Destination XL Group, Inc. (DXLG) Q2 2008 Earnings Call Transcript
Published at 2008-08-21 15:08:19
Jeff Unger - VP, Investor Relations David A. Levin - Chief Executive Officer, President Dennis R. Hernreich - Chief Operating Officer, Chief Financial Officer, Executive VP, Treasurer and Secretary
Scott Krasik - C.L. King & Associates, Inc. Margaret Whitfield - Sterne, Agee, & Leach Betty Chen - Wedbush Morgan Securities Inc. Gary M. Giblen - Goldsmith & Harris
Welcome to the CMRG second quarter 2008 earnings conference call. (Operator Instructions) I would now like to introduce your host for today’s conference call, Jeff Unger.
Today’s discussion will contain certain forward-looking statements concerning the company’s operations, performance, and financial conditions including sales, expenses, gross margins, CapEx, earnings per share, store openings and closings, and other matters. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to defer materially from those assumptions mentioned today due to a variety of factors that affect the company. Information regarding risks and uncertainties are detailed in the company’s filings with the Securities and Exchange Commission. Our complete Safe Harbor statement is available at www.casualmale.com. Now, I would like to turn the call over to David Levin, President and CEO of Casual Male. David A. Levin: Today we announced second quarter sales and earnings. With a challenging retail environment, we delivered a +0.3 comp in sales performance. The metrics for the quarter were similar to the last several quarters in that traffic into our stores was off in mid single digits, but was offset by continued strength and improvement in our sales conversion and the increase in our average transaction. And we’re also encouraged that the month of July was the strongest month we’ve had in the last year. We’re starting to see significant improvement in our Rochester Clothing division. As I stated in last quarter’s call, we believe the product assortments in Rochester are better balanced for fall, and we’re starting to see results. As we are positioning our inventory for growth in men’s contemporary collection, the early results are very encouraging. Modern contemporary brands such as John Varvatos, Michael Kors, and Robert Graham are all doing quite well. Another opportunity for Rochester has been the re-introduction of Cutter & Buck, a brand that developed significant loyalty to our customer base over the years. Due to legal circumstances we discontinued carrying the product which had an adverse effect on our sales. Those issues are behind us now, and now with the new Cutter & Buck receipts for this fall, we’re seeing solid results. Sales in our Casual Male XL division continue to be consistent. Our strengths for the second quarter were in the new category of Reebok Golf apparel, shorts, and a huge lift in our screen tee business. Core basic programs continue to struggle as newness continues to perform quite well. I’m out this week traveling stores, and our fall product looks great in our 626 Blue, Oak Hill, Synrgy, and our New Synrgy Lifestyle brands. And Q3 is the first quarter in over 4 years that will be the anniversary of a negative comp in Casual Male XL which should make the hurdle rate a little less challenging in the back half of this year. During the second quarter, we acquired Dahle’s Big & Tall with 15 retail stores, was the largest Big & Tall specialty player outside of CMRG. The purchase is basically a real estate transaction where we will get 8 broom-swept locations delivered to us on October 15th that will be converted to Casual Males Stores and be open by mid November. The remaining 7 stores will close by the end of January. We’re excited because we’ll be opening in Utah, Montana, and Idaho where we don’t have any stores and will add some market share in our Las Vegas, Seattle, and Phoenix areas. The closing stores are in existing Casual Male markets where our Casual Male stores should experience increased comp sales over time. CMRG by year end will have 498 stores in 47 states, and the next largest specialty competitor will have 5. We’re very pleased with the performance of our direct to consumer business. ShoesXL continues to do well and continues to double the penetration of footwear sales as a percent of sales to our direct channel sales. The big driver for us in Q2 was sandals where we significantly increased our assortments for this year. B&T Factory Direct also had a solid performance in the first half of this year. LivingXL, our non-apparel lifestyle product for people of size is also having an excellent year so far. The new product offerings continue to allow us to build this business for the future. And as we have stated before, these combined three new businesses are still projected to at least break even this year. According to NPD, Big & Tall men shopped 50% more on the internet than regular size men. We’ve launched three new businesses in the last year to build upon our strategy to grow market share more from direct channels than from brick and mortar growth. And as we near our $100 million in sales in our direct businesses, our strategy is paying off. With approximately 500 stores, we’re very pleased with our penetration of direct sales as a percent of total and we’re not done as we look for other venues to grow our direct business. In the next few weeks, we’re going to go live in the UK with both our Rochester and Casual Male XL offerings, and following the UK, five additional EU countries; Spain, Germany, France, Italy, and The Netherlands will be up and running. There is really nothing like our brands in Europe. No other retailer has the breadth of products, brand offerings, and value merchandize like us. Also with our London store being the second highest volume store in all of CMRG, we already have a successful track record, admittedly a small one in Europe. And today, we’re very excited to discuss our latest endeavor that launched last week BoldXL. We’ve been working on this project for over a year now and now it’s up and running. Strategically, we have worked to lower the average age of our customer. When we acquired the company in 2002, the average age was 50. We’ve been able to bring that age down to 45 over the last several years. We continue to connect with our customers through focused groups and surveys and what we find is that the younger, specifically 18 to 30 year old big and tall guys, are still reticent to shop where their fathers shop. Our surveys convey that 84% of our customers are currently engaged in social networking on the internet and over 50% responded that they would be interested in a social networking venue like BoldXL. The site we’ve created is a combination of a social environment where big and tall men can engage in blogging about issues such as what seats on which airlines have the most leg room, and at the same time, our retail environment is more conducive to the buying habits of younger customers. We’ve aggregated the young men’s brands between Rochester and Casual Male XL and presented them in a much edgier presentation, and I encourage our listeners to go to www.boldxl.com and experience what I’m talking about. Long-term, we hope to develop a strong connection to the younger demographics that may one day lead to a store concept built around BoldXL, although there are currently no plans in that regard at this time. As I stated before, these new extensions of direct businesses to grow our market share are effective for long-term growth, and none of these ventures have been capital intensive. We will continue to build these businesses over time and monitor their expenditures to ensure that they will not be an impediment to our earnings over the short term. And finally, I would like to address the organizational changes we made last week in our management structure. We announced the elimination our Chief Merchandizing Officer position, and at the same time we’ve added the GMM, General Merchandize Manager position in both Casual Male and Rochester Clothing. We recently brought in Doug Hearn with the Head of Sportwear from Joseph Banks to Head of Casual Male, and promoted Ken Ederle who has been instrumental in the re-merchandizing successes at Rochester as our GMM. Both will report directly to me and it is necessary we keep it as fluid as possible in the retail environment that is moving faster than ever. Dennis Hernreich our CFO and COO will now review the financial results for the quarter and the year to date. Dennis R. Hernreich: Earnings during the second quarter reached a nickel per share on a comparable sales increase of 30 basis points with flat overall sales at approximately $113.5 million. CMRG’s earnings performance for last year second quarter was $0.06 per share which represents approximately 600,000 more net income compared to this year. For the year, earnings are $0.05 per share and a comparable sales decrease of 80 basis points and an overall sales decrease of 1.4% to $221.1 million. The overall sales decrease of $3.1 million significantly impacted earnings during the first 6 months of the year although the sales performance largely explains CMRG’s earnings performance compared to last year, there are certain gross margin and SG&A items which help complete a discussion of the company’s second quarter and first half performance. Meanwhile, the company’s capital expenditures have dropped by approximately $4 million from a year ago, and the company’s inventory position has dropped by 6% from the same year ago. Additionally, the company’s debt level of approximately $59 million has dropped by several million from a year ago and expect debt levels to be substantially below year ago levels by the end of this year. Generally, CMRG’s year is progressing as expected although sales trends are somewhat softer than expected, and therefore we are revising CMRG’s guidance for the year with a sales range of $470 to $475 million and an earnings per share of between $0.22 and $0.27 for 2008. Now I’ll go over in further detail CMRG’s sales, gross margin, and SG&A components. As I said for the second quarter, sales of $113.5 million were flat for last year’s second quarter sales while comp sales are up 30 basis points. For the first 6 months, sales were $221.1 million, down overall by $1.4 million from last year while comparable sales were down 80 basis points. Sales from CMRG’s non-core businesses of LivingXL, B&T Factory Direct, and ShoesXL generated sales of $4.5 million and $8.1 million over the second quarter and the first 6 months respectively compared to last year’s $1.4 million and $1.9 million for the same periods. Comparable sales changes in CMRG’s core business of Casual Male and Rochester Clothing were down 2.1% in the second quarter and down 3.4% for the first half of the year. Our retail channel had a comparable sales decrease of 2.2% for the second quarter and 3.1% for the first half of the year which was partially offset by our direct businesses increase of 15.3% in the second quarter and 12.2% in the first half. During the first half of the year, the company’s sales productivity in its retail channel as measured by customer conversion rate and dollars per transaction improved by approximately 6%, partially offsetting the negative customer traffic trends. This is a direct result of the company’s focus on improved customer service by providing better sales training, development tools, and sales productivity measurement reporting applications to all of our stores. Although these programs are in the early stages of implementation, we obviously are already seeing positive impact on our selling productivity. Again, given the softness in the retail market sales trends for this year, we anticipate that our sales will approximate $470 to $475 million based on a comparable sales from our core businesses of between flat and +2 for the second half of the year, and resulting in an overall core business comp sales change from flat to negative 2 for the entire year. In 2007, the company’s core businesses generated a comparable sales increase of 4.1% during the first half of the year, but had a comparable sales decrease of 3.1% in the second half of last year. So far this year, CMRG has opened five Casual Male stores and closed four others and relocated five other Casual Male stores. Also, the company opened one Rochester store. At the end of the second quarter, total store count was 490 stores with 1,825,000 sq. feet of leased space. For the balance of the year, the company is planning to open 10 Casual Male stores including eight stores being converted from Dahle stores that David discussed while closing five other Casual Male stores and relocating seven others. The expected CMRG store count at the end of the year is expected to be at 495 stores. For the second quarter of this year, our gross margin rate inclusive of occupancy cost was 45.2% as compared to a gross margin rate of 46.5% for the second quarter of last year. The decrease in gross margin rate was the result of, one of, 50 basis point increase in occupancy cost as a percentage of sales, and an 80 basis point drop in merchandize margins. Occupancy related cost increased 4% on a dollar basis during the second quarter from last year. Our merchandize margins were negatively affected by a few factors, the first being increased customer loyalty program cost as the number of participants have climbed above last year’s levels, the second being increased cost of catalog postage expenses resulting from higher fuel prices, and the third a slight degradation in sales mix resulting from the lower gross margin than non-core businesses. For the first 6 months of this year, our gross margin rate inclusive of occupancy cost was 45.1 compared to a gross margin rate of 46.2 for the first 6 months of 2007. The decrease for the 6 months in gross margin rate was more the result of a 70 basis point increase in occupancy cost as a percentage of sales and a 40 basis point drop in merchandize margins. Again, occupancy cost increased 4% during the first half while merchandize margins for the first 6 months were negatively affected primarily by increased customer loyalty program costs as a number of participants had climbed above last year’s levels. In spite of the second quarter trends, we anticipate that our gross margins for this year will be approximately 25 to 50 basis points over last year’s gross margin levels, and that’s after excluding the last year’s $6.1 million inventory adjustment reported in the fourth quarter with the improvement expected in the second half of the year obviously. The merchandize margins in the second half are expected to show between a 100 and 150 basis point improvement from last year’s levels. SG&A expenses for the second quarter of ’08 were 38.3% of sales as compared to 37.8% for the second quarter of last year. SG&A levels increased by 1.4% from last year on a dollar basis while SG&A levels for CMRG’s non-core businesses increased by $1.3 million from last year’s second quarter levels while the company’s core business SG&A levels decreased by approximately 2% from last year. During the first half of the year, the non-core business SG&A increased by $3 million while the company’s core business SG&A levels decreased by approximately 3% from last year. For this year, we expect SG&A levels to approximate between $181 and $182 million as compared to $178 million last year. The revised SG&A levels anticipate the opening of eight Casual Male stores early in the fourth quarter, those being converted from eight Dahle stores acquired this June. As David said, Casual Male will be entering three new markets in Salt Lake, Billings, and Boise. Overall, the company reported for the second quarter net income of approximately $1.9 million or $0.05 per fully diluted share compared to net income of $2.5 million or $0.06 per share for the second quarter of last year. For the six months CMRG reported a net income of $2 million or $0.05 per share compared to $3.6 million or $0.08 per share last year. The company’s inventory levels decreased 6% from last year’s levels and we expect that inventory levels will continue to drop during the balance of the year as compared to last year’s levels. By year end we expect $10 to $15 million inventory reduction from the end of last year. At the end of the quarter the company had borrowings under its revolving line of credit which expires towards the end of 2011 of $45 million and interest rates which are currently at an average of 4.2% with availability of approximately $44 million. That concludes our prepared remarks and we’re ready for any questions.
(Operator Instructions) Our first question comes from Scott Krasik with C.L. King & Associates, Inc. Scott Krasik - C.L. King & Associates, Inc.: My first question is on the non-core businesses. David, maybe talk a little bit about the general awareness out there of the new businesses, what the opportunity is, I know you’ve intentionally been running it as a sort of breakeven to gauge demand, and how do you see this really developing? David A. Levin: Again, this is the year we wanted to manage the profitability and next year we will be looking for profitability. I think we’ve seen Living XL exceed our expectations in its potential, and I think our big opportunity in the future will be dressing the women’s side of the business. When they are coming in through the internet, we’re getting a lot of transactions from women because the stuff is non-gender related and that’s a wide open market for us. So, we see strong growth there. B&T continues to perform well and we’ve become more aggressive in how we market B&T from a price point of view and that seems to be working well. And footwear was just natural for us to get involved in and it’s responding extremely well and our footwear sales in our stores as a category have the highest comp increase of any other category as we’ve become more sophisticated about how we sell footwear, and again, it’s doing extremely well on the internet, and what’s interesting is that our transactions on the internet where customers are finding us and Googling in or keyword searching in, 50% of our sales are from customers who’ve never made a purchase at Casual Male or Rochester. So, we feel very good about these existing new businesses that we’ve launched and we’re getting excited about the new ones that are coming up right now. Scott Krasik - C.L. King & Associates, Inc.: Dennis, how should we think about incremental G&A for those businesses; are you able now to keep that pretty flat? Dennis R. Hernreich: No. I mean, the revenues are still growing; so we would expect next year, perhaps not a dollar for dollar increase that we saw this year, but SG&A will rise associated with non-core businesses, but as David suggested, we’re running at about breakeven and we expect to break even from these businesses this year, and next year they will be contributing. Scott Krasik - C.L. King & Associates, Inc.: Okay. So, it’s not going to be a full margin next year? Dennis R. Hernreich: No. Scott Krasik - C.L. King & Associates, Inc.: Okay. And then, David, I know you eliminated Cutter & Buck for a couple of reasons, you had the legal issue also, I think you were looking to go more upscale, was it just customer loyalty to the brand, is that why you are bringing it back? David A. Levin: Yeah, we actually surveyed a couple thousand of our Rochester customers and found extreme loyalty there and it was a painful experience to have to eliminate the brand, and we got past that and we settled our differences, and we reintroduced it this month and the response has been very good. It’s really today only in the catalog and we’re going to be bringing it back into the stores too because the stores are selling a lot of it out of the catalog and the customers are excited about actually seeing the product in the stores. Cutter & Buck was our second largest brand two years ago, so it’s very positive for us to bring it back. Scott Krasik - C.L. King & Associates, Inc.: Okay. And then, just lastly, when you talk to other retailers their message is that if you want great locations you still have to pay up for them, you’re not seeing any breaks on the rent; you guys typically don’t look for A or A+ locations; so are you guys actually seeing some benefit coming down the pipe for redoing leases or moving the stores? David A. Levin: Yeah, I think things are turning more favorable in our favor. We’re still aggressively trying to get these relocations done. We’ve identified close to 40 stores that we would like to relocate, but we’re waiting for the right locations. We’re not going to sell ourselves short on this project. We are getting them done. I do think things are turning somewhat favorable, but again, with 500 stores we don’t anticipate moving the needle very much in any given year. Scott Krasik - C.L. King & Associates, Inc.: But if you get a positive comp next year the leverage on the occupancy should be that much greater right? Because you are not building in normal increases like you have been? Dennis R. Hernreich: Much of our leases are locked in. We only renew about 20% of our stores on an annual basis. So, we’re not going to feel quite the softness in occupancy costs in any one year like you’re suggesting. And many locations, we’re in a strip off a busy street, we don’t have a lot of stores owned by one landlord; so we’re not seeing… If we were in malls it would be whole different story, but that’s not what we’re seeing so far.
Our next question comes from Margaret Whitfield with Sterne, Agee, & Leach. Margaret Whitfield - Sterne, Agee, & Leach: For Dennis; I wondered if you could comment on what we might use for a tax rate for the full year and since you said debt would be down appreciably, what’s your thinking about interest expense for the year? Dennis R. Hernreich: The tax rate to continue to use is 40% and interest expenses should be between $2.5 and $3 million for this year. Margaret Whitfield - Sterne, Agee, & Leach: David, I wondered if you could talk about your marketing plans for the back half; TV, catalog circulation… David A. Levin: We’re excited because we have built in a television marketing plan for the October/November period which will be up against no television from a year ago because that was something we cut back on. So, we do know that television does drag traffic to our stores, so that’s a nice thing to have in our pockets this year. Catalog circulation is coming down, but most of that circulation is from prospecting, not from our core customers, and we’re finding that television is a more advantageous way for us to find new customers than prospecting through catalogs. Margaret Whitfield - Sterne, Agee, & Leach: And you mentioned that your business was better in July than in prior months during the quarter. Can you comment on how August has started out? David A. Levin: No, we’re not going to really comment on the third quarter. We’re only two weeks into it, but again, with Casual Male, it’s been a fairly predictable consistent pattern, no major waves, but we’re going to cautious about the third quarter because it’s just too early for us. One thing about our business is that August for Casual Male is the lightest sales month of the year, which would certainly be different than the younger men’s business because we really don’t have the back-to-school business. September for us is when business starts to improve really because the weather is making a move. So, August is not a good indicator for us. Margaret Whitfield - Sterne, Agee, & Leach: And finally, Dennis, I am sorry, I got interrupted; could you tell me what you said about gross margins for the year, I think, you said for the second half, your comments were… Or was it for the year? Dennis R. Hernreich: Comments for the year, we’re expecting the gross margin rates to be improved by 25 to 50 basis points.
Our next question comes from Betty Chen with Wedbush Morgan Securities Inc. Betty Chen - Wedbush Morgan Securities Inc.: I was wondering if you can, just following up on the prior question about marketing, as you are preparing to launch the e-commerce website in UK and then the other five countries in Europe, can you talk a little bit about your marketing initiative over there to drive awareness, I know, you’ve got the Rochester store in London, but in terms of driving familiarity to XL and then obviously any other countries, that would be helpful. David A. Levin: It’s going to go the same way we’ve done the other sites; a lot of it is going to be coming from marketing on the internet, keyword search, Googling, banner advertisement, affiliate programs; it’s strictly going to be promoted through internet channels. We’re not going outside of that space to really generate traffic. And we’re going to monitor it. We only have to get it up and running and seeing what countries the traffic is coming in from and then we’ll make adjustments accordingly. Betty Chen - Wedbush Morgan Securities Inc.: And then, Dennis, I think you mentioned that gross margin was slightly impacted because of the increase in the loyalty program participation? Dennis R. Hernreich: Yes. Betty Chen - Wedbush Morgan Securities Inc.: Can you talk a little bit more about that and also how we should think about that in the back half and obviously next year as the number of members continue to increase? Dennis R. Hernreich: Overall, we’re pleased about that trend because we’re seeing the loyalty participation rates are extremely high. Our most loyal customers seem to be staying loyal which we’re very happy about. So the program I think has been a big success, but at the same time we didn’t anticipate quite this level of participation. So, it did impact our margins compared to a year ago. We’ve incorporated the expected cost of the loyalty program in the guidance that I just provided. And for next year we’re tweaking some of the factors of the program such that it will relieve some of the cost I think without taking away the primary concept of the program. So, we don’t expect any continuing impact of higher loyalty program cost to us. Betty Chen - Wedbush Morgan Securities Inc.: Can you break it out for us, what was the impact in the second quarter? Dennis R. Hernreich: The impact of the loyalty program was about 25 basis points of that merchandized margin impact. Betty Chen - Wedbush Morgan Securities Inc.: And how many members are now in the loyalty program? Dennis R. Hernreich: Almost 90% of our active customer base are members of the loyalty program. Betty Chen - Wedbush Morgan Securities Inc.: Okay. That’s terrific. And then also, could you talk a little bit about obviously sourcing costs and product costs rising, I think, next year; how should we think about that going forward and are you seeing that kind of pressure as well? David A. Levin: We’re not anticipating any real change to our IMU structure next year. We brought in a new head of Global Sourcing and his name is Ron Threadgill, his background, came from Wal-Mart, Perry Ellis International, and he brought in a whole new array of factories that we could get better cost from. So, we’re in a fortunate position that we’re seeing some good cost savings for next year as opposed to increases. As far as the brands are more prevalent, there are cost pressures, costs are going up, but the suggested retail is going up along with it. So, again, we don’t see a gross margin problem at this point for 2009. We could only speak through spring ’09 because that’s where we’re positioned with our placements, but not an issue for us for next year at this point in time. Betty Chen - Wedbush Morgan Securities Inc.: And then lastly, it looks like inventories were pretty clean coming out of the quarter; how should we think about your inventory plans for the back half? Dennis R. Hernreich: They’ll continue to gravitate downward from last year’s level, and we expect to be lower by the end of the year at somewhere between $10 to $15 million from last year’s year-end numbers.
Our next question comes from Gary Giblen with Goldsmith & Harris. Gary M. Giblen - Goldsmith & Harris: Could you elaborate on the thinking on the organizational change to replace the chief merchandising officer with a GMM and are there specific skills or learnings that you expect to come over in a useful way from Joseph Banks since the gentleman has less of experience? David A. Levin: We made these changes because the market is moving quickly and we need to make quick decisions. Personally, I needed to get closer to those decision making processes. We’re becoming a little too vertical in our upper management and that’s what the streamlining process that we felt was the right decision, and we did it because we have the right players to make their moves to the GMM position. Ken Ederle came out of limited structure. He’s done a fantastic job in bringing Rochester in with these contemporary brands and really updating the product mix and Doug Hearn from Joe Banks, he’s a seasoned guy, and he’s got a lot of technology background in products from his previous employment and that will help us too because we do see in Casual Male that technology and fabrications are a huge win for us every time we upgrade. So, we’re very excited about having the new structure. Gary M. Giblen - Goldsmith & Harris: You had slight regional differences indicated before in performance in different regions, any change in the pattern, in California for instance? David A. Levin: Yeah, I guess, the redundant line of every retailer out there, Florida continues to struggle, Southern California has shown weakness, and I would say Phoenix and Southern Texas and Las Vegas, they are not as strongly penetrated for us, but we’re experiencing the same thing that every other retailer has experienced. I think to our advantage, we’re a northeast weighted company, so I think that will help us get through these tough times in the south. Gary M. Giblen - Goldsmith & Harris: The inventory being down 6%, that’s a fine accomplishment given the flat sales and so forth; is that because of a concentration on basics or what is driving that? David A. Levin: Again, it’s a long process, but we’ve really built more of a bottoms-up distribution plan and allocation that we’re just continually getting better at getting the right sizes and product mix at the store level by lifestyle, and that’s just requiring us to tighten up our inventories and get higher sell-throughs at very good price. We continue to drive that percent of sell-throughs at full price up every quarter. So, a lot of that is coming from our planning and allocation group. The rest of it is, yeah, as basics continue to be flat we could start lowering the amount of inventory required for those programs. Gary M. Giblen - Goldsmith & Harris: Great. Just finally, any thoughts on more promotional pricing and contemplation of an intermediate term pricing? David A. Levin: No, actually year-to-date we have not had one price point promotion, we will have one over the Thanksgiving period. We continue to find that our best terms of promotion is that you spend money, you could save money, but we’ve gone away from that because it’s just not gross margin dollar profitable for us to promote our price. So, that’s why we continue to get margin improvement over the years. Again, since we’ve come off this cadence over the years, we’ve improved gross margin by 700 basis points. Gary M. Giblen - Goldsmith & Harris: Okay. But you think there are sales out there to be gotten at some positive gross margins with greater promotions or is it really just chasing non-possible sales or not worth chasing the sales because they are not there anyway? David A. Levin: Yeah, it’s not worth chasing the sales, and we do stay somewhat promotional on our core basic products because we do have a customer that wants price, and he could get a better price on the commodity business, but when it comes to newness in fashion, we’re going to keep our retails as strong as we can.
Our next question is a followup question from Scott Krasik - C.L. King & Associates, Inc. Scott Krasik - C.L. King & Associates, Inc.: David, what’s going on on the competitive side, I would assume some of your department store mid-tier competitors who are really focused on inventory reductions probably are pulling back on this skew intensive slow turn category. David A. Levin: We’re not sure what our competition is doing on any given day and we hear that some department stores are going to get into the business and other ones are getting out of the business; it never seems to really change, if they are in, they want to get out, and if they are out, they want to get in; again, it’s very difficult for them to manage this size-intensive business and get the sales productivity of giving up space for Big & Tall, it tends not to be where they wanted to go. So, we do monitor our competitors on a comp store basis by area and we have seen no erosion in any competitor to our stores; we seem to hold our own whether they’re in the business, whether they’re out of the business, or whether they’re promoting or not. Scott Krasik - C.L. King & Associates, Inc.: Have you noticed other than Shoes XL whether it was through the TV marketing or other means that you have brought in new customers into the stores? David A. Levin: Yeah. We monitor our new to file and during the television campaign we had an increase in our percent of new to file in that time period, but we haven’t seen anything overly dramatic in that number changing. Scott Krasik - C.L. King & Associates, Inc.: Okay. And then I think you’re making a move a little bit away from Li & Fung on the sourcing side; I know you’ve invested in it, are there any potential risks or bombs that we should look out for as you make this move? David A. Levin: No. What it’s allowing us to do is being more flexible in getting the best price we can on any program that we have out there and we feel good about it and we still have a good relationship with Li & Fung, they do a lot of our sourcing for us and have a good organization over there for us to utilize also.
There are no further questions at this time. David A. Levin: Thank you all for joining in on the call. We’re looking forward to the back half of the year and we’ll touch base with you again after the third quarter. Thank you very much for joining us.