Big 5 Sporting Goods Corp (BGFV) 2009 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Big 5 Sporting Goods second quarter 2009 earnings results conference call. At this time, all participants are in a listen-only mode. Following today's presentation, the operator will give instructions on how to queue up to ask questions. (Operator Instructions). As a reminder, today's conference is being recorded August 4 of 2009. On the phone with us today from Big 5 Sporting Goods is Steve Miller, President and Chief Executive Officer and Barry Emerson, Chief Financial Officer. At this time, I would like to turn the presentation over to Steve Miller. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and welcome to our fiscal 2009 second quarter conference call. Today we will review our financial results for the second quarter of 2009 and provide general updates on our business as well as provide guidance for the third quarter. At the end of our remarks, we will open the call for questions. I will now turn the call over to Barry to read our Safe Harbor Statement.

Thanks, Steve. Except for statements of historical fact, any remarks that we may make about our future expectations, plans, and prospects constitute forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in current and future periods to differ materially from forecasted results.

These risks and uncertainties include those more fully described in our annual report on Form 10-K for fiscal 2008, our quarterly report on Form 10-Q for the first quarter of fiscal 2009 and other filings with the Securities & Exchange Commission. We undertake no obligation to revise or update any forward-looking statements that may be made from time to time by us or on our behalf.

Thank you, Barry. We believe that our second quarter results demonstrate the strength and resiliency of our business model by consistently applying the key business drivers that is have served us well for over 50 years we produce positive same-store sales in a very challenging retail environment. That combined with meaningful expense reductions led to significantly improved and better than expected earnings over the prior year. Our strong performance enabled us to generate over $28 million in operating cash flow and reduced debt by roughly $31 million compared to the end of the second quarter of last year.

Now let's talk about the sales. In the second quarter sales were $260 million, up 3.4% from $209 million for the second quarter of fiscal 2008. Same-store sales increased 0.3% reversing the trend of declining same-store sales that we reported for the past several quarters. We experienced a slight improvement in customer traffic. Our average ticket remained virtually unchanged. As we discussed in our last call, sales comped positively in March and April. These positive trends continued through May. However, we comped down low single-digits in June. June results were primarily impacted by soft sales in certain summer categories as we experienced below average temperatures in most of our major markets. Additionally, our Father's Day related business was somewhat lackluster.

As anticipated, second quarter sales comparisons were also negatively affected by a shift in the timing of the Easter holiday during which our stores were closed out of the first quarter and into the second quarter in 2009. From a product standpoint, our hard goods category was the strongest performer for the quarter, up low to mid-single digits as we continue to benefit from the relative strength of our outdoor product categories. Footwear was down in the low single-digit range and our apparel category was down high single digits. Our merchandise margins declined 85 basis points, largely due to shifts in our product sales mix as well as inflationary pressures. I am pleased to say that we have seen a nice improvement in our product margins thus far in the third quarter. On the expense side, our team continues to do a great job of managing to the challenging environment.

During the second quarter, we lowered overall selling and administrative expense by $1.4 million compared to last year despite operating 18 more stores. The expense savings came largely from reductions in our ad spend as we carefully trimmed the frequency and distribution of our advertising circulars to align with current business conditions. We also saw some benefit from lower print rates. We remained pleased with our inventory management efforts with total chain-wide inventories down 4% at quarter end from the prior year. On a per store basis, inventories were down approximately 6% versus the prior year. Obviously, the combination of positive comp store sales and reduced inventory leads to improvement in our inventory turns. Commenting on store growth, we have taken a careful approach to store growth in fiscal 2009 with only one new store open during the second quarter and none scheduled for the third quarter. We ended the quarter with 382 stores in operation. At this time we anticipate opening approximately four new stores in the fourth quarter of fiscal 2009.

Turning now to the third quarter, we are pleased to report that we are off to a solid start. We are comping positively quarter to date and as I mentioned, we have experienced a nice improvement in product selling margins. Clearly, we have benefited from favorable summer weather in many of our markets.

While we are pleased with the current direction of sales, we fully recognize that we are operating in a difficult retail environment and there remains significant uncertainty surrounding the broader economy. That said, customers are clearly recognizing and responding to the values that we provide on quality merchandise. We are in a strong position to take advantage of opportunistic product buys which have been a hallmark of our operating model since the founding of our business. We remain dedicated to our time tested business drivers, buy it right, promote aggressively and operate with great efficiency at the store level and throughout the organization. We believe the strength of our business model is enabling us to weather this difficult economic climate and positioning us well to drive bottom line performance as conditions improve. Now I will turn the call over to Barry who will provide more information about the quarter as well as speak to our balance sheet, our cash flows and provide guidance.

Thanks, Steve. Our gross profit margin for the second quarter was 33.0% of sales compared to 32.7% of sales for the second quarter of 2008. The increase was due mainly to lower store occupancy costs resulting from a one time pretax charge of $1.5 million recorded in the second quarter of fiscal 2008 to correct an error in our previously recognized straight line rent expense. The benefit from lower store occupancy costs year-over-year was partially offset by a reduction of approximately 85 basis points in merchandise margins. As Steve mentioned, merchandise margins declined due primarily to shifts in our product sales mix and inflationary pressures.

Our selling and administrative expense as a percentage of net sales decreased to 29.2% in the second quarter versus 30.8% in the second quarter of the prior year. The improvement reflects both the higher sales and our continued cost management efforts which enabled us to leverage expenses despite operating an additional 18 stores. On an absolute basis, our SG&A expense was down $1.4 million year-over-year, primarily due to lower advertising expense. Now looking at our bottom line, net income for the second quarter was $4.7 million or $0.22 per diluted share compared to net income in the second quarter of fiscal 2008 of $1.7 million or $0.08 per diluted share. As I mentioned, the second quarter of fiscal 2008 included a one time pretax charge of $1.5 million or $0.04 per diluted share. Briefly reviewing our 2009 first half results, sales increased 1.1% to $426.3 million from $421.9 million during the first six months of 2008. Same-store sales decreased 2.1% versus the same period last year. Looking at our earnings for the first half of the year, net income was $7.4 million or $0.35 per diluted share compared to net income of $5.8 million or $0.27 per diluted share for the same period last year including the nonrecurring charge of $0.04 per diluted share.

Turning to our balance sheet, total chain inventory of $241.2 million at the end of the second quarter declined $10.2 million compared to the same period last year as a result of our focused efforts to manage inventory levels. On a per store basis, quarter end inventories were down approximately 6% from the second quarter of last year. Looking at our capital spending, CapEx, excluding noncash acquisitions, totaled $2.2 million for the first six months of 2009 primarily reflecting expenditures for one new store, store remodeling, IT systems and distribution center equipment. As Steve mentioned, we do not plan to open any new stores during the third quarter and expect to open approximately four new stores in the fourth quarter of this year. As a result, we are now expecting total capital expenditures for the full year excluding noncash acquisitions of approximately $7 million.

From a cash flow perspective, we generated cash flow from operation of $28.5 million for the first half of fiscal 2009, up 34% compared to the $21.3 million reported for the comparable period last year. We continue to believe that preserving our capital and maintaining the financial flexibility to pay down debt is the best way to maintain a healthy financial condition in this environment. We are extremely pleased with our ability to reduce our debt by $31 million year-over-year. This brought our long-term debt at the end of the quarter to $72.6 million compared to $103.3 million at the end of the second quarter last year. I also want to take this opportunity to address the situation with CIT, the administrative agent and primary lender under our revolving credit facility which has been in the news lately regarding its liquidity position. Regardless of what happens with CIT, we are comfortable that the strength of our balance sheet together with commitments from the other lenders under our credit facility should be sufficient to fund our cash requirements for at least the next twelve months. Of course, our full credit agreement is publicly available in our filings with the SEC.

Now I will turn to guidance. As Steve mentioned, the retail environment remains very challenging, but we believe our business model is well-positioned for the customer that is looking for quality and value. We are encouraged that our positive trends in customer traffic and sales have continued into the third quarter. For the third quarter, we expect same-store sales to be in the flat to positive low single-digit range. We expect earnings per diluted share for the quarter in the range of $0.27 to $0.34. For comparative purposes and as a reminder, earnings per diluted share for the third quarter of fiscal 2008 were $0.21. Operator, we are ready to turn the call back to you for questions-and-answers.

Ladies and gentlemen, at this time we will begin the question-and-answer session. (Operator Instructions). One moment, please, for the first question. Our first question comes from the line of Rick Nelson with Stephens. Please go ahead.

Thank you. Good afternoon and congratulations.

Thank you, Rick.

What drove the hard line strength in the second quarter? I think you mentioned the outdoor area.

Yes. It's -- I think we had strong sales from the outdoor products. Certainly, we like everyone in the firearms industry benefited from positive sales in that category and pretty good results in the hard goods arena.

And what category are driving the positive comps that you referred to in the third quarter? Is it similar?

Really, I would say that some of the firearms phenomena has eased off. We're seeing nice results from summer -- basic summer products. We have seen good favorable weather and had upticks in products that are associated with warm weather.

And then the margin improvement that you referred to in the third quarter also, firearms will be lower margin than another category. What is driving that? Is it mix or other issues?

Yes, Rick. We benefited from more favorable product sales mix and some easing of the inflationary pressures that we have seen over the last year. The improved margin trends, as Steve mentioned have continued in the third quarter, and we're also benefiting from a favorable opportunistic buying environment out there today.

How would you characterize the overall promotional environment in sporting goods? Has that eased a bit?

Yes, I think it is pretty normal. I would say it is eased from the standpoint that I think some others such as, like we have, have trimmed some of their ad spend, so I would say it is certainly reasonably rational at the time.

And how are you thinking about store openings for next year given the sequential improvement that we're seeing? Might we see a step-up in store openings?

Yes. As we said, we're going to open approximately four stores in the fourth quarter. We're certainly in the marketplace and looking at opportunities. We're still -- I'd characterize our position as still being cautious in terms of store growth, but we're looking at a lot of deals that are pretty exciting to us now. It is too early to put a number on our growth rate for next year. I think it is safe to say at this time that it will be a larger number than we opened this year.

Very good. Thank you and good luck.

Thank you, Rick.

Thank you. We'll move to our next question from the line of David Magee with Suntrust Robinson Humphrey. Please go ahead.

Good afternoon and good quarter, guys.

Thank you, David.

A couple of questions. One is if you're assuming somewhat better comps perhaps in the third quarter relative to the second, which category do you expect to be stronger here sequentially?

It is still early to call the quarter the quarter, but we're certainly seeing improvement in our apparel sales. Favorable summer weather has definitely helped the apparel, so I think probably apparel is pretty good certainty for that.

And is it too early to call back-to-school at this point in time?

It is. It is. Back-to-school is really I think just beginning. I think some school districts, if anything, have pushed back back-to-school openings. It is a later Labor Day this year, and I think that moves some schools back, so it is definitely too early to call back-to-school.

Are you all leveraging your distribution shipping costs right now year-to-year?

Yes, absolutely, David. Our fuel costs are down. We're leveraging the distribution center just in general, absolutely.

And if you don't open that many stores, is there -- do you still see opportunity to lever that over the next couple of quarters?

Yes.

Then lastly, Steve, with regard to the special opportunistic buys, are you -- is that kind of a steady state in terms of the opportunity out there with that? Is that increasing or decreasing, any color there?

Sure. We're very encouraged by what we're seeing in the opportunistic buying arena. I would characterize it as very healthy, probably better than typical. Certainly, this is an area of strength for us where longstanding vendor relationships can prove to be very valuable, and we certainly believe we're in a great position to take advantage of the opportunistic buys as they become available.

Great.

David, let me point one thing out to you just because we're pretty proud of it, frankly. In terms of the leverage on the distribution center, frankly, before we brought up this new distribution center which cost us nearly $40 million, we were -- our expense as a percent of sales was somewhere in the 4 to 4.5 range. We're actually getting back down to that same level now with the much larger facility, so we think when -- as sales turn around that we're certainly going to be able to leverage that in a big way.

Great. Thank you, Barry. Good luck.

Thanks, David.

Thank you. We'll move to the next question from the line of Reed Anderson with DA Davidson. Please go ahead.

Barry, first of all, good afternoon. Barry, just to piggyback on the last question and answer to David's question about distribution, what is -- remind us, what is the capacity of that DC and where are you today? What is the capacity?

We have got 382 stores today, Reed. We think it will serve our needs certainly for the next -- well, it depends on business conditions, but certainly, probably close to 500 plus stores.

What's your biggest -- what's the furthest radius you distribute from that store?

The furthest radius?

Yes.

Probably about 13, 13, 1,400 miles, somewhere in that vicinity.

That's helpful. Thank you. And then some other questions, just on the inflation pressures, you commented, is it right to think that pertains largely to the firearms ammunition category or were there other areas where there was inflation as well?

Inflation?

Yes.

No. I don't -- I think there is a fair amount of inflation pressures across a broad array of categories for certainly the back half of 2008 into 2009. As we sit here today, we see those pressures easing considerably, but it is certainly not specific to any one category.

Okay. So I just wanted to be clear. It be more general than that. Okay, okay. And then, Steve, I was curious, June obviously comps kind of pull back a little bit, and there were some things in there you kind of knew were going to happen, et cetera, but were you a little disappointed with that, or was that -- even though it was down, did you kind of figure it would be down? I am just curious versus your expectations.

Well no, I think the biggest issue that kept June from being slightly down was gloomy weather. Weather conditions were not favorable. For example, in Los Angeles area, the high temperature was below normal every single day of the month, so we certainly didn't anticipate that, so that softened June sales. And additionally, our Father's Day business was a little lackluster, and I think in the difficult economy, maybe the gift giving wasn't all that it historically has been. I don't know that we were surprised to see that.

Dads were the last guys to get the gift. You know how that goes.

That's it.

And then one last one. Just on the comment on advertising, when I think of you guys I think of a very similar ad every week, like LA Times, that sort of thing. And when you talk about less distribution, less frequency, how do I connect that? Is it really just instead of doing maybe one week you might have done two ads, a year ago you do one, how would I think about that?

It is fine tuning of our both the frequency, cutting back some. We always have an ad at the very minimum that goes out once a week.

Yes.

Millions and millions of households. A number of weeks we have a second ad that we put out, and in some cases we cut back or trim the circulation of the second ad, and in some cases we may alter the page count of the ads to control ad spend. Fine tuning really, just fine tunements of our frequency and circulation.

Okay, good. I will let you go. Thanks very much. Good luck.

Thank you. We'll move to the next question from the line of [Conner Urban] with Needham & Company. Please go ahead.

This is Conner calling in for Sean McGowan. How are you?

Good. How are you doing?

Good. So my first question is about the improved earnings outlook. I was wondering if you see it coming more from gross margin or from the operating line? If you could just provide some more color there, that would be great.

Just from a forecast standpoint, in the third quarter and again, Conner, we're providing guidance on the third quarter, it is really an improved sales environment. We're also seeing, as Steve mentioned, our margins improving as well. That will be offset a little bit by higher selling and administrative expenses. Really, those are the elements.

Okay. That makes sense. Next, regarding store openings, looks like you reduced the numbers for this year a little bit. Should we anticipate that you have moved these into 2010, or were they dropped altogether? You talked about that earlier. I was wondering if you could provide a little more detail there.

Well, we said from the get-go that our openings this year would be substantially reduced from what we have opened last year or our historical run rate. We are opening four stores in the fourth quarter, at least, or let's say approximately four. There is still a couple that are in the works from a timing standpoint, so we're pretty much doing what we said we would do this year and that's be cautious with store growth and we're remaining cautious, but certainly very active in the real estate market as I mentioned earlier. We would anticipate that the number of openings next year would be a larger number.

Okay. Fair enough. And, let's see, a housekeeping question here. What's the tax rate we should assume for this year and should we expect it to change any time next year?

I would just -- Conner, I'd just use the same year-to-date tax rate of 39.3% for the year.

Okay. Any changes expected for next year or same thing?

I would just hold it constant.

Hold it constant. Okay. My last question. You touched on the gasoline prices in an earlier question. Are your expectations right now -- is it lower than last year but higher than you expected a month ago and the impact on Q3?

It is definitely lower than last year, and --

Yes.

I would say that we don't really -- our expectation is more just kind of running out the norm a little bit. It appears that oil prices are moving up a little bit, but we don't really have a crystal ball. We just kind of bake in some assumptions that are -- probably would have fuel costs going up a little bit in the back half of the year.

Okay. Great. That's it for me. Thanks so much.

Thank you.

Thank you. (Operator Instructions) One moment please for the next question. We'll move to the next question from the line of Anthony Lebiedzinski with Sidoti & Company. Please go ahead.

Good afternoon. I was just wondering if you guys could quantify the impact of the Easter shift on your business?

Yes. Our stores are closed on Easter, and this year the holiday moved from the first quarter last year into the second quarter this year, so that added an extra sales day to the first quarter, took away a sales day in the second quarter. It is not a number we can precisely quantify, but in round figures we estimate that the negative impact will be roughly 75, perhaps to 100 basis points to our second quarter comps.

Okay. Thanks. And also as far as the advertising expenses being lower, were there any timing issues, or were these actually straight actually simple cuts to the advertising expenses?

Primarily cuts. The timing, there is certainly more timing changes. Father's Day shifted roughly a week later, closer to Fourth of July, and that affected our ad cadence a little bit, but for the most part, I would consider it just trimming the frequency and overall circulation of our advertising. We also saw some benefit from lower print rate, print and paper rates over the quarter that was beneficial.

Okay. And also with your business certainly firming up here lately, would you consider raising your dividend to where it was earlier? What are your thoughts on that?

Anthony, we constantly evaluate, of course, the best use of our cash between paying down debt, repurchasing stock, paying our dividend. We reduced the dividend earlier this year because we believe it was a prudent step to take to use the extra cash to pay down debt in these uncertain economic times. We feel good about our business. We feel good about our business model, and we feel very good about our financial condition. There is just an awful lot of uncertainty in the economy today, and we believe that reducing the dividend was a prudent measure, to be ahead of the curve in the event of -- that conditions worsened, but certainly we'll continue to evaluate the best use of cash routinely going forward just like we do every quarter.

And also just sort of a broader question here. Your stores have always provided a strong value proposition I think to your customers, so what do you feel has changed lately that you're actually posting positive comps now, I was wondering if you could just touch base on that?

Sure. I think the value -- the continuation of our value proposition, positive opportunistic buys, normalization and favorable weather conditions, rationalization of the competitive environment, are all beneficial to our comps, but more than anything for us, we think it is just dedicated focus and creating value each and every week. We have had a model that we think has been right for our business for 50 plus years, but I would argue that our model has never been more right for the times than it is today.

Okay. Thanks.

Thank you. We'll move to our next question from the line of Bill Dezellem from Tieton Capital Management. Please go ahead.

Thank you. Relative to your reduced advertising, are you able to quantify what you believe the impact on sales was from doing that?

No, not -- certainly not precisely. Obviously, the more you spend from advertising, typically, the more your sales may have been, but to try and come up with a number is a guessing game that is a little bit beyond us.

And presumably you are feeling as though the gross profit dollars provided by the incremental dollars of advertising spending would not have justified that investment and essentially, that led to your pulling that back?

That drives our advertising philosophy. If we feel that a situation is such that we can drive bottom line profit by spending additional advertising dollars, I think we have clearly demonstrated over our history that we're very comfortable with that philosophy and in a challenging environment that we're in, we thought it made sense to pull back our advertising and again, the fundamental bottom line in making those decisions is exactly as you stated. Whether or not we can ultimately drive incremental bottom line dollars by spending more for advertising.

Thank you. And then relative to your gross margin, it increased versus the first quarter of this year, and sales were up slightly, so -- relative to the first quarter. So clearly, that had part of the impact. It seems like there might have been something else going on sequentially with your improved gross margin. Would you provide your commentary around that, please?

Some of that is seasonal in terms of the margins and how there is different margins that we're able to obtain, product selling margins during the winter and selling winter product, closing out the winter business or starting spring and summer sales.

And Bill, I am assuming you're talking about product margins. Is that right, Bill? Are you talking about gross margin?

I am simply talking about the gross margin as reported in the financial statement, so all inclusive gross profit.

Okay, well that's -- you need to make sure you're keying on this $1.5 million pretax charge that we recorded in the second quarter last year.

I am sorry, Barry, I was actually looking at second quarter this year versus first quarter this year.

Okay, okay. Yes. As Steve indicated, there is clearly seasonality baked into there, but even if you -- it doesn't -- yes. There is seasonality baked in there. The occupancy costs can also edge up, of course, as you -- with the additional stores. The -- also, I guess those really would be the primary elements kind of included in there, Bill. What we are seeing -- another effect is clearly that we're not -- we don't have as much clearance product in the mix in the second quarter and expect that to fall even further in the third quarter, so that's also helping support to some degree.

Thank you both.

Sure.

Thank you. Our next question will come from the line of Adam Sindler with Deutsche Bank. Please go ahead.

Yes, good afternoon. This is Adam calling in for Mike.

Thank you.

Two really quick questions. In the past, you have given some very good detail on sort of the breakdown of the debt between the borrowing base and how much letters of credit you have outstanding, the total line. Do you have that available, and would you be able to provide that for the second quarter?

The debt is -- I do. The debt is 72-point -- roughly rounds to $73 million, and like the letters of credit are not significant, but let me -- did you have another question? While you're doing that, I will get the letters of credit for you. Do you have anything else?

Sure. On the promotional -- or the opportunistic buys, excuse me, (inaudible) that a lot of companies have gone through pretty significant inventory reductions over the past or during the second quarter specifically. Are you able to see into the channel? Is the opportunistic buys you're seeing above and beyond what is normal, do you know if that is coming from existing companies tearing down inventory, is it coming someone like a Joe's who is out of going out of business, getting rid of inventory and what your suppliers are telling you right now looking forward?

Yes.. I think in comes in some case from our existing vendors having excess inventory and often that's a result of cancellations from other retailers. In some cases, arguably those that are no long in business, but others that is are in business that are cutting back orders that perhaps that they previously committed for.

But you're not really sure if it is one or the other? I guess because the question is --

It is some of both.

Okay, got it. Okay.

Adam, that letter of credit number you were looking for is $3.2 million.

Okay. That sounds significantly sequentially, is it not?

Pardon me?

Sounds significantly sequentially, is it not?

Up sequentially, no.

Down sequentially.

For example, at the -- March it was $3.8 million.

Was it? Okay, and I am sorry. What is the -- do you have the total line and what is available to borrow right now?

Yes. The total line is $175 million.

Okay.

As of the end of the quarter, June, our availability was $69 million.

Okay. And just lastly, real quickly, of the 175, how much is CIT responsible for?

$65 million.

Okay. So it is actually less than half, then?

Oh, yes, absolutely.

Very good. Appreciate it. Thank you very much.

Sure.

Thank you. Our next question will come from the line of Peter Keith with Piper Jaffray. Please go ahead.

Hey, good afternoon there. It is Peter calling in for Mitch. I wanted to clarify the comment on the improved product margin. Is that actually that product margins are now trending up year-over-year, or is that improvement from the down 85 that you saw in Q2?

It is certainly improvement from what we saw in Q2. We're not providing specific guidance on our product margins in the third quarter. We're very pleased with meaningful improvement in our product margins.

Okay. Nothing specific, but I guess it's fair to say it is not quite up year-over-year at this point?

I didn't say that. I'd say we're not commenting on the specific number, and as it is as we sit here today I will say this, it is not inconceivable it is up when the quarter is said and done.

Okay. That's fair and good to hear. The other thing we've noticed a nice steady improvement in your new store productivity over the last couple of quarters, and obviously, you haven't opened many stores so far in the first half, but were there steps made towards the end of last year that may have driven that, and can you verify that actually your new stores are performing at a better rate?

Well, we're pleased with the -- our class of stores that we opened in 2008. We haven't spoken specifically about their productivity and changes in their productivity. We're certainly pleased with them. I think those stores like our existing store base has been impacted by the macro environment and beyond that, we're not being specific on individual stores' performance.

Okay. And then lastly, Barry, would you be able to provide us maybe some quantification of how lower diesel costs may have helped overall gross margin for the quarter?

I am sorry, lower what kind of costs?

Lower diesel freight costs.

Yes. As you know, it is a big number for us, there is no question about that. But if you're looking at diesel costs quarter-over-quarter versus the prior year, compared to the prior year, it was roughly $600,000 or so.

That's a lower expense?

Lower expense, yes.

That's great.

Yes.

Congratulations on the good quarter, and good luck.

Thanks.

Thank you. We'll move to our next question from the line of Kristine Koerber with JMP Securities. Please go ahead.

Yes, hi. I apologize if this question has been asked, but can you -- on the lower advertising expense, how should we be thinking about that going forward? Is it safe to assume that we'll see a lower ad cost in the back half of the year?

It is certainly possible, but we haven't made a final determination. One of the strengths of our business is our ability to manage our ad spend on a really weekly basis and make calls that we feel are appropriate for the business. If we feel that we can continue to drive sales and maximize gross profit dollars and bottom line performance with reduced ad dollar spend, that is certainly something we would obviously do. If the overall retail climate suggests that we can drive bottom line performance by pressing advertising, then that's a direction that we'll pursue.

What about print and paper costs, because I know that obviously helped with the lower advertising. When did we start to see the lower print and paper costs take effect?

It was certainly --

Have you anniversaried it?

No, I don't know that we have anniversaried it. I think over the course of the first half of this year, I think we have seen some pull back in paper costs.

Okay. Thank you.

You're welcome

Thank you. At this time, I would now like to turn the conference back over to the President and Chief Executive Officer, Steve Miller, for any concluding remarks

Great, thank you, operator. Well, we certainly thank you all for joining us today, and we look forward to speaking to you on our next call. Have a great afternoon.

Thank you, Mr. Miller. Ladies and gentlemen, at this time, we will conclude today's teleconference. If you would like to listen to a replay of today's presentation, please do so by dialing 1-800-406-7325. You may also dial 303-590-3030 and enter in access code of 4124333. Once again, if you would like to listen to a replay of today's conference, please dial 1-800-406-7325. You may also day 303-590-3030 and enter access code 4124333. We thank you for your participation on today's conference call. At this time, we will conclude. You may now disconnect, and please have a pleasant day.