DICK'S Sporting Goods Inc (DKS) 2003 Q4 法說會逐字稿

At this time I would like to inform all parties that the call is being recorded at the request of Galyan's Trading Company, and I would like to inform all parties that will be on listen-only mode for the conference call until the question and answer session. I would like to introduce Mr. Ed Wozniak, CFO. Sir, you may begin.

Thank you. Good morning, everyone. This is Ed Wozniak, CFO of the Company. We thank you for joining us on our fourth quarter and total year fiscal 2003 conference call. The format for today's call will be as follows -- I will address forward-looking statements; I will then cover financial highlights for fiscal year 2003; Ed Holman, our CEO, will cover our strategies and plans for the future; and we will then entertain Q&A.

The information contained in today's press release, this call and the Website, contain forward-looking statements which reflect Galyan Trading Company's current view of future events and financial performance. We caution that any forward-looking statements, as such term is defined in the Private Securities Litigation Reform Act of 1995, contained in the press release or made by our management, involve risks uncertainties and are subject to change based on various important factors, many of which may be beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as estimate, project, plan, believe, expect, anticipate, intend, and similar expressions, may identify forward-looking statements. For these statements, we claim the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following factors, among others, in some cases have affected, and in the future could affect, our financial performance and actual results, and could cause actual results for fiscal 2004 and beyond to differ materially from those expressed or implied in any forward-looking statements included in the press release or otherwise made by our management -- risks associated with our ability to implement the growth strategies or manage our growing business, including the availability of suitable store locations on appropriate financing and other terms, and the availability of adequate financing sources; the impact of increased competition and its effect on pricing and expenses associated with advertising and promotion and response thereto; risks related to the level of markdowns necessary to clear aged inventory; risks associated with the seasonality of the retail industry, the retail sporting goods industry, and our business; the potential impact of natural disasters or national or international security concerns on the retail environment; and risks relating to the regulation of products we sell, including firearms. See our annual report on Form 10-K for the year ended February 1, 2003, as filed with the Securities and Exchange Commission, for more detailed discussion of these matters and other risk factors. We do not undertake to publicly update or revise our forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

In reviewing full year fiscal '03, gross margin decreased to 27.6 percent of sales, down 280 basis points from last year. 3.1 million, or approximately 45 basis points, was related to markdowns to improve inventory freshness in the outdoor and athletic equipment categories. The remaining decline in gross margin was primarily due to promotional markdowns and the deleverage of buying and occupancy costs, partially offset by the adoption of EITF 02-16.

SG&A was 26.1 percent of sales, up 130 basis points from last year, primarily from depreciation. Marketing costs were also up, which was partly attributable to EITF 02-16, and to a lesser extent, increases in insurance costs. Preopening expenses were 5 billion versus 4.9 million last year. There were nine new store openings in each year. GAAP net income was 3.6 million, or 21 cents per share. The impact of EITF 02-16 was a decrease in EPS of 4 cents per share. Interest expense net of interest income was 2.7, or 0.4 percent of sales this year, versus 1.8 million, or 0.3 percent of sales last year.

Regarding inventory. Inventory was up 12 percent year-over-year compared to a sales increase of 15.6 percent. Regarding other inventory metrics, inventory turnover was up 10 basis points to 2.9 times. And at quarter end, both inventory per store and inventory per gross square foot were down 12 percent year-over-year.

Regarding our credit line. As we have disclosed in previous filings regarding our credit facility, we will not be subject to any financial covenants provided we maintain a minimum of 35 million of availability. As of January 31, 2004, we had 37.8 million in outstanding borrowings and a remaining availability of 58.8 million, net of 4.7 used in support of letters of credit, under our revolving credit facility. We were within the constraints of our credit facility at year end and remain so today. I can't emphasize enough the strength of our balance sheet. At year-end, our debt to capitalization was only 18.9 percent. We have ample financial capacity for the future.

Regarding other metrics. New store productivity for the year was 73 percent. Average sale for the full year was $59.48, down 2 percent from last year. Average unit retail was $23.14, up 4.3 percent versus last year, and UPTs were down 6.1 percent. Gross square feet for the full year 2003 was 3,764,000 square feet, up 26. 8 percent versus last year. This excludes the Greenwood outlet store, which is not part of our go-forward strategy.

Regarding outlook, as mentioned in today's press release, our CapEx spending is projected at 40 million in fiscal '04, almost half of fiscal '03's level. This is primarily a result of all nine stores in '04 receiving a landlord contribution, where only six of nine stores received a landlord contribution in fiscal '03. But even more important is that we did not expect any increase in our year end debt levels in '04 above fiscal '03 levels. Said another way, we expect to be self-funding in fiscal '04, primarily a result of lower CapEx and expected inventory turnover improvements.

I would like to turn the call over now to Ed Holman, our CEO.

Good morning, everyone, and thank you for participating in our fourth quarter year-end results earnings call.

2003 was a disappointing year for Galyan's; however, we accomplished a lot for the future. We upgraded the quality of our management team, we completed the last of our major system conversions, we cleared our inventory of aged goods, and we developed our strategy for 2004 beyond. We see 2004 as a transition year, but one we believe will show improved performance. I welcome the opportunity to serve as CEO, and very confident of our ability to move the Company forward in a positive manner.

I'm going to touch on five priorities that we have for the new year -- continue to focus on the quality of our management team, strengthening our merchandise assortments, improving inventory turn, improving our marketing message, and enhancing our customer shopping experience. After my comments, Ed and I will be available to answer your questions.

We have already began the search for Chief Merchandise Officer, and I'm optimistic that we will identify a qualified candidate within the immediate future. In the meantime, we are strengthening our merchandise assortments. We plan to reduce the breadth of our merchandise assortments through an SKU rationalization program. We are in the process of overhauling SKU assortments and key outdoor categories. This will lessen the impact of markdowns that we will have to take in the future.

We are working to compress floorspace and inventory, and poor performing categories, and expanding space in well performing categories. We will remain focused on the avid enthusiast, and will strive to provide our consumers with a differentiated merchandise assortment that provides us growth opportunity.

We plan to leverage our strength in apparel while building on the elite athletic equipment business. Other areas of opportunity for us is our golf business and action sports. We will increase replenishment to 35 to 40 percent of our active items. We are in the process of implementing a micro-merchandise strategy for each store, so we can really take advantage of regional seasons and customer (indiscernible) graphics. We will introduce a promotional cadence to our business model. We will take a much more deliberate action with respect to markdowns and what drives sales.

In 2004, we will be much more aggressive on the sales promotion front. This step should help us maintain planned markdown activity through the year, and eliminate unexpected financial impacts -- or negative impacts on our financial performance.

We are very much focused on improving inventory turn. Our systems are no state-of-the-art with a solid foundation to grow the business. Now it's time to leverage those systems. We will strengthen our in stock replenishment process and continue to pursue logistic opportunities to improve our receipt flow while increasing the efficiencies of our supply chain. We are going to be paying very close attention to inventory turn and the goals that we have set to improve inventory turn.

In the process, we are going to improve our marketing message. We need to do better job of marketing our 2004, and we have challenged ourselves to make this a top priority. We will communicate the values offered to our stores to the recreational customer while very much staying focused to our enthusiast customer. We're going to improve our point-of-sale signage and merchandise presentation.

When we do open new stores, we're going to be much more aggressive in the local media as part of the grand opening, and become more involved in the local communities. We will enhance our overall shopping experience. We have restructured our store's organization to place more emphasis on improved customer service, better product presentation, and driving topline sales. We have reduced the number of managers in our stores so we could increase the number of selling associates. We have segregated selling and non-selling activities so we can achieve greater efficiency in the non-selling activities, and really focus on the selling effort. We are increasing the metrics to better monitor our productivity of selling space and be able to flex our selling floors based on seasonal opportunities.

In conclusion, we are on track to open nine stores in 2004. All of these stores have been committed for quite some time. We feel good about the stores we are opening in 2004; five of the nine are in existing markets, and the new markets, we feel, have good growth opportunities for us. In 2005, we will slow the pace of our new store openings, and we're going to be much more selective in our decision process. We're going to focus more on existing stores and back-selling existing markets.

We are pursuing opportunities to lower our construction costs of new stores, which, coupled with SKU rationalization strategies, will improve our return on invested capital. We are very comfortable with our liquidity and we have more than sufficient availability in our working capital line. Bottom line, we've got a lot of work in front of us, but I believe we've identified the strategies that are needed to deliver positive comp store sales. Our challenge is twofold -- building market share in the new markets, while protecting the market share in those existing markets with the onslaught of new competition coming into the markets.

We are going to build momentum through our core business. The steps we are taking should lead to increased store traffic, increased sales, increased profits, increased shareholder value. 2004 is a transition year to best position Galyan's for 2005 and beyond. But as all of you know, actions speak louder than words. We are not going to make a lot of promises; we're going to let the results speak for our actions.

Before I open up to any questions, I want to remind you that we are going to continue our practice of not providing guidance on future performance. With that said, I would like to now open up the conference call to your questions. Thank you very much.

(OPERATOR INSTRUCTIONS). Robbie Ohmes, Banc of America.

Two quick questions. The first question is, can you talk a little bit more about the back-filling strategy and the anticipated impact that will have on your same-store sales? The other is, could you talk a little bit more also about being more aggressive with promotions, and who competitively you see coming into your space that you have to sort of fight back? Thanks.

I would say that in terms of back-filling our strategies, we are really looking to leverage our marketing in those markets. We believe that as we go through and look at the markets where we want to build additional stores within a market, we will certainly be very much aware of the transfer rate, of the cannibalization rate, as we start to look at both the sales and the profitability of the stores. I think we have targeted the areas that we would like to build stores. We're comfortable with them, we know the markets. But we are also very attuned to what the transfer rates could be and what's built into our financial model.

As it relates to promotion. I would say that we are going to continue to promote to great degree, probably at a better hire rate than we did in 2004. As it relates to the folks that we see as our key competitors, in most markets its primarily Dick's and Gander Mountain. And both of them are very capable competitors.

Mike Napolitana.

I was wondering if you guys could -- I have a couple of questions -- if you could quantify how much incremental advertising you committed to and expended in the fourth quarter?

It was pretty much on parity. I mean, we didn't we had some back-gloating in the fourth quarter, but it wasn't anything really significant.

So for the year how much did you spend on advertising?

We don't disclose the actual advertising number.

Secondly, with the lower CapEx assumption for '04, how much of the 40 million is for stores and what are some of the other initiatives you've got outlined on the CapEx front?

The majority of it is fir stores that (indiscernible) as it always is. We do have some money here marked for MIS. We are going to continue to upgrade and modernize our systems. We've got the platforms in place, we're going to do a lot more with JDA this coming year with assortment planning and space planning. So there are a lot of other things we can now do that we've got the base systems in place. But again, the majority of it is for stores.

And with respect to the inventory outlook in the SKU rationalization, when do you think you will have that completed? And then, what is that going to look like on an inventory per store basis maybe in the second half of the year?

I would tell you it's never completed. I think the real strategy here is this is an ongoing process, where we ought to continue to analyze (indiscernible) inventories and look at the productivity and make the adjustments accordingly. I don't see this as (indiscernible) a beginning and an end. This is just part of an ongoing discipline of running your business.

And then with respect to inventory per store, you expect that to continue to come down then?

I think we'll make some input improvement next year. Definitely we're going to move turnover, but we have had, as you can see from the numbers, 12 percent improvement year over year in inventory per store. We have done a very good job here in managing this inventory, and I think we're now positioned with the initiatives that Ed talked about, to really start to drive turns. So the answer to your questions is yes. You'll see some improvement.

And we have all of our merchants really focused on this. And as said, we're making steady progress.

Lastly, quickly. When does the Indian -- I think it's the replacement store, when will that be put into service?

In Indy this year?

Yes.

It will be in the back half of this year.

Anthony Lebiedzinski, Sidoti and Company.

A couple of questions. Could you comment about the current sales trends?

No.

As far as the SKU rationalization, do you look into the cut down on the overall number of SKUs, or is it just different assortment? If you would just comment a little bit further on that.

We are going to really look at how we optimize the turnover SKUs and how we are going to expand and contract SKUs by category based on their performance.

Got it. As far as the store openings this year, what is the number of stores by quarter? Do you have that by any chance?

Yes. It's much more -- there are four stores in the first quarter, and we have much more up-front than we had last year. I can get this to you off-line to help you build your model.

Now, you said that in '05 you are going to slow the pace of new store construction. Would you perhaps consider opening smaller stores that you have been in the past? Are you sticking with (multiple speakers)

Let me go back and answer the question, just (indiscernible), then I'll answer the second question. We probably have about five stores that we're going to be opening in the first half of the year and four stores in the second half of the year. And as it relates to smaller sizes, we are looking at -- actually, three of the stores we're opening this year are smaller size, the 65,000 square foot box. And we are going to continue to look at the size of our stores based on the demographics and psychographics of each market, and we will build the stores according to the size that we think will fit that market's needs.

I know you have one small store in Peoria, Illinois. Is that the only one, or do you have any others?

We actually just opened another small one in Middleton, Wisconsin. which looks terrific by the way.

As far as (indiscernible) -- when you say you're being more -- you will be more selective in your real estate criteria, are you just basically -- what are you looking at more now than versus what you had been looking in the past? What are the changes in the criteria?

I would say we are going to focus much more on customer profile than we ever have in the past. We're really going to do more research up-front, in terms of customer demographics and psychographics, and that's going to drive our decision process of where we're going to open stores.

Okay. Lastly, a question for Ed. Do you know what you expect as far as D&A for fiscal '04?

Yes. I think if you think back, Anthony, we opened 9 stores the last two years; we're going to do 9 this year; kind of went from 17 to 25 but, you know. Just taking that trend out it will be around 30 million.

Jim Duffy, Thomas Weisel Partners.

With regards to the chief merchandising role -- excuse me. What type of candidate are you looking for for that, will you be hiring someone from the sporting goods category, or are you open to others as well?

I would tell you that I am looking for a good leader who understands merchandising, and that person can come from many different spectrums of retail.

Is the amount of spending on advertising going to increase in 2004?

Slightly.

On a per store basis, as well?

It will be done on a market to market basis.

Can you elaborate a little bit on what you mean by you will slow the pace of store expansion in 2005? Should we expect less than 9?

Yes.

Closer to 0?

No, I think it will probably be somewhere in between. We haven't got an exact number in mind yet. We have one deal signed. We have one deal signed, we have approved another deal, and we are actually in the talking stage of a third transaction. We haven't got a magic number of stores that we're going to open going forward. It's going to be kept totally predicated on the markets and where we feel the opportunities are. It's not going to be based on a magic number of stores that we think we have to open each and every year.

Final question. Dick's is aggressively going into your home market, Indianapolis. Do you have a strategy to counter that move? Are you going to be more aggressive with promotion in the Indianapolis market?

I think the key to running a business is doing what you do well, and we compete with Dick's in many markets. We see and respect them as a capable competitor, but we're going to stick to our guns and do what we do well in Indianapolis, as we do in other markets. We're not going to significantly change our strategies because a Dick's is coming in the marketplace.

Sean McGowan, Harris Nesbitt.

I have a couple of questions. One quick one. Can you tell us what the -- where the 4 stores that are not in existing markets are going to be in 2004?

Are you saying 2004?

Yes, I think you said of the 9 (multiple speakers)

It would be Virginia Beach; it would be South Park, Charlotte; Madison, which we've already opened; and Birmingham, Alabama, which we have already opened.

Thank you. To elaborate on an earlier question when you talked about slowing the pace of store openings in 2005, will you be giving thought between now and then as to whether or not there needs to be a change in the size of the stores or the general format, or (indiscernible) more of a strategic overview? Or is it is the plan just to do what you have been doing, but just do it in fewer stores?

No, I think you always go back and evaluate what you do well and what you don't do well, and I think you will see changes in our stores but I think the brand will remain the same. We will certainly tweak the stores in terms of for some of the things we do we want to lower the cost factor, but we want to keep the wow factor.

Final question. I don't know if this is something you can have detail on, but can you give us an idea of what CapEx would look like, excluding cost of new stores? You commented earlier about the amount of CapEx that is related to stores, but what might it look like excluding new stores?

All the CapEx is for new stores; there's very little in next year's budget. There's no money in the next year's budget for remodels and there's very little for any kind of maintenance. So it is all new stores.

Matthew Fassler, Goldman Sachs.

A couple of questions. Ed, you have an impressive number of initiatives underway -- excuse me -- and you've been at this point CEO for just a few weeks. And I would imagine that some of these initiatives probably were underway before you took over the top spot. If you could talk about the two or three efforts that you discussed that really have your signature on them, in terms of efforts and focuses that you have really chosen to highlight since you (multiple speakers)

I would tell you that they all have my signature on them, because when I came to the Company we sat down as a team and said how do we position the Company for 2004 and beyond. And so I was a participant and a player in those decisions, and as a result I own them. I think in terms of one specifically that I'm very close to is, obviously, the stores organization and reorganizing the stores. I think that is critical in terms of improving our efficiency as a company, and taking the selling effort to a higher level than what we have today. I'm also very much involved in the marketing effort in terms of increasing the cadence of promotion. I think it is the right thing for the Company, and I think it will help us more effectively compete on a market to market basis.

When you talk about increasing the cadence of promotion, are you talking about having frequent sales beyond just the clearance events that the Company has had previously?

We will go beyond clearance events.

Looking back for a moment, just to understand the nature of some of these improvements, I realize that we're putting 2003 behind us. But if you think about the fourth quarter and the magnitude of the gross margin hit that you took, what would you say the biggest factors were, and if you could kind of tie them into some of the changes that you're making for '04, and how you expect them to stave those off in the future?

When we went into the fourth quarter, one of the things we did -- actually part of my arrival in the company is we took a real hard look at our aging of inventory, and we looked at it in terms of the productivity of our SKUs and where we need to be driving the business. And we made some conscious decisions about improving the productivity of our inventory, and getting the aged inventory -- particularly in the outdoor area -- out of the inventory so we've got fresh inventories going forward. And today we have fresh inventories; we're not burdened by any aged or stale goods that we did (indiscernible) in the third and fourth quarters of last year. We've essentially taken the markdowns and we're ready to move forward.

What does the aged inventory count look like now versus a year ago?

Significantly better.

Murray Wanstrath, Hibernia Southcoast Capital.

One quick question on CapEx. It was significantly lower than what I had modeled. Can you run through maybe where you're getting those additional dollars or what's kind of happening there? I know it's vendor -- not vendor, but landlord financing. If you could walk through the discount that you're getting, because it's roughly 9 million to open a store if that model is still holding true.

We're not going to give specific numbers on stores, but I will tell you that the level of financing we're getting in '04 is better than any level of financing we have gotten in the last three years. And I think that again plays to the fact that we are still a very desired tenant for landlords out there. The other factor that is working through the numbers is the fact that we have got three 65,000 square foot stores in '04 versus one last year; those are, obviously, a little cheaper to build. But those are the two main reasons, and I will tell you, financing is 90 percent of it.

On your back-filled stores, how many did you do in 2003?

I don't think we have that (multiple speakers)

I guess the point of the question is how are those -- are you realizing the leverage and the efficiencies that you had hoped to realize, let's say in a Chicago market?

I don't think we have realized the efficiencies that we're capable of achieving. I think that as we have stepped back and looked at the cannibalization of new stores in the two markets, I think that there are certain considerations you make on how you build a market and how you expand a market to increase market share that I don't think we have optimized. So without getting into the details of our strategy, I think a lot of the things we did in 2003 we learned from, and I think that we'll be able to build on them in 2004.

Michael Cox, Piper Jaffray.

I just have a couple of questions. First, could you just discuss how long it typically takes for a store to reach maturity, and how the sales ramp up through that time?

My experience has been every store is different. I don't think there's a predictor in terms of how stores perform on a consistent basis. I think a lot of it depends on the market, it depends on how well we present our brand in that market, how well our brand is known in that market. There is a ton of variables, and I couldn't sit here and honestly tell you that there is one metric or indicator that we could say this is how we look at a store's performance.

Second, could you just highlight some of the maybe top-level cost-cutting areas that you have targeted, Ed, since you were recently appointed as CEO?

I think one of the areas we have really focused on is how we improve our supply chain. We see significant opportunities in the area of logistics and how we can speed the goods through from the vendor to the door, and much less costs than what we're doing today. We also feel that we can run our store's organization more efficiently than we have historically. So we have several initiatives underway that we think as we go forward will leverage the size of the Company and improve our expense performance.

Josh Schwartz (ph), Flatbush Watermill (ph) LLC.

I was wondering, Ed, could you make a comment on -- were any of the decisions that were made this year -- do you think they have had a permanent effect on the margin that the Company is capable of achieving over time? And in that vein, I was wondering if you might just comment on can this company produce a 5 percent margin over the longer-term? I'm curious on your thoughts.

You mean a 5 percent EBIT?

Yes.

Absolutely. I think that when you look at what happened in 2003, I think we took the opportunity, again, to clean up the inventories and position ourselves for the future. I think that we saw the condition of our inventories; it's not the way we want to manage our inventories going forward. We want to be able to move much faster in terms of keeping the inventories fresh and keeping an even flow. So we made the decisions we felt we had to make as a company to position us for the future.

Just as a follow-up, is it -- obviously, the objective in the past has been the Company was very interested in opening up stores and willing to take on the debt burden. Is it -- I'm just curious what your objectives are now? It sounds like you could get to generating free cash in '05, depending on your decision on how many stores. I just wondered if you might make a comment as to how you want to run the company? Do you want -- is it important for you to generate free cash in '05, how are you thinking about that?

First of all, I think my objective is to run the Company responsibly. We are going to look at opportunities to grow this business, but we're going to do it smart. And I think cash flow to me is the number one indicator of results and performance, so we're going to keep cash flow paramount in our minds in terms of our expansion strategy and what is working and what is not working.

Just my final question for Ed Wozniak. Ed, can you just make a comment on what is the nature of the deferred tax as a source or use of cash in '04? I know that there's a change in the tax rules; I'm just curious how that's going to affect (technical difficulty)

The change in tax laws has nothing to do with it. When we wrote off MVP.com in fiscal 2000, we did not write it off for tax purposes, because at that time we thought we would do many more sale lease-back transactions than we wound up doing in the last couple of years. And that was always the goal to utilize that asset. It's a five-year asset, we made a determination this year that we have a couple of other transactions that are possible, but as we look at it right now we're not going to be able to use all of that reserve. So we are prudent to write it off.

Do you think -- will deferred taxes be a source of cash in '04 or a use? I'm (indiscernible) as you look at it.

I think there will be a source.

Rob Schwartz (ph), JL (ph) Advisers.

I joined the call a little late, but I was just wondering -- the past couple of quarters when you stopped giving guidance, you were still giving forward quarter same-store sale expectations. And I didn't see that in the press release. Can you sort of give us something there, maybe for the quarter or for the year?

As Ed said in his comments, we're going to be measured by results. And I think with a major competitor coming into ND and the anti-competitive intensity heating up out there, I don't think it serves anyone -- our shareholders, our investors, or us here in the Company -- to be specific on a same-store sales number. So we have chosen to let our numbers and our results be the report card.

I understand, but how can we measure you based on results if we don't have any metrics with which to measure success or failure here?

I think you've got versus prior year, our direction to get comps in the positive range in '04. I think that's going to be the measurement, and improved earnings.

So you would expect to be able to bring them to the positive range, on average, for the year as a whole?

That is our goal.

Jim Duffy, Thomas Weisel.

(technical difficulty) question, when you get landlord financing for these real estate deals, presumably there are concessions made on the lease terms. Is this a safe assumption, and if so, can you quantify this in terms of what the additional expense in rent might be?

We are still getting the same level of rent deals that we have in the past, and when we file our K, you'll see that for '03. No, we're not paying any up-charge. I think again, as I said before, we're a very desirable tenant, we're a very exciting retail concept, and we turn more deals down that we take

(OPERATOR INSTRUCTIONS). Matt Fassler, Goldman Sachs.

I just have 2 quick follow-ups. One of them relates to EITF. Ed, can you quantify the impact of EITF on each of the gross margin and SG&A in the quarter, please?

In the quarter?

Yes.

In the quarter, gross margin was about 60 basis points. Marketing was unfavorable about 55. For the quarter, it was no appreciable EPS impact.

So 5 basis points; basically nothing.

Basically, yes. That's the quarter, the year was 4 cents.

Secondly, on the real estate front -- Ed, you talked about sticking kind of above zero, if you will, for 2005, having net new stores. Given the Company's financial performance of late, what is the upside of continuing to invest at this point in time -- just to play devil's advocate for a second -- rather than to wait and get some of the results, and then once your -- once the Company has sort of reproven its ability to execute and to grow the business rapidly, to then resume expansion.

I think the key is we're confident that we can effectively compete, and you have to start that as a premise. We are going to continue to look at opportunities to grow the business, and key sites when they become available are not always there, available forever. We're going to be very selective in the sites we take, but if we think it is the right location for our company and positions us in that market, we're going to take it.

Jack Bolus (ph), Midwood (ph) Research.

I just wanted to clarify something. You say you're going to be more marketing driven in 2004. Does that mean you are going to be spending more advertising dollars? To what degree will you be doing that compared to 2003?

We're going to probably spend slightly more than 2003, but I think it's how you spend those dollars and how you spend them wisely, and that's really what we're focused on. As you go down and analyze store performance, you have to analyze your marketing performance. And some of our adds (indiscernible) us a nice return, and some didn't.

(indiscernible) you also said you're going to be marketing markets differently and new store openings differently: it's not going to cost you more money to do that?

No. I don't see a significant difference than what we have spent historically. I mean essentially what you're going to see is a shift from, I think, our historical approach in brand building to more sales promotion.

So is the more sales promotion going to mean lower effective pricing, compared to last year?

You mean in terms of the product?

Yes.

Yes.

Is that going to mean lower gross margins?

I'm focused on gross margin dollars and driving topline sales.

I see. So what about on an everyday pricing basis? Before you take promotions, is that pricing going to be any different than last year?

No. We're going to stay with everyday low prices and we are going to buy into promotions.

Harry Ikenson, First Albany Capital.

Harry Ikenson from First Albany Capital. Thank you. A couple of follow-ups. You talked about SKUs being reduced and outdoor SKUs being increased. Could you give us an idea on at least a percent basis over the first 12 months, how much do you think SKUs will be reduced and how much will outdoor be increased? And then second, on selling initiatives. You indicated that selling associates will be increased. Could you give us an idea of how much selling associates will be added, and what type of non-selling functions will be reduced? Thank you.

First of all, we're not going to increase outdoor. I don't know if we misled you, but what we're going to do is condense outdoor and to make it more productive than what it historically has been. I don't think -- as it relates to the penetration of the business, I don't think you're going to see a significant change in the penetration. I think what you'll see is an improved productivity inventory turn, and as result hopefully, were going to see higher margins. And that's really where our focus is. As it relates to the sales associates --

Excuse me, what about the SKUs? Overall you said you're going to reduce SKUs --

Yes, we are.

-- by how much? 10 percent, 20 percent, 30 percent?

Well, I would tell you that our focus is roughly on 10 percent. We think the opportunity is better than that.

Okay -- and on selling associates?

Selling associates -- we've essentially increased our presence where our business lies. I mean, when you sit down and look at the customer traffic, we've had a very -- fairly high percentage of full-time employees. And so we haven't flexed our floors in terms of associates with customer traffic. And we are now focused on being -- providing better service in the stores of our customers there. And so that's going to vary from store to store. I can't give you an exact number.

Okay, and then one other follow-up. I don't know if I missed it or, Ed, you were just going quickly, but -- if you did, then I'll get it off-line. But I don't think you gave us a lot of key metrics on the Q4. I think you started and went through just stuff on the year.

Right, right. I think it's the year that's important --

Well, actually, from our perspective, we have to report on the fourth quarter. So if you can just give us some key metrics on the fourth quarter, it would be helpful.

Well, we can take that off-line, Harry.

(OPERATOR INSTRUCTIONS) At this time, I show no further questions.

Thank you very much. We look forward to the next call. Have a good day.