羅斯百貨 (ROST) 2011 Q3 法說會逐字稿

Good morning.

And welcome to the Ross Stores third quarter 2011 Earnings Release conference call.

The call will begin with prepared remarks by management, followed by a question-and-answer session.

(Operator Instructions).

Before we get started, on behalf of Ross Stores, I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results, including sales and earnings forecasts, and other matters that are based on the Company's current forecast of aspects of its future business.

These Forward-looking Statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance or current expectations.

Risk factors are included in today's Press Release and the Company's fiscal 2010 Form 10-K and 2011 Form 10-Qs and 8-Ks on file with the SEC.

Now I'd like to turn the call over to Michael Balmuth, Vice Chairman and Chief Executive Officer.

Good morning.

Thanks 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'll begin with a brief review of our third quarter performance, followed by our outlook for the remainder of the year.

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

We are pleased with our above plan sales and earnings in the third quarter, and first nine months of 2011.

Especially considering this growth was achieved on top of exceptional increases in the prior two years.

Our strong revenue gains continue to be driven mainly by our ability to deliver compelling bargains on a wide assortment of exciting name brand fashions for the family and the home, for today's increasingly value-focused consumers.

In addition, operating our business on lower in-store inventories is driving faster turns and lower mark-downs which continues to benefit profit margins.

Third quarter earnings per share grew to $1.26, up from $1.02 for the same period last year.

These results reflect a 24% increase on top of exceptional 21% and 91% gains in the third quarters of 2010 and 2009, respectively.

Net earnings for the current year quarter grew 19% to $144 million, up from $121.4 million last year.

Third quarter 2011 sales increased 9% to $2.046 billion, with comparable store sales up 5% over the prior year.

For the nine months ended October 29, 2011, earnings per share were $4.03, up from $3.26 for the same period in 2010.

These results represent a 24% increase on top of outstanding earnings per share growth of 36% and 52% for the first nine months of 2010 and 2009, respectively.

Net earnings for the first nine months rose 18% to $465.2 million, up from $393 million last year.

Sales for the first nine months of 2011 increased 9% to $6.21 billion with comparable store sales up 5%, which was on top of a robust 6% growth for the first nine months of 2010.

Dresses and shoes were the top-performing merchandise categories for the quarter.

While Florida remained the strongest region.

Operating margin in the third quarter grew about 45 basis points to 10.9%.

This improvement was driven by higher merchandise gross margin which benefited in part from better than expected shrink from our annual physical inventory.

This reflects the progress we have made over the past several years in successfully implementing our shortage control initiatives.

Leverage on buying, occupancy and selling, general and administrative costs also contributed to the margin improvement, which was partially offset by an expected rise in pack away related distribution expenses as a percent of sales.

John will provide some additional details in a few minutes.

As we ended the third quarter, total consolidated inventories were up 18% compared to the prior year.

This increase was mainly driven by higher pack away that was about 43% of total inventories, up from 37% at this time last year.

Inventory in an average store was down about 7% at quarter end versus the prior year.

And we continued to target a mid single-digit percentage decline for the remainder of the year, compared to 2010.

Now let's turn to dd's DISCOUNTS.

We are pleased with dd's third quarter and year-to-date performance as the chain's value-focused merchandise offerings are resonating well with its target customers.

Based on our first nine months results and outlook for the balance of the year, we continue to expect this young business to generate improved growth in pretax earnings for 2011, compared to last year.

As planned, we opened a net 35 locations during the third quarter, comprised of 25 Ross and 10 dd's DISCOUNTS.

This growth includes our entry into the Midwest with 12 new Ross Dress for Less stores opening in the greater Chicago area in early October.

We are very excited about the long-term growth opportunity that this market offers.

And are confident that Ross Dress for Less will become an attractive destination for customers there.

Looking ahead, we see continued opportunities to grow in the Midwest as we expand into additional areas in this region.

Now John will provide further color on our third quarter results and details on our guidance for the fourth quarter.

Thank you, Michael.

Our 5% comparable store sales gain in the third quarter was driven by low single digit growth in both the number of transactions and the size of the average basket.

Again, operating margin improved by about 45 basis points in the quarter, to 10.9%.

A 40 basis point decline in SG&A as a percent of sales was mainly due to leverage on general and administrative expenses.

As Michael noted, higher merchandise margin, including better than expected shortage, and leverage on buying and occupancy expenses, offset an expected increase in distribution cost as a percent of sales.

Merchandise margin grew by about 45 basis points, driven by fewer mark-downs resulting from above plan sales and lower average in-store inventories.

The merchandise margin improvement includes a 10 basis point benefit from lower shrink expense compared to last year.

As Michael mentioned, our shortage results were better than expected, adding about $0.08 in earnings per share to our third quarter 2011 results.

The quarter also benefited from leverage on buying and occupancy expenses of 20 basis points and 10 basis points, respectively.

As expected, distribution expenses as a percent of sales rose by about 60 basis points, mainly due to timing differences in pack away related processing costs.

While distribution costs can fluctuate from quarter to quarter based on timing issues, for the full year we still expect DC expenses as a percent of sales to be relatively flat compared to 2010.

Lastly, freight expense increased by about 10 basis points, due to higher fuel costs.

We also benefited from a lower tax rate in the quarter, due to favorable tax audit settlements.

Turning to our stock buyback program.

During the third quarter, we repurchased 1.4 million shares for a total purchase price of $113 million.

As a result, year-to-date we have repurchased 4.5 million shares for a total purchase price of $343 million.

We remain on track to complete approximately $450 million or about half of our current authorization by the end of fiscal 2011.

As Michael mentioned, we opened 35 net new stores in the third quarter, ending the period with 1,038 Ross Dress for Less stores in 29 states and 88 dd's DISCOUNTS locations in 7 states.

Let's turn now to our guidance for the 2011 fourth quarter, which as noted in today's Press Release remains unchanged from our prior outlook.

For the fourth quarter ending January 28, 2012, we are projecting same store sales to grow 2% to 3%, a solid increase on top of 4% and 10% gains in 2010 and 2009 fourth quarters, respectively.

We are planning comparable store sales gains of 2% to 3%, 3% to 4%, and 1% to 2% for November, December and January, respectively.

Last year's same store sales rose 6%, 4% and 3% in November, December and January, respectively.

Total sales are expected to grow about 7% to 8%.

Fourth quarter 2011 earnings per share are forecast to be in the range of $1.53 to $1.59, compared to $1.37 in the prior year period.

We are projecting operating margin of 12.3% to 12.5% for the 2011 fourth quarter, flat to up 20 basis points from the prior year period.

Net interest expense is planned to be approximately $2.5 million.

And our tax rate is expected to be about 38%.

We also estimate weighted average diluted shares outstanding of about 114 million.

Now, I'll turn the call back to Michael.

Thank you, John.

Again, we are very pleased with our above planned performance for the third quarter and first nine months of 2011.

As we've noted previously, we remain favorably positioned as a value retailer in these uncertain macroeconomic times.

As we enter the important fourth quarter, we are focused on filling our stores with a wide assortment of fresh and exciting bargains on gifts and fashions for the family and the home.

However, we recognize that consumer spending remains under pressure which we believe creates the possibility of an even more competitive than usual holiday season.

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

Turning to other news, we are pleased to report that our Board of Directors has approved a 2-for-1 stock split.

The Board also declared a regular quarterly cash dividend of $0.22 per share, or $0.11 per share post split.

I should note that our guidance given today is before the effect of the stock split.

We have delivered outstanding financial performance over the past few years that has contributed to significant stock price appreciation over this period.

Our decision to split the stock reflects our ongoing confidence in our future growth prospects and our continued commitment to enhancing stockholder value.

Our recent entry into the Chicago market is just the beginning of many expansion opportunities we see throughout the Midwest.

With stores in only 29 states today, we continue to believe we have the potential over the long term to double the size of our Company as we expand throughout the entire US.

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

(Operator Instructions).

Paul Lejuez from Nomura Securities.

Just wondering what you saw with your Chicago push in terms of traffic versus ticket trends relative to maybe both your expectations and the general chain averages.

Or perhaps from a category perspective, what's working there versus what you expected.

And also wondering who the co-tenants are, if there are any consistencies across the 12 stores that you've got opened in that area.

Thanks.

It's Michael O'Sullivan.

I'll answer that.

We opened 12 stores in Chicago.

But it was really just at the beginning of October, so those stores have only been in business for six weeks.

So really too early to provide any insight into the business.

In terms of co-tenants, it's the usual cast of characters, the same companies that we compete with in all the other markets that we're in.

And then just a follow-up.

Michael, last quarter you guys were pretty cautious about potential cost pressures.

Just wondering what you've seen on that front or if you've seen any pressures?

Have you been pleasantly surprised?

And what are you seeing in the market now?

Thanks.

We've been a little surprised.

We're pleased with the performance.

We've had slightly higher prices in a few areas in our store.

And where we executed effectively we didn't see a problem.

What we're seeing in the market is mixed by resource right now.

And it's mixed by classification.

So it's hard to give a general theme on where costs are going, although the herky-jerkiness that was going on six months ago and a year ago relative to this seems to be behind us.

But prices do not seem to be rolling back.

Rick Patel with Bank of America.

Can you provide some insights on AUR and transactions for Ross and dd's separately?

For dd's specifically, have you had to change your value proposition there now that we are entering a more inflationary apparel environment?

On the AUR for Ross and dd's, we actually don't split that out separately.

As we mentioned in the prepared remarks, the transactions were up low singles and the basket was up low singles.

The basket consisted of AURs that were a little bit higher and so the number of units per basket was down slightly.

And the value proposition in the dd's is pretty much the same.

There are a couple of pockets where we've had to move a bit but again, we're buying for a small quantity of stores.

We've been able to hold prices more effectively.

As we think about your inventory turns getting better, is that consistent across both concepts?

Yes.

Kimberly Greenberger from Morgan Stanley.

My question's on dd's as well.

Michael, if you could just remind us what you said on profitability so far this year.

And as you look out over the next year or two, what is the projectile for the profitability of that business?

And do you at some point expect it to approach the Ross Stores operating profit?

Thanks.

Kimberly, you were very faint.

I'm not sure whether there was a problem with the lines.

Could you just repeat that question?

I'm sorry about that.

The question's on dd's.

If you could just remind us what you said about the dd's profit performance so far this year.

And as you're looking out over time, where do you think the ultimate operating margin for that business can go?

And how quickly can it get there?

In other words, what does the annual ramp look like in the operating margin structure there?

In terms of performance this year, I think in Michael's comments he mentioned from an internal target point of view, dd's has exceeded its targets on sales.

And then actually handily exceeded its targets on contribution.

We've been very happy with how it's done from a profit point of view.

In terms of dd's model and how it will ramp over time, we're pretty confident on a four-wall basis.

The dd's store is very profitable and attractive.

How quickly the overall business ramps up is really just a function of us opening the stores.

So over the next few years, we think it will continue to add contribution to our overall business.

Is there a way to understand what the overhead impact differential is on dd's versus Ross?

In other words, is it a 200 to 300 basis points at this scale of dd's, or is it even bigger?

In other words, if the four-wall contribution were the same between dd's and Ross, what would the margin structure differential be given the lower scale at dd's?

I think it's pretty hard to quantify at this point, just given dd's has just less than 100 stores at this point compared with Ross at over 1,000.

So it's difficult to make that comparison in terms of overhead.

David Mann with Johnson Rice.

Great quarter.

My question relates to packaway and the comments you made on distribution expense.

In terms of the fourth quarter, are you implying that distribution expense won't be a drag the way it was in the third quarter?

Not to the extent it was in the third quarter, David.

As we look at our packaway balances and as we project into the fourth quarter, they look at somewhat a similar level as to where they were last year.

If you recall last year, the fourth quarter where we really started ramping up distribution expenses.

And the 60 basis point drag in the third quarter was up against a 50 basis point accretion we had in the prior third quarter.

So the composition will be much different in the fourth quarter.

So then in terms of what we should be looking about for that operating margin gain that you might have in the fourth quarter, is that mostly coming from the gross margin line then?

It's coming from a couple places.

There are some tailwinds going in the fourth quarter.

Our shrink accrual will be 10 to 15 basis points lower.

We talked about packaway won't be a drag as it was in the third quarter.

We do anticipate having lower inventories, faster turns, lower markdowns.

However, there are some headwinds.

We think the pricing environment might be slightly tougher.

Last year we had some pick-up in our bonus accrual and we will be up against that in the fourth quarter.

We'll likely accrue more bonus than we did last year.

So all in all, when you take the puts and the takes, we're projecting flat to 20 basis points up in EBIT in the fourth quarter.

And Michael, just one last follow-up.

I think on the last call you answered a question that you would still expect inventories per store to go down next year.

Is that still a feeling that you have?

Yes.

Stacy Pak with Barclays Capital.

A couple things.

One is just a follow-up on Kimberly's that I didn't hear or get.

And that is, is dd's supposed to add to profits this year or not?

And then the two questions I have is, first, what are you doing differently for holiday this year relative to last in terms of gifting or advertising or opportunities, or however you want to think about it or talk about it?

And then the second is, when are you thinking you might really ramp other states and/or dd's more aggressively?

Stacy, on the first part, the answer is yes, dd's will be somewhat accretive to earnings this year.

Is there an EPS that you'll throw out or it's just somewhat accretive?

No, we haven't broken it out.

Actually it was slightly accretive last year, and this year it will be more so.

But we haven't broken out a specific penny number.

Relative to what we're doing different in fourth quarter, our assortments will be geared to a little more gifting.

And we had a lot of success in gifting last year.

We're even taking it one step further this year.

And relative to our marketing it will be fairly consistent to a year ago.

Stacy, can you just ask your third question again about the roll-out?

I was just curious, you opened 12 stores in the Midwest.

Which, I realize it's been a long time since you've expanded to other states.

But it's not a really big number in terms of the overall chain.

And so I'm wondering when you might get more aggressive about entering into new states.

And also when you might get more aggressive ramping dd's.

I would put that in context of the overall number of new stores that we've opened.

So this year we've opened over 60 new stores.

No, the overall square footage is great.

I'm just asking when you might change your strategy.

I think it will depend on real estate availability.

If we find locations that we like, then we'll open more stores.

But I wouldn't expect a dramatic shift.

Over the course of the next few years, we are going to open more stores in the Midwest, including in additional states in the Midwest.

But we're going to do that in a fairly measured way.

So should we assume this 15-ish number of stores in a new state kind of thing?

I'd put it more as, I think we've said in the past that our overall unit growth in terms of stores will probably be 6% to 7% per year.

And I think the Midwest will be some portion of that.

It's hard to put a precise number on it without looking at the real estate locations but that's what will really drive it.

And the dd's?

Same thing with dd's.

This year with dd's we opened over 20 stores which we think, on a base of just 80, is pretty significant.

We're not going to be ramping up from there.

We'll add additional dd's stores but I don't think you should expect the percentage growth to significantly increase.

Jeff Klinefelter with Piper Jaffray.

One question is, on your Florida market, clearly been performing very well this year.

As we head into 2012, and think about the productivity of that market, where would that be tracking relative to the average of your chain for the Ross Stores concept?

And then also just thinking about other markets, do you have opportunities in other geographic markets that are below the average productivity and that are real opportunities for you next year?

So on Florida, Jeff, Florida has, as you say, been performing very well the last two years.

It's slightly ahead of our average in terms of our average performance by region.

But I have to say, all of our regions have done very well, so we've been very happy across the board.

We call out Florida because it's at the top of the pack in terms of comp performance.

But all regions have had a pretty good performance this year and actually the last few years.

So there's no opportunity region that you could really bring the productivity levels higher next year?

There's no region that we're particularly concerned about, no.

We would like to do well in every region next year but there's no single region I would call out and say we think it's a remedial situation we can improve on, no.

And then just one other follow-up on the Chicago launch, recognizing it's very recent, not a lot of data yet.

But is there anything else that you would call out from that launch that tells you something about the merchandising opportunities or potential challenges you have in that region of the country?

Nothing at this point.

I think everything we've seen in the run-up to the opening has caused us to feel very confident about our ability to compete well in that market.

But too early to give you a read-out on the first wave of stores but we're excited to be in the Midwest.

And just lastly on Chicago, anything from the media strategy in terms of your opening?

I know you focused a lot of media and leveraged a lot of different media channels.

Anything that tells you about some changes you could implement nationally?

Again, six weeks in, and without having gone through the fourth quarter it's probably a little premature to dissect the marketing strategy that we've used there.

But obviously this is something we'll look at and if there's any lessons we can take from it for the rest of country we'll use it.

Brian Tunick with JPMorgan.

Two questions.

Just as we try to think about the merchandise margins as we move into next year or the year after from here, are there any specific categories maybe that you can give us that you still see opportunity to take down inventory per store or turn faster?

Where is the room still there?

And then do you think your business model with such a big mix of packaway can work on the eCommerce side?

Is this, in addition to dd's, something that the Board has talked about, bringing eCommerce eventually to the business?

I'll take the first part.

Basically, reductions in inventory are not constrained to certain categories.

It's across the board.

And so we see opportunity across the board.

We just keep working on figuring out how to turn faster through our system of logistically and merchandise-wise.

So I would say it's not any single category.

And then Brian, on your second question about the Internet, let me broaden the question a little bit.

In terms of the Internet, there's two aspects for us.

One is digital marketing.

And we've been experimenting, particularly with our expansion into new markets in various forms of new media to raise awareness.

But that's obviously on the marketing side.

And then on eCommerce, actually transacting and selling merchandise online, clearly that's an area that evolving.

We're watching it.

We're watching the start-ups that have moved into that market.

It's not clear how it's going to evolve in terms of price points and brands but it's something we'll continue to study.

We don't have any immediate plans to move into that space right now but we'll watch it closely.

Jeff Black with Citigroup.

Let me add my congrats.

On the micro merchandising, can you just draw out where we are on this curve?

I believe you're using it across most of the categories, if not all.

What benefits have we seen this year?

And what kind of torque do we think these efforts have for either margin or lowering inventory next year and perhaps the year out?

Thanks.

Jeff, as you know, we fully rolled out micro merchandising in late 2009 so we now have1.5 years under our belt.

And I think we've been very pleased with how it's gone.

Certainly our ability to turn faster and faster in stores over the last couple of years, we think that micro merchandising has at least helped with that, made a contribution to it.

And the other aspect of micro merchandising we talked about in the past is that it's learned from history.

So the more history we get into the system, the better micro merchandising is in terms of predicting sales and predicting inventory levels.

So we think there's still some way to go in terms of the benefit we'll get from micro merchandising.

Just on the inventory next year, how much are we talking about lowering per store?

Is that another mid single digit rate you think is potentially possible here?

We're still finalizing our inventories but approximately the one you threw out.

Marni Shapiro with The Retail Tracker.

Congratulations.

Two very quick questions.

We've heard a lot about the women's business being a little bit under pressure out there.

I was curious if you're seeing any classifications that have been a little tougher and what you've done to adjust them.

And then I'm just curious if you could comment at all about the online business and any thought you've given to it.

The women's business has been more difficult around the horn and it's been a little more difficult for us for a while.

We're actually running our inventories there very tightly.

I wouldn't say there's any one specific category that we've adjusted significantly down.

And Marni, on the online business, certainly in terms of marketing online that's something we're interested in, we're experimenting with.

We think there's a future there.

In terms of eCommerce, that's an area that obviously there's a lot of activity.

It's something we're watching.

No plans to do anything at this point but we're going to watch it closely.

Evren Kopelman with Wells Fargo.

I wanted to ask about the packaway.

It's been coming down slowly as a percent of total inventory.

Should we read that as, are you seeing less, are the merchants seeing less appropriate inventory to buy out there for packaway?

How should we think about that as we get into next year?

I don't think we've been seeing less, but since our trend has been exceeding sales plan we've been flowing some of the product to our stores which would have brought the number down.

As we go into next year, should we expect that to continue to come down or is there a strategy at all around that?

Our strategy is really built on supply.

And so if the supply exceeds our expectations, we'll be investing heavily there.

But we have to wait and see.

Those buys start coming up, the significant packaway buys coming out of the fall season really happen in December and January.

Roxanne Meyer from UBS.

Two questions.

One, I was wondering if you could share your base assumption for merchandise margin in the fourth quarter in light of, on one hand, having leaner inventory, but on the other hand your comments regarding the pricing environment being a bit more competitive.

And then secondly, following your announcement to split your stock, I'm just wondering if that changes your strategy for cash deployment going forward as it relates to repurchasing.

Thank you.

Relative to the base assumptions for fourth quarter margin, we don't split those out between G&A and margin.

I think we did give some color around what some of the dynamics might be in terms of the puts and the takes.

And as far as the stock split, it does not change our headset around capital deployment.

We will still continue to buy back stock.

As mentioned in the prepared comments, we plan to complete 50% of the $900 million authorization this year.

Richard Jaffe from Stifel Nicolaus.

A follow-on with packaway.

Just wondering how things are looking out.

I know we suffered from product cost inflation beginning this time last year, and it seems to have retraced a bit.

Wondering how you're seeing product costs looking into spring 2012 and how that might impact your views on packaway.

We're looking at pricing right now being relatively stable.

Last spring started to be some of the jump.

It's relatively stable.

Your second part was how does it affect our packaway?

Right.

Packaway we measure by business, by brand at the moment in time.

And we value the pricing that's offered to us versus what we think the retail will be in mainstream stores.

So I think we measure each case individually.

It's not tied to what might be product cost inflation or deflation, it's really --?

No, no.

Category driven.

We don't ignore that but it's category driven, brand driven and item driven That's what drives our investment in packaway.

Dana Telsey with Telsey Advisory Group.

Congratulations everyone.

Can you talk a little about when you think about the 48% packaway level where do you see it trending to going forward?

How do you see that happening?

And then also on shrink, given the improved shrink that you've had, is there more to go and what would the impact on gross margin be?

Thank you.

I can't foresee packaway going higher than the levels we've been running.

I'm actually hopeful that we can maintain those levels on quality product but we just don't know how the world will move forward on it.

So as I said, I wouldn't anticipate it becoming higher.

And on shrink, Dana, for the past couple years we've had pretty outstanding shrink results.

We're getting to a level we're at record lows and to assume that we can continue that performance I think would not be prudent.

So from a projection standpoint, we assume similar levels to what we had this year.

As I mentioned earlier, that means that we'll be picking up 10 to 15 basis points going forward on a quarterly basis.

Just want to add to that, Dana.

We'll continue to invest in various shrink initiatives and obviously we hope to do better than what we accrue.

That's obviously our longer term strategy to continue to work against it.

Omar Saad from ISI Group.

Wondering if you guys could give us an update on how you view your customer and how you think they're feeling about the market, the macro, the environment.

Are you seeing anything in your stores or in the trends within the store that give you any indication on how that customer is doing?

Thank you.

Probably just state the obvious.

At least what we hear from the customer, both in research and in the stores and in the business we're doing is that the customer needs value.

And they're stretched economically.

They're concerned about the future.

And they want to make their money go further.

And at least what we see in terms of our sales is that the value we're able to offer is obviously resonating with the customer in this environment.

Could you also talk about -- you guys have been doing obviously really well for quite some time.

And you've also seen a little bit of a rejuvenation in the department store business the last year.

How do you think about that?

And does your customer cross-shop?

And is it really a directly competitive department store versus Ross?

Or does it provide a better halo and a stronger current from which you can operate?

How do you think about that dynamic between you and the department stores?

Omar, we don't take our customers for granted.

They shop everywhere.

They're looking for the best deal.

They've got a lot of choices in terms of places they shop.

So we're in competition with everyone that sells a piece of apparel.

And our job is to make sure we offer a better value than the other channels.

(Operator Instructions).

Steve Tabb from Tocqueville Asset Management.

I was wondering why you justify buying back stock when the book value is only 1/7, approximately, of the current price.

It seems like it's pretty expensive at that time, and the Company should be able to find other uses for the money.

The model generates a pretty good cash flow.

We have excess cash.

We think it best to return it to the shareholders.

We do that with a combination of buybacks and dividends.

So that's our perspective.

We've been doing it for quite some time and it's actually worked pretty well for us.

One other question.

There's been a tax benefit -- I don't know whether the Company is able to realize it with its expansion and furnishing the stores -- on accelerated depreciation on certain fixed assets.

Is the Company benefiting from that to any degree?

Yes, we are, from a cash flow standpoint, the bonus depreciation does help us.

I see.

It doesn't affect your book earnings per share.

It's just your tax situation.

Is that it?

That's correct.

It's a timing issue from a tax perspective.

Patrick McKeever with MKM Partners.

Just wondering if you might talk a bit about your shoe business.

You've called it out as a strong area recently and for a while now.

But what's driving it?

And maybe you could talk about just any specific trends within shoes that might be worth noting.

Wondering how your boot sales are doing this year, that sort of thing.

And also is that a category that you do pack merchandise away in?

Thanks.

Our shoe business has been strong, as you said, for quite some time and it's driven by supply.

It's driven by supply.

We've invested organization, we invested real estate and we've invested inventory.

The combination has led to an effective shoe business.

Also, shoe business has been, over the last several years, trending very well across retail.

We do packaway boots.

And our boot business is decent.

And relative to trends in shoes, if I'm looking at ladies, military looks, suede, sherpa-lined shoes, all doing well.

On Chicago, did you open all 12 of those stores on the same day?

Is that correct?

Yes, that's correct.

I know you've talked a bit about it already but just that particular strategy of opening so many stores on one day, maybe you could dig into that a little bit.

What kinds of synergies did you see?

Was it a lot of marketing?

Were there a lot of marketing synergies in there?

Was it something more than that?

Thank you.

Sure.

Actually, this isn't just a Chicago thing.

But as we open new stores we tend to do so in windows, which helps us to focus things from an operational point of view and to some degree from a marketing point of view too.

So the early October period was a window where we opened stores.

And certainly there are some marketing synergies associated with that.

But I think operationally this type of approach has worked well for us as well rather than just distributing stores out over time.

One last quick one.

Just on the comments about the holiday season perhaps being more promotional.

Is that a reflection of something that you're seeing right now, just a reflection of the general trend in recent years, buying closer to need, that sort of thing?

Just wondering if you could talk a little bit more about that.

I'd say it's a mix of both.

I think retail performance has been a little bit choppy at the department store level.

And I'm combining mid-tier with that.

And that usually leads to one or two starting to get much more aggressive which creates a domino.

I'm not saying we know for sure but it has the feeling that it's possible.

There appears to be no further questions at this time.

I'll turn it back to management for any closing comments.

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

Ladies and gentlemen, this concludes today's conference call.

You may now disconnect.