達樂 (DG) 2007 Q2 法說會逐字稿

This is the Dollar General Corporation second quarter 2007 conference call on Wednesday, October 10, 2007, at 3 PM Central standard time.

Good afternoon, ladies and gentlemen, and thank you for participating in today's call.

This call is being recorded by Conference America.

Under federal law, no other recording or rebroadcast of this secession is allowed without the Company's permission.

After a prepared statement by the Company, we will open the call for questions from the audience.

Before the presentation begins, the Company has asked that you listen to the following statement regarding forward-looking information.

In addition to historical information, the Company's comments today will contain forward-looking information such as expectations regarding the Company's operating initiatives, ability to meet liquidity needs, store growth and performance in the second half of the fiscal year.

The words believe, anticipate, project, plan, schedule, expect, estimate, objective, forecast, goal, intent, the likely results, or will continue and similar expressions generally identify forward-looking statements.

While the Company believes the assumptions underlying these statements are reasonable, any of these assumptions could be inaccurate, and therefore, actual results may differ materially from results projected or implied by the forward-looking statement.

The factors that may cause actual results to differ from the forward-looking information include but are not limited to those outlined in the Company's Quarterly Report for the second quarterly period ending August 3, 2007, which can be accessed on the Company website at DollarGeneral.com under investing, financial reports, as well as factors discussed in today's call.

The Company cautions you not to unduly rely on these forward-looking statements, which speak only as of today's date.

Except as may be required by law, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect events or circumstances occurring after this call or to reflect the occurrence of unanticipated events.

You're advised, however, to consult any further disclosures the Company may make on related subjects in its public disclosures.

Beginning today's call is Mr.

David Bere, Interim Chief Executive Officer.

Sir, you may begin.

Good afternoon, everybody.

David Tehle, our Chief Financial Officer, is with me today to discuss our financial results.

As you all know, Dollar General's former shareholders overwhelmingly approved the merger with KKR on June 21, and the transaction closed on July 6.

We met with many of you during the process of finalizing the financing for the transaction.

This afternoon, we would like to cover three areas -- first, review our second quarter financial results; second, update you on our progress on Project Alpha; and third, comment on a few of our more significant initiatives.

At the end, we will take your questions for about 20 minutes.

Let me begin by saying that the merger with KKR is off to an excellent start.

First, management and KKR have developed a strong partnership.

Before the completion of the merger, we mutually agreed upon our strategic initiatives and developed 100-day plans to help us attack those initiatives.

These plans have been instrumental in assuring that we are all on the same page as we move forward by setting our priorities in keeping -- helping us to keep focused on our objectives.

I will give you an update on our initiatives a little later in the call.

As an aside, you should be pleased to know that 100% of our 34 officers have invested in the Company.

Second, we are pleased with our financial results to date.

David Tehle will discuss our results in detail, but let me share with you a few highlights.

Our same-store sales were up 2.3% for the quarter and 2.4% for the year-to-date period.

Our average ticket was up, although traffic was slightly down.

As a reminder, our prior year comps were up 3.2% for the quarter and 2.5% for the corresponding year-to-date period.

Excluding the Alpha merchandise markdowns, our gross margin is up on a year-to-date basis.

After excluding the Alpha store-related expenses, we leveraged our retail SG&A expense in the quarter, and if you exclude the unusual merger-related charges in the quarter which David will discuss in more detail, we also leveraged our total SG&A.

Finally, we are making excellent progress on Project Alpha, underway since November 2006.

As you may remember, there are two parts to Alpha.

The first of these is the substantial elimination of our historical inventory packaway strategy.

There are really two elements to this.

First, we had to clear all carryover merchandise from our stockrooms, which was substantial in many stores.

The second element of this effort was to be able to sell through all current year seasonal merchandise in a timely manner.

We're very pleased with progress we've made and we are on track to have all targeted packaway out of the stores by the end of the fiscal year.

The second part of Alpha was the closing of 403 underperforming or low potential stores.

All of these the stores, identified in November, were closed by the end of July.

A reserve for 60 additional stores, which were identified for closing using similar standards, were recorded as part of our purchase accounting adjustments.

We expect to close these stores by the end of the fiscal year.

Overall, I'm very pleased with progress we have made in a short period of time.

And now, I will turn it over to David Tehle to discuss the financial results.

Thank you, Dave, and good afternoon, everyone.

I hope you have had the opportunity to read our quarterly report that was issued last week.

If you have not, you can find the report on our web site, Dollar General.com, under 'Investing' and click on 'Financial Reports'.

The financial statement in that report include the results of the predecessor company through the date of the merger and the successor company subsequent to the merger.

The successor period also includes the operations of Buck Acquisition from its date of inception.

However, the only significant item in Buck is the impact of interest rate swaps and the related tax effect of the swaps.

We engaged KPMG to conduct a valuation of the Company's assets and liabilities as of the merger date.

This valuation is still preliminary, but we currently do not expect changes that will affect our statement of operations materially.

We have not issued pro forma statements at this time.

For comparison purposes only, we will discuss the combined results of the predecessor and successor companies for the periods presented in the Statement of Operations.

I will start by discussing some of the expenses which, because of the merger activities, are unique in this period.

The statements of operations include the following -- $96.1 million in the 13-week period and $101.7 million in the 26-week period reflected in the separate line called Transaction and Related Costs within Operating Expenses.

$39.4 million of this total is compensation expense related to the accelerated vesting of stock options, restricted stock and restricted stock units.

The remainder primarily reflects professional fees, such as investment banking and legal fees.

There is a $6.8 million nonoperating gain in the 13-week period and $4.7 million in the 26-week period, reflecting to Buck interest rate swaps that I mentioned above.

Additionally, we recorded a $6.2 million nonoperating loss resulting from the tender for our $200 million worth of 8.625% notes, which were due in 2010.

This was primarily consent fees paid on the notes, of which over 99% were tendered.

And last, we recorded an $8.6 million charge which is included in SG&A to reflect our current estimate of a probable loss in connection with the restructuring of our three distribution center leases.

These items are not expected to impact the future operations of the Company, and along with other items as described in our Quarterly Report, have been added back to our calculation of adjusted EBITDA as defined in our new credit facility agreement.

Now I will discuss the operations of the business in more detail.

Sales -- for the quarter, we had net sales of $2.35 billion, an increase of $96.5 million, or 4.3%.

Same-store sales increased 2.3%, contributing $49.8 million of the total increase.

We define same stores as stores that have been opened at least 13 full fiscal months and remain open at the end of the reporting period.

New stores, or those opened in the last 13 months, contributed $75.9 million of the increase in sales, offset by $29.1 million related to stores closed subsequent to the fiscal '06 second quarter.

Year-to-date, total sales were up 5% and same-store sales were up 2.4%.

Gross profit -- for the quarter, our gross profit increased by approximately $11.7 million, or 1.9% from the prior-year period.

As a percent of sales, gross profit increased -- or excuse me -- decreased to 26.5% in the '07 period compared to 27.2% in the '06 period.

The decrease as a percentage of sales primarily reflects the impact of markdowns needed to eliminate our packaway inventory strategy.

We estimate that the impact of incremental markdowns, including the effect of any [lower of cost] or market adjustments, was $24.7 million in the quarter.

We are on schedule to achieve our plans with regard to the sale of existing packaway inventories by the end of '07, and we intend to continue our initiative to sell virtually all current-year non-replenishable inventory by taking end-of-season markdowns to permit increased levels of newer current-season merchandise in the future.

Cost of goods sold also includes an increase in our shrink rate for the quarter.

Our shrink level remains a challenge for us, and is one of our top priorities.

The decreases in gross profit rate were partially offset by higher markups on inventory and improved leverage on distribution and transportation costs.

For the 26-week period, our gross profit increased by approximately $60.5 million and our gross profit rate remained constant at 27.2% for the two periods.

Excluding the Alpha-related markdowns, our year-to-date gross profit rate has improved from last year.

SG&A expense -- for the quarter, SG&A increased $48.2 million from the prior-year period, an increase as a percentage of sales to 24.7% from 23.6%.

However, the increase in SG&A includes approximately $17.7 million related to the closing of certain stores in connection with the Alpha real estate initiative.

In addition, SG&A in the (technical difficulty) period includes the estimated loss of approximately $8.6 million related to the probable restructuring of the three DC leases that I mentioned earlier, and $3.4 million of amortization expense resulting from the valuation of leasehold interest recorded in the purchase accounting adjustments.

If you excluding these three specific items, SG&A as a percentage of sales decreased to 23.4% in the '07 quarter from 23.6% in the prior-year quarter.

That includes a decrease in overall store-level expenses, including depreciation and amortization, labor, inventory services and travel, which were partially offset by increased rent expense and fees associate with the acceptance of debit and credit cards.

The store-level decrease was partially offset by an increase in the employee bonus accrual based on achievement of our year-to-date performance targets.

Interest income and expense -- interest income increased by approximately $2 million in the '07 period as compared to the '06 period due to higher levels of cash and short-term investments on hand during the period.

Interest expense increased by $31.7 million in the '07 period, primarily in the four-week successor period as compared to the '06 period due to the interest on long-term obligations incurred to finance the merger.

I would like to talk briefly about the balance sheet and go over the more significant changes to the balance sheet resulting from the allocation of the purchase price and the valuation of our numbers at estimated fair value as of July 6.

Approximately $4.3 billion was recorded as unamortizable goodwill, and $1.2 billion was allocated unamortizable trade names with trademarks.

These will be evaluated at least annually for possible impairment.

An additional $185 million was allocated to leasehold interest, which is the estimated value of leases considered to be below-market rates.

This amount will be amortized over the remaining initial lease terms.

Inventories -- inventories as of August 3 were down approximately $330 million, or 19% from a year ago in total and on a per-store basis.

Inventories at the end of last year's second quarter were unusually high, so as an additional comparison, inventories at 8/3/07 were down 2% in total and 1% on a per-store basis from the end of '06 -- the end of '06 fiscal year, which is typically our low point for the year.

The majority of this improvement is from the execution of Alpha, but we have also added a heightened level of discipline to our buying processes.

Debt and availability -- we had total outstanding debt at the end of the quarter, including the current portion of long-term obligations, of $4.542 billion and an additional $609 million available for borrowing under our new senior secured asset-based revolving credit facility.

Year-to-date, we have generated $142 million of cash from operations versus an $86 million use of cash in the same period last year.

Most of the improvement relates to better inventory management.

We believe our cash flow from operations and existing cash balances combined with availability under our new credit facilities will provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending over the foreseeable future.

Our peak borrowings should occur at the end of October.

We currently estimate our availability to be in excess of $600 million at that point, which is considerably better than our initial estimates made during the roadshow.

Finally, our calculation of adjusted EBITDA, which is a material component to the calculation of certain covenants in our new credit facility, is included in our quarterly report.

Adjusted EBITDA increased 6.7% to $145.2 in the '07 13-week period from $136.1 million in the '06 13-week period.

Adjusted EBITDA is a non-GAAP measure and we have provided a reconciliation of adjusted EBITDA to net income in our quarterly report.

We encourage you to review the reconciliation along with other disclosures regarding the limitations of this non-GAAP measure contained in the quarterly report under the heading 'Adjusted EBITDA' in MD&A.

Now I will turn the call back to Dave for some closing comments.

Thank you, David.

We are pleased with our second quarter performance and with the progress we have made on our strategic initiatives.

The elimination of the packaway strategy not only allows us to stock our stores with newer, fresher merchandise, it also has contributed to an overall improvement in the appearance of our stores and increased job satisfaction for our store managers and employees.

In fact, our store manager turnover is down significantly over the last 12 months.

In addition to Project Alpha, we have worked closely with KKR and have defined our top six initiatives as follows -- one, better merchandising and category management; two, improving our real estate processes; three, refining our existing pricing strategy; four, increasing direct foreign sourcing; five, improving our private-label of offerings; and six, continuing to improve our store standards.

And as always, controlling shrink remains a critical effort for us all.

In each of these initiatives, we have formed teams within the organization to lead us in our efforts and we have defined very specific operational and financial benchmarks to facilitate and measure our progress on these initiatives.

We're making good progress on these initiatives, continue to believe in them, but do not expect to show measurable results from them until 2008.

Again, overall, we are pleased with our results so far.

We realize that we are headed into the highest volume, most critical season of the year.

We are excited about our new holiday merchandise set and believe that our stores will be well-prepared.

We are happy to take your questions now for the next 20 minutes.

(Operator Instructions).

Karen Eltrich, Goldman Sachs.

First off, as you mentioned, one of the key initiatives is, for the current seasonal merchandise, to mark that down and keep it fresh.

How are the markdown levels coming in relative to your expectations?

The markdown expectations are in line with what we thought.

We are not going to share specific numbers with you, but we will say that, again, markdowns on the non-Alpha goods are tracking pretty much where we thought that they would track at this point in time.

Obviously, we are getting into our big holiday season and we're going to have to watch it very carefully as we get into November and December because we have a lot of new seasonal merchandise that will enter into our markdowns.

And second, you guys obviously did an incredible job with your working capital this quarter, and it sounds like you're pretty pleased with where that's going.

At year end, do you expect that to be a benefit net for the year in terms of inventories reduction and working capital?

You know, Karen, we are not going to give specific guidance on that.

We're careful in terms of giving too much forward-looking here.

I will say, just as you said, we are very pleased with what we have been able to do, particularly with inventory, and there are several pieces to that.

The first piece is that, obviously, the Alpha and the clearance of the Alpha inventory; but secondly, on the open-to-buy side, a whole new discipline that we have there that Beryl Buley and his team have put in that are -- we believe we're really seeing an impact from that.

Then for -- as you have mentioned two of your initiatives which I had hoped would -- and I understand, they're probably next-year initiatives, but I am curious to know how much progress you have made in terms of the SKU rationalization as well as the zone pricing.

We actually toured some stores in Houston and we got the sense that they were testing the SKU rationalization there.

So I'm curious to get an update on where in progress you are in those two initiatives.

The first major initiative is the merchandising category management, and to your point, the initial focus of that is to increase the profitability of our store by looking at low-performing SKUs.

We have been through that analysis, we have identified those SKUs, and yes, we are running some tests to see how that does in the store, as well as some other tests we are running in the store.

Regarding pricing, we are, number one, building our capability in pricing.

If you remember on the roadshow, we talked a lot about that we only look at pricing once a year.

We have now built the capability that we can weekly monitor our pricing.

We have exception-based reporting and we'll start using that.

Regarding zone pricing, we're evaluating different forms of zone pricing.

There's different ways you can go with zone pricing.

It can be regional, market type competitive environment.

So we are evaluating which type of zone pricing to go forward with.

And final question, and this question is probably early on for what you guys are going through, but how is the mix trending?

Are you seeing an increase in the seasonal and apparel versus consumables, or is it kind of too soon to have an impact?

Well, we continue to be happy with the consumable side of the business, to your point.

But, we are also happy with the pieces of the nonconsumable piece.

Our apparel business is doing very well, both from a quarter standpoint and year-to-date.

Our seasonal items are picking up as well.

The one area that we have not performed as well is on the home products, but we have very clear plans on that.

And it's also important to note that, even inside the consumables side of the business, we have been able to improve our mix there as well.

So we're feeling good about the progress that we're making as far as improving our mix over the total store, as well as inside the different segments.

Howard Goldberg, [Brownstone].

One of your competitors recently talked about the difficult environment they're finding with their core customers.

I'm wondering how you would characterize your own experience with your customer base, whether they're feeling the pinch from some of the economic distress that's being felt out there.

There is absolutely no question that our customers are feeling the pinch across many economic factors.

However, after saying that, when we look at our historical performance and we look at our quarterly performance, our year-to-date performance, the fact is we have not seen a negative impact on our business.

And I think that what that really speaks to is the very value, the strong value equation that we have in our model.

So we have not seen an impact of the environment, economic environment, in our performance so far.

We also believe that the merchandising changes that we have made and that we are making will help us keep a competitive edge over and above some of our competitors.

Some of the new things that we're doing from a merchandising point of view are specifically targeted at making our stores a little more exciting and a little newer.

And can you speak specifically about the -- looks like your average transaction amount went up in the quarter customer.

Customer accounts, I think you indicated, were down slightly.

It sounds like the direction you're trying to go in.

Can you talk specifically about anything that helped make that happen?

I think our -- we saw a great performance out of our consumables.

As Dave mentioned earlier, our pet in particular did very well.

Again, we've got some new products that we've introduced in several areas of the store that seem to be performing well.

AXE Deodorant and AXE Body Spray is a newer product we have that's helping drive a lot of volume as well as driving people into the stores.

Again, I think it's the whole change in merchandising mix and trying to keep our assortment as updated and meaningful as possible to our consumer.

Lawrence Weiss, Citigroup.

Just two questions somewhat related, and in fact -- tell us about the consumer, and you've seen the slowdown in the volume, and also you're seeing a pretty sizable decrease in your home products line item.

Are those two specifically related in terms of that the consumer is actually having issues with their housing front impacting the home products and then impacting obviously the volumes?

I would have to say, even though we know there has been challenges in the environment at home, I would have in our particular case that home performance has been mostly self-inflicted.

We have re-looked at our line reviews and have introduced some new products there, and we're pretty encouraged on the early results of that.

So I think this is a situation where we went too broad in our merchandise and -- by getting back to basics.

And as I said through these line reviews, we're starting to see some positive trends.

So I do not see the environment impacting our home business.

So that's more of a shift in merchandising, as opposed to the consumer?

That's right.

The second -- and I know this is very early on in asking, but in terms of one of your initiatives is really to source from foreign sources.

Just talk about -- obviously, it has been very big in our land now, but the quality issues coming out from China.

You had your issues.

And inflation coming out from China -- how is that going to be impacting your thoughts and decisions, foreign sourcing from that area?

There is no question -- on both of those, the quality issues and the pricing issues coming out of that, we're aware of both of those factors.

But I would have to say that we have such enormous upside potential on our foreign sourcing that we do not see those two ultimately being barriers to that.

Mike [Shrekgast], Longacre.

I was just wondering, could you talk about -- in your filing, you mentioned that there could be a potential liability of acquiring three DCs.

It sounded like you were working it out, but it sounded like the potential liability could be like $150 million.

Could you just clarify that?

You know, Mike, we are limited right now in what we're going to say about that because we are in the midst of negotiations on those three distribution centers.

I will say that the $150 million was a total buyout in terms of the purchase prices on them and we were trying to show you -- the broad soup to nuts in terms of the size of the potential liability, and we weren't inferring that we were thinking we were going to that.

Obviously we booked a certain amount in the quarter for this, which is our best guess on that.

And I think at this point, I really can't say a lot more just because we are so deep in the negotiations on that.

One other question -- can you just talk about, part of the strategy is to get rid of the packaway inventory, which you have done a great job on, bringing new products.

I assume going forward, there is going to be a markdown rate [up] -- a markdown rate that occurs every quarter, or a markdown level.

So as you look past -- if I look back on margins where you didn't have markdowns, and now going forward, you are going to have markdowns, can you explain how we get a better margin going forward?

Sure.

There are several ways that that happens.

First of all, we have talked about the mix changes that we believe could happen when you do this; i.e., by having fresh merchandise in the stores, it's going to be more attractive to the customers versus having last year's merchandise.

So we believe we've got a good potential to change that mix, and we've talked a little bit about what we have already seen happening in our clothing, as well as our -- not our home, but our seasonal products.

We also believe that there will be offsets in comp sales again that will help us.

We'll get some help in our comps from having better products that will help drive traffic into the stores.

Additionally, we think that shrink as well as damages should go down because the stores will not be as cluttered, either in the aisles as well as the back rooms.

So we should get some potential pluses from that.

And then, it also gives us the opportunity to bring in some higher PMU items, again, on a -- particularly on a seasonal basis.

And that should also help us as we move forward.

What are PMU?

I'm sorry -- that's your purchase markup; i.e., you buy and item, and what can you make off of it, based at the cost that you buy it at.

And if you can continually buy fresh merchandise, the thought process is, you can continually be bringing in items that will have a little better PMU each season.

And then, what's your shrink percentage now?

You know, we're not going to talk about that publicly.

We have mentioned that we are working on shrink.

We are not happy with where we are at on it, and Dave mentioned several of the things that we have going on to try to counteract that and get it back in line where we believe it should be.

And sorry, just one last question.

With regards to, since all -- the stores scheduled to be closed are closed, I guess you have 60 more.

How much longer are we going to see a weighing on gross margins from these clearance activity that is going to keep going on?

Another quarter, two quarters?

On the store closings?

Yes.

Yes, probably between one and two quarters, yes.

Emily Shanks, Lehman Brothers.

Most of our questions have been answered.

I have just two quick follow-up ones.

On the shrink, can you just give us a bit of color around what some of your higher shrink items were this quarter?

Yes.

It's really not different from what we have seen in the past, and I don't think it will be a surprise to anyone -- DVDs, CDs, razor blades, the AXE Deodorant spray that I mentioned is a great item.

Unfortunately, people like it so much, it walks out of the front of the store without being purchased also.

And then, underwear continues to be an issue for us, men's underwear.

And then, just one clarifying question as I look at the EBITDA add-backs as they were displayed in the 10-Q equivalent.

The add-back that speaks specifically to the impact of markdowns related to inventory clearance activities also says that it includes the LCM adjustments.

Right.

And I just wanted to be crystal clear -- is this 100% apples-to-apples comparison with the impact of Alpha markdowns at the time of the deal as it was displayed in the OM?

Or, is this new verbiage (inaudible) including LCM adjustments actually (multiple speakers) same one?

Great question.

This is totally consistent with how we showed it in the OM, and we are trying to be as consistent as possible every quarter when we do this.

Okay, great.

So we should assume that's 100%, the Alpha initiative?

Correct.

Mary Gilbert, Imperial Capital.

Actually, speaking to that point, I wondered if you could give us what the LCM was for the quarter and year-to-date this year and last year, just the component associated with the write-down.

I don't have that number in front of me.

I will tell you also, as part of the purchase accounting, the LCM reserve goes away, so we actually won't be discussing it anymore in the future either.

When we did the inventory valuation, the LCM gets folded into that.

So actually, this will be the last time we'll be discussing the LCM reserve.

Yes, because what I wondered -- I have been sort of a little confused -- and I have seen the statements that you have put out, and thank you for putting those out -- but I guess I'm a little confused about the Alpha adjustment, which also includes the lower cost or market write-down.

And that is, it sounds like you are saying, had we not gotten rid of or made the decision to eliminate the packaway strategy, this is really what our margin would have been.

Is that fair to say how you would describe it, or could you clarify that?

I think what we're trying to say there is that we're trying to back out the Alpha markdowns and show the impact in the period of having those Alpha markdowns.

The only reason the LCM comes into play is that last year when we announced Alpha, we accrued for the below-cost -- what we that would be the below-cost piece of those markdowns.

And then this year, as they are taken, we reverse that against it.

So in essence, it's an offset partially to the markdowns that are taken.

I got it.

And so basically, the vast majority of that number, would you say, in the quarter and I guess year-to-date, reflects this "Alpha adjustment"?

Yes, that's the idea.

That's correct.

Okay, so there's only a little impact that's what would be an actual -- the LCM adjustment, right?

No.

Again, remember, the LCM is part of Alpha.

That's what was accrued last year when we did Alpha for the below-cost piece, and it's just getting reversed out this year.

Okay, it's kind of confusing.

And then, if I understood correctly, what you're saying is that, the reason why you expect margins to improve and that it's okay to look for numbers adjustment for this Alpha initiative is because some of your other initiatives to improve margins will offset the sort of return to a markdown strategy?

Is that fair to say?

Yes, that's exactly right.

So you're improving your assortment to get better margins to offset that impact?

The Alpha allows us to do that.

That's correct.

Without doing Alpha, it would have been very hard to improve the assortment.

The really go hand-in-hand.

They go hand-in-hand.

Okay.

And then I also wondered if you could speak specifically, let's say on the apparel side, what's doing well in apparel.

Yes.

We are having, as I mentioned earlier, and excellent year on apparel that's driven by a few things, some new products.

We've put in some scrubs and clogs, shoes in the store.

We did reset our men's and boys' underwear, and some of the collegiate licensing that we have done.

So again, a lot of resets, a lot of new products.

And, again, this the first time since the new merchant team was in, so we're getting a sense of the work they have done and we are very encouraged by it.

And then, also on products that you're going to be sourcing from China, for example, that you see huge upside potential, can you talk about what some of that merchandise would include?

I don't want to get into too many details, but I think it's going to involve both consumables and nonconsumables.

Certainly on the nonconsumable side, things like housewares, kitchen utensils, mops, brooms, things of that nature.

I think on the consumable side, there's certain pet supplies, some paper products, things of that nature.

But we don't want to get into too many specifics there.

Operator, we have time for one more question.

Karen Miller, Bear Stearns.

How should we think of the adjustments going forward in terms of the largest ones that you outlined for us in this quarter -- the $96 million transaction-related expenses, and then the $24.7 million and $17.6 million related to Project Alpha and closing stores?

For modeling purposes, how should we think of these going forward -- the bulk of the adjustments taken, or should we expect similar levels going forward for the rest of the year?

Karen, again, we're not going to give forward-looking guidance, but I can help you a little bit.

The transaction-related costs that we've outlined here, most of those are totally complete now, and that was our goal.

We worked very hard to try to get as much as we possibly could into this particular quarter and into this Q-like document as we're calling it.

So, again, there may be some minor adjustments on the purchase.

As we go forward, that's always possible.

But the thought process is that we've got most of the transaction-related items behind us.

And as we mentioned on the Alpha side, we're closing out Alpha.

There will be some Alpha expenses going forward, particularly markdowns, but at this point, we're not going to give any specific guidance on that.

Should we expect all Project Alpha expenses, then, to be finished by the end of this fiscal year?

Yes.

Okay, that's helpful.

Thank you.

Okay, thank you very much.