Hi. Good afternoon. I wanted to ask about the London store. You said that was comping double digits and I know this was highlighted as an area that was going to be an earnings drag a couple of quarters ago and can you let us know what’s going on the profitability side there also?

A.C. Gallo

Yeah. We are excited to see the Kensington store move into double-digit comps and also the other small stores in the U.K. have all shown steadily improving comps as well. And I think it is a combination of this past year, about 10 months ago, we separated the U.K. as its own region and moved over Jeff Turnas to be the regional President over there and then also David Doctorow moved over, a long time veteran of our north Atlantic region, moved over to work with Jeff as the Vice President. And those guys have just made steady improvements and the customers are really reacting to it. It is a good time because the economy is also picking up over there. So, it has been really exciting to see and yes as to -- as the sales continue to pick up over there, the profitability is as well.

Mark Wiltamuth - Morgan Stanley

So is it still in the red, or is it turning the corner?

John P. Mackey

It is still in the red. It will be in the red for a while because of the high depreciation. Until some of that depreciation comes off and sales continue to go up, it has high rent. But we see a light at the end of the tunnel and the power of compounding, if you are able to grow those comps say double digits for the next several years, I will be on a call someday in the future and announce the profitability of -- first I will announce the positive cash flow from the store and then I will announce the profitability. But, I am not announcing it right now.

Mark Wiltamuth - Morgan Stanley

Okay. And just to get back to the gross margin discussion on the broader company, you did mention you were doing very well on your buys because of all of the product that was out there with the organics. Were you passing all of that through and really just the margin positive here was from being more disciplined on price relative to last year or were you pocketing some of the cost of goods saving for yourselves?

A.C. Gallo

I would say that the majority of the increase in margin has come through better -- through better disciplines. One things that happened in the first quarter of last year was that we had a lot of the holiday ordering was done before we were clear on how much a problem the sales were going to be. And so when we moved into the holidays expecting our normal bump last year it didn’t happen. We were stuck with a fair amount of inventory and we had a lot of significant shrink in the perishables and then we had lots of holiday items in our Whole Body department.

So that really depressed last year’s gross margin and with better sales this year, better holidays, much better discipline, we did much better through the holidays. So some of that -- a good chunk of that improvement over -- over first quarter of last year was because of that. As far as your question of these better buys we have, I would say that most of it was passed on to the customer, a few places where maybe it helped the margin a little bit, but I think the majority of that margin improvement was we faced some better disciplines and a much better holiday.

Mark Wiltamuth - Morgan Stanley

If you look at the PPI numbers which is a little bit of a crude measure, but we are starting to see some turn in dairy and some of the vegetables. Are you seeing that also?

Walter Robb

The inflation question. We started looking to PPI as well as CPI and we are not completely gathered to those numbers since it reflects primarily commodity conventional agriculture and we have a mix of natural organic as well as conventional. But we saw a slight upturn in, in the last three to the quarter. We still continue to look at the balance of this year. We don’t see inflation being meaningful. So more than 1.5% to 2% range at the Cap is what we our internal projections and so yes we did see a little bit. We still don’t think that for our business it is going to be a meaningful factor. If anything it will be a slight, a slight tailwind, but still not that meaningful.

Mark Wiltamuth - Morgan Stanley

You are still in deflation mode right now versus a year ago?

Walter Robb

Not deflation. The CPI was slightly deflationary, but I don’t think that’s where we are. I don’t think it is going to be a major factor in thinking about the business for the balance of this fiscal year.