Destination XL Group Inc (DXLG) 2004 Q3 法說會逐字稿

Good day ladies and gentlemen. Welcome to your Casual Male Retail third quarter earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a brief question-and-answer session and instructions will follow at that time. (OPERATOR INSTRUCTIONS). I would now like to introduce your host for today's conference, Mr. Jeff Unger. You may proceed, sir.

Good morning. I would like to read the forward-looking statements, then I will introduce Dennis Hernreich, our Executive Vice President, Chief Financial Officer and Chief Operating Officer. Also on the line today is David Levin, our President and Chief Executive Officer. Forward-looking statements contained in this and other written and oral reports are made based known events and circumstances at the time of release and as such are subject, in the future, to unforeseen uncertainties and risks. All statements regarding future performance, earnings projections, events or developments are forward-looking statements. It is possible the Company's future performance and earnings projections may differ materially from current expectations depending on economic conditions within both its industry and the country as a whole, and its ability to achieve anticipated benefits associated with pronounced cost reductions and strategic initiatives to improve operating margins.

Among other factors which may effect future performance are changes in business relationships with and purchases by or from major customers or suppliers, including delays or cancellations in shipments, uncertainties surrounding timing, successful completion of integration or acquisitions, threats associated with any efforts to combat terrorism, competitive market conditions, and resulting effects on sales and pricing, increases in raw materials costs that cannot be recovered in product pricing, and global economic factors including currency exchange rates, difficulties entering new markets and general economic conditions such as interest rates. The Company makes these statements as of the date of this disclosure and undertakes no obligation to update them. Now I would like to introduce Dennis Hernreich.

Thank you, Jeff, and good morning everybody. Thank you for joining us on this morning's call to discuss Casual Male Retail Group's earnings and performance for the third quarter of 2004. I will go over this morning's press release by describing the earnings performance at Casual Male Retail Group 2 business segments, focusing first on the Company's primary business, its Casual Male Big & Tall business, and then go over the other branded business of Levi's/Dockers Outlets stores. During the quarter, Casual Male business showed an operating loss of 1.5 million compared to an operating loss of $100,000 for the same period last year. I will discuss in detail the components of this performance. First sales. Casual Male sales increased 2.2 percent for the quarter from 73 million for last year's third quarter to $74.6 million during this year's third quarter. Breaking down Casual Male's multichannels, its direct to consumer sales decreased by 7.1 percent to 6.7 million from 7.3 million last year. After considering last year's discontinued Reptile which generated $1.1 million in sales, direct to consumers sales increased by 8 percent during the quarter.

While catalog circulation dropped 29.3 percent during the third quarter from last year, its revenue per catalog book distributed increased to $4.20 per book representing a 31 percent increase from last year's third quarter. For the year so far, Casual Male's direct-to-consumers sales has dropped by 9.8 percent to $19.8 million from $21.9 million last year. But after considering that last year's discontinued Reptile generated $4.8 million, direct-to-consumers sales increased 16 percent for the 9 months ended this third quarter. Although catalog circulation for the year so far has dropped by 31 percent, revenue per catalog book generated $4.85 in sales, representing an increase of approximately 32 percent from year ago levels. The Company's e-commerce business continues its strong growth with an approximate 41 percent increase during the third quarter, and a 54 percent increase for the year so far on CasualMale.com. The Casual Male stores sales increased 3.3 percent overall to 67.9 million from 65.7 million during last year's third quarter, and stores sales for the 9 months increased 5.7 percent overall to 214.5 million from 202.9 million last year. Comp store sales increased 1.6 percent for the quarter and 5.1 percent for the 9 months ended during this third quarter.

Also, during the third quarter, Casual Male completed the acquisition of Rochester Big & Tall on October 29th and produced approximately $600,000 of sales during the last 2 days of the quarter. David will speak to the traffic transaction and average ticket statistics during his comments. During the quarter, Casual Male opened up 7 new stores raising its store count to 496 stores at the end of the quarter. At the end of the third quarter last year, its store count was 481 and during the quarter increasing its square footage to 1.697 million square feet representing an increase of 4 percent from the end of last year's third quarter. This excludes the 13 stores the Company opened in Sears Canada during this third quarter. Also, during the third quarter, 47 stores were remodeled bringing total stores remodeled for the year to 167. Gross margins. Casual Male's merchandise margins for the third quarter were flat to last year and increased 30 basis points for the year so far. Occupancy costs increased 7 percent both for the 9 months and for the third quarter, partially due to new store growth activity, and partially on contractual increases.

In that sales growth have been somewhat less than these rates, occupancy costs has had a deleveraging effect on overall gross margins by 60 basis points for the third quarter and 30 basis points for the year so far. As I have previously stated, we are expecting to show significant increases in merchandise margin rates in the fourth quarter with an overall improvement in gross margin rates for the year of some 50 to 100 basis points by the end of the year. SG&A expenses. Casual Male's SG&A increased by approximately 3 percent during the quarter, an increased by 8 percent for the year. During the first half of the year, the Company invested approximately $4.5 million in marketing the national campaign to launch the George Foreman Comfort Zone line. As the Company shifted its marketing strategy to direct marketing campaigns, including reactivation and new store strategies, the Company made further marketing investments in the third quarter of some million dollars to test certain aspects of these strategies, the results of which help formulate the important fourth quarter marketing approaches.

David will speak to more details. After excluding Casual Male's marketing expenditures, it's SG&A costs dropped by 2.5 percent during the third quarter and increased 1.8 percent for the year. On an average store basis, excluding Sears Canada, SG&A expenses dropped by 5.7 percent for the quarter and 1 percent for the year. We expect that the Company will continue to show decreases in SG&A on an average store basis, not only in the fourth quarter, but also into next year. During the quarter, the Company expended amounts in certain onetime occurrences such as the startup of Sears Canada, compliance costs of implementing Section 404 of SOX, certain store repairs resulting from numerous hurricane events, and other professional fees. These costs which approximate over $1 million were offset by balance sheet adjustments of certain accrual accounts, which resulted in overstated SG&A costs in prior periods. At the end of the quarter, the balance sheet accruals are stated at appropriate levels. Other branded apparel businesses. During the quarter, the Levi's/Dockers business generated operating income of $2.3 million, compared to operating income of $2.4 million last year.

We expect to close the announced sale next week, and therefore in the fourth quarter, the results of the Levi's/Dockers business will be reflected as discontinued operations. It is expected that the sales transaction will not result in any sizable gain or loss. Balance sheet and cash flow notes. At the end of the third quarter, the Company had a working capital position of approximately $71.8 million as compared to $54.5 million at the beginning of the year. The Company's total debt position was at $170 million at the end of the quarter, which includes its 100 million convertible notes, as compared to $125.6 million at the beginning of the year. The increase in its debt position was largely a factor of the Rochester acquisition, the finding of its working capital growth which is seasonally related, capital expenditures of approximately $15 million. During the fourth quarter, we expect that with the cash flow generated from operations, the consummation of the sale of the remaining Levi's/Dockers business, and the collection of much, if not all of the remaining Ecko note, those debt levels at the end of the year will be at or below last year's levels. At the end of the quarter, the Company's liquidity position with its bank, under its revolving line of credit, approximated mid-30 levels. In closing, going into the critical fourth quarter period the Company is in a much better position from a year ago with respect to not only its merchandising in its stores, it's merchandise margin trends, and also it's SG&A levels. After having made significant marketing investments during the year, the Company has fine-tuned its approach for all of the important fourth quarter selling season.

The merchandise is better, the stores look better, and we have plan for increases in both direct-mail marketing and catalog distribution for the fourth quarter without any significant investment from last year's levels. At the same time, the Company hopes to close the year with only its core business to operate, that being the big & tall business to grow and optimize, including Rochester Big & Tall. Hoping all you have an enjoyable and successful holiday season and my special gratitude to all of the Casual Male management and associates for all of their hard work and dedication throughout this very important year in the Company's turnaround efforts. Now let me turn the call over to David.

Thank you Dennis. I will address our announcement today that Casual Male Retail Group has signed a letter of intent which is subject to the negotiation of a definitive agreement, buyer's due diligence and other normal closing conditions, to sell our remaining 32 Levi's/Dockers Outlets stores to, at this time, and unnamed affiliate of a privately held U.S. retailer. Assuming the satisfaction of all of the closing conditions, the sale is targeted to close this November 24th (technical difficulty) liabilities and our store lease obligations. We will use these proceeds to reduce Casual Male's outstanding debt under its revolving line of credit. This pending sale, along with the sale in the second quarter of CMRG's interest in the Ecko joint venture, truly transforms our Company from what we were 2 years ago. We are now focused on being the pre-eminent global big and tall retailer. And with the closing of the acquisition of Rochester Big & Tall on October 29th, we're well on our way (technical difficulty) Ecko with a combined specialty big and tall market share of 65 percent.

With respect to Rochester, (technical difficulty) group has added an incremental $65 million to our topline. The 22 store chain, plus catalog, is equivalent of Casual Male opening up another 100 stores. As I mentioned in the last quarterly update, the Rochester (technical difficulty) high-end big and tall customer with an average transaction of over $400 compared to Casual Male at $75. The average Rochester store generates 2.3 million in sales versus the Casual Male at $650,000. Rochester's last fiscal year which ended in July, produced an EBITDA of $3.3 million. Rochester is not a turnaround story. It will be accretive to Casual Male's earnings this quarter and the following years. CMRG's management group has a proven track record for identifying synergies to reduce consolidated SG&A costs, and we have the opportunity to execute once again. We will also be able to leverage the $8 million we have spent on Casual Male's infrastructure to benefit Rochester as well. We're both size management companies and our best of breed systems will help maximize Rochester's use of inventory.

We see future growth opportunity for Rochester as well. With only 22 locations there are plenty of new markets that can service a Rochester store. We also see tremendous growth in Rochester's catalog and Internet channels of distribution. In only 2 years, these channel sales are 20 percent of their total sales with continued dramatic increases this year. This has been accomplished with very little marketing dollars behind it. Bob Sockolov, the CEO of Rochester, has joined our Board of Directors. He and his management team will continue to run the business. We have a lot to learn from each other in the next several months and we could not be more pleased that we made this deal with such a reputable company. Moving onto Casual Male. In terms of our transaction analysis, the number of transactions over the register were down 5 percent for the quarter, conversions were up 1 percent, our average purchase was up 4.5 percent, and our average unit retail was up 6.5 percent. We finished the quarter with a flat comp sales performance.

Digging a little deeper, our shortfall was in our seasonal categories. Outerwear, sweaters, longsleeve knits, were down 25 percent for the quarter and we still managed to be flat for the quarter. We know the Casual Male customer needs a strong cold snap to get them motivated to buy outerwear and sweaters and we are cautiously optimistic that these areas are going to improve and there has been considerable improvement this month. Our November numbers are certainly in the positive and we're picking up what we lost in the month of October. On a positive note, our Southern and Western coast stores which are not as dependent on the seasonal categories, were up 10 percent for the quarter. Our suit business remain strong with quarterly comps of 21 percent. Also, our active category has improved by 20 percent, with Casual Male's exclusive launch of Reebok apparel and also in the NFL and NBA licensed areas.

Our George Foreman labels continue to perform strongly. The product assortment represented almost 30 percent of our sales in the quarter compared to 15 percent in the second quarter. We launched George Foreman footwear in September and it is already our number 1 brand in the category. We will be expanding from 2 styles this fall to 6 styles next spring. I would now like to give an update on our marketing. This has been an area that has not performed to expectations. Our negative 5 percent traffic comparisons from last year to this year tell it all. We just haven't delivered a marketing strategy that has been effective. Casual Male's success is dependent on our ability to maximize its database around the strong direct marketing strategy. In the third quarter, we tested our ability to reactivate customers who haven't shopped at Casual Male for over a year and that test continues to give us very positive results and we will continue to market to over a million customers in our database that haven't shopped us for over a year.

Next spring we will also be using our catalog distribution to our retail customers to drive more traffic to the stores. We have not been sending our catalog into our retail files. With marketing becoming the key focal point for improving our topline performance, I'm pleased to announce that after an extensive executive search we have hired Gary Ostrager in the new position of Chief Marketing Officer. Gary has a background in retail direct marketing, having been at Macy's, Bloomingdale's and Lane Bryant. With the additional input from Jim Frain, Chief Marketing Officer at Chico's, who joined our Board this year. We believe we now have the expertise in place to turnaround to traffic issues that have plagued Casual Male over the last several years. Finally in the third quarter, we launched Casual Male in Canada with a partnership with Sears Canada. In September, we opened 13 concept shops in Sears department stores that averaged about 1,200 square feet. As with any test, we're watching it closely and learning quickly. Right out of the box we saw a dramatic shift to more small talls and a size curve way to the left of our U.S. stores. We had anticipated this movement from the onset but not to the degree it has performed. We have reacted quickly and we are making those adjustments daily.

As I have said previously, our biggest opportunity with Sears Canada will be through their catalog and Internet channels. Sears still distributes the big 1,000 plus page catalog and it represents 20 percent of their total sales, and we plan on launching next April on both the catalog and their Internet. In conclusion, the turnaround of Casual Male has been a work in progress. Are we disappointed in where we are today? Not in terms of us divesting out of our other businesses, rightsizing the bankrupt business, remerchandising our stores with exclusive brands at strong margin performance, cleaning up unacceptable looking stores, and putting together a strong management team. However, as far as our topline performance, yes, we are disappointed. Even though we were up 5 percent comp for the year, we thought we would have delivered a better performance considering all of the initiatives we have implemented. The reality is we are improving but it's with baby steps instead of many great leaps. We all know with our fixed overhead and high margin opportunities, comps sales will have a dramatic impact on our earnings. We're doing the right things and our management group is confident we will deliver the earnings going forward. Now I would like to open the discussion to any questions from our listeners.

(OPERATOR INSTRUCTIONS). Paula Kalandiak with Roth Capital.

Good morning. My first question is, can you give us an update on how the second reactivation mailer is performing?

Yes I can. This is probably the most interesting test we have done. After the first reactivation, which I do want to comment, was much stronger than we had originally stated because it was a mailing issue. It did get into the homes a little later, but we were quite pleased. And it showed that the magic button to get customers off and back-end our stores was a $30 off on a $75 purchase. On this reactivation, which was mailed into 600,000 customers, we had two versions, 1 version was our traditional third class piece of mailed, and 1 was a blind personalized letter from myself with no clue what the offer, that it was even from Casual Male or that it was a solicitation. The results are fairly dramatic. 70 percent more customers are responding to the personalized letter versus the third class piece. This is giving us a great shot in the arm to really understand the more we can personalize our customer, the more -- the better they are going to react. What is very intriguing for us is we had planned mark-down rate based on a $75 purchase, and in reality the average ticket is coming in at $103 which means they're bringing $130 of product to the register to net out the 103. So they like what they are seeing and they're spending almost double what the offer was.

Again, we are encouraged. This reactivation goes right through holiday and it has been sustaining quite well. Again it is too early to say how many people will hang onto their coupon come the holiday selling season. In addition to this, we are going deeper into our file for December. We are mailing another 300,000 reactivation pieces out to customers who have not shopped us in 3 years, and we are testing an offer of a $50 coupon with $100 purchase to some of those consumers also. This is very critical to us. Reactivation to us means getting customers back in the store who have not shopped us in over a year, who in our perception are clueless that we have added these brands, that their store is remodeled and we have a whole new image out there. To answer your question, we are optimistic and we believe we will continue to cultivate to get the customers back in the stores.

Okay. If you were to look at it slightly differently and factor in the cost, the difference in cost for shipping first-class versus third-class, which is the more cost-effective method?

It cost us an extra 18 cents to do the first Class piece, but in the scheme of things when you talk about effectiveness it is not even comparable. If we can get twice the response rate for another 18 cents we would continue to do that all day long.

Finally, can you tell us what impact your remodels have had on the sales in those stores?

Yes, it has been marginal to this point in time. It is a smorgasbord of stores that have improved, some that have not improved, some that have shown a little negative from when they remodeled. Again, we just did 47 and most of those were done in the last couple of weeks. So it is always premature and I will reiterate this may not be so much for future to get comps sales as much as it is to retain new customers and having customers come back. Regardless of how the improvement is, these stores desperately needed it. They're terrible, they're not representative of any national chain and they need to be done. Again, we're spending $30,000 to $35,000 per store. They are getting a makeover. They are getting new carpet, paint, they're getting the right fixture package to present our product by lifestyle. But we are not doing any very extensive work, but just making them presentable and I've talked to several of our analysts who have looked at the before and afters, and our customers too. That kind of investment really turns the look of the store around.

Okay, great. Thank you.

Christina de Marval from Sidoti.

Actually first for you Dennis, just wondering if you could give us the comp number excluding the direct business? Was it 1.6? Was it flattish? I think that's what David said, but I want to clarify.

Yes, the comp number for the quarter was about flattish, yes, and it is up about 3 percent for the year.

Okay. Just to clarify David's comments about the reactivation mailer in December, you said that you're circulating it to an additional 300,000 customers out of the total, I guess, 1 million inactive. Are you sending it to 1 million people or 300,000 people.

The first reactivation went to 600,000 and this 1 is going deeper. We're trying to go deeper in the file and reactivate what I would call stale. These customers haven't been in the store even longer. We don't know. It certainly can't give us the same type of response rate, but again it is very cost-effective if we can get a couple percent back in the store off of a mailing like this.

So is the December mailing going to the full million or 900,000 people, or just the incremental 300?

Just the incremental because the 600,000 who have the coupon, it is good until --So we don't need to hit them again right now, but we will in the Spring. We will come back and come up with more incentives and more reasons to come back to get those. Once they buy, they come off the reactivation list, of course, then they go into our regular mailing files.

Okay. Just with respect to just promotional activity in the quarter. I'm wondering if you could break out the merchandise margin in a little bit more depth, what was IMU, what was the markdown experience? I'm just wondering if you could talk more broadly how you approach taking markdowns at this point?

Yes. During the quarter, Christina, the IMU is really up about a half of a point or so from a year-ago, and the markdown rates were just slightly higher from a year-ago, not necessarily resulting from any promotional activity driving that, just keeping our inventories clean. That caused our merchandise margins to be about flattish for the quarter.

Okay.

Going into the fourth quarter, our IMU should show a similar type improvement and our markdown rates will be markedly different than a year ago only because the promotional posture of the Company is much different than a year ago. Although we will be mailing our direct-mail pieces in to our consumers homes and our catalog distribution will be increased, the depth of the promotions is different. It's relying more on image and brand and less pricing than it was a year-ago, very similar to what we have been doing for the past quarter or so.

Okay, that's helpful. Can you also address the markdown rates, chainwide, versus the George Foreman product? Are you still seeing a differential there?

Oh, very much so. The George Foreman product markdown rates overall are in single digits relative to the Company's overall low 20 rates.

Okay. All right, great. That's all I have. Thank you.

Gary Giblen of C. L. King.

Good morning. What do you attribute the pickup in November to because my impression was that the weather is still unseasonably warm, so that would limit your outerwear sales?

Well, we did get a couple -- it just takes a couple of good days to get people in the mood, and again it is always a snapshot of time. But while our outerwear sales were in the negative the first week of November, this week for example our outerwear is up 33 percent. We got some weather. So we know when it gets cold we have got the right product. It is not a product mix, it is just a matter of getting the temperatures where we need them to be. 1 of the things we have done is we have pulled back on the discounting on the outerwear because we had our best week last week and we were not on sale. It is just when the weather hits they are going to come in and buy. So sweaters and longsleeve knits also have shown strong improvement in the month of November. Again we're cautiously optimistic. We have picked up a lot of ground from what we lost in October and the big days are ahead of us still.

Great. Do you detect any change in your customers, especially the lower to mid income ones post-election? I have had -- some retailers have said that there was a detectable change for the better after the election? What do you think?

That is true for us too. Again, we have had the last 10 days have been good and we want to sustain that, but we cannot tell if it is a trend or just a pocket of good business. We are all, I think we're hoping that the holiday season comes in strong. We have not forecast anything crazy in terms of the topline performance, so we don't have a lot of downside risk on our inventory this quarter if it is not quite up to performance. That is why Dennis keeps speaking to strong margin performance this year. A year ago we came into this quarter with a lot of inventory we had to unload.

Okay, now just a broader question. Are you giving any thought to being less image-oriented in the way you go to market and doing more promotions because -- as a way to address the traffic weakness?

Well, the fourth quarter is promotion. We're matching up to all of the promotions of last year. We are just not as deep in some. We, again, last year we were clearing goods in November. This year we're not really clearing goods until January. But the promotional events are all similar to last year. We have some very strong doorbusters for Thanksgiving, leather coats for $99 and a lot of product at incredible prices. We've built that into our plan. But in terms of the promotional events we match up to last year and we are as promotional. We're just not as clearance-driven. The clearance markdowns are the ones that kill you.

Okay, but even beyond the holidays, in other words, are you going to stay with a image and brand building, an institutional approach as opposed to -- I'm just thinking of let's say Charming Shoppes, was experiencing some sales challenges outside of Lane Bryant, so they got very, very promotional and ended up net ahead because they got a good sales pickup. Is that something that you would evaluate?

Yes, that is always -- again we have a new player coming in. But it is really -- our inefficiencies are how we react to different customers and this is something we learned from Jim Frain. You don't have to treat everybody the same. That is where we are weak in. We sent out 1 million Reebok catalogs which is quite expensive, and again we were mailing them to customers who are not -- do not have a profile that they would ever by Reebok. We're not efficient in the way we are targeting those customers and some customers can respond as well at 10 percent off as other customers at 30 percent off. Our goal is to get customers back in the store but we don't have to treat everyone the same. That is what is happening with marketing today and that is why in this reactivation program, we are going -- our next phase is we are giving $50 off on $100 purchase. We win if they come back in the store because now we have reengaged them in our Company. So we are going to be spending a lot of our marketing to get these guys back in the store. We feel it is whatever it takes to reactivate them, is what we need to do. But giving stuff away, on the other hand, that is a short-term fix, and then what does that get you in the end? But we do have doorbuster prices going on to loss leaders as you call them to get people in the door.

Okay. A couple more things. Are there any anecdotal signs of heightened awareness of all of the improvements in the stores and the merchandising? On a net basis, it hasn't improved the traffic yet, but what are some of the signs of life there?

Again, those who are coming in, they're spending. In a deflationary category, men's apparel, if you look at the statistics, the average ticket has been going down for the last 5 years, and we are bucking that trend. Our average ticket is up 5 percent, which means they're coming in and spending more, still converting more. Anecdotally, we hear it all the time from customers saying how great the store looks and seeing these brands. As we work our way through this branding process, it is a learning experience and we have found that Izod, which we put in what I would call a very conservative assortment, turned out to be our strongest brand right now, and for spring Izod is going to grow considerably. We have just tested Calvin Klein. Calvin Klein wants to be in Casual Male stores with their dress shirt line and we had very nice sell-throughs and we are going to continue to expand that. We are confident that bringing in names like Perry Ellis and Reebok and Geoffrey Beene is an advantage to the customer. We know that there are surveys; they want to be able to purchase the same brands as regular size guys can get and they are really at good value prices. I think we are strategically in the right direction. Again, getting back to why hasn't the traffic come back? I think we have been poorly executed in our marketing strategy, and again we needed new blood, we needed leadership. And we interviewed a lot of people for this position, and Gary really fit the profile of what we were looking for.

Okay, just a final question maybe more for Dennis. Given that the quarter came in a little light, have you changed your internal budget in lieu of guidance, but have you internally lowered your expected bottom-line for the year?

Well certainly all of the forecasts turned into actuals up to this point, right Gary?

Right, unless you can make it up in the fourth quarter.

In terms of our enthusiasm, where we thought the fourth quarter was going to come out particularly with Rochester now a part of the portfolio, those numbers really haven't changed from what our thinking was last quarter on an uptick nor the downtick.

How about your thinking for '05 just internally?

'05, as we entered '04 we were in a much different position than when we entered '03, and similarly when we enter '05 we will be in a much better position, different position, than we were when we entered '04. This year we learned an awful lot about traffic and marketing, as David has been talking about. Systems are in place, SG&A is still decreasing slightly on an average store basis, margins are continuing to strengthen slightly. Our inventories are in a good position. We are a year now into a lot of the initiatives we started a short time ago. Plus now, we hope not to have the distractions of anything else but the big and tall business to focus on including integrating Rochester. So our thoughts for '05 really have not changed at all.

Okay, to what extent will there be more guidance provided in the new year? Do you have any thoughts about that?

No, not at this time, Gary.

So you're not ruling it out, but you're not sure when you will be in a position to provide more guidance?

That is correct.

I got it. Thanks very much.

Jean (indiscernible).

Hi, it's Jean (indiscernible) with Associate (ph) Capital. I've got 2 questions. 1, you guys said that, if I understand it correctly, the reported SG&A for the third quarter is understated from what the normal run rate would have been due to prior period adjustments. Is that accurate?

No, I'm not going to know. There were also other things that caused SG&A to be above normal operating levels at the same time.

What was the amount of the prior period adjustment?

It was about $1 million.

The second question was, I know I think you said at the end of the year you expect your debt levels to be in the same place they were at the end of last year. Is that accurate?

Yes.

With regard to free cash flow for the full year, do you still expect it to be flat, basically flat to maybe slightly up?

Slightly up. Yes, we did have some reduction of other debt during the year.

Okay, that's all. Thank you.

Mark Cooper of Wells Fargo.

Thank you. I was a little surprised to hear, I think you said that you did not see Rochester as a turnaround situation, but the margins at least that you reported I believe were what, 4 or 5 percent type EBITDA margins, 3 percent operating margins. That sounds pretty anemic to me. Is that not the case?

I think, if you go above the corporate level line, I think if you go into what its merchandise margins are, Mark, and its store expenses and etc., that is what David says is not a turnaround. And certainly its sales performance has been solid. I think that the combination with Casual Male and being able to integrate it onto Casual Male's infrastructure and share in a lot of the corporate costs that we have here to help service the business of Rochester, that is where the EBIT and EBITDAs of Rochester, we think, have significant potential into the teens. We expect to begin to approach that during next year.

Okay. Once the deal with the Levi's stores closes, I'm assuming that you will report the proceeds and then give us -- well we will see what the operating numbers for Casual Male by themselves are. Is it going to be simple enough for us to pull out what you have provided in this press release for other branded apparel business to take that out in that SG&A number that is associated with that and say that is going away?

I think that is in our segment reporting, Mark. We try to make that clear in the past and also in this quarter in our -- we do show SG&A separately for the other businesses.

So the $13 million then year to date, is that purely headcount that is associated or expenses only with the Levi's business and that will go away on close of the deal?

13? Where are you referring -- for the year?

Year-to-date.

$13.7 million, to be precise.

Okay, great. Thank you.

Michelle Simmons (ph) of Cougar (ph) Trading.

There are no further questions at this time.

Okay. Well, thank you all and we will look forward to our year end results. Thank you very much.

Ladies and gentlemen this does conclude today's presentation. You may now disconnect.