美元樹 (DLTR) 2002 Q3 法說會逐字稿

Good afternoon and welcome to today's Dollar Tree Stores Third Quarter Earnings Conference Call. Following today's presentation there will be a formal question and answer session. At that time, should you wish to ask a question, please press "star 1" on your touch-tone keypad. Until then, all lines will remain in the "Listen Only" mode. As a reminder, this call is being recorded for replay purposes. Should you have any objections, you may disconnect at this time. I'd now like to introduce Mr. Macon Brock, Chairman and CEO. Sir, you may begin.

Thank you and good afternoon. Before we begin, I'd like to remind everybody that various remarks that we'll make about future expectations, plans, and prospects for the company constitute forward-looking statements for the purposes of Safe Harbor provisions under the Private Securities Litigation Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors included in our most recent press release, most recent current reports on Form 8-K, quarterly reports on Form 10-Q, and annual report on Form 10-K, which are on file with the SEC. We have no obligation to update these forward-looking statements and you should not expect us to do so.

Welcome. Today with me again is Bob Sasser and Eric Coble, and we are going to cover, as usual, the press release, some business issues, and then Eric will cover some more details and then we'll open it up for questions and answers.

For the third quarter, sales were $513.5 million, up from $444.7 million in the third quarter last year, and EPS increased 35 percent to 17 cents. I am pleased with the consistency of our performance over the past year and a half. We continue to make excellent progress on the expense management front. The quarter's operating margin improved 83 basis points versus last year, somewhat better than we expected. And I am very proud of Bob Sasser's leadership that he has shown in analyzing and controlling the costs, in addition to Gary Philbin who has focused with the entire operations group on the productivity improvement. These results this past quarter reflect his cost control. The entire management team is focused on profitability and smart growth, and we have delivered despite modest comp store sales improvements.

Our back-to-school efforts were the best ever this year for the dollar price point mix that we're in. We focused on basics more this year than in the past, and we are very pleased with the sell-throughs there. Our fall decorations and Halloween are all in and selling well. Because Halloween falls midweek, we slightly reduced our Halloween purchases this year. As a result, we expect to see excellent sell-throughs of this seasonal merchandise. This in turn has allowed us to plan more aggressively for Christmas and set this product out earlier. Our Christmas merchandising is better than ever. Our buyers have really produced some fantastic bargains that will not last long in the stores, the best ones at least. Our focus on basics for this season includes some Christmas dinnerware and matching place settings that we feature, Christmas ornaments, many of them hand-painted and boxed. The box is worth more than a dollar that they're in. It's really great. Decorative crafts, gift bags, some of them giant-size. It's really amazing what they produced.

As we've said throughout the year, our close-out availability continues to be robust and we have been able to raise the quantity of [inaudible] purchases in our stores, due in part to the soft retail environment for some other companies. We continue to see the recognition of our company by the national manufacturers. We have a lot of stores and a lot of buying power, and we're pretty easy to sell and do business with. The companies continue to seek our business and find the product for this price point.

Our merchandise mix continues to focus on everyday and seasonal basics from stationary to party supplies and gift wrapping. Our candles, our pets, our toys, our housewares--these basics mix well with our growing domestic categories like our paper products and household cleaning, our health and beauty care products, our snacks, our candy, our food. And our largest stores allow us better to display and feature these categories for the higher impact. We believe that the largest stores are the growth vehicle for the future.

We have received many questions about West Coast ports and the potential impact on our business. While it is true that most of our import goods come from Asia, we have always routed the vast majority of those goods through our East Coast ports due to the location of our DC's. As previously stated, we have received 97 percent of our Christmas merchandise already. The West Coast ports have reopened. We expect to receive all of our seasonal merchandise and should experience no material impact this quarter from the port disruptions.

During this quarter we have opened 83 stores, closed nine, and expanded 32. We ended the quarter with 2,179 stores. Our large stores are our best response to the increased competition and in spite of the fact that they cannibalize our existing locations they are our preferred growth vehicles. This will be Dollar Tree's 16th consecutive year of at least 25 percent square footage growth over the public outcry to the company. As we solidify our plans for '03 we will still see tremendous opportunity for growth.

We are pleased with our improved operations leverage of our DC network, our Marietta, Oklahoma DC center remains on track and plans to open in the first quarter of this year--of next year. We continue to see the benefit of our supply chain systems, which we implemented earlier this year. We ended the quarter with 736 point-of-sale stores, which should bring our total rollout for the year to about 800. By comparison, last year there were about 140 POS stores. So we are still in the early stages of this initiative. But our buyers and their allocators love the information they are getting from the systems which allow them to react to the sales trends. They already are using this data to drive future buying decisions and allocation decisions.

Dollar Tree continues to deliver strong top and bottom line growth despite a challenging retail environment and a concerned consumer. We are increasingly a first stop for shoppers. We have the best merchandise at the best price point. I believe that our Christmas goods are the best yet and that our commitment to basics across all variety of categories positions us for a strong finish this year. And now I'd like for Eric to cover some of the details. Eric?

Thank you, Macon. In addition to Macon's comments about sales and stores, selling square feet increased approximately 26 percent from third quarter 2001. This selling square footage growth is in line with our plans. Store openings were shifted back within the quarter and some store openings were shifted into fourth quarter. Our focus on more larger stores than originally planned accounts for most of these shifts. Larger stores take longer to negotiate, build out, and open compared to the smaller five to six thousand square foot store. We've grown more and more confident about the new larger floor model, especially under these economic conditions, and square footage growth in the future will be driven by larger stores.

New store sales are running in line with our $140.00 per gross square foot sales productivity metric. And we are focused on raising sales to an even higher internal target. We are steadily increasing our productivity in the large stores using point-of-sale information and input from our field management team, field visits by different corporate office divisions, and new fixtures and merchandising techniques. We are planning to add new technology, such as labor scheduling and hand-held scanners, to also improve our productivity.

Gross profit improved 87 basis points from third quarter 2001. Distribution costs decreased as a percent of sales for two reasons. First, inventory levels were higher than planned causing a higher percentage of these costs to be capitalized in the inventory. And second, distribution costs overall are lower as a percent of sales than last year as higher volumes created efficiencies and productivity improved.

Shrink improved primarily from continued improvement in store level shrinkage, primarily in the acquired Dollar [inaudible] stores where shrink has improved from almost 7 percent last year to just under 3 percent this year in the third quarter.

Operating expenses were flat to last year. As you will note on the income statement, we have now included depreciation and amortization expense in operating expenses. Distribution--depreciation and amortization can still be derived from the cash flow treatment.

Labor management across the company remains a priority. We started seeing results in mid-quarter last year, so the improvement in the third quarter was less than the improvement we experienced in the first half of the year. Again, we plan to improve productivity with labor scheduling, hand-held scanners, and other methods, beginning in 2003. Also last year, we reported $1.7 million in operating expenses and losses when we terminated the old Philadelphia distribution center lease and opened the new automated Briar Creek distribution center. Our operating costs were higher, primarily because of higher utility costs associated with warmer weather. Depreciation was up about 30 percent quarter-over-quarter, but up less than 2 percent over the second quarter. Overall, operating margin improved 83 basis points, somewhat better than we originally anticipated.

Other expenses on the income statement include $1.4 million of non-cash interest rate swap expense as the yield curve continues to flatten. This expense item, which is difficult to predict, reduced our reported EPS by 1 cent for each quarter presented.

On the balance sheet, cash and investments are at a healthy $87 million compared to $45 million last year. Inventory increased 21.8 percent from third quarter 2001. This is consistent with our typical seasonality. As you will recall, last year's third quarter showed a 25 percent inventory increase on 18 percent sales growth, a function of Christmas merchandise landing in advance of the holiday sell-through.

For the first quarter of this year, we are now projecting flat comps and based on our store opening plans this equates to total sales of $825 million to $830 million, which represents a 15 to 16 percent increase over fourth quarter 2001. We look for operating margins to be approximately the same as last year's fourth quarter, even on flat comps, compared to the 1.5 percent comp we posted in last year's fourth quarter.

In conclusion, we've come through the year so far in a very strong position for several reasons. One, the performance of our large stores in this unsteady economy has strengthened our commitment to this format. Two, we've maintained flexibility in merchandise procurement, taking advantage of opportunity buys as well as maintaining the ability to move inventory overseas in anticipation of issues. And three, we've lowered our cost structure as we transition to larger stores.

One of our goals is to continue this strong performance in the coming quarter. We focus on satisfying the growing customer base, turning merchandise into cash as efficiently as possible, and optimizing our asset utilization. We also are focused on more productivity in terms of sales and costs per square foot. Inventory management included inventory turns and optimizing inventory levels, and a leveraging and ever-growing experienced base of managers and executives who are committed to growth and profitability while maintaining the one dollar price point.

We are now ready to accept your questions. In the interest of time, and so we can accommodate as many people as time permits, we would like you to ask no more than two questions.

At this time if you would like to ask a question please press "star," then "1" on your touch-tone keypad. To withdraw your question, please press "star 2." Once again, that's "star 1" if you'd like to ask a question and "star 2" to cancel. One moment please while the questions register. Our first question is from David Cumberland of Robert Baird. Sir, you may ask your question.

Good afternoon. Macon, in the press release you mentioned that sales had improved in October. Could you elaborate on that, and specifically, whether traffic and ticket have both improved? And then, the second question. If you could update us on cannibalization related to large stores. Should we expect this to become a bigger factor with more focus on the larger stores?

Well, with regard to the October sales trends, I was addressing really a pretty weak September. We were pretty disappointed in September and it's more back to normal in October. It's a little early in the season to predict that, but we just wanted--we thought September was kind of lousy so we thought we'd see a little bit better action in October. But we are still planning very conservatively in the sales area. Our traffic has been--it's been up in our larger stores and essentially our small stores it's down, as we measure it, which is really just transactions. And part of that is cannibalization because as we grown in the markets with the larger stores, it pulls traffic away from the smaller stores into the larger stores. So there's not been much movement on average ticket. Our comps were modest at 1.5 percent, and a lot of that is driven by our larger stores. So I think I'd characterize the quarter cautiously. We've lowered our expectations for sales just because it is a very soft and unsettling environment for us at least. We have so many stores all over the country. It seems like if something is going on somewhere in the country we're affected. So we're just planning it conservatively.

Thanks. And on the longer term issue of cannibalization?

Well, cannibalization is an issue that we will face, and since we do plan the larger stores, if they are in markets that have Dollar Trees in them, it is a factor. I'm not prepared to quantify it. I don't expect it to grow, particularly from what we're expecting now, or what we have been experiencing in the last few years--but, of course, there are more competitors in this business too, you know. A lot of people are in the dollar business by hook or by crook even if they are not public companies. And so, you feel a little sales pressure there. But I don't think our cannibalization will grow much past what it's been. I think we can manage it, but it's clearly the right thing to do for the business.

Thank you.

Our next question is from Michael Novak of Frontier Capital. Sir, you may ask your question.

Hi. Good quarter. My first question is what's--why do you use the interest rate swaps? Is this something that we're going to be concerned about in the third quarter of every year on a yearly basis, or could it potentially impact any quarter? And basically, what causes you to have to recognize against the swap? And have you ever had a corresponding benefit?

Yeah. Mike, this is Eric. We entered the interest rate swaps as the low interest environment was coming down. It has come even further since we did the swaps. But swaps have a certain term and at the end of the term, basically, this valuation account that we've set up, because of the lower interest rates, that goes back to zero. So it acts like a bond, basically. So as interest rates go low--lower, or the yield curve flattens out, there is a negative impact on the income statement. We did have one quarter where we had income come back as the yield curve stiffened up a little bit in the long term--.

--Did you enter into--.

--So it's not that predictable, but there isn't too much more that interest rates can go down. And these swaps do have a term that's disclosed in our public filings. A couple of them expire in 2006. And as the time shortens that we get there, or interest rates go up, then you'll see income come back once we do the income statements.

Okay. My second question relates to depreciation and amortization. It looks like you showed about 40 basis points of leverage on the actual SG&A line, backing out D&A from the cash flow statement. And it looks like D&A as a percentage of revenue should end the year close to 3.1 percent. Why is D&A up so much and why is it growing so fast? Is that all the POS or additional DC's? And sort of, what would you expect D&A to be as a percentage of revenue next year? And do you still feel on the core SG&A piece can you get leverage at, you know, zero to 1 percent comps?

Depreciation is up year-over-year primarily because of the point-of-sale and other supply chain improvements that we've made. Those are mostly technology gains that can't be depreciated over a very long period of time. Also, our larger stores are contributing to that, our reload and expansion program as well. But, as you can see from last quarter, the increase to this quarter isn't that much. So really, the bulk of the increase has already occurred. And going forward I would anticipate that the percentage of depreciation to sales is gonna come down, you know, into the--into the high 2's, low 3 percent range. And that's our plan. And as far as the improvement that we saw, most of the improvements we see are in labor management. And in mid-quarter, in third quarter last year, is when we started and instituted that program. So in the fourth quarter, I don't see quite the improvement that we saw this quarter. But again, in 2003 and beyond we are looking at other ways to optimize some of the cost, especially in the larger stores as we go forward.

Kind of a flattish to a 1 percent comp, you had 60 basis points of leverage in the second quarter, 40 in the third. You think 20 in the fourth is reasonable for a flat to 1 percent comp?

Yeah. I mean, you know, our operating margin is gonna be pretty similar to fourth quarter based on flat comp. So, you know, you can make the assumptions from there.

Thank you. Good quarter.

Thank you.

Our next question is from Tom Thompson of Thompson of Thompson Siegel. You may ask your question.

Thanks. Good quarter. Eric, you already answered my question.

Thank you, Tom.

Our next question is from Hardy Bowen of Arnold. You may ask your question.

Hi. On the big stores, are we now thinking that 12,000 square feet or 14 or even 15 is a good size to go in with? And do we have the merchandise to fill this up? I mean, as things have progressed, we are getting more and more items to put in the store. And as we keep getting more and more items to put in the store, does that mean we want a bigger store, and we're still expanding the upper end of range?

Hardy, clearly the bigger stores are the future, as Macon said earlier. And there is--there is plenty of merchandise to put in them. One of the things that's driving us to the larger stores is there's the opportunity to have more and more merchandise. The range, you know, I won't tell you it's a certain size, but there's the range and that's up to 18 range is what we're looking at as large stores. And we're now getting enough of them that we can. And we've had them for a long enough period of time that we can make a good analysis of the results of them, and we like the results that we're seeing. So the move to the large stores, the customers clearly like it. The sales--there is plenty of merchandise. We can get leverage on the fixed costs and at the end of the day it's a more competitive model out there than the smaller stores. So for all of those reasons, that's where we're going.

Yeah, the stores look terrific, the big stores. I would imagine that, I mean, it seems that they do put some pressure on some of the older stores in this transition period of in a way rebuilding the older markets to come closer to where you want to be in the more modern format. And I guess this is gonna go on for a couple of years and then slow down some as you get some of these markets built out. Is that fair to say?

I think that's fair. You know, we've been some generalization now for some years. But we look at each of the markets and we look at the potential of the market. And in some cases we are underserving the market with the small stores and it's time to either add another store, a large variety is the preferred one, or expand the small store to a larger store. If we do that in a market, well, like the one we--here in Norfolk, in Chesapeake that you've seen, obviously there is movement from the customers from one store to the next. The large store does offer more of a selection. It's a better model and they like it more. So, yeah, they made pass by the small one to get to the large one. And at the end of the day where is our goal is to better serve the customer in the market and to increase our revenues overall.

I guess in a couple of years the layout of stores would look more like it does in California where you have mostly big stores and a few small ones in between?

Yeah. Yeah, that's it.

Okay. Sounds good.

Thank you.

Our next question is from Patrick McKeever of Suntrust. You may ask your question.

Thanks very much. Have you seen any impact from the--on your stores in the Baltimore/Washington D.C. area from the concerns over the sniper, and if so, can you quantify it?

Well, thank goodness, it looks like that's over. I hope it's over. The last I heard they thought they had the people. But yeah, it was, you know, I mean, people were afraid to go outside. So--I would have been too. And it certainly affected shopping patterns in that market.

That is overall. I mean, it was not a--didn't move the needle because you've got 2,200 stores. It's like 50 were affected negatively, but it didn't, fortunately, it didn't impact the whole company.

And Macon, I was just wondering if you could share with us any comments about your plan for next year, either from a same store sales perspective or from a margin perspective or EPS growth perspective, that sort of thing.

Well, we're gonna do the best we can. We're gonna--we're gonna move every number up that we can move up that's appropriate, and some down, I hope. But as far as--we really haven't got the exact plans. We're not really prepared to talk about what the numbers ought to be yet. Suffice it to say, we've been growing the company with a percentage of square footage growth. We think we're in the mid-20's for square footage. We got it--as a percentage your growth has got to come down. But the hole is getting bigger. So these percentages will come down over time. I think that's normal. But we're just focusing on the details of the business and controlling the costs. And I think the focus next year continues to be, as it was this year, to try to leverage this technology and to try to--to try to get the productivity of the stores that we have up. That's got to be the--we're gonna open some new stores and we're gonna remodel some. And--but we're gonna focus on the stores that we've got as well. That's the--that's the--I'd say that's the major focus for next year.

Do you envision any additions or changes to the basic merchandise mix?

No, not other than we're still dedicated to variety goods. We're still importing about half of what we buy and domestically sourcing with--what's, you know, the consumer products world, you know, which includes a lot of different categories of goods. So we want--we still love the seasonal business. We intend to be in that full tilt in the big store and the small store. As a matter of act, the big store is even better for seasonal than the little store because we can put more of it out. We can show it better. We can put it out earlier. So we don't want to give that up. And we're not going to fundamentally change the mix. We're not going into the grocery business. But, by the way, we're gonna have strong-selling consumer products whatever they are.

Thank you very much.

Our next question is from Reid Anderson of Piper Jaffray. You may ask your question.

Good afternoon. Good job. First question is probably for Eric. Eric, your gross margin was surprisingly strong compared to what we were looking for. And I just--you gave two explanations for that. Could you just give an order of magnitude of which of those was more important?

Yeah. The order of magnitude, it was distribution costs and then the--and then the shrink. And that's basically how we listed it on the press release too, in order of magnitude.

All right. In any--the next one is probably for Bob or Macon. You talked--Macon, you commented that kind of pushing the close-out a little more aggressively seeing good opportunities there. Can you quantify, you know, is it a percent of the mix, how much that might have moved? And also comment, what category that you are seeing the most opportunities in?

Reid, we have been finding a lot of close-out opportunities, some of them in what you might term the consumer products area even. You know, we had some Ritz Bits that we bought several million pieces of that sell for two bucks at the discount stores and we're able to get them and sell them, like I said, several million pieces for the dollar price point, so there's a lot of close-outs out there. The percentage, though, I gotta tell you, at the end of the year is probably not gonna be much different than we normally run, which is in the 12 percent, 10 to 12 percent range, because--the total number keeps going up too. So even though we're finding more close-out it tends to sort of go up at the same rate. It might be a percent more but it certainly won't be a big difference more.

Fair enough, thanks.

Our next question is from Meredith Adler of Lehman Brothers. You may ask your question.

I have two questions. The first is, given the very strong gross margin performance you did achieve in the third quarter, what are you expecting to happen in the fourth quarter that would eat into that? I mean--or are you expecting that with flat sales, flat comps, that you will actually have negative sales leverage?

You know, we've modeled different things that could happen in the fourth quarter, a lot of it does depend on the sales, but we're pretty comfortable that operating margin is gonna be comparable to last year. And the components within that, you know, we're usually fairly predictable in fourth quarter for margin and SG&A.

I guess then I'm--my question more would turn back at the third quarter then. Are you saying that the gross margin or the operating margin improvement was somewhat of a fluke? Because that was a very strong improvement.

I wouldn't term it a fluke, I mean, I think that, you know, we had some costs last year that depressed operating margin $1.7 million. You know, we had efficiencies in our distribution costs that I hope will continue going forward, but, I mean, the improvements in shrink we've been seeing all year long. The improvements in payroll and related costs we've seen all year long. And even the store operating costs we've seen all year long, and the depreciation expenses as well. But to answer your question a different way, I mean, to me there's--I don't see anything in the fourth quarter that's gonna make us believe that we're eating away at operating margin because we shifted something in the third quarter, that just did not occur.

Oh, no, I didn't mean that, I just meant because of the sales slowdown. I guess I was just trying to understand how you--maybe you're just being extremely conservative, which is a good thing in this environment. I was just trying to understand how you saw the change. I have one other question. Is when you think about the importance of building the bigger stores and recognizing there's some cannibalization, is there some point where you say, we've got a lot of small stores that really aren't productive anymore and we want to do something with them? Close them down, or the lease costs are low, and the fixed costs generally so low that it doesn't matter? That you have them, but they're losing, kind of, productivity?

Yeah, I think there's three things that we're looking at. First, that, one thing Bob said that was important is that we look at every market and analyze it as much as we can before we make a decision of what we're gonna do in that market when it has a lot of our stores already there. Number two, we have a very, I believe, aggressive relocation and expansion program that has improved year-over-year and since we've gotten more experience with the larger store, we're more comfortable taking a small store under 4,000 square foot and expanding that store to a 10,000 or 12,000 square foot store. So attacking that core of stores through an aggressive plan that way, I think is important. All of our--the third important thing to notice, all of our stores are profitable. And there's no reason to close a store and take a lease loss for it when it's making money, and it's generating cash and contributing to our bottom line. Having said that, we do look at when our leases are up, how many stores we should practically close, and if we're going into a market. And if it's just booming, there might be a reason to get out of a store earlier, but we rarely have to do that. So cannibalization is just part of our life right now as we transition to the larger store, but we're trying to make it as prudent as we can of decisions of how we do that.

And do you find the returns on the relocated or expanded stores are very good, even better than a regular big store?

Yeah, we love the large store. Returns are outstanding and the opportunity to continue those year-over-year are even more. Because, as Macon said, you know, we've got to focus on improving the productivity in those stores. They're great, but we can make them better. And I think we are currently making them better. So, we think the returns on the large stores is the way to go. You leverage all those fixed costs with still one manager, and you're able to get some leverage with volume on your hourly, and all the things that at the end of the day, you make a lot more money.

I guess I was asking about the relocated and expanded stores. Do they have even better returns than the big stores, or is it about the same?

You can't really compare, I don't--in my mind, I couldn't make that comparison. The return on the relocated store is good. It's from the small store to the larger or relocated store, I think is the comparison. So when we make these moves we're looking at a market that could support more square footage. And your choices are open up another small store or maybe expand a small store if you can to a larger store to take care of those customers. And we make those decisions market by market.

Got it. Okay, thank you.

Our next question is from Mark Mandel of H. C. Wainwright. You may ask your question.

Thanks, good afternoon. I just wanted to focus on the gross margin again. The increased capitalization of distribution costs, could you quantify that or, what was the, you know, what was the impact here? And what will likely happen as we go forward through the end of the year? And relatedly, the inventory is up 222 percent, I know your goal is bring it in line with the sales growth. Is that still an achievable goal by year-end?

At year-end, our goal is to bring it more in line with our sales growth, I mean, again, this--the third quarter reflects the same seasonality we have had last year. So far, year to date, we've done a pretty good job of inventory management on a month-by-month basis. And I expect the spread to decrease by end of year. You know, and as far as the capitalization of distribution costs, like I said, the fluctuations in inventory and the timing of purchases, that's what affects how much of your distribution costs get capitalized into inventory. As inventories go up, then the capitalization also goes up. When inventories go down, which is what we expect in the fourth quarter, well, then your distribution costs come back in line. And it's just important to note that the distribution costs for the year are what they are. But in between quarters, wherever it ends up, the timing of your purchases and inventory levels will affect the actual rate.

So then, it's fair to conclude that there were no changes in accounting policies or depreciation schedules for any of the various individual items?

No.

And then one final question, just a housekeeping question. Do you have the actual number of shares outstanding at quarter end?

Actual shares? It's about 113 million, isn't it--114?

No big deal. I know it's about 114, so that'll be good enough.

Okay, thanks.

Thanks a lot.

And our final question is from Rob Berkfee of American Century. You may ask your question.

My question is for Macon. Macon, I'm just looking through some of the financial statements that you guys have provided in the press release. And, you know, kind of chaining together the strong free cash flow generation that the business produced last year and is on track to produce this year, the solid net cash position you have on the balance sheet, about 50 percent year to date growth in net earnings. And I'm wondering, sort of relative to last year, I think around this time, after 9-11 when you guys bought back some stock around 19 bucks, you had an opportunity to do that earlier in the month. I'm just curious if you can share with us, you know, what might be in the head of some of your board members in terms of potentially authorizing a share buyback around these levels?

Well, levels I won't comment on. But share buyback because of cash, which we consider to be a high-quality issue--we like having that option. I think the board is certainly interested in that, and will certainly consider it. Moving ahead, we've gotten through this third quarter and gotten through pooling and all those things, so it's something that's probably on the plate with some of the members, and I'm sure it'll come up.

Okay. Thanks.

Our next question is from Joan Bogucki of Wedbush. You may ask your question.

I've got a question related to Halloween sales. There have been a couple of discounters that have commented that sales have been below plan in that category for them and clearly, it's more competitive. And then also, related to that, how much earlier do you think your Christmas merchandise roll-out overall would be, a week or two weeks, something like that?

Well, at the Halloween thrust, we're pretty happy with it. We don't have, you know, detailed measurement of how it's gonna be, because, you know a lot of Halloween doesn't go out until the last week or ten days, and so, that's right now. So, but we have great expectations of a pretty good clean-up. Last year, Halloween did not do well, post 9-11, mall shopping concern, people in a dither, and Halloween was pretty bad. And it's much better this year, by comparison. Now, at Christmas, which we put out some earlier this year, where we could, and we like to put Christmas out as soon as we can in stores, so larger stores can really put it out sooner than smaller ones because they've got more room. We'll continue to follow that pattern as we have larger stores because we think--we know that consumers buy, shop early, they're on vacation, they're coming into the back to school season. They'll buy Christmas stuff then too just to get it out of the way. So we continue to follow that pattern next year, and we're certainly following it this year. As I say, I think we've got the best Christmas offerings we've had as far as products, imported things that we've found, that we've seen. And I'm very proud of it, and we had really focused on the basic products within Christmas, like wrapping and things like that. So we're pretty sure that we'll have a good sell-through, and we're still bullish on seasons.

Okay, thanks. And then, just a housekeeping question for Eric. Fully diluted shares in this quarter were $114.7 million. Do you have a forecast for Q4?

Yes. I mean, it depends on the stock price, so I would probably keep it about the same, 115, you know.

Okay. Thank you very much.

At this time I'd like to turn the conference back over to Mr. Brock.

Well, thank you everyone for being on the call, and we're going to work hard on your behalf in this next quarter, and we'll be on the phone in January. Good afternoon.