Designer Brands Inc (DBI) 2004 Q3 法說會逐字稿

Good day everyone, and welcome to the Retail Ventures third-quarter earnings conference call. Today's call is being recorded. At this time I would like to turn the call over to your host, Mr. Jim McGrady. Please go ahead, sir.

Good morning and welcome everybody to our discussion of the third quarter fiscal 2004 operating results. On the call today with me in New York is our CEO, Heywood Wilansky. I would like to apologize for the confusion this morning in the phone lines. It was something that was unfortunately out of our control.

Before proceeding, I would like to restate for your company's policy with respect to forward-looking information pursuant to the Private Securities Litigation Reform Act of 1995. Statements made in the course of this call that are not purely historical, such as statements regarding the Company's or management's intentions, expectations or projections of the future are forward-looking statements. Actual results could materially differ from the forward-looking statements. Factors that could cause or contribute to such differences include but are not limited to, the factors and risks discussed in the company's annual report on form 10-K for the period ended January 31, 2004, and other reports filed from time to time by the company with the Securities and Exchange Commission. Any forward-looking statements made during this call upon information presently available to the company, no obligation to update any such forward-looking statements.

Today we announced a third-quarter loss of $900,000 compared to a profit of $900,000 in the prior year's quarter. Our basic and diluted loss per share is 3 percent in the current quarter versus a 3 cent share income in the prior year's quarter. For the nine months of the period to date we are reporting a loss of $1.3 million compared to a prior year's loss of 15.9 million. The loss per share in each respective period is 4 cents and 47 cents.

Total sales for the quarter increased $19.1 million or 2.8 percent to $699.7 million from 680.6 million. Comparable store sales for the quarter decreased 4.1 percent. Value City stores comparable store sales for the quarter decreased 7.8 percent due to a decline in customer traffic against a comparable period partially offset by higher average unit retail. Value City's comparable quarterly sales decreased in nonapparel hardlines 3 percent while apparel decreased 8.6 percent, jewelry decreased 14.2 percent and shoes in the Value City segment declined 10.7 percent.

The apparel divisions of men's, ladies and children's had decreases of 8.3, 9.4 and 7.7 percent respectively. The DSW segment sales for the quarter were $255.8 million, an increase of about 18.6 percent, which includes the net increase of 30 stores over the comparable period along with a comparable store sale increase of 7/10 of a percent. During the quarter we saw customer traffic and improvement in the average unit retail.

The DSW operations in the merchandise categories of athletics had an increase of 12.9 percent while men's and women's areas had decreases of 2.1 percent and 1.2 percent, respectively. During the quarter we had a net increase of 49 leased shoe departments covered in various supply agreements over the comparable year. We opened in the current fiscal year 25 DSW stores.

Our Filene's Basement sales for the quarter increased 9.4 percent to 97.9 million, which includes the net increase of 4 stores over the prior year and a comparable store increase of 1.2 percent. The sales increases were due in part to increases in customer traffic and average unit retail. The merchandise categories of men's, ladies and children's had comparable sales increases of 5/10 of a percent, 6.7 percent and 15.9 percent respectively. The shoe and jewelry categories also had increases of 2.6 percent and 1.5 percent, respectively.

Total gross profit increased for the quarter $18.6 million to $280 million. Gross profit as a percentage of sales increased 40 percent -- excuse me -- increased to 40 percent compared to 38.4 percent for the prior year. The increase in our overall margin rate is attributable to higher initial markups at all of our retail business operations. The Value City segment saw improved average unit retail, initial markups and reduced markdowns to obtain its gross margin increase.

DSW and Filene's Basement had reduced amount of promotional markdowns during the period. Gross profit as a percent to sales by segment and third quarter were Value City 38.9 percent, DSW 43.5 percent, Filene's Basement 34.9 percent and again, overall it was 40.0 percent.

Selling, general administrative expenses for the quarter increased $24 million from 249.6 million to $273.6 million. Approximately 4 percent of this is associated with the increase in preopening expenses incurred during the three months ended October 31, 2004 compared to the prior year's quarter. Total SG&A expenses associated with stores opened subsequent to November 1 of 2003 and through October 30, 2004 was $18 million and represents approximately 75 percent of the increase in SG&A. As a percent to sales, SG&A was 39.1 percent compared to 36.7 percent in the same period last year. By segment our SG&A ran at Value City department stores 41.5 percent, DSW 37.1 percent and Filene's Basement 35.7 percent.

Operating profit for the quarter decreased to $8.4 million from 13.2 million and decreased as a percent of sales from 1.9 percent to 1.2 percent. By segment we are reporting operating losses of 7.6 million and $400,000 at Value City and Filene's Basement and an operating profit of $16.4 million at DSW. Last year's operating profit for the quarter was $13.2 million and consisted of an operating loss at Filene's Basement of 2.3 million and operating profits of 9.4 million and 6.1 million at DSW and Value City respectively.

Net interest expense for the quarter increased $400,000 to $9.9 million. This increase is due primarily to increases in the weighted average borrowing rate and an increase of approximately $25.3 million in outstanding average borrowings compared this year to last year. Our tax rate for the quarter was 40.7 percent, and this compares to a very high tax rate in the prior year, the effect of some of the impact in non-deductible warrant amortization that is included for book income but not for tax.

As we turn to our balance sheet, our inventory totaled $584.8 million at the end of the quarter versus $547.7 million last year. This is an increase of approximately 6.8 percent. The total increase includes approximately $31.1 million for the 30 new DSW stores and the 49 net new supply locations that we are operating at this point in time and also $11.4 million for the four new Filene's Basement stores. Net working capital October 30, 2004 was 284.4 million compared to 285.3 million last year at this time. Current ratios are 1.7 and 1.8 respectively.

Net cash used for capital expenditures was approximately $54.9 million this year while depreciation and amortization for the 39 weeks totaled 39.5 million compared with 38.7 million in the prior comparable period. EBITDA for the third quarter was $22.4 million versus 26.2 million for last year's comparable third quarter. EBITDA for the 39 weeks this year is $66.7 million versus $43 million last year. At October 30th we had $108.8 million available under our revolving credit facility, and this aggregated down to $185 million of direct borrowings with about a little over $21 million in letters of credit issued in outstanding.

This concludes our review of the third quarter. As we look a little bit into the future, we mentioned in our guidance at the beginning of the quarter that we anticipated a profit for the year of 23 to 27 cents per share. Subsequent we said that that was very dependent upon this Christmas selling season and that would generate comp store sales overall of about 1 to 2 percent. And as you are aware, we recently announced comparative store sales in November were a decrease of 5.3 percent from the previous year.

We are disappointing with our sales results and remain concerned about the overall economic environment and the balance of our holiday season. We are now forecasting a loss in the year of approximately 12 cents to 15 cents a share. At this time we are not ready to provide guidance for fiscal 2005. However, we will update you with our expectations in the near future. In regards to our financing, we still expect to have an announcement for you late in this fiscal year, which would be in January, probably towards the end of January. And with that update, I would now like to say thank you, and I will turn the call over to Heywood.

Thank you, Jim, and good morning to everyone. As you are all aware, I joined RVI as CEO on November 3rd of this year. And I'm very pleased to have this opportunity. I believe the challenges that face us particularly in the Value City operations are not insurmountable. Joining me in the transition are Jerry Pulitzer, (ph) Debbie Ferree and Mark Shulman who will be responsible for our Value City, DSW and Filene's Basement brands respectively. And I look forward to the achievements we expect from each of our brands.

As Jim has discussed the third quarter overall for Retail Ventures was in summary not up to expectations. Sales were less than we forecasted, particularly at Value City. Although some of the sales shortfall was made up by higher margins, the overall profitability for RVO was below our plans. On a positive note, DSW and Filene's Basement continued their trend of increased sales and improved profitability. The strategies behind these two brands are solid.

I would also add that we are pleased with the performance of our new locations at Union Square in New York where both DSW and Filene's Basement stores are achieving sales expectations. The rapid consumer acceptance at this location speaks to the power of these brands and their potential for continued growth.

The Value City department store division, however, has struggled through the third quarter. Current economic conditions are disproportionately hurting the low income families of our nation, and since this is a key consumer segment for Value City, the brand suffered along with its customers. The drop in sales at Value City was mitigated in part by increases to average unit retail prices and increases to gross margins. But in total, the third quarter operating profits at Value City declined significantly from a year ago. We will be, and we are taking a number of steps to remedy the situation at Value City, and the first step is to change the culture of Value City.

And this process has begun with the appointment of Jerry Pulitzer as Presidents. Jerry has great depth of operational and merchandising experience and he was integral to the topline growth at Filene's Basement for the last year and a half. The second step is to assess the Value City chain to determine the best path for a more prosperous future, and Jerry and I are formulating a plan to understand where the brand stands today and what strategic options are available to us and what strategic path we will take. And as we come to conclusions I assure you we will act swiftly to make these changes.

Now although it is a little too early to say exactly which path Value City will ultimately take, I can assure you that we are committed to doing whatever it takes to make Value City a stronger contributor to the RVI portfolio on a consistent basis. And as we know what we're doing we are going to communicate that to the group at-large. I want to thank you for your continued support, and now I will ask Jake to open the lines for questions.

(OPERATOR INSTRUCTIONS) David Mann.

Good morning. First question I have is regarding in terms of Value City near-term and the inventory condition; it looks like inventories are down a little bit at Value City, which was I guess a little surprising to me given the recent sales trend. Can you just talk about the quality of that inventory, whether you're going to have to or whether you're looking to clean things up there in terms of positioning for next year, any changes in advertising or promotion near term to achieve that?

You know we have just started going through as many of the Value City stores as we can to really get a firsthand look at what the condition of the inventory is and the quality of the inventory. From a quantity point of view, while it is under control relative to recent history, I don't believe that the quality of the inventory is up to snuff. And clearly we're going to be going through trying to figure out what the costs might be to clean up that inventory to put us in a situation we can go forward on a fresh start basis. We don't know what that number is yet. We are working on that.

In terms of marketing, we are clearly going to change the marketing profile that Value City has. How that takes shape is still under discussion. In the meantime, during this December January period we are going to be instituting some additional promotional opportunities to try to push through the inventory that currently exists to try to get cleaner faster so we can get started on the new prototypes more quickly.

That dovetails into my second question. The fourth quarter or implied fourth-quarter guidance you're giving, does that assume that the sales trend continues at the November level and it looks like you have some additional markdowns in there as well.

That's correct, David.

And on the gross margin side, obviously you have seen some good improvement even on a year-over-year basis when you start doing better last year in the third quarter. Should we expect the gross margins to continue to hold up well at the DSW and Basement businesses?

I believe that they should. I don't see any reason that we should see much of a change in this.

On the DSW side, earlier in the year I think you had expressed some concern about the ability to anniversary the gross margins in the back half yet you put up a nice gross margin in the third quarter. What might have happened that helped allay your previous concerns and come up with some pretty good performance?

I think one thing we were definitely concerned about is as we came into the year is that we had a very, very successful boot season in the prior year. And we were concerned that it might be difficult to anniversary that same growth rate in boots. And I'm pleased to say that while we haven't seen the same amount of sales growth in boots, the decline has not been what we anticipated. And we remain very pleased with our athletic department and the progress that it is making. So those are really some of the areas that changed from our initial expectations for the year.

Good luck to you, Heywood. Hopefully we can see similar success that you have had at Basement and RVI.

Sometime in 2005, but on the first day of February.

Lee Backus with Buckingham Research.

Congratulations on your new position. Heywood could you discuss the systems at Value City? What additional work needs to be done as far as systems?

We are still going through that process. I would say that the one system that we are looking to have a quicker upgrade is the planning allocation system. You have 116 stores spread out over a wide geographic area, the importance of having quality allocations made based upon recent sales history becomes critical. And the current system has a little too much of the manual still in it. And that is something that we are working on during 2005. The rest of the systems we're still going through ascertaining what we need to get done on there. We don't have an answer on that at this moment.

Could you also discuss the buyers at Value City? Are there a lot of changes that need to be made do you think, or do you think your (inaudible) is what it should be?

Nothing like putting me on the spot on the first call, hey? Let's just say that Value City results have been poor, and if you had a sporting team that was not doing well you would look to see if you could change the manager and also change some of the players to improve the performance. I would say we would probably follow a similar tact although how wholesale that is unclear at the moment.

Thank you.

Jonas Gurtzle (ph) with Jonas Capital Partners.

Just a bigger look at the picture. Heywood you have done a great job with Jerry at Filene's, Debbie has done at great job at DSW. You have been taken away from Filene's. Debbie has been given added responsibilities now at DSW. How could you assure us that we don't miss a beat in the two things that have been working right for the company?

And the second question, Heywood, is a lot of people might not know your past, if you could just review a little bit the things you did at Bon-Ton because it was similar situation, desperate need when you came in, you changed it around where it is a viable company now. Could you just focus on those two questions?

Sure. First of all, in terms of the current condition at Filene's Basement and DSW and their ability to go forward continuing the improvements that they've made, in Boston we appointed -- we hired Mark Shulman (ph) to follow me as President of Filene's Basement. And Mark's background, he was most recently Chief Operating Officer of Retail Brand Alliance which owns among other businesses Adrienne Vittadini, Carolee, Casual Corner and also importantly Brooks Brothers. And I think we have all seen a tremendous resurgence and improvement in the Brooks Brothers business over the last several years and Mark was integral in making that happen. And prior to that, Mark had been among other things he had been the President and CEO of Yonkers Department Store. He had been the head merchant at Stage Stores when they were performing at a very high level. He had been President and CEO of Henri Bendel so he understands and certainly appreciates a better product.

The strategy at Filene's Basement is pretty well-established now as we have changed it from what it was to what we are trying to make it and what it has become. And his background fits hand and glove with that. In addition to that, the key merchants underneath Mark are all superior. They are a terrific team of people who have enjoyed the recent success and are really coming together to drive the business. He has got a great team and he is well positioned to do that.

In Debbie's case, Debbie has been integral in the growth of DSW and has been there for quite some time tinkering with and adjusting the merchandising strategies and the merchandising initiatives in order to grow that business. And her new responsibility isn't going to change a lot of that. While the title is President, her foremost responsibility will still be functioning as the strategist for the merchandising initiatives and working with the people underneath her. As a matter of fact we have actually been able to strengthen her team underneath her by adding some positions that give her more flexibility and time to work with her folks versus just running and doing for herself.

And I know that at DSW they are looking for one or two partners to help her on the operating and finance side of that business. And those announcements should be forthcoming in the relatively near future, so they are well structured as a team to give her the support necessary, to give her the time to give her attention to the merchandising detail.

In terms of my history, I will do it rather quickly; I started at Federated Department Stores 1000 years ago on the Abraham and Strauss training squad of the 1970s which was a place where everyone thought that the future retailing gurus came out of. Spent three years and change at Abraham and Strauss rising to buyer, all experience in the men's business, became a buyer at Allied Stores, which owned Gertz in New York at the time and was put into the ladies side of the business, ladies accessories. Did that for not quite three years, and became a merchandise manager, did that for about a year before I went to May Department Stores, and that was in around 1977. And I stayed at May Department Stores for about 19.5 years and in that time period I had virtually every job on the store side of the business rising up to VP of stores and every job in the merchandising side of the business rising to Senior Vice President, general merchandise manager for a wide area of the company, including shoes, juniors, cosmetics, accessories and several other areas as well.

Moved to New York and became the EVP of merchandising at Lord & Taylor working with Marshal Hillsberg (ph) in the two years that Lord & Taylor had probably its best performance ever in terms of sales growth and earnings growth. And did that for about two years. And then was promoted to the President and CEO of Filene's in Boston, a division of May Corporation, and ran that for about two years and Filene's had the two best years of its history at that time period in sales and earnings growth and in handily beating the competition and was promoted to at that time to the President and CEO of Foley's Department Store in Houston, Texas which was the biggest division that May Corporation owned.

I was in Texas for about three years. The competition there was Dillard's and Foley's handily beat Dillard's and the handy game (ph) combat of the Southwest. Did the merger and acquisition of May D&F into Foley's and Foley's drew at the time period from about 1.1 billion when I got there to about 1.75 billion when I left. I left there to become the President and CEO of the Bon-Ton Stores Corporation which at the time that I got there was as you said a close-to-death store. They were probably days or weeks away from a Chapter 11 filing. The company had no strategic initiative. And it had no reason for being.

But I thought that by creating a strategy whatever strategy we chose we could at least improve the performance there and stabilize the business and grow it. At Bon Tom we chose the strategy of moving upscale because that was the only strategy I thought that they could long-term win at. And that if it was successful was expandable and affordable. And over a five year period that is exactly what happened, and actually in the second, third and part of the fourth year Bon-Ton Stores had the number 1 comp store increase of all department stores in the country during that time period and the company grew from about at the time $575 million when I got there to about close to $800 million when I retired in July of 2000.

In the time period that I didn't work in retailing I became a college professor at the University of Maryland in College Park and taught global retailing management from a strategic perspective. And it was a terrific experience, and when I retire for the second time some time in the future I will do it again. It was great, it was learning for me and for the students. But at Bon-Ton very much like Value City, Value City very much like Bon-Ton, the strategic direction of the company has flaws in it that need to be corrected. They need to have a specific strategy if not for the whole company, then by broad swaths of it so that we would deal with it on a geographic basis. Having run companies that have very disparate geographic stores and the ability to sell different types of products before, it’s doable. You have to just pay attention by store, and really create a strategy almost on a by store basis, lumping the company into one or two halves. And that is exactly what we intend to do.

In my early visits out to some of the Value City stores and we are visiting a number of stores this week and next week again as well; I see many of the same things I saw at Bon-Ton. I see boxes that are situated in rows were enough traffic goes by that they should be able to do business with decent parking fields and good enough lighting and enough real estate and space inside the buildings. But what they don't have is a clear message to the consumer and in Value City's case I think that they have a distinct lack of quality and fashion currentness in their inventory assortments. And that is something we will be working on and already working on as we speak to improve the fashionality.

And also just to be able to have consistent sizes and colors and recent, current fashion available to the consumer. And I think that they have relied too heavily on the optimistic deal base of merchandise in their store that would allow the consumer to understand that they will be consistently able to buy current fashion with good size and colors at a very good price while supplementing that with great opportunistic purchases that the company over the years has become known for.

We probably need to raise the quality level that they have had and to try to balance the business more not only at the budget level but moving up to a budget moderate level in order to spread out the area of attack. But in Bon Tom Stores very similar, they had no strategic initiative, we moved it up, it actually in some cases became known as the "bloomies of the boonies" and after similar results mostly in the tertiary and secondary markets. And we were able to accomplish that, we created equity for the shareholder over time. And when I was there we looked at buying Elder Beerman, was an old plan. That they had in placed -- and as you see they finally executed that plan and you can see the growth in the stock price based upon those initiatives as well.

Thanks for the thorough answer, and lots of luck.

Arnold Brief with Goldsmith and Harris.

Two questions, Filene's performance is obviously improved, still not profitable. Could you give us some breakout of to what extent the opening expenses and new store losses and that kind of thing affected performance and how the base of the stores are doing? Actually in terms of maybe give us some outlook for profitability for next year for Filene's? And secondly you just did give us a pretty good picture of what's wrong with Value City and I realize that you haven't finalized your decisions in terms of new direction. But could you give us some perspective on to what extent the store locations within their markets will limit your ability to trade up? Number 1.

And number 2, could you give us some feel maybe for the timing? When do you think the decisions will be finalized, when you can get new merchandise into the store? When should we be looking for some of the strategies to start to have an effect?

As you know, we don't talk about individual stores. So at that point I really can't address any questions on an individual store. I can say that overall so far this year at Filene's Basement we've got close to about $2.5 million in preopening expenses recorded on the books for the new stores that we've opened up. And as you are aware, most recently in New York. So in at the Union Square there so we really didn't have a lot of time to get a top line impact from that yet as we look down the road.

As far as what we are going to talk about for next year, I think that really I would prefer to wait and address that all at once when we do come out with our estimates for next year as we get a little bit closer to formulating our plans here. So as far as that is concerned, that is where I am going to have to leave that with you right now.

How about the store opening expenses, the store openings for next year for Filene's?

As far as how many stores?

Yes.

We're not prepared to talk about that right now at this time. All of that we're going to talk about when we give our estimates for next year.

In terms of the comments on store markets, the stores that I have viewed so far with the exception of one store is consistent enough that you can create a strategy that could go across those stores. And frankly in discussing the inventory mix with the people on the frontline in those stores, virtually all of them felt we could move up. The question is how far up. And that is going to become a little bit of a jigsaw puzzle by store, one store may take up two clicks, one store may take up four clicks, we will have to group them by pods, so to speak, so that we end up -- you can't manage 116 separate pods, but you probably manage three or four pods. And we will be identifying what stores that fit into a pod in terms of how far up it moves. But as the 116 stores we currently operate, it appears quickly that the overwhelming majority of them have room to move up; the question is to what degree. And that is what we are assessing right now.

In terms of the timing of when you might see improvement in the inventory mix so that you will see it on the sale sheet I would say that we could impact the third quarter of 2005 pretty significantly. We can probably have marginal impact on the first quarter, maybe a touch and a little more in the second quarter. Third quarter we should be able to impact the inventory mix to an 80, 85 percent level at least. And that is when you will see what that mix really should look like. In terms of the strategy we are close to understanding what the strategy is. I want to visit a few more stores before we -- I want to see a few more of the "bad" stores to understand how bad the bad stores are versus the "good" stores. I have seen a bunch of the good stores already to understand how disparate the two are. And when we do that we will segment the company, but even the lowest level of the company is going to move up from its current position in terms of merchandising.

To what extent is any new strategy, particularly one that involves individualizing the stores a little bit, dependent on your new systems, planning and allocation systems, and when do you see those being finalized?

The planning allocation piece I think that we will have in place, Jim, do you want to check this? I thought we would have that in place for the third quarter.

Right, we should have that in place for about -- it will probably towards the end of the third quarter but definitely at the end of the third quarter. One thing to remember with any DNA system that we put in its dependent upon the history that we've built and the database that we have. So you don't realize immediate benefit out of that. But you definitely start to see the impact of that as soon as it is up and going within the company. But in order to really see the -- utilize it 100 percent to its full benefit it will generally take a little while to build some history that is in there. But again, I do believe that we will at least have the base in here in the third quarter.

But what is going to impact in addition to the systems more importantly is the buying system. And in the Basement when I got there we went on a buying system, created a buying system that worried very much at the point of purchase about what the merchandise would look like when it was at store level. And instead of just buying merchandise. And with the institute and have already started to do within that same business system at Value City so that allocations get better just by the nature of the buying. And that is in progress and I think you will see some significant improvement on that the third quarter at the latest.

Does Value City and Filene's compete at all for merchandise?

Well, they don't compete for customers. I think there are almost no market that they share geographic locations that are even remotely adjacent to one another. In terms of product procurement, up until I arrived they probably didn't compete for merchandise because they have probably the strategy that was very different from what the Basement had adopted. With the changes that we will make, there will clearly be more overlap of similar product in a significant number of Value City Stores. Not all but a significant number of them, more similar to some of the product that you would see in the Basement with the possible exception of the European imports that we currently do at the Basement. And so I look at more not so much as competing for merchandise but at giving us probably a bigger buying power. Opportunities to be able to work with manufacturers either on upfront buys or on opportunistic purchases more effectively.

Filene's Basement was always limited with the fact that they have, well certainly now 26 stores and if we identify a segment of Value City that could more overlap that assortment, you might be able to go in and talk about buying for 60 stores, having joint purchasing opportunities. The good news is that both Jerry and myself and Mark Shulman work well together and that there will be no walls up between the two companies. The amount of communication and information sharing between the two which wasn't very good prior is already improving dramatically. And the two merchandising teams are working together on a number of initiatives with important manufacturers and that's going to benefit Value City from the quality that they are able to acquire. And it will benefit Filene's Basement by the ability to be part of a larger purchase that might allow them to get some pricing leverage that they weren't able to get as a smaller purchaser.

Is there any possibility of converting some Value City stores to Filene's?

I think that that is certainly one of the strategies that could be in play depending upon what happens. And the question is whether they would actually convert to a Filene's Basement or whether some of the areas within the Value City store could become Filene's Basement at Value City. So there are some options available to us and we are going to examine all of them.

Thank you.

There are no more questions in the queue. (OPERATOR INSTRUCTIONS)

As long as nobody else is in line, could you give us some feel on the fashion trends and the impact they may have on DSW's spring season and how you are positioning yourself?

Arnie, I think as Debbie is taking a look at her spring line she is very excited. She is seeing some color changes that are coming along, some style changes that are pretty unique. They are not repeats of what we saw last spring, and they are not close. Again, we are very excited as well about some of the lines that we are going to be able to present in athletics. So right now I don't see anything that would say that it is not going to be a pretty typical year in the transition of the seasons for shoes. And I know that Debbie is really worked hard to put together a great line this year.

What would happen if -- I am not predicting this and I don't think it is going to happen but just as a point of curiosity, what would happen if retailing through Christmas and the winter is a little bit weak and the department stores in general, retailing in general get more promotional, what would be the impact on Value City and DSW, Filene's (multiple speakers) kind of environment?

I think that we will become just as competitive with everybody else, and we will be in the same position. I don't really have an answer for that question because we have put in plan the ability to control our open to buy at this point in time, and we are adjusting it as we always have to maintain fresh inventories and keep the balances at a manageable level. So I think that all retailers at this point in time frankly are being cautious about the holiday season. And I think that really as Heywood kind of said a little bit earlier here we've adjusted some of our marketing plans throughout the balance of the holiday season in expectation of maybe not the best holiday season that has ever been on record here.

Let me just add that when business is tough at all the different tiers of retailing from a manufacturing point of view, it puts more pressure on the manufacturer, and in some cases might open up the door for some improved opportunistic purchasing that would maybe be more fashion right with better sizes and better colors held together because of the other channels of distribution holding back, cutting back canceling, maneuvering. And so sometimes that actually will open up more opportunity for the off-price or discount segment to take advantage of.

Do you foresee any impact at all in the change in the quota system? Increased supply so to speak, is it helping you indirectly?

Everybody that I talk to that is manufacturing in China tells me that they have no clue what is really going to happen. And that all of the suppositions we are all making about prices coming down because of the quota is going away and how much it will mean, no one knows yet. And I would tell you that probably the impact will be less significant than everybody thinks. That is my quick gut.

I wasn't thinking of price so much as just more supply that would maybe create opportunities for you.

Well, as a general statement there's no lack of merchandise out there. Go into any store, I don't see any stores that are empty.

Okay. All right, thank you.

Michelle Simmons (ph) (indiscernible) Trading (ph).

Can you give us your comp assumptions based on your revised guidance?

For 2004?

For the next quarter.

I think actually that as we take a look we're probably going to see the trends running about the same as what they were in November, in the press release we saw out there.

At this time there are no further questions. I will turn it back over to your host for further remarks.

Thank you, everyone for your participation and support, and again I apologize for the inconvenience on the start up here this morning. I look forward to speaking to everyone in the near future and have a happy holiday everybody. Thanks again.

That does conclude today's program. We do thank you for your participation. Everyone may now disconnect. Have a wonderful day.