Destination XL Group Inc (DXLG) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the CMRG second-quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a 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 call, Mr. Jeff Unger. You may begin, sir.

Thank you, Kevin and thank you, everyone, for joining us this morning. Today's discussion will contain certain forward-looking statements concerning the Company's operations, performance and financial condition, including sales, expenses, gross margin, CapEx, earnings per share, store openings and closings and other matters. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those assumptions mentioned today due to a variety of factors that affect the Company.

Information regarding risk and uncertainty are detailed in the Company's filings with the Securities and Exchange Commission. Our complete Safe Harbor statement is available at www.casualmale.com. Now I would like to turn the call over to David Levin, President and CEO of Casual Male. David, it is yours.

Thank you, Jeff. Today, we announce second-quarter sales and earnings. With the challenging retail environment, we delivered a plus 0.3 comp in sales performance. The metrics for the quarter were similar to the last several quarters in that traffic into our stores was off in mid single digits, but was offset by continued strength and improvement in our sales conversion and the increase in our average transaction. And we are also encouraged that the month of July was the strongest month we have had in the last year.

We are starting to see significant improvements in our Rochester clothing division. As I stated in last quarter's call, we believe the product assortments in Rochester are better balanced for fall and we are starting to see results. As we are positioning our inventory for growth in men's contemporary collections, the early results are very encouraging. Modern contemporary brands such as John Varvatos, Michael Kors and Robert Graham are all doing quite well.

Another opportunity for Rochester has been the reintroduction of Cutter & Buck, a brand that developed significant loyalty to our customer base over the years. Due to legal circumstances, we've discontinued carrying the product, which had an adverse effect on our sales. Those issues are behind us now and now with the new Cutter & Buck receipts for this fall, we are seeing solid results.

Sales in our Casual Male XL division continue to be consistent. Our strengths for the second quarter were in the new category of Reebok golf apparel, shorts and a huge list in our screen tee business. Core basic programs continue to struggle as newness continues to perform quite well. I am out this week traveling stores and our fall product looks great in our 626 BLUE, Oak Hill, Synrgy and our new Synrgy lifestyle brand. Q3 is the first quarter in over four years that we will be anniversarying a negative comp in Casual Male XL, which should make the hurdle rate a little less challenging in the back half of this year.

During the second quarter, we acquired Dahle's Big & Tall. With 15 retail stores, it was the largest big and tall specialty player outside of CMRG. The purchase is basically a real estate transaction and where we will get eight broom-swept locations delivered to us on October 15. They will be converted to Casual Male stores and be open by mid-November. The remaining seven stores will close by the end of January. We are excited because we will be opening in Utah, Montana and Idaho where we don't have any stores and we will add some marketshare in our Las Vegas, Seattle and Phoenix areas. The closing stores are in existing Casual Male markets where our Casual Male stores should experience increased comp sales over time. CMRG by year-end will have 498 stores in 47 states and the next largest specialty competitor will have five.

We are very pleased with the performance of our direct-to-consumer business. ShoesXL continues to do well and continues to double the penetration of footwear sales as a percent of sales to our direct channel sales. The big driver for us in Q2 were sandals where we significantly increased our assortments for this year.

B&T Factory Direct also had a solid performance in the first half of this year. LivingXL, our non-apparel lifestyle product for people of size, is also having an excellent year so far. The new product offerings continue to allow us to build this business for the future. And as we have stated before, these combined three new businesses are still projected to at least break even this year.

According to NPD, big and tall men shop 50% more on the Internet than regular sized men. We have launched three new businesses in the last year to build upon our strategy to grow marketshare more from direct channels than from brick-and-mortar growth. And as we near $100 million in sales in our direct businesses, our strategy is paying off. With approximately 500 stores, we are very pleased with our penetration of direct sales as a percent of the total. And we are not done as we look for other venues to grow our direct business.

In the next few weeks, we are going to go live in the UK with both our Rochester and Casual Male XL offerings and following the UK, five additional EU countries -- Spain, Germany, France, Italy and the Netherlands -- will be up and running. There is really nothing like our brands in Europe. No other retailer has the breadth of product, brand offerings and value merchandise like us. Also, with our London store being the second highest volume store in all of CMRG, we already have a successful track record, admittedly a small one in Europe.

And today, we are very excited to discuss our latest endeavor that launched last week -- BoldXL. We have been working on this project for over a year now and now it is up and running. Strategically, we have worked to lower the average age of our customer. When we acquired the Company in 2002, the average age was 50. We have been able to bring that age down to 45 over the last several years. We've continued to connect with our customers through focus groups and surveys and what we find is that the younger, specifically 18 to 30-year-old big and tall guys, are still reticent to shop where their fathers shop.

Our surveys conveyed that 84% of our customers are currently engaged in social networking on the Internet and over 50% responded that they would be interested in a social networking venue like BoldXL. The site we have created is a combination of a social environment where big and tall men can engage in blogging about issues such as what seats on which airlines have the most legroom and at the same time, a retail environment that is more conducive to the buying habits of the younger customer.

We have aggregated the young men's brands between Rochester and Casual Male XL and presented them in a much edgier presentation and I encourage our listeners to go to boldxl.com and experience what I am talking about. Long term, we hope to develop a strong connection to the younger demographics that may one day lead to a store concept built around BoldXL; although, there are currently no plans in that regard at this time.

As I have stated before, these new extensions of direct businesses to grow our marketshare are effective for long-term growth and none of these ventures have been capital-intensive. We will continue to build these businesses over time and monitor their expenditures to ensure that they will not be an impediment to our earnings over the short term.

And finally, I would like to address the organizational changes we made last week in our management structure. We announced the elimination of our Chief Merchandising Officer position and at the same time, we have added the GMM, General Merchandise Manager position, in both Casual Male and Rochester Clothing. We recently brought in Doug Hearn who was the head of sportswear from Jos. A. Bank to head up Casual Male and promoted Ken Ederle who has been instrumental in the re-merchandising successes at Rochester as our GMM. Both will report directly to me and it is necessary we keep as fluid as possible in a retail environment that is moving faster than ever. Dennis Hernreich, our CFO and COO, will now review the financial results for the quarter and the year-to-date.

Thank you, David and good morning and thank you all for joining us on this morning's call to discuss Casual Male Retail Group's earnings and performance for the second quarter of 2008. Earnings during the second quarter reached $0.05 per share on a comparable sales increase of 30 basis points with flat overall sales at approximately $113.5 million. CMRG's earnings performance from last year's second quarter was $0.06 per share, which represents approximately $600,000 more net income compared to this year.

For the year, earnings are $0.05 per share on a comparable sales decrease of 80 basis points and an overall sales decrease of 1.4% to $221.1 million. The overall sales decrease of $3.1 million significantly impacted earnings during the first six months of the year. Although the sales performance largely explained CMRG's earnings performance compared to last year, there are certain gross margin and SG&A items which help complete the discussion of the Company's second-quarter and first-half performance.

Meanwhile, the Company's capital expenditures have dropped by approximately $4 million from a year ago and the Company's inventory position has dropped by 6% from the same year ago. Additionally, the Company's debt level of approximately $59 million has dropped by several million from a year ago and expect debt levels to be substantially below year-ago levels by the end of this year.

Generally, CMRG's year is progressing as expected. Although sales trends are somewhat softer than expected and therefore, we are revising CMRG's guidance for the year with a sales range of $470 million to $475 million and an earnings per share of between $0.22 and $0.27 for 2008.

Now I will go over in further detail CMRG's sales, gross margin and SG&A components. As I have said for the second quarter, sales of $113.5 million were flat to last year's second-quarter sales while comp sales were up 30 basis points. For the first six months, sales were $221.1 million, down overall by $1.4 million from last year while comparable sales were down 80 basis points.

Sales from CMRG's non-core businesses of LivingXL, B&T Factory Direct and ShoesXL generated sales of $4.5 million and $8.1 million for the second quarter and the first six months respectively compared to last year's $1.4 million and $1.9 million for the same periods. Comparable sales changes in CMRG's core business of Casual Male and Rochester Clothing were down 2.1% in the second quarter and down 3.4% for the first half of the year.

Our retail channel had a comparable sales decrease of 2.2% for the second quarter and 3.1% for the first half of the year, which was partially offset by our direct businesses' increase of 15.3% in the second quarter and 12.2% in the first half.

During the first half of the year, the Company's sales productivity in its retail channel, as measured by customer conversion rate and dollars per transaction, improved by approximately 6%, partially offsetting the negative customer traffic trends. This is a direct result of the Company's focus on improved customer service, by providing better sales training, development tools and sales productivity measurement reporting applications to all of our stores. Although these programs are in early stages of implementation, we obviously already are seeing a positive impact on our selling productivity.

Again, given the softness in the retail market sales trends for this year, we anticipate that our sales will approximate $470 million to $475 million based on comparable sales from our core businesses of between flat and plus 2 for the second half of the year and resulting in an overall core business comp sales change from flat to negative 2 for the entire year. In 2007, the Company's core businesses generated a comparable sales increase of 4.1% during the first half of the year, but had a comparable sales decrease of 3.1% in the second half of last year.

So far this year, CMRG has opened five Casual Male stores and closed four others and relocated five other Casual Male stores. Also, the Company opened one Rochester store. At the end of the second quarter, total store count was 490 stores with 1,825,000 square feet of leased space. For the balance of the year, the Company is planning to open 10 Casual Male stores, including eight stores being converted from Dahle stores that David discussed, while closing five other Casual Male stores and relocating seven others. The expected CMRG store count at the end of the year is expected to be at 495 stores.

For the second quarter of this year, our gross margin rate, inclusive of occupancy costs, was 45.2% as compared to a gross margin rate of 46.5% for the second quarter of last year. The decrease in gross margin rate was the result of, one, a 50 basis point increase in occupancy costs as a percentage of sales and an 80 basis point drop in merchandise margins. Occupancy-related costs increased 4% on a dollar basis during the second quarter from last year.

Our merchandise margins were negatively affected by a few factors. The first being increased customer loyalty program costs as the number of participants have climbed above last year's levels. The second being the increased cost of catalog postage expenses resulting from higher fuel prices. And the third, a slight degradation in sales mix resulting from the lower gross margin non-core businesses.

For the first six months of this year, our gross margin rate, inclusive of occupancy costs, was 45.1% compared to a gross margin rate of 46.2% for the first six months of 2007. The decrease for the six months in gross margin rate was more the result of a 70 basis point increase in occupancy costs as a percentage of sales and a 40 basis point drop in merchandise margins. Again, occupancy costs increased 4% during the first half, while merchandise margins for the first six months were negatively affected, primarily by increased customer loyalty program costs as a number of participants have climbed above last year's levels.

In spite of the second-quarter trends, we anticipate our gross margins for this year will be approximately 25 to 50 basis points over last year's gross margin levels and that is after excluding last year's $6.1 million inventory adjustment recorded in the fourth quarter with the improvement expected in the second half of the year obviously. The merchandise margins in the second half are expected to show between a 100 and 150 basis point improvement from last year's levels.

SG&A expenses for the second quarter of '08 were 38.3% of sales as compared to 37.8% for the second quarter of last year. SG&A levels increased by 1.4% from last year on a dollar basis while SG&A levels for CMRG's non-core businesses increased by $1.3 million from last year's second-quarter levels, while the Company's core business SG&A levels decreased by approximately 2% from last year. During the first half of the year, the non-core business SG&A increased by $3 million while the Company's core business SG&A levels decreased by approximately 3% from last year.

For this year, we expect SG&A levels to approximate between $181 million and $182 million as compared to $178.1 million last year. The revised SG&A levels anticipate the opening of eight Casual Male stores early in the fourth quarter, those being converted from eight Dahle stores acquired this June. As David said, Casual Male will be entering three new markets in Salt Lake, Billings and Boise.

Overall, the Company reported for the second quarter a net income of approximately $1.9 million or $0.05 per fully diluted share compared to net income of $2.5 million or $0.06 per share for the second quarter of last year. For the six months, CMRG reported net income of $2 million or $0.05 per share compared to $3.6 million or $0.08 per share last year. The Company's inventory levels decreased 6% from last year's levels and we expect that inventory levels will continue to drop during the balance of the year as compared to last year's levels. By year-end, we expect to have a $15 million inventory reduction from the end of last year.

At the end of the quarter, the Company had borrowings under its revolving line of credit, which expires towards the end of 2011, of $45 million in interest rates, which are currently at an average of 4.2% with availability of approximately $44 million. That concludes our prepared remarks and Kevin, we are ready for any questions.

(Operator Instructions). Scott Krasik, CL King.

Thanks. Good morning. My first question is on the non-core businesses. David, maybe talk a little bit about the general awareness out there of the new businesses, what the opportunity is. I know you have intentionally been running it as a sort of breakeven to gauge demand. How to you see this really developing?

Well, again, this is the year we wanted to manage the profitability and next year, we will be looking for profitability. I think we have seen LivingXL exceed our expectations and its potential and I think our big opportunity in the future will be addressing the women's side of the business. When they are coming in through the Internet, we are getting a lot of transactions from women because the stuff is non-gender-related and that is a wide open market for us, so we see strong growth there.

B&T continues to perform well and we have become more aggressive in how we market B&T from a price point point of view and that seems to be working well. And footwear was just a natural for us to get involved in and it is responding extremely well and our footwear sales in our stores, as a category, have the highest comp increase of any other category as we have become more sophisticated about how we sell footwear. And again, it is doing extremely well on the Internet.

And what is interesting is our transactions on the Internet, where customers are finding us and Googling in or keyword searching in, 50% of our sales are from customers who have never made a purchase at Casual Male or Rochester. So we feel very good about these existing new businesses that we have launched and we are getting excited about the new ones that are coming up right now.

Dennis, how should we think about incremental G&A for those businesses? Are you able now to keep that pretty flat?

No, the revenues are still growing, Scott. So we would expect next year perhaps not a dollar-for-dollar increase that we saw this year, but SG&A will rise associated with non-core businesses. But as David suggested, we are running at about -- we expect to break even from these businesses this year. Next year, they will be contributing.

Okay. So it is not going to be a full margin next year?

No.

And then, David, I know you eliminated Cutter & Buck for a couple of reasons, the legal issue. Also I think you were looking to go more upscale. Was it just customer loyalty to the brand, is that why you are bringing it back?

Yes, we actually surveyed a couple thousand of our Rochester customers and found extreme loyalty there and it was a painful experience to have to eliminate the brand and we got past that. We have settled our differences and so we reintroduced it this month and the response has been very good. It is really today only in the catalog and we are going to be bringing it back into the stores too because the stores are selling a lot of it out of the catalog and the customers are excited about actually seeing product in the stores. So Cutter & Buck was our second-largest brand two years ago. So it is very positive for us to bring it back.

Okay. And then just lastly, when you talk to other retailers, their message is that if you want great locations, you still have to pay up for them. You are not seeing any breaks on the rent. You guys typically don't look for A+ locations, so are you guys actually seeing some benefit coming down the pike for redoing leases or moving the stores?

Yes, I think things are turning more favorable in our favor. We are still aggressively trying to get these relocations done. We have identified close to 40 stores that we would like to relocate, but we are waiting for the right locations. We are not going to sell ourselves short on this project and we are getting them done and I do think things are turning somewhat favorable. But, again, with 500 stores, we don't anticipate moving the needle very much in any given year.

But if you get a positive comp next year, the leverage on the occupancy should be that much greater, right, because you are not building in normal increases like you have been?

Well, much of our leases, Scott, are locked in. So we only renew about 20% of our stores on an annual basis. So we are not going to feel quite the softness in occupancy costs in any one year like you are suggesting.

Okay.

And even certain -- many locations -- we are in a different -- we are in a strip, off a busy street. They are not owned by -- we don't have a lot of stores owned by one landlord, so we are not seeing -- if we were in malls, it would be a whole different story, but that is not what we are seeing so far.

Okay, thanks.

Margaret Whitfield, Sterne Agee.

Good morning. For Dennis, I wondered if you could comment on what we might use for a tax rate for the full year and since you said that would be down appreciably, what's your thinking about interest expense for the year?

Margaret, the interest rate -- or I'm sorry, the tax rate to continue to use is 40% and interest expenses should be between $2.5 million to $3 million for this year.

$2.5 million to $3 million. Okay. And David, I wondered if you could talk about your marketing plans for the back half -- TV, catalog circulation.

Well, we are excited because we have built in a television marketing plan for the really October, November period, which will be up against no television from a year ago because that was something we cut back on. So we do know that television does drive traffic to our stores, so that is a nice thing to have in our pockets this year. Catalog circulation is coming down, but most of that circulation is from prospecting, not from our core customers and we are finding that television is a more advantageous way for us to find new customers than prospecting through catalogs.

And you mentioned, David, your business was better in July than in prior months during the quarter. Can you comment on how August has started out?

No, we are not going to really comment on the third quarter. We are only two weeks into it, but, again, with Casual Male, it has been a fairly predictable, consistent pattern, no major waves. But we are going to be cautious about the third quarter because it is just too early for us.

One thing about our business is August for Casual Male is the lightest sales month of the year, which would certainly be different than the younger men's business because we really don't have the back-to-school business. September for us is when business starts to improve really because the weather is making a move. So August is not a good indicator for us.

And finally, Dennis, I am sorry, I got interrupted. Could you tell me what you said about gross margins I think you said for the second half, what your comments were or was it for the year?

Well, comments, for the year, we are expecting, Margaret, the gross margin rates to be improved by 25 to 50 basis points.

Okay. Thank you.

Betty Chen, Wedbush Morgan.

Thank you. Good morning. I was wondering -- (technical difficulty) -- again, just following up on the prior question about marketing. As you are preparing to launch the e-commerce website in the UK and then the other five countries in Europe, can you talk a little bit about your marketing initiative over there to drive awareness? I know you have got the Rochester store in London, but in terms of driving familiarity to XL and then obviously in the other countries, that would be helpful.

Well, it is going to go the same way we have done the other sites. A lot of it is going to be coming from marketing on the Internet, keyword search, Googling, banner advertisement, affiliate programs. It is strictly going to be promoted through Internet channels. We are not going outside of that space to really generate traffic. And we are going to monitor it. We have to get it up and running and seeing what countries the traffic is coming in from and then we will make adjustments accordingly.

And then, Dennis, I think you mentioned that gross margin was slightly impacted because of the increase in the loyalty program participation.

Yes.

Can you talk a little bit more about that and also how we should think about that in the back half and obviously next year as the number of members continue to increase?

Well, overall, we are pleased about that trend because we are seeing the loyalty participation rates are extremely high. We are getting -- our most loyal list of customers seem to be staying loyal, which we are very happy about. So the program I think has been a big success. But at the same time, we didn't anticipate quite this level of anticipation. So it is impacting -- it did impact our margins compared to a year ago.

We have incorporated the expected costs for the loyalty program in the guidance that I just provided and for next year, we are tweaking some of the factors of the program such that it will relieve some of the costs I think without taking away the primary concept of the program. So we don't expect any continuing impact of higher loyalty program costs to us.

Can you break it out for us what was the impact in the second quarter?

The impact of the loyalty program was about 25 basis points of that merchandise margin impact.

How many members are now in the loyalty program?

Almost 90% of our active customer base are members of the loyalty program.

That's terrific. And then also, could you talk a little bit about obviously sourcing costs and product costs rising I think next year? How should we think about that going forward and are you seeing that kind of pressure as well?

We are not anticipating any real change to our IMU structure next year. We have brought in a new head of global sourcing and his name is Ron Threadgill and his background came from Wal-Mart, Perry Ellis International. He has brought in a whole new array of factories that we could get better costs from. So we are in a fortunate position that we are seeing some good cost savings for next year as opposed to increases.

As far as the more Rochester -- where brands are more prevalent, there is cost pressures. Costs are going up, but the suggested retail is going up along with it. So again, we don't see a gross margin problem at this point for 2009. We can only speak through spring '09 because that is kind of where we are positioned with our placements. But not an issue for us for next year at this point in time.

Thanks. And then lastly, it looks like inventory were pretty clean coming out of the quarter. How should we think about your inventory plans for the back half?

They will continue to gravitate downward from last year's levels, Betty, and we expect to be lower by the end of the year at somewhere between $10 million to $15 million from last year's year-end numbers.

Thank you and good luck.

Gary Giblen, Goldsmith & Harris.

It's Gary Giblen. (inaudible), David, Dennis.

Good morning.

Could you elaborate on the thinking behind the organizational change to replace a Chief Merchandising Officer -- Chief Marketing Officer with a GMM? And are the specific skills or learnings that you expect to come over in a useful way from Jos. A. Bank since the gentleman has just (inaudible) experience?

Well, again, we made these changes because the market is moving quickly. We need to make quick decisions. Personally, I need to get closer to those decision-making processes. We are becoming a little too vertical in our upper management and this was a streamlining process that we felt was the right decision and we did it because we have the right players to make that move to the GMM position. Ken Ederle came out of limited structure. He has done a fantastic job in bringing Rochester in with these contemporary brands and really updating the product mix and Doug Hearn from Joe Banks, I mean he is a seasoned guy and he has got a lot of technology background and product from his previous employment that will help us too because we do see, in Casual Male, technology fabrications are a huge win for us every time we upgrade. So we are very excited about having the new structure.

Is there any difference in the -- you have had slight regional differences indicated before in the different regions. Any change in the pattern in California for instance?

Yes, I guess we would be -- the redundant line of every retailer out there. I mean Florida continues to struggle. Southern California has shown weakness. I would say Phoenix and southern Texas and Las Vegas, but they are not -- not as strongly penetrated for us, but we are experiencing the same thing that every other retailer has experienced. I think to our advantage, we are a Northwest-weighted company -- a Northeast-weighted company, so I think that will help us get through these tough times in the South.

(technical difficulty) -- down 6% and that's a fine accomplishment given flat sales and so forth. So is that because of a concentration on basics or what is driving that?

You broke up a little bit, but you are talking about what is driving our product comps right now. It's --.

(technical difficulty) -- inventory being down 6% is an excellent accomplishment, so how are you achieving that?

Well, again, it is a long process, but we have really built more of a bottoms-up distribution plan and allocation that we are just continually getting better at getting the right sizes and product mix at the store level by lifestyle and that is just requiring us to tighten up our inventories and get higher sell-throughs at regular price. We continue to drive that percent of sell-through at full price up every quarter. So a lot of that is coming from our planning and allocation group. The rest of it is -- yes, as basics continue to be flat, we could start lowering the amount of inventory required for those programs.

Great. And just finally, any thoughts on more promotional pricing in contemplation of an intermediate-term -- (technical difficulty)?

No, actually, we will -- year-to-date, we have not had one price point promotion. We will have one over the Thanksgiving period. We continue to find our best terms of promotion is if you spend money, you can save money, but we have abandoned -- we have gone away from that because it is just not gross margin dollar profitable for us to promote off price. So that is why we continue to get margin improvement over the years. Again, since we have come off this cadence over the years, we have improved gross margin by 700 basis points.

Okay. But do you think there are sales out there to be (technical difficulty) at some positive gross margin and with greater promotions or is it really just chasing non-profitable sales? Is it not worth chasing the sales because they are not there anyway?

It is not worth chasing the sales and we do stay somewhat promotional on our core basic products because we do have a customer that wants price, and he could get a better price on the commodity business, but when it comes to newness in fashion, we are going to keep our retails as strong as we can.

Scott Krasik, CL King.

David, what is going on on the competitive side? I would assume some of your department store midtier competitors who are really focused on inventory reductions probably are pulling back on that SKU-intensive slow turn category?

We are not sure what our competition is doing on any given day. We hear certain -- some department stores are going to get into the business. Other ones are getting out of the business. It never seems to really change. If they are in, they want to get out; if they are out, they want to get in. Again, it is very difficult for them to manage this size-intensive business and get the sales productivity of giving up space for big and tall. It tends not to be where they want it to go. So we do monitor our competitors on a comp store basis by area and we have seen no erosion in any competitor to our stores. We seem to hold our own whether they are in the business, whether they are out of the business or whether they are promoting or not.

Yes, have you noticed, other than ShoesXL, whether it was through the TV marketing or other means that you have brought in new customers into the stores?

Yes, we monitor our new to file and during the television campaign, we had an increase in our percent of new to file in that time period, but we haven't seen anything overly dramatic in that number changing.

Okay. And then I think you are making the move a little bit away from Li & Fung on the sourcing side. I know you have invested in it. Are there any potential risks or bumps that we should look out for as you make this move?

No, no. What it is allowing us to do is being more flexible in getting the best price we can on any program that we have out there and we feel good about it and we still have a good relationship with Li & Fung. They do a lot of our sourcing for us and have a good organization over there for us to utilize also.

Okay, thanks.

(Operator Instructions). There are no further questions at this time.

Well, thank you all for joining in on the call. We're looking forward to the back half of the year and we will touch base with you again after the third quarter. Thank you very much for joining us.

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