Scott Mushkin – Jefferies & Co
So if you’re guys are going to keep going on the line, if we say $40,000, you expect us to be about a…and you are going to run none of it through CapEx, it’s all going to be an expense next year, about a $300 million expense?
Wade D. Miquelon
Well, a couple of things, number one is, I’d like to say it’s 90-ish percent expenses, not all expense, obviously counting…and separately we’re probably not talking 7,000 stores. We’re probably talking 5,000, 5,500, again because the new stores coming online are refreshed and are starting to reflect the new format, as well as there are some very unique stores we had in urban areas, small format, whatever that don’t really lend itself towards this type of refresh.
Scott Mushkin – Jefferies & Co
So, okay, $200 million, $250 million, now is that net of the $500 million next year or is that, or is it $500 million on top like, this is, that expense is contemplated with the $500 million that we are supposed to get in savings?
Wade D. Miquelon
This is separate. The $500 million again is reflective of the rewire, so the SG&A reductions. The CCR program is separate but excluding the SKU reduction, which is also driving down labor, so you’ll see this as a separate bucket of costs but we’ll also have of course benefit associated with the CCR that we hope to outrun this by.
Scott Mushkin – Jefferies & Co
Okay, so you expect the $500 million, we shouldn’t have $200 million extra expenses here next year, just to clarify?
Wade D. Miquelon
The net $500 million is basically the net of the one-time costs associated with rewire and the SG&A benefits of rewire, right?
Scott Mushkin – Jefferies & Co
Right.
Wade D. Miquelon
It’s effectively a separate program from this.
Scott Mushkin – Jefferies & Co
Okay, so if I was going to do like a little key account though, I’ve got $500 million there. I get $200 million offsetting it potentially, and then going to, because you saw the mix, you guys cited mix as an issue with gross margin, that probably doesn’t go away. So how are we thinking about gross margins as we go into fiscal year 2010? I know Wade you had said before we didn’t think going more consumables would hurt gross margins at all but it seems to have this quarter and it wasn’t in that many stores. So how are we thinking of gross margins next year?
Wade D. Miquelon
I think we had a little compression this quarter obviously, but big the factor here was really markdowns and LIFO. I think as most retailers saw May was a bit more challenging month than we had the few prior months. So we are seeing a bit of a, kind of call it a bit of a lagging market out there right now but I think we feel pretty good that we are taking lots of steps over time here, that despite perhaps changing mix, we’re going to continue to drive the private label. They can be more efficient in terms of how we price and promote and I think that we’ve got offsetting things that are going to help to stabilize and increase the gross margin over time. |