Hibbett Inc (HIBB) 2003 Q4 法說會逐字稿

Good day. Today's call is being recorded. At this time, for opening remarks and introductions I

would like to turn the call over to the President and Chief Executive Officer Mr. Mickey Newsome.

Thank you. With me also today is Gary Smith our Chief Financial Officer, who will be speaking with you in just a moment and Jeff Rosenthal our Vice President of Merchandising. Jeff will not be speaking, but he will be available for questions and answers. We appreciate everybody's interest in Hibbett. Before we get started, Gary Smith will cover the safe harbor language.

In order for us to take advantage of safe harbor rules, I would like to remind you that any projections or statements made today reflect our current views with respect to future events. There is no assurance that such events will occur or that any projections will be achieved. Our actual results could differ materially from any projections due to various risk factors which are described from time to time in our periodic reports with the sec.

As you know Hibbett Sporting Good had an outstanding year. Net income increased 28.8% for the quarter and 27.5% for the year. Our small market approach continues to work for us effectively. Now for some comments on fourth quarter sales.

November was basically flat up less than 1%. The first three weeks were negative, it was tough, but the Friday after Thanksgiving was very strong. Then the first three weeks of December were very weak. They were certainly negative. The week of Christmas, it turned around.

It got very strong again in comp store sales and remained strong through the end of January. Remember, our first two months sales press release showed 1.5% comps and because of the strong January, which was high single digit comps, we ended the quarter at 2.4 comps. At Hibbett’s, we present three major departments of merchandise. Athletic apparel, athletic equipment, with an emphasis on the team part and athletic foot wear, with a heavy emphasis on the cleated foot wear.

First we'll speak to the apparel piece. We were positive comp stores mid single digits. Like we present two major categories now in apparel. Licensed products and active wear. Licensed products we present two major categories, college and pro. Our college business is our core business. It is fan based and not fashion. It was very strong for the quarter led by the University of Georgia because of their fine football season. The University of Georgia replaced the University of Alabama as our number one college last year. Pro also was strong but it is more fashion. NBA and the MLB were very good. NFL was a little bit negative. Retro jerseys were very strong especially in NBA shooting shirts, MLB retro jerseys were great, satin jackets were strong. Active wear.

Active wear is more of a core business like college licensed products. It's more function and some fashion. It's for the true athlete. Under Armour was very strong as a brand. It's a moisture management fabric. Nike fleece and jackets were strong. All of our apparel rolled Together, we ended very good in inventory. In fact on a comp store basis our apparel inventory was minus 14% at the end of the year. It did not negatively affect our sales in the quarter or thus far in the first quarter. [inaudible]. Equipment.

Equipment was negative comps. Exercise becomes very important in the fourth quarter with you not having any hot TV items such as we did last year, such as the ab-doers and ab rollers. We could not combat that and were negative in equipment. Foot wear, solid comps, mid single digits, led by basketball. Both technical basketball shoes from Nike and some fashion. Classic retro shoes from Nike, Reebok, K-Swiss were very strong as were new balance running shoes. The weakest piece of our shoe business was brown shoes, but we've never been any good at brown shoes. It is not our core customer and we did not do very well in Timberland and things like that. It's a very small part of our business. We had another great year overall.

Net earnings grew well over 20%. In fact we've been well over 20% on a compound basis for six years. We've been very consistent. We're even more prepared today than we were one year ago to face the growth that we have in front of us at Hibbett Sporting Goods. For instance, in systems were much improved over a year ago. We got our new DC software Installed over a year ago and it made us a much better distribution company. We installed new license software, the latest version in our financial department. We're on the latest release of our merchandise software. We did that in the late fall, without a hitch. And we have new and improved cash register software. We are ready for the future as it relates to systems. We also added a merchandise planning staff last year that has really helped our cash flow. You're going to like our cash position at the year end and the improvements in our distribution center and improvements in our merchandise planning department is certainly responsible for that cash position.

Last year's group of new stores are on target as it relates to our new store model, as was the year before. As far as new stores this year, we're certainly ahead of our pace on commitments for new leases. We're far ahead of last year. Our goal this year is 65 new stores with closing approximately five for a net of 60. Now for some financial comments we'll turn it over to Gary Smith.

Thank you. For the quarter, total sales increased 12% to $75.5m. Versus $67.4m in the prior year. Comp store sales grew 2.4%. The company opened 16 new stores in a 13-week period and 1 was closed. There are 371 stores in operation as of 2/1/03. Gross profit declined somewhat from 31.2% to 30.6%. This was due to freight costs, which for the previous nine months, were under last years dollars, accelerated in the fourth quarter in part due to expediting merchandise, delayed in the dock strike. And also, due to the good sales year that the company had, more stores fell into percentage rent in the fourth quarter than in the previous year.

For the period store operating selling and admin costs, decreased 182 basis points to 18.65% of sales from 20.47%. Excluding the gain from the sale of the lease hold, which is reflected in this line item, S&A expenses declined to 19.28% of sales versus last year's 20.47%, a 119 basis point reduction. The reduction in rate was due to the favorable leveraging of salaries and other store related cost. This improvement was made while the company's property and casualty insurance increased 33 basis points versus last year. Interest expense again was less than last year's dollars due to significantly reduced average borrowings.

Operating income was $4.6 m versus $3.6m a 28.8% increase. Earnings per diluted share came in at 45 cents versus 35 cents the previous year, excluding the gain earnings per diluted share came in 42 cents versus 35 cents a 20% increase. Year to date results are as follows.

Total sales increased 15.8% to $279.2m versus last year's $241m. Comp store sales increased 3.9%. The company opened 45 new stores through the year and 3 stores were closed. Gross profit improved 16 basis points year over year. This was due to additional merchandise discounts in sentence. The reduced freight cost and the positive leverage of both warehouse and occupancy cost. Store operating selling and admin cost decreased 38 basis points as a rate to sale. Net income was $14.7m versus $11.6m last year. And earnings per diluted share $1.44 versus $1.15 the previous year, and over 25% increase. From a balance sheet perspective the company ended the quarter with $12m in cash versus $4 m in debt last year, in part due to excellent earnings and improved inventory terms. Average inventory per store were down approximately 6% on a year to year comparison. From a guidance standpoint concerning '04, we expect to increase store count by approximately 60 stores net. Annual earnings are expected to be between $1.63 and $1.65 with first quarter guidance between 48 and 50 cents.

thank you, Gary. We're ready for questions.

Today's question and answer session will be conducted electronically. If you would like to ask a question at this time please press the star key followed by the digit one on your touch tone telephone. That is star 1 if you would like to ask a question. We'll go first to Bob Buchanan with AG Edwards.

Congratulations, gentleman.

Good morning, Bob.

I'd just missed it, Gary, on the first quarter. What was the reason for the change there in the gross margin?

The decrease in rate last year was really due to two things. One is our freight costs accelerated over last year part of that due to getting equipment from the west coast here as part because of the dock strike. And also we had such a good year that a lot of our stores went into percentage rent in the fourth quarter.

All right. And just a question on the promo front. I know you did not do much promotion at least in the newspapers in the fourth quarter. You don't seem to be getting into that buy one get 50 off, buy one get one free mode. I assume that's great item merchandising that's allowing you to stay away from that?

We try to stay away from that. We go to small markets. For the most part, they're fairly isolated. They just don't have to competition that does the bogo, the buy one get one. We have national competitors,and I think in 80 of our stores might do bogo. We got 370 stores. Occasionally we may, on an important weekend back to school, we may match it on the weekend but we try to stay away from it. We're full price retailers.

Excellent. Finally, the 60 openings the 65 gross, 60 net openings, will those mostly be backfills of existing markets or will there be new markets that you enter this year? )) They are mostly backfills. We are going to do a handful of stores in Kansas and probably three stores in southern Nebraska. Southern Nebraska would be a new state, but we think it acts a lot like Kansas and it won't be a big learning process there.

Okay. Finally, Mickey, on the retro jerseys which have been helping your business and license product, you'll anniversary that at what point? Is there anything new that, without tipping your hat, that may come along to replace that business?

Jeff, do you want to speak to that?

Starting pretty heavy in that starting in the fourth quarter. There's so many new items coming Out on a monthly basis, we see it going for awhile.

We're not buying -- we don’t ever buy the same item twice. You buy it once and move to something new.

What's moving now, Jeff?

It's still retro jerseys and NBA and major league baseball. Both are still doing extremely well. And pants and shorts to hook up with them are doing well and shoes to hook up. Also, the head wear that goes along with it.

Any particular jerseys in NBA? Chamberlain, or [inaudible] or any of those guys?

we do all of them. It depends. Each month we deliver something new. We really haven't hit a bad one yet. So far we've been fortunate.

Thanks, guys.

Thanks.

We'll go next to Rick Nelson with Stephens.

Good morning, guys.

Morning.

My congratulations as well. Mickey can you talk about first quarter sales trends have had strength. You've seen post holiday continued into February and early March?

We can talk about first quarter but from the week of Christmas through the end of January, we were very strong and our guidance generally, Gary, is 3% to 4% comps. So we're comfortable with the guidance.

And would you expect that same sort of leverage SG&A’s with that type of comp increase?

We had certainly a good year from an expense point leveraging when you back out the property and casualty. I would -- the rate we're going, I would expect maybe not to be as good as we were this year, but if we get close to four, you could expect pretty good leveraging from the expense line.

Great. The inventory increase year over year, 6.4% well below sales gross and [inaudible] growth, I'm wondering, is that systems enhancements? Do you have enough product in the store to generate sales?

We got plenty of product. We probably got some of the low hanging fruit. I think there's some more to get there. We got less product, but it's freed our stores up to present it much better. I think we had too much product in a lot of stores. It's made them more shop-able. I think we're doing fine on inventory. We're headed in the right direction.

Good. The store closings, are these reloads? What's behind the five store closings?

It's just underperforming stores. We still got a few handful of those smaller formats that we opened about three years ago that the kick-outs are coming up this year that we'll get out of some of those. We've probably got ten we'd like to close. We'll renegotiate a lot of the leases and get a lot better deal on them, and it will allow us to stay and hit our model. All of them we won't be able to renegotiate and we'll have to close some. We estimate around five.

Great. Thank you.

Thank you.

we'll go next to Michael Weisberg with ING Asset Management.

Couple things, if I could. As I recall last year, your toughest comps would be in this existing first quarter. You had great weather first quarter last year.

You're exactly right. It seems like sporting goods to me in the last five years is becoming more and more of a

spring business. I bet we've had first quarter comps for years, probably pretty healthy. I don't see that changing. It's -- it gets more difficult in that second quarter but that first quarter it's become a strong business.

So, Mickey, you feel okay about us sinking 3% to 4% comps in the first quarter?

3% to 4% is our guidance for the year.

Okay. Great. When do you start to -- do you anniversary the step-up in property and casualty costs? Do you still get to hit this quarter and you start getting relief in this June quarter, is that correct?

The anniversary date is 3/1.

Okay. So primarily you'll still get hit a little bit this year?

Yes.

Okay. It seemed as if you had tremendous SG&A leverage. Was it just leveraging the labor or was there any other factor that, Gary, that was in that number? It seemed like it was a great -- comps weren't that great for the quarter yet the leverage was tremendous?

During the year we initiated, as always, we're always trying to leverage every expense line. As you recall in the second quarter, we took some inventories because of our warehouse system. We didn't have that expense in the fourth quarter which offset some of that. And then our advertising, I think, will become more effective on that. We leveraged that in the fourth quarter. Some of our systems we put in, like our return checks and our overs and shorts and some of those loss issues were much better in the quarter than they were last year.

I see. Great. Thank you very much.

Thank you.

We'll take our next question from David Magee with SunTrust Robinson Humphrey.

Morning, guys. Couple questions, one, the equipment business has been weak I guess, for several quarters now, which is unusual given the history of that part of the business. Do you see anything this year that might turn that part around or at least stabilize it year to year?

yeah. There are a few new items coming out that we feel could be very good. The fitness end of the business is starting to turn around. There are a few TV items that we think will get later in this year that will help us.

Okay. So maybe at worst we look for a flattish type year?

We all bet we get flat. I think equipment probably got hurt some in the fourth quarter. I think we had the coldest January in 20 years in the deep south. That does not help equipment. Usually baseball gets started in January in the deep south. We didn't do anything in January with equipment as far as it relates to baseball. Hopefully equipment will get straightened out. It was good January a year ago and pretty good February a year ago and has not been good since. We are going to be going against weak comps.

Right. Second question has to do with the operating profit margin. Just thinking about improvement that's coming in this coming year and improvement over the longer term and sources of that. Is it fair to assume that this year we'll see gross margins, I guess be back up again year to year in '03 but then longer term SG&A ratio coming down as being the primary driver?

That's correct, David.

So again for '03 gross margins you think will be back to steady again to higher.

Yes.

Lastly you mentioned merchandise planning, helping more with cash flow. Can you give us a little more elaboration of how that works.

Well, the merchandise planning group came in about the middle of the year and historically the company had really taken sort of a top down approach. And in the planning, we took a look at our on order and receipts and how we were flowing those and what made sense and what didn't make sense. Right now we're in the point of going back and planning selections and stocks by store. So just from somebody having the time and the ability and somebody that's been through it to go through that and point out some obvious mistakes that we were making, I think what we accomplished in just the last half of the year is just the tip of the iceberg.

We were able to get a really good person, a person who actually started the merchandise paying department about 15 years ago with [inaudible]. We were able to get her on a consulting basis. She's good. She knows exactly what she's doing. Another thing that's helped in that whole deal is our distribution center's gotten straightened out with that new software. Now we can process goods on a timely basis. Now merchants got some confidence. They can bring something in closer to the time they need it in the store and not bring it in three, four weeks early, hoping to get it through to [inaudible] to get it in a store. So we can get it there on time now. That's certainly enhanced that merchandise planning department. We think we can really do a lot more there.

Great. Sounds good. Best of luck here.

Thanks.

we'll take our next question from Anthony Lebiedzinski from Sidoti and Company.

Good morning guys. Just getting back to the gross margin. In the fourth quarter the gross margin was mainly affected by the increased freight cost. So is it safe to assume going forward that you should see gross margin expansion throughout the all four quarters?

That's correct.

Okay. Good. And you said that you're expecting 3% to 4% comp, has the comp increased for the full year, but are not providing anything for the first quarter, right, as far as comp estimates?

Basically, we plan the 3% to 4% every quarter also, Anthony.

Okay. And in the fourth quarter, what was the mix like between traffic and average ticket for the comp?

I think it was pretty consistent. In fact, for the fourth quarter, for the first time in probably five years, the average price of an item was not down. We've had deflation in sporting goods, probably a lot of other retail areas that's had deflation in the last five years. But in the fourth quarter it was actually flat, which is good. We were pleased to see that.

Okay. And, also, what was Capex in '02 and what do you think that will be in '03?

Capex, we just finished the year. Was shade over $6m. The plan for next year is a little over $9m.

Okay. That's mainly due to the increased new store openings, right?

That's correct.

Also, do you have perhaps the timing of new store openings by quarter for this year?

I don't have it with me now.

Okay. Is it safe to assume it's going to be similar, like in the years past?

Probably. We felt last year we started out pretty strong in the first quarter. In fact, we opened two more than we expected. And the second and third quarter is where we just sort of lost momentum and picked it up again in the fourth and quarter. This year our signings are up significantly. It will probably be more historical pattern, probably little bit more weighted to the third and fourth quarters. But more historical than it was last year. Really the second and third quarters we opened probably about half what we thought we were going to open.

Okay. All right. Thank you.

Thank.

we'll go next to John Shanley with Wells Fargo Securities.

Good morning and let me add my congratulations on a very impressive quarter. Mickey or Gary, I wonder if you could take us through a little more on the impressive 14% decline that you had in your in store inventory on a square foot basis. You mentioned comps and product category for apparel were up in the 6% range. How did you accomplish that and is there a similar trend going on in the foot wear and hard [inaudible] well? Are you getting better returns because you're able to cut your inventory levels down so substantially?

John, first of all 14% decrease to comps to our inventory is in apparel only.

I realize that.

Over all it was about 5% or 6%.

It's all about the merchandise planning department. That's what it gets down to. We're bringing stuff in now by week, by month, and not by quarter. Before our DC got straightened out, we got new software, we'd bring most of the product in, early in the quarter. And which is not the way to do it. But we had to do it in order to get it through the DC and get it to the stores. That is just not the way to do it. It's all about flowing the merchandise. Of course, we eliminated a lot of product. It just wasn't moving. We cut back on styles, mainly and apparel. We kept the styles that were good and eliminated a lot of styles on the fringes. We eliminated a lot of brands.

Did you eliminate overall sku ’s Mickey?

Absolutely. Jeff, you know a percent on that?

25%.

25% on our apparels and sku’s and you think you got more to eliminate.

What were the hard lines?

Hard lines, we didn't change that much in hard lines.

We're just eliminating certain concepts that aren't working in stores. It is more being an assortment by door. It's something isn't working, we'll take that concept out.

For instance, in an urban store, tennis does not work that good and games does not work that good and we eliminated a lot of that. Didn't affect sales any.

What about foot wear? Were the sku reductions as dramatic as well?

It wasn't quite as much, John. We are eliminating some. It's pretty flat.

Apparel is where we were eliminating sku’s and styles and brands.

We did foot wear a couple years ago, so we're in pretty good shape there.

Okay. Jeff, are the merchandise margins and foot wear and apparel comparable in each of your stores?

Not really. Apparel is certainly better margins than foot wear.

Okay.

In fact equipment is better than foot wear, also.

So your lower margin product is foot wear, then the highest is apparel?

Apparel.

Okay. Are we seeing any change in terms of the percentage of the overall merchandise mix with one of the three categories gaining and one losing significantly from what you had historically been?

We didn't have a good year in equipment. It kicked down just a little bit. We had strong year in apparel. It kicked up a little bit. Other than that it's not a significant change.

Okay. Gary, how many of the stores are on a percent rent basis? Heard you mention some rent clauses kicked in with the percent. How many are on there? What does that mean in terms of overall occupancy cost?

Basically all of our leases have -- after we hit a certain threshold we would go into percentage rent. That's pretty much our standard lease format. And being weighted towards the end of the year, we would have lot more of those fall into the fourth quarter. I can't tell you how many at this point went into the percentage rent category. )) Is it a meaningful part of your occupancy cost when it does kick in, Gary? )) Well, you know, it sort of skewed the fourth quarter a bit. It was enough to be meaningful in the fourth quarter.

Course, John, as it relates to percentage rent, usually it's a 4% rent deal, 5% that we go over a certain sales number. We would love for all of our stores to be in percent rent. That would mean those stores are rockin' and rollin' as it relates to sales.

That's what I was getting to, Mickey. It's generally, a direct correlation to positive performance.

We would love to be in percentage rent. We wish most stores were in percentage rent. You do take the hit in the fourth quarter because it's usually an annual deal based on the calendar.

Mickey, also historically, have you seen a decline in equipment sales when there is a down take in the overall economy in the markets that you serve? Is there something that we can infer in terms of perhaps economic conditions in the southeast or Midwest areas that could continue to impact equipment sales?

John, I don’t think so. I think as it relates to athletic equipment it's a very cheap form of entertainment. Even during recessionary times sporting good stores have done okay. And I don't think that's it. We've done everything in the world to try to figure it out and still we separate our stores out that are only in Wal-Mart centers, thinking maybe that's what's happening. We were down about the same as a chain. We separated all of our military towns out. We thought maybe they may be down. They are usually big equipment stores. They were a little bit above average. We couldn't figure it out.

That was a comment that several of the big box guys that reported in the last couple days that cited the economy as far as why they were equipment sales were weak.

Maybe it is the economy, who knows. We're not sure. We need some hot items and equipment.

The last question I had is in terms of the workings with the brands, either Jeff or Mickey, are you getting more products into your stores or are you getting everything you want from the big brands now, in terms of merchandise mix? Has there been any increase in terms of allocations or assortments that have helped drive either your apparel or foot wear business?

We are getting a lot more from all our vendors. There are some allocated Products that we are getting more of. We would like to get more. Right now between all the vendors we're getting mostly what we want, there are a few things that we are still negotiating.

We've got all the brands that we want. Within the brand which is only one that has this allocated product that we want more of. I guess everybody knows who that is. We basically get any products we want.

The level of cooperation with Nike has improved?

Absolutely.

Absolutely.

Thanks a lot. Appreciate it, guys.

we'll take our next question from David Turner with BB&T Capital Markets.

Thanks, good morning. I have only got 20 or so questions. I'll keep it short. I'm kidding. Sounds like the store opening schedule is ahead of pace. If you could give quantify that, that would be great. But if not, is that in part from your being more aggressive or is the real estate becoming more attractive? What's behind that?

One thing you may remember from a previous conference call sometime last year, we added two new real estate reps last January. We like to get those guys from within Hibbett, which means former district managers, which means they don't know a lot about real estate but they know about small markets and Hibbett culture. It takes those guys about six months to learn and get up to speed where they can do a deal. I think it's kicking in. I think we're getting a lot of help from our people in real estate. We are adding another one next month, in April. We will add even another one this summer. We're going to keep increasing that staff. We got to get up to where we can do 75 and 80 stores a year. We're not there with our current staff. I think the reason we're ahead, is we got more experienced people chasing deals today than we had a year ago.

Has that helped or hurt with -- I guess helped with the terms? Is there any dramatic shift in what type of rent you're getting or billed out allowances?

Not really. It's been -- we haven't seen any shift in that. I guess our Capex expenditures for new stores last year is probably about 5% under our store model. So we probably did a little better job getting allowances.

Great. The makeup of the mid single digit comp in the apparel category, could you break that down between the licensed and pro and the active wear? Was it about each or was one segment better than the other, significantly better than the other?

it was fairly even. Pro was better than the other two. They were all three very strong.

And my sense is that that is a higher margin category versus the other categories?

You,- probably not. It may be a higher initial markup. You are going to probably get some markdowns there. That will eliminate that higher initial markup. It's more fashion. College and active wear are very basic for the true athlete, you don't take as many markdowns.

Great. One last question. Is there any way to flush out or break down the total benefit from the improved systems, I guess the improvement in the overall infrastructure versus true SG&A leverage, Fixed cost leverage?

Gary, can you do something with that?

I'd hate to hazard a guess at that, David.

That's fine. We can talk off line. Thank you.

Thank you.

again that's star one to ask a question. We'll go next to Quinton Specter with Lipton Financial Services.

Good morning gentlemen, I just wanted to add my congratulations. Most of my questions have been answered. I just wanted to know, Gary, how -- find out how your cash increased to -- by $10.7m and just my rough calculation, I can account for about $7m of it. I wondered where it came from. It looks like your net income, your stock proceeds and shield, D&N and your working capital costs and so forth brings you to about – and pay down of the debt Brings you to about $7.2m. Were there some proceeds on selling store fixtures or something like that that figured in there?

Well, the only thing in that vain that we had in the fourth quarter was that gain we showed on the disposition of the lease hold. Which is about three cents a share, which equates to about $450,000. Other than certainly --

Okay. I can go over it with you offline. That's all my -- that's my questions again. Congratulations.

Thank you, Quinton.

We'll go to Lisa Estabrooks from CIBC World Markets.

Hi it’s Lisa Estabrooks for Dan Weever. Just a couple questions. You gave guidance for the year. Comp guidance of % to 4%. Did you give it for the quarter?

It's the same per quarter, Lisa.

When do comps for the equipment category get easier? Excluding weather-related items, when do you start anniversaring things like, two years ago it was scooters, last year the strengths came from items from the TV sales?

It really -- really the weak numbers started March a year ago. Right now we're anniversaring weaker numbers.

Are you willing to talk about your comp so far in February and March?

We probably shouldn't get that specific. Just remember that our comps got real strong the week of Christmas and remained strong through January. Our guidance is 3% to 4% for the year. We're not -- we haven't changed That at all.

Yeah, retail sales for February just came out. Sporting goods industry as a whole was down around 1%. So I just -- I am writing up that note simultaneously. Thought that, that was mainly the equipment category.

We're equipment, foot wear and --

Yeah.

-- apparel. The big box guys, I think a lot of those are 50% equipment or maybe more.

Exactly. Were you much impacted by the weather? There was a little bit of weather in Texas, but most of it was in the northeast.

I don't think we were. I know January was the coldest January we've had in 20 years. I think it helped apparel sales. Helped clean up a lot of winter stuff, but it hurt equipment. I don't think we were impacted in February.

Great.

Maybe some. I don't think we were.

Okay. As far as margins, are you giving guidance for that?

We expect the trend that we've had historically for improved product margin going forward.

Okay. And you said that -- you talked about how the rents affected the margins, but also freight cost. You said on equipment coming from the west coast. Can you talk about that a little bit more, explain that?

Just due to the strike and some of the equipment that was made off shore that we brought in and had to expedite it and bring it around to the east coast and some of the Gulf ports to get it in for the prime Christmas season. We certainly had favorable leverage in freight over the last year or two. However, we're not planning on that same sort of incremental improvement going forward.

Okay. So, backfilling the markets will help but it will be offset by other things?

Backfilling, that's the freight we were talking about is inbound freight, which is included in our product margin. Backfilling the markets is a warehouse expense since we run our own trucks, that's our own freight expense. There's a difference between in bound freight and out bound freight.

One last thing, you talked about -- you closed that one store. You were talking about five more next year. Are any of these going to be the bigger stores that you have or the mall based stores? In other words, the ones besides your standard 5,000 square foot format?

It won't be the big format store. It could be one mall store possibly.

That's it.

Thank you.

There are no further questions at this time. I would like to hand the conference back over to you for any additional or closing comments.

Okay. Thank you. We are very positive about our future and opportunity to grow the top and bottom line both for the near and long term. We're a small market operator and nobody else does it. We've been doing it for 35 years. We think we understand small markets. There's a lot of small markets in the 21 state areas that we operate in that we could still go to. Thanks for everybody being with us today. We look forward to speaking with you on May 23rd at 9:00 central standard time about our first quarter results. Thanks for participating.

This does conclude today's conference call. We thank you for your participation. You may disconnect at this time.