Big 5 Sporting Goods Corp (BGFV) 2010 Q4 法說會逐字稿

Good day and welcome to the Big 5 Sporting Goods fourth quarter 2010 earnings results conference call. Today's conference is being recorded. On the call today representing Big 5 Sporting Goods is Mr. Steve Miller, President and CEO, and Barry Emerson, CFO. At this time, I would like to turn the conference over to Mr. Steve Miller. Please go ahead, sir.

Thank you, Operator. Good afternoon, everyone. Welcome to our fiscal 2010 fourth quarter conference call. Today, we will review our financial results for the fourth quarter and full year of fiscal 2010, and provide general updates on our business, as well as provide guidance for the first 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-KA for fiscal 2009, our quarterly report on form 10-Q for the third quarter of fiscal 2010, and other filings with the Securities and 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. While the challenging economy and extreme variances in weather patterns in our markets have created inconsistencies in our recent sales trends, we remain focused in executing our proven strategy of providing compelling values on quality products. We are pleased to have strengthened our balance sheet in 2010, as our positive cash flow enabled us to reduce our debt by 12% year-over-year, open 11 new stores and relocate four stores and return shareholder value in the form of the 50% dividend increase that we announced today. As we previously reported, fourth quarter net sales were $226.7 million versus $237.6 million for the fourth quarter of fiscal 2009. As a reminder, due to the fiscal calendar, the fourth quarter of fiscal 2010 included 13 weeks and the fourth quarter of the prior year included 14 weeks. On a comparable 13 week basis, same-store sales decreased 0.7% during the fourth quarter of 2010.

Our sales comped in the positive low single-digit range in October, and positive mid single-digit range in November, which included the back Friday weekend. But sales turned negative during the key three-week gift shopping period before Christmas. For the quarter, we experienced slight decreases in customer traffic and average ticket. From a product standpoint, we experienced relative strength in our apparel category, which comped positively in the low single-digit range for the quarter. Our footwear category was relatively flat, and our hard goods category comped down in the low single-digit range for the quarter. Our merchandise margins were down 20 basis points for the quarter, primarily reflecting shifts in our product sales mix. As a reminder our merchandise margins increased 88 basis points in the fourth quarter of 2009.

Now, commenting on store growth, during the fourth quarter, we opened seven new stores, three of which were relocations. The new store openings were in Dinuba, Jackson, Camarillo and Inglewood, California. We also relocated stores in Renton, Gig Harbor and Vancouver, Washington. With each of these relocations, we operated both the existing store and the new store through the holiday period. We closed the prior store locations in Gig Harbor and Vancouver earlier in the first quarter of 2011, and we will close the existing Renton location later this year. During the first quarter we have opened two new stores, both of which were relocations, one in Huntington Beach, California and one in Carson City, Nevada. For those keeping score we currently have 396 stores in operation. At this time our plans call for us to open between 10 and 15 net new stores during fiscal 2011, excluding stores closed as part of relocations, carrying over from 2010.

Now turning to the first quarter, the continuation of the soft economy, along with some rather extreme variances in weather patterns in our markets, have resulted in what I would characterize as much greater than normal volatility in our sales trends over the past few months. Following the softness we experienced before Christmas, positive sales trends resumed and continued into early January, as our markets benefited from favorable winter weather conditions. However, from mid-January through mid-February, while much of the nation was still being inundated with very heavy winter weather, most of our markets, which are located in the western part of the country, turned unseasonably warm and dry. Last year, we enjoyed very favorable winter weather over January and February. Although we received a nice blast of winter weather over the last 10 days, our winter sales comparisons are negative during the first quarter to date, which has been a drag on our overall comps. Quarter-to-date our same-store sales are running down in the low single-digit range. This compares to a mid single-digit store sales increase for the first quarter through March 1 last year.

While we believe that the weather is causing volatility in our sales trends, we still believe that the primary issue impacting our business is the economy. 55% of our stores operate in California and Nevada, the two states that have the highest unemployment rates in the nation. A number of other states where we operate are hurting as well. Unemployment issues, housing issues, and now, certainly gas prices, have to be taking a toll on our consumer. We believe the best way for our business to continue to battle through these challenging times is for our experienced team to remain steadfastly focused on doing what we do best, providing terrific values on quality merchandise.

While we certainly can't predict the timing of the economic recovery or control the weather, we continue to believe that our proven business strategy will positively impact sales, earnings and cash flow, and over the long term will deliver a solid performance for our shareholders as the economy improves. With that said, 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, cash flows and provide first quarter guidance.

Thanks, Steve. Our gross profit margin for the fourth quarter was 33.4% of sales, compared to 34.0% of sales for the fourth quarter of 2009. The decline was mainly due to the 20 basis point decrease in merchandise margins that Steve discussed, as well as increased store occupancy costs as a percentage of sales, due largely to new store openings. Please recall that due to the fiscal calendar, the fourth quarter of fiscal 2010 included 13 weeks and the fourth quarter of the prior year included 14 weeks. Our selling and administrative expense as a percentage of sales was 30.5% in fiscal 2010 fourth quarter, versus 29.4% in the fourth quarter last year. The increase was primarily due to higher labor and operating costs to support new stores. Also, we are continuing to experience expense pressure in certain areas, such as employee health and other benefits and fuel costs, and this trend has continued into 2011.

Interest expense for the fourth quarter of $0.7 million, was up slightly from the higher year, reflecting the higher costs associated with our new credit agreement, partially offset by the favorable impact of our lower debt levels. Our effective tax rate for the fourth quarter was 33.2%, compared with 38.5% for the fourth quarter of fiscal 2009, primarily reflecting an increased benefit from income tax credits for the current year. Given the California state budget deficit, we have anticipated a reduction in these credits for 2011, and expect an increase in our effective tax rate for the full year to approximately 37.5% compared to 36% in 2010.

Now looking at our bottom line, net income for the 13-week fiscal fourth quarter was $4.0 million, or $0.18 per diluted share, compared to net income in the 14 week fourth quarter of fiscal 2009 of $6.4 million, or $0.29 per diluted share. Results for the fourth quarter of fiscal 2010 include a net pre-tax charge of $2.3 million, or $0.07 per diluted share, related to legal matters previously disclosed in our filings with the SEC, of which $1.5 million was classified as selling and administrative expense and $0.8 million was classified as a reduction in net sales. Results for the fourth quarter of fiscal 2009 include a net pre-tax charge of approximately $1.0 million, or $0.03 per diluted share, related to legal matters.

Briefly reviewing our full-year results, net sales increased narrowly to $896.8 million during 52-week fiscal 2010 full year, from $895.5 million for the 53-week fiscal 2009 full year. On a comparable 52 week basis, same-store sales for fiscal 2010 increased 0.8% verse us the prior year. Looking at our fiscal 2010 earnings, net income was $20.6 million, or $0.94 per diluted share, including the net charge of $0.07 per diluted share relating to legal matters. This compares to net income of $21.8 million, or $1.01 per diluted share for fiscal 2009, including a net charge of $0.03 per diluted share related to legal matters.

Turning to our balance sheet, total chain inventory was $254.2 million at the end of the fourth quarter, up 10.1% from the prior year. On a per store basis, our inventory was up 7.8% from last year. The growth in inventory primarily reflects our strategic decision to increase inventory for 2010 in response to improved business conditions and increased availability of certain products. Inventory also was higher at year end due to lower than anticipated sales during the holiday season. Although our inventory was higher than planned at the end of 2010, we feel good about the mix of our product and expect to be able to right-size inventory levels on a timely basis with no significant impact on our merchandise margins.

Looking at our capital spending, CapEx, excluding non-cash acquisitions, totaled $15.6 million for 2010, primarily reflecting expenditures for 11 new stores and four relocations. We resumed store expansion efforts in 2010 after growth was slowed substantially in 2009 in response to the economic recession. We anticipate store growth in 2011 to be similar to 2010. We expect total capital expenditures in 2011, excluding non-cash acquisitions, of approximately $15 million to $18 million, reflecting the opening of between 10 and 15 new stores, net of relocations. From a cash flow perspective, we generated cash flow from operations of $29.9 million for fiscal 2010 compared to $54.1 million in fiscal 2009. The decrease was primarily due to our strategic decision to increase inventory this year after reducing inventory in fiscal 2009. In the fourth quarter, we continued to pay our quarterly cash dividend of $0.05 per share.

We continue to maintain a strong financial condition, with our long-term debt at the end of fiscal 2010 down 12% year-over-year to 400 -- to $48.3 million, after declining 43% in fiscal 2009 compared to fiscal 2008. As detailed in our press release, due to our solid financial condition and anticipated healthy cash flow, our Board has approved a 50% increase in the Company's quarterly cash dividend to $0.075 per share of outstanding common stock, for an annual rate of $0.30. Our prior quarterly cash dividend was $0.05 per share, for an annual rate of $0.20. While we continually evaluate the best use of our capital, we currently believe that funding the strategic opening of new stores, paying down debt and paying our quarterly dividend represent the best use of our free cash flow.

Now I'll spend a minute on our guidance. As Steve mentioned, the challenging economy and some recent extreme weather variances in our markets have created inconsistency with our sales trends and make it difficult to predict consumer demand. Quarter-to-date, our same-store sales are down in the low single-digit range. Compared to the first quarter of last year, our first-quarter 2011 results will receive a small benefit from the shift of Easter, when our stores are closed, out of the first quarter and into the second quarter this year. Based on results to date, and including the benefit of the Easter shift, for the first quarter, we expect same-store sales in the negative low single digit to positive low single-digit rage and earnings per diluted share in the range of $0.15 to $0.22. For comparative purposes, in the first quarter of 2010, same-store sales increased 2.4%, and earnings per diluted share were $0.23. Operator, we are now ready to turn the call back to you for questions and answers.

Thank you, sir. (Operator Instructions) And we'll go first to Reed Anderson from D.A. Davidson.

Good afternoon.

Hi, Reed.

Hi. A couple of questions. First off on the margins. Barry, you had said, or Steve had said, that it was largely mix driven. I was just-- when I look at the comps though, apparel comps essentially were better than any of the other categories. It just-- it struck me that that didn't make a lot of sense, can you just delve into that a little bit, give a little more granularity why the mix, or what part of the mix caused margins to come down 20 bips?

Well it's just-- it's items within categories. 20 basis points in the grander scheme of things as we see it, is relatively flat. I mean there wasn't a whole lot going on. But I mean, it's basically-- some-- I mean some categories within hard goods that are higher margins, had better than average sales, others lower. Our margins were up 88 basis points the prior year, it's really just a comparison year over year and not a whole lot in the story.

Okay, all right that's fine. So I just wanted to make sure it wasn't indicative of some other shift or something. Okay. What about then, curious on just thinking about comps and kind of the-- if you look at the last year or 2 and kind of the ups and downs, but I mean is there a lot of variation amongst your stores, or more so than in the past, or is it just across-the-board, you're kind of either up or down at the whim of the economy?

Oh, there's certainly a lot of variation. I mean, even in the best of times, there's always a lot of variation. I mean you're operating nearly 400 stores, they don't all march to the same drummer, ever. I don't know that there's greater--

But is it worse than it has been historically I guess? Because it looks like you're starting to relo some more stores, which probably makes sense. It's just-- I'm just trying to figure out if this is more of a function of just some-- a chunk of older stores that need to be moved?

No, no I think it's really-- I really think it's a function of an economy. I mean we're feeling the softness in the economy really throughout all of our geographies to some degree or another. Certainly there are pockets that are way more challenged than others. I mean even California's got lots of issues, it's also-- it's a huge state. I mean there's areas of California that we're performing much better than in other areas in California. I mean, for the most part, I mean, our business has been relatively consistent now for a couple of years, just hovering around the flat line. We were up 0.8%. I think it's just a challenging geography out there for us.

How many stores, Barry, might you relocate this year? You said you did 4 this year, is that a-- is it a bigger number than that this year in 2011?

No it probably won't be. I mean it's still a little bit of a work in progress. But it-- I don't think it will be a bigger number, it may be 1 less or so. We'll see how it plays out. I mean, relocations we're really excited about them, I mean that's really taking advantage of a favorable real estate market that's enabled us to-- if some leases come up for options or their term is up, we've been to go in, and in some cases, secure an improved location, in some of our older stores, a larger location and oftentimes at better economics. So we're pretty excited about the relocations that have been in the works.

Okay, good. And then 1 last one. Just on inventory, Barry, when do you think that starts to kind of normalize, when would you work through that little here as you exit the year, is that middle of the year or do you think it's second half?

Reed, I guess you go back a number of years ago we had-- our sales were down in the fourth quarter. We were able to right size that pretty quick in a matter of a quarter or so. But we're working on it, it really depends on sales. So we'll continue to work it down and I wouldn't want to put a number on it. I just think that we feel-- or a date on it, I do feel comfortable though that the product that we have is very fresh product. We don't look for much in the way of an impact from mark downs or anything like that, it's--

Yes, I think it'll occur over the course of the year, I mean, right now we're fast forwarding and in some cases a little inventory to get in front of some inflationary issues, get in front of some supply issues, trying to front load for some-- in front of some seasons. I'd argue, having a little extra inventory, it's very good, it's fresh inventory, it's clean inventory. Having a little extra inventory in an inflationary environment may turn out to be good thing for the business. But I think over the course of the year, finding inventories to be ultimately in line, very much in line with sales.

But, Reed, I think it's also important to understand that when you look at our inventory on a per store basis, our inventory per store is actually kind of at or below what our normalized levels were. So we do feel comfortable kind of with where we're at today and we'll work it down over time.

We'll go to the next question from David Berman from Berman Capital.

Yes, hi, guys. I just wanted to just follow up from that inventory, I noticed that your accounts payable was up about 15%, which is quite a lot, quite significantly, given that your inventory is only up 10%. Did you change your way of-- your paying of vendors, or is it just sort of a sign that the inventory is very current?

No I think it really it's just that the inventory, we feel good about it. It's current inventory. We haven't changed the method of payment at all. No I think it's more just the fresh inventory that we have in stock today.

I see okay. And then in terms of the dividend, I'm pleased to see that you raised it quite significantly, you got a payout ratio now of about 30% with a dividend yield of just over 2%. Can you talk to why you increased, or what the Board's thinking was, particularly given the difficult comps in the markets that you're in and the weaker comps?

Sure, David. I mean our business has historically generated very healthy free cash flow. Even though our sales have been challenged recently, we expect to continue to generate very positive cash flow. We constantly evaluate the best use of cash between store growth, paying down debt, repurchasing stock, paying our dividend. As you may recall we reduced our dividend early in 2009, we thought at the time we thought it was a prudent step to take to use the extra cash to pay down debt in the uncertain times. 2009 we paid down over $40 million of debt. We paid down $7 million, $6.7 million in 2010. And the Board just felt, based on our solid financial condition and healthy anticipated cash flow, that it was an appropriate time to increase the dividend and return value to our shareholders. Simple as that.

Well okay. Well thank you. It's a nice sign of confidence. Thanks a lot.

Thank you.

We'll go next to Mark Smith from Feltl & Company.

Hi, guys. I just want to confirm, it sounds like the comps in March of last year are a little bit easier than what you saw in January and February, is that correct?

Yes, it is.

Okay. Perfect. And then, second just kind of a big picture item, can you give any more insight on what you guys are seeing with your consumer? Sounds like things are still tough, Barry or Steve, 1 of you mentioned a little bit about gas prices, are you currently seeing that really impacting the spending and then is there anything else that's going on that maybe has hurt February a little bit like tax returns coming in a little later or anything else going on?

Yes, I'll take a shot there. I mean the gas prices, I mean, we don't typically take exit polls at the register to figure out what's driving the consumption. But logically gas is-- gas price I think I heard on the radio it went up $0.20 in our market this week. I think it's $0.77 a gallon higher than last year, just thinking logically, that has to be hurting our consumer. I suspect most everybody's consumer. The unemployment issues and the housing issues are still clearly a drag. Beyond that, I think that's pretty much the issues and we feel pretty good about the way we've been battling through a difficult economic environment.

Okay, perfect. Thank you.

Moving next to Camilo Lyon from Wedbush Securities.

Hi are you doing, guys?

Hello, Camilo.

So just going back to the inventory, could you give a little bit more color on the composition of that inventory? Maybe talk a little bit about the apparel versus footwear versus hard goods, where the bulk of that lies?

We're not going to be overly specific. It's pretty consistent. There's no 1 area that is-- where it's all housed. We're just very comfortable. I mean, I just reiterate again, we're extremely comfortable with the inventory, the freshness of it. We see ourselves working through this inventory with really no mark down issues whatsoever. And we got a little-- right now we got a little more winter inventory than it would be probably ideal. I think-- now I'm thinking back, the last question said in February, I mean we did have a pretty good streak of warm weather while so much of the country was pretty much buried in snow.

I mean we've had it on the whole and relative in the last year, not nearly as dynamic a winter. And so our inventory is--inventory-- winter inventory is up a little bit, but it's very fresh. We had a remarkable sell down of winter product last year. So this inventory is very fresh and we still have at least a solid month of winter sales ahead of us. And if we-- what we don't sell through, we're very comfortable and very experienced in packing it up and rolling it out next season.

Okay. And was that-- was any of the inventory made up of any sort of opportunistic buys? Would you classify that part of the growth as part of opportunistic buying that you guys do so well?

Sure. There's an element of that. There's always an element of that-- within our inventory.

And how would you classify the general opportunistic buying environment now versus a year ago?

Oh, gee, I mean it's hard to-- I'm not sure we keep score on a day-to-day basis. We're certainly making opportunistic buys. I wouldn't characterize the environment as overly vibrant, at this moment. It's been a bit erratic. It's frequently erratic. (Inaudible) buys have always ebbed and flowed over time. We've been at this for a long time, we've had a lot of success in this areas. At times when we see that the opportunistic buying arenas and opportunities are a bit scarce, we place greater emphasis on special makeup products and looking for other opportunities with our vendors. It's something that-- it changes, it seems to change, often times month to month, week to week. Never know who's going to walk in the door tomorrow or the day after.

And we'll move next to Michael Baker from Deutsche Bank.

Thanks guys, can you hear me okay?

Yes we can, Michael.

Okay, good. So a couple of questions. First from a-- just a bigger picture issue. I'm wondering is there any way you guys feel if you can do differently in the new world, if you will, how you go to market? I understand the economy and the weather and all that, but assume the economy doesn't get a lot better in California over the next year or 2, what can you guys do differently? Can you promote differently, can you advertise differently, I mean have you thought about just sort of changing the way you do things at all?

Well, we certainly think about how we do things and looking we've got some initiatives in place to try to experiment with additional ways to drive traffic into our stores. We're certainly building out what we call our E team, the number of folks that we communicate with electronically to drive traffic in our stores. We now have a presence in the social media platforms like Facebook and Twitter. And we still find great success in driving traffic through print advertising, both in the newspaper and mail to people who don't get the paper. And we're certainly entertaining and thinking about changes. But we really feel it's an economy issue. We see no indication that the model is broken. And so we want to be careful-- we don't want to be careful not to hamper our results by going away from what is, what has and continues to, we believe, work well for us. But that said, we're certainly looking and testing other initiatives to drive traffic.

Okay. And so then I guess related to that, you kind of answered it, is there any kind of market share shifts or issues that you guys see? And I guess just typically, with Dick's, now in the market, and I think in prior conversations, you had indicated that Sports Authority may have been a little bit more promotional this holiday than they were in the past?

I don't know that Sports Authority was more promotional than they were in the past, both Dick's and Sports Authority were, I think, very promotional last year over the holiday period. This year, it looked to me like Dick's did not repeat some of their promotions, and sports authority was you know, more similar to what they were a year ago. What was the second part of the question or--?

Just that, if it was more promotional and if you'd see any thing kind of market share issues in your model?

I don't-- my sense in listening to all the retailers' report that we're not losing market share within our markets. I mean, a lot of companies, I mean the-- when you take the largest retailer in the country, the world, I guess, whose reported 7 quarters of down comps. Comp down 1.8%. This was a retailer that obviously has a national footprintMy sense is that the markets in our geography, when we were in the states as I mentioned in the prepared remarks like California and Nevada, I mean over 55% of our stores are in the 2 states that have the highest unemployment, I think the total consumption is challenged in these areas, and I think we're doing a pretty solid job of maintaining our share and doing it at margins that are healthy and productive for our business and our bottom line.

Yes, okay. Okay that's good insight. Thank you, I appreciate that.

You're welcome.

We'll go next to [Bill Dezellem] from Titan Capital Management.

Thank you. We have a group of questions. I'd like to start with same-store sales. You gave us the breakdown between your 3 categories for the quarter, would you please do the same for the full year please?

Yes, for the full year they were remarkably consistent. We were-- our comp store sales were up 0.8% and they were, see, apparel was up 0.6%, footwear was up 0.5% and hard goods were up 1.0%. So I think we could call that, within a relatively tight range of one another.

And is it--

It's interesting, we say great-- sometimes great fluctuations and variations because of the weather. But when you put it over longer period of time, there's a great consistency in our business, and that's something we appreciate.

Well there's consistency in the business, Bill, I mean when you're doing the 0.8% full-year same-store sales growth, Steve talked about the categories, and also our POS margins are down relatively flat, I mean down 13 basis points for the full year. So we feel like we're just trending kind of bumping along at flat to slightly up. In this economy it's-- I guess you might want to think of that as a win.

Thank you. And then, I'd like to shift to the new store economics for a moment. In the past, I'm thinking several years ago, we had seen some data on how profitable your new stores were. Is that still the case today? And if it is, here in this quarter, we saw gross margin and SG&A both negatively impacted by the increased number of stores, and when do we start to see those economics actually working in the Company's favor? So I guess there's a couple of questions embedded in there.

Well, Bill, we're happy with the performance of our new store. I mean the whole chain in this economy has been more or less ratcheted down. So the various measurements are all brought down a little bit. But we're very happy with the performance of the new stores. The new stores of course in this economy are not as profitable as they were in better days, and I think that's to be expected. But they are-- we're continuing invest. It makes sense from a growth standpoint, from a real estate standpoint. And it's not, again, I think from an overall performance standpoint, both on the sales side and the profit side, we're comfortable with the performance of the new stores.

Does that, actually, lead to you potentially needing to put more pressure on landlords for even lower rents so that your economics can be a bit better than they are, maybe not as good as they were, but a bit better than they currently are for the new stores?

Well, we work very hard with our landlords in good times and bad to put as much pressure as we can to obtain the most favorable economics.

And then let me shift to 1 additional question. And that is relative to increasing your operating income margin, would you please discuss kind of your view of what the path is to accomplishing that? And as you answer the question, would you please do it in context of where you've been with your operating margin in the past, and where you are wanting to go with that margin?

Well Bill, we've, of course, achieved operating margins in the past in the-- between 6% and 8% or so. That, of course, has been brought down considerably during the recession. We're-- but in terms of how to get back to those levels, which we expect to do over time with sales growth, I mean, that is in our mind, the absolute key. And when that occurs, is going to determine when we're able to get back to those operating margins levels. But we clearly think that with our new distribution center, I call it new still because we opened it and went straight into the recession, but that facility is very, very efficient, it should service our needs for at least the next 5 years as-- given the current growth of our store base.

We are working with our landlords, as we said, to negotiate good competitive rates of rent and actually going back and offering extensions and getting rate-- rent reductions. So knock on wood, we'll be able to kind of ebb the tied of occupancy to some degree and get more leverage there again with store growth. And then we've worked really hard to bring our expenses down and today we're-- it used to be a 3.5% same-store sales growth rate that we would need to be able to lever our expenses and that rate is lower today. So it's really all about sales and it's dependent on the turn around in our economy and our consumer.

Thank you, both.

Sure.

And we'll move next to Anthony Lebiedzinski from Sidoti & Company.

Good afternoon. Just a follow up actually on this last question. So what type of comps will you need to leverage SG&A expenses?

Anthony, we're in the 2.5% to 3% range. And again, that's an average. Any 1 quarter can have ebbs and flows depending on your store growth and depending on actuarial evaluations and adjustments, and all those kinds of things play into it. But I think on average just from the expense side we're looking at something 2.5% to 3% or so.

Okay. And could you quantify the impact of the later Easter, and I realize that's a day that you close your stores, but is there any way you could quantify what the effect of that is?

Well in round figures, I mean this year, Easter shifts into the second quarter.Last year it was the last day of the first quarter. We're closed on Easter Sunday, so this year, since we'll gain an extra sales day, the last Sunday of the quarter, but we'll lose the business that is associated with Easter, and we do extra business leading into Easter. Roughly, probably it's 50 to 75 basis points on the sales line maybe would be the best I could say, probably less meaningful on the P&L line, because we have an extra day of store operations that offset some of those sales.

Okay. And also, just looking at the legal settlement charge, you guys are breaking that down between a reduction in net sales and SG&A. What's the reason for actually-- for the sales adjustment?

Oh, Anthony, it's an accounting rule that is pretty complex, frankly. It really just has to do with looking at expense, the expense elements that are fixed, more or less, and those get charged to-- those get charged to expense and other, more sales oriented portions of that calculation, would get classified as an offset to sales. So-- but bottom line is, as it relates to anything that's legal matters, we'll be issuing our 10-K in the next few days and there'll be updated discussions in those documents.

Okay. Thank you.

Sure.

Our next question comes from Rick Nelson from Stephens.

Hi, good afternoon, guys. This is actually Nate Mendes in for Rick. Thanks for taking my question. Most of mine have been answered, but I just wanted a big picture kind of question. Looking at your new store guidance of 10 to 15, is this the, I guess the sustainable rate, the more normal rate going forward? And if not, I guess what are you looking for in the business before you ramp up growth to kind of the high teens and 20 that you've done in the past?

Oh, I think what we're looking for is just some greater signals from the general economy that wind has shifted and a little bit behind us instead of in our face, would probably be the best way I could describe it.

So the 10 to 15 range isn't how you view the business going forward?

No, I think we're still being cautious. I think it's-- we've always followed a course of growth under control.

Okay.

And if we're ever going to be making a mistake in terms of our growth rate, I'd rather it be growing a little slower than we could have than faster than we should have. And I think, given the challenging times that we're in, our thought process is sound in terms of our growth.

Okay thanks. And then on the timing of the store openings, can we expect them to be back end loaded in the year, kind of how we've seen them in the past?

Yes.

Okay, great. That's all I have. Good luck with the quarter.

Thank you.

(Operator Instructions) And we'll go next to Sean McGowan from Needham & Company.

Hi, guys. A couple of questions here. First, Barry, can you update us on depreciation and amortization for the last year and for this year, for 2011?

Yes, sure. Go ahead Sean, let me grab it while you go ahead.

Okay the other question, which you might have to address as well, is the EPS guidance for the first quarter strikes me as kind of a wide range considering two-thirds of the quarter is under the belt already. Is there that much variability in what March can bring?

I think probably there is. I mean, the-- we've seen extreme variances in our sales which is clearly related to extreme variances in weather year over year. It's still a bit unpredictable, and clearly, how weather will play out for the rest of the month. And it's difficult, just to kind of gauge exactly where the sales line might end up. So, just giving it a couple of points north and south does make-- it does make a difference in terms of our EPS.

Sean, on the D&A for the current year 2010, $18.6 million and very similar for next year.

Okay. Thank you very much.

Sure.

(Operator Instructions) It appears there are no further questions at this time. I'd like to turn the conference back over to our speakers for any additional or closing remarks.

Thank you, Operator. Well I want to thank everyone for their participation today and we look forward to speaking with you again soon. Have a good afternoon.

That concludes today's presentation. Thank you for your participation.