Designer Brands Inc (DBI) 2008 Q3 法說會逐字稿

Ladies and gentlemen, hello and welcome to today's third quarter operating results conference call.

As a reminder, all your lines will be on listen-only mode and there will be a Q&A session at the end of the call.

(OPERATOR INSTRUCTIONS) At this time, I would like to welcome and turn the call over to Mr.

Heywood Wilansky.

Go ahead, sir.

Thank you.

Welcome, everyone, to our third quarter operating results call and as you all know, I am leaving at the end of January, January 31, so this will be my last earnings call and as a method to introduce the team that will be handling this on an ongoing basis, we're going to do things a little bit differently today.

I'm going to introduce Jim McGrady, our Chief Financial Officer, who will go over all the numerical results for the third quarter and then when Jim hands it back to me, I'm going to introduce everyone to Mark Shulman, the President of Filene's Basement, which is the primary key operating division of the Retail Ventures business and Mark will give you the third quarter overview of the Basement and at the end of that, it will be handed back to me and we'll open up the floor to questions for either Jim or Mark or myself.

So without any further delay, I'm going to give it to Jim McGrady who will go over the operating results for the third quarter.

Jim.

Thank you, Heywood.

Good evening, everybody, and welcome to the discussion the third quarter operating results for Retail Ventures.

As always, before proceeding, I would like to restate for you the 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 Form 10-K for the period ended February 2, 2008, and for other reports filed from time to time by the Company with the Securities and Exchange Commission.

Any forward-looking statements made during this call are based upon information presently available to the Company and the Company assumes no obligation to update any such forward-looking information.

Also, as you are aware, on January 23, Retail Ventures disposed of an 81% ownership in its Value City operations.

And as such, the results of the Value City operations during the three and nine months ended November 1, 2008 are presented as discontinued operations in the operations statement.

Today we announced third quarter net income of $10 million or $0.21 per share and $0.20 per share on a basic and diluted basis respectively compared to 2007 third quarter net income of $68.2 million or $1.40 per share and $1.20 per share on a basic and diluted basis respectively.

Income from continuing operations for the quarter was $8 million or $0.16 per share on a basic and diluted basis, compared to net income from continuing operations of $82.4 million or $1.70 per share on a basic and $1.45 per share on a diluted basis last year.

In the third quarter of 2008, we recognized a noncash benefit of $7.9 million representing the changes in the fair value of our warrants and he conversion features of our products.

Adjusting for these noncash expense reductions, the third quarter 2008 non-GAAP income for continuing operations is $100,000 and zero diluted earnings per share.

Comparable store sales for the quarter decreased 3.3%.

By segment, comparable store sales were negative 4.1% at DSW and down 1% at Filene's Basement.

DSW net sales were $391.4 million for the three months ended November 1, 2008, a $24 million or 6.5% increase over the comparable period in 2007.

DSW's decrease in comparable sales of 4.1% was primarily a result of the challenging economic environment as evidenced by a decrease in customer traffic.

For the third quarter of fiscal 2008, DSW comparable store sales decreased in women's by 3.5%, men's by 2.4%, accessories by 1.9% and in the athletic category by 5.2%.

Filene's Basement net sales were $112.2 million for the third quarter of 2008, an 8% decline compared to last year's period.

For the third quarter fiscal 2008, Filene's Basement and comparable store sales decreased in men's and women's by 2.1 and 2.5% respectively, and increased in accessories by 1.8%.

Comparable store sales related to off-season purchases increased 47.7% which represented approximately 8.1% of comparable store sales.

Total gross profit in the third quarter increased $10.8 million to $215.7 million and as a percentage of net sales increased 90 basis points to 42.8% from the previous year quarter of 41.9%.

The increase in gross profit is comprised of increases in DSW of $10.8 million, virtually offset by a slight decrease in Filene's Basement of $100,000.

For the quarter, as a percent of net sales, DSW's gross profit increased from 44% to 44.1% of sales due to a decrease in markdowns partially offset by decreases in initial markup.

Filene's Basement gross profit for the quarter as a percentage of net sales increased from 35.5% to 38.6%.

The percent of sales increase is due to an increase in IMU, initial markup and a decrease in markdowns as a percent of sales.

Our total selling, general and administrative expenses for the quarter increased by $24.3 million to $201.5 million -- excuse me $201.5 million as a percentage of sales were 40% compared to 36.2% last year.

DSW's SG&A expense for the quarter increased $24.6 million and increased as a percent of sales to 39.1%.

The increase in SG&A expense as a percent of sales was a result of an increase in bonus expense as last year that bonus expense was reversed in the third quarter, an increase in expenses related to DSW.com on reimbursed expenses to provide transition services to Value City and an increase in other home office expenses.

Filene's Basement selling and general administrative expenses decreased $500,000 in the quarter, however, they did increase as a percent of sales to 45%.

The increase as a percent of sales reflects reduced total sales in the quarter and increase in home office expenses and $900,000 asset impairment charge that was taken in the third quarter of 2008.

Our third quarter operating profit of $24.3 million was comprised of $20.9 million at DSW, $7.9 million at corporate and an operating loss of $4.5 million at Filene's Basement.

Adjusting for the operating impact of the warrants comprised, the non-GAAP operating profit is $16.4 million in 2008 compared with $29.6 million in the third quarter of last year.

Interest expense net was $2.6 million for the third quarter compared to $500,000 for the third quarter of last year.

Increase in interest expense is primarily due to increased average borrowings during the 2008 quarter.

Interest income increased -- or excuse me, interest income decreased $1.5 million in the third quarter over 2007 primarily due to replacement of short-term investments with lower risk and lower yielding money market funds and other investments.

The effective tax rate for the three months ended November 1, 2008, was 44.1%, compared to 24.7% for the three months last year.

This tax rate reflects the change in fair value on a mark to market accounting for the warrants which are not tax deductible and an increase in the valuation allowances of an all-net deferred tax asset.

As we take a minute to turn to our balance sheet, inventory totaled $418.7 million at November 1, 2008, compared with $339.3 million at the end of last year.

This was an increase of approximately 23.4%, which is to be expected for retail.

Net working capital at November 1, 2008 was $360.3 million compared to $295.9 million at year end.

The current ratios were 2.16 and 1.98 respectively.

Adjusting for the $4.3 million warrant liability included in current liabilities, working capital would have been $364.6 million with a current ratio of 2.19.

Year to date net cash used for capital expenditures was approximately $69.6 million while year to date depreciation and amortization totaled $34.5 million compared with $29.4 million in the comparable prior year period.

During fiscal 2008, capital expenditures incurred of $70.1 million included $37.9 million for new stores, $9.5 million for improvements in existing stores, $3.6 million for office and warehousing, $4.4 million related to DSW.com and $14.7 million for information technology upgrades and new systems.

EBITDA from continuing operations in the third quarter was $33.6 million versus $125.4 million for the last year's third quarter.

Adjusting for the FAS-133 charge, EBITDA for the third quarter would have been $25.7 million and $34 million for the prior year quarter.

Consolidated availability under our secured revolving credit facilities at the end of the quarter was $172.4 million.

On a consolidated basis, outstanding letters of credit totaled approximately $3 million and $10.6 million on November 1, on the Filene's Basement and DSW secured revolving credit facilities respectively.

Our current consolidated availability is approximately $167 million, which is comprised of $29 million under the Filene's Basement revolver and $138 million for DSW.

That will conclude the historical review of the third quarter operations.

At this time we are not going to provide any specific guidance for fiscal 2009.

Similar to most retailers, we anticipate reduced customer traffic and risks from reduced consumer spending for the balance of fiscal 2008.

With the uncertainty in the economy, we are not providing our expectations for the balance of fiscal 2008.

Also, as you may remember, previously we provided general 2008 sales and margin indications for Filene's Basement and other general operating statistics for retail ventures.

Due to the deterioration in general economic conditions, at this time we are not confirming these indications.

At this time I'll turn the call back over to Heywood.

Thank you, Jim.

And now we're going to introduce Mark Shulman to the group.

Mark is the President of Filene's Basement and he will be handling their updates on an ongoing basis as I transition out.

So let's welcome Mark.

Thank you, Heywood.

Let me just before we begin just give you a little bit about my background.

I began my career at Federated in 1971, worked for Bloomingdale's for almost 15 years.

Most recently I was CEO of Ann Taylor and Henri Bendel's and prior to joining Filene's Basement I was the Chief Operating Officer for Retail Brand Alliance which owns Brooks Brothers and Carol Lee jewelry.

I've been with the Company now just a little over four years and what I'd like to talk about today is basically Jim sort of touched on the fact that as you talk about the different categories of business, that in ready to wear and men's, we did have a decline in our business, accessories was strong, but overall, the business has been pretty much flat for the third quarter and as he said before, clearly we're seeing that the customer is not responding as aggressively and as good as we would like them to be in the third quarter and certainly that's continuing into the fourth quarter as well.

So basically I would like to maybe just take some questions from you as to what's -- what specifically you'd like to ask of the three of us and I'll turn the meeting back over to Heywood at this point.

Thank you, Mark.

And the only other comment I would make is if you -- when Jim report on the results for Filene's Basement for this third quarter at negative 1%, as we have in the past on a four wall basis with the adjustment for fine jewelry that we leased out in the middle of the fourth quarter last year, the basis was flat for the third quarter and four wall basis and they were plus 2% on a comp basis for the nine months ending third quarter of this year.

With that, we'll take any questions.

Operator, would you see who's on the line?

Absolutely.

(OPERATOR INSTRUCTIONS) Our first question is from David Mann.

Yes, thank you.

Good afternoon.

Heywood, first, wish you good luck with your transition and your future endeavors.

Wish me good luck on the putting green I think would be better.

Well, good luck there as well.

Question for -- let's start off on Filene's Basement.

Mark, welcome.

Hi, David.

Good to talk to you again.

The question I have is I guess you've had impairment charges the last few quarters.

You commented, and Heywood commented on the last call about some weaker performance.

Can you just give us a sense on how some of those new stores are doing and what's the prospect in general of them becoming successful?

Are we -- should we start expecting some stores to close?

Okay.

Well, first, on a very good note, we opened a store recently in October in Florida, that's our first store in Florida and the initial results have been very, very good.

We're very pleased with it and we see that continuing.

So that's a very big bright spot for us.

And, I've heard Heywood's comments in the past with regards to the stores that we've opened recently and I think, the fact that we've had to impair those stores in some cases, the prospects, I think are going to be, you know, challenging for us especially in light of what's going on with the economy right now, which makes it even more difficult.

So, I would suspect that these stores are going to be difficult going forward and we may have to close some of those stores.

Okay.

Mark, can you give a sense on where you -- on your comfort level with the reported inventory level given that the trends have weakened and where should we expect inventories to be in total on a per store basis at the end of the year and maybe, Jim, you can give us a sense on where cash balances should end at the year?

I think, we've made the adjustments to the inventories based on where we see -- we saw this coming and in the fourth quarter we made several adjustments.

So we pretty much are going to be flat and with our plans for the '09 business being uncertain, we're going to try to keep our inventories very, very, very tight.

We are holding a lot of money back, we're not spending it up front like we have in the past and if you look at our business, I think that's the right way for us to be going.

We're going to be a little bit more opportunistic and less up front than where we have been in the past, David.

David, in response to your question about cash and everything like that, it's really going to be dependent upon the holiday season and where we go with that.

At this point in time, we just can't with any sense of accuracy give an estimate right now.

So we're just going to have to wait and see until we get a little bit further into the holiday season, get a chance to get a couple more of our promotions behind us.

Now, during the quarter, you executed on that amendment to your revolver to buy back some pies.

That's correct.

Do you have additional appetite and cash flexibility to do that some more?

What are your thought processes on that?

We actually did buy back $10 million of principal amount of the pies for approximately $5.6 million.

We do have an additional appetite to buy back pies.

We're currently evaluating what the availability of those pies are out in the marketplace and can't really -- can't really say that they're a highly traded instrument that's out there.

So it's not -- it's not at this point in time something that's easy to access in the marketplace.

Okay.

And then sort of one last line of questions and then I'll yield to others.

On the Value City bankruptcy, I know you laid out in the queue your expected liabilities now about $16 million.

Can you just -- is that the expected maximum?

Are there any other potential expenses out there?

Does that include legal costs and just give us an update on sort of the impact of the shared services, what additional costs you're having to take on at RVI because of the Value City bankruptcy and what will happen when they liquidate?

Well, I know the estimated liabilities do not at this time include any anticipation of legal expenses.

So that's -- we could incur a little bit more.

Yes, it is what we believe at this point in time to be a fair representation of our liability of what's -- what is outstanding.

What was the other pat of your question, David?

On the shared services piece, can you just quantify what the weekly payment is you're getting?

And then secondly, what's the -- you know, what will happen once Value City liquidates?

What's going to happen to your SG&A?

Well, certainly I wouldn't presume to give you the weekly payment for that, but -- because it does vary with a little bit of uncertainty as to what's going on, but at this point in time, what's going through the financial statements of retail ventures on a consolidated basis is essentially the costs that you will see on a go-forward basis.

I do believe that we haven't in fact recognized approximately $3.6 million worth of expense reductions, for the entire year, which is really a -- virtually a nonimpact number.

So that's where we're at at this point in time.

And I really don't expect to see a great deal of pickup next year from cost reductions as -- yes.

The -- Jim, if I could clarify.

The increase in home office expense that you talked about as a factor in SG&A, is that related to some of the burden that now you're having to take over because of the, Value City is not contributing as much or is that a separate--?

That's really the home office expense of Filene's Basement.

That's the back room charges for the merchants, the warehousing, human resources, some of the financial functions, like like that, David.

Okay.

That's not really related to the Value City operation.

Okay.

Great.

Thank you very much.

Okay.

Thank you, Mr.

Mann.

Our next question is from Mr.

Samuel Kidston.

Go ahead, please.

Yes, hi, guys.

Just, in light of the fact that Value City is clearly off the balance sheet and there's really just Filene's Basement and DSW now, could you just articulate why there wouldn't be a move to separate the businesses formally at this point?

I think that's something that we have to continue to evaluate as time goes along.

And, I can't deny that perhaps at some point in time we did take a look at that, but right now, our intention is to operate these businesses under one -- under the Retail Ventures banner and we don't have at this point in time an intention to separate anybody or anything like that.

But we do, you know, continue to evaluate all of our possible alternatives.

All right.

Thank you very much.

Thank you, Mr.

Kidston.

Our next question is from Mr.

Adam Comora.

Go ahead, please.

Yes, I just had a couple of real quick questions.

The first one is are we -- what kind of payments are we receiving on the Boston store where it looks like they've halted construction and does that flow through the Filene's Basement operating income, those payments?

We continue to receive the regular payments that we have since the construction began at that site and we closed the store.

The payments do go through the Filene's Basement operating statement, however, you have to realize that under the accounting rules, they're stretched out quite a long period of time through the balance of the lease and perhaps even in certain cases some of the renewal periods.

So there is very little recognition of those receipts in the Filene's Basement operating statement.

What are we actually receiving from them and what does that look like going forward now that it looks like that construction is -- has slowed or halted or do you guys have an update on what's happening there?

Well, we have never -- never disclosed what we are receiving from the landlord while that store is closed and we won't do that now either, but I will say that we do still anticipate that that store will open probably in spring of 2010.

There is some speculation that it may open in 2009, but I really think everybody is looking to 2010 right now as an opening year for that.

Okay.

What -- can you help us understand what's included in the -- when you guys do your segment, operating income in the queue, you show that corporate shows positive $7.8 million of operating income in the quarter.

Can you just walk us through how you get to that number, what's included in that number so we can try to get a sense of what the true operating expenses are at the corporate headquarters outside of Filene's?

Well, what runs through the corporate segment is the -- are the financing gains and losses from the pies and warrants and things like that.

There is no recognition of, quote, corporate expenses as all those costs are pushed down and allocated out between the two operating entities, Filene's Basement and DSW.

Okay.

So you're saying if there was absolutely zero gains or losses in -- through the pies or the warrants, that line item would be zero?

Yes, that's correct.

That Filene's is actually picking up its share of all the corporate expenses?

Yes, they are.

Yes, that's correct.

Okay.

Now, have you guys taken any actions at RVI's corporate headquarters such that headquarter SG&A should be lower next year than this year?

We are in fact in the process of reducing that, we're reducing head count and that has -- that has taken place, however, we'll see some of those benefits throughout next year, but quite honestly, the corporate head count at Retail Ventures was minimal to begin with, so what we have done is recognized during the year some severance costs that are needed to recognize under the -- actually, we are gating a lot of feedback on your line, Adam.

Okay.

I'm sorry to hear that.

I'm on a cell phone.

Anyhow, we are getting quite a bit of, -- we do anticipate seeing some pickup, but it is not -- it's not going to be substantial.

And there's no way to give us an order of magnitude how much we're going to save next year versus this year?

Not at this time, no.

Okay.

Thanks a lot.

All right.

Sorry, Heywood, just want to echo the thoughts from before to wish you good luck in what happens next for you.

Thanks, Adam.

Thank you, Mr.

Camorra.

Our next question is from Mr.

[Robert Wiggins].

Hi, thanks for taking the call.

Can you explain to me what the actual long-term obligations are and how they're cut up if you've purchased some of the pies back?

Yes.

It's actually comprised of the revolving credit facility.

There's on outstanding balance under the revolver is $43 million.

There's the $250,000 that remains outstanding as a liability for the senior loan agreement.

There is approximately $126 million that would be outstanding for the pies at this point in time, so that totals about $170.3 million.

Okay.

So I mean not to beat a dead horse because I'm sure many people ask this question all the time, the way that it stands is there's close to $65 million in networking capital or even just $50 million in cash, $290 million worth of DSW stock at today's close, $170 million worth of debt, all of that works out to possibly what might should be around $170 million worth of value that's not falling to the shareholders, yet the stock is trading at just under $1.20 after today's close.

We're only getting one-third of the value.

I mean maybe this is more of a question to -- for Jim than anyone else.

What can you do about this going forward for us?

Well, as you, I'm sure, well remember and I don't want to give a history lesson, that the two stocks of DSW and RVI traded pretty much in unison as far as the spread on a historical basis until approximately in October.

And then when things started to change in the general retail markets and everything like that -- and not retail markets, they changed in the retail markets and then they changed for the general economic environment period, that's when actually these things started to close down and when the Value City bankruptcy was announced, it seems as though everybody really took a dim view of what RVI's position was in that bankruptcy.

So I think really what's going to have to happen is once we get through the bankruptcy, we get to see what the true effect is upon retail ventures, that, in fact, that we may see some of that trading parity come back to us.

Until that point in time, I would have to agree that there is in fact -- there is a disparity in the two market prices that are out there right now, however, it's -- I think one thing that we can do is to focus on Filene's Basement and to get the operations of that turned back around and get it to be in a profitable position.

Not an easy economic time to be trying to do something like that, however, I think that we do have people on board that have experienced this before and we're going to give it as much effort as is needed to get this to happen.

I just -- right now, my response would be is we're going to have to sit and wait and see that if the Value City bankruptcy, once that all clears up, if that was really one of the main factors that impacted the price of that stock, of our stock and also see if we can get some momentum and change in the operations at the basement.

And can you just remind us again what is the separation date or whatever the date may be where RVI no longer has recourse to the Value City?

Wasn't that a year after the sale originally?

Well, it really depends upon -- and I'm not bankruptcy counsel, so I'll just give it a stab here.

This could take up to a year and a half to resolve.

It might even take a little bit longer.

We are at the mercy of the bankruptcy court and how this thing is going to play out.

At the same point in time, we do believe that the liability that we've recognized is our maximum liability, although, as I said earlier, I do believe that we're going to end up with some legal expenses that we're going to have to incur as we go down the road with this, with settling out these liabilities, so--.

But that--?

It's going to take a while and it's probably at a minimum of a year and it could be, really -- we're not in control of that.

Okay.

But that legal expense would not be $100 million, it would be a fairly minimal number?

Our objective is not to make some law firm rich, no, it's not.

Fair enough.

Absolutely not.

One other question.

Is there anything on the revolver or with the pies, can you just remind us about the covenants that might stop retail ventures from doing one of the following, buying more pies or buying RVI stock?

And I guess sub question there, would you consider buying stock back or selling DSW stock?

Well, I think that, A, we do have the restriction as to buying -- doing a stock buy back without consent of the bank group.

B, we don't have any restrictions on a pie's buy back that would -- that impacts us at this point in time.

And, C, at this time, the DSW stock is not being considered for sale.

Even with the RVI basically trading at a negative $3 or $2, whatever it is?

Not at this time, no, it is not.

Thank you.

Okay.

(OPERATOR INSTRUCTIONS) Our next question is from Mr.

[Brian Noveline], go ahead.

Just to clarify on the pies.

You said 126 million?

Yes.

So had you previously bought another small traunch of pies?

No, that's actually the balance that's recorded as a liability.

There's a discount on the pies that we have to recognize in the balance sheet.

Okay, because that warrant valuation, okay.

So that's essentially how that balance gets down to there, okay?

Got it, got it.

And then--?

The principal amount is 133,750.

Right, right.

And I didn't know if you mentioned this.

Have you bought any subsequent to the end of the quarter?

No, we have not.

No, you haven't.

Okay.

So I guess I'm just kind of following up on the last caller.

How do you think about the DSW stock, when you can -- if you could sell that and buy back these liabilities at what looks like quite an attractive discount?

I mean how do you think about that?

Basically trading that asset for -- basically selling that and then buying back your debt at a big discount seems pretty attractive.

It's not something that at this point in time that the Board has elected to take a direction upon.

I mean is that something you've talked about or?

It is something that has been -- we talk about many, many things and that has been one of them, obviously, and that's not the direction the Board has set management off in at this point in time.

And then as far as on Filene's Basement, what -- can you kind of frame the store closings?

I mean is there sort of a -- a number that you're looking at?

I mean is it one or two or is it more than that as you're thinking about it?

At this point in time, we do not have a set schedule or anything like that.

As I said in the last call, we do have a certain number of stores which, a majority of them have been open in recent history, since 2004, so that we are taking consideration and those stores just haven't performed to our expectation at this point in time.

So, absent being able to reach some type of a concession from the landlord or seeing improved operation as we get here through the holiday season, we'll have to evaluate that once we get into January again.

And as far as CapEx, is there any -- any kind of ballpark number you're thinking about for 2009 as far as just maintenance and -- or any new stores?

For Filene's Basement?

Right, right.

Yes, for Filene's Basement, it would probably be in the area of about $2 million, that would be my expectation.

$2 million is kind of the maintenance?

That's right.

There are no plans to open new stores in 2009.

Great.

Thank you.

Okay.

Our next question is from David Mann.

Go ahead, please.

Yes, thank you.

Jim, just following up on all of these questions, in the past calls you've talked about Basement having a negative operating cash flow or EBITDA.

It seems like with the trends the way they are, is there any way that that can be maintained at slightly negative this year or would you expect that to be probably of a higher magnitude?

Again, a lot -- we're very dependent David, as you know, on that holiday season, and I would think that our expectation is is that it could be higher.

Okay.

And then, Mark, can you give a sense on what the monthly comp trends were in the third quarter?

How much worse did things deteriorate as others have talked about?

Yes.

I think I go back to September and we were up in September and we were pleased that that was a trend -- we were up 4 in September.

Then in October it went down about 4 or 5% and then as we got past that, it deteriorated to where we were trending where everybody else is trending in November.

And from your comment before, it sounds like since the end of the -- thus far in December, things have not changed much from November?

Yes.

It's -- it's pretty much where it has been and November isn't part of the third quarter, so I really am not permitted to talk more about that.

Okay.

In terms of the promotional environment, when we look at some of the better stores out there, they're kind of giving discounts that -- and promotions that have been relatively unheard in recent years.

How are you -- how are you looking at the promotional cadence that you're going to take in the fourth quarter and what do you feel like -- what are some of the things that you need to do?

I think you're hitting on a very key point.

I think what's happened is the department stores have priced themselves where we used to be almost, so we're going to have to be a lot more promotional than we ever have been in the fourth quarter, particularly in December and our thinking about December is to be as promotional as we need to be to make sure that we hit the customer when they're in the store because when you get into January, that's going to be very, very difficult to do.

So we'll be quite a bit more promotional than we were last December for sure in response to what you just said because when you look at Saks or Macy's or Nordstrom's or any of them, their prices are, well, as you said, unprecedented prices that we've never seen before.

So when we look at sort of the gross margin improvement that you've been doing at the Basement, the fourth quarter, the IMU should still be pretty darn good, the markdowns will be a different story?

Yes.

That seems correct.

As you get into next year, I mean how quickly do you think you can get back to a pace where it's more like the gross margin improvement you've seen in the first three quarters?

David, I think -- I'm so uncertain as to what's going to be happening through the holiday and then how that's going to translate into what's going to happen in the first quarter, I don't know.

I mean I am -- I'm very pleased that we've been able to have the margin improvement that you saw in the third quarter and that we've had for the last several years.

I think right now we're just in uncharted waters and I really can't tell you.

Okay.

Thanks for the help.

Okay.

Thank you.

That was our last question, gentlemen.

Well, thank you very much and thank you all for your attention and for your support while I have been here and I wish the new team all the luck in the world.

And we wish your putting to be good, too, Heywood.

Happy holidays, everybody.

Happy holidays.

Thank you for attending this conference, ladies and gentlemen.

This phone call is concluded.