Franklin Covey Co (FC) 2007 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the quarter to 2007 FranklinCovey earnings conference call. My name is Paul and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of the conference. (OPERATOR INSTRUCTIONS). I would now like to turn the call over to Mr. Richard Putnam, Vice President, Investor Relations. Please proceed, sir.

Thank you, Paul. This is Richard Putnam, Vice President, Investor Relations. Good morning. We welcome you to our FranklinCovey second-quarter fiscal 2007 conference call and web cast. As Paul said, you are currently in a listen-only mode to prevent background noise. We will give instructions for asking questions at the end of Mr. Whitman's presentation. You will need to dial into the conference call in order to ask questions, and that dial-in number is 866-362-4832, with an access code of 49639256.

I would like to introduce those that will be participating and that are in the room with us this morning -- Bob Whitman CEO and Chairman of the Board; Bill Bennett, President of our Organizational Solutions Business Unit; Sarah Merz, President of our Consumer Solutions Business Unit; and Steve Young, our Chief Financial Officer.

Before I turn the time over to Mr. Young to review the financials and in light of Regulation FD, this presentation is being web cast and can be accessed at FranklinCovey.com. We would note that this presentation may contain forward-looking statements as defined in securities laws that are based upon certain assumptions that are subject to certain risk and uncertainties that could cause our results to vary from management's current expectations.

The first slide in the packet is a Safe Harbor statement that outlines some of those risks and uncertainties. We would encourage you to become familiar with these risks and uncertainties. They're also outlined in our Form 10-K filed with the SEC for the year ended August 31, 2006, and in our subsequent 10-Qs and 8-K filings. Copies of all of our recent filings with the SEC and additional information about FranklinCovey are available on our web site, FranklinCovey.com.

Some of the numbers we will discuss this morning have not been audited by KPMG, the Company's external auditors. We assume no obligation to update the matters discussed in this call. It is also illegal to record this call without the Company's permission. There are a number of sites that we will be reviewing this morning and discussing during the call, and they can be accessed at the investor relations page on FranklinCovey.com.

I would now like to turn the time over to Mr. Young, Chief Financial Officer of FranklinCovey.

Thank you, Richard, and good morning everyone. Welcome to this web cast. I am pleased to be able to talk about our financial results for the second quarter of this year.

You have each probably had a chance to see our filings made yesterday and have been able to review our income statement, so you have noticed that our sales decreased about $1.5 million compared to the prior year, our operating income decreased about $1.1 million and our net income decreased about $4.5 million. So with that in mind, you might be a little bit surprised that my financial results discussion today will be mostly positive.

But while we have seen some softness in certain areas, we have also seen some very exciting and significant increases in other areas and key areas of the business. Also, even though you noticed that our operating income is below last year, year-to-date, as we said last quarter, we do expect our operating income for Q3 and Q4 to be above last year by enough that our result for -- our operating income result for FY '07 in total, we still expect to be above or better than last year.

So now let's just look a little bit at the sales, gross margin, SG&A, gain on sales building on our income taxes for this quarter. First of all, let's talk about sales in the Organizational Solutions Business Unit. These numbers are at the bottom of the income statement slide, and you will see that domestic sales for the quarter grew by about $4 million, or approximately 25.8% over the prior year. We experienced increased productivity in our existing salespeople and also increased sales from new salespersons. We also saw increased sales in our new leadership program and offerings, as well as our increases in our traditional programs.

International sales also grew by about $900,000, or approximately 7.6% over the prior year. International also experienced increases in productivity of existing salespeople and also sales from new salespeople spread across our curriculum and offerings. So we are very pleased and encouraged by this OSBU sales result of a 25.8% increase over the prior year.

In our Consumer Strategic Business Unit, our overall sales as we expected decreased compared to the prior year. The decrease ended up being $6.4 million. The change from the prior year was due primarily to closed stores, the effect of our 52- to 53-week reporting calendar, reduced technology sales and reduced traffic, all during this seasonable busy time of the year, including Christmas.

In Retail, our Retail sales decreased about $4.5 million overall. That is $4.5 million of the $6.4 million decrease. So of the $4.5 million, $2.4 million of that was due to closed stores, $1 million was due to reduced technology sales. Additionally, our same-store sales decreased 6% due to reduced traffic and 4% due to the shift in our 52-/53-week reporting calendar, which excluded the week after Thanksgiving from our Q2 result this year while it was included in Q2 last year. Our call center and e-commerce sales also declined during the same period by $2.6 million due primarily to reduced traffic through our Internet and catalog channels.

Our Wholesale business for the quarter did increase over the prior year by about $400,000.

So if we look at CSBU, there is some of the softness that we talked about in the traffic. The other things are things that we clearly anticipated the impact of reduced -- of closed stores. We knew of the shift in our calendar to exclude that week after Thanksgiving and we knew of the trend of our technology sales.

So that is a summary I guess of our sales results -- some softness, but some extremely exciting and encouraging news in the OSBU sales.

Our gross margin quarter remained essentially the same as last year. Some of the increases in gross margin percentage resulting from mix shift between business units and within the business units were offset by increased royalty and product amortization costs so that our gross margin was able to remain essentially the same as last year.

Our SG&A expense for the quarter increased by about $1.2 million, or 3% compared to the prior year. That increase in SG&A was due primarily to new salespersons in the OSBU and increased commissions based upon the increased sales. Increase in our legal costs primarily is the result of a settlement that reported last year in this period that we did not have a similar settlement this year, and also some SG&A benefits of the prior year that did not repeat. We have some of these similar items in the first quarter and in the second quarter that are significant and do not anticipate those same comp issues in the third and fourth quarters. All of those things were offset somewhat by the reduced cost due to the closed stores. So our SG&A result had the items in it that we essentially -- the items that we anticipated.

You'll see in our income statement a line, the gain on sale of manufacturing facility of $1.2 million. During our second quarter as part of our printing reconfiguration project, we sold our printing facility and moved the operations here to our corporate headquarters campus. On that sale, we had net proceeds of $2.3 million resulting in this gain of $1.2 million, which you see included in operating income.

We anticipate some questions related to our tax provision for the quarter because the percentage of pre-tax income is significantly higher than in the prior year. So last year as you remember, we benefited from NOL carry-forward amounts that had been reserved against. Those reserves were reversed in the fourth quarter of last year and our tax rate now is therefore more at a normal rate for our Company. We still have the NOLs that were reserved against last year, and so as we use those NOLs, the amount of cash paid for our taxes will be significantly less than our tax provision. As you remember last year, we recorded a $20 million benefit in the fourth quarter for the reversal of these NOLs. So this year's number is -- use the word normal number for our Company. So I hope these explanations have been helpful in understanding a little bit our operating results.

Just a couple of commented about our balance sheet, which our balance sheet I believe is pretty straightforward, but we are pleased to report that during the quarter we purchased about 300,000 shares of common stock for approximately $2.5 million. This is under the current stock buyback authorization of $10 million under which we have now purchased just over 1 million shares of common stock for about $7.6 million.

Last but not least, subsequent to year end, we entered into a $25 million combined credit facility with J.P. Morgan Chase Bank and Zions First National Bank. With that credit line in place, we borrowed partially against that line and then used significantly our cash, our existing cash, to redeem all of the remaining outstanding preferred stock for $37.7 million. So this means that in Q3 we will have a small amount of dividend for the period of time that the preferred was still existing in Q3, but then we will not have preferred dividend any more. That non-tax-deductible dividend will then be replaced somewhat by reduced interest income and interest expense on the credit line, but we're very pleased about that result. So we're pleased about the sale of the building, we're pleased about being able to redeem the preferred, we're excited about the things that are going on in the OSBU sales division. Many of the things that we experienced that caused a negative result compared to the prior year; things like the closed stores and the week after Thanksgiving that we talked about that are understood. So with an understanding or an explanation of those types of things, that's why, even though there is some softness in the quarter, I am generally excited about the result and the direction against our strategic bet.

So now I would like to turn the time over time over to Bob Whitman.

Steve, thanks very much. Just one other observation; I think you did a great job of going over the quarter. We knew going into the year that we had in the first two quarters benefits that we got last year of almost $4 million in the first two quarters would need to be overcome just to have the dollar improvement, and so we're pleased -- so on one hand, you're never pleased when things are -- when you're down, but at the same time, both the first and second quarters ended up stronger than we had anticipated and the second quarter ended up stronger than we had anticipated at the time of the last conference call.

The next slide, just a reminder of things we talked about last time. These continue to the true, but we (indiscernible) orient people to the discussion last time that with our breakeven point having dropped by more than half and expect it to remain flat, with revenue growth in our OSBU side accelerating and with relative stabilization in the Consumer side, we don't expect many store closures at all this year so that hopefully going forward, we won't always have this difficulty in comparing year-over-year. They key bet for us is then be able to grow the top line and particularly the top line in the Organizational Business Unit.

That as you recall or will recall perhaps is primarily attached to two things. One, the ramp-up, success in hiring and ramping up new client partners, new salespeople, both domestically and internationally. The second is the productivity of existing salespeople. And really there's a third one, which is the productivity and sales from our licensee partners internationally. And just on an overall basis, we I think last time reported and had a specific slide which we didn't do this time, but report that all of those key bets or initiatives are still on track and they ramp up -- there's a specific schedule for each client partner that you look at every single way to see if they are ramping according to schedule. And in the aggregate, we are, and actually in most cases we are. So that continues to be going forward. And then our [recap] efforts as Steve reported have certainly increased the portion of any profit that we have that doesn't go to interest or doesn't go to dividends. And the small borrowing that we've done to redeem the preferred, we expect to have paid off by the end of the calendar year. So in general, we feel good about those same things.

The next slide just shows that as a key indicator for us is a lead, the booking pace in our domestic business which we track primarily has continued strong. Our booking pace actually internationally has also remained strong. This is the bigger portion of the business, is the domestic side. But we continue to have a good year-over-year bookings pace, and at this point looking into the third and fourth quarters, the amount of month business that we have on the books for those quarters is substantially above where we were last year at this time. And so we feel that we're positioned for a strong third and fourth quarter as expected. And without the anchor of having these non-repeating benefits in last year's third and fourth quarters, we expect that, as Steve mentioned, the results will be good for those quarters.

Slide seven is just a reminder of the key bet that -- on the ability to ramp-up a client partners and just shows that for an individual salesperson, the kind of economics that flow through as you hire, assuming they're successful. And you see that really, even if you missed it a little bit, the payback is really quite rapid and it's just a matter of how much upside there is. But right now, to date from 2005 when we began this strong initiative, we are on track both program to date. So since 2005 cumulatively and as well as we are on -- for the year specifically.

One of our other key things this year has been trying to do for ourselves what we teach others to do, is focus on moving the middle 60% of your operations closer to where the top 20% are, because there's always a gap, and that is another -- you know, for us, a key driver of the existing productivity, of the what we call alumni client-partners, the ones who were with us prior to 2005. But trying to make sure we continue to reduce the standard deviation and variability among that between our top salespeople and our middle salespeople. We really have a tremendous group of client-partners. We lost very, very few and usually only to health reasons, and so we feel good about where we are.

I think at this point, Rich, I'll turn the time back to you and we can take questions.

Thank you, Bob. Paul, we'll turn the time back to Paul and he will give us instructions now to enter questions.

(OPERATOR INSTRUCTIONS). John Lewis, Osmium Partners.

Good morning, guys, just a couple of quick questions here. In your 10-Q, you guys show minimum payment obligations could fall as much as $20 million in 2008, and given the additional store closures and other recent events you've had on your CSBU side, can you give a ballpark idea of how much cost savings of the potential $20 million could fall into 2008?

In our obligations with our contracts with EDS, we do have a fixed component and a variable component of those costs. So if our volume -- whenever our volume would decrease or increase, then there would be a variable portion to that. They've not gone through and calculated, if I understand the question right, of what the savings would be compared to the number that we show given some different scenario that we haven't talked about. So I don't know how to attach a dollar amount to the savings, other than just to say that these numbers that we show here reflect -- pardon?

No, I clearly know that you're not going to obviously get all $20 million. That's -- I guess my point is, is you guys close an additional 10 stores and some other events on your CSBU side. What impact would that have on that $20 million? Are we talking about $2 million, $5 million?

Just the change due to the things we're talking about. Okay -- (MULTIPLE SPEAKERS).

And then the other -- just basically what you would have gotten without the change as well. I'm just trying to get the whole picture. It's obviously, potentially a lot of -- a considerable amount of savings; I just want to see what you guys see there.

[It would be] the year-over-year change of approximately $2.5 million on those contracts.

Okay. Bob, specifically for you, in the past, you talk about your big bets. I'm just curious, for the overall business, how are -- the big bets seem to be progressing pretty well, and if there are any new or updated big bets.

I think really, John, you're right. We've really kind of stayed on these same bets and trying just to make sure we execute on these. And so I would say that, fundamentally, the ones we've talked about are going well. There is -- probably the newest thing is, and it will be coming up in -- it's not going to, in fact, probably the next quarter very much, but after that, we should start to see some impact, because internationally as you know, most of our [operating] -- we have direct offices in six countries, and then most of the business that we have elsewhere in other countries is through partners. And we -- and many of our partners are strong and doing very well. We expect to expand our international business significantly in the coming years and that may be the next bet. I think what you'll see in the coming quarters is that probably a couple of our offices, we will actually convert back to licensees. So, we've got some good partners who have come to us in Mexico and Brazil and have proposed to buy out the existing direct offices, and those are countries that we feel good about going on a direct licensee model. And so I think you will see that. You will also see in coming quarters I suspect an increased focus on expansion internationally, both with our existing partners and perhaps with additional partners as well. So I would say that's maybe the one additional thing, other than on the content side, we continue to do a lot of new offerings and trying to continue to reposition what we do stronger and more strongly toward having a very specific business result. We have a new practice around customer loyalty and we are in the pilot phase with four clients right now, but we expect that could also be another growth area for the future. So I'd say maybe those additions, but otherwise trying to continue to do what we're doing and make sure that that has worked out.

Can you give any color just on the drawing board of how many direct offices you would have internationally by the end of '08?

I think if we -- today, we have six, and so on a direct basis, we will probably have fewer. We will probably have only three or four, and so we have reduced that. We would increase the number of licensees that we have and probably use that as our primary model for going internationally.

Another initiative that I should have mentioned internationally is that our consumer business unit has historically not done a lot of work internationally. We have some consumer business in -- out of the countries in which we have direct offices, then there's Sara's direction this year and her great team, we've gone out and I you will have a number of participating, a large number of our licensees around the world, licensee partners around the world will in fact participate in some way with a kind of turnkey consumer business that will generate revenue for them as well and royalty revenue for us.

That's very helpful. I guess my last question here, you guys call out specifically in your 10-Q that your SG&A seems a little high. You think you can -- you indicate that you believe you can reduce the SG&A and bring it in line with the "desired business model". I guess two parts to the question. I guess first, looking at your desired business model, can you explain what that could look like with all the moving (indiscernible) the OSBU, CSBU, your international expansion, and then what you think you can get SG&A down to as a percent of revenue?

On an overall basis, we believe operating income to sales ought to be at least double-digit. And so it has been growing on a kind -- with a couple of quarter interruptions, it has generally been a stronger northeast curve but we're not at that level today. And so we think that the models we're shooting toward and that we believe we can get to is to be generating at least 10% or 11% operating income to sales with approximately 60% gross margins. You can see that we need to be getting our SG&A costs somewhere in the 40% -- 40% to 42% range -- as a percentage of sales. We don't anticipate -- we wish we were smart enough to figure out how to get more cost out of the existing operation, having taken $120 million out on an apples-to-apples basis after divestitures. We honestly -- we have maybe 20 projects where we're nipping away at things, and I think we can take a couple of million dollars net out of the cost structure. At the same time, we are investing significantly in new offerings, new client partners, etc. And so I think with the business model itself, we'll get to those numbers primarily through revenue by controlling expenses and holding the line on our fixed costs, at the same time growing revenue, and I think that will be the primary way in which we will achieve our model going forward.

Also, by shifting some of these international offices -- we have had some good sales growth in Brazil and Mexico, but almost no bottom line for many years, and by shifting those to a licensee model, we think it will give the local -- actually in some cases some tax benefits available in the local countries where they won't have the same burden of cost that we do today if they were to own it outright. And we then would have a more predictable business model where the revenue would go down of course because it would only reflect licensee fees. But at the same time, we would have a very predictable income stream and the business model would obviously be improved. Between those efforts, leveraging our product sales internationally, you know, where we're leveraging more revenue off the same base and doing things, adding new practices like the customer loyalty practice, the combination of these things off a fixed cost base should help us, and it has helped us, and we believe over the next year or two it will get us to that at least 10% on sales.

Very helpful. I will let other people ask some questions and come back. Thank you.

(OPERATOR INSTRUCTIONS). [Thomas Koch], [Turnaround] Capital.

Hi, good morning. I have a question to ask you guys regarding kind of cash flow -- free cash flow -- and capital expenditures for growth and things of that nature. If I look at the first half of the year, the cash went down by $2 million. It looks like a big delta here was your purchases of property and equipment are way up and your curriculum development costs are way up. Can you address kind of what that should be in the second half of the year and what that will be going forward and why those are up so much?

Part of the increase in the first quarter relates to the reconfiguration of the printing operation that we talked about where we acquired new presses. So this is the same discussion -- we sold our facility, moved the operation here to this campus. As a part of that, we did not move some of the big presses; we have purchased new ones. So we wouldn't anticipate that same level of capital expenditure in the second half of the year. And also, yes, our curriculum development cost is up compared to the prior years. It's primarily the Leadership offering that we've talked about. And so we would not expect the same print purchase -- printing reconfiguration in the second half, so we would anticipate those capital costs being down.

One additional thing, Tom, is that we have a large contract we haven't announced and won't announce until actually we deliver on it. But pursuant to that contract, we have about a $3.5 million investment, over half of which has already been reflected in our income statement and in our CapEx. It will be -- it's a curriculum -- it's a technology-based curriculum done for a particular -- with a specific contract in place, but which will also be able to be utilized broadly. We expect to deliver that in July, so again, that should drop. But, on go-forward basis, I would say that our capital expenditures for all matters ought to be somewhere between $6 million and $7 million a year on a recurring basis, and we think -- you know, we have had some heavy investments as we've developed this whole new -- our entry into -- we've historically had a small position in leadership and management development. We have a big new what we will call blockbuster, we hope will be a blockbuster, but was a blockbuster expenditure, and is thus far going well. We also have had previous forays into technology-based learning that didn't turn out so well, but we're confident with this contract in place and with the partner we had in this, that this one will at least be a very positive thing if nothing else happened besides this one contract that we believe we'll be able to take it out and market it to others. So this year, last couple of years, we've actually been trying to ramp up and do a lot of product development, but I would think somewhere around $7 million a year for capital expenditures going forward would be what would be expected.

So if I look at, just to get into it a little bit more precisely, the CapEx for the purchases of property and equipment went up by about $3 million. So most of that increase you're saying is because of the purchase of the new equipment and you have not sold the old equipment yet?. How much did you spend to purchase the new equipment?

About $3 million.

Okay, so that's the delta there that you're talking about. Now you're still going to get some proceeds back from selling the old equipment -- you've sold the real estate, but you haven't sold the equipment yet?

Yes. We wouldn't anticipate a significant amount, especially compared to the $3 million for selling the old equipment. That's why we bought new equipment, is the old equipment doesn't have that much value.

Okay. And then, Bob, you said on the curriculum development costs for the first half of this year, you've put about $1.5 million extra dollars into that for this program. So that's attributable [to] a large part of the delta there?

Yes, I think $2.2 million, Tom, but, yes, directionally, that is right.

Okay. So in the second of the year, you would expect to have a lower number than the first half?

Yes, although we will still have a significant number because the completion of this technology-based program. We've paid a little more than half of it in the first half. We'll still have to finish that up in the second half. We won't have the big leadership investment, but we have some other investments on course. So it will be a little less during the second half, but I think just on an ongoing basis, then it should be substantially lower.

Okay, great. And just one other thing. Bob, I think you threw out the word -- stabilization of CSBU -- and I'm just kind of curious. I understand everything you said about fewer store closings and what not. But, despite all of this, we still have a net-net 4% comp store sales decline. What do we do about that?

I hope I used the word relative stabilization, but if I didn't, I will use it now. As you recall, for several years we had big double-digit declines in our consumer business. We then began to normalize that where we had minus 3% and then minus 1%, but we actually were plus a little bit last year. And so we have actually had a little bit of backslide this year for the first time in four years. We have three basic drivers in our retail store area and we -- applying our own stuff [through] actually our team I think does an extraordinary job of figuring out exactly where the key drivers are. Two of the three are right on track. The one that is not track and has not been on the track for the year-to-date has been the outbound selling from our stores. Well, it's up, it's just not up as much as we had anticipated. So I think our answer to that one is that in previous years, the outbound selling efforts have been able to offset any declines in (indiscernible) traffic and we believe that really these stores ought to be outbound selling centers to the thousands of small businesses we otherwise don't reach through our organizational business efforts that focus on larger businesses. And I would say that many, many of our store managers are coming across the bridge and doing a very good job. On the other hand, it's a little bit of a different culture for some of them who are used to dealing and handling our customers very well that walk in but are themselves not maybe sales-oriented. So I think the answer for us is on the retail side is outbound selling, and that's the major effort. We've seen improvements over the last five or six weeks with a real intense focus on this and we expect that the back half of the year, we will close some on that. But it's a little concerning obviously in the scope of things because retail has become relatively so much a smaller piece of the total pie, and because they've managed their cost so well in the first half, despite the fact they were a little soft on the top line, they delivered a little bit better than the bottom line. But over time as you know, that's a harder thing to do to continue to wrench it out of the cost side. So on that one, we have to do it through our outbound selling effort. This isn't a new thing, it's just right now I think because other things are working well, that's just got to work well. And we feel confident because of the direction of it, but it will take a quarter or two before we close the gap fully I think on that front.

Alright, thanks a lot, and I really appreciate the call.

You have no further questions, gentlemen.

We thank everyone for making the time to be with us this morning and we will hope -- yes, Richard?

John -- did you have one more question, John?

We do have a follow-up from Mr. Lewis.

I just have one really quick question on the follow-up. It looks like you have about $2.5 million left in your buyback of the equity allocation. Have you guys -- would you guys consider renewing that? It seems like you guys are at a pretty good spot here.

When you say renewing, you mean continuing to spend that or expanding it?

Expanding it.

Yes. I think that's something -- again, we're, on this recap effort, we have kind of been more methodical than people wish we had been, but nevertheless, we are glad that the preferred is now recapped. And I think obviously at this point as we generate excess cash, given Tom's question about CapEx, we don't see a lot of CapEx spending, nor do we see really the nature of our business going forward being very capital-intensive, other than the development of curriculum. It's not big acquisition oriented, and so obviously we expect to generate a lot of excess cash in the future. And for us, if we believe our five-year plan, that is a reasonable use of cash, is to expand the purchase authority there. So we just haven't bumped up against -- under the restrictions. The restrictions under which we can purchase stock have made it difficult enough to place what we've got, so we haven't fully utilized that. But I suspect at the time we have used that, that there will be a discussion about expanding it.

I really appreciate the call as well, it was very helpful. Thank you very much.

Thanks very much again for being on the call today.

I'm sorry, sir. We do have one more question from the line of [Brendan McMillan].

I'm just going to finish up say thank you, and then after this question, we'll just close. You won't have to hear my close every time -- please.

Thank you. I just wanted to ask about the reduction in the call center and the Internet traffic and sort of what you think is going on there, Bob, and with regard to also just the reduced traffic. I don't know how that -- I'm not in the office, I don't know how that compares to previous years (MULTIPLE SPEAKERS) traffic pattern, what was going on there.

I meant to address that. I got off on the retail and didn't address that. The traffic -- we have two sources of traffic in our -- and traffic comes in and it either goes to our call center or it goes through e-commerce, and of course there's been a dramatic shift toward e-commerce in the last years, absent anyone else.

The source of names are those that are our own internal database, and while we retain and are forced to retain a large percentage of our customers, nevertheless if you don't add -- if there's any reduction in the -- filling the gap on names, that affects it. The other really are outbound efforts through keywords and other things, and I think we're -- on that one, honestly, we are -- I'd say puzzled is probably too strong a word, but we've been really searching it diligently to try to figure out all the sources of the names. And we believe that, we'll be getting a report here in the next week or two, but we suspect that actually the blocking of e-mails and other things that are occurring in companies that there's a way -- there's an analysis to find out what percentage of them are getting blocked. But given everything else, we're believing in our discussions with vendors that it's just that and that we have some strategies for overcoming that because we don't do kind of junk e-mails or things like that. But right now, the best we can tell, we have 18 different sources of leads and we know exactly where they are, except in that black hole, and that's our only anticipation right now. This team has a lot of programs, and over the last week or so, we have had, we're hoping this is a trend for the last few weeks. We have had positive year-over-year comps, but because we don't know exactly what's driving that, we're still a little nervous to call it a success. But we expect in the next couple of weeks to have this report out in the least. We'll either be more puzzled because we won't know -- it won't tell us anything, or I suspect it will tell us that we have some good strategies for overcoming that, we hope.

So sorry, just in terms of, so that, Bob, what part of that I think sort of accounts for the -- or I guess the portion -- you all broke out two parts -- the reduced traffic of negative 6% in Steve's comments and then the $2.6 million reduction from call center and direct. So the outbound efforts that you're talking about would effect both of those?

Yes. There's been outbound efforts on both fronts. The 6% drop in traffic was really in our retail stores, and that was what I was addressing with the outbound selling efforts from those stores. We did have some traffic declines also in e-commerce and catalog during certain periods, and some periods we didn't and some we did, and that's why we just addressed [them].

Okay, thank you.

So on that one, maybe on the next call, we hopefully will have an answer to it and hopefully we will have resolved it. But it's soft given the context of things for us. In our own mines, obviously it's unacceptable not to grow each of the units and everybody has a remediation plan. That said, the impact of not solving, if the retail or e-commerce and catalog plan -- if those problems were not solved in the context of our growth plan, even over the years, it has a muting effect that's only a few million dollars a year which is a lot of money but it -- relative to the upside on the organizational business, it's not the biggest concern but it's one we are addressing.

Okay, thank you.

Okay, thanks very much.

Thank you for attending today's conference. This concludes the presentation and you may now disconnect. Have a great day.