Good afternoon and welcome to Shoe Carnival's First Quarter Fiscal 2020 Earnings Conference Call. Today's conference is being recorded. It is also being broadcast via webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. .

Management's remarks may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the company's actual results to be materially different from those projected in such statements.

Forward-looking statements should also be considered in conjunction with the discussion of risk factors including -- included in the company's SEC filings and today's earnings press release. Investors are cautioned not to place undue reliance on these forward-looking statements which speak only as of today's date. .

The company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the forward-looking statements discussed on today's conference call or contained 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, sir. .

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 2 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 entertainment -- 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 work 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 6-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 look to Shoe Carnival to get the athletic footwear they needed, as many begin 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 mask 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 a 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 has 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 4 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 has 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 4 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, and indicating our customer base is strong and ready to shop with Shoe Carnival in person again.

In fact, last week, we achieved high single-digit comp growth for the total company despite having over 100 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. .

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

Kerry?.

Thank you, Mark. As Cliff mentioned, this quarter was a tale of 2 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 7 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 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 work 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 work 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 10 days of fiscal July began our back-to-school ramp-up and represented about 50% of the monthly sales. If schools continue e-learning or delay 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. .

[Operator Instructions] 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?.

So the way we report comps is all of our stores plus our digital business. And what we're giving is not an adjusted compared to the prior year. It's the full prior year of all stores opened compared to the stores we do have open today, the part month and -- plus the digital expenses or sales. .

Okay.

So even with stores closed, again I want to make sure I'm thinking about this right, you're -- some stores closed, you're still looking for a mid-single-digit comp in May?.

Yes. As Mark said, that as of today or as -- that we have a comp increase for the month, even though we have approximately 100 stores still closed. And as we continue to open them up throughout the rest of the month, that's where we're getting our expectations. .

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. But where there -- in the markets where COVID was exponentially higher, we're still not open. So like in Philadelphia, certain markets in New York, we're still not open. So the Midwest, we really were not affected the way -- sadly, the way the Northeast and the East Coast was.

I'll -- Mark, why don't you... .

Yes. Mitch, as Kerry was saying, with all the open and closed stores, we're plus 7 -- over 7% at this point for the month of May through yesterday.

And what we're seeing is results that far exceeded our expectations of how the customer would come out across states, across the states that our governors have relaxed or opened up, whether it's from Texas to Florida. We're seeing double-digit gains after we open up. And Cliff alluded to it, traffic is down double digit.

But what we're learning is the customers that come out are ready to purchase, and conversion is up extremely high growth. And units per transaction are also up very high. So we're having 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. And the -- because the malls are not open. We were open -- we got our stores open pretty quickly. And I hate to compare this to a hurricane market, but that is typically what happens. As soon as we prepare so well prior to a hurricane, that once the hurricane passes through, we're usually the first retailer to open up.

And I feel we did the same thing in this particular -- during the pandemic. We were so well prepared and continue to prepare during the closed time, that as soon as we got the orders from the governors, we were able to open up. And a lot of that, Mitch, has to do with the fact that we chose not to furlough our employees. .

Right. And then last question. I'm just -- so, Kerry, you kind of gave the numbers sort of May, June and sort of how you're thinking about July depending on what back-to-school looks like. I don't know if you could provide any color on how you're thinking about the holiday season, especially maybe how you're planning the boot business.

I don't know if you're planning it conservatively because maybe it's a riskier category given the seasonality, and you're not quite sure what the marketplace might look like. But I'm just kind of curious if you have any sort of initial thoughts on holiday. .

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 get my brother on in a second, whoever that was. Good to talk to you guys. All right. So let me get right to it. How much of your business -- I mean it's great, your digital was up 160%.

Is it up over -- was it month-to-date up over 500% is what you said, I believe?.

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 give us -- can you let us hone in on how meaningful all that is or -- just so we can understand it, how meaningful it is? And now that it's -- you're expecting it to keep going, how meaningful it potentially will be?.

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?.

Of last year's revenues, Q1. If you looked at all of fiscal '19, e-commerce exceeded 8% of company revenue for the first time, if you remember us sharing that in the last quarterly call.

So as we talk about having over 500% growth during our fiscal May and having over 75% of our fleet open, this has far exceeded our expectations of how consumers have responded to our CRM, to our marketing investment, to the assortment. And we couldn't be more pleased. .

Like I said in the prepared remarks, we do foresee that percent to slow down as all of our store fleet opens up, and consumers' shopping behavior reverts back to something more normal.

But our -- we are very confident that our e-commerce business has leaped years ahead of our strategic plan and certainly represents a much larger portion of our business on a go-forward basis. .

I mean I assume you think that in sort of on a normalized basis after this event, on an annual it ran 8% last year, you're probably thinking, I would think like 10% to 12% sort of normal -- making up for this new normal and the jump-start that your e-commerce got this quarter.

Would that be like a fair way to think about where your head's at for this year on whatever that number is going to be? I mean, for instance, if last year -- if this had happened the year before last and last year where you did 8%, that number will likely be in the 10% to 12%. I assume that's where you're thinking. .

We're going to learn a ton over the next 8 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. .

I will tell you this, we are -- just to add to that. We are -- we know, based on the fact that we have new customers shopping our site that have not shopped it before, that we are introducing a lot of people to our e-commerce site. So we expect that the e-commerce percent to total should accelerate. .

Got you. And then when you're thinking about -- well, let me ask you this. This -- I've heard from quite a few people who have opened stores, even a handful of stores, that their business has been pretty good.

I guess how much of that do you think has to do with the government money in people's hands? And -- I mean they're not necessarily -- it's like when they get the tax breaks or the income tax refunds.

How much of it is maybe just, okay, I have money, and now I'm coming in and spending it, and that goes away when that money stops coming?.

Well, there's no question that our customer, and we've talked about it, ever since I've been with the company, that when they get a check from the government for whatever reason, tax refund or rebate or whatever reason, they like to come in and buy shoes, they like to come in and buy anything. But -- so yes, that is fueling it. .

But I will tell you that we took that in consideration as we talked about the way we thought that May and -- excuse me, that June and July would come in. So we would -- if we thought the government money was going to continue to be part of what they were spending, we would have guided much further up than what we did.

I mean so we took that in consideration. .

Okay. All right. I've got a couple more. One, when you're thinking about -- and if -- I'm not asking the same question Mitch did about planning the back half of the year.

But just planning your mix in general, how much narrower from a brand and item perspective, given that uncertainty are you going to get, how much are you going to be even focusing more on key items, maybe eliminating categories such as dress shoes? Because I don't know when the next time anybody is going to sell a dress shoe and so on.

What are you doing sort of to really hone in on sort of the way consumer -- this apparent change sort of to comfort that has really taken another step forward during this pandemic?.

Well, I'd love to walk you through our merchandise assortment so that our competition knows exactly what we're doing. But I do think you're 100% right that dress shoes are not going to mean anything as we go forward, or very little, especially for our customers. It's going to be more casual.

And I think that's going to equate even to the boot category when that comes on. But I feel confident that as long as there's not a second wave, that our inventory position and our product mix of casual boots and booties for the fall time period is going to be good.

Right now, it's just -- as I mentioned in my prepared remarks, it's all about athletic and certain casual sandal categories. But -- and I think that's going to continue for the near term, at least up until -- and maybe even through September. Then at that point, I believe you'll see the casual boot market come on strong. .

Right. But, I mean, like generally, if you think about next spring, dress -- you're going to remix no dress shoes and things like that. I mean it's going to be hard to imagine that the casual comfort piece of your business doesn't stay, sort of even become more top of mind to the consumer. .

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... .

One other thing, too, Sam. You got to remember, we're not a very good -- we -- our customers do not flock to the dress market -- to the dress house. We have -- that's not a very strong category for us in women's. And so we have always been known for our casual and what we call sport casual categories.

And I think that might be part of the reason our business has been stronger than we even anticipated once we got our stores open, because customers know that they need casual product, casual sandals, especially, and athletic. We are the place to come. .

Okay. And then clog business, and then I'm finished. .

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 3 brands of clogs. So all right. .

And our next question comes from Greg Pendy with Sidoti. .

Kerry, I think when you were talking about the monthly same-store sales trends, correct me if I'm wrong, but you haven't factored much in for going-out-of-business sales. And just can you remind us -- last year, you had a major competitor or company, I guess, closed down.

When did they kind of wind down as we anniversary that event? And how, big picture, are you thinking about going-out-of-business sales? Is that maybe an early pain from liquidation before you can grab market share? What are you seeing in the landscape this year?.

Well, it's hard to tell. Last year, we had a competitor going out of business, and they completed theirs by the end of June. Now if you look at our comps through the first half of last year, you could say that we didn't -- you couldn't see an effect.

But in the second half, I felt like we had an accelerated comp, particularly in certain categories last year, which we started to believe that was the benefit of that customer being dislocated. .

This first half, it's going to be hard to judge right now until we actually see how they open up and what they're liquidating, what their pricing is, to make any comment.

It's something we've taken into account, and that's one of the reasons I mentioned that we're not giving guidance for the second quarter or the remainder of the year, because it's hard for us to gauge that -- what that's going to do to margins and how much that's going to overlap our market areas, what product categories, et cetera. .

Okay. That's helpful. And then just one final one.

Do you have any exposure -- you are -- kind of to the oil patch regions area, as you think? And how does the consumer look if so in those types of areas, given the volatility we've seen?.

It's really hard to tell, because we had -- as you know, all our stores were closed. And once we opened up our stores, even in those regions, we saw an accelerated growth. I haven't been able to say, it's because it's the oil region or not. So we've seen accelerated growth wherever we've opened up 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-the-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. Okay. And just on the -- any color on margins for e-comm sales? I know it gets extremely distorted in Q1 with everything that's going on.

But just help us understand, given the growth that you're seeing, what the -- any color about the margin profile that you see on your e-commerce business maybe year-over-year? Or just what you're seeing at this point on 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. .

Chris, I said in my remarks on Q1 is that there are a lot of gives and takes on the merchandise margin. It was down 190 basis points. However, the big factor to that decline was additional shipping due to the e-commerce being the tail end of the -- the half of the quarter being the primary driver.

But -- so it was hard to tease out, but that was the real reason for the decline on a year-over-year basis. .

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?.

Chris, to be honest with you, the only margin issue that we would have is that I believe that athletic has become a larger percent of our overall business for the short term. Because until everybody gets back to work, I think we're going to see a strong athletic trend. And that runs a margin just slightly less than the -- a brown shoe business.

So that might have a small effect. We really felt like we were going to have to become truly promotional during this time period to get our inventories back in line, but the customers, we -- between what we were able to do with the vendor community, that's number one.

And I can never thank them enough with the cancellation and the movement of product into later receipt months. .

And the reaction of the customers, not only to our e-commerce platform, but once we opened our stores, I feel like our inventories are in line. I would have never dreamed that I would be telling you that as of this past Saturday night, our inventories were actually down against last year. We're looking for inventory. We're looking for product.

And we're thankful that so many people canceled a lot of products so we can actually get our hands on some. .

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?.

It's 2 things, Chris. Our women's margins are down from a year ago, and that has more to do with the fact that we did not have the Easter, and we had to get through the dress shoes and dress sandals that would have sold during that time period. We didn't also -- Mother's Day, it was, for all practical purposes, canceled.

So again, I had to get through some of that. So margins in women's nonathletic was a little lower. Margins in athletic is not lower, and we're doing a good job there. So I think that's all temporary. At least, we had to get through that product. .

As you know, we always -- our number one thought on -- every day is inventory and making sure that we stay clean. So as soon as we saw that Easter wasn't going to happen, Mother's Day wasn't going to happen, we did get a little more promotion.

So I think that solves itself as we move into the second half of the year when category shoes become more important. .

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 correct on June. We're assuming that more of our competitors should be open. There also may be some pressure from GOB sales. So we felt that directionally to slow down the comp. Even though we're expecting a nice acceleration in e-comm, we don't want to overestimate what we'll do in this time frame. .

What I said in July is that taking last year as a comparison, in the last 10 days of fiscal July last year, we started to see the ramp up in our back-to-school. That represented about 50% of our sales.

We're concerned because we don't have the information yet that if the schools continue to do e-learning or they go back to school later, so they decide to pick a later date in August and shift those sales, that we could -- out of July into the third quarter, we could see up to a high single-digit decline in July, which would lead to a low single-digit decline in comps for the quarter.

.

However, if we see a traditional back-to-school tempo, then we believe that for the quarter, we could see -- based on the strength of May and June, we could see a low- to mid-single-digit increase for the quarter from a sales standpoint. But it's unknown right now because the schools are evaluating what they're going to do right now.

They don't have -- they haven't announced plans. .

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?.

one, it's warmer, obviously; and two, it's a 5-week month. So we feel we're in very good shape for the month of June and even for July. So I'm -- no, I'm not very concerned about sandals at this point. We are -- I want to be clear, and I mentioned this in my prepared remarks, we are selling sandals.

We're selling footbed sandals, really well selling soccer and a lot of the athletic sandals, anything that they can wear while they're working from their home offices, I guess. But it's amazing. Anyway, the dressier sandals are where we solve the issue, and we addressed that quickly through the product. .

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?.

Well, I'd tell you, Modell's going away is going to help us tremendously in the Northeast from Pennsylvania up through New York. So I'm -- I hate to say excited, but because that means people are out of work. But no, I think we have a great opportunity there.

And as far as Stage is concerned, we have a very strong presence in Houston and throughout Texas. And Texas is, I believe, our #1 state, so we see opportunity there as well. .

Again, I hate to use the word excited, but I think we -- there are opportunities from a product standpoint that will help us in the athletic in the Pennsylvania Northeast market with Modell's, obviously. And then Stage, they weren't very strong in athletic. They have -- actually not very strong in any category.

But where they did do well, I guess, would be casual women's. And -- anyway, that's all I'm going 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. And then, Kerry, on the -- again, kind of thinking about the comps for May and June, the mid-single and then the low single, a lot of that's going to be driven by e-comm. So how do you think about occupancy? I assume you're anticipating deleverage for those months despite positive comps. .

Some -- at the higher end of the estimates we gave for the second quarter, we'll still see some leverage. At the lower end, it could be much more significant, yes. But nowhere near the 640 basis points we saw 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 -- you guys sell lots of shoes with holes in them. I don't know if you have anything to say about that. .

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

You can fill the holes. .

That's right. .

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 the -- but I do want to know, I mean, how -- are you planning to open stores this year? And if so, what is your store openings and closings look like?.

Sam, we are planning. We have currently 4 stores with signed leases in hands that we're planning to proceed with. Because of the various states that we're opening in having different shutdown periods, the timing has been fluid, and we're not ready to share yet what quarter they're opening as we still work through permitting and a variety of topics.

But yes, we're very excited that -- as we shared earlier in the year, we are in the reopening process, and we have stores we're energized to engage with as the year progresses. .

And then -- and closings, what do you foresee 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. .

And would we assume that most of those closings would happen in Q4, just given sort of the timing, so given you could hit holiday and get out of them and with everything else going on? Or would that -- do you foresee that happening prior to holidays to buy inventory for them?.

There are some early in the year. For example, we've closed 2 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 sort of 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 much -- how are you doing with the product that comes from Niwot, Colorado?.

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. .

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. .

Okay. Thank you. I would, again, like to thank everyone for joining us today, and I hope you all stay well. While this has been one of the most difficult operating periods in the company's history, I am very proud of what we've been able to accomplish as a team.

We reacted quickly to protect our customers and employees and worked closely with our vendor partners to ensure we maintained appropriate inventory levels for both near and intermediate term. We're -- at the same time, our ongoing commitment to financial strength and flexibility will ensure we can weather this storm and emerge a stronger company.

And we look forward to speaking to you again in August. Thank you, operator..