Robert J. Dennis - Chairman, President and CEO James S. Gulmi - SVP, Finance and CFO Mimi E. Vaughn - SVP, Strategy and Shared Services.

Scott Krasik - Buckingham Research Group Taposh Bari - Goldman Sachs Nicholas Hiatt - SunTrust Robinson Humphrey Sam Poser - Sterne, Agee & Leach Mark Montagna - Avondale Partners Steve Marotta - C.L. King & Associates Mitch Kummetz - Robert W. Baird Jill Nelson - Johnson Rice Maria Vizuete - Piper Jaffray Chris Svezia - Susquehanna Financial Group.

Good day, everyone, and welcome to the Genesco Second Quarter Fiscal 2015 Conference Call. Just a reminder, today's call is being recorded. Participants on the call expect to make forward-looking statements. These statements reflect the participants' expectations as of today, but actual results could be different.

Genesco refers you to this morning's earnings release and to the company's SEC filings, including the most recent 10-Q filing for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made during the call today.

Participants also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial measures referred to in the prepared remarks are reconciled to their GAAP counterparts in the attachments to this morning's press release, and in schedules available on the company's homepage under Investor Relations.

I will now turn the call over to Bob Dennis, Genesco's Chairman, President and Chief Executive Officer. Please go ahead, sir..

Good morning and thank you for being with us. I’m joined today by Jim Gulmi, our Chief Financial Officer. As in prior quarters, Jim's detailed review of the quarterly financials has been posted to our website along with the press release from earlier this morning.

Also joining us today is Mimi Vaughn, our Senior Vice President of Strategy and Shared Services who will provide a brief update on our ongoing omnichannel and digital initiatives. I'll begin today's call with remarks about the second quarter and our start to back-to-school.

Then I’ll turn the call over to Mimi for her update and Jim will follow with his usual review of the numbers and guidance. After that, I will return to give a little color on our operating segments before opening up the call for your questions. We were disappointed with our second quarter earnings per share of $0.34.

Broadly speaking solid comp performances from Journeys and Schuh helped us achieve our top line projections. Our consolidated comp sales were up 2% with stores up 1% and direct comparable sales up 13%.

We are particularly pleased with the strength of our direct business, which is benefitting from the ongoing investments in our digital platform and omnichannel capabilities. Unfortunately, all of this wasn’t enough to offset a shortfall in sales and gross profit in the Lids Sports Group against our expectations.

With respect to year-over-year comparisons, about half of the lower second quarter profitability was driven by a swing in compensation expense related to bonus accruals. Our EVA bonus program resulted in larger reversals of prior year bonus accruals in the second quarter last year than this year.

Additionally, the accrual related to the contingent bonus arrangement in the Schuh acquisition increased in the second quarter this year. We have a solid trend going on this month. Through last Saturday, quarter-to-date comps were plus 4% with stores up 4% and direct sales up 10%. Results this month continue to be strongest in our Journeys division.

The business is getting a boost from some new fashion developments that first emerged in spring and continue to gain pace. Similar trends are playing out at Schuh where comps were positive in the second quarter and have accelerated month-to-date.

It is important to note that the second quarter is our lowest volume quarter of the year and as such, it is exposed to high fixed costs and a shortfall in sales or gross profit can produce large percentage swings in earnings as we just experienced. We are essentially a second half company.

Our guidance presumes 75% to 80% of our profits come in the third and fourth quarters. So while we are disappointed with our second quarter profitability, we still have a long way to go in the year.

And for reasons we will outline for you during this call, we still expect a solid back half performance although with slightly lower expectations primarily related to Lids. So to reflect the Q2 miss and these more modest expectations, we are lowering our guidance for the year and now expect adjusted EPS in the range of $5.10 to $5.20.

We continue to feel our longer term future is compelling given the strong strategic positioning of our brands. This strong position is being enhanced by the numerous digital and omnichannel initiatives that we’ve outlined in our last few earnings calls which Mimi will now update..

a single view of inventory, a single view of the customer and our efforts to get product distributed quickly once an order has been placed.

To begin with a single view of inventory, Schuh is farthest along with the most extensive omnichannel capabilities in our company and has reached a new level by having visibility of its inventory everywhere in real-time.

This enables advanced offerings such as click and collect where customers purchase shoes on the website and if the shoes are in stock and come pick them up in the store within the hour and check and reserve where they can reserve shoes on the website, get a confirmation email and come in and try them on before making the purchase.

These capabilities are in demand by customers and importantly drive traffic to the store. As such, we are working to implement them in the rest of our footwear concepts. Journeys and Johnston & Murphy stores have for a long time been able to access the entire inventory of their respective concepts.

Journeys has taken this one step further and provided access to product held in one of its vendor’s warehouses and will be expanding this capability to include more of its vendors. In addition, in Journeys, Schuh and J&M today, customers can go online and check store availability for product and sizes before making the trip to the store to purchase.

Lids plans to roll out on a select basis the ability to access inventory in the top 200 stores in the back half of the year. This will be valuable for the Lids in-store shopper. For example, 5% of Journeys in-store sales last year were made by accessing inventory in other stores or in the D.C.

This ultimately will be a tremendous improvement for the Lids online shopper as well since as much as 70% to 80% of Lids’ inventory is in its store and its localized view count is so high. Now moving to a single view of the customer. Customers want to be able to purchase online and then if necessary return or exchange items to a store.

They can currently do this in all of our concepts. Nonetheless, we took steps to improve this interaction implementing a new order management system which went live in J&M in the first quarter and in Journeys in the second.

This new system gives enhanced order status, tracking and history and provides robust updates to the customer and will make returns in the store easier. This system populates a database that is the repositories for digital and physical purchases. We have visibility into actions that originate in one channel that drive traffic to another.

For example, we know direct customers receiving a Journeys catalogue in a recent drop subsequently made purchases 60% of the time in stores and 40% online capturing activity across channels. J&M is our frontrunner here and has been exceptional at gathering customer data.

It currently captures in its stores information for more than two-thirds of its customers. J&M leverages this data to deliver personalized messages suggesting items to customers they would be interested in and thus driving sales. Journeys is catching up and expects to gather close to 1 million customer email addresses in stores this year.

Now on distribution capabilities, Lids is our innovator here and is in the midst of installing robotics in its new DC. Robotics enable faster, more efficient pickings particularly for single order picks. We are also testing faster delivery options and Schuh sets the standard.

We have discussed Schuh’s mini warehouse in southern England that extends the cutoff time for next day delivery from 6 to 10 pm. Today, this warehouse shipped almost 10% of Schuh’s e-commerce ordered.

Schuh will be piloting next day delivery on Saturday for Sunday and Sunday for Monday and currently allows customers to receive deliveries via couriers and collection depots in local convenient stores and even on the day of their choosing.

Digital has unlocked for us exciting possibilities that were never before available in our stores or online and will differentiate the experience we are able to offer our customers.

We were experimenting with responsive web design, in-store WiFi, tablets and kiosks for interactive ordering in stores and mobile payments made in the store away from the cash wrap among others. Our digital teams have been busy and their efforts have paid off in the strong results we have realized.

All of this underscores what we know is a key strategic advantage having both brick and mortar and a dynamic digital presence. We continue this work and our investing for sizable gains in our e-commerce business in the years to come. I will now turn the call back over to Bob..

Thanks, Mimi. We make a big deal about omnichannel not only because purchases directly off of our websites are growing so nicely but also because we believe our brick and mortar stores will become better, more compelling destinations for our customers as a result of this work. Now, Jim Gulmi, over to you..

Thank you, Bob. As usual we have posted more detailed financial information for the quarter online, so I will only be highlighting a few points. Earnings per share adjusted as we break out in the press release came in at $0.34, which was below our internal projections for the quarter and below last year when adjusted EPS was $0.56.

As Bob said, about half of the year-over-year difference was driven by a swing in compensation expense related to bonus accruals. Most of the miss versus our expectations came from a failure to realize a planned gross margin improvement at Lids. I’ll discuss the factor that impacted our bottom line performance in more detail during my remarks.

Total comp sales increased 2% for the quarter with stores up 1% and the direct business up 13%. Journeys, Johnston & Murphy and Schuh all had positive comps in the quarter and each delivered improved trends compared with the first quarter. The Lids business struggled with total comps down 2%.

Consolidated net sales for the quarter were $615 million, an increase of 7%. On a constant dollar basis, after adjusting for appreciation of the British pound, the increase was 5%. Month-to-date total comparable sales through August 23 increased 4%, which includes a direct comp sales increase of 10% and a store comp increase of 4%.

As I mentioned, the bottom line shortfall versus our expectations for the quarter was mostly a gross margin issue. Gross margin in the quarter was 49% compared with 49.2% last year. While gross margin was essentially flat with the year ago levels, we had budgeted improvement driven primarily by a pickup in Lids gross margin.

This didn’t materialize through a combination of lower than expected sales, higher promotional activity and higher shipping and warehouse costs than we had expected. Adjusting for all the items broken down in the press release, expenses as a percent of sales increased to 46.8% from 45.4% last year.

Almost 50% of the increase in expenses as a percent of sales driven by lower EVA bonus accrual reversal compared to last year and a higher contingent bonus expense related to the Schuh acquisition. The remaining amount was driven in part by negative rent leverage as we were not able to leverage rent with a 1% comp increase in our stores.

This should improve in the back half when we are expecting store comps of about 2%. As we have discussed before, we are expensing the Schuh acquisition and contingent bonus quarterly, which is included in our guidance and in the adjusted numbers we report.

For the quarter, the contingent bonus accrual of $3.2 million reduced EPS by $0.11 compared to $2.3 million or $0.07 per share last year. We expect to fully expense the remainder of this contingent bonus in the amount of $12 million or $0.40 per share this fiscal year.

So this item which is weighed on earnings each quarter since the Schuh acquisition should not be a factor after this year. In addition, the Schuh deferred purchase price expense in the quarter was $2.2 million or $0.09 per share. Last year the amount expensed for the quarter was $2.8 million or $0.12 per share.

Consistent with past practice, we have excluded this from our guidance and from the adjusted results. Also, consistent with past practice, we have excluded asset impairments, gains on the sale of leasehold interest and other legal items from our non-GAAP guidance and results.

The amount expensed this quarter was approximately $1.4 million pre-tax or $0.05 per share due to other legal matters and asset impairment. The amount last year was a net gain of about $2.2 million due in part to the net gain on the sale of a leasehold interest offset by other legal matters and asset impairments.

We ended the quarter with $59 million in cash compared with $46 million last year and with $76 million in debt compared with $73 million last year. We did not buy any stock during the quarter. Therefore, we have about $66 million remaining on the Board’s most recent repurchase authorization of $75 million.

Inventories increased 7% year-over-year in the second quarter in line with a 7% sales increase. Inventories were under our plan for total Genesco. Capital expenditures were $32.9 million and depreciation and amortization was $18.4 million for the quarter. This compares with $19.4 million and $16.5 million, respectively, last year.

Year-to-date, we have opened 123 stores including 69 Macy’s locations, acquired 19 Locker Room stores and closed 36 stores. During the first six months last year, we opened 73 stores, acquired seven Locker Room stores and closed 51 stores. Our store count is up 7.5% this year and excluding Macy’s increases 3.7%.

Square footage is up 8% and excluding Macy’s it is up 6%. Last year the store count at the end of the second quarter was up 3.5% and square footage was up 8% compared to the prior year. Now turning to our guidance for FY '15. As Bob said, we are lowering our EPS guidance for the full year to $5.10 to $5.20.

This reflects a shortfall in the second quarter and a lower projection for the Lids Group in the back half, particularly the third quarter where we now expect to come in essentially flat with last year from an EPS perspective.

This guidance is subject to the same adjustments as in previous years excluding impairments and other legal matters partially offset by a lease termination gain in the first quarter which we expect will total about $3.2 million to $3.7 million or $0.08 to $0.10 per share after tax.

EPS guidance also excludes the ongoing Schuh deferred purchase price expense, which is expected to be approximately $7.4 million or $0.31 per share in fiscal 2015. The final amount will be expensed in fiscal 2016 and is expected to be $1.6 million or about $0.07 per share.

Consistent with past practice, this guidance includes the full year accrual for the Schuh contingent bonus built into the acquisition agreement, which we currently expect to be approximately $12 million or $0.40 per share in fiscal 2015.

As I mentioned earlier, this should be the final year expensing the contingent bonus accrual and we expect the full amount of the accrual of GBP28 million to be paid in fiscal 2016.

Finally, the guidance excludes the one-time charge of $5.7 million or $0.15 per share related to the bonus planned amendment that we discussed in the first quarter conference call. Let me briefly review the assumptions behind the updated guidance and point out the more significant changes to our main guidance assumptions.

We are assuming a comp increase in the 2% range for the full year. With our first half, total comps were up 1% and we are expecting comps in the 3% range in the back half. A more detailed breakdown of our quarterly comp guidance is in my online commentary.

We are expecting an overall sales increase of 7% to 8% for the fiscal year and 8% to 9% in the back half. Our plan is to open or acquire 165 stores in fiscal 2015. This does not include up to 175 new Macy's locations. Our current plan is to close 45 stores during the year.

We plan to end fiscal 2015 with 2,662 stores, again, excluding the Macy's locations. This will be a 5% net increase in stores. Square footage excluding the Macy's locations is expected to be up 7% for the year. A detailed summary of our plan for new and acquired stores is included in my financial review on the website.

We are now expecting gross margin as a percent of sales to be flat with last year for the full year. We are taking gross margin down about 50 basis points for the full year from our last guidance update in May.

This is driven primarily by Lids where we are now anticipating increased promotional activity and higher shipping and warehouse costs than we had originally planned. Expenses as a percent of sales are essentially flat with our earlier guidance. Expenses will be up as a percent of sales compared with last year due to added bonus accruals.

This results in operating margin of approximately 7.1% for the year. Our May guidance expected operating margin was flat with last year at 7.5%. Our tax rate assumption for the full year is approximately 37.3%. We are assuming average shares outstanding of approximately 23.7 million for the year. We have not included any stock buyback in this guidance.

We are also expecting capital expenditures for the year of about $147 million and depreciation and amortization will be about $75 million. Now I’ll turn the call back to Bob..

Thanks, Jim. I’ll begin my review of our operating segments with the Lids Sports Group where sales comped down 2% for the second quarter on top of a 3% decline a year ago. Third quarter comps for the Group were plus 3% through last Saturday.

Second quarter sales trends in the hat stores were choppier than expected and gross margins were down slightly from last year, but we had expected to see some gross margin improvement. We had anticipated better full price selling than a year ago when Lids was forced to get more promotional to clean up their snapback inventory.

In reaction to softness in sales in the quarter this year, the team reverted to a similar promotional cadence. A factor in the second quarter performance were unfavorable NBA and NHL championship comparisons. San Antonio Spurs and the Los Angeles Kings drove far fewer sales this year than the Miami Heat and Chicago Blackhawks last year.

As in recent quarters, the broader issue for Lids continues to be a lack of meaningful fashion driver in the hat category. Despite a tough quarter, we are cautiously optimistic about the hat stores delivering improved results in the back half of the year but have hedged that off as an optimism in our revised guidance.

Turning to Locker Room and clubhouse stores, comparable sales were down mid-single digits in the second quarter after a strong first quarter that benefitted from the Seattle Seahawks Super Bowl win.

The Spurs and the Kings championships had an even more pronounced effect on the Locker Room stores than on the hat stores partly due to our concentration of Locker Room stores in the Chicago market. Looking ahead, we feel good about our NFL offering in the second half.

However, we want to point out that the Red Sox/Cardinals World Series matchup was helpful last year and therefore should two less well followed teams make it to the series this year, we could have some exposure.

We continue to be excited about the growth prospects we see for our Locker Room and clubhouse concepts and remain on target to add a total of 44 new Locker Room and clubhouse stores through a combination of organic expansion and acquisitions over the remainder of the fiscal year.

During the second quarter, we acquired a 19-store chain in the Ohio and Kentucky markets, which represents good timing given Manziel and LeBron’s return to Cleveland. We opened 62 more Locker Room by Lids departments at Macy’s during the quarter bringing us to a total of 95 departments in operation at quarter end.

We continue to do this as a good opportunity to reach consumers that wouldn’t typically shop our standalone Locker Room stores. We are on track to hit our target of opening 175 departments by year-end. In addition, we are seeing nice early growth of our business at Macy’s.com as we load their site with our SKUs.

At Lids.com, comparable sales increased 10% on top of a 25% increase a year ago. The direct business quickly bounced back into double-digit growth territory, albeit slightly more promotionally driven.

The work we’ve done positioning the website as a one-stop-shop for licensed merchandize combined with our ongoing omnichannel initiatives continues to yield improvement in sales. We expect further improvements from a new e-commerce platform, which we currently expect to launch in the second half.

Now turning to the Journeys group, total comparable sales were up 5% for the quarter with store sales up 5% in the Journeys direct off a strong 31% on top of the 21% gain a year ago.

We are very pleased with Journeys’ overall performance in the second quarter as positive fashion developments we called out on our Q1 call in late May gained further momentum in June and July.

As we head into the back half of the year, we expect the positive trend in nonathletic footwear, which has been a clear point of differentiation for us during the past several back-to-school and holiday periods will fuel improved results at Journeys over the same period a year ago.

But we also expect that the recent newness on the athletic side will be a meaningful complement to growth which we haven’t experienced during the holidays in some time. Quarter-to-date comps for the group were up 5%.

With respect to the digital business, traffic trends remain very strong up well into the double digits again this past quarter driven in part by increased mobile and tablet access. A higher conversion rate also contributed to the sales growth. Journeys recently completed a multiyear study of the U.S.

teen consumer and we think spending a few minutes on this work is worthwhile. Much of the feedback confirmed the strength of the Journeys brand and our understanding about our target audience and yet there were important new insights that will help shape the future direction of this business.

First, we reaffirmed that Journeys has incredible brand awareness among teens. In fact, 75% of 13 to 22 year olds have heard of or have shopped in a Journeys store. Shoppers consider Journeys their favorite store for fashion-related reasons. They like the wide selection and variety of styles.

They come to shop because they know Journeys is the house of brands and they will find the brands they like and want. They believe that Journeys will always be on-trend and carry shoes that represent the latest in fashion. Notably, they did not emphasize prices nor promotions as being important reasons why they shop in Journeys stores.

Second, these consumers told us they really like the store environment including the music, the vibrancy and the inviting feeling they get when they walk into a Journeys store. Many feel like it stands out from other stores in the mall. And while they like the store environment with overwhelming agreement, customers love the Journeys employee.

Store sales people are seen as approachable and are teen customers say they can relate to them easily affirming the benefit of our peer-to-peer selling approach. These teens feel like our employees are true experts who provide good information and advice about footwear and they value their recommendations.

This work validated that even after almost three decades of being in the mall given the perennial freshness of the product offering and extraordinary strength of its culture, Journeys remains the go-to store for teens who want to buy fashion footwear.

This research also led to a segmentation across all teenage customers and to the recommendation that Journeys focus its efforts on a subset of teens representing roughly half of the population who purchase a disproportionate amount of teens footwear and heavily influence their peers.

The teens in these segments visit the mall and average more frequently typically two to three times a month but many even more often than that. And when in the mall they make the rounds of their favorite stores checking out the latest products before deciding what to buy.

Understanding these customers and their shopping behaviors has led us to numerous initiatives aimed at attracting more of these customers and expanding Journeys share of their wallet. Here are a few examples.

The first is an initiative to increase the rotation of new product on the lease line and in the windows at the front of the store and to use our signs and displays to more consistently highlight new products. The storefront is Journeys greatest source of discovery and awareness routine.

Since these teens are in the mall frequently and are looking for new and distinctive product, we believe this will capture their attention and draw them into the store more often.

Because these teens are seeking out shoes with unique details and styling, a second initiative is to significantly call out greater attention to the product carried in the store that is exclusive to Journeys. We have not effectively enough called out for them the extensive range of exclusive products.

We will seek better ways to spotlight these products with signage, Journeys TV in the store, digital product presentations and in the Journeys catalogue to reinforce the message. In spite of much positive feedback about the store environment, these consumers told us this is another area of opportunity.

Teens in these target segments like the Journeys store environment in general but would prefer a larger, better lit, more organized store. So we are taking action to give them what they want while keeping the core essence of the store intact.

Finally, a more thorough understanding of these segments has allowed us to have greater insight into Journeys marketing and social media efforts since then. For example, Journeys sponsored the Vans Warped Tour, which made stops in 42 cites this summer.

While the primary Journeys target segments represents 50% of the teen population in general, they represented over 90% of the attendees at the Warped Tour further validating our position as a presenting sponsor of the tour and our other targeted efforts to reach our desired customer.

The Journeys team is extremely excited about the insights generated from this work and is confident these insights will help them drive customer traffic and sales. Now turning to Schuh. Comps turned positive after five quarters of negative comps, up 1% for the second quarter. Stores were down 1% while the direct business was up 14%.

It is especially encouraging to see the direct business resume a healthy comp trend, which has continued into August. The performance of Schuh direct business marked a strong recovery from the 6% decline in the first quarter as traffic improved. This bodes well for the back half of the year.

Importantly, the recent growth at Schuh has been broad-based with several newer brands contributing to its performance providing a more balanced and diverse merchandize assortment heading into the holidays.

Similar to Journeys, the emergence of new fashion trends helped boost Schuh’s recent sales and we are cautiously optimistic this will contribute to positive comps during the third and fourth quarters. Third quarter comps for the group were up 5% through last Saturday.

We will soon open a new state-of-the-art distribution center to serve the Schuh business. We expect this to drive expense reductions from consolidation of the existing infrastructure and to increase the speed and efficiency of Schuh’s supply chain given the team and group capabilities to further enhance their superior service model.

The new DC will also support Schuh store expansion. Schuh is open for stores year-to-date and currently operates 99 locations with plans to add a total of 14 stores this fiscal year. Johnston & Murphy total sales increased 3%, which included a 2% comp increase on top of a 7% increase a year ago.

Third quarter comp through this past Saturday were down 2%. Following several high single-digit quarterly comp performances, comps have moderated this year as it appears we have entered into a bit of a lull in the replenishment cycle to dress shoes.

That said, our expanded offering of casual footwear is growing nicely including in the wholesale channel and we are seeing success, which J&M growing apparel and women’s offering. Finally, the licensed brand group posted solid top line results to the first half of the year while maintaining nearly a double-digit operating margin.

So that wraps up our individual businesses. In summary, although we are unhappy with our bottom line performance in the second quarter and we are appropriately cautious about our near-term outlook, our long-term confidence is undiminished.

We continue our focus on enhancing the position of each of our businesses as a leader in its niche by pursuing initiatives to make them even more difficult for others to replicate.

We will benefit from the expertise and dedication of our outstanding employees who execute day-in and day-out delivering the right product to our customers and service levels in our stores that distinguish each of our retail brands.

All of our businesses benefit from leadership teams with deep industry knowledge and a long history of managing through both favorable and challenging sales environments and we thank them all. Finally, our balance sheet is strong and gives us the flexibility to pursue initiatives to generate value for our shareholders. Thank you for listening in.

Operator, we are now ready to take questions. [35:30].

Thank you. (Operator Instructions). We’ll take our first question from Scott Krasik with Buckingham Research Group..

Hi, guys.

How are you doing?.

Good..

So a couple of questions. First, you alluded to athletic or fashion athletic helping your comps in Journeys the holiday.

What’s the contribution that you’re seeing right now between athletic and casual?.

Well, both are contributing. So the point on that comment, Scott, was that we have to believe that the benefit we’re getting in casual and athletic will go throughout the rest of the year..

Okay. And then your view on the comp progression in casual, just because it has been so strong for a couple of years.

You don't see that falling off?.

No. There are things on that side of the house that are very on-trend and we think that will persist through holiday..

Okay.

And then, Bob, maybe just talk about – you talked a lot about sports teams impacting things and I'm just wondering sort of the core hat business – we’re past the snapback issue, is there pricing pressure on just core hats and can that business comp on an ongoing basis without fashion?.

Well, so let me first talk about the one-off factor. So, we’re going to live with championship teams all the time and so in this case they took a little bit of a hit from that. And the bigger hit as we said was in Locker Room. Most of the decline on the comp in Locker Room was actually related to the championships.

So when you sort of tuck that aside and say, let me look at the rest of the business how it’s doing, it is not as much price pressure like other people doing a lot of discounting on hats, it’s more just the reality that you have to at some point keep your inventory right-sized.

And so you have to move a little bit of product and so on a year-over-year basis, gross margin in the hat business was similar but we had expected they’d pick up. If you go back a year ago, so go back two years, the snapback clearance we did last year gave up about 200 basis points in gross margin. So we thought we’re going to get part of that back.

It ends up we decided to just make sure that inventory was right-sized and clean and so margins didn’t get to where we had hoped. What we need is a little more fashion. We were in a fairly uninspiring fashion cycle on headwear. With that said, we see a couple of things that will be helpful on the fashion end in the back half.

Now they’re not such big items that they change the game completely, hence we’re being cautious on our guidance. But we see some glimmers of items that will come in that we think will be new and special and new and special means a lot of full price selling..

And your expectation for comps then for Lids for 3Q, 4Q?.

On average for the two quarters is about the same, is around 2%..

Okay, so it still needs to – I guess it’s running that in August. Okay. Good luck, guys..

Thanks..

Our next question comes from Taposh Bari with Goldman Sachs..

Hi, guys. Good morning. Just a question on the guidance. The composition over the next two quarters, your 5.15 at the midpoint for the year. You're saying, Jim, flat earnings in the third quarter. So my math points to about 19% growth, EPS growth in the fourth quarter after a tough first half.

So I'm just trying to understand what it's going to take to get there. And help me understand the bonus noise.

Does that continue into the fourth quarter?.

Yes, it continues for each of the next two quarters and we’ve talked about that a lot. The amount is up a couple million dollars the adjustment in the third and fourth quarters versus the first quarter, it’s going to be fairly similar to what it was in the first quarter. So yes, that is going to happen.

Now the pickup in the fourth quarter that’s where the opportunity has always been for us and the third quarter is, as we said before is primarily back-to-school started off very good. Hopefully, we’re being conservative in our guidance but nevertheless. In the fourth quarter, we’ve got a lot of good things going on.

We’ve talked about the Locker Room business which is very, very heavily weighted to the fourth quarter. It’s more weighted to the fourth quarter than any of our other businesses, a large amount of the sales in the fourth quarter and basically all the profits.

So with the additions we’re making in the Locker Room area, we expect that to really contribute. And then each of the other businesses, there’s some opportunity in Journeys in the fourth quarter and also Schuh. So yes, we expect the fourth quarter pickup but that’s where we have the best opportunity to leverage. And so we feel comfortable with it..

And also when you talk about stores, realize that in this year we will have opened more stores than we have really since prerecession. And the weighting of those stores is heavily into Locker Room and Schuh and to some extent Journeys Kidz and these are all businesses that are more fourth quarter weighted for us.

And so you got a maturity cycle kicking in with new stores and then you’ve got fourth quarter weighted stores. So when you model it up, you end up tilting a lot more of the income into the fourth quarter. That’s why it has that shape..

I understand. So are you actually expecting – I know you said SG&A deleverage for the year.

Are you expecting SG&A to delever in the fourth quarter or actually get leverage?.

In the fourth quarter we expect to get a little leverage in the fourth quarter..

On SG&A..

Yes..

Okay. And the other question I have is back on Lids. What are you seeing there on the gross margin line quarter-to-date for the Lids hats business? I think you said it was flat in the second quarter.

Are you seeing the same kind of trend quarter-to-date?.

Quarter-to-date, we’re not even through with the first month, so we don’t have a final number and there’s a lot of adjustments been made but it is running down so far this month. But let me just tell you we have it down from the big switch in the back half, the biggest switch in the back half is in the Lids gross margin.

We have taken that down quite a bit. And so far this month, we are running behind last year so we feel comfortable but we’re in line with guidance because we expect it to be down..

And you’re referring to the Lids hats business, correct?.

Actually I’m referring to the whole Lids business in total..

Okay. All right, guys, thank you and good luck in the back half..

Moving on, we’ll hear from Pam Quintiliano with SunTrust Robinson Humphrey..

Hi. This is Nick Hiatt. I’m on for Pam. Thanks for taking our question. First, I just have a question around new apparel trends. There’s a lot of buzz surrounding some of the new apparel trends out there, particularly on the bottoms side.

Can you remind us what, if any, impact new apparel typically has on footwear purchases?.

The general thesis is always that a new apparel particularly on the bottoms can prompt changes to fashion footwear needs and I think a couple of you guys, some of the analysts have called that out. We’re very willing to run with that. It’s very hard to prove when that happens and when that doesn’t happen.

Right now it seems like there is changes going on in both, so is there a link, maybe. We know what our trends are right now and so we’re chasing those hard..

Okay, thanks. And one other question. There seems to be a little bit of conflicting macro data out there and most of our team retailers have indicated back-to-school has started better than anticipated. I know you mentioned that the key thing you need is some of the fashion to pick up.

I’m just wondering how do you think about the health of your core customer this year versus last and their propensity to spend..

Yes, that’s a tricky question. It’s probably better answered by a more broad-based retailer because when you look at our business, let’s take Journeys. We know that we have some good fashion drivers that are contributing to our success. So underneath that what’s the core propensity to spend it’s hard for us to judge.

If we look back over the last several years, it’s been a very choppy consumer environment in the mall and seemingly at odds with some of the upbeat economic forecast that people have given. Our businesses are so more affected it seems by ups and downs in fashion and in sports a little bit by teens in fashion that is hard for us to sort out too.

So right now what we’re happy about is that August month-to-date, we’re up four and that’s a nice number for us. So we’re happy that fashion at least is working in our favor..

Sure, sounds great. Thanks a lot. Good luck on the quarter..

Thanks..

Our next question comes from Sam Poser with Sterne, Agee & Leach..

Good morning. Thanks for taking my question. I have a few. Okay, let’s start with this. In the Lids business, we’ve looked at some data that told us that there’s a difference between what’s going on with licensed hats and non-licensed hats.

Can you talk about what percentage of your business – how that’s set up? I mean you do a lot of licensed business or teams even growing business at the Lids stores.

Can you talk about any move towards more fashion and less team logoed hats or anything like that?.

Well, first of all, Sam, let’s be clear. We’re talking about the hat stores, they are primarily a licensed business and the non-licensed business it’s been 10 to 20 depending upon the trends. So we do see some things happening that will probably help the non-licensed business a little bit in the next half of the year.

But we need the license business to perform in order to be a good performing company. So we can point to a few things in the non-licensed area and we think that that has some reasons to be up trending but when it’s such a small percentage of the store, it isn’t what you can really hang your hat on if I can throw a pun out there..

Okay.

And then we also saw that there was – did you take advantage of any of the World Cup situations within the Locker Room stores?.

Yes, we did. In fact when we talk about what’s going on in hot markets that we’ve tried to separate out the one-off events in sports from the baseline trend in our stores, we had the World Cup which helped us this year.

That was offset in our overall business by the year earlier we had the World Baseball Classic, which because that’s so hat oriented was actually a big event for us as well. So yes, we were in the World Cup. We sold a lot of U.S. – I think the order went this year, U.S., Brazil and then Mexico in terms of jerseys. And we did very nicely with it.

It’s hard to get very aggressive because in the United States you’re in that business for three weeks and then you’re out of that business. And so like a lot of other hot market things, you play it to make sure that you are well liquidated at the end..

Thank you. And then I have a couple more.

Jim, will the compensation expenses that are going to carry through this year and so on, will those revert to being most likely a – will that result in easier comparison next year or does that just depend how business is?.

There are two pieces to the compensation expense. One is the Lids earn-out..

Excluding the Lids earn-out..

Yes, I said Lids I mean Schuh..

Excluding that..

But the other one is the bonus accrual, okay. And will it reverse itself? Well, the question is what is the bonus next year? If we’re having a good year it will probably be buried and you won’t even see it.

But in terms of the clawback issue that we’re facing this year versus last year for the most part that will be eliminated because we are expecting a small bonus this year whereas last year basically we had a call back.

So from that standpoint, we won’t have the call back issue but then it depends on how well we do but again if we’re doing well, there probably not going to be a call out because they don’t get buried in the numbers.

Did I answer your question?.

Yes, thank you. And then a couple of things, a couple of more things, I’ll just go through it. Macy’s revenue versus your expectation or give us some details there. Journeys Kidz comps versus the whole thing.

And then I know you don't like talking about brands, but given sort of how things are going in the back half, I mean can we assume that when we look around holiday and everything, it's going to be Timberland, Doc Marten and UGGs really being the driver outside of what's going on in that casual athletic business?.

Well, we’ll take your questions in a reverse order. You’re right, we don’t like to talk about brands and we are expecting on the casual side of our business including boots we expect the business to perform very nicely. Journeys Kidz continues to do well.

Its comps have generally been running at or above Journeys comps for several, several, several years, which is why we’ve been so much more aggressive on opening more stores. As you well know, Sam, Stride Rite is closing stores so some of that specialty business spills to us.

Of course they SKU a lot younger than Journeys Kidz but we get some help from that. So we just think that the Journeys Kidz concept is just really resonating. Part of the thesis on that is we’ve been around long enough that the new mom is a mom who shops Journeys and so she knows the store, she knows the brands and we think that adds to the theory.

We actually were meeting with one of our top vendors yesterday who said in their brand that’s been around for a while, they believe they’re seeing the same thing in their kid’s business. So those are the two things.

Macy’s revenue, it’s kind of early still, Sam, we’re rolling out these stores very quickly and it’s really hard to comment on revenues because it’s so team driven. And so the answer is when we hit markets with teams doing well, the stores do better than in markets where the teams aren’t doing well. And the mix right now is really a mix.

So I’d rather not get out in front of the Macy’s revenue until we have more of a stable store base..

Last question, what’s included in your guidance for Macy’s? So built into that guidance for the full year, what are you expecting out of that business?.

It’s breakeven and make a few dollars, not very much..

From a revenue perspective?.

From a revenue, we’re expecting let’s see about – it’s going to be a small amount, Sam. It’s really not going to move the needle. It will be below our earlier expectations because certainly in the first quarter it was slower than we had anticipated. We’re catching up now. But it’s a really small amount. It’s basically a rounding difference right now..

Okay. Thank you. Good luck..

Next, we’ll hear from Mark Montagna with Avondale Partners..

Hi.

A question about Lids; wondering if the sales weakness is centered more around NCAA than professional?.

NCAA has been very weak for us for years because it’s not on trend for fashion. It never played a big role in snaps and before that it wasn’t big. When I first got involved with Lids, it was the go-to fashion item and it was particularly in those days North Carolina. So it’s a very, very small – much smaller part of our business than it used to be.

Jim, I don’t know if you have any numbers as to whether it’s up or down. But whatever it is, I think it’s not material. It’s not a driver..

Okay, all right. And then just looking at Schuh, can you just talk about the promotional environment that you saw out in the UK during Q2, what your expectations might be for the second half? And then how does their promotional environment compare to the U.S.

when it comes to footwear? Just in general, how do they operate in the UK in terms of how they try to – not they but the overall market?.

Let’s also not talk about footwear in general because the footwear – let’s start with the U.S. The footwear market in the U.S.

is more promotional than what Journeys is because we operate in a segment where the brands are not as widely distributed and they are brands that are very cautious about putting themselves in a situation where promotions rule today. So Journeys is not a promotional house.

They drive liquidation on end-of-run, end-of-season goods obviously with sales but they’re not using sales to drive traffic and that’s exactly the same pattern at Schuh. And the environment over there did go through a stretch when sales were very soft when in reaction to competitors they had to get a little more promotional to drive liquidation.

But the general pattern at Schuh is very similar to Journeys. There’s a slightly different promotional cadence in terms of when they go on sale as an industry to drive their liquidation and they are consistent with that pattern. But they really are a full price seller who then liquidates end of season.

I’d say in general the UK promotional environment looks to have improved along with the economic environment on the main street..

Okay.

So out in the UK does Schuh – are they ever looking at – do they ever have to really compete against the direct competitor whereas obviously in the U.S., Journeys doesn’t really have that issue?.

Yes, I’d say there are competitors that are a little more like Schuh with a national footprint than Journeys. Journeys has no one really like them with the national footprint. And so obviously that advantages Journeys a bit on a relative basis. But when you look at Journeys, there are players in the mall who have pieces of the Journeys business.

So obviously the skate business is also served by the skate guys as an example. So Schuh does have – one competitor in particular probably looks more like them than we experienced here in the U.S..

Okay.

And then just lastly regarding Journeys, is the trend, the comp trend, are you seeing greater strength towards men or women?.

It’s strong on both sides..

Okay. Thank you..

Steve Marotta with C.L. King & Associates has our next question..

Good morning, everybody. Thank you for taking my question.

Bob, can you speak to the primary difference in Lids comp quarter-to-date versus the entire second quarter? What’s the primary delta there? What are you doing differently? What changed between the negative 2 and the up 3 in your opinion?.

Well, again, one of the factors that was in the second quarter was those championship teams. We didn’t have that offset in August. It’s a good question, Steve. There isn’t an item, you can’t say here the category either in terms of the sports league or the silhouette that all of a sudden has popped and is driving it. Traffic is a factor I think.

The mall or back-to-school at least based on our Journeys numbers assumes to have been reasonably strong. Jim is having a gaze at the numbers. Jim, do you see anything in there that would --.

Yes, the month of June – first of all, the trend was a lot better in July than it was in May and June. So from a trending standpoint, it was improving during the month..

And June by the way that’s the championships. Both the championships were in the month of June. It was where we got clobbered..

We got clobbered in June, May was not very good and we saw improvement in July. So the trend line was improving as we got into the month of August and so obviously that had a larger impact on it..

And then based on the above and beyond downward change in EPS guidance for the balance of the year, much of that above and beyond what was missed in Q2 is predicated on lower gross margins at Lids and I'm assuming that's because inventories are slightly higher than you would have previously expected there and that’s on increased promotions, because that would be – if comps are trending better this quarter, why take Lids margin down for the balance of the year?.

I’ll just talk about comps and I’ll let Jim talk about margins. So we’re cautiously optimistic on comps for the back half at Lids. We love the NFL headwear assortment but it’s pretty early still to get a read. We’ll get a great read in two weeks.

And as I mentioned, we see a couple of new silhouettes that have tested our nicely where we’ve been in the business before but now we’re bringing them in, in greater quantities. So we have some reasons to be optimistic. But beyond those two items, the core business has still been a little bit challenged.

So, Jim, you want to talk about the position on margins..

Yes. First of all, I want to make the point that we don’t want to miss again, so we’re being very cautious in our numbers, at least we hope we are. And the issue with Lids in the second quarter was not against last year dramatically. The issue was against our expectations. That was the big issue. And we were overly optimistic on the margin pickup.

As Bob said, we were looking where we were two years ago before we really got in the snapback and the gross margins and were saying, okay, we’re heading in that direction. We didn’t get there.

So what we’ve done going forward from a gross margin standpoint is we have taken the expectations down on the gross margin a lot, okay, compared to those earlier expectations. And we hope that that will do two things that will help drive traffic.

And as we said 2% comp in the back half which is a little above where we were in our earlier expectations but not a lot. And then as Bob also said, we expect to be a little more promotional to bring inventory levels down by year end – begin to bring it down and hopefully be down some by year end. So it’s a combination of both of those things.

And again, against earlier expectations, we’ve taken the gross margin down a lot and we really haven’t raised the comps that much. So that’s an opportunity.

And then the other thing that’s going on here that I think is important in the back half from a comp and sales standpoint is what Mimi mentioned and that is the ability to in the 200 stores begin to access inventory throughout the chain.

And we think, again as Mimi said, by having that ability in Journeys they’re picking up around 5% of their business as a result of that. Now we’re not going to have it fully implemented in the back half, but we think that’s an opportunity to help drive sales in the back half for Lids..

Okay.

Last question and just to be clear, would you say the last three weeks then August-to-date have been more promotional than last year? And can you quantify that at all? Is it days off of [BOGO] (ph) or is it – maybe you can quantify it?.

It’s really hard to say in the middle of a month. There are just so many adjustments going. We don’t have – I mean yes, we think we have been a little more promotional and how much that has driven the comp I really can’t tell you. We’ll have to get through all the numbers and all the adjustments.

But based on the gross margin we’re looking at, we have been a little more aggressive than last year..

Okay. Thank you..

Next, we’ll hear from Mitch Kummetz with Robert Baird..

Thank you. A couple of questions. So on the championship teams, Bob, how much of an impact did that actually have on comp? You’ve referenced it several times. It sounds like it was pretty significant.

Is there any way you can give us an idea what the actual comp impact was?.

Yes. For Locker Room it was most of the mid-single-digit loss. So if you do the hats, it was a little less than a point of comp. And all-in – Jim, do you have all-in? It was two points to comp. So if Lids ran minus 2 without the championship offset, it might have been running – the trend line was probably more close to flat..

So how should we think about that going forward? I mean right now you guys are guiding to a 1 to 2 comp for Lids for each of the next two quarters.

I mean if we end up with I don't know A's and Giants World Series, I mean is October going to be lousy and you might miss a 1 to 2 comp or how should we be thinking about the impact of teams relative to your plan? I mean how do you plan that?.

That’s a great question and the answer is while we’re building out the Locker Room business, our exposure to teams goes up because markets where we have a concentration of stores or where we have a clubhouse relationship can swing it more than if we’re just completely fully built out.

We always have the Yankees versus Oakland offset even fully distributed across the U.S. because the Yankees is a national team. This gets more pronounced. When the Seattle won that was a gift to us because we have Seattle team shops, a business we had bought.

We bought a group of stores that were centered on Chicago, hence the Blackhawks in particular were a big event. The Heat were a national team. So yes, right now we’re going against St. Louis and we run their clubhouse stores and Boston’s a national team.

We have a relationship with the Dodgers, so the Dodgers will be great but if it’s the Oakland and say the Washington Nationals, I hate to offend somebody here, but that’s not as good a deal. So I’ll give you – to size it for you a little bit, I went back and looked at the Cardinals and the Boston was a plus for us.

The year before was the Giants and the Tigers. Tigers are – it’s a legacy team at least and that cost us about a point of comp in the back half.

So what we will do for you guys but I think an important question is when it moves it up or down, we will do our best to try and give you visibility on it because the baseline to me is what matters to really assess the health of the business..

Okay.

And should we assume in terms of the plan of a 1 to 2 comp in Q3 that you are not assuming Dodgers and some national team, that it’s more of just kind of an average of who might be out there?.

Yes, we think of average..

Okay. And then lastly on Johnston & Murphy just looking at the operating profit, it looks like the operating profit was down a couple million dollars year-on-year and I know the comp wasn’t great and the trend line there isn’t that fabulous either. I mean how much of that is impacting just kind of our outlook? You really haven’t talked about it.

The whole discussion has been on the Lids, but just something that I noticed.

And what was J&M wholesale in the quarter just in terms of the year-over-year?.

While Jim will look for that, let me just – one thing that’s in all of J&M is remember we are launching a brand right now, the Trask brand and so we’re still in launch mode and being in launch mode with Trask creates a drag on profits because that is still in investment mode, so that’s a piece of it.

Jim?.

Yes. Wholesale was down for the quarter but that was partly driven by – we’re putting in a new system, warehouse management and we backed up on some inventory and I’m not sure we’re fully caught up. And then as a result of that we lost some orders, so that affected it, okay..

How much was it down?.

It was down – I’ll do the percent but let keep on going. The other thing that entered into the numbers of Johnston & Murphy was increased advertising and so that hurt the bottom line quite a bit. So it’s a combination of those two things. And then on top of that, they just didn’t comp enough to get any meaningful leverage.

So those are the two big issues. Now in terms of how much were they down, they were down maybe 10%..

Okay, all right. Thanks, guys. Good luck..

Jill Nelson with Johnson Rice has our next question..

Good morning. I have a quick question. You called out for second quarter higher shipping costs and warehouse expense at both Lids and Johnston & Murphy. If you could touch upon that and kind of your thoughts on that line item for the back half..

Yes, expected to continue and so no relief from that standpoint. Hopefully, next year when we get a little relief, because it’s really driven by two factors. One is e-comm and free shipping, that’s probably – we’re probably not going to get relief on that in the future.

But the other thing that is happening is that we are in a process of transitioning two business units’ warehouses and so we’re in effect duplicating costs as we transition out of Lids. Lids is moving from one warehouse to another and as Bob called out already, in the Schuh situation they are moving from one warehouse to another.

So we’re duplicating costs. We hope to be through most of that by the end of the year. And then in addition to that, we put in a – as we talked about earlier, we put in a new warehouse management system in Johnston & Murphy and that’s added to the costs in the second quarter.

And that should begin to wind down certainly by the fourth quarter, maybe a little bit earlier in the third quarter. But the other thing is the duplicating of costs in the warehouse transition, certainly we’ll have that in the third quarter, probably some in the fourth quarter but hopefully next year we will not..

Okay. And then just kind of a longer term, bigger picture question kind of on your venture with Lids at Macy’s. I know you're going there to attract kind of a non-traditional Lids customer.

Any thought process of learnings there and how can we attract that customer potentially to the core Lids store, kind of looking at ways to help drive that top line?.

Yes. The premises is not that we’re necessarily going to drive that customer to the Lids store. Obviously in a market where we have a Locker Room store, there will be a bigger assortment in the Locker Room store and that opportunity exists, but that’s not really part of the thesis.

The thesis is that the customer at Macy’s is very loyal to Macy’s and they go to Macy’s to shop. We know that the sports business has an impulse component and so we are set up in Macy’s to try and really do business there.

A very important part of being in Macy’s is that by having the presence in the Macy’s stores, we also have a presence on Macy’s.com and the dot-com numbers are an important part of the formula for us..

Okay. Thank you..

Next, we’ll hear from Stephanie Wissink with Piper Jaffray..

Great. Thanks for taking our question. It's actually Maria Vizuete on for Stephanie. Just a couple of quick questions for you guys.

Just wondering as a follow up to an earlier question, can you provide some more color on the Kidz business and how that’s trending in the back-to-school period specifically?.

On Journeys Kidz?.

Yes..

We’re not taking three-week comps down to business units. As we said before, the Kidz business has always been tracking at or above Journeys and we’re pleased with what it’s doing. I don’t know what else to say, it’s been a great business over many years and we’re committed to it..

Got it. Thank you. And then just a quick question.

Are you guys seeing any variances in traffic by region?.

I don’t have that data in front of me, so maybe we can get back to you on that..

Sure. And last question, on the Johnson & Murphy business, what percentage of the business is dressy versus casual? Thank you..

I’ll tell you what, Jim’s – it’s a little late in the call. Let’s get back to you on that as well..

Sure, sounds good. Thanks so much..

Our next question comes from Chris Svezia with Susquehanna Financial Group..

Good morning, everyone, and thanks for taking the questions here. I do have a couple. I’ll try and go through them quickly here. Just first, just a clarification.

Jim, did you mention that you expect third quarter EPS to be flat? Did I catch that correctly?.

Essentially flat we’re saying..

Okay.

Second tier gross margin pressure, is that only – relative to your expectations previously, was that only at Lids or is that in other areas of the business?.

There are plus and minuses but nevertheless the big change is in Lids..

Okay. The percentage of the business that’s back-to-school based on your estimate at this point..

I don’t know what you mean..

I guess historically, as you have seen it, how much of the business that’s done thus far do you think is done specifically for back-to-school? Like how much of your back-to-school – how many of your markets have gone back-to-school at this point where you think you’ve done business I guess is what I'm trying to say..

It’s very hard to track. We’ve got essentially one week to go which is heavily concentrated in the North East. The Journeys teams does their best to try and estimate where it is. We’re on a positive trend through the weekend. We haven’t seen any disruption to that trend with one week to go.

So we think that BTS essentially was spread out this year not too far off of last year.

Does that help?.

That does. Thanks. Journeys, you’re up 5. You’re guiding 3 to 4 for the back half of the year and you anticipate, based on what you’re seeing in more of those athletic styles, to obviously comp. Is it just luck? You’re being conservative. Don’t know how holiday plays out, et cetera, or is there something else? It just seems --.

Well, the something else that would call for caution is – as you probably know, Chris, in recent years the customers has come out for events and then gone to (indiscernible). So I think we’re being cautious as to whether back-to-school is necessarily the trend line because it is so event driven..

Okay, fair enough. Last three things, I’ll just throw them out there.

In Lids, the improvement up 3; any difference between Locker Room and the headwear business in terms of what you’re seeing? Any color on Shi, if you care to share, in terms of what’s playing out in Journeys and how that might be helping or not for Shi? And last the contingent bonus that goes away this year.

I know you’re not giving guidance for next year, but what happens to it? Do you think you’ll spend it? Do think you’ll let it flow through? Just any color about that. Thanks..

Three weeks in the sports business is not worth splitting up between Locker Room and hat store, so let’s not go there. Color on Shi, Shi is continuing to be a project for us. So it is not a positive contributor right now to the business but it’s also with 50-some-odd stores pretty much too small to matter. The contingent bonus as an accrual goes away.

On a cash basis, yes, we’re going to spend it. We owe the money to the ladies and gentlemen who earned it, so we will be paying it out. So I don’t know what you mean by flow..

I guess on a reported basis, how we look at it, does it --.

The accrual ends and goes away. So we have already always threw out our ownership of Schuh been paying a regular performance bonus for the year. We have always regarded the contingent bonus as part of the purchase price paid to a group of people who essentially had an interest in the company.

And so as such that part goes away, goes to zero, doesn’t appear again and we will continue to be paying the regular bonus as we have every year based on performance of the business..

Got it. That's all I needed. Perfect. Thank you..

Thank you..

I want to follow-up on Stephanie’s question. Stephanie, you were asking about accessories in the second quarter, it was pretty consistent with last year and we’ve always talked it was in 35% to 40% range normally and it’s around 35%..

Okay.

Operator?.

That does conclude today’s Q&A session. Now I’ll turn the conference back to Mr. Dennis for any additional or closing remarks..

Thank you, everybody, for joining us, appreciate the questions. We’ll talk to you in three months..

Ladies and gentlemen, that does conclude today’s conference. We thank you for your participation..