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Staples (NASDAQ:SPLS)

Q3 2012 Earnings Call

November 14, 2012 8:00 am ET

Executives

Chris Powers

Ronald L. Sargent - Chairman, Chief Executive Officer and Chairman of Executive Committee

Michael A. Miles - President, Chief Operating Officer and President of Staples International

Christine T. Komola - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Joseph G. Doody - President of North American Delivery

Demos Parneros - President of US Retail Stores

John Wilson - President of Europe Operations

Analysts

Gary Balter - Crédit Suisse AG, Research Division

Daniel T. Binder - Jefferies & Company, Inc., Research Division

Christopher Horvers - JP Morgan Chase & Co, Research Division

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Michael Baker - Deutsche Bank AG, Research Division

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

Michael Lasser - UBS Investment Bank, Research Division

David Gober - Morgan Stanley, Research Division

Gregory S. Melich - ISI Group Inc., Research Division

Joseph I. Feldman - Telsey Advisory Group LLC

Alan M. Rifkin - Barclays Capital, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2012 Staples Inc. Earnings Conference Call. My name is Charlene, and I will be your operator for today. [Operator Instructions] We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Mr. Chris Powers, Director of Investor Relations. Please proceed.

Chris Powers

Thanks, Charlene. Good morning, everyone, and thanks for joining us for our third quarter 2012 earnings announcement. During today's call, we will discuss certain non-GAAP metrics to provide investors with useful information about our financial performance. Please see the Financial Measures and Other Data section of the Investor Information portion of www.staples.com for an explanation and reconciliation of such measures and other calculations of financial measures that we use to analyze our business.

I'd also like to remind you that certain information discussed on this call constitutes forward-looking statements for purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those discussed or referenced under the heading Risk Factors and elsewhere in Staples' 10-Q filed this morning.

Here to discuss Staples' Q3 performance and business outlook are Ron Sargent, Chairman and Chief Executive Officer; Mike Miles, President and Chief Operating Officer; and Christine Komola, Chief Financial Officer. Also joining us are Demos Parneros, President of U.S. Stores; Joe Doody, President of North American Delivery; and John Wilson, President of Europe. Ron?

Ronald L. Sargent

Thanks, Chris, and good morning, everybody. Thanks for joining us today. A few weeks ago, we announced several significant changes to accelerate growth, reshape our business and better meet the needs of our customers. So before we get into our third quarter results, I'd like to take a few minutes to share some of the details about the changes that we're making to reinvent our company.

Today, Staples is the world's leading office products company, and businesses of all sizes continue to rely on us just as they have for decades. However, what businesses need from us and how they buy from us has been changing. Customers that once only needed paper, ink and toner now need tablets and smartphones and technology accessories. Customers that shop in our stores now also want the convenience of mobile shopping and fast delivery.

At Staples, we see enormous opportunities in these changing customer needs. Over the past 6 months, our senior leadership team, along with our board, have been working hard to identify our best growth opportunities and build a strategic plan to aggressively go after them. The outcome is a vision that is very simple: Every product your business needs to succeed.

Now this vision isn't theoretical. It's powerful because it's based on things that Staples is already doing well. We have deep relationships with more than 10 million business customers who trust the Staples brand. We have significant buying power and decades of product expertise, including our own brand offering. We have world-class delivery capabilities providing next-day delivery to 98% of the North American population. We have an expansive retail network and a strong online presence. We have healthy cash flows to invest in growth, and most importantly, we have a world-class organization of talented associates dedicated to serving businesses through retail and delivery channels.

Our growth plans include 4 key priorities. First, we're currently expanding our assortment with new categories and building a marketplace to establish Staples as a single-source product authority for businesses. Customers tell us that they wish we offered more products. Nearly 75% of our customers say that they would consider buying additional products from us if we offered a broader assortment.

Facilities and breakroom is a great example of our ability to drive rapid growth in a category beyond office supplies. A few years ago, we expanded our offering, lowered our prices and invested in training. And as a result, this category has been growing double digits across all channels in North America.

We have a pipeline of new categories, and we plan to go deep into industry verticals to meet unique customer needs. This year, we'll triple our assortment as we approach 100,000 items on staples.com.

Our second priority is to accelerate growth in our online business. Today, Staples is the world's second-largest Internet retailer with $11 billion of online sales, giving us a strong foundation to build on. We've significantly increased investment here over the past few years. But to really get the top line going, we need to move faster. This year, we launched an E-Commerce Innovation Center in Cambridge, Massachusetts. The team is focused on developing our e-commerce and mobile commerce offerings.

We're also investing in marketing and customer acquisition. While our printed circular and direct marketing vehicles remain important to our overall marketing strategy, we're evolving the way we drive customer awareness and acquisition. Today, our online circular in the U.S. gets over 700,000 views every week. Our mobile app has over 0.5 million downloads to date, and we're building a strong presence in social media with platforms like Facebook and Twitter.

Third, we're creating a seamless experience across retail and dot-com that will allow customers to shop how and when they want. Customers have told us that they want flexibility and ease of shopping across our retail and delivery channels. We've already launched many of these omni-channel capabilities, including in-store kiosk, our award-winning mobile website, a website customized for tablets and the ability to pick up online orders in our stores. But we're going much further and much faster. We're enhancing our cross-channel assortment, adding online features and increasing customer awareness of what we already have today and what we will offer in the future.

Fourth, we're accelerating the growth of product-related services. Copy and print and technology service is a great example where we're building critical mass. Over the past few years, we've taken action to differentiate our service offering. We've remodeled stores, invested in training and quality, added a copy and print sales force, expanded our assortment through a partnership with Vistaprint and simplified our technology services offering. And as a result, we've achieved sustainable top line growth in both of these high-margin businesses. To build on our momentum, we're improving cross-channel coordination, better aligning around our customers and increasing investment to accelerate growth.

At the same time, we're taking aggressive actions to fund our growth by reshaping our business and reducing costs. Over the past few months, the senior leadership team went through a rigorous cost-reduction analysis and built a plan to achieve $250 million in annual pretax savings by 2015.

Our biggest opportunities to drive savings are in areas like product cost, indirect procurement, store operations and supply chain, and we've already started to aggressively go after these opportunities. In fact, 2 weeks ago, we hosted a conference with our top suppliers to share our strategy and align on our plans to accelerate growth.

We're also focused on increasing store productivity. We know that our store network is a big advantage compared to pure online retailers, and it serves as a foundation for our seamless omni-channel experience. We also believe that we can be much more efficient, while at the same time, providing customers with the service and convenience they're looking for. Our plans call for a 15% square footage reduction in North America over the next 3 years through a combination of store closings, downsizing and relocations.

In Europe, trends there remain challenging. We're taking action to reduce exposure to our weakest businesses and improve profitability. We're in the process of restructuring our European operations with a focus on cost reduction. As a part of this effort, we're planning to close 46 stores in Europe by the end of the year, and we're looking to consolidate several of our subscale European delivery businesses. We're also pursuing the sale of our European Printing Systems business, and as a result, we'll report this business as discontinued operations going forward.

To better align around customers and aggressively pursue our growth opportunities, we're making significant changes to our organization. We're combining our U.S. retail and staples.com businesses under the leadership of Demos Parneros. Joe Doody will continue to lead Staples North American contract and quill.com businesses, and he'll also now head up all of our supply chain and customer service operations in North America, which we believe can better -- can deliver better service at lower cost. Over the past few weeks, we've made a lot of progress. We've combined our supply chain, customer service and loss-prevention teams, and we're in the process of realigning our merchandising and marketing organizations.

In International, John Wilson has joined the company as President of Staples Europe. Some of you may remember John from his days as Staples Chief Financial Officer in the mid-1990s. He is living in Amsterdam, has a strong knowledge of our industry and a proven track record of improving performance, which uniquely positions him to lead our European organization, so welcome, John.

So that's a quick walk through our vision, as well as the key components of our multiyear plan. In summary, we're focusing on our biggest opportunities, reducing exposure to our weakest businesses and realigning our organization around the customer. This puts us in a much stronger position to drive long-term sales and earnings growth. It also supports our commitment to maintain a solid investment grade credit rating while returning excess cash to our shareholders through dividends and share repurchases. But most importantly, the strategy is based on meeting customer needs.

Turning to the headlines for the third quarter. Total company sales were $6.4 billion, a decrease of 2% in U.S. dollars and down 1% in local currency versus last year. On a GAAP basis, we reported a net loss of $0.85 per share from continuing operations. During the quarter, we incurred charges, which negatively impacted our third quarter earnings by about $1.31 per share. Excluding these items, non-GAAP earnings per share from continuing operations were $0.46 or flat versus Q3 of last year.

Now let's take a look in -- at our Q3 results for each of our business units in more detail. Please note that we're currently in the process of realigning the organization, and as a result, the presentation of our third quarter financials reflect our old organizational structure. We plan to reflect our new structure when we announce our fourth quarter results in early March.

I'm going to start with North American Delivery. Sales for the third quarter were $2.6 billion. That was an increase of 1% compared to last year. Sales in contract, staples.com and quill.com increased in the low single digits. Top line growth remained strong in adjacent categories like facilities and breakroom supplies and copy and print, which were both up about 20% during the third quarter. Sales of core office supplies and technology products declined in the low single digits. As we've highlighted the past few quarters during Q3 of last year, we did not renew 2 large contract customers that we felt didn't deliver adequate returns. This negatively impacted North American Delivery sales by about 70 basis points during the third quarter.

Turning to profitability. North American Delivery operating margin for Q3 decreased 76 basis points versus last year to 8.7%. This decline reflects lower product margins across each of our Delivery businesses and ongoing investments to drive growth in staples.com, somewhat offset by lower marketing expense. Similar to the trends we saw during Q2, the majority of the margin decline in Q3 was in dot-com. Accelerating online growth is one of our top strategic priorities, and we're committed to making the right investments today to drive sustainable top line growth.

During the third quarter, we used aggressive pricing to drive customer acquisition and increase share of wallet. We continued to differentiate from the competition by offering free shipping on all ink, toner and paper orders. This helped drive stronger traffic to the site but also resulted in increased logistics expense. We also invested in website enhancements like our new search functionality on both staples.com and quill.com and added several talented associates to our e-commerce team.

Moving on to North American Retail. Sales for the third quarter were $2.6 billion, and that was about flat in U.S. dollars and down about 1% in local currency compared to Q3 of last year. Third quarter same-store sales declined 1%. Customer traffic was down about 2% compared to last year, and average order size was up about 1%. Copy and print grew in the high single digits as our sales force and expanded product offering continued to gain momentum. We also achieved low-single digit top line growth in core office supplies. This was supported by solid back-to-school season and a very strong customer response to our back-to-school savings pass program.

Similar to the trends we saw during the second quarter, demand for computers and software remained weak during the third quarter, ahead of Windows 8. Throughout Q3, we spent a lot of time preparing for the launch. Since August, we've remodeled about 1,500 of our stores to improve our technology presentation and assortment, and we now have over 4,000 Microsoft-Certified Advisors. Our associates can assist customers with one-on-one training and equip them with the knowledge necessary to use the great features of this new software platform. And while we only had 2 days of Windows 8 sales in our third quarter results, the early response from our customers has been positive, and we look forward to continued momentum from Windows 8 throughout the holiday season.

During Q3, North American Retail operating margin increased 9 basis points versus last year to 10.8%. This increase was driven by operating efficiency and reduced distribution costs, partially offset by investments in promotional activity. As I mentioned at the beginning of the call, one of our top priorities to improve the productivity of our retail store network, we remain on track for 30 net store closures and another 30 combined downsizes and relocations during 2012. These actions will remove more than 1 million square feet from our North American store network for the year.

And with that, I'll turn it over to Mike Miles to talk about International.

Michael A. Miles

Thanks, Ron. Good morning, everyone. Taking a look at the third quarter headlines, Staples International reported sales of $1.1 billion, a decline of 8% in local currency and 12% in U.S. dollars versus Q3 of last year. Sales for European Office Products remained in negative territory with sales down about 5% in local currency during Q3.

Europe retail same-store sales were down 6% during the third quarter. Customer traffic decreased about 4% compared to Q3 of last year, and average order size was down about 3% year-over-year. Our European delivery business outperformed retail with local currency sales down in the mid-single digits in Europe catalog and down in the low single digits in Europe contract.

In late September, we announced a significant restructuring in Europe, and I can now provide more detail on the measures we're taking to address the tough economic environment and our low profitability there. The restructuring has 3 main components. First, we intend to close about 46 or -- 46 underperforming stores during the fourth quarter, representing about 14% of our European retail network. About half of these are in the U.K., and we also plan to exit the retail business in Belgium and close all of our 6 stores there.

Second, we intend to consolidate subscale unprofitable delivery business units in several markets. We will continue to service customers virtually everywhere we serve today, especially our multinational contract accounts, but we'll leverage our scale with a regional approach in certain geographies. For example, we'll serve customers in Denmark from our operations in Sweden.

Third, we're making another significant reduction in G&A expense in Europe as we streamline our operations and centralize support functions. We're increasingly leveraging functional expertise in the U.S., in areas like real estate, e-commerce and buying, to support our European business. As a result of these actions, we're planning for further workforce reductions in our European office products business.

We're in the early stage of this process, and we expect the progress to build over the coming year. We had productive Works Council consultations during the third quarter, and the plan that we announced in September is right on track. And as Ron noted at the beginning of the call, we plan to sell our European Printing Systems division.

In Australia, local currency sales were down in the double digits versus Q3 of last year. Coming into the year, we anticipated we would see meaningful sequential improvement on the top and bottom line during the second half of 2012. Unfortunately, the customer disruption and account losses we experienced late in 2011 have had a more significant impact than we expected, and we won't cycle through them until early next year. The good news is the significant customer losses are behind us, and our realigned sales force is driving improved customer acquisition. We've made significant headcount reductions and rightsized our cost structure to protect the bottom line.

We also rebranded our Australian business from Corporate Express to Staples during the third quarter as we continue to move to one global Staples brand. While we expect near-term results in Australia to remain under pressure, we're well positioned to drive sustainable improvement over the long term.

During Q3, International operating margin declined 302 basis points versus last year to a loss of 0.15%. But excluding the $16 million of accelerated Australian tradename amortization, operating margin declined 160 basis points to 1.3%. This decline was driven by deleverage of fixed expenses in Europe and Australia, as well as lower product margins in Europe, and this was somewhat offset by savings related to the headcount reductions that we've made in both Europe and Australia over the past year and reduced losses in China.

With that, I'd like to turn it over to Christine to review our financial results.

Christine T. Komola

Thanks, Mike. Good morning, everyone. During the third quarter, total company sales of $6.4 billion were down 2% in U.S. dollars and down 1% in local currency versus the third quarter of last year.

On a GAAP basis, we reported a net loss of $0.85 per share from continuing operations versus earnings of $0.46 per diluted share from continuing operations during the third quarter of 2011. The net loss from continuing operations for the third quarter of 2012 includes a combined $857 million of pretax charges related to the impairment of goodwill and other assets, severance and other costs associated with our European restructuring plan, accelerated Australian tradename amortization and the planned closure of retail stores in the U.S. The net loss from continuing operation also includes additional tax expense related to the establishment of valuation allowances in Europe. Excluding the impact of these items, we reported non-GAAP diluted EPS from continuing operations of $0.46 or flat compared to diluted earnings per share from continuing operations of $0.46 achieved in the prior year.

On a GAAP basis, third quarter 2012 operating income rate decreased to a loss of 5.6% from an operating income rate of 8.2% during the third quarter of 2011. Excluding the impact of the charges we took during the quarter, operating income rate declined 30 basis points to 7.9% compared to the third quarter of 2011. This decline reflects lower product margins in North America Delivery and International, as well as investments to drive growth in staples.com, partially offset by reduced compensation and marketing expense.

Our effective tax rate for the quarter was a negative 42.9%. Excluding impairment charges and restructuring costs, most of which are not tax deductible, as well as valuation allowances established for previously recorded deferred tax assets, our effective tax rate during Q3 was 32.5%.

Year-to-date, we've spent $204 million on capital expenditures compared to the $244 million that we spent on capital during the same period last year.

With year-to-date operating cash flows of $895 million, we've generated free cash flow of $691 million through Q3, and we remain on track to generate more than $1 billion in free cash flow for the year.

During the third quarter, we repurchased 9.4 million shares for $111 million. Year-to-date, we've repurchased 27.4 million shares worth $362 million, and we remain on track to repurchase about $450 million of stock this year.

During Q3, we also paid off our $325 million bond that matured on October 1.

The weighted average shares outstanding used to calculate non-GAAP diluted earnings per share for the quarter were 671 million. This includes about 4 million of incremental shares, which were excluded from the GAAP EPS calculation due to the anti-dilutive effect of incremental shares on our net loss in the third quarter.

At the end of Q3, Staples had approximately $2.2 billion in liquidity, including cash and cash equivalents of about $1 billion and available lines of credit of about $1.2 billion.

Turning to guidance. Our outlook for the full year is unchanged. We expect total company sales to be flat for the full year versus 2011, including the impact of the 53rd week this year and the unfavorable impact of foreign currency exchange rates. We expect full year non-GAAP diluted earnings per share from continuing operations to increase in the low single digits versus non-GAAP diluted earnings per share from continuing operations of $1.37 achieved in 2011. Our 2012 EPS guidance excludes the charges we took during the third quarter, as well as approximately 160 -- $200 million of pretax charges related to European restructuring, U.S. store closures and related Australian tradename amortization we plan to record in the fourth quarter of 2012.

During the first couple of weeks of the fourth quarter, our Retail and Delivery businesses in the northeast were disrupted by Hurricane Sandy. We expect this to be a modest headwind to the top and bottom line during the fourth quarter, which we have accounted for in our full year guidance.

Thank you all for your time this morning. I'll now turn it back over to Charlene, our conference call moderator, to facilitate our Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from the line of Gary Balter from Crédit Suisse.

Gary Balter - Crédit Suisse AG, Research Division

Just a general question because the people who are less positive on your story kind of argue how your Retail margins are going to collapse and kind of accept North American Delivery is going to stay about where it is. And what we've seen in the last couple of quarters is Retail has actually been quite fine, and North American Delivery has taken in the 70-ish-type, 76 this quarter, basis point hit. Could you discuss, and especially in North American Delivery, is that -- what does that reflect? Does that reflect pricing decisions you're making? And what is that a reaction to? Is it Amazon or others? And then why is it holding up so well in Retail?

Ronald L. Sargent

I'm going to ask Joe to talk about the NAD margin. But we're happy we have 2 great healthy businesses, one in the high 8s and one in the 10s this quarter in North America, but Joe?

Joseph G. Doody

Gary, as we've said, the impact that we've seen most in terms of the margin declines in any -- the last 2 quarters is due to staples.com, which accounted for far more than half of that. Two main drivers there is our lower product margins in each of our businesses, as well as the investments that we're making in staples.com. From a margin standpoint, in contract, we are being impacted a little bit by some customer pressure among large customers to renew, while in dot-com, we have specifically given some pricing changes to some ink, toner or paper, jan/san SKUs to be more competitive. Now regarding the -- what we've really done, Gary, is make some very strong strategic investments beginning the last quarter and into this quarter in dot-com for our future growth. Various website investments like new search functionality, new mobile and tablet applications, reserve online pick up in store, as well as adding key resources to our e-commerce team in Cambridge. Now we've also invested in some free shipping for ink and toner regardless of the order size. And finally, we've been investing in building out what we refer to as marketplace with additional SKUs on our dot-com site. So I think it's fair to say that we're committed to accelerating our online growth. It's one of our top strategic priorities. And we're doing that by making now some of the right investments to make sure that we get that future growth.

Ronald L. Sargent

And on the retail side, I'll ask Demos to weigh in. I think the point is that Retail's not dead. And Demos and his team are doing 1,000 little things to continue to improve the business, and the customer base has held up pretty well. Demos?

Demos Parneros

I'll just add, Ron, just a relentless focus on the customer. The fact that we have not wavered on really paying interest in every customer, every store, every day, really focusing on conversion. A lot of focus on the services businesses that have been part of our strategy for some time now, a very careful kind of Staples approach to managing technology, and then a lot of work to maintain our core heritage supplies business, continue to reinvent both the products and the way the customer shops, along with what Joe mentioned before, just to really bring the 2 channels together and make it easier for the customer. So like I said, it is along with some things that we're working on.

Gary Balter - Crédit Suisse AG, Research Division

So just following up on the pricing side. Do you feel that you're -- in the North American Delivery, that you're at the right levels now to be competitive? Or is there further margin decline that we should be expecting?

Ronald L. Sargent

I feel, Gary, we're pretty much at the right level. Selectively, we may make some adjustments but not significant. And I think the key to improving the margin in the business going forward is the -- some of the issues -- some of the initiatives that we'll be driving for the $250 million savings. So it's the improvements in buying, indirect procurement and supply chain. We achieved those benefits, which were just beginning to drive. That will certainly be the funding of the margin improvement.

Operator

Our next question is from the line of Dan Binder from Jefferies & Company.

Daniel T. Binder - Jefferies & Company, Inc., Research Division

My question's sort of in the same vein as Gary's on pricing, particularly in Delivery dot-com. I'm just curious, as you've made your changes, what kind of competitive responses you're seeing. What kind of customer responses are you seeing? And given that we're sort of in a slow-growth environment, are you finding that as you all sort of chase the same accounts that, yes, there's more sort of a greater willingness to accept a profit level that may be lower than you would have before?

Ronald L. Sargent

Joe?

Joseph G. Doody

I think, Gary (sic) [Dan], it's too early to tell in terms of the impact. I think it's going to be -- you can make the changes, but it doesn't happen overnight in terms of the demand. But I think we're comfortable for the most part where we are. As far as the competitive reactions, there's a -- it's a competitive marketplace out there pretty much all the time. We haven't seen anything major from that standpoint. But the opportunity is still large, Gary. We have a very small share relative to the mid-market business. So we feel there's still a big opportunity out there in that mid-market for us, and that's where we're very well positioned to continue to grow share and grow business going forward. And we are very competitively priced in that business.

Ronald L. Sargent

And the only thing I would add is, as part of this new strategy, we're going to be expanding the SKUs that we offer and sell through staples.com. And we've seen some really strong, really, trends in areas like technology hardware. We talked about facilities, but things like safety and industrial supplies and mailing and shipping, and we're going to be expanding into a lot of other categories that we don't necessarily stock. And the margin rate will probably be a little lower, but obviously, it's a margin dollar play as well. So we'll be expanding margin dollars and maybe not expanding margin rate on those things that we don't stock.

Daniel T. Binder - Jefferies & Company, Inc., Research Division

As a follow-on to that, Ron, could you just give us a little bit of an idea of kind of how many SKUs you're at now, kind of how many you plan to add and maybe a little bit of a breakdown on sort of the proportion of SKUs that contribute, let's say, 80% of your sales?

Ronald L. Sargent

Yes. I think it's too early to know. I think the customer will tell us how many SKUs that we should offer. But as I said earlier, we added about 30,000 SKUs to staples.com this year. And by the end of the year, another couple of months, we'll have close to 100,000. Then we'll pause. We'll take a breath. We'll see how we're doing and see if those SKUs are productive. But you can have a lot more SKUs as -- if you don't have to stock them. And I think we've got relationships in place where -- to me, the strategy is the perfect marriage of what our customers want and need from us, as well as what Staples is very good at.

Daniel T. Binder - Jefferies & Company, Inc., Research Division

And of the SKUs that you have online today, what proportion of those represent, let's say, 80% of the business or 90% of the business? Is it relatively small?

Ronald L. Sargent

Joe?

Joseph G. Doody

I don't understand your question, Gary.

Ronald L. Sargent

In terms of the 80-20 rule? Or is it the 70-30 rule?

Daniel T. Binder - Jefferies & Company, Inc., Research Division

Yes. I'm just trying to understand sort of the 80-20 rule. Is it 10,000 SKUs generating 90% of the business? I guess I'm trying to get a sense of like how much extra SKUs can drive incremental sales.

Joseph G. Doody

It's too early to tell, Dan. But what we are finding is we're -- in some cases, we're going into new categories. In other cases, we're just going much deeper in existing categories, so having every ink and toner SKU, having a much broader and deeper selection of things like first aid kits where we may have had 2 before, now we have a dozen and being able to go deeper into existing. And then there's also a bunch of new, and Ron mentioned a couple of the new. But it's very much too early to tell. And the other thing, Dan, is we've not put, really, any marketing behind this, too. We've just really been heavily, heavily focused on getting the SKUs online so that we can really then drive the demand and look at ways of driving demand as we look into 2013 and beyond.

Operator

The next question's from the line of Chris Horvers from JPMorgan.

Christopher Horvers - JP Morgan Chase & Co, Research Division

Wanted to also follow up on the price investment question and then another one as well. As you think about the response that you're seeing in terms of the investment price in jan/san and the free shipping options, is it driving gross margin dollar growth there? Are you seeing the elasticity? Or is it something that you expect to -- is on the come as the consumer discovers it?

Joseph G. Doody

No. We're driving gross margin dollar benefit. I think that the trade-off is we're clearly incurring a lower average order size, higher logistics costs. But that's well modeled out, and we see that as beneficial both short term and long term for us.

Christopher Horvers - JP Morgan Chase & Co, Research Division

And then at -- so does it flow in through in terms of an EBIT rate expansion?

Joseph G. Doody

Yes.

Christopher Horvers - JP Morgan Chase & Co, Research Division

Okay. And then a question on the Australia side, Mike. Can you talk about exactly what sort of happened there? I mean, it wasn't that long ago on 2Q, talking about how sort of the easy comparisons in the back half and how that could set up for some growth in Australia. And so it sounds -- it seems like there's been sort of a subsequent inflection lower in the business. So what have you heard from customers? And why does it get better in the first part of next year?

Michael A. Miles

Yes, Chris, that's a fair point. We have been a little bit caught off guard by the extent to which the account losses that we experienced in the fourth quarter and the first quarter have affected the business going into the second half of this year. We've also had reduced spending from the government there, and we're also sort of suffered from a weak pipeline of sales growth as we started this year, new customer acquisition. At least 2 of those have now been addressed. We feel, and are tracking very carefully, the lost customer and lost accounts and have arrested that both with better delivery service and better customer attention from our sales force. And we're also rebuilding a pretty healthy pipeline of new customer acquisition and have actually seen some good wins over the last couple of quarters. We've also launched the mid-market down there, which is off to a good start, although it's still a very small part of the business. And I think as we get into the first half of next year as we cycle through the account losses that I described, we're confident that we'll begin to see a firming up of the top line there. And the team has done a great job with cost reductions, and so there's a significantly lower expense base in Australia today than there was a year ago that should provide a nice basis for leveraging the results as the top line comes back around.

Christopher Horvers - JP Morgan Chase & Co, Research Division

Who's the share going to in that market?

Michael A. Miles

It's -- there is a local competitor by the name of COS that has taken -- C-O-S, that has taken some of our significant accounts, and then there's some nontraditional non-office products players who have taken some of our share. Our Australian business is one of the more diverse businesses that we have in terms of the different product lines that it offers, print and promotion, cleaning supplies, technology services, and some of their account losses have been outside the pure office product industry.

Christopher Horvers - JP Morgan Chase & Co, Research Division

And I just want to jump back to the NAD side. Just as -- thinking about the -- whether or not you're driving EBIT rate. I mean, playing devil's advocate, the EBIT dollars in the business were down in the past 2 quarters. So is there -- is that the investments not -- that you're making outside of the price investments causing the EBIT pressure?

Joseph G. Doody

Absolutely. Absolutely, yes. Site development work, all the things that I mentioned as far as our e-commerce investments that we're making that are -- clearly will pay dividends long term. But that's clearly an area that we are deleveraging and -- on a year-over-year basis.

Operator

Our next question is from the line of Matthew Fassler from Goldman Sachs.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Both of my questions revolve around International. First of all, if you could briefly address the discontinued operations line, just to make it clear what is in there. And also the losses in that line seem to have increased steeply year-on-year. I'm not sure if that reflects the underlying performance of the businesses that were discontinued or whether it reflects charges, for instance, that might have been taken in association with the decision to discontinue those operations.

Ronald L. Sargent

Christine?

Christine T. Komola

Matt, the discontinued operations line is entirely our PSD division, and that includes the normal business, plus they themselves have restructuring charges, primarily all severance-related and it was almost $20 million to get the business positioned for the selling process.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Got it. So that business was, I guess, down year-on-year from a profit perspective...

Christine T. Komola

Yes.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

But the bulk of that loss was one-off. And secondly, it'd be great to hear initial thoughts from John Wilson, and, John, welcome back. I know you've only been on board for a number of weeks, but initial observations on key variables and key to-dos over in Europe as you take charge of that business.

John Wilson

Great, Matt. Again, it's really great to be back here. It is very early in the process, just 5 weeks, but I certainly have hit the decks hard and I'm running fast. I did relocate over and I've been spending the last month traveling and meeting the teams and really trying to put together a game plan here. In terms of initial observations, I guess some of the key findings I'm somewhat surprised at is that the team here is very strong, very resilient despite some of the very difficult changes in the market we're in. I'm actually seeing -- morale is actually better than I would have expected. So that's a positive. I think the execution capabilities here are also very, very strong. I think what we need to focus on is bringing more discipline and more urgency to some of our decision taking here and, from a bigger process point of view, reducing complexity. One of the things I've been surprised at here is how much complexity there is to our business in Europe, above and beyond the normal complexity of multiple languages and multiple cultures and regulatory environments. We have complexity in our business that needs to be streamlined and is a major upside for us. So I think my last pleasant surprise that I've uncovered over the last 5 or 6 weeks has been how much more upside I see in the business relative to streamlining and improving our cost structure as we look to the future.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Great. And if I could, just one quick follow-up for Joe. If you could sort of distinguish your so-called same-customer revenues or revenue transferred to existing accounts in the contract business relative to the overall business, it would be very helpful.

Joseph G. Doody

Yes, Matt. It did in the quarter trend a little bit better than we've seen, so it was slightly positive sales growth to existing customers. Much of that attributed to, I'd say, 2 things. One is sales of the beyond core office products, so facilities, breakroom, as well as copy and print. The second is that we're going after non-buyers of paper, ink and toner of existing customers. Any ones that might pick off those categories that are non-buyers from us, and we're going after them to get that business as well. So that's helping to bring sales to existing customers positive in the quarter.

Operator

Our next question is from the line of Mike Baker from Deutsche Bank.

Michael Baker - Deutsche Bank AG, Research Division

So a couple, going back to the restructuring analysis you had -- you talked about earlier in the quarter. First, and you've kind of alluded to this, but the $250 million savings, that's a gross number clearly with some offsets as you reinvest in price. In your long-term plans, any sense as to what the sort of flow-through to the bottom line will be from that savings?

Christine T. Komola

Michael, it's Christine. We have knee-deep right now in our budget process, and we are working through our investment strategy and the initiatives that Ron laid out. And then we'll figure out kind of how much will flow through the bottom line at that juncture. We'll update you all as we do our Q4 call in March. We'll give you a much better sense on it.

Michael Baker - Deutsche Bank AG, Research Division

Okay. And then I guess, second, related to that previous announcement, the 15% square footage reduction. My guess is that's not a 15% reduction in stores, that, that includes some downsizing. So any sort of way to break out how many stores are closing, how many are going to be relocated, how many downsized, et cetera?

Ronald L. Sargent

Demos?

Demos Parneros

Yes. So as we said, the net number of closings for this year will be 30. And then going forward, it'll be around that number each year. So it'll be a combination of some downsizing, some straight out closures and then, of course, huge number of stores to be relocated to the smaller format that we're deploying right now. So it's a combination.

Michael Baker - Deutsche Bank AG, Research Division

Okay. If I could sneak in one more. Just cosmetically, when you put the dot-com business together with the Retail business, so first of all, I imagine that the growth in dot-com will be included in your same-store sales as many other retailers do it. But will that -- I assume that will reduce the margins in the Retail business, raise the margins in the Delivery business? Is that the right way to think about it?

Ronald L. Sargent

Yes. I think we're going to go at this slowly in terms of reporting sales and margins. We'll probably give you more detail than you want or need. But I think going forward, we'll probably break it out. So you can kind of do the math. And at some point, it may come together. But I think we're going to err on the side of being transparent.

Operator

The next question is from Colin McGranahan from Sanford Bernstein.

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

First question really is for you, Ron. Just looking at the strategy as you've laid it out, and you've thrown out a couple of interesting examples, but I was hoping, first, you could talk a little bit more about your comment of going deep in verticals and a little bit more color on the expanded assortment. Second, if you can talk about how you think about marketing this. I think you've thought about your future as being somewhat a ubiquitous supplier to businesses. Would you think about something along a Staples prime where customers can sign-up for free shipping? And then thirdly, it sounds like services -- expanding services is part of the strategy, too, product-related services. Beyond what you're already doing -- copy, print and tech services -- what else is potentially on the board?

Ronald L. Sargent

Okay. I'll try to answer that in a question that doesn't become somebody else's strategy in 6 months. So let me start with assortment. As Joe mentioned, I mean, there's a lot of products that we sell to our customers that we don't stock or offer. For example, we've got this group called nonstop procurement where customer is saying, "I can't find this on your website. I can't find it in your store. Can you get this for me?" And it's been amazing, kind of the volume of business we're doing with people calling up. And we have a call center group, and basically, their job is to find product. And I think that kind of told us there's this great opportunity to be a lot deeper in the products that we do offer. And Joe mentioned ink. Back 20 years ago, Quill did so well because they offered every typewriter ribbon. And I think there's that kind of opportunity whether it's technology supplies, technology accessories. In addition to the things we currently do sell, I mean, facilities has been a home run for us and surprisingly good. But safety, I think, is one of those things that our customers have said we'd like to buy from you and reduce a supplier if we could, industrial supplies, even expanded furniture assortment, mailing and shipping. In terms of verticals, we've got probably 5 identified, and I don't want to mention any of the 5. But they are basically high office products consumption verticals that we think there's a real opportunity, and we'll be expanding our assortment there. So I think -- as I said, we'll get to 100,000 SKUs by year end. We're not going to be stocking those, but we'll be working with partners to supply those. After that, I think we'll probably be continuing to add SKUs based on what customers are buying or not buying from us. In terms of marketing, I think we're going to certainly be kind of telling the world that we're more than just office supplies, and we'll do that in a lot of different ways. It could even be -- it could be mass, it could be direct marketing, it could be e-mail marketing. But I think we're going to start with the 10 million business customer relationships we have today and tell them that we're more than they have looked at us for in the past. In terms of prime and free shipping, I mean -- I think when you look at our orders today -- Joe, I don't know what the number is, but it's like 90-some percent.

Joseph G. Doody

About 98%, Ron, that do not pay for shipping today.

Ronald L. Sargent

So I think we're pretty much free shipping today and probably more than anybody else that we compete with. But we haven't really told that story very well, and I think we've got an opportunity to tell that story much better in the future than we have in the past. And then in terms of services, what was your question around services, Colin?

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

Well, it's one of the legs in the strategy. And beyond what you've already been doing and that has been successful, copy, print and tech services, are there other things you're thinking about?

Ronald L. Sargent

Yes. There's probably 3 or 4 of them that we're testing in stores and then we're looking at a lot of services through our online offerings as well. And the ones we're testing in stores that are out there I mean, obviously, tech services, copy and print, but things like shredding, computer rental. Demos, anything else that you want to mention?

Demos Parneros

Those are the biggest 2, I think, at the present time.

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

Okay. Second question then. One of your competitors, Office Depot, has an activist investor involved, and they've made a point of their Mexican JV. How do you think about -- and they're thinking maybe that business could be sold. How do you think about the attractiveness of that business, given its profitability and a big opportunity in a growing emerging market, relative to the significant struggles that you're having in your own International businesses?

Ronald L. Sargent

Well, I mean, I think the -- I don't know a lot about the Mexican operation, but I understand it's a very good one. And I think OfficeMax also has a strong Mexican operation, and we have nothing there. But when you look at the success we've had north of the border, you've got to think that there's an opportunity in the right kind of scenario where you could have success south of the border as well. To me, I think the strength of the Mexican operations are have strong joint venture partners more than anything. And I think we've learned that in the past that where you have a strong joint venture partner who's tied in with a local market, you do better than if you're kind of new in a new country, so.

Operator

Our next question's from the line of Michael Lasser from UBS.

Michael Lasser - UBS Investment Bank, Research Division

Ron, throughout its history, Staples has been very effective at developing new customer relationships across all segments and channels and then growing the profitability of those over time. As the company evolves and emphasizes online more, invest more in price, what's the risk that the model turns to become more transactional? And how does that -- what can you do to stem that risk?

Ronald L. Sargent

Yes. I mean, I think it's always about kind of giving the customer what they need. And I think it's more than just product. I think it's service. I mean, when you try to compare kind of how you stack up versus others and you look at your unique value proposition, certainly, it's a brand you can trust. I think delivery is really important, and free delivery is getting increasingly important. I think kind of making it easy is something we've kind of hung our hat on for our customers. We have 3,000 sales peoples, and 3,000 sales people provide a lot of the close touch to our customers and the relationships that we've tried to develop that you can't really necessarily develop strictly online or strictly in retail. And part of that sales group, we have a lot of category specialists for specific things. So relationships are about people. And obviously, you've got to have technology to support the people, and that's what we've tried to do. But to me, that's the -- the right answer is kind of give the customer what they want in a unique way and, to the extent that you can personalize that by customer, we've spent a lot time trying to do that. That's the answer.

Michael Lasser - UBS Investment Bank, Research Division

Okay. And second question for Demos. The Retail business, the comp improved sequentially. That's despite what seems like a bigger headwind on the technology side. So what accounted for the sequential improvement? I imagine you're going to say a lot of little things. But can you maybe highlight a couple?

Demos Parneros

Yes. Sure, of course. Back-to-school is an important season for us. I knew we had a very solid back-to-school. We've been at this for a long time. We have a very experienced team out there, and we always try to do something a little bit different, try to bring a better assortment, a better experience for customers. So that's the piece of the puzzle for the quarter. The other thing that really made a difference for us was strong performance in our core business supplies, even categories that are not the sort of the designer categories, just basic categories like chairs, writing, paper, things like that, core supplies businesses always pay a lot of attention to. Try to make the shopping experience better, really train our associates, give the customer good value, those performed well. And of course, services. We mentioned copy, print, one of our better quarters in recent history. The sales force that was mentioned earlier performed very well. Our tech services business, very strong team there, really, again, connecting with the customer. Despite a tough quarter, there's a lot of people really waiting for the new technology to be launched. So I hate to say it, but it is a combination of a lot of things. There's no big bang at this point. I wish there was.

Michael Lasser - UBS Investment Bank, Research Division

Understood. And one last final question for Christine. You mentioned that you're maintaining the guidance despite some disruption on both the sales and the profitability side from the recent storms. Would you have potentially raised your guidance had it not been for those events?

Christine T. Komola

I don't think, at this point, I would say that we would raise it. We have a range. So I think we're comfortable with our overall guidance for the year, and we are comfortable with some of the trends that we see in some of these businesses that Demos and Joe have been talking about.

Operator

The next question is from the line of David Gober from Morgan Stanley.

David Gober - Morgan Stanley, Research Division

Just a couple if I could. The first is on something that you didn't talk about this morning, and I don't actually think we've seen a press release on it. But there were some press reports a couple of weeks ago on the initiative to install Amazon lockers in the U.S. stores. I know you've had a pilot in Europe on that for a little while. I was just curious what the thinking is there. And is the strategy is to offset some of the fixed cost of the box, to raise some foot traffic? Or -- and any limitations on kind of what could be put in those lockers?

Ronald L. Sargent

Demos?

Demos Parneros

First of all, Amazon is a really good partner of ours. We do -- we have a very good relationship with them as we sell a lot of the Kindle product, also a huge customer of Staples. So we have good relationship. And it's exactly what you said. It's a small test at this point. It is being tested in some of our U.K. stores, as well as a handful of stores in the U.S. It's very early. We think it's a good traffic-driving idea. I don't really have much to say on it other than I'll address your one quick question. There are no limitations. It is product bought through Amazon, not their partners. It doesn't take a lot of space. So it's not a big space commitment. So as part of something that we do, we are -- we've got a lot of different tests out there. We're very anxious to be involved and to learn and to see what works, what doesn't work, and this is one of them.

David Gober - Morgan Stanley, Research Division

Okay. And a follow-up on the International side. I know you're still in the process of figuring things out, but I was wondering if you could talk a little bit about maybe trying to size the subscale operations that are getting consolidated into other parts of the business. Any way to kind of think about what the opportunity is there in terms of improving margins on the International side of the business?

Ronald L. Sargent

Mike.

Michael A. Miles

Well, yes, David, there are probably half a dozen countries in Europe where we're planning to do that, to consolidate a small and unprofitable business unit either into a larger business unit, either in an adjacent country or a larger business unit in that country. The example that we gave was Denmark into Sweden. We're still in Works Council consultation. So we can't really go country by country on that. And the savings impact from those are part of the numbers that Christine described earlier, the $250 million, that we still have to work through the budget and determine how much was -- is going to be reinvested and how much is also going to help us offset the continued headwinds that we're facing in Europe. Overall, I would say with all of the International changes that we're talking about between Australia and Europe, there's probably $40 million to $50 million of expense reduction involved. But as I say, that's got to be phased through 2013, and then it's got to -- we've got to reflect that on -- in the budget and account for it with the rest of the $250 million in savings that we're planning for 2015.

Operator

Our next question is from the line of Greg Melich from ISI.

Gregory S. Melich - ISI Group Inc., Research Division

Could you give us an update on the cash cost of the restructuring? Overall, I think it was $200 million to $250 million you guys had talked about this year. Is that still the benchmark? And how much do you think it could be going forward to get everything done that you want to get done?

Christine T. Komola

Yes, it shouldn't -- this isn't a significant cash impact, and your numbers are still right and reasonable. And it -- these cash -- even the cash itself will happen over time as we sell through leases and things like that. So I think you're still in the ballpark, and I don't expect any significant swings into next year.

Gregory S. Melich - ISI Group Inc., Research Division

And just a reminder, that $200 million to $250 million, how much of that was leases versus severance?

Christine T. Komola

It's probably about 50-50, maybe a little bit higher on the leases.

Gregory S. Melich - ISI Group Inc., Research Division

Okay, great. And then maybe, Joe, back on the U.S. Delivery. You mentioned that core was down, I believe, low single digit, core office products. Was that right? Did I get that?

Joseph G. Doody

That's correct, yes.

Gregory S. Melich - ISI Group Inc., Research Division

If I remember correctly, earlier in the year, there were some price increases trying to go through and we thought that could have been the reason for weakness in demand. Could you give us an update on what you did there? Did you promote more and try and -- how was the price elasticity, particularly in paper but also ink and toner?

Joseph G. Doody

Yes. We -- on paper, we did have some increases earlier in the year in both of those, and we've been working hard to try to pass those through throughout the year to our contract customers. And we've been successful as we continue to move through the year, not as quickly as we would like. At the same time, what plays into it is we're also going after non-buyers in those 2 categories, in those 2 areas, those customers of ours that are buying core office supplies but not buying maybe paper or ink. And there, we're being a little more selective, personalized with price offers to them to get them to become customers so that we can pick up incremental margin dollars. So that does play into the overall margin rate. So we're generally satisfied that we've been able to over time, but taking a little longer than we would like, to get some of that cost increases back. But we are also selectively going out and targeting existing customers that are non-buyers with aggressive offers.

Gregory S. Melich - ISI Group Inc., Research Division

Is it fair to say that, that was the bulk of the margin rate decline in Delivery?

Joseph G. Doody

No. No, that would not be the bulk. That would be an element of it.

Gregory S. Melich - ISI Group Inc., Research Division

And what would the bulk be then?

Joseph G. Doody

Mainly just price actions that we've taken from a margin -- from a product margin standpoint. It's price actions that we've taken in dot-com. There's class pricing to maintain existing contract enterprise customers.

Operator

Our next question is from the line of Joe Feldman from Telsey Advisory Group.

Joseph I. Feldman - Telsey Advisory Group LLC

I wanted to ask your thoughts about the fiscal cliff and what it might mean for business. I know -- I think we all have our opinions on it. But I'm just curious how you guys are planning for, I guess, the new environment, not to say that we are definitely going over the cliff. But there's a lot of agreement that there will be a new tax structure, likely, that will have potentially a negative impact on small businesses and starting next year. And just kind of what you're hearing from customers and clients, are they changing? Do you expect them to do anything different ahead of the new year, or how they're going to approach next year? Just any kind of color and where your heads are at on it.

Ronald L. Sargent

Yes. I think going over any kind of cliff is not good news, and I think that's true of the fiscal cliff as well. I mean, we think the economy in the U.S. is pretty sluggish for small and medium-sized businesses now, and hiring has been very slow for those companies as they consider things like the cost of ObamaCare and uncertainty around this whole fiscal cliff thing. Certainly, our hope is that Congress is going to act to find a solution that moves us toward a sustainable deficit-reduction plan. And I think if Congress fail to act, we can expect slower growth in 2013 than we had in 2012.

Joseph I. Feldman - Telsey Advisory Group LLC

Got it. And, Ron, you had mentioned ObamaCare for a second. I've been asked a little bit lately from some people about what kind of impact it might have on you guys or you, the big-box retailers, not just Staples, but others. And any thoughts on that, how it might impact the expense structure for next year?

Ronald L. Sargent

Well, I've seen a lot of math bandied about, and the one I most recently saw was the feeling that it's probably going to cost about $1,000 per employee going forward. And whether that's paid for by the company or paid for by the employee or some mix of the 2, I just think it's a little uncertain at this point. We do think that some of this incremental cost is going to be mitigated by the fact that many of the associates who are currently participating in our medical plan will now have alternative sources of coverage. But I just think it's just too early to know at this point. All I do know is that ObamaCare is going to make taxes go up next year.

Operator

And the last question is from Alan Rifkin from Barclays.

Alan M. Rifkin - Barclays Capital, Research Division

First question for you, Ron. On the Delivery side of the business, now that you've had ample opportunity to see the effects on both revenues and profits from your decision to not renew the 2 large contracts, what are you thinking about your strategy and your posture regarding some of these large contracts going forward? Will you maintain this higher standard? Do you think that you'll relax it a little bit? If you could provide some color there, that would be appreciated.

Ronald L. Sargent

Yes. I'll start, and I'll turn it over to Joe. But I think customers care a lot more about the other things, particularly as you get into the large customer segment, than they do strictly on price. And I think you've got to kind of chart your own territory. And I think our territory is we're going to give you the lowest total cost, and that includes servicing you, as well as the price of a uni-ball pen. So do I think we're going to relax kind of our standard? No. I think pricing, in general, has been pretty rational. But at some point, and there were a couple of customers that we inherited from Corporate Express, they just didn't make any sense, given what they needed to do and what margins we needed to make in the business. So, Joe?

Joseph G. Doody

Yes. I think just to add, very little to that is -- I think our team is doing a good job to try to manage profitability on an individual account basis. And we'll do everything we can to maintain that business. But when it gets beyond a reasonable level, then we will look to walk away. I think that's very selective. And we'll do everything we can to prevent that, and I think we've done a good job of preventing that over the last 3 quarters.

Ronald L. Sargent

The only thing I would add is that the vast majority of our contract business is in the mid-market segment, not really the large $20 million, $30 million-a-year account.

Alan M. Rifkin - Barclays Capital, Research Division

Right, okay. And last question, if I may, for Demos. With the decision to combine the U.S. Retail operations and the dot-com, would it be reasonable to assume that most of the cost savings there would actually be realized in 2013? And could you shed any color on what the magnitude of those cost savings might be associated with that program, specifically?

Demos Parneros

We're excited about the 2 businesses coming together. I actually don't have any specifics as far as the savings are concerned. But the thing that we're excited about is really speaking with our customers with a more unified voice and really merging our very talented teams together to do an even better job at making offers and the assortment very clear to customers so they shop online, the store or both. I'm sure there'll be some savings. We've just begun the process right now. So I imagine there'll be a little bit maybe in the fourth quarter and some in the beginning of the year.

Operator

That's all the time we have for questions. I would now like to turn the call over to Ron Sargent for closing remarks.

Ronald L. Sargent

To wrap up, I'd like to thank the entire Staples team for all their hard work during the quarter. I'd also like to recognize the efforts of our many associates who live and work in the communities that were impacted by Hurricane Sandy. They have done a great job remaining focused and continuing to help our customers despite the challenges they've -- faced with in their own personal lives in the aftermath of the storm. And I just want them to know that we greatly appreciate their commitment.

So thanks for joining us on the call this morning. We look forward to speaking with all of you again soon.

Operator

Thank you for joining today's conference. This concludes the presentation. You may now disconnect. Thank you.

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