Q2 2020 Shoe Carnival Inc Earnings Call

[music].

Good afternoon, and welcome to the shoe Carnival second quarter fiscal 2020 earnings Conference call. Today's conference is being recorded he's also been broadcast via webcast any reproduction or rebroadcast any portion of this call is expressly prohibited.

In each of its remarks may contain forward looking statements that involve a number of risk factors. These risk factors could cause the company's actual results to material differently from those projected in such statements.

Forward looking statements should also be considered in conjunction with the discussion of risks factors included and then in the Companys S. C E filings in todays earnings press release.

Investors are cautioned not to place undue reliance on these forward looking statements, which speak only as of today state.

The company disclaims any obligation to update any of the risk factors or publicly announce any revisions to forward looking statements discussed on today's conference call or convey contained in today's press release.

Reflect future events or developments.

I would now like to turn the conference over to Mr. Cliff deferred Vice chairman and CEO of shoe Carnival for opening statements. Mr Yourself or do you may begin.

Thank you all can issue probably 2022nd quarter earnings Conference call. Joining me on the call today is not important president and Chief customer Officer in Kerry Jackson, Senior Executive Vice President Chief financial and administrative officer.

On today's call I live in review over fiscal second quarter, 2020 result, as well as an update on the enabling cool 19 endemic and the impact it has had on our business.

I will then discuss our strategic initiatives and how our long term investments have already begun to pay all all about carry who will discuss the quarter's financial results well then open the call for your questions.

Our fiscal second quarter results, clearly demonstrated a discrete and commitment of our team as well as the resiliency of our concept.

Lastly, we were in the process of reopening our stores and as we've said the health and safety of our employees and customers was our number one priority.

I'm very pleased to report thanks to the dedication is strong execution of our team members. We have successfully reopened all of our stores welcoming our loyal customers back to fulfill their family footwear needs.

In person our corporate office will also complete the final phase of our reopening plan after labor day.

Our results for the quarter were strong in fact second quarter revenues of more than $300 million established a new quarterly record for shoe Carnival. Our sales were undoubtedly supported by our decision to not furloughed any employees during the shutdown as we were able to get our team member.

Back to the store faster the nearly all our competitors.

Just as exciting as the enormous growth, we continue to see with our ecommerce platform, which delivered another triple digit gain in the quarter, even as customers were able to get back into stores.

All in our focus on our loyal customers coupled with our teams excellent operational execution drove same stores sales growth of 12.6% overall.

Looking exclusively at the days our stores were opened same store sales growth would have been 22.5%.

This increase comes despite the dramatic shifts and back to school dates we experienced at the end of the quarter.

For context.

For the typical season, we see back to school shopping to start mid to late July.

However, the pandemic has delayed start dates for nearly all the schools within the markets we operate.

As we saw this materializing, we pivoted quickly and realigned our back to school marketing to correspond with the shift in the season.

Through week two of July our quarter to date comps were up in the mid Twentys as we approach. The individual end of July we saw sales declined for the last two weeks of the quarter and the high Twentys is school shifted their start dates with continued through the first two weeks of August.

It is worth, noting however that even with these two important weeks of back to schools sell shifting out of the quarter. Our teams still delivered the highest quarterly sales in the company's history.

Once we approach approach them Rivas back to school dates in late August our comparable store sales began to increase with sales. The last two weeks of August up mid single digits for reference typically by the end of August 95% of our schools are back and said.

Session.

This year as of August 30, Onest, only 65% of our schools were back.

To this end we believe the majority of back to school volume will be realized through September.

We will extend our back to school season through the end of October to ensure we are timely serving our customers needs.

Despite these dynamics, we expect comparable store sales for August and September combined to be flat.

Mark will provide additional color on this in his prepared remarks.

Turning to our ecommerce business several years ago, we made the decision to significantly invest in our technology platforms, including our ecommerce business is CRM capabilities.

This decision is paying off throughout the second quarter, we have deliberate explosive growth in our ecommerce business, marking another period of triple digit increases. Moreover for the fiscal second quarter. Our ecommerce revenues were just over 20% a total company revenue it.

Exceeding our three year target level.

In addition, our shoe perks loyalty program achieved a critical milestone, surpassing 25 million members and our gold membership grew double digits.

Looking at comparable store sales by department for the quarter Adult Athletic overall were up 30% driven by strong growth in both women's and men's product categories. Each.

Approximately 30%.

Sales in both mens and womens non athletic category were driven by sandals in sport casual product.

Not surprisingly dress shoes were down double digit consistent with the change to a more casual and active lifestyle as a result of closed offices and schools.

His comparable store sales were down low single digits with non athletic up double digits, driven by robust activity and kids sandals and infants.

Somewhat offset by kids athletic down low double digits, reflecting the shift back to school sales into quarter three.

Our current inventory position this solid yet lean.

And we continue to work closely with our vendor partners to ensure we had the best product available for our customers.

As discussed last quarter during the shutdown, we canceled spring orders and shifted fall merchandise still later in this season.

However, our strong sales trends have us move in that product back to a more normalized receipt time period.

We're also working closely with our key vendor partners to replenishment categories and classifications that are driving ourselves.

We're very comfortable with the amount of inventory flow that we have coming in for the fall and holiday period.

That being said, we do expect it in the year with the inventory down on a per store basis.

While sales have far exceeded our initial expectation as cup coated pandemic Turk took hold in the first and second quarter. The uncertainty has created has been substantial and continues to impact our business.

Our strong relationship with our vendor partners has been critical as we plan for the future as a vendor community has not taken any chances with inventory levels, meaning if it's not already ball is it's too late to buy at now while the current environment makes it difficult to provide clear guidance app.

The second wave of shutdowns, we believe we are well positioned capture market share throughout the remaining remainder of the year.

We made quick decision was to support our employees maintain appropriate inventory levels and enhance our vendor relationships during the shutdown period.

This has allowed us to remain nimble and fulfill our customers need for both back to school and into the fall and holiday period.

Our financial strength and flexibility combined with our laser focused on maintaining an impeccable balance sheet has proven to be invaluable during these unprecedented times.

We ended the quarter with approximately 77 million in cash and cash equivalents and no debt.

We also increased our line of credit from 50 million to a 100 million to ensure we have ample liquidity if needed.

Disciplined approach as well as our strategic investments in our business have allowed us to make incredible progress on our long term strategic initiatives and will guide us through any unforeseen challenges ahead.

Given the continued uncertainty as a result of the pandemic, we still believe it would not be prudent to provide guidance at this time.

With that overview I'd like to turn the call over to Mark Ordan to provide an update on our strategic initiatives Mark.

Thank you Beth I'd like to start by thanking our 5000 plus team members for their truly outstanding performance and commitment to providing excellent customer service during 2020.

While these last few months have been challenging on a variety of levels. Our team has exceeded all internal expectations driving our strategic initiatives forward and delivering went in Q2 results.

As Cliff mentioned, we achieved comparable store sales growth of 12.6% in the quarter or approximately $33 million against the backdrop of its difficult external landscape.

If we look at comparable store sales growth exclusively for the days our stores were opened during the quarter that number improved to 22.5% a substantial increase and a testament to the team's hard work.

For the last several quarters, we've discussed our forecast strategic initiatives CRM brand and customer experience.

Commerce sales and store development.

The investments we've made are paying dividends not only in supporting growth, but allowing our team to be smarter and more efficient as we serve our customers.

Our digital marketing and ecommerce efforts delivered results at far exceeded our expectations for the quarter ecommerce sales grew at 332% achieving high double digit conversion rates and growth of over $45 million in the quarter.

Ecommerce revenues exceeded 20% of total company revenue for the second quarter, which surpassed our three year strategic target.

For comparison shoe carnivals E commerce sales represented less than 6% of fiscal second quarter revenue in 2019.

Our long term revenue growth driver in customer engagement strategy remains to rapidly build sales in this growing digital channel.

Very encouragingly ecommerce sales growth has proven to be sustainable even after all stores reopened continuing to achieve triple digit sales growth.

Im confident it will continue to be a meaningful platform of the shoe carnival business going forward.

Investments in our leading CRM capabilities also continue to pay off we reached many key milestones during the second quarter, which contributed to our double digit sales growth.

We surpassed 25 million loyalty members for the first time gold membership grew double digits and remain highly accretive to both sales and profits.

The average basket size of a gold member was $16 higher than a non member so converting our customers into gold members remains a winning strategy and a high priority for us.

Our targeted marketing efforts rapidly expanded sales from non members in the quarter as well with sales growth of over 30% in this category.

Connecting with new customers and customers not currently shoe perks members in converting them into loyal highly engaged members remains a key growth area for us.

Since the second quarter fiscal 2019, we converted over 1.8 million non members into basic members from these targeted connection efforts.

We plan to continue expanding our shoe perks loyalty program well into the future.

Our store teams navigated the challenges presented by Copel 19 with excellence, we closed all 390 stores. We operated during the first quarter to support the safety of our teams and communities we operated.

By June 1st our team at safely and efficiently opened over 95% of the store fleet and the full chain by late June.

While continuing to fill large numbers of E commerce orders.

So our traffic and conversion far outperformed internal expectations. For example in May and June combined we achieved a mid single digit store comp for the company inclusive of all stores open or closed due to cover the 19.

The uncertainty created by cover 19 did delayed the start of our back to school selling season out of Q2 and into Q3.

From a store operations inventory and marketing perspective, we were well prepared for this shift and a solid plans in place to support a lengthened selling period extending through Q3.

For example, we pivoted our marketing investment out of a traditional heavy TV and print land in late July and early August into targeted digital marketing, social CRM and store experience elements.

This decision enabled us to be nimble with our investments Interactive school districts back to school date announcements as they happened.

Sales trends have shifted later this year in line with our planning for marketing investments.

On average school districts announced returned to school dates approximately two to three weeks later than 2019.

And approximately 40% or returning virtually.

As such our historical sales pattern has shifted out and is lengthening.

As clip shared earlier store sales declined double digits toward the end of July in early August we're flat around mid August and began to grow double digits by month end.

Our markets for schools of either fully or partially returned to in person learning.

We've seen double digits same store sales comps during the last weeks of August in markets, where schools have opted for virtual only learning same store sales comps are declining low double digits.

At the same time ecommerce has experienced an acceleration of triple digit growth as a result, we anticipate total comparable sales for the combined August September period.

To be flat with the continued momentum in ecommerce sales offsetting negative results where schools have remained virtual.

While this back to school season is unlike anything we've experienced historically, it's far from over and we remain optimistic the shoe carnival will win market share and provide families with the shoes and accessories. They need despite the date changes and uncertainty families space.

As we navigate the current environment, we continue to progress against our long term real estate and store profitability strategies.

During the quarter, we opened two new stores within existing markets and finalized two additional store openings for the back half of 2020.

We anticipate these four openings to be the total for the year as we've taken a more conservative stance on capital investments since the pandemic began.

Additionally, we made the decision not to renew leases on 10 stores that generated low ROI picking the year to date total store closures to 12, we continue to monitor each stores profitability in sales closely with plans for one further store closure during 2020.

In closing I'm inspired by the efforts of our team during 2020 and the continued success of our strategic initiatives tremendous opportunities lie ahead for shoe Carnival as we continue building on our strong customer relationships and introducing new customers to the brand.

With that let me now turn the call over to Kerry Jackson provide more insight into our financial performance for the quarter.

Thank you Mark.

As Cliff mentioned this quarter was much stronger than we anticipated given the current market environment and we are incredibly proud of our team and their hard work.

We delivered record sales of 300.8 million into quarter, beating the prior sales record set in the third quarter 2017 by 4.6%.

Comparable store sales were up 12.6%.

E Commerce business sustained is triple digit growth and represented more than 20% of fiscal quarter second quarter sales.

Our brick and mortar store sales were negatively impacted by coded related closures early in the second quarter as Cliff mentioned earlier, the coded related delays for back to school shopping late in the quarter.

Gross profit margin for the quarter was 27.5% compared to 30.6% in the second quarter of last year.

Merchandise margins decreased 370%.

370 basis points.

While buying distribution oxy expense decreased 60 basis points as a percentage of sales.

The decrease in the merchandise margin was related to an increase of 250 basis points in shipping costs associated with E. Commerce sales with the remainder of the decreased due to a higher mix of adult athletic sales, which typically carry lower margins than not athletics.

The decrease in buying distribution oxy expenses was primarily due to the leveraging of expenses against the higher sales base.

As DNA expenses increased 1.8 million in the second quarter fiscal 2020 to 68.2 million, primarily reflecting higher ecommerce related operating expenses.

As a percentage of debt sailing SGN, a decreased to 22.7 per cent compared to 24.8% in the second quarter fiscal 2019.

Primarily due to leveraging of expenses against the higher sales base.

The effective income tax rate for the second quarter fiscal 2020 was 29.6% compared to 24.5% for the same period last year.

The rate increase was primarily due to the reversal the net operating loss carry back recorded in the first quarter due to improved financial performance.

Net income for the second quarter fiscal 2020 was 10.1 million compared to net income of 11.8 million in the prior year quarter.

Income per diluted share for this fiscal second quarter was 71 cents compared to income per diluted share of 80 cents in the prior year quarter.

Now turning to our cash position information expected cash flow.

Depreciation expense was 4.0 million for the second quarter compared to 4.1 million and to prior year quarter.

Capital expenditures for fiscal 2020, including actual expenditures during second quarter, our expected between 15 and $16 million with approximately eight to 10 million to be used for new stores relocations and remodels.

We also expect to spend between three and to $4 million on upgrades to our distribution center in fiscal 2020, as we continue to focus on enhancing our supply chain.

As Cliff mentioned, we continue work closely with our vendor partners just strategically manage our inventory.

As a result, we ended the quarter with inventory of 298.9 million, which was down 38.1 million compared to the prior year or down 8.7% on a per store basis.

As of August one 2020, we had no outstanding debt and working capital of 200 million.

Cash and cash equivalents were $76.9 billion and our borrowing capacity was 98.8 million at the ended the quarter.

Free cash flow was 65.1 million during the second quarter, resulting from record sales lower inventories and higher accounts payable.

This concludes our financial review now I'd like to open up the call for questions.

Thank you.

I would like to ask a question, we'll know press star one on your telephone keypad, if you're using his speakerphone. Please enter your mute function current also allow your second also reach our equipment.

Turning point with Vytorin measure so from the Q you May Press Star Tam again. Please press Star one question, we'll pause for a moment hello, everyone the opportunity to key for question.

We will take our Fercs, our first question from mix.

From Brazil restarts.

Yes. Thanks.

Congrats on the record quarter and thanks for taking my questions I want to start just.

Make sure I understand all the moving parts around Q3 with back to school and kind of what your assumptions are there. So I know that you said that August started slow and then have picked up but could you give us a.

Same store sales number for August as a whole.

I mentioned, we're now what we wanted to do with give directionally, what we saw during the quarter, we're not going to give a specific number and the reason is it's not relevant right now because of the way back to school is going to be so much later than it was.

Last year comparison isn't it only makes sense in our opinion by combining August and September together similar to what we do with Easter because so much we're back to school sales are moving into September we want to give you kind of a week understanding that has started.

Very slow we've picked up at the end at the end of August and we expect.

Come out of the combined August September relatively flat.

So you spoke to the trajectory that you have to the last couple of weeks of August is one thats what is that what you need in September to get to flat for the combined period.

Well, what we need is for schools to get back, which we believe all schools. We back by the end of September where it leaves us what we're hearing from the governors.

As you know Mitch as we've always talked about the fact that.

Our customer buys it need and as long as there as long as Eric.

Remote learning the need for four.

The immediate need for new back to school shoes doesn't present itself, we believe that and we've seen that happened now Minas schools have gone back our business have been outstanding in those markets and I think thats going to continue to happen.

That's an adult used the word outstanding lately. It really has happened in that way as schools.

Go back.

Got it. So that's my next question again, I just want to make sure I understand the moving parts here. So cliff I think you just said that by the end of September you expect.

All the schools to be back, but do you expect it give us a sort of a point of clarification I assume you don't expect all the schools to be in person by the end of September right, you're you're flat August.

September combined assumes all schools are Bakken.

Kids are back in school, but not necessarily that they're all in person is that the way I should be thinking about that assumption for that sort of flat.

Hey makes its mark.

We are assuming that the trend continues very similar to now were about 60% of this close our in some type of combination either backfile. They are back part with some virtual and approximately 40% are in a virtual scenario.

We anticipate that the schools that Havent gone back yet there's still a large tranche of those particularly in the northeast and north as they go back we'll keep similar rates and if they do something of that nature that leads to the flat combined back to school season that stuff and I were talking about got it okay.

And then when I think about August September being flat, obviously, that's being negatively impacted by.

The schools that are virtual is there anything else that you guys are seeing to kind of compare that flat for those two months versus the 20% plus that youre doing before are you seeing any fall off because of you now stimulus going away with the enhanced unemployment or any sort of fall off in pent up demand or any other.

Things out in the market.

I think the biggest thing we're seeing is the impact of the virtual only schools that thats the key impact to our back to school and we're incredibly encouraged that despite that.

Approximately 40% being virtual only right now our E Commerce business has seen an accelerated trajectory during the last few weeks as kids start to shop and.

Triple digit continues to accelerate at that month progressed. So we feel like we're well positioned to deliver that flat despite.

Schools, staying virtual and with some.

Progression and that have more shifting to a combo or others as such said once they go back we're seeing outstanding got comp store sales results. So if it gets better than that there is some potential to be flat yep Yep, just a couple couple of other things.

Clip as you think about the back half of the year I mean, obviously in the quarter. Your adult athletic business was extremely strong how are you thinking about those trends potentially continuing into the back half of the year, especially as we kind of move into a boot season, I mean are you.

I think you made a comment if it's not bought you're not going to get it. So I'm just kind of curious how you land that and then when you think about boots.

I feel like in the on an on.

The non athletic side. It was a lot of slippers and comfort things that were working for spring summer as I can tell us how you're thinking about boots for holiday sort of more.

Here are laying versus you know.

Fashion boots.

Yes.

Probably not going to get down to the type of lose we believe will be selling even though I don't believe that.

A retailer can go out today, and and Bob boots that they have an already bottom so.

Stick by that statement I will say hey, this it that are not furloughing. Our people are allowed our people to adjust and move orders on a continuous basis based on the way the business was.

Progressing into effect that we knew we were going to be reopening our stores. We believe that we're going to be better positioned from a boom standpoint, then.

Most of mine to say any but most of our competitors.

Who bid for low.

Their employees, so I am on up up feel pretty good about the boot season coming up because I believe will capture market share.

And in boots, So I do.

I've said I don't want to get into whether I think it's going to be casual or fertilizer is that just in case of.

Miracle happens and boost do become available that'll work.

Anyway, I don't want our what well what our strategy is to be out there got it and then lastly can you speak a little bit to the kind of bankruptcies store closures I know hibbitts I will cover hibbitts, but they reported on last Friday, and they talked about starting to see some benefits there and I don't know if theres anything you can quantify or maybe sort of speak to sort of the overlap that you have.

Yes.

With some of your stores in some of the stores that you're seeing close.

No we do I can't quantify the effective.

Of particular.

Particular store or region as better.

Due to the fact that school skews, but that we've lost competition with the exception of up one market.

In the northeast so I will.

Im not sure how I.

I just don't believe theres been enough time between the bankruptcies and store closures for us to give you that kind of information, especially with the shifting the back to school.

Okay, Alright, thanks, guys.

Thank you we will take our next question from Sam Poser of Susquehanna.

Good afternoon. Thanks for taking my question guys.

So let's start at the top periods as you do when you're thinking about the back half of the year given the inventory in the way you are flowing goods.

Do you expect to you haven't talked about Q3 in total, but but but I mean, you expect Q3 to be better than Q4 vice versa.

Better and what respects can.

Year over year sales.

Well Q3 is traditionally a higher sales period in Q4, and we'd expect that pattern to continue because that increase percentage increase year over year.

We're not going to get into trying to.

We're not putting have guidance right now and it's very difficult to read we want to get through the back to school season, we need to see how many these.

Schools go back and.

Clip was talking about and why we generally feel good about the second half from a standpoint have we're well positioned for back to school sales and we're well positioned for boots, it's very hard to actually quantify and that's why we've chosen not to give guidance at this point.

Okay and.

If we look at you talked about the first two weeks of August remaining difficult minute ticked up can you talk about the month of let's say July 15th So August 15.

That portion of back to school that Didnt, what are you needing to make up.

Sort of within that part of back to school and it sounds like based on being flat in Q.

Looking at September.

Not necessarily.

The leaving you're going to capture.

Sort of that Miss.

In July into the third quarter is that a fair way to think about it.

Hi, Sam it's Mark, Yes, Thats, a fair way to think about it broadly.

That said and I alluded to it was that period you referred to we saw double digit declines until it really pivoted towards the mid part of August to flattish comp store sales as a school started to return and by the latter part of August we're seeing very strong double digit.

Same store growth in this school districts, where kids went back a combo.

And in aggregate with E commerce with the virtual and with those I went back we saw double digit comp gain by the end of August.

So we think we're very well positioned to deliver flat.

Overall comp growth for the corporation in the combined two month period and we're optimistic.

And that sort of implying like a low double digit growth that in September to sort of get there.

Given the weakness in the first half.

August.

Sam we're just not going to quantify.

You know what percent increase or decrease we saw an August or September it, but just if the combined period.

Because of the shifts or it's just like Easter.

His way we're looking at it is it the way it's moved around honest it isn't relevant in our opinion other than to give the combined period.

Okay, I will I will leave the dead horse alone.

Yes.

Thank you.

So so let's go Nike Nike recently has decided to pull goods out a number of retailers.

With two new overlap.

What we've heard is still roads, Belk, and I guess boss comps and I assume mode Delta. So you were referring to up in the northeast clip.

Hi, how do you foresee that helping you it's not going to it's not this quarter, but I mean, when you think about that and given that that's underway have.

Are you seeing that youre going to get access to different types of product or or different quantities given the.

Activity that appears to be going ahead.

I think all of those decisions are still influx I will tell you that.

Anytime and you know this do the work very well Sam anytime you have a competitor that loses a brand as strong as as that particular brand.

It.

That.

I think it's good news for any of the retailers that.

Still maintain the brand so I in that regard.

I can't tell you that I'm unhappy that.

They pulled product back.

I'm very happy.

Two more questions one how many stores do you have the Nike shop in right now.

Right now until.

With over 100 us the fleets so we're approaching.

25% to 35% during the year ahead.

Okay, and and then lastly.

Within within given the strength of athletic in sandals, and so I mean is the real story here sort of comfort athletic comfort.

Versus you mentioned dress, but I mean, our people.

Do you see any changes you we moved through the year in that sort of in the end use type of product, which seems to be comfort.

Changing is that going to and to public niches question does that evolved into.

Three boots versus.

So your non cozy comfort groups.

Hey, guys keep and does that keep athletic going.

And did you have a good slipper business in Q2, as well, which I think.

The best way to answer that question is that I believe the trends we've seen.

Since the co that hit and with the offices.

Offices in schools closed.

That trend that trend is going to not the schools been close but the trend of casual.

Life style will continue and we are absolutely prepared for that to be the cases and that's that with.

Include casual non athletic product as well as athletic product.

In casual boots.

There's just no reason at this point of that occupancy as we move through the rest of this year.

Progress.

Product to pick up.

All right.

I'm going to sneaking I'll go ahead. Thank you very much above second have continued success.

Thank you we'll take our next question Greg Pendy.

Hi, guys. Thanks for taking my questions can you just remind me I think last year, you said the fourth quarter E Commerce revenues were 8%.

But I don't believe you guys gave third quarter. So just kind of trying to get a sense of what will be anniversarying in terms of E commerce sales.

In for the third quarter it was approximately 6% revenues.

[music].

In the fourth quarter, it's a little stronger closer to 8%.

Okay, and when you say just said I'm clear when you say, 8% of revenues are you talking at total revenues are 8% incremental to the.

8% of what you did on the store base.

On total.

On total okay perfect.

And then just I guess on that now in staying within the E Commerce, where I'll just trying to get a sense I mean, the world seems to change and your economics has changed a bit here.

So when we're thinking you know Anna and I know, it's too far out.

But just thinking I guess long term trajectory 2021, how are you thinking about new stores I guess.

Longer term given E commerce and sort of Jumpstarted thick historically, you thought maybe 12% of your sales would get there. It seems to have surpassed that so how do you think about going forward, putting your efforts maybe more towards E commerce versus store growth and how should we be thinking about that over a long period.

And going into the pandemic, we had a three year target to grow our ecommerce business to that high teens, 20% of the corporation.

And as we just shared we exceeded 20% during this period of time and far accelerate our capabilities.

Customers truly have made a choice not just in our category and many others that E commerce business can satisfy their needs. So really thrilled with what we're saying we think we're very well positioned.

If you look towards the tail ended the quarter as all stores started to reopen we saw our ecommerce business stabilize the triple digit growth and it's stabilized in that mid teens percent of the total corporations revenues at that point of time.

While we're not clear if that is where stabilizes with so much uncertainty we are using that as a guiding principle for Q3 Q4.

Thinking that the business will stabilize from a revenue in a cost perspective in the mid teens percent corporate revenue.

When you put that in context, then of stores, we're still incredibly committed to our long term strategy to grow our store base and for laser focused where our brands is strong where we get great ROI us in our existing at DNA is from our market leaders in our key 35 states.

We already have brand building and loyal customers. So we remain committed to.

Building, our store footprint in those existing markets, but right now we're taking a very conservative approach to capital by we're taking a conservative approach until we get to the other side of visibility to that pandemic at or not putting out guidance nor are we aggressively going after new store growth at this time for 20.

21, but.

Incredibly encouraged by what we are saying with the customer shift to us our market share gains in E. Commerce back three years or so acceleration of ecommerce capabilities in revenues as well as our stores as we talked about earlier when open delivered comp.

Store growth during Q2.

On may exclude those as we talked about in Q2, delivering 22.5% growth for the quarter. During a period of time, when there's great challenges our customers and employees for Facebook, So I couldn't be more proud of what they achieved during the quarter.

That's helpful. Thanks, a lot.

Thank you.

Thank you.

We'll take our next question from Chris Cynthia.

Yes.

Good afternoon, everyone. Thanks for taking my Chris.

Correct.

Couple of things.

And I guess I'm still kind of course on little bit helping Paul.

So I guess first.

Can you remind me last year.

August September October just what the comp cadence look like.

I guess strong back things slowed by October primary certainly correctly for the compare on October easier just remind me on that Gary.

Last year.

There was low single digits.

August and September and mid singles in October.

Okay, Okay stronger.

I am just clarification, so I understand that.

So in August.

Turned negative twentys in the first two week of the month.

Flattened out in total midway through and then by the tailwind.

Two weeks or so total company so E com everything altogether.

Mid single did I catch all that correctly, because he drought Paul.

He can you drought areas that were open plot.

We will have gone back I'm just trying to.

All together to fully understand.

Hey.

Hi, Chris Smart Yep so.

Talking about total company revenues open and closed or whatever form is still in ecommerce I'll state now the first two weeks, where double digit decline. We didn't stayed exactly how much but there are double digit decline in the first two weeks of August five mid week total company comp was flat sorry by mid month August total company was flat.

And by the last weeks of August and what we're seeing now we're pulling into total company double digit comp growth and that it's not a week so the not not in total.

Right.

Okay, so double digit towards that you've got towards the talent a total company.

Yes.

Okay exactly driven by the strength of schools I went back in any fashion live and accelerated triple digit growth in E commerce offsetting yet the headwinds we are facing for school districts that have decided to go virtual only but again, we're incredibly encouraged that the strength of our concept in stores as well as.

An incredibly strong E commerce platform is enough to offset those things are out of our control for school districts are deciding not to go backup.

And Mark you reference.

Acceleration E commerce fish farming Clara so if you're kind of still in that triple digit. If you came to the tail end of the court are you made some comments it accelerated accelerate from that call. It July August trend that you came through the talent of August.

Okay Fair.

If we saw that E commerce business during that ended July early August also when.

Similar to what clip was saying it was not high to mid triple digits. Like we were pacing, we thought slowed down a battle closer to.

Hi, double digit low triple digit during that period, where kids were not going back to school. So it was excellent but it wasn't ranging in the mid triple digits, Ben and as we progressed. It just like the school districts stores open started to accelerate in the middle of August to a solid triple digit and continuing to accelerate.

Okay.

To very strong triple digit by the end of the month.

Okay. Okay.

Okay got it and final thing on all that stop here. Some clear you anticipate just to get to that flat for both of my on.

I guess in September is basically 60% of school go back either partial hybrid or fall and 40% so far for wall and all your market that gets you to flat just to confirm for though.

Those are the rough numbers, we've seen so far.

At this point for the school districts and as long as it doesn't get any worse than that that's built into our assumptions and we have this deal announcements for the districts ahead. So we believe it could get better if the situation on the ground where at some or virtual wallet.

Decide to go back in some form accommodation I got to right Chris.

Okay Kerry.

Let's talk margins for a moment, just how long do what changes.

Q3 broadly speaking broad stroke.

Based on the mix of business and we still anticipate gross margin pressure because of shipping cost rate E. Com, how much guide the kids business, maybe coming back traditional back to school, maybe slowdown in adult iron how does how do I think about gross margin as seen in color one way or the other relative to what you saw.

Q2.

So as a general statement for the gross profit margin, we saw the most difficult compare in Q2 with the shipping costs because as Mark said, we had over 20% penetration of of our ecommerce business for the total quarter and now we always expect that to be as as Hyatt.

Attrition in Q3 in Q4 and also in Q3 and Q4, particularly last year, we accelerated our ecommerce business then so the delta between the overall penetration gets smaller as the year goes at goes on so the.

Shipping penalty to the shipping charges on a year over year basis is not as big in Q3 is even less in Q4.

So we would expect is still see some pressure against or overall gross profit margin in Q3, but we think that.

With a leaner inventory.

We can make up the the negative effect of the shipping charges.

In Q4 and sees costly some growth in our overall margin gross profit margin in Q4.

Okay. So just that pull that together you'd probably expect still from down Q3 gross margin, though not nearly as much in Q2, and that's a function of job largely E commerce mix Q4, even become.

Lots of a factor.

And therefore, you would expect.

Some level profitable gross margin improvement potentially if we have a normal if we have a normal selling period I should a caveated that I mean, we're talking theres so much.

Not no go right now, but if we had a more normalized selling period in Q4.

I was trying to draw a comparison that depend on the of the shipping charges would not.

Preclude us from having a positive gross profit margin.

Got it Okay. That's helpful and just on the inventory how away how do we think about that as we move forward and I guess more specifically are you getting what you want to get or are you potentially missing Sal.

Because you're just not don't have a product path.

I think.

Chris I think the merchants.

Carl and the merchant team has done a great job of getting in front of the vendor community.

We have we have had.

Virtual meetings with every vendor.

That is important to our to our business and we are getting of who we are.

Getting incredible help from the vendors and giving us back in stock when the items that are selling.

But.

And then no it really truly has been a concentrated.

List, it's not as not as broad as you would expect the customers have really honed in on certain brands certain categories and.

Our our guys are pushing hard.

To get back in stock and stay in stock in those brands and categories.

Michael Senno others are.

Okay.

We don't talk about brands.

[laughter].

Okay last thing for me.

How do I think about.

Yes.

And where you and roughly a year I think you've always try to end with 50 million on the book Fair there about 50 picking up.

Yes.

Maybe you want a little bit more and.

Now how do you think about.

Now potentially going back to buying back stock or how does that sit on the Grand grant committing.

Yeah. So we think we're at an interim high right now honored shoot on our Q2 ending.

Our cash balance and the reason is is that our inventories because we returning or so quickly and bringing the receipt then.

We had a higher account accounts payable balance than we traditionally would have now that we paid down in Q3, and we should get back to more normal. So we're still we won't be as into Q3.

At this will be below where we're at today.

By year end once we clean go through the.

Cycle of reducing your inventories to holiday, we should be back into.

Cash balance that's not on similar to the.

Into the second quarter.

Okay and share repurchase.

You know our belief right now as we were more.

Inclined to heal our balance sheet and be cautious in this time when there's so much volatility so were where we're not yet saying that we're interested in buying shares back right now this year.

Fair enough alright, thank you that all of that appreciate it.

Thank you. Thank you.

Thank you.

We'll have a follow up questions and Mitch Kummetz.

Research.

Oh, Thanks, I still have like a handful and I promise to stay away from that dead horse. So just a follow up on Christmas margin questions Kerry.

I think you kind of addressed merch margin pretty well, but I'm curious on BD, though because if you guys are running sort of flat comp August September could you remind us sort of what the leverage point is on video and do you expect some de leveraged to occur in the third quarter.

You know it's hard to know what we've given you is August September October as we've said sometimes for depends on the weather if it cools down and we can seller boots.

That makes for a good October so it's hard to say, but.

And looking I would say you're looking at a flattish to maybe slightly down or de leveraged media no in Q3.

Yes, how about SGN $8. This unit dollars I think you said were up a million a two year over year in Q2.

It sounds like there was some marketing.

Pushed out a Q2 into Q3 is there any way can give us a sense around SGN, a maybe from a dollar standpoint.

I assume you expected to be up year over year, but maybe that's not the case.

When we do expect it to be up for two reasons.

One is going to be.

Shifting the advertising dollars into Q3.

But the other piece of is going to be in at the end at the larger piece is that because of the increase in ecommerce sales were going to just like we saw the one of the largest increases we had for Q2 was the increased operating expenses for E. Com, we expect to see the same type of thing in Q4, earning cute.

Three.

And.

Those two items will cause us to have increased dollars on a year over year basis.

Okay, and then cliff a couple on a on the product.

On adult non athletic you gave some color around that but I don't I didn't hear you given actual cop for that business. If you didn't could you tell us what it was there but if you if you did and I missed it could you remind me.

Okay.

Adult that Oh excuse me.

Don't non athletic.

Non elsewhere.

Okay.

I heard you talk about sandals and drive, but I don't recall yet.

Comp number on it well overall I'll tell you that the non athletic.

Business was our sales were down.

For the quarter and.

Two seconds.

Down slightly.

And.

In womens non athletic.

And actually because of those.

Work category, they were up mid singles and.

And mens okay.

And then and then on the adult athletic business, which was obviously strong in the quarter is there any way you can kind of drill down on the strength, there whether was sort of running versus basketball versus sneakers, and where do you guys sort of put the Nike core vision I know that you know footlocker says that Air Force. One is our basketball I don't think thrust of the world sort of use it.

Otherwise I'm kind of curious sort of what.

Yes, there was anything in particular that really contributed to the strength of your athletic business.

Oh running category, which was very strong for the time period, but our customer uses of running category to walk in and there are those a lot to a lot of walking been done during that quarter as people were not working.

And you called out one of the hottest items.

In the marketplace and best as close as I'm going to get the talking about individual.

Fair enough and then I guess my last question is for for Mark.

So we got a lot of schools that are virtual if we see some of those transition to in person at some point, whether that's October November does that get you kind of a I don't know second bite of the Apple or something and if yes, let's say like a school or to be virtual all first I'm not sure. But then go back in person.

The second semester do you end up with some sort of weird abbreviated back to school season like later on or does that just get absorbed by sort of typical holiday selling.

It's an interesting question, we do know factually kids feet are going to grow and we absolutely are confident that we're in great position to satisfy those needs. So let's take the 40% of store schools that are going virtually if they do though during October November.

I do think there's potential to be capturing more of them in our stores during that moment of time, there's some great joy the experience a shoe Carnival would you believe.

There is a second wave of shoe Carnival back to school shopping if they do pay that later.

Got it okay, alright, thanks, guys. Good luck.

Thank you. Thank you operator, we'll take our last question from Sam Poser of Susquehanna.

Hi, Kerry what thank you look to what degree do the.

With the SGN A.

Direction, you provided to what degree does the store closure is that 10 stores that youve closed helped to offset some of those costs like when you think about.

What's attitude from.

The expenses from E com.

I mean, how much do you stay away from having those stores have been.

Stores.

So dan with that seem to gotten cologuard.

There's a lot of volatility and in the SDN a number right now and as some positive some negative like for example, you could imagine due to time demick, our our travel costs are down dramatically our year over year, but our supplies for PPD are up so it.

What I think you can.

Rely on the guidance that if you teased out only the.

The two issues I talked about.

That would that would account for the increased in the S. DNA and all of the up all the rest of it seems to kind of net against each other being material.

And when do you think about that net increase are we looking at a net increase like it was in Q2, I mean, just on sort of.

Core.

I mean is that relative to its is it I mean, what they want to guide, but I mean, what sales is that relative.

I'm not sure.

Im not sure I understand Sam.

If you do.

Do a million dollars you do $5 million your as you know it's going to be different.

Depending on how much revenue you do so what's that increase based style.

So it's based on the expectation of ecommerce sales so that when we said the operating expenses.

For ecommerce wood.

Mark instead, we in the mid teens, we expect Q3 in Q4 to be it could be a percent of the total sales.

And that and then the other pieces the advertising piece of it.

That we're shifting primarily is to shift.

I think cliff said in his speech, we pivoted our when we saw the back to school, starting later and moved our advertising into Q2 into Q3 to.

Support when the schools went back which is later than they were in the year before.

And and your ecommerce business I mean, you said sort of ramping is it ramp I mean, when you say it's is it running like it was running in Q2 or is it just ramping up into the triple digits now or are we talking about Q3 looking like Q2 there.

Yes AMITS.

Continued to deliver triple digit, but the nuances I said earlier of the pacing and after all stores open repeat we settled in from above 20% to the mid teens and that gave us a triple digit growth. We think now that all stores continue to remain open.

We do anticipate that mid teens as a place we'll start to growth from again as a more stable base and we will start to grow because we're seeing tremendous.

Traffic and conversion and feedback from people shopping our ecommerce site.

And then lastly, and I promise what when when do you think about 2021 do you think about having your stores open and having sort of the and hopefully a vaccine I.

I mean, theoretically Youre E com business from a dollar perspective sort of would say somewhere.

[laughter] sticking it's within the realm of where it is now.

And then and then you would get the Incrementality of all your stores opened in sort of a more normal flow of the year is that sort of a fair way to think about it.

We expect from anyhow. The on your stores next year, Yes, we expect the best way to answer that question Sam as we think the E com will settle in at about the same percentage.

Of our total businesses it is today.

This is between 15 and 20% of our total business.

And that's what I meant when I said that we're three years ahead of plan, that's where we've.

Where we said we were headed and now that the customers discovered our site.

They like it and they like the service, we're providing we believe that is going to settled in light of that percentage.

Alright. Thank you so much in concluding success.

Alright, Thank you Susan.

Okay.

Thank you and this concludes today's question and answer session.

I want to.

I will take an opportunity to thanks, everyone.

For joining us today and.

Continued health.

I continue to be proud of shoe carnival team than what we've been able to accomplish under these unusual and unpredictable circumstances are ongoing commitment to financial strength and flexibility will ensure continued success of our business and.

Please stay safe and we look forward to talking to you again in November.

Thank you ladies and gentlemen, this concludes todays presentation you may now disconnect.

[music].

[music].

[music].

Good afternoon, and welcome to the shoe Carnival second quarter fiscal 2020 earnings conference call.

Today's conference is being recorded is also being broadcast via webcast any reproduction or rebroadcast of any portion of this call is expressly prohibited.

<unk> remarks may contain forward looking statements that involve a number of risk factors. These risk factors could cause the company's actual results to material differently from those projected in such statements.

Forward looking statements should also be considered in conjunction with the discussion of risks factors included in the Companys S. C E filings in todays earnings press release.

Investors are cautioned not to place undue reliance on these forward looking statements, which speak only as of today state.

The company disclaims any obligation to update any of these risk factors or publicly announce any revisions to forward looking statements discussed on today's conference call or convey contained in today's press release.

Reflect future events or developments.

I would now like to turn the conference over to Mr. Cliff deferred Vice chairman and CEO of shoe Carnival for opening statements. Mr. Sip or do you may begin.

Thank you and welcome to shoe Carnival is 2022nd quarter earnings Conference call. Joining me on the call today is more important president and Chief customer Officer in Kerry Jackson, Senior Executive Vice President Chief financial and administrative officer.

On today's call I will provide a high level review over fiscal second quarter 2020 results as well as an update on the ongoing coated 19 endemic and the impact it has had on our business.

I will then discuss our strategic initiatives and how our long term investments have already begun to pay all all about carry who will discuss the quarter's financial results well then open the call for your question.

Our fiscal second quarter results, clearly demonstrated the screen and commitment of our team as well as the resiliency of our concept.

I spoke earlier in the process, a reopening our stores and as we have said that health and safety of our employees and customers was our number one priority.

I'm very pleased to report thanks to the dedication and strong execution of our team members. We have successfully reopened all of our stores welcoming our loyal customers back to fulfill their family footwear leads.

In person our corporate office will also complete the final phase of our reopening plan after labor day.

Our results for the quarter were strong in fact second quarter revenues of more than $300 million established a new quarterly record for shoe Carnival ourselves were undoubtedly supported by our decision to not furlough any employees during the shutdown as we were able to get our team.

Back to the store faster the nearly all our competitors.

Just as exciting as you enormous growth, we continued to see with our ecommerce platform, which delivered another triple digit gain in the quarter, even as customers were able to get back into stores.

All in our focus on our loyal customers coupled with our teams excellent operational execution drove same store sales growth of 12.6% overall.

Looking exclusively at the days our stores were opened same store sales growth would have been 22.5%.

This increase comes despite the dramatic shifts and back to school dates we experienced at the end of the quarter.

For context.

Typical season, we see back to school shopping started mid to late July.

However, the pandemic has delayed start dates for nearly all the schools within the markets we operate.

As we saw this materializing, we pivoted quickly and realigned our back to school marketing to correspond with the shift in the season.

The week two of July our quarter to date comps were up in the mid Twentys as we approach. The end until end of July we saw sales declined for the last two weeks to the quarter and the high Twentys as school shifted their start dates with continued through the first two weeks of August.

It is worth, noting however that even with these two important weeks of back to schools sell shifting out of the quarter. Our teams still delivered the highest quarterly sales and the company's history.

Once we approach approach them Rivas back to school dates and late August our comparable store sales began to increase with sales. The last two weeks of August up mid single digits for reference.

Hopefully by the end of August 95% of our schools are back in session.

This year as of August 31st only 65% of our schools were back to this end. We believe the majority of back to school volume will be realized through September.

We will extend or back to school season through the end of October to ensure we are timely serving our customers needs.

Despite these dynamics, we expect comparable store sales for August and September combine to be flat.

Mark will provide additional color on this in his prepared remarks.

Turning to our ecommerce business several years ago, we made the decision to significantly invest in our technology platforms, including our ecommerce business as CRM capabilities.

This decision is paying off throughout the second quarter, we have deliberate explosive growth in our ecommerce business, marking another period of triple digit increases. Moreover for the fiscal second quarter. Our ecommerce revenues were just over 20% a total company revenue.

Exceeding our three year target low.

In addition, our shoe perks loyalty program achieved a critical milestone surpassing 25 million members and our goal membership grew double digits.

Looking at comparable store sales by department for the quarter Adult Athletic overall were up 30% driven by strong growth in both womens mens product categories. Each.

Approximately 30%.

Sales in both mens and womens non athletic category were driven by sandals in sport casual product.

Not surprisingly dress shoes were down double digit consistent with the change to a more casual and active lifestyle as a result of closed offices and schools.

His comparable store sales were down low single digits with non athletic up double digits, driven by robust activity and kids sandals and inputs.

Somewhat offset by kids athletic down low double digits, reflecting the shift back to school sales into quarter three.

Our current inventory position the solid yet lead.

And we continue to work closely with our vendor partners to ensure we had the best product available for our customers.

As discussed last quarter during the shutdown, we canceled spring orders and ship to fall merchandise still later in this season.

However, our strong sales trends have us move in that product back to a more normalized receive time period.

We're also working closely with our key vendor partners to replenishment categories and classifications that are driving ourselves.

We're very comfortable with the amount of inventory flow that we have coming in for the fall and holiday period.

That being said, we do expect in the year with inventory down on a per store basis.

While sales have far exceeded our initial expectation as color coded pandemic Turk took hold in the first and second quarter. The uncertainty has created has been substantial and continues to impact our business.

Our strong relationship with our vendor partners has been critical as we plan for the future as a vendor community has not taken any chances with inventory levels.

Meaning if thats not already ball is it's too late to buy it now.

While the current environment makes it difficult to provide clear guidance absent a second wave of shutdowns. We believe we're well positioned capture market share throughout the remaining remainder of the year. We made a quick decision was to support our employees maintain appropriate inventory levels.

And then hence our vendor relationships during the shutdown period.

This has allowed us to remain nimble and fulfill our customers need for both back to school and into the fall and holiday period.

Our financial strength and flexibility combined with our laser focused on maintaining an impeccable balance sheet has proven to be invaluable. During these unprecedented times. We ended the quarter with approximately 77 million in cash and cash equivalents and no debt.

We also increased our line of credit from 50 million to a 100 million to ensure we have ample liquidity.

Neither.

Our disciplined approach as well as our strategic investments in our businesses have allowed us to make incredible progress on our long term strategic initiatives and will guide us through any.

First see challenges ahead.

Given the continued uncertainty as a result of the pandemic, we still believe it would not be prudent to provide guidance at this time.

With that overview I'd like to turn the call over to Mark Ordan to provide an update on our strategic initiatives Mark.

I'd like to start by thanking our 5000 plus team members for their truly outstanding performance and commitment to providing excellent customer service during 2020.

While these last few months have been challenging on a variety of levels. Our team has exceeded all internal expectations driving our strategic initiatives forward and delivering went in Q2 results.

As Cliff mentioned, we achieved comparable store sales growth of 12.6% in the quarter or approximately $33 million against the backdrop of a difficult external landscape.

If we look at comparable store sales growth exclusively for the days our stores were opened during the quarter that number improved to 22.5%.

The actual increase and a testament to the team's hard work.

For the last several quarters, we've discussed our Fourq is strategic initiatives CRM brands and customer experience.

Commerce sales and store development.

The investments we've made are paying dividends not only in supporting growth, but allowing our team to be smarter and more efficient as we serve our customers.

Our digital marketing and ecommerce efforts delivered results a far exceeded our expectations for the quarter ecommerce sales grew at 332% achieving high double digit conversion rates and growth of over $45 million in the quarter.

Ecommerce revenues exceeded 20% of total company revenue for the second quarter, which surpassed our three year strategic target.

For comparison shoe carnivals E commerce sales represented less than 6% of fiscal second quarter revenue in 2019.

Our long term revenue growth driver in customer engagement strategy remains to rapidly build sales in this growing digital channel.

Encouragingly ecommerce sales growth has proven to be sustainable even after all stores reopened continuing to achieve triple digit sales growth.

I am confident it will continue to be a meaningful platform of the shoe carnival business going forward.

Investments in our leading CRM capabilities also continue to pay off we reached many key milestones during the second quarter, which contributed to our double digit sales growth.

We surpassed 25 million loyalty members for the first time gold membership grew double digits and remain highly accretive to both sales and profits.

Average basket size of a gold member was $16 higher than a non member so converting our customers into gold members remains a winning strategy and a high priority for us.

Our targeted marketing efforts rapidly expanded sales from non members in the quarter as well with sales growth of over 30% in this category.

Connecting with new customers and customers not currently shoe perks members in converting them into loyal highly engaged members remains a key growth area for us.

Since the second quarter fiscal 2019, we converted over 1.8 million nonmembers into basic members from these targeted connection efforts.

We plan to continue expanding our shoe perks loyalty program well into the future.

Our store teams navigated the challenges presented by Koeppen 19 with excellence, we close all 390 stores. We operated during the first quarter to support the safety of our teams and community as we operated.

By June 1st our team at safely and efficiently opened over 95% of in store fleet and the full chain by late June.

While continuing to fill large numbers of E commerce orders.

Store traffic and conversion far outperformed internal expectations. For example in May and June combined we achieved the mid single digits store comp for the company inclusive of all stores open or closed due to cover the 19.

The uncertainty created by cover 19 delayed the start of our back to school selling season out of Q2 and into Q3.

From a store operations inventory and marketing perspective, we were well prepared for this shift and a solid plans in place to support a lengthened selling period extending through Q3.

For example, we pivoted our marketing investment out of a traditional heavy TV and print plan in late July in early August into targeted digital marketing, social CRM and store experience elements.

This decision enabled us to be nimble with our investments and react to school districts back to school date announcements as they happened.

Yes trends have shifted later this year in line with our planning for marketing investments.

On average school districts to announce return to school dates approximately two to three weeks later than 2019.

At approximately 40% or returning virtually.

As such our historical sales pattern has shifted out and is lengthening.

Let's flip shared earlier store sales declined double digits towards the end of July in early August we're flat around mid August and began to grow double digits by month and.

Our markets for schools of either fully or partially returned to in person learning.

We've seen double digit same store sales comps during the last weeks of August in markets, where schools have opted for virtual only learning same store sales comps are declining low double digits.

At the same time ecommerce has experienced an acceleration of triple digit growth as a result, we anticipate total comparable sales for the combined August September period.

To be flat with the continued momentum in ecommerce sales offsetting negative results where schools have remained virtual.

While this back to school season is unlike anything we've experienced historically, it's far from over and we remain optimistic the shoe carnival will win market share and provide families with the shoes and accessories. They need despite the date changes and uncertainty families space.

As we navigate the current environment, we continue to progress against our long term real estate and store profitability strategies.

During the quarter, we opened two new stores within existing markets and finalize two additional store openings for the back half of 2020.

We anticipate these four openings to be the total for the year as we've taken a more conservative stance on capital investments since the pandemic began.

Additionally, we made this decision not to renew leases on 10 stores that generated low ROI picking the year to date total store closures to 12.

We continue to monitor each stores profitability in sales closely with plans for one further store closure during 2020.

In closing I'm inspired by the efforts of our team during 2020 and the continued success of our strategic initiatives tremendous opportunities lie ahead for shoe Carnival as we continue building on our strong customer relationships and introducing new customers to the brands.

With that let me now turn the call over to Kerry Jackson provide more insight into our financial performance for the quarter.

Thank you Mark.

As Cliff mentioned this quarter was much stronger than we anticipated given the current market environment and we are incredibly proud of our team and their hard work.

We delivered record sales of 300.8 million in the quarter, beating the prior sales record set in the third quarter 2017 by 4.6%.

Comparable store sales were up 12.6%.

E Commerce business sustain this triple digit digit growth and represented more than 20% of fiscal quarter second quarter sales.

Our brick and mortar store sales were negatively impacted by coated related closures early in the second quarter as Cliff mentioned earlier coated related delays for back to school shopping late in the quarter.

Gross profit margin for the quarter was 27.5 per cent compared to 30.6% in the second quarter of last year.

Merchandise margins decreased 370%.

370 basis points.

While buying distribution oxy expense decreased 60 basis points as a percentage of sales.

The decrease in the merchandise margin was related to an increase of 250 basis points in shipping costs associated with E. Commerce sales with the remainder of the decrease due to a higher mix of adult athletic sales, which typically carry lower margins than not athletics.

The decrease in buying distribution oxy expenses was primarily due to leveraging of expenses against the higher sales base.

SGN a expenses increased 1.8 million in the second quarter fiscal 2020.

68.2 million, primarily reflecting higher E commerce related operating expenses.

As a percentage of net sales SGN, a decreased to 22.7 per cent compared to 24.8% and the second quarter fiscal 2019.

Primarily due to leveraging of expenses against the higher sales base.

The effective income tax rate for the second quarter fiscal 2020 was 29.6% compared to 24.5% for the same period last year.

The rate increase was primarily due to the reversal the net operating loss carry back recorded in the first quarter due to improved financial performance.

Net income for the second quarter fiscal 2020, with 10.1 million compared to net income of $11.8 million and the prior year quarter.

Income per diluted share for this fiscal second quarter was 71 cents compared to income per diluted share of 80 cents.

In the prior year quarter.

Now turning to your cash position information expected cash flow.

Depreciation expense was 4.0 million for the second quarter compared to 4.1 million and to prior year quarter.

Capital expenditures for fiscal 2020, including actual expenditures during the second quarter, our expected between 15, and 16 million with approximately eight to 10 million to be used for new stores relocations Remodels.

We also expect to spend between three and to $4 million on upgrades to our distribution center in fiscal 2020, as we continue to focus on enhancing our supply chain.

As Cliff mentioned, we continue work closely with our vendor partners just strategically advantaged our inventory.

As a result, we ended the quarter with inventory or 298.9 billion, which was down 38.1 billion compared to the prior year or down 8.7% on a per store basis.

As of August one 2020, we had no outstanding debt and working capital of 200 million.

Cash and cash equivalents were $76.9 billion and our borrowing capacity with $98.8 million at ended the quarter.

Free cash flow was 65.1 million during the second quarter results, our progress for sales lower inventories and higher accounts payable.

This concludes our financial review now I'd like to open up the call for questions.

Thank you.

To ask a question, we'll know press star one on your telephone keypad, if you're using his speakerphone. Please.

Mute function turned also allow your second also reach our equipment.

Please turn measure so from the King you May proceed starting again. Please press star one question, we'll pause for a moment to allow everyone. The opportunity. Thank you for questions.

We will take our Fercs, our first question from mix.

From pivotal research.

Yes. Thanks.

Congrats on the record quarter and thanks for taking my questions I want to start just or make sure I understand all the moving parts around Q3 with back to school and kind of what your assumptions are there. So I know that you said that August started slow and then it picked up but could you give us a.

Same store sales number for August as a whole.

I mentioned, we're not what we wanted to do with give directionally, what we saw during the quarter, we're not going to give a specific number and the reason is not relevant right now because of the way back to school is going to be so much later than it was.

Last year.

Paris and is it only makes sense in our opinion by combining August and September together similar to what we do with Easter because so much for back to school sales are moving into September. We wanted to give you kind of a week understanding that has started.

Very slow we picked up at the end at the end of August and we expect to.

Come out of the combined August September relatively flat.

So you spoke to the trajectory that you have to the last couple of weeks of August is it that is that what you need in September to get to flat for the combined period.

Well, what we need is for schools to get back, which we believe all schools. We back by the end of September where at least that's what we're hearing from the governors.

That is.

Mitch we've always talked about the fact that.

Our customer posit need and as long as there as long as there.

Remote learning the need for four.

The immediate need for new back to school shoes doesn't present itself, we believe that and we've seen that happened not Minas schools have gone back our business has been outstanding in those markets and I think thats going to continue that happened and I don't use the word outstanding lately. It really has happened in that way.

As schools.

Go back.

Got it. So that's my next question again, I just want to make sure I understand the moving parts here. So cliff I think you just said that by the end of September you expect.

All the schools to be back, but do you expect I'm just wondering I get it sort of a point of clarification I assume you don't expect all the scores to be in person by the end of September right, you're you're flat August.

September combined assumes all schools are Bakken.

Kids are back in school, but not necessarily that theyre, all and person is that the way I should be thinking about that assumption for that sort of flat.

Hey makes its mark.

We are assuming that the trend continues very similar to now were about 60% disclose our in some type of combination either backfile. They are back part with some virtual and approximately 40% are in a virtual wallet scenario.

We anticipate that the schools that Havent gone back yet there's still a large tranche of those particularly in the northeast north as they go back we'll keep similar rates and if they do something of that nature that leads to the flat combined back to school season backed up in our talking about got it okay.

And then when I think about August September being flat, obviously, that's being negatively impacted by the schools that are virtual is there anything else that you guys are seeing to kind of compare that flat for those two months versus the 20% plus that youre doing before are you seeing any fall off because of you now.

Stimulus going away with the enhanced unemployment or any sort of fall off in pent up demand or any other things out in the market.

I think the biggest thing we're seeing is the impact of the virtual only schools. That's the key impact to our back to school and we're incredibly encouraged that despite that.

Proximately, 40% being virtual only right now our E Commerce business has seen an accelerated trajectory during the last few weeks as kids start to shop and.

Triple digit continues to accelerate at that month progressed. So we feel like we're well positioned to deliver that flat despite.

Schools, staying virtual and with some.

Progression in data more shifting to a combo or others as cliff said once they go back we're seeing outstanding got comp store sales results. So if it gets better than that there is some potential to be flat.

Yes.

A couple couple of things.

Clip as you think about the back half of the year I mean, obviously in the quarter. Your adult athletic business was extremely strong how are you thinking about those trends potentially continuing into the back half of the year, especially as we kind of move into.

Boot season, I mean are you.

I think you made a comment if it's not bought you're not going to get it. So I'm just kind of curious how you plan that and then when you think about boots.

I feel like in the on the on.

The non athletic side was a lot of slippers and comfort things that were working for spring summer as I can also how you're thinking about.

For holiday sort of more share growing versus you know.

Fashion boots.

Probably not going to get down to the type of booth, we believe will be selling even though I don't believe that.

A retailer can go out today, and and Bob moves that have an already bottom so stick by that statement I will tell you. This.

That are not furloughing our people.

Allowed our people to adjust and move orders continuous basis.

So the way that business was.

Progressing in the fact that we knew we were going to be reopening our stores. We believe that we're going to be better positioned from a boot standpoint the.

Most of mine to say, the but most of our competitors.

Who bid for low.

Their employees so I am.

I feel pretty good about the boot season coming up because I believe will capture market share.

And boots so.

[music].

I'd said I don't want to get into what I think it's going to be casual or for a lender.

That just in case.

Miracle happens.

Boost do become available I don't want.

The way I don't want our what well what our strategy is to be out there got it and then lastly can you speak a little bit to the kind of bankruptcy store closures I know hibbitts I will cover hibbitts, but they are reported on last Friday, and they've talked about starting to see some benefits there and I don't know if theres anything you can quantify or maybe sort of speak to sort of the overlap but you have.

With some of your stores and some of the stores that you're seeing close.

No we can't quantify the fact that.

Particular store or region as better.

Due to the fact that school skews that we've lost competition with the exception of up one market.

The northeast so I will.

Im not sure how.

I just don't believe theres been enough time between the bankruptcies in the store closures for us to give you that kind of information, especially with the shifting back to school.

Okay, Alright, thanks, guys.

Thank you we will take our next question from Sam Poser of Susquehanna.

Good afternoon, and thanks for taking my questions guys.

So look started the top here as you do when you're thinking about the back half of the year given the inventory in the way you are flowing goods.

Do you expect shoot you haven't talked about Q3 in total, but but but I mean do you expect Q3 to be better than Q4 vice versa.

Better and what respects Dan.

Year over year sales.

Well Q3 is traditionally a higher sales period in Q4, and we'd expect that pattern to continue because that increase percentage increase year over year.

We're not going to get into tried to.

We're not putting out guidance right now and it's very difficult to read we want to get to the back to school season, we need to see how many these.

Schools go back and.

The last clip was talking about and why we generally feel good about the second half from a standpoint have we're well positioned for back to school sales and we're well positioned for boots, it's very hard to actually quantify and that's why we've chosen not to give guidance at this point.

Okay.

If we look at you talked about the first two weeks of August remaining difficult minute picked up can you talk about the month of let's say July 15th So August 15th.

That portion of back to school that Didnt, what are you needing to make up.

Sort of within that part of back to school and it sounds like based on being flat in Q.

Looking at September.

Not necessarily.

Leaving you're going to capture.

Sort of that Miss.

The July into the third quarter is that fair to think about it.

Hi, Sam it's Mark Yes, that's a fair way to think about it broadly.

Hi, guys Cliff said and I alluded to it was that period you referred to we saw double digit declines until it really pivoted towards the mid part of August flattish comp store sales as a school started to return and by the latter part of August we're seeing very strong double digit comps.

Store growth in the school districts, where kids went back a combo.

In aggregate with E commerce with the virtual and with those I went back we saw double digit comp gain by the end of August.

So we think we're very well positioned to deliver flat.

Overall comp growth for the corporation in the combined two month period and we're optimistic.

And that sort of implying like a low double digit growth than in September to sort of get there.

Given the weakness in the first half.

August.

Sam we're just not going to quantify.

You know what percent increase or decrease we saw in August or September, but just the combined period.

Because of the shifts or it's just like Easter.

His way we're looking at it is it the way it's moved around on US it isn't relevant in our opinion other than to give the combined period.

Okay, I will I will leave the dead horse alone.

Yes. Thank you.

So so let's go Nike Nike recently has decided to pull goods out a number of retailers.

It would seem you overlap.

What we've heard is still loads belk, and I guess bostco jobs and I assume mode Delta. So you were referring to up in the northeast Cliff.

Hi, how do you foresee that helping you it's not going to it's not this quarter, but I mean, when you think about that and given that that's underway have.

Are you seeing that youre going to get access to different types of product or or different quantities given the.

Activity that appears to be going ahead.

I think all of those decisions are still flux I will tell you that.

Anytime.

You know this do the work very well Sam anytime you have a competitor that loses of brand as strong as is that particular brand.

It.

That.

I think it's good news for any of the retailers that.

Still maintain the brand so.

In that regard.

I can't tell you that I am happy.

A full product back.

Very happy.

Two more questions one how many stores do you have that the Nike shop in right now.

Right now, it's a little bit over 100 up the fleets. So we're approaching.

25% to 35% during the year ahead.

Okay, and then lastly.

Within within given the strength of athletic in sandals, and so I mean is the real story here sort of comfort athletic comfort.

Versus you mentioned dress, but I mean, our people like when do you see any changes you we've moved through the year in sort of in the end use type of product, which seems to be comfort.

Changing is that going to and public Rich's question does that evolved into.

Sorry boots versus.

Yes, your non cozy comfort.

Well I can say that keep end does that keep athletic going and I guess and did you have a good slipper business in Q2, as well, which I think.

The best way that answer that question is that I believe the trends we've seen.

Since the co that with the offices offices in schools closed that trend that trend is going to not to school being closed but the trend of casual.

Life style will continue and we are absolutely prepared for that to be the case and that's that with.

Include casual non athletic product as well as athletic product.

In casual boots.

Theres just no reason at this point of that occupancy as we move through the rest of this year.

Progress.

Product to pick up.

All right.

I'm going to this sneaking well go ahead. Thank you very much on those Bakken have basically the new success.

Thank you we'll take our next question Greg Pendy.

Hi, guys. Thanks for taking my questions can you just remind me I think last year, you said fourth quarter E Commerce revenues were 8%.

But I don't believe you guys gave third quarter. So just kind of trying to get a sense of what will be anniversarying in terms of E commerce sales.

In for the third quarter it was approximately 6% revenues.

[music].

In the fourth quarter, it's a little stronger closer to 8%.

Okay, and when you say just said I'm clear when you say, 8% of revenues are you talking at total revenues are 8% incremental to the.

8% of what you did on the store base.

On total.

On total okay perfect.

And then just I guess on that note and staying within the E Commerce, where I'll just trying to get a sense I mean, the world seems to change.

Your economics have changed a bit here.

So when we're thinking.

And I know, it's too far out.

But just thinking I guess long term trajectory 2021, how are you thinking about new stores I guess.

Longer term given E commerce and sort of Jumpstarted think historically you thought maybe 12% of your sales would get there. It seems to have surpassed that so how do you think about going forward, putting your efforts maybe more towards E commerce versus store growth, how should we be thinking about that over a long period.

Going into the pandemic, we had a three year target to grow our ecommerce business to that high teens, 20% up the corporation.

And as we just shared we exceeded 20% during this period of time and far accelerated our capabilities.

Customers truly have made a choice not just in our category and many others that E commerce business can satisfy their needs. So really thrilled with what we're saying and we think we're very well positioned.

If you look towards the tail end of the quarter as all stores started to reopen we saw our ecommerce business stabilize with triple digit growth and it's stabilized in that mid teens percent of the total corporations revenues at that point of time.

While we're not clear if that is where stabilizes with so much uncertainty we are using that as a guiding principle for Q3 Q4.

Thinking that the business will stabilize from a revenue at a cost perspective in the mid teens percent corporate revenue.

When you put that in context, then of stores were so incredibly committed to our long term strategy to grow our store base and for our laser focused where our brands is strong where we get great ROI as in our existing DNA is footwear market leaders in our key 35 states where we.

We already have brand building and loyal customers. So we remain committed to.

Building, our store footprint in those existing markets, but right now we're taking a very conservative approach to capital.

We're taking a conservative approach until we get the other side of visibility to that pandemic and are not putting out guidance, Norway aggressively going after new store growth at this time for 2021, but we're incredibly encouraged by what we are saying with the customer shift to us our market share gains in E commerce.

Yes that three years or so acceleration of E commerce capabilities and revenues as well as our stores as we've talked about earlier.

When open delivered comp store growth during Q2.

Exclude those as we've talked about in Q2, delivering 22.5% growth for the quarter. During a period of time, when there's great challenges our customers and employees for Facebook, So I couldn't be more proud of what they achieved during the quarter.

That's helpful. Thanks, a lot.

Thank you.

Thank you.

Our next question from Chris.

With that.

Good afternoon, everyone. Thanks for taking my Chris.

Yes.

Couple of things.

I guess I'm still going to of course, a little bit self again Paul.

So I guess first just can you remind me last year.

Yes August.

Our October just what the comp cadence look like.

I guess strong back things slowed by October of memory serves me correctly sort of compare on October easier just remind me on that Gary.

Last year.

There was low single digits.

August September in mid singles in October.

Okay, Okay stronger okay.

I am just.

Affrication, so I understand that.

So in August.

It turned negative twenties in the first two week of the month.

Flattened out in total midway through and by the tailwind.

Weeks or so total company so E com everything altogether, our top mid single did I catch all that correctly because the drought Paul.

You drought areas that were open plot schools have gone back and just trying to all together to fully understand.

Hey.

Hi, Chris It's Mark Yes, so talking about total company revenues opened closed or whatever form of school and ecommerce I'll state now the first two weeks, where a double digit decline we didn't stayed exactly how much but there are double digit decline in the first two weeks of August five mid week total company comp was flat.

Sorry by mid month August total company was flat and by the last weeks of August than what we're seeing now we're pulling into total company double digit comp growth.

And that is by week, so the not not total.

Right Okay.

Okay, so double digit towards that he got towards the talent to total company yes.

Okay exactly driven by the strength of schools I went back in any fashion live and accelerated triple digit growth in E Commerce offsetting.

The headwinds we are facing for school districts that had decided to go virtual only but again, we're incredibly encouraged that the strength of our concept in stores as well as an incredibly strong ecommerce platform is enough to offset those things that are out of our control or school districts are deciding not to go backup.

And Mark you reference.

Acceleration E Commerce is running clear so if you're still in that triple digit. If you came to the tell ended the quarter are you made some comments it accelerated accelerate from that call that July August trend that you came to the talent of August.

Fair.

If we saw that E commerce business during that ended July early August also when.

Similar to what that was saying it was not high to mid triple digits. Like we were pacing, we thought slow down a battle closer to.

Hi, double digit low triple digit during that period, where kids were not going back to school. So it was excellent but it wasn't ranging in the mid triple digits, Ben and as we progress is just like the school districts stores open started to accelerate in the middle of August to a solid triple digit and continuing to excel.

Great.

To bearish strong triple digit by the end of the month.

Okay. Okay.

Okay got it and final thing on all that stuff here Sinclaire, you anticipate just to get to that flat for bulk mop.

August and September it's basically 60% of school go back either partial hybrid or fall and 40% go forward for wall and only a market that gets you to flat just to confirm.

Good.

Those are the rough numbers, we've seen so far.

At this point for the school districts and as long as it doesn't get any worse than that that's built into our assumptions and we have this deal announcements for the districts ahead. So we believe it could get better if the situation on the ground where at some or virtual wallet.

Decide to go back in some form accommodation I got to right Chris.

Hi, Kerry.

Let's talk margins for a moment, just how long do what changes.

Q3 broadly speaking broad stroke.

Based on the mix of business and we still anticipate gross margin pressure because of shipping cost Reg E com how much guide.

Business, maybe coming back traditional back to fall, maybe slow down in adult I don't know how does how do I think about gross margin as seen in color one way or the other relative to what you saw in Q2.

So as a general statement for the gross profit margin, we saw the most difficult compare in Q2 with the shipping costs because as Mark said, we had over 20% penetration of of our ecommerce business for the total quarter and now we always expect that to be is as high a penny.

Attrition in Q3 in Q4 and also in Q3 Q4, particularly last year.

We had accelerated or ecommerce business then so the delta between the overall penetration gets smaller as the year goes goes on so the.

Shipping penalty to the shipping charges on a year over year basis.

It is not as big in Q3 is even less in Q4.

So we would expect is still see some pressure against or overall gross profit margin in Q3, but we think that.

With a leaner inventory.

We can make up the the negative effect of the shipping charges.

In Q4 and seized costly some growth in our overall margin gross profit margin in Q4.

Okay. So just that pull that together you would probably expect from down Q3 gross margin, though not nearly as much into Q2, and that's a function of job largely E commerce mix.

Before I even become.

Lack of a factor.

And therefore, you would expect.

Some level possible gross margin improvement potentially if we have a normal if we have a normal selling period I should a caveat to that I mean, we're talking there's so much that's probably not no go right now, but if we had a more normalized selling period in Q4.

I was trying to draw a comparison that the penalty of the shipping charges would not.

Preclude us from having a positive gross profit margin.

Got it Okay. That's helpful and just on the inventory hideaway, how do we think about that as we move forward and I guess more specifically are you getting what you want to get or are you potentially missing Sal.

Because you're just not don't have a product path.

I think.

Chris I think the merchants.

Carl and the merchant team has done a great job of getting in front of the builder community.

We have we have had.

Virtual meetings with every vendor.

That is important to our so our business and we are getting them.

We are.

Getting incredible help from the vendors and giving us back in stock lit items that are selling.

But.

And then no it really truly has concentrated.

List is not as not as broad as you would expect the customers have really honed in on certain brands certain categories and.

Our our guys are pushing hard.

To get back in stock and stay in stock and those brands and categories.

My thoughts on what those are.

Just kidding.

We don't talk about brands.

[laughter].

Okay last thing for me.

How do I think about.

Cash.

And where you and roughly the year I think you've always try to end with 50 million on the book or there about 50 50.

Yes.

Maybe you want a little bit more and I don't know how do you think about.

Potentially going back to buying back stock or how does that sit on the ground grant committing.

Yeah. So.

We think we're at the interim high right now honored shoot on our Q2 ending image our cash balance and the reason is is that our inventories because we returning or so quickly in bringing the receipt dead.

We had a higher account accounts payable balance than we traditionally would have now that'd be paid down in Q3, and we should get back to more normal. So we're still we won't be into Q3.

At this will be below where we're at today.

Our year end once we clean go through the.

Cycle of reducing our inventories through holiday, we should be back into.

The cash balance that's not on filled or to the.

Ended the second quarter.

Okay and share repurchase.

You know our belief right now as we were more.

Inclined to heal our balance sheet and be cautious in this time when there's so much volatility so were where we're not yet saying that we're interested in buying shares back right now this year.

Fair enough alright. Thank you then all of that appreciate it.

Thank you. Thank you.

Thank you.

And we do have a follow up questions and Mitch Kummetz pivotal research.

Oh, Thanks, I still have like a handful and I promise to stay away from that dead horse. So just a follow up on Christmas margin question Kerry.

I think you kind of address merge margin pretty well, but I'm curious on BD show because if you guys are running sort of flat comp August September could you remind us sort of what the leverage point is on video and do you expect some de leveraged to occur in the third quarter.

No it's hard to know what we've given you is August September October.

As we've said sometimes for depends on the weather if it cools down to against seller boots.

That makes for a good October so it's hard to say, but.

Looking I would say you're looking at a flattish to maybe slightly down or de leverage speedy Uno in Q3.

Yes, how about SGN a dollar yesterday dollars I think you said were up a million a two year over year in Q2.

Sounds like there was some marketing.

Pushed out of Q2 into Q3 is there any way you can give us a sense around SGN, a maybe from a dollar standpoint.

I assume you expected to be up year over year, but maybe that's not the case.

Well, we do expect it to be up for two reasons.

One is going to be.

Shifting the advertising dollars into Q3.

But the other piece of is going to be and at the end at the larger piece is that because of the increase in ecommerce sales were going to just like we saw that one of the largest increases we had for Q2 was the increased operating expenses for E. Com, we expect to see the same type of thing in Q4 or in Q.

Three.

And.

Those two items will cause us to have increased dollars on a year over year basis.

Okay, and then cliff a couple on a on the product on adult non athletic you gave some color around that but I don't I Didnt hear you given actual cop for that business. If you didn't could you tell us what it was there but if you if you did and I missed it could you remind me.

Okay.

Does that above skews me.

Don't non athletic.

Not necessarily.

I heard you talk about sandals and drought, but I don't recall your.

Comp number on it.

Overall, I'll tell you that the non athletic.

Business was our sales were down.

For the quarter.

And.

Two seconds.

Down slightly.

Okay.

Then womens non athletic.

And actually because of though.

Work category, they were up mid singles and.

The mens okay.

And then and then on the adult athletic business, which was obviously strong in the quarter. There any way you can kind of drill down on the strength, there whether was sort or running versus basketball versus sneakers, and where do you guys sort of put the Nike core vision I know that you know footlocker says that Air Force. One is our basketball I don't think thrust of the world sort of use.

Otherwise I'm kind of curious sort of what.

Theres anything in particular that really contributed to the strength of your athletic business.

Running category, which was very strong for the time period with our customer uses of running category to walk in and there are those a lot of a lot of walking been done.

During that quarter as people were not working.

And you called out one of the hottest items.

In the marketplace and best as close as I'm going to get the talking about individual.

Fair enough and then if I guess my last question is for from Mark.

So we got a lot of schools that are virtual.

If we see some of those transition to in person at some point, whether that's October or November does that can you kind of a I don't know a second bite of the Apple or something and if let's say like a school works at the virtual all first about sure. But then go back in person. The second semester do you end up with some sort of weird abbreviated back to school.

Season, like later on or does that just get absorbed by sort of typical holiday selling.

It's an interesting question, we do know factually kids feet are going to grow and we absolutely are confident that we're in great position to satisfy those needs. So let's take the 40% of store schools that are going virtually if they do so during October November.

I do think theres potential to be capturing more of them in our stores during that moment of time, there's some great joy the experience a shoe carnival, we do believe.

There is a second wave of shoe Carnival back to school shopping if they do pay that later.

Got it okay, alright, thanks, guys. Good luck.

Thank you. Thank you.

Our last question from Sam Poser of Susquehanna.

Hi, Kerry Thank you want to what degree do the.

The SGN a.

Direction, you provided to what degree does the store closure is that 10 stores that youve closed help to offset some of those costs like when you think about.

What's additive from.

The the expenses from E com.

I mean, how much do you stay away from having those stores, having the outlet stores.

And with that seem to gotten cologuard.

There's a lot of volatility and in the.

DNA number right now and as some positive some negative like for example, you could imagine do that demick, our our travel costs are down dramatically our year over year, but our supplies for PND are up so what I think you can.

Rely on the guidance that if you teased out only the.

The two issues I talked about.

That would that would account for the increase in the SGN and all of the up all the rest of it seems to kind of net against each other being material.

And when do you think about that net increase are we looking at a net increase like it was in Q2, I mean, just on sort of.

Or.

I mean is that relative to is it.

What they want to guide, but I mean, what sales is that relative.

Okay.

I'm not sure.

I'm not sure I understand Sam.

If you do.

It could do a million dollars you do $5 million your SGN is going to be different.

Depending on how much revenue you do so what's that increase based style.

So it's based on the expectation of ecommerce sales so that when we said the operating expenses.

For ecommerce wood.

Mark has said we in the mid teens, we expect Q3 in Q4 to be it could be a percent of the total sales.

And that and then the other piece as the advertising piece of it.

That we're shifting primarily is to shift.

I think that said in his speech, we pivoted our when we saw that back to school, starting later and moved our advertising into Q to Q3 to.

Support when the schools went back which is later than they were in the year before.

And and your ecommerce business I mean, you said sort of ramping is it ramp I mean, when you say it's is it running like it was running in Q2 or is it just ramping up into the triple digits now or are we talking about Q3 looking like Q2 there.

Yes AMITS.

Continue to deliver triple digit, but the nuances I said earlier of the pacing and after all stores open repeat we settled in from above 20% to the mid teens and that gave us a triple digit growth. We think now that all stores continue to remain open.

We do anticipate that mid teens as a place we'll start to grow from again as a more stable base and we will start to grow because we're seeing tremendous.

Traffic and conversion and feedback from people shopping our ecommerce site.

And then lastly, and I promise what when when do you think about 2021 do you think about having your stores open and having sort of and hopefully a vaccine I.

I mean, theoretically Youre E com business from a dollar perspective sort of would say somewhere.

[laughter] stickiness within the realm of where it is now.

And then and then you would get the Incrementality of all your stores opened in sort of a more normal flow of a year ago that sort of a fair way to think about it.

We expect from anyhow. The on your stores next year, Yes, we expect the best way to answer that question Sam as we think the E com will settle in at about the same percentage.

Of our total business as it is today.

This is between 15 and 20% of our total business.

And that's what I meant when I said that we're three years ahead of plan, that's where we've.

Where we said we were headed and now that the customers discovered our site.

They like it and they like to service, we're providing we believe that is going to settled in light of that percentage.

All right. Thank you so much and continued success.

Alright, Thank you Susan.

Thank you and this concludes today's question and answer session.

I want to.

I will take an opportunity to thanks, everyone.

For joining us today and.

Continued health.

I continue to be proud of shoe carnival team than what we've been able to accomplish under these unusual and unpredictable circumstances are ongoing commitment to financial strength and flexibility will ensure a continuous success of our business and.

Please stay safe and we look forward to talking to you again in November.

Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.