CVS Health Corp (CVS) 2002 Q2 法說會逐字稿

Good day, everyone, and welcome to Longs Drug Stores second quarter earnings results conference call. This call is being recorded.

At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. Tim Maron. Please go ahead, sir.

Thanks, Operator; and welcome, everyone, to our second quarter conference call. We'll hear first from chief executive officer, Harold Somerset. Chief operating officer, Terry Burnside, will follow with his operations review before chief financial officer, Steve McCann [phonetic], reviews our financial performance and provides our expectations for the third and fourth quarters and fiscal year. As usual, we'll end the call by responding to your questions.

Let me remind you that we will be making forward looking statements within the meaning of federal security laws. We believe that our expectations are reasonable and are based on reasonable assumptions. However, risks and uncertainties relating to future events could cause actual results to differ materially from expectations. For a full discussion of these risks and uncertainties please refer to our recent SEC filing. Longs does not intend, and assumes no obligation to, update any forward looking statements. If you need a copy of the release that we distributed after the market closed today, please call area code 925-210-6624.

Now let's begin with Harold Somerset.

Thanks, Dan, and good afternoon, everyone. I'll begin by paraphrasing what I said in our news release. We did what we said we'd do in the second quarter. We were within our projected ranges in total and same store sales along with earnings per share. Looking at it another way, we're beginning to see tangible results from the strategies we're working on to reshape our business. Our challenge now is to continue our momentum despite an unsettled economic environment. Terry and Steve will go into the quarter's operational and financial details shortly. I'm going to focus on some second quarter highlights, our progress with our strategic initiatives, and the appointment of two more independent directors before sharing some of my personal observations after six months as CEO.

It's important to note that we are also on schedule with our priority initiatives, particularly with our supply chain improvements and our program to generate increased front end sales. We are currently rolling out our initiative to improve customer service. We are into the foundation work for improving pharmacy profitability and we're developing the programs to improve our operational processes. Our board is also moving as planned toward our goal of establishing a stronger, almost entirely independent board. Last week's appointment of cost plus world market CEO Murry dash gives us our third new independent director this year. Murry is a highly respected retailing and distribution executive. We look forward to having his expertise to draw upon. Branding strategist Duane nap joined our board in July. Duane is not only a recognized strategist, he brings extensive operational experience from his days as an executive with well known and well branded national chains. In February we added financial expertise with the appointment of LeRoy T barns, Jr., vice-president and treasurer of Pacific gas and electric. Our board is also moving ahead in its search for my successor as CEO and we'll of course keep you informed at appropriate points. Personally, I continue to expect my successor to be in place by the end of this year. This being the mid point of our fiscal year, it's a good time to share some observations with you. First, working closely with our senior executives on a daily basis makes it clear to me we've put together a first class group. This team understands what we need to do to reach our goal. We are working diligently to get there. We will continue to develop that team going forward. We also have outstanding people at the store level. Longs is known nationally for that. They are the people who will determine our eventual success through their daily contacts with our customers. Recognizing the value that our store and pharmacy managers bring to the table, we're working hard to enhance our two-way communications with them. Our senior team, myself included, net with every store and pharmacy manager in the Longs organization in a series of meetings in June. [met with]. We're where in the past we had a single annual large manager group meeting, we believe bringing smaller groups together would increase dialogue and help gather ideas that could benefit our entire organization. From the feedback we've received, our store managers are developing a greater understanding of where the company's going, how it's going to get there, and the role they individually and collectively play. Senior management, at the same time, has greater direct input on store issues and competitive opportunities. That's win/win, and we'll be doing a lot more of it as we continue to reshape the company.

Let me spend a moment on our top priority, execution. Our priority initiatives were carefully planned and thoroughly reviewed before being adopted as key steps in making Longs an even stronger competitor. Are we there yet? No. Nor will we get there overnight. What we will do is continue to set appropriate expectations and then work hard to meet them. Again, we're progressing on schedule toward what we consider a huge opportunity for all of our stakeholders, investors, employees and customers alike. Before concluding, let me say this we have established a process we're following to ensure that we comply with the new certification requirements of the SEC and the Sarbanes Oxley Bill, because our reporting calendar ends in January. Our deadline for filing is September 16.

Thanks for your attention, and here's Terry Burnside.

Thanks, Harold.

Good afternoon, everyone. The last time we talked, I said we'd made progress on same store front end sales improvement. I noted that our performance demonstrated our ability to develop strategies that our stores can effectively implement. We made more progress in the second quarter as Harold noted and as Steve will describe in detail shortly. We executed well against our plans and time line. I'll also point out that we're looking at opportunities to accelerate our progress. Let's take a look at some of our key accomplishments in the second quarter.

Our ad sales continue to increase. We're executing well against our new marketing and promotional strategies which are designed to generate greater sales and bring more shoppers into our stores. We conducted two major marketing events designed to do exactly that, and we're very happy with the results of each. Clearly, Longs is becoming much more promotions driven. And while that will have some impact on our front end margin, it will also pay returns in the form of a larger customer base and of course increase sales. Supporting that expectation, kneel son data on California retail drug in the second quarter showed our front end sales up 4.3 percent while our retail drug competitors were down about 3.5 percent. The kneel son data also shows our sales out paced our California competition in an a number of key categories. For example our beverage sales showed a nice increase while other California drug retailers experienced significant declines in the category. We also achieved solid sales gains in the dry grocery, liquor, health and beauty aids categories. According to the kneel son data, our retail drug competitors in California experienced declines in those categories. What is especially encouraging is that the kneel son data shows us making progress against the grocery sector with sales increases in such categories as dry grocery, including candy and snacks, and beverages which includes alcoholic and nonalcoholic products.

Turning to our six-state region, we registered similarly strong performances in most of the same categories and we see that as further success for our revamped add and promotions program [Ad]. We continue to experience softness and photo processing which we attribute to continued price compression and what's become ag an ongoing reduction in travel and vacationing especially since September 11th. Let's spend a moment on our core pharmacy business. Pharmacy sales increased 7 percent over last year primarily due to a rise in average script price, reflects increases in products such as Claritin, Lipitor, Welbutrin [phonetic] and Acefex [phonetic]. On the other hand, gentleman North America alternatives for Glycophage [phonetic], Prozac, Cestral [phonetic] and Pritavil [phonetic] were available in the second quarter sending the average script price in the opposite direction. According to NBC Health, overall script counts in the six state strayedding area in which we did business were flat to slightly down for the three months ending June while Longs script counts were slightly positive. We continue to benefit from the strong performance of our automated fill center which past its first anniversary in July. The number of scripts filled per shift is consistently rising exceeding our initial expectations. More positive news. The center has filled more than 50,000 subpoena scripts twice in recent weeks and that's well ahead of our original expectations. The center's volume for the full year is expected to approximate the output of roughly 60 pharmacists providing a partial solution to the ongoing challenge from the pharmacist shortage. For those of you following this nationwide situation, our level of pharmacists openings remained in the mid 70s in the second quarter.

Okay. Let's update you on our key strategic initiatives starting with our program to upgrade our supply chain. We're still in the preparation stage with this initiative doing the work necessary to convert to the new retech system next spring. This is a detailed time consuming activity and we're on schedule. Our main land distribution centers, meanwhile continue to add merchandise categories and in fact added the entire product line of a major outside distributor during the quarter. Our D.C.'s also handled all of our Halloween products from candy to costumes during the quarterly. That's the first time an entire promotion has been distributed through our centers. In addition our new product allocation process continues to pay benefits by insuring that we gain a maximum return on our sales and promotions by getting the right products to the right stores and at the right time. Our price optimization program has been implemented in about half of our front end target categories. Let me point out that our stores are executing well, helping to accelerate our new programs. The support we're getting from our store managers and associates is invaluable and as Harold mentioned, strong execution across our operations is vital to our priority initiatives. We have just begun to roll out our initiative to improve customer service which we believe will further differentiate us from our competitors.

In summary, we're taking care of business, doing the things wee need to do to keep our company moving in the right direction. We've got the right strategies and are seeing early benefits of the programs already underway. We'll continue to focus on executing and I look forward to sharing our progress with you.

Right now, though, I'll ask Steve McCann to step in with his financial overview. Steve?

Thanks, Terry, and good afternoon, everyone. I'll begin with a financial review of the second quarter before providing guidance for the third quarter and the balance of the year.

As Harold noted, we were within the range we projected last quarter with total sales growth of 5.7 percent and same store sales growth of 3.3 percent. Our front end same store sales growth of 1.4 percent marks our second consecutive quarter of increased growth. Reversing the negative trend that we've been experiencing coming out of last year. The improvement was primarily the result of our promotional activities and continuing enhancement of our advertising program, both major components of our initiative designed to improve front end sales. Pharmacy same store sales rose 5.9 percent over a year ago and pharmacy sales accounted for 44.4 percent total sales. That compares to 44 percent a year ago. Third-party sales, mean^while, made up 91.1 percent of pharmacy sales compared to 89.4 percent last year. While our sales were within the projected ranges for the quarter, we like many retailers began to see some softening in sales in July. RX America our pharmacy benefits management subsidiary purchased in the third quarter of last year continues to prove a solid acquisition. The P V M had sales of $5.3 million this quarter with pretax income of 2.4 million. Last year RX America contributed around $700,000 in pretax profit to Longs as a joint venture with Albert son's. Our second quarter gross margin rate was 26.3 percent compared to 25.9 percent a year ago with the additional improvement in rate coming from the inclusion of RX America and our consolidated sales and gross margins. Our consolidated margin rate last year, gross margin rate last year excluding RX America would have had us flat with last year. The increases in - we did have increases in pharmacy margins within the quarter, however, they were offset by a decrease in our front end margins as we increased our promotional activity to drive sales and increase customer traffic. Second quarter net income was 10.9 million or 29 cents a share compared to 11.2 million or 30 cents a share a year ago. From a financial standpoint our supply chain initiative had no impact on that income in the quarter which was a bit better than the projection that we provided you last quarter. We expect this initiative to have a slightly positive impact on net earnings over the balance of the fiscal year. Operating and administrative expenses were 22.6 percent in the quarter compared to 22 percent in the comparable period last year. The increased partially reflects the fact that RX America expenses are now included under our O and A expenses whereas last year we were on the equity method of accounting and we reported our share of the profits. In addition our O and A expenses this year also include the incremental expenses we're incurring in connection with our supply chain initiatives so those are added in. Lastly as with our first quarter we're continuing to invest in our infrastructure bringing in skills, expertise and resources we need that will help reshape our business going forward. Depreciation and amortization expenses were $19.2 million this quarter compared to 18.9 million a year ago. Note that this year number excludes the amortization of good will expense and certain other intangibles which was 1.7 million a year ago. We stopped expensing good will as of the beginning of the year in accordance with the implementation of SFAS-142. That interest expense for the quarter was $3.1 million compared to 3.6 million a year ago reflecting both a lower level of borrowings and lower interest rates. This quarter's tax rate was 38 percent compared to 39.7 percent a year ago. The decrease was primarily due to a federal tax law change that we implemented that aloud us - that now allows us to deduct dividends paid on shares in our ESOP plan. Let me spend a moment on our results for the first half of the year which includes a 5.7 percent increase in total sales bringing us to 2.19 billion for the 26 week period ended August 1st. First half same store sales were 3.8 percent over last year. Pharmacy same store sales were up 7.1 percent, and front end same store sales were up 1.2 percent. Pharmacy sales comprise 45.2 percent of drugstore sales over the period compared to 44.3 percent a year ago. Third-party pharmacy sales year to date represent 90.9 percent of total pharmacy sales compared to 89.3 percent a year ago. First half net income before the cumulative effect of adopting FAS-142 was $21.9 million or 57 cents a share. Including the effect of SFAS-142, we had a loss of $2.7 million or 7 cents a share loss. Now let's turn to the balance sheet. Cash and other current assets are up about $5.6 million from a year ago. Primarily the result of adding RX America receivables to our balance sheet. Offset in part by a reduction in cash on hand. We continue to manage our inventories effectively with quarter end [inaudible] inventories per store of about 1.4 million essentially flat with a year ago. Inventory turns also are flat with last year at about 1.4 times [inaudible]. Good will is down last year compared to last year on the balance sheet due to the adoption of FAS-142 in the first quarter. Other noncurrent assets is are lower than a year ago due to the elimination of our investment in RX America following our purchase of the Albert son's 50 percent ownership in the third quarter of last year. Moving to current liabilities, they are also down from last year, again as we explained in the first quarter is primarily the result of a timing difference. Last year was a 53 week year and now our quarter end dates this year are a week later. As a result the calendar month end oriented payments that were included in liabilities last year are already paid this year, so they're out of liabilities and they're out of debt. That debt which is short and long term debt less cash on hand was 140 million at quarter end compared to 147 million a year ago. Debt, with debt being down about $9 million and with cash as we previously mentioned being lower [inaudible]. Turning to our cash flow statement, net cash from operating activities declined this quarter slightly as a result of higher inventories due to new stores and the lower current liabilities again due to timing changes we talked about earlier. Capital expenditures were in the expected range at about 45.$6 million compared to 48.4 million a year ago. We continue to expect net capex of about 120 million for the full year. Turning to store growth, we've opened nine new stores year to date. We relocated two stores and we've closed three stores. We expect to add 13 new stores while relocating one over the balance of the fiscal year. That would take our total count to 455 stores at the end of this fiscal year compared to 436 stores at the end of last year. Okay. Let's move on to projections for the third and fourth quarter as well as the full year. I'd like to point out that we'll be comparing against softer third and fourth quarter sales this year. Basically a reflection of the aftermath of the 9-11 event. In addition, there are six fewer shopping days between Thanksgiving and Christmas this year. That's going to add another did degree of uncertainty to our projection, so just thought it might be worthwhile pointing that out. For the third quarter we anticipate total sales growth to be 6 to 8 percent above last year with same store sales growth of 4 to 6 percent. Third quarter earnings per share including the impact of our supply chain initiative is projected at 11 to 16 cents compared to 7 cents a year ago. For the fourth quarter which will be a 13-week period this year compared to a 14-week period a year ago we're projecting total sales to be anywhere from 1 percent below last year to 1 percent above last year. And for those of you that are updating models, the extra week last year was worth about $80 million [inaudible] that we won't have this year. We're projecting fourth quarter same store sales growth of 4 to 6 percent on a 13 week to 13 week basis. So we've adjusted the same store calculation to be the same number of days as well [inaudible] provide comparability. We're projecting earnings per share of 56 to 61 cents compared to 58 cents in the fourth quarter of a year ago. For the fourth quarter we're projecting total sales growth of 3 to 5 percent above last year, again remembering that last year was a 53 week period compared to the 52 weeks this year. Finally we're maintaining our original projection of $1.25 to $1.35 in earnings per share for the full year excluding the impact of one-time [inaudible] compared to $1.25 a share last year.

That completes my review. I thank you for your attention. And now I'll ask the Operator to begin the question and answer session.

Thank you, sir.

Today's question and answer session will be conducted electronically. If you'd like to signal to ask a question, please press the star key followed by the digit 1 on your touch-tone telephone. Once again that is star 1 for a question. We'll pause for just a moment to give everyone a chance to signal.

[Pause.]

Our first question comes from Meredith Adler [phonetic] with Lehman Brothers.

Hi. I was wondering if you could talk a little bit about what kind of receptivity you're getting from your store level people, your store managers and stuff to all the changes you're making. Would you say that these people are on board with what you're doing? That's my first question.

I'll speak first, Meredith. This is her Harold Somerset then I'll let Terry add his comments.. That's a really good question. Obviously Longs has a very strong culture, I think one of the unique things about this company that I've found is that the employees love the company. And they're willing to do a lot of things for the company that other companies might not enjoy as much as Longs does. That doesn't mean that our managers don't have strongly held notions about what's good and what's right and senior management team does, too. That's why we spend a lot of time working on communications. But kind of getting to the bottom line of your question, I would say that to the extent that we can make our - make where we're going clear and have our store managers understand what the purpose of the various programs are and what the advantages are and are going to be, and we are putting a great deal of effort into that, they're on board. They really are. I'm very - I get a lot of synergy out of talking with our store people. There's a lot of energy out there. Terry?

Hi, Meredith. This is Terry.

Hi, Terry.

I'd have to say what we started, in particular, those June store manager - actually, store and pharmacy manager store meetings are pretty rewarding. Jump talking about what Harold said, we had many of both groups, both store and pharmacy managers approach us and kind of refer to it as a new day at Longs. And we changed that format to allow for a great deal of give and take as well as a stand and deliver type of presentation where we didn't have answers for some things we're working on, we told them that. So we do have plans to continue the communication, both in person and through other vehicles such as E-mail. But I think the message we received was twofold. One was bring it on, we're ready, we're hungry, but do it well. And we're focused on doing exactly that, execution.

Okay. Another question I have is you gave us data that you said you seem to be taking back some share in the front end. The question I would have is what do you think is happening in pharmacy? I mean I've had conversation with some of your competitors who believe that they say their comps are stronger in the market, so they would seem to be taking some share. How do you think you're doing there?

Well, as I mentioned, in the text of the initial comment, our script count, how we measure that is through N D.C., national data corp. it's our syndicated data source to be able to monitor our script count activity. What we saw through June was that our script count was very slightly positive, and it shows that our peer group in the six states where we do business is flat to slightly down. There's no question that we've seen softening of script counts all year. And while our count has been flat to slightly up from that data we see our market share up.

And would you say that's a fall out? Do you think that your situation was worse earlier, or is it pretty steady?

I wouldn't call it a turn^around. I would say it's steady.

Okay. My final question is just, you guys did say that it's a difficult environment. Could you talk a little bit about what that means? Are you seeing average ticket go down, are you seeing people, you know, maybe avoiding what they would think of as much more discretionary items, the higher ticket items, and are you seeing heat up in the competitive environment?

It's Terry again. That's a big question. There's lots of moving pieces. Obviously we've changed our promotional focus to become much more promotional and to drive bodies across the threshold and there are some trade-offs we see from that. In the marketplace generally, I'd have to say my observations are that - and we've seen this from some of our competitors in that class of trade. Front end sales are just soft. There does seem to be activity in the market that suggests some strengthening in mass merchants and other forms of discount type of retailers and I'm talking front end goods now, not pharmaceuticals. But it's a tough market with difficult discretionary income I think being a bit more limited. We continue to see areas where unemployment and difficulty in Northern California are certainly a factor. So from a competitive standpoint, things haven't gotten any easier. So the activity in the market would indicate to me - and what you see promotionally as well is everybody is trying to carve out that piece and hold onto market share right now.

Right. Okay. Thank you very much:

Next we'll take a question from Lisa cart right from Salomon Smith Barney.

Good afternoon. It's Elizabeth Lynn calling on Lisa's behalf. I have a quick question about the California state Medicaid program. It looks, according to recent press, like California is going to be the latest battle ground. I was wondering if you could comment on the impact to Longs if the state does follow through with lowering its reimbursement rates to pharmacies.

Elizabeth, it's Terry again. On an individual store basis it can be impactful. Certainly we do have stores that in fact dispense far more medicate Medicaid prescriptions in California as a higher percentage of their total script - scripts dispensed. But on an overall company basis, even with what we see happening and what those reimbursements might look like, we believe that impact will be fairly minimal to our business or more specifically to the profitability in pharmacy.

Okay. Great. Thank you.

We'll go to jack Murphy from Credit Suisse First Boston.

Thanks. I wonder if you could give us a sense of how things are looked since the end of July last reported number and maybe talk a little bit about what give you confidence to accelerate off of your July numbers.

Hi, jack, this is Steve.

Hi.

The third quarter is going to be a pretty bizarre quarter, not only for us, but I think it's going to be for everybody with the 9-11 event happening there. In total we see the third quarter as being, in terms of how we projected it, as being more robust than the second quarter and actually we've forecasted it up slightly from the second quarter. To us that makes perfect sense given the 9-11 event last year and the impact that it had. Out of the box, I'd really rather not talk about that. We [inaudible] the monthly sales release and we'll probably just continue with that process as opposed to giving new updates. At this point we're still comfortable with our quarter projections but we're going to continue to watch it. And I think from not only our standpoint but I think everybody is going to have a little bit of heartburn going through the quarter as you try to match up how you projected the quarter to run out, given the uncertainty of what impact the 9-11 event had versus what we thought it had.

So I guess, you know, [inaudible] September is going to be a lot bigger than any of the other months, I guess?

That's certainly our expectation.

Concerning the idea about increased promotional posture, what's your level of concern that there could be an aggressive response from competitors, I guess specifically I'm thinking about wall gleans and how you kind of figure that into your thinking when you lay^out the guidance? [Wall green's]

Jack, this is Terry again. I'm certain that we've done things promotionally that as competitors noticing what we're doing. We're not foolish to think they haven't. We have a distinct advantage I think in a bigger box from the standpoint of display and presentation to just do things that those folks can't do. The other piece that goes hand in hand with this frankly is the allocation piece in our supply chain. When our marketing people can go to a supplier and say, I'm going to guarantee you X number of cases and we know where to put it to get sell through, and we've got the space to do it. Other drug competitors don't have that advantage. So we'd be foolish to think we're not being noticed but we think we have ways to deal with that because of the box we offer that's differentiating and just give us a very distinct advantage.

We certainly can't predict what our competitors will or won't do. We have considered that, certainly, and we believe we have appropriate plans to act and counteract that if it does happen. We have thought about that relative to the guidance we gave.

Okay. And just a last question I guess for Steve is, could you give us a little more specifics on the pharmacy margins in the sense of how much the growing generic piece contributed to the pharmacy margins?

I can tell you that pharmacy margins were up slightly and is primarily due to that. You know, we do believe there was a pretty big impact on the sales side because of that flip. We think that was about 270 basis points on the branded generic shift on the sale side. Pharmacy margins like I said were slightly up [inaudible].

Was there any other thing - other large item that was a negative impact on pharmacy margins?

No, no. That was the primary impact on the chain.

Thanks.

Just as a reminder, it is star 1 to ask a question. Next we'll go to Kenny Ohe [phonetic] with SAB Capital.

Just wanted to actually find out within the quarter how much discrete supply chain initiative expenses were, and how much the LIPO [phonetic] charge was.

Kenny, the LIPO charge was 1.7 million, I think that compares to 1.4 million a year ago. That was up 300,000. On the supply chain piece, we've avoided handing out that level of specifics at this point, but we can tell you that the overall supply chain impact was basically zero in terms of EPS on [inaudible] effect on net income.

I was actually asking about you guided towards 14 million for the year and you broke out what it was in the Q for the first quarter. I was wondering would you break it out in the second quarter Q or can you provide it now?

We'll continue to report that consistently.

Okay.

Next we'll take a question from Franklin Morton with aerial capital.

Good afternoon, gentlemen.

Good afternoon, Franklin.

Can you give us some coloring on what the targets are for the company when all of these initiatives are completed, how long are they going to take, and what should the end of the tunnel here in terms of profitability growth, returns, however it is you all measure it?

Franklin, this is Steve. At this point we're not ready to do that, frankly, to tell you the truth. We're still rolling that up. We've spent a lot of time in the first six months of this year generating what we think all of those projects are, and in fact, we're still kind of penciling it out trying to understand what this thing looks like on a quarter by quarter basis. When we're ready, we will do that, though. [pencilling]

Could you give us what kind of sense a time frame all these initiative in aggregate will take? Is it a 12 months or four years or how would you sort of handicap that?

It's different for each one. I mean, if you're talking about - we've laid out a timetable for supply chains that takes us through fiscal 2006, you know. The front end sales improvement initiative is well underway now and we're seeing benefits to that already. Pharmacy margins or pharmacy profitability, that's going to be probably about a two- year timetable, customer service will be ongoing forever and ever, and process improvement will hopefully be ongoing forever and ever.

Where do you think you'll be able to provide us with some more specifics in this? [When do you think] some^time by the end of this year a reasonable expectation?

I'll tell you what, we'll take that as a target time and do our best to meet it.

Okay.

We really haven't discussed it internally in terms of when we thought we would be done rolling it up and when we'd be ready to take it public. We'll take that down as an action.

Okay. Thank you.

And we have a question from Dan Johnson with UBS global assets.

Thank you very much. Actually two, one is just a background question. Could you give us a little more color on the size of RX America in terms of obviously you gave us revenue and profitability, but just just to get a better sizing in terms of the amount of scripts you put through that business, and even if you had them on a retail versus mail basis?

First of all, RX America doesn't have a mail facility, so that's - that will provide some clarity.

Okay.

In terms of scripts for the quarter, over three-and-a-half million. And what else was there? Is.

And just a sense as to what is the growth of that - that script count was year over year although I realize the ownership structure was different this time last year.

Yeah, in terms of its growth year over year it's in the 4 percent range.

And then the other question is, within your guidance time period for the next few quarters, I believe the potential for Claire tin moving to over the counter happens or has the potential to happen. Have you included that into your guidance? And if not, what is your best estimate as to the implications of that shift? Thanks.

At this point we have included it in our guidance to the best that we understand what impact it will be, sure.

And what are you assuming for that implication broadly?

That's the level of detail that I'm not sure would be helpful. It's a small, small piece, December and January.

For the fourth quarter it's two-thirds of the fourth quarter?

Roughly. I think it flipped some^time in December [inaudible].

Yeah, I think that's [inaudible].

Month and a half, whatever. Part of this is predicting what the consumers' response will be.

Right. I'm just trying to get a gauge as to if you think this is completely immaterial or not.

I don't think - in terms of how we've crafted the fourth quarter we haven't factored in material impact for guidance in the fourth quarter if that's what you're asking.

No, I'm curious as to whether or not you think that depending on the range of reasonable outcomes as consumer response could even have a material impact.

This is Bruce. Obviously we realize the impact on pharmacy sales and [inaudible] O T C and Claire tin sales [inaudible] are all dynamics that are in play. I mean the plan that [inaudible] and I put together to try to mitigate all those pieces to try to come tout outcome we want to have, which is same profits and sales. To the extent that we can do that, you know, we'll be successful. We all realize that more players will come into the marketplace once it's just not available on prescription. So there are too many [inaudible].

Great. I'll check in with you three months or three months from now, then. Thanks a lot.

Next we'll go to Roj Yarisee [phonetic] with Oz Capital [phonetic].

Hi guys, I have a couple quick questions. I was wondering on the script volume versus price, how much was price [inaudible] year over year?

Price year over year has been five and a half to 5.9 percent range.

Okay. So that's significantly below where it was in the first quarter?

Yes.

Okay. Great. And then I was just wondering if you could give us some color on the latest pharmacy comp number for the month of July I was just surprised by how low it was. Four and a half percent?

I think we'll ask Bruce to address that as well.

Yes. We had a tail end off of our prescription volume in the last two weeks of July that tended to [inaudible]. But we also had a move from what we reported in the month of June into July as well, and that's the fifth week of June was a holiday week and so it showed significant sales in that particular week which was offset by a very weak week, week 1 of July. So we had a little bit of calendar ship playing into the 9 plus [inaudible] that we had in the previous month versus what we reported [inaudible].

I thought when you had a Holiday Inn a month it tended to hurt because the pharmacy would be closed [inaudible]. Is that not the case, or - yeah, I'm referring specifically to the May [inaudible] Memorial Day specifically with what was given as a reason for the low comp in that month.

Right. What ended up happening in the month of June is that you had the benefit of Memorial Day as being [inaudible] our first week in May with a very large week. It was [inaudible] low twenties. Week nine was double digits as well, that was the early pick up of prescriptions would be 4th of July holiday. So when we moved into the actual July month, a lot of the sales were already out and counted [inaudible].

Okay. And that's the lead up to the 4th of July, the days preceding it.

That's correct.

Okay. Thanks.

We have no more questions in queue at this time, so I'll turn the conference back over to Mr. Maron for any additional or closing remarks.

Ladies and gentlemen, thanks for joining us today, and we look forward to talking to you again.

This does conclude today's conference call. You may now disconnect.