Burlington Stores Inc (BURL) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Burlington Coat Factory third quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded, Wednesday, April 18, 2007.

I would now like to turn the conference over to Bob LaPenta, Chief Accounting Officer. Please go ahead, sir.

Thank you, Mark. Good morning. In accordance with our Safe Harbor guidelines, statements made in this conference that are forward-looking involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following -- deviation of actual from projected sales and earnings, the Company's ability to maintain selling margins, general economic conditions, changes in projected store openings, weather patterns, the Company's ability to control costs and expenses, and other factors that may be described in the Company's 10-K and 10-Q, and 10-K and 10-Q equivalents. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied will not be realized.

After the formal presentation, there will be a question-and-answer period where we will answer questions from current and potential investors in the Company's bank, debt and notes. It is the Company's policy not to answer questions regarding the future or any period between the end of the period which is the subject of today's conference, that is the third fiscal quarter ended March 3, 2007, and the date of this conference call. As a result of the merger, our assets and liabilities have been adjusted to their fair values as of April 13, 2006.

I will first cover results of the third fiscal quarter ended March 3, 2007. The Company's fiscal year 2006 which ended June 3, 2006 was a 53 week year. As a result, each of the quarters in fiscal 2007 begins and ends one week later than the corresponding period of the prior fiscal year. All references to comparative store sales data compares the 13 weeks ended March 3, 2007 with the prior year's 13 weeks ended March 4, 2006, whereas all references to net sales compares the 13 weeks of the fiscal period ended March 3, 2007 with the prior fiscal year's 13 weeks ended February 25, 2006.

Overall, net sales in the third quarter fell short of our expectations. We believe the usually warm whether pattern in the second fiscal quarter continued into December, causing a softening in same-store sales. Gross margin percentage increased to 37% from 36.4 from the prior period. For the three month period ended March 3, 2007, net income amounted to $31.1 million compared with $58.3 million during the period ended February 25, 2006. The decrease in net income is primarily attributable to increases in depreciation, interest, and amortization expenses.

I will now review the key highlights from our third quarter. Net sales -- during the third fiscal quarter, net sales decreased $36.4 million or 3.6% compared with last year's third quarter ended February 25, 2006. Stores opened during the first three months of fiscal 2007 contributed $24.9 million in net sales during the quarter. Comparing net sales for this year's third quarter to net sales for the 13 weeks ended March 4, 2007, we experienced an increase of $0.8 million.

Comparative store sales decreased 2.6 during the quarter. Comparative store sales decreased 6.8% in December, increased 6.3% in January and decreased .6% in February. The decrease in comparative store sales in the quarter is primarily attributable to unseasonably warm weather in certain regions in December, increased sales returns from the implementation of the new cash refund return policy, and Company supply chain issues from shifting direct store shipments into our distribution centers which affected merchandise flow.

Other revenue -- other revenue consists primarily of rental income from leased apartments, sublease rental income, and layaway, alteration and service charges. The increase of $2.4 million from the prior year's balance of $8.4 million was primarily due to an increase in service fees.

Cost of sales -- cost of sales decreased $27.1 million for the three month period ended March 3, 2007 compared with last year's third quarter. The dollar decrease in cost of sales was due to the decrease in net sales during the quarter and to lower merchandise costs from improved merchandise purchases and from reduced freight costs. Cost of sales as a percentage of net sales decreased to 63% in the fiscal 2007 three month period from 63.4 in the fiscal 2006 three month period.

Selling and administrative expense -- selling and administrative expenses decreased $11 million or 4.1% from the fiscal 2006 three month period for the fiscal 2007 three month period. The decrease in selling and administrative expenses primarily consisted of $9.4 million in employee benefits, $4.9 million in advertising, and $5 million in store payroll costs. Offsetting these expense decreases were merger-related expenses of $8.4 million and new store operating costs. Selling and administrative expenses were 26% of net sales compared with last year's quarter of 26.1%.

Depreciation expense -- depreciation expense amounted to $34.2 million in the three month period ended March 3, 2007 compared with $22.4 million in the three month period ended February 25, 2006. The increase of $14.8 million is attributable primarily to the step-up in basis of the Company's fixed assets related to the merger transaction of approximately [$416] million.

Amortization expense -- amortization expense was $12 million for the three months ended March 3, 2007 compared with $0.1 million for the similar period a year ago. This increase in amortization is primarily due to $631.1 million in net favorable leases recorded as a purchase accounting adjustment and $71.4 million in deferred debt charges recorded as a result of the merger.

Interest expense -- interest expense was $31.7 million in the current three month period compared with $0.4 million a year ago. The increase in interest expense is due to the additional debt the Company incurred in connection with the merger transaction.

Other income net -- other income net consists primarily of interest income, gains and losses from sale of assets and other non-operating miscellaneous items. In the third quarter of fiscal 2007, other income net decreased $0.4 million compared with a similar period in fiscal 2006. Income tax expense was $15 million for the three month period ended March 3, 2007 and $36.8 million (technical difficulty) period of last year. The Company estimated tax rate for the third quarter was 32.6% and 38.7% for the similar period of a year ago.

Net income -- net income amounted to $31.1 million for the three month period ended March 3, 2007 compared with $58.3 million for the third quarter a year ago. The decrease in net income of $27.2 million is due primarily to additional expenses related to the merger transaction. During the nine months ended March 3, 2007, the Company opened 18 new Burlington Coat Factory stores, reopened three stores previously closed due to Hurricanes Katrina and Wilma, and converted two of its existing Cohoes stores to Burlington Coat Factory stores.

During the remainder of the current fiscal year, the Company opened one additional Burlington Coat Factory store in March. Three Burlington Coat Factory stores, one MJM shoe store, one Super Baby Depot store, and one Cohoes fashion store were closed during the nine month period ended March 3, 2007. In addition, the Company anticipates closing two of the four remaining Cohoes fashion stores during the fourth fiscal quarter and plans to continue operating the remaining two stores.

Available today to answer questions are Mark Nesci, our Chief Executive Officer; Tom Fitzgerald, our Chief Financial Officer; and Gary Graham, our Executive Vice President of Operations. Operator, we're ready to answer questions.

(OPERATOR INSTRUCTIONS). Susan Jansen, Lehman Brothers.

My question really has to do with your sales results for the quarter. You attributed your decline in comps really to three things. One is to weather; two is to the shift in your cashback policy; and three is to your shift in direct ship moving to the DCs. Can you give us some feel for how much each one of those might have impacted your sales results during the quarter, if you expect those to be ongoing, and if those are more sort of permanent shift? And then just give us an update on if you're pleased generally with your cashback policy and also your shifting alignment of inventory supply.

I'll try to take each of those in turn. Hopefully, I'll catch them all. I think it's very hard for us, as you can imagine, to separate out the impacts of multiple things, particularly things that we can't or don't have a way to do sort of a test to control -- test on. So things like the weather, it's very hard for us to quantify that. But clearly, it was an extremely unusual weather pattern where we saw breaks where the weather got cold when it was supposed to be cold, our business responded, and where it was unseasonably warm, I think we, like other retailers who talked about their cold weather apparel business being soft, we saw some of the similar trends during those time periods.

I think with respect to the cashback policy change, if you want to -- I'll spend a minute on that. That's another one where we really can't definitively quantify the impact given that we rolled it nationwide and don't have a sort of a test group or a control group for the change. Now, we still believe strategically it was the right call to make because it was a source of concern for our customers. However, having now had some time under our belts with this policy change, when we look at it, and we look at our total sales growth, including returns and exchanges versus when we look at our sales growth excluding the impact of returns and exchanges, we actually see about a 3 to 4 point decrease in our growth when we include the returns and exchanges.

So just on the surface, it appears to be having an adverse impact. It's sort of more qualitative than anything because what we understand but can't measure is that we have seemingly not brought in a significant number of new customers into the brand as a result of the policy change. As well, I think more people than we expected, again qualitatively, are taking the cash and not making a subsequent purchase, where before you really had a merchandise credit which required you to make a subsequent purchase. We're still looking at it and analyzing it, and clearly expect the impact of all of this to wane as we begin to overlap the policy change in the August/September timeframe. I think I covered most of your points. Operator, we'll go to the next question.

Grant Jordan, Wachovia.

Just one clarification on that last one. You said you think the policy is decreasing revenue by about 3 to 4%? Did I understand that right?

No, the number I was quoting was actually the growth rate year-on-year.

Okay, so it's impacting the growth rate by about 3 to 4 percentage points?

Correct.

One housekeeping question. Can you give us the amount available on the revolver at the end of the quarter?

I don't have that handy. Let us get that and we'll talk about it later in the call.

And then it looked like the inventory per store in inventory days were up a little bit year-over-year. Can you maybe just talk about if there's anything specific in that or if it was just a matter of timing? Year-over-year?

I'm sorry, I'm not sure I caught the whole question. Can you state it again?

Inventory per store was up about 4% Q3 this year versus Q3 last year. What's driving that?

The number we quoted in the Q, my recollection was 2%, but that said, I think we clearly made adjustments to our ordering when we saw how the sales were playing out in the colder weather months. And I think as a result of chasing some of the things that we're working and cutting back, we weren't able to cut back fully to keep inventory per store flat given the softness in the topline.

Having said that, we worked pretty diligently; the merchants were pretty agile in working the post December sales period where we were, like all other retailers, discounting. We really probably got a little bit more aggressive than we have historically to clear aged inventory out. So despite having more inventory and a soft third and fourth quarter versus our expectations, we actually have less aged inventory that we're carrying over as a result of our ability to clear.

Great. And my last question is just in terms of the competitive environment, maybe whenever you look across some of your full price competitors, are you seeing anything different in terms of their promotional activity?

Yes, they are certainly being more promotional. There's no doubt about it. I think our plan of attack is really to better understand our customer and there's quite a bit of consultation work going on to better understand who our customer is and how we can reach them and how we can get more for their basket. So I think our marketing approach is really going to be more targeted this coming year to go after our consumer in which we call the sweet spot and try to get more in the basket.

Our call to action really will be done a little bit differently than we've done in the past because we've done a lot of branding on TV. And although we don't intend to change our model in terms of how we promote in the sense of playing the high/low game, that's certainly not us. We're an everyday low pricer. But how we can go after that customer is what we're strategically working on and intend to change in the coming year.

Great. Thank you.

Okay, we'll go to the next question, but just for the group, the amount available at the end of the quarter on the revolver was $411 million. Operator, we'll go to the next question.

Karen Miller, Bear, Stearns.

I wondered if you could just give us a little bit of color on how March and even April sales are doing, in view of the particular problems that we're having in the weather in the Northeast?

Karen, as you know, we do not give any forward-looking statements, so, and we do not provide comps on a monthly basis until at the -- until the quarter is concluded, so that's all we can say.

And when would you expect to pre-release your sales figure?

Thursday after the year ends. The year ends June 2, so it would be that following Thursday.

The only thing I could add to that, I mean, it's obvious that the [north-eastern] and the weather did impact all retail in those markets where I was, so we wouldn't -- we certainly would tell you that us and most of all the retail was impacted, at least to the [north], at least in those parts of the country.

Great. Can you just tell us a little bit about what was behind your decision not to contribute to the profit-sharing plan this year?

I think when we looked at all of our expenses and the position of the Company and the commitments we have, it was our collective decision to make that determination at the time and --

I will add there is a shift that's going on in the business model right now to better service our customers. One of those shifts is to utilize more part-time help. The result of that is that we will be looking at the benefit structure throughout the different layers of the business and better assessing what we think we get the best return and the most for our money and where it should be spent. So there are other avenues that we're looking at spending monies in different places and moving some around and this is one of them that is certainly under review. So from a long-term perspective, it could be something that we would modify seeing that we are certainly going to go through substantially more part-time help than full-time help, certainly for the hourly associates in the stores.

Okay, and then if I remember, on the second quarter conference call, you mentioned that in view of the disappointing sales, you were looking at some of your costs and taking some cost-saving measures which you said would be helpful to the third quarter. Can you tell us a little bit about this?

Yes, I think the specific question you're asking is what actions did we take to offset the soft sales in terms of expense reductions. We talked a little bit about some of them in the script. I think the big ones were really primarily centered around payroll in the stores as we were flexing that in accordance with our sales volume. We talked a little bit in the script about the advertising -- well, obviously the employee benefit question that you just asked was a big number. Advertising was actually -- the $5 million we quoted was primarily due to the year-on-year comparison where we had an extra week last year actually shifted into -- caused a shift in the comparison. So, but we did pull down advertising slightly after the December -- after December to not affect the big sales month.

So with that, let me give some other people a chance and turn it back over to Mark.

Thank you very much.

[Colleen Burns], CIBC World Markets.

Can you just give us an update on your systems implementation? I believe you were planning to roll out your inventory markdown system to additional departments in the spring season of this year, if I'm correct? Is that still the plan and where does that stand?

We actually have deferred it. We are running it still in our sportswear. In fact, our Ladies Ready to Wear division is using it on a regular basis and we're still testing. We're still tweaking. We're finding -- is a good analytical tool, but it still needs of tweaking. So we're spending a little bit more time before we just roll this out in what I would describe as a better test arena to make sure if we do roll it out to other divisions, it will impact them the way we want them to do and not adversely. We have chosen the Children's department who does do it in one sector of their business and -- but they are eager to roll it out in the balance and that's something that we're looking at in the coming year.

And then just to switch gears a little, to go back to sales, can you give us some color on what you're seeing in terms of categories? What's selling well, what isn't? And in particular, how shoes are performing? I saw that MJM shoe stores posted negative comps I believe for the last two quarters. I know it's a small part of your business, but if you can comment on what you're seeing there.

Shoes are generally doing extremely well. The third quarter, what you're really seeing in the slight downshift that took place in shoes was the boot business. And just like all cold weather business and in the case of what we did in the rest of apparel and coats and gloves, hats and sweaters and those things, we obviously were impacted with the extreme, unusually warm weather that we saw in November, December.

Boots was no different, but if you had taken the boots out, we would have actually had an increase in shoes. So that really is what took the shoe business down. And it has returned quite nicely, by the way, so it is doing well.

I would tell you that our accessory business is very good. We're having great increases in handbags. We have made some augmentation in our buying staff here to assist in certain places in the merchandising staff and that's one of them. It certainly is having nice results. Overall, I would say that coats obviously were impacted in the third quarter, as you could imagine. Nothing much to say about that other than the fact that we've done a great job of, as Tom alluded to, managing the inventory situation in coats and we're really in great shape. Our inventories, as I said, are only up a couple percent and we think we've done a tremendous job of operating through this.

I think all in all, I think the real telltale story here is really the margins. We've been able to aggressively pursue relationships with our vendors and utilize the leverage of our business and how big of a player we are in the marketplace. We are clearly making better buys. We are aggressively pursuing it. We intend to continue doing such and I think that's really been the [tale telling] story that's made a difference.

Great. And just on those discretionary expenses that you were able to cut in the third quarter, are you looking at other areas besides cable and advertising and other cost-cutting areas?

Just to clarify, the advertising was a very minor cut that was done. We're really not looking to reduce advertising. There's really the shifting of the week that took place. And yes, like all good businesses, we continue to scrub and look at opportunities. We think there's a huge opportunity for us to actually buy better in some of the purchasing side or the expense side of the business. So there's lots of initiatives underway to reduce costs there, certainly in purchasing of construction services and materials and related products.

Great. That's it for me. Thank you.

Mark? Next question, please.

Marianne Manzolillo, Angelo, Gordon.

You mentioned that your same-store sales were affected by some supply chain issues. I was wondering if you could expand on that a bit. Are you saying that perhaps you had difficulty getting the merchandise to the stores or was it a matter of the right type of merchandise?

I think it's -- I'll take that. I think, big picture, we moved a lot of our inventory, converted it, from going through UPS or direct ship into our warehouses. I think despite the best planning, I think in hindsight, we probably weren't quite ready for that ramp up in product flow from a capacity standpoint; really staffing levels and moving it through. So, while it was absolutely the right thing to do, like any big conversion like that, we had some issues in that transition. And I think the outcome of that is that the product took a little bit longer to get to the stores and when it got to the stores, another point of throughput issue was getting it from the back room and onto the stores because it was coming in a different way. And ultimately, the back rooms got overstocked with -- so as the merchandise was coming a little later, the back rooms got a little bit overstocked and once we alleviated that and got onto the floor, the floor actually then had a lot of merchandise on the floor, which probably made for a less than desirable experience for our customer.

So those are some of the things that we have in our cross-hairs as we move forward, as we address those issues, but -- and while I think we've made a lot of progress as we sit here in April from where we were before, but it was really probably more of that transition that affected us.

Okay, so you're saying there were some stockouts or on the shelves perhaps, short-lived as they were, but --

It was probably more of the timing of the newer merchandise arriving when we wanted to feature it.

And then with the improvement in the gross margin and it's attributable to better buying and freight, what would the breakdowns there be? Would it be more attributable to the lower freight because of the warehouse or more attributable to your better buying?

We don't provide that kind of detail, so I think it's fair to say that they were both contributors in a fairly balanced manner. I think to give your colleagues an opportunity, we should probably limit it to two questions each. So, Marianne, I don't want to make you the first one, but I know we have a lot of people on the line and we only have about 25 minutes left.

Sure. Thank you.

Thank you very much, and Mark, back to you.

Susan Jansen, Lehman Brothers.

I just wanted to get back in and ask about your new store performance. Is it measuring up to your expectations? And could you just remind us how your store prototype is working these days?

Yes, I mean I would say they're pretty much on target. The only thing that impacted the last group was the cold weather product that opened up in those markets where we didn't get cold weather sales. But if we had taken that out, I would say it was pretty close to in line to being with expectations. And as far as the model is concerned, we are a typical 80,000 foot store -- we believe in. We do think it's still a differentiator in the marketplace from some of the competition such as TJ, Marshalls, and the other off-pricers. We certainly feel that it allows us to compete readily with the moderate department stores in a formidable way, and we believe in the model store.

Next question, Mark.

Thank you, Susan.

Andii Davis, UBS.

Most of my questions have been answered, but I was wondering if you could quantify the impact of the one-week calendar shift on your revenue and your profitability?

Yes, in the quarter, when you compare it to last year, we added the week of 3/4, the week ending 3/4 to the quarter, which had $58.3 million in sales, whereas we took away the week of 12/3, which was a -- in the Christmas selling season which had $95.4 million in sales. So the net impact of those shifts in the weeks dropped $37.2 million in sales in the quarter. Year-to-date, it's less significant. We are taking away the week ended 6/4, which did $50.3 million and again, we're adding that week ended 3/4, which was $58.2, so year-to-date, the shift is only about $8 million in sales. So if you just look at the normal profitability percentage for the quarter, last year's quarter had an additional $37 million in sales and roughly $4 million in income and profit.

That's helpful. So then I guess looking forward to next quarter, can you give us a sense of how that's going to shape up directionally? Do think it's going to be a neutral quarter or should we see positive sales or --?

Again, we don't speak to -- we don't make projections, we don't speak to the future. But the only thing I will remind you is last year we had the 53rd week fall in the fourth quarter, so it was 14 weeks of sales and income in last year's quarter, and this year will be 13.

Okay, so in terms of the timing shifts, it should be neutral, the impact from the timing shifts?

No, the extra week will -- it clearly added sales and income and I think if you look at last year's 10-K equivalent, I think we had a paragraph where we spoke about that week. I don't have it here with me, but we spoke about the impact of that week in terms of the additional sales and the income that it added to the fourth quarter, so clearly that's a non-comparable result that won't be there this year because we're only going to have the 13 weeks. One less week, correct.

Okay, thank you.

Mark, back to you.

Bill Reuter, Banc of America Securities.

Real quick, in terms of the dropped shipping initiative, we've been moving towards dropped shipping and we obviously had a couple of challenges in the quarter. Does it reverse your thinking at all in terms of the move towards this and maybe you guys will kind of go back to more direct shipping?

Oh, no, quite to the contrary. By the way, it was just a reverse. We moved to central distribution, I think is what you meant, from dropped shipping. But absolutely not. It is absolutely the right thing to do. Obviously we think there's fixes to be done in the supply chain, as Tom alluded to, and we're well underway in most of those areas studying where some of those breaches occurred and what we're going to do to fix them. And some already have been fixed.

So, but no, the whole idea of getting the customer experience right in the stores is paramount. It is one of the big initiatives that the Company is undertaking. Part of that is just dealing with that is having the supply chain flow goods into these stores so that we don't overcrowd them, we make it quite an enjoyable experience in the store and we need fixing there. It's the whole freshness of flowing inventory into the stores and you really can't do that through the drop ship means. There's really no control measures that you put in place when you drop ship to a chain such as our size from all of these vendors and when it hits there, but you do control that when it gets to a distribution center. So the answer is to fix the supply chain breaches where they've occurred, which we're well on our way to doing and absolutely go forward with moving more goods.

By the way, we're up to about 70% through the buildings and there will be a goal to get it even higher if we could, depending on how many of the off-price buys we make in a yearly basis. But it certainly wants to stay on track where we're going.

And then just one more and then I'll hop out. In terms of our pipeline for new stores, as we look kind of going forward, is this kind of where you expected it would be in terms of new potential locations?

No, actually, we're turning the volume up on that and to be frank with you, we were attempting to get even more into this year. We fell a little bit short with some of those opportunities. Some of them really got -- they're still being worked on but they just got bounced into this year. No, I mean, our plan is at least to be opening 25 stores this coming -- 25 to 30. There's no guarantees we can make that, obviously, but I will tell you that we're finding that the marketplace is opening up for us. We have a lot of things in the pipeline right now. We're really ahead of schedule as it relates to doing that, so we're feeling pretty confident that we think we can hit those ranges, but again, there's no guarantees.

Okay. I'll hop out. Thanks, guys.

Thanks, Bill. Mark, back to you.

(OPERATOR INSTRUCTIONS). Marianne Manzolillo, Angelo, Gordon.

Just one more questions. I was wondering if you could discuss the composition of your inventory on-hand. You're saying your inventory is up by 2%, but yet you have less aged inventory versus last year. Has the competition of the inventory changed at all, whether it's because of your shipping methods or more prebuying or is it really -- does it look a lot like last year's at this point in time?

Yes, I think Marianne, I'll take a swing and maybe others will build on it. I think I -- the principal change in the composition of our inventory is I think we, in some categories, have always cleared, because the merchandise has shorter life cycles. In other categories where they had longer life cycles, we may not have cleared as aggressively, coats being the primary example. I think this year we used the post-Christmas period to focus the markdowns more aggressively on the aged inventory that we wanted to reduce. So that's principally what we were referring to.

And in terms of the shift through the -- our own supply chain and away from UPS, that did not in any way materially affect the composition of our inventory, which is an answer to one of your questions.

So you had the goal of prebuying more inventory, but that prebuying does not affect the type of inventory you're buying?

No, it doesn't have any effect. The prepurchases in the beginning part of the season has always been part of the model here. That will shift from season to season depending on what the buys and what the fashions and what arrangements we're making with different vendors. But it doesn't change the composition [in any way].

And right now you're sitting on less coats than you were last year, it seems you are saying?

Yes. The answer is yes, but the agent of that inventory, we felt it was an opportune time for us to address it. We've done a much better job in the store op side of the business of pointing this out to the consumer, pulling it together, signing it better and having an impact by point-of-sale, clearing out some of that older inventory. And we have absolutely done a good job at that. So the fact that the inventories are cleaner in our coat department is a refreshing thing, especially going through what we went through in a very unseasonably warm winter that we did. And again, we congratulate the merchants and the team for succeeding in this endeavor and it was a hearty feat and we achieved it and it was good for the inventory and good for the business.

Great. Thank you.

Thanks, Marianne. Mark?

[Rakesh Patel], Credit Suisse.

I was just wondering if you could give me a quick, brief outline of the (indiscernible) for a new store opening, just in terms of how much it cost net of the landlord reimbursement and how much roughly the inventory is per new stores as well?

We actually consider that somewhat proprietary, and given that it's an open marketplace and we have a lot of competitors and a lot of landlords that we talk to, we really would choose not to disclose that. I can tell you that based on -- kind of high-level based on the way that we are doing deals now, I think we're in a position where we are probably making -- that the requirements for us to do a deal are more similar to the marketplace than they may have been historically. And as a result, we get better terms, better overall economics in that deal. The new stores require less upfront capital because of the shift in allowances than they did historically. That's probably as much as we want to go into.

Can you give me a sense of how much maintenance CapEx is excluding (indiscernible), new stores? So how much refurbishments, how much spent on refurbishments, how much spent on updating software systems, et cetera? Any sense of that?

Yes, we do and again, I -- we don't normally break that out. I can tell you in the grand scheme of things it's not that significant.

Great.

Okay, Mark. Back to you.

[Reid Kim], Merrill Lynch.

Mark, could you elaborate a little bit more on the consulting project reference in the queue and tell us what you're after there and which areas you're going to focus on?

Sure. Supply chain being one of them, obviously. We spent quite a bit of time studying the supply chain and we looked at it really much more exhaustive than we have in the past with looking at the product when it leaves the vendor. Obviously, we're putting measurements in place to measure it all along the path -- when it leaves the vendor to the literally dock of our warehouses or our stores for that matter; what it takes to get through that processing in different phases within the building and all the way to when it leaves the building to get to the dock door of our stores; and then even when it gets from the dock door of our stores onto the floor.

So that's quite an exhaustive study that we're going through and we think we have found lots of things that will benefit the business. We clearly are planning to fix many of the breaches that we have seen and we should see a healthy payback on this just by the fact that you can get better turn to get inventory on the floor that much faster. The other --

Is that what you're talking about when you're discussing studying the characteristics of your customer?

No, that's a separate phase. That's understanding the customer segmentation. In fact, at this time I think I'll let Gary Graham pitch in because he certainly has been the advocate of driving this part of the business, which is better understanding our customer segmentation and store clusters.

Just a little bit in the past, the Company did no analysis outside, no focus groups, no surveying whatsoever. Since this past year, we've done several rounds of focus groups, a couple rounds of survey, all with the intent of helping our merchants understand who our customer is; what the drivers are for the decision-making, and with the idea of catering to our existing customers that are in our most advantageous segmentations and drive trips, and drive an increase in the basket and an increase in cross-divisional shopping in the stores. So again, we went to some outside consultants and they've been helping us through that process. We've learned a lot. It's still underway and we're looking forward to applying the learnings both in presentation standards in the store, as far as freshness issues and key graphics and presentations that may help cater to one segment in a different way from another, and also in applying it to our marketing and advertising.

So, Reid, in conclusion to what Gary obviously described, it's paramount. I mean this is really something that the Company never had the -- never availed itself of the knowledge before. There's a lot of confirmation, I will tell you that in terms of what we believe it to be. And like anything else, when you go through this process, there's a learning curve of things that you can tweak and modify. Many of these will be done in test environments to make sure that we roll them out and they make sense to roll them out economically, but having said the above, we're quite excited to hear about it. We think it's just a huge uplift for the business to be able to better understand its customer and understand better how to market to that customer.

That's great. And just one follow-up, two pieces, actually. I was curious what your trend is with shrink and whether that's changed at all, as you've done some movement in your distribution there. And the other question was last year you had talked about reducing some of the seasonal inventory selectively, for example, and coming back on coats for sale in Las Vegas in July and such. Are you capable of doing that this year? And just if you could update us on the progress there. Thanks a lot.

Let me just address the question on shrink. We're still in the early stages of taking fiscal inventories for year end and we haven't really had a chance to calculate the results for the whole chain, but we expect shrink to be consistent with what we've experienced in the past at this point in time.

Yes, and as far as the coat cuts, Reid, the answer is absolutely. And we've again, done quite a bit of work in trying to define and I call it surgically cutting the inventories and coats where applicable. And obviously the market's where coats are a very small percentage of the business, maybe 5% of the business as opposed to the chain average of being close to 14% of the business, we clearly are making those cuts appropriately in each of the markets by store.

Thanks, Reid. Mark?

Rakesh Patel, Credit Suisse.

I was just wondering if you can get me some idea in terms of how long it takes when you start to ramp up to kind of comparable sales per unit across the whole store base? Or some kind of metric on how many years it takes for the payback on a new store opening?

Sure. We, as you may know, we do local grand opening marketing for each of our new stores to help create the awareness in the local marketplace. And clearly, it varies, but the stores essentially begin to annualize at the level that we expect them within -- again, it varies, but within six to 12 months, they sort of ramp up to where we need them to be. The performance of those stores is generally quite consistent thereafter.

Okay. That's great.

So Mark, why don't we do two more and then we'll call it a day.

Actually, it would appear that we have no further questions at this time.

Well, why don't we do no further questions. Everyone, thank you for the time and we'll talk to you in about three months.

Ladies and gentlemen, that does conclude our conference call for today. We thank you very much for your participation and ask that you please disconnect your line.