Citi Trends Inc (CTRN) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Citi Trends second quarter 2011 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 Wednesday, August 17, 2011. I would now like to turn the conference over to Mr. Tripp Sullivan of Corporate Communications. Please go ahead, sir.

Thank you. Our earnings release was sent out at 6.45 AM Eastern time this morning. If you have 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 the call may contain forward-looking statement 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 while filed with the Securities and Exchange Commission for more detailed discussion of the factors that could cause actual results to differ materially from those described in any forward-looking statements. I would 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 are 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 second quarter and year-to-date results. Then David will discuss further the results and our business outlook, after which we will address any questions you may have.

Total sales in the second quarter increased 1% to $130 million, including an 11.9% decline in comparable store sales which was reflected entirely in fewer customer transactions as the average ticket was flat with last year. Comparable store sales decreased almost 12% in each month of the quarter. As we have entered August, comp store sales have been down approximately 8% for the first 2 weeks.

Our merchandise category, sales in the second quarter and comparable stores were as follows -- home was down 2%, after being up 15% in 2010 second quarter. The accessories division was down 5% after being up 11% last year. Children's' sales were down 11% this year and down 6% last year. Women's was down 11% this year and down 4% last year. And the men's department was down 14% this year and down 2% in last year's second quarter. Sales of nationally recognized urban brands represented 37% of total sales in the quarter compared with 40% last year. For the year-to-date through the second quarter, total sales were up 2.9% in comparable store sales or down 8.9%.

Gross margin in the quarter was down 4 percentage points from last year's second quarter, 33.4% this year and 37.4% last year. Virtually all of the decline was due to higher clearance markdown necessitated by the negative comp store sales. For the year-to-date gross margin is 37.1% compared with 38.9% in 2010's first half with markdowns causing all of the decline. SG&A expenses, which included $615,000 of cost incurred in connection with the closure of the Savannah distribution center, increased 14% over last year's second quarter. Without the impact of the closure costs, SG&A would have increased 12.7% on an increase in selling square footage of more than 15%. As a percent of sales, SG&A expenses increased to 38.9% in the second quarter of 2011 from 34.4% last year due primarily to the deleverage on expenses as a percent of sales that occurs when comp store sales decline. Year-to-date SG&A expenses have increased 9.6% on the 15% plus store square footage growth.

Depreciation expense increased to $6.4 million from $4.8 million as a result of the new Roland distribution center, new stores, relocations and expansions and 25 store conversions to the new Citi Lights concept. On the P&L attached to the press release, note that we added a line in the second quarter for asset impairment expense. This expense, which is a non-cash charge, totaled $1.6 million for 21 underperforming stores because the book value of these stores, property and equipment exceeded their projected future cash flows.

The second quarter net loss in 2011 was $10 million or $0.69 per share compared to a loss of $600,000 or $0.04 per share last year. Year-to-date, the Company has net income of $2.1 million or $0.14 a share versus $11.9 million or $0.82 a share in last year's first half.

In reviewing the balance sheet, inventory increased 13.7% of which more than 2 percentage points was the result of capitalizing freight which began in the fourth quarter of last year. As mentioned in an earlier call, as we approach the Christmas season, we will bring certain inventory in earlier than last year in order to better meet the Christmas layaway demand that starts in mid-October. As a result, our third quarter inventory levels may increase more than our square footage growth.

Now I will turn the call over to David.

Thank you, Bruce. Good morning, everyone.

As Bruce shared, our sales trends were very disappointing throughout the second quarter. As we now enter the second half of 2011, we remain concerned about the state of the economy, our customers' lack of employment, and their very limited discretionary income. As we shared in our press release on July 20, we are responding to the current economic challenges in a number of ways. We have partnered with our vendors to enhance the price value relationship of our product offering. We have lowered entry price points for a number of very significant, very visible items across all apparel divisions. We have dramatically changed the visual messaging in our stores by adding 100 or more price point signs to each store.

We have begun testing a significant number of national brands that we have not previously carried, many of which are more cross-over or suburban brands rather than pure urban. Based on sales per hour analysis, we have extended opening hours on Friday and Saturday nights in over 100 of our stores. For the upcoming holiday period, we have created a plan for a significant increase in our gift offering. And for the first time, we will participate in Thanksgiving Friday in a meaningful way.

In June and July, we converted 10 more stores to our Citi Lights prototype and we continue to be very pleased with the impact of conversions. Year-to-date, the original 15 conversions completed last January are outperforming chain comps by 14 points. From the end of June through mid-August we tested changes in our layaway program with a very strong response and we plan to repeat this during the holiday period. And we have taken numerous steps to curtail spending from both capital projects and expenses.

In addition to the actions we are taking to improve the business, we should benefit from the fact that sales comparisons from September through January are significantly less difficult. Despite the challenging environment that we are currently in, we continue to be very optimistic about the Company's future. We have a very strong balance sheet, a great niche and a great customer relationship. While we recognize that not every brand or every initiative we test will be successful, we are convinced that many will be and we will ultimately be a more successful Company for having gone through this period. And we will now take your calls. Operator?

Thank you. (Operator Instructions) Patrick McKeever, MKM Partners.

Bruce, you said that the first 2 weeks of August were down 8% and for the second quarter, you were down 11.9% but I think you said on the 20 of the month, the guidance was down 11%. What, maybe you could just talk a little bit more about the -- I don't want to get too much into the minutia, but just a little bit more just on the current trend and any, even any nuances that you are seeing in the way your customer shops, any changes within the past few weeks or so? Thank you.

Patrick, let me make a couple of comments. 1 of the things that we saw in July, not necessarily reflected in the numbers of July, because we recognize revenue when layaways are picked up, but we saw a nice increase in layaway business in July. We continued to see reasonable layaway business stronger than last year in the first couple of weeks of August. So, 1 thing we know is that we made layaway easier for our customer.

We did that for 6 weeks. We waived the layaway fee and we also reduced the down payment from 20% to 10% and we went from almost a year of declines in layaway to fairly nice increases in layaway. So, that's 1 thing that we have seen that we think will bode well for the holiday season when we are going to repeat that program.

Probably the other thing we have seen is a continuation of what we have seen for a number of months now. Our non-branded sales are, while not good, are not terribly weak. They are fairly close to flat. Our branded sales, on the other hand, continue to be quite weak and that's the area where we are really putting a lot of focus.

We have already done things that we think are favorably affecting our fashion or non-branded product. We have lowered entry price points, we have compressed price points, we have put in new price point signage, and as a result, we are probably down, month-to-date, maybe negative 2% to 3% on our total fashion offering across all divisions.

On the other hand, we continue to see very negative branded sales and that's the reason that, over the last probably month, but a lot of this much more recent, we have introduced a number of new brands. Some of them we are seeing very good trends and some we are not and we are going to continue to test other new brands, because we think there may be some transitioning in which brands are really resonating with our customers. And we have to got to test a lot of things to find out where our customers are headed from a brand standpoint.

(Operator Instructions) Nathan Edgerly from Morehead Capital.

I had a couple of questions initially. I was wondering if you could talk about the Citi Lights conversions and how those are performing relative to the traditional model. And I was wondering if you could talk about geographical performance, regional performance.

I know that there were some regions that you guys had turned around and I was wondering if you continue to have success there or if the challenges have been broad-based? Or if you could just give me some context on that, I would really appreciate it.

Sure, Nathan. Let me start with Citi Lights. I tell you, when we look at Citi Lights' performance, we evaluate it 2 ways. We look at Citi Lights' performance from a relative standpoint and we look at Citi Lights' performance from an absolute standpoint. When we look at our Citi Lights conversions from a relative standpoint, we feel pretty good about them.

Year-to-date, the conversions we did in January are tracking 14 points higher on a comps basis than the rest of the chain. So, while the chain's comps are negative year-to-date, the Citi Lights comps are positive year-to-date.

If all we were going to base a decision on was relative performance, we would say, yes, that's better than we expected. We are very, very pleased. We ought to go forward with it.

The other thing though we were looking at it, the absolute performance of Citi Lights. In terms of thresholds we set for absolute performance, we are not there yet. So, as we turn the chain around, as we get chain comps up, if we continue to see that delta, then we will feel better and better about Citi Lights and view that as something that we want to take a hard look for doing more conversions in the future.

But right now, the absolute results of Citi Lights don't justify our being more aggressive on a conversion plan. Again, relative performance, very, very strong. But, we need to see the whole chain rise and see if we continue to see that delta before we are going to do a lot more with Citi Lights.

Regarding geographical differences, we are really not seeing a lot. Comps across -- we track things in a number of ways. 1 of the ways we track is we have 6 different weather stones and then we obviously have different regions and we track sales daily both by region, by weather zone, by district and so on. And we really are not seeing a lot of geographical difference. The performance is fairly consistent across the country.

Great. 2 follow-up questions, unrelated. 1 is on the Citi Lights conversions, can you give me a sense of what the rough cash-on-cash returns are of those conversions and then also, given the performance year-to-date, previously I think you guys had guided to year-end cash balance of around $80 million to $85 million, if I am not mistaken.

Do you think that, that is still a part of the plan or does that require some rethinking? Thanks.

Thanks, Nathan. Let's see, the first question was about the returns on the conversion stores. We haven't given out any information on that. For 1 thing, we are only 6 months in to the first 15-store test so we don't have full-year information.

We have built various models though in looking at what we need to get and so we have a measuring stick to go by as we continue through the process. We will continue to gather information as we go along now that we have got the 10 additional stores that we did in June and July. We have got a good 25-store set that is fairly diversified and we will continue to monitor that as we go.

Your second question dealt with cash. We are somewhat limited in what we can say about year-end cash balances simply because we haven't provided earnings guidance and that's, obviously, 1 of the key components of cash flow.

Some of the obviously, the key things for us with cash or capital expenditures, the depreciation add back, inventory and accounts payable as well as earnings, and the things we have said about, for instance, CapEx, we have said somewhere in the $35 million to probably $37 million in CapEx for the year. The depreciation add back will be around $25 million.

And then as far as inventory goes, at year end, we would probably expect something around the same growth in square footage that we have so somewhere around 13% to 14%. And then as it relates to accounts payable, that tends to track inventory although it's really dependent on our inventory turns and our sales.

So you probably have noticed that accounts payable have not grown at the same rate as inventory. At year end, we will have that same consideration dependent on what happens with the sales.

But we haven't given out a hard, fast projection of cash at year end because we have not yet provided earnings guidance. What we do know is that at the end of the second quarter, we had $70 million of cash and investments.

Awesome, great. I really appreciate it.

Evren Kopelman with Wells Fargo.

I wanted to ask about -- and I don't know if I missed this. I jumped on a few minutes late. But, if looking at into fall and holiday, I think you talked about certain categories doing better than others for the non-apparel categories. If you are making a bigger change in how you allocate, in terms of by category? And then the second question, if you made any comments about square footage growth rate for next year if there are any changes to that from historical trends?

I will address the square footage growth and then let Beth talk about, from a category standpoint, if we are shifting anything between categories. We haven't said anything about 2012 square footage growth yet. We have, as you are aware, scaled back slightly our 2011 square footage growth to about 13%. We are going to open somewhere around 55 stores to 60 stores.

We will look at how our results are over the next couple of months and then make a decision about new store growth for next year. We will also continue to look at the Citi Lights performance and then weigh how much we want to use of our new store growth funds on conversions.

So, no answer yet on that, Evren. I would suspect later in this calendar year, we will be in a position to answer those questions. Regarding mix shifts to more accessories and so, any comments on that, Beth?

Yes. We are looking at continuing growth within our accessory area, our intimate area and our home area which have given us some nice successes now for awhile. We are also making sure that we keep a focus on the brand-to-fashion mix and how that changes and is changing currently, just to make sure we don't have high liabilities within our branded area and take full advantage of the opportunities within fashion as we have been seeing that grow as a piece of the business.

Adam Engebretson with Piper Jaffray.

First or 2 questions on merchandise. 1, any changes to branded inventory availability? And then looking at the new suburban brands that are coming into store, are those brands that customers have been asking for, or are you looking that as a chance to expand your customer base? Any additional color you can provide on that would be helpful.

Okay. On the first for brand availability, in general, we are not having an issue with issue availability. In fact, goods are currently pretty plentiful in the market. But with that said, we still do have an occasional issue with late or canceled orders and as we strategically use next season buys to help offset possible flow issues, we still have that as a vehicle out there.

The brand information, we are definitely starting to evolve our current brand mix and we are testing a number of very well-known national brands that you would find in leading department stores. Some of these brands do have some cross-over or suburban reach versus having the pure urban brands that we have carried in the past. For competitive reasons and to protect our vendor relationships though, we don't generally publicly discuss which brand names we are in test mode with.

Adam, your -- the other part of your question whether these were brands discovered or chosen by our merchants versus by our stores, a combination of the 2. 1 of the things that we do every week is, of our 45 district managers, 5 district managers every week are responsible for reporting to the executive committee on how they see the business.

We had an executive committee meeting every Monday, my senior team and 1 of the things we do is we review weekly notes from 5 different DMs that are on a 9-week rotation so that every week we hear from 5 different district managers who are from different parts of the country. And in those conversations, 1 of the things that we ask them are what are your customers asking for?

So, some the brands that we are carrying are brands that have been, that we are now carrying are brands that were call-outs from the field. In other cases, they are brands that are buyers and divisional merchandise managers have recognized as brands that they think would be a good fit for us.

Particularly, too, some of these brands were just placing the Citi Lights stores and in the Citi Light stores, we know we are drawing a little higher income consumer so we are trying to -- we are using that as a step to try some brands we might not have tried in the past.

So, in some cases, it's a call-out from our stores, in some cases, it's things our buyers have identified. In some cases, we are saying that Citi Lights has a little bit different look and feel. Let's try some things we might not have tried in those stores.

Got it. That makes sense. And then 1 real quick 1, 1 last question. On the last call, you mentioned that the closure of A.J. Wright had been about a net neutral. Any change to that?

A little bit of a change. What we had -- in the first quarter, the A.J. Wright stores pretty much performed exactly on our chain comps, so really no difference. In the last couple of months, we have seen that shift some and those 80 stores that we have that are fairly close proximity to a closed A.J. Wright are now slightly outperforming the chain. So, the first quarter, they performed pretty much right on chain. And probably the last 2 months, we have begun to see a little bit of a positive gap where those stores are starting to slightly outperform the chain.

Ike Boruchow with JPMorgan.

Bruce, just a quick clarification. Did I hear you right that basically every month of the quarter was the same about down 12% in Q2?

That's correct.

Okay, so it sounds like you are running about down 8% quarter-to-date on a much easier multi-year comparison. Is there anything that you guys have done in the past couple of weeks that you think is driving that?

I know you said you lowered the entry level price points and added some visual merchandising displays, and kept store hours open a little bit longer. Is there anything specifically that you can point to that is really helping drive the comp acceleration, month over month?

The only thing I would say, Ike, is almost everything you just described has really happened in the last few weeks. We re-signed the stores in late July. 2 or 3 of the most significant brands that we now are carrying came in the at very end of July to the first week of August.

The adjustments in price points and heavy receipts of the new lower entry price point product happened mid- to late July. So, I would say most of the things that are taking place really began -- these are things that took time to develop and they really began to hit late July to early August.

I would also say that our sales trends in July, from a flash standpoint, were a good bit stronger than the number we ended up reporting because we recognized layaways at the time they are picked up. And we did have positive comps in layaways in the month of July. So, you don't see that yet in terms of the sales.

So, but to your question why negative 8% now versus negative 12% the 3 prior months? I think we are receiving a -- we are beginning to receive some benefit, now certainly not a dramatic amount yet, but some benefit from lower entry price points, new store signage, new brands and now in the last couple of weeks, extending Friday and Saturday hours in 130 or 140 stores.

Okay, and then I think -- I don't know if you gave it, maybe I missed it. I know last quarter you had said that the Citi Lights stores had actually comped a positive 8%. Did you give what the Citi Lights format store comped in the current quarter?

We did.

Or last quarter I should say?

Yes, we did. What we did say though is year-to-date, those stores are outcomping the chain by 14 points.

Okay. Okay. Have you guys given much thought to, especially as the Citi Lights stores are outperforming, potentially looking at slowing down the footage growth and maybe focusing more on remodels and renovations into the Citi Lights format and using that as the driver until your customer base gets a little bit stronger?

1 of the things that we are trying to see is the delta we have in the Citi Light stores, the 14 points higher than chain. On a relative basis, we are really pleased with that. But we need to see the chains comps stronger and we need to see that delta maintain to where the Citi Light stores are not just 14 points higher than the chain. They're actually positive 10 points, 11 points, 12 points comp for us to really go forward with that program.

So, we look at relative performance and say yes, these are doing everything we hope they would do. We look at absolute performance and say they are not there yet. So we will continue to watch it and then we'll make decisions about how much we want to invest in it.

Okay. Then last question, do you think that going to a Black Friday-type event, do you think that could be a needle mover for you guys in Q4?

I don't think in and of itself it will be. We are planning on purchasing fairly significant amount of product for Black Friday. I won't say exactly how much but it's fairly significant. And then in addition to that, we are buying a very significant amount of gift items for the entire holiday period.

A lot of products that are being packaged as -- for gift giving. A lot of new gift items we haven't carried in the past, so we think that's fairly significant. And the other thing we think is significant is we really believe that we were late getting our Christmas inventory into our stores last year.

And while it was there at Thanksgiving and it was there during the last month of the selling season, we have really come to recognize how critical layaway is to our customer in this environment. For them to be able to use layaway to its full extent, we allow them to make payments for 60 days and the last day to pick up layaway is mid-December.

So, ideally, we want the product available to them by the end of October, first of November so they can really take advantage of layaway and we missed that opportunity last year. So, that's the other area we think could have a positive impact on the fourth quarter.

Okay. Then what percent of your business is layaway, overall?

It's about 10%.

10%. Okay. Thanks, guys.

Jonathan Grassi with Longbow Research.

Just regarding the comp being down 8% in August, can you talk about what you are seeing in states where you have already had the tax-free holidays and how those stores have performed?

About the same as chain. Again, they were up against tax-free holidays. So, the performance really wasn't much different.

Okay. So there wasn't --

The only exception I would say was the state of Arkansas which was a new thing for them to have tax-free holidays. And we definitely saw some really nice increases there, but it's only 8 stores.

So you weren't seeing really any bottleneck demand released -- at the tax free day?

No, no. It pretty much follows last year's patterns, so the comps were about the same as everywhere else because we were up against tax-free holidays from last year.

Right. And then from what I recall, it was branded denim that was starting off the issues you have had with some of the branded items as of late. As we look into the fall, are you guys doing anything different relative to what you are doing overall with your adjustments to your merchandising for denim? Or should are we looking at increased number of brands and new price points for denim. Or is there something special you are doing for denim in particular?

Well, you are looking at both those things. You are definitely looking at new brands. You are definitely looking at lower entry price points. But I think it's a little broader than that. Beth, why don't you describe everything we are doing in denim. Walk him through that.

Hello, Jonathan. From a trend point of view, we are offering a number of new denim finishes and treatments like bleaching, sand blasting, and rip and repair. And we are exploring all of the new leg openings like the boots, the flares and the wide leg versus when we just had the skinny last year.

We are also testing and seeing very nice early results on some very well-known contemporary department store brands in our men's, ladies' and our kids' areas. In addition, we have replanned our denim price point strategy and compressed our price points to offer a much stronger price value equation.

And as a result, we now offer a $9.99 opening price in our Men's area, in Juniors, in Boys, and in Girls. While the denim performance has not yet where we need it to be, we do feel that it's moving in the right direction. We are also up against softer numbers as we approach this fall season.

Jonathan, let me comment. Add just 1 other comment because I think sometimes giving a work picture makes some of the things we say make more sense. We are talking about creating more value at various price points.

1 of the things that Beth's team did in denim is that our New York buying offices, they, up and down the hallways, placed every pair of jeans that they either had on order or were planning to order for the fall, and they grouped them by price point so they began with the fashion price points, the $9.99 to $19.99 price points. In each of those price points, they displayed every pair of jeans that we either had on order or they were looking at ordering.

And then we evaluated them based on value. We said how does our customer perceive value. How many -- they are looking for things that make this valuable. Is it pocket treatments? Is it washes? Is it rips? Is it special fabrications? What makes this worth $9.99? What makes this worth $12.99 and so on.

And then in doing that, if they found jeans at $16.99 that really weren't worth $16.99, we changed the prices to $14.99 or $12.99. And we did that in all of the fashion product. We then did the same thing in the brands.

And in the brands, as well as in the fashion, if we found products that we felt were not compelling at the price point we had intended to price them, we called the vendors in and we said this product does not provide the price value relationship that we need for our customers. So either you need to do additional things to it to embellish it more and make it more exciting product or you need to lower your cost so we can drop the price point or we need to cancel the order.

So there has been a lot of work -- we throw out words like reducing the number of price points, compressing prices, lowering entry price points. There is a lot of work behind that to really try to make sure that we are presenting a very compelling value in denim for the fall. Our customers are not a treasure hunt shopper. They are an outfit shopper.

The key to the outfit for our lady customer is the bottom. It has to fit well. It has to look great and she has to feel it's a real value. Once she buys that, she will tend to buy an outfit. So, that's where we put a lot of focus on really driving value for the fall and trying to turn that business around.

That's helpful. Thank you. And just finally on the SG&A line, you guys were up 12% this quarter. It was only up 5.5% in the first quarter. What is the reason for the delta there? How should we look at that going forward? Is it -- just trend more in line with the square footage growth?

Yes, Jonathan. As it relates to the comparison between Q1 and Q2. Q1 had some benefits that Q2 and probably succeeding quarters would not have in that, if you remember, the first quarter of 2010, we had a tremendous quarter where our comp store sales were up almost 10%.

And when that happens, not only do we have to spend more on labor to get the customers in and out of the store and also at the DC in order to get merchandise in and out, but there is more incentive compensation accruals during a quarter like that. And so when we came up against that in the first quarter of this year and had comps that were negative 7%, we were able to cut back on payroll at the stores as well as the DCs.

Also, we had fewer lower compensation accruals and just had an increase that was much less than the square footage increase. As we got into the second quarter we were going up against numbers that were not as difficult to compare to on the sales line and therefore, the expenses increased at a rate slightly lower than the square footage growth.

Going forward, like we said before, we haven't given guidance as far as earnings. But I can tell you that there was really nothing unusual in the second quarter other than the $615,000 of closure costs related to the Savannah distribution center. So, it was more of a normalized-type situation.

Okay. Great. Thank you and good luck.

Carter Newbold with Rutabaga Capital.

I wondered if you guys could provide a little bit more detail on the charge (inaudible) underperforming stores. Was there a geographic concentration issue or a year of opening issue that bound those together in any way?

No, there really wasn't. They were spread all over the country and maybe 2 or 3 of them had been opened in the last couple of years, but we had a number of others that were 4 years or 5 years old and then some that were older than 5 years. There really was no distinguishable pattern.

To meet that accounting test for the charge-off, does that indicate that all of them would be negative cash flow at the store level?

That's correct. That's not the accounting test but in this case, all 21 of them were unprofitable on an EBITDA basis as we projected their cash flows going out. We looked at a lot of different factors including their sales during the first 6 months of the year. Their sales during the month of July to see whether the trend had changed at all, and then we forecasted that out over the remaining lease term.

Okay. Just looking at your original cost on, at least in your store-level economics in the page of your pitch book, it wouldn't look like you wrote off 100% of the fully depreciated investment in the stores. But are you willing to say whether that was all of it or is there some still on the balance sheet?

For those stores?

Yes. Was it a complete write-off on the PP&E?

We took a complete write-off on all their leasehold improvements, and all things like signage and carpet in the stores. Certain fixtures, we did not write off because we would have the option of moving those to other stores.

Okay. Just a couple of questions around how you think about the cost side of the business. I apologize, I'm relatively new to the Company, both as an analyst and as an investor. But 80%, 90% of the discussion during this conference call has been about the sales side.

It's not atypical in my experience for a company that's been through really high square footage growth for a long period of time and then hits the wall, but there are substantial cost opportunities at this juncture in the life of a company like yours. But you aren't making much noise about the cost side. So, if I set a volleyball for you, are you willing to spike it? What would be the tipping point to get you guys taking more dramatic action on the cost side?

I would say we have been pretty tight on the cost side, really probably since the end of last year. We have had a hiring freeze. We have had a pretty tight eye on expenses. We continue to have a very tight eye on expenses.

We have rolled out, we have begun to reengineer processes in the DCs and stores. We have begun to take payroll out of DCs and stores based on reengineered processes. We rolled out this spring what we call a Payroll Planning Matrix in the stores so rather than just giving them payroll based on sales volume, we look at things like total square footage, risk classification, and hours of operation and on and on and on and do a much better job of allocating payroll.

Again, we are beginning to reengineer processes. So we are looking at each process in the store, looking at the amount of hours used by processes, looking at ways to streamline. So there are certainly ways throughout the Company that we are looking at streamlining and taking out cost.

Have there been significant headcount actions yet either in the divisional or the corporate offices?

Well, let me begin by telling you if you take the headcount of the Company in 2008 and you count everybody from district manager up and you add every corporate headcount, in 2008 that number was 218 people and today it's 234. So, if you are saying are there massive numbers and layers and so on, not really.

But, we are very aware of expenditures and are putting a very tight -- keeping a very tight eye on expenditures. We are making sure that if we have lumps of supplies in stores that we don't buy more supplies. We move supplies between stores. And again we are not hiring positions including existing positions that have become vacant.

Our headcount today is lower than it was a year ago even though we have 16 more stores than we did a year ago. So, I do believe we are paying a lot of attention to expenses and we'll continue to pay a lot of attention to expenses.

Okay. Lastly for me, I apologize, I just don't know -- do you have authorized share repurchase available to you and if not, is that something that comes on the radar screen at a certain point, given the relationship between your potential earnings power and your historical earnings power and your stock price?

We do not have a current authorization. It's something that we talked about to the Board probably every quarter for the last couple of years and just have decided not to. At this point, we are really trying to manage as conservatively as we can and maintain our cash. In fact, that's reflected in the statement we made that we are not going to open any more stores this year than we have committed to. So, at this point, we don't have anything in the way of stock repurchases planned.

Mr. Alexander, there are no further questions at this time. Please continue with your presentation or closing remarks.

Thank you everyone for attending. We appreciate your interest and appreciate your questions. Hope you have a great day. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day, everybody.