Children's Place Inc (PLCE) 2002 Q2 法說會逐字稿

Welcome to the Children's Place second quarter conference call. Today's conference will be recorded on August 15th, 2002. If you would like to ask a question at any time during the conference, just press the 1 on your touch tone phone to register your line for a question.

At this time I would like to turn the meeting over to Heather Anthony, director of Investor Relations.

Go ahead, please.

Good morning, everyone. Thank you for joining us on the Children's Place second quarter conference call. Management will begin with some prepared remarks followed by a question and answer session. The Operator will instruct you on the procedure at that time.

I would also like to remind participants that remarks made by management today may contain certain forward looking statements. These statements are based upon the company's current expectations and assumptions and are subject to various risks and uncertainties that cause actual results to differ materially from those contemplated in such forward looking statements, including in particular the risks and uncertainties described in the company's filings with the Securities and Exchange Commission.

With that out of the way, I'll turn the call over to Mr. Ezra Dabah, chairman and chief executive officer.

Ezra, you may begin.

Thank you, Heather.

Good morning, everyone, and welcome to our second quarter conference call. I'll begin by reviewing our results for the quarter. Seth will then discuss the financial performance in more detail, followed by Mario who will update you in our store growth. Also joining us today is Amy Hawk [phonetic], our new vice-president of merchandising, who will provide an update on our merchandise initiatives. And finally, Seth will provide more detailed guidance for the remainder of fiscal 2002. As always, we'll be happy to take questions at the end of our presentation.

Today we reported second quarter results as follows. Net sales of 128.3 million, a 10 percent increase over net sales of 116.3 million last year. Net loss of 10.2 million for the second quarter from a net loss of 3.9 million in the same period last year. Diluted net loss per share of 38 cents for the second quarter. As previously announced, lower than expected sales in the month of July resulted in an excessive level of summer merchandise which impacted performance during the second quarter. As a result, we took aggressive Mark downs to clear the inventory and avoid distracting from our back to school floor set. In our first quarter conference call I described several initiatives being implemented to secure the growth and profitability of our business. Those initiatives have being implemented with the following results: 40 percent of our inventory entered in our stores are basic merchandise resulting in a more balanced inventory than our spring-summer season. Unit prices have been reduced by an average of 10 percent positioning the Children's Place to a higher number of transactions. Our many 2-for items also reinforce our value positioning. Unit inventory ownership is projected to be in line with last year levels by the middle of the third quarter. Among other initiatives we have established a cost reduction program which will benefit our SG and A. Our merchandising initiatives are beginning to be reflected in our back to school collection, marking another step in this evolution. We are encouraged by the results. Amy will provide you some more color on back to school later on.

I would now like to report some of the important milestones that we have successfully achieved in the second quarter. We opened 46 new stores in the second quarter. We opened our 600th store during the second quarter, we opened a new distribution center in Ontario, Canada. We opened 13 stores in Canada, our first international expansion. We debuted our new store of the future in program us, North Carolina. All of our Canadian stores as well as the new store in shore hairs mall are in this format which is receiving a very enthusiastic response from our customers. I extend an invitation to all of you to visit our exciting [inaudible] of program us stores. Mario will provide more detail on Canada [inaudible] store.

Finally, we recently concluded the largest and most comprehensive customer feedback survey we have ever done. I am pleased to report that the finding of this survey validates all the strategies that we are implementing.

Seth will now take you through a closer look of the second quarter results.

Thank you, Ezra.

During the second quarter we opened 46 new stores. As of August 3rd, 2002 we operated 600 stores in approximately 2.6 million square feet or an average of 4300 square feet per store. In the quarter net sales increased 10 percent to 128.$3 million from $116.3 million last year. Comparable store sales for the second quarter decreased 9 percent versus 16 percent decrease in the prior year. the second quarter's comparable store sales decrease was primarily the result of a 6 percent decline in the average transaction size coupled with a 3 percent decline in the number of transactions. While we sold more units per transaction this quarter than last year, they were at a lower average retail price due to the aggressive Mark downs in our summer merchandise. Gross profit in the quarter decreased 670 basis points to 28.4 percent this year. This decrease was primarily the result of higher Mark downs along with [inaudible] cost, partially offset by higher markup. Mark downs during the quarter were substantially higher than last year as a result for the need for us to clear out our summer goods. the higher occupancy cost is a result of the negative comps per sale performance along with the increase in the number of new stores not yet producing average store revenues. Markup during the quarter was higher than last year primarily as a result of lower merchandise costs. SG and A expenses as a percent of sales decreased 10 basis points to 34.8 percent. the quarter received a benefit from insurance proceeds and management cost cutting initiatives. These were partially offset by the continuance of higher medical costs and start up costs incurred as a result of our Canadian expansion. Appreciation andamortization increased 100 base business points versus last year as a result of comp store sales and increased depreciation related to new store openings not yet producing average store revenues. This resulted in a net loss for the quarter of $10.2 million versus the net loss of 3.$9 million last year. On a per share basis we lost 38 cents versus a loss of 15 cents per share last year. Moving on to our balance sheet, you can see we are in a very strong cash position with almost $32 million at the end of this quarter versus $10 million last year. the end of the quarter we had no borrowings on a revolving credit facility versus $25 million last year. Nor any long term debt. This translates into an improved net cash position of $47 million. Total inventory at cost is down 9 percent from last year on a 10 percent sales increase. While inventory per store at cost is down 20 percent - excuse me, is down 27 percent, inventory at retail values is down 17 percent. Excluding merchandise in transit, inventory per store at retail value is only down 7 percent. We believe our unit inventory levels will improve midway through the third quarter. Currently our old season merchandise represents 14 percent of our total inventory and we remain aggressive in clearing the merchandise through Mark downs.

This concludes my remarks. I would now like to pass the call over to Mario.

Thank you, Seth. During the second quarter we opened 46 stores, remodeled one, and expanded three into our combo store format. Of the 46 stores 13 were opened in Canada marking our first entry into this international marketplace. At the end of the quarter we operated 600 stores in 47 U.S. states and two Canadian provinces. New stores are producing sales of approximately $1.1 million slightly below planned for the first half of the year. We remain on target to open approximately 130 new stores this year, including approximately 30 in Canada, remodel 8 stores and convert 7 stores for our combo floor mat. Two stores are planned to close later this year. In July we introduced our new store of the future in the Paramus park in North Carolina. This fun and colorful new store embodies many of the facets we have wanted to include in our store format for some time and that have been requested in our recent customer research survey. While still early, we have been very pleased with the feedback we are receiving from our customers, as well as with the overall performance of the stores. By the end of this year we will have 8 stores of the future in the U.S. and all of our new Canadian stores are in this design.

Turning to Canada, as of today we operate 22 stores, all of which were opened over the last two weeks. We are very pleased with our early results given that we have incorporated some of our long term strategies planned for the chain in our Canadian operation. As we have said previously we believe our potential in Canada is for 125 stores. Our combo store format which now numbers 29 stores continues to produce results for all operating margins which are better than those of our A store pool. Our E-commerce business Children's Place.com, although still part small part of our revenue base sales increase of approximately 60 percent over last year for the quarter which we attribute to the recent relaunch of the site.

Lastly, during the quarter we began the use of our [inaudible] merchandise allocation software system. We believe we will see better efficiencies and more analytical potential from this system in the very near future. Additionally, we completed the modification of our operational systems to allow us the flexibility to report in different international currencies and on different subsidiaries. This system modification and upgrade was necessary or us to up rate our Canadian subsidiary and will also give us the flexibility to expand into other foreign countries and/or new concepts.

I will now turn the call over to Amy Hawk, our vice-president of merchandising.

Thanks, Mario.

Good morning. I'm happy to be both here at the Children's Place and to talk to you to all of you about merchandising. I'm sure everybody earn is anxious to hear about our refund products so that's where I'm going to start. We are very please the with the initial reads of our 2-for pricing strategy performed above our expectations. Our multiple pricing crosses all departments of the Children's Place and conveys a strong message of value to our customer. Examples of some of our strongest performers, the girls flare den I am our boys draw string cord pants, boys ringer T and cotton P J's. Whereas in the past we we have offered our customers limited time promotion for back the to school season, 2-for strategy will now be offered year round delivering great value to the customer every day. In the near term we could be potentially challenged with the AUR due to a combination of the success of the 2-fors and the higher than planned residuals spring inventories at lower than last year's AUR. for back to school the boys business seems to be turning a corner led by strong performance in the bottoms category as well as rug business and graph I can T's and sweat. Girls [inaudible]. with fashion den I am and our basic and over size flare jeans performing well. Long sleeve has been the most challenging business here. Briefly touching on marketing, to complement our instore marketing we mailed 2.2 million pieces this year. Database consists of 6 million customers which is almost double this time a year ago. the direct mail piece features are 2-for products and includes a $20 off $100 coop coupon. In addition we have placed national adds in September issues of parenting magazine including parents, child, parenting, rosy and essence. These books arrive in homes and on news stands on or about August 15th. We are also conducting a back it school back savings sweep stakes going on now through Labor Day which will further build our E-mail database. Grand prize $10,000 savings bond plus $500 gift card. Looking ahead our marketing strategy continue to speak to our prices with an additional focus on the enhanced quality of our clothes. Earlier as Ezra referred to [inaudible] go forward strategy in merchandising. I would like to elaborate on some of the key components. Our goal is to consistently create focus add sortment balanced with the right mix of life-style appealing to broad customer base with commitment to quality and value. Focusing on four key drivers of this merchandising philosophy, balance, value quality and life-style. Balance, we are committed to a balance assortment comprised of basic core and fashion. Value, as Ezra mentioned we have reduced our average retails going forward. Gone back to our roots by offering 2-for's and initiated a good, better best pricing strategy. for quality the third of our four key drivers we are committed to offering the customer value they can see and feel in our garments, only through powerful pricing but also by beefing up the quality of our fabric. Garment washing our merchandise and building additional features into the product.

Life-style, we want to be the one stop destination for all of a child's clothing needs from zero to is it. That means to 12. Life-style needs on a year round basis, casual active and dress I. In closing I wanted to say that [inaudible] Children's Place, I'm very excited to leverage our strength in fashion and sourcing with a consistent and sound merchandising strategy across all businesses.

I look forward to being a partner in building and executing a solid long term vision for the Children's Place.

Seth?

Thanks, Amy.

We will now give you our current expectations for the third quarter fiscal 2002. Please note that this is the first time we have given specific guidance for the third quarter. We expect to open approximately 25 new stores during the quarter, 15 in the U.S. and 10 in Canada. We also planned to close one store during the quarter. Due to our comparable store sales trends, more traffic and current economic conditions combined with our low beginning inventory position, comps for the third quarter are projected to be down approximately 10 percent. As a result we now believe total sales for the third quarter will increase approximately 10 percent over last year. We expect to gross profit margin to decrease approximately 300 basis points due to higher occupancy costs as a result of the negative comp store sales. We have and will continue to focus on reducing expenses and expect our SG and A rate to be flat to last year for the third quarter. As a result of the negative comp store sales and increased depreciation related to new store openings, we expect depreciation expense to increase approximately 50 basis points. Based on these expectations, we believe we will earn 60 cents per share in the third quarter, down from last year's 70 cents. For the fourth quarter we plan to open approximately 20 stores and close one. We are now expecting comps to be negative 6 to 8 percent for the quarter. Based on these factors we now believe sales for the fourth quarter will increase approximately 12 percent over last year. We expect to see an increase in our gross profit margin a slight decrease in our SG and A rate and slight increase in our depreciation expense rate for the quarter. Based on these factors we believe fourth quarter earnings per share will increase to approximately 80 cents from 70 cents last year.

That concludes our earnings guidance. I'd now like to turn the call back over to Ezra.

Thanks, Seth.

In closing, I believe that our business fundamentals remain intact and it if all the initiatives taken at the Children's Place are positive, we have a very strong, talented and dedicated management team. Our financial position is strong. We have a great merchandise concept, and we also have a well defined game plan.

Thanks for your attention and we will now take questions. Operator? 00:24:14

Thank you. At this time if you'd like to ask a question, press the 1 on your touch tone phone.

At this time we'll take our first question from Marty Shapiro with Merrill Lynch. Go ahead, please.

Hey, guys. Seth, a couple quick questions. Actually for anybody. On the marketing side, talked about what you had mailed out. Could you talk about the marketing plan as far as place back or bounce backs for the rest of the year and how long the program is going to last in comparison to last year or if you're doing them at all?

Marty, as regards to promotions and marketing dollars, they're basically going to be some of the lines last year for the second half, and on the whole we are looking to see some reductions in our promotions going forward. We're looking for our promotions to be a little more kind of give the customer the incentive right away which is something, again, that we have learned from our focus groups. They wanted incentives to be kind of right there for them. So we look forward to doing that as well.

Does that mean you'll go away from the bounce back type promotion?

So some extent we're going to be going away from that and a little more on the spot.

Could you also talk a little bit on the merchandising side about sell through of fashion versus your more basic items that you put in the store?

Actually we're seeing, interestingly enough, more of an equality about them we have seen historically in the past due to the shift in the mix. Whereas historically we have owned less basics than we currently do as I talked about our positioning gradually seeing more of our basic core categories meet and exceed some of our expectations. So they're more in line than would historically be the case.

And fashion is selling at a good rate as well.

Right.

So you're not seeing a fall off on the fashion side.

No -t rap actually due to an acceleration in some of our base beings.

From a basic point of view we're winning. from fashion point of view that's been our strength and that's doing very well.

And the final question was on the unit price decline of 10 percent, is that primarily due to basics and 2-fors or did you take down [inaudible] on the fashion side as well?

We took down prices on the fashion side as well well, but the primary reduction in the 2-for's.

Thanks, guys. Good luck for the fall season.

Thanks.

Our next question comes from Kimberly Greenberger with Lehman Brothers. Go ahead, please.

Great, thank you. Good morning, everyone.

Good morning, Kimberly.

Ezra, I was intrigued to hear about the customer feedback survey you all did. I'm wondering if you can elaborate a little bit in terms of what you discovered and how it is that the customer feedback is - has already been incorporated into your go forward strategy. and then, Seth, on the inventory side, you indicated that excluding and transit inventory I guess per store per foot is down about 7 percent, but that 14 percent of your in stock is old season merchandise. Can you talk about how the old season merchandise level compares to last year? And if we've seen an increase in old season merchandise, what does that imply for the in stock position on fall goods? Thanks.

Okay. Kimberly, on the February results we had two types of surveys. One was a focus group that we held in - eight states, was it?

Five.

- five states, and the other was incentive questionnaire which we had received a very, very favorable response to, a 25 percent response which is almost unheard of in that area. So just tells us the customers really like us and want us to be very successful.

As regards to what they wanted, they wanted good prices every day and being able to shop at any time versus waiting for specific promotions. and to a great extent, we look forward, as we have begun with the 2-for's and we look forward to continuing that as well as generally we do some promotion and have better prices every day. We found that the customers' perception of quality is basically a beef Ier softer hand feel much of [inaudible] found in our back to school promotion [inaudible]. the customers asked us - they wanted the simple things to have their size, especially as it relates to outfits. So increased basic inventory position as well as going forward we look forward for more focus assortment will yield a higher average units per K S SKU and also be in size longer than we do today - than we have been. As we mentioned they wanted instant gratification promotions. and to the extent that it's something they have to come back to, they wanted a longer redemption period so that they don't necessarily have to reschedule what they have on the schedule already.

Many of the store amenities such as wider aisles, kids play area, bigger dressing rooms that are more conveniently located, you know, have a more grown up environment for the older kids, all of these and more are addressed in our new store of the future prototype. So to a great extent, many of the things that we are doing we have addressed and this survey just confirmed that there was all right to do.

And Kimberly, I believe your question was how does the old season merchandise this year compare with last year. This year old season merchandise is about 14 percent of the total, last year was approximately 6 percent.

Seth, on that, does that mean that the in stock position in terms of fall goods is lower - is actually down more than the 7 percent per store, just doing the math on it.

Yes.

Okay, great. Terrific. and then Ezra, it sounds like the new store addresses specifically some of the concerns that you mentioned, and I'm just wondering if you're thinking about opportunities to go back and remodel your existing store base to sort of spread those benefits out across the country. Can you talk about that?

Right. At this time, of course, we look forward to opening all of our new stores beginning in 2003 with our store of the future prototype. and as always as our leases come up for renewal, we remodel the store. of course those will be remodelled to the new store. To the extent, Kimberly, that we find that these new stores are yielding substantially greater top line sales, we may consider at that time to [inaudible] remodel of our stores earlier than less [inaudible]. That's left to be seen and based on favorable results which we think we will have.

Great, Ezra. Thank you.

We'll take our next question from Marsha Aaron with Pacific Growth. Go ahead, please.

Yes, a couple questions.

Hi, Marsha.

Good morning. Can you talk about your cost control efforts? Where are you cutting back and how much of it is at the store level?

It's really been across the board. Some of the items that we've cut down on have been payroll, both in stores and in central office, some other nonpayroll store items like store supplies, freight to the stores, the telecommunications cost has dropped significantly. Travel at the corporate level. It's really been across many line items and it's been deep and broad and so far we've seen fairly significant results. We're going to continue on this campaign until we see business pick up.

Are you seeing any impact at the store level? Some of the stores I visit out here have uneven operations and sometimes seem under staffed on the weekend. I'm just curious if you're doing secret shops what they say about the operations at the store level.

We do do customer mystery shops. We haven't seen that we know of any significant fall off in the results. We are concerned about that. That's an obvious concern, and we're monitoring it. But with the results we've had, we feel it's important to maintain a strict cost control. and again, as soon as we see an up tick in sales, we'll address the payroll issues accordingly.

Great.

Marsha, [inaudible] basically we focus on the payroll percentage of sales. So to the extent that the store delivers top line sales that would have more payroll on the floor.

One of the other things we've seen, we started to see this year a reduction in wage rates which has allowed us to put more hours into the store.

We have also reduced management consensus so that it gives us the ability to get more associate hours in the store as well.

Great. and then, can you talk about what the cost of the new store prototype looks like on a roll out basis? Obviously not looking at the first one. Is it going to be similar to what your new stores, what it cost to open a new store today?

I think largely that's still an area that's undeveloped. Our experience in Canada had been great. We built about 24 stores up there and came in under our expectations. We think this prototype, after we do some value engineering and some buying - economy of scale buying, we'll be slightly more than what we're paying today, but we think the increase sales and increase bottom line will more than pay for those increases.

Great. and then can you talk, in light of the comp guidance, are you seeing - I'm trying to understand your excitement about the fall filling. I assume you're seeing good sell through, but it's just that between on a unit basis that we can't see it in the comps? If you understand what I'm saying. Your comps down 10 percent yet you sound excited about how products are selling. So I'm trying to understand where the excitement comes from .

I think it's a balance. I think in the fall season we definitely are seeing good reads and most importantly we're seeing good reads on strategies that we've initiated going far. And I think that that in itself is motivating. We mentioned the fall inventory to last year and then we also mentioned a residual AUR issue with not only fall based on the success of the 2-for's in some of these lower average retail items but also spring residual. So whereas we have some great reads, they may be partially disguised by some other factors.

Great.

[inaudible] we just reserve based on our trend.

And Amy, in terms of the 2-for's, I know it's a relatively new program and I'm not sure if you actually bought, you know, bought with the product with that in mind because it seems like they've sold extremely well. As you look forward when you do the 2-for's, are you going to plan the store at the inventory more and invest more?

Whatever we sell more of we buy more of. So absolutely we're seeing success and we want - one of our strategies obviously is to be consistent to the consumer and we're actually very excited with how the consumer has reacted to this strategy. So we will continue to pursue it aggressively going forward.

Were those products bought to be sold at a 2-for and there was - didn't know how to gauge the demand, or was the 2-for put in place after the buy was put in place?

No, we plan the buy according to a 2-for strategy and as I mentioned earlier the consumer just reacted more strongly than had been anticipated for this product.

Okay. Thank. Good luck.

Thank you.

We'll take our next question from Dorothy lackener with C I B C world markets. Go ahead.

Thanks. Good morning, everyone.

Good morning, Dorothy.

I was wondering a number of retailers have commented about differences between back to school markets that where the schools are going back early versus later back to schools, and I wonder if you're seeing any difference in comps between those two types of markets.

I think we are seeing that in some regards. Our best comps have lately have been west of the Mississippi, the southwest primarily, and those are markets that go back to school earlier. Also what's kind of [inaudible] some of the results these tax free holidays which have not been repeated in Florida and this week in Maryland, so it's a little bit tough to judge some of the other markets. [brought a wrench]

I'm going to add from a product standpoint we did a drop hot store issues in a back to school market products that have been performing very strong and we're now from a fall back to school set up seems to be performing the strongest.

Are you seeing a big, you know, sort of a big difference between results in those two types of markets? I mean is the gap really very large or is it a little hard to read right now?

We're seeing a gap. I wouldn't say it's real large. It's really just getting into the heart of the back to school season.

And then, Seth, if you could talk about where you expect inventories to be at the end of the third quarter?

Sure. As Ezra mentioned we think our unit inventory [inaudible] by middle of the third quarter should be back on plan. We would hope our planning right now the end of the third quarter to be down approximately 10 to 15 percent per store and that's in line with really our comp guidance and sales growth.

Great. Thank you.

You're welcome.

We'll take our next question from Paula Collandiak [phonetic] with Wells Fargo Securities.

Good morning.

Good morning, Paula.

Amy, can you talk a little bit about the good, better best strategy regarding value?

Well, I think, you know, you have Tom to have a balance between what you offer in a wow or - so we have the 2-for we have great opening price point. We sit well positioned from a come pet position. But we also don't want to cheapen the brand. So I think that it's really significant and big driving categories to offer not only opening value conscious price point but make sure we get paid for the product as we stock up in either from a fashion point of view or quality point of view or depending on depth of buy what our message is for the season. So I think it's critical and that helps us to recapture some of the AUR issues.

Okay. and also is there any quantitative information that you could share with us about the success that you're seeing at the two North Carolina locations that are in the store of the future format?

Paula, we have been received so very enthusiastically by the customer. We have pages of enthusiastic notes as to - the customer's reception to it. As regards to numbers, we are pleased we were seeing, and again too early to tell, but on the whole we are very happy with the result.

Okay. Thank you.

And we'll take our next question from John Zolidas [phonetic] with Buckingham Research. Go ahead.

Hi. I was wondering if you could quantify the benefit from insurance proceeds that you had in the second quarter and if that's something you think is going to continue into the third and fourth quarters?

Yes, the insurance proceeds, we had - it was a onetime incident some merchandise on the West Coast, it was approximately a million dollars benefit to us in the quarter.

Okay. and it's one time?

Yes.

I'm sorry, I missed the fourth quarter same store sales guidance. Can you just repeat that for me?

Sure. Fourth quarter we would expect comps to be down 6 to 8 percent.

Thanks.

Once again, if you would like to ask the question, press the 1 on your touch tone phone.

We'll go next to John Robaum [phonetic] with Gagnan Securities. Go ahead, sir.

Actually I think you guys already answered the insurance proceeds 1 million one time. Could you explain that a little bit more?

We have a West Coast distribution center and there was merchandise theft and our insurance company paid us the proceeds in the second quarter.

Okay, great. Thank you.

We'll take our next question from Kendra DeVaney [phonetic] with Fulcrum Partners. Go ahead, please.

Thank. Couple questions. Ezra, could you first follow-up on the new prototype, are those stores tracking the same or better than the other new stores that you've opened in the same period?

Well, only one of them is a new store and that's in short hills and we have about two weeks of history. And I would say it's too early to tell, but like Ezra said, we're very pleased with the results. the other store was in Paramus was a remodel of an existing store.

Okay. And you seem to have stepped off a little bit from talking about the combo stores and I wonder if that's just because of excitement of this new prototype or if maybe you can give us an update what you're thinking with the combos.

I said it in the remarks, we are very happy with the results. We have about 30 of them. We, again, we're opportunistic in how we open these stores and expand these stores, but we recently analyzed them again in the last couple weeks and the results year to date have been better than [inaudible] so we're still very excited about them.

For 2003, I'm sorry, did you give those numbers what stores you're going to open for 2003?

We have not finalized our store opening program for next year. We will probably do so by the end of the third quarter.

Would you expect to pull back a little bit given the environment, or would you expect to kind of continue growth rate?

As a percentage of stores that will fall off, we're not sure exactly to what extent, but it's also important to note that we think our store expansion hasn't negatively impacted or day-to-day operations. And the returns we continue to achieve on our stores is still very compelling.

Okay. and then one follow-up question on that. the new store performance slightly below, is that sort of in line with your comp fall off? What do you attribute that to, new markets?

I think it's just the overall, you know, the overall environment. However they're down to their plan less than the comp store percentage. So they're performing somewhat better than the comp store groups.

Okay, great. and two other quick questions. One on inventory. Did some receipts get pushed into August? It just seems like that's kind of a repetitive thing we've been hearing. Wonder if that's something going on with receipt of inventory overseas.

Yes, some receipts did push into August and we are experiencing a few delays in our merchandise coming in.

What's that attributed to, Ezra? And how long will that last?

It's attributed to the fact that we bought our merchandise a little bit later than we have in the past and between the combo stores and our hot store and the other things we have done , we increased the number of SKU's that we had to purchase and that caused a little strain? Our overseas organization. We believe that beginning the holiday season the goods are going to be in timely and it's just [inaudible] merchandise we expect to [inaudible] in the store toward the end of this month, a little bit late, more of it is coming by air which is why you're seeing that [inaudible] merchandise down to last year.

Got it, okay. and then finally, the comp guidance that you provided, is that assuming trends improve from current trends and are the units moving out the door about flat to last year given the price differential?

We don't talk about in our current trends in the month of August, certainly in our comps in July I believe was negative 12 and the comp in the second quarter was negative 9. So overall our guidance for the quarter is approximately the same as our recent experience.

Okay. and did that assume that units are flat to last year in terms of the units that you move out given the price difference?

It's approximately right, yes.

Okay, great. Good luck. Thanks.

You're welcome.

We'll take our next question, a follow-up from Kimberly Greenberger with Lehman Brothers. Go ahead.

Thanks. My question was answered.

Again, if you'd like to ask a question, please press the 1 on your touch-tone phone.

We'll take a follow-up from John Zolidas with Buckingham Research. Go ahead.

Hi, guys, just a follow-up on capital expenditures planned for this year. What are you planning - I know earlier you were guiding to I believe 50 to 60 million?

Yes, that's correct. and it's still about that range today.

And what does Canada add to the PP and E number?

It was in that number of 50 to 60 million.

It's in that number?

Yes.

So so far year to date in the first six months capex is about 43 million so the back half of the year it's going to be less than that?

I think it's - the capex - I'm sorry, in the first half you said how much?

43 million.

Well, I think your calculations are off. We probably have spent about half of our 25 million year to date.

Okay. Thank you.

You're welcome.

We'll take another follow-up from Kimberly Greenberger with Lehman Brothers. Go ahead.

Sorry, it's ace different question this time. It looks like we're looking for an acceleration in earnings from the third quarter to the fourth quarter this year. There tends not to be, I guess just looking historically, a big difference between earnings in the third and fourth quarter. So wondering what it is that you're seeing that's giving you a good degree of comfort that we might see an acceleration in the earnings pattern between the third and fourth quarter this year?

Kimberly, I guess it's a couple of things. One, certainly we're a little more positive that our comp expectations and total sales expectations for the fourth quarter. In addition, last year's fourth quarter, if you recall, we were extremely promotional. and we believe with our every day, you know, lower pricing and 2-for's we're not going need to be as promotional as we were last year in the fourth quarter. That's probably the two biggest drivers.

If you look past the last couple of years, the fourth quarter did produce higher EPS in the third quarter. More of a historical norm.

Okay, great. Thanks.

At this time we have no further questions. I would now like to turn the program back over to management for closing comments.

Thank you, everyone. Thanks for your attention, and have a great day. Thank you.

This concludes today's conference. Thank you for participating. You may now disconnect. Have a great day.