LL Flooring Holdings Inc (LL) 2009 Q2 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the Lumber Liquidators second quarter earnings conference call. With us today is Mr. Jeff Griffiths, CEO of Lumber Liquidators; and Mr. Dan Terrell, CFO of Lumber Liquidators. As a reminder ladies and gentlemen, this conference is being recorded. It may not be reproduced in whole or in part without permission from the company.

I would now like to introduce Ms. Leigh Parrish. Please go ahead.

Thank you. Good morning everyone, and thank you for joining us today. Before we begin, let me take a moment to reference the Safe Harbor provisions of the United States security laws for forward-looking statements.

This conference call may contain forward-looking statements that are subject to significant risks and uncertainties, including the future operating financial performance of Lumber Liquidators. Although Lumber Liquidators believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct.

Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in Lumber Liquidators' filings with the SEC. The information contained in the call is accurate only as of the date discussed. Investors should not assume that the statements will remain operative at a later time.

Lastly, Lumber Liquidators undertakes no obligation to update any information discussed in this call.

And now I am pleased to introduce Jeff Griffiths, CEO of Lumber Liquidators. Jeff?

Good morning everyone. Thank you for joining us for Lumber Liquidators' second quarter 2009 earnings call. With me on the call today is Dan Terrell, our CFO.

I would like to begin today with a review of some highlights of our second-quarter performance. Dan will then review our financial results in detail, as well as provide an update on our outlook for 2009, and I will finish up with a few closing remarks. We will then open the call to questions.

Both our top and bottom lines were better than expected for the second quarter, as we turned in another quarter of strong performance and continued our momentum from the start of the year. We feel very good about the increase in net sales and net income that we were able to generate, despite the current economic environment. We are proud of our team's success in implementing operating initiatives to generate efficiencies across the organization and in executing against several key goals that continue to form the basis of our long-term growth strategy.

In the second quarter, we continued to gain market share in the highly fragmented flooring market through the growth of our store base, strengthened our unique value proposition for a customer that is more aware of the costs of their purchases and is seeking value, and further build out our infrastructure and generate operating efficiencies that position the company for sustainable growth while continuing to achieve operating margin expansion.

As a result of our progress on these initiatives during the second quarter, we increased total net sales 11.8%, delivered comparable store sale -- store net sales ahead of expectations, expanded both gross and operating margins, significantly increased free cash flow, and grew net income by 18.1%.

During the second quarter, we saw a continuation of the net sales drivers from the first quarter. We leveraged the appeal of Lumber Liquidators' value proposition as consumer demand continued to shift toward premium products within more value priced product lines, which generally have a lower than average retail price.

Overall, we've continued to experience sale strength in the product categories we have expanded in the past year. We made a commitment to maintaining a higher in-stock position in key product categories such as laminates, bamboo, and moldings, and we are experiencing the benefits of this effort.

Our sales are being further boosted by the improved knowledge and expertise of our highly trained professional sales team as well as our call to action marketing geared toward specific offerings.

Last quarter we spoke about early signs of strengthening customer demand, such as invoiced sales and open orders at our comparable stores, and we are pleased to report that the trend continued through the second quarter. As we mentioned on our last call, we achieved record performance at this year's big sale in April. In anticipation of customers looking for value and purchasing our lower-priced products, we increased our assortment of these products, which helped drive strong customer response during the sale.

As we expected, our comp store net sales decline slowed in comparison to Q1 2009, and we believe that this trend will continue in the second half of the year. Additionally, we've seen an increase in the number of customers served at our stores. The number of customers invoiced at comparable stores increased in the second quarter over the same period in 2008 and over the first half of this year compared to the first half of last year. We think this further demonstrates that consumers are recognizing our value proposition.

Our success in opening new stores continued to be a key driver behind the increase in net sales through the second quarter. Because our low-cost, flexible store model enables us to quickly generate a strong return on capital when opening new locations, we successfully expanded in existing markets and into seven new markets during the period.

We now plan to open between 32 to 36 new stores in 2009, with the majority of these stores in new markets, and we are confident that our strong brand recognition and effective national advertising campaign will allow us to successfully do so.

As I mentioned at the start of the call, the operating enhancements that we have implemented across the business had a significant impact on our gross margin improvement in the second quarter. We achieved a 70-basis-point improvement in gross margin for the quarter due to our merchandising efforts in combination with the continuing shift in our sales mix and a broadened assortment of premium products in the value categories of laminates, bamboo, moldings, and accessories, as well as our improving allocation process and commitment to in-stock positions.

Finally, generally lower fuel costs in combination with continued improvements within store operations and logistics contributed to gross margin expansion.

The significant returns on the investment that we have made in our business to date are very encouraging. As a result, we are maintaining our commitment to invest in the infrastructure supporting our store growth, particularly improvements in merchandising, logistics, and information systems. An example of the type of investments we're making in the business is our recent hiring of a dedicated director of allocation.

While I already mentioned the benefits we are seeing from our commitment to a more consistent in-stock position in our growth product categories, we also made progress in strengthening our merchandising initiatives to better align product availability with demand, which has allowed us to reduce transfer costs between store locations and improve our inventory control. We continue to see strong opportunity for further improvements in this area before we reach our peak operating performance.

Overall, we are pleased with our team's ability to deliver profitable expansion and solid operating results in a challenging economic environment. Both are evidence that our efforts to position our business for sustainable growth are succeeding. As we look forward, our strong capital structure combined with our highly attractive value proposition and low-cost and adaptable business model place Lumber Liquidators in a strong position to compete very effectively in what is a highly fragmented market, further expand the business, and continue to increase our market share.

While we remain cautiously optimistic about the near term given the current environment, we are confident in our ability to continue to grow and expand operating margin.

With that, I would like to turn the call over to Dan for a detailed review of our financial results and an update on our outlook for 2009.

Thank you, Jeff, and good morning everyone. As Jeff mentioned, I'm going to provide some additional details on our results for the second quarter of 2009 and then discuss our outlook for the year.

Net sales for the three months ended June 30, 2009 grew to $143.1 million, an increase of 11.8% from $128 million for the second quarter of 2008, as the growth in our store base offset a 1.8% decrease in comparable store net sales.

Our store-base growth includes 18 new locations opened in 2009, eight of which were opened in the second quarter, and a total of 33 new locations opened since June 30, 2008. As a result, our second quarter 2009 non-comparable store net sales increased over $17 million. Of the 18 new store locations opened in 2009, 14 were in new markets, and we continue to be pleased with the overall performance of our new stores given the challenging environment.

The 1.8% decrease in comparable store net sales improved from a 5.8% decrease in the first quarter of 2009 and compares to a 2.7% increase in the second quarter of 2008. Our comparable stores continue to be impacted by the weakness in the general economy, but increases in the number of customers invoiced has offset a portion of the decrease in our average sale. We believe the number of customers invoiced in our comparable stores increased more than 13% versus the second quarter of 2008, improving from a year over year increase of 3% in the first quarter of 2009.

Our customers continued shifting demand to product lines with lower than average retail prices. Within those product lines, however, the customer has continued to prefer the premium products where we believe we present the greatest value in comparison to our competitors. As a result, our average sale has decreased, but our gross margin has generally increased.

Gross margin was 35.3% in the second quarter of 2009 and 34.6% in the second quarter of 2008. In addition to the sales mix shift, the product lines with lower than average retail prices but higher gross margins, the gross margin expansion was also due to a combination of an increase in the sales mix of moldings and accessories, which yield a higher than average gross margin, generally lower domestic and international transportation costs from lower fuel prices and logistics initiatives, and the continued benefit from operational initiatives within the merchandising and store operations.

Selling, general and administrative expenses were $39.2 million or 27.4% of net sales for the second quarter of 2009 compared to $34.9 million or 27.3% of net sales for the second quarter of 2008. The slight increase as a percentage of net sales reflects the increase of certain in-store labor costs and occupancy expenses as a result of the growth in our store base, as well as our continued investment in the company's infrastructure to drive long-term margin expansion. These increases were effectively offset by our national advertising leverage.

Other income, which includes interest, was $150,000 for the second quarter of 2009 and $159,000 for the second quarter of 2008.

The effective tax rate was 39.6% in the second quarter of 2009 compared to 38.0% in the second quarter of 2008. This increase was primarily due to increases in certain state income taxes and a reduction in tax-exempt interest income.

Net income for the second quarter of 2009 increased 18.1% to $6.9 million or $0.25 per diluted share based on approximately 27.5 million weighted average diluted shares outstanding. Net income for the second quarter of 2008 was $5.9 million or $0.22 per diluted share based on approximately 27.3 million weighted average diluted shares outstanding.

Turning now to our balance sheet and cash flow, we ended the quarter in a strong cash position with $43.3 million in cash and cash equivalents, up from $22.3 million at June 30, 2008 and $35.1 million at December 31, 2008.

Our operating activities provided net cash of $10.6 million for the six months ended June 30, 2009 versus using net cash of $6.9 million in the prior-year period. This increase is primarily a result of strength in merchandising and supply chain initiatives that generally reduced the build in available inventory per store.

Merchandise inventories totaled $106.8 million at the end of the second quarter, up from $100 million at June 30, 2008 and $88.7 million at December 31, 2008. Available for-sale inventory, which our products we have received and inspected at either our central distribution center or at a store location, totaled $94.9 million at June 30, 2009 compared to $85.3 million at June 30, 2008 and $75.5 million at December 31, 2008.

Available for-sale inventory on a per store basis was $565,000 at June 30, 2009, down from $632,000 per store at June 30, 2008 and up from $503,000 at December 31, 2008. Available inventory per store decreased in comparison to the prior year, primarily due to the implementation of certain merchandising and supply chain initiatives.

In addition, liquidation deal inventory had reached a peak in the second quarter of 2008, and our carrying balance at June 30, 2009 was more commensurate with the sales mix.

In comparison to December 31, 2008, we have increased available inventory per store to meet the demand growth in product lines where we believe sales are enhanced through a commitment to a more consistent in-stock position, including moldings and accessories, laminates, and bamboo.

Working capital was $107.5 million at June 30, 2009, up from $87.5 million at June 30, 2008, and the current ratio was 3.1 times and 3.0 times, respectively.

Capital expenditures totaled approximately $3.1 million for the second quarter of 2009 compared to $4.0 million for the second quarter of 2008. In each period, capital expenditures were generally for fixtures, equipment, leasehold improvements for new stores, computer hardware and software purchases, and leasehold improvements and fixtures at the corporate headquarters.

Turning now to our outlook for the year, based on our year-to-date results and current visibility, we now expect net sales to total in the range of $528 million to $538 million compared to a previously expected range of $515 million to $530 million, a low single-digit decrease in comparable-store net sales as compared to a low to mid single-digit range.

We now anticipate full-year 2009 earnings in the range of $0.85 to $0.91 per diluted share based on approximately 27.7 million diluted shares compared to a previously expected range of $0.76 to $0.86 per diluted share based on 27.5 million diluted shares.

We now plan to open 14 to 18 new store locations in the second half of the year for a total of 32 to 36 new store locations by December 31, 2009. To date we have open 20 new locations.

Finally, we continue to expect capital expenditures of approximately $10 million to $13 million in 2009, including $4 million to $5 million for our integrated technology solutions. We expect to be cash flow positive in 2009 and remain free of long-term debt.

I'll now turn the call back over to Jeff for his closing remarks.

Thanks Dan. While there are still challenges ahead, we're beginning to see signs of stabilization in the marketplace. We are experiencing strong traffic in our stores. We are serving more customers, and we are seeing consistency in our average ticket.

We are pleased with our implementation of operational initiatives that are improving our execution, our ability to deliver strong financial performance through a challenging time in our industry, and our competitive positioning as we exit the first half of the year.

As we look at our business today, we've made a significant amount of progress in terms of our objectives to enhance the company's productivity. We are already generating strong results from additional resources and efforts focused on pricing discipline, improving planning and allocation, refining store operations, reducing transportation costs, and better managing inventory.

However, we believe there is still more we can do to further enhance our execution, and we expect that we will be able to maintain the positive momentum in our business over time.

To briefly provide an update on our China supply chain initiative, we continue to move forward as planned on our pilot program with our Asian vendors to supply a range of products through direct-to-store shipments of a variety of materials from a central warehouse in China. We have placed our initial orders and will be receiving our first shipments in September.

We are also on track with our plans to upgrade our technology and systems, which will unable us to further increase the discipline and efficiency with which we manage operations throughout our organization and better support our long-term growth plans. As we have previously discussed, the improvements we are making are intended to optimize our warehouse and distribution systems and assist us with managing our inventory.

As part of this initiative and after careful research, we contracted with SAP during the quarter. We are taking a low-risk approach to the implementation, and we are confident that our rollout plan is very manageable.

There are many unique aspects of our business model that are contributing to our success, and I would like to once again point these out. Specifically, we continue to build on our position as the leading specialty retailer of wood flooring in a highly fragmented market. We have a great, low-risk, high-return store model that allows us to expand despite the current environment. We have a great value proposition and a flexible marketing strategy that allows us to highlight our quality products at everyday low prices.

And we continue to invest in our infrastructure and believe there are more benefits we can achieve from the operating efficiencies we are creating across the business. All of this makes us confident in our ability to continue to improve our operations, expand our operating margin, drive traffic, increase our footprint, and grow our share of the market.

Before we turn the call over to questions, we would like to thank all of our employees for their hard work and dedication that has helped make this performance possible.

We will now turn the call over to questions, operator.

(Operator Instructions). Robert Higginbotham, Goldman Sachs.

A couple of questions on sales. You obviously accelerated in terms of the same-store sales quarter to quarter. And I believe on the last conference call, you talked to kind of comp'ing down in the threes kind of territory for April. So it looks like you also accelerated -- continued to accelerate through the quarter. Could you help us a little bit more with that trajectory? In other words, was that a continuous improvement? Or how did that play out?

Well, I think the -- go back to the way we kind of thought the year would play out, and that was that we were going up against the most difficult comparisons early in the year and that we would start to see comps increase steadily throughout the year, as we started to go up against the easier comparisons and as we thought the external market would start to get a bit better. And that's exactly what's happened, so we've seen fairly steady improvement.

Got you. And when you look at the composition of your sales and you talk to the very sharp acceleration in comp transaction, what exactly drove that? Because it was pretty dramatic. Your ad dollars did not accelerate of course, so I'm curious exactly what the dynamic there exactly was.

What drove the increase in traffic?

Correct.

Again, we think it's a combination of the strong message, the value proposition. We certainly found that -- I think that as we have analyzed our marketing, we've gotten much more involved in analyzing our marketing spend, and we've made some changes over the last year or two, and we are focusing a lot more on that work the best for us.

We certainly have focused a lot more on call to action marketing that we think is helping driving traffic into the stores, and also the expanded product mix in the lower price categories I think has been appealing to customers. So we are turning -- we're bringing them in with the call to action marketing, and we are actually getting good sales results from those people as a result of the expanded product mix.

Okay. Great. Thank you.

Matthew McGinley, Morgan Stanley.

Thanks for taking my call. I have a question on the gross margin. You broke out the key drivers in pretty good detail there in the Q. Of the items that I think of being more sticky like the operations improvements, your Chinese distribution, how much of that gross margin improvement is from those versus what I would think are more one-time items like mix or things like that?

We don't break them out specifically, numerically, but certainly some of the logistics initiatives that we put in place in combination with generally lower fuel costs have probably been one of the stronger drivers.

The sales mix shift, we don't look at it as a short-term phenomenon. We actually think there's opportunity to continue to drive sales mix in laminates, bamboos, and certainly in moldings and accessories, which are key areas to us. Those two together form the greatest drivers of margin, and although there is some potential temporary benefit in the fuel cost, depending on how that fluctuation goes in future quarters, we believe there is a long-term benefit in some of the changes that we've made. And benefit in some of the sales mix changes.

And previously I think you had said that you -- your goal is to get about 10 to 20 basis points of gross margin improvement annually. If you are looking at the improvements that you made in the quarter with your distribution, would it be greater than that 10 or 20 basis points? Or probably right in that range?

Fair to say that for the second quarter of '09 over '08 they were larger than that.

Got it. And then second question is on your installation partnership, I know -- I think it was about six or eight months ago you started out with the Home Service Store. How is that going? And does that -- have you seen any increase in your close rates since you have had that partnership in place?

We are very happy with the relationship, and we don't really have a way of measuring whether it's impacting the close rate, but we feel very confident that it's certainly making a -- certainly it's an easier shopping experience for the consumer, and it allows our store staff to focus on selling as opposed to getting involved in a lot of the logistics that are tied in with installation. So in that regard, we feel that there are probably -- there are two benefits that are real but maybe a little bit difficult to measure.

I would just add too that we are going to be able to have some baseline closure rates by working with HSS across our chain, whereas before we were dealing with hundreds of independent installers across the entire chain, so we have more reliable data now.

Great. Thank you very much.

Brad Thomas, KeyBanc Capital Markets.

Wanted to follow up a little bit on the ticket and the traffic. I think -- very clear that your traffic trends improved from the first quarter, but could you shed a little bit more color on the ticket? It seems like perhaps that declined a little bit from what it had been in the first quarter.

The ticket declined slightly from where it was at the very beginning of the year, but it's been fairly consistent for the last I would say three or four months, which is encouraging to us that it didn't continue to decline.

So would that being around the $1600 level?

Roughly, yes.

That's right. It's probably $1550, $1560 range, but -- and that's down on a year-over-year basis. But as Jeff said, it fell fairly quickly to that in 2009, and we haven't seen a dramatic shift in the more recent months.

Okay. Great. And then just wanted to quickly follow up on the China sourcing program. How many stores are going to be part of the direct to ship? What level of savings do you think you get when you ship directly from China? And then I know this is just a pilot program, but is this baked into your guidance for 2009? Or is there potentially a chance for upside if this really works out very well?

There are less than 20 stores in the pilot, and we had a very, very immaterial, small dollar amount in this year -- in this year's budget for it. This year was really the learning year. We're probably -- we're about two or three months behind where we thought we were going to be. It just took a little bit longer to set it up and test it to make sure everything is working correctly and understand what kind of impact it would have on the rest of the organization.

So we do think as we gain some experience with it in the last four months of this year that we will be better able to share with you how we expect it to impact our performance in 2010.

Okay. So if it were to be successful, would it be for perhaps early 2010 that it could be rolled out to all of the West Coast stores?

Yes. Sure.

Okay. Great. Thanks so much, and congratulations on a nice quarter.

Peter Keith, Piper Jaffray.

Thanks for taking the question. Just curious on the lumber pricing, which -- have gotten some commentary that lumber overall is down about 25% to 35% year-over-year. I think you've said in the past that your sourcing costs are not associated to lumber. I was wondering if you could just verify that for me and just remind me on why you guys might not have pricing connected to overall lumber commodity costs.

Yes. We don't believe our -- the type of product we buy is connected with that. That's primarily product that's used for construction purposes. The type of products we buy is a higher grade, more selective product, and really pricing in our category has historically been more impacted by supply and demand as opposed to the lumber index.

Okay. But I guess in relation to that though, assuming that demand has fallen off overall in your industry, are you continuing to see better pricing from your suppliers?

It's really the supply and the demand in a tighter relationship between Lumber Liquidators and its suppliers because of the amount of their output that we represent. So as Lumber Liquidators grows, obviously our vendor benefits as well. Certainly they are aware of what's going on in the industry, but when we negotiate prices with our vendors, it's more on a Lumber Liquidators to the vendor basis than it is necessarily what's going on in the total market. That gives us some advantages in good times and in tough times. It may not give us the same advantages we'd be out marketing the capacity right now.

That's helpful. Thanks. And then this the last question, when the selection of SAP, do you have a time frame at this point on how long that rollout might take?

We're looking at an implementation that would run through --

Second half.

Second half of next year.

Okay. That's great. Congratulations on the quarter. Thanks a lot.

John Baugh, Stifel Nicolaus.

Good quarter. Couple of things. I'll just throw them all at you at once. Is there a shift in how you think about how many stores you're going to open in new markets versus fill-in? That's the first question.

And then, I was curious on the service installation, do you -- are you tracking how many people are using the service, either the percentage of transactions or dollar amount? I would be curious on that front.

And then, any color on how new stores have ramped relative to the historic model? Those three. Thank you.

We are tracking the -- we are starting to track some of the metrics with HSS so we can start to build a history on it and understand where we have opportunities there. But it's early. It's early in the process.

As far as the new market versus existing market, we've always said that over the long term we expected roughly half the stores in new and half in existing. But that doesn't necessarily mean any given quarter will be exactly that. A lot of it just has to do with as we start to work on locations, it's never -- you can never -- exactly sure how long the lease negotiation is going to take, how long it takes to get permits, how long it takes to build out the store, etc. So in any given quarter we could be skewed more towards new or skewed more towards existing, but we believe over the long term it will be roughly half and half.

As far as your last question, the new stores are continuing to ramp to plan. New store productivity continues to be very strong. So we've been -- we've continued to be very pleased with our new store performance.

Great. And just as a follow-up on HSS, is that offered in every single location? And then just as a crude guidance, are you seeing 10% of the customers use it? 50%? Is there some kind of track record you are seeing so far? I know it's early.

We are offering it everywhere now. It's -- we haven't broken out the percentages yet, but as I said, we really just started to track those measurements, and they haven't been with every store for that long. So we need some more time for that (multiple speakers)

Okay. Thank you.

(Operator Instructions). David Strasser, Janney Montgomery Scott.

Actually it's [Sai Umwarra] from David's team. Congratulations on a great quarter.

I have a question, and it relates to comp performance, current comp performance versus historical store maturation model. So based on the store maturation model and meth that we have, we would have expected like low to single mid single-digit positive comp for this current minus 1.8%. Can you help us reconcile various factors that are driving this deviation from the historical model that we have and the current performance? Maybe it's economy or cannibalization or anything you think of you can attribute the change to?

Certainly the comp store performance is impacted by the macro, and it's impacted to a certain extent by cannibalization. And we've -- if you go back and take a look at the history of this company, it had a very small number of stores and spent a very large percentage of its SG&A on advertising, which drove a lot of demand but also was missing a lot of customers.

So as we embarked upon a strategy to opening quite a few additional stores in existing markets, even stores that we consider new markets, which still -- for customers who previously were driving two to three hours to purchase from one of our older stores. So that's going to continue to be a -- a challenge for us going forward is that maybe we're not going to see that traditional comp growth in some of the more mature stores. But we feel that we have an opportunity to continue to drive improvements in gross margin and reduction in advertising costs that are going to more than offset what might have historically been performance in some of these existing stores.

Keep in mind that some of these older stores, that it wasn't unusual for them to do $6 million, $7 million, $8 million a year with occupancy costs at 1% or below, payroll costs in the very low single digits. But that -- even if these stores stay flat, they are still incredibly profitable, still have an incredible return on investment and are going to enable us to help leverage some of the operational costs and advertising costs going forward, so if you are going to strictly look at just performance from a comp standpoint, that's not the way we look at it.

Got it. So as of now, all stores are four-walls profitable? That is how we should look at it?

Yes.

Okay. I have a follow-up question on gross margins. Definitely lower gas prices are helping. Did you quantify before or can you help me quantify how much was the impact because of the lower gas price on gross margin?

We don't disclose it specifically, but we've said in the past that the transportation costs are significant within gross margin and represent 8% to 10% of sales. You've probably got an industry analysis of what fuel represents in transportation costs for an international company, so if you want to put 1% in fuel, find a number around that, that's probably not far off.

Great. Thank you so much for taking my questions.

Laura Champine, Cowen.

Good morning. Jeff, I may have missed this on the call, but have you addressed your market share? Can you quantify a market share gain in the quarter? And also, can you talk about the end market demand and how much you think that declined during the quarter?

The market share gain we won't know for several months because the industry reports will trail by about a quarter. So our assumption is that we did gain share because our assumption is that the market did decline. But again, it will be several months before we know that exactly.

And I'm sorry, what was the second part of your question?

What do you think were sales trends in the overall end market for hardwood flooring?

Our anticipation is that they continued to decline.

Right. And when you talk about stabilizing levels of demand, is that just for Lumber Liquidators? Or is that in the end market? And can you give a few more details on what you mean by that and how that should play out in the numbers?

That was just for us, and we -- I think what really is giving us some comfort there is that we've seen the stabilization in the average ticket and that we've continuing seeing strong traffic and that our comp store performance improved. So those were the three things that gave us more comfort that we're starting to see some stabilization. But that -- we were referring just to our business.

Got it. Thank you.

Brad Thomas, KeyBanc Capital Markets.

Just wanted to follow up on inventory within the context of your goal of improving in-stock. It looks like inventory over all about flat from last quarter. Did you feel like you left some sales on the table? And how are you feeling about inventory at these levels?

Yes. Certainly we -- a long-term commitment to improve in-stock position on key products, and we felt we were able to make some good progress with that in the second quarter and at the same time reduce our inventory levels.

And I think that was really just a result of our long-term efforts of finding -- weeding out what I would consider to be some of the weaker vendors, and partnering with stronger vendors who have the ability to work with us on planning and forecasting and deliver a product on a more consistent basis. It's the improvement in our merchandise organization as we get more experience in this that we've made better choices in product, and we've been able to more quickly identify better selling products. We've been able to learn more about just the uniqueness of different stores or different regions and anticipate what demand is going to be in the stores. So it was really more of an efficiency.

Did we leave sales on the table? My guess is yes. And you are always going to leave some sales on the table. You are always looking to improve your in-stock position in your allocation, and that's why I am confident that we, as a company, can continue to improve our performance in this area.

Okay. Great. And then just a quick follow-up on CapEx. I apologize if I missed this, but with the rollout of SAP, is there any update to the CapEx plans for the year?

Brad, we still expected to be $10 million to $13 million with about number $4 million to $5 million dedicated to the technology solution.

Great. Thanks so much, and congrats again.

We have no further questions in the queue at this time. I'll turn the conference back over to management to offer additional or closing remarks.

Thank you for joining us on today's call, and we look forward to speaking with you again real soon and keeping you updated on our progress.

That concludes today's conference. Thank you for your participation.