美元樹 (DLTR) 2003 Q1 法說會逐字稿

Good afternoon, and welcome to the Dollar Tree first quarter 2003 earnings conference call.

I would like to introduce the host for today's conference, Mr. Macon Brock, Chief Executive Officer.

You may begin.

Welcome everyone.

Thank you for joining us.

With me are Robert Sasser our COO and Erick our CFO.

We've got a lot to cover today.

We're going to change the order.

We'll let Erick cover the financials first.

Bob is going to cover operations and I'll follow up on recent announcement on the acquisitions of some new DCs.

Take it away.

Thank you, Macon.

Before we begin, we would like to remind everyone that remarks we will make about future expectations, plans and prospects for the company constitute forward-looking statements for the purposes of the Harbor Provision under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by forward-looking statements as a result of various important factors included in our most recent press-release, most recent current report on form 8 K, quarterly report on form10Q and annual report on form 10K which are filed with the SEC.

We have no obligation to update our forward-looking statements and you should not expect us to do so.

As an overview of the press-release, sales for the quarter were $615.6m, representing a 20.8 % increase over last year on a 2.2 % same-store sales increase.

Both total sales and comps exceeded our original guidance.

Earnings per share was 29 cents, up 16.3 %.

Now more details.

Sales for the Easter selling season, which traditionally starts a few weeks ahead of Easter, were stronger than expected.

We planned conservatively for Easter based on world events.

Sales in larger newer stores, particularly those in the 10,000 to 15,000 square foot range, were very strong.

We're pleased with our relocation and expansion programs, which revitalizes and re-innovates our older smaller stores.

We opened 55 new stores and expanded 30 stores during the quarter.

Gross margin was 35.4 %, compared to 36.2 % last year.

Last year's gross margin benefited by approximately $2m due to shrink adjustments made in connection with our supply chain implementation.

Also, the current year's cost of sales includes approximately $1m of additional non-cash expense from our adoption of FIN 46.

As an aside, there's another $1m of additional expense associated with FIN 46 that is booked in interest.

Again, FIN 46 implementation required us to book our distribution centers that were of synthetic lease onto our balance sheet and income statements.

I would also like to point out that gross margin does fluctuate quarter to quarter, but annual gross margins have been consistently between 36% and 37% for the past several years.

Operating expenses improved to 26.5% of sales compared to 27.2% primarily from continued improvement in personnel costs.

We are now beginning to see positive effects from our new supply chain system on productivity company-wide.

A majority of the 69 to 70 basis points improve in SG&A percentage, was actually anticipated in our plan because of Easter.

And above plan comps helped drive additional leverage.

Generally, the savings and personnel costs and the leverage in corporate and store operating costs were partially offset by increased depreciation from our supply chain investments and technology improvements at the stores.

Bob will talk about these technologies in a few minutes.

Pre-tax income is up $7.7m, which we think is quite impressive considering the increase was effected by approximately $2m in shrink adjustment last year and about $2m from the effect of putting our synthetic leases on the books in January.

Recall that that adoption of FIN 46 results in only in non-cash accounting entry.

Our cash flow remains the same.

Overall our cash flow from operations improved $6.1m dollars and we're very pleased with our results.

We continue to have a very strong balance sheet.

Cash and investments stand at $177m and inventory levels at approximately $497m are both better than planed.

We plan to pay for our acquisition of Greenbacks out of available cash and we do not expect the increases interest expense to be material for the year.

For second quarter, our sales guidance is $575m to $590m, exclusive of any contribution Greenbacks may provide once that deal closes.

We expect the transaction to close in late June and we will be accounting for Greenbacks results at that time.

Based on what we know at this point, we're comfortable with second quarter expectations.

We are on track to increase sales and earnings by at least 15% for the year, again, exclusive of Greenbacks.

I'll now turn over the call to Robert Sasser, our president and COO.

Thanks, Erick.

First, I would like to make some comments on our sales and our mix and our merchandise.

As reported, our first quarter sales came in above guidance and there were numerous contributing factors in our favor that I would like to characterize for you.

The war in Iraq was quick and decisive allowing people to leave their TVs and get out on and with their daily routine.

Consumer confidence seemed to increase throughout the quarter.

We entered the first quarter with a great mix of great seasonal merchandise and a strong in-stock position on our basics.

After a tough February, when weather forced a lot of store closings and disruptions, weather in late March and April was favorable.

These things, in combination with a longer Easter selling season, provided sales impetus.

When the customers could get out and shop, we were ready for them.

The late Easter and good weather fueled sales of not only the Easter product but also our great spring and early summer offerings.

We sold a lot of summer toys and lawn and garden products during this period along with the traditional Easter seasonal product.

We had a good sell-through and are overall pleased with the clean-up of the Easter seasonal product.

Our stores made the transition from Spring and Easter very effectively.

They're currently filled with high value everyday merchandise supplemented by our unique seasonal offerings.

As you probably know our strategy is to drive sales with branded and basic high-value products every day while taking advantage of the holiday traffic to increase sales during events, holidays and seasons.

As our stores transitioned and entered second quarter, our Mother's Day promotions were successful with huge sales of helium balloons and cards and roses and gift baskets for mom.

Memorial day weekend was strong with sales of picnic supplies, car care products, water and beverage, and summer toys.

The availability of name brand close-outs and opportunity buys continues to be strong and we are a buyer of choice for these closeouts.

With our size, we can usually take all of the deal.

We're flexible.

We make quick decision and we pay our bills.

We don't have to wait for a plan-o-gram change which increases our speed to market on new products.

These are all strength we use to our advantage in working with vendor partners allowing us to offer extreme value at the one dollar price point.

We also continue to develop outstanding products available only at dollar tree.

Our stores are currently stocked with large water guns that would easily sell for $5 elsewhere.

We have our own design of hand painted dinner plates, large poly-resin figurines, seashore and lighthouse collections in our gift department, summer drink ware with proprietary designs that have just been fabulous so far, and even cameras and 35 millimeter film, all for one dollar.

And they really work and they develop and they make really nice pictures.

Our new stores continue to perform well.

We're constantly work to enhance the shopping experience for our customer, and we continue to see strong consumer acceptance of the new merchandise and the new store layouts that we've introduced including a race-track layout with new graphics package and sight lines into flagship departments giving us another degree of flexibility when looking at potential real-estate sites.

This design is used exclusively in our largest stores.

As you know, we are also testing a brand marketing campaign to see if that can drive some incremental traffic.

The early results suggest that it does just that, but we're still in the testing phase.

The tests run through mid-July and our goal is to determine the optimal level of marketing required as well as the type of media mix required to drive more traffic into our stores.

We're running different weights and a different media mix in each of the test markets.

We'll have more to say about that once the test concludes and we finish our marketing analysis.

But I can tell you now that I believe some degree and matter of marketing and advertising will increase our brand awareness and will drive more traffic and sales into our stores in the future.

Our strong sales performance has continued into May and we will hold our, now regular, pre-recorded call on July 7th with our sales update message for second quarter.

The dial in information for that call is available at the bottom of this afternoon's press-release.

On another subject, the issue of SARS has come up of late.

I'd like to comment on that.

Like most U.S. retailers, we do business in China.

And I can tell you that to date SARS has not disrupted our business and I do not anticipate that it will.

Although it has changed the way we do business, our business relationships in Asia are mature and strong.

Our Hong Kong office has full connectivity with our Virginia office through the use of e-mail and digital cameras, and our Chinese staff in Hong Kong we continue to review, approve and purchase product as planed and scheduled with no delays.

Moving on to growth and real-estate.

During first quarter, we opened 55 new stores as Erick has commented on, including our first store in Idaho.

We closed 8 stores and we ended the first quarter with a total of 2,319 stores in 41 states.

We continued our relocation expansion plans with a total of 30 stores in the first quarter.

When the Greenbacks acquisition closes, we will truly be a national chain with stores in 47 of the Continental 48 states leaving only North Dakota, which we will enter soon enough.

We're on track to meet our store opening goals for the year.

As I said on our last conference call, we will achieve our original plan of 22 % organic square footage growth this year.

And with the acquisition of the Greenbacks stores, our total square footage for this year will be in the 28% to 30% growth range.

Macon is going to have more to say about Greenbacks shortly.

We continue to upgrade our supply chain and use technology to improve our business.

Our point of sale rollout continues on schedule and in just two years, after beginning a pilot test, we now have 1,375 POS stores which is almost 60% of our stores POS and almost 90% of our large stores.

We will end this year with approximately 1700 POS stores and complete the rollout next year in 2004.

Just as exciting as the POS installation, and along with installation of POS, we're putting in a new back office and our wide area network that enables us to improve and benefit our stores in many ways.

By layering other technologies on top of the wide area network that we install with POS, we're able to give our stores web based time and attendants and self-service HR that improves accuracy and eliminates double entry of manual processes.

We're able to bring the store on line with our new Store Level Inventory Control application, or as we fondly call it, SLIC.

This is a wireless application that uses a hand-held device to give real-time sales and inventory information on each product.

The device is used by store associates for ordering and helps them create better orders while reducing the turnaround time.

Not only does this automate the store ordering process, which makes it more efficient, it also gives the store operators access to on-hand, on-order and sales by-SKU-with-a-history and highlights and reminds them to order the best selling products.

The wide area net work is a powerful tool, we'll continue to leverage its power.

Some near-term projects that are currently under development are host based credit and debit check authorization for faster customer service and as we get more stores on POS and build sales history, we have the opportunity to automatically replenish the basic predictable product, allowing the stores to spend more time on customer service than keeping the shelves full.

POS information captures the front end of the supply chain allowing us to make better buying and allocation and replenishment decisions, but it also helps with operational decisions like the labor scheduling.

By knowing when stores are busiest, we can schedule each store accordingly.

These are basic retail technology tools, but the opportunities they provide to more efficiently manage inventory, store operations, and labor is significant.

I'd like to now turn the call over to Macon, who has more information about our recently announced distribution centers and Greenbacks acquisition.

Thank you, Bob.

Pleasure to talk on our DCs.

The new distribution centers have made us focus on our growth strategy by region.

The Marietta, Oklahoma distribution center at 625,000 square feet just opened on-line in this February and we welcomed the capacity in that Central-South region.

Last week, we broke ground on a distribution center in Ridgefield, Washington, which is close to the Port of Portland.

This is a great location for us to cover the Northwest markets and lower our stem mileage cost in the Northwest states of Oregon, Washington and Idaho that we now serve from Stockton, California.

We would also use the Port to import for our Midwest market in Chicago.

We recently announced a replacement distribution center in Joliet, Illinois that will be you're largest facility of 1.2m square foot and it will be fully automated.

Our existing Chicago DC that we purchased in the Dollar Bill acquisition in 1996 is undersized.

When these buildings are operational in '04, we will improve our stem mileage to current stores and provide support for new growth in these regions.

Transportation charges are expensive per mile.

So the dollars add up fast and will help pay the way for these additions.

The growth we plan for these areas will take advantage of our strategically located DCs and we anticipate stem mileage savings of $1.5m to $2.5m annually per DC.

On our last conference call, we announced that we have signed a binding agreement to purchase Greenbacks of Salt Lake City.

Greenbacks existing DC in Salt Lake will support those stores and future growth in the Rocky Mountain states.

We plan to shift a few of the Greenbacks stores to closer Dollar Tree distribution centers for example those in Nevada and Texas.

This will really be our ninth distribution center when that comes on-line.

We have just returned from a trip to Salt Like City where we met with all the Greenbacks management to discuss the future plans for that company.

We remain impressed with their management team and we continue to see the opportunity to integrate this company with our team to better serve their customers.

Greenbacks has good real estate locations.

A good distribution center and a similar product mix that focuses on the same kind of customers as we do.

There are very little overlapping locations and no store closings are envisioned.

I am very confident that this move is good for both companies.

We have filed for the request of the Hart Scott approval and I am hopeful that a June closing can occur.

As we make plans to merge these companies, we are very impressed with the cultural fit of these management teams.

We feel confident that their opportunities to improve their merchandise margins and to leverage their fixed costs with sales increases both through Sunday opening and through more and better merchandise offerings.

I reiterate our belief that the acquisition will be two to three cents accretive this year, based on a late June closing -- at least 7 cents next year.

The infrastructure that we gain will provide an excellent platform for growth in this area.

Real-estate opportunities in the Rockies will be a focus for us and is very reachable from Salt Lake.

The addition of our Ridgefield distribution center next year will help support our growth in the Northwest.

I am very excited about this strategic move and I look forward to all that we will learn from this acquisition and this fine management team.

In closing, let me say how happy I am that this long discussion has concluded in such a way that shareholders will benefit from this strategic move.

The improvements plus the growth opportunity will reward us all in the months and years ahead.

And now we're ready for questions.

We would like to ask you to hold it to two, so we can accommodate everyone.

We're ready.

Thank you.

Thank you.

Our first question comes from Meredith Adler with Lehman Brothers.

You may ask your question.

I was wondering if you could elaborate a little more on the gross margin?

Was there anything that went on in the quarter, besides the comparison with last year's shrink benefit that brought the gross margin down?

There were three components to that, Meredith.

One is the adjustments from last year which approximated $2m.

Plus approximately $1m because of this year, because of the depreciation with regard to our distribution centers we put on our books in January.

And I would say that the third piece is really as we were going through the quarter some increased shrink in markdowns during the quarter compared to last year.

Those are the three major components.

And what causes that increase?

The last part?

Yes.

Increased shrink is basically due to the larger store format having inherently a larger shrink than the smaller store format.

That's a trend that we have been seeing and have talked about over the past year or two.

And the second is that during the Easter selling season we had some promotions that we did that we did not do last year because we had a longer season to do those promotions this year.

Great.

And just one other question.

I don't know if you've said whether it's your goal to eventually have all your stores be in the larger format and prototype and do you have a goal -- if that's true, what's your goal for getting there?

Meredith, we don't have really a goal for getting there.

But the stores that we are opening now are in the large store, what we call our large stores.

That's what we're opening now.

The Greenbacks stores that we're acquiring fit very well into that mold.

We still have a lot of stores that aren't very large that are making a lot of money so we're going to continue operating those.

And we really look at stores based on their contribution, not based on their size.

So there's not really a goal.

Our direction is towards larger stores offering a broader assortment appealing to more consumers.

And have you said how many relocations and expansions you'll do this year?

It will between 110 to 150.

Our next question comes from Mr. Dan Wewer with CIBC.

You may ask your question.

Thanks.

Erick, if I did my math correctly, it looks like inventory turns might have been down slightly year over year.

And just curious, if we see any potential improvement in turns going forward.

And then my second question relates to container prices.

Some of the retailers were indicating these price are beginning to increase with the strong dollar.

The amount of exports has been diminishing and I know that was an issue for your sector back in '99.

If you could talk about what's happening with container pricing today.

Okay.

On the inventory turns, I can tell you that part of the reason why inventory turns appeared to go down is because we did have a lot of dollars on the water this year at the end of the quarter.

Yeah.

I would anticipate that as the year goes on, that inventory turns will continue to improve.

That's our goal for this year, to have an improvement.

We've seen improvement over the past two years and we are targeting an improvement this year as well.

Especially with supply chains.

I think a lot had to do with timing and also building up new store inventory.

As far as container costs, I'm not aware of any increases at this point.

We will be getting into negotiations very shortly.

So I would be hesitant to say anything anyway at this point.

We have a long-term contract that would not effect this year in any case.

Okay.

The scenario today is similar to what happened back in 1999 with the weakness in the dollar and the export problems and the container shortage.

So, but you're saying regardless there would be no exposure for Tree?

Not for this year?

Not for this year, not as we see.

Great.

Thank you.

Our next question comes from Mr. Daniel Berry with Merrill Lynch.

Mr. Berry, you may ask your question.

Good afternoon, congratulations.

If memory serves me right, this is the second conference call in a row you sort of highlighted that the big stores are doing particularly well.

Just wondering, if there's anything changed in the big stores, where they seem to be doing well as of lately?

And do you expect the same return on investment as the smaller store?

Dan, the large stores are continuing to improve and we continue to work on them.

The race-track design that I mentioned is only the largest of the large stores right now, but it is very compelling and it does give us the opportunity to show our product better.

We have an availability of more product now.

And those race-track stores do enable us to highlight it more.

But the large stores in general, we like them because of all the things our customers tell us.

It appeals to a broader base because we can get departments in and categories in that we can't sell in the small stores.

The customers that shop our stores stay longer.

They buy more.

The average ticket is higher and return is virtually in the large store that of the small store.

Now we'll tell that you it costs more to open the large store, our investment in the large store is higher, because it's a bigger store.

Our investment in inventory per foot is actually lower.

But the investment is higher.

We depreciate them basically over the same amount of time as we do the small stores.

So there's some opportunity there down the line as these things pay for themselves to really shower some cash on us.

But we like the large store because of the contribution it makes and the appeal it has to the customers.

I'm correct in thinking that the larger stores you've opened more recently are doing better than the larger stores you opened at first?

So there's been some improvement over time?

Yes, we continue to improve over time.

Really our merchandise has improved so.

With the large store we have the opportunity to go out and source more categories and more product.

Our party business with the large store -- it was good anyway and it's just gotten spectacular with the large stores.

So we do continue to improve and see our party business growing much better in the large stores and with great margins.

Because we can show the product and because our buyers begin to be focused on those assortments in the stores.

Dan, I would add a comment.

Our location focus has improved as far as visibility within the shopping centers.

We're much more focused on street presence than we were -- so you become more of a destination.

We called what is now a moderate sized store in the early days a large store just because it was larger than what we were opening back in the '90s, but in fact, most of them are I think it's 10,000 feet on the selling floor is kind of an average we talk about.

It's not the average, but it's kind of what we shoot for.

It's got a little better shopping center presence and that's paying off.

Our next question comes from Mr. David Cumberland with Robert Baird.

Mr. Cumberland, you may ask your question.

Good afternoon.

The sales release on May 8th mentioned increased sales of basic consumer products as expected to pressure gross margin and I did not hear that cited much today.

Could you comment further on that?

Well, I mean I think that's a true comment.

It just is not as big of a factor as some of the other things when you compare it to last year.

But there's no question that as we saw the excess sales come in over plan, that a lot of that was everyday merchandise, not necessarily Easter seasonal merchandise that sold.

Our sell-through was high for Easter, but I think it was supplemented by people coming in and buying an extra item as well.

And then, what were the trends in traffic and ticket and did you see traffic benefit in markets where you advertised?

Our ticket and our traffic was up in April.

March was mitigated by the fact that Easter was in all of March last year, so you have to kind of smooth all of that, but our trends in April and since have been that our average ticket is up and our traffic is up and I can't tell you the percentages but somewhere in the 3% to 5% on each of those.

So, we're encouraged by that.

I do believe that since March or since middle of March, it seems like the quarter picked up steam and that the consumer confidence picked up and it just seems like that's continued on.

So that's soft and that's not scientific, but that's from looking at our business the way we see it and way we feel about it.

What was the second part of your question?

Yeah, related to that did you see a benefit to traffic and markets where you advertises?

Yes, we have.

And we that was my comment about we do believe that our marketing is improving our traffic and our customer account in markets where we're advertising.

But I do want to remind you that we were testing for more than just that.

We felt, anyway, that some advertising would improve.

It's just at what level and what media mix should we use?

And how does it react in different markets?

We're testing that as much as anything.

We have some markets running TV, some markets that are running radio and newsprint.

Some markets are running TV, radio and newsprint and all at three different levels.

So, at the end, we're trying to figure out what the best mix is -- by market, as well as level.

But you can see the impact.

It's not large right now because I think it takes time, too.

But there is some impact from the advertising.

Great.

Thank you.

Our next question comes from Mr. Dan Wewer from CIBC.

Sir, you may ask your question.

Trying to understand the seasonality of the gross margin rates going forward.

We have limited information since there's only one quarter with the new fiscal year, but we don't have a seasonal event, I guess, in Q2 like we had in the first quarter with Easter.

I would assume that the gross margin rate sequentially would be lower in Q2 than Q1 but given the one-time events that took place that may not be the case.

So I'm just curious about the guidance you're reiterating.

What kind of gross margin rate should we be thinking about in the second period?

All right.

If that logic follows, second quarter would be probably the lowest quarter of the year.

And fourth quarter would continue to be the highest quarter of the year.

With the first and third really depending on the length of the Easter season.

As to which one comes in second and third place.

Our next question comes from Mr. Michael Baker with Deutsche Bank.

Well, to me, it sounds like the second quarter is doing pretty well.

You talked about some strength in the seasonal goods and I think, Bob, did you just say that ticket and traffic continues to be up in May yet you are guiding to flat comps which is below what you did in the first quarter.

Is this due to conservatism or a slightly more difficult comparison?

Or is there something else we should know about that might cause a deceleration in comps in this quarter?

And I guess related to that, do you care to comment on where you are relative to the plan you talked about to date?

Michael what we gave was a range there;

I think middle being about flat comp.

We gave a range because there is still uncertainty out there, I think.

We're very happy with our business right now.

We have our merchandise levels and our mix and our products are great and our stores are running really well and we're proud of all that.

So we feel comfort we are prepared for the business.

The trends right now, as I said in May, continue to be strong.

With customer count and with average tickets.

The unemployment still at a low out there.

You know, in the world of "is the economy fully healthy," it's not right now, although, we're optimistic about it's going in the right direction.

There are still a lot of people not working.

There are still some people that are -- it's not hitting on all eight cylinders.

So for that reason, we gave a range, which we believe to be a good range with the middle of it being flat comps and obviously we want all we can get.

I think we are well positioned to do well, but there's still uncertainty.

There is no event out there that I know of that says in and of itself one thing that's going to change that.

Right.

Okay.

Great.

That makes sense.

Then second question, this follows up on Dan's question, so I guess sequentially we can expect gross margin down in the second quarter, which I guess means that you're continuing to plan for some SG&A improvement next quarter in order to get to the your comfort with the current consensus forecasts.

I think that what I've seen is that it was the same pattern that we had last year.

So I wouldn't say that we're really looking for a lot of SG&A improvement to get to what our expectations are.

If you follow last year's pattern in gross margin, I think that the expectation are just fine.

Got it.

That makes sense.

And one last follow-up if I could, do you talk about the contribution percentage over the large stores verses the smaller stores.

On the last call you said the class of 2002 larger stores had a contribution margin above chain average.

Are you still seeing the larger stores having that kind of contribution relative to the chains?

We only have 33 stores that have enough data to kind of give us that kind of indication.

So we're not prepared, we let the whole year go by in trying to make that judgment.

Based on, just tagging on to what Bob said, we're real pleased with how the large stores are doing, based on what we expected them do.

Even though there are just a small number of them, they are pulling in some positive results.

Our next question comes from Mr. David Campbell with Davenport and Company.

Mr. Campbell, you may ask your question.

Thank you.

I was wondering if you might elaborate a little bit more about what you're seeing in the competitive environment in the western parts of the country like the Pacific-Northwest and Rocky Mountains where you are expanding and what you think the potential could be there and what the competitive environment is like?

Well, the northwest, like all of America, has dollar stores in it, One Dollar Store, Mom and Pops, small chains.

And the Northwest is no different.

There's nobody size.

There's only one other public company in this, which is Ninety-nine in the southern part of the West.

Formidable competitors, wonderful company.

Then of course, when we bump into each other, we take a sales decrease for a period of time until we can cycle.

But there's nothing in the Northwest, to your question, that would impede us from moving ahead with our growth plans.

We don't not go somewhere because there's a competitor.

I think our biggest competitor is our self.

As we grow across country and we fill in, in markets that would make sense, there's always an element of cannibalization when stores, when you're one guy in a market and you open a second store in a very deserving market, sometimes you will impact your own store with that opening.

But it's smart business and we will continue to do it.

Uh-huh.

What do you think the store opportunity is in the Pacific Northwest?

Well, I think it's strong.

But the Pacific Northwest does not have the population center as the other population centers do.

In the green zones of Washington and Oregon, they are very particular where they cut trees down and build shopping centers.

So the opportunity to put stores are in already created urban environments which we can fit in quite nicely.

In the more spacious Rocky Mountain states, we again, will follow the Greenbacks trend where they have located stores, we see continued growth and they do, too, we signed up with them, asked them what they thought.

There is more opportunity within those states to grow.

We have no stores in Colorado to speak of right now.

And Salt Lake, we can reach Colorado very well.

But I would focus on the Eastern part of Colorado and the rest of it is a mountain range.

So, we've got to be prudent about that.

But the customers out there are our customers.

They like what we sell.

We're well accepted.

We're tickled with our performance out there and that's why we're so happy about the Greenbacks pioneering this for us and us joining them for continued growth, very excited about it.

Our next question comes from Mr. Tom Thompson with Thompson Siegel.

Sir, you may ask your question.

Thanks and good quarter.

Erick, it looks like you opened a smaller number of stores in the first quarter than you typically do.

It looks like 15% of the annual amount compared to 25% last year.

Can you give as you feel of what your total openings might be for the next three quarters of the year?

I don't think --yeah and you know, what we are really focused on right now is square footage growth, not so much when a store opens during the quarter or anything like that.

But I mean I don't see that we are any different from the patterns that we established last year in store openings.

So --.

Well last year, you opened 83 stores out of a total 327, which was 25%.

And I know you don't like to speak in term terms of stores, but have to start stores to get to square feet and it looks like 15 % in the first quarter of this year, do you expect to just make it up in the second quarter?

I think we are on track to make our goals of 22 % sales, selling square foot organically and then layering on Greenbacks on top of that.

But in the past, we've had stores that have opened for a quarter, have been roughly similar to the many years.

I don't want to put a number on it, but there haven't been great swings.

What will change is the fact that we're not a calendar year.

So that means when you get to the fourth quarter this year, we're still not going to open stores in December in the Christmas season.

So we're going to have to back off.

So we're going to have January in our fourth quarter, whereas last year it was in the first quarter.

That's going to change it a little bit.

But we are going to open stores right along until we get to the real Christmas season when you can't open stores because you got to do business.

I think what we've tried to say is tried to tell people is we're going to open those percentages in the square footage we expect to expand, not necessarily number of stores.

Our next question comes from Mr. Greg Margolas with (inaudible) Asset Management.

Sir, you may ask your question.

A couple of quick questions.

I don't want to belabor the gross margin point, but you did mention how historically the company has always come in between 36% and 37%.

So despite some deterioration here in the first quarter, were you implying that you were still guiding towards that range on a full year basis?

Yes.

We should be within that range on a full year basis.

Okay.

Great.

And I'm curious on the Greenbacks acquisition because it seems like you got it at a great price.

Just if you're able to share, A, do you feel like you were bidding against anyone else?

Or is this a party that you've been talking with for a long time?

And I'm just curious what the book value was of the distribution center as well as the cost of inventory purchased was?

I'll explain the process was a long process.

I've known this Greenbacks company and Brent Bishop himself for a while and we've been friendly over the years and met with their management team and so on.

The process he chose to sell the companies was an auction process.

And so I have no knowledge of who else was in the running, because the auction process prevents you from knowing that.

I'm just pleased to be this successor to that process.

And of course I'm not going to reveal the details of Greenbacks as far as the ratios, what we've published about what their company was is all you are going to get -- not going to give you the details of the company.

Really, the reason we can't give you the details is we have not closed and this is a private company and we really cannot discuss more information than we've already disclosed at this point.

Right.

Our next question comes from Mr. Eric Autio with SunTrust Robinson Humphrey.

You may ask your question.

A couple of questions.

First I wanted to see if you can could break out the same-store sales impact of relocated and expand stores in the quarter?

We don't break that out.

We've never broken that out.

And that would be a new precedent we're not willing to set.

Okay.

Can you give us an idea of just trends?

Are you seeing with the new stores merchandise mix larger stores comping better than the chain average than the expansions in the past?

Well, when we expand a store and it goes from -- and you add quite a few square footage you can imagine that the increase is quite a lot because you're adding much larger store.

So what the countering result of that is chance are you've cannibalized another one just about five miles down the road.

So the two are balancing off and we've been reporting in that manner since we began to morph into a larger store format company.

So suffice it to say, that the store expansion or relocation plans that we execute year over year is a key part of our growth strategic when opportunity presents itself to relocate ourselves and to make our stores more current.

But breakout those numbers and to detail these lists for a company this size would be a mistake for us and we're not going to do that.

Our next question comes from Mr. Jeff Cardin with Wassach (ph) Advisers.

You may ask your question.

Great quarter.

Couple of questions on the balance sheet.

Have you or will you break out the DC number on the balance sheet in the property equipment?

Do you have that number?

And then the other question is the accounts payable, payables were actually down year to year.

If you could comment on that, if you're going to be able to leverage that number going forward or that a new level?

Right.

On the first one, we have not really ever broken out distribution center, I guess, fixed assets is what you're talking about?

Yeah, yeah.

You know, out of our property equipment, I can tell that you we did add $146m at the end of the -- in January for the synthetic lease distribution centers that got put on the books.

Okay.

So that was a number on the books, $146m?

Right.

Okay.

Just for those four distribution centers that won't synthetic lease.

Okay.

And then your second question accounts payable fluctuates just based on timing.

We maintain approximately a 30 day payment period -- based on receipt of goods and that's been our policy and we've pretty much adhered to that policy.

So whenever we see fluctuations in accounts payable, it's because of timing of payments, not because we've changed out of policy of paying any quicker or slower for that matter.

Thanks again.

Our next question comes from Mr. John Zolidis with Buckingham Research.

Looking at SG&A, it appears that SG&A per average square foot is down about 12% in the first quarter from last year.

Wondering if you think you're going to see the same magnitude of improvement on a going forward basis?

I think looking at this quarter out of context, it's kind of difficult because we've restated the quarters.

This included Easter where our sales were $615m.

Next quarter is $575m to $590m.

So I guess SG&A might stay the same, but relative to sales might look higher as a percent of sales.

So that's a metric we really don't use to run our business by -- SG&A per square foot.

Because we're constantly trying to leverage our corporate overhead and our distribution center overhead, we manage store levels, expenses at the store.

And we just look at it very differently from that.

Right.

But selling expenses are significantly higher than the G&A component, isn't that correct?

Yes, store expenses.

I mean what you will see is that with our large stores basically having the same type of returns as you know the stores we've had in the past, you're going to see lower sales per square foot, lower inventory per square foot, and lower SG&A per square foot as we build these larger stores.

So that's why you see that trend from a quarter to quarter basis, that's not as predictable as saying from a year to year basis that that's what's going to happen.

I guess that's a better way to answer it.

Our next question comes from Mr. Michael Novak (ph) with Frontier Capital.

You may ask your question.

Most of my questions have been answered but I wanted to say good quarter.

I have one follow-up question on the gross margin line.

I know you've been asked quite a few questions.

But is there anything else that affected your cost of goods sold in the re-stated numbers that we should know about, like the shrink issue in the first quarter of last year?

No, nothing that was unusual or you know would stand out.

Okay.

So if I back out that $2m gross margin, just to understand the sequential and quarterly flow throughout the year or 35.7 down 50 basis points.

So for 2 Q, you would expect it to be down from that but not necessarily down from the reported gross margin.

I think I lost you.

Frankly.

Your reported gross margin included the true $2m in shrink in the first quarter, which was 35.4.

If I back out that shrink to try and understand what it would be on an apples to apples basis from last's number, I'm just trying to look at like what the sequential decline should be from quarter to quarter, I guess what I'm saying it's not as severe as it would be at first glance if you back out that $2m.

Yes, that's correct.

Last year, it may have been more.

That's correct.

Yeah and then depreciation for the synthetic lease this year affected us $5m.

Our next question comes from Mr. Patrick Vanonsi (ph) with Fidelity.

You may ask your question.

Hi guys, thanks for a nice quarter.

Macon, I think you must have had a cup of coffee or pill this afternoon because you're noticeably more upbeat than you were on the fourth quarter.

I'm getting older.

You made a comment earlier that you think your biggest competitor is yourself and you've been talking candidly about cannibalization for six months or a year.

How much of a drag do you think cannibalization has been on comps for the past few years?

Well, I think we've revealed in the past, Erick, what, 1% to 2%, all in, if you just had to put a round number ton?

Best we can tell.

Best you can tell, because it's so -- it's a very elusive number to nail because of timing and size and markets and there are so many moving parts.

But it is definitely an effect and drag on comp and has been for the last many quarters.

I'm sorry for how many.

Many quarters.

I don't know how many, because I can't --.

In light of the fact that you are facing some cannibalization like everybody else, how long do you think you could continue to grow square footage at 20% on an annual basis?

We have come down our growth rates over the time, relatively, we were growing at 40% and people are at mad at you, you're only going 20%.

What's wrong?

I mean it's the law of large numbers.

These numbers are going to have to come down into the teens.

We can't grow this thing forever.

So I think the numbers will come down to the teens.

But the good thing is that I see and I keep saying this three to five years, but the consumer acceptance of this class of store and our execution of it as other people morph into other things is still strong.

And there isn't any reason to not put stores and grow it when the opportunity and cash is there to do it.

And you've got the organization keyed up to do it.

So, I think the growth rates should come down.

We were criticized last year, why are you bringing the growth rate down?

Oh, the stock goes down.

Yes, we're going to bring the growth rate down, because it's the law of large numbers.

So we're trying to make growth - fit, prudent, management-good business decision.

And so as this thing comes down, we get 22 %, it's going to go up to 28% or 29% because of the acquisition possibility.

Then you've got to grow off of that base.

So I'm not prepared to say what with the to be, but common sense would tell you that things are going to be coming down not going up as a percentage.

Our final question comes from Mr. David Brohman (ph) with Burman Capital.

I was just wondering, a gentlemen asked earlier the question about payables.

And you know, I noticed it was a timing issue.

But the payables is 30 days normally, but it's 20 days at the moment and 30 days last year which is correct.

So I just wanted to understand ?

The answer to that is our inventory includes foreign and domestic merchandise.

And our payables is only on the domestic portion of our inventory because we pay by letters of credit for foreign which basically happens the same time that you receive it.

But that's consistent with last year as well.

You would have done that last year as well, right.

Yes.

Nothing has changed.

Okay.

Thanks a lot, guys.

There are no further questions.

Thank you very much.

And we'll remind everybody that there will be an update on sales July 7th in our press release.

Thank you and good day.