羅斯百貨 (ROST) 2010 Q3 法說會逐字稿

Good morning.

Welcome to the Ross Stores third quarter 2010 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.

(Operator Instructions).

As a reminder, ladies and gentlemen, this conference is being recorded today, November 18, 2010.

At this time, I would like to turn the call over to Mr.

Balmuth.

Good morning.

Thank you for joining us today.

Also on our call are Norman Ferber, Chairman of the Board; Michael O'Sullivan, President and Chief Operating Officer; Gary Cribb, Executive Vice President Stores and Loss Prevention; John Call, Senior Vice President and Chief Financial Officer; and Bobbi Chaville, Senior Director of Investor Relations.

We will begin with a brief review of our third quarter performance followed by our outlook for the remainder of the year.

Afterwards we will 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 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 performance or current expectations.

These risk factors are detailed in today's press release and our fiscal 2009 Form 10-K and 2010 Form 10-Qs and 8-Ks on file with the SEC.

Today we reported third-quarter earnings of $1.02 up from $0.84 per share for the 2009 third quarter.

These results represent a 21% increase on top of exceptional growth in the prior year when earnings per share were up 91%.

Net earnings for the current year quarter grew 16% to a record $121.4 million, up from $105.1 million last year.

Our third-quarter sales increased 7% to $1.874 billion with comparable store sales up a better than expected 3% on top of an 8% gain in the prior year.

For the nine months ended October 30, 2010, earnings per share were $3.26, up from $2.39 for the same period in 2009.

These results represent a 36% increase on top of a robust 52% gain in earnings per share during the first nine months of last year.

Year to date through October 30, net earnings grew 31% to a record $393 million, up from $299.9 million last year.

Sales for the first nine months of 2010 increased 10% to $5.721 billion with comparable store sales up 6% versus a 5% gain for the same period in 2009.

We delivered strong sales and earnings increases in the third quarter and first nine months of 2010 on top of outstanding gains in the prior year.

This is especially noteworthy considering the ongoing uncertainty in the macroeconomic and retail environment.

Our third-quarter performance was driven by our continued ability to deliver exciting bargains while operating our business on lower inventories as well as much better than expected shortage results.

Dresses and home were the top-performing merchandise categories for the third quarter both with low double-digit same-store sales increases.

Geographic trends were relatively broad-based.

Florida remained the strongest region with low double-digit comparable store sales gains for the third quarter and first nine months.

We are pleased to report that sales trends in California improved during the quarter.

Despite ongoing weakness in the housing market and high unemployment, same store sales in our largest state rose 2% in the third quarter on top of an 8% increase in the prior year.

Year to date, California is up 3% on top of a 5% gain last year.

For the third quarter and first nine months, profit margins rose to new record levels on top of exceptional gains in the prior year.

Earnings before interest and taxes as a percent of sales grew to 10.5% in the quarter for a 60 basis point increase on top of a 385 basis point gain in the same period last year.

Gross margin rose 80 basis points as higher merchandise gross margin, lower distribution costs and leverage on occupancy expenses were partially offset mainly by higher incentive and freight costs as a percent of sales versus the prior year.

Selling, general and administrative expenses grew 20 basis points mainly due to higher incentive costs as a percent of sales.

John will provide some additional details on these operating margin trends in a few minutes.

As we ended the third quarter, total consolidated inventories were up about 3% with average selling store inventory down about 10%.

Packaway was about 37% of total inventories compared to 32% at this time last year.

We continue to plan further reductions of in-store inventories with average levels targeted down in the high single-digit percentage range in the fourth quarter compared to 2009.

As we have mentioned on previous calls, our ongoing focus on tight inventory management allows us to maximize the percentage of fresh [merchandise] the customer sees while shopping our stores.

It also drives faster inventory turns, fewer mark downs and ultimately higher merchandise gross margin.

Turning to our store expansion program, we added 12 Ross and 10 dd's DISCOUNTS stores in the most recent quarter and ended the period with 1057 combined locations in 27 states and Guam.

dd's DISCOUNTS sales trends improved during the third quarter with positive comparable store sales increases on top of exceptionally strong prior-year results.

As I mentioned, we opened 10 dd's stores in the period including entry into the Atlanta market.

Year to date, we have added 15 locations and now operate 67 dd's DISCOUNTS stores in six states.

Based on our year-to-date results and outlook for the fourth quarter, we continue to expect dd's DISCOUNTS to be slightly profitable in 2010 before allocations for corporate expense.

Now let's talk about our financial condition.

Our balance sheet and cash flows remain healthy and we ended the quarter with $735 million of cash and short-term investments.

Our cash position continues to benefit from better than expected earnings and reduced working capital needs as we operate the business on lower inventories.

During the third quarter and first nine months of 2010, we repurchased 1.7 million and 5.4 million shares of our common stock respectively for an aggregate purchase price of $287 million year-to-date.

We remain on track to complete during 2010 approximately $375 million of our current two-year $750 million stock repurchase program.

I would like to turn now to our updated outlook for the fourth quarter.

As we noted in today's press release, we are solidly positioned as a value retailer and our stores are stocked with fresh and exciting merchandise.

That said, while we have outperformed our projections year-to-date, there are a number of reasons why we believe it is prudent to maintain a cautious outlook for the fourth quarter.

It is still remains difficult to predict the future in today's uncertain macroeconomic and retail climate.

We also see the likelihood of a very promotional and competitive holiday season this year combined with the fact that we are up against our toughest prior-year sales comparison as well as robust earnings growth.

In last year's fourth quarter, same-store sales grew 10% and earnings per share rose 53%.

In addition, the timing of Christmas Day means that we have one less Saturday of business in our largest volume month of the year.

As a result, while we hope to do better, we are maintaining our prior forecast for both sales and earnings in the 2010 fourth quarter.

Now John will provide additional color on our third-quarter results and details of our fourth-quarter guidance.

Thanks, Michael.

Our 3% comparable store sales gain in the third quarter was driven by a combination of low single-digit increases in both the number of transactions and in the size of the average baskets.

Again, operating margin improved by about 60 basis points in the quarter to 10.5% driven by an 80 basis point increase in gross margins partially offset by a 20 basis point rise in selling, general and administrative costs as a percent of sales.

Merchandise margin increased about 85 basis points mainly due to faster inventory turns that resulted in lower mark downs.

As we noted with our September sales release, the shortage results from our annual physical inventory of stores were much better than expected and added about $0.10 in earnings per share to our third quarter 2010 results.

Distribution costs declined about 50 basis points while occupancy expense benefited the quarter by about 15 basis points.

These favorable comparisons were partially offset mainly by 60 basis points in higher buying and incentive costs and a 10 basis point increase in freight expense.

The 20 basis point increase in selling, general and administrative costs as a percent of sales was mainly due to higher incentive expenses.

Our buyback program drove a 5% reduction in diluted shares outstanding and a slightly lower tax rate added about 2% to net earnings growth in the quarter.

Turning now to our guidance for the fourth quarter, again for the reasons Michael just mentioned, while we hope to do better, we believe it is prudent in this environment to stay somewhat cautious as we plan our business for the holiday season.

For the 13 weeks ending January 29, 2011, we continue to forecast comparable store sales to be flat to down 1% on top of our very strong 10% growth in last year's fourth quarter.

Earnings per share are projected to be $1.15 to $1.20 compared to $1.16 in the prior period and earnings per share were up a robust 53%.

Our fourth quarter 2010 targets are based on the following assumptions.

Total sales are planned to grow about 3% to 4% driven by a combination of new store growth and as mentioned, same-store sales that are flat to down 1%.

Our guidance assumes that comparable store sales are up 2% to 3% in November and down 1% to 2% in both December and January.

Last year same-store sales rose 8%, 12% and 8% in November, December and January respectively.

Based on these sales assumptions, operating margins for the fourth quarter is projected to be 11% to 11.2%.

This compares to 11.7% in the 2009 fourth quarter.

As a percent of sales, we are planning flat to slightly better merchandise gross margin.

That is projected to be offset by somewhat higher freight costs.

Due to timing issues on packaway inventories, distribution costs are forecasted to increase as a percent of sales in the fourth quarter.

Based on our assumptions of flat to down 1% same-store sales, we would also expect to see some deleveraging on occupancy and other selling, general and administrative costs.

Net interest expense is planned to be approximately $2 million and our tax rate is expected to be about 38%.

We also estimate the weighted average diluted shares outstanding of about 118 million.

Given our year-to-date performance and projections for the fourth quarter, we now are estimating earnings per share for the fiscal year ending January 29, 2011, to be in the range of $4.41 to $4.46 compared to $3.54 in the 2009 fiscal year.

This represents robust projected growth of 25% to 26% on top of the outstanding 52% gain we delivered in fiscal 2009.

Now I'll turn the call back to Michael.

Thank you, John.

To sum up, we are very pleased with our strong third quarter and year-to-date performance.

In addition, even if fourth quarter earnings perform just in line with our guidance, we will be on track to report a record operating margin of 11% or more for fiscal 2010.

One of the most frequently asked questions we get now is if this current level of profitability is sustainable.

We strongly believe that it is due to a permanent structural change in our business model.

Over the past three years, we have made substantial gains in operating margin driven by the successful implementation of a number of strategic initiatives.

The biggest driver of our improved profitability has been record merchandise gross margin resulting from better buying and the significant reductions we have made in selling store inventories.

Off-price buying is our most important business strategy and we remain committed to making ongoing investments in our merchandise organization.

By putting hundreds of Ross and dd's merchants in the market to source product from thousands of vendors, we are maximizing our access to the best bargains available.

Going forward, we will continue to invest in this critical area of our business.

We have also been extremely successful over the last few years in operating our business on much lower inventories.

Today selling store inventories are more than 30% lower than they were just three years ago.

This sizable reduction has resulted in a much larger percentage of fresh merchandise that the customers sees while shopping our stores which we believe has benefited sales.

Lower inventories have also driven much faster inventory turns and a meaningful decline in markdown activity over this period.

Implementation of our shortage control initiatives has also benefited margins by dramatically reducing shrink over the past few years to record low levels today.

Other sustainable drivers of operating margin include the numerous productivity enhancements and efficiencies we have implemented throughout the Company to drive down cost including our distribution centers, stores organization and back-office functions.

As a result of all these structural changes, we believe that annual operating margin in the low double-digit percentage range is sustainable will going forward.

This gives us the confidence to continue to target over the longer term average annual earnings per share growth of 10% to 15%.

The formula for achieving this is a combination of unit growth, annual increases in same-store sales and ongoing reductions in diluted shares outstanding from our stock repurchase program.

In closing, we believe that consumers' increased focus on price and value will continue for the foreseeable future which bodes well for our business.

We also know that our ability to give our customers the best bargains possible on a wide array of fashions for the family and the home will always be the most critical factor to our success.

As a result, we will maintain an unwavering focus on what has worked so well for us over the past few years, solid execution of all of our merchandising strategies along with a continued focus on tight inventory and expense controls.

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

(Operator Instructions).

Brian Tunick, JPMorgan.

Good morning, guys.

I guess our question really on the uses of cash, it seems like if you look at the balance sheet, it seems like you also would have the flexibility to either consider a special dividend that a few companies are doing today or an accelerated share repurchase program.

And then as you talk about that in context for square footage growth for 2011, you know maybe talk about new markets, you know, how much of the store growth next year is going to come new markets versus existing markets?

Okay, Brian, this is Michael O'Sullivan.

I will take both of those.

On the uses of cash, we have a pretty good track record of increasing our dividend and buyback program to return cash to shareholders.

So earlier this year we announced a 45% increase in the dividend and a 25% increase in the buyback.

In the January timeframe, we will take another look at that and make some announcements probably in early 2011 about some further increases.

On your second question about store growth, I think we have announced previously that in 2011 we will probably have around about 6% or 7% unit growth for stores.

And I would say about 1% to 2% of that would be in new markets.

And obviously that is a priority in terms of where we are using cash to fuel growth.

Is there a follow-up?

It looks like we have no follow-up.

Your next question comes from Paul Lejuez, Nomura Securities.

All right, thanks.

Just maybe if I could follow up, maybe can you talk about store growth by concept next year and maybe if you have some initial thoughts on CapEx?

And then I guess, John, I mean what is the level of cash that you feel like you need to have on the balance sheet to feel comfortable?

Thanks.

On growth by concept, so that 6% to 7%, the one to two points will be dd's and the rest will be Ross, approximately.

So on your question regarding cash, Paul, as Michael said, we will make some decisions relative to buyback and dividends as we end the year.

We also have some investments to make in distribution centers to provide for the infrastructure we need.

So we will look at all that and there will be more information forthcoming towards the end of the year.

Got you.

And then could you maybe just talk big picture about SG&A next year, you know plans to leverage, deleverage -- how are you thinking about SG&A going forward?

It is our G&A levers probably between say a 3 or 4 comp, so it is all dependent on what we do from a top line standpoint.

We tend to be pretty frugal with that sort of thing.

Okay, thanks guys.

Good luck.

Laura Champine, Cowen and Company.

Good morning, guys.

Other than the difficult comparisons that you're facing, is there any other reason that Ross or off-price retail in general would start to lose share at retail or anything that might drive your traffic to slow down relative to the rest of retail?

I'm just trying to figure out if there is another driver of top line weakness or if it is just a factor of difficult compares?

I think it is a factor of difficult comparisons and that will be it.

Okay, so you're outlook for next year's comp -- you mentioned that your leverage point would be a 3% to 4%.

But there is nothing that is changing that makes you think traffic would be down in your channel next year?

Not at this time.

Thanks.

Marni Shapiro, Retail Tracker.

Hey guys, congratulations and good luck for holiday.

It is nice to be on a very consistent conference call.

I was curious, you have increased your merchant staff quite a bit over the last several years.

And I feel like you're in a good place right now but I am from the outside looking in, so I am curious if you can talk a little bit about your merchant staff both as it relates to Ross Stores and dd's?

I'll talk about it -- well, we have been -- we have had a strategic initiative to grow the staff for a number of years both the buying staff in both companies as well as the planning and allocation staff.

And we have been watching with this strategy for a number of years as I said and we are going to continue to do it.

It further gives us the ability to segregate businesses, get better market coverage and look for more opportunities in all the marketplaces that we trade in.

And we are very comfortable with the strategy.

We think it is the key initiative.

It is the single key initiative that has enabled us to grow our business the way we have.

Great.

And do you guys have any comments on the direct business the Internet at all at this point?

Can you just repeat that question, Marni, in terms of (multiple speakers)

Do you have any comments on the Internet, the direct business, as a relates to Ross Stores at this point?

No, other than we follow -- we looked at all channels pretty closely in terms of how they are developing and we have looked at the Internet from time to time in terms of people selling apparel on the Internet.

But right now we don't think there is any -- certainly not a lot of overlap in our business.

Okay, great.

Good luck, guys.

Thank you.

Adrianne Shapira, Goldman Sachs.

Thank you.

First, just wanted to talk a little bit on the SG&A side.

It sounds as if -- if I understood correctly, the 20 basis points of the deleverage was all related to the higher incentives accrual.

And I am just wondering given that you were able to achieve a 3% comp, why then would we not have seen some leverage on the SG&A line?

So, that is correct.

All of the deleverage of the 20 basis points did happen on the incentive line.

We were extremely profitable during the quarter and as we looked at our business, we did achieve some leverage in occupancy on store expenses.

That was offset by the incentives as we mentioned.

We expect to [delever] for the year deleverage in SG&A, if we look at the year, and that is probably around a 4 comp.

So that is about where it is depending on kind of on timing and other issues.

Okay, just so I understand, it sounds as if you had the comp leverage point was -- as I understood it -- probably a little lower 2% to 3% and now it is more 3% to 4%.

Next year is that right, is that right and what has changed to kind of --?

The deleverage point is around like I said this year, we will happen slight leverage around a 4 and in the quarter, we didn't lever on the 3.

As we go next year depending on how we do and from a top line standpoint, we are thinking that 3-ish is probably the leverage point that we would probably achieve.

Okay, and then just shifting to the shrink performance, another great shrink performance.

What sort of margin tailwind does that present over the next two quarters?

The shrink performance from an accrual standpoint going forward, we think will probably pick up 10 to 15 basis points for the fourth quarter and then the first and second quarters next year as we lower that shrink accrual.

Great, thanks.

Best of luck.

Kimberly Greenberger, Morgan Stanley.

Great, thank you, good morning.

We are hearing about some excess supply coming available in the marketplace given some shipment deliveries and other issues and perhaps even some excess inventory this year relative to last year.

I was wondering if you could offer any color on that?

And then, John, on the transportation costs that are coming up, do you think that that is a temporary issue or do you think that this is sort of the new normal?

Thanks.

If I heard the first part of the question, it was relative to excess inventory if we are seeing excess inventory available?

Is that correct?

Yes.

The answer would be yes.

It is reflective in our packaway levels.

It has been a very good buying period and whether there has been a combination of erratic sales trends at some retailers as well as freight issues and timing of freight across from Asia, so it has been -- there has been plenty of excess.

And on freight, so there was a lot of excess equipment in assets that were underutilized in '09.

The carriers took that equipment out at rates (inaudible) It all depends on what the freight equilibrium is going to be relative to equipment back in the market.

Instinctively we think this is probably more reflective of freight as opposed to '09 when there was a lot of disruption in the market.

The other thing I would say about actually -- (inaudible) when we came into 2010, we assumed freight rate would normalize because we had begun (inaudible) some low freight rates in 2009.

So we built that into our budget and obviously it is built into our guidance.

Okay, so this is more normal, off of depressed '09 freight levels?

Yes.

Okay.

John, just one other follow-up question.

I think you said you achieved $0.10 of improvement in the quarter because of the benefit on shortage.

Is that in the 85 basis point higher merchandise margin or is that separate?

And if you could quantify the basis points benefit on shortage, that would be great.

Sure.

That is in the 85 basis points of margin improvement.

Having said that, we achieved 100 basis points of margin improvement in the prior year so we are up against 100 basis points.

In the 85 basis points, we actually lost 10 basis points on the compare.

I don't know (multiple speakers)

Within the 85, 75 basis points is the shortage benefit plus a 10 basis point improvement in the core merchandise margin?

No, the other way around.

We had 95 basis points of improvement in core merchandise margins and on a comparable basis, shrink was off 10 bps because we were up against 100 basis points.

(multiple speakers)

Oh great.

That's helpful.

Thanks so much.

The other point to make is just from an EPS point of view, Kimberly, the benefit in Q3 was about $0.10.

Last year it was about $0.11.

So obviously we got benefit on top of benefit.

When you look at it from a margin basis, it is a little bit confusing but I think it is clear when you look at it on a dollar basis.

Thanks, Michael.

Evren Kopelman, Wells Fargo.

Thanks, good morning.

I had a question on your 10% to 15% EPS growth annually.

First on the unit growth assumption in there, the low end to the high end from the 10% to 15%, what is the range of unit growth assumed in there?

Unit growth in terms of new stores, 6% to 7% per year.

I'm sorry, 6 to 7?

6% to 7% per year in terms of unit store growth.

Per year?

And then the other question that I think this is historically you have given this goal, I am wondering if the components of how you get there have changed given your operating margins are a lot fuller.

So I am curious if the components, that growth that you would get from the margin is less now or if that hasn't changed at all going forward?

Evren, it changed slightly.

So historically, at least the past couple of years we have grown the store base slower than 6% to 7%.

So it was more around 4% or 5% and would assume some operating margin improvement with a repurchase that would get us between 10% and 15%.

We are increasing our top line 6% to 7%.

We are assuming that we are sustaining current operating margin levels in that long-term model.

Add a say a 3 comp to that and a 4% earnings growth based on repurchase activities, we'd get between the 10% and 15% earnings growth per year.

Okay, great.

And then in terms of the unit growth of 6% to 7% per year, you know we were listening to the TJX conference call and I think they talked about accelerating Marmaxx openings in the US especially in Manhattan I think taking advantages of some of the real estate opportunities.

Do you have any thoughts on potentially accelerating your square footage growth back to the double-digit rates that you used to be at?

And kind of what you are seeing in the real estate market?

Thanks.

No.

We are going to stick at a steady 6% to 7% growth.

Obviously we will be opportunistic in terms of what locations we pick up and what kind of real estate deals we do.

But I think you can expect 6% or 7% is where it is going to be.

Which is an acceleration of where it has been most recently.

David Mann, Johnson Rice.

Yes, thank you.

Given all the commentary out there about our apparel inflation that is on its way, I am just curious, Michael, when you look back in history in periods of inflation, what do you think that means for you in terms of availability of goods?

It is kind of hard to predict.

I mean what is going on in the apparel manufacturing cycle is in the early stage so we don't exactly know how this is going to land.

But periods of disruption in pricing create uncertainty in the whole supply line, creates some uncertainty in mainstream retailing and historically has been good for us in access of product.

And then in terms of the deals that you have bought, the increase in packaway, should we expect to see that you might have an opportunity to use that to drive merchandise margin just given that you are going to be selling a lot of that merchandise in a period when other retailers are going to be raising their prices?

I think you should assume it will help us in some way in sales.

It wouldn't hurt us in margin packaways, usually a high margin product for us under normal circumstances.

So depending on how all this shakes out, it could be a positive but it is really as I said, too early to tell that aspect of it.

Great.

Thank you.

Good luck in the holiday.

Thank you.

Jeff Klinefelter, Piper Jaffray.

Yes, thank you.

Just a couple of quick questions.

On the retail square footage growth going forward, are you seeing anything in terms of changes with respect to costs and/or availability of real estate and how that is going to play into your acceleration plans?

And then the second one would just be on this inflationary pressure, cost of goods pressure in the categories both domestics and apparel.

How does that play into your strategy in packaway?

Are you taking advantage of some categories you know in front of the price increases or is this normal course of business?

Let me take the packaway one first.

We purchase packaway based on the quality of each unique buy and what we think the value of that product is based on the brand and the classification of merchandise.

We don't think of packaway as a hedge against inflation.

We think of packaway as pure merchandise opportunities that we think our customers will value.

If it turns out to be a hedge against inflation, great.

But that is not our unique packaway strategy.

And then on your question about real estate opportunities, certainly with everything that has happened in the real estate market, the commercial real estate market for the last couple of years, there are opportunities out there in terms of locations and in terms of negotiating good deals.

And needless to say, we are using whatever leverage we can to go after those opportunities.

So would you expect the sort of economic model of your next -- your 2011 cycle of new stores to be more favorable in general than your prior two cycles?

I think it is hard to say because there are so many things that go into that economic model.

Certainly from an occupancy and expense point of view, the environment is more favorable now than it was a couple of years ago.

But the other aspects of the economic model obviously will play in in terms of sales and so forth.

So (inaudible)

Thank you very much (multiple speakers)

The one thing we are seeing is we are seeing a higher quality of [sets].

Okay, thank you.

Rob Wilson, Tiburon Research.

Yes, thank you.

John, you mentioned that dd's would be slightly profitable this year before the allocation of corporate overhead.

Could you remind us maybe what that compares to last year?

So compared to last year, it was slightly unprofitable.

Okay.

Both (multiple speakers) go ahead.

Go ahead.

Well, okay, I'll just move onto the next question.

Shrink, you have obviously had a lot of success over the last few years reducing shrink.

Can you give us some range of what shrink may have been as a percent of sales or some order of magnitude maybe three years ago versus what it is today?

Yes, I think all we would say there is that shrink has come down substantially versus where it was three years ago.

We don't disclose the number as it pertains to sales but it has come down substantially.

So we are very happy with that and that performance.

Fair enough.

Thanks for taking my call.

(Operator Instructions).

Richard Jaffe, Stifel Nicolaus.

Hi guys.

Just a follow-up on the inventory.

As inventory turns more quickly and you have got a bigger team out in the field, is the focus on packaway diminishing and the idea being buying closer to need and buying with more market intelligence as it were?

Or is the strategy still the balance between packaway and in-store merchandise?

The strategy is to be flexible so when packaway opportunities are plentiful, we raise it as we are now.

And when they are less -- of lesser quality, we shrink the level.

And that is what drives its penetration to our total inventory level.

And the level we are seeing now is sort of around the average?

It's higher than it has been recently and it has been a function of some very strong buying opportunities on some very, very good product.

And we are very happy to have it in or packaway facilities.

So it will remain an important part of the strategy in that 30% to 40% range of your inventories just (inaudible)

I would expect that to be and it is creeping up in the upper 30s today and so if packaway opportunities are-- continue to be very strong as we move through this fourth quarter, it could creep up another few points.

And given the success of the shrink or the reduction of shrink, if you were to say that the industry average is for all apparel retailers is about 2%, would it be safe to say that at one point you were above average and now you are below average?

I actually would caution you not to sort of compare with industry metrics.

We have tried to do that and frankly everyone measures shrink in a different way so it is really not a meaningful comparison.

I think all I would say is what we said a few moments ago which is we weren't happy with shrink three or four years ago and we have made a lot of the improvements and we are very happy with the success we have seen.

And the level today is a go forward sort of a stable or sustainable level?

Yes, we believe it is.

Great.

Thanks very much.

At this time, we have no further questions.

I'll turn the call back over to you.

Thank you for joining us today and best wishes to all of you for the holiday season.

This concludes today's conference call.

You may now disconnect.