Citi Trends Inc (CTRN) 2010 Q3 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by. Welcome to the Citi Trends third-quarter 2010 conference call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder this conference is being recorded Monday, November 22, 2010.

I would now like to turn the conference over to Mr. Tripp Sullivan, Corporate Communications.

45 AM Eastern time this morning. If you've not received a copy of the release, it is available on the Company website under the Investor Relations section at www.CitiTrends.com.

You should be aware that the prepared remarks made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance. Therefore, undue reliance should not be placed on them. We refer you to the Company's most recent report on Form 10-K filed with the Securities and Exchange Commission for a more detailed discussion of the factors that could cause actual results to differ materially from those described in any forward-looking statement.

I'd now like to turn the call over to Bruce Smith, Chief Financial Officer. Bruce?

Thanks Tripp. Good morning, everybody, and thank you for joining us today. Also on the call is David Alexander, President and Chief Executive Officer, and Beth Feher, Executive Vice President and Chief Merchandising Officer.

First, I will provide you with details related to the third-quarter results, as well as guidance for the fourth quarter. Then David will discuss further the third-quarter results and our business outlook, after which we will address any questions you may have.

Total sales in the third quarter increased 10% to $140 million, while comparable store sales decreased 4.2%. Almost all of the decline in comp store sales was due to a lower average ticket as the number of customer transaction was down just slightly. Comparable store sales by month were down 1% in August, down 4% in September, and down 8% in October. As we have entered the fourth quarter, comps in the first three weeks of November currently stand at positive 1%.

By merchandise category, sales in the third quarter in comparable stores were as follows. Accessories were up 14% this year on top of a 19% increase in last year's third quarter. Home sales increased 10% and were up 4% in 2009's third quarter. The children's department was down 6% in the third quarter of 2010, after being up 4% last year. Men's decreased 9% this year, versus an increase of 7% last year, while women's was down 10% in 2010's third quarter after being up 6% in the third quarter last year.

Sales of nationally recognized urban brands represented 47% of total sales in the quarter, compared to 48% in 2009's third quarter. Year-to-date through the third quarter, total sales were up almost 18%, including a comparable store sales increase of 2.2%. Customer trends transactions increased 3% in the first nine months and were partially offset by a lower average ticket.

Gross margin in the quarter declined to 36.9% this year from 37.4% last year. Higher merchandise markdowns necessitated by the comp store sales decrease caused the reduction in gross margin. For the year-to-date, gross margin was down 30 basis points to 38.3% from 38.6% in last year's first three quarters, once again due to higher markdowns.

SG&A expenses were tightly controlled in the quarter, increasing only 12.5% despite a 17% increase in store selling square footage. As a percent of sales, SG&A expenses increased 70 basis points to 33.7% in the third quarter of 2007 from 2010 from 33% last year. Virtually all of the deleverage occurred in occupancy expenses, which are largely fixed in nature and therefore increase as a percent of sales when comp store sales decline. For the nine-month year-to-date, SG&A expenses increased 15.7%, slightly below our square footage growth. As a percent of sales, expenses improved 60 basis points, decreasing to 31.1% from 31.7%. Historically, we have not been able to lever expenses with a comp store sale increase of 2.2%. However, labor efficiencies and excellent payroll control by our store and distribution center teams in the first three quarters were key to lowering our expenses as a percent of sales.

Year-to-date, our operating profit as a percent of sales has improved 60 basis points to 3.9% from 3.3%. For the quarter, we had a net loss of $394,000, or $0.03 per diluted share, versus net income of $606,000, or $0.04 per share, last year. For the year-to-date, net income was up nearly 36% to $11.5 million, or $0.79 per share, versus $8.5 million or $0.58 per share last year.

In reviewing the balance sheet, inventories increased 9.5% from the third quarter of 2009. This inventory increase was substantially below the 17% increase in store square footage and included lower distribution center inventory of currencies in merchandise and a 4% decrease in comparable store inventories, partially offset by higher levels of next-season buys.

With merchandise cost inflation expected next year, we felt like it was prudent to go ahead and lock in cost for a greater portion of our next-season inventory. This merchandise will be held in our distribution centers until early next year.

In looking forward to the rest of the year, we are currently estimating earnings per share in a range of $0.71 to $0.81 for the fourth quarter, which would result in full-year EPS of $1.50 to $1.60. This estimate assumes that comp store sales will decrease from 1% to 4% in the fourth quarter.

Now I'll turn the call over to David.

Thank you Bruce. Good morning everyone.

Citi Trends' customers continued to feel the strain of a very tough economy with high unemployment and high under-employment. While the frequency of our customers' purchases in our stores has held up well, the size of their average purchase has not. This difficult economy, combined with a very warm September and October, resulted in a tough third quarter from a topline perspective. We are assuming these trends will not materially improve in the fourth quarter.

To respond to this difficult sales environment, we have placed a significant emphasis on tightly controlling expenses and tightly managing inventory levels. On the expense side, our distribution and store operations teams both did an excellent job reining in costs during the quarter.

From an inventory standpoint, we ended the quarter in a relatively ideal inventory position with inventories up only 9.5% and half of this increase coming from a strategic increase in next-season buys intended to mitigate possible price increases and flow disruptions in 2011.

While the sales trends have been tough, we are very pleased with our success in several other areas. During the third quarter, we continued our track record of solid real estate growth. We continued the installation of our new safe vaults, which are now in over 430 of our stores. As previously discussed, these new vaults free our store associates from making two bank trips each day for deposits.

We opened five more of our new prototype stores. On the real estate front, in the third quarter, we opened 33 new stores and expanded or relocated five others. This month, we have added two additional new stores. Year-to-date, we've now opened 59 new stores and expanded or relocated 13 others. New markets opened in the third quarter included Las Vegas, Pittsburgh, Buffalo, Albany, and Des Moines.

Overall, our third quarter openings were generally quite strong. During the third quarter, we also opened five more of our new prototype stores, what we refer to as the Citi Lights prototype. These stars are designed to capture the brightness and energy of the city. They feature a new color palette and logo, a new layout, new fixturing, a totally redesigned checkout area, and expanded footwear section, new graphics, new lighting, and other enhancements.

The reaction from our customers has continued to be overwhelmingly positive, and the results have been very encouraging. Based on this, our current plan is to use the Citi Lights prototype for all 2011 new stores.

In January, we will also retrofit 15 existing stores to this new prototype. Our plan will be to evaluate these stores for a number of months before making any decisions about additional conversions.

For the fourth quarter, we are forecasting comps in a range of negative 1% to negative 4%. While November trends are slightly better than this, substantial concern about the economy, including uncertainty around the extension of unemployment benefits, combined with the significant role December sales play in the fourth quarter's results, are strong reasons for conservative planning.

Despite the current tough sales environment, we believe that, as a company, Citi Trends is in an excellent position to continue to grow and succeed. Payroll and other expenses are well controlled. All components of margin are well managed. Inventory is tightly controlled, and we are still making intelligent investments that continue to improve our efficiency, allow for better inventory management, and support our historically low manager turnover and inventory shrink.

We are navigating through a period of great economic uncertainty. But we believe we are taking the right steps for our continued success.

With that, we'll now turn the call back to the operator and take your questions. Jennifer?

(Operator Instructions). Brian Tunick, JPMorgan.

Thanks. Good morning guys. Congrats on navigating through the environment here.

Question I guess starting with the comp trend here in November. I'm just trying to understand, in your view, what's changed? Is it really the weather? Are you seeing certain categories show strain? I'm trying to understand why you think the trend of businesses change. I forgot what the compare looks like for the month or the next few months.

The second question would be on the prototype. Can you give us some of your best sense of the economic returns compared to the existing store?

The third question beyond the distribution center next year, any update sort of on what you think the financial impact might be as we sort of move into Q1?

I'll start with recent sales trends, and then I'll let Bruce talk a little bit more about Cit Lights, and then we will move into a little bit of discussion of next year.

In terms of recent sales trends, we started November fairly strong. Two things happened. Number one, our customers had money again, but number two, the first week of the month, the weather did turn cooler. As soon as it turned cooler, we saw a nice reaction in areas like outer wear and cold weather accessories. So boots, for example, and footwear, we've seen very strong sales trends over the last few weeks. So we started the month strong. As the weather warmed up, things softened. But again, month-to-date, we're a positive 1.

We are looking at December. We're looking at the rest of the year and based on concerns about unemployment extensions, we are modeling a negative 1 to negative 4. But again, this month, things have been a little bit better, and we're positive one month-to-date.

Bruce, do you want to talk about Citi Lights?

Yes. When we look at Citi Lights as it relates to our new stores, the incremental capital cost is $50,000. So if we compare the CapEx that we spend today on a new store versus what we would spend with Citi Lights, it's about $50,000, which means roughly $10,000 of additional depreciation each of the first five years.

Now, to offset the P&L effect of this depreciation, we would probably have to get as little as 2% more in sales in those new stores in order to just offset. Obviously, we would hope for something more than that, but just to have a break-even on the operating line, we would need 2% more in sales.

Looking at it, though, from an ROI standpoint, we probably need a sales increase somewhere in the high single digits in these new stores over what we are getting today to achieve the same new store ROI as we've had before. If you remember, we've been running at about 85% cash-on-cash ROI in the first year in our new stores. So we probably need to do let's say maybe 8% or 9% in order to get back to that level in the new stores. Based on the sales and the gross margin results that we've seen to date in the new stores that we have opened, we believe that's probably a reasonable expectation.

I'll add another comment to that. You've had a chance to see our store here in Savannah. We are seeing higher sales throughout the store, but one of the things that was encouraging for us is we are seeing a good bit higher sales in a few key categories that are generally higher margin. If you recall, we have really accented our impulse items and our accessories. Intimate apparel is much more visible and much better placed. Kids is much more visible in the store. Footwear we've expanded the spacing. So all of those categories tend to be higher-margin categories. In every one of those categories, we've either changed the placement, the visibility, the space allocation, or the type of fixturing. In those areas, we are seeing nice sales increases, compared to a typical store.

So that total view, both the sort of overall lift throughout the store because of signage and feel and look, and then the specific strong sales in some higher-margin categories, those were the things that have convinced us at this point that we should open all of our 2011 new stores as Citi Lights.

Then I think your third question was about DC impact on 2011? Bruce, do you want to address that?

Yes. The biggest impact will be from depreciation beginning probably late first quarter once we get the DC ready for its intended use.

From an overall standpoint, the DC is our big project next year, and so while it will have some incremental costs, both in depreciation and probably even to some extent SG&A because we will have more salaried supervisors than we would have otherwise, what that basically does from a budgeting standpoint is it forces us maybe to give up some things in other areas that we would otherwise have done. So we are not conceding that next year's SG&A challenge is any more difficult than any other year. From an depreciation standpoint, we would expect probably $1.3 million more depreciation than would normally be implied by a 15% growth in the Company.

Thanks for the help, and best of luck in this holiday.

Sean Naughton, Piper Jaffray.

Thanks for taking my question. In the past, you've talked about being comfortable with the 38% kind of gross margin on an annual basis. As we look out longer-term, where do you think your operating margin can go over time and what are the particular components do you think that would help you guys get there?

When you look at the operating margin and the two components, gross margin and SG&A as a percent of sales, we have said for some time that we think gross margin is going to consistently be in a range of 38% to 38.5%. That's what it's been historically except for one year, and we think that is a reasonable expectation going forward. We are an everyday low-price retailer, and so we do not try to squeeze every last cent out of gross margin, instead choosing to pass along great deals to our customers and trying to generate sales which will in turn lever our expenses.

Our breakeven point on SG&A leverage is 2.5%, although we have done better than that this year and even last year. We are hoping that we continue to see some of the efficiencies that we have recognized over the past 18 months. But I think, generally, you can count on a comp in the 2.5% as being the breakeven point. So that's clearly the key metric is getting the comp store sales above that level so that we can expand the operating margin. We have been as high as 7.9% in a given year on our operating margin, although admittedly that was a 53-week year. So maybe the 7.3% that we had in an earlier year is more representative of where our peak has been.

But our plan would be to continue to try to get the comp store sales going, gradually getting expense leverage from that, as well as from efficiencies, and someday down the road get to let's say an 8% gross margin -- or operating margin.

That's useful. Thank you. Then Beth, maybe a quick question for you. How would you describe kind of the quality and availability of merchandise that you're seeing out there in the market today? Are there any emerging trends that you're seeing with your customer out there?

Then secondly, can you elaborate and I think David touched on this a little bit with some of the remodels on the accessories, but is there anything in terms of merchandise within the accessories category that's helping to drive those strong comps? Are there any new categories you could potentially go in?

We'll start with the availability of inventory. While we have not had any major issues with inventory availability, we have seen that orders, more orders have been delayed or shipped less than complete this fall. To offset this continued flow issue and to give ourselves a competitive advantage, in the event that we do have flow disruption or price increases, we have strategically increased our proportion of opportunistic next-season buys. As you are aware, we do buy upfront and in-season, and NSB, so we can use all three of those to balance our assortments.

As far as emerging trends go, we continue to feel really strong about our handbag area, jewelry, footwear, boots, particularly within the footwear business, leggings. The top category overall has been strong and we think that's going to continue as we go into fourth quarter.

But we are also encouraged in the last several weeks on sweater selling, activewear, and outer wear. Within the accessory area, we do get our biggest increases recently, and we think, going forward, from jewelry and from handbags, particularly branded handbags. The categories that we like for going into spring pretty much stay the same as what we talked about, which is jewelry and handbags within the accessory area, and we love footwear going forward. We also like our fragrance business, which continue to be strong, and a lot of impulse items as we go forward and expand our impulse aisles.

Maybe just a follow-up on the last question. On the demand front, can you talk about what you're seeing, obviously the weather turning in the first week of November helping some of the colder weather categories? Can you talk about what you're seeing week in and week out over the last call it couple of months? Is the traffic pattern remaining pretty volatile or is becoming easier to kind of see with more consistency what sort of the trends have been?

I'll start first of all with the traffic pattern. Really if you look even all the way back to June, our customer traffic has held up well. The place that we have been hurt is average transaction. So our customers are still coming in. Their shopping frequency is really not declining much at all. In fact, in the second quarter, it was up slightly. This quarter, it was almost flat. So our customers are coming. They just don't have as much money to spend and they're obviously shopping very close to need. So we saw a very warm September; we saw very warm October. We felt good about our outer wear. We felt good about our cold-weather accessories, and felt like, when we saw a little bit of cold weather, that we would see a reaction. November started out cooler and we absolutely saw that reaction.

I think Beth has done a great job in managing our inventory levels. I think we have the right assortment for December. It's going to turn cold at some point, and I think we have a really strong offering when it does.

Thanks, that's helpful. Best of luck during the holiday.

Patrick McKeever, MKM Partners.

Thanks. Good morning everyone. David, you said that, on inventories, that the inventory levels -- or inventories were relatively ideal. They are down quite a bit from where they were in the second quarter. On a total dollar basis, I think they were up over 20% at the end of second quarter and now up less than 10%.

So my question is, despite the topline weakness, so -- and yet the margins, gross margin was down a bit, but maybe not as much as one might expect with the topline weakness. So how did you manage the inventory levels down to that level from being up over 20% just 3-plus months ago to being up less than 10%?

I think answer to that question is we begin really by mid-September, we were seeing very warm weather trends, and knowing our customer is going to shop very close to need. We were continuing to see high unemployment and high under-employment, and we'd actually seen some of the numbers we thought were getting better in the spring kind of begin to move the other way for our customer throughout the summer. Based on that, mid-September, we began -- we being Beth's team -- began to scale back on orders, and really began to plan towards a lower inventory level until we saw sales come back. I think they did an excellent job over the last six or eight weeks pulling inventories down to where they needed to be.

December sales, an awful lot of our December sales are things we receive in November. I think, again, they're doing a nice job there aligning our inventory levels with our sales expectations for December.

How about brand representation in the quarter? What percent of sales were national brands and how does that compare to a year ago? Just in general, what are you seeing there? Are you seeing some pulling away from national brands because of the price points, or how are things looking in that area?

It's really very consistent. It's run about 47% this year. Last year, we were -- what -- 48%. So not really a lot of change. We're doing a little more fashion business than brand business, but really very little change.

Then just the last question on the plan, on the comp plan for the fourth quarter, the down 1% to down 4%. Does that assume a stop in the federal extended unemployment benefits on November 30, or is that not necessarily implied or assumed in your guidance? Thanks.

The answer to that question is that we did assume a delay in that extension. We look at July. In July, we had fairly significant delays in the extension. We ended up with a negative mid-single-digit comp in July. In July, our customer really -- there's no urgency around their purchases. There is nothing for them to buy in July that they need. They've already had several months of warm weather. So we feel like we got hit pretty hard in July with a mid-single-digit negative comp. We don't think it will be that significant in December because there is much more urgency around our customers' purchases in December. But we did assume that there might be some delays in the extension, and we did give that a good bit of weight in our thinking because about how the quarter would play out.

Sounds good. Thanks very much.

(Operator Instructions). Evelyn Greenwald, SIG.

It's actually Tom Filandro. Thanks for taking my question. Actually, I've two quick ones. Beth, you commented that I think you said some of the orders weren't coming in complete. Can you give us a little more detail on what's happening there? In relation to that, you talked about higher levels of opportunistic bias. I have -- two-part question on that is can you either quantify exactly how much of an increase you're seeing in the opportunistic buys? Does that increase your fashion risk as you're buying obviously much further out as opposed to being closer to reacting to the customer? Thank you.

Before I let Beth answer your first question, let me kind of comment on opportunistic buys. We've never broken down the percent of our purchasing that's done opportunistically versus in-season versus in front of a season.

The one thing I would tell you is our next-season buy inventories today are about double where they were a year ago. In terms of the risk involved in that, we actually view that as a way to mitigate risk. If you look at what we're buying next season buys, it's items that Beth's team feels are very strong, that they have a lot of life in them, they're trends that ended the season strong, so they're trends we believe will be strong the following season. There are ways for us, from a competitive standpoint, to go ahead and lock in prices on product that we think is likely to be more expensive next year in that season and to lock in availability on items that we have some concerns about possible flow disruptions next year in that season.

So we did not really view next season buy as a fashion risk because Beth is very selective about what she buys and what she allows to go into next season buy. We actually view it as a good way to mitigate some of our risk. That's the reason that, after a lot of discussion, we kind of bumped up the limits on next-season buy.

Beth, I'm sorry. I'll turn the rest of that question over to you.

We have been facing additional issues like we talked about with order delays and shipments getting here less than complete. We're facing this -- we feel these issues are coming predominately from issues that we're facing out of China. So, we've had to really adjust our cancel factor by class to offset and allow us to reach the ideal levels that we need to run the business. But it's really been an ongoing adjustment, and we are finding they're certain areas that are having these issues more than others. So we are giving them higher levels of flexibility to make sure that we have the amount of inventory we need to maximize our sales trends.

Just a follow-on to David, to the opportunistic buy percentages doubled. Is that percentage at a peak for the Company?

Peak historically?

Yes.

I don't have any idea. Do you know Bruce?

At this time of the year, probably yes. I don't know all the prior-year numbers either. But yes, I would think that it probably is at or near the peak.

Thank you. Best of luck this holiday.

Evren Kopelman, Wells Fargo.

Good morning. A question on these categories that are doing well, the accessories, the footwear -- you mentioned that they are higher-margin. So two questions on that. One, if you could quantify at all how much higher is it? 5 points, 10 points compared to apparel? Then secondly, what is the AUR impact? Overall, do these categories have a higher or lower AUR that apparel?

As far as the gross margin impact, it's probably 2 or 3 points higher, so some were close to mid 50s instead of low 50s.

AUR, Beth, on those categories? What about footwear?

Footwear in AUR runs at about $2 higher than the Company.

So I think the answer to your question is accessory is a little lower, branded handbags definitely higher, footwear a little higher, jewelry a little lower. So you've got a blend of some higher and some lower, and overall, as Bruce said, margin is a little higher.

Then the other question is you talked a lot about -- this may be for Beth -- about some of the categories. One of them I didn't hear as much as bottoms and denim. What's going? Are we kind of done with the skinny leg? Are we moving to non-denim fabric? Can you talk about what's in the bottoms business?

Yes. Denim does continue to remain disappointing. We are monitoring our inventories right now to keep both our inventory levels and our age of inventory appropriate. The legging business does not seem to be slowing down at all in the lady's area, or in the girl's area, or the kids' area.

As far as the skinny jean goes, it is definitely still out there. It is still 90% to 95% of the sales. We are testing baby boots, we are testing flares, but we think it's still pretty far away from the leg opening, away from the skinny, probably another 12 months.

Interesting. I had a question, a different -- about QW4 guidance, your comp guidance down 1% to down 4%. Two questions on that. One is what do you assume for January? Because every year, it seems like there's a shift between January and February in terms of tax refunds, the laws against the tax refunds, moving -- keep moving back and forth a little bit. What do you assume this year? Are we going to have a negative impact on January, or what does your guidance assume? Is it similar to last couple of years?

Then the other question is what do you assume for the high versus the low end of that? Meaning the down 1% to down 4% in terms of the delays in the (inaudible). Does the high end assume a smaller delay? If you could talk a little bit more about the assumptions in there, that would be great.

Yes, as far as the monthly guidance, we don't give that kind of guidance at that level. You are right. We've had two back-to-back years of income tax payments moving out of January and into early February, but that's all it is. In fact, it's really nothing more than a movement of a week, not even a month. It moves from -- it has moved from the last week of January to the first week of February. So we don't have the answer to that, and don't -- we'd rather not try to break that out.

(multiple speakers)

Regarding the minus 1% to minus 4%, I don't know I can be quite that granular in terms of how each factor affects that. But we've looked at November. We've said we got a little bit of a positive trend in November. We really haven't seen in the southeast, other than one week, any real cold weather. We view that as a potential positive.

We said the risks are that there could be delays in the extension of benefits or probably likely to be at least some delay in the extension of benefits. So we said, okay, that works against us. So we looked at our inventories. We looked at trends come it will get our month-to-date. We looked at the fact that we think we are due some cold weather. Then we mitigated against that with the fact that, well, unemployment could be delayed, unemployment extensions could be delayed, and our customer continues to suffer from very high unemployment. We evaluate all of that and that's how we came up with our range. We gave a broader range than we normally do. A $0.10 earnings range with only one quarter left for us is a fairly broad range, and a negative 1% to negative 4% comp range is a broad range for us. Really, that is to reflect the fact that there is a lot of uncertainty over the next 60 days.

That make sense, very helpful. Can I have one last question which is on the inventory? The down 4% on a comp basis, it's in very good shape. What should we expect for year-end? Going into next year, I'm trying to figure, for gross margin, year-over-year the markdown rates, could we have a better year next year? Could gross margin be flat even if comps are pressured, maybe?

I'll let Bruce answer the latter part of that question.

In terms of where I would expect inventories to be at the end of this quarter, I would expect them to be up a little less than square footage will be up. The first quarter of next year, the first quarter of the year is a very strong sales quarter for us, and particularly the month of February when our customers have their income tax refunds.

So, we're certainly going to look at comp trends over the next couple of months, and we'll certainly adjust and react accordingly. But as I sit here today, I would expect inventories to be up a little less than square footage would be up on the first day of our fiscal 2011.

Bruce, do you want to comment on --?

Yes. As far as the gross margin goes and the relationship of the inventory that is brought in at the beginning of the year, we were very clean on our inventory coming into this year and have continued to maintain a clean inventory all the way through, even at the end of the second quarter when it was up 20% overall. The inventory was very clean from an aging standpoint. So we're going to take markdowns when they are needed and we have been doing that. So I don't think you'll see any impact on gross margin one way or the other.

Thank you very much.

Jonathan Grassi, Longbow Research.

Good morning. Thanks for taking my questions. I guess, going back to the inventory, you guys obviously are buying in advance of the season in order to mitigate some of the inflationary cost pressures that are going to be coming inevitably. I guess how do you guys look at your ability to get price increases on your products as you do see some more of the inflationary cost increases?

One of the things that we feel good about it we are an off-pricer. The key to us is the gap between ourselves and department specialty stores. So for us, we need to be competitive with the other off-pricers, and we need to maintain the gap that we have historically maintained between ourselves and departments and full-price specialty stores. So if there are price increases throughout the apparel world, I think we are well-positioned to -- as long as we keep the proper gap, I think we're well-positioned to be able to take some price increases and still maintain our sales.

So, for us, it's not so much about whether we have to raise prices or not based on price inflation, particularly out of China. It's what do the full-price retailers do, what the department stores do? Then we'll react accordingly.

Can you think back to the last time we kind of were in a similar type situation, and I guess what happened within the industry?

Unfortunately, I wasn't here. So let me see if Bruce or Beth has any insight into that.

Not on my end.

No.

Okay.

Unfortunately, I can't give you a lot of input there. I would tell you that most off-pricers believe that price inflation is not detrimental to their results.

Okay. Then going to the cash on the balance sheet, obviously you guys have some expenses coming up with the new DC and it's a pretty uncertain environment still at this point. What do you guys look at as kind of an ideal cash level? As we kind of work through the current environment, how do you see yourself distributing some of the cash?

I don't know we have a specific ideal cash number set because things change. A good example is the new prototype. As we look out at the opportunity there that may exist, we want to make sure that we have cash available if we decide to do something more aggressive, particularly with existing stores that we've talked about to this point. But that's why you do a test also. We've got the 15 stores that we will be testing in January, so to the extent that we do well with those, maybe we will want to use some of the cash to expand that.

But we have said for some time now that, as far as our cash goes in this economic environment, what we've got is not too much. It is something that the Board addresses at every one of its meetings. We look at what we might do with it. We've even had our investment bankers help us with some of the analysis at various points looking at other retailers that have a lot of cash, and look at what those retailers do with their cash. We don't see that we are out of line with our handling of it. We don't see any big rush to do anything in terms of let's say a dividend or a stock repurchase.

Then just finally, can you give us a breakdown of kind of how revenues trend by month? Like how much percent of revenues December typically accounts for and how much January typically accounts for?

Yes, December is almost like two months in one. It's about equal to the other two.

Fair enough. Thank you.

Cory Armand, Rice Voelker.

Good morning. I apologize if you already said this and I missed it, but what were the store opening expenses in the quarter? If you can't give the specific number, if you could just give us a sense for on a per-store basis how much it costs to open a store from an expense point of view.

Yes, the preopening expense is typically around $30,000. We don't disclose that number separately. It probably had a little bit of an impact in the quarter because we opened 22 last year and opened 33 this year, so some impact but it's not something that we felt was worthy of a separate call out.

That was my only question. Thank you.

Evelyn Greenwald, SIG.

It's Tom Filandro again. Did you guys see any change -- you mentioned the warmer weather. Did you see any change in your layaway business? Is that a meaningful percentage or did it jump at all year-over-year?

No, it's really kind of tracked with sales, really nothing meaningful. Layaways track pretty consistently with our sales trends.

Maybe a follow-up if I can. I don't know if you mentioned this earlier. I missed the first part of the call. Did you make some comments about some of the cash wrap initiatives that you guys have put into place, how you feel about them, and whether or not you're going to continue to move forward with them?

Yes, I would comment, Tom, that in the new prototype stores where we have a fairly substantial change to our cash wrap, we're very pleased with how we are doing in that area. What we are doing around the cash wrap is we have a lot of impulse items. Jewelry is featured there. In warmer months, glasses are featured there. That area where we have a lot of exposure now and we have sort of a loop around those areas for the cash wrap, we are seeing very good results.

We have about 150 stores that we have placed free accessory fixtures perpendicular to the checkouts primarily focused on fragrances, and we are seeing very good sales in those stores. Those stores are doing probably 90% more fragrance business than stores that don't have those fixtures.

We're also looking in some stores, existing stores, where we have significant spacing in the front of the store at actually creating, again, a looped type check out with existing fixtures. So we're looking at doing that based on how positive the checkout results have been in the Citi Light stores.

So really kind of three things -- the test stores for Citi Lights, most definitely seeing good results at checkout; the 150 stores that we've put the three checkout fixtures for impulse items, most definitely seeing good results. We've had some stores that the front spacing have allowed us to create, in existing stores, not Citi Lights, create a loop type check out and feature jewelry and accessories. We have just done that, but we believe that will also be positive.

Thank you very much. Again, best of luck.

There are no further questions at this time. I'll now turn the conference back to you. Please continue with your presentation or closing remarks.

Thank you. I want to thank everyone for joining us today, and hope everyone has a wonderful Thanksgiving. Thank you. Good-bye.

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