Buckle Inc (BKE) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you, very much, for standing by, and welcome to the fourth quarter earnings release call. (Operator Instructions). Now members of Buckle's Management on the call today are Dennis Nelson, President and CEO; Karen Rhoads, Vice President of Finance and CFO; Kyle Hanson, Corporate Secretary and General Counsel; and Tom Heacock, Corporate Controller. As they review the operating results for the fourth quarter which ended January 31, they would like to reiterate their of policy of not giving future sales or earnings guidance, and has the following Safe Harbor Statement: The Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors which may beyond the Company's control.

Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the Company's filings with the Securities and Exchange Commission. The Company does not undertake to publicly update or revise any forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

Additionally, the Company does not authorize the reproduction or dissemination of transcripts or audio recordings of the Company's quarterly performance calls without its expressed written consent. Any unauthorized reproductions or recordings of the call should not be relied upon, as the information may be inaccurate. Now I would like to turn the conference over to your host, Karen Rhoads. Please go ahead, ma'am.

Thank you, and good afternoon, everyone. Our March 11, 2009 press release reported that net income for the fourth quarter ended January 31, 2009 was $34.3 million or $0.74 per share on a diluted basis, and that compares to $29.1 million or $0.63 per share on a diluted basis for the prior year fourth quarter ended February 2nd, 2008. Net income for the first -- excuse me -- net income for the 52-week fiscal year ended January 31, 2009, was $104.4 million, or $2.24 per share on a diluted basis, and that compares with $75.2 million or $1.63 per share on a diluted basis for the 52-week fiscal year ended February 2nd, 2008. Please note that the prior year's earnings per share numbers have been adjusted to reflect the impact of our three for two stock split that was paid in the form of a stock dividend October 30th, 2008. Additionally, as disclosed in this morning's press release, during the fourth quarter of fiscal 2008, the Company recorded a $3.4 million unrealized loss resulting from other than temporary impairment of certain of our investments in auction rate securities. For the full fiscal year, the Company has recorded a total of $5.2 million in unrealized losses resulting from the other than temporary impairment of certain investments in auction rate securities. The unrealized losses have been recorded in the statements of income for the quarter and for the fiscal year ended January 31, 2009.

This adjustment had an impact of $0.05 per share after tax on reported basic and diluted earnings per share for the fourth quarter, and a $0.07 per share after tax impact on the reported basic and diluted earnings per share for the fiscal year. Net sales for the 13 week fourth quarter increased 21.5% to $251.4 million compared to net sales of $207 million for the prior year fourth quarter. Comparable store sales for the quarter increased 14.3% compared to the same period in the prior year. Net sales for the 52-week fiscal year ended January 31, 2009 increased 27.8% to $792 million compared to net sales of $619.9 million for the prior year 52-week fiscal year ended February 2nd, 2008. Comparable store sales for fiscal 2008 increased 20.6% compared to the same period in the prior year. Gross margin for the quarter improved approximately 170 basis points to 46.1%. This improvement was driven by an increase in merchandise margins, which had about 65 basis point impact, and by the leveraging of buying and occupancy costs, which had about 105 basis point impact.

For the fiscal year, gross margin improved approximately 230 basis points to 43.4%. This improvement was driven by an increase in merchandise margins which had about a 50 basis point impact, and by the leveraging of buying and occupancy costs which had a 190 basis point impact. These improvements were partially offset by an increase in expenses related to the incentive bonus accrual. The improvement in merchandise margins for both the fourth quarter and for the full fiscal year are primarily a reflection of reduced markdowns as a result of strong sell throughs on new product, which was partially offset by an increase in redemptions to our Primo Card loyalty program. Selling expense for the quarter was 18.6% of net sales, which was an increase of approximately 10 basis points from the fourth quarter of fiscal 2007. The increase was driven primarily by an increase in expense related to the incentive bonus accrual, an increase in internet-related fulfillment and marketing expenses, and investments made during the quarter related to certain store fixtures and supplies. These increases were partially offset by a reduction as a percentage of net sales in store payroll expense and by the leveraging of certain other selling expenses.

For the fiscal year, selling expense was 19.1% of net sales, which was flat in comparison to fiscal 2007. Increases, driven primarily by an increase in expense related to the incentive bonus accrual, an increase in internet-related fulfillment in marketing expenses, and investments made during the fourth quarter related to certain store fixtures and supplies, were equally offset by a reduction as a percentage of net sales in store payroll expense, and again by the leveraging of certain other selling expenses. General and administrative expenses for the quarter were 5.1% of net sales, which was flat in comparison to the fourth quarter of fiscal 2007. The increased expense related to the incentive bonus accrual, the year-end vacation accrual and the write-off of certain fixed assets that were abandoned during the quarter, were equally offset by the leveraging of certain other general and administrative expenses. For the full fiscal year, general and administrative expenses were 3.8% of net sales, which was a reduction of approximately 40 basis points from fiscal 2007. Excluding a $3 million gain recorded during the second quarter of fiscal 2008 which related to the involuntary conversion of one of the Company's corporate aircraft to a monetary asset upon receipt of insurance proceeds, general and administrative expenses were 4.2% of net sales, which was flat in comparison to fiscal 2007.

An increase in expense related to the incentive bonus accrual was equally offset by the leveraging of certain other general and administrative expenses. Our operating margin for the quarter was 22.3% compared to 20.7% for the fourth quarter of fiscal 2007. For the full fiscal year, our operating margin was 20.5% compared to 17.7% in the prior year. Excluding the $3 million gain on aircraft that I just mentioned, our operating margin for fiscal 2008 was 20.1%. Other income for the quarter was $1.7 million compared to 2.6 million for the fourth quarter of fiscal 2007; and other income for the full fiscal year was $7.8 million in comparison to $9.2 million in fiscal 2007. Income tax expense as a percentage of pretax net income was 36.9% for the fourth quarter of fiscal 2008 compared to 36.2% for the fourth quarter of fiscal 2007, bringing fourth quarter net income to $34.3 million for fiscal 2008, versus $29.1 million for fiscal 2007, an increase of 18.2%.

For the full fiscal year, income tax expense was 36.7% of pretax net income in fiscal 2008 compared to equally 36.7% in fiscal 2007, bringing fiscal 2008 net income to $104.4 million versus $75.2 million for fiscal 2007, an increase of 38.8%. Our press release also included a balance sheet as of January 31st, 2009. It included some of the following: Inventory of $84 million, which was up about 8% from inventory of $77.6 million at the end of fiscal 2007, and total cash and investments of $237.8 million compared to $248.4 million at the end of fiscal 2007. As of January 31st, 2009, total cash and investments included $30.9 million of auction rate securities, and that compares to $145.8 million of auction rate securities as of February 2nd, 2008; and our auction rate securities are reported at a fair market value, and at the end of the fiscal year reported investment is net of 6.6 million in unrealized loss for the impairment of fair market value on certain securities from their stated par value. The Company has determined that $1.4 million of the unrealized loss is temporary and is recorded net of tax as an accumulated other comprehensive loss of .9 million in stockholders equity as of January 31st, 2009.

As mentioned in the press release, the Company also determined that $5.2 million of the unrealized loss is other than temporary and is recorded as a loss in the statement to income for the year to date period ended January 31st, 2009. There were no temporary or other than temporary losses related to the Company's investments in auction rate securities that were recorded at February 2nd, 2008. Of the 30.9 million in auction rate securities as of the end of the fourth quarter, 1.6 million has been included in short-term investments and $29.3 million has been included in long-term investments. We also ended our year with $116.7 million in fixed assets net of accumulated depreciation. Our capital expenditures for the year were $47.4 million, and depreciation expense was $21.8 million. For fiscal 2009, we currently expect our capital expenditures to be in the range of 44 to $48 million, which includes budgeted capital investments related to the expansion of our online fulfillment infrastructure within our current warehouse and distribution facility in Kearney, Nebraska, and replacement of point of sale software and hardware.

We're also currently in the process of evaluating the ability of our current distribution center to support the anticipated growth of our business over the next several years, but would anticipate that the majority of any capital expenditures related to a new distribution center would not be made until fiscal 2010 or later. For the quarter, our units per transaction increased approximately 1.5%. The average transaction value increased approximately 8%, and the average unit retail increased approximately 6.5%. For the full fiscal year, units per transaction increased approximately 2.5%., the average transaction value increased approximately 7.5% and the average unit retail increased approximately 5%. Additionally, during the fiscal year, we increased our average sales per square foot from $335 in fiscal 2007 to $401 in fiscal 2008, and we increased our average sales per store from $1.7 million in fiscal 2007 to $2.0 million in fiscal 2008. The Buckle ended the year with 387 retail stores in 39 states compared to 368 stores in 38 states at the end of fiscal 2007. And with the opening of four new stores so far in fiscal 2009, which includes a store in Buffalo, New York -- which is our first store in that state -- we currently operate 391 retail stores in 40 states. And with that, I would like to turn the call over to Dennis Nelson, our President and CEO; and just to let everyone on the call know, Dennis is calling in from remote location as he is traveling stores this week. So thank you very much, and I will turn it over to you, Dennis.

Okay, thanks, Karen. Good afternoon, everyone. I would like to start by highlighting the performance of our various merchandise categories that led to our net sales increase of 21.5% for the fourth quarter and 27.8% for the full fiscal year. Men's merchandise sales for the fourth quarter increased approximately 13.5%. Highlights were denim, woven and knit shirts and outerwear. Average denim price points increased from $75.85 in the fourth quarter of fiscal 2007 to $81.85 in the fourth quarter fiscal 2008. For the quarter, our men's business was approximately 44.5% of net sales compared to approximately 47.5% last year. And the average men's price points increased approximately 12% from $47.55 in the fourth quarter of fiscal 2007 to $53.30 in the fourth quarter of fiscal 2008. For the fiscal year, men's merchandise sales increased approximately 25.5%. Highlights included denim, woven and knit shirts, active apparel and outerwear.

Average denim price points increased from $74.40 in fiscal 2007 to $79.85 in fiscal 2008. For the full fiscal year, our men's business was approximately 44% of net sales compared to approximately 45% in the prior year, and the average men's price points increased approximately 9.5% -- excuse me -- from $43.55 to $47.65. Women's merchandise sales for the fourth quarter increased approximately 28%. Highlights were denim, knit tops, outerwear, accessories and footwear. Average denim price points increased from $79 in the fourth quarter of fiscal 2007 to $86.50 in the fourth quarter of fiscal 2008. For the quarter, our women's business was approximately 55.5% of net sales compared to approximately 52.5 last year. And average women's price points increased approximately 5.5%, from $42.40 in the fourth quarter of fiscal 2007 to $44.65 in the fourth quarter of fiscal 2008. For the fiscal year, women's merchandise sales increased approximately 29.5%. Highlights were denim, knit tops active apparel, outerwear, accessories and footwear. Average denim price points increased from $77.85 in fiscal 2007 to $83.35 in fiscal 2008.

For the full fiscal year, our women's business was approximately 56% of net sales compared to 55% in the prior year, and the average women's price points increased approximately 3% from $39.80 to $41.10. For the quarter, combined accessory sales were up approximately 24%, and combined footwear sales were up approximately 7%. These two categories accounted for approximately 8.5% and 4%, respectively, of fourth quarter net sales, which compared to approximately 8% and 4.5% for each in the fourth quarter of fiscal 2007. Average accessory price points were up approximately 4.5%, and average footwear price points were up approximately 6%. For the fiscal year, combined accessory sales were up approximately 29% and combined footwear sales were up approximately 3%. These two categories accounted for approximately 7.5% and 4.5%, respectively, of fiscal 2008 net sales, which compares to approximately 7.5% and 5.5% for each in fiscal 2007. Average accessory price points were up approximately 4.5%, and average footwear price points were up approximately 1%.

For the quarter, denim accounted for approximately 43.5% of sales and tops accounted for approximately 39.5%, which compares to approximately 45% and 38% for each in the fourth quarter of last year. For the full fiscal year, denim accounted for approximately 41.5% of sales, and tops accounted for approximately 39%, which compares to approximately 43% and 36% for each in fiscal 2007. Our private label business was down slightly as a percentage of net sales for both the fourth quarter and the full fiscal year, due to the strength and variety of selection in our branded merchandise, but continues to represent slightly above 25% of our sales. In addition to our own BKE Denim, which was approximately 38% of our fiscal 2008 denim sales, key denim brands for the year included Big Star, MEK, Lucky Brand and Silver Jeans, in addition to several others. Other key brands on the men's side included Hurley, Billabong, Affliction, OBEY, 7 Diamonds and Roar, while other key brands on the women's side included Roxy, Billabong, Hurley, Sinful and Rebel Spirit, and the other key brand for men's and women's was Ed Hardy.

As Karen mentioned, total inventory at the end of the year was up approximately 8%; but our total markdown inventory at the end of the period was down compared to the same time a year ago. During the fourth quarter, we opened four new stores and completed three substantial remodels, bringing our count for the full fiscal year to 21 new stores and 13 substantial remodels. As of the end of last -- excuse me -- as of the end of the last fiscal year, 181 of our stores were in our newest format. We anticipate opening 21 new stores during fiscal 2009, including a store in Buffalo, New York which opened on February 25th, and a store in Mays Landing, New Jersey which will open later this year. New York and New Jersey will represent our 40th and 41st states. By season, we anticipate 7 new stores for spring, 8 for back-to-school, and 6 for holiday. We also anticipate completing 21 substantial remodels during fiscal 2009. By season, we anticipate 10 of the remodeled stores will be completed for spring -- or by the end of spring -- 7 for back-to-school and 4 for holiday.

Given our strong financial position and consistent performance, we remain committed to enhancing value for our shareholders. With that in mind, we returned more than 136 million to shareholders through dividends and buybacks during the year, including 92.9 million paid in the form of a split adjusted $2 per share special cash dividend in October 2008. We also again increased our quarterly dividend rate in the third quarter, bringing our annual dividend rate to $0.80 per share, and repurchase 557,100 shares of our common stock during the fiscal year at a total of cost of 9.4 million, or an average price of $16.76 per share. We ended the year with 799,300 shares remaining under our current repurchase authorization. In closing, we are pleased with our results for both the quarter and for the fiscal year and feel that both our people and our product have us well-positioned for continued success in 2009. And with that, we welcome your questions. Thank you.

All right, sir, very good. (Operator Instructions). Yes, we have our first question from the line of Margaret Whitfield of Stern, Agee. Please go ahead.

Hi, (inaudible) Karen, I was wondering if you could talk about your inventory situation, given the strong February comp -- you know, what your plans are for inventories going forward and how you might end the first quarter with inventories per square foot? And I wondered if you could talk about how some of the newer stores have performed. I think you gave some stats on sales per store, and in terms of how the class of '07 did and the class of '08 as you've moved east into newer markets.

Thank you, Margaret. You know, the February sales were excellent for us, so we ended up with little less inventory than we probably planned. We are taking pretty much the same strategy as we have been, trying to be cautiously optimistic and careful with inventory, but still trying to do business. And we think that our inventory levels will increase this spring. You know, it's difficult to say how much with -- depending on the rate of business; but we would see -- my best guess would probably be, over the next few months, kind of flat to low-single digit gains on the inventory.

On a per square foot basis?

Yes, probably closer to flat on a per-store existing store base.

Okay.

And then Karen, do you want the next part of that question, or do you want me to?

On how the stores are performing?

The most recent stores, the class -- stores opened last year and the year before.

I mean, I think in general we would say we are pretty pleased with how those new stores have been performing. We don't ever speak to the specifics of individual stores or an age of store performance, but we have been pretty pleased with that. I don't know if you want to add to that Dennis.

No, I would agree. I mean, we have had -- I was just trying to review what last year, but -- you know, we feel good with our new stores, and we had a strong year in '07, and '08 was very good. But I think both classes overall performed pretty well.

Just one final one. The 21 comp in February, Dennis, could you give us any call-outs as to what led to that explosive growth that you had last month in terms of brands or categories?

Well, I think we reported in the monthly that I recall denim and knits were both strong in men's and ladies, and what new product we brought in was received well, and I think the stores were just ready to do business, and things worked out well.

The private label will contract some this year as these brands are being so well-received? Or what do you see for private label this year?

Well, our private label continues to the grow, but just hasn't been growing at the same level as the brands. And my guess is that it would still be very close to 25%.

Fair enough. Thanks again, and all the best for this year.

Well, thank you very much.

Thanks, Margaret.

Very good. Our next question comes from the line of Mark Mandel with Wedbush Morgan Securities. Please go ahead, your line is open.

Well, thanks. Good afternoon. Could you please shed a little more light on your expenses and where we might see some leverage, given your sales growth?

On the leverage in the gross margin, again, a lot of that leverage comes from two components -- the level on the buying occupancy and distribution, and then from the actual merchandise margin and the sellthrough on that product. It does take approximately 2 to 3% comparable store growth to get some leverage on that occupancy number. So it was straight from sales is where we continue to get leverage, in that line item. In the categories also going forward, one of the questions we get quite a bit is regarding the bonus accrual. And the bonus accrual is really kind of two big components. One is the store managers which receive a percentage of profit off of their stores; and then the other one is for administrative -- the district managers and office personnel who are on incentive programs, and so the store component is going to continue to grow -- or should grow -- somewhat in relation to the profits in the stores. The incentive bonus is based on growth in three categories -- growth in comparable store sales, gross margin, and pre-bonus, pretax net income.

And so again, in a year like this year where all three of those categories grew very strong, we did see an increase in that bonus as well. And so for instance in fiscal 2009, if we were to have flat performance in those three categories, the incentive bonus accrual would actually go down and our total bonus pool would probably be down about a third from the current year, and so we would actually end up gaining some leverage because we would be -- we would have less incentive. But again, it's on growth in those categories; and looking at 2009 to have the same dollars of bonus, we would need to have probably somewhere close to a 10% comp and at least a 20% growth in pre-bonus pretax net income. And so again, depending upon the performance, there is some opportunity for leveraging there. But again, hopefully performance is strong and that we can continue to incur those incentive bonus accruals. You know, I think as we continue to also grow our infrastructure for the online store, that's increased some of our selling expenses; but I think those expenses have been well spent in relationship to growing that business. But we always look for ways to improve and to try and gain leverage.

I appreciate the color on the bonuses; but if you look at the two broad expense categories -- the selling expenses and G&A expenses -- is there a certain comp point where we should see some leverage? You know, is it 3%, 4% -- whatever the number is?

I don't know if we looked at it that way, have we Karen?

No, because -- and again, in those two categories, one of the -- probably the single largest growth line item was incentive bonus accruals, wouldn't you say, Tom? And so again, that's related to the strong performance for the year. And every year the -- for the management incentive pools are based on growth in those areas. And so if we have a year that we don't have as strong growth as we had this year, then those are going to be less accruals in each of those categories.

Okay, that's helpful. My second question is regarding your -- you know, the average selling prices. To what extent do you think you have opportunity to further lift that, especially given the economic climate that we are in?

Well, we -- you know, a lot of our price is being driven by product that just looks great, and we have had a strong demand. And we kind of see kind of the -- you know, at this point any way, through the first several months of the season, we would see probably the same type of price points that we saw the last several months in our stores as far as for denim and a lot of the knit tops; that what we are finding is similar product but new different finishes, so we are still seeing denim from our BKE of in the average low 60s, on to some of the top brands, up into the 150s . And the knits, there's -- here again, there's a wide variety of price points from Tees in the 20s on up to 70 something or higher, you know, and it -- and we just respond you know as close as we can to the market on where we see that going in the selling. And so at this point, the best we could guide is that we see it similar to what happened through the Holiday

And on a year-over-year basis, that would translate into similar types of increases that we've seen recently?

It's very difficult to think or recall how that compares to this time last spring. But where we were a year ago, maybe close to those kind of increases or such, but we'd kind of see the same price points that we've had, you know, the last several months kind of continuing right now.

Okay. Thank you very much.

Yes.

Very good. Our next question comes from the line of Edward Yruma of KeyBanc. Please go ahead, your line is open.

All right, thanks for taking my question. It looked like payables leverage fell on a year-over-year and was the lowest on a absolute basis in some time. Was there a timing issue, or what is driving this decline?

I'm not quite sure of your question there Edward -- sorry. On payables?

Right, payables leverage -- payables as a percent of inventory.

Oh, and you know, that at all depends upon the timing of when the product comes in -- how that -- the payables.

Got you. So there w,asn't anything specifically driving that it was just a timing issue?

Correct.

Okay, got you. And what would merchandise margins -- what would they have been had the Primo Card redemptions been flat year over year? I mean, how much did it weigh on your margin expansion for quarter?

For the quarter about 20 basis points.

Got you. And the final question, what's the timeframe around your new POS, and will you be implementing it in waves? Thanks.

On the POS, we are still in the vendor selection process. They would anticipate that by summer we would probably have product here to test, and the goal would be that end of fall to have a group of stores rolled out for a test basis prior to Holiday; but we wouldn't complete the rollout then until after Holiday 2009 to get to the test phase and also just not to disrupt the stores with new point of sale too close to the Holiday season.

Got you. Thank you very much.

Very good. We have several additional questions. Our next one, we'll go to the line of Anna Andreeva of JPMorgan. Please go ahead.

Thanks so much. Good afternoon, guys. Karen, I guess to you, I was wondering if you could break down the components of SG&A deleverage for the quarter? You mentioned the incentive bonus, investment in store fixtures and internet fulfillment costs. That would be helpful. And then, did I hear you right, did you say on the less comps are running in a 10% range, for 2009 you're selling expense dollars could be down year-over-year? That's my number one question.

Correct. That was correct.

That's correct, okay. And the components of SG&A deleverage?

I'm looking for -- I mean, we look at selling in G&A separately, so I don't have them actually combined in there. But we did a fixture rollout to most of our stores; and for the most part it's capitalized, but we have some smaller components which are expensed items. I would have to look at that. I guess I would hate to give a number just off the top here. Do you have that, Tom? Tom has it.

I think that was about 50 basis points.

Okay.

Okay.

And then the bonus accrual in the internet and selling were probably each about 20.

Okay. So bonus accrual was only 20 basis points?

Yes.

Selling and G&A combined?

And selling individually.

Yes.

Okay. Do you have the bonus accrual all together between selling and G&A?

Anne, actually, just to -- the bonus accrual does go to all three categories. We allocate it based on the functionality of the person receiving the bonus. So there is some bonus that goes to cost of goods sold, as well as selling and to G&A.

Okay. And do you guys have that number?

Do you have that?

It's probably 30 in total, I think, for the quarter.

Okay. So that's helpful. And I guess more to you, Dennis, you guys obviously continued bucking the trend out there -- very impressive. Are there any pockets of softness that you are seeing in the business? Anything regionally to call out? Obviously, you have a big exposure to Texas and the Midwest. How are these core regions holding up for you guys?

Well, I would say our core regions are doing fine -- we are quite happy with that business. And you know, we have a couple of stores -- maybe southern California, maybe a couple in Florida and Phoenix -- which had been real strong has kind of leveled out. Still doing pretty well, but we have a few that way that might be under a little bit; but still a lot of what we find is if we have a new manager or one that's not quite getting it, probably has as much affect on our business as anything.

Okay, so you have not seen any other softness other than that?

No, in general that's pretty much it. Yes.

Very impressive. And then finally -- I guess also to you, Dennis -- you guys mentioned in your prepared remarks you are making investments in the distribution center to support the growth in the business. I guess, could you reminds us longer-term, where do you see the growth potential for The Buckle over the next few years? From 387 stores, do you think this concept could support, say, 500 stores over time?

Well, we feel that there is definitely that potential. As I kind of mentioned before, kind of the northeast area, we are just starting to know a little bit about Western New York and parts of Pennsylvania. So we we couldn't say for sure a number, because we are not familiar enough with certain parts of the country to say how many potential are there. But we think we can continue to grow, and we find in certain markets -- like the Dallas Fort Worth market, we have 11 stores now. A few years ago, we would have not guessed that we would have had 11, and we are actually adding two more in that market this next year to put us in the 13 area. So I just think as, you know, new areas become strong, or good shopping areas come up, we evaluate them and go from there. And we are -- certainly when we have remodels, we look to see if we want to add some square footage -- sometimes we add 20%, sometimes not. But we certainly are staying focused on quality and want to be great specialty stores in all our markets, and the total number is not the driving point for us.

Okay. That's fair. But we should expect, I'm assuming, kind of a similar 5% square footage growth over the next couple of years? No plans to accelerate that?

At this point, there's no plans to accelerate, correct.

Okay, great. And how many of this -- new stores in 2009 are expected to be either in better malls, A-malls or new markets?

Well, we are opening in the -- let's see, I was just trying to think. I mean, everybody has a different opinion on what an A-mall is. I would say the majority of -- you know, at least a third are in very prime centers, and probably 50% is in very good regional centers, and there might be one or two that most people would consider smaller markets but we think are good opportunities.

Okay. And finally, my last question. What are you guys seeing from the rent negotiation perspective with landlords out there?

Well, I think it's -- the retailers certainly have an improved situation. There's more stores closing than opening, and you know, our business is very good, and we are only doing so many a year. So -- and that's been our strategy for a long time, so it gives our executive in real estate the opportunity to be pretty choosy and work out situations that we think are good for us.

Okay, great, thanks. Best of luck, guys.

Thank you.

Thank you.

Very good. Our next question comes from the line of Elizabeth Montgomery with Longbow. Please go ahead.

Hi, guys. Thanks for taking my question.

You're welcome.

I was actually a big shopper at your store -- the county store in Wichita Kansas in the late 80s -- but I haven't been in a store in a while; and I notice that your women's business has been much stronger than everyone else's, I was wondered if you had any sense of why that was?

I just think our buying team works together on a lot of categories and they are just executing very well. We do a lot of special make ups, both on the denim and the tops, and they are putting in a great variety of vendors, style of tops, colors; and in our denims, we have multitude of different fits so we can fit a lot of different individuals that -- you know, whether they like low rise or not low rise, or just quite a variety, and so we are able to fit a lot of guests. And our store personnel and managers are doing a great job of working with the guests, doing some special appointments with them, and helping them put the outfits together, and they are just -- you know, the combination is doing nicely for us.

Okay. And then I know you guys historically haven't given either revenue or comp or earnings guidance; but if I look at your inventory per square foot plans where your said that they would be flat and I look at your comps, I guess I'm a little bit confused, because it would seem that your comps on a one and two year basis are running far ahead of what would be flat inventory per square foot.

When I kind of answer that, I try to -- I mean, we are continually bringing in new products and trying to anticipate the level that will be required to do the business and such. But we are very product-driven, and so I'm kind of looking at at the end of the month number that we kind of report with the sales, where that's at. And during the month we are doing our best anticipating flowing in new products so they continually have -- we continue to hope to have fresh product to create the excitement to keep driving the sales; and by doing that, we are hoping that we generate the sales, and that is just about where the inventory is going to end up over the next month or two.

Okay. All right, great. Thanks, congratulations.

Thank you.

Thank you.

Very good. We have our next question from the line of Ronald Bookbinder with Global Hunter. Please go ahead

First of all, congratulations on a nice end to 2008 and a strong start to 2009.

Thank you.

In February, in that 21% comp, was there any special events or anything out of the ordinary that helped boost that comp?

I think we had no promotions. No. No special things. We started kind of a spring event promoting our West Coast shorts and swimwear this week, but nothing in February.

Okay. And the Easter shift, how should we look at -- what sort of impact should that have on a moving comp from March into April?

We really don't study that. And I mean, it's very possible we could have a small effect in March that might move in to April, but we don't feel it's big enough to concern ourselves.

And a lot of times -- I know a lot of people kind of like to look at March and April combined, just because Easter can shift back and forth between the two fiscal periods.

And the other part of that is, what is important to us is spring break, and every part of the country is different on whether they still have them earlier or later.

Okay. And there was some talk -- you mentioned in the text about Ed Hardy being a -- doing well for you guys. What percentage of your business is that? And we have been hearing that they've been liquidating some t-shirts and stuff that's been flowing in to the off price market. Are you guys affected by that at all, or has it continued to do well at strong price points?

Last year, I mean, we did nice job with it, but it was still a very small part of our business. And we actually have even less inventory in our stores right now with that product.

Okay. And then looking at your online business, you're pumping some money into helping build that up. How were the revenues from the online business year-over-year? And is that segment profitable?

The online sales -- at this point in time, we haven't broken out the online sales. You know, I think we have kind of looked at probably 5%, of sales at the point at which we start breaking that out separately. So we will evaluate that for the first quarter of fiscal 2009 as far as breaking out that component of our total sales that have come from the online. But yes, it has been a profitable business for us, and we've seen nice growth there.

And on the remodels, what sort of comp do you get from a remodeled store?

Well, it can vary widely depending on how mature the store is, if we move it to -- you know, if we have a prime location or if we improve our location, and/or if we add square footage. But for the last couple of years, we have had probably double digit gains in most cases; some even stronger, and on occasion a little less.

So it's a pretty strong ROI, I take it then?

Correct.

Yes.

Okay. And the leases -- how many leases do you have signed for the 21 new stores this year? And also, how many lease renewals do you have coming up this year?

I don't know if all the 21 are signed, but we are pretty sure on 20 of them that they will be -- you know, that we will execute and continue. Let's see -- and the renewals -- I mean, we have a lot of renewals coming through all the time. This date right now, I couldn't tell you exactly where we are at on that, but --

Well, is your typical lease around 5 years or 20% of your basis being renewed every year?

I would say the typical lease is 10 years, and we have some markets that are maybe smaller markets or situations where we might be anywhere from month to month to one, two or three years.

Okay. And looking at the tax rate for 2009, what do you estimate that would be?

At this point in time, we would anticipate it to be consistent with what we have been seeing, so --

Okay, great. Okay, well, thank you very much, and continued success in 2009.

Thank you, Ronald.

Very good. Our next question comes from the line of (Inaudible) of MKM Partners. Please go ahead.

Yes, hi. With regards to vendor and supplier negotiations, are you able to take advantage of your strong balance sheet in this environment? Like for example, perhaps paying sooner and getting better discounts?

Well, we have great relationships will all our key vendors, and what we've found is that we normally negotiate the best terms up front and such because we have confidence in our teams and developing product and working with that. So in most cases -- I mean, as far as paying ahead, sometimes that's factored in ahead of time. We kind of work with each vendor on which is good for both in these situations.

But have you changed -- has there been kind of a trend towards having more leverage with them? I mean, I know it's a working relationship, but --

I would say in pricing and comparing products out there, that it's more competitive and people are anxious to have our business, and naturally we continue to have more vendors that would like to attract our business, so that's a plus.

Does this help your IMU at all in the upcoming year?

Well, it's not something that's brand new to what we are doing, and so there might be some help there; but a lot of what we do -- it's not about the price of the item, it's about the item itself. And a lot of times if we need better fabrics, better washes or details, then we are just trying to offer a lot of quality and value for what we retail it for and try to work with that. That would get the right product out there to the guest.

To that point, you've talked before about how a lot of your individual SKUs are unique because you work with your vendors. Have you increased the percentage of your kind of SKUs that are unique, and that might also be accounting for some of the strong increases you're experiencing?

Yes, I would think that's true. I mean, a lot of our product is special make ups or unique product to us. And depending on the brand and even in the season, you know, that can vary from time to time. But I would say that's true for the last few months.

Is there a way to quantify that increase?

Not really. I mean, you would just be guessing, and I'm not going to take the work to figure it out, I guess. It would be a bit difficult to figure it all out, you know, how much is a -- because almost everything gets changed to some degree, so it's just a matter of how much we change -- whether it be the fit, the pocket detailing or the body styles of items.

Right. And then just a kind of technical question for Karen. Was the marketing spend up in 2008? And then what are your plans for 2009? And is it going to flow the same from quarter to quarter in the prior year, or are you going to shift anything around?

Well, Kyle might want to join in on this question, too. On the marketing -- on -- our online marketing did increase during the year. We didn't do as much print marketing, and just -- you know, it can vary from season to season depending upon maybe what promotions are going on. But we have found that our guests really like a lot of the marketing and sweepstakes that they are able to engage in from an online perspective. And Kyle, I don't know if you have more to add on that part?

Some of the marketing expense increase is actually driven by an increase in sales. So -- as a percentage of the sales online -- and so you -- as we increase sales online, we may see a marketing increase there as well.

Is there a way to quantify the degree of marketing spend on either a percentage or a dollar basis?

We will -- in the 10-K we will try and quantify that for you on what the total marketing spend there. But we'll want to make sure that we have the various components of that all pulled together.

Will the increases be similar to what you saw last year from a quarter to quarter basis?

I would guess so. I mean, you know, the marketing is one thing that, you know, we can adjust a little bit, too, depending on the sales each season -- maybe a little bit easier to adjust than some of the other categories.

Okay. Thank you, and good luck.

Thank you.

Very good. At this moment, we have no additional questions in queue. Please continue.

Okay.

Well, thanks for everyone calling in.

Yes, thank you very much.

Are you ready to conclude?

Pat, I think we are ready to conclude.

Okay, we'll give out the digitized replay information for everybody. This conference will be available for digitized replay from today at 5:30 p.m. Central Time through Wednesday, March 25th, at midnight. Now, you can access the AT&T Executive playback service at any time by dialing 1-800-475-6701 and entering the access code 991359. Now, international participants may dial 1-320-365-3844. And once again, those numbers are 1-800-475-6701 and 1-320-365-3844, access code 991359. Now, this does conclude your conference for today. Thank you for your participation and for using the AT&T Executive teleconference service. You may now disconnect.