Sleep Number Corp (SNBR) 2007 Q3 法說會逐字稿

Good afternoon and welcome to Select Comfort's third-quarter 2007 earnings conference call. At this time, all lines are on listen-only until the question-and-answer portion of today's conference. Today's call is also being recorded. If you do have objections, you may disconnect at this time. (OPERATOR INSTRUCTIONS). I would now like to turn the call over to Mr. Mark Kimball, Senior Vice President and General Counsel. Thank you, sir. You may begin.

Thank you. Good afternoon and welcome to the Select Comfort Corporation's third-quarter 2007 earnings conference call. Thank you all for joining us. I'm Mark Kimball, Senior Vice President and General Counsel and with me on the call are Bill McLaughlin, our Chairman and Chief Executive Officer and Jim Raabe, our Senior Vice President and Chief Financial Officer. In a moment, I will turn the call over to Bill and following Bill and Jim's prepared remarks, we will open the call to your questions.

Please be advised that this telephone conference is being recorded and will be available by telephone replay and will also be archived on our website. Please refer to the details set forth is in our press release to access the replay on our website.

The primary purpose of this call is to discuss the results of the fiscal period just ended. However, our commentary includes and our responses to your questions may include certain forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties outlined in our earnings release and discussed in some detail in our annual report on Form 10-K and other periodic filings with the SEC. The Company's actual future results may vary materially. I will now turn the call over to Bill for his comments.

Thank you, Mark and good afternoon, and thank you for joining us to review our third-quarter results and to discuss our progress. I'm going to keep my prepared remarks relatively brief as we remain a work in progress focused on the same priorities that we previously discussed. We are making progress towards our goals and did deliver our forecast, but it's slow going and we are all frustrated and impatient and would like to have achieved more.

Sales were improving through July and August behind refocused marketing and sales efforts, but as we shared in our September 12 business update, Labor Day was a disappointment. Our same-store trend did improve in the quarter, but remains negative, which is simply not acceptable given our products' unique consumer benefits and value proposition and our outstanding sales teams.

To continue improving sales trends, we have planned increased marketing spend in the fourth quarter and we are working with our sales teams to ensure that everyone remains focused on identifying and meeting consumers' needs this holiday season.

As we all know, adversity can make strong teams even stronger and across our Company, we are responding to this challenge. We can always do better, but our quality and efficiency continue to improve, which will provide sources of leverage as we re-establish growth. We did give up 40 basis points of gross margin in the quarter as we absorbed the full impact of fire-retardant materials and our new product designs. We expect additional efficiencies in the fourth quarter despite anticipated increases in energy costs and to finish the year ahead of last year's gross margin of 60.9%. Our most significant earnings challenge is pressure from negative same-store sales, and restoring same-store growth and leverage is our highest priority. We continue focused on the priorities for consistent growth that we have shared with you in the past. Marketing remains our most important opportunity. We continue to work with our proven SLEEP NUMBER campaign. New creative is in development and we are exploring putting the microphone in the hands of our owners and letting them tell their stories of the benefits of personalized comfort in and their SLEEP NUMBER beds. Customer testimonials have proved -- have consistently proven to be effective for us and we believe this is the best way to help others learn what they are missing.

We are also moving to reduce brand confusion by concentrating on the SLEEP NUMBER brand rather than dual use with Select Comfort. We will take advantage of our new store design to begin converting all our stores to SLEEP NUMBER stores in 2008.

And staffing remains our other priority. We have important positions to fill leading both marketing and product development. Ideally, we will close both of these searches in the fourth quarter, but we will take the time necessary to fill these attractive positions and have identified several leading candidates.

In addition to these core initiatives, we are advancing in other areas that we have discussed in the past that are important to our long-term growth. Our plate remains full with infrastructure projects, including conversion to SAP, slated for mid 2008, the new hub and spoke logistics infrastructure is expected to be completed in the fourth quarter of this year. We have ongoing efforts to further build our R&D development and our new headquarters building is scheduled for occupancy in the coming weeks. All of these infrastructure initiatives are advancing towards completion or at least completion of their first phase and we welcome reducing the management requirements of these important long-term initiatives and look forward to realizing their combined benefits.

Our entry into Australia is another logical step toward taking advantage of our global opportunity. We are pleased with the quality of our partners and their commitment to our brand and appreciate the efforts of our small, dedicated international team to deliver this important advance. We do not expect a material P&L impact from our international expansion for several years. As we have said, our goal is to learn and to begin to establish a foundation for growth with a long-term goal of establishing global balance in our business.

In summary, we remain confident in our product, our business model, our teams, all of which continue to strengthen. We know what misfired in the past year and are working on the right things to improve and regain sustained growth. These will take some time and into 2008. Ours is a performance-based culture. We have not performed this year to our standards and our incentive compensation will be appropriately impacted, as reflected in our G&A leverage this quarter. We fully expect to reverse this next year as we re-establish growth and allow everyone on our team to regain competitive earning power.

We are looking forward to continued progress in the fourth quarter and to advancing our priority initiatives for 2008 and beyond, particularly the first phase of new advertising, which will be important to re-establishing retail same-store growth.

Thank you for your continued interest and support and I will now turn it over to Jim for greater insight into our third quarter and the balance of the year.

Thanks, Bill. I, too, will keep my remarks brief, outlining performance for the third with and sharing our outlook for the fourth quarter with the following key points -- retail sales growth, though improving, remains our greatest challenge and opportunity. Productivity and operational gains continue to be a positive. Our cash model remains strong and continues to support our investments in long-term growth and cost savings initiatives, and we expect to continue to improve but at a slower rate in the fourth quarter than we'd previously expected.

Sales for the third quarter totaled $213 million, 3% higher than a year ago. Our Company owned stores continue to deliver the bulk of our sales, representing 77% of this quarter's mix and received the majority of our attention. Same-store comps did improve over the performance of the past several quarters, but remain negative at minus 6% and were well below our historic performance and potential. New stores continue to drive sales growth, adding 9% over the prior year and retail partner sales have flattened as we lapped year-ago expansion.

Two strong positives in the quarter's sales growth were e-commerce sales, which increased by 30% year over year and QVC, where our August TSV show reported record sales in a single day. These channels demonstrate the continued appeal of our product and brand and our growth potential when effective marketing messaging and investment are applied.

Earnings in the quarter totaled $0.26 per share, $0.01 higher than the third quarter a year ago. The focused execution on the part of our global supply chain and the resulting productivity continues to be a highlight of 2007 and a positive contributor to our earnings.

Gross margins for the quarter were 61.6%, 40 basis points lower than a year ago. This performance included incremental third-quarter costs of $4.7 million associated with the full rollout of fire-retardant product and $1.4 million related to the introduction of the change-out of the core product lines in our stores. We have also protected our gross margins, maintaining our promotional discounts at normal levels.

Several factors in addition to gross margin contributed to our third-quarter operating margin of 9% being 150 basis points lower than a year ago. Key driver of reduced margin was sales and marketing, which, as a percentage of sales, increased by 270 basis points. Negative same-store sales and new store infrastructure was the primary cause. The deleverage was partially offset by media spending, which totaled $26.8 million, lower than a year ago by nearly $800,000 or 70 basis points on a percent of net sales basis. While this approach increased margins in the quarter, we may have been too conservative in our media investment levels, especially considering our increasing distribution and the seasonal interest in mattress purchases during the third quarter. And as Bill has already mentioned in the fourth quarter, we plan to accelerate our media investments, expecting to increase our spend by more than 15% over a year ago. We are committed to fund a foundation for growth in 2008 while better supporting our business during the holiday season.

G&A expense was a source of margin improvement, totaling $14.9 million, a reduction of $1.3 million versus the third quarter of last year, primarily representing a reduction of incentive compensation expense. We expect that fourth-quarter G&A will approximate $17 million and are targeting flat G&A for 2008 before incentive compensation.

Our cash model continues to be a strength as we build on our potential for growth. We generated $36 million of operating cash flow in the third quarter and $56 million year to date, in line with last year. Improvement in our working capital processes were partially offset by increases in inventory, reflecting seasonal increases in accessory products and preparation for holiday sales and higher material costs for F.R. products. In addition, an increase in accounts receivable associated with the timing of a record QVC show also impacted working capital.

Even with increases in inventory and receivables, our cash conversion cycle in the third quarter was minus 32 days. Our continued cash generation, along with excess cash, at the beginning of the year has allowed us to return $132 million to shareholders through the repurchase of 7.6 million shares year to date.

In the third quarter, we curtailed our share repurchases. We use an intrinsic value approach to share repurchase that based on today's share price dictates that we should be quite active. However, following the tightening of credit markets and the continued deterioration of the housing markets that followed the sub-prime crisis, we decided that the most prudent course of action at this time is to maintain a debt free balance sheet. We will continue to reassess our repurchase strategies and expect to reinitiate our repurchase activity as circumstances improve.

The Company's remaining stock repurchase authorization currently stands at $207 million. The use of our repurchase program has reduced physical shares outstanding to 44.7 million shares versus 52.7 million shares at the end of the third quarter last year. For fourth quarter EPS, I would suggest using a share count similar to the third quarter or 46 to 47 million shares.

Finally, as noted in our release, we have lowered our outlook for full-year net sales to between $820 million and $830 million for earnings of between $0.75 and $0.81 per share.

While disappointed that we needed to make this change, we simply are not seeing sales trends improve as quickly as we had expected and the macro outlook suggests further pressure. Our revised outlook has been reduced to assume low-single digit negative same-store sales in the fourth quarter. Our earnings range assume same-store sales improve as compared to the third quarter, consistent with our experience quarter to date, and as stated earlier, we plan to increase media investments to further spur sales growth during the holiday period. Additionally, we plan to continue growth and productivity investments, including hub and spoke and other costs that are specific to Q4. This outlook implies fourth-quarter earnings per share of between $0.23 and $0.29 compared to earnings a year ago of $0.20 per share.

We remain committed to managing the business for the long term and to returning to a higher level of sales growth in 2008. We will provide an update of fourth-quarter trends during our quarterly update, scheduled for December 12. That completes my prepared remarks. Brian, I would now like to open the call to questions.

(OPERATOR INSTRUCTIONS). Steve Colbert, Canaccord Adams.

Thanks for taking the call. Looking at the reduced guidance, have trends fallen off this fall or is it just that you are not seeing the rebound that you expected to see as comps got a little bit easier?

As we had noted in our update, we did see a little bit of softening post Labor Day, but we are seeing improvements overall and expect improving trends through the fourth quarter.

Okay. And if we look at the retail partner rollout, could you comment on trends -- what you are seeing with cannibalization on the Company's stores? And then what are the plans for the program going forward?

We are continuing to execute on the program, but our primary focus is our stores. And within the program, we're looking primarily to make sure that we're taking the opportunity to make sure that that retail partner program is incremental to our business overall.

With regard to the cannibalization, we have seen some reduction, as we've lapped the expansion of that program. But like I said, I think our primary focus is our stores and making sure that the partner program is incremental.

Okay. And then what's the current thought on pricing? Should we expect it to be stable going forward given what is a relatively soft environment out there?

We're constantly evaluating our pricing both up and down at different times. So the one thing that we have done that I should point out is that our discount or promotion rate has remained constant. We have not increased that activity in response to the softening markets to get consistent with the positioning of the brand.

Okay. And then finally, if you could just give us maybe a little more color on the new ad campaign. I know the print and radio spots have been out for a little bit now, but when will the TV appear? And it sounds like maybe you are still working on getting the campaign set. Is that fair to say?

Yes, that's fair. Actually, the material that's in the market today is really takeoffs from our older, but proven campaign from several years ago. We are working on new copy, but that will not likely be available until early in the new year.

That's it for me. Thanks, guys.

Jeff Stein, KeyBanc Capital Markets.

Bill, a question on other specialty bedding technologies. It seems that more of your dealers are using more of their floor space for foam products and it just seems to me that perhaps one of the reasons why Tempur-Pedic might be getting share is that the whole category seems to be gaining more credibility relative to air beds. And I'm wondering A, if you agree with that? And B, if so, have you considered possibly rolling out a foam product of your own.

I think your observation is right, that Tempur, but then also all of the S's have joined with their versions of visco foam beds and then the retailers are supporting that more aggressively as well. So there is clearly a lot of momentum in that direction. That is not, though, in my opinion, our issue.

Our issue is that we have not gotten the advantages of personalized comfort out as aggressively as we actually have done in the past. Our marketing has just not kept up with where we need to go with the consumers.

All of our products actually have air chambers with some kind of foam. And we've actually had visco foams and actually have visco foam in one of our models today. We just haven't marketed it that way.

Okay. So I take it that your response would be that you would not plan to introduce a foam-only type of product but that you would just need to improve the marketing.

Yes, no, we're going to focus on the marketing. Product development remains a clear focus of what we are working on, and we just launched a series of improvements to our products that the consumers have been appreciating. But we will constantly look at new and -- improvements to the combination of air and different kinds of foams at this point.

Got it. Thank you.

Tony Gikas, Piper Jaffray.

Good afternoon, guys. I have a few questions. You briefly mentioned kind of tightening credit standards. Maybe you could just talk about the potential impact that you are seeing there. And has there been any change in direction from GE lending?

Number two, looking to 2008, it sounded like, if I was reading in between the lines there, that you are expecting growth next year. And what are your assumptions for the housing market at that point? And then the last question, exploring any new change of direction with your strategy with your partners, I think you're working with 12 partners today; and do you think that they have really helped you to build the brands to the extent that you had planned when you got into those relationships?

Let me cover those, Tony. To the credit markets, my reference was really related to the debt markets and just being debt free. But with reference to your question and GE and the credit, I think credit is a little bit difficult, increasingly difficult for consumers all over. We haven't seen to date any impact on our credit approval rates relative to that, and I think that's one that we'll just have to see how it plays out. But to date, there hasn't been any meaningful impact to our business.

With respect to growth rates in 2008, we have not provided any outlook or guidance for 2008 and are not prepared to do so at this time. With respect to our expectations for the macro trends, I think we certainly expect that it's going to remain difficult for some period of time. Certainly into 2008, we're looking at the same data that you are, and that's the approach that we are taking to our planning.

With regard to the retail partner program, as I said earlier, our main focus is our stores. We do feel as if there's opportunities with our retail partners to get incremental business, and that is where our focus is with them. And I think you hit on a key point. I think that we need to work closely with them to make sure that we build the SLEEP NUMBER brand with them and to their customers as they come into the stores.

Thanks.

Steve Denault, Northland Securities.

Good afternoon, everybody. You made a comment in regard to fourth-quarter guidance and it was comp guidance assumptions. What was that?

The fourth-quarter guidance assumptions from a comp basis is that we will see improvement versus the third quarter, which is consistent with the data that we are seeing today but that we do expect essentially negative same-store growth is the core to what our assumptions are for the fourth quarter.

Okay, so a negative comp on the fourth quarter? The third quarter negative 6, was there -- was it almost all volume or was there any price mix component to it?

You know, it's been pretty much unit. Our mix, our product mix has stayed pretty constant.

Okay. How should we think about Radisson sales in '08 versus '07?

You know, our Radisson program has been very successful and we've got a good penetration into those rooms, into the Radisson rooms. We continue to fill out the remaining rooms, although it won't be -- it's at a declining rate at this point because of the penetration that we have so far. The real opportunity has always been and continues to be using those guest stays from Radisson to introduce them to the SLEEP NUMBER bed and make sure that we are using that opportunity, both from a branding standpoint as well as to get them to our stores.

Okay, so fewer beds shipped into Radisson in '08 versus '07?

It's not a material number. It wasn't material in '07, so it shouldn't have a significant impact on '07 outlook.

Okay thank you.

Bob Evans, Craig-Hallum Capital.

Hello, everyone. Good afternoon. Can you comment on the buyback in terms of taking a more conservative stance there. You generate a lot of free cash flow. Do you expect to use your buyback as you generate the free cash flow and have a greater cash balance? Or can you give us a little bit more color as to your change of philosophy there?

I think, while we continue to see repurchases as a good opportunity to return cash to shareholders, at the current time, we've elected to move more to a positive cash position due to, as we indicated, the uncertainty in the credit markets overall. But I would say that we do expect to continue -- to go back in and repurchase as circumstances improve.

Okay. Does that mean as your cash balances improve or does it mean the overall macro environment?

I would say there's a number of factors that will be considered in that decision.

Okay. All right. Okay, fair enough. And can you elaborate a little bit further as it relates to -- Bill, in terms of -- going back to the -- getting back to basics on the marketing side. From what you are working on today and then the new media campaign that's going to come out in '08, what types of things do you need to do to try to restate the -- get the sales growth back to where you want it?

I think if you go back to our history, we've done a great job in the last five years making people aware that something called a SLEEP NUMBER exists. What we've not done as well is help them understand the unique benefits of the product and where to find the product. So and, we know that the two initiatives, that the new two campaigns that we worked on in the past year and a half, it just did not meet those objectives.

So what we've done is gone back to the basics of the SLEEP NUMBER campaign. And, again, what we've learned is that the most effective marketing tool that we've had so far is our owners, through referrals, through testimonials; when we watch the success of QVC and other initiatives like that, it's all based on satisfied owners telling other people about this great product. And so that's what we are moving to do. And we are refocusing the current advertising around the base SLEEP NUMBER so we've moved away from the "Cure for Tired" and that earlier work and we've gone back to the original SLEEP NUMBER creative, and that's what's in the market today. And then what we are working on for new creative is actually relatively close in. It's not as old and far out as some of the other initiatives were. But we are focused right now on just putting the microphone in the hands of our owners and letting them tell the story and then working on how to creatively execute that.

Okay. And final question, on the G&A side I believe you said that this year will not include bonuses, by and large. Just trying to get a sense of magnitude of what that variance is on the bonuses not being in this year?

I think on a year-over-year basis, that's -- I think it's about 6 or $7 million.

Okay. All right. Thank you.

Joel Havard, Hilliard Lyons.

Thank you. Good afternoon, everybody. On the wholesale side, I guess you were making a reference to Radisson being, I guess call it flattish, and you mentioned QVC was up. The implication is that the retail partners were a little slow in the quarter. Is there a shift going on, on your side or was that more a function in your opinion of the general betting climate in the quarter?

I would tend to say that it is what we have heard from the partners that we deal with because there's a little bit more softness. I mean they have seen softness overall in their business relative to the mattress industry. And I think I would point to that as certainly one of the main factors.

Okay. So particularly I'm getting at, you didn't, as an organization, make a decision to change the nature of the relationship with any particular dealers again this time?

No, we did not.

Okay, good. On the impairment charge, modest on its face of course in Q3, but do you have a sense of what it could be into Q4, if you're ready to talk about '08 yet. I'm particularly concerned about the sort of preliminary -- continuing preliminary work on the ERP side.

Yes, the nature of the charge-off in the third quarter was a couple of stores, and that's just a part of our normal ongoing process. I think if you look back there, every year we have a few stores that just get to a point where they are either in a declining mall or (multiple speakers) and we don't see it as a long-term opportunity and we take those charges as they happen. And that's what we had in the third quarter, not outside of the ordinary of what we would expect over the course of a year.

Okay. And again, to take the backside of that question then, nothing on the ERP front yet. What is then the sort of anticipated kickoff date for some of the more substantial implementation phases?

Well, the implementation of SAP is still very, very tentative because we are working through all of the different programs, but it is still targeted for mid 2008. All of that said, we believe we've recognized all the impairments associated with that.

Okay. Then getting to the more important issue here, on the retail side, I recall that one of the major initiatives is sort of a reset, refresh, of the stores. Can you update us as to how many have been done, how many you are planning for next quarter and again maybe into '08?

I believe we've remodeled -- or launched the new design into 10 stores to date. And we are working through the plans right now in terms of how many we will remodel or upgrade next year. Certainly, everything new next year will go into the new design.

Yes, I think, Joel, just as we are going through that process, it's a normal evaluation process of, where are we in the lease? What are the size of the stores? A number of considerations to make sure that where we are investing our dollars on those remodels are going to get the right return and aren't going to get wasted because we need to get into a different spot. So that whole evaluation is ongoing. But I think as we've indicated, we see it as a big opportunity and we are looking to move as quickly as we can prudently do so.

Okay, good. And how many stores then do you sort of tentatively see at this point teed up to be opened over the course of '08?

From the standpoint of new stores, the last couple of years, we've been in that 40 to 45 range; and our store plans aren't finalized yet or still in process, but I would expect we're going to be in that same ballpark in '08.

Okay, great. Thanks, guys. Good luck.

Jack Murphy, William Blair.

Hi, this is actually [Jeff Brown] sitting in for Jack Murphy. I had two quick questions. First, on the incremental ad spend in the fourth quarter, could you give us any additional sort of level of detail as to sort of where that's going and where that incremental spend is in terms of sort of different vehicles? And then also how you think about the return on that incremental spend?

And then unrelated question on CapEx, in the prepared remarks, you talked about the different infrastructure investments for the fourth quarter and into '08. I know you're not giving '08 guidance, but even directionally if you could give us an idea of what CapEx in '08 is looking like. Thanks.

Jeff, this is Bill. The ad spend increase is a combination of increased broad media, so TV and radio, and also, though, inserts. And we use the two together, one to broaden the awareness and the other is to drive traffic to the stores around the key holidays. And since the fourth quarter has obviously quite a few holidays between Veteran's Day and Thanksgiving and Christmas holidays and all, we will be using some of that for Sunday inserts to drive -- which there's two things. It creates urgency, but it also allows us to really talk about where our stores are located, and that is one of our identified big opportunities. Is, there are a lot of people who know about SLEEP NUMBER, are interested in SLEEP NUMBER but don't know that we have stores. And so inserts and a little bit of TV and radio will be where the incremental gets spent.

And from a CapEx standpoint, too soon really to really nail down a number. But just to give you a little bit of perspective, the store buildout is about the same. Obviously, we're going to have more remodels, that that will be a significant number, but we need to nail down the exact number before we speak to that.

Most of the SAP capital was expended in '07 for hardware and software and those types of things. We are still doing development costs, but that will be lower than it was this year. And then we are doing, as Bill indicated in his comments, we will do new signage in all of the stores. Some of that is going on now, the rest of it in '08. So I would roughly expect something a little bit higher than where we had with those pluses, minuses, a little bit higher than the 2007 number.

Okay, thank you.

Greg McKinley, Dougherty.

Thank you. Just a couple quick numbers questions. First of all, can you comment on how many stores do you anticipate opening in the fourth quarter? In that 13 to 14 range? I'm sorry if I missed that.

It should be about eight stores in the fourth quarter.

Eight stores. Okay. And for a full-year CapEx, I think the prior caller just asked it but I missed it. For full-year CapEx for '07, where do you anticipate coming in at?

The short answer is it's a little bit higher than where we are -- where we will end up in '07 or the number we talked about '07, but --

His question is '07.

Oh, is '07.

Yes.

That number is about 40, 45 million.

Okay. And then finally, given your comp guidance, are you basically implying relatively flat sequential sales from Q3 to Q4? Is that a fair way of thinking about it? Is that consistent with what you intended to communicate on that comp guidance?

I think the number is a little bit higher sequentially Q3 to Q4, [could be] some growth.

Q4 we generally have that seasonal peak from holiday traffic in the malls.

Yes, all right. Thank you.

John Baugh, Stifel Nicolaus.

Thank you. A couple things. Do you get an extra week in 2008? And if so, which quarter does it fall in?

We do get an extra week. It falls into the fourth quarter.

Okay. Any time, Bill or date when you think the new creative will be ready and/or rolled out?

I keep targeting early 2008 and I don't want to box ourselves into a specific time because what I'm determined to do is take the time we need to make sure it's right and through testing and all the rest. And so I would still say early 2008.

Okay. And following along with that, testing, make sure it's right. If you do that testing and it is right, and you're getting favorable response, what would you anticipate your media spend might do as you look at '08 versus '07 and the percentage change or percentage of revenue, or anyway you want to (multiple speakers)?

We really haven't finalized the plans for next year. Generally, we've increased budgets in that area around 10, 15%. But we've still got a lot of work to do to understand just what the trade-offs of that will be. Clearly, we're not going to spend it if we don't see the volume coming with it. We've also demonstrated over time we will spend more than that if we're getting that (multiple speakers). So we are still working through that.

And then, Jim, maybe tax rate guidance going forward?

Yes, the tax rate -- we talked last quarter using a 38 rate and that really is the right number going forward. We did have some state rate adjustments in Q3, but that was a onetime, so you will -- it should be about 38 going forward.

Great. Thank you. Good luck.

Thanks. Brian, we have time for one more caller.

Edward Yruma, J.P. Morgan.

Thanks for taking my question. I'm trying to reconcile some of your comments here and you pointed to a slightly negative comp for the fourth quarter but improving sequentially. But against a backdrop of a much easier comparison, it almost implies the results deteriorate. Is that a fair way to think about it or am I missing something?

I think that it's -- I think what we are seeing and I think what creates a lot of the uncertainty is what we're seeing in Q4 obviously is a continuation of a deterioration of the macro; and I don't want to point to the macro as being an issue, but it is a little bit of a headwind. So I don't think I would necessarily look at that as a deterioration as much as we are making some improvements. We're seeing improvements in the overall same-store growth number and with the backdrop of kind of a difficult environment.

And I think the other thing I would say is I think some of the things we are really looking to, to improve the trends are the media, which won't be till next year, the marketing campaign until next year. So I think we are making good progress in what is a difficult environment, and our focus right now is improving the same-store growth trend.

Got you. And I noticed that ASP creeped up a little bit. And I know that you have predicated some of your recovery on trying to get consumers to trade up to a more kind of fully functional 7 and 9,000. Have you seen that trade up or is that still something you're looking for going forward?

We never really had a stated objective of increasing our mix. We increased our mix quite a bit about two or three years ago and we feel like the balance is there now. And what our objective is is to just raise total units with mix unchanged. Where we'll get some ASP growth is as we improve our accessory penetration and some of the other things like adjustable foundations into the mix.

Got you. Thank you very much.

That concludes our call. Thank you all for joining us.

Once again, thank you, all participants who joined today's conference. You may disconnect your phone lines.