7 million loss in sales from the 10 stores closed since the beginning of the fourth quarter of fiscal 2015. Our gross profit margin for the quarter was 27.5% compared to 29.2% in the fourth quarter of fiscal 2015. Due to promotional selling in Q4 and margin pressures from cost association -- associated with our multichannel business, our merchandise margin decreased 130 basis points and our buying, distribution and occupancy expenses as a percentage of sales increased 40 basis points due primarily to higher occupancy cost. As a reminder, we typically need a 2% to 3% comp increase to leverage our occupancy cost. Selling, general and administrative expenses for the fourth quarter of fiscal 2016 increased $4.2 million to $65.9 million or 28.1% of sales. SG&A in the fourth quarter of fiscal 2016 included noncash impairment charges of $3.6 million for 7 Puerto Rico stores. Excluding these noncash impairment charges, adjusted SG&A increased $668,000 to $62.4 million or 26.6% of net sales in the fourth quarter of fiscal 2016. In addition to the noncash impairment charges for our Puerto Rico stores, store closing and impairment charges included in both cost of sales and SG&A in Q4 this year were $1.0 million compared to $701,000 in Q4 last year. There were no noncash impairment charges of long-lived assets for our Puerto Rico stores in fiscal 2015. Preopening costs included in both cost…

[Operator Instructions] And we'll take our first question from Mitch Kummetz with B. Riley & Co.

Let's see, I think I've got 3 questions. Just kind of on the guidance. I guess, this is all for Kerry. So Kerry, you just mentioned on Q1 gross margin up a bit, SG&A up a bit. I mean, did those offset? Are you looking for kind of EBITDA margin to be flat year-over-year? And can you maybe speak a little bit to kind of what you're expecting on the gross margin side? Because I know that you have a reasonably easy comparison in terms of March margin. I think March margin was down like 90 bps last year in Q1. So I'm kind of curious how you're thinking about that.

We do expect our gross profit margin increase to be higher than the increase in our SG&A. However, we're not planning to have a full recovery of the loss of the gross profit margin that we sustained in Q1 last year.

Got it. Okay, that's helpful. And then on the year, I think you mentioned that merch margin was down 60 bps on the year. I know your guide on gross margin for 2017 is up 30. It sounds like the majority, if not all of that, is coming in terms of BDO leverage. How are you thinking about merch margin opportunity over the course of the year, particularly in Q4 where your merch margin was down 130 bps this past quarter?

What we're looking at is that we continue to have headwinds against our merchandise margin on our multichannel initiatives. We're expecting to see a significant increase continuing in our e-commerce and other multichannel initiatives. And with that comes the higher cost structure associated with that. So that's one reason you're seeing it not aggressively growing our gross profit margin on a year-over-year basis. We do expect to see the fourth quarter to be a higher rate -- one of the higher rates for the quarter -- for the year per quarter.

Got it. In terms of the improvement?

Right.

Okay. And then lastly, just really a housekeeping question. Is there a kind of underlying tax rate and share count assumption on the -- on earnings range for the year?

What we're looking at for tax rate is what we -- more of a historical rate, about 38.25%. And the fully diluted shares for the year, we're projecting to continue to do some buybacks and we expect those to be, with that taken into account, a little over 17 million shares outstanding on a diluted basis at the end of the year.

Our next question comes from Randy Konik with Jefferies Group.

I guess a question for Cliff. You gave us the statistics on the Shoe Perks loyalty program. I think you said 66% of sales and the purchase, I guess, total amount was about 19% higher than nonmembers. Any kind of data on the members' frequency of purchases versus kind of nonmembers in the system? I'm just kind of curious on if you're seeing kind of a lift in visits per quarter or something like that. And you mentioned the opportunity to increase engagement. Give us some kind of perspective on kind of strategies you're going to use to reach out to both -- I guess, to existing Shoe Perks members but also kind of strategies you're going to use to engage potential new members to drive new member sign-ups. Just curious there.

No problem, Randy. We have done a great job over the past 4 years of getting people to sign up for Shoe Perks. What we have not done a good job of is reengaging with those customers that may have dropped off or been inactive. So that is a focus of ours as we move through 2017, is to reengage with any of those customers that may not be as active as we want them to be. From a shopping standpoint, from a frequency standpoint, I don't have that number in front of me. I know that we measure that, the number of times a customer shops per quarter or within a year. And I apologize, I don't have that number with me today. However, we recognize that we have a wealth of data out there from not only from our Shoe Perks members, but from the -- from our e-commerce site as well. And our plan this year is to dig into that wealth of data and looking for customers that have not yet signed up for Shoe Perks. And that's how we expect to grow that program this year, not only in our store base, but -- at our brick-and-mortar base and online, but -- with the amount of data that we have throughout all our touch points. That's how we expect to get growth out of that. I hope that answer your question with the exception of one data point I didn't have.

Yes, it's helpful. And then maybe give us some perspective on -- you talked about early successes in the small and mid-market strategy relative to the traditional market strategy or stores markets. Can you give us some perspective on how you're thinking about margin by class of stores and how that may be different near term versus long term? Just trying to get some perspective on how we should be thinking about medium-term EBIT margin structure for the company.

Well, the best -- let me see if I can -- let's talk about the mid and the small quickly. We see -- we're not looking to expand right now outside of our current footprint, as I said in my prepared remarks. What we want to do is to take advantage of the customer that knows us so well in our current footprint. So that saves us from a marketing expense. You don't have to go into a large market and buy a local TV. So that saves from a marketing expense. We also don't plan, especially in our small markets, to be as promotional as we are in our larger markets. So we do look for margin expansion there. We don't give margin by segment or by store delineation, so I'm not -- I'm afraid I can't share much with you on that other than the fact that we expect our small market stores to drive a higher margin. And right now, I don't have enough history on our mid-market stores. In fact, we've just opened up our first one this past quarter. So we -- first couple, so you got to give you some more time on that. But the way we perform those stores was to run at a higher margin rate than our traditional stores.

Our next question comes from Alex Pham with Mizuho Securities.

I guess, first question, in the first quarter guidance assumption for comps of flat to up slightly, is that sort of an acceleration from -- or are we assuming acceleration from what you guys are seeing quarter to date? I'm just trying to get a feel for how you're thinking about the first quarter from a top line perspective.

Well, here, the first quarter is dependent upon 2 factors: when tax refunds come out, because our customer is driven -- it's almost like the second back-to-school for us when tax refund season hits, and Easter. And Easter moved 3 weeks later. So we've naturally expected for comps to accelerate later in the quarter than last year because of the shift of Easter.

Got it. That's helpful. And I guess, if we could touch on the athletic portion of the business for a second. It seems like it's been a real driver of growth for you guys. How are you guys planning the category for 2017? Do we think, as a -- from a penetration perspective, that it's going to grow as a percentage of sales? And is there a margin impact associated with that?

So the answer to your second question is we don't anticipate a margin impact to that. Right now, athletic is and has been for the last 3, maybe 4 years our hottest category. We have and we do look to athletic to grow at a higher rate than nonathletic. So it will, from a penetration standpoint, be a larger percentage of our business.

Got it. And what we're hearing in the athletic category, it seems like competition's really ramping up. Should we think of that as a potential benefit for Shoe Carnival as you kind of diversify from a brand perspective?

Competition heating up from a athletic perspective?

Yes.

Well, there are people that are expanding their -- some of our competitors are expanding their athletic product mix, and you're always concerned about anyone that sells athletic product. So I mean -- that competes with you. However, there's quite a few stores or companies that are not surviving, I hate to even say that, but -- which expands the opportunity for athletic as an entire business.

Got it. And then last question. In terms of the vendor drop-ship program, how big do you guys think that could be in terms of penetration in the assortment? And any color you guys can share in terms of the -- maybe financial impact in terms of margin benefit?

I think, again, to answer the second question first. I think margin benefit comes from not having to carry the merchandise, and the vendor takes a risk of the merchandise. So in that regard, I think that is helpful. To be perfectly honest with you, I'm not sure what the benefit from a top line sales standpoint is until we actually get this launched. We'll test it with a few vendors. I think it's going to -- personally, I believe it's going to be more important to us in the men's nonathletic area than any other area because they're the ones that keep stock on hand for fill-ins. So I really don't know if -- I listen to my friends in retail that have already done this. It could be a great benefit to us, but I would hate to quantify that for you today.

Our next question comes from David Mann with Johnson Rice & Company.

A couple of questions. In terms of the questions about tax refunds, can you -- when you look back at how the -- your sales have trended quarter to date, has the role of tax refunds on that trend played out the way you expected? And do you expect that the later timing of refunds will not have a negative impact on the sales that you would have expected to have if it was similar timing to last year?

David, that's a great question. I will tell you that, early in the quarter, tax refunds had a tremendous effect on our results. And as those tax refunds rolled out, we've begun to recover at a really good rate. We're just not going to know the answer to that until we get through Easter. It's just hard to measure because as our business progresses -- this week a year ago was Easter week. So even though against our internal plan we’re doing well, you can't know from a comp perspective until you actually get through the Easter week. Not this Easter week, but actually 3 weeks from now through the Easter.

Got you. In terms of the competitive environment, obviously, across-the-board lots of closings from department stores whether it be Macy's, Penney's, Sears, Payless, whomever. When you look at all of these, while they may not be your most direct competitors, how do you see those closings impacting your business? Do you -- are you planning to gain some share or building some of that into your guidance for this year?

We have not built that into our guidance at this point because all of those closings are also going to involve going out of business sale. So what you might build in for them actually closing those stores, you have to take away from the highly promotional environment they're going to have as they clear their inventory. So I think that would be more of an '18 build than a '17 build. But we do look at that as an opportunity as, I guess, every retailer would that is competing against them.

And then lastly, you commented in the release about the early performance of sandals, casual sandal footwear. Can you just talk a little more about what you're seeing there and how that may play out for some of the opportunity for positive comps in the first quarter?

David, I swore toward the end of fourth quarter that I wouldn't blame anything on weather again. But I'm going to have to go back on that and tell you that weather played a key role in those sandals selling in the fourth quarter. It was warmer than -- expected warmer than a year ago, and it did accelerate sandal sales. The other thing we did from a strategy -- strategic standpoint is that we took our warm doors and we increased our sandal selection in those warm doors, and that was a very good strategy and worked out very, very well. And not only did it work out from a sales standpoint from a sandal comp, but it also told us early on what was selling, and we were able to make sure that we're properly covered on those sandal items.

[Operator Instructions] Our next question comes from Greg Pendy with Sidoti & Company.

My question is, I think you mentioned as we kind of look out to the fourth quarter and we cycle now boot season, you mentioned that you were going to bring down, I guess, the inventory and the units. Does that mean -- was there something this year in the data that made you think that or made you see that maybe you can get higher pricing? Was there mix going on within the boots season where the lower-priced footwear wasn't selling?

No. I'd tell you, what happened was we planned -- we did not do a great job of planning our boot business. We thought boot was -- boots were going to be up, and as it turned out, that was not the case. So we were very promotional in the fourth quarter on boots and clear through. And because that we were very promotional, as I mentioned earlier, even though we had a -- we sold -- we sold more units, we actually had a slight loss on sales. So I truly feel like that if we plan the boots more cautiously, and I really don't want to tell you whether that's down or flat, but I can tell you that's not up, that we can -- we'll be able to -- we won't have to be as promotional as we were a year ago, which will then drop up our average unit retail and our margin.

Our final question comes from Sam Poser with Susquehanna Financial Group.

Okay, Cliff. What percent of sales at this point in time was sort of touched by digital, in that they might have bought on the app, they might come into the store because of the app? Can you -- do you have any measurement of that right now and how that's impacting you?

I don't -- from an app standpoint, I don't have a measurement of that. Here's what I can tell you, today, Sam, I don't think we have a single customer, it feels that way anyway, that's not walking around our store with a mobile phone in their hand comparing inventory, pricing or whatever and that -- or maybe even looking for coupons. So whether they're doing that on our app or whether they're doing that through our website or through one of the affiliate marketers that we use, I just know that it’s happening more and more.

All right. I got a couple more. Number -- how many store closure -- how many stores do you plan to close this year and in the first quarter since you gave the store openings for Q1?

We look at closing approximately 15 stores for the year, Sam, and 5 of them will be in Q1.

And then the balance, primarily in the back half of the year like it normally is? Is that the way to think about it?

No, it's spread fairly ratably the final 3 quarters.

Okay. And then going back to the boots for a second, Cliff. When you said you're going to be planning the boots down or flat, and you said -- you said you weren’t going to plan the units up. I mean, I guess, the question is how many units can you sell at a more normalized discount or regular price versus heavy promotions? So when you're thinking about units flat to down, I would think that, to avoid promotion, the units would be theoretically planned down a lot because a lot of your unit sales at the end were driven on very aggressive promotions, I would assume.

I would tell you that you're probably correct. We are going to plan the units down aggressively.

And then lastly, Cliff -- Kerry, do you expect earnings in Q1 to be up or flat? Could you give us some idea there? And also, does the guidance assume -- I assume -- the guidance, it sounds like it assumes an acceleration of sales in the next 5 weeks. And I know you have Easter coming and Easter generally accelerates, is there -- are you planning any kind of -- I guess, in the guidance, is there any difference in the way you're expecting the acceleration to be this year versus other years or anything of that nature?

The only acceleration -- I'll take the second part of that question, Sam, is the only acceleration that we expect to be different is the acceleration of the tax refunds. Otherwise, we expect Easter to be pretty much comp to last year. In fact, we expect it to be comp to last year.

And then as far as earnings in the first quarter, Kerry?

I'm sorry, I actually took a drink and started coughing and missed your first part.

Earnings in Q1, is it up, down, flat with last year? I mean, how do we...

We expect it to be up.

It appears there are no further questions at this time. I'd like to turn the conference back over to Mr. Sifford for any additional or closing remarks.

Thank you. And thank you for joining us on our call today, and we look forward to talking to you on our next conference call. Thanks again.

Ladies and gentlemen, that does conclude today's presentation. Thank you for your participation. You may now disconnect.