Tractor Supply Co (TSCO) 2004 Q3 法說會逐字稿

Welcome to your Tractor Supply third-quarter earnings conference call. At this time all participants have been placed on a listen-only mode and the floor will be open for questions following today's presentation. It is now my pleasure to turn the floor over to your host, Melissa Myron. Ma'am, the floor is yours.

Thank you for joining us for Tractor Supply's conference call to discuss third-quarter results. Before we begin, let me take a moment to reference the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. This conference call may contain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the Company. Although the Company believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct.

Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in the Company's filings with the Securities and Exchange Commission. The information contained in this call is accurate only as of the date discussed. Investors should not assume that the statements will remain operative at a later time. Tractor Supply Company undertakes no obligation to update any information discussed in this call. Now I'm pleased to introduce Jim Wright, President and Chief Executive Officer.

Thank you Melissa. Good morning everyone. Thank you for joining us. I'm here this morning with our Chairman, Joe Scarlett; Cal Massmann, our Chief Financial Officer; and also Stan Ruta, Senior VP of Store Operations; and Gerry Brase, our Senior VP of Merchandise, are with us today. We formalized our management transition on the first of this month when I officially assumed the CEO title. I want to personally thank Joe for developing a strong team with a very unified vision as we go forward. I look forward to and welcome Joe's continued involvement and support as we strive to take Tractor Supply to the next level.

We have both a great potential and a great team to achieve it. Now turning to the third-quarter, we are disappointed that our results came in below the level that we had originally anticipated. However, I characterized the quarter only as a minor bump in the road and I'm confident that we will do better going forward. Overall I am pleased with our year-to-date results. We have made a lot of progress so far this year. We have opened 38 new stores, opened one new distribution center, are expanding one and have broken ground on another. We have introduced several new exciting merchandise initiatives while still driving strong traffic, building customer loyalty and delivering increases in both top and bottom lines.

During Q3 our business was impacted by a combination of several factors and a confluence of different challenges. Some of these factors are areas that we can control while others were forces beyond our influence. The primary force beyond our control that had impact was the weather. The hurricanes that hit the Southeast, particularly in Florida, drove stronger than anticipated comp store sales, and in fact our sales the stores impacted by the hurricane were 30 percent comp versus around a 4 percent comp in the Northern areas that were not impacted by a hurricanes. Our (indiscernible) is incremental sales in the South were lower margin products, principally generators, that we delivered at a slightly elevated freight cost due to our emergency response.

The storms also added some unplanned SG&A costs due to uninsured hurricane losses. Additionally we saw a slow start to the winter selling season as warmer than average temperatures caused customers to delay purchases of higher margin seasonal products such as heating and insulated outerwear. While the weather impacted the quarter we simply did not execute as well as we could have, as well as we historically have on areas such as promotional strategy, pricing strategy and the execution of our reset activity. That said, we have taken action to address and improve these areas. I will go into further detail on these plans as well as our strategic initiatives after Cal discusses the financial results of the quarter with you in greater detail. I will now turn a call over to Cal Massmann.

Our third quarter and net sales increased 18 percent to $426.4 million which is above our original guidance for the quarter. We posted a 10 percent comp on top of a 13.7 percent gain last year. Same-store sales were positive in all of our regions, and as Jim mentioned the comp succeeded 30 percent in the stores impacted by the hurricanes in the Southeast, while it averaged approximately 4 percent in the stores East of the Mississippi and North of the Mason Dixon line where the colder weather that we had expected hadn't materialized. Of our 10 percent comp increase, approximately 3.4 percent came from pricing as we were able to pass a portion of the cost increases in steel, feed and petroleum-based products to the retail market. Increased transaction counts resulted in about 5.8 percent of the comp increases, while the higher average ticket accounted for the other 4.3 percent. Lawn tractors and ATV/UTV type products sold well as a result of some of our promotional activities and the hurricane related sales of generators, tarps and chainsaws were also strong.

Equine, animal and pet products, including fencing, sold well increasing as a percent of our total overall sales. We experienced weaknesses in the insulated outerwear sales and our truck, trailer and towing category was below plan as a percent to our total sales. While sales increased 18 percent our gross profit increased only 9.2 percent to $119 million. Gross margin was 28 percent for the quarter compared to 30.2 percent last year. About 40 percent of the difference, or 90 basis points, was related to the unfavorable swing in LIFO compared to the comparable quarter last year. We anticipate that the Q4 LIFO provision will range between $3 million and $4 million and this provision can change dramatically depending on the mix of goods in our inventory, the level of those inventories and product cost changes that we will experience between now and the end of the year.

Additionally as we outlined in the release gross margin was impacted by a combined effect of some other factors, the promotional items, lower than expected sales of the higher margin winter clothing products and then the higher than anticipated freight, steel and other commodity costs. We expect the sales mix to be a less significant factor in Q4. We are assuming that if there is no additional cost increases in freight and commodity based products that there will only be a limited impact on margin from inflation in the fourth quarter. But as you can well imagine from looking at what is going on in the economy, the fuel prices continue to increase and it's a bit questionable what other commodities might do in the coming up quarter.

SG&A as a percentage of sales was 23.6 percent versus 23.3 percent last year. As we have discussed before this includes about a $2.9 million pretax expense related to relocating our store support center which is now complete. That is all behind us in the last quarter. Exclusive of the move, the SG&A would have been about 22.9 percent sales or about 40 basis points lower than the year ago quarter, and a part of that reduced SG&A is the reversal of about $1.5 million in management bonuses. SG&A during the quarter also included about $1.5 million of store payroll and travel expenses related to the store reset activity which is also now complete. Additionally we incurred about $1.9 million of SG&A expenses due to the pending bankruptcy of an insurance carrier, uninsured hurricane losses and increased legal expenses.

Operating income, exclusive of the office move, was about 3.7 percent of sales versus 5.5 percent last year. This was impacted by the factors we just discussed as well as the continued spending on things to benefit us going forward. Interest expense decreased in the quarter primarily as a result of lower interest rates. But going onto the balance sheet, our inventories are up 16 percent to $435 million while our year-to-date sales are up 18 percent. Approximately 2.7 percent of the 16 percent of the increases related to the new products in our recent reset and another 3.6 is due to the inflationary cost increases that are in our inventory compared to a year ago.

Overall inventory turns are approximately 2.9 times, a modest improvement over the 2.8 times last year and a little bit short of our turns goal of 3 for the year. Accounts payable as a percent of inventory is approximately 45 percent compared to a little over 50 percent last year. The higher inventories and more imported goods give rise to that difference in the inventory leverage. Prepaid expenses have increased primarily due to an increase in our prepaid income taxes. Our net property, plant and equipment has increased to about $184 million. That includes about $56 million of year-to-date capital expenditures.

The capital expenditures include equipping the Brazelton (ph) DC, the purchase of the Pendleton DC and the new store growth. We expect full year capital expenditures to be in the $90 million to $95 million range as we complete our Hagerstown DC and the Pendleton (ph) DC expansion, and also our remaining new stores. Accrued expenses have increased in the year because -- year-over-year as a result of insurance accruals and increases in the accrued taxes other than income taxes. Borrowing under our line of credit is virtually the same as it was last year, about $44 million. The buildup of our distribution centers and other infrastructure in our new store growth has been funded internally from self-generated funds. Last month our bank group extended our $155 million revolving credit agreement for an additional year. That takes it out to February of 2008 and that is with no changes in our interest rate structure.

Going to guidance for the coming quarter, the Company now expects full year net sales to range between $1,723,000,000 and $1,733,000,000. That is about a 17 percent to 17.7 percent increase over last year. Full year net income excluding the $1.9 million after-tax charge for the consolidation and relocation of the store support center is expected to range between $65.6 million and $66.3 million or $1.57 or $1.59 per diluted share. Including the estimated $1.9 million after-tax charge, net income is expected to range between approximately 63.7 million and 64.4 million or $1.52 to $1.54. That compares to $1.45 last year. Last year included a $1.9 million charge for the adoption of the new accounting guidance.

For the fourth quarter of 2004 we currently anticipate net sales in the $440 million to $450 million range, and net income between 20.6 million and 21.3 million or 49 cents to 51 cents per diluted share, and that compares to about 41 cents per diluted share last year. During the balance of 2004 we anticipate opening about 14 new stores and relocating eight or more existing stores. We're currently in the process of doing our annual budgeting for 2005, the challenges of cost increases in various aspects of our business, to evaluate while we do that, and we will share our 2005 outlet in conjunction with our fourth-quarter results. Jim will now share with you some of the things that we are doing that will help us capture our long-term potential.

During our second-quarter conference call we said that the second half of this year would be challenging given the fact that we plan to undertake several investments and lay the foundation for future growth. They include opening of new stores, expanding an existing distribution center, adding a new DC, relocating our store support center and rolling out a significant store reset initiative, while at the same time facing a very strong comp comparison. Given the circumstances we held up well and actually are better off for the experience and the challenges that we face. We went through the third quarter -- as we went through the third quarter we identified several areas where we could focus our energy, make improvements and have taken action to do so. In particular, going forward we're focusing on striking a better balance between top line growth and margin growth.

I would like walk you through our plans to achieve this as well as provide an update on our various strategic initiatives. First of all, store resets. The remerchandising program involves almost every Tractor Supply store to one degree or another. It was designed to drive comps going forward. There was little interruption to our stores during the business hours, however, the impact was significant to all of our stores in that each of our stores we have reduced the selling square footage, not the assortment, dedicated to ag-related repair parts and supplies.

The space we captured through this action was then allocated to the expansion of pet, animal or wild bird feeding, depending on each store's potential in those categories. These categories are on the right side of our store, the task was large but frankly was very well planned and extremely well executed. The recent initiative on the left-hand side of our stores was much more complex. It involved more skews, more fixtures, more vendors, more point-of-purchase material and more imported products. In hindsight, we attempted more than our store support center team was capable of executing smoothly.

Our field team adjusted to change in schedules and increased complexity and got the job done, however, it was done at a higher cost and over a longer period of time. Today however we're pleased with the results, the projects are complete, our stores look great and we are ready for the selling season. Early sales of the new products are encouraging and will contribute as we cycle last year's strong comp store sales. This year's reset activity was the largest attempt thus far at mass customization and signals things to come as we gain traction with category management.

The pace of change at Tractor Supply will not slow down, however, our execution will improve. On the operations front, we continue to use our best practice process to take time, work out and reassign the savings to customer service. Our manager and store team member turnover remains low. Today we have 500 trainees or assistant managers in our store manager development program, position us very solidly for future store growth. Our third quarter promotional activity included a higher mix of direct mail compared to last year. We're pleased with the response and the efficiency of this media which we measure using our strict return on advertising dollar metric, however the mix of sales skewed to lower margin products.

As we continue to build our customer database and refine our offering, I'm confident that direct mail will prove to be an important and profitable component in our advertising strategy. Our margin was impacted negatively in the quarter due to our delay in executing price increases as a result of the high level of reset activity, and our decision not to lead the market in strategic categories and frankly a disappointing execution against our pricing opportunity. We have already taken action and plan to optimize our price to sales volume opportunity and have begun to see improvement. While freight and commodity increases will continue to put pressure on margins, we have a number of initiatives under way to minimize that impact.

The expansion of our Pendleton (ph) distribution center from a half million square feet to 750 is on schedule, as is the construction of our Hagerstown (ph), Maryland distribution center. We expect to begin operations in both of these facilities in Q1 and to have them operating at chain efficiency at some point in Q2 of next year. As previously announced our Omaha distribution center will be relocating from its current 140,000 square feet to a new facility in the 300,000 square foot range, in the fourth quarter of next year. Once this is complete we will have the capacity to support accelerated growth plans for the next several years.

Last week we held our annual vendor conference attended 450 executive representing 240 firms and over 75 percent of our purchases. In addition to meeting with the appropriate buying teams, the attendees heard presentations by the senior executive from each discipline. We held an interactive meeting. We titled it, working collaboratively to take cost and time out of the supply chain. The supply chain management will provide efficiency as we open additional DC capacity and optimize the existing space.

The rollout of category management and the implementation of our demand forecasting and replenishment software will also add time, will capture time and build accuracy into our supply chain. We specifically expect to see gains from an increase in shipping locations, improved order processing and an increase in the percentage of goods moved through our distribution centers. I'm extremely proud of the performance of the entire store support team as we relocated ourselves from three buildings stretching over half a mile on a street in Nashville, across 64,000 square feet to one 100,000 square foot building that has the capacity to keep us all together for the next six to eight years.

Concurrent with this move, we upgraded our server and moved fifty percent of our computing off-site to improve disaster mitigation. Today all critical functionality can be supplied by either our on-site or our off-site server. We remain committed to build on our tremendous momentum over the last several years to ensure long-term success, and I firmly believe we are on the right track. We're receiving positive feedback every day. Our customers are happy, traffic and conversion rates are healthy. Our store manager turnover continues to improve.

We're pleased with the response to our advertising and marketing initiatives. Our new stores are performing very well and we continue to be the only major player in a well-defined and growing market niche. These positive results give us the confidence to continue to invest into programs and initiatives that will drive sales and build the Tractor Supply brand. I would now like to turn the call over to my friend and our Chairman, Joe Scarlett.

Thanks Jim. As Jim mentioned at the beginning of the call, we're disappointed that our results came in below the level that we originally anticipated. However, I want to point out that our business strategies and our practices are sold, focused and consistent. We're close to our customer and serve that customer with unique life style products and outstanding customer service. We've got a very special niche in the market and by far the largest player in that market. We have had 15 quarters of very positive results. I would describe this quarter as a small hiccup on a long road to success. As you have heard me say in the past, a major component of our long-term success is our practice of staying close to our customers and staying close to our people. So I just want to tell you a little story from last month.

On September 21st, a Tuesday morning, the five of us the Jim, Cal, Gerry, Stan and myself, were all at the airport before 6:00 in the morning. We all flew to places in New York and Pennsylvania. We each hooked up with separate district managers. We spent the rest of Tuesday and all day Wednesday with each of those district managers, working in the stores with them and wound up working ourselves together to a central point, actually in Syracuse, had dinner together as a group and then the five district managers and the five senior executives spent the next eight hours around a table just talking about the business. That is a very positive way to get close to our people, close to our customers.

We were able to touch five district managers directly and they were able to influence us and influence our understanding of the Company. That is just one example of what we do four times a year. So as you look at our Company today, we've got a clear strategy, small stores with differentiated products. We are a perfect complement to the big boxes. We know our customer and we listen to our customer. We've got a clearly defined niche and it's a growing niche.

We've got a powerful culture and we're all in this for the long-term and our leadership team today is strong, aggressive and aligned. We're all positive and optimistic about the future. We feel good about where we are going. We feel good about our organization and our leadership team. With that, I want to say on behalf of everybody, thank you for your continued support. Now let's open it up for questions.

(OPERATOR INSTRUCTIONS). David Cumberland of Robert W. Baird.

Jim, on promotional activity for Q3 you mentioned mix skewed to lower margin product. Why do you think the mix skewed this way and were these lower margin items also higher ticket on average?

Two things, David. One, the mix skewed because of the hurricane affect. That was a piece of it. Secondly, we knew we were expecting some extremely strong double-digit comps as we prepared our promotional merchandising plans for the third quarter. As a result we put in place a product, gave a promotional placement in our stores and then supported it in some cases with coverage in our circular event. It sold extremely well, perhaps better than planned, and the mix did skew to those products. And yes, they were a high ticket -- generally a higher ring than average.

So looking at Q4 on promotions, does your plan involve a different strategy to balance the mix better?

Yes, absolutely. And of course this is -- by the time we saw all of this Q4 was planned but I think not only in Q4 but certainly beyond, we'll strike a much better balance between revenue and margin dollar growth.

One question for Cal. Can you give the approximate comp in Q3 excluding the stores in areas affected by hurricanes?

Haven't really computed that, but it would be maybe about 7 or so.

Thank you very much.

Gary Holdsworth of Wedbush.

I wanted to ask a quick question on the hurricane and the merchandise. Do you face a number of returns with generators? I know that has been an issue in the past with some of the home improvement guys?

Good question. We have great customers and we are really not in the rental business nearly as much as some of our competitors are. Our sales tend to stay out there.

Okay. Secondly, on these store resets. Is there, or are there any additional, a second tranche of resets that may happen over the next little while or is this -- you did say they were done. I just wanted to double-check that indeed is the case.

Everything we have planned in Q3 which was preparatory for Q4 is done. There is always a certain amount of activity in our store, but principally is done in Q1 and Q3. So over term, certainly Gary, there's going to be a continuation of resets, perhaps not as dramatic as this year's were.

Again in some stores you touched both the left and right sides and some you just touched one or the other. Have you gotten the response yet? Can you tell whether that was the right decisions in those stores, or how can you tell that?

Most stores were touched, both left and right, although the amount of new merchandise, the amount of new fixtures varied from store to store. The results are very early, but I am actually convinced it was the right thing to do over the long-term and our customers are voting for the new products and categories.

There will be some stores that would not have changes because they would have been the test stores for some of a product categories that were then rolled out chainwide. If perhaps you were looking at a specific store it may not have changed year-over-year in a specific area because it had been a test store previously.

Final question is on -- do you expect or can quantify the type of comp sales lift that you might expect next year from this year's resets, or is that still too early to tell?

Our original thought when we put the program together would be that we would get about a 2 percent comp increase over a twelve-month period of time based on the amount of inventory that we put in and the expected turn ratio of those new products. At the time that we first planned it, we would have thought that it would give us about a 2 percent comp store sales lift over a twelve-month period of time.

Okay, very good. Thank you.

John Lawrence of Morgan Keegan.

Jim, would you start off by just talking a little bit about -- if you look at the fourth-quarter plan, based on the third quarter the cold weather -- I mean the weather, is this forecast changing any of the outlook for the fourth-quarter in some of those cold weather categories?

Not really. Gerry, any particular comments? There was a little bit that was pushed from third into fourth. We measured against the tremendous volume in the fourth-quarter that probably won't amount to much.

There will be some bump in the early part of the fourth-quarter as a result of a shift of some of the sales from September into October. We don't anticipate any material change in November and December. We have very high expectations for some of the cold weather businesses at that time, but October should be slightly strengthened beyond what we expected.

And Gerry just to follow that, from some of the reset categories on that left side some of the private-label product on the tool side, is it performing all?

Very early to say at this point John. Those sets were some of the last ones that were completed in September. But one thing I can comment on is that the fourth-quarter is typically by far in the tool business, the biggest quarter of the entire year. Hence our sense of urgency to get these sets completed and in place for the fourth-quarter push. Early results, as Jim indicated, are very satisfactory at this point, but we are expecting a big push coming through the fourth-quarter.

Congratulations. Finally getting a second store in Memphis, Joe.

Frank Brown of SunTrust Robinson.

Just a follow-up on gross margin. Could you tell us what the gross margin ratio is that's in your plan for your fourth quarter EPS?

No, with don't typically give anything more than the top and bottom line in guidance and don't want to set a precedent by doing that now.

Can I just ask it another way and say, if I look at that guidance, say I was to assume that maybe 40 basis points decreased in the gross margin, could you give me some feel for how much of that might be promotional carryover before you're able to correct your promotion plan as opposed to continued freight and commodity price pressures?

Actually the promotional plan in the fourth-quarter is different than the promotional plan in the third quarter. I wouldn't expect that we would have the same kind of impact on mix from promotional activities in the fourth-quarter that we did in the third.

Also with respect to freight costs, you talked a little bit about expediting some product in the third quarter. Could you break down how much of that was high rates due to fuel costs as opposed to expediting costs?

That again would be difficult to do because you have an amalgamation of freight bills that are then spread over the activity. That is kind of anecdotal as opposed to a number that you can find in a ledger someplace. The overall freight increase compared to last year, the cost increases, probably about 20 percent year-over-year change in what we are expecting for the fourth-quarter. Of course we are hoping to be able to pass not only the freight costs, but also the higher commodity costs through in greater -- have more success in that in the fourth-quarter than we did in the third.

Can you break those freight costs down into basis points for the gross margin hit for third quarter?

Difficult to do because of the -- you have where the item is sold, where it is purchased and the mix of goods between import. It is probably about 30 percent to 40 percent of the change from the prior year.

A last question on margin. Can you comment on what the gross margin impact might be from the added SKUs in the resets?

We don't anticipate that it will be anything. In fact the plan was to have those new products go out with a mix gross margin that is comparable to the existing business.

Do you guys see anything different in the competitive environment than you saw earlier in the year?

Repeat the question.

Anything different in the competitive environment as opposed to say six months ago?

No, really nothing at all.

Thank you.

Anthony Lebiedzinski (ph) of Sidoti & Company.

Can you comment at all about the sales trends that you have seen so far in the fourth quarter?

No.

Okay. What kind of comp assumption are you reflecting here, Cal, for the fourth-quarter revenue?

Probably in a six to eight kind of range.

Okay. Also Jim, you mentioned earlier in your remarks that you have some number of initiatives in place to minimize the impact of higher freight and commodity costs. I was wondering if you could just discuss that a little bit further?

Yes. Anthony, the bottom line is we simply need to be in the marketplace, lots of eyes out there shopping the competition, finding out who is moving, who is not, being more timely and operate at a any more granular level across each of our 17 price zones to the pricing opportunity the marketplace presents, balancing that by our overall strategy of not being undersold.

Looking at the CapEx spending, I think you said you're going to do $90 million to $95 million this year, you're adding DC capacity. Any comment about 2005 where we could see CapEx spending.

Not yet. We're still in the final process or actually in the midst of doing our planning for next year. Don't have any guidance there. Obviously the amount that we will put into DC's next year will be less than it was this year. We just have the one DC currently planned, so generally it should be less than it was this year. Haven't put a number to that in connection with our current plan yet.

But as far as store growth, are you looking still to open about 60 stores next year?

Approximately 63 of the guidance that we have previously given, that is still what we're doing in the preliminary stage of our planning for next year.

Okay, great. Thanks.

Reed Anderson of Friedman, Billings.

Hardly any questions left, but I think I can come up with a couple. Talking about store openings, the third quarter openings maybe a few might have slipped into the fourth-quarter, but you had a lot of things going on. I guess my question is, is it that you had a lot of things going on or were there weather delays or was it some other development related delays that made the development schedule a little more back-end loaded this year than you might have expected a few months -- six months ago?

Basically, Reed, it was all development issues built -- caused by both weather in a few cases. We had very cold wet springs, you know, up North in Pennsylvania. Also there is a difference in the Northeast with regard to permitting issues, there are a number of means that are required to get a store opened. We were going up that learning curve this year. For next year, we have that learning curve in the model and we expect to be front-loaded in the first half to a little higher degree than we were this year.

You had made a comment, just anecdotally Jim, that you said new store performances is good. Could you just elaborate even briefly on that?

No, but it is good.

In line with prototype expectations, that sort of thing?

Yes, absolutely.

Okay, good. Can you remind, too, just what did the fourth-quarter last year look like? Was business pretty even across the quarter or was it skewed to one month or the other? Just give me a reminder what last year's fourth-quarter looked like.

Last year's fourth-quarter finished with a 9.6 percent comp and it was slightly skewed to October. It was the strongest of the three-months, but all three months had what I would consider to be very satisfactory comp store sales increases.

On the tax rate, Cal, it looked like it was a little over than we had been thinking. Is that a permanent fixture or is that just a function of the third quarter? What should we be looking for?

It all relates to state rates and it depends on where business is done. You can see that the balance of business wasn't in the states that are North and East. It was more into states that have typically lower state tax rates. So we look at that on a quarter-by-quarter basis to see where the allocation factors are falling out. And typically that has mostly to do with where the sales are. So it is a mixture of the states that we are doing business in.

So on a go forward, maybe 37 percent seems --?

That is what I use as a rule of thumb when I'm trying to do a forecast. It can move around that a little bit, depending on both those state allocation factors. We have a lot of business -- we have a lot of business allocated to high tax states, it will go up obviously. The other side of it is the business that were -- or the amount that we're allocating to Texas based on some tax strategies that we have that are advantageous to us on a state tax computation.

Great, thank you very much.

David Ricci of William Blair.

(indiscernible), most of them behind us. I'm wondering if you can summarize how you are thinking about the fourth-quarter today versus three months ago, what is different than anything?

I think probably, David, the biggest single issue is first of all we feel very, very good about the marketing plans that are in place. We feel very, very good about the condition of our stores, the energy of our teams. We are really just ready and loaded for business. If there is anything that we're doing with a higher level of intensity today than we thought we might have done three months ago, is the fact that the steel prices, the fuel prices, the trickle-down of fuel, meaning resins and everything petroleum-based continues to accelerate our need to be very responsive and close to the marketplace at retail pricing.

Would you be pretty much making up that gap between the cost and your price some time in this quarter you think?

Frankly, not sure we can close the entire gap but we're moving in that direction. Some of this, again, has a lot to do with mix as well. There is pricing, there is mix. We think the mix issue in the third quarter is probably more severe than it will be in the fourth-quarter and we are running to close the pricing gap as we speak.

Is there any change in your thoughts about the top line in the fourth-quarter than you had three-months ago?

I think not, no. Cal said around 6, 7 and that has been our projection right along.

Okay, thank you very much.

Thank you very much everyone. This will end our call. Thanks for your support. We're glad to have you along for the trip. We're confident in our strategy, we're confident in the growth of the lifestyle that we serve, our team and our capacity to seize that opportunity are, to me, self-evident. I look forward to our next call. Thank you very much.

That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.