Kimberly Greenberger (Citigroup): What is the in-store inventory at the end of the first quarter excluding in-transit piece?
Richard Flaks: The inventory in-store without in-transit was up in the low single-digits. We were in line with the guidance we gave last time. The difference between where we ended and the guidance was goods that go onto ships sooner than we thought they would.
Kimberly Greenberger (Citigroup): When you anniversary the opening of the new distribution center?
Sue Riley: The IMU was down. That is largely the assumption of mix year-on-year as opposed to cost increases. Our AUR is down as well. The anniversarying of the DC is back-to-school of 2008.
John Morris (Wachovia): Are you seeing any sourcing increases or cost increases as you get into the back half particularly as it relates to goods coming out of the Far East but also prices of cotton, etc. and raw materials?
Sue Riley: What we continue to see in cost of goods is there is pricing pressure. It is coming from a variety of factors - the dollar is weak right now; commodity prices including cotton are increasing. However, that has been mitigated somewhat by demand where the retail environment in the U.S. is down and so we are able to hold our costs in line in part, again, sourcing is a core competency of this company. We are good at being able to shift production to lower our costs and also we are seeing that the lower demand is helping us to mitigate higher cost pressure.
John Morris (Wachovia): Did the numbers you released today the 64 cents did that include 3 cents due to options expense?
Sue Riley: That did include option expense. So last year EPS including those costs was 64 cents and then if you take that out it would have been 68 cents. This year we also had some items in the first quarter that one could characterize as one-time and if you pull that out of this year’s first quarter it would have been 70 cents.
John Morris (Wachovia): What those were in the first quarter of this year?
Sue Riley: Primarily professional fees associated with some of the activity that we had around certain lawsuits.
John Morris (Wachovia): Can you talk about the merchandising, particularly from a product strategy perspective as you head into the fall back-to-school season?
Dina Sweeney: From a strategy perspective we are returning to our roots, offering the great color, great fashion, and great outfits all at a tremendous value. We have reduced our overall investment in “best” product this year substantially below last year and we have shifted that into “good” products. We continue to see an opportunity in girls and newborns with a new focused and narrow assortment. Our inventory investment in denim we substantially lowered from last year as well which has brought us in line with our 2006 position which was our best denim year ever. From a category perspective we still feel that denim will still continue to be the single largest volume driver for the company during the back-to-school period because it does remain the primary staple for the children’s wardrobe. We have made some adjustments to the girl’s denim program. We have introduced new washes and fits on both the boys and the girl’s side in the good price point. In addition we will continue to offer premium denims to silhouettes however we have reduced that investment as well. Just overall we have also differentiated from last year our fall one assortment versus our fall two assortment focusing on more shorts and short-sleeved products which we believe is the correct strategy as we move forward.
Margaret Whitfield (Sterne Agee): What could you say regarding your future financing needs as you were working on the term loan?
Sue Riley: We are continuing to work on that term loan. We feel that not withstanding the fact that our borrowing was less coming out of this quarter than what we had anticipated some months ago we still feel that given the volatility of the business it is just wise to have a backup source of financing. We are continuing to work on the term loan. As to timing, I would say the next couple of months we should have it closed.
Margaret Whitfield (Sterne Agee): Can the revolver presently sustain your needs of financing inventories and store openings?
Sue Riley: Yes.
Margaret Whitfield (Sterne Agee): You were assessing the real estate. Do you have any thoughts or updates on the strategic review?
Chuck Crovitz: No. We have made good progress on that assessment and it is not complete yet so I would like to hold off on that and we will update you on that in the future.
Margaret Whitfield (Sterne Agee): How about shared services?
Sue Riley: There were some severance costs in the first quarter but they were offset by some severance adjustments from last year. So in fact there was not a one-time expense in the first quarter associated with severance in total. Also bear in mind that the severance costs associated with the exit of the Disney business and people in shared services who had been working on the Disney business were in fact included in discontinued operations. Severance is not a material component of the continuing operations PNL.
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