Q1 2020 Earnings Call
Good afternoon, and welcome to shoe Carnivals first quarter fiscal 2020 earnings Conference call Today's conference is being recorded.
So 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 involves a number of risk factors. These risk factors could cause the company's actual results to be materially different from those projected each state.
Forward looking statements should also be considered in conjunction with the discussion of risk factors, including.
Included in the company's FCC filings on todays earnings press release.
Testers 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 do you publicly announced any revisions to the forward looking statements discussed on todays conference call well contained in todays press release to reflect future events or developments.
I'll now turn the conference over to Mr. cliffs suffered vice chairman and CEO of shoe Carnival for opening statements. Mr. Separately, you may begin sir.
Thank you and welcome to shoe Carnivals Twentytwenty first quarter earnings Conference call. Joining me on today's call is Mark Gordon President and Chief customer Officer.
Kerry Jackson Senior Executive Vice President Chief financial and administrative officer.
Today's call I'll provide an.
Oh, they only ongoing coated 19 penta.
And the impact has had on our business as well as updates on our store reopening setting expectations as we move or.
Mark will then discuss our strategic initiatives and how our historic investments have positioned us well to weather. The storm followed by Terry will discuss the quarter's financial results well then open the call for your questions.
Let me start off with a business update on the impact of code that 19.
First and foremost we hope you in your loved ones are staying safe and healthy.
The last spoke the initial impact to the cope is 19 pandemic was just starting to materialize.
Since we have the map with unprecedented challenges as we look to protect our customers.
Our employees in corporate staff.
The fiscal first quarter was really a tale of two completely different environments. The quarter began well with solid traffic grabbing a comparable store sales increased.
3.9% to the 12 of March as a cost at 19 bar spread quickly by mid March it became clear that our employees customers and the communities, we serve where risk.
As a result.
March 18th we made the difficult decision to temporarily close our stores.
Further as soon as we saw evidence of traffic declines in our stores, we immediately shifted our marketing efforts.
Toward our ecommerce platform to ensure a loyal customers new that we were able to continue to meet their needs even in a virtual world.
This strategic decision has clearly eight all which I will discuss in a moment.
I would be remiss to not first and foremost thank our employees for their hard work and dedication during this incredibly uncertain times.
During this period, where our stores were closed we continued to pay our employees and today, we have not for load a single person. This was incredibly important to us it's something we're very proud of as our store associates are what make shoe carnival. So special.
Our store environment as you need not being funded entertainment painting. It is supported by my team members that have been trained operator stores. The shoe Carnival way as a result, the decision to not furlough sure employees has been a clear competitive differentiator as we have reopener stores.
Not only have we've been able to get ourselves associates back in the stores efficiently to serve our customers, but also support a most important asset or employees. During this tumultuous time, while our stores were closed our store teams. We're busily engaged fulfilling E commerce orders at each of our location.
With the inventory own and to support the substantial ecommerce growth we experience.
Our vendor partners have also been incredible we've worked hand in hand, with our vendor community utilizing a multi tiered approach to adjust quickly to the rapidly shifting environment.
First we cancel any seasonal products that had a short selling window, which include a dress shoes and some sales second we move seasonal product with longer selling periods. So later shifts dates where appropriate including flats sandals sports sandals in soccer sandals and third.
We work with our vendors to adjust core model flow and reviewed and adjusted back to school Assortments. This nibble. This is attributable to our best in class Merchandizing team and our strong vendor relationships, which we have nurtured for years.
As a result after six weeks shutdown our own him inventory at quarter end was up 4.2%. However, due to the strong reopening sells our stores have experience our own hand inventory at the end of last week was down 6.3% as compared to the same time last year.
As we head into June we will be receiving fresh new product across all departments, including early initial receipts of athletic styles for back to school.
As I mentioned over the last several months, we'll continue to serve our loyal customers through our website and mobile App, which was made possible by our significant investments in our technology platforms, including our CRM initiatives.
Throughout the second half of the quarter, we delivered triple digit growth in E Commerce, which was driven by both new customers as well as shoe perks loyalty members that typically shop in store, which was a huge win for us.
Let us business was truly a bright spot as customers look to shoe carnival suggest the athletic footwear they needed as many began to spend more time outside walking the be active during this quarantine period.
While we are proud of the progress our E. Commerce business has made we're thrilled to have over 80% of our stores open as of today, which are delivering sales above our expectations by the end of the first fiscal week in June we anticipate 95% of our stores being open to serve customers.
We are excited to see our customers again, but our priority remains keeping them as well as our employees save as a result, we have implemented several new health and safety procedures in our stores, ensuring that both our customers and employees bill as comfortable as possible we have equipped.
That's true all our stores with personal protective equipment, which we call pp, including mass and hand, sanitizer and have enhanced our store leading protocol and addition to PC E. We have installed C class protective shills, all checkout bonds for cash.
Yours and customer safety, we have also creates signage implored. The cow set are displayed throughout the store to remind customers and employees.
Orders of good personal hygiene and social discussing during this time and lastly, our stores are unique and that we have professional microphone announcers and every store that would normally be announcing special promotions were utilizing these talented individual these individuals to verbal.
Remind our customers to social distance.
Early results from our stores have riocan are encouraging.
Overall foot traffic in the stores down double digits from the prior year shoppers can.
Converting at a significantly higher rate and purchasing more units per transaction. Our CRM data has shown that nearly 70% of the customers coming back from the stores are shoe perks loyalty members, which was roughly flat. This last year at this time.
From a product standpoint, we're pleased with the performance of both the athletic and the children shoe categories.
Without a doubt this has been a challenging first quarter. Unlike anything we have ever experience. We continued to be impressed by our team and their ability to navigate uncertainty.
With most of our stores likely to be opened by the end of the first fiscal week in June will be in a position to take advantage of the most important month of the sandal season. There are however, still many unknowns, including what states may decide about reopening schools.
That said, we're taking the necessary steps to position the business appropriately for the back to school season.
In addition, our ecommerce business continues to be robust with triple digit sales growth delay.
We are optimistic this accelerated growth with both existing the first time shoe carnival customers will allow us to achieve our long term ecommerce goals much sooner than anticipated.
In summary, our financial strength and flexibility has served our investors well I'm proud to say, we manage through this unprecedented fiscal first quarter without adding any debt to our balance sheet. This stewardship as well as our strategic investments in our business have allowed us to keep our people working.
And continue to make progress toward our long term goals without overview I'd now like to turn the call over to Mark Ordan to provide an update on our strategic initiatives Mark. Thank you Glenn.
Last quarter, we discussed our four strategic initiatives, including the CRM, Brandon customer experience ecommerce sales and store development.
Investments, we made continue to drive meaningful ROI, particularly in this current environment.
But digital marketing being as important as ever enhancements, we have made for marketing programs that proved instrumental and our new branding and design has resulted in stronger customer engagement.
We've also utilized our CRM and shoe perks loyalty program insights to effectively aligned our marketing efforts to our customers needs.
That's a result, we've seen continued membership growth in our loyalty program, which increased nearly 10% in the first quarter.
The investments, we have made and marketing and CRM have driven significant gains in our ecommerce sales amidst this challenging environment.
Not only are we capturing new members, we're converting traditional in store buyers to E commerce buyers.
E Commerce sales achieved all time week month in quarter highs, while our stores were closed with sales growth over 350% or the second half of the quarter, resulting in over 160% sales growth for the total Q1.
To provide some perspective ecommerce represented approximately 5% of corporate revenues in the fiscal first quarter of 2019.
However, our fiscal first quarter 2020 E. Commerce revenue would have represented nearly 15% of fiscal Q1 2019 revenues.
While we do not anticipate our ecommerce growth rate.
Slowed down and so after we reopened our full store fleet. We are confident we have materially expanded our E Commerce shopper base.
This expanded customer base will lead to the new normalized growth rate considerably higher than it was pretty covered 19.
As an example for the last four weeks ending May 16th we grew our E commerce sales over 500%.
We're confident that our investments have us well positioned to achieve our long term E. Commerce sales targets years ahead of the long term strategic plan we've defined.
Turning to our store Reopenings between May 1st and May six we reopened over 50% of our store fleet and as of today have 318 stores representing over 80% of our stores open.
Pending any government trenches, we're on track opened over 95% of our stores by the second week of June.
Early results from the reopened stores are very encouraging.
As Cliff mentioned nearly 70% of our sales in our stores have come from loyalty members consistent with our prior year results and indicating our customer base is strong and ready to shop with shoe Carnival in person again.
In fact last week, we achieved high single digit comp growth for the total company despite having over 100 up our stores still closed.
As a may 19th we have achieved mid single digit comp sales growth for the company for the month of fiscal May in over 530% sales growth for E Commerce.
This is further evidence that our marketing efforts, our CRM program are compelling product assortment and industry, leading store operations are resonating with our customers even during this challenging environment.
In closing I am thrilled our store teams are serving our customers in person once again and I'm very encouraged by the continued success of our strategic initiatives.
We see that are specific initiatives and resulting in deeper customer relationships and an even stronger shoe carnival brand. This positions us very well to emerge from this challenging time as a stronger company.
With that let me now turn the call over to Kerry Jackson to provide more insight into our financial performance Gary. Thank you Mark.
As Cliff mentioned this quarter was a tale of two very different environments.
Quarter began well with sales up modestly year over year before we temporarily closed all brick and mortar stores midway through the quarter.
We're able to quickly shift our focus ecommerce, which increased triple digits in the first quarter fiscal 2020 compared to the prior year.
On the expense side, we've controlled expenses, where we could eliminating discretionary spending reducing executive board compensation and deferring capital expenditures.
This tended to focus on driving cash flow and preserving liquidity allowed us to manage through this crises without adding any debt to the balance sheet and maintaining sufficient liquidity.
Taking a closer look at the first quarter financial results net sales decreased 41.9% 247.5 million compared to the first quarter of last year.
Gross profit margin for the quarter was 21.3% compared to 29.6% and the first quarter of last year.
Merchandise margin decreased 190 basis points, primarily due to higher shipping costs associated with the increase in ecommerce sales, while buying distribution and occupancy expenses increased 640 basis point as a percentage of sales due in part to the de leveraging effect of lower sales.
Primarily related to occupancy costs.
During the time our stores were closed we worked with her landlords to defer certain payments, but in accordance with gap, we expensed the full amount to the rent for the quarter irrespective of the payment schedule.
SGN expenses decreased 4.8 million in the first quarter fiscal 2020 to 54.7 billion.
As a percentage of net sales these expenses increased to 37.1% compared to 23.4% and the first quarter fiscal 2019 due to the de leveraging effect of lower sales.
Significant changes in SDMA for Q1 included a decrease in employee wages tax benefits associated with the employee retention credit under the carriers to act, which offset wages.
Lower earnings dark copies nonqualified deferred compensation plan.
Our equity based compensation expense and a reduction expenses due to store closures.
These decreases were partially offset by an increase of 2.2 million impairment of long lived asset recorded on seven stores and the first quarter fiscal 2020.
The effective income tax rate for the first quarter fiscal 2020 was a benefit of 30.3% compared to 12.8% for the same period last year.
The relatively low.
Prior year effective tax rate was primarily due to a 1.9 billion tax benefit related to the best thing of equity based compensation in the first quarter of last year.
The benefit reduced our effective rate by almost half in Q1 last year.
Net loss for the first quarter was 16.2 million compared to net income of 13.9 billion and the prior year quarter.
Loss per diluted share for the fiscal first quarter was $1.16 compared to net income per diluted share a 91 cents in the first quarter fiscal 2019.
As mentioned above and the first quarter fiscal 2019, we recorded a tax benefit in connection with the best thing of equity based compensation of approximately $1.9 million or 13 cents per diluted share.
Now turning to our cash position and if information affecting cash flow.
Depreciation expense was 3.8 million for Q1 compared to 4.3 million in the prior year.
Capital expenditures for fiscal 2020, including actual expenditures during the first quarter, our expected between 15 and 20 million with approximately eight to 10 million to be used for new stores relocations Remodels and two to 3 million for upgrades to our distribution center as we continue to focus on enhancing our supply chain.
Okay.
The remaining capital expenditure expects me incurred for various other store improvement normal asset replacement activities and continued investment in technology.
As Cliff mentioned, we worked closely with our vendor partners to strategically manage your inventory and payables during the quarter.
We received extended credit terms from our supply partners, which allowed us adequate flexibility the inner need all stakeholders at this challenging time.
As a result, we ended the quarter with 90 million of outstanding accounts payables.
We also worked with their bank partners to increase or line of credit from 50 million 200 million out of abundance of caution.
As of May 2nd 2020, we had no outstanding debt and working capital of 186 million.
Cash and cash equivalents were 13.1 million.
Our borrowing capacity was approximately 95 million it ended the quarter.
With increasing cash flow this month stores reopening as of today, we don't have any borrowings on our line of credit.
However, we do expect to draw modestly on or line of credit in the near future as we began reducing our payables balance.
Our history of maintaining a conservative balance sheet has served us well during this uncertain time.
Looking to the balance of the year, while they're still many unknowns today, we're marching head with an orderly re opening of our stores in line with state and local mandate.
As of today, we have 318 stores or 82% of our stores open.
We feel they are too many unknowns your guidance for the year.
Based on the results for made thus far we believe that we will end. This call may with a mid single digit comp increase and fiscal June we'll see a low single digit comp increase.
July is difficult to estimate at this time.
Last year. The last 10 days of fiscal July began our back to school ramp up and represented about 50% of the monthly sales.
If schools continue E learning or delay that back to school start to date, we could see a high single digit decline fiscal July resulting in a low single digit decline for Q2.
However, if we see a traditional start to back to school, we could see a low to mid single digit comp increase for the quarter.
This concludes our financial review now I'd like I'd like to open the call for questions.
Yes, Sir.
If you would like to ask your question. Please signal by pressing star one on your telephone keypad.
If you're using to speakerphone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question.
Just a moment to allow everyone an opportunity to signal.
And our first question comes from Mitch Kummetz with pivotal research.
Yeah, Yeah. Thanks for taking my questions I Hope you guys are doing well and congrats on getting all the stores opened let me start carry on.
One of the last things you said in terms of comps by month. So may you are looking for a mid single digit Cobb I just want to make sure I understand.
What's in that number is that just the stores that are open if you're at 82% you expect to get to 95 by like village and does that.
Does that include the stores that are open or is it just the comp on a stores that are open plus sure.
Digital business.
So the way we report comps is all of our stores plus or digital business and what we're getting is not.
And adjusted compared to prior year is the full prior year all stores open compared to the stores. We do have opened today department and plus the digital commerce.
<unk> expenses.
Sales.
Okay, so even with stores close together when I start thinking about this right you are what some stores closed you're still looking for a mid single digit comping back.
Yes, as Mark said that as of today, whereas that we have a oh comp increase for the month, even though we have approximately 100 stores still closed and as we continue to open up throughout the rest of the month HM.
Where we're getting our expectations.
Okay.
When you look at the comp trends that you're seeing in stores as you've opened the stores I don't know if there's any way you can a slice and dice out a little bit I'm, just curious if you're seeing any differences.
Across markets, maybe stores and large markets versus small <unk> stores in markets with a lot of covert cases versus few stores in red States versus Blue I don't know, if you're sort of dissecting the data to see if you're noticing any threats or is it just everybody's kind of doing the same.
Mitch, let mark take that question, but the but whether in the markets where the coated was was.
Thanks, potentially higher we're still not open so like in Adelphia certain markets New York, We're still not open so.
The Midwest, we really were not affected the way.
Sadly the lay the northeast and the East Coast was so mark once you.
Yeah, Hi, Mitch.
As Carey was saying with all the opened and closed stores were plus seven over 7% at this point or the month of made through yesterday and what we're seeing is.
Results that far exceeded our expectations of how the customer would come out across states across the states that governors have relaxed or opened up whether it's from Texas to Florida.
We're seeing double digit gains after we opened up and.
Clip alluded to it traffic is down double digit, but what we're learning is the customers that come out are ready to purchase and conversion is up extremely high growth and units per transaction are also up very high so we're having a strong success.
Yes.
Okay and closing remark you do you think that you're seeing any current benefit.
From the fact did you guys as baby open your stores faster than some of your competitors have you within the family channel or even that you guys are in locations that were allowed to open where maybe some malls are not open in you're taking market share away from some of those mall stores.
I think it's both at the malls are not open.
We were open.
We got our stores open pretty quickly and.
Hey to compare this to a hurricane market, but that is typically what happens as soon as we prepare so well prior to hurricane that was hurricane passes through web usually the first retailer to open up enough. Phil We did the same thing in this particular during <unk> and then we were so well prepared.
Continues to bear during the close time that as soon as we got the orders from the from the Governors, we were able to open up and a lot of that that has to do it. The fact that we chose not to furlough our employees.
Right.
And then last question I'm just.
The carry you kind of gave the numbers sort of May June and sort of how you're thinking about July depending on what that school looks like I don't know if you could provide any color on how you're thinking about the holiday season, especially maybe how you're planning to boot business I don't know if you're planning conservatively because it's so maybe it's a riskier category given the seasonality.
Thank you and you're not quite sure what you know the marketplace might look like but I'm just gonna curious if you have any sort of initial thoughts on non holiday.
Mitch I know that everybody be interested and how we might proceed the second half, but we really need to see how back to school starts.
And what's going to happen there how the shoppers can oh.
React we gave some near term.
Ideas, because we have better visibility longer term, we're just not count for yet until we have more information from our consumer.
How they're going to shop and how it back to school is going to open et cetera.
How geo be sales going to occur there's a lot of unknowns out there that make us reticent to make any comment on that.
Got it fair enough alright, thanks, guys appreciate all the color.
Thanks.
[noise] and our next question comes from Sam partner Susquehanna.
Hi, I'm I've got my brother on in a second whoever that was like it was [laughter] you build mr. Paul.
Hi, how are you.
Good to talk to you guys alright, So let me get right to it how much of your business.
It's great you're busy your digital was up 160% is up over it was a month to date up over 500% is what you said I believe.
That's right Sam.
Last year.
School 19, what percentage was E commerce of total sales.
We have some idea for the year what are we dealing with here. What are these numbers mean, you know can you give us can you let us hone in on how meaningful all that is.
Or you know just just so we can understand it you know how how how meaningful it is and now that it's you're expecting it to keep going how meaningful that potentially will be.
Sure. So great question. If we look adjusted Q1 of last year E. Commerce represented approximately 5% at the corporate revenue. If you take what we just sold this Q1 that would have represented approximately 15% and so.
A blast of last year.
Last views.
Q1.
If you looked at all of fiscal 19 E Commerce exceeded 8% company revenue for the first time, if you remember ashar about in the last quarterly call.
So okay as we talk about having over 500% growth during our fiscal may and having over 75%. Our fleet open. This is far exceeded our expectations how consumers have responded to our.
CRM to our marketing investments to the assortment.
We couldn't be more pleased and like I said in the prepared remarks, we do foresee that per cent to slow down as.
All of our store fleet opens up and consumers shopping behavior reverts back to something more normal, but our but we're very confident that our ecommerce business has lead years ahead of our strategic plan.
And certainly represents.
Much larger portion there our business on a go forward basis.
I mean use I mean, I assume you think that in sort of on a normalized basis. After this event.
And on an annual rent eight last year, you're probably thinking I would think like.
Yeah, 10 to 12 sort of.
<unk>, you know, making up for this new normal and the jumpstart that your E Commerce, Scott this quarter would that be like a fair way to think about where your heads that for this year on whatever that number it's going to be I mean.
Last year, if this it happened a year before last than last year, where you did eight that number likely be in the 10 to 12, <unk> I assume that's where you're thinking.
We're going to learn a time over the next day week, Sam our long term goal was to drive well beyond 10% of corporate revenues into the teens and so it's yet to be seen where that is.
We couldn't be more pleased with the response, we've seen Darren.
The period of time more stores were closed and even now like I said with over 500% growth during the fiscal month the may.
We're excited how consumers are reacting and we're even more excited to learn how this plays out over the months ahead.
I will tell you.
Our.
Just to add to that we are we know based on the fact that we have new customers shopping our site that have not shop. It before that we are introducing a lot of people to our E. Commerce site. So we expect that the ecommerce percent total should accelerate.
Gotcha, and then and then when you're thinking about Oh.
Well, let me ask this you know this this I've heard from quite a few people who have opened stores, even the handful of stores that their business has been pretty good I guess, how much of that do you think has to do with the government money in People's hands and you know.
Then I mean, they're not necessary.
It's like when they get the tax breaks oil.
Include the income tax refund how much of it is you know maybe just okay I have money and now I'm coming in in spending it and that goes away when that money stops coming.
Well, there's no question that our customer and we've talked about it.
He says I believe the company that when they when when they get a check from the government for whatever reason tax refund or or rebate or whatever reason they they like to come in and by shoes I like them, then buy anything but the so yes that is fueling.
But I'll tell you that.
We took that into consideration as we talked about the way we thought the million excuse me at June July would come in.
So.
We would have we thought the government money.
If we thought my name is going to continue to be part of what they were spending.
We would have got as much further than what we did I mean, so we took that consideration.
[laughter] I've got a couple more one when you're thinking about <unk> and I'm, It's I'm not asking the same question Mitch did about planning.
Back half of the year, but just planning your mix in general how how much narrower from a brand and item perspective, given that uncertainty are you going to get how how much are you going to even focusing more on key item.
Maybe eliminating categories, such as China shoes, because I don't know when the next time anybody's got sell dress shoe.
And so on what are you doing sort of to really hone in on you know sort of.
The way consumer this apparent change sort of to comfort that that has really taken another step forward. During this pandemic.
Well look to walk you through our merchandise assortment, that's what our competition knows exactly what we're doing but I do think your due to secure 100% right that that dress shoes are not going to mean anything as we go toward or very little especially for our customers is going to be more casual and I.
And I think that's going to equate even to the boot category when that comes on.
But we.
I I feel confident.
That is as long as there's not a second wave that our inventory positions in our product mix.
Out of.
Casual boots and booties.
For the fall time period going to be good right now right. Now is just as I mentioned in my prepared remark, so all of that athletic and and certain casual sandal categories, but Oh, and I think thats going to continue for the near term.
Leased up until and maybe even through September then at that point I believe you will see the casual boot market come up strong.
Right, but I mean like generally if you think about next spring.
Oh Gosh, you know you're going to remix no dress shoes, and things like that I mean, it's gonna be hard to imagine.
That you're the casual comfort piece of your business doesn't stay sort of.
More top of mind to the consumer.
Absolutely I agree with the I agree with that 100%.
That the.
Lifestyle is going to be much more casual or going into the next year.
And how does your Claude one other thing to send you got to remember we're not a very good we are customers do not flocked to the dress marketing to the dress styles. We have that's not a very strong category for us in womens and so we have always been known for our casual and.
What we call sport casual categories and or.
We are.
We don't talk about ran some this call isn't that little or worse [laughter]. Good try [laughter] really good try I do have to give you credit.
Hmm.
How do I I know you carry at least three grams of clock.
[laughter].
So.
If they went guys very much on good thing good luck and we'll talk later.
Alright, Thank you know.
Thank you and our next question comes from Greg Pansy with <unk>.
Hi, guys. Thanks for taking my questions I'm carrying I think when you were talking about the the monthly.
Same start sales trends I correct me, if I'm wrong, but you haven't factored much in for going out of business sales and just can you remind us last year, yeah. The major competitor our company I guess closed down when did they kind of wind down as we anniversary data back and how big picture are you thinking about going out.
<unk>, maybe for an early pain from liquidation before you can grab market share what are you seeing in the landscape this year.
Well, it's hard to tell last year, we we had compared going out of business and they completed there's by the end of June now if you if you look or comps to the first happened last year, you could say that we did you couldn't see in effect, but in the second half it felt like we had an accelerated or kind.
In certain categories last year, which we started to believe that was the benefit of that customer being dislocated.
This first half is gonna be it's going to be hard to judge right now until we actually see how they open up and what what their liquidating with their pricing is to to make any comment it's something we've we've taken into account and that's one of the reason I mentioned that we're not giving guidance for the for the second quarter or the remainder of the year, but.
Because it is hard for us to gauge that <unk>.
<unk>, what that's going to do to margins and how much it how much that's going to overlap our market area is what credit categories et cetera.
Okay. That's awful and then just one final one do you have any exposure you are <unk> kind of to the oil patch region Ariads, you're thinking <unk>, how does the consumer look if selling those types of areas given the volatility we've seen.
It's really really hard to tell because we had was as you know all are short close.
Once we open up our shores, even in those regions. We saw an accelerated growth I haven't been able to to say, it's because it's so or region or or not so we've seen accelerated growth wherever we both love short.
Okay, Great. That's helpful. Thanks, a lot.
<unk>.
[noise] and our next question comes from Chris <unk> busy with what Bush.
Good evening, gentlemen, I'm glad you're wrong.
Right, a great job managing managing through two one really impressive.
I'm a couple things I guess for me number one.
Just what are you assuming for E. com and June exactly given up 500 plus per cent growth <unk>. What are you assuming in a low single digit pots and comparable companies.
What what's the commerce make up a fat.
Hi Christmas Mark.
We see load triple digit will continue.
During this period of time for the first half of the quarter.
We believe we have a line of sight, so low single digit continuing at least until we get to the back of the school season is carried shared his remarks, we're not ready to.
Declare well where with a consumer will go until we learn more about the basketball season, but no triple digit we foresee continuing.
Okay, Okay, and just on the any color on margins for Hmm calms help I know what gets extremely distorted in into one with whether that's going on but just help us understand given the growth interesting.
Oh and holler about the margin profile that you see <unk>, what's your seen at this point on on on that segment.
Chris are you talking about Q1 margin comments are you talking about you too.
She wants you to any color that you want I mean, I guess I'm, assuming historically, it's roughly in mind what stores, but given the acceleration I don't know if there is just my bridge components I don't know more sales were being done at full price.
Any color about the margin <unk> on <unk> only.
Ooh, Chris I sit on my remarks on Q1 is that there were like gives and takes on the merchandise margin. It was down 190 basis points. However, the big factored into that decline.
Was additional shipping due to the E. commerce being there you know the tail end of the <unk> the half of the quarter being the primary driver, but so <unk>. It was hard to tease out but that that was the real reason for the decline or into your your basis.
Has it on a more a qualitative approach our pricing and promotions strategy was to drive profitable revenue and drive a high our ally through the calm traveled while we were.
Moving inventory into cash flow through two on.
So we also provided our consumers free shipping during the quarter for joining our loyalty program and we found that to be a transformational in the number of consumers that we've been able to engage with learn more about them and to have become long term.
Central buyers, which gives us great confidence in that triple digit E. commerce sales growth continuation, but I'm very proud in the merchant team the assortment. They put together in this new world, where we didn't have stores open and that our pricing on promotions worst, particularly profitable versus a fire style.
Got it that's helpful.
I'm curious just funny inventory with your inventories, where they are you're comfortable enough, bringing an additional product in June.
Just for any colleague to provide about how we think about the margin profile as you move forward promotional activity. What are you what you see in the market.
You see in those stores had an open relative to you know what the competition is doing just it seems like potentially might not have to be as aggressive on promotion to to move product to generate com. Just then color about how we should think about that.
<unk>.
[laughter] to the honest with you the only marginal issue that we would have us at the believes that athletic has become a.
Larger per cent of or overall business for the short term because <unk> until everybody gets back to work I think we're going to see a strong athletic <unk> isn't that runs at the margins just slightly less than the brown shoot business, so that might have a smaller.
We really felt like we were going to have to become.
Truly promotional during this time period to get her inventories back in line with the customers read between what we were able to do with the visitor community.
Number one and I've never seen them enough with the cancellation and the move of the product into a later receipt must and and the reaction to the customers not oldest or E. commerce platform, but once we open our stores <unk> I would've never green that I would be telling you that.
As of this past Saturday night or inventories were actually down if you. This last year, we're looking for inventory, we're looking for product and we're thankful that so many people cancel a lot of products. So we can actually get our hands on some.
So just to be clear on all this <unk>. What's your observing is really from a margin perspective on cross margin is really good next you know <unk> if anything not specifically price promotion. It's just more of a mix situation you see going forward.
Two things that Chris our women's margins are down from a year ago and that has more to do with the fact that we did not have the Easter and we had to go through the dress shoes and dress sandals that would have had sold during that time period.
We didn't also mother's day it was for all practical purposes Castle, So I have to get through some of that so martians or the women's non athletic was a little lower margins athletic because art is not lore, and we're doing a good job. There. So I think that's all temporary at least we had to go.
Through that product is you know we always our number one at all.
Every day, there's a little story and making sure that we stay clean so as soon as we saw a that Easter wasn't going to have a mother's day when I'm going to happen, we did get a little more motion. So I think that solves itself as we move into the second half a year when casual shoes become more important.
Got it Okay <unk> laughing for me just on on June and made a card. If you just recap we just had about late July but in June. It's E. com is still triple digit growth you have potentially almost four stores open.
Assuming moderation relative to main subject because more competitive doors open up encouraging for money get much you said about the last week.
And again <unk>.
<unk> walk through that one more time.
You're correct on on June we're assuming that more of a computer should be open. There also maybe some pressure from G.O.P.D. sales. So we we felt that.
Directly to to to slow down to calm even though we're expecting a nice acceleration econ, we don't want to over over estimate will will do in this time frame. What it said in July is that taking last year as a comparison in the last 10 days of July physical July last year.
We start to see the ramp up in our back to school that represented at that 50% of our sales.
We're concerned because we don't have the information yet that is the schools continued to do eat learning or they go back to school later, so they decide to pick a later date in August and shifts those sales that we could out of July.
Into the third quarter, we could see up to hi single digit decline in July.
Which is lead to a lower single digit decline and cost for the quarter. How however, if we see a traditional back to school Temple. Then we we believe that for the quarter. We can see based on the strength of May and June we get the a load them.
Single digit increases the the quarter from a sales standpoint.
But it it's unknown right now because.
The schools are evaluating what they're going to do right now they they don't have act they haven't announced plans.
Product Okay helpful. Like that's all have for now thank you and all the bass.
Like Chris.
And our next question comes from <unk> pivotal research [noise].
Yeah, I've got a I've got some follow ups. So first just along the lines on what a Christmas questions.
On inventory sounds like a pretty happy there are cleft, but I am curious given kind of the outperform itself out <unk> I don't know if if somebody that came at the expense.
Sandals do you feel good about your sandal inventory right now kind of where you are in the season, having missed a couple of.
<unk> dates, but obviously going into memorial day weekend.
Do you know the largest the alluded to the sum of prepared remarks.
The number one selling for sandals is true.
<unk> two reasons, one is warmer obviously to us about a week month so.
We we feel we are very good shape for the month of June and and even for July So I'm no I'm not the very concerned about sandals. At this point. We are we are so <unk> I want to be clear and I'm missing this amount or better Mark we are selling samples.
<unk> <unk> really will sell in soccer and allow the athletic sandals anything that that they can.
Where while they're working from their home offices, I guess, but [laughter]. The this is amazing, but anyway, the dressier sandals or where we where we saw the the the issue yeah. We do a drought it quickly got through the product.
And then click on on these Bankruptcy's you know you've got stage by Dallas JC Penney stores are closing.
As you Kinda looking baby those as a group <unk> quite what are they overlap with your business either by category or price point, whereas the opportunity for you to kind of steel share a separate those stores.
Go off line.
Well I tell you motels going away, there's going to help us tremendously in the northeast from Pennsylvania through New York So I'm.
Oh.
I hate to say excited but because that means people are out of work, but but no I think we have a great opportunity there and as far as stages concern now we have a very strong presence in Houston and throughout Texas, I is Texas I believe I remember one state.
So we see opportunity there as well.
Again, the good yeah.
I used to use the word excited but I think we their opportunities from a product standpoint, it'll help us an athletic and and the Pennsylvania northeast market <unk>, obviously at a stage they were very strong and athletic they had.
Actually not very strong and they didn't category, but but where they just do well I guess would be casual whether those the.
Anyway.
<unk> say about that.
Okay, and then Hum on the marketing span I'm just curious how are you guys.
Managing that I mean, it seems like you guys Ralph performing some of the competition at least currently is this an opportunity to maybe.
Wrap it up some others are taking down there marketing in order to kinda really go for a a market share grab in this environment I'm just curious how you're thinking about that.
This is an opportunity for us to gain market share for sure and we are in the commerce space in particular during this period of time, but we also see with the revenues down those are reported we are.
Looking to reduce our cost structure. This year and we are looking to reduce our marketing investment commensurate with the level of revenue we see if they were being very nimble with it as things are responding in generating a positive borrow why we're investing more.
And as we learn more about the consumer during this pandemic will continue to be able to have the nimble flexibility to invest some things that are generating R.Y. and getting market share and pulled back on things. We think are not useful.
For example.
Shut down some things specifically directed towards store traffic like circulars during that period of time, we were close that are able to generate some savings for the year as an example.
Okay, and then carry on the again kind of thinking about the cost for May and June to admit single and then no single a lot of that's going to be driven by you calm. So how do you think about.
Occupancy I assume you're you're you're anticipating do you average for those months. Despite you know positive cops.
[noise] Oh.
Oh.
It at the higher in.
The the estimates we <unk>, we gave for the second quarter will still see some leverage at the lower end to it can be more much more significant.
But nowhere near the 640 basis points, we saw in a coupon.
Got it Okay, and then <unk> you know Sam was clearly a adeline asking about clocks I don't know if you have any [laughter].
You know you guys to watch a shoes with holes in them I don't know if you have anything to say about that.
[laughter] so some of the shoes, you can actually been decorative.
<unk>.
Oh.
That's right okay.
Thank thank you.
[laughter].
And our next question comes from Sam publisher, where the <unk>.
Well good news I don't want to follow up on on his follow the so.
But I do want to know I mean, how are you planning to open stores. This year and if so what is your store openings and closings look like.
Hi, Sam we are planning we have currently four stores.
I'm leases enhanced that we are planning to proceed with.
Because the various states that we're opening and having different shut down periods. The timing has been fluid and we're not ready to share yet what quarter, they're opening as we still work through a permit it again a variety of topics, but yes. We are we're very excited that as we shared earlier we are in there.
Opening process that we have stores where.
Drives to engage with the or progressive.
And then and then and and closings.
What do you foresee closing this year.
Closing, we have put a range of seven to 10 stores out there a stores that are delivering low our lives.
And we've seen not being a creative to continuing on with.
And we we assume that most of those closings what happened in cute for just given sort of the timing. So you know given you can hit all day and get out of and what everything else going on or would that be for see that happening prior to holidays, you know to buy into drugs for them.
There there's some early in the ear for example, we've closed to already this quarter of those and then you are correct to assume a large amount of time or in the back half of the year, we do not foresee having any inventory challenges. Those those are all well planned for anyhow team is is by.
And then looking ahead into next year do you foresee herself net opening stores at that point, you know on a more normalize basis.
I'd love to be able to give you visibility to that but I can't I can't at this point of time give ya guidance on that far out yet Sam <unk>.
We'll be able to and then as possible and we are assessing the opportunities as fast as they present themselves, particularly with the <unk> and see our are learning, but we're not ready to commit to that at the stage.
Gotcha, and then and then I have two more promote I mean, you sort of talked about it you're sort of assuming that there's gonna be <unk> you see how much excessive.
Or.
Abnormal promotional activity relative to other years are you seeing now or are things fairly calm and you think wants to store start reopening, that's where it's gonna happen and and you and have and to what degree of your work got into sort of the direction you provided for the bouncer the corridor.
Right now things are calm, but not all stores or open yet.
Most of our competitors have open some stores.
Not all and we just we'll see we don't see a lot of competitive issues out there today.
And again with our inventory levels, where they are Sam we're not going to <unk>, we're not going to <unk> overtly promotional there's just no reason to.
<unk>, we're we're on the lookout for additional product.
To fulfill that customers. These.
Okay, and then lastly, how how much how're you doing with the product that comes from new Colorado.
[laughter] [laughter] Ah, Okay, do as well I think the call we've taken a <unk> Mitch Mitch has a follow up to that.
[laughter].
Okay, Alright, thank you guys well, though oh. Thank you same same same here type Houston.
Alright, gentlemen that concludes today's question answer session. At this time altering the conference back to you for any additional are closing remarks.
Okay. Thank you Oh, the good like to think everyone for joining us today and I Hope you all stay well well. This has been one of the most difficult operating periods and the company's industry I am very proud of what we've been able to accomplish says at Ti we reacted quickly to protect our customers and employees at work close.
<unk> with our vendor partners to ensure we've maintained appropriate inventory levels for both near.
Intermediate term we're at the same time are <unk> financial Street and flexibility when I'm sure. We can whether this storm it emerges stronger company that we looked forward to speaking to you again in August Thank you operator.
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