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)) Operator: Welcome to the Vanity Fair corporation quarterly earnings conference call.
At this time all participants are in a listen-only mode.
)) Operator: Welcome to the Vanity Fair corporation quarterly earnings conference call.
At this time all participants are in a listen-only mode.
Later we'll conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference, please press star and zero on your touch tone telephone.
As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference Miss Vanessa Schwartz of FVR Webber Shanwick (ph).
)) Venessa Schwartz: Thank you for participating in the VF third quarter conference call.
You should have all received a press release issued today.
If you did not contact Thomas Walsh Webber Shanwick (ph) at 212-445-8459 and he will send one out to you and confirm your name on either our fax or e-mail distribution list.
Starting our call today is Mr. Mackey McDonald, chairman and chief executive officer of VF corporation.
I'd like to remind everyone that certain statements included in today's remarks and in the question and answer session may constitute forward-looking statements within the meaning of the federal securities laws.
F corporation.
I'd like to remind everyone that certain statements included in today's remarks and in the question and answer session may constitute forward-looking statements within the meaning of the federal securities laws.
Forward looking statements are not guarantees and actual results may differ materially from those expressed or implied in the forward-looking statements.
Important factors that could cause the actual results of operations or financial condition of the company to differ are discussed in the documents filed by the company with the Securities and Exchange Commission.
Now I'd like to the turn call over to Mackey.
)) Michael Mackey: Good morning and thank you for joining us.
With me today are Chief Financial Officer Bob Shearer and our Coalition Chairman, John Shamberger, Eric Wiseman, Terry Lay, and George Derhofer.
We were pleased to deliver record earnings in what's been a difficult environment.
This performance is a result of aggressive actions that have been taken to reduce costs and rebalance our manufacturing niche as well as our traditional conservative approach to how we plan and manage our businesses.
At the same time we've been able to add more dollars to our marketing budgets and despite the difficult environment are seeing market share gains in both jeans and intimates brands.
Consumers are more cost conscious and value driven than ever before we've responded by adding more value to our brands and in some cases taken selective price reductions.
We feel good about the resiliency of our top line despite the weak retail sales report in the last couple of months.
Other highlights noted in the press release are operating and net margins reached the highest level in over a decade, surpassing our expectations.
We have a strong profitable platform that is ready to be leveraged with new growth opportunities.
Both internal and through acquisitions.
This is a very difficult environment to capture sales growth and we're not planning for any improvement in environment any time soon.
But we will continue to invest in building our brands, launching new products, and when the time and price are right, adding new brands.
I just spent a few minutes talking about what we're seeing in each of our core businesses.
Brand shares for our two major jeans brands, Wrangler and Lee continue to increase.
Through August of this year wrangler shares improved to 9.7 percent from 9.3 percent while Lee increased from 4.8 percent from 4.3 percent.
Combined share for our major jeans brands improved to 21.1 percent from 20.6 percent.
Despite this increase, overall our jeans sales were down slightly in the quarter due to in part to the retail environment and some store closings by some of our customers.
We do feel that from a product and a marketing perspective our jeans brands are in terrific shape.
As we noted in the release our Europeans jeans brands are performing extremely well with good increases posted by both Lee and wrangler brands.
We've done a great work in repositioning our Lee brand to a younger more fashion conscious consumer, backed by lots of innovative products.
The wrangler franchise continues to be quite strong.
Our hero by wrangler in the mass channel also continues to grow.
U.S. intimates market has been somewhat weak all year.
Industry estimates suggest a four to six percent decline in intimate apparel retail sales in the third quarter.
Nevertheless, we continue to gain share in department stores, chain stores and mass stores in most product categories.
We've seen better than anticipated benefits from the integration this year from our Bestform and Vanity Fair divisions.
We continue to feel extremely positive about our outdoor brands, normal sales for The North Face were up about three percent.
First quality sales in the U.S. were up seven percent.
And our spring'03 books are up 18 percent season today.
We launched A5 line for spring'03 deliveries and initial reactions look good.
In Europe the north face sales are up 22 percent or 10 percent excluding the currency effects, despite a 50 percent reduction in distressed sales.
The North Face is considered the fastest growing outdoor apparel brand in Europe.
Spring'03 preseason orders are up 25 percent in Europe and 20 percent in Asia.
Our packs brand are feeling the effects of slow back to school season.
We had strong initial bookings but back to school sales have been disappointing today.
Our Image wear coalition continues to do a terrific job in improving the profitability.
Margins that were up more than four full percentage points in the quarter are now at very healthy levels.
Total sales from continuing operations were up slightly and we saw strength in our license sports apparel business where sales were up 23 percent in the quarter, mostly due to the successful roll out of our new NFL program.
Additionally, the acquisitions we made in our work wear business a few years ago are now contributing as we gain new uniform programs and improved profitability.
The play wear market has been very difficult all year and we continue to see this reflected in our play wear coalitions results, for both sales and operating income down from prior year levels.
I'll turn it over to Bob to review the quarter's financials in more detail.
)) Bob Shearer: Thanks, Mackey and good morning everyone.
As you know we previously forecasted a 21 percent increase in third quarter earnings compared to last year.
That estimate excluded nonrecurring items related to previously announced restructuring and business exits.
Due to better than expected margins across most of our businesses, adjusted earnings per share, excluding the nonrecurring items, came in at a very strong one dollar and 15 cent per share and that's an increase of 28 percent.
We're really pleased with the results of our strategic repositioning program this year and the favorable impact we've seen on our margins.
The plans and objectives of this program remain intact.
As we saw in both the first and second quarters, the net restructuring costs in the current quarter was only a penny per share impact.
To date, net restructuring costs of impacted earnings by only two cents per share.
We'll continue to move aggressively to reduce product costs in the fourth quarter by moving additional manufacturing offshore.
That involves a number of domestic plant closures.
Accordingly, we continue to anticipate these costs could approach 20 cents per share for the year and that's inline with our prior guidance.
That implies the costs will be significantly higher in the fourth quarter than what we've seen to date.
With respect to our guidance for the rest of the year, you'll recall that we raised our guidance in the second quarter.
Clearly business conditions haven't improved, which should hold sales for the fourth quarter about flat with prior year levels.
Accordingly, even considering the great third quarter, we feel it's prudent to stay with our expectation of earnings per share of $3.35 for the year, excluding unusual items.
Now that would imply a 50 percent increase in fourth quarter earnings, also excluding unusual items in both periods, to 75 cents per share.
This increase should be driven by continued margin expansion.
As we've seen, year-to-date, most of this improvement will be reflected in gross margins, which are benefiting from our move to lower cost manufacturing and an overall reduction in our cost structure.
Now back to the third quarter P&L.
The change in other operating income reflects the absence of goodwill amortization expense.
This change in accounting rules will benefit earnings from continuing operations by 30 cents per share this year, compared to 2001.
On a pure apples to apples basis, that is excluding the effects of goodwill amortization expense, and nonrecurring items in both years, operating margins were 15.5 percent in the 2002 third quarter compared to 14.1 percent in 2001.
We've aggressively moved to prepay long-term debt and we've repaid. prepaid 300 million dollars year-to-date.
Included in third quarter interest expense is a five million dollars redemption premium we paid in connection with the retirement of 1million dollars of nine and a quarter percent debt 100 million dollars of nine and a quarter percent debt.
We have a healthy 250 million dollars in our balance sheet.
Net of cash or debt to total cap ratio is below 20 percent.
We continue to operate our businesses on lower inventory levels and, in fact, our vents inventories are down 154 million from prior year, a 15 percent reduction.
Cash flow from continuing operations was a very strong 387 million dollars.
In addition, cash from operations from discontinued businesses was 40 million.
We continue to expect that cash flow from operations, including both continuing and discontinued businesses, will be about 500 million dollars for the year.
During the quarter, we repurchased one million shares, bringing us to a total of three million shares repurchased today.
Just one additional note.
With regard to the pension issue described in the release, we really don't have anything more to add at this point.
But we will be providing you with an update regarding our actions in this area when we discuss our 2003 outlook in February.
Now back to Mackey.
)) Mackey McDonald: Okay.
Thank you, Bob.
That completes our summary of what has been an outstanding quarter for VF corporation.
We'd like to open it up for questions.
Editor
)) Operator: Thank you, sir.
Ladies and gentlemen, if you have a question at this time, please press the 1 key on your touch-tone telephone.
If your question has been answered or you wish to withdraw your question press the pound key.
If you have a question press the 1 key on your touch-tone telephone.
Our first question comes from Bob Dabule (ph) of Lehman Brothers.
)) Bob Dabule (ph): I have a couple of questions.
First, I guess on the competitive landscape, there's a lot of rumblings out there that another national brand is considering heading into more the discount store channel.
I wanted to see you guys and how you're looking at the business, your current thoughts from that perspective.
And I guess I was wondering if, Mackey, second question, if you might be able to give us a little bit more color in terms of the retail mood and how things have changed, essentially, over the last four weeks and what has changed, if anything, were your outlook regarding the retail conditions out there.
)) Mackey McDonald: I'll let John address the first one and then I'll take the second one.
)) John Shamberger: Bob, obviously you're talking about Levi movement into the mass market.
And that's been a rumor out there for at least a year or so.
And I don't believe anything has been publicly stated or officially stated by Levi exactly on what and when and if they are going to do that.
I would say we have competed successfully not only against Levi but many competitors over the years and long-term we've increased our brand share in riders rustler and wrangler brands.
We feel real good about our products and marketing programs, like our wrangler Five Star denim.
The Lee dungarees. [Inaudible] In our western specialty stores.
We have increased our marketing by double digits this year.
So in general I think we have a long history of successfully managing a number of brands in the mass channel.
We have built up the technology.
And that does not mean just money, but we have the people and the experience to use that technology.
We built up the supply chain in the mass market.
And, more importantly, we have the cost structure to compete in the mass market.
And we've proven that very effectively and efficiently and profitably over the years.
)) Bob Dabule (ph): Thanks, John.
)) Mackey McDonald: I guess the bottom line there, Bob is we feel very confident in our brands and capabilities to compete as these different brands move around from channel to channel.
And there's some opportunities created by that that we plan to take advantage of as well.
Going to your second question on the retail mood.
Certainly we came out of August feeling pretty good at retail.
And then September was tough.
And it was pretty well across the board.
It was unusual.
We've had winners and losers at retail throughout the last year or so, but it appeared to have affected all retailers.
There really weren't many retailers that reported good numbers.
And in talking with them, they did not feel very good coming out of September.
So it's very cautious mood going into the fourth quarter of this year on the retail side.
The good news out of that is most retailers and I believe manufacturing companies have planned for a pretty tough time so inventory levels do not at this point appear to be out of line significantly, because they were very tightly controlled as we went through this last four to six weeks period of time.
So we don't at least anticipate severe problems, and we do anticipate this malaise continuing on and our plans are based on continuing soft retail situation.
We've seen a little bit of pick up in the recent weeks, but whether that will continue or not, we don't know.
So we're planning for it to be tough.
If it turns out to be better, we'll be in great shape.
)) Bob Dabule (ph): If I could ask two more questions.
On the cash flow you guys continue to throw off continuing cash I wanted to see what your thought process was in terms of acquisitions where you are with that, if prices are coming down to levels you like.
I guess another question for Bob would be the gross margin seems to be really driving earnings.
Where do you think you can take the gross margin line?
How much of it do you think is left for 2003?
)) Mackey McDonald: On the acquisition front, we do continue to look at opportunities to add the right kind of brands to our portfolio.
We're looking at Gene's, Genes intimate apparel, outdoor areas primarily.
We're looking for lifestyle brands that cross over multiple categories and offer new opportunities for VF across multiple channels of distribution.
And we do feel that there will be some good opportunities in the coming year for adding some brands that will help us to grow the top line.
And that's one of the objectives that we've set for ourselves in the coming year.
But we're also, as you know, looking at the carefully the returns that we get out of the acquisitions and making sure that the return fits the investment when we make it.
)) Bob Shearer: Bob, as to the gross margins, you're right our gross margins have been very, very strong and of course that's the result of great results from the strategic repositioning program.
Also our inventories remain very clean.
We just don't have the distressed LEFS.
Though are all factors.
Related to 2003 and obviously we're not going to talk about 2003 at this point but what I'll tell you about overall operating margins we continue to target 14 percent we'll obviously make a lot of progress towards that this year and look for further improvements to get to that 14 percent.
)) Bob Dabule (ph): Thanks.
Nice quarter.
))Mackey McDonald: Thank you.
)) Operator: Our next question comes from Amy Chow(ph) of Salomon Smith Barney.
Your question.
)) Amy Chow: My question has been answered but I just want to add my congratulations to you guys.
Great quarter.
)) Mackey McDonald: Thank you very much.
)) Operator: Our next question is from Noelle Granger (ph) of JP Morgan.
Your question, please.
)) Noelle Granger (ph): A couple of questions.
The first is just kind of back on the mass channel.
There's obviously been an increasing amount of talk from the biggest player there about them kind of stepping up their focus on their apparel business.
And I was just hoping you could comment on that, whether you think it's good or bad for you, they talked about some of their own proprietary brands.
Just wondering how those conversations are progressing recently.
)) Mackey McDonald: We have a very close relationship with all of the major retailers.
And the one you're particularly referring to, obviously we've worked very closely with them for many years, discussed strategies with our major retailers on a very frequent basis.
I think each one of those retailers is building a stronger private brands.
But we fit very well within those strategies, because those retailers also realize in order to attract the consumer who is harder to attract these days, they must have a good mix amongst national brands and their own private brands.
And we play a very important role as a result of their focus on private brands, they've actually narrowed their assortment of national brands.
In many cases that's been to our advantage, as these brands they've selected to highlight is ours.
We've worked hard in our marketing efforts and technology and service capabilities to make sure that we continue to be the most important supplier of national brands to those customers.
And I would say at this point we feel very good about our negotiations and discussions with those retailers as they go forward.
)) Noelle Granger (ph): Okay.
Maybe, Bob, this would be appropriate for you, but hoping you can give us an update as a result of the restructuring initiatives on the repositioning, where you stand at this point with respect to kind of sourcing as a percentage of your total product volume and where you see that going ultimately.
And related to that would just be, can you comment, I would imagine your exposure at this point to the west coast port kind of back-up is pretty modest, but can you just clarify that for all of us.
)) Bob Shearer: First, in terms of the sourcing, as we said from the very beginning of the year, we were going to move just as aggressively as we could in terms of lowering our overall cost base.
We talked about the heavier expenses in the fourth quarter related to the restructuring.
In fact, what's happened, a couple things have happened.
In terms of our move to Asian sourcing, we've been able to accomplish that at an even faster rate we originally anticipated and more efficiently.
In terms of some of the moves from our U.S. and Caribbean and known manufacturing again we've been more efficient in those moves than we originally anticipated.
And of course those are pieces that are contributing to the stronger operating results than anticipated.
So the reality is that at this point in time we're more comfortable in this fourth quarter in taking those more aggressive actions and further actions in terms of moving more of that U.S. base outside of the U.S.. and as a matter of fact, to your question, at the end of the year we'll have more of our total manufacturing outside of the U.S. than had originally been anticipated as a result of those moves.
We'll be a little bit less than below 10 percent by the end of the year. in the U.S..
And again that's a little bit further than we originally anticipated.
Related to the west coast, the summary on that is that we just don't see that as having a material impact on us at this point in time.
Now, if things change relative to that situation, that could change.
But at this point we just don't see a material impact to us.
)) Noelle Granger (ph): Okay.
So you're saying by the end of year less than 10 percent of your production is going to be domestic.
)) Bob Shearer: That's right.
)) Noelle Granger (ph): Can you give us a sense of where you are kind of regionally Asia versus Caribbean and Mexico?
)) Bob Shearer: In terms of Asian sourcing it would be about 10 percent of the total or a little bit less than 10 percent.
And again, the biggest factor as always in terms of the remainder is in fact the Caribbean basin.
)) Noelle Granger (ph): With respect to your fourth quarter outlook, getting a bit more conservative and my assumption is that it really looks like it's on, from a top line perspective.
But I was hoping maybe we could dive down a little bit deeper and talk about the business areas, perhaps it's domestic, intimate, and perhaps jeans that maybe you're getting a little bit more conservative, but hoping you could elaborate on the fourth quarter top line a little bit.
)) Bob Shearer: Well, I don't know what more we can say.
What we're seeing is that we're expecting to see a continuation of what we see today at retail.
Our third quarter sales were about flat in the fourth quarter.
We would expect to see about the same thing.
So that's about really where we are.
No significant changes from what we discussed in the third quarter from that standpoint.
)) Mackey McDonald: This is not something that's affecting one category.
It's just a softness in overall apparel sales at retail.
And it's affecting all of our categories.
So we feel flat projection is about the right place to be at this point in time.
And that pretty well is across the board on the different categories as we look at them.
And as we said, we're gaining market share, which is the good news, and therefore if we do see some pickup in retail, we would anticipate seeing some real favorable results from that.
But we're not planning for it.
)) Noelle Granger (ph): Okay.
Maybe Eric, can you talk about what's playing out in the intimate apparel business at the moment with respect to maybe the competitive landscape as well as pricing in the overall market?
What do you think the issues are?
)) Eric Wiseman: There's no real significant change in the pricing part of the business.
There is an overall softness in the intimate apparel industry.
But I don't know that it's substantially different from the apparel industry in general.
I'm not sure if it's specifically what you're asking.
)) Noelle Granger (ph): Well, the market has been kind of consistently down for intimate this year.
And I think the overall apparel market has not been down or down that much.
And I'm just trying to get a sense of, if historically over the past couple of years as the competitive land escape has been evolving, we have seen some price pressure.
I'm trying to get a sense of where we.
Stand now with some of these players, are they getting more rational?
Is it still quite aggressive.
)) Eric Wiseman: I would say from the suppliers standpoint there's less promotional activity today than there was a couple of years ago.
The key for us right now is new product introduction backed by an increase in marketing investment behind our brands.
And that's what's driving our market share gains.
And as Mackey said earlier, we're showing market share gains in every channel of distribution.
And again we believe what's driving that is some success at new product introductions and double digit increase in marketing investment behind our brands.
)) Noelle Granger (ph): Okay.
Thank you.
)) Operator: Our next question comes from Dennis Rosenberg (ph) of Credit Suisse First Boston.
Your question. )) Dennis Rosenburg:: The cost savings, originally you talked about 130 million of total cost savings and 100 million coming this year and about 30 million next year.
Given that you've accelerated or you're getting the benefits of the restructuring much faster, does that reduce the incremental increase for next year.
))Unidentified: It won't have a significant impact on the expectation for next year, Dennis.
Also a reminder we'll be doing a few more plants as we pointed out this next quarter as well.
)) Dennis Rosenburg(ph): So we could expect another 30 million or so in 2003?
))Unidentified: That's still on track.
)) Dennis Rosenburg(ph): And how much better than 100 million are you doing?
))Unidentified: That's always difficult to gauge.
So we just don't have a specific number on that.
It's hard to specifically identify the benefits from those actions.
But again, I think the margins reflect that we're a bit ahead of obviously where we expected to be.
)) Dennis Rosenburg(ph): Okay.
Could you discuss your exposure to K-Mart in terms of the size of the sales and what you're doing from a credit standpoint?
)) Unidentified: We don't like to discuss any specific customers for obvious reasons.
We can just say that we built our plans based on what we anticipate happening with all of our major customers for this last quarter.
And as we go into next year we built plans that we think adequately address any issues at any of our major customers have.
So we're very comfortable we've planned appropriately for all of our customers.
And I really prefer not to get into any particular one.
)) Dennis Rosenburg(ph): Thank you.
)) Operator: Our next question comes from Richard Shapiro (ph) of Leemond Capital (ph).
)) Richard Shapiro (ph): Would you clarify the 75 cents number relative top continuing operations, excluding unusual items, if you would elaborate on that, I would appreciate it.
)) Unidentified: The 75 cents excludes the restructuring costs related to the plant closures that we described.
And of course also excludes any impact from the discontinued operations, which are the Jantzen and private label network pieces.
)) Richard Shapiro (ph): Thanks.
)) Operator: Our next question comes from Rob McArthur of Access Securities.
Your question, please.
)) Rob McArthur (ph): Good morning.
How are you?
)) Unidentified: Good morning.
)) Rob McArthur (ph): Two questions quickly.
I was wondering if you could tell me if there's any impact in the gross margins from prices of cotton.
I've heard that since China has joined the WTO that cotton prices have been falling.
And I thought there might be some margin expansion associated with that.
TO that cotton prices have been falling.
And I thought there might be some margin expansion associated with that.
)) Unidentified:: This is John.
In denim it's supply and demand.
The price of cotton had no material effect on our buying of the piece goods.
)) Unidentified: We don't buy any cotton directly.
We buy piece goods.
So cotton, as John said, the cotton prices don't necessarily describe what's happening with piece good prices it's more supply and demand.
)) Rob McArthur (ph): Also, could you give me the sales for The North Face year-over-year domestically.
)) Unidentified: Domestically, what we indicated in the release was sales were about flat year-over-year but it's important to keep in mind that's impacted by the lack of sales of distressed product.
At the acquisition time, we want a fair amount of distressed products.
So that's impacting the comparisons.
But what we also indicated was that in this quarter domestic sales of regular product sales, in other words not off price, increased by seven percent.
)) Rob McArthur (ph): Okay.
I've heard some noise about the warm weather being a factor for sales of winter apparel and so forth.
Are you seeing -
)) Unidentified: Yeah, it's true that we need some cold weather.
We think we're starting to get that at this point in time.
It hasn't helped overall sales in those sporting goods and sport specialty stores to be sure.
We hope that picks up at this point.
)) Rob McArthur (ph): Great.
Thanks very much.
)) Operator: Once again ladies and gentlemen, if you do have a question press the one key on your touch-tone telephone.
Our next question comes from Margaret Maker of Goldman Sachs.
Your question, please.
)) Margaret Maker(ph): Hi, good morning, Mackey and Bob and everybody.
I was just wondering when you'll say more about 2003 because you've had a couple of questions about your outlook and your gross margins and your expenses.
I'm wondering what your thoughts or game plan is there with regard to communicating more about that.
)) Unidentified: Margaret, as usual, we'll talk more about that in February when we release our fourth quarter numbers.
That's been our practice.
)) Margaret Maker(ph): Okay.
Can you just talk about your cap ex for this year, where that's going to come in and how that plays against your 500 million dollar cash flow target and what your outlook is for next year and what major products you'll be spending on.
And I take it that the cash flow will not stay at the level it's at now because I can't really see that you'll be cutting your inventory to the same extent next year that you are this year.
So if you could just talk about cash flow and the whole outlook for that.
)) Unidentified: Again, we won't talk about next year yet.
But what we can say, number one, the cash flow from operations of 500 million dollars excludes capital spending.
That's before capital spending.
Now, related specifically to capital spending, our spending year-to-date has been quite low.
We've only spent about 35 million dollars through the first three-quarters.
So the annual number will be close to, if not a bit below where we were at last year that's in the 80 million dollar range.
In terms of bigger projects or large projects, obviously what's been driving that is that we've not been investing obviously in a lot of brick and mortar, particularly owned brick and mortar, obviously, and that's of course what's keeping the overall level fairly low.
)) Margaret Maker(ph): So, Bob, just conceptually, not specific guidance, but the 500 million is unlikely to be sustainable, I would think.
)) Unidentified: Well, if you look at our history over the past five years, our cash from operations has been in the 430 million dollars, 450 million dollar area.
Last year was about 680.
So the 500 million dollar number is about on average, a little bit higher.
But we wouldn't expect it to drop dramatically below that.
We've been at that level or near that level.
)) Margaret Maker(ph): But is it likely that you're going to see your working capital show additional improvement at the same magnitude next year?
)) Unidentified: As we said, and this year, on a year YEER to year basis, our inventories will be pretty close to the same.
There's not a lot of pickup from inventories this year.
Again, inventories overall are pretty close to where they were at last year.
On the annual basis.
)) Margaret Maker(ph): Okay.
And then can you just talk about the play wear area and what's going on in that segment of your business and why has that been so problematic?
I know you talk a lot about potential acquisitions and you're always on the hunt for those.
But is there anything that could happen from a divestiture standpoint that might make sense.
)) Unidentified: We're always evaluating all of our businesses, Margaret, and looking at the investment we're making in them, the return we're getting.
So the answer to that question is yes we're always looking at our businesses from the standpoint of our total portfolio.
The play wear business has been one of the more difficult ones.
Not only for us but I think at retail overall as the consumer has gotten more cost conscious, more value oriented.
They have, I think, drifted down probably more so in that category in their channel purchases than any other category.
And our brands are primarily positioned in the upper and middle tier.
So that's had some probably more impact on our business there than some of the other businesses where we have a very strong position in the mass channel.
So that's probably had some impact on our business there.
We do feel our brands have the right product and the right positioning in the channels they're in.
It's just those channels are suffering a little more than the mass channel during this period.
)) Margaret Maker(ph): So it doesn't make sense to me to be repositioned, health text down market..
))Unidentified: We'll obviously look at how we address the situation going forward.
John you might want to comment.
)) Unidentified: In general the children's market is not really dominated by one or two brands.
The brand shares in the children's market is usually around two, three TRGS percent or so.
We're looking and we have launched for the fourth quarter of this year a sub brand of health text in the mass channel.
We have a Shopko (ph) test going on right now.
We'll see how that does.
Again, we're looking to see where we can use by health text a sub brand in that mass channel.
)) Margaret Maker(ph): It's interesting that you point out that the kids businesses relatively market share is spread around a lot of different brands.
And yet in many other categories with the consolidation of retail channels you've seen consolidation of brands and market share of the brands.
Do you think that's likely to happen in the kids market?
And maybe it would be better to just sell health text now if you can.
)) Unidentified: Well, we obviously wouldn't comment on any plans we'd be making for any of our businesses.
But the difference in the play wear business is there just never has been any real dominant brands.
The leading shareholder in the play wear business has about a three or four percent market share as compared to jeans and other categories where you're talking 10 to 20 percent market shares for the leader.
It's always been a much more fragmented market and will probably continue to be a fairly fragmented market.
)) Margaret Maker(ph): Why do you think it will stayfragmented.
)) Unidentified: It's a product driven category and the brand imagery for mom buying for a three-year-old or two-year-old or six-year-old are just not as important as someone who makes a statement about their lifestyle when they're wearing a pair of jeans or when you're talking about intimate category where it and styling is so critical to that consumer.
So there's just some dramatic differences in that category versus jeans and intimate apparel.
)) Margaret Maker(ph): Okay.
Well, thank you very much.
We'll talk to you soon.
)) Unidentified: Thank you.
)) Operator: At this time I show no further questions.
)) Mackey McDonald: Okay.
Thank you very much.
We appreciate your joining us.
As I said earlier, we feel very good about the quarter we had a lot of work went into positioning us to have a good quarter in a very difficult environment.
But more importantly, we're investing in our brands during this period of time.
We're seeing market share gains.
We feel like we're extremely well positioned as the consumer decides to return to the stores to buy apparel we feel like we'll be in great shape to take advantage of that.
Thanks for joining us today.
)) Operator: Thank you for participating in today's conference.
This concludes the program.
You may now disconnect.
Good day.
END