Chico's FAS Inc (CHS) 2004 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. And welcome to the Chico's FAS third quarter 2004 earnings conference call. At this time all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. It is now my pleasure to introduce your host, Mr. Charlie Kleman, Chief Financial Officer. Sir, the floor is yours.

Thank you very much. We'll open up with the Safe Harbor statement.

Certain statements contained herein, including without limitations, statements addressing the beliefs, plans, objectives, estimates, or expectations of the company or future results or events constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements involve known or unknown risks, including, but not limited to, general economic and business conditions and conditions in the speciality retail industry. There can be no assurance that the actual future results, performance, or achievements expressed or implied by such forward-looking statements will occur.

Users of forward-looking statements are encouraged to review the Company's latest annual report on form 10K, its filings on form 10Q, management's discussion and analysis in the Company's latest annual report to stock holders, the Company's files on form 8K and other Federal Securities law filings for a description of other important factors that may affect the Company's business, results of operations, and financial conditions.

The Company does not undertake to publicly update or revise its forward-looking statements, even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized.

Now I'll turn it over to our CEO, Scott Edmonds.

Thanks, Charlie and thanks to everyone for attending Chico's' third quarter fiscal '04 conference call.

On the call today we have Charlie Kleman, our CFO and COO, Pat Murphy Kerstein, our Executive Vice President and Chief Merchandising Officer, Jim Frain, our Executive Vice President and Chief Marketing Officer, who's calling in from a photo shoot in the Caribbean, and joining us on the call for the first time is Mori MacKenzie, our executive Vice President and Chief Stores Officer.

As you saw in the press release, the third quarter came in strong with a comp increase of 6.1%. Net sales for the third quarter ended 10/31/04 increased 28% to a record 270 million from 211 million for the third quarter ended 11/1/03.

Net income rose 38% to 37 million or 41 cents a diluted share, compared to net income of 27 million or 30 cents a diluted share in the prior year's third quarter. We are also very pleased with our operating margin of 21.9%. Indeed, an impressive third quarter.

Chico's strong results are driven by great merchandise. Pat Murphy Kerstein and Patricia Darrow-Smith and their teams have an intuitive relationship with the Chico's and White House/Black Market customers. It is this relationship that continues to give them insight into what motivates her to keep shopping at both brands.

As an organization, we must never lose sight that our biggest competitive advantage is our intense focus on creating new and unique apparel and accessories that can only be found at Chico's and White House/Black Market. It is this intense focus on our merchandise that will propel us over the $1 billion in revenue mark for fiscal year '04 on approximately the first or second week of January 2005.

While we are proud of this accomplishment, we have set a new goal of $2 billion in revenue. In order to accomplish this goal we will focus heavily on human capital.

We have spoken during the past conference calls about recently-added executive talent. People like Lece Lohr, our Senior Vice President and general merchandise manager for Chico's, and Chuck Nesbit, Senior Vice President, business development and strategic planning. This past quarter we also added Gary King as our new CIO and Rod Olsen as our Vice President of operations for White House/Black Market to our executive team.

Gary King was formerly the CIO of Barnes & Noble and Rod Olsen had an excellent merchandising background at Macy's, Liz Claiborne and Ann Taylor.

At Chico's we have searches ongoing for a Senior Vice President of human resources and a Vice President of real estate.

Over at White House, we have searches on-going for a Senior Vice President, general merchandise manager, to work with Patricia Darrow-Smith, and also a senior director of technical services.

Another major area of focus will be management information systems. Gary King has only been on board a little over one month, however, during the interview process, Gary and I saw eye to eye on the importance of our systems, and as an organization, we are committed to evolving our systems into a strategic advantage in the marketplace as evidenced by our installation of new software last year across all platforms.

The best performing companies in every sector are leaders in technology. Today at Chico's, we are not leaders in technology, although we have the capability to do so with our recent investment in new systems. However, we will commit the resources necessary to become the leaders in technology in the speciality retail sector as we focus on the $2 billion revenue goal.

Let's turn to Soma by Chico's for a moment. We opened up the first Soma test store on August 18th and our tenth Soma test store on October 18th. Given that this test concept represents 10 stores out of a total of 655 stores, we believe it is not appropriate to draw any conclusions at this time. However, since I know that many of you are anxious to hear how things are going, let me say this: It's too early to declare a victory, but we do see signs of a strong business for the future. As with any new undertaking, we're learning as we go, building on our successes, and taking steps to correct our mistakes.

Now, a few words about White House/Black Market. It's hard to show over the telephone our excitement about the potential of this young brand. As you saw in the press release, the White House brand continued to solidly add to our earnings per share as it again contributed between 2 cents and 3 cents per share to our 41 cents a diluted share.

In fiscal year 2004, we will open approximately 46 net new White House/Black Market stores. As of today, there are 154 frontline stores and 4 outlet stores.

No matter where you look across the White House brand you see and feel the excitement. The merchandise is getting better every day, with improvements in consistent fit and quality. This, combined with an excellent marketing program that includes outstanding catalogs, national magazine ads, and our recently-launched Black Book frequent shopper program, is making White House/Black Market a nationally-recognized brand.

The White House store teams are completing training and the stores are adequately staffed, and the new store design by [inaudible] a slightly larger foot print and better store locations, are helping to improve the average sales per store. When we reflect back on our decision to purchase this company last year for approximately $90 million, we're sure we made a sound decision for our shareholders, and we are pleased with their results quarter after quarter. There's a lot of positive momentum in the White House/Black Market brand, and we intend to keep that going.

I'd like to touch on one more area before I turn things over to the best management team in retail today, and that's the area of corporate governance in the Sarbanes-Oxley act, specifically, section 404-C. Over the last year, everyone at Chico's, from our Board of Directors to our internal audit team, have been extremely focused on Sarbanes-Oxley section 404-C compliance. We are finalizing our 404-C work as part of our year-end audit and we expect to be in full compliance at that time.

Now over to Pat Murphy-Kerstein, our chief merchant.

Thank you, Scott.

The third quarter of '04 has been an interesting one with some outstanding category opportunities emerging, as well as some challenging goals for next year.

The quarter did not begin with great traction due to not one, but four hurricane hits during the month of August. Much credit goes to this outstanding Chico's team, for their focus on the business during this time, even in the face of potential personal loss.

At the beginning of the quarter we were able to extract out those areas of the country affected by the storms and focus and expand on opportunities within the business. This enabled us to have the positive net results for the quarter that you are seeing today.

Our denim business was particularly strong. Customers had already discovered our fit and our quality in the spring, so we were able to position ourselves on key styles in times for the third quarter. Our denim business for the quarter increased by more than 50% over the same period last year.

Based on the strength of this basic denim program, we introduced Platinum Denim by Chico's in November at a higher retail. This is a superior construction with a great fit and the response has been very positive.

The introduction of Platinum Denim had no negative effect on the sales of our regular denim. In fact, for the month of November, total denim sales increased over last year by 145%. We see denim wardrobing as an excellent opportunity for us, going forward into '05.

Our key item businesses were also very strong in the third quarter. Turtlenecks, both long-sleeve and sleeveless; printed T-shirts; men's wear shirting; and tweed jackets all performed very well.

Our sweater business increased by 33% over the same period last year. This, too, is an opportunity category for us again next year.

Our Traveler's business continues strong in both black and novelty with sales continuing to meet plans.

We expect that our key item business will continue to be strong through the end of the fourth quarter.

Accessory business was also strong through the quarter, especially with the sales of ponchos accelerating the scarf business to unprecedented heights. Pins were also a strong fashion category and we expect pins to continue their momentum right into the spring of '05. Belts were another strong fashion classification for the quarter, but bracelets, earrings, and necklaces proved to be the volume driver. Overall, the accessories business has remained substantial and has kept pace with the overall growth in sales of the company.

Inventory per square foot at the end of the quarter showed a slight increase over last year, as we change the complexion of the November 2 catalog of last year from mostly accessories to mostly apparel this year. And we opened 13 new stores shortly after the quarter ended.

We were very pleased with the quality and the levels of inventories as we began the holiday season, and we began December in line for expected sales.

Our mark-down inventory per average store is in line with last year and is also turning very well.

We have monitored the quota situation since the beginning of the year '04, and we have taken steps to deliver certain classifications, such as cotton novelty jackets, early, in order to avoid an embargoed situation. We did not anticipate any quota problems through the end of the year in '04.

For '05, we expect some benefit from quotas being eliminated on some of our existing items. However, many of our categories remain unaffected through our continued use of silk and linen, our considerable domestic business, and our cotton T-shirt program, which is being sourced in Peru. Actually, we see an opportunity to use better fabrics that we have not been able to afford in the past for a higher quality garment going forward.

We do not see a significant impact on our average unit retail due to quota going away. We prefer to pursue better quality garments that offer great value to our customer.

Currently, our average unit retail has increased only slightly by 1.6% for the year to date.

Lece Lohr, our Senior Vice President, general merchandise manager, joined us at the beginning of the quarter on August 1st. Of course, it took much effort to convince Lece and her family that four hurricanes in a row was not a normal occurrence, but I am happy to report that she not only weathered her initial month, but has made a substantial contribution to the Chico's business ever since.

She will continue to have a positive impact on the Chico's teams in merchandising, product development, and planning and allocation, and I am pleased to say she will be an integral part of the direction and the vision for the Chico's brand in the future.

Our customers' reaction to the November book has been strong. We are excited about the business for the balance of the year.

Our spring fling test in October gave us excellent information for the first quarter of '05, and we're happy to say that our Florida stores are strong as ever, and we feel very optimistic about the future of the Chico's brand.

And now, to Jim Frain for his comments.

Thank you, Pat.

Well, as all of you know, we had a bumpy start to the third quarter. At the very beginning of the quarter the marketing signs were good through mid-August. Then the first of four hurricanes started with a bang on August 13th with Charlie's arrival.

We struggle with percentage response from catalogs at the very end of August and the first week of September. Then, as soon as Labor Day was done, we began to see improvement in all of our key marketing indicators, which has happily continued right through the third quarter.

For the third quarter for Chico's, we saw the following improvement over the prior year: Number 1, sales attached to catalog coupons, $121 million, $485,000 this year versus $88,950,000 last year. That's a 36% improvement.

Number 2: Inquiries, mostly from TV and magazine ads. We had 289,000 this year, versus 202,000 last year, or 43% up over the prior. This is our best fall season for ad inquiries by far.

Number 3: Sign-ups to Passport, and you all know how critical Passport is. Our full Passport database stands at over 5 million, and 5,076,000 at end of the third quarter, versus $3,735,000 last year. That's 36% up over the last year.

With White House/Black Market, we were very excited to launch the Black Book. That was a little over one month ago. We signed up over 61,409 members in four weeks alone, which is a terrific start. So, it's a great start for a new royalty program and our latest analysis of White House/Black Market customers shows distinctly that we have a virtual mother/daughter opportunity. We have a high percentage of high-income customers in their 20s as well as their 30s and 40s. So, we've just begun to tap the potential of the White House/Black Market concept.

With the broadening of Chico's target relative to income that we talked about last quarter, particularly with the evident appeal in smaller markets, data shows that we've reached approximately 10% of our target customer. White House/Black Market, with its broad age appeal, has reached only 1% of its target. And remember that for each brand, we sell beyond the age and income range of the target. So for both brands, we continue to see ample opportunity for growth in profit.

And you know, a few weeks ago I accompanied Mori MacKenzie, our Executive Vice President and Chief Stores Officer, to several New Jersey stores. As we flew back to Florida I said to her, "You know, I was really impressed by our store staff, not just because of their extreme enthusiasm for the product and being so happy to work for the Company, but they're also really solid business women. I think they're the best in the business." And you know, when it comes down to it, that's why I'm so confident of our future.

And it's appropriate that right now I'm proud to introduce and turn it over to Mori MacKenzie, our Executive Vice President and Chief Stores Officer. Mori?

Thank you, Jim.

As Scott noted in his opening remarks about our enthusiasm for our White House brand -- and I'd like to take this opportunity today to share with you some milestones of achievement within the White House/Black Market field organization during the third quarter, which ensure customer service and selling success for the fourth quarter.

The third quarter marked the completion of the point-of-sales training and hardware/software conversion for the White House/Black Market stores. This was a large project that was integral to our third quarter initiatives and critical to positioning the stores to achieve selling and service excellence as well as positioning each store for growth in sales velocity.

One of the reasons that the point-of-sale conversion was integral was the need to speed customer transactions at the point of sale. This proven Chico's point-of-sales system is transactionally staffed. To ensure speed and to avoid sales growth outpacing one point-of-sales system per store, we replaced one old system with two point-of-sales systems in most stores.

Another one of the reasons that the point-of-sales conversion was integral during the third quarter was our excitement to launch the Chico's multi-commission incentive program, for store associates and managers at the White House/Black Market stores. So, store management teams have been beefed up during the first and second quarter and payroll is now ample where sales force selling coverage we could hardly wait to dial up selling and service levels by using this proven incentive.

The commission program is transaction-based. The larger the dollar sale to each customer, the greater the commission.

In August, prior to the September launch of the commission program, we introduced sales training to build skills and outfit selling.

Another reason the point-of-sale conversion was integral during the third quarter was because of our desire, as Jim mentioned, to launch the Black Book loyalty program prior to the holiday selling season. This, coupled with our desire to have a clean database, propelled our launch during October. The sign-up rate in our White House/Black Market stores, as Jim addressed, is phenomenal. We're very excited about it, and it exceeds the pace at Chico's, when Chico's was a similar size. There's a strong appetite for this brand.

Another reason the point-of-sales conversion was integral during the third quarter was our desire to convert our paper gift certificates to gift cards. Offering the gift card, we felt, would ensure a lift in gift card sales during the holiday season and in the future.

During the third quarter, in addition to selling in service initiatives that centered around the point-of-sales conversion, we completed performance appraisals for every field associate, from part-time sales to regional sales manager. The greatest significance here is that we were able to set consistent goals and expectations regarding performance going forward. This gave us another opportunity to turn the emphasis to selling and service excellence through sales statistics goal setting.

During October, our holiday selling strategy and operation strategy was rolled out for holiday 2004. A holiday training meeting was completed in every store.

The White House/Black Market store teams have worked very hard this year. Their enthusiasm and grasp of new programs has been incredible. With a full-time management team in each store, adequate payroll, proven point-of-sale systems, two point-of-sales systems in every store, proven multi-commission programs, proven Black Book loyalty program, gift card capability, outfit selling training, and holiday sales and operations strategy, the White House/Black Market store teams are poised to excel at selling customer service and making women feel beautiful during the fourth quarter.

Now, back to Charlie.

Thanks, Mori, and good afternoon, everyone. Welcome to another great quarter and our first quarter review of results that include the White House/Black Market operations, for the most part, in both quarters. Today we'll review the quarter in some detail, look a little bit at the future and provide you with a status update on some operational issues.

First, let's look at an overview of the third quarter, a quarter in which we not only improved our gross margins, but we also nicely leveraged our SG&A. As we discussed in our second quarter's conference call, we expected our gross margin would be flat to slightly down, due to the increasing percentage of White House/Black Market stores being included in our sales base, and we expected that a comp somewhere north of 5%, we should be able to show small leverage of our SG&A costs.

The quarter ended up much better than that, though, with a 90 basis point overall increase in our gross margins and a 60 basis point reduction in our SG&A expenses on a 6.1% comp for the quarter.

These improvements increased our already-industry-leading operating margin from last year's third quarter operating margin of 20.4% to this year's third quarter operating margin of 21.9%.

Year-to-date, after three of the four quarters are now in in fiscal 2004, we have raised our gross margin, we have leveraged our SG&A, and we've increased our operating margin to a record 22.2%.

With that said, let's now look at some of the reasons we've been able to improve upon our guidance of last quarter.

At the gross margin level, the stronger-than-expected year-over-year increase from 61.4% last year to this year's 62.3% was caused by several factors: First, both the Chico's and White House/Black Market merchandise margins saw improvement. An increase in the Chico's IMU with the initial mark-up on goods resulted in a small increase in that brand's gross margin, as mark-downs and promotions were essentially flat year-over-year.

Those that have been following Chico's for some time now have seen this for many of the past quarters as we continue to strive to improve our sourcing and pricing models within the Chico's brand.

On the White House/Black Market front, we saw a sharp increase in gross margins, north of 100 basis points, as we made great strives in improving the IMU year-over-year.

The other factors that affected the overall gross margin include a decreased freight and shrink cost as our zone-skipping initiatives in our distribution center began the payoff in the freight arena, and we managed to improve our shrinkage and lessen our damaged goods write-off quarter-over-quarter.

Finally, our distribution center, which is just north of Atlanta, again experienced a small amount of leverage while our continued investment in the product development areas for both brands somewhat offset the merchandising improvements we just discussed.

We will continue this investment in the product development arena, especially in the White House/Black Market brand, and we expect any such deleverage caused by this should be more than offset by improvements in the merchandise margins, as you saw this quarter.

On the SG&A, our selling general and administrative front, most of the leverage you see is related to last year's $2.9 million one-time write-off for the decision to discontinue Pazo as well as leverage in the Chico's store costs. The leverage from these two areas was offset in part by increased SG&A expenses in the White House/Black Market on a year-over-year basis and to a lesser degree by the new Soma operations.

As we've discussed on other calls, we began a significant investment in the first quarter of this year in the White House/Black Market stores by significantly increasing their sales floor coverage, which over the short-term increases the payroll cost. This increased investment in payroll cost at the White House/Black Market will continue into the fourth quarter, but after that, we will begin anniversarying these increased expenses. From then on, this investment in customer service is not only highly leverageable, but also is likely to pay back with stronger sales increases that will leverage all the other costs as well.

The Soma operations are likely to have somewhat less impact on the SG&A now that we've opened our test stores, but remember, this is an investment in the future and there will likely be a small amount of deleverage in the future as we focus on these test stores.

All said, we are very pleased with the level of our SG&A and our future leverage ability.

Next, let's look a little deeper into the third quarter sales. The third quarter's same-store sales increase of 6.1% was, as you are all aware, significantly impacted by the four now-famous hurricanes. We believe the impact of these hurricanes reduced our comps by between 2% and 4%, as well as reducing overall sales by nearly the same ratio.

As always, traffic and new Passport members principally drove the comp increase for the quarter. We added about 87,000 new permanent members and another 199,000 preliminary members this quarter. That brings our permanent membership to 1.2 million and our preliminary membership to 3.8 million.

The average price per unit at Chico's frontline stores was essentially flat for the third quarter and because we don't own White House/Black Market for the entire quarter, we are not prepared to comment on their price versus traffic increases, although we suspect their growth is principally due to increased traffic. We expect to continue to see flat-to-small improvements in the Chico's average unit retail for the rest of the year.

Regarding overall sales on the White House/Black Market front, we saw solid year-over-year sales and same-store sales increases in every month of the quarter, despite being again relatively light on inventories throughout the early part of the quarter.

We indicated last quarter that we anticipated that White House/Black Market brand should have a more adequate inventory level by late in the third quarter or early in the fourth quarter of this year, and we're very pleased to note that we ended the quarter with a density in the White House/Black Market stores that is right on our new planned density.

Our next job is to learn more about whether this is the best density and how we can tweak it, but as of now, we believe we will not be held back by inventory shortages throughout the holiday. In fact, our overall inventories of $67 per square foot are now right about where we like them, as Pat indicated, considering that a little over $5 per square foot was in transit at the end of the quarter and we had our largest store opening month in history in November as we opened 20 stores before Thanksgiving.

With the hurricane season now officially over as of today, and with a nice comp for the month of November in the books already and with our initial strong reactions to our holiday merchandise and our two holiday catalogues, we certainly look forward to the balance of the fourth quarter and our year-end earnings results to be released on March 3rd of next year.

We continue to guide to a flat to possibly slightly down overall gross margin as a percent of sales for the fourth quarter, due to the increasing percentage of White House/Black Market stores in the mix and the initially lower margins at the Soma by Chico's stores.

Within the Chico's brand, we expect gross margins to be flat to slightly higher during the fourth quarter of fiscal 2004, as compared to the same quarter of fiscal 2003, and we also expect an increase in the gross margin at the White House/Black Market brand, although not as robust as we experienced in the third quarter.

On the marketing front, for all of fiscal 2004, we are still planning that our catalog, television, and magazine marketing costs should range near 4% of sales.

Regarding overall SG&A guidance, we should be seeing some small leverage at just north of mid-single digit comps in the fourth quarter of this year and will likely see leverage of slightly lower comp levels in the future quarters of next year.

Wrapping up the financial review, our overall 28% quarterly increase in sales, combined with an industry-leading 21.9% quarterly operating margins resulted in a 36% increase in earnings per share for the quarter, as we move from 30 cents per diluted share last year to 41 cents per diluted share this year, our highest quarterly earnings per share of the year, just like last year's quarters. Similar to the last three quarters, we estimate the White House/Black Market operations added to earnings per share in the neighborhood of 2 to 3 cents, again in line with our expectations.

Next, let's take a look at some operational adds. First, let's look at store openings.

For the third quarter of fiscal 2004, we opened 22 new Chico's frontline stores, one new Chico's outlet, we expanded or relocated eight more Chico's stores while we closed one Chico's store and we acquired one franchisee back. On top of that, we completed a huge store opening push in advance of Thanksgiving, as we've opened another 13 Chico's frontline stores and relocated two more prior to Thanksgiving.

On the White House/Black Market side, we opened 14 additional new frontline stores during the third quarter, one new White House/Black Market outlet store, and we expanded one White House/Black Market store, while we closed two White House/Black Market sales stores during the quarter.

Prior to Thanksgiving, we had a strong store opening push at White House/Black Market as well, as we've opened another seven new frontline White House/Black Market stores and expanded or relocated three more as well. During the third quarter we also opened the remaining seven Soma by Chico's stores that had been planned, as I said, as ten test stores to begin evaluating our exciting new concept.

All this store activity resulted in a net increase of 105,000 square feet of store selling space for the third quarter and a year to date increase of 179,000 square feet. We are still on track to complete an annual increase in square footage growth of at least 20% for fiscal 2004, and it's likely we'll end the year with approximately 100 net new stores and with another 29 or so expansions or relocations of existing stores.

Of the 100 net new stores, it looks like we will likely end the year by opening approximately 53 net new Chico's stores, 46 net new White House/Black Market stores, the 10 Soma by Chico's test stores, and we closed nine Pazo stores. In terms of stores by quarters, we opened 13 net new stores in the first quarter, 21 in the second, 45 in the third, and we expect to open 21 net in the fourth.

Finally, on the store opening front for next year, we again plan for approximately a 20% square footage growth guideline for fiscal 2005, as we currently plan to open between 105 and 115 total stores composed at this time of approximately 65 to 70 net new Chico's stores and between 40 to 45 net new White House/Black Market stores. Although we were not planning to open any new Soma by Chico's stores in fiscal 2005, we have one new Soma store that's going to be coming in Shreveport, Louisiana, because we've got an irresistible location that is nestled between a Chico's and a White House/Black Market store and we think this opportunity would make a great Chico's Soma combination store.

Lastly, on the store opening front, we are still evaluating what we believe to be the optimal size of both the Chico's and White House/Black Market stores for the future, although we've got the current look of the Chico's store pretty much where we want it. We now have 42 Chico's stores that are the new Callison designed stores, and they are meeting or exceeding our expectations. Thus, we will continue to open Chico's stores with this new look.

Now that we've completed all the integration activities that you heard from Mori for White House/Black Market, I'll briefly touch on some other current White House/Black Market initiatives.

We have been working for some time now on a new store look for White House/Black Market, as Scott mentioned, and it's going to be similar to what we've accomplished at Chico's. I'm glad to say that we have a new store look that the management team believes is more representative of the brand than the current store look. To that end, we are rolling out the first store with this new look in late January with a new store in the Bell Tower here in Fort Meyers. Beyond that, all new stores that have not already been designed, will have this new look at White House/Black Market in the future.

Lastly, I'll touch on a couple other operational areas with White House/Black Market. As Jim mentioned, we launched the Black Book, the White House/ Black Market frequent shopper club in mid-October and we are extremely pleased with the sign-up rate. We are also completing the addition of 78 hundred square feet onto the White House/Black Market headquarters, which will accommodate their planned future growth and should be ready before the annual analyst meeting to be held here on February 11 next year.

Further, we are building technical sourcing and product development infrastructure within the White House/Black Market product team to assure we can produce consistent fits and quality with timely deliveries as we ramp up the sourcing side to accommodate future growth in the White House/Black Market brand. We've got big plans for the White House/Black Market brand, and we are building infrastructure to allow a stronger future store growth rate in 2006 and beyond.

Next, a note on the balance sheet and cash flow and then I'll wrap up.

We're filing our 10Q, about a half hour ago, I think, so all these numbers should be available. Our balance sheet remains very strong as we ended the quarter with $225 million in cash and marketable securities.

The cash flow from operations for the nine months generated over $156 million, of which $25 million was related to tax savings that were associated with stock option exercises and over $132 million was related to on-going operations.

This level of cash flow from on-going operations compares to $93 million from on-going operations last year, a solid 42% increase year-over-year.

For cash flow planning purposes, our nine months depreciation expense was 23.3 million, and I would expect that to grow by about 7 to $8 million each quarter.

Our CapEx expenditures for the nine months was $33.9 million.

Lastly, we reacquired 137,500 shares under our stock repurchase plan at a cost of roughly $5 million. We intend to use this plan to acquire shares opportunistically when our stock price is under pressure and during valid window periods.

To wrap up, the third quarter of fiscal 2004 continues a strong trend that is producing operating margins north of 21%, earnings north of 35%, and year-to-date cash flows north of 40%. The strong November same-store sales results and the strong initial reactions to our holiday offerings certainly suggest a year-over-year improvement in sales are continuing, at least so far.

We look forward to the rest of fiscal 2004 and fiscal 2005, as we continue to monitor and tweak our exciting new Soma by Chico's test concept, as we continue to improve on using our new software platforms, as we begin the rollout of a significantly improved cash register system upgrade to all three chains in the first quarter of next year, as we launch a selling catalog and website for the White House/Black Market late next year, and as we complete the opening of our last few new stores that we have left for this year, amongst other projects. And now we'll take some questions. Operator?

Thank you. The floor is now open for questions. If you do have a question, you may press star, then 1, on your touch tone phone. If at any point your question has been answered and you would like to remove yourself from the queue, you may do so by pressing the pound key. We do ask that you please pick up your handset to minimize any background noise.

Our first question comes from Neely Tamminga of Piper Jaffray.

Thank you and congratulations on a fantastic quarter.

Real quick, just some housekeeping items, a little bit for everybody here. Charlie, in your inventory plan for the year-end, given Pat's comments about bringing some product in earlier to avoid some quota issues, can you give us a sense of where you plan inventories to be at end of the fourth quarter?

That should be flattish on a year-over-year basis. Should bring it in early, but that's already happening, because you've got to get it in before December, not our fiscal year. That will all be gone by the end of the year, so that shouldn't affect us, at the end of the year.

Okay, great. And then with respect to the average size of the Chico's and White House/Black Market stores for next year, kind of -- I know it's kind of a work in progress with the Callison design and what you're deciding to do, but what should we be looking for for the average size of the box for the new store openings next year?

We think this year we'll probably going to run around 2200 for Chico's and probably 14 to 1500 for White House, and I think we'd like to expand that a little bit if we can next year, maybe 2300 for Chico's and maybe 1600 for White House, in that range. We've got four or five White Houses now that are in the 2300 range, and they're doing very, very well. So we're not afraid to expand some of those.

Great. Thanks. And, just lastly for Jim.

With respect to the catalog, I'm just wondering if you could give us a sense of where the average transaction for the permanent member or the temporary member ended at the end of the third quarter. And also with respect to circulation, I do believe that you took up your circulation plan for September, October, November, relative to your beginning-of-year plan. Just wondering what you're planning to do for December?

Okay. First on average transaction -- pretty close year to year. Passport members, it was about 125 last year for the third quarter, that is. About 123 this year for the third quarter.

The cume (ph) for the year is virtually the same. It was 116 last year at the end of the third quarter, cumulatively and 115.5 this year. Those are the most important members, the full Passport members.

As far as catalog circulation, yes, your memory serves well, we increased the circulations, particularly in prospecting, in September, October, and November. Not nearly as much in December. The circulation is, oh, about 35% up year-over-year, though, for December too. The big effort, though, is in the three months -- September, October, November.

Great, thank you so much.

Thank you.

Thank you. Our next question is coming from Kimberly Greenberger of Smith Barney.

Thank you. Good afternoon and I'll add my congratulations as well.

Thank you.

I wanted to ask about growth margin opportunity on a go-forward basis, specifically as we come off of quota next year. I know Pat indicated there's a plan to upgrade fabrics. Is there an opportunity to also take some of that domestic business overseas to potentially increase initial mark-up?

And then if you could just also talk about the opportunity at White House/Black Market. I know that that business is primarily a market goods business now, and over the next, you know, one, two, three years, how do you see the gross margin and initial mark-up opportunity there with, you know, some additional potential vertical integration? Thanks.

Well, Kimberly, as far as existing items and some of the synthetics that we have in the inventory now, yes, we do see some opportunity for next year. In terms of domestic business, actually, in what we're doing currently in domestic is actually one of our highest margin producers, and we really could not replicate that margin overseas, because of the way we go at it.

And you know, as far as other opportunities, I really think we are focused on value for the customer, and certainly our size allows us to have some leverage in terms of increasing our gross margin opportunity almost across the board, but you know, specifically I don't think it's going to have a huge impact, certainly in retail prices next year.

Yeah, we're forecasting on that just small increases next year. Along the same lines as you've seen this year. For the White House/Black Market brand, we're forecasting increases not as big as we saw here in the third quarter, and it will take us one to two to three years to really, really to take on the opportunity of moving some of it offshore, and we're not in any rush to do that. So we'll work on it as we see fit.

There should be increases that will be on-going for the next several years, I would think in White House/Black Market. I don't think we know yet exactly where they're going to end up for their IMU.

Okay, thanks, Charlie. Then as you look out into 2005, any initial thoughts on total square footage growth and then what you're thinking by division?

I went through that on the speech, but we're looking at about 20%. It will be 105 to 115 stores, 60 to I think 65 Chico's stores, and 40 to 45 White House/Black Market, and so far, one Soma.

Great. Thank you.

Thank you, our next question is coming from Lyn Walther of Wachovia.

Hi, thanks. Congratulations. I had a couple questions.

For Pat, I'm just wondering how your day-to-day role and responsibilities have changed now that Lece Lohr is on board. If you could just talk a little bit about that.

Well, gosh, I really, I haven't thought about it that much, but I can tell you that I'm certainly glad to be involved -- have more time for some strategic thoughts and thinking about the brands and the brand positioning as we go forward. I am involved in the Soma strategy and our vision on the brand there, so I would really have to say Lece's addition, which has been fabulous, by the way, just allows me to be a bit more strategic, which is -- really was the goal.

Okay, great. And can you talk at all about what you've learned at Soma so far? Anything you want to add to what you're seeing in the stores?

No, we're not going to get into any detail at this point on that, Lyn.

Okay. Then finally, can you break down the IMU improvement at White House? Was it magnitude-wise, primarily sourcing or pricing changes?

That was mainly price changes, I think, for the whole quarter. It was not so much IMU, it was price changes. And it was really mix-driven as well.

Okay, great. Thanks a lot.

Thank you. Our next question is coming from Lauren Levitan of SG Cowan.

Thanks. Good afternoon.

Scott, I had question for you in reference to the $2 billion target you set. I'm wondering if you can you give us some sense as to time frame in which you would hope to achieve that? And is that a goal that you would expect to achieve with the portfolio brands that you currently have or is that a longer-term target that might also incorporate additional brands or additional concepts?

In addition to that, I'm wondering if you could comment on your comments about technology leadership. You've made some significant investments over the last couple years and have made some dramatic investments in improvements there. I'm wondering what you see as the biggest priorities going forward and what kind of a time frame and what kind of a Capex level would be required for that?

And then I have a question for Jim as well. Jim, obviously -- can I ask Jim his question?

Sure.

My question for you, Jim, is, obviously earlier in the quarter, in addition to getting hammered by all the hurricanes, you also saw that disruption with your catalog delivery and it was the first time you had seen anything like that. I'm wondering if you could -- now having had a couple months to research it, if you could talk about any steps you've taken to eliminate some of those steps in the distribution channel of your catalogues to try and eliminate some of that risk going forward? Thanks.

Jim, you can start.

Okay. Yeah, I think if you recall back then we talked about the disruption in service. We did believe it was going to be short-term because we had reports from other retailers and direct marketing companies that they suffered from the same things. A lot of that was related to both political mailings that were going out full force around that time and also there was just a glut of mail and a slowdown -- we don't know why -- prior to Labor Day, but it all came out in the wash. We ended up doing very well with the September catalog. As a matter of fact, it was our best of all time by a large measure. So, it was a temporary disruption.

And as far as going forward, how can we prevent that from happening? Well, honestly, when you get into the size mailings that we're doing, into the 4 or 5 million-plus mailings, you're going to have a longer window for mailouts, but I don't expect it to be a major problem. We have moved up a couple of mailings a few days, but I think that that's about it for protection against that kind of thing.

Right. I think I met -- we were more caught off guard because it happened to fall right in our third quarter -- or like the second quarter conference call. We were just caught off-guard by it. So we won't be caught off-guard by it again.

Yeah.

So Scott?

All right, I'm going to try to go backwards on all the questions here.

On the $2 billion goal, you know, we talked for years about our bridge to a billion, and we'll cross that in January. If you took SG Cowan's model for '05 and '06, which I think you've got a preliminary '06 out there. It's not going to be much longer behind that '06 model of yours that we're going to be challenged with crossing the $2 billion mark. And we're certainly confident that it's -- it can be achieved with our current portfolio of brands. Now, there may be brand extensions from the current brands, but that's not to say that some time over the next two or three years with our build-up of cash, and once we're fully integrated with the White House brand that, you know, that we wouldn't take a look at a strategic acquisition in a -- but a very small acquisition. We don't have a hungry appetite right now, big appetite for an acquisition, but that's as we sit here today.

As far as the technology comment, you know, we have spent a lot of money over the last couple of years changing out our Island Pacific and moving it over to SPS, but we don't believe we're utilizing the capabilities of the STS software anywhere near where we need to. We're going to have a lot of focus on the supply chain side of our business. You know, we really need to improve our speed to market from concept to delivery, and we think that that's going to be an area of intense focus for us.

We also need to improve our management reports so that we have a clear view of our, of our key data, if you will, faster than we currently have it. Basically, we flipped the switch on the conversion last Labor Day, and we really haven't seen -- you know, we really haven't seen the amount of improvement that as a management team we'd like to see you know, really in our reporting structure, if you will.

You should see on the Capex front, it's probably going to run roughly $10 million this year with the rollout of the hardware and software to the White House/Black Market, which was a big Capex, and in on-going years, it should be in the 5 to $8 million range per year, just to stay up with the technology that we want to stay up with. So, it will not be as big as in the past.

Did we get most of the questions, Lauren?

I think you got all of them. Thank you very much and good luck for holiday.

Thank you. Our next question is coming from Richard Baum of Credit Suisse First Boston.

Good afternoon, everybody, and my congrats as well.

Two questions. One is, just on your guidance of the number of new stores for fiscal '05, it's somewhat higher than what we had in our model, and I'm not sure if that represents a change in your guidance from where you thought you would be earlier in the year or not, and so if you could comment on that, that would be helpful.

And then number 2, with regard to your comments at the beginning, Scott, about the investment in systems that you've made, can you talk about the two or three major leaps forward or improvements or things that you can now measure that you couldn't measure before? And then over the next 12 months or so what are the two or three largest benefits that you expect to gain from these systems investments? Thank you.

As far as the--

The store--

Yeah, right.

On the store openings for this year, we exceeded our plan. We said fairly consistent, I think 85 to 95 stores. We're going to end one with about a hundred.

Mostly on the White House/Black Market front, there's just so many opportunities to put so many of those around, we just couldn't turn down some of them, so we did exceed the high end of our plan, probably by about five stores by the time the year is over, while next year, 105 to 115 plus as many relocations as we get, should come in about the 20% square footage range. This year we're only going to be about 22%, I think. So we're not that much over it. As far as--

As far as the biggest gains, immediately I would say probably were our financial reporting, when we went from Island Pacific to Lawson, and our D.C. Systems, when we went from island Pacific over to Manhattan & Associates as well as our planning and allocation, I think we gained a lot of reporting capacity, if you will, on the planning and allocation side.

Where we hope to achieve better efficiencies and I think really enhance our organization's ability on the technical side is, again, the product development sourcing supply chain side, Richard.

Okay. Let me just come back one second just for Charlie to clarify. Your store openings for next year, is that where you had been before? Have you provided guidance before for next year? I wasn't sure looking at my--

No. No, we had not provided any guidance other than to say we expect to be about 20% square footage growth and we will likely be slowing down how many White House stores we opened, and that's what that does.

Okay, thank you.

Thank you. Our next question is coming from Margaret Whitfield of Ryan Beck.

Good afternoon, or rather good evening almost. Can you comment, Charlie or Scott, on the November sales trends that you've reported the number for the month. What happened by week, and how White House performed?

And secondarily, in terms of the brand extension comment, it seems like accessories have always been a strong area of the business. Any thought given to making that a test in terms of a stand-alone concept?

You know, it's something we've always had a high interest level in, Margaret. You're exactly right, it's just a matter of band width. We felt like right behind the White House acquisition, the first extension should be intimates, and you know, accessories is certainly something we've been looking at for quite some time. I think you're onto that.

Any idea whether '05 might be a year where you might start the test?

'05 will not be the year.

It will not be the year?

No, it won't the year that we -- if we were going to test a stand-alone accessory store, we'd already be well down that path for '05.

No new tests are planned in '05 then?

Not currently, correct.

Okay.

And then as far as the weekly trends, Charlie will report his weekly -- I mean, his sales call tomorrow morning, but--

I've got it on already. I've got the sales call -- I've got the sales calls on there already, but I'll read them to you. We were low single digits in the first week, low double digits in the second and third weeks, and up high single digits in the last week.

Okay.

And we're not reporting our White House/Black Market, unless they're materially and significantly different than the overall [inaudible] stores, and they were not materially and significantly different than Chico's.

Okay, thank you.

Thank you. Our next question is coming from Jennifer Black of Jennifer Black & Associates.

Good afternoon and let me add my congratulations.

Thank you.

My first question is for Jim Frain. I wanted to know if you could talk a little bit about the Black Book, and I wondered, of out of the 61,000 people, were $10 coupons sent out with when they -- can you talk about that? Or was that just sent out to a select group?

Most of the sign-ups for the Black Book were right in the store. But we also did -- having said that, we did a mailing to those who were significant spenders already, and they gained automatic status, but the 60,000-plus that were signed up were signed up in the store.

Okay. And of the ones that were significant spenders, such as myself, what kind of redemption rate have you had?

Actually, I haven't even looked at the redemption rate of that mailing. I would have to get back to you on that one.

Okay, and then my second question had to do with your December coupon of $25 for Chico's, and I wondered if that was something that you were watching as well?

Well, it's something that we always watch. I mean, as you know, we play with the amounts to, and we also play with who gets them to different segments, so we're always looking at those. Actually, the redemption rates versus different offers, we look at daily. Primarily Bari Horton, our VP of Direct Marketing, issues those reports to us every day.

And I'm talking about the free -- the one that had no qualifier.

Yeah, and you may recall that we've done that for a couple of years.

Yeah, I know that.

That goes out to our best Passport customers.

Okay. And then my next question has to--

And by the way, we had a great return on it.

Okay, great! Well, I know that I'm always in your stores.

Can you talk a little bit about where you are with the fit specs at White House? Have you already, do you think, made great strides there as far as fit specs? I mean, it seems like they're better.

And when do you think that the fit specs will be where you want them to be?

And I also wondered if you could make any comments as denim as a category, I noticed you had cream and black denim. Can you speak about either of those topics?

Jennifer, we're not where we want to be from a fit and tech standpoint over. We're actually -- we've only had the business now a little over 14 months. They've only been in Fort Meyers even less than a year and they really didn't have a technical department, if you will, when we acquired them, so we're currently building that, but there's a lot more attention and focus on fit and consistency and quality, and with the hiring of Lisa Converse and a few other people over there, Patricia's added some strength to her team, and so they've been able to focus on it more with their current vendor base. So we're nowhere near where we think we want to be.

It will probably be this time next year before we're comfortable, because Pat, it certainly took us that long when you joined the Company to get the Chico's tech in consistency and the fit where we wanted it to be. And so it's probably going to end up being about a 24-month process from the time we acquired them.

And what's your question relevant to cream or black denim over there?

I just wondered, you know, denim seemed like that was a newer category over the last year, and it's not like there's a lot of it, but I just wondered your thoughts on doing more denim and how you felt about that at White House/Black Market?

I'm going to let Mori answer that. She's giving me all kinds of hand signals here. Tell them, Mori.

Hi, Mori.

Hi! You know, I'm not on the merchants' side, but very positive out in stores, and really, on some visits really hard to find, because we had good sales-through.

But it's not as hot as the Platinum Denim Pat's selling!

All right. Well, good luck, you guys are doing an awesome job, and it seems like the fit specs offer you great opportunities going forward.

They do, Jennifer, thank you.

Thank you. Our next question is coming from Janet Kloppenburg of JJK Research.

Hi, everybody. Charlie, just a clarification on the SG&A. I think you said that you should get some small leverage going forward. You won't have a positive effect in the fourth quarter and in '05, so you'll have some leverage in SG&A at comps north of mid-single digits?

Yes, that proof starts leveraging in the three to five range, somewhere in the three to five range, and there's no leverage. Once you go north of that, then you get leverage. And of course, if you go south, you'll have deleverage, but it's -- the three to five range -- and it can vary quarter by quarter. So it's just somewhere in that range where you will be break-even.

Where we'll be break-even. Okay. And then I had a couple of questions for Pat.

I wondered if the denim business is growing as explosively as it sounds, including some of the other non-denim business? And I also wondered about the sweater business being up 33%. Did you invest in your inventory levels at some much higher level? And if you did, at what category did you -- was it at the expense of?

Well, as far as denim categories hurting other categories--

No, just the other bottoms business. I'm wondering people trading denim for -- replacing some other classification.

Actually, the Platinum Denim I spoke about was on top of -- we did not want to take away from the basic denim business, but we did pull back a little bit on the basics, feeling that Platinum would overshadow it somewhat.

Right.

So it was a bit of a self-fulfilling prophecy. I can tell you that the sell-throughs on regular denim were equally as strong prior to the Platinum Denim hitting the floor as they were after it hit the floor. So it really did not have a negative effect on the existing denim business.

What about the non-denim?

As far as other pants business, I would have to say, you know, she may have made the choice to buy a Platinum Denim because it was so new, rather than another pant.

Really, some of the effects we're seeing at retailers, may be a little bit of a less interest in some of the more dressy aspects of the floor, but I have to say that that would be the only slight softening that we've seen this year.

Okay. And on the sweater business?

The sweater business, we actually planned for that because you know, we've continually see opportunity in our Northern stores business. So that was a planned effort to build the inventory there and to provide inventory for the stores, and we see even a further opportunity for next year.

And so, are you cutting back on some other categories, Pat--

No, no. Because really one of our dilemmas, you know we do a great job in Southern stores, we're able to keep some of the lighter-weight merchandise going in our Southern stores all year and really, the opportunity is to increase the density in the Northern stores and give them additional categories like sweaters. And we see that continuing for next year. We had great response to them.

Thank you.

Mm hmm.

Thank you. Our next question is coming from Roxanne Meyer of CIBC.

Hi. Let me add my congratulations to a great quarter.

Just wanting to know, what percent of total sales at White House did the 61,000 account for?

What percent -- we're not going to break that out right now.

Okay.

Jim, yeah, no answer from the Bahamas or wherever you are.

Okay. Can you give us some early reads on you know, how that holiday catalog is doing? And just, in general, across different categories, what's selling well at White House?

I'll answer the categories. The sweater business there is very important this time of year. There's a fabrication called Cloud that is extremely, extremely, important to the business right now and selling extremely well. Brooches are selling -- are very, very strong, and tops. Any embellished tops, no matter what the embellishment is, that's a very strong seller.

Jim, you can respond to the catalog, sort of.

Yeah, in general terms it's doing extremely well.

Great.

The December book.

Great. And then just going back to Chico's, looking at the accessories business. I mean, clearly ponchos have done fabulous and really have helped build that total accessories business. What percent of sales are they now, both in the third quarter and your outlook for fourth quarter?

Sorry, Roxanne, I don't have an exact percentage. We're carrying the category, both in our sweater category and apparel and in the scarf classification in accessories, so I have to kind of work up a combination of the two of them to see what the absolute percentage to the total business would be.

Okay.

I don't think it's like -- I mean, it's not like huge, it's not drastic, it's just every single one we've delivered has just blown out the door.

Okay, great.

And then just lastly, you spoke in the beginning of your comments about adding to your bench strength as the Company grows. Are there you know, any kind of one-time or on-going sort of costs that you expect to incur as you continually to build your bench strength at the executive level?

No, not at all. As we ramp up our volume and our business gets complex, we need to bring in brighter minds, minds that challenge the people sitting around this table right now, to continue to improve the business, but there won't be any -- I don't think any one-time noticeable charge.

That's all built into our guidance of the 3 to 5 comp for break even for SG&A. It's all built into that.

Okay, great! Thank you very much.

Thank you. Our next question is coming from Robin Murchison of Jeffries & Company.

Thank you very much.

Most of my questions have been asked, but Pat, I have a couple things. One, you tested fur -- or, you had fur in the stores, you didn't call it out, and I just wondered what your thoughts are for it in terms of using it again or not? And secondly, are you seeing any change in demand in terms of dressier wear trends above, below, or about the same with last year? Thank you.

As far as fur is concerned, it's an interesting topic. We would like to think that there are a lot of wonderful looking fake furs out there. We're working hard to develop them for next year, because the customers' interest is there. I don't see it as a very big part of the business, more as kind of an accent for the business in the third and fourth quarter.

As far as dressy looks are concerned, some of the more typical velvet looks are not as strong as they were a year ago, but we're seeing a lot of interest in shine in fabrics and certain embellishments. It's just done in a different way. So we're working very hard to think about where the next step is.

I don't think her interest has waned in dressy goods, I just think we need to push the envelope a little bit and make it a little different.

Also, the mix of whatever you wear with denim. I think she's becoming more, you know, this is a great velvet top, I think she's really putting it together in a different way with denim, and we're working with Mori and her group to -- how we present the stores and suggestions for the wardrobe. So I think it's just the mix is the a little bit different this year and on-going.

Okay, then just on the furs, you mentioned fake fur, but what about the real fur items that you had in there?

Well, I think we have to look at the assortment and what's available, and I would rather make the decision not to use real fur if we can do so.

Customer didn't like it? Did she re --

She loved -- certain customers love it, and you know, there's always the customer that feels offended.

Okay.

By the use of fur. So it's something that we need to, you know, really discuss among ourselves of how we feel about our presentation for next year.

Thank you very much.

Uh huh.

And we'll take a couple more.

Thank you. Our next question is coming from Harry Ikenson of First Albany Capital.

Good afternoon. Congratulations.

Just a couple of follow-ups. On the initiatives, you also alluded to twice on supply chain and speed to market. Can you give us a little quantification on where you are on your speed to market now, as far as time table and where you hope to be in '05 and '06?

Then second, on the new store design, can you talk a little bit about what you feel the major improvements are that you put in place and what you are getting better results of out of the new store design for Chico's versus the older store designs? Thanks a lot, and good luck for holiday. Go ahead.

I'll start with the store design. You know, we really felt like the stores weren't as sophisticated as the merchandise, which was not as sophisticated -- the stores were not as sophisticated as the store service, or the store physical plant wasn't as sophisticated as the marketing. We really felt like it was behind the brand, if you will, and so we feel like we've sort of caught up with the brand, and we feel like the customer thinks -- we know for a fact the customer feels it's a lot more shopper friendly, if you will, and highlights the product's story as you shop the store. I think that those are the biggest wins, if you will, regarding the new store design.

As far as quantifying the speed to market and where we are today and where we would like to be, Harry, that's a long conversation because it differs on domestic, it differs on, you know, bringing product out of the India. You know, is it a seasonal, you know, item? Is it a novelty item? Just -- I would just you know leave that conversation with -- we think that there's room for improvement. We think that there are inefficiencies in our supply chain that we need to address.

Those to us are the challenges and the excitement about running the business today, even though we turned the 21.9% operating margin, we still see opportunity in our business.

Thank you.

Thank you. Our next question is coming from Liz Pierce of Sanders Morris.

Liz?

Liz, are you there?

She's gone.

We'll move onto our final question which is coming from Christine Chen of Pacific Growth.

Congratulations on a great quarter, guys.

Thank you.

Just had a few housekeeping questions, since most of my questions were answered. I'm wondering if you had Capex for the quarter and ending square footage for the quarter?

You'll find the ending square footage on our website, if you go under Investor Relations, under financial highlights. I don't remember the exact number of what we ended with, but we ended 179,000 square feet, but it's there on the website.

Okay, I can look that up.

Go to Investor Relations and financial highlights. Capex I read -- let's see here. The Capex was 33.9 million.

33.9. And then as far as inventory arriving in stores, you know, I've visited several stores in the L.A. area for White House/Black Market and a lot of the feedback some of the store associates said was some of the merchandise wasn't arriving in time to coincide with customers getting the catalog, and I'm just wondering if that was something that was just specific to a few stores that I visited or if it's something that is happening across the concept?

Lynn, I'll tell you, you know, when you first start dropping a catalog on a small brand, the cadence of the drop is a learning curve for the merchants, and we're not as -- we're not as in-sync with the delivery of the merchandise with the drop of the catalog with the White House brand as we are with the Chico's brand after many years. So, what you saw at that store, or those stores in L.A. might be happening at other stores around the country, but we've seen. you know, vast improvement since we dropped our first book a year ago.

Yeah, we're much like we were in 1999 with Chico's, when we first started our catalog drops back then. We have to get in sync. It takes some time.

Okay, all my other questions have been answered, so good luck for the holidays.

Thank you.

Thank you. At this time I'd like to turn the floor back over to management for closing remarks.

Okay. And I'll thank you all for our third quarter conference call and we'll see you March 3rd for our fourth quarter and year-end conference call.

Thank you very much, everybody and good-bye.

Thank you and thank you callers. That does conclude today's conference. You may disconnect your lines at this time and have a wonderful day.