Jeff Van Sinderen (B. Riley): As you look at the 25% or so chunk of your store base, are there a lot of stores in that group that are going to have a negative profitability contribution this year based on the guidance you’ve given?
Michael Henry: Not a lot of them. Anywhere in the country and not just in those regions, there are stores that are less profitable than others but even in those difficult comp regions are some of our most productive stores on a four wall basis, some of our most productive stores in terms aggregate top line value to us. I don’t tend to think of it as those economic regions are going to create anymore impairments or issues to us than any other region or the country strictly because so many other stores are so profitable on our four wall basis even in this depressed environment.
Jeff Van Sinderen (B. Riley): Do you think there is anything in particular in terms of your merchandise assortment that needs work outside of accessories?
Sally Frame Kasaks: At this point we are confident about where we are. There are probably some top’s issues that we might rework but that’s just the kind of the normal merchandising that we’d have to be doing day-in and day-out. Our big debt was denim. The other part of it is just to make sure we get our tops a little more wide and that’s just a normal jiggering that one has to do.
Jeff Van Sinderen (B. Riley): As you look at your private label business in light of the issue of rising cost, how are you approaching that?
Sally Frame Kasaks: What we are doing is that as our quantities are increasing and our negotiations are getting better. There are a lot of things that our sourcing group is doing because as we get more important to certain factories and certain countries, we’re leveraging our growth in these categories right now.
Going into spring, I’m not going to say that we were less concerned. We still haven’t got full sense of what the back half of next year is going to look like. It’s probably going to be more back half of next year and as we’re going through a lot of imaginations, there will be some increases but we’re not terribly concerned that there will be some increases.
Jeff Van Sinderen (B. Riley): As you look through the P&L, are there any areas you’re seeing where you think there is room to reduce expenses?
Mike Henry: We’re always looking at opportunities in a variety of areas. The thing that concerns me about the back half if we do end up performing in a negative high-single digit range, there will be some store impairment risk that can potentially offset some of the savings initiatives that we have put in place and do expect to perform for us. We demonstrated a decent job of containing expense growth in Q2 and I’d expect that we will continue to do that through Q2, Q3, Q4 and into next year. In terms of aggregate SG&A, the biggest risk is the potential for store impairments that may hit us.
Paula Schwartz (Needham & Company): There has been a lot of newness in the color pallet. Do you think we are going to see that going forward in fall and holiday?
Sally Frame Kasaks: Color has been important in all parts of the business and so far nothing has come around to replace it. You have to remember that we always do have to ground that in neutrals and so we see a lot of color but we also are making sure that we get the right balance in neutrals such as grey, bone base colors and black.
Shaun Knotin (Piper Jaffray): Are you doing anything differently this year versus last year for back-to-school with something potentially different like online or email marketing campaigns?
Sally Frame Kasaks: We use our e-com for certain things; we have done our pack loop which is something we’ve done every year and we’ve done email blasts and so forth where appropriate. We’re still trying to make sure that we stay rooted in the core business vis-à-vis our denim projection and so forth. That really is a lot of it but from a marketing cadence we’re like-to-like to last year, maybe just doing a few more blasts here and there.
Shaun Knotin (Piper Jaffray): Is there any change to where you think you need to be in order to leverage SG&A right now?
Mike Henry: In consideration of our guidance, there isn’t going to be any leverage if we’re going to perform in the negative high singles.
Shaun Knotin (Piper Jaffray): On the store impairment process, is that a constant cycle you are doing or is that something you’d do once a year?
Mike Henry: It is constant. As each quarter flips by we have to make reassessment of our portfolio. It’s something that we do each and every quarter and with each quarter it goes by with disappointing performance. It just brings more stores into question that we have to take a harder look at.
Alicia Reese (Wedbush Morgan Securities): When will we start to anniversary the softness that we’ve been seeing in California, Florida and the Desert Southwest?
Mike Henry: The month of October is the first time we started to see California and the Desert Southwest in particular go into a negative high-single digit territory and it really hasn’t recovered since then. October becomes the anniversary point. It will be interesting to see how those areas perform once we start lapping that. In some sense you could question, well does that mean, maybe they’ll moderate a little bit because they are beginning the anniversary but I can tell you from being positioned out here in Southern California, the environment is certainly significantly worst than it was a year ago. Hence I’m not convinced that that means those regions are going to get any better.
Sally Frame Kasaks: It has been going back and forth between the East and the West Coast. I can assure you, it feels tougher out right here than anything I’ve seen back East.
Alicia Reese (Wedbush Morgan Securities): What sort of comps would we need to see to get leverage in California and the Desert Southwest?
Mike Henry: We’ve stated in the past that to get leverage on SG&A, it would take a five to six over the course of this year and that’s from a total chain perspective. All those regions represent about 25% of our stores and for Q2 in the aggregate they were about a 4% comp drag.
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