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The Men's Wearhouse (NYSE:MW)

Q3 2012 Earnings Call

December 06, 2012 9:00 am ET

Executives

Ken Dennard - Founder and Managing Partner

George A. Zimmer - Co-Founder and Executive Chairman

Diana M. Wilson - Interim Chief Financial Officer, Executive Vice President and Treasurer

Douglas S. Ewert - Chief Executive Officer, President and Director

Analysts

Brian J. Tunick - JP Morgan Chase & Co, Research Division

Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division

Janet Kloppenburg

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Jerry Gray

Bruce M. Zessar - Advisory Research Holdings, Inc.

Valerie Brown

Betty Y. Chen - Wedbush Securities Inc., Research Division

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to The Men's Wearhouse Third Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, December 6, 2012. I would now like to turn the conference over to Ken Dennard of DRG&L. Please go ahead, sir.

Ken Dennard

Thanks, Daniel, and good morning, everyone. We appreciate you joining us for The Men's Wearhouse conference call to review 2012 third quarter results and the company's outlook for the fourth quarter. We'd also like to welcome our Internet participants listening to the call on the webcast. Before I turn the call over to management, the normal housekeeping details to run through, for those of you who did not receive your e-mail of the earnings release yesterday afternoon from me or would like to be added to that list, you can contact our offices, and contact information is in the press release. Also, there'll be a replay of today's call available via webcast on the company's website, which is menswearhouse.com, in the Investor Relations section. You know there'll always be a recorded replay for a week available, and the information for dial-up on that is in yesterday's release.

Please note that information reported on this call speaks only as of today, December 6, 2012 and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening. In addition, comments made by management of Men's Wearhouse today during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of management of Men's Wearhouse. However, various risks, uncertainties and contingencies could cause actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to read the company's annual report on Form 10-K, its direct -- its quarterly reports on Form 10-Q and current reports on 8-K to understand those risks, uncertainties and contingencies. Now with that behind me, I'd like to turn the call over to Men's Wearhouse's founder and Executive Chairman, George Zimmer. George?

George A. Zimmer

Thank you, Ken, and good morning. Men's Wearhouse and I are about to embark on our 40th year in business. The growth of our business and our recognition as a Fortune 100 Best Company to Work For has been gratifying beyond our wildest expectations. Despite the fact that we're lowering our fourth quarter and annual guidance, I'm particularly proud of how strong our business has remained this year in the face of the external obstacles that most retailers are facing. Doug and his team continue to impress me and I'm glad to continue to play my role in support. Predicting business from quarter to quarter has become precarious. Since we acquired After Hours, we have never made money in the fourth quarter due to the cyclical nature of the tuxedo rental business. We had hoped this year would be different. But as you will hear from Doug, based on our decreased traffic levels in November, it would be foolish to predict only positive results. But as our guidance indicates, we still have some hope. Before turning the call over to Diana Wilson and Doug, I'd like to wish everyone a happy holiday season, and I especially want to thank our fabulous employees that have contributed to not only 40 years of growth but growth again this year in the face of these challenging times and on top of an amazing year in 2011. Thank you. Diana?

Diana M. Wilson

Thanks, George, and good morning, everyone. In our press release issued yesterday evening, we reported our results for the third quarter and issued our revised guidance for the 2012 fourth quarter and full fiscal year. We also filed our third quarter Form 10-Q earlier this morning. As a result, I will limit my comments regarding the numbers, and we'll address any questions you have along with Doug, following his comments. Please note that the comparisons we discussed today will be to prior year adjusted amounts. The 20% increase in our third quarter earnings came mainly from our retail segment, which contributed incremental sales of $40.2 million, an increase of 7.7% and incremental gross margin of $21.6 million, an increase of 8.6%.

Comparable store sales increased 9.5% at Men's Wearhouse and 3% at Moores, as an increased promotional cadence at each of the brands drove increased units sold per transaction. Both brands also delivered increased tuxedo rental revenues, which had a third quarter comp sales increase of 10.9% in the U.S.

At K&G, we had a decrease of 4.2% in comparable sales. We believe that the spending power of our customers for this brand is constrained by our low growth economy, which has in turn, diminished the effectiveness of our promotional and advertising efforts. It should be noted however, that K&G is expected to make a positive contribution to our operating profit again this year.

In our Corporate Apparel segment, third quarter sales increased by $6.1 million or 10.1% and gross margin increased by 5.3%, as customers rolled out their planned uniform programs for the quarter. On a consolidated basis, total sales increased 7.9% over last year's third quarter, while total gross margin was up $22.5 million or 8.4%, and our total gross margin rate was up 20 basis points. A decrease of 109 basis points in our retail clothing product margin rate was the result mainly of our increased promotional cadence, but the decrease was more than offset by better margin rates for tuxedo rental and alterations and other services. We also saw more leverage of our occupancy cost than in the prior-year third quarter.

In the Corporate Apparel segment, gross margin dollars increased 5.3% over last year but the margin rate decreased by 127 basis points due to sales mix. Doug will provide more insights into the merchandising, marketing and other factors impacting these results in his comments.

I will now briefly review our guidance. But again, refer you to the press release we issued last evening for complete details regarding our fourth quarter and full year expectations. For the quarter, which will include the extra 53rd week in fiscal 2012, we now expect our results to range from a loss per share of $0.05 to diluted earnings per share of $0.01, compared to the prior year fourth quarter adjusted loss per share of $0.05. Diluted earnings per share for the extra week are estimated at $0.03. We're also reducing our annual guidance, consistent with our reduced fourth quarter outlook to a fully diluted earnings per share range of $2.57 to $2.63, up approximately 8% to 10% over last year's comparable adjusted $2.38 for diluted share.

Our expectations for comparable store sales and gross margin are set forth in our press release. Lower retail clothing product margin rates from promotional activity will be offset for the most part by higher tuxedo rental margins and increased occupancy leverage, and the Corporate Apparel segment gross margin will increase as a result of operational improvements. The SG&A increases result primarily from the 53rd week in fiscal 2012 and federal-related expenses.

On the balance sheet side, we expect inventories to increase over the prior year end but at a lesser percentage than sales and mainly as a result of increased Men's Wearhouse stores. Our capital expenditure's estimate for 2012 is now in a range of $125 million to $130 million, mainly because of additional new Men's Wearhouse stores to be opened this year as well as planned improvements for our recently acquired and expanded office facilities in Fremont, California. We are expecting to open approximately 34 Men's Wearhouse stores, 3 Moores stores and 1 K&G store in fiscal 2012. This concludes my remarks. So I would now like to turn the call over to our CEO, Doug Ewert. Doug?

Douglas S. Ewert

Thank you, Diana. Our third quarter results reflect the continued strong performance of our business with overall sales growing by 7.9% over the same quarter last year. I'll share our perspective on each of our business units before discussing the fourth quarter outlook.

Our retail segment grew by 7.7% over the previous year. Our flagship Men's Wearhouse stores, which represent the majority of our revenue, saw a double-digit sales increase in both retail product and tuxedo rental. The growth drivers include modern and slim fit suits, sport coats, pants, dress shirts and casual wear. Denim continues to be a strong category and is growing at a significant rate. Our continued focus on big and tall sizes, which represents a substantial portion of our business, also contributed to the sales growth. Our tuxedo rental business grew in total units rented as well as in average paid rental price, as our exclusive Vera Wang tuxedos gained in popularity. At the overall transaction level, we saw an increase in transactions as well as the units per transaction and average transaction value. In spite of the external conditions during the quarter, including an aggressive competitive environment, we are very pleased with the results of The Men's Wearhouse stores.

Sales grew in the mid single-digits at our Moores stores in Canada. Similar to Men's Wearhouse, the growth drivers included modern and slim fit products as well as tuxedo rental, which grew in total units as well as average paid rental, primarily due to the increasing popularity of Vera Wang. Retail transactions were slightly down, units per transaction and average transaction value increased. Sales at K&G were down $2.8 million, though margin dollars were roughly flat with the previous year. These results were below our expectations with most of the decrease coming from men's suits and outer wear. We experienced growth in modern and slim fit products as well as overall ladies' and children's apparel. Our inventory levels are in line and below last year. This customer continues to be extremely challenged by the current macroeconomic conditions and we believe our strategy of focusing on the bottom line instead of top line growth is working reasonably well and makes the most sense in the current environment. Our Corporate Apparel segment saw a double-digit sales increase during the third quarter. Growth was driven primarily by the timing of uniform program rollouts for both new and existing customers. Dimensions corporate program sales performed as expected while Alexandra's direct-to-consumer sales haven't materialized as we had hoped due to the economic challenges for small- and medium-sized enterprises in the U.K. Since the margins for small and midsize customers are generally higher than our larger program business, the change in mix has resulted in some margin erosion compared to our forecast. Our efforts to take cost out of the business are helping to produce the overall improvement in profitability we expect on a full year basis. Long-term, we believe we own the market leaders in these categories and we fully expect to continue to benefit from further industry consolidation. In conclusion, we were able to manage a more challenging promotional landscape during the third quarter than expected, and still grew our comparable earnings per share 20% over last year's third quarter. In the fourth quarter, like other retailers, we experienced notable business interruption as Hurricane Sandy impacted 181 stores throughout the Northeast. All but one seriously damaged store opened within a few days. Additionally, and likely even more significantly, we believe the distraction due to the national election as well as overall economic concerns heightened by the so-called fiscal cliff and the uncertainty regarding it, contributed to lower traffic and the negative comp store results we saw in November.

Over our 40-year history, we have seen men pull back on apparel purchases when faced with economic uncertainty. It appears that others in our category are also experiencing a slowdown. We are making the appropriate adjustments to our pricing and promotional posture and inventory during the balance of the quarter. However, given our belief that these outside factors are short-term, we do not think an aggressive lowering of our margins or dramatic increase in advertising is prudent. We are a little over 5 weeks into the fourth quarter, and it does not appear likely that we will make up all of the lost revenue relative to our internal forecast from November. Given the limited visibility and external factors, we believe a cautious outlook is appropriate. Accordingly, we are widening the range and lowering our guidance for the fourth quarter. However, we believe our overall business is strong and our strategies are appropriate as evidenced by our results during the first 3 quarters of this year. In spite of the negative outside influences that we view as temporary, we expect to end fiscal 2012 with a high single-digit growth rate and 8% to 10% diluted earnings per share growth over 2011. I will now turn the call over to the operator for your questions.

Ken Dennard

Daniel?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Brian Tunick.

Brian J. Tunick - JP Morgan Chase & Co, Research Division

JPMorgan. I guess first question, Doug and George, I guess what do you think changes as we move into next year? I don't think your main competitor really probably changes their promotional environment. I know you guys are upping your marketing spend, the BOGO free seems to be more of a prevalent marketing program for you guys. So curious how you think, besides the election and the storm, maybe what happens in the category differently as we move into 2013 and maybe what we've seen in the last 6 months? And then maybe just Diana could comment on some occupancy references that she made and why you guys got more occupancy leverage this year over last year.

Douglas S. Ewert

Thanks, Brian. Well, we feel that our customer is faced with then an unusual economic uncertainty situation with all of the commentary around, and concern around, the so-called fiscal cliff. So we have a cautious outlook until that situation resolves one way or another, and we believe that once that occurs, that our business should resume its normal cadence.

George A. Zimmer

My comments, Brian, would be that our first 3 quarters were quite strong and we do believe that what has happened in the last 30 days is an anomaly. So I think that the bigger change was what happened 1 month ago, and I'm looking for a return to 2012 business conditions early next year.

Diana M. Wilson

Brian, with respect to your occupancy leverage question. For the quarter, we were in line with our expectations on occupancy. And we continue to believe that we will have a very controlled occupancy cost relative to the sales level that we're enjoying, and we'll keep the occupancy cost in line.

Brian J. Tunick - JP Morgan Chase & Co, Research Division

How many MW Tux rental stores are there still to be closed next year? And what kind of benefits on occupancy could we still get from that?

Douglas S. Ewert

We're going to end this year with roughly 290 tuxedo stores left in the network. We think that we have an opportunity to continue to rationalize that number down. It'll probably settle somewhere in the neighborhood of 200 to 250. But we evaluate these on an individual store basis as each lease comes up for renewal. And so we don't have a hard target in mind, but that's what our current expectation is.

Operator

Our next question is from the line of Richard Jaffe.

Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division

It's Richard Jaffe at Stifel, Nicolaus. I guess a follow-on about some of the store closings and store openings. I know you've been experimenting with the opening of outlet stores and have had some -- a favorable outlook for that business long-term, 100 to 150 locations. Wondering, 1 quarter later, what your update on that opportunity is? And if you could spend a minute on Dimensions and Alexandra afterwards.

Douglas S. Ewert

Yes, we opened 4 outlet stores in the U.S. within just the last few weeks. It's too early to really comment on any significant numbers out of that business but we are certainly encouraged by what we see. We anticipate opening a few more next year and evaluate this opportunity, but it looks like we're going to have a strong business, and once we get through the initial learning stages and the inevitable adjustments, we think that we're going to have a nice opportunity to open a new chain of stores.

Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division

And the product in that -- in those stores is unique to those stores, or is it simply Men's Wearhouse product at regular price?

Douglas S. Ewert

It's product that has been purchased or manufactured for the outlet business. There will be -- there's a little bit of a downflow out of Men's Wearhouse in there, and we'll evaluate that over time. But the current assortments in there are made for and bought for.

Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division

And the Dimensions integration and potential going forward?

Douglas S. Ewert

Well, we think we're well positioned to take advantage of the weakening economy and the pressure that it's putting on our smaller competitors. We're continuing to bid for and win new program businesses. Our current challenge in that business is in the Alexandra portion, which is more of a business-to-consumer and business-to-small-business operation, where the margins are higher, but the economic situation in the U.K. is particularly pressuring those smaller businesses, and so there's some disruption there and we're experiencing a margin mix, but the mix changed. But the overall health of the business is good and our outlook is positive.

Diana M. Wilson

And I would add that by completing the integration of the operations earlier this year with respect to the distribution and back-office, there'll be significant cost savings enjoyed this year.

George A. Zimmer

I'd like to comment on the number of stores. Yes, we are closing tuxedo rental stores. But since we put retail product in all of these stores originally, we have been able to identify many of these tuxedo rental stores that are being converted and have been converted into small Men's Wearhouse stores. So the total number of distribution points will remain approximately 1,000, probably more like 800 Men's Wearhouse stores and 200 tuxedo rental stores.

Operator

Our next question is from the line of Betty Chen.

Ken Dennard

Let's move on.

Operator

Next question is from the line of Janet Kloppenburg.

Janet Kloppenburg

JJK Research. I wondered if you could talk a little bit about strategies that you might put into effect to help turn K&G in light of how tough the macro environment is for that target market. And I wondered also as we look at the corporate uniform business in Europe, whether or not we should be thinking that given the macro trends there that, that business could perhaps have another tough year in fiscal '13 or if you're more optimistic that, that business could turn.

Douglas S. Ewert

Thank you, Janet. Well, there are some bright spots within the K&G business. Our ladies' business is strong, our children's business is strong, and many categories within Men's are strong. Where we're suffering is in the suit category. The most effective promotion that we've used at K&G is a Buy 1 Get 2 Free suit promotion. We've now lapped our second year in that. And so we are -- we're working on alternative handles that can drive the appropriate amount of traffic for these stores, but while doing so, we are focused on the bottom line and trying to maintain the profitability as best we can. But this customer continues to face the strongest economic headwind of any segment of the population and it's hard to project further out at this moment. But that's really what the strategy is underway at K&G.

Ken Dennard

Corporate apparel.

George A. Zimmer

Uniforms and apparel.

Douglas S. Ewert

Yes, corporate apparel. We're not -- we haven't yet put pencil to paper yet on 2013, so we're really not prepared to talk about that next -- but we will at the next call.

Operator

Our next question is from the line of David Mann.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Yes, Johnson Rice. If I could follow up on Janet's question about K&G, it seems like every quarter we're talking about what kind of drag it's been on the business, I'm just curious if we're thinking about capital allocation? And the bigger picture, why not redirect management time and capital resources towards some of your higher return businesses that are performing better and do a more serious restructuring or even a divestiture of this business?

Douglas S. Ewert

Well, David, I would tell you that we're constantly evaluating our businesses and our -- the allocation of our management and capital resources. And that evaluation is ongoing and we're not prepared to really announce anything further out than that.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Okay. Second question was on sort of clothing margin. I think you talked about product cost in the marketplace seeming to peak in the early part of this year, it sounds like they're starting to flow through your P&L. When -- or which quarter should we expect that product cost or lower product cost will start showing up in the sell-through and in the P&L.

Douglas S. Ewert

Well, we're seeing a slight moderation in product costs in the back half of this year. We see it continuing in next year, but that's just the initial markup. Markdowns is really affecting obviously, affecting the margin. And that is being constantly evaluated as we react to the current conditions. But we see input costs moderating throughout next year and probably even into the following year, we think the peak is behind us.

George A. Zimmer

And David, concerning K&G and the same is true in our uniform business, we're certainly aware that they pulled down our ratios but they're both profitable. So it's a different type of drag on our business than if they were losing money.

Operator

Our next question is from the line of John Kernan.

Jerry Gray

This is Jerry, on for John, Cowen & Company.

I was wondering if you could let us know how variable your SG&A plans are headed into next year if you're not able to return to the earlier 2012 business conditions.

Diana M. Wilson

Well, obviously, we get a sizable amount of leverage off of any increases in sales. Our SG&A plans are quite variable with respect to that level of sales because we're on a commission-based in our stores that is a significant part of those costs, as well as your credit card fees and all things of that nature are moderate significantly with the sales. So we believe we are able to keep our issues and expenses in line as our sales do flex up or down.

Jerry Gray

Okay. Great. Now I was wondering if you could also maybe give us some color on penetration of your slimmer fitting clothing?

Douglas S. Ewert

Well, we break our clothing up into 3 segments: we have classic, we have modern and we have slim. Modern and slim continue to grow, with slim growing the most aggressively. It's in the neighborhood of 20% to 30% of the business and growing at a rapid rate.

Operator

[Operator Instructions] Next question is from the line of Bruce Zessar.

Bruce M. Zessar - Advisory Research Holdings, Inc.

This is a Bruce Zessar from Advisory Research. I had a couple of questions. Looking at your guidance for the fourth quarter, the incremental increase in SG&A in your prior press release from September was that, it would increase 4.7% to 5.45%. And in the current release, it says it's going to go up 5.9% to 6.1%. And I'm just wondering what the difference is? Why you expect a few million dollars more in SG&A in the fourth quarter than you did in September.

Diana M. Wilson

Well, I think that's just a function of the percentage of sales, where relatively speaking in terms of the actual dollars, there will be some increase in advertising and -- against the previous forecast. That's your question is versus the previous forecast, correct?

Bruce M. Zessar - Advisory Research Holdings, Inc.

Well, yes, the -- I mean, the way you list it in the statement is not as a percentage of sales, it's just how much is SG&A going to increase versus the fourth quarter of the prior fiscal year.

Diana M. Wilson

Yes, yes. Relative to our previous guidance, the change there is due primarily to increases in advertising.

Bruce M. Zessar - Advisory Research Holdings, Inc.

Okay. And then I know you probably can't give any guidance yet on a range of CapEx for 2013. But directionally, do you expect 2013 CapEx to be lower than the current year?

Diana M. Wilson

We really aren't commenting on 2013 right now. We haven't developed our plans and don't think it's appropriate to dispel that.

Operator

Our next question is from the line of Valerie Brown.

Valerie Brown

It's Valerie Brown, calling in from AllianceBernstein. And I have 2 questions. One relates to the slowdown in sales that you saw in November. And I'm just curious to better understand whether there were some pull forward of demand based on the promotional cadence in the third quarter that may have shifted some sales between the 2 periods. And then secondarily, I wanted to return to the issue of the uses of cash and how you deploy cash given that -- the cash on your balance sheet and how you think about returning that to shareholders.

Douglas S. Ewert

Okay, Valerie. There's a lot of noise in November. We don't believe that we suffered any significant pull forward in the volume and because Hurricane Sandy hit right at the beginning of the quarter, followed by the election and then all of the distraction with the fiscal cliff, there's a lot of noise in November, but we don't believe that we pulled forward. And then as far as capital -- cash allocation, we have about $40 million left on our buyback authorization. And so we evaluate the use of our cash in multiple ways and including dividend and investing in the business.

George A. Zimmer

And I think that it's fair to make this observation that we -- and we mentioned it earlier -- we have bought and are redoing a building here in Fremont, which is in our CapEx this year for over $10 million.

Operator

Our next question is from the line of Betty Chen.

Betty Y. Chen - Wedbush Securities Inc., Research Division

Betty Chen with Wedbush Securities. I was wondering, Doug, if you can talk a little bit about the big and tall business. I know that had been a focus area and had been growing very nicely with higher retail product margins than some of the regular-sized merchandise. Maybe if you can give us an update in -- on how that business trended in the third quarter. And then secondarily, in regard to the online business, I think that had also been a growth opportunity. Could you give us a little bit color on how that channel grew in the third quarter, and if there are any initiatives to continue to drive the growth in that area.

Douglas S. Ewert

Thanks, Betty. Yes, big and tall is an important part of our business. It's roughly 25% of our overall retail sales and grew nicely in the mid to high single-digits during the third quarter. And it is a more margin-rich category of our business, generating about 300 incremental basis points than regular-sized product. As far as our online business, we don't break it out separately, but I would tell you that our e-Commerce business continues to grow. We have a new website in development now that launches next year that we think is going to deliver a great customer experience and really move us forward as a multichannel retailer. And I would also add that we are piloting some new mobile tools in our stores that we're pretty excited about that'll help with the service and the productivity in our stores.

Betty Y. Chen - Wedbush Securities Inc., Research Division

A follow-up with that if I could, Doug. Do you see the online customer purchase will behave any differently than the retail store customer?

Douglas S. Ewert

Well, we currently see a lower average sales check online, and the -- they tend to buy the more opening priced products from us online than they do in store. And we sell a disproportion amount of clearance online. But the average check is considerably higher in store that it is online.

Operator

Our next question is from the line of David Mann.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Yes, Johnson Rice again. Curious about the CEO search. Can you just comment about the progress you think you've been -- you're making there, and should we expect an announcement perhaps during the next quarter?

Douglas S. Ewert

Well, David, I'm -- it's news to me that we're in a search of a CEO.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

I mean -- I'm sorry, CFO, excuse me, good point there.

Douglas S. Ewert

I don't have an -- the CFO search is currently underway, I don't have an update for you at this time, but I look forward to being able to update you soon.

Operator

Our next question is from the line of Bruce Zessar.

Bruce M. Zessar - Advisory Research Holdings, Inc.

Yes, Advisory Research again. On the Corporate Apparel segment, I just wanted to get a sense of where the first 9 months of the year have been relative to what you had expected when you guys acquired them in August of 2010.

Diana M. Wilson

Relative to the performance of the Corporate Apparel segment this year, the performance has been generally in line with our expectations. The macroeconomic situation in the United Kingdom has somewhat depressed the demand in the small- and medium-sized business sector and has resulted in us seeing less sales from our Alexandra piece than we had originally contemplated. And that sales -- that change in sales mix also then has somewhat of a negative impact on our margin, but the performance of the business this year relative to the managed accounts has been in line with our expectations. And it's frequently the case when we're in an economically challenged environment. Our businesses tend to fare well in those circumstances and come out stronger as some of the competition falls by the wayside. So we continue to believe that we're very well positioned as the leader in the U.K. market, and that once the economic situation improves, that the demand in the small and medium-sized business sector will return. And again, we will be in the leadership role.

Bruce M. Zessar - Advisory Research Holdings, Inc.

Right. And then one other question on CapEx. Out of the $125 million to $130 million you expect to spend this year, what amount of that would you call maintenance CapEx and what amount is growth?

Diana M. Wilson

I would say that the way we segment our CapEx between new stores and store relocations and store expansions, et cetera, that well over 1/2 of our CapEx budget is in that arena.

Bruce M. Zessar - Advisory Research Holdings, Inc.

In the growth arena or in the maintenance arena?

Diana M. Wilson

Well, in the growth arena.

Bruce M. Zessar - Advisory Research Holdings, Inc.

Okay. I mean, can you put any better number around that? I mean, you guys were running with a CapEx budget closer to $50 million a couple of years ago, I'm just trying to get a sense of what --

Diana M. Wilson

Well, the other part of that CapEx budget this year is every year we have a significant part dedicated to our technology fees. But this year, we've also got the Fremont facilities that are making a significant difference in that number. That's about -- $17 million to $18 million of the CapEx budget's in there for 2012.

Operator

Thank you. There are no further questions at this time. I would like to turn the call back to management for closing remarks.

Douglas S. Ewert

Well, we thank you very much for your interest in our company. We look forward to talking to you in our next quarterly release and we wish everybody a very happy holidays.

Operator

And ladies and gentlemen, that does conclude our conference for today. If you'd like to listen to a replay of today's conference, please dial (303) 590-3030, followed by the access code of 4574470 and the pound sign. Thanks you for your participation and you may now disconnect.

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