羅斯百貨 (ROST) 2004 Q1 法說會逐字稿

Good morning.

Welcome to the Ross Stores first quarter 2004 earnings release conference call.

The call will begin with prepared comments by Michael Balmuth, Vice Chairman and Chief Executive Officer, followed by a question-and-answer session.

If at any point during the conference would you like to ask a question, you may press star 1.

We would like to remind parties this call is being recorded.

If you should require operator assistance, please press star 0.

At this time, I would like to turn the call over to Michael Balmuth, Vice Chairman and Chief Executive Officer.

Good moring.

Joining me on our call today are Jim Peters, President and Chief Operating Officer, Norman Ferber, Chairman of the Board, John Call, Senior Vice President and Chief Financial Officer, and Katie Lenault, Vice President Investor Relations.

We'll begin our call today with a brief review of our first quarter performance followed by an update on the situation with our new core merchandising system and a review of more recent business trends.

We will provide guidance for the second quarter and the back half and also discuss our long-term plans and objectives.

Afterwards we'll be happy to respond to any questions you may have.

Before we begin, I want to note that our comments on this call will contain forward-looking statements regarding expectations about future growth and financial results, the core merchandising system, and other matters that are based on management's current forecasts of aspects of the company's future business.

These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from historical results or current expectations.

These risk factors are detailed in today's press release and the company's 2003 Form 10-K on file with the SEC.

In our press release today we reported that earnings per share for the 13 weeks ended May 1st, 2004, were 32 cents compared to 32 cents for the 13 weeks ended May 3, 2003.

Net earnings in the first quarter of 2004 were $48.5 million compared to $49.3 million in the prior year period.

First quarter sales grew 13% to $992 million and same-store sales rose 3%.

First quarter earnings per share were, as anticipated, even with the prior year, despite the impact on distribution capacity from weather and a partial roof collapse at our South Carolina facility in January 2004.

Higher distribution costs related to that incident as well as ramp-up expenses associated with the retrofit of our Pennsylvania center and the start-up phase of our southwest facility contributed to a 138-basis point decline in gross margin during the quarter.

This was partially offset by a 23 basis point reduction in selling, general, and administrative expenses as a percentage of sales, primarily reflecting leverage on store operating costs.

As a result, operating margin for the first quarter declined to 8% from 9.2% in the prior year.

Geographic trends in the first quarter were relatively broad-based.

Same store sales in California, our largest market, grew 6% during the quarter.

The strongest merchandise departments were accessories, juniors, and shoes, all with comparable store sales gains in the high single to low double digits for the quarter.

As we ended the first quarter, total consolidated inventories were up 14%.

This growth was driven mainly by an increase in the number of stores.

In-store inventories were up 3% from the prior year on a comparable store basis at the end of the quarter.

Pack-away as a percent of total inventories at quarter end was 39% compared to 40% in the prior year.

We had $185 million in cash at the end of the first quarter and $50 million in term debt to finance distribution center equipment and systems.

Cash flow from operations provided the bulk of the funding for capital investments in new store growth and infrastructure as well as the company's stock repurchase and dividend programs.

During the first quarter, we repurchased 2 million shares of common stock for an aggregate purchase price of $59 million ending the period with 149.9 million shares outstanding.

These shares were purchased under a two-year $350 million stock repurchase program for 2004 and 2005, authorized by our board earlier this year.

These actions reflect our ongoing commitment to enhancing stockholder value as well as our confidence in the company's long-term growth prospects.

As previously reported, during April we went live with our new core merchandising system.

While this technology is expected to improve our ability to plan, buy, and allocate merchandise more precisely, we have been experiencing longer than expected delays in accessing information on current merchandise trends during the start-up period of the systems.

The core merchandising implementation was structured as a two-step process.

Our first objective was to get the systems up and operating and interfacing effectively with our other systems, including POS, merchandise allocation, sales orders, finance, and the warehouse management systems.

The second phase of implementation focused on providing the necessary analytical tools that our merchants and allocators use to make effective planning, buying, and allocation and mark-down decisions.

Our start-up plan assumed these users would be operating using month-end March data until around the middle of April, at which time our goal was to start delivering the information they normally received.

Unfortunately, a combination of unidentified flaws in the test environment and operational issues in the new system have caused delays in providing them with this information.

We have made some progress over the past two weeks resulting in improved visibility into buying and allocation data and we currently expect these systems issues to be fully remedied during the second quarter.

Information we are now receiving from the new system does, however, confirm what we had suspected when we reported on April sales.

Temporary in-store inventory imbalances have developed that we believe will adversely impact sales and margins over the near term.

It appeared that we are beginning to see the effect of this situation with same-store sales month-to-date in May now down 1% from the prior year.

As a result of these variables, we believe it is prudent to adopt a more conservative outlook for the second and third quarters.

We now estimate that comparable store sales for the 13 weeks ending July 31, 2004, will be flat to down 2% and that earnings per share will be in the range of 31 to 34 cents compared to 35 cents for the 13 weeks ended August 2nd, 2003.

For the third quarter ending October 30th, 2004, we now expect that same-store sales will increase 1 to 2% and that earnings per share will be in the range of 33 to 35 cents compared to 33 cents for the 13 weeks ended November 1, 2003.

We also are maintaining our previous forecast for same store sales to grow 2 to 3% for the 13 weeks ending January 29, 2005 and for earnings per share for the fourth quarter to be in the range of 52 to 54 cents compared to 48 cents for the 13 weeks ended January 31, 2004.

Following are more detailed assumptions that support our second quarter earnings per share projections.

Sales are expected to grow about 6 to 8% for the 13 weeks ending July 31, 2004, compared to $966 million in sales for the 13 weeks ended August 2, 2003.

We are forecasting a net addition of about 17 new stores during the second quarter.

As mentioned earlier, same-store sales are forecasted to be flat to down 2%.

By month, we also are forecasting same-store sales to be flat to down 2% in May, down 1 to 3% in June, and flattish in July.

Operating margin is projected to be in the range of 7.7 to 8.2% compared to 9.3% for the same period in the prior year due to a combination of the de-leveraging pressure on the model from flat to slightly negative same-store sales, gross margin pressure resulting from the inventory imbalances, ongoing ramp-up costs associated with the new distribution centers, and the investment in DD's Discounts.

Interest costs are estimated to be about $500,000.

Our tax rate is expected to remain unchanged at 39.1%, and we estimate weighted average diluted shares outstanding of about 152.5 million.

I also want to remind you that as previously disclosed, we continue to evaluate ongoing uses for or the potential sale of our newer California headquarters and distribution center once the facility is fully vacated following the planned corporate office relocation to Pleasanton, California, in July 2004.

As part of this process, the company expects to obtain independent third-party market valuations of the Newark facility.

Management believes it will complete this evaluation process by the end of the second quarter of 2004.

Depending on the company's decision as to future use or disposition of the Newark facility, a write-down to adjust the facility's net book value, which is approximately $35 million, to its current fair market value may be required.

This potential non-cash charge is not included in today's earnings guidance.

Without minimizing the difficulties associated with the start-up of our new systems, I want to emphasize that the long-term fundamentals of the business and our growth strategy remain strong and healthy.

Throughout our 22-year history we have encountered and overcome numerous obstacles and expect to overcome this newest challenge as well.

While we are disappointed in our financial performance to date this year, we strongly believe that our long-term objective of 15% or better earnings per share growth remains an achievable target over the next several years.

We have a solid financial model and history that supports this objective with average annual compounded earnings per share growth over the past three, five, and ten years of 17, 16, and 27% respectively.

Based on the ongoing confidence we have in our financial model, and our proven ability to effectively execute our off-price strategies, our growth plans remain unchanged.

We are targeting 12% unit expansion for Ross or about 70 new locations planned for 2004.

We also still expect to open the first ten DD's Discounts locations in the third quarter.

The initial six stores are projected to open in August with two locations in each the San Francisco bay area, Sacramento, and Fresno, California.

We remain very excited about this new business opportunity and the growth potential it offers the company over the long term.

Ross occupies an attractive niche.

As the second largest off-price company in the country, we are a growth retailer in a growth industry.

With over 600 stores we are still in only 25 states, leaving us significant room to grow.

Ultimately we believe there is the potential to more than triple our current store base to over 2,000 locations, approximately 1,500 Ross and at least 500 DD's Discounts.

For right now, however, we will continue to work diligently to quickly remedy our systems conversion issues while also remaining focused on the consistent execution of our long-term fundamental strategy, delivering great brands at great prices every day.

At this point we would like to open up the call and respond to any questions you may have.

Thank you.

The floor is now open for questions.

If you wish to ask a question you may press star 1 on your touch-tone phone.

Questions will be taken in the order they are received.

We do ask that while speaking you pick up your handset to ensure proper sound quality.

Our first question is coming from Jeff Klinefelter of Piper Jaffray.

Yes, a quick question about the inventory imbalances.

Could you give a little bit more color on what you did see once the data became available in terms of how much of an allocation error there was, and historically when this has happened, if it has happened before, even in small cases, how long does it take to work through this and get back up to a normal inventory position?

And then the other question would be on category performance.

Curious on you know, kind of current trends, where you're seeing sort of highlights within the categories in your store and where business remains challenging, if there are any.

Thank you.

Kind of on a broad swipe, the inventory imbalances are really, we would have, on a seasonal product basis, we would have -- we might not have the level of short-sleeve product in a region and a store that we would expect to have.

We might not have exactly the amount of -- if we've identified a region as being more -- having slightly different flavor being more updated than traditional we'll be out of balance that way.

It's hard to say exactly how long it takes in the apparel areas, it should come back quicker.

You know, the seasonality issue that you go through, we really have never been through anything like this before, so it's really a little hard to say.

But, you know, certainly we think we would get through the second quarter and get our sales in line, and as we certainly move into the beginning of the third quarter we expect to be in much better shape.

Relative to current category performances, the apparel businesses continue to perform well and accessories and shoes continue to be, you know, all the highlights in the store.

Okay.

Any difference between men's, women's, children's?

Women's is strongest, men's is much improved, and kids is okay.

Okay.

Thank you.

Thank you.

Our next question is coming from John Morris of Harris Nesbitt.

Thanks.

Good morning.

Maybe we can back up a little bit with respect to the systems disruption.

Can you give us a little bit clearer sense why, I guess it's not clear to us why it would take as long as -- as it does to straighten the systems issues out to get it corrected, up and running, why there's this reverberation effect which potentially could be, you know, on into the third quarter.

Sure.

Obviously as we came through the conversion, as Michael stated, the first phase was to get the retail -- the RMS piece of the system up and running, which essentially came up on time.

However, while we were shut down, we planned to have the system shut down for about a four or five-day period during the conversion time.

And as we came up, there's a backlog in sales that needs to be processed.

And as we are processing those sales, at the same time there is a slowdown that we started to see a couple days after that in the night processing, which took us few days to get at and fix.

Normal bug, something that we would typically see.

During that process, then you have the data warehouse system, which the RMS system feeds and you start pulling all your reports, you start pulling all your information out of.

And, you know, it really took us a couple of weeks to see that there is an issue in processing and pulling the information out of that piece of the system.

All this had been tested.

However, it's tested in a very sterile environment.

And, you know, in the conversion, we went through billions of lines of code, and as you convert, it needs to be perfect.

As we came out of the conversion, there were some unanticipated transactions in a live environment that we did not see in the test environment, and essentially it's going in and getting that fixed as we come out of where we are, and, you know, that's what's happening.

We continue to get better information on a daily and weekly basis, and we anticipate during this quarter that we will have the issue fixed.

Maybe elaborate on the progress.

You talked about seeing progress.

Where specifically are you seeing progress in terms of getting the better information, and can you give us some examples along those lines?

Sure.

Sure.

When we came out of the conversion, we had planned to have allocation allocating off of end of March information, and we planned for that to be for a week or so.

Well, we were not able to actually give allocation information for about four weeks.

So they were allocating to the stores based on aged information for a four-week period, which we believe is a majority of the reason for causing any of the imbalance that we are seeing in the stores.

Allocation now has information from a sales standpoint where we are able to go allocate based on, you know, actual performance at this point.

So that would be an example of what we didn't have for about a four-week period and what we're getting today.

I mean, it sounds like the kind of thing that would affect, you know, business for a period of weeks, you know, maybe, but not months.

Is there a piece I'm just not understanding in terms of why it would continue to, you know, affect your ability to execute months out?

Well, partly it's the time of the year that this has happened.

Okay, you're really in the second quarter, right?

And in apparel we shift gears into fall assortments relatively soon.

So a lot of our spring merchandise is out, and not necessarily in the right places, and we're not -- our replacement will be different types of merchandise.

So that's part of the reason.

Also part of the reason is the lag time from the time we allocate to the time merchandise gets out to our stores, which is really several weeks.

And so there's a ripple beyond that.

So those things would lead to an extended period in apparel.

The slower turning basic areas of the store -- it would just be longer by virtue of the fact that merchandise moves through our system to customers slower than apparel.

So sitting in the wrong places will take longer to get through that.

Okay.

And are there any residual issues with the distribution center at this point, or do feel like that's all behind you?

I believe that that's behind us.

It was a short-term issue back in February that was resolved, I believe extremely quickly, and you know, our allocators are allocating product, our DC's are shipping the product.

You know, the big issue has been that they were allocating off of, you know, basically static data for about four weeks.

Okay.

Thanks.

Thank you.

Our next question is coming from Kimberly Greenberger, Lehman Brothers.

Great, thank you.

Good morning.

Can you tell us, are the buyers getting current updated reports to help them do their jobs, or at least as promptly as they were getting them before the system conversion?

And secondarily, when do you begin buying for fall?

From a report standpoint, I'm sorry, they're getting information that relates to style level sales, on-hand and on-order information.

However, it's information we're able to pull out of the RMS system and create spreadsheets for them, if you will, it's not the level of detail from information that they would normally get.

So we're still not giving them that, although they do have information to look at style level sales and, you know, be able to evaluate and take markdowns, et cetera.

The second phase of that question?

I'm sorry.

When do the buyers begin purchasing fall product?

Well, we purchase in many different time frames, okay?

One, you know, about a third of our business is out of pack-away, that was purchased a long time ago for fall.

And fall product is bought, some product would have been bought in the January-February period, some would be bought around now, so we're constantly buying for fall.

Okay, so it would be -- the answer to that would be they're buying fall from six months ago to the day fall begins and through fall.

So, Michael, in terms of the impact on third quarter, what is it that’s sort of causing you to be cautious about your outlook for that quarter given that you expect the reporting to be fixed here in the second quarter?

I just think that certain businesses will take longer to get balanced both at a store level and actually, you know, at department class levels, and that is really the level of cautiousness, and I feel very confident as we move into the August period, or the parts of August, that we'll be in a position that we want to be and should be in.

Okay.

Thank you.

Thank you.

Our next question is coming from Gary Holdsworth of Wedbush.

Hi folks.

I wanted to ask again on a systems -- jst a little bit more of a follow-up.

You know, you're probably having higher IT expenses, some overtime or what have you that's probably built into your guidance.

Do you expect to get any recovery from that either from your consultant or from the vendor of the software itself?

Yeah, I wouldn't, I guess, comment on that.

You know, I don't think so.

You know, we don't anticipate that there's going to be higher expenses from an IT standpoint.

You know, most of these positions are exempt.

Most of the work is capitalized, and we don't anticipate there being any, you know, issues with that from an expense standpoint going forward.

Okay.

Secondly, then, you mentioned the share buyback, very active during the quarter.

I'm assuming you're also expecting to be active this quarter with a lower stock price.

Would you be any more aggressive or are you consistently evaluating that on a daily basis?

We do consistently evaluate that.

Our history has been when there's been a dislocation in price that we have tended to be a bit more aggressive but at this point in time I don't think it's appropriate to comment about what our activities might be.

Okay.

Thank you.

Thank you.

Our next question is coming from Dana Telsey of Bear Stearns.

Good morning everyone.

In terms of the assistance issues how is it impacting traffic in the stores, and what have you seen there, and what support is coming from Retech and Deloitte?

And in terms of progress you've made so far, how far along are you?

Are you at the beginning steps, and what milestones should we be evaluating as you report monthly sales to suggest that it's on its way to being fixed?

From a support standpoint, we obviously have Retech working very closely with us.

We also have Accenture working very closely with us to get the issues resolved.

We anticipate, you know, in the second quarter getting this completed, and, you know, that's how all our guidance is based on it taking us through the second quarter.

Then what about traffic in the stores?

Is it impacting traffic?

At this point, we don't believe it's impacting traffic.

And as you move into new headquarters what preparations are you taking there, and will that prove any dislocation with these systems that are being fixed at the same time?

Yeah, we don't believe it will have an impact on the office relocation.

We are planning on moving around the first week of July, however we won't be moving our data center until September time frame for all the appropriate reasons.

Thank you.

Thank you.

Our next question is coming from Richard Baum of Credit Suisse First Boston.

Good morning everybody.

I just actually got two or three little follow-ups.

On the systems issue, I guess specifically, what are the buyers not getting?

Jim, I think you mentioned what they were getting.

I think it would be helpful for to us know what they're not getting that's not, you know, that’s not enabling them to do their job perfectly.

Well, some of the stuff that they're not getting is, for instance, regional trending analysis, which is really critical, you know, in making adjustments to regional plans as an example.

You know, we anticipate that they will have that type of information relatively soon, but that's an example of what they might not have.

Right.

And we might not -- we don't have certain information, you know, we have more general information as it relates to an open to buy and we go down to very -- we go down to very deep levels, both regionally and broad-based.

On a department basis.

We get very deep, and some of the depth of information that we would normally have we don't have yet.

Michael, on the, you know, reason that this might extend somewhat into third quarter, you indicated it's because there's certain businesses that will take longer to get back on plan.

Could you comment on what some of those businesses might be and why?

It will be really the slower turning more basic businesses in the store, Richard.

You'd expect the home business is a slower turning business and a big part of our store, would take a little longer to get, you know, back in shape, and the basic pieces of our business, the remaining basic pieces of the business, strictly as a function of turn, okay.

You know, apparel has shift in gears that's very seasonally driven, so you're going to get back in shape in an easier way.

And in terms of where you are this year versus last year on open to buy, you know, without quoting the numbers, are you -- do you have as much open to buy this year for the fall, or let's say for the months of July and August and September, as you did last year, trying to hold more open until you get more of this resolved, or do you find that that's really --.

We have at least the same, in many cases, not commenting on the month more (ph).

And just two other things.

One, on the comps by region, you indicated that California was up six.

Could you provide some comparisons of the other regions and also northern versus Southern California again because of the, you know, what's been going on with Kohl's and Mervyn's?

For the quarter, Richard, Northern and Southern California were -- Northern California is up six, Southern California up five, so California up six for the quarter pretty evenly based.

Some of the other areas, Texas was up three, Florida up three, Southeast up four, Colorado and Hawaii were the weakest areas, down single digits.

Low single digits.

And then just lastly on the sale of the DC and the headquarters, I guess I'm a bit surprised, maybe it's because I don't remember what they look like, but that would you have to take a write-down at some point on building and property in California that you've been in for, you know, 15 or 20 years.

We purchased the property in the late ‘90s.

The commercial real-estate market in the bay area is pretty significantly depressed, and that's what's driving the potential write-down, if we decide to sell the facility.

Okay.

That's it for me.

Thank you.

Our next question is coming from Patrick McKeever of SunTrust.

Thanks very much.

My question is, I mean, do you feel pretty confident that this issue is isolated to the systems, the transitional issue that you've experienced with your new core merchandise management systems?

Are there any other concerns out there either from a macro or competitive standpoint that are factored into your guidance?

At this point we believe it's all systems related.

Second question is on lead times, just in general.

I was just wondering if you could maybe broadly discuss your average lead time, where that stands today, maybe where it was a year ago, and how this might play into what's going on from a buying and allocation standpoint.

Lead time meaning?

Lead time meaning the amount of time it takes for the product to get into the store after a decision is made to purchase it.

It's essentially the same right now as it was a year ago.

There's not an issue with that.

But from the time we purchased it, if you're asking what is that --.

Well, just an average.

Four to five weeks from the time we write an order until it's fully distributed to our stores.

Okay.

Four to five weeks.

And that's consistent with a year ago?

Yes.

Thanks.

Thank you.

Our next question is coming from Marni Shapiro of Merrill Lynch.

Hey, guys.

I guess we've learned how important systems are in this day and age.

At the beginning of -- or at the end, I'm sorry of, the fourth quarter you said the cost of the DC would be about seven cents in the first quarter and I wanted to know if that came in about in line and if you had any estimated costs as to what the systems repairs would -– what, any kind of additional cost you'd have to incur because of the system repairs.

And then I did after follow-up question just on pack-away inventory if you have a chance.

The DC costs were essentially in line with what we had said prior.

We really don't anticipate any additional costs from a system conversion standpoint that's not in our forecasted numbers that we've already delivered this morning.

Excellent.

And then as we get into this third quarter, you guys have done a great job with pack-aways, and I'm looking at your inventories today, at 39% pack-aways.

What level within that pack-away merchandise is fall merchandise, and how does that position you, then, for the third quarter to sort of, despite the allocation problems you're having, to sort of get up and running a little bit quicker in certain segments?

Let me answer it this way.

Typically at this juncture the majority of that would be for fall, okay, and typically we would use most of our pack-away early in the season.

Great.

That's what I expected.

Thanks, guys, and good luck getting up and running.

Thank you.

Our next question is coming from David Yamamoto of WR Hambrecht.

Good morning.

Can you give us some information regarding home comps for the first quarter?

Sure.

Home comps were -- the total home business was probably up around 3%.

Plus 3%.

Historically, home has been one of the primary drivers to your same-store sales.

What are your expectations going forward?

My expectation is that home will be one of the businesses most significantly impacted by this issue and will take a little longer to get back to speed but will be back in line -- my belief is we'll be back in line for the fourth quarter.

Great.

And secondly, can you provide a little more details regarding what drove store expenses in the first quarter and the items that may have partially offset the improvement?

Yeah, typically pretty aggressive payroll management in the stores.

That's where we experience the leverage.

Thank you very much.

Thank you.

Our next question is coming from Marie Driscoll of Standard & Poors.

Hi.

Can you hear me?

Yes.

Great.

My question has to do with the competitive market.

I'm wondering, I'm hearing on a lot of other conference calls that specialty apparel retailers, are managing their inventory very tightly, and when they are marking down they're taking deep markdowns.

Is that in any way competitively impacting your business?

You know, as Jim said earlier, we think what's impacting our business really is what we've done in our own house.

I don't think it's an outside competitive situation that's changed, okay, I think in total the competitive environment is okay.

Okay.

Thanks.

Thank you.

Our next question is coming from David Mann of Johnson Rice.

Yes, good morning.

Can you comment at all on your advertising or promotional calendar?

Do you expect to adjust that in light of what's going on?

You know, we run a very -- for years have run a very basic reinforcing our brand marketing campaign, and we have no changes in mind at all in -- to turn things into a promotional environment for us.

We have a day-in/day-out low-price business model.

We intend to do that, and we don't see any significant changes ahead of us.

In terms of other line items, you know, expense line items, in the past when you've had sales issues you've kind of been able to tighten your belt.

Are there any plans for cost controls in place that are included in guidance?

There are obviously plans from a cost control standpoint, and all of that is in the numbers that have been delivered.

And would that be in any particular area or just across the board?

I'd say across the board.

Okay, and in terms of your new store productivity are you seeing an effect there as well, and how does that affect your thinking?

Actually, you know, with the stores we've opened year-to-date we're satisfied from a sales standpoint as to how they're performing, and from a growth standpoint, you know, we don't anticipate any changes to our growth plans at this point during the future.

Okay.

DD's, will that be on similar systems or is that going on a separate system?

Similar system.

Okay.

And then one last question.

The earlier question about your buyback and buy-back plans, it seems like in the second quarter you've built in a similar kind of buyback cadence as you had in the first quarter.

Is that correct?

That's correct.

Okay, great.

Thank you.

Thank you.

Our next question is coming from James Tarkinton of Old Value Capital.

Michael, could you take a minute and just walk through some specific examples of how you're proactively trying to manage this on a buyer and allocator level?

The discussions have been about what information they don't have.

Whether it be directives by you to the buyers on what not to do or what to do, and then also examples of calls to the field, regional, director, excuse me, regional managers, area managers, et cetera, what are you doing to try to proactively manage this process?

Okay, we're proactively managing, you know, we have enough information to proactively manage the business and direct buying into classes, styles, and we're running a more conservative inventory posture during this, and we've communicated that throughout our organization during this, but that's really in our business what we've done, and we think we're being very proactive with the merchants.

And from a field standpoint, obviously while we weren't getting updated information from allocation, there's a significant amount of communication from the field to our allocators, and at this point, though, our allocation department is getting, you know, updated information and are allocating based on that.

So is there additional information that the allocators need to do their job completely, or they're getting that information?

You know, they're getting the information really at a high level by store.

There's still additional information we'd like to see them get, you know, at a deeper kind of by-class level.

Okay.

Now, is there any potential payments from Retech to you because of the problems you're having, or is that --.

No.

Okay.

Thank you.

Thank you.

If you would like to ask a question, please press star 1 on your touch-tone phones.

Our next question is coming from Robert Samuels of JP Morgan.

Good afternoon.

It's actually Brian Tunick.

Two questions.

Any comments on the trailing 12-month performance of the newer markets you've entered?

And then the second question is percentage of your business that's done in cash versus credit cards.

Yeah, I mean, again, you know, we're -- we're pleased with the new markets and new stores that we've been opening.

They are performing in line with our pro forma's, and, you know, we continue to be satisfied with we’re opening the stores and that growth.

Relative more than half of our business is in cash.

We are seeing a larger penetration rate in the pin-based debit cards currently with the advent of the installation of our new POS system.

And just to finish up on that, when we typically see a higher gas price environment on the consumer side do you see the transaction come down or do you see fewer transactions?

What's typically been the history?

Our transaction levels are pretty constant.

What we're seeing is fewer transactions based on where the comps are, but the transactions are pretty much in line with where they've been historically.

Okay, and so in past environments when gas prices have been eating into disposable income that's typically how things break out?

Yeah, the basket stays pretty constant.

Okay.

Thanks very much.

Thank you.

Our next question is coming from Margaret Mager of Goldman Sachs.

Hi.

A question on the same store sales month-to-date where you, you know, gave an indication for the overall company.

I'm just wondering how California compares to that.

Southern California is doing better, and some of the other areas of the company are below that level.

Texas, Florida, kind of below that level.

Okay.

And then in the -- with the inventory imbalances that you refer to, can you elaborate on what that means?

Is it imbalanced geographically or categorically, you know, like does one store, did it get too much women's and another store got too much kids?

How did this --.

it's a bit of all of it is what I would say.

Okay.

On the information flow, with the systems issue, I think in your prepared remarks you commented that it was about four weeks of -- your buyers were operating for four weeks without sort of knowing what was happening.

I'm just wondering, when your systems issues are corrected, what will be flow of information in terms of how quickly they'll be updated on where they stand on, you know, inventory positions either, you know, broadly by category for the total company, or just the store level.

Can you give a little more insight on this?

When we're at full strength systems-wise?

Yes.

There's a lot of information that comes to everyone at the beginning of every week to every detail level, but there's on-line information that can pretty much tell them that same information daily.

So the information flow is extremely constant in this system.

Okay.

And so in the conversion that led to the problem you're facing currently, they had an extended period of time, did I hear that correctly, four weeks, where they didn't have any information?

That sounds about right.

Okay.

All right.

So they'll start to have daily access to inventory positions starting when?

Really, it will be sometime in the second quarter.

We anticipate getting the problems fixed.

Every day there's additional information that's delivered.

Every day there's, you know, fixes and additional information that we're delivering, and we continue to make improvement and take steps forward.

Okay.

Second quarter.

Okay.

Thank you.

Thank you.

There appear to be no further questions at this time.

I would now turn the call back over to the speakers for any further or closing comments.

Thank you all.

Have a very good day.

Thank you.

This does conclude this morning's teleconference.

You may disconnect your lines and enjoy your day.