TrueBlue Inc (TBI) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to Labor Ready's conference call. Today's call is being recorded. Joining us today is Labor Ready President and CEO Steve Cooper, and CFO Derrek Gafford. This will discuss Labor Ready's 2007 first-quarter results, which they were announced today. If you have not received a copy of this announcement, please contact [Lisa Litrell] at 1-800-610-8920, extension 8206, and a copy will be faxed to you.

At this time, I would like to hand the call over to Ms. Stacey Burke for the reading of the Safe Harbor. Please go ahead, Ms. Burke.

Thank you. Here with me today is Labor Ready's CEO and President Steve Cooper, and CFO Derrek Gafford. They will be discussing Labor Ready's 2007 first-quarter earnings results, which were announced after market close today. Please note that our press release includes an income statement, balance sheet and cash-flow statement, all of which are now available on our website at www.laborready.com.

Before I hand you over to Steve, I ask for your attention as I read the following Safe Harbor. Please note that in this afternoon's conference call, management will reiterate forward-looking statements contained in today's press release, and may make additional forward-looking statements relating to the Company's financial results and operations in the future. Although we believe the expectations reflected in these statements are reasonable, actual results may be materially different. Additional information concerning factors which could cause results to differ materially is contained in the press release and in the Company's filings with the Securities and Exchange Commission, including our most recent Forms 10-Q and 10-K.

I will now hand this call over to Steve Cooper.

Thank you, Stacey. Good afternoon, everyone. We're pleased to be with you today to discuss our results for the first quarter of 2007. This afternoon, we reported net income for the quarter of $10.3 million, compared to $11.5 million a year ago, with revenue of $290 million, as compared to $297 million in the first quarter of 2006.

Net income per share for both quarters came in at $0.21 a share. Our estimate at the beginning of the quarter for net income per share was $0.15. Derrek will discuss the details of the $0.06 improvement to our forecast later in this call.

Our estimated revenue for the first quarter was $280 million to $285 million. The estimate reflected about a 5% decline in revenue, which matched our January results. As we progressed through the quarter, we were able to turn our revenue results from a negative trend experienced in January back to a flat position, and actually showed growth in a couple of the weeks towards the end of the quarter. This positive momentum has continued into the first part of Q2, which we are showing flat revenue as compared to the same period a year ago.

We have experienced a positive trend change over the last six to eight weeks in the majority of our markets across the US, with the exception of Florida, which continues with similar negative trend experienced over the past eight months. Our revenue guidance for Q2 is flat, as compared to Q2 a year ago, at $340 million. Our revenue guidance for the back half of 2007 is showing slight growth of 2% to 4%, which brings our annual revenue guidance back to the range of flat to a positive 2% growth for the year.

Over the past three quarters, we have seen a slowdown in revenue growth related to residential construction activity and the cancellation or delay of residential construction projects, mainly in the Southeast. Although we have not seen the demand for unskilled workers growing, the negative trends have not worsened over the past quarter. This is a promising trend for us, and this is what is driving our estimate that we will return to growth in the back half of 2007.

We also reported last quarter that we had seen a general slowing in manufacturing across most geographies. We have also seen this trend turn around and start to show some positive signs that things are not worsening.

Although it is hard to tell exactly what part of the cycle we might be experiencing right now, we are pleased with the positive signs we have seen in the fundamentals of our business over the past six to eight weeks. We continue to believe that our services are vital for our customers in a volatile period, so they can scale back their labor costs quickly and efficiently as their business slows. That is a big part of the value we provide.

It's our job, as the management team here at Labor Ready, to execute through the challenges that come with volatility in demand. As demand picks up again for our customers, we will be there for them to help grow their businesses, help them succeed and, of course, continue to drive the operating leverage in our own business model. We have taken measures to control costs in several of our support services and administrative functions, which is allowing us to keep those costs from growing while we're in a soft revenue growth period.

During the fourth period of 2006, we closed 16 offices, and in the first quarter of 2007, we closed an additional six offices. We are also holding our branch openings to about 20 in 2007, as compared to the 50 we opened in 2006. Slowing our openings and accelerating closings are something we watch constantly, and we use as a method to control operating costs in softer periods of demand for our services. As the reacceleration in demand begins and we continue to see positive signs of growth, we will be prepared to continue to drive the leverage in our business model through same-branch revenue growth and accelerate our expansion plans.

Our CLP Resources Division, which supplies skilled labor primarily to the commercial construction markets, has been showing outstanding revenue growth during 2007, with almost 20% growth throughout the quarter. In comparison to our on-demand brand of Labor Ready, CLP Resources does not have as broad a geographic presence. Therefore, we believe the investment in new branches or a tuck-in acquisition in that division will continue to provide great returns on investment.

Our revenue growth in our international markets of Canada and the United Kingdom both have shown double-digit sales growth, which is exciting to see. Our UK market has struggled for over a year, and we are now showing the results that we felt could be produced there. Our strategy to grow revenue and profits includes diversifying the industries served and the skillset of workers placed.

This strategy has been executed through the acquisition of Spartan Staffing and the acquisition of CLP Resources. We are pleased with the performance of these acquisitions. They continue to make a positive contribution to both our revenue and net income growth, and they have produced excellent returns on invested capital.

Through the execution of our strategy to grow through acquisitions, we have not only provided above-average returns on invested capital; we have added depth to our management team, improved our own operating performance by sharing best practices across brands and, perhaps most importantly, we have established new regional platforms that we can expand and growth into a national presence. We will continue to explore further opportunities to acquire companies that are leaders in a blue-collar staffing niche that we can grow through geographic expansion and cross-utilization of customers and worker relationships between our brands. We will continue to approach this in a disciplined matter, to ensure returns on invested capital continue well into the future.

We remain confident with our business model of helping individuals grow and businesses succeed by connecting people to work. We are optimistic about the long-term demand for both skilled and unskilled blue-collar labor, especially in the small to medium-sized business markets, which is where our services are most widely used.

A component of our business that continues to contribute to our net income growth is the success we have had with reducing Workers' Compensation costs. While we have implemented a variety of programs to reduce the cost of Workers' Compensation, the most important driver of our results is our culture. Our safety culture continues to get stronger. It's something our people believe in. It's something they live and breathe every day. It's this kind of passion that will help us continue to produce strong results in the future.

We are proud of our consistent 20% return on equity and 12% return on assets over the past three years. We have purchased 8.9 million shares of our own stock or 16% of the outstanding shares over the past 12 months, and today we announced a new authorization to purchase and retire an additional $100 million, or approximately an additional 10% of the shares outstanding over the next 12 months. That will help us to continue providing great returns to our shareholders.

At this time, I'm going to open up the call to Derrek Gafford for further details on our operating and financial trends, and then we will open up the call for any questions you may have.

Thanks, Steve. Good afternoon, everyone. Well, the last three quarters have certainly been challenging for us, and our team has been working especially hard to deliver results. Since our results for the quarter significantly exceeded our expectation, I'm just going to go right to the heart of things here and reconcile our actual earnings per diluted share for the quarter to our initial expectation.

Earnings per diluted share of $0.21 exceeded our original expectation by about $0.06. This improvement was made up of four major items. First off, better-than-expected revenue contributed about $0.02. Second, lower-than-expected Workers' Compensation expense produced another $0.02. Third, SG&A cost controls provided about $0.01. Last, the combined impact of better-than-expected interest income and accretion related to stock buyback activity during the quarter added about $0.01.

So let's shift gears a bit now, and I'll cover some of the key financial trends of the business. Steve provided some insight earlier on the geographic and industry factors impacting our revenue performance, so I'm going to go right to the quantitative revenue components and trends for the quarter.

This quarter's sales decline of 2.3% came from the following four components -- same-branch revenue declined by 3.1%, sales from new branches provided 1.6% of growth, closed branches decreased growth by 1.2%, and other items such as courtesy fluctuation provided 0.4% of growth.

I also want to point out our monthly same-branch revenue for you. January declined at 6.6%, February declined at 4% and March was slightly positive at 0.1%.

Gross margin came in at 32% this quarter, which was about 30 basis points above our expectation and about 70 basis points above Q1 last year. There are a couple of trends in gross margin that I want to cover with you.

First, pay rate increases outpaced bill rate increases, reducing gross margin by about 50 basis points. About 20 state minimum wage increases did go into effect this quarter and, as we expected, we have not completely passed these costs through to our customers. As we approached the end of 2006, we anticipated that customers would be more price-sensitive, and that is exactly what we are experiencing. Average pay rate mix increased 4.4% and bill rate mix increased 3.5%.

The second item I want to cover is Workers' Compensation expense, which positively impacted gross margin by about 120 basis points. The bottom line here is commitment. The level of commitment within the Company right now towards controlling risk and bringing our workers home safely is at an all-time high in our culture.

Looking forward, our gross margin estimate for the remainder of 2007 is expected to be about 31.5% to 32%. Selling, general and administrative expense as a percentage of revenue was 26.7% for the quarter, which is higher than the same quarter a year ago of 25%. The increase as a percentage of revenue is related to the drop in sales this quarter, as compared to the same quarter of last year, as well as a larger mixture of CLP and Spartan Staffing branches, which carry a heavier SG&A load than the Labor Ready brand. But as I mentioned previously, cost control actions brought SG&A in lower than expected, adding about $0.01 to earnings per share this quarter.

Based on our current revenue estimate, we expect SG&A to be about 23.9% to 24.3% of revenue for 2007. For the second quarter, we expect SG&A of about 23.7% to 24% of revenue.

Our income tax rate for the quarter was 36.5%. For the full 2007 year, our income tax rate estimate remains unchanged at 37%. Our diluted net income per share guidance for 2007 of $1.40 to $1.45 is based on an estimated weighted share count for the year of about 47 million. The weighted average share count estimate includes the impact of all stock purchased so far this year, but does not include the impact of additional purchases that may occur.

Diluted net income per share for the second quarter of 2007 is estimated to be between $0.33 to $0.35. Capital expenditures were about $6 million this quarter, and focused primarily on investments in technology. We continue to expect CapEx in 2007 of about $12 million to $15 million.

The purchased 4.1 million shares of the Company's common stock for $77 million during the quarter. We also purchased another 600,000 shares since the quarter ended, for about $11 million, which competed our previous buyback authorization. The impact of the shares we have brought back so far this year will increase our diluted earnings per share for the rest of the year by about $0.06.

Over the last 12 months, we have purchased about 8.9 million shares of common stock at a cost of $176 million. As Steve mentioned, these actions have retired about 15% of the outstanding shares. Today, we announced a new authorization from our Board to purchase up to $100 million of common stock over the next 12 months.

Stock buybacks are an important part of our capital allocation strategy and our commitment to enhancing long-term shareholder value. The buybacks have allowed us to increase the return to our shareholders, while preserving enough financial flexibility to capitalize on strategic acquisitions.

Looking forward, our focus continues to be on driving same-branch revenue growth, due to the 20% incremental profit it produces. We will also continue to manage our capital using stock buyback or strategic acquisitions to maximize returns for our shareholders.

So that concludes our prepared remarks. We will now open the call for questions.

(OPERATOR INSTRUCTIONS). Jim Janesky, Stifel Nicolaus.

Do you have a sense for what portion of the growth for the quarter had to do with better-than-expected weather seasonality, and where the growth came from, outside of the construction market?

Yes. We have looked at that fairly close, Jim, and if anything, I think weather had a little bit of negative draw towards the end of the quarter, as we saw in the Northeast and the upper part of the US. It seemed that there was a little bit of a draw this year versus the opposite. There might have been a little bit of pickup from hurricane, but we can't -- it's so immaterial that it's not easy for us to pull that out and explain what the weather patterns may or may not have had to do with our results.

Can you talk about, then, where you saw the strength -- if it was outside of CLP, where the strength was coming? You said it was pretty geographically diverse, so within what industries?

Really, all the industries kind of stabilized. It's such a slight change in momentum that nothing has blown the roof off here. It's across the board in construction and manufacturing, our two largest industries, just slight momentum change.

As I mentioned in my prepared remarks, Florida still continues to have year-over-year struggles. Again, that's somewhat related to -- well, heavily related to residential construction, but somewhat related to no hurricanes blew through the tail end of 2006, so there's no cleanup this spring. But the two things combined hold Florida fairly consistent. Their large falloff was almost like stepping off of a curb; it just fell quickly and then somewhat stabilized in Florida, and has been at this 15% to 20% decline for quite some time now, nine months. That gives us a little positive momentum heading into the last half of 2007 that with the consistency week in and week out, what we see going on in Florida, that we will be back into a growth mode when we get into the tail end of 2007.

Other than that, the rest of the geographies are all holding up fairly consistent, besides the ones -- well, I pulled out the CLP brand and told you what was going on there. In the international markets, although it's somewhat immaterial to the overall results, we're quite pleased with the results we are getting in our international markets.

In terms of the minimum wage pass-through, that is obviously easier when growth is more significant in GDP and the overall economy. Do you still kind of plan in your forecast that that's going to be difficult to pass through for the remainder of the year, or do you think it will get better in the second half of the year?

It's hard to say on that. We are watching things really day by day here. The one thing that we knew for sure is -- well, not for sure, but that we had high expectations on, is as we entered 2007, we imagined there being some sticking here.

I guess really, to answer that question, it's going to depend on what we see as far as demand later on during the year. If demand picks up and comes back strong, I think it will be easier for us to pass that through. Our overall gross margin guidance -- we have given that at 31.5% to 32%. That's really our best estimate right now, overall.

Craig Peckham, Jefferies & Co.

Steve, you spent some time talking about the macro level changes that you're seeing. Could you elaborate a bit on what, if any, benefit is coming from some of the tactical changes you have made, perhaps focusing on different industries and, at the branch level, some changes in the sales model, if any?

Well, there's no doubt that we were in hustle mode in September of 2006, especially in the Southeast, where they had really been relying on residential construction. That's where we spent most of our time talking about that, is how do we shift from this model that everybody you could find, you could put them out on a construction site to, all of a sudden, those construction sites have been pulled out from underneath us, and there's plenty of available bodies around.

So we went from most of our effort in the State of Florida was finding people to back to what the rest of our company faces, is there's a plentiful amount of people and let's get them to work every day. So there was just a little bit of shifting down there. Across the board, we have rallied. We have put some sales tools together that focus on selling into various industries. I know that that's making a difference.

Obviously, the headwinds that we faced don't appear that they have pulled back that much, but our own results are fighting against them. I will attribute that to our hard-working employees and change in sales efforts. So I think the momentum shift was played to by exactly what you're asking, Craig, that the internal shift in sales momentum.

Do you think it's safe to say, then, that Labor Ready is taking some share in the on-demand business?

It's probably a little early to make that call right now. These are subtle shifts. We're excited about them. It gives us a great hope that 2007 is going to come in as we had projected, and we are working hard to live up to that. In our business, it's a day-in and day-out, feet-on-the-street business, and you can't give up for a moment.

The shifts that we have made in Florida are paying dividends. We have that business moving again, even though it's still in a negative year-over-year position. The teams down there are definitely making a difference. I can't comment on market share right now; it's just too early in the year to say.

Fair enough. I wanted to follow up with a question on capital allocation. You have got about $140 million or so in cash and marketable securities at the end of the quarter, a $100 million share buyback intended for completion by the end of the year, maybe some possible acquisitions out there. Can you give us a sense for how you think about the balance sheet, as it pertains to perhaps adding some debt, and remind us or give us a sense for how much cash Labor Ready needs on the balance sheet to handle the day-to-day?

As far as the last part to your question, Craig, depending on the time of year, it's probably between $40 million and $70 million. There's a little bit of a difference there, because as we move into the summer period, we need to finance the receivables. We have got about $20 million of cash that's in our cash dispensing machine network out in our branches.

As far as capital allocation going forward, we haven't discussed any targets for debt numbers, but it has always been a question about opportunities, both from the acquisition side and our own stock. So we are not opposed to throwing some debt on the balance sheet for the right opportunity. But I don't have a dollar amount there for you.

T.C. Robillard, Banc of America Securities.

Derrek, the 600,000 in buyback that you guys did post the close of the quarter -- is that in the shares outstanding guidance you gave for the full year?

Yes, so the guidance that I gave as far as weighted average number of shares at the end of the year of 47 million -- that includes everything that we have purchased up to date through now, which is what we have disclosed in the press release.

Where you have seen the pay rate now running faster than the bill rate, which you guys explained, is that something that it's safe to assume, to expect that kind of disconnect or running the other way now for the rest of the year? Is that how you guys have modeled out your revenue and earnings guidance, off of that?

I don't want to get too granular here in our guidance, because there's a lot of things in gross margin, including Work Comp and payroll taxes. We can be wrong on one and right on the other and come out just fine in our guidance, and that's kind of the way we look at it.

But thinking about this directionally, we have not seen any sign of that coming back at this point in time. So through the quarter, that gap that I mentioned was pretty constant through the whole quarter. I can't say that there's a trend on that shortening that we have seen based on our own experience yet.

Actually, you brought up the Workers' Comp stuff. You guys obviously have been doing a great job there. But it's certainly something where you have been positively surprised every quarter for quite some time now, and there was $0.02 impact or benefit for you this quarter. How much of that is a result of the fact that you have seen a slower mix or a lower mix out of your construction business because of the slowdown over the last several quarters, versus just better safety programs and the actuaries just not really having been able to catch up to your programs, in terms of how conservative they tend to be?

It's really a blend of what you're talking about. But for starters, we reduced our accident rates another 15% during 2006. Part of that could be attributed to a slowdown and a mix change in construction. But most importantly, it's proactive steps that we have taken. As we mentioned in our prepared remarks, the culture that is being expanded around here, and we find at a deeper level every day of that caring for these workers and ensuring that no injuries are taking place, and the amount of celebration that takes place in every branch at the end of every month when there's been no accidents -- those things go a long ways.

So the culture is driving this reduction in accidents, and that's what's driving -- we can call it a surprise or a reduction in the prior-period reserves that are established. The actuaries allow us or guide us to setting up reserves based on our current run rate, without regard to reducing accidents another 15%. So that's what's driving most of it, is three-plus years in a row, we have had 15% plus reductions, and that will continue to bring surprises. Now, when the accident reduction slows down, the reserve adjustments will slow down a quarter or two behind it.

Last call, you talked about the lack of leverage in the model because of the sales trends, when you looked at things on a year-on-year basis. You had mentioned that there really wasn't a lot of low-hanging fruit, because of how active you guys had been in terms of managing the costs as came out in the last cycle. But obviously, with revenues down 3% in this quarter, you guys still had great leverage to the bottom line. Can you help me reconcile your comments last quarter versus what you guys were able to do, even though you still had a negative headwind in terms of the sales environment?

Yes, there's probably a couple of things I'll comment on. The one thing that we have been really clear about over the last three quarters is just framing expectations that there's not huge chunks of costs to cut out. So we have been really direct about that. We've been really candid about that, so that we are all clear on what the cost structure looks like.

We did make a little bit of progress this quarter, about $0.01. To us, that's not a huge amount, but we certainly appreciate it.

It wasn't any one big thing, either. Now, probably the biggest is Steve has talked to you about some branch closures that we have done over the last couple of quarters. But that $0.01 that we picked up -- it was just all across the board. It was a dollar at a time by all 3,500 employees in the Company. So that's probably about the best commentary I can give you.

Thanks for the color and nice job on the quarter.

Jeff Silber, BMO.

Let me add my congratulations as well. I was wondering if I can get a little bit more color on the 2Q guidance. I know you gave a lot of detail for the full year. If you said this already, please forgive me. But in terms of same-store revenue growth, what are you implying in your guidance?

It's pretty much flat. We don't really give same-store sales guidance, Jeff, but you can see that new store growth has been running 1% to 1.5% of growth, less anything that we close. So it's flat same-store sales growth to slightly negative, but we just don't give that one specifically. But that's pretty close.

How about on gross margins again, just for the quarter?

The guidance that we're giving on gross margin is really both for the quarter and the rest of the year at 31.5% to 32%.

Again on the share count, just for the quarter?

The share count just for this quarter?

Yes, for the second quarter.

I'll have to loop back with you on that one. Well, hold on a second. Actually, why don't we go to the next question, and I'll --

That's fine, that's okay. In the tax rate, the guidance for the year is the same as for the quarter?

Yes.

Just curious -- tax rate was a little bit lower in the first quarter than expected. Any specific reason why?

You know, it really wasn't. In the first quarter, there's a lot of little things in there. The difference between 36.5% and 37% is like $80,000.

That's fair enough. As long as you're looking for that, I just had a question on the gross margin side in the first quarter. Workers' Comp expense as a percentage of gross margins -- what was that?

Workers' Comp as a percentage of revenue was about 5% for the quarter.

Thanks for correcting me on that one. Were there any reversals of prior accruals in there?

There was. There was a reversal of about 1% of revenue.

Is that something you're expecting, going forward, to continue?

That gross margin guidance that we have given you is our best estimate of all factors impacting gross margin for the rest of the year.

As a follow-up answer, number of shares -- around 46.7 million to say 46.9 million shares.

You had mentioned in terms of passing through wage inflation -- obviously, it was a little bit difficult to do it in the first quarter. Is there any timeframe you're providing, based on your guidance for the year, when that will happen?

No, we're not really providing any timeframe on that one, Jeff. It's tough. The pass-through of that and the closing of that gap -- there's going to be a strong correlation between that and increase in demand. As you know, we don't have that type of visibility through the rest of the year. So I wish I could provide a timeframe on that one, but we can't.

That's fair. Just a couple of quick ones and I'll let somebody else jump in. Also in the press release, you talk about 10 to 15 new branches being opened. Is that net of expected closures?

No, that's just new branches. Any closures would be a reduction in that on a net basis.

Any guidance in terms of potential closures, or is that something you are going to deal with as the year goes on?

I don't really have a number to share. That's an area we keep our eye on month by month, and will vary based on activity that we see in the business. But I don't have any -- there's none that are immediately pending of any size.

You talked about some of the strength in the UK and Canada. Can you give us a rough range in terms of how much that is as a percentage of your business, and maybe a little bit more color in terms of what's going on there?

Well, what's going on is just some great leadership. We've increased our sales training to that group. We have restructured our middle management group. The leader that was running our Canadian operations for the last eight years moved to the United Kingdom last year. His impact on the ground there leading them through what it takes to run this on-demand business has been fabulous, and then the sales training that he has brought to them and instituted and followed up on a weekly basis. He's put great follow-ups in place, just fundamental blocking and tackling, what it takes to run that business. That's what turned those revenue rates up in the United Kingdom.

Canada was somewhat just of a geographic -- they have been through all kinds of things, with the exchange rate getting pretty tough and manufacturing sites just shutting down at the end of last year, because they couldn't ship goods out of Canada because of that exchange rate. That came back a little bit this year, and I think that has helped manufacturing pick back up, especially in eastern Canada, around Toronto and such. So I think that has helped our Canadian results.

Again, as a percentage of revenues, what are those two units?

Roughly speaking, international's around 7% to 8%, and it is fairly well split between those two. I could be off by a point there, but that's pretty close.

That's close enough, and thanks again. I'll let somebody else jump on.

Michel Morin, Merrill Lynch.

Steve, I think you mentioned CLP was up close to 20% in the quarter, and I just wanted to clarify -- is that on a same-store basis, or is that total revenue?

That's total revenue.

How much of that was organic?

There was probably about 7 or 8 points of that's from new branch growth.

So close to low teens type of organic growth, which would, I guess, be a bit of an acceleration from where you had been in the last couple of quarters?

Slight, but CLP has been doing pretty well through 2006 and even in the back half of 2006. So it might be a slight acceleration, but they have been doing pretty well.

I remember I think you were saying that you had essentially excess demand at CLP, unfilled orders. Is that still the case?

Yes. It has closed slightly, but not enough to really measure. It runs between 8% and 10%, most times, that backlog of orders that are outstanding that we can't get filled. So there is a little bit of opportunity to use that as a cushion, but we haven't felt that we've gone there. This just seems to be great demand, still, in commercial construction for skilled trades.

Is the unfilled orders -- are those coming down because of your improved ability to recruit, or has demand fallen off a bit, or is it a mix of both?

It's too hard for me to tell from here. I don't have that kind of information.

On the M&A front, Steve, is there any change in terms of the pipeline? Are valuation expectations maybe looking a bit more reasonable than they were six months ago? How is that situation evolving?

I think we are starting -- we are probably at the front end of that, Michel, that historically, on-demand in the staffing industry and what we have experienced here at Labor Ready, we're about six or eight months ahead of the staffing industry in general, and we're starting to see and hear that general staffing are starting to feel what we felt six and eight months ago. When they are at the front of that, and they start seeing that they are not growing at 10% and 20% and they are hanging around flat, they might shrink one week and they might grow a little bit, but they are starting to feel some falloff, that I believe that the price or what they believe their businesses are worth comes back into more realistic terms.

You talked about cost containment and you elaborated on the branch openings. Is there anything else in terms of cost containment that you are doing, or that you might be able to do in the coming quarters, or is it mostly about the branch count?

Well, the branch count has certainly helped some. I point out branch count because even though those are small in comparison to total SG&A, it's the biggest category that I can point you to. If I was to go through what we have been working on, I would have to go through a list of 20 or 30 items, $50,000 at a time. So it's just spread across the business. It's incremental and just smart dollar spending across the board.

Mike Carney, Aperion Group.

You have done such a good job, I think I'm pretty much out of questions here. But maybe, Steve, in terms of the acquisition strategy, do you think it's more likely that you would find an acquisition as an add-on to Spartan or CLP, or do you think it's more likely that you'll find an acquisition that's going to give you another occupational skill, another occupational focus, like let's say logistics or planned events?

Our focus right now is blue-color jobs, which both of those that you just named would be in that category. But probably first and foremost is I think that there's an opportunity or two to do a tuck-in or fill-in geographically for our CLP, our skilled trade division. That's something that we would be excited about, fill in the geographies there.

With Spartan and that world, we're only a Southeast-based company at this point in time. There's an opportunity to grow geographically and increase the type of service that we do and, namely, what you said, the logistics work and transportation work seems to be exciting for us.

We have not gotten extremely aggressive in those areas. Like I answered the last question, the valuations have not been in line, especially in relation to our own valuation over the last year, and I think that's why you've seen us turn and buy 8.9 million shares over the last year, is based on our own valuation in comparison to what these other companies might be worth. So will that pendulum swing back a little bit in 2007? It might. We are patient, and we know what we're out there doing is producing great cash flows from our core business, and we will look to not only grow the Company through the top line of doing an acquisition, but continuing to provide great returns to each shareholder by supporting the earnings per share through share repurchase.

Did you mention flat revenue in April, approximately zero?

Yes. We are just into it for a couple weeks, and Easter flipped between this year and last. So it's not comparable weeks, but we're trying to put it all together and things feel like on trend. The way we finished March was, as Derrek had mentioned, same-store sales were slightly positive in the month of March.

In terms of the 10 to 15 additional openings this year, is that still CLP and maybe Spartan?

Yes, for the most part. 10, 12 of those will be CLP's, four or five will be Spartan's and four or five will be Labor Ready's -- something like that.

Christina Woo, Morgan Stanley.

You just talked about the number of offices you're planning on opening. I was hoping you could comment, for the branches that you opened in the quarter, what the brands were.

Yes. They were one Labor Ready, two Spartan's and --

Four CLP's.

-- four CLP's.

Geographically, the CLP brand, I know, still has a lot of expansion to go. Are you purposely targeting brand-new areas, or just bleeding out from the areas where you already exist?

These first set of openings were fill-ins to existing leadership gaps -- or not gaps, where we had existing leadership ready to go. It's fill-in markets; we really haven't done a big press on geographic expansion yet.

The branches you closed -- where they all Labor Ready brand?

Yes, and the majority of those were in the United Kingdom.

In the past, you have talked about 39% of your revenue being driven by construction, with about one-third of that being residential and two-thirds non-res. Do you have any update, given the slowing in the residential construction market, of the overall exposure you have to non-res and residential construction?

We really don't have much of an update to that. It's hard for us to build those estimates on any given week and week out. We can look at those trends over a quarter or a year a little bit better, but at this point in time, it's hard for us to pull that out of how much might be residential versus commercial. It's just based on the SIC codes of these contractors we're working with. But that's probably all I can tell you.

I think T.C. had gotten at the topic of looking at safety based on a shift away from construction. I'm also wondering if your CLP branch -- is there any marked difference in the Workers' Compensation claims from the more skilled workers?

No, the rates are running -- they run pretty close to the same.

Clint Fendley, Davenport & Company.

Congratulations, guys, on a great quarter here. Steve, I wondered if you could comment -- how have you seen your competitors react to the changes in the minimum wage? Do they generally pass these costs on quickly to their customers, or have you been seeing a lag here?

I believe we have to be seeing a lag, because of some of the things that Derrek had talked about, the competitive front that's out there. When we started 2007, knowing that we had had the two soft quarters heading into 2007, that we felt that it would be a difficult year for two reasons -- one, the soft conditions we felt at the last part of 2006; and, two, the fact that there were so many states, 20 states, that were pushing minimum wage increases on top of that, that it was going to be a little bit difficult. It did pan out that way.

Now, we put extra effort into it this time of communicating with customers upfront and making sure that we had the bill rates set. If there's anything our teams do great is managing gross margin. They know right to that hundredth of how much gross margin they are going to get on that next sale. So we haven't fallen down in that area at all. This is definitely a competitive front, and a competitive situation.

So I can't give you any direct quotes or anything like that from our competition, but we are in touch with these folks. Our teams are out there every day, day in and day out, and the competitive fronts on pricing are definitely difficult. That's what's caused us to give up this 50 basis points in gross margin this quarter.

You have talked a lot about your new branch openings. Could you talk a little bit about the factors that you consider when you are closing a branch? Obviously, they have been skewed towards the UK. But if you looked back at even some of the closings that you did at the end of last year, just what your considerations there are before you would shut a branch down?

Well, probably two-thirds of the -- maybe 10 or 12 of the 16 we closed in the fourth quarter just were not hitting profitability standards. So you give them some time and you get into a point where the conditions fell off, and we just didn't believe that hanging onto those 10 or 12 offices during 2007 was a smart thing to do. Even if we couldn't save the customer relationship, the profitability standards of that location weren't up to par enough to keep it open. So we were able to make the decision on those 10 or 12.

About six or so of those that we closed in the fourth quarter were true consolidations, where here's two branches that are not doing all that great. They are both making money; we don't want to close or walk away. They are close enough in proximity to each other that we're able to do a consolidation of the two, and make sure those customers continue to be served. So that was kind of the fourth-quarter story.

This first-quarter story really has to do mainly with the United Kingdom. We made that decision also in the fall, that we were going to go down this path to figure out what's the right size for our current demand in the United Kingdom. It's just that we have too many branches that, again, weren't up to profitability standards.

So looking forward from here, we think that we have the right branches and the right profitability standards. As Derrek answered earlier, we don't anticipate closing any more offices at this point in time. But we watch this monthly as these reports come in, and we know -- we have a watch list that we keep our eye on of these offices, the bottom 50 offices and what is it going to take to turn them around and the action plans that our management teams are working on to turn those around.

Once they're given adequate time and the action plan is real and gets some traction, then it's easy to make a decision to say, even in a given economy. But it's easy to make a decision to say, in the given economy, given circumstances of that one branch, it's time to close it or invest more in personnel or [a van] or whatever it may take to get that branch up to profitability.

So there's lots of decision points, I guess, what I'm sharing with you here. But the ones that we did close were mainly due to profitability standards not being met.

If I remember correctly, on the UK, in the past, you have had maybe a couple or few clients that were very meaningful, at least as far as just the UK goes. Is the strength that you're seeing there now fairly widespread across the board for the locations that you have within the UK? Or is it skewed towards any --?

Absolutely. Yes, absolutely. This is being produced by our standard what we call onesie-twosie business, placing one or two workers at a time, a customer here, customer there, which is really exciting for us because that's not how we built the United Kingdom in 2004 and 2005. So this is great news to us. Our number-two branch system-wide is in the United Kingdom right now, and that branch is built by placing two workers, one or two workers at a time. That's very exciting to us to see.

Thank you and congratulations.

(OPERATOR INSTRUCTIONS). Mark Marcon, Robert W. Baird.

I was wondering -- in the last conference call, you mentioned that you might be able to give us some updated breakout, in terms of how much is construction versus manufacturing, et cetera. Are you able to do that? I know that there's been some very specific questions, but I'm talking about for 2006.

Going backwards for 2006?

Yes, looking at it for the full year of 2006, or however you've most recently measured it.

I think probably where your question is coming, Mark -- and correct me if I'm wrong -- is consolidated, now that we have a couple different brands. We have pretty good information on the Labor Ready brand. That's about 85% of our business right now. Within that 85%, we still have pretty good insight to our mix.

Okay, what's that?

Construction overall that, before we blended CLP or Spartan in, was running about 33% of our business, and today the Labor Ready mix is 28%. So manufacturing is still running at about 20%. So there's been a little bit of shift over into retail and into services.

How much have those become?

Retail is currently running at about 10%, and services and other is running at about 20%. So they have picked up what the construction has changed.

Now, that's a good mix shift. Then from a seasonal perspective, how important is construction during the first quarter?

Well, the first quarter usually runs about 20% of our annual business, so about 5% falloff is usually due to construction in itself. I don't really -- don't understand your question further than that. I guess, if construction was equal to the second quarter, instead of producing $280 million, we might have produced $340 million. So it might be as much as $60 million, if you will.

I was just trying to get a sense for -- because the tone of this call, Steve, has been a lot more positive than the last call. The last call -- I was just reading the transcript one last time right prior to this conference call, and you were talking about how you were seeing a wave of slowing in construction, and that was having a fairly significant impact. As the last three months and going into this month have unfolded, it sounds like things have done better.

Well, I appreciate your perspective on that and that you've recognized that. For us, it's that if you go clear back to July and you look at our same-store sales trends, between July and October, they just stepped down slightly. Each month, it got a little bit worse, got a little bit worse. Then we fell into the negative tone in November. Clear into January, it was still getting worse. As Derrek reported here today, 6% same-store sales declines in January.

So when we were on that call the first of February, we don't know if it really has stabilized. Now we have had two months were it didn't get worse from there, and that does feel good. That would be enough to change our tone to be pretty exciting, because two months -- now, although it's in the same quarter and it's the winter months and we don't know what's going to happen with construction, there's lots of if, if, if's. But just to see some bounce, even though it's not in a positive area, strongly -- we're excited.

We get asked, what about construction and do you think it could get worse in the last half of the year? Well, it got so bad so quickly for us in the last half of 2006 that the comps get easier for us. So it's got to get quite a bit worse, construction in general, to match how fast we stepped off that curve in August-September of last year.

In terms of the projections for the full year, should we take them really as projections? Or should we say based on what you are currently seeing, here's what we would assume that revenue could come out like, and this would give you a barometer for if revenue is at these levels, then our expenses, our gross margins, et cetera, are projected to be at these levels?

It's the latter of what you just said. So when we go to do our forecasts for the rest of the year, what we're doing, both for the second quarter for the rest of the year, is taking the run rate that we see now and seasonally adjusting that to the rest of the year.

The primary reason we do that for the rest of the year is so everybody can see what our cost structure looks like at those revenue rates. So we're not trying to tell anybody that we've got additional clarity, or have a crystal ball on what will happen revenue-wise during the back half, nor do we project turnarounds in the economy. It's all about our currently adjusted run rate going forward.

So you're basically assuming the economy stays as it currently -- as its current state?

That's right, status quo.

How was Florida? How did that trend -- were you able to replace that construction work over there?

Well, Steve gave a little bit of indication here that Florida stepped off of a curb. Since the October timeframe or so -- or, excuse me, around the September-ish time forward until now, Florida has been in about this -15% to 20% year-over-year range, as far as sales decline. So it has not gotten better, but has not gotten worse.

At this time, we have no more questions in queue. I would now like to turn the call back over to Mr. Steve Cooper for final remarks.

Well, we appreciate you being on the call today with us today and asking so many great questions. As shown in these last couple of questions here about our tone on this call, we are excited about the bounce that we have seen. Obviously, with the guidance that we have given and not taking the second half of 2007 up, we're not overly bullish -- more bullish than we were when we started the quarter. But we're excited about the momentum that we have created going into the second quarter. So we look forward to updating you as the quarter goes on. Thank you.

Thank you for attending today's conference. This concludes the presentation. You may now disconnect and have a great day.