Shoe Carnival Inc Q1 FY2020 Earnings Call

Good afternoon and welcome to Shoe Carnival's First Quarter Fiscal 2020 Earnings Conference Call. Today's conference is being recorded and is also being broadcast via webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. Management's remarks may contain forward-looking statements that involve a number of risk factors, which could cause the company's actual results to differ materially from those projected. Forward-looking statements should be considered alongside the discussion of risk factors included in the company's SEC filings and today's earnings press release. Investors are advised not to place undue reliance on these forward-looking statements, which are only accurate as of today. The company disclaims any obligation to update any risk factors or to publicly announce any revisions to the forward-looking statements discussed on this call or in today's press release to reflect future events or developments. I will now turn the conference over to Mr. Cliff Sifford, Vice Chairman and CEO of Shoe Carnival for opening statements. Mr. Sifford, you may begin.

Thank you and welcome to Shoe Carnival's 2020 First Quarter Earnings Conference Call. Joining me on today's call is Mark Worden, President and Chief Customer Officer; and Kerry Jackson, Senior Executive Vice President, Chief Financial and Administrative Officer. On today's call, I'll provide an update on the ongoing COVID-19 pandemic and the impact it has had on our business as well as updates on our store reopenings and expectations as we move forward. Mark will then discuss our strategic initiatives and how our historic investments have positioned us well to weather this storm, followed by Kerry, who will discuss the quarter's financial results. We'll then open the call for your questions. Let me start off with a business update on the impact of COVID-19. First and foremost, we hope you and your loved ones are staying safe and healthy. When we last spoke, the initial impact of the COVID-19 pandemic was just starting to materialize. Since then, we have been met with unprecedented challenges as we look to protect our customers, store employees and corporate staff. The fiscal first quarter was really a tale of two completely different environments. The quarter began well with solid traffic, driving a comparable store sales increase of 3.9% through the 12th of March. As the COVID-19 virus spread quickly, by mid-March, it became clear that our employees, customers and the communities we serve were at risk. As a result, on March 18, we made the difficult decision to temporarily close our stores. Further, as soon as we saw evidence of traffic declines in our stores, we immediately shifted our marketing efforts toward our e-commerce platform to ensure our loyal customers knew that we were able to continue to meet their needs, even in a virtual world. This strategic decision has clearly paid off which I will discuss in a moment. I would be remiss to not, first and foremost, thank our employees for their hard work and dedication during this incredibly uncertain time. During this period where our stores were closed, we continued to pay our employees. And to date, we have not furloughed a single person. This was incredibly important to us and is something we are very proud of, as our store associates are what makes Shoe Carnival so special. Our store environment is unique by being fun and entertaining. It is supported by our team members that have been trained to operate our stores the Shoe Carnival way. As a result, the decision to not furlough our store employees has been a clear competitive differentiator as we have reopened our stores. Not only have we been able to get our sales associates back in the stores efficiently to serve our customers, but also support our most important asset, our employees. During this tumultuous time, while our stores were closed, our store teams were busy and engaged fulfilling e-commerce orders at each of our locations, with the inventory on hand to support the substantial e-commerce growth we experienced. Our vendor partners have also been incredible. We work hand-in-hand with our vendor community, utilizing a multi-tiered approach to adjust quickly to the rapidly shifting environment. First, we canceled any seasonal product that had a short selling window, which included dress shoes and some sandals. Second, we moved seasonal product with longer selling periods to later ship dates where appropriate, including flat sandals, sports sandals and soccer sandals. And third, we worked with our vendors to adjust core model flow and reviewed and adjusted back-to-school assortments. This nimbleness is attributable to our best-in-class merchandising team and our strong vendor relationships, which we have nurtured for years. As a result, after a six-week shutdown, our on-hand inventory at quarter end was up 4.2%. However, due to the strong reopening sales our stores have experienced, our on-hand inventory at the end of last week was down 6.3% as compared to the same time last year. As we head into June, we will be receiving fresh new product across all departments, including early initial receipts of athletic styles for back-to-school. As I mentioned, over the last several months, we have continued to serve our loyal customers through our website and mobile app, which was made possible by our significant investments in our technology platforms, including our CRM initiative. Throughout the second half of the quarter, we delivered triple-digit growth in e-commerce, which was driven by both new customers as well as Shoe Perks loyalty members that typically shop in store, which was a huge win for us. Our athletic business was truly a bright spot as customers looked to Shoe Carnival to get the athletic footwear they needed, as many began to spend more time outside walking and being active during this quarantine period. While we are proud of the progress our e-commerce business has made, we are thrilled to have over 80% of our stores open as of today, which are delivering sales above our expectations. By the end of the first fiscal week of June, we anticipate 95% of our stores being open to serve customers. We are excited to see our customers again, but our priority remains keeping them as well as our employees safe. As a result, we have implemented several new health and safety procedures in our stores, ensuring that both our customers and employees feel as comfortable as possible. We have equipped all our stores with personal protective equipment, which we call PPE, including masks and hand sanitizer, and have enhanced our store cleaning protocol. In addition to PPE, we have installed plexiglass protective shields at all checkout lines for our cashiers' and customers' safety. We have also created signage and floor decals that are displayed throughout the store to remind customers and employees of the importance of good personal hygiene and social distancing during this time. And lastly, our stores are unique in that we have professional microphone announcers in every store that would normally be announcing special promotions. We are utilizing these talented individuals to verbally remind our customers to social distance. Early results from our stores that have reopened are encouraging. While overall foot traffic in the stores is down double digits from the prior year, shoppers coming in are converting at a significantly higher rate and purchasing more units per transaction. Our CRM data has shown that nearly 70% of the customers coming back in the stores are our Shoe Perks loyalty members, which was roughly flat with last year at this time. From a product standpoint, we are pleased with the performance of both the athletic and the children's shoe categories. Without a doubt, this has been a challenging first quarter, unlike anything we have ever experienced. We continue to be impressed by our team and their ability to navigate uncertainty. With most of our stores likely to be opened by the end of the first fiscal week in June, we will be in the position to take advantage of the most important month of the sandal season. There are, however, still many unknowns, including what states may decide about reopening schools. That said, we are taking the necessary steps to position the business appropriately for the back-to-school season. In addition, our e-commerce business continues to be robust with triple-digit sales growth in May. We are optimistic that this accelerated growth with both existing and first-time Shoe Carnival customers will allow us to achieve our long-term e-commerce goals much sooner than anticipated. In summary, our financial strength and flexibility have served our investors well. I'm proud to say we managed through this unprecedented fiscal first quarter without adding any debt to our balance sheet. This stewardship as well as our strategic investments in our business have allowed us to keep our people working and continue to make progress toward our long-term goals. With that overview, I'd now like to turn the call over to Mark Worden to provide an update on our strategic initiatives. Mark?

Thank you, Cliff. Last quarter, we discussed our four strategic initiatives, including the CRM, brand and customer experience, e-commerce sales and store development. The investments we have made continue to drive meaningful ROI, particularly in this current environment. With digital marketing being as important as ever, the enhancements we have made to our marketing programs have proved instrumental, and our new branding and design have resulted in stronger customer engagement. We've also utilized our CRM and Shoe Perks loyalty program insights to effectively align our marketing efforts to our customers' needs. As a result, we have seen continued membership growth in our loyalty program, which increased nearly 10% in the first quarter. The investments we have made in marketing and CRM have driven significant gains in our e-commerce sales amid this challenging environment. Not only are we capturing new members, we're converting traditional in-store buyers to e-commerce buyers. E-commerce sales achieved all-time week, month, and quarter highs while our stores were closed with sales growth over 350% for the second half of the quarter, resulting in over 160% sales growth for the total of Q1. To provide some perspective, e-commerce represented approximately 5% of corporate revenues in the fiscal first quarter of 2019. However, our fiscal first quarter 2020 e-commerce revenue would have represented nearly 15% of fiscal Q1 2019 revenues. While we do not anticipate our e-commerce growth rate to slow down until after we reopen our full store fleet, we are confident that we have materially expanded our e-commerce shopper base. This expanded customer base will lead to a new normalized growth rate considerably higher than it was pre-COVID-19. As an example, for the last four weeks ending May 16, we grew our e-commerce sales over 500%. We are confident that our investments have us well positioned to achieve our long-term e-commerce sales target years ahead of the long-term strategic plan we've defined. Turning to our store reopenings. Between May 1 and May 6, we reopened over 50% of our store fleet, and as of today, have 318 stores, representing over 80% of our stores open. Pending any government changes, we're on track to have opened over 95% of our stores by the second week of June. Early results from the reopened stores are very encouraging. As Cliff mentioned, nearly 70% of our sales in our stores have come from loyalty members, consistent with our prior year results, indicating our customer base is strong and ready to shop with Shoe Carnival in person again. In fact, last week, we achieved high single-digit comp growth for the total company despite having over 100 of our stores still closed. As of May 19, we have achieved mid-single-digit comp sales growth for the company for the month of fiscal May and over 530% sales growth for e-commerce. This is further evidence that our marketing efforts, our CRM program, our compelling product assortment, and industry-leading store operations are resonating with our customers, even during this challenging environment. In closing, I'm thrilled our store teams are serving our customers in person once again, and I'm very encouraged by the continued success of our strategic initiatives. We see that our strategic initiatives are resulting in deeper customer relationships and an even stronger Shoe Carnival brand. This positions us very well to emerge from this challenging time as a stronger company.

Thank you, Mark. As Cliff mentioned, this quarter was a tale of two very different environments. The quarter began well, with sales up modestly year-over-year before we temporarily closed all brick-and-mortar stores midway through the quarter. We were able to quickly shift our focus to e-commerce, which increased triple digits in the first quarter of fiscal 2020 compared to the prior year. On the expense side, we controlled expenses where we could, eliminating discretionary spending, reducing executive and board compensation, and deferring capital expenditures. This pivot to a focus on driving cash flow and preserving liquidity allowed us to manage through this crisis without adding any debt to the balance sheet and maintaining sufficient liquidity. Taking a closer look at the first quarter financial results, net sales decreased 41.9% to $147.5 million compared to the first quarter of last year. Gross profit margin for the quarter was 21.3% compared to 29.6% in the first quarter of last year. Merchandise margin decreased 190 basis points primarily due to higher shipping costs associated with the increase in e-commerce sales, while buying, distribution, and occupancy expenses increased 640 basis points as a percentage of sales, due in part to this deleveraging effect of lower sales primarily related to occupancy costs. During the time our stores were closed, we worked with our landlords to defer certain payments. But in accordance with GAAP, we expensed the full amount of the rent for the quarter, irrespective of the payment schedule. SG&A expenses decreased $4.8 million in the first quarter of fiscal 2020 to $54.7 million. As a percentage of net sales, these expenses increased to 37.1% compared to 23.4% in the first quarter of fiscal 2019 due to the deleveraging effects of lower sales. Significant changes in SG&A for Q1 included a decrease in employee wages; tax benefits associated with the employee retention credit under the CARES Act, which offset wages; lower earnings on our company's nonqualified deferred compensation plan; lower equity-based compensation expense; and a reduction in expenses due to store closures. These decreases were partially offset by an increase of $2.2 million in impairment of long-lived assets recorded on seven stores in the first quarter of fiscal 2020. The effective income tax rate for the first quarter of fiscal 2020 was a benefit of 30.3% compared to 12.8% for the same period last year. The relatively low prior year effective tax rate was primarily due to a $1.9 million tax benefit related to the vesting of equity-based compensation in the first quarter of last year. The benefit reduced our effective rate by almost half in Q1 last year. Net loss for the first quarter was $16.2 million compared to net income of $13.9 million in the prior year quarter. Loss per diluted share for the fiscal first quarter was $1.16 compared to net income per diluted share of $0.91 in the first quarter of fiscal 2019. As mentioned above, in the first quarter of fiscal 2019, we recorded a tax benefit in connection with the vesting of equity-based compensation of approximately $1.9 million or $0.13 per diluted share. Now turning to our cash position and information affecting cash flow. Depreciation expense was $3.8 million for Q1 compared to $4.3 million in the prior year. Capital expenditures for fiscal 2020, including actual expenditures during the first quarter, are expected to be between $15 million and $20 million, with approximately $8 million to $10 million to be used for new stores, relocation, and remodels, and $2 million to $3 million for upgrades to our distribution center as we continue to focus on enhancing our supply chain. The remaining capital expenditures are expected to be incurred for various other store improvements, normal asset replacement activities, and continued investment in technology. As Cliff mentioned, we worked closely with our vendor partners to strategically manage our inventory and payables during the quarter. We received extended credit terms from our supply partners, which allowed us adequate flexibility to meet the needs of all stakeholders at this challenging time. As a result, we ended the quarter with $90 million of outstanding accounts payables. We also worked with our banking partners to increase our line of credit from $50 million to $100 million out of abundance of caution. As of May 2, 2020, we had no outstanding debt, and working capital of $186 million. Cash and cash equivalents were $13.1 million. Our borrowing capacity was approximately $95 million at the end of the quarter. With the increase in cash flow this month from stores reopening, as of today, we don't have any borrowings on our line of credit. However, we do expect to draw modestly on our line of credit in the near future as we begin reducing our payables balance. Our history of maintaining a conservative balance sheet has served us well during this uncertain time. Looking to the balance of the year. While there are still many unknowns today, we are marching ahead with an orderly reopening of our stores, in line with state and local mandates. As of today, we have 318 stores or 82% of our stores open. While we feel there are too many unknowns to give guidance for the year, based on the results for May thus far, we believe that we will end fiscal May with a mid-single-digit comp increase, and fiscal June will see a low single-digit comp increase. July is difficult to estimate at this time. Last year, the last ten days of fiscal July began our back-to-school ramp-up and represented about 50% of the monthly sales. If schools continue e-learning or delay the back-to-school start date, we could see a high single-digit decline in fiscal July, resulting in a low single-digit decline for Q2. However, if we see a traditional start to back-to-school, we could see a low- to mid-single-digit comp increase for the quarter. This concludes our financial review. Now I'd like to open up the call for questions.

And our first question comes from Mitch Kummetz with Pivotal Research.

I hope you guys are doing well, and congrats on getting all the stores opened. Let me start, Kerry, on one of the last things you said in terms of comps by month. So May, you're looking for a mid-single-digit comp. I just want to make sure I understand what's in that number. Is that just the stores that are open? If you're at 82% and you expect to get to 95% by like the middle of June, does that include the stores that aren't open? Or is it just the comp on the stores that are open plus your digital business?

We report comparable store sales by including all our stores along with our digital business. What we provide is not an adjusted figure compared to the previous year. Instead, it reflects the full prior year for all stores that were opened, compared to the stores we currently have open today, plus the digital sales or expenses.

Okay. So even with some stores closed, I want to clarify if you are still expecting a mid-single-digit comp in May.

Yes. As Mark mentioned, today we are experiencing a comparable sales increase for the month, despite having around 100 stores still closed. As we continue to reopen these stores throughout the month, our expectations are aligned with that progress.

Okay. And when you look at the comp trends that you're seeing in stores as you've opened the stores, I don't know if there's any way you can slice or dice that a little bit. I'm just curious if you're seeing any differences across markets, maybe stores in large markets versus small, maybe stores in markets with a lot of COVID cases versus few, stores in red states versus blue. I don't know if you're sort of dissecting the data to see if you're noticing any trends. Or is it just everybody is kind of doing the same?

Mitch, I'm going to let Mark take that question. In the markets where COVID was much more prevalent, we are still not open. For example, in Philadelphia and certain areas of New York, we are still not operational. In contrast, the Midwest was not impacted in the same way as the Northeast and the East Coast. Mark, why don't you...

Yes. Mitch, as Kerry mentioned, with all the open and closed stores, we're currently over 7% for the month of May through yesterday. We're seeing results that have significantly surpassed our expectations regarding customer turnout across states where governors have relaxed restrictions or reopened, from Texas to Florida. After reopening, we're experiencing double-digit gains. Although traffic is down in double digits, we've learned that the customers who do come out are ready to make purchases, and our conversion rates have increased significantly. Additionally, units per transaction are also up considerably. So we're experiencing strong success.

Okay. And Cliff or Mark, do you think that you're seeing any current benefit from the fact that you guys maybe opened your stores faster than some of your competitors, maybe within the family channel, or even that you guys are in locations that were allowed to open where maybe some malls are not open and you're taking market share away from some of those mall stores?

I think it's both. The malls are not open, but we were able to open our stores quickly. I hesitate to compare this to a hurricane market, but that's usually what happens. We prepare well ahead of a hurricane, and once it passes, we're typically the first retailer to reopen. I believe we did something similar during the pandemic; we were prepared even during the shutdown. Once we received the orders from the governors, we could reopen right away. A significant part of this success is that we chose not to furlough our employees.

Right. And then for my last question, Kerry, you shared some insights about May, June, and your thoughts on July depending on the back-to-school outlook. Could you share any initial thoughts on how you're approaching the holiday season, particularly regarding the boot business? Are you taking a conservative approach because it could be a riskier category due to seasonality, and how uncertain the market might be? I'm curious about any early perspectives you might have on the holiday season.

Mitch, I know that everybody would be interested in how we might proceed to the second half, but we really need to see how back-to-school starts and what's going to happen there, how the shopper is going to react. We gave some near-term ideas because we have better visibility. Longer term, we're just not comfortable yet until we have more information from our consumer, how they're going to shop and how back-to-school is going to open, et cetera, how GOB sales are going to occur. There's a lot of unknowns out there that make us reticent to make any comment on that.

And our next question comes from Sam Poser with Susquehanna.

I'll bring my brother on in a moment. It's great to speak with you all. So, let me jump right in. How much of your business is impacted by the fact that your digital sales increased by 160%? Was it over 500% month-to-date as you mentioned?

That's right, Sam.

Last year, in fiscal '19, what percentage was e-commerce of total sales? Well, we have some idea...

For the year?

For the year, what are we dealing with here? What do these numbers mean? Can you help us understand how meaningful this data is? Now that you're expecting it to continue, how significant might it become?

Sure, Sam. Great question. If we look just at Q1 of last year, e-commerce represented approximately 5% of corporate revenue. If you take what we just sold this Q1, that would have represented approximately 15%. And so...

Of last year? Q2?

In the first quarter of last year, e-commerce was about 5% of our revenue. In the recent first quarter, it represented approximately 15%. Reflecting on all of fiscal 2019, e-commerce made up over 8% of our total revenue for the first time, which we mentioned in our last quarterly call. As we discuss achieving over 500% growth during our fiscal May and having over 75% of our fleet operational, the consumer response to our CRM, marketing investments, and product assortment has surpassed our expectations. We are very pleased with this outcome. However, as I noted in my prepared remarks, we anticipate this growth rate to slow down as our entire store fleet becomes available and consumers' shopping behaviors return to normal. Nonetheless, we are highly confident that our e-commerce operations have advanced significantly beyond our strategic plan and will constitute a much larger share of our business moving forward.

I assume you believe that on a normalized basis after this event, given that it ran at 8% last year, you're probably thinking it could be around 10% to 12% as we adapt to this new normal and the boost from your e-commerce this quarter. Would that be a fair way to gauge your outlook for this year? For example, if this had occurred the year before last and last year you achieved 8%, that number would likely fall within the 10% to 12% range. I assume that aligns with your thoughts.

We're going to learn a ton over the next eight weeks, Sam. Our long-term goal was to drive well beyond 10% of corporate revenues into the teens. And so it's yet to be seen where that is. But we couldn't be more pleased with the response we've seen during the period of time our stores were closed. And even now, like I said, with over 500% growth during the fiscal month of May, we're excited how consumers are reacting, and we're even more excited to learn how this plays out over the months ahead.

We are seeing new customers shopping on our site for the first time, which means we are introducing many people to our e-commerce platform. As a result, we expect the percentage of e-commerce in relation to our total sales to grow.

Got you. When you're considering this, I've heard from several people who have opened just a few stores that their business has been quite good. How much of this do you believe is due to the government assistance people are receiving? People aren't necessarily spending only because of tax breaks or income tax refunds. How much of it is simply that people have extra money to spend, and that might change when that money stops coming in?

There’s no doubt that our customers tend to spend when they receive checks from the government, whether it's tax refunds or rebates. They often come in to buy shoes and other items. This factor is indeed contributing to our current performance. However, we factored this into our projections for June and July. If we believed that government money would significantly influence spending, we would have provided a much more optimistic guidance than we did. So, we carefully considered this aspect.

I've got a couple more questions. When considering your overall strategy, how much are you planning to narrow your focus in terms of brands and specific items given the current uncertainty? Will you be placing more emphasis on key items and potentially dropping categories like dress shoes? It seems like there may be less demand for dress shoes moving forward. What steps are you taking to adapt to the consumer shift towards comfort that has become more pronounced during the pandemic?

I would like to discuss our merchandise variety to give you an idea of our strategy. However, I completely agree that dress shoes will have minimal significance moving forward, especially for our customers. The focus will shift more towards casual styles, which will also impact the boot category when it becomes relevant. I am confident that if we avoid a second wave, our inventory and product selection of casual boots and booties for the fall will be favorable. Currently, as I noted in my earlier comments, the emphasis is primarily on athletic footwear and specific casual sandal categories.

Right. But, I mean, generally, if you think about next spring, dress shoes and similar items will be reimagined. It's hard to believe that the casual comfort aspect of your business won't remain significant and might even become more important to consumers.

Absolutely. I agree with you. I agree with that 100%, that lifestyle is going to be much more casual going into next year.

And how is your clog...

Clog business? We don't talk about brands on this call. And that was a really good try, a really good try. I do have to give you credit.

I mean I know you carry at least three brands of clogs. So all right.

And our next question comes from Greg Pendy with Sidoti.

Kerry, when you discussed the monthly same-store sales trends, I believe you didn't factor in much for going-out-of-business sales. Could you remind us when your major competitor closed down last year as we approach the anniversary of that event? Additionally, how do you view going-out-of-business sales in the big picture? Is this an early impact from liquidation before you can capture market share? What trends are you noticing in the landscape this year?

It's difficult to determine right now. Last year, we had a competitor that went out of business, completing their process by the end of June. If you examine our comparisons during the first half of last year, there wasn't a noticeable impact. However, in the second half, we experienced accelerated comparisons, particularly in specific categories, which we assumed was due to that customer being displaced. In this first half, it's challenging to assess how things will unfold until we see how they begin operations, what they are liquidating, and their pricing strategies. We have considered this in our planning, which is why we're not providing guidance for the second quarter or the rest of the year, as it's difficult to predict how it will affect our margins and the overlap in our market areas across different product categories.

Okay. That's helpful. And just one last question. Do you have any exposure to the oil patch regions area, and how does the consumer look in those areas, considering the volatility we've seen?

It's really hard to tell, because all of our stores were closed. Once we reopened, we saw accelerated growth, even in those regions, but I can't determine if it's specifically due to the oil region. Overall, we've experienced accelerated growth wherever we've opened stores.

And our next question comes from Chris Svezia with Wedbush.

I'm glad you're all well. Great job managing through Q1, really impressive.

Thank you.

So a couple of things, I guess, for me. Number one, just what are you assuming for e-comm in June exactly given the 500-plus percent growth in May? Just what are you assuming in a low single-digit positive comp total company? What's the e-commerce makeup of that?

Chris, it's Mark. We see low triple-digit will continue during this period of time, for the first half of the quarter. And we believe we have a line of sight to low single digits continuing, at least until we get to the back-to-school season. As Kerry shared in his remarks, we're not ready to declare where will the consumer will go until we learn more about the back-to-school season. But low triple-digit, we foresee continuing.

Okay. And could you provide any insights on the margins for e-commerce sales? I understand there are significant fluctuations in the first quarter with all that's happening, but can you help us understand, given the growth you're experiencing, what the margin profile looks like for your e-commerce business year-over-year? Or what you're currently observing in that segment?

Chris, are you talking about Q1 margin comments? Or are you talking about Q2?

Q1, Q2, any color that you want. I mean I guess I'm assuming, historically, it's roughly in line with stores. But given the acceleration, I don't know if there's just leverage components. I don't know if more sales have been done at full price. Just any color about the margin profile on e-commerce only.

In my remarks about Q1, I mentioned that there are many factors affecting the merchandise margin. It decreased by 190 basis points. The main reason for this decline was the additional shipping costs related to e-commerce, particularly during the latter half of the quarter. It was challenging to pinpoint, but that was really the cause of the year-over-year decline.

And then on a more qualitative approach, our pricing and promotion strategy was to drive profitable revenue and drive a high ROI through the e-comm channel while we were moving inventory into cash flow during Q1. So we also provided our consumers free shipping during the quarter for joining our loyalty program. And we found that to be transformational in the number of consumers that we've been able to engage with, learn more about them, and to have become long-term potential buyers, which gives us great confidence in that triple-digit e-commerce sales growth continuation. But I'm very proud of the merchant team, the assortment they put together in this new world where we didn't have stores open. And that our pricing and promotions were strategically profitable versus a fire sale.

Got it. That's helpful. I'm curious, just on the inventory. With your inventories where they are, you're comfortable enough bringing in additional product in June. Just any color you can provide about how we think about the margin profile as you move forward? The promotional activity, whether what you see in the market, what you see in those stores that have opened relative to what the competition is doing. Just it seems like, potentially, you might not have to be as aggressive on promotion to move product to generate comp. Just any color about how we should think about that?

To be honest, the only margin issue we anticipate is that athletic products have become a larger part of our overall business for the short term. Until everyone returns to work, I expect a strong trend in athletic sales, which has a slightly lower margin than our brown shoe business. This could have a minor impact. We initially thought we would need to be quite promotional during this period to manage our inventories, but thanks to our collaboration with the vendor community, which I greatly appreciate for their flexibility with cancellations and the timing of product deliveries, and the positive customer response to both our e-commerce platform and our reopened stores, our inventories are now in line. In fact, I never would have imagined saying that as of this past Saturday night, our inventories were actually down compared to last year. We're actively seeking more inventory and products, and we are grateful for the cancellations that allowed us to better manage our stock.

So just to be clear on all this, what you're observing is really from a margin perspective, on gross margin is really getting mix hit, if anything, not specifically price promotion? It's just more of a mix situation you see going forward?

Our women's margins have decreased compared to last year due to the absence of the Easter sales and the need to clear out dress shoes and dress sandals that would have typically sold during that time. Additionally, Mother's Day sales were essentially nonexistent. As a result, our margins in women's nonathletic categories were a bit lower. However, margins in athletic footwear remain stable, and we are managing that segment well. I believe this situation is temporary and mainly pertains to managing inventory. Once we recognized that there wouldn't be an Easter or Mother's Day, we increased promotions to address the inventory challenges. I expect this situation to improve as we enter the second half of the year, when category shoes will become more significant.

Got it. Okay. And last thing for me. Just on June, and maybe, Kerry, if you just recap what you said about late July. But in June, if e-comm is still triple-digit growth, you have potentially almost all of your stores open, you're assuming a comp moderation relative to May. Is that just because more competitive doors open up? And, Kerry, just remind me again what you said about the last week of July again? Just walk through that one more time.

You're right about June. We expect that more of our competitors will be operational then. There may also be some pressure from GOB sales. Therefore, we've decided to be cautious about our same-store sales. While we anticipate significant growth in e-commerce, we want to be realistic about our performance during this period. In July, I mentioned that compared to last year, in the last ten days of fiscal July, we began to see an increase in our back-to-school sales, which accounted for roughly 50% of our total sales. We're concerned because we currently lack information on whether schools will continue with e-learning or return to in-person classes later, which could lead them to push back their back-to-school sales into August. This could result in a high single-digit decline in July, affecting our same-store sales for the quarter. However, if the back-to-school season follows the traditional pattern, we could potentially see a low to mid-single-digit increase in sales for the quarter based on the strong performances in May and June. But right now, it remains uncertain as schools are still figuring out their plans and haven't announced anything yet.

And our next question comes from Mitch Kummetz with Pivotal Research.

Yes. I've got some follow-ups. So first, just along the lines of one of Chris' questions on inventory. It sounds like you're pretty happy there, Cliff. But I am curious, given just kind of the outperformance of athletic, I don't know if some of that came at the expense of the sandals? Do you feel good about your sandal inventory right now, kind of where you are in the season, having missed a couple of key dates, but obviously going into Memorial Day weekend?

I do. The top-selling month for sandals is June, and there are two reasons for that: first, it's warmer, and second, it's a five-week month. We feel well-prepared for June and even for July. I'm not particularly worried about sandals right now. I want to emphasize that we are successfully selling sandals, including footbed sandals, and we've seen strong sales in soccer and athletic sandals, which are popular for working from home. It's remarkable. The dressier sandals posed a challenge, but we quickly addressed that through our product offerings.

And then, Cliff, on these bankruptcies, you got Stage, Modell's, JCPenney, stores are closing. As you kind of look at maybe those as a group, like where do they overlap with your business? Either by category or price point? Where is the opportunity for you to kind of steal a share as some of those stores go off-line?

Modell's closing will significantly benefit us in the Northeast from Pennsylvania to New York. While I feel bad for those losing their jobs, it presents a strong opportunity for us. Regarding Stage, we have a solid presence in Houston and throughout Texas, which is our top state, and we see potential there as well. I wish I could express more excitement about this, but we have product opportunities that can enhance our presence in the athletic segment within the Pennsylvania Northeast market, particularly with Modell's closing. Stage, on the other hand, has not been particularly strong in athletics or any category, although they did perform decently in casual women's apparel. That's all I have to say about that.

Okay. And then on the marketing spend, I'm just curious, how are you guys managing that? I mean it seems like you guys are outperforming some of the competition, at least currently. Is this an opportunity to maybe ramp it up as some others are taking down their marketing in order to kind of really go for a market share grab in this environment? I'm just curious how you're thinking about that.

This is an opportunity for us to gain market share for sure, and we are in the e-commerce space, in particular, during this period of time. But we also see, with the revenue down, as we reported, we are looking to reduce our cost structure this year, and we are looking to reduce our marketing investment, commensurate with the level of revenue we see. So I'd say we're being very nimble with it. As things are responding and generating a positive ROI, we're investing more. And as we learn more about the consumer during this pandemic, we'll continue to be able to have the nimble flexibility to invest in things that are generating ROI and getting market share and pull back on things we think are not useful. And for example, we shut down some things specifically directed towards store traffic, like circulars during the period of time we were closed that were able to generate some savings for the year, as an example.

Okay. Kerry, regarding the comparisons for May and June, with mid-single and low single digits, much of this will be influenced by e-commerce. How do you view occupancy? I assume you expect to experience deleverage during those months despite having positive comparisons.

At the higher end of the estimates we provided for the second quarter, we will still experience some leverage. At the lower end, it could be much more significant, yes. However, it will not approach the 640 basis points we observed in Q1.

Got it. Okay. And then, Cliff, Sam was clearly out of line asking about clogs. But I don't know if you have any comments about shoes with holes in them. I mean that's something you guys sell a lot of. I don't know if you have anything to say about that.

Some of the shoes you can actually buy decorative, those...

That's right.

And our next question comes from Sam Poser with Susquehanna.

Well, good news. I don't want to follow up on his follow-up. So I do want to know how you are planning to open stores this year. And if so, what do your store openings and closings look like?

We are planning to move forward with four stores for which we have signed leases. The timing of these openings has been fluid due to different shutdown periods in the states where we are opening. We are not yet ready to disclose the specific quarter for their openings as we are still navigating permitting and various other topics. However, we are very excited about the reopening process and are looking forward to engaging with our stores as the year progresses.

What do you anticipate closing this year?

Closing, we have put a range of 7 to 10 stores out there of stores that are delivering low ROIs and we see not being accretive to continuing on with.

Would we assume that most of those closings would happen in Q4, considering the timing and the possibility of hitting the holiday period? Or do you see them occurring earlier to acquire inventory for those stores?

There are some early in the year. For example, we've closed two already this quarter of those. And then you are correct to assume a large amount of them are in the back half of the year. We do not foresee having any inventory challenges as these are all well planned for and how the team is buying.

And then looking ahead into next year, do you foresee yourself net opening stores at that point on a more normalized basis?

I'd love to be able to give you visibility to that, but I can't, at this point in time, give you guidance on that far out yet, Sam. We'll be able to be as soon as possible, and we are assessing the opportunities as fast as they present themselves, particularly with the many GOBs and the CRM we're learning. But we're not ready to commit to that at this stage.

Got you. And then two more. Promote, I mean you sort of talked about it. You're sort of assuming that there's going to be, are you seeing how much excessive or abnormal promotional activity relative to other years are you seeing now? Or are things certainly come, and you think once the stores start reopening, that's where it's going to happen? And to what degree have you worked that into the direction you provided for the balance of the quarter?

Right now, things are calm, but not all stores are open yet. Most of our competitors have opened some stores, not all. And we just don't see a lot of competitive issues out there today. And again, with our inventory levels at where they are, Sam, we're not going to get overtly promotional. There's just no reason to. In fact, we're on the lookout for additional product to fulfill the customers' needs.

Okay. And then lastly, how is the product from Niwot, Colorado performing?

I hope you're doing well. I think the call, we've taken up one hour.

Mitch has a follow-up to that.

All right. Gentlemen, that concludes today's question-and-answer session. At this time, I'll turn the conference back to you for any additional or closing remarks.

Thank you all for joining us today, and I hope you are all doing well. This has been one of the most challenging operating times in the company's history, but I am very proud of what we have achieved as a team. We acted swiftly to protect our customers and employees and collaborated closely with our vendor partners to maintain appropriate inventory levels for the near and intermediate future. Meanwhile, our ongoing commitment to financial strength and flexibility will help us navigate this difficult period and come out a stronger company. We look forward to speaking with you again in August. Thank you.