O'Reilly Automotive Inc (ORLY) 2002 Q3 法說會逐字稿

Good evening, ladies and gentlemen, and welcome to your CSK Auto Third Quarter Fiscal 2002 Conference Call. At this time all lines that been placed on a listen only mode. The floor will be open for questions and comments following the presentation. Certain statements contained within this call are forward looking statements. They discuss among other things, expected growth, store development, and expansion strategies, business strategies, future revenues, and future performance. The forward-looking statements are subject to risks, uncertainties, and assumptions, including but not limited to competitive pressures, demand for our products, the economy in general, inflation, consumer debt levels and the weather. Actual results may differ from anticipated results described in these forward-looking statements. At this time I would like to hand the floor over to your host, chairman and CEO, Mr. Maynard Jenkins.. Sir, the floor is yours.

Good afternoon, Martin Fraser our President and Chief Operating Officer and Don Watson, Senior Vice President and Chief Financial Officer of the company. We continue to be happy with the progress CSK Auto has been making operationally and financially this year. At the end of 2001 the company completed the refinancing of its capital structure. Since that time, we have continued to reduce the company's long-term debt and this has had a very positive impact on our operating results. Year to date, we've seen such improvements as a 7% increase in comparable store sales for the third quarter and for the year, increased growth profit margins of 150 basis points from the second quarter to the third quarter of fiscal 2002, and the continued leveraging of our selling, general and administrative costs.

These improvements have resulted in net income increase for the third quarter of fiscal 2002 of more than 80% over the same period in 2001. Compared with a third quarter of fiscal 2001, our net outstanding debt has been reduced from $634 million to the current level of $518m, a $116 million reduction. This was accomplished by the retirement of approximately $71.7m of 11% senior subordinated notes through an equity offering in July of 2002 and the generation of approximately $20m of free cash flow. As a result, our debt to EBITDA ratio has been reduced from 4.8 times to 3.8 times. The debt reduction number would have been greater if the company had not made the decision to forward buy approximately $7m worth of import product to avoid any lost sales associated with the West Coast dockworkers’ strike. We are pleased with the impact of our marketing efforts and new promotional product offerings that have had on our retail customer accounts. These initiatives have resulted in increased sales per customer and increased comparable customer account. CSK continues to execute new and innovative merchandising programs that have attracted new customers to our stores. These initiatives have resulted in increased associated enthusiasm for the business and improved customer satisfaction. This, along with the strong support of our vendors, will allow us to continue to offer a broad selection of innovative and trusted brand name products.

The sales of garage maintenance and garage organization products such as automotive power tools, storage and general purpose tools have continued to exceed our expectation. Industry trends remain strong. As previously discussed, demographic changes, including the increasing average age of vehicles, increasing number of newly licensed drivers and the increasing number of SUV's and light trucks which cost more to maintain have had a very positive effect on the entire industry. We expect this increased demand to continue and result in strong industry growth for the next several years.

We are encouraged by the continued increases in our comparable customer count. Over the past several years, DIY customer accounts have been flat or declining but are now positive. These increases demonstrate the strength in the DIY market. At CSK we are focused on customer service. With associate turnover down from last year. Our associates are more experienced and more knowledgeable than one year ago. Our research tells us that our customers value the knowledge and responsiveness of our associates. The bottom line is, longer term associates increase our store's productivity.

At the end of the third quarter CSK Auto operated 1,111 stores. During the quarter we opened three stores, relocated two, and closed six stores. We have market leadership in terms of store accounts in 25 out of the 28 markets in which we operate. Regarding commercial sales. Commercial sales continue to represent 18% of our total sales for the first nine months of the year. CSK's commercial sales program continues to grow with total sales of approximately $66m for the third quarter. Despite a challenging general economic environment, our comparable commercial business increased 8% in the third quarter of fiscal 2002 over the same quarter 2001. The continued growth has come as a result of gaining market share. In summary, the company's focus for the remainder of the fiscal year will be to continue to improve our profitability through further increasing our top line growth, margin expansion, expense control, and debt reduction. At this point I'll turn it over to Don Watson who will review the financial performance for the third quarter fiscal 2002 and 39 weeks ended November 3, 2002.

Thank you, Maynard and good afternoon everyone. Net sales for the 13 weeks ended November 3, 2002, totaled $383m compared to #$267m for the third quarter of fiscal 2001. This includes a 7% same store sales increase. Gross profit for the 13 weeks ended November 3, 2002, was $181 million or 47.2% of net sales compared to $171m or 46.7% of net sales for the same period of fiscal 2001.

On a sequential basis, from the second quarter to the third quarter of fiscal 2002, gross profit margins increased 150 basis points. This is consistent with our company annual plan to be more promotional on pricing early on in the fiscal year mainly during the first and second quarters when the company was introducing new product and [incentivizing] customers to return to our stores. Then, throughout the rest of the year we plan to return to more normalized pricing which would increase gross margins. The increase gross margins is also reflection of our increased liquidity which has allowed the company to reach optimum in stock level resulting in increased sales and also permits the company to take further advantage of available cash discounts and vendor allowances much more quickly than anticipated. In addition, the company beginning in the second quarter, reviewed and revised its methodology for allocating vendor allowances that are received in connection with certain advertising programs between cost of sales and advertising expense so as to better match the amounts of allowance with the cost incurred. As a result of this revision, approximately $2.5m of the allowances or 0.65% of net sales are reflected as an increase in gross profit for the third quarter of fiscal 2002 that have served to reduce advertising expense under the prior methodology.

Operating profit for the 13 weeks ended November 3, 2002, increased 33% to $31.4 million or just over 8.2% of net sales compared to $23.7m or 6.5% of net sales for the same period of fiscal 2001. Operating and administrative expenses were $149.4m or 39% of sales as compared to $146.2m or 39.9% of sales for the third quarter of fiscal 2001. The continued leveraging of our operating and administrative expenses reflect the implementation of the company's profitability enhancement program and our continued emphasis on becoming the low-cost operator. Also, as previously discussed, approximately $2.5m of allowance credits are now reflected in gross profit rather than the SG&A. Had this change not been made on a comparable basis SG&A would have been 38.3% of net sales in the third quarter which represents a 200 basis points leverage year over year. Interest expense for the third quarter of fiscal 2002 totaled $14.2m which is essentially flat when compared to the same period of fiscal 2001.

Net income for the third quarter of fiscal 2002 increased to approximately $10.7m or 24 cents per diluted common share compared to $5.9m or 19 cents per diluted common share for the same period of fiscal 2001. This is an increase in dollars of over 80% over the same period in fiscal 2001. The results for the third quarter of fiscal 2002 exceed the company's previous guidance by three cents per share. Net sales for the 13 weeks or 39 weeks ended November 3, 2002, totaled $1.157b compared to $1.104b for the same period of fiscal 2001. That includes a year to date same store sales increase of 7%. Gross profit for the 39 weeks ending November 3, 2002, was $528m or 45.6% of net sales compared to $510m or 46.2% of net sales excluding the non-recurring charge in fiscal 2001. Operating profit for the 39 weeks ended November 3, 2002, was $83.9 million or 7.3% of sales compared to $73.2m or 6.6% of sales for the same period of fiscal 2001 excluding non-recurring items in both periods. Operating administrative expenses were $444m or 38.4% of net sales as compared to 43 – $436m or 39.5% of net sales for the same period of fiscal 2001.

Interest expense for the 39 weeks of fiscal 2002 was $48.2m compared to $45.7m for the same period last year and that's due to an increase of amortization costs associated with the company's refinancing completed in December 2001 and a higher effective interest rate associated with the issue answer of the $280m at 12% senior notes. Interest expense also includes $1.2m of interest related to the $50m of debentures which were converted in May of 2002 and $300,000 of the additional interest paid because of certain advance notice required associated with the retiring of the $71.7m of CSK Auto Inc, senior subordinated notes.

Net income for the 39 weeks ended November 3, 2002, exclusive any non-recurring charges discussed above, totaled $23.5m compared to a profit of $16.6m or a 41% increase year over year excluding any non-recurring charges.

As far as an outlook, the strong sales that the company and the automotive aftermarket industry have experienced have continued into the fourth quarter. The company expects its comparable store sales increases to remain in the mid single digit range for the remainder of the year. On a comparable sales basis, the first -- the fourth quarter of last year was the company's strongest quarter in the fiscal year. As a result, barring any unforeseen circumstances, the company expects the fourth quarter fiscal 2002 net income to be approximately $9m or earnings per share of 20 cents when assuming a fully diluted share count of $45.3m. The company would also expect free cash flow in excess of $20m. At this time I'll open it up for questions.

Thank you, the floor is now open for your questions. If you have a question or comment, please press the numbers 1 followed by 4 on your touch-tone key pad at this time. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Questions will be taken in the order they are received. We do ask that while you poise your question you pick up your hand set to provide optimum sound quality. Once again, ladies and gentlemen, that’s one followed by 4 at this time. The first question is coming from Brett Jordan of Advest, your line is live.

Good afternoon. A couple quick questions. One of them on the garage products line that seems to be exceeding expectations. How many units did you have rolled out to and in general how many SKU's per unit?

We had from 30 to 50 SKU's during the quarter and it was rolled out to every store. In addition to that, Brett, as you know, we were testing some stores in an isolated marketplace that we had full garage centers in and we're not prepared to say at this point in time where we're going to go with that for the future, but you can look for some of this product on an ongoing basis to be in every one of the stores.

Okay. So the test SKU's that you were seeing in a couple of those markets seem to be selling through well?

Yes.

Don, on the November comps, I mean clearly there's been some bad weather in parts of the country and I guess early November started out a little wet on the West Coast. Have you been comping in that mid single digit in the month to date or do you have any event color on that?

Brett, I'd like to answer that question, if I could. November was strong for us, but having said that, we got one caveat to the whole quarter. As you know, there's six days less between Thanksgiving and Christmas than there were a year ago for retailers and December's going to be the question mark. We think that December is going to be fine but we're -- it's too early to tell. So November was strong and we'll have to wait and see how December is.

Okay. Then two housekeeping, '03 Cap Ex, expectation, do you have a feeling for your targeted interest expense for '03?

for '03 we're still assuming about $15m Cap Ex for the full year and that's contingent on us being, you know, finalizing our annual capital plan which we'll do at the of next week. I would also expect to see about a $3-4m reduction, at least, in interest expense for the next year.

Great, thank you.

The next question is coming from Christina Bonni of CSFB.

Good afternoon, everyone.

Hi.

Hi.

My first question is a follow-up to the Cap Ex. Of the $15m can you give us a sense of what of that is maintenance and, secondly, can you confirm what the Cap Ex budget will be for the full fiscal year, this year?

Well, year to date, this year, Christine, we've spent about $6m of capital expenditures. We still think we're going to be about $10m for the year. We'll rolling out some signature captures and some other things between now and year end. We also think next year that $15m we would expect to be in the neighborhood of $3- 4m just in what I would call maintenance Cap Ex and as we discussed before, you know, if you look at the annual report and the prior three years, we had spent over $135m getting all the stores upgraded so we don't see a lot of incremental costs, you know, on other than the $3-4m in maintenance Cap Ex and then we'll also make sure that we're providing the right level of point of sale equipment to the stores to service the customers very well but we're not going to have any nice to haves or want to have things that justify better service to the customer.

Okay. Just to clarify, your $20 million of free cash flow that was just for fourth quarter? The number that you had –

Yes.

Okay.

We're expecting the $7m forward buy that we did mid third quarter, we will flow through all of that by the end of the fourth quarter so that will help us. We also think that we'll see a pretty decent reduction in accounts receivable because you hit a lot of your stuff up so you're allowed to start deducting quicker from your vendors. We think there's still a little work to be done on the accounts payable side but I think, you know, I think $20-25m is the right number.

for Q4?

Yes.

Okay. Then finally, as you've continued to make gross margin improvement, any sense of what you think is a good steady target that you can reach on a gross margin basis?

Well, we've discussed this. We think we're going to be at a run rate in the fourth quarter of around 47.5 which maybe a little higher because of this movement of allowances from advertising expense up to gross profit. But I would think a full year run rate this year is going to be close to 46.5. I would also think that there's still, you know, 30 to 45 basis points each year for the next, you know, three years until we're at a least a full year run rate of 47.5.

Okay. Great, thanks very much.

Thank you. The next question is coming from Jeff Kobilars(ph.) of Solomon Brothers. Your line is live, Jeff.

Thanks. Don, can you mention what you expect your free cash flow for the year to be?

We still, you know, we still think that that free cash flow is going to be close to -- between $50 and $60m, you know, we're at 20 -- just over 20 year to date and on a conservative basis I think we're 20 to 25, but with the reduction of receivable I think we're going to be in excess of 54 full year and close to the 60 we talked about early on.

for '03 is it reasonable--?

For '03 I think the company-- we've proved to the vendors that the company is very solid financially. We've got our capital structure in place to go forward. I think now we're in a better position to go to the vendors and get a little bit more extended dated -- extended dating in our accounts payable. What you have seen early on this year is you've seen a little bit higher cash discounts. The vendors have given a higher discounts for a little bit shorter than we anticipated terms and now—and that is reflected in the increased gross profit. We didn't get all of the dating and accounts payable we'd like but now next year we think the initiatives are to go out and extend that. So I think we should be able to get both pieces of this.

Okay. Good. You put out a press release about the asbestos situation. Do you care to elaborate on that at all?

We just don't think it is a big issue and we have insurance coverage for the issues that have been raised in the past and we haven't seen an increase in any claims by anybody and I think a key thing here for the entire industry, especially the retailers, is that we're not manufacturers of the product. We sold product [along], but we'll just have to wait and see how this thing shakes out. We think we're in great shape because of our insurance coverage.

Another point that I would add, Jeff, is, you know, we're not the manufacturers or--

The installers.

We do not install, either, so that helps and limits us a little bit there.

Lastly, can you comment on the competitive environments, how intensity is at this point versus earlier this year?

Well, the competitive environment has been very stable and as opposed to other segments of retailing. You haven't seen 20 -50% discount off entire lines of merchandise or anything resembling that. There's no price war going on in the areas that we operate. And I think we must remember, again, things that we've been saying for a long period of time, this is a year, make and model specific type business and, you know, if you own a General Motors product, the lowest price on a Ford alternator is not going to help you any. So it's very stable.

And can you comment about the amount of advertising that's done by you and your competitors? Is that at the same level as earlier this year or last year?

We think the competitors are about the same level that they were a year ago. We haven't seen a dramatic increase but I having said that you must remember that a year ago -- beginning a year ago auto zone increased their advertising dramatically but we haven't seen an increase over what we perceive it was this time last year.

Great, thank you.

Thank you. The next question is coming from Matthew Cullen(ph.) of Colvis(ph.) Capital. Your line is live.

Just two quick clarifications questions. One talked about being more promotional early in the year and through the second half of the year you sort of reduced that promotion. Does that mean you are raising prices back on these products you had on promotion earlier or -- you know, does that just basically mean you're keeping the prices there flat and [inaudible]? Secondly, I missed the classification of the $2.5m of vendor allowances. Could you clarify that again, thanks?

On the advertising side, a lot of the changes have just been change in mix of products in the ads and the amount of aggressive items that are in the ads so we're still running the same amount of ads, they are less aggressive in total number of items. And, also, on the pricing side, you know, we've continued to be aggressive on price on advertised items but not as many aggressively priced items.

Okay.

And on the $2.5m that we talked about, there are a lot of ETF's that are coming out that really are not effective yet but as they are getting close to being approved out there what we do is look at them and say what is the best way to report allowances. We had about $2.5m of vendor credits that were offset, would have historically been offset against advertising expense which would have lowered your SG&A. Those -- because there's not a lot of proof of performance or no proof of performance required to be offset against advertising, that money has to be reflected as a reduction of cost of goods or an allowance as far as cost of sales.

This is the first quarter you've done that, correct?

No, we did it in the second quarter, that's when the EITF came out. We did it in the second quarter and I think we've talked to a bunch of people and went through that in a bunch of our presentations but it was basically about 55 basis points if you looked at the prior period.

So going forward, though we’ll see it in cost of goods sold not in advertising.

That's right.

G&A

That’s right.

[or O&A]. Okay. Perfect, thank you.

Thank you, the next question is coming from Alan Rifkin of Lehman Brothers. Your line is live.

Just a point of clarification with improved in stocks driving your gross margin and I would have to believe the greatest opportunity yet ahead of you for gross margin improvement because of your in stock position last year in the fourth quarter, why end furthermore, gross margin being aided by the allocation of vendor allowances, why would the gross margin in the fourth quarter be as low as 47.5%? Would why would it be not significantly higher than that?

That was my point earlier on the call, Allen, is the 47.5 run rate for the fourth quarter is prior to giving effect of this reclassification so you should expect somewhere closer to 48.

Okay.

Also see 50 basis point increase in SG&A.

Right.

You're not going to see a deterioration in gross profit margins.

Okay. Just from modeling purposes, Don, should we assume the 0.65% of sales is a good number to use on an annual basis in terms of reclassifying the vendor allowances?

I think -- because sales are going up, I think the number is probably 50 basis points if you were to model, you know, the next three years. Fifty basis points moved from SG&A up to gross.

Gross margin. Okay. Do you care to expand on exactly what the impact on the gross margin line was as a result of the [inaudible] stock in and of itself?

I don't understand the question.

Of the 50 -- of the 54 basis point improvement in gross margin, part of that came from the improved in stocks as well as higher cash discounts. Can you maybe delineate between the two which was a more contributing factor?

the biggercontributing factor was clearly the balance in the sale and the last promotional pricing, you know, that we told everybody we were going to get early on. And it's -- it's very minimal based on increased cash discounts or any vendor allowances because the company takes vendor allowances and those things are hung up in inventory until you turn the inventory so any increase in inventory you get no impact on the current quarter at all on vendor allowances. That gets hung up in inventory and until you turn the product you really can't recognize any kind of allowance for that. So I would say if you took the improvement, probably, 85 to 90% is coming out of better buying and better merchandise mix along with less promotional pricing from -- we did early on in the year.

Okay. Thanks, Don.

Once again, ladies and gentlemen, if you have a question, that's 1 followed by 4 at this time, please. Thank you. The next question is a follow-up coming from Brett Jordan of Advest. Your line is live.

A couple quick follow-ups. One, Maynard, you mentioned there was both check and traffic consideration. Do you have a feeling to break out the magnitude of each [inaudible] impact

You mean--

On the 7%?

Right now, on the retail DIY it's about 35% for just the quarter. 35% of the comp is coming out of customer count and the other 65 is coming out of dollar after rage.

Okay. And, Don, a question as you get into working capital and you start seeing better dating from the vendors, what do you think the change is working capital or the contribution to cash flow could be as you start getting that dating? Do you have a feeling for dollar change on dating for working capital?

Well, I mean, the company clearly has set a lot of internal targets for our-self but if you look at next year we've assumed maybe $5 to 10m of our free cash flow coming from increased payables and, you know, that and the reason that's not there is you know we don't know how the vendors are going to deal with extended dating, there's a lot of things that we could do but if we just remember if we could get from the almost 80 days that we're at now of accounts payable, if we could get up another 5 to 10 days over the remainder of the year that could be as high as $20 or 25m.

Okay, thanks.

Thank you. The next question is coming from Michael Zimmerman (ph.) of SAC (ph.) Capital.

Hi, guys.

Hi.

Hi.

Can you give a little bit more -- I know you talked a reasonable amount about the fourth quarter gross margin but does it seem like the fourth quarter gross margin has opportunity for upside and [inaudible] conservative or it just looks like relative to the trend you've been seeing sequentially in year over year that I'm just trying , do I guess, make sense of it.

Well, Michael, as we've talked on conference calls before, you know, we said we think we would get to a run rate of 47.5 by year end, not giving effect to the movement from SG&A to there which, you know, probably gets you to a run rate of 48. You know, I know that the margin has come quicker than we anticipated before we had liquidity problems we got there quicker. But I don't think it's realistic for me to project, you know, exactly how it's going to break out and if there's an upside. If I really knew that number then I, you know, I would have taken the guidance up, you know, reflecting that but I think the company's going to do everything possible to get it. You know. I think operationally we have a very good company but I think it's too early in the quarter to predict that number.

Okay.

Thank you. Once again, ladies and gentlemen, if you have a question or comment, that's 1 followed by 4 at this time, please. Thank you, the next question is coming from Ray Haddad of Putnam, your line is live.

Your tax rate seems to be all over the place on a quarterly basis and what kind of tax rate[s] we should be using for the fourth quarter [inaudible] next year?

We talked about in the second quarter that the company got an enterprise zone credit which is pure cash from -- cash -- or tax credit from California and that brought our tax rate down for that individual quarter but as I've stated, you know, we're -- we do everything possible to minimize that but it can range from 38, you know, and a lot of it is going to depend on California sales versus Minnesota sales versus, you know, the other states so I would say that the effect effective rate going forward should be like 38.5. If you go in the press release we kind of –and when we talk in the interest -- or in the net income line, the paragraph we say we expect to be, you know, about 37% for full year which means you would have an effective tax rate of about 38.5 in the fourth quarter.

Okay. Thanks.

Thank you. The next question is coming from Matt Karshmer(ph.) of Caymen (ph.) Capital . Your line is live.

Can you -- can you talk about what is going on in the commercial side of the business? What trend you've seen there?

The commercial side of the business continues to run along at positive rates as we stated earlier. We were up about 8% in that segment for the quarter but having said that, there's been more pressure on the installers in the last year, we believe, because of the overall economy and discretionary spending on maintenance dollars and we're not getting the comp increases in the double digit range like we had gotten before and the reason why we're maintaining our 18% of sales is we think we believe we're taking market share from other people.

Has the commercial pricing gotten more promotional? Has that changed at all?

No, you're talking about year, make and model specific. There's always a person that will step into the arena at a given time and try and buy some business by price but the key thing here to the commercial installer is being able to get the product that they are looking for, to have an automobile up on one of their racks in a timely period and once you establish that your first or second call with your customer base, unless do you a lot of things on the service side to void that whole process, you're going to get the business.

One other question on advertising. Do you expect to change -- I know you've done some flyers. Do you expect to do more radio or less radio or more fliers next year?

We believe we have a balance program, not equal, but balanced in the terms of we do print advertising, to our consumer, and also we do electronic media [audio break] media and things like outdoor media, billboards and things like that and we'll continue to do that. Now, if the question is will we increase or double our expenditures for electronic media next year? We don't think that will happen because we've trained our customers for a long period of time and they look for us in the print type medias and we'll continue to enhance that and you know divide our expenditures along those lines.

And the percentage dollars being spent will be about the same next year--?

Yes.

Okay, great, thank you.

Sure.

Next question is coming from Andrew Berg (ph.) of Financial Management Advisers (ph.), your line is live.

Hi guys. I got on the call a little bit late so I apologize if you went over this. The comp store increase, what was the percentage that came from increase customer traffic versus ticket amount, the second question is what is Cap Ex in the quarter and lastly, I think you guys talk about $9m of net income for the fourth quarter. What does that translate into? About $35m of EBITDA, if I'm working my way backwards?

Let's go to the first question, the first question is 35% of the 7 is coming from customer count and 65% is coming from dollar average. And what was the next one? The Capital--?

Cap Ex in the quarter?

Cap Ex in the quarter was $2.1m, [inaudible] $6m for the three quarters. We're going to be close to 10 by year end. And the last question was?

EBITDA.

EBITDA at that level that we just talked about it would be about $38m of EBITDA.

Okay. So I was close, great, thank you guys. Nice quarter.

Thank you.

Thank you, the next question is coming from Gary Balter of CSFB, your line is live.

Thank you. I have two questions. One is, Don, could you talk about fourth quarter and next year's store openings, what you're planning and where you are planning to be? And, second question is, just back to the gross margin, could you go into a bit more detail on the components of it, because, you know, if you add the 65 basis points essentially back to last year, then you're essentially flattish or down about 15 basis points. Could you talk about what drove it up, what drove it down, what were some of the other items that are involved in gross margin?

Okay, well let's go to the new and relows. For the rest of this year, fourth quarter, we would expect five new and three relocated stores in the fourth quarter which gives us 12 new, 7 relocations. The plan for next year–

Any closing?

Pardon?

Any closing beyond the three relo's.

The closings for the year -- hold here on a second –

Q4 –

Do we have any closings for Q4--? We would have two closings over and above the relo's in the fourth quarter. And then for next year we would expect 15 new stores, 10 relocations and [inaudible] five to 6, about 8 to 10 closings.

Okay.

And then if you talk about the gross profit margins, I think there's a bunch of components in there, some of the components that are -- most of them are all up but if you look at last year to this year, warehouse and distribution costs are in there and that's inched up a little bit, maybe 20 to 30 basis points -- 20 to 30 basis points just based on a less turnover which, you know, gives you some extra cost in there but most of it is coming from purely, you know, as we talked about lower cost and then if you look at rebates as we talked about during the year, a lot of our vendor rebates have step-up allowances in them, and last year they were flat rate guarantees so it would have been flat line through the whole year. This year that's why you'll see higher increases of gross profit margin in the fourth quarter is because you'll hit some step ups that will give you extra rates.

Right, which, you've talked about--. Okay. Thank you.

All right.

Thank you. Once again, ladies and gentlemen, as a final reminder, if you have any questions, that's 1 followed by 4 at this time, please.

There are no more questions, we'll terminate the call, thank you all for participating. Thanks a lot.

That does conclude today's third quarter fiscal 2002 conference call. You may disconnect your lines at this time and have a wonderful day.