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Saks Incorporated (NYSE:SKS)

Q3 2012 Earnings Conference Call

November 13, 2012 9:30 am ET

Executives

Stephen I. Sadove – Chairman of the Board, Chief Executive Officer

Kevin G. Wills – Executive Vice President and Chief Financial Officer

Ronald L. Frasch – President and Chief Merchandising Officer

Analysts

Deborah Weinswig – Citigroup

Charles Grom – Deutsche Bank

Paul Swinand – Morningstar

Matthew Boss – JPMorgan

Kimberly Greenberger – Morgan Stanley

Carla Casella – JPMorgan

Lorraine Hutchinson – BofA Merrill Lynch

Barbara Wyckoff – CLSA Limited

Jennifer Davis – Lazard Capital Markets

Michael Binetti – UBS

Michael Exstein – Credit Suisse

Operator

Greetings, and welcome to the Saks Incorporated third-quarter earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Sadove, Chairman and CEO of Saks Incorporated. Thank you, sir. You begin.

Stephen I. Sadove

Thanks, good morning. This is Steve Sadove. I'm joined on the call today by Ron Frasch, President and Chief Merchandising Officer; Kevin Wills, our CFO; and Julia Bentley, our Senior VP of IR. I would like to thank each of you for taking the time to join us today.

First, let me note that some of the comments on the call as well as some of the information presented in our release related to future results or expectations are considered forward-looking information within the definition of federal securities law. The forward-looking information is premised on many factors, and actual consolidated results might differ materially from projected information if there are any material changes or assumptions, or in the various risks related to our industry and our Company. For a description of the risks and assumptions related to these projections, please refer to the release and our filings with the SEC, including a most recent Form 10-KA.

Today, we will discuss the financial results for the third quarter ending October 27, 2012, our outlook for the fourth quarter, and give you a general business update. At the end of the call, we'll be glad to respond to your questions.

Before I turn the call over to Kevin to discuss the financial results, let me just make a few comments. In spite of the continued uncertain macroeconomic environment, we were pleased to post a modest year-over-year increase in our operating income and net income for the third quarter. Our 3.3% comp store sales increase was somewhat below our initial expectation but was on top of a solid 5.8% comp store sales increase in the prior-year third quarter. Our third-quarter gross margin rate deterioration ¡s partially offset by modest SG&A leverage, with our gross margin rate slightly below our expectations and our SG&A leverage modestly better than our expectations.

As the overall macroeconomic environment remains challenging, we continue to approach the future cautiously, but very strategically. We remain focused on executing our core merchandising, service and marketing strategies, and at the same time we are making critical systems and infrastructure investments to evolve our business to more fully embrace on the channel retailing. We are confident that these investments will position us for the future and will generate incremental sales and operating margin improvement over time. We remain very optimistic about the long-term outlook for luxury retailing in general and, specifically, for Saks.

Having said that, sales trends were soft for the first two weeks of November in the aftermath of Hurricane Sandy. We ordinarily don't comment on the first weeks of a quarter, but Sandy was such an extraordinary event and has had such an impact on our business so far in the fourth quarter that we thought it was appropriate to provide more color under the circumstances. Many of our stores, representing about 40% of our total Company revenues, were directly impacted by the storm and we have experienced a decline in saks.com sales generated from our customers in the Northeast.

Additionally, sales in a number of our other stores, particularly in Florida, were indirectly affected by the storm as many of our northeastern customers have ties to those markets. In aggregate, we estimate that Hurricane Sandy impacted about 55% of our total Company store revenue base. 11 Saks Fifth Avenue stores out of our 45 full-line stores were closed from 1 to 7 days, including our New York flagship, which was closed for two days. 15 of our 64 OFF 5TH stores were closed for up to five days. Additionally, we had a few stores in which operating hours were reduced. We saw an immediate loss of business during the storm and we are still generating lower sales in many of the locations.

Based on these current sales trends and the uncertainties rounding future demand, we are adjusting our outlook for the fourth quarter, which we believe represents a more realistic view of the business. I will give you more details in a few minutes about our assumptions for the balance of the year.

Fortunately, none of our stores to sustained any material damage. We reopened the stores as quickly as electricity was restored and as soon as associates could return to work. It was remarkable how so many of our associates went to such extraordinary measures to actually get to work in the days immediately following the storm. We were as prepared as we could have been for such an event. Our business continuity plans were quickly executed and we set about trying to assure that each of our associates was accounted for and safe and that we could get our stores and support locations up and running as quickly as possible. This was an effective, collaborative and inspiring effort among countless associates in our organization from asset protection to store managers to human resources and on and on. It's truly remarkable what were able to accomplish in just a few days.

Our primary concern was for our many associates, customers and vendors that live and work in the affected areas. Thankfully, none of our associates was injured but many suffered devastating personal property losses and have been displaced due to the storm. Several years ago we established an associate relief fund for aiding associates and their families that were victim to such natural disasters. Following Hurricane Sandy, we made a meaningful corporate donation to this fund and we will also match associate contributions to the fund.

All of our stores and support locations across the country are holding their own fund-raising events to contribute to the fund. We were also proud to make a donation to the American Red Cross, our national charity partner, for their relief efforts.

Seeing how everyone has come together to restore our Company's operations in to assist those in need has been very moving. I am very proud of the entire organization.

I will now ask Kevin to make a few comments about the results for the quarter and nine months and also give some balance sheet highlights. Kevin?

Kevin G. Wills

Thanks, Steve, and good morning, everyone. For the third quarter, we recorded net income of $22.6 million or $0.14 per diluted share. Those results included a reversal of approximately $3.3 million in federal income tax reserves deemed no longer necessary. Excluding this item, we would have

For the nine months we posted net income of $42.5 million or $0.28 per diluted share. The results included after-tax charges totaling $1.5 million related to our new fulfillment center, asset impairments and store closing costs netted against the aforementioned tax reserve reversal. Excluding these items we would have recorded net income of $44 million or $0.29 per share. This compares to last year's year-to-date net income before certain items of $40.7 million or $0.25 per share.

Let me note that for the current and prior year third quarters, our two convertible debt instruments were dilutive. Therefore, the applicable shares, approximately 40.9 million, were added to the weighted average shares outstanding, and the applicable after-tax interest expense, approximately $4.2 million per quarter, was added to net income for the fully diluted earnings per share calculation.

For the current and prior year nine-month periods, the instruments were not dilutive. Therefore, the applicable shares and interest expense were not added back in for the calculation of earnings per share. Also, all the numbers we will discuss today to exclude the previously mentioned call-outlines detailed in today's press release.

Our comparable store sales increase of 3.3% for the quarter and 4.3% for the nine months were on top of very solid performances of 5.8% and 10.3%, respectively, in the prior-year periods. We have posted comparable store sales gains for the last 11 consecutive quarters.

Several merchandise categories showed strength during the quarter, including women's and men's contemporary apparel, women's and men's shoes, handbags, fine jewelry and fragrances. The New York City flagship store sales performance was positive and generally in line with the aggregate comparable store sales performance of the Company's Saks Fifth Avenue stores during the quarter.

Our third-quarter gross margin rate of 43.9% compared to last year's third quarter rate of 44.2%. The rate decline was attributable primarily to a modest increase in targeted promotions principally related to driving our proprietary card penetration. Ron will discuss this more in a minute. For the nine months, our gross margin rate was 41.9% compared to 42.1% in the first nine months of last year.

As a percent of sales, SG&A expenses were 27.3% in the third quarter this year compared to 27.5% in the prior-year third quarter. We achieved leverage in the third quarter while incurring incremental SG&A expenses to support our omni-channel and Project Evolution, which is our information technology systems enhancements project. As a percent of sales excluding certain items, SG&A expenses were 26.5% for the first nine months this year compared to 26.3% in the same period last year.

Now looking at the balance sheet, inventories at quarter end total $927.1 million, a 5.1% increase over the prior year. On a comparable stores basis, inventories increased approximately 2.5%. We had approximately $74.2 million of cash on hand at the end of the quarter and no direct outstanding borrowings on our $500 million revolving credit facility. During the quarter we repurchased a small amount of common stock, bringing the year-to-date repurchases to $79.1 million, equating to approximately 8 million shares at an average price per share of $9.90. Funded debt, including capitalized leases, senior notes and the debt and equity components of the convertible debentures at quarter end total approximately $404.8 million and debt to capitalization was 25.9%. And this is without giving effect to cash on hand.

Our debt currently consists of only $2.1 million of senior notes due in 2013, our two convertible note issues totaling $350 million, $230 million of which does not mature until 2024, and capitalized leases of approximately $52.7 million. We remain very comfortable with our capital structure, our liquidity position and our overall financial flexibility.

Net capital spending for the nine months totaled approximately $74.3 million. Let me now ask Ron to update you on some of our full-line initiatives.

Ronald L. Frasch

Thanks, Kevin. Our focus remains on differentiating the Saks Fifth Avenue brand through our merchandise, service and marketing offerings. We remain committed to driving sales and expanding our gross margins over the long term through execution of our merchandising strategies. We

In the past couple quarters we have talked about issues in certain women's apparel areas, including women's designer apparel that have impacted sales and caused gross margin rate deterioration. This primarily was a fashion issue. Contemporary and fashion forward styles are selling. The classic styles are not. We have worked with our vendors to address these fashion issues and have adjusted fall receipts where we've had flexibility.

As we ended the fourth quarter, we felt good about our inventory composition. However, as we noted, Hurricane Sandy has had a meaningful impact on our business. As a result, fourth-quarter to date sales have fallen below our initial expectations. Accordingly, we are taking actions to ensure we continue to keep our inventories appropriately positioned. I will also note that there has been some supply chain disruption caused by Hurricane Sandy. Our primary distribution center in Maryland was shut down for a couple of days, and shipments into the center have been impacted. However, things are steadily returning to normal.

On the marketing front, we have been working on a number of initiatives, but let me first discuss some promotional changes that impacted our gross margin during the quarter. As you know, over the last couple of years we have strategically and systematically reduced the level of promotional activity as the economy has improved, inventories were controlled and, in general, retail operated more rationally. During the quarter we made the strategic decision to make some modest adjustments to our promotional calendar, primarily giving incremental rewards to customers using their Saks card, for example, during our electronic EGC events. These changes were not only to drive incremental sales but also to drive incremental Saks card usage by our customers. As you might recall, a percentage of sales generated on the Saks card has declined over the past few years. We are working to reverse that trend. Higher proprietary charge penetration has several important ramifications including increased customer loyalty, and lower third-party processing fees on third-party cards.

We've also been working to enhance our SAKSFIRST loyalty program by improving our in-store associate training, clarifying our SAKSFIRST customer communications and offering unique fashion experiences to our best SAKSFIRST customers. Importantly, we continue to focus on leveraging our customer analytics and insight to drive marketing effectiveness and have been testing targeted marketing programs using our customer database. We also have continued to evolve our digital marketing programs, including an expansion of our reach through mobile and social media. In addition, we are working to enhance our ability to attract the international customer by improving our in-store experience with multi-line with selling associates and multi-language directories, for example, and testing international marketing and social media. And we recently began accepting the China Unionpay, the CUP Card, at the New York store and nine other key stores and gateway cities such as Beverly Hills, San Francisco and Miami.

We are always striving to elevate the customer service experience that we offer our customers. Over the past few years we have invested a substantial amount of resources in providing our associates with the right tools, including technology, extensive training and the associate business development process to deliver on our service promise. Our goal is to drive sales through service. Over the last several quarters, we have been seeing steady improvements in our customer service scores. We know that offering great new store experiences builds loyalty and that loyal customers spend more. We want to build personal relationships, create excitement and fun and provide special moments and memorable experiences to all of our customers, especially our top and high potential customers.

Just this last quarter, we have created many memorable experiences for our very best customers by inviting them to New York for New York fashion week and by hosting a myriad of then-store events, such as Christian Louboutin personal appearances in New Orleans, Boston and Houston, a major Chanel fashion show in Beverly Hills and a Pucci personal appearance and fashion show in Bal Harbor, just to name a few. We have an upcoming Stella McCartney appearance at a fashion show in Boca Raton.

Turning to stores, we have had and continue to have several exciting store renovation projects in the works. We are targeting highly productive Saks Fifth Avenue stores with even more growth potential and we believe these remodels will even better position us in the marketplace.

Probably one of our most exciting renovations ¡s our expanded 10022-SHOE department ¡n the New York City flagship, which we unveiled in September. We increased the department's size by over 40%, essentially covering the entire eighth floor with shoes and making 10022-SHOE the country's largest luxury shoe department.

The renovated space includes the first Louis Vuitton shoe shop within the department store worldwide. We continue to feature distinctive assortments from our core designers, but we also are focused on showcasing brands that are on the leading edge of fashion, like Nicholas Kirkwood and Tabatha Simmons, and have added a variety of new, emerging designers to the assortment. We have just completed the latest phase of the remodel of our Bal Harbour, Florida store, renovating the designer apparel and cosmetics areas as well as adding a 10022-SHOE department. This month, the renovation of the lower level of our Chevy Chase store will be complete and will include the addition of a 10022-SHOE concept and an updated contemporary area.

Also this month, we will substantially complete the renovation of our main floor in St. Louis, which will likewise contain a new 10022-SHOE department and an updated contemporary department. In late spring of 2013, the main floors of our Troy and Chevy Chase locations will be complete. Once all of these renovations are complete, we will increase our 10022-SHOE concept to 15 locations. These 10022-SHOE departments are all versions of New York with similar seating to core presentation tables and fixturing. It is a disciplined than strategic capital and inventory approach. We will not convert a shoe department into 10022-SHOE unless it can fulfill all the requirements of this concept, which involves a commitment to a defined number of core brands with a combination of depth and breadth of product as well as a flow of new brands.

Over the past couple of years we have been systematically renovating our West Coast flagship store in Beverly Hills, which is our second largest store in both square footage and volume. Over that time frame, we have renovated a substantial portion of the women's store including designer women's apparel floor and handbag area, where we have several exciting vendor shops like our new exclusive VMU handbag shop. We are currently renovating a portion of the Beverly Hills men's store, which should be completed in February. This space will include the largest men's shoe offering on the West Coast, an impressive denim bar and several new and renovated vendor shops.

In addition, by the end of the year we will have completed the addition and renovation of over 100 vendor shops and other stores across the country, providing an enhanced shopping experience for our customers. Examples include our new WEAR NOW departments in Houston and Atlanta. Keep in mind that we generated a solid comp store sales increased during the third quarter in the midst of the disruption caused by these renovations. Steve?

Stephen I. Sadove

Thanks, Ron. Let me turn to OFF 5TH where there has been a lot of activity lately. We continue to be presented with many attractive opportunities for new OFF 5TH stores throughout the country, but we remain very selective in our expansion process. By the end of this year, we will have opened five new stores and one replacement store and remodeled two locations. We expect to add a number of new OFF 5TH stores annually for the foreseeable future.

We have already announced plans for six new OFF 5TH stores in 2013. All the stores are being designed in our innovative luxury in a loft format. Currently, 27 or 64 stores are in this format. In the aggregate, our newly renovated and new stores continue to outperform the remainder of the OFF 5TH store base. We see opportunity to drive sales in our existing OFF 5TH stores by growing our pillar brands, adding new categories of merchandise and further expansion of our private brands, which now comprise about 25% of our revenues.

We will also continue to strengthen our marketing efforts and drive our MORE! loyalty program, which was just introduced three years ago and now has over 3.4 million customers enrolled. And we are continually elevating our service levels at OFF 5TH.

Now let's turn to saks.com. As you know, we are very focused on delivering a seamless omni-channel experience for our customers, but there are many exciting things going on specifically at saks.com. Historically, saks.com sales growth has outpaced the Company average and we expect this trend to continue into the foreseeable future. Over the last several years, we have invested a substantial amount of resources in the saks.com organization, infrastructure, site design and site content. These investments are generating and will continue to generate dividends. We are continually striving to elevate and expand our product offerings and drive key high-growth potential merchandise categories such as contemporary

The percentage of sales generated from mobile and tablet devices is growing steadily and we are enhancing and further upgrading plans for these mobile capabilities. And we have been shipping to over 100 countries for about three years, and this piece of the business continues to expand.

In order to fully transform into an omni-channel retailer, improve our competitive positioning and prepare us for the future, you will recall that we are working with Oracle on what we are calling Project Evolution, a substantial multi-year transformation of an investment in systems and technology. Project Evolution will deliver new merchandising, finance and human resources systems and capabilities on an integrated application suite for the entire business and will supply us with a modern technology platform to support omni-channel for the future. We're including the systems' conversions in a very methodical, phased approach through 2016 and we are progressing with the conversion on schedule. There will be more and more linkage between merchandising and marketing of our full line stores and saks.com going forward.

We know that our omni-channel customer is more loyal to us and spends several times more than the customer just shopping one channel. Our best customers use both channels with fluidity. These customers want the advantages of personal service, the ability to touch product and shopping as an experience that in-store shopping provides. And they also want the advantages of online, such as broad merchandise selection, convenience, rich product information and customer reviews and tips. We are working to blend these experiences.

In the fall of 2013, we will implement various new retail and merchandising applications of Project Evolution, which will include price management, stock ledger, purchase order management, assortment planning and store inventory management. These include investments in our inventory platform, which over time will lead to increased sharing of inventory across channels, which should result in increased inventory productivity and efficiency as well as improve reporting and analytics. By fall 2013, we expect to be able to fulfill online orders out of our Saks Fifth Avenue stores. Additionally, with our upgraded systems that allow us to see a single view of our customer data, we're developing programs and processes to improve marketing and selling to the omni-channel customer. Since this is a multi-year project, it will take some time before we fully realize the benefits of these investments.

In this morning's press release and as I previously noted, we updated our outlook for the fourth quarter based on the impact of Hurricane Sandy. Keep in mind the variation from the sales trends up or down could materially impact our other assumptions for the balance of the year. Let me go over a few of the highlights.

Year-over-year comp store sales are expected to be relatively flat for the fourth quarter. This comp store sales assumption is predicated on sales for the balance of the quarter returning to a growth rate similar to the comp store sales increase posted in the third quarter. From past experiences, we know that our business is negatively affected when events such as Hurricane Sandy occur. We likewise know that over time our business will rebound and return to more normalized trends. The uncertainty is over what period of time will it take to return to these more normalized sales levels.

There clearly remains much work to be done in the areas most affected by Sandy, and I suspect that the effects of the hurricane will continue to have some impact on the business over the near-term. However, I would note that I have been very encouraged by our business trends over the most recent days.

Comp store inventory levels are expected to be up in the low-single-digit range throughout the balance of the year. Based upon current inventory levels and composition, plan receipt flow and our promotional calendar and permanent markdown cadence, we expect our year-over-year gross margin rate to be flat to down 50 basis points in the fourth quarter. As a result -- as a percent of sales on a year-over-year basis, we expect approximately 20 to 60 basis points of SG&A expenses leverage in the fourth quarter. We have begun to anniversary some of the increment of spending in investments we began last year. SG&A dollar increases are expected to primarily arise from incremental variable costs associated with planned sales growth, primarily sales associate commissions, and investment spending to support the Company's omni-channel initiatives and Project Evolution.

Other operating expenses, which are comprised of rent, depreciation and taxes other than income taxes, are expected to total $84 million to $86 million for the fourth quarter. The year-over-year increases primarily are driven by the higher depreciation on incremental capital spending, higher equipment rental related to Project Evolution and new OFF 5TH stores and higher taxes other than income taxes, primarily payroll sales and use in property taxes. Net capital expenditures should total approximately $115 million in 2012. This total will include approximately $30 million to $40 million for Project Evolution and between $50 million and $60 million for store renovations and vendor shops. The balance is primarily maintenance capital.

As a reminder, the fiscal year ending February 2, 2013 contains a 53rd week. This 53rd week is included in the assumptions I just outlined. We estimate that the 53rd week will represent approximately $40 million in incremental revenues and incremental earnings per share of approximately $0.04.

We continue at this point to be optimistic about the future of the business. We remain committed to executing our core strategies and we feel really good about where we are going as a Company. We have a great team. I believe we have the focus and strategies to achieve our longer-term financial and operating goals and to improve shareholder value. It's clear that Sandy has been a little bit of a punch to the stomach and that everybody in the Northeast has been affected. We think we are getting through this very well. We are optimistic about the trends that we are seeing right now and we think that we will be back on track as we go through the quarter.

Operator, at this point, we would like to open it up to questions.

Question-and-Answer Session

Operator

(Operator instructions) Thank you. Our fist question comes from the line of Deborah Weinswig with Citigroup. Please proceed with your question.

Deborah Weinswig – Citigroup

Can you talk about what you are seeing in terms of your better and best price points?

Stephen I. Sadove

Well, yes. I think that what you have continued to see has been an improvement in the selling in the better and best price points. You've seen a little bit of gravitation in terms of better selling driven by -- if you look at the average unit, it's up a little bit more than you have been seeing in terms of price per unit is up more than you are seeing in terms of units. So we are seeing good selling across the varying price points. And an example is we are seeing very good performance in fine jewelry transactions and higher ticket transactions. I think that we are seeing some good selling across the women's and men's apparel at some of the better price points. So I don't see a big, disproportionate selling going on across the -- across price points.

Ron, do you want to make any comments on it?

Ronald L. Frasch

No, I think you said it right, Steve. I think where we have seen our best success is where we have been able to create a very interesting shopping experience for top customers. As I mentioned in my script, we've done a number of these events around the country this past season with our top customers, and we have seen their spend levels appreciate very nicely.

Stephen I. Sadove

l'd also comment, ¡n terms of the from a customer base, our higher end customer ¡s where we are seeing the strength. So ¡n our Saks, first/diamond/platinum is where you see stronger performance than at the average customer. So I feel the high end of the business is pretty healthy.

Deborah Weinswig – Citigroup

Okay, and then as it relates to e-commerce, I wondering if you could provide any metrics around what you experience in a quarter.

Stephen I. Sadove

Well, we are not reporting dot-com sales anymore. I would tell you that the business is very healthy, very outsized growth. And so we are continuing just to be very encouraged by the trends in OFF 5TH -- I mean, in dot-com.

Deborah Weinswig – Citigroup

Okay. And then, as it relates to the card, it seems like there's a lot of opportunities to continue to grow that business. How are you communicating the incremental rewards around the card?

Stephen I. Sadove

You know, I think we have been doing a lot in the way of associate training. I do think we have a very strong proposition for the customer. I think you're going to see it get even stronger as we go into 2013 and we are going to be doing a lot in the way of communicating it directly to the consumer. We have been going through training with our associates. So I think it is a communication opportunity and I think it's something that is a point of differentiation for us.

Deborah Weinswig – Citigroup

Okay, and then lastly, in terms of Project Evolution, as we are close to year end 2012, I'm just wondering, as we look forward to 2013, what should we expect to get accomplished in terms of Project Evolution next year?

Stephen I. Sadove

I think it's a huge opportunity going into next year. You're going to start to see the first rollout of some of the merchant tools being used. I think you will start to see the shipping from store benefit in 2013. We have committed to having it by midyear. We are also looking at ways that we can accelerate that, so I hope there is opportunity for that to be a bit earlier. I think that you're going to see it, again, from a processes perspective, transform the way that the Company is operating.

Deborah Weinswig – Citigroup

Great, thanks so much, and best of luck.

Operator

Our next question comes from the line of Charles Grom with Deutsche Bank. Please proceed with your questions.

Charles Grom – Deutsche Bank

Thanks good morning Kevin, can you just give us a sense for how much the third quarter was impacted from Project Evolution and your omni-channel efforts? And then, looking ahead, can you handicap what 2013 costs will look like relative to 2012? What I'm basically trying to get at is, how much are these costs going to weigh on your P&L?

Kevin G. Wills

Well, we have not broken out the specifics of either the omni-channel investments or Project Evolution. But I will tell you, it's several million dollars a quarter. And we have not given guidance for 2013, but I would anticipate certainly on the Project Evolution, those type of costs will continue into 2013. As Steve said, this is a multi-year project, so I would expect those to continue. And in the omni-channel investments, I think those will seek its own level over time as we see opportunities. And again, to your point, both of those are weighing a little bit on our SG&A. We think those are the right long-term strategic initiatives to the business, so we are committed to making those investments.

Charles Grom – Deutsche Bank

Right, absolutely, but would you expect next year to be incrementally more from an absolute dollar perspective, or would you expect it to be similar?

Kevin G. Wills

Again, we are not giving guidance for next year, but I would not anticipate an appreciable change next year versus this year.

Charles Grom – Deutsche Bank

Okay, great. And Steve, I appreciate all your color and commentary with regards to fourth-quarter sales. But when you look at the third quarter, can you handicap how the comp trend throughout the quarter? Your compares eased a lot in October from a year ago. And also, if you could, just give us the composition between traffic and ticket, and then, within ticket, UPT and AUR, if you have it.

Stephen I. Sadove

Sure. I think that what we saw is most strength in August and October. September was a bit weaker. We had a very strong October on the sales. So we actually felt good coming into November. The beginning of November has obviously been tough with the hurricane, but I really am encouraged by what I'm seeing over the last several days in terms of getting back on track.

In terms of customer count, it's relatively flat. Transactions were down a little bit. AUR is up a little bit, so you are seeing a little bit -- EUR up a bit more than the transactions in terms of the transactional performance. So the increase has been driven more by AUR that it is by transaction.

Charles Grom – Deutsche Bank

Okay. And then quarter to date, can you just give us a little bit of sense for how sales are doing outside of the Northeast and outside of Florida? I was trying to get a sense of your confidence level that it's really just Sandy versus anything with the election or the upcoming fiscal cliff.

Stephen I. Sadove

Well, you have a lot of things. There are so many variables that are going on. The bulk of the performance is clearly driven by Sandy. I feel pretty good about outside of the -- our overall performance outside of the Northeast. Clearly, you are talking about a one- or two-week performance. And you've got the election and you've got this fiscal cliff and there's so much uncertainty I wouldn't really want to comment on trends on a day-by-day basis. And the reason -- normally, I would never comment on two weeks of performance. But actually, you can do your own calculations and figure out exactly what -- roughly what the impact was in the first couple of weeks, based upon the guidance that we've given for the quarter.

But we took a big hit in the Northeast markets. And in New York it's 20% of the Company and all the surrounding areas were down and people -- even take OFF 5TH stores like a Woodbury Commons, when we are rationing gas or it's hard to find gasoline lines, people aren't going to be driving up to Woodbury Commons to go shopping. And the people -- I was just down in Florida the other day, and people in Florida who have links to -- whether homes or friends in New York, you didn't have a lot of people shopping.

I do see a substantial change in the last several days in terms of improved performance, both online and in the stores. Online was affected because people didn't have electricity to be able to go shopping. So all these things were affected.

I do think that you saw more normalized performance outside of the Northeast. You have typical ups and downs, as we always do. But I'm pretty confident that -- clearly, there's always ups and downs in terms of guidance. And you never know, but I think that we feel very comfortable that over time the business comes back. We've seen it over -- whether it was after 9/11, we saw it after Katrina. And I'm seeing it in the normalized behavior as we're looking today.

Charles Grom – Deutsche Bank

Right, alright, well it's great to hear that things have gotten better, best of luck in the quarter.

Operator

Our next question comes from the line of Paul Swinand with Morningstar. Please proceed with your questions.

Paul Swinand – Morningstar

Good morning.

Stephen I. Sadove

Good morning.

Paul Swinand – Morningstar

Just wanted to ask you a little bit more about the marketing programs, and specifically, you talked about social media for tourists, Chinese tourists, in both last quarter and this quarter. Can you give us an update? Is it actually moving the needle? And what is working? What are you learning and what do you think you are going to do with that in the future?

Stephen I. Sadove

I think, as it relates to international tourism, we are seeing some good early results. We implemented the China Unionpay card, for example. We are getting a nice uptick in terms of -- and we did that in about 10 stores, including New York, where we are getting a response on the part of the Chinese tourists in terms of shopping. If I looked at our overall tourism trends, what has happened is that the tourism trends are not very much out of line with our overall trends. But what we are seeing is an uptick of the Chinese/Brazilian/Russian customers more than offsetting the decline that we are seeing in some of the European customers.

So I clearly see an opportunity with international tourists, largely the Chinese, the Russians, the Brazilians continuing to shop. Focused activity against the Chinese customer is an opportunity, and you're continuing to see the traffic building with that customer.

As ¡t relates to social media, I think that it's early to tell relative to, in general, the commerce-related aspects of it. We feel very good about brand building, communications with customers and increasing relevance of Saks. I don't think it has proven yet to be a high commerce driving factor at this point.

Paul Swinand – Morningstar

Okay, understood. And then I know it's hard to say, but you've talked a lot about uncertainty in your prepared remarks, and obviously the business community and the Wall Street community reads a lot of headlines creating uncertainty. Do you have anything that your customers are saying or can you give us a perspective that maybe we don't have that might be causing you to say the environment is uncertain?

Stephen I. Sadove

No. I don't think there's anything more than what you read every day in the paper about the fiscal cliff or concerns. Our customer, we have said for a long time, is very much driven by how do they feel about their net worth and what are they feeling about where the markets are. There's a little bit of volatility in the markets today. People are concerned about what's going on with the US economy, the fiscal cliff, what's happening in Europe, where are things going. The markets are still holding up reasonably well. It's not that we are in a collapse in the market, so it's okay. But there is a little bit of a malaise and I think there's a bit of a wait and see in terms of whether or not, post-election, you're going to be able to come to some kind of an agreement as it relates to solving some of the bigger issues.

Paul Swinand – Morningstar

Okay, great, thanks a lot, and best of luck in the holidays.

Operator

Our next question comes from the line of Matt Boss with JPMorgan. Please proceed with your question.

Matthew Boss – JPMorgan

Hi, Steve.

Stephen I. Sadove

Hi, Matt.

Matthew Boss – JPMorgan

On the gross margin front, you mentioned targeted promotions in the third quarter. Can you talk to what this entailed? Any changes on the competitive front and anything altering the promotional strategy going forward?

Stephen I. Sadove

I think that you are seeing a slightly more -- I think it's a little more promotion going on than you have seen in the past. I don't think it's a dramatic change. What we have been doing, and Ron made reference to it in terms of some of the targeted promotions against our Saks cardholders to drive card penetration. So, where we have had incremental benefits on EGCs, as an example, where cardholders get a bigger benefit than non-cardholders. We have also been testing some targeted promotions to individual customer groups. It might be somebody who is buying handbags and not shoes or an accessory customer, things like that. So we have been doing some testing a number of targeted promotions.

But I don't see it as being a fundamental change in the promotional environment. I think you are -- right now, post-hurricane, you're probably going to be seeing a little bit of promotional activity. We've extended the triple point event that we were running because a lot of our customers couldn't get to the stores. And so you had a disruption in the supply chain. Ron made a reference that not only was our distribution center closed, but a lot of our vendors couldn't get product shipping to us. So you had a little bit of delay in the new receipts coming in. So you're probably going to see a little bit of a realignment of some promotions. But I don't see it as a fundamental change.

Matthew Boss – JPMorgan

Okay, great. And then on the capital allocation front, can you just talk to the strategy going forward? Any change in repurchase appetite, less repurchase this quarter than last? And how are you thinking about the priorities of cash going forward?

Stephen I. Sadove

I think we've been -- I'll comment and then let Kevin talk. We're committed to increasing shareholder value. We haven't been reluctant to buy back shares. We bought back a lot more in the second quarter than we did in the third quarter, but we're certainly not reluctant to buy back shares. And I think that we are looking at, certainly, CapEx opportunities for use of cash. Over time, we've done dividends, we've done one-time dividends over time. So we will continue to look at -- we do have cash. We're sitting on cash. We're generating free cash. So we will continue to look inappropriate use of cash, but we're not reluctant to buy shares. Kevin, what --

Kevin G. Wills

I think that's a good summary. Matt, you've probably heard me comment before -- our first priority is always to continue to reinvest in the business. So whether that's working capital and then CapEx -- and Ron made some earlier comments. We've made a number of capital investments in the stores that we feel good about, whether it's one of the remodels, partial remodels we've done in stores like Troy or St. Louis, but also vendor shops. So our first priority is continuing to reinvest back in the business.

And then moving on to debt service, you have seen us reduce our leverage over the last couple of years. And then finally, returning cash to shareholders. And we have about 21 million shares left under our share repurchase authorization program. And we look at business trends, macro factors, as Steve commented earlier and various things are all taken into account. And based on that, our share repurchase activity can vary from quarter to quarter.

Matthew Boss – JPMorgan

Great, thanks a lot, guys.

Operator

Our next question comes from the line of Kimberly Greenberger with Morgan Stanley Smith Barney. Please proceed with your questions.

Kimberly Greenberger – Morgan Stanley

Great. Thank you. Good morning.

Stephen I. Sadove

Good morning.

Kimberly Greenberger – Morgan Stanley

I'm wondering if you can give us any information on the differential, if you are seeing any, between the Saks Fifth Avenue division comps and your OFF 5TH comps, and if you have any color you could share on e-commerce sales, that would be great.

Stephen I. Sadove

Well, we don't break out the sales by segment. I would tell you that the OFF 5TH business is performing well. We feel good about it. We continue to open stores. I did comment that the remodeled and new stores are outperforming the old stores by a good margin. So we feel terrific about the ability to continue to open new stores, but we are not -- and the business is quite good and profitable. We are not going to break out the comp for the OFF 5TH business.

As ¡t relates to dot-com, we chose not to – at the end of last year, we announced that we would not breakout dot-com sales other than to say that it's substantially higher growth than the aggregate and continues to be outsized growth. And we feel very optimistic about continuing to see very solid growth of dot-com going forward.

Kimberly Greenberger – Morgan Stanley

Okay, great. And then just one follow-up -- are there any categories other than women's designer that are lagging? And do you have the full flexibility to reduce orders in women's designer apparel, or are there some limitations to that?

Stephen I. Sadove

Ron, do you want to…

Ronald L. Frasch

This is Ron. I'll take that. I want to be careful how we are looking at this. Women's designer as a category is not as robust as we would like to see. However, within women's designer, what is robust are certain more modern and contemporary brands. So we see where there is green light running in that direction to try to fulfill those needs as quickly as we can within the long lead times that we work with. However, to your second question, there is a limit to how we can respond, particularly if we've got major shops for these brands and they suddenly start slowing down. We've got to fill the shops; we can't have empty boutiques within our stores.

And also, these orders are pretty much cut to order. When we leave our paper, they are ordering piece goods and findings to make the product. So there is a limit on getting out of these goods.

Stephen I. Sadove

But I would echo Ron's comment. It's not an across-the-board women's designer weakness. There are certain brands aren't performing, but there are a lot of brands that really are performing and we're just continuing to shift the resources toward those brands.

Kimberly Greenberger – Morgan Stanley

Great, thank you.

Operator

Our next question comes from the line of Carla Casella with JPMorgan. Please proceed with your question.

Carla Casella – JPMorgan

Hi, I'm wondering if, on the competitive side, if you are seeing -- you mentioned about the targeted promotional environment. Is it targeted more with the operational customer, or is it the luxury? And are you seeing more competition for either piece of customers?

Stephen I. Sadove

It's hard for me to comment on targeted marketing. Some of it is sub rosa, so I don't know exactly what some of the competition is doing. I think that as all of us have become better at analytics, having a better understanding of our customers, that it's much more effective to do targeted activity against a specific behavior or customer, and that might have to do with lapsed customers, it might have to do with frequency of use. And you are seeing more of that going on in the environment, and I think you will continue to see that as opposed to shotgun, everybody being affected by promotions.

Carla Casella – JPMorgan

Okay, great. I guess I'm wondering also, do you think your competition is doing a better job of it than you expected?

Stephen I. Sadove

It depends on who we're talking about, but I think everybody is upping their game and doing a better job of understanding their customer and focusing on that.

Carla Casella – JPMorgan

Okay, and then one question on the financial side -- your leverage has come down nicely. Is there a point where you think that's too low and that you would look to bring your leverage back up? Or what is your comfort level in terms of leverage?

Kevin G. Wills

Carla, we look at the business on adjusted debt to EBITDAR basis because we have to factor in the rent associated with our stores. And on that basis, we are probably a little bit north of 3 times, and we have indicated that over a longer period, I would like to see the adjusted debt to EBITDAR leverage in the 2.5 times range.

Carla Casella – JPMorgan

Okay, great, thanks.

Operator

Our next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Lorraine Hutchinson – BofA Merrill Lynch

Thank you, good morning. Kevin, you guided for SG&A leverage on a flat comp in the fourth quarter. Is this something that we can expect going forward into 2013? Would you expect to continue to get leverage as you anniversary some of these spending increases, or is there anything unusual about the fourth quarter?

Kevin G. Wills

We are not giving guidance yet for 2013. As Steve indicated earlier, we are starting to anniversary this fourth quarter. So the investments we began to ramp up last year will move into 2013. Again, we are not giving specifics. But what we have said, that over time we would hope to generate SG&A leverage in the mid-single-digit comp range.

Lorraine Hutchinson – BofA Merrill Lynch

Okay, but there's nothing unusual, no reversals or anything in the fourth quarter this year?

Kevin G. Wills

No, other than you've got the 53rd week, which we've commented on, that you obviously get some benefit. Everybody can get benefit from that because you are basically spreading the fixed cost over an extra week.

Lorraine Hutchinson – BofA Merrill Lynch

Okay, great, thank you.

Operator

Our next question comes from the line of Barbara Wyckoff with CLSA. Please proceed with your question.

Barbara Wyckoff – CLSA Limited

Hi, everybody. Can you hear me?

Stephen I. Sadove

Yes, yes.

Kevin G. Wills

We can hear you.

Barbara Wyckoff – CLSA Limited

I have a question for Ron. Looking back at third quarter, if you could do it over merchandising-wise, what would you do differently?

Ronald L. Frasch

I'm sure, a number of things, Barbara. Probably the biggest thing that we weren't able to catch early enough in the purchasing cycle was this movement away from more classic-based head-to-toe brands. If we have been able to catch that sooner, meaning less -- actually, beginning in December and January because we start purchasing for fall back then -- that we would have been reacting to that much quicker and moving -- reallocating dollars even within brands to different classifications.

But you know, this customer moves quickly. And it's a funny thing where we're really the current expectations for next year, the things that were a little tough last year, jackets and tailored pieces, suddenly are looking pretty good to our eyes. So it's an industry where it all moves around very quickly, as you know, and nothing is ever stuck in stone for more than a season. But I think that that's probably the one thing we would have readjusted for.

Barbara Wyckoff – CLSA Limited

Okay, great, thanks.

Ronald L. Frasch

You bet.

Operator

Our next question comes from the line of Jennifer Davis with Lazard Capital Markets. Please proceed with your question.

Jennifer Davis – Lazard Capital Markets

Hey, guys, good morning.

Stephen I. Sadove

Good morning, Jennifer.

Jennifer Davis – Lazard Capital Markets

Hi, I'm trying to understand, and I don't know if this is even possible to break out – but maybe the gross margin impact on the fourth quarter due to Sandy. Is there a way that you can maybe break out like how much more promotional you feel like you have to be, because of the disruption that you experienced? Is that even possible?

Stephen I. Sadove

It's hard to break it out. Clearly, you're going to have a little bit because, as you -- just the mere fact that we're extending the triple points of that several days, there's a little bit of an impact relative to that. You are just going to have to see how the environment plays itself out. You want to make sure that you are getting, in terms of clearing the goods, you want to get your inventories in line at the end of the quarter. We have a lot of fashion goods that you want to clear out, so you may have a little bit more in the way of clearance goods selling versus low-price selling. So you are going to monitor that very carefully. And that's all reflected in the guidance that we have given, which one of the things you see is a little bit wider range on the guidance than we normally have, given the variability that we want to give ourselves a little flexibility relative to playing in terms of what's happening in the environment. That's why you see a little bit wider range.

But our intent is to get ourselves and keep our inventories in line and be in a solid inventory position as we come out of the quarter.

Jennifer Davis – Lazard Capital Markets

Okay, great, thanks. And then is there a particular pocket of customer maybe where you saw a little bit of a slowdown sequentially from the second quarter to the third quarter? Is it the tourists? It sounds like maybe Chinese, Brazilian and Russian tourists are offsetting the weaker European customer. Or, is it high end or aspirational, or is it more just kind of across the board?

Stephen I. Sadove

I didn't see a huge swing. I know the comp was a little bit slower from the second quarter to the third quarter. If I were to look at the tourism, it wasn't materially different. The trend of Chinese, Brazil and Russia offsetting Europeans we were seeing in the second quarter and you saw in the third quarter. So that didn't really change materially from one quarter to another. Your high-end customer was still out-performing the remainder of the customer base. You saw that in the third quarter and you saw that in the second quarter. I don't see major changes going on one quarter to the other in terms of trend of customer type.

Jennifer Davis – Lazard Capital Markets

Okay, great. And then one last one, if I may. Have you guys -- I'm trying to think of how to word this -- looked at your credit card penetration? It was, I think, around 44% in 2008, down to 36%-ish in 2011. Is there any particular customer that you can attribute that to? I know you are trying targeted promotions, so I guess are you aiming it at where you are seeing particular weakness, or is that more across the board as well?

Stephen I. Sadove

Well, I think that's also across the board. Clearly, you have had a -- your lower end has fallen off much more than the high end. Your core customer stayed and the aspirational customer one way. There was a lot went on. If you think about during the recession, when the credit card companies -- remember, we don't own the card, we have – that's now Cap One, it was -- and early on, when HSBC had it, they tightened the scoring. The approval rates went way down. Our associates were getting the brunt of when customers were turned down. They then became gun-shy in terms of asking for credit applications. So you had a spiral, and that was what was affecting that 44% going down to 36%.

We are now ¡intent on rebuilding that, and one of the reasons you are seeing the credit-only promotions, the cardholder promotion and the targeted activity is to rebuild the penetration and the value, the perceived value of the card. So we think that's an important initiative. Earlier, I commented in terms of the loyalty program and training the associates and the customers on the benefits of the card. So I think you're going to continue to see a focus on that. Cap One has bought the card. They are partnering with us and they are committed to that as well. So I feel quite optimistic about the activities going on, on rebuilding it. But clearly, over the period of five years, you've seen a substantial decline.

Jennifer Davis – Lazard Capital Markets

Alright. That seems like a pretty big opportunity going forward. Anyway, best of luck.

Stephen I. Sadove

Thanks.

Operator

(Operator instructions) Our next question comes from the line of Michael Binetti with UBS. Please proceed with your question.

Michael Binetti – UBS

Hi, guys. Good morning.

Stephen I. Sadove

Good morning.

Michael Binetti – UBS

So just to look at it, could you walk us backwards a little bit and help us think about what you think has been some of the drag to the credit card penetration over the last few years? And then as we look ahead to -- it sounds like you are refocusing on it a bit in 2013. When others talk about that, they talk about bigger rewards, incentives, and whether you think you can hold the margins on that customer as you do that in 2013.

Kevin G. Wills

To go back and look at the decline in penetration, one of the things that you naturally have in a credit portfolio is you have churn and turnover every year. And as Steve commented earlier, when the recession hit, HSBC tightened down the credit standards significantly. And what that did, it precluded new people coming into the portfolio. So you have the natural churn, so you're losing a few customers, but you didn't replenish those to the rate that we had historically been able to replenish those. And so you saw the pull down that overall penetration, and it's just going to take some time now to build that up.

As we indicated, we just signed a new amendment with Capital One. We are working with them to create some targeted programs. We are also trying to strengthen our loyalty program. So the combination of those factors, we believe that over time we are going to be able to drive some increase penetration. Once you lose bringing in new customers, it simply just takes time to rebuild.

Stephen I. Sadove

And I think that it's not just a question of dollar rewards, because ours is a relatively valuable program. I think it's experiences, it's targeted activities. And I think you are going to see a lot more of that as we go into 2013.

Michael Binetti – UBS

Okay, thanks for that. And then are you seeing any big changes in the promotional environment among the competitive set here as we head into the holidays?

Stephen I. Sadove

Well, I think you are seeing some shifting going on right now as a result of the hurricane. And so -- across a number of competitors. And we will see how the environment plays out because you've got a lot of adjusting. During that couple-week period, you clearly saw an impact on business and every company is reacting and we will see what flushes out over the course of the reminder of the quarter, I mean that’s all reflected in the guidance we’ve given.

Michael Binetti – UBS

Okay.

Stephen I. Sadove

I think that people will react to where the environment is.

Michael Binetti – UBS

Okay. And then last question, Steve, is that you mentioned where you are at versus -- your planned store count today for OFF 5TH next year. I'm particularly interested, with other good chains in that channel, like Nordstrom Rack talking about a lot more locations than we thought over the next few years, do you think longer-term there's more upside to the total unit count for that chain for you guys than maybe you were thinking a few months ago?

Stephen I. Sadove

Well, I think there is opportunity. We've upped -- a couple of years ago, I would've talked about 3 to 5 new OFF 5TH stores a year. Next year we even talked about 6 and in that range, so maybe it's going to be 6, 7, 8 over time. So it's an accelerated rate of growth. We are at 64 today. We have competitors, the bigger competitors within the off-price channel have well in excess of those, so we think that there's some room to run.

Partly, it's driven by great outlet centers that are being built, so you've got to have the real estate that is attractive to want to be going into it. We are seeing an evolution of what I would call power neighborhood centers. We just opened one in Westbury, Long Island. We opened one in Northbrook outside of Chicago that we are seeing very, very good traction on. And we tend to do very well when you are in a center with a Rack board -- the one in Westbury has a Rack, it has a Container Store, it has a Trader Joe's. When you combine some of the powerful brands, it tends to do reasonably well.

So I think there's some continued growth opportunity. I don't think we're going to be opening lots, lots more than the kinds of numbers that we have been talking about, but we feel quite comfortable with the direction that we are going right now.

Michael Binetti – UBS

Okay, great, thanks, guys.

Operator

Our next question comes from the line of Michael Exstein with Credit Suisse. Please proceed with your question.

Michael Exstein – Credit Suisse

Thank you so much.

Stephen I. Sadove

Hi, Michael.

Michael Exstein – Credit Suisse

There are two quick questions. The first one is your comment that you thought your inventory would be up at the end of the fourth quarter. Is that a function of your reduced sales expectations for the fourth quarter?

Stephen I. Sadove

No, in terms of inventory, I thought we said that it would be up in the low-single digits level. So we ended 2.5 at the end of the third quarter and we said we would be up low-single at the end of the fourth quarter.

Michael Exstein – Credit Suisse

You had been very tightly controlling your inventories in terms of very little growth versus sales.

Stephen I. Sadove

Right.

Michael Exstein – Credit Suisse

I'm not trying to split hairs; I'm just wondering whether because of your reduced expectations for sales, that sort of – there's some (inaudible) on that?

Stephen I. Sadove

Well, I think that you also have to, though, look at it in terms -- it's a fair comment. I think, though, that again, we have real-time seen a drop in the sales versus where we were tracking. If you were to look at our expectations of growth as we go into next year, I don't think that the low-single digits would be at all out of whack relative to our growth expectations going forward. I don't think that the flat performance is what we think is the underlying trend of the business. You are just looking at a very substantial impact in a two-week period or so that we are offsetting, and I just don't think you are going to see it bounce back -- for the total quarter, back to levels we thought in the third quarter.

Michael Exstein – Credit Suisse

Steve, it was not meant as a criticism in any manner, shape or form. I just was trying to get a sense of the delta; that's all.

Stephen I. Sadove

No, but I think the delta -- no, I understand that. But I think the delta, though, is -- the low-single I think reflects a go-forward trend, and I think it also reflects an underlying trend.

Michael Exstein – Credit Suisse

And then can you -- you talked a lot about the branch stores and some of the renovations you are doing, which sound fantastic and I look forward to seeing them. Can you give just a general sense of how the branches did?

Stephen I. Sadove

The branches have performed well. I think they're in line with the aggregate, so I don't see it as being -- the flagship stores have been a little bit stronger than some of the smaller stores. But I think that the renovations, as we put them in -- we just finished the St. Louis one, which looks extremely -- when I think about some of the smaller ones, Troy -- we just opened the shoe floor. Obviously, New York, we just expanded the shoe floor in New York. We see good performance coming out of these stores.

And I think, when I look at the trends, oftentimes we are asked geographic swing, are there big trend change differences between the geographies. And I'm not seeing a big difference. Florida, obviously you have an impact because of the last couple weeks, but Florida had a very good performance in the third quarter. If I look on the West Coast, a number of our stores performed well -- Northeast, Boston, a couple of other stores performed well. So I don't see it as being one geography versus another.

Michael Exstein – Credit Suisse

So there's still good leverage coming out of those branch stores?

Stephen I. Sadove

Oh, yes, absolutely.

Michael Exstein – Credit Suisse

That's terrific. Thank you so much.

Operator

Mr. Sadove, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Stephen I. Sadove

Thank you, operator. You know, look, I think that this has been a solid performance on the part of the Company. The last couple of weeks have been -- you know, as I used the word punch in the stomach for everybody, and I couldn't be more proud of how the organization came together. I could tell you stories of some of the Herculean things that individuals have done, including people walking several miles to work to get in. So I feel for all of our customers, our employees, the vendor community. Everyone has pulled together remarkably well. I think our plans for the fourth quarter reflect a very solid realism of what happened in a couple weeks. Our business is more affected than most companies' because of the nature of the geography of our franchise in terms of where we are existing. But I feel that we are coming back on track. I think that you're not going to see a long-term effect from the hurricane, and I feel very good about the reaction that we've had from both employees as well as customers and feel optimistic relative to being back on track for the longer-term. And we feel very good about the strategies and the team that's in place.

So thank you very much, and we will fill you in at the end of the fourth quarter. Thanks.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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