Julie Bryan (Jennifer Black & Associates): In the past you have talked about the company being immersed in the youth culture. At the beginning of the call you mention, talking about the relationship with the Amateur Snowboarding Association and the U.S. Surf Team and then you talked about music as a tie to youth. Could you add on to that and talk about to what extent do those relationships turn into tangible sales and what are some specific things that you are doing so that does turn into sales?
Sally Frame Kasaks: It is important to recognize our heritage has been in surf, skate but we are expanding to more of the active styles, just generally the action sports which is what kids are interested in. For example, the music tour. They actually happened to be talented musicians that happened to be working for us. I happened to meet this young man and it turns out he just performed at Staples Center and it turns out that they are a great band. They went out and we sponsored them on the tour. We had in-store events and it begins to create the buzz and cool factor that over time helped us to be a primary destination for our customer. Certainly the in-store marketing is important. We believe that the youth culture today wants to be at a place where it is happening, where the store and the environment reflects what they are interested in, and we just believe it is all one and the same. We have done a lot of research work with these kids, and I do not mean that in a demeaning way. We have style leaders working for us now. We are trying to understand because none of us is the customer and we happen to believe and we have seen that these activities and events just put us on the radar screen with the targeted customer we have, and that is what it is for. That is going to add to that $500 a square foot over time.
Liz Dunn (Thomas Weisel Partners): Do you see any shift regarding denim in the relevant fashion coming in 2008?
Sally Frame Kasaks: We have opportunity in young men’s. We left some money on the table this past year. We are seeing new washes in both guys and gals, young men’s and juniors. We have been testing styles out there. I am not going to tell the world what styles we are going to be selling because that is our business and everyone is trying to figure that out.
I will tell you the proportion that is emerging that continues to emerge right up our alley and we just see denim continuing to grow. We are going to be adding additional SKUs. I think the one thing that in hindsight we might do differently is when we begin to exit styles, we may begin to exit non-performing sooner than we have in the past so that we can create space in our stores to bring in the right trend. We may have been conservative last year. I think that would be all of our hindsights at this point. Denim continues to be driven by new washes, a range of dark colors, indigos. Our team has just left for Europe yesterday and Saturday, so they will be coming back with a lot of new ideas and we are keeping enough of our production open on all categories to be able to respond to trends that we see there now.
Paul Lejuez (Credit Suisse): Can you give any color on the outlet stores, how have trends been there versus your non-outlet, regular mall stores and how many are in true outlet centers?
Sally Frame Kasaks: We have 60 that are in true outlet centers. That is the current number. Depending on parts of the country we have seen some value rather than just outlet business. There have been months where it has trended better than the core Pac mall business, so we continue to see opportunity. We do not talk about it much but we are continuing to see opportunity out there.
Paul Lejuez (Credit Suisse): What percent of sales denim was in 2006 and 2007, where you expect it to be in 2008?
Michael L. Henry: It was 16% of ending inventory as of the end of the year and 13% of ending inventory as of the end of the prior year. Denim is about 20% of the volume now.
Analyst for John Morris (Wachovia Capital Markets): How denim sales are doing outside of Bullhead denim?
Sally Frame Kasaks: Basically Bullhead is our denim business. We do carry some Levi’s and it is doing reasonably well but our business is essentially Bullhead. Bullhead is our brand.
Liz Pierce (Roth Capital): Are footwear and accessories down to 20% of total sales?
Sally Frame Kasaks: Correct.
Liz Pierce (Roth Capital): Is footwear going to be in that low to mid single digits?
Michael L. Henry: It would be 6 to 8.
Liz Pierce (Roth Capital): Is there any seasonality like flip-flops, a lower ticket price versus something heavier in the winter, or is it just going to be those surf kind of items all year round?
Sally Frame Kasaks: The flip-flops will be a part of the assortment much of the year. We also will be carrying a selected number of sneaker type footwear, probably a dozen, 400 to 600 stores. You will see footwear, you will see an edited assortment of it, but that should be about 6% to 8%. There will be some seasonality because flip-flops outperform sneakers in this time of year in particular. We will continue to have in young men’s a tight assortment.
How much is on the sneaker side guys versus girls?
Sally Frame Kasaks: It is almost all guys.
Liz Pierce (Roth Capital): When does the assortment between footwear and accessories become perfect?
Sally Frame Kasaks: It will surely be nice for back to school, though you will begin to see us consolidating footwear to a smaller fleet of stores. We have begun that and you may see those back walls turning either into swimwear or dorm wear or some category of juniors. In most cases, they are going to go to some category of juniors because in many of our stores, we are one shop short. Until we get all of these refreshes done, juniors does not have quite the exposure that it does in our new stores, newer stores. You will see this, so by back to school, our strategy should become clear to people out there, by August 1st to August 15th.
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