Eddie Bauer Holdings, Inc. Q3 2008 Earnings Call Transcript

Eddie Bauer Holdings, Inc. (EBHI)

Q3 2008 Earnings Call

November 06, 2008 4:30 pm ET

Executives

Neil S. Fiske - President and Chief Executive Officer.

Marvin E. Toland - Chief Executive Officer.

Analysts

Dough Pardon - Brigade Capital

Peter Castilano - Galcier Partners

Andrew Berg - Post Advisory Group

Arthur Elap - DDCP

Ryan Rodnet - Hilink Capital

Michael Osborne - MGO Capital

J. T. King - Cape Investments

Nicholas Capuano - Imperial Capital LLC

Presentation

Operator

Please stand by, we are about to begin. Good afternoon ladies and gentlemen. Welcome to the Eddie Bauer Holdings Incorporation third quarter conference call. In the recording of this call including the question and answer session will be available for replay later today. Information on how to access the replay is available in the earnings press release issued earlier today, a copy of which has been posted at www.eddiebauer.com and now at this time, I will turn things over to our host Mr. Neil Fiske, President and CEO of Eddie Bauer. Please go ahead Sir.

Neil Fiske

Good afternoon. Thank you for joining us today to review Eddie Bauer’s third quarter results. Joining me is Marv Toland our Chief Executive Officer. We will begin with some prepared remarks and then open the lines for your questions. Let me also remind you that during this call we may make forward-looking statements relating to the company’s expectations and beliefs concerning our future business and financial performance.

These forward-looking statements are based on various assumptions and projections are subject to risks and uncertainties and actual results may differ substantially. One major additional risk is the state of US and the world economy. These forward-looking statements speak only as of the date stated and as accept, as required by the law, we do not undertake any obligation to update these forward-looking statements. For further details please refer to the risk factors and cautionary statements in our 2007 Form 10-Q and our third quarter 2008 10-Q, which are on file with the security and exchange commission.

Over all, this was a transitional quarter for us. We made the decision to scale back substantially on promotion activity and our lease productive marketing expenses, recognizing that this would put pressure on our top line. We also begin to fee the impact of the downward shift in the economy. While revenue we softer especially in the later half of September, profitability and cash flow were up substantially. Operating loss declined by 65% and improvement of $17.1 million. EBITDA was up $15.3 million excluding the fair value adjustments on the company’s convertible debt.

Cash flow is boosted by the improvement in the EBITDA, a $10 million reduction in capital spending and a $27.6 million reduction in inventories.

On the revenue side, comp store sales were down 1.1% for the quarter versus last year’s 3.4% gain on lower promotional activity, less marketing and a reduction in catalog’s circulation as well as the downturn of the economy. Comps in the retail channel where the impact of the marketing cutback was more pronounced were down 2.3% versus last year’s 8% gain. The outlet business had a slightly positive 0.6% gain compared to the 2.8% decrease in the prior year.

The camping company operated 254 retail and 118 outlet stores as of the end of this quarter compared with 260 retail and 121 stores prospectively in 2007.

The direct business was up 1.4% for this quarter versus a 0.7% decrease in last year’s third quarter. We made an exclusive shift in our mailing strategy to become more targeted and efficient.

Catalog circulation pages were down approximately 22% for the quarter, while catalog productivity was up approximately 24%.

Total revenues for the quarter decreased $3.7 million to $207.3 million this year as compared to $211 million in the third quarter of 2007. The major contributor to total revenues is net merchandize sales, which decreased $2.7 million or 1.4% on a lower store base.

Gross margin for the quarter was relatively flat at $59.2 million versus $59.4 million in the prior year quarter. Gross margin rate grows to 30.2% in the third quarter from 29.9% in the year ago quarter primarily due to lower capitalized inventory cost than lower occupancy cost.

Inventories ended the quarter down of 13.6% overall and down 11.8% on a per store basis. SG&A expenses were down $18.3 million or 18.7% for the quarter as the company maintain its focus on its key initiative of cutting $25 million to $30 million out of the operating cost structure of the business in 2008. The SG&A reduction goal exclude one time items and the impact of this year’s 53^rd week.

We are on tract to meet this goal and continue to look for additional cuts. For example, we have just completed restructuring and renegotiating our ocean logistics and North American Freight contracts for an annual savings of over $4 million starting in 2009.

EBITDA improved by $15.3 million to slightly positive for the quarter when they exclude the fair value adjustments to the company’s convertible debt embedded derivative liability. This fair valued adjustment does not affect the company’s cash flow or operating profit.

Operating launch improved by $7.1 million or 65% to a $9.4 million loss from $26.5 million loss last year.

Net loss for the quarter grew to $18,6 million from $16.4 million in the prior year of quarter, primarily because of the $19.2 million swing in the fair value of the company's convertible debt embedded derivative liability.

We entered the fourth quarter in a financially stronger position this year than last. Never the less we are concerned about the sharp deterioration in the economy retail trends and consumer standing. Our response to this economic challenge is two fold. Tightening down on cost and inventory again and stay focused on executing our five part turn around agenda. As a reminder, those five parts are: One, building brand identity and restoring our heritage. Two, revamping our product lines. Three, elevating their marketing. Four, cutting cost and boosting cash flow. Five, building a talent in organization we need to win. We are making progress on each of these fronts.

I have already talked about cost and cash flow. Let me talk briefly about the other four.

With our toll on holiday campaigns, we continue to reposition the brand back to its roots as an active outdoor brand, as the original outdoor outfitter.

Our heritage has displayed in our 68^th DOWN event, which celebrates Eddie’s patent of the first quoted DOWN Jacket in 1940. The loss of funds special edition [7:40] and freeze jackets celebrating the 50^th anniversary of decent of Gasherbrum I, the 11^th highest peak in the world by a team outfitted in EddieBauer gear. Our new special edition Pendleton EddieBauer blanket celebrates Jim Whittaker’s first American ascend of Everest, again in EddieBauer gear. The example of this is just the beginning of our effort to restore the proud EddieBauer heritage.

We are making progress in aligning our merchandize to our Refocused Outdoor Oriented Brand Position. We have launched a new line of outerwear called EddieBauer 365 and revamped our line of DOWN Parker’s Jackets and Vests, supported with new outerwear fixtures in our stores.

Early indications are encouraging particularly in men’s products in the areas where the weather has turned cold. New active styles from performance place to marine house key sweaters have also been positively received. We see major opportunities to build on this initial success over the next several years.

It is important to underscore that we are in the middle of a complete overhaul of our product development capability, the engine that drives this business.

Throughout this year, we have built a new team to drive product including a new SDP of merchandizing, a new SDP of design, a new SDP of sourcing and product development, new merchant leaders in our men’s, woman’s in outerwear categories and a new Vice-President of active wear, outerwear and gear. With new talent in place, we are revamping, not only our product, but also the underline development processes to build better product. I am convinced that the new team will create a hugely forward for the brand.

On our last call, we said we would give an update on our source and initiative this time around. Ronn Hall, our Senior Vice President of Sourcing and Development has put in placed a comprehensive program to improve quality cost and speed market. Key elements of the program include reducing the number of suppliers and factories, and eliminating lower quality or poor performing vendors, getting in to the right factories those that excel on the particular types of products we are building, rebalancing our geographic base of supply to take advantage of more favorable economics and trade terms, creating competition and multiple source in option among agents to make sure we are getting the best possible quality in terms. Specifically, we have brought in Li & Fung as a second source of [10:28]. Lastly, establishing our Hong Kong office so that we can directly source key programs and make sure that we have the feed on the street with our key suppliers, this office is now open. Clearly, there is a lot of work to be done here. This has been one of the most neglected areas from more than five years. But the long term benefit to the business is enormous. We now have the beginning of a world class sourcing organization that is product.

In the third area of marketing, we have simultaneously improved the quality of our creative while cutting back substantially on marketing cost. We have identified major opportunities to improve the segmentation and targeting of our catalog and marketing efforts, and this will be a big focus for us going forward. By being more targeted, we can now reach new customers in more brand right advertising such as our recent ads in outside magazine and Men's Journal.

Again, it is just the start of the program to segment our business, rebuild our men’s in outerwear categories and strengthen the equity of the brand.

We have also laid the foundation with some important marketing relationships that will support our new product introductions and launches into 2009.

Finally, in the area of talent and organization, we have filled out our senior leadership team with new leaders in every function except for one. Top to bottom, we are upgrading talent and aligning that to our strategy. In summary, we have made good progress in each of our five areas. We know that much work is still needed to get this company back to where it was once performing, and we reiterate a turnaround of this nature is a multi year process.

Lastly, let me comment on the outlook for the fourth quarter. I know this is the first question on everybody’s list. The fact is, we just do not know how the quarter will play out. The circumstances really have no president. We saw a short drop in mall traffic and the consumer spending in the later part of September that continued into the fourth quarter. We know that the biggest part of this season is still ahead of us. But how will we play out is very uncertain and requires caution. We need to stay focused on good execution, keeping our cost down, and our inventory is moving.

With that, let me turn it over to Marv.

Marvin Toland

Thanks Neil. I will spend the next few minutes in reviewing the key financial results in more detail and then we will open the line for questions. I recommend you read our quarterly report filed earlier today for additional details and explanation.

Neil discussed the highlights for the quarter. All focused on year-to-date results and covered selected other items.

For the nine months, total Comp store sales were 2.8% on top of 4.2% increase in 2007.

Retail Comp store sales increased by 4.1% on top of the 9% gain in the prior year. Outlet Comp store sales rose 0.8% compared to 2.6% decreases in the prior year period. Sales from companies direct channel decreased 0.2% in the first nine months of 2008 as compared to 7.6% increase last year.

For the first nine months of 2008, total revenues were approximately flat at $653.5 million compared to $651.9 million in 2007. Net merchandize sales year-to-date which sold $615.3 million included $441.2 million of net sales for our retail and outlet stores, an increase of 0.9% from the prior year. Direct channel net merchandize sales totaled $134.1 million and decreased by 0.2% from the comparable period in 2007.

Shipping, licensing, and foreign royalty revenues declined by $2 million or 4.9%.

Year-to-date gross margin with a $197.6 million, an increase of $4.3 million. Gross margin percentage for the first nine months of 2008 grows to 32.1% compared to a gross margin rate of 31.6% in 2007. The 50 basis point increase in the company's gross margin rate included. A 110 basis point increase from reduced occupancy cuts due to lower amortization of leasehold improvements and decreases in building rents and utilities. Offset by 60 basis point decrease from higher mark downs taken to liquidity 2007 holiday products during the first quarter of 2008.

Year-to-date, we saw an 85% reduction in the amortization of leasehold improvements impacted by fresh starting county. Substantially, all the reduced amortization impact affected the first half of 2008. Starting in third quarter of 2008, ongoing quarterly impact this fresh start amortization is minimal. Gross margin, the remainders of fiscal 2008 are likely to be negatively impacted by the continued reduced consumer spending and increased promotional pressure from our competitors.

Now, let me cover certain non-reoccurring and non-operational items included in and impacted to the 2007 and 2008 quarterly and year-to-date result.

For the third quarters of 2008 and 2007, the only non-operational item is the fair value adjustment on the embedded derivative liability on our convertible debt. This fair value adjustment does not affect our cash flow, operating profit, or bank cabinets. We have been required to make some adjustment quarterly since Q2 2007, but the adjustment will no longer be required in 2009.

For the first nine months of 2007, non-operational and non-reoccurring items consisted of CEO's severance charges, merger determination cost, and litigation settlement cost totaling $16.4 million. Debts extinguished of cost were $3.3 million.

For the first nine months of 2008, non-reoccurring charges were $2.5 million in severance charges for the reduction work force and $4.5 million for the impairment and write off of receivables related to the termination of our German Joint Venture.

Year-to-date SG&A expenses decreased by $39 million or 12.6% excluding the net $13.3 million of non-reoccurring expenses. SG&A decreased by $25.7 million to 43.4% from 47.9% last year as a percentage in the net merchandize sales.

Contributing to the decrease SG&A expenses were reduced marketing, advertising, promotion activities, less outsourcing and professional legal assistance, decrease depreciation amortization expense for leasehold improvements and salary in benefit savings for our first quarter reduction work force.

We also have decreased as another expenses including warehousing and distribution, corporate facilities and stock based compensation.

For the year, we are on tract in our goal of reducing SG&A by $25 million to $30 million excluding one time items in the impact of the 53^rd week.

Year-to-date operating loss decreased 54% to $34.6 million primarily due to reductions in SG&A.

For the nine months period, adjusted EBITDA loss improved by $16.7 million to a $1.3 million loss in 2008, excluding a $10.7 million change in the fair value adjustment from our convertible debt and other non-reoccurring items and previously mentioned.

Year-to-date net loss improved by $45.5 million to $38 million primarily resulting for $41.3 million improvement in operating losses, and a $17.8 million higher tax benefit as the prior year’s tax benefit included non-deductible expenses associated with our finance and receivables sold in December 2007.

Partially offsetting these improvements was a $10.7 million sling in the byways of the convertible debt embedded derivative liability.

Now, let us turn to some other topics affecting our cash flow for the quarter in the first nine months.

Inventories, total inventories at the end our quarter were $175 million, down by 13.6% to the prior year. On a per store basis, inventories have decreased by 11.8% excluding inventory increases due to four set chips, inventory decrease by 14.2%. Inventories write down reserves increased by $4.6 million to $9.8 million for all channels. Our reserving methodology for the retail and direct channels was consistent with prior periods. Reserve’s increase primarily due to higher discount to the sale of Pre-2008 inventories, and the expected discounts necessary to complete the liquidation on this inventory.

Senior Term Loan, year over year, the senior term loan balance decreased by $31.1 million to $192.8 million, contributing to the decrease balance worth $20 million voluntary prepayment in Q4 2007 and the $11.1 million of mandatory prepayments in Q4 2007 to Q2 2008 right in the sales and some receivables.

Revolving debt, on the year over year basis, the revolving credit loan balance decreased by $27.9 million to $26.7 million, as of November 3^rd 2008, and our revolver balance had increased primarily due to inventory for the holiday’s season to $63.8 million.

Interest expense, interest expense year over year decreased by $1 million to $5.6 million from $6.6 million for the quarter and decrease by $3.1 million to $16.6 million for the first nine months of the year, contributing to the lower overall interest expense where overall interest during 2008 of the lower outstanding principle balance of our loans. The benefit of lower interest rates is reduced by a hedge in over approximately $100 million of the $193 million term loan balance.

Capital Expenditures, the day to the fourth quarter, we opened one new retail in two new outlet stores and planed to open one new outlets toward during the remainder of 2008. We estimated a total capital expenditure for the entire year will be $15 million to $17 million net of landlord contribution. This estimate is about 1/3 less than projected $24 million we have previously disclosed in our prior filings. We expect our new stop cap looks to see their prior estimates by one store.

Debt Covenants, for the third quarter, we met all of our loan covenants. They still what we know today. We are currently projecting to meet our four quarter covenants.

Shareholder Vote, yesterday, the special meeting of shareholders as shareholders approve the extension of 4.75% ownership limitation containing our certificate of incorporation from January 4^th 2009 to January 1^st 2012.

That concludes my remarks, Neil.

Neil Fiske

Thanks Marv and with that let's open up the lines for your questions.

Question-and-answer Session

Operator

Ladies and gentlemen, time to give any question or comments (Operator Instruction).

Your first question comes from Nicholas Capuano - Imperial Capital, LLC

Nicholas Capuano - Imperial Capital, LLC

Good afternoon. Pretty job especially given the lower promotions of the environment, just a couple of things, relative to the impact you have seen from the consumer downturn, if you could just give some more color relative to the impact of traffic versus tickets eyes and in things that tactically maybe doing your addresses and in terms of adjusting promotions or mailings of the catalog or just the sense of how you are navigating this.

Neil Fiske

I think there are kind of two affects broadly affecting the flow of retail right now. Clearly, we are affected by theses as well. The first is traffic and the second is, what is the mix of product that consumers are buying when they come in their stores? The pattern that we have seen in the mall and clearly we have been impacted by that overall is beginning about the mid of September when all of the news headlines got to be quite negative in, pretty dramatic, we saw significant drop in the consumer traffic in the second half of September. That drop in consumer traffic in the malls continued into October. So, there is no question that there is a substantial traffic impact that has happened as a result of the current economic currencies.

Second, for the customers that are coming into the store, what we are seeing and I think what other retailers are seeing is they are being pretty picky about what they are buying. There are a lot of consumers looking for a deal in this environment and there are a lot of promotions out there. So, our expectation is that this would be a very promotional quarter. That level of promotion clearly, it can have some impact on us. I think, the key thing probably just to hit this once, everybody has got the same question in terms of what is the meaning for the rest of that quarter. Important to understand that, historically, at this point in the quarter, we have less than 30% of the quarter in. 70% of the quarter is ahead of us, and the pattern for holiday really starts to shape mid to late November.

So, we are in a very transitional time frame right now, where it is hard to get a read on the consumer other than have not reacted to the extraordinary events of the last two weeks. But projecting that for that, I think is something that nobody can really do at this point. It is just a frankly big unknown.

Nicholas Capuano - Imperial Capital, LLC

In terms of the higher productivity of the catalogs, it has been in this pretty extraordinary jump to last year’s number where 22% less circulation. To what extent did is coming from merchandize versus targeting or –

Neil Fiske

I think, it is the three effects that are targeting hopefully better merchandise and better creative. Clearly, we have gone through our house file pretty carefully and figured out whish customers make sense to mail to in this strategy overall, but particularly in this kind of environment.

One other things we have showed very strongly about is that we have a big opportunity ahead of us to do more versions of our catalogs targeted to specific segments that lower our cost of reach pretty significantly and when we get that segmentation in place, it will free up marketing dollars for us to go and find new customers and attract them to the brand. So, the segmentation strategy that we are on is really something we are going to be on today in the next couple years. What is encouraging about to that is, the first pass out of the gate has some pretty good results.

Obviously, we need catalog circulation by more than 20%. You got to hold your breath a little bit and hope that you have though about this the right way and that that analytical models are good and all of that and we came there a pretty good validation that we are on the right path.

Operator

Your next question comes from Mike Osborne - DCM

Mike Osborne

So, as you go into Christmas season, how different is the historic from last year in terms of what merchandise you have in there? Does it do well during that season? What items are going to drive it for you?

Neil Fiske

So, I think a couple big points of difference this year to last year. One is our, we have said as part of our possession at being an active outdoor company. We want to re-strengthen and rebuild our outer wear business. So, hopefully you seen in the source now, we will continue to see over the course of the holiday season in our outerwear and we are looking to share a substantial increase in our outerwear business over the course of the holiday season.

Clearly, we are hoping for cold weather across the whole US and Canada too, by the way. But outerwear is a significantly expanded this year that is a big difference. The second is we have made a big push in making our gift able business have a bigger presents this year. Not really accelerates dramatically in December. So, if you go into our stores now, you will notice that are a lot of our gifts and gadgets have a new holiday packaging to them that I think is much more elevated and when it really turns in the high gifting season and high Christmas season, we are hoping that those gift able items will really take off lots and merchandise does on new added areas with four fixtures, I think that four presentation is stronger.

We have really tried to make sure that our core programs that we now work well every year have shown a significant product improvement year over year, for example in three other plan search were always bigger holiday. This year we have developed a new one called Allcorn12 and new pattern of certain, just sticking to the fundamentals of what we now work and trying to that better. We hope that we will get paid for this holiday season.

Analyst

Out there, I know, you realize about down has in outside, what is your in response to that.

Neil Fiske

It is good, we are in the time of the year where between, kind of mid of October and mid November, a lot of our outerwear does, of course it is depending on the where the weather is breaking and where it has not yet broken. But I think, for example, in Canada where clearly it is colder across the country much sooner, we have been very encouraged by the response we have gotten to DOWN winter outerwear overall.

It has been up significantly over last year. We have not yet seen in the US a clear break in the weather pattern where most regions are cold and into the winter season. We were staying in tune for that. But at least the early indicator out of Canada is a good one.

Analyst

And then, due to falls, you performed well in the SG&A line and I know there has been an ongoing effort to reduce those cost. How many more quarters of significant improvement on SG&A or we are going to say and then secondly, the highlight of the outsourcing efforts early in the call, when will we start seeing begin feed of significant financial benefits from those resourcing efforts?

Neil Fiske

Okay, so, maybe Marv, you can comment on what additional SG&A can come out at fourth quarter. I will tell you also, kind of where our thinking is about SG&A go into next year.

Marvin Toland

All right, so, last time we were on the earnings call, we talked about splitting the remainder of the savings approximately $20 million between the third and fourth quarters and as you noted, we did better than the other of the third quarter. So, we still believe our outlook at 25 to 30 we can meet this year, given our 25.7 so far, but we think that is right range, so, we will go fill in most likely the remainder of the outlook in the fourth quarter. I am not committing to be [impersized] but so much to the fourth quarter depends on volume related expenses and that makes expenses for the fourth quarter difficult, but we do reaffirm that the 25 to 30.

Neil Fiske

I think the other thing I have said might two things. One, clearly given the state of the economy, we are going back and look in again at what is kind of a next round of SG&A productions we can drive into the business that work is on the way and as we did last year, we will get that homework done in the fourth quarter of this year so that we will be prepared and act changes in the beginning of 2009 that benefit the business for the majority of the year. And we have not yet figured out exactly how much is there in the next pass of this. But we know that we have to attack it progressively and I think hopefully, as you have seen over the course of the year, we are not only on tract, but I think ahead of the guidance that we have given on cost reductions. With regards to sourcing, I think it is really important just to understand the nature of the changes and we need to make in our sourcing days in order to understand the timing impact of them and well, I would think that there are a couple of points of margin extension over the long term from a better sourcing strategy and sourcing organization. What we have done on, when Ronn we got here is, we are not necessarily in the right geography, we are not necessarily in the right factories to produce the garments that we want to be going after and we have to shift our basic supply pretty dramatically. When we have shipped our basis supply, it takes a while for us to get new factories up and running, tested against our quality standards or color standards. Frankly, it has taken us longer to rebalance our basic supply than I would have thought a year ago. Mostly, it is because I think we are opt that perspective that Ronn has brought to us has been more dramatic in the way that we need to shift our business and we may have understood a year ago. The great examples of this were, for example, if you put produce a fleece in Asia versus the same Fleece in Latin America, you can get that Fleece produce Duty-free in Latin America and save up 36% Duty on that Fleece. Of course, we are producing it in Asia. We are not benefiting from the Duty-free factories that are setup. So, we need to build the base of supply in Latin America to take advantage of these more favorable duty arrangements.

We are in the process of rebalancing geographies, vendors, relationships. I think that by the second half of next year, we should start to see margin expansion as a result of that but I think that could be the bigger drivers of the business. So, there is still going to be the degree to which we elevate the product and head it out of the part with the consumer.

Is that an answers your question?

Mike Osborne

Sure does.

Operator

(Operator Instruction) Your next question comes from Robwell

Robwell

Just question about the third quarter, would say the revenues were attracting year over year ahead of 2007 up until the last half of September and that sort of slow things down? Or could you give us some sort of metric on that?

Neil Fiske

I think it is fair to say that our revenue slowdown on the second half of September, alonfg with the current pattern of mall traffic that I described earlier. When that crisis first broke, there was clear discernable reaction in the retail market across. I am quite confident most retailers where consumers are just pausing. I think they took it all in. I think there is a lot of concern and anxiety. Clear, for our third quarter, we were pulled down towards the end of the quarter in September by that trend. Other than giving the general pattern, we do not really break out our quarters specifically into months or segments of it.

Robwell

I was just hoping if you could give some color on you Loan Covenants? I know, it is kind of ongoing topic of conversation. Could you just spell out, sort of what the Loan Covenants are and then kind of where you guys are at? Just kind of put some into that? I think the major ones.

Neil Fiske

I will have Marvin to describe the Loan Covenants in the fourth quarter. Again, I think our statement that based on what we know today, we expect to meet our Loan Covenant. As based on where we have been year to date, also recognizing that the vast majority of the holiday season is still ahead of us and has clearly some variability around it. But, let me have Marvin to describe the covenants in the fourth quarter period.

Marvin Toland

Should this really two major covenants out there for this business and in recent quarters, one is the fixed charge ratio, which has never been the confining covenant in the last five quarter. Another one that people and certainly us, tend to look at closer is our leverage covenant. The average amount of our revolving debt over the last 12 months and the period ending month of our term while that covenant excludes the convertible debt, that ratio requirement for the end of Q4, the only measurement in Q4, is a five times leverage ratio.

Robwell

One more thing, it is the average amount of revolver debt versus –

Marvin Toland

The [LTM] average and the revolver debt?

Robwell

Yes.

Marvin Toland

And the ending amount of the term world.

Operator

Your next question comes from Minnie [39:03] – advisory group.

Minnie

First is on the current trend. I know, you said obviously softness into September continued in the October. I am just wondering as you plan the business, are you extrapolating from those trends? I think right now, kind of $64,000 question is, you have given the market slowdown we saw on October how the rest of the year plays out. I am just wondering how you are thinking about it? How you are planning the business?

Neil Fiske

One, we are not extrapolating from our quarter to date. I think there are couple important reasons for that. First, our holiday of course, that really goes in next week. Starts on the Sunday, should be finished by Wednesday, and we will be set for holiday. We are not yet in a holiday set, so it is kind of hard to extrapolate. That is one, for second, for us at least, October is always the month that has a fair amount of fluctuation in it for a period of four weeks or so when the weather is really starting to change across the country. We saw lives for example 20 point differences in terms across our regions based on where the weather had turned and where it had not.

Not just a fluctuation we know is in the business, it is sort of occupational hazard for being in active outdoor company. But in some point, it eventually turns cold and it just a question when and when does that part of the business truly kick in.

I think that for those reasons, we would not extrapolate anything from quarter to other than we know it is going to be tough. We know that there is clearly different consumer mindset, there is a consumer anxiety. We know that he/she is being more picky when they come into the store and we know that there is can be pressure on our top line and there is going to be pressures on our margins but not naïve about that normally we insulated from it, but we are not in the position really to project how is that going to play out. The last thing that I would say is, for us anyway when you look ahead at the quarter. This quarter, last year was really the first quarter since I came to EddieBauer that we could affect the execution of the merchandise in store. Clearly, I did never change to impact the product that was on the store. But beginning in the fourth quarter of last year, we have a pretty big impact on the way we merchandise the store. The theme we ran, which has significant improvement in our catalogue, it created of an execution.

We have a pretty good fourth quarter last year compared of which speak in, I think we had 8.6 Comp at retail. Our outlet business was down about 1.9% but at least that retail we got paid for the changes that we made on execution. So in a sense, this is really the first quarter that we are computing that execution and merchandising strategies that we put in place last year. So I think it is going to be a little bit harder for us to drive a high Comp from that the same point as well.

Clearly, the bigger issue is just what is the consumer going to do? How does quarter play out. And when those Christmas come, it will come, it is just a question of when.

Analyst

Okay. Great, and then to DOWN inventory, another great reduction this quarter, where are you in the overall goal there and in particularly when you think about some of the older merchandise that you guys have been trying to get rid off?

Neil Fiske

Really, two parts of that will go with the older merchandise first. We had said in the earlier calls that we would get older merchandise before the end of the year and we are honor ahead of that guide past to complete getting into that older merchandise. Say, real Bauer merchandise is built up in the early 2000. So we feel comfortable about that.

In terms of our absolute inventory levels, the slowdown at the end of September certainly did the impact inventories versus where we wish they would be. We will see how consumer settlement goes in terms of fourth quarter inventories.

Minnie

Okay. Great, and then just lastly, we obviously get a lot of negative data today. This is one on the women’s apparel business and I am just wondering how you are thinking about the women’s apparel in the stores and online, this is you think about for that from the strategic perspective?

Neil Fiske

For me, I think it is hard to drive. This current drive distinction between the women’s business and the men’s business, I have seen data that says, the men’s business is equally as challenge across some of our competitors that are women only competitors. This proportionally EddieBauer overtime has become a women’s business to the point of about 60% women and 40% men. But again, it is really hard to read at this point how she is going to play out the rest of the quarter. I think if there is any kind of additional insight that I would give you into the buying behavior is what she seems to be responding to all the things that are new novel, fashion, things that have some emotion to him. The basics of the business in this economy are down trending usually did and usually the first thing that people get back on.

So, that is a sort of good news, bad news thing. We can take our basic inventory, it could starts the back up with some re flow of those orders in the next year. Our key thing is really keep our seasonal merchandise moving and minimize our market down exposure.

Operator

Ladies and gentlemen it seems we have no further question. Mr. Fiske I hand the conference back to you for any closing remarks

Neil Fiske

I appreciate everybody’s time today, and get out and get shopping.

Operator

And again, that would conclude conference. I would like to thank you all for joining us and wish you all a great afternoon.

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