Tandy Leather Factory Inc (TLF) 2007 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Tandy Leather Factory 3rd quarter 2007 earnings conference call. At this time, all participants have been placed on a listen-only mode and we will open the for that for your questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host Shannon Greene. Ma'am, the floor is yours.

Thank you. Thank you for joining us for our 3rd quarter 2007 earnings conference call. I am Shannon Greene, Chief Financial Officer of Tandy Leather Factory. Ron Morgan, our CEO, and john Thompson, our Senior Vice President, will be joining me during the Q and A portion of our call.

Before we get started I should call your attention to the fact that these conversations will contain forward-looking statements. To the extent that we Tandy Leather Factory management speak to any future event. You are reminded of the inherent uncertainties of looking into the future and that there are risks to Tandy Leather Factory that could prevent these events from occurring in the manner foreseen. Please see our form 10-K for 2006 for a discussion of some of these risks. Copies of these documents are available through the SEC's Edgar system. Also statements made today by management are made as of this moment and we disclaim any duty to update those statements.

As you all know, it's been another disappointing quarter and a very long week. I don't that know there's much more that I can add to the press releases that have gone out this week. It is what it is and we offer no excuses. I will tell you that despite the last two quarters' results, this management team is smarter than we look right now and we know what it takes to be successful. We made decisions based on our expectations about sales, about customer spending trends, et cetera and we stand by those decisions.

Should we have reacted faster? Absolutely, but it's time to move forward and as evidenced by our announcement about our expansion into the UK early next year, we're prepared to do that. Our balance sheet is in decent shape although it has changed some this quarter. Our total assets are more than $37 million as of the end of September, up $5 million from the end of December. The increase is due primarily to the purchase of the building that is to become our corporate headquarters in the first quarter of 2008.

Our cash position has decreased 45% since the end of 2006 currently at $3.7 million. Our inventory is up $3.5 million since December. Trade accounts payable is up $500,000. We have $4 million of debt on our balance sheet, again related to the building purchase.

Here's a quick run through of the numbers for the quarter in the year. Our 3rd quarter consolidated sales were 2% higher than those of last year's 3rd quarter. Current quarter sales were $12.8 million. Wholesale leathercraft sales were $6.9 million this quarter compared to $7.1 million a year ago, a decrease of 2.1%. Breaking it down further, the 29 same stores posted flat sales reporting sales of $6 million, the same as in the third quarter of 2006.

Our national account sales group posted a 30% sales decrease for the quarter reporting sales of $783,000 compared to $1.1 million last year. We've mentioned before that national accounts is not a primary focus point for us and it continues to become a smaller part of our business. In addition we have also stated that we will be losing Wal-Mart as a customer early next year, so it is possible that sales declines could continue for the foreseeable future.

Our retail leathercraft division reported sales of $5.6 million compared to last year's sales of $5.1 million, an increase of 10.5%. Sales from the 10 new stores were $338,000 this quarter, the 61 comparable stores posted sale of $5.3 million an increase of 4.6% compared to last year. Consolidated growth profit margin for the quarter was 54.2%, declining from last year's gross profit margin of 56.2%. Wholesale profit margin is down from 51.1% to 52%. Retail leather crafts gross profit margin declined from 60.4% for the 3rd quarter '06 to 57.5% for the 3rd quarter '07. Consolidated operating expenses were $6.8 million or 53% of sales in the current quarter compared to $5.8 million or 46.2% of sales last year. Wholesale leathercraft reported operating expenses totaling 51% of its sales versus 41% last year. Retail leathercraft reported operating expenses totaling 56.5% of its sales currently compared to 53.4% last year.

As our press release indicated, the significant increases in operating expenses are in personnel costs, advertising and marketing, legal and professional fees and depreciation expense. The depreciation expense increase is related to the lease hold improvements here at our current corporate facility. Now that we know we will be moving and abandoning those assets we have to accelerate the depreciation associated with those assets between now and the end of the 1st quarter of 2008 in order to get them fully written off by the time we move.

The other issue associated with operating expense is that the support unit income comes in the form of overhead charges at the stores. For example our advertising budget is 7 to 8% of sales and the stores are charged their share of that cost based on their specific sales. If we spend more than that amount, corporate has to absorb the excess. Since the support units' budgets are based generally speaking on sales there's a direct correlation to corporate's expenses.

Said another way, as sales increase, the support units can afford more expenses because their income is increasing. This year's sales are flat. That means our corporate expenses need to be flat, too, and that's where we messed up. If the support units spend more the overall profits of the company will go down.

I will say again that spending money on advertising is something you will not hear us apologize for. We said before that our advertising and marketing efforts are why we sell product.

We firmly believe that if we cut back on advertising it's virtually guaranteed that we'll lose sales and customers. Besides the fact that postage went up this year, we may have tried too hard in our advertising campaign mailing deeper into some of the mailing lists, et cetera. However, in most cases that will pay off for us at some point in the future. Legal and professional fees in which I've included our investor relations effort are up from last year. Besides the obvious things like the building purchase and increase in our auditor fees we've gotten much more aggressive this year defending our intellectual property, specifically our product trade marks.

Mark Angus, our Vice President of merchandising is doing a great job of policing that and we probably have six to eight infringement cases going on at any given time. We believe it is important to establish a reputation in the market that we will not tolerate knock-offs and we're tough on those that try it.

Unfortunately the legal bills add up in a hurry. However, we strongly believe that these efforts will pay us dividends in the future. If someone wants our product, they'll have to buy it from us if a knock-off is not available. That sound like potential sales to me.

We have also invested in the legal protection of our trade name abroad. Now that we have announced our UK expansion plans that should make more sense. We'll talk about that in a few minutes.

Income from operations was $105,000 for the quarter, down $1.1 million or 92% compared to the 3rd quarter of 2006. Wholesale leathercraft operating margin was 0.5%for the quarter, retail leathercraft's operating margin was 1% for the quarter. For the nine months result consolidated sales are up $325,000 or almost 1% over the same period last year. 2007 sales are $40.7 million compared to 2006 sales of $40.4 million.

Wholesale leathercraft sales are $22.1 million this year versus $22.9 million a year ago, a decrease of 3.6%. Retail leathercraft sales are $17.7 million compared to last year of $15.9 million, an increase of 12%. Consolidated gross profit margin for the year is 57.1%, up from last year's margin of 56.5%. Wholesale leathercraft's gross profit margin increased 56.1% this year compared to 55.6% last year. Retail leathercraft's gross profit margin is 59.1% currently versus 60.8% last year.

Quick reminder about gross profit margins.

We're probably the only company I know that sets retail selling prices once a year and sticks to those prices throughout the year. Our retail selling prices are set in conjunction with the production of our annual catalog every October. We have to accurately predict cost fluctuations for 12 months into the future in order to maintain margins. If our margins hold or increase then we did a good job of estimating cost fluctuations. If margins suffer then we didn't predict as well.

Our new catalog was distributed October 1st. That normally results in at least a partial recovery in the 4th quarter of some of the margin loss during the 2nd and of 3rd quarters.

Consolidated operating expenses were $20.5 million or 50.3% of sales in the current year compared to $17.7 million or 44.1% of sales last year. Wholesale leathercraft reported operating expenses totaling 48% of its sales versus 39.5% last year. Retail leathercraft reported operating expenses totaling 54.1% of its sales currently compared to 52.4% last year. Income from operations is $2.7 million this year, a decrease compared to year-to-date 2006 of 45%. Specifics on the Tandy source performance 3rd quarter results are as follows. Sales $5.7 million, gross profit of 57.5%, operating income of 1%.

And looking at the store performance based on the year open the gross profit margin ranged from 62% to 58% and operating income ranged from 11% to negative 1%. Looking at the individual stores, average monthly sales ranged from $90,000 per month to $13,000 per month and operating margins ranged from 20% to losses of 25%. For the 3rd quarter of 2007, average monthly sales per store was $27,000. The stores opened in 2002 had average monthly sales of $37,000 per store. The 2003 stores averaged $30,000 per store. The 2004 stores averaged $31,000 per store. 2005 stores averaged $22,000 per store and the 2006 stores averaged $20,000 per month per store.

For the first nine months, we have 19 stores with operating losses totaling $308,000. Seven of the 20 stores are new opened in 2007 and their combined loss totaled $112,000. We have six stores open in 2006 with a combined operating loss of $74,000. Three were opened in 2005. Their loss was $92,000. One opened in 2004, had an operating loss of $5,000, two opened in 2002 have operating losses totaling $24,000.

Wholesale leathercraft results for the 3rd quarter are $6.9 million, 52% gross profit margin, 0.5%of operating income. Year-to-date $22.1 million gross profit percentage 56.1%, operating income of 8.1%.

All of the 29 distribution centers posted year-to-date profits as of the end of September and operating margins range from 1 to 17%. Mid-Continent Leather sales, our new distribution center acquired at the end of January, is posting average sales of $70,000 per month.

To summarize, we all recognize that the 3rd quarter results fell woefully short of our expectations internally and externally and we know why. To state the obvious, when sales are flat expenses cannot increase if earnings are expected to grow. Our expenses increased when sales didn't. It's really that simple. Our job now is to get expenses down because I don't think sales are going to get my better for a while.

I have been asked several times this week about some of the decisions we've made this year. I can assure you that had we known a year ago that sales would be off this year, we would have made some different decisions. Specifically, we probably wouldn't have decided to pull the trigger on the new building, not because we don't need to move but simply because the timing isn't good. However, we made the decision to purchase the building and while the move in the 1st quarter of 2008 is going to be painful, it needs to happen.

Something else we haven't talked about much is the reformulating of our liquids line this year. It's something we've been working on for a while due to new state regulations. Did it cost us money? Yes. Not necessarily huge dollars, but right now every dollar counts. But if we didn't do it we wouldn't be able to sell our liquids in certain states. We've already been made aware that California will be shopping our stores to make sure we're complying with their new regulations. The companies that haven't made the appropriate changes will be hurting in the not too distant future if the states are as aggressive in enforcement as we expect them to be.

Our position on defending our intellectual property.Did we have to take that on this year? No. We could have waited. However, we took the position that every day we let others sell knock-offs of our product is one more day that we let someone else have our sales. We made the decision last year to get aggressive on this type of thing and given the year we've had, this year it's cost us. Intellectual property attorneys are not cheap but we believe the money we're spending now will pay off in the long term.

That leads me to the last thing I want to mention before we go to Q and A and that's the announcement yesterday about our UK expansion plans. We have been studying the UK and European environment for a while. Tandy is still a name recognized there. We also recognize that the only way to be successful in that endeavor is to have good people to get it off the ground and we believe that we -- and we believe we have that in John McNivens, the president of our Canadian operations.

John has been in the business for a long time with president of Tandy Canada back in the '70s when Wray Thompson was president of Tandy U.S. He has done a fantastic job developing our store system in Canada, is very familiar with currency exchange issues, et cetera. In evaluating all of our personnel,l he is certainly the most qualified to take on this task.

John has agreed to move to England for a year to get our UK operation going. He knows how to set up stores and he knows how to develop customers, but the window of opportunity for us with John is limited. He hopes to retire soon after he completes his year in England. That helps push us to the decision to move now. In addition, as we don't expect the U.S. retail environment to correct itself any time in the near future, the UK's economic statistics are certainly appealing.

Finally, I would guess if not every day, we get e-mail inquiries several times a week from people in the UK asking if there is some place to buy our products locally. As we said previously, we don't work to develop our international business. Those people find us and we sell anywhere from$500,000 to $750,000 annually into the UK and Europe. How much more sales could we generate if we actually worked to develop that business? I guess we're about to find out.

One more thing before Q and A regarding 2008 guidance. We are not prepared to provide that information on today's call. To be perfectly frank, I need a little more time to work through some of the nuances for next year. We have had to adjust our 2007 guidance too many times this year and I would certainly like to avoid that in 2008 if at all possible. Please be assured that we will provide guidance for 2008 as soon as it is available.

That concludes my prepared remarks. Operator, we are now ready to take questions.

(OPERATOR INSTRUCTIONS) Our first question is coming from Ruthann Roussel. Please state your affiliation, then pose your question.

Hi, it's Ruthanne Roussel speaking from the Robins Group.

Hi, Ruthanne.

Hi. Do you see any geographic patterns in the strength or weakness of the retail stores and I'm speaking in particular are we seeing more difficulty in areas that have been hard hit by the housing problem such as California or Florida?

Both of those areas are, we have weaknesses in sales and that's probably affected us a lot more than we'd like to admit, especially in California. We're seeing the stores and I've talked to the managers out there and yes, you are absolutely correct, though in the past we were always able to overcome it and we'll overcome it. It it's just we're going to have to tough it out for a month or two, but you're absolutely correct.

Okay. And thank you, Ron, and also could we have a little bit more color, please, on the progress of refitting the new building and getting that ready for your space.

Right now we're still in the process of getting drawings from the architects. We're getting bids right now. We're due to get all our bids done by November 6th. So we'll probably know more by then. We've got probably 16 contractors that came through to do bids on that building.

Ruthanne, the plan is as you know, we bought the building at the end of July. The sellers have remained in the building as tenants to us for August, September and October. They are out this week.

So construction or retro fitting, remodeling, whatever you want to call it, can begin as soon as we approve the contractors' bids and they can get started. So we're probably within a couple weeks of actually getting the work done. The plan still is that we will be moving, I suspect it's going to be March, but we need to be out of here by the end of March of '08.

Okay. Thanks very much, then, and I'll get back in the queue.

Thanks, Ruthanne.

Once again if there are any questions, please indicate so now by pressing 1 and 4 on your touch-tone phone. Our next question is coming from Graeme Rein. Please state your affiliation and pose your question.

Shannon, could you see what you expect Wal-Mart purchases for this year to total?

$1.1 million, $1.2 million range and they will probably be up the 1st quarter and then it will stop. Now Shannon prints a pretty dismal picture for the craft department. We have product we're testing in several new chains that we've never sold for and the department's goal is to replace those sales and they have some very promising things in that. It's just it's only testing products in 30, 40 stores of a larger chain to see how well they do. If they do well, we might not even know that Wal-Mart left us and (inaudible)

Okay. Shannon, can you provide a little bit more detail on the profitability of the stores open this year. Is 20,000 still a good break even monthly sales amount for a retail store or has that gone up a little bit?

No. It has not changed a bit. 20,000 is still the number.

And what are the stores open this year? Are any of them profitable?

Yes. A couple of them are. The ones opened early in the year in that first couple months and we've got I believe it's two or three that are profitable, the ones that were opened in March, April, May and all the way into September, of course, are not, not yet.

I was just doing a note to the operations folks and explaining to them that I don't know how we did it, but five of that group of 10 or 11 probably are outperforming any new store we've opened in the past two or three years, that being the Boston, Allentown, Anchorage, Alaska, Rapid City and Cincinnati are really doing much better than the typical new store does. I don't know what we did different, but I've asked them to find out because I wish they could all produce like that. Those -- average of those three are probably -- or those five are probably in the-- for last month in the 27, $28,000 where typically they're not that good to start with.

Okay. And then kind of a strategic question. It seems like you kind of run most of your expenses for new stores through the income statement and, you know, stores usually take a few months to get profitable and you're trying to work down your inventory balance. It seems like cash did accumulate pretty quickly on the balance sheet.

Ron, can you talk about how you think about allocating that cash? I mean it seems like, given the uncertain retail environment and the sharp decline in share price, it might make sense to buy back shares. You have perfect information about your business.

This is something that is discussed at every directors meeting that we have every quarter and quite aggressively. We believe that if we could get a feel on the retail environment better, if our crystal ball wasn't as broke as it was on predicting what's going to happen with the mortgage situation, with the $90 gas, we would have probably already done a stock buyback. But it's really tough to tell what's going out there, whether we're going to have a recession or a depression. I don't even think our government fully understands. The fed doesn't understand.

So we're watching it and if things look -- the environment looks more stable, we do not mind -- we very much entertain the thought of a stock buyback, but we're really kind of waiting till we see -- we're fairly conservative. I know it doesn't look like it sometimes, but we're very conservative as far as jumping off and doing something like that without solid protection of our cash. I do believe that our cash would be better spent right now in our company stock than nearly anything. I do believe our cash will improve greatly over our inventories. Our high-- historically they're highest at the end of September every year.

This year, they were the highest. They've peaked in August earlier, but they are coming down and with all the actions that I said was going on our inventories will be in very good shape and very close to last year's numbers, how we ended last year with the inventory, with the exception of we'll probably have $6 or $800,000 in new stores and the Mid-Continent division that we didn't have last year. Does that help?

That helps and do you anticipate the cash position moving back up to about where it was at the end of the year last year?

Yes, I do.

Okay. Well, thanks. Thanks for your time.

Thanks, Graeme.

Thank you. Our next question is coming from Robert Straus. Please state your affiliation and pose your question.

Hi, guys. How are you doing today?

Hey, Rob.

So regarding Wal-Mart, I think you also provided some product to their Canadian division. Is the relationship with that area also cut off?

No. That division is going forward. Our product is doing well. They had came to us when the Canadian dollar -- they went to all their vendors when their Canadian dollar became more valuable than the U.S. dollar, they all came to us and asked for some price considerations to their vendors that they feel like they're going to keep through next year and beyond. They came to us. We're working with them right now. Our program is on real solid grounds with them and actually growing.

The $1.1 to $1.2 million, Ron, that you spoke of previously regarding Wal-Mart in 2007, did that include Canada and if not, what is the piece of Canada?

It did not include Canada and I do not know that answer. I can get the information and get back to you on it, but I do not know what the Canadian or the Canadian sales are to Wal-Mart. If I was going to take a guess, I would guess it's only a couple of hundred thousand dollars a year. Usually whatever happens in the United States, 10% of that happens in Canada. If we sell a product in the United States X amount, we sell 10% of that in Canada. Knowing that the Wal-Mart program is a little stronger in Canada than that, I would venture to guess it's --

$75,000 to $100,000.

$75,000 to $100,000, maybe a little more going next year.

Okay. Regarding your pricing strategy, I know that you typically set prices annually in your catalog that gets delivered the top of November. Are there any opportunities that you have taken over the last year to selectively reset prices in your stores?

No, we haven't, and our philosophy on that, we do so much business with institutional buyers, school, hospitals, camps, people that are buying way in advance even in the manufacturing group they're buying and placing orders six months out, et cetera, that it really has been an asset to us to be able to put a price out and hold it for a year. Now we have done -- me and Wray have done everything you can think of over the years to do this better.

We have done two catalogs a year, but a catalog is our major expenditure advertising-wise of the year, we spend $250 to $300,000 a year and we always weigh the weight of that versus trying to guess our prices well enough and historically I'm going to tell you that in since oh, I'm going to say mid-'70s we've been able to do a pretty good job with it except this year and in 1972 or '3 we didn't.

But historically and there was just some craziness in some of the markets, the metals especially at the first of the year, some of the problems with petroleum-based products which everybody is aware of and some of the leathers in Brazil, Argentina and China and while I am concerned about it, we historically have our worst gross profit quarter the 3rd quarter and this was no different, but we have increased our margins, oh, I'm thinking I look back and it was seven consecutive years in a row our gross profit, seven consecutive years in a row, and we all know that's pretty tough to do and keep doing it.

And there comes a point that you cannot keep easing up, buying better and easing up those margins. I wish we could do it forever, but we know we can't, so -- and this year even though we had this weak quarter I fully believe that our margins will be close to, if not better, than they were in 2006.

Just to speak about the price increase that you just took in a new catalog, what percent on average just across the board did you raise prices?

We believe we raised them approximately 4, 4.5% across the board. That will also depend on the type of buyer and the sales mix to that type of buyer, et cetera, but we believe it would be close to 4 to 4.5% on average across the board, but if you raised an item 4.5% and another item 2% and that 4.5% stopped selling because of it, then you've raised your prices 2% on what was sold or selling. So we really have to start looking at the sales mix on the items to see the real effect of the price increases.

What was the price increase that you instituted in November 1st of '06?

Same thing, catalog.

Okay. And the patterns that you have seen lately over the last couple of quarters as it relates to price points, describe a little bit what you're seeing from the standpoint of high end price points versus lower end price points.

We are really kind of amazed that the fact that our higher end price point items are doing better than our lower end price point items which is very untypical in this business. Now I'm not saying they're doing -- either one of them are doing as great as we'd like, but there are products that we've sold -- we sell like a particular item that's called a swivel knife that you cut leather with to put decorative designs on it. We have a $10 one and we have a $120 one and we have price points up and down.

So far this year, in the last few months especially, we've got a good increase in the $120 one and we've got down sales in the $10 one. We don't necessarily totally understand it other than it's the same old thing. Those who have money still have it and there's these people that have floating rate mortgages are a little tighter and maybe not can afford. That's our only evaluation at this time, but we're looking at it, checking it and trying to find out any particular things. Now in leather that's not necessarily the case. In hand tools, it is this year.

Just to ask a question about your expansion into the UK, remind me when was the last time that Tandy brand was present in the UK?

It's been seven -- I guess Tandy had a joint venture operation in the UK that I think stopped about 2000 and it was operated strictly by a Pierce Tandy group, not Tandy Leather Company and I don't believe it was -- they operated it not very aggressive I don't believe. Well, I know for a fact. We've got a lot more product to know what they did and it wasn't taken very good care of. This company that had it didn't understand it and didn't try to do the business and so they didn't do well.

Since then, there has been several small dealers that we have over there that have tried to keep the Tandy name up and done all right, but in most cases they're just not aggressive enough trying to do business.

Hey, Shannon, on the expense side of the equation can you sort of -- I don't want you to segment every expense that you're looking at because I'm sure your list is long, but can you just touch on a few of the areas that you think are central into I guess rationalizing the expense structure?

Based on where we are now-- I mean, in terms of what we've done this last quarter, the last six months or so?

Well, in terms of the last quarter or so certainly expenses have been higher, operating expense is $1 million up and I think you did a good job of explaining that in the press release, but going forward, what areas are you going to be focusing on to sort of take some costs out of the business?

Oh, I got you. Well, we have talked as you can well imagine till we're all sick around here this week about where -- what I call where the fat, where the fat is and in all of my analysis and all the numbers we're looking at it's at corporate.

The stores surprisingly enough, there is very little room to make any sort of changes. In fact, if I remember correctly, the operating expenses that stores in the 3rd quarter not including the new stores, of course, were lower than they were in the 3rd quarter of '06. So the fat is not in the stores system.

It's in the -- in corporate, and as I indicated in the earlier remarks in the call, you know, we have a budget here and it's basically what we get from in terms of intra company income, I guess, what we get from the stores, places that we're looking at here at corporate, again, personnel. I absolutely believe that there are departments here that can trim a person or two.

We are looking at, you know, I know we're looking at can we cut hours. Can we go from some of these hourly employees from a 40 or 45 hour a week to a 35 to 38 hour a week? I was looking at things like courier expenses, freight costs. We ship or we send out a weekly package of mail to every store every week. It includes people's pay checks, et cetera, et cetera.

Well, you know, I'm looking at analysis today saying why am I next day airing a bunch of paper including pay stubs that are on direct deposit. They don't need those pay stubs tomorrow. Payday is not even till Friday.

So we're looking at that. We are talking to the freight companies and renegotiating freight rates. We are talking to credit card -- our credit card processor about getting a reduction in rates there. Of course, we look at supplies, office supplies and those kinds of things.

The deal, is Robert, that there is not -- I wish I could say there are three areas that we, you know, can save huge dollars, but the reality is, and Ron reminded me again this morning we got to find dimes and we got to find dollars. We don't get to find those $25,000 and $100,000 cost cuts. You've got to find a lot of $10, $20 and $78 cost cuts because that's where it all adds up. We're looking at everything. You know, the mandate right now is do more with less.

You know, we all can do more with less whether that's less supplies or, you know, less hours or less people or what have you and it's got to happen at corporate and every department head right now is looking,g scrubbing their P&L, scrubbing their department, looking for every possible area that they can save and if it's only $10, let's save the $10 because all of that if we all do that and find, you know, 100 of those, it will all add up in a hurry.

Now on -- And my two cents on that. I actually believe if you heard the remarks or read it in the news release from Shannon, probably of that million dollars more we spent last year I'm going to guess that 75% of it could possibly be considered non-reoccurring type expenses. These were getting legal Europe and going through the attorneys and doing all the business. This was getting -- doing all sorts of surveys on this new property we were buying. It was a whole depreciation that you mentioned, it was a whole lot more money spent that should not be re-occurring than it might appear.

Hey, Shannon, if you were to sort of throw out a conservative number on an aggregate basis that you are looking to trim expenses, you know, what would that number look like? I mean are we talking about $300,000? Are we talking about a lot more than that?

For 4th quarter?

In general.

In general. I am looking for actually for 4th quarter basically my hope and my plan if we can find it in this next 60 days is to hold the operating expenses as close to what we did last year as possible. The new stores are going to cost us with the 10 stores that we have now that we didn't have last year, I think they're right at -- I'm expecting their expenses to be $300,000. So we've got to cut $300,000 from here for 4th quarter in order to end up with the same operating expenses that we had last year which I think is $6.6 million.

It kind of fluctuates on a quarterly basis. Part of the reason I haven't come out with '08 guidance yet is because I am -- first of all, I don't want to be wrong again and it seems to me we've done that all year and trying to anticipate and get some final numbers on really what I think the impact of a couple things, getting John McNiven getting moved over to England early next year and the impact what I think it's going to cost us the expense getting the move done the 1st quarter of '08. But I don't have a hard -- I wish we were all walking around saying we're cutting $500,000 this quarter. You can't do that.

It's just, you know, I'm looking for $300,000 in cuts at corporate in order to compensate for the $300,000 that the new stores in the 4th quarter, but beyond that then we're just going to have to look at it on a quarter by quarter basis and see what will happen and Ron reminded me again about this this morning. We can do this. We've done it before. You kind of get on a roll and, you know, things will get lean. We will operate efficiently like we are known to have done and it's kind of maybe the pendulum swing. The pendulum has swung really hard toward don't spend the money if we can at all avoid it at the corporate level. We will maintain that philosophy. Of course, you want to maintain that philosophy indefinitely, but, you know, I suspect for the next several years you're going to see some real progress being made.

Then as sales begin to really improve and, you know, we really get the growth going again and all of that, you know, nobody consciously says okay, now we can spend more money, but unfortunately human nature is that we all do it.

Okay. Well, thank you for your time and good luck.

Thanks, Rob.

Once again, ladies and gentlemen, if you would like to pose a question, please indicate so now by pressing 1 and 4 on your touch-tone phone at this time. It appears that we have no further questions in queue.

Very good. On behalf of Ron Morgan, John Thompson and myself, we appreciate your time today. Have a good afternoon.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.