David Mann (Johnson Rice): Are the merchandising initiatives that you have in place for the back half in place now or are they going to ramp up throughout the back half to where the benefits are going to occur as they ramp up?
John Call: It is the latter, David. They are going to ramp up as we go through the course of the season. Some areas might kick in earlier than others based on planned receipt flows, but it is going to be a gradual movement through the course of the season.
Patrick McKeever (Avondale Partners): The inventory shrink helped gross margin by about 20 basis points on the quarter, but you were not accruing a significant benefit for the third quarter or not anticipating an incremental benefit in the third quarter or fourth quarter. Where does shrink stand as a percent of sales right now and where do you think it can go over the next year?
John Call: In the second quarter, we benefited by about 10 basis points on a lower accrual. In the third quarter last year, we benefited by about 30 basis points due to the catch-up when we took the actual physical. We have not scheduled in any improvement in the guidance we gave. We are hopeful that it gets better. We are focused on it, but we have not included that in any of the back half guidance today and relative to what the overall shrink number is, we have not disclosed that.
Patrick McKeever (Avondale Partners): Would the later back-to-school holidays in Florida and Texas benefit comparables by about 1 percentage point in August?
Michael Balmuth: Yes, that is based on the tax-free shift. We said that it got to the point in July and that will come back in August.
Patrick McKeever (Avondale Partners): You have seen the results from stores in those states in Texas and Florida. Have the later tax-free holidays generated the sales that you anticipated?
Michael Balmuth: It did benefit us by about a point, it cost us a point in July and benefited us by a point in August and we will come out with our August sales guidance to give more color around it. We are not going to comment mid-month.
Rob Wilson (Tiburon Research Group): There was an insurance recovery this year and also there were lower legal costs. Can you quantify those and why was there no interest income in the second quarter?
Michael Balmuth: Relative to the legal costs and the store fire recovery, we had a benefit based on insurance proceeds for an incident that occurred in the past that we picked up in the quarter. The legal expenses, we continue to evaluate the various cases we have ongoing and make adjustments. All in, those were worth about 1 cent on the quarter.
Relative to interest income during the quarter, had to do with what our cash balances were during the quarter, so relative to the debt we have outstanding were offset by the cash comparables we had on which we earned income.
Rob Wilson (Tiburon Research Group): You had guided the flat interest expense in the quarter, but now you are guiding to $1.5 million in the third quarter. Why is the difference?
Michael Balmuth: Based on our view of cash, the number is actually $1 million, not $1.5 million in the third quarter, based on looking at the cash and where we think it will be based on capital investments and none of it is related to the interest expense.
Rob Wilson (Tiburon Research Group): You had previously said that dd''s would cost you 35 basis points this year. Now that you have had a slower start in some of your new markets for dd''s, has that changed your thought process regarding the basis point impact this year?
Michael Balmuth: No, we said the drag is about 35 basis points north of where we were in our prior year.
Marni Shapiro (Retail Tracker): Can you expand on the errors you made in Florida?
Gary Cribb: We started seeing a negative trend in Florida going back to the end of 2005 and we looked internally to see what the issues are. We had serious operating issues that were broad spread across the state. We have made significant inroads into those operating issues, but any time you have a market that is broken, it takes time to get the right people in place and get the operation back on track. We think that we have made progress. We continue to see progress in Florida and we are on track to where we want to be relative to our own internal turnaround in that state.
Marni Shapiro (Retail Tracker): You changed the signage and the way some of the displays were on the floor, putting the higher display cases off to the sides so the floor felt more open. Are you seeing benefits from that?
Gary Cribb: It is a new concept for us and we are always looking at better ways to improve the floor and listening to our customer and from that research, we did make some changes in our signage. You will see brighter, more vivid signs that are more reflective of the chain and the customer. We did move higher fixturing to the outside to improve sightlines and you will continue to see tweaks in the prototype as we continue to learn more about the business.
Marni Shapiro (Retail Tracker): Is any of that transferable to the Ross Stores?
Gary Cribb: There are certain things that we do learn from dd''s and look to see how we can bring them into Ross. From a signage perspective, we took it from Ross. We changed our Ross signs about three or four years ago and had some good learnings from that and applied them to dd''s, but we do maximize and leverage both companies.
|
