The Men's Wearhouse Q3 2008 Earnings Call Transcript

| About: Tailored Brands, (TLRD)

The Men's Wearhouse, Inc. (MW) Q3 2008 Earnings Call November 19, 2008 5:00 PM ET

Executives

Ken Dennard - DRG&E

Neill P. Davis - Chief Financial Officer, Principal Financial Officer, Executive Vice President, Treasurer

George A. Zimmer - Chairman of the Board, Chief Executive Officer

Analysts

Richard Jaffe - Stifel Nicolaus

Betty Chen - Wedbush Morgan

Janet Kloppenburg - JJK Research

Brian Tunick - J.P. Morgan

David Mann - Johnson Rice

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to The Men's Wearhouse third quarter 2008 earnings conference call. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Ken Dennard with DRG&E. Please go ahead, sir.

Ken Dennard - DRG&E

Thanks, Vince and good afternoon, everyone and welcome to The Men's Wearhouse third quarter 2008 earnings conference call. As you know, management will be making a number of forward-looking statements and all such statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the company, including the risks specified in the most recently filed forms 10-Q and form 10-K. Today’s call is copyrighted material to The Men's Wearhouse and cannot be rebroadcast without our express written consent.

And now I would like to turn the call over to Mr. Neill Davis, Executive Vice President and Chief Financial Officer of The Men's Wearhouse. Neill.

Neill P. Davis

Thanks, Ken and good afternoon, everyone. We have a lot to cover today. I will first review our third quarter results by operating division, followed by an update of the company’s liquidity and balance sheet condition, including an overview of our strategies concerning capital allocation and deployment. I will conclude with an update to our fourth quarter and fiscal 2008 outlook and then turn the call to George Zimmer before we open the call to your questions.

Earlier today we reported adjusted diluted earnings per share for the quarter of $0.30, which exceeds our $0.24 to $0.28 mid-quarter updated guidance range and compares to the prior year quarter of $0.69. Total company sales performance in the third quarter of $459.7 million declined 10.2% from last year’s third quarter of $512.1 million. Total clothing sales of $334.4 million declined 12.9% from last year’s third quarter of $384 million, while tuxedo rental revenues of $96.5 million was slightly higher than last year’s third quarter revenues of $96.1 million.

Our initial expectations going into the quarter call for a comparable store sales decline in the high-single-digit range for our core Men's Wearhouse stores, which includes the MW Tux stores. However, once the economic downturn was magnified by the credit crisis, it was clear that our initial expectations were no longer realistic and we reduced our guidance in the mid-quarter update.

Our actual results for the quarter then were of a comparable store sales decline of 12.1%, due primarily to lower traffic levels. These declines in comparable store sales related solely to our retail apparel business. The silver lining to the quarter’s results is reflected in our better-than-expected tuxedo rental revenues. As a reminder, we had planned for a low-single-digit decrease in this business.

Comparable store sales expectations for K&G were initially targeted at a mid-single-digit decrease. Actual results were a decline of 13%, due mostly to reduced store traffic. While we continue to be challenged at our men’s category, we are seeing positive trending in several of our ladies categories.

In Canada, comparable store sales results declined 4.9% versus an initial expectation of a low-single-digit decrease.

Gross margin before occupancy costs decreased 80 basis points from 60.8% to 60%. Decreases in our clothing product margins as a percentage of related sales of 154 basis points were driven by deleverage or procurement and distribution costs and a decrease in merchandise margins principally at our K&G stores as we continue the process of modifying our assortment strategies and in doing so are realizing higher markdown rates. These decreases were offset by a higher percentage of total sales coming from our higher margin tuxedo rental business. Actual gross margin results before occupancy were higher than our initial expectations as a percentage of sales contributing to our better-than-expected earnings per share results for the quarter.

We ended the quarter with retail apparel inventory below last year by 6.8% in total, down 8.7% on a per store basis and down 9.8% on a per square foot basis.

Occupancy costs increased as a percentage of total net sales by 205 basis points, moving from 13.89% up to 15.94%, primarily due to the deleveraging effect of reduced comparable store sales. On a dollar basis, actual occupancy costs were favorable to our initial expectations, due primarily to lower utilities and repairs and maintenance.

Excluding $1.8 million in costs associated with the closing of the Golden Brand manufacturing facility in Canada, selling, general, and administrative expenses were down $4.2 million on a dollar basis compared to the prior year quarter. However, as a percentage of total net sales, SG&A adjusted for the closing costs increased 314 basis points from 35.4% to 38.54%, again primarily due to the deleveraging effect of reduced sales.

On a dollar basis, SG&A was favorable to our initial expectations due to lower variable costs resulting from the lower sales, store level cost control, lower general and administrative costs, and a foreign exchange gain on U.S. dollars held in Canada.

So to recap the third quarter results, our diluted earnings per share were better than our updated expectations, as well as that expected by consensus views on Wall Street. Our retail apparel business across all divisions continued to be negatively impacted by reduced traffic levels; however, that is not the case with our tuxedo rental business as we realized positive growth which represents the third consecutive quarter of sequentially improving trends. This is particularly meaningful as this part of our business is not dependent on job growth. In other words, a natural hedge to our cyclically dependent men’s suit business.

Our gross margins are holding up well, due in large part to effective inventory management and lastly, we have demonstrated an ability to adjust operating costs to reduce sales trends as reflected in our better-than-expected bottom line results.

Let me now turn your attention to our liquidity and balance sheet. At quarter end, our cash reserves and short-term investments were $101.8 million, and outstanding debt was $88.6 million. Maturity dates for our outstanding debt obligations are $38.6 million coming due in February 2011 and $50 million coming due in February 2012. We also have $150 million of committed borrowing capacity.

Our conservative philosophies over the years concerning capital allocation decisions has positioned us well for the challenges we are dealing with and those philosophies have not changed.

We have actually increased our annual capital expenditure plans for the current fiscal year, which relates to an increased allocation for technology enhancements for our distribution, Internet, and merchandising functions. The effect of that change will increase our initial annual guidance to a new range of $80 million to $85 million. We have preliminarily identified a capital expenditure plan for fiscal 2009 targeted to enhancements of existing assets -- specifically relocation and remodeled existing retail stores, and to infrastructure needs, specifically distribution and technology that represent follow-on spending from prior year projects that will further our ability to operate on an efficient and lower cost basis for the longer term.

We are comfortable that our market presence of approximately 1,300 retail locations is adequate and therefore we will not be adding to our portfolio next year. However, we are positioned to opportunistically make additions where they make sense and we are focused on reinforcing our core operations.

On that basis, we would expect a 50% reduction in capital spending from the levels we have estimated for fiscal 2008.

As I mentioned earlier, we have been able to in part to adjust to slower sales trends based on reducing expenses stemming from the variable cost components of our businesses. In addition, we have realized reduced costs from changes in our processes and flattening span of control of certain managerial positions, as well as the targeted capital investments we are making that will lead to reduced infrastructure costs. Over the next several months, we will finalize plans and strategies to achieve other savings and efficiencies targeted for the next two years.

Weighted average diluted outstanding shares of 52 million, or 3.3%, or 1.8 million share less than the third quarter of the prior year. We did not repurchase any shares in the quarter and therefore continue to have available approximately $44 million of remaining authorization.

That covers the review of the quarter. Let me now turn your attention to our forward earnings guidance. As we reported earlier this afternoon, we now expect our adjusted full year diluted earnings per share to be in the range of $1.04 to $1.22 and that our fourth quarter would be in the range of break-even earnings to a potential loss of $0.18 per share.

There are a number of dynamics that you should be aware of when considering these estimates. First, I have been with The Men's Wearhouse for 12 years now and this environment is one of the most unpredictable that I have experienced over that time frame. We like many in the retail industry experienced a much worse-than-expected sales performance in the third quarter that was heavily weighed down by the month of October. However, we are also unlike many in the retail industry -- specifically that concerns our promotional cadence. Our historical practice has been to promote twice a year, while otherwise largely remaining every day low price. However, these are unprecedented times and such times call for us to ensure that our customers and prospective customers clearly understand our value proposition.

To that end, we embarked on a strategy going into this year to become more aggressive. Beginning earlier this month, meaning November, we initiated our promotional strategies for the fall season with a buy one, get one free offer for select designer suit brands. We will continue to be aggressive throughout the balance of the year.

Initial results are extremely encouraging. However, the sustainability is not clear, particularly in this economic environment. It is on this basis that we are providing a much wider guidance range for the quarter than is our normal practice.

The second item I want to bring to your attention and highlight for you is the impact on our quarterly results stemming from our tuxedo rental business. As we have consistently communicated, the fourth and first quarters of the fiscal year are the seasonal low points for tuxedo rental revenues. However, the infrastructure supporting the rental business is primarily fixed. As a result, we experienced significant expense deleverage in the fourth quarter and to a lesser degree in the first quarter from the seasonal effects of the rental business.

The drag on our profitability is estimated to impact our fourth quarter diluted earnings per share by approximately $0.20. It is not possible to provide a comparable number for the prior year quarter, given the integration process of the after-hours formal wear acquisition.

Let me reiterate -- this negative drag to our results is purely a function of seasonality and while we have always had this dynamic impacting our results, they are much more evident now that we have more than doubled the rental business we do with the acquisition of the after-hours formal wear business last year.

The last thing that impacts the numbers concerns the foreign exchange rate translations. We have, particularly with the Canadian dollar, we have adjusted our forecast in Canada to reflect these effects of a weakening Canadian dollar. Our current outlook results in a 17.1% decrease in the exchange rate from the prior year fourth quarter. The impact of this year’s fourth quarter is approximately $0.03 diluted earnings per share.

Fourth quarter per share guidance reflects a comparable store sales decrease in the mid-single-digits to low-double-digit range for Men's Wearhouse, which includes MW Tux. While we are targeting a mid-teens increase in our tuxedo rental revenues for the quarter, you should be aware that this quarter’s tuxedo results are largely influenced by social events requiring formal dress and to a lesser degree, weddings. We believe that those social events are subject to greater pressure from the weakening macroeconomic environment.

Concerning K&G, we are expecting a high-single-digit to low-double-digit decrease for Moore’s -- I mean for K&G and for Moore’s, our Canadian business, a low-single-digit decrease.

Gross margins for the fourth quarter are expected to be below the prior year, particularly as we accelerate our promotional activity, as I mentioned earlier, which will lead to lower merchandise margins. We will continue to experience fixed cost deleverage from occupancy and procurement and distribution costs due to our expectation of continued negative comparable store sales results.

Selling, general and administrative expenses for the fourth quarter have been reduced from previous plans, resulting from a flow-through impact of lower sales, cost control initiatives, and the Canadian dollar impact. We had initially expected a flat year-over-year change in dollar terms and we now expect the dollar decrease to be in the low-single-digit range.

That concludes my prepared remarks for the third quarter and our earnings guidance and I would now like to turn the call over to George Zimmer, Chairman and CEO.

George A. Zimmer

Thanks, Neill. Since our last call, a lot has changed. We have witnessed a credit crunch that has led to temporary freezing of the capital markets, a stock market meltdown, a drop in worldwide oil prices, two major hurricanes in the Gulf of Mexico and finally, the election of a new President. One thing that has not changed is my confidence in our ability as a company to navigate through this economic downturn. My confidence is based on 35 years of experience and the fact that we have a dominant market share position in men’s daily clothing and the tuxedo rental business in both the United States and Canada.

One of the most proactive steps we have made in terms of increasing sales is that we are pricing more aggressively. The consumer shopping patterns have changed and clearly there is a real need to show a compelling value proposition. We have therefore reacted and planned our clothing purchases and margins accordingly and we are currently running a buy one, get one free campaign as Neill mentioned.

Additionally, we have proactively begun to reduce costs and plan for what many economists and retailers are saying will be a very difficult Christmas and all of 2009. Our cost reductions have been deliberate and managed in a very orderly way. We will not do anything that ultimately affects our reputation for providing superior customer service. We are also being cautious and strategic in improving capital investment.

Over the next two years, we will have significant free cash flow and liquidity and we will continue to build cash that will allow us the freedom to review opportunities that make the most sense for the long-term. As Neill suggested in his remarks, we can reduce our CapEx in ’09 by 50% to about $40 million, and in 2010 if necessary, reduce it again to $20 million. Over that two-year period, we would free up $100 million of cash in that.

We also believe that there will be further industry consolidation in our category, although nothing has happened heretofore. And of course we have the number one share position in the two major categories of suits and tux rentals and we have made major investments over many years to achieve these results so that ultimately when the market does turn, we believe our share should ultimately rise.

And last, we don’t have to use much capital to grow stores or to fund the costs that are embedded in this business model because we have been investing consistently over the decades.

In a recent interview in USA Today, I said that Men's Wearhouse's success is in part due to selling conventional clothing unconventionally. We think that our roughly 500 stores that were part of the after-hours acquisition are another opportunity to do just that. I mentioned on our last call that we are also focusing on a younger demographic, the millennials, the 70 million consumers who actually like shopping and are more interested in brands than are the baby boomers. I would encourage you to look for our latest commercials, as I believe you will see some subtle changes in our approach.

Young men wear t-shirts and jeans and that is what we are adding to 500 Men's Wearhouse stores and 500 MW Tux stores. Edgy tees and branded denim complemented with hoodies, sport coats, and some suit separates. To give you some insight without providing too much competitive information, we have initially reconfigured 17 MW Tux stores with little cost other than the new merchandise, and recently began testing a number of initiatives to further capitalize on the opportunities the millennials present. We see a significant opportunity to further develop our penetration with this younger customer group that would be additive to our core business. The most exciting aspect of this in our opinion is that we have an installed base of store fronts and an online presence, along with an [inaudible] structure from which any incremental sale to the 3 million yearly, mostly unduplicated young tux rental customers should have a leveraging effect on our capital returns.

We plan to take the knowledge from this test and have most MW Tux stores converted into this format without having to invest major build-out dollars by the end of 2009. Other retailers have the product but not the customers. We have the customers but not the product. That’s about to change.

Turning now to tuxedo rental, it now represents 17% of our total revenue. We believe the industry fundamentals in the rental business remain solid, as is clearly evident with the results we are continuing to achieve at our core Men's Wearhouse stores. There are issues, there have been issues -- the key to tuxedo rental is our relationship with David’s Bridal and that relationship has never been better. We invited all of David’s Bridal store managers to our Men's Wearhouse Christmas parties. We really believe that we have established a mutually beneficial relationship that will be beneficial for us next year.

Turning to K&G, new leadership has now begun implementing changes in product assortment and mix, as well as store redesigns in our efforts to once again capture the interest and dollar of K&G's high frequency visit customer. This is a multi-year process and we remain focused on managing to the levels of business that we expect at K&G, both in terms of capital outlays and operating costs.

At MW Cleaners, we continue to explore new partnership and leverage opportunities while concentrating on generating cash from this division. At Twin Hill, our direct-to-business corporate apparel division, we have experienced rapid growth from a small base. Some of our current and potential customers are merging or evaluating their uniform strategies. While we cannot say what the outcome of that process will be, we feel pretty good about the book of business on the horizon for 2009 and see continued double-digit growth.

As I mentioned in my opening remarks, a lot has happened since our last call and more events will unfold before our year-end call. While there clearly are many challenges ahead of us, we remain well-positioned financially to capitalize on opportunities, particularly with the brand awareness and dominant market share positions that our core businesses command. Tough times require innovative solutions. With 3 million tux rental customers in hand, we are fortunate that with little investment and risk, we are expanding our brand into casual sportswear, the largest piece of the apparel market, an efficient way in a down market to grow our business.

We’ll take your questions now. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from the line of Richard Jaffe with Stifel Nicolaus. Please go ahead.

Richard Jaffe - Stifel Nicolaus

Thanks very much. Great defense, guys, in a very challenging environment, no question about it. George, I was intrigued by your comments about the millennial initiative, you know, attracting and serving this younger customer. Obviously in picking out, picking up, and returning his tuxedo, you talked about a more casual and a more youthful assortment in -- I think you said all stores, 500 Men's Wearhouse stores and 500 After Hours stores. I was wondering what the time out of this implementation might be and if it might be quarter by quarter, a few stores and then more or should we look for this for Christmas? If you could give us some detail, that would be great.

George A. Zimmer

Sure. We’re -- you know, it takes quite a while to roll something out into 1,000 stores, so basically it’s beginning now and will go all of 2009 before it’s complete. And we are beginning with Men's Wearhouse stores before MW Tux stores, but we are testing various stores around the country so you might see something some place that was other than what I have said.

There are some products in our stores right now but there will be more in the Men's Wearhouse stores in the spring.

Richard Jaffe - Stifel Nicolaus

Okay, and so really we should look at the end of ’09 as a full implementation, this time next year?

George A. Zimmer

Yeah, I think to get a full year’s number, you will have to look at in 2010, that 2009 will be the growing year but I’m real excited. I’m actually wearing the product myself and I’m going to be 60 in two days. It makes me feel like I’m 20 again.

Richard Jaffe - Stifel Nicolaus

I would love a picture of that, George.

George A. Zimmer

I’ll send you one.

Richard Jaffe - Stifel Nicolaus

Thanks. Thanks a lot, guys. Good luck.

Operator

Your next question is from the line of Betty Chen with Wedbush Morgan.

Betty Chen - Wedbush Morgan

Thank you. Good afternoon, everyone. Just to follow-up on that earlier question, George, could you tell us a little bit about the product? Is it a combination of private label and branded merchandise, just like the tailor business? Or what is the procurement of the merchandise in the new format?

George A. Zimmer

Well, it’s mostly branded, Betty. It’s not 100% branded but it’s mostly branded. We are really focusing on designer jeans -- designer jeans, as I am sure everybody knows, represent in excess of $1 billion unto themselves. They are rapidly closing in on the size of the suit market in the United States. I don’t know that we should talk about the brands on the call but they are on the jeans in the stores.

We are also going to be carrying a line of t-shirts called Extreme Couture which is named after a fellow named Randy Couture who is the former world UFC heavyweight champion fighter. We are pretty excited about the way young people react to this stuff but you will still see [Prontolomo] private label mixed in with the branded stuff.

Operator

(Operator Instructions) Our next question is from the line of Janet Kloppenburg with JJK Research.

Janet Kloppenburg - JJK Research

You may have -- I was on a couple of different calls at once, so please forgive me if I am being, if I am asking a question that you have addressed but I think you said that the sale event that you recently launched has had a good initial response. Is that true, Neill?

Neill P. Davis

That’s correct.

Janet Kloppenburg - JJK Research

Okay, and I was just wondering in your guidance -- I know the guidance range is very wide but on the -- at the break-even level, have you assumed that this sale event helps comps meaningfully and helps to offset some of the margin deterioration? I mean, maybe you could give us an idea of how that plays into the numbers.

Neill P. Davis

No, you’re correct. To the degree that we are able to achieve the better end of the same-store sales guidance range obviously gets us to the better range of our earnings expectations. You know, clearly there will be margin compression is what I indicated at the conclusion of my comments but we are optimistic that the volume that is done can help mitigate and manage the margin compression to the degree that we are able to achieve the kind of potential results that I have outlined in the [range].

Operator

Thank you. Our next question is from the line of Brian Tunick with J.P. Morgan.

Brian Tunick - J.P. Morgan

I guess my two questions -- first one following up on Janet’s, so this current BOGO promotion that you are running, and if it’s successful, would you guys consider maybe changing your everyday low price strategy and maybe moving to one of your competitors that seem to be a lot more promotional to drive traffic, whatever it takes in this environment? That’s question number one.

And then question number two, Neill, about the SG&A opportunities you mentioned, if 2009 continues to see these down mid- to down high-single-digit comps, can we expect SG&A dollars to fall? And if you could be more specific about where the opportunities are on the SG&A side? Thank you.

George A. Zimmer

Let me take the first part -- as I think we mentioned, we hired a New York advertising agency by the name of DeVito/Verdi, and although it’s a new relationship, we are very excited about the relationship and one of the things that we both agree on is that we must resist at all costs the temptation to become another promotional story and therefore we need to be everyday low prices. We do have campaigns for next year in development that stick to that philosophy.

Neill, did you want to --

Neill P. Davis

Brian, as it relates to the SG&A dollars for 2009, yes, we do expect them to fall next year. Unfortunately, I’m not in a position to get into further detail as to the particular sources of SG&A as those plans are being formulated but suffice it to say that most areas and potentially with the exception of marketing and advertising, we are looking to moderate our costs down. So those details will be more forthcoming as we begin to communicate what our full plans for 2009 are.

Operator

Thank you. Our next question is from the line of David Mann with Johnson Rice.

David Mann - Johnson Rice

Thank you. Good afternoon, guys. My question is on your advanced tux bookings. We had heard some places in the channel that this environment, there might have been some deferral of tux bookings out there. I’m just curious if that is something that you are seeing in terms of some of the bookings into the spring season.

Neill P. Davis

The forward bookings and forward visibility for our rental reservations in the fourth quarter are much more limited and narrow than at other peak seasonal times that favor the wedding business. As I indicated in my prepared remarks, most of our business in the fourth quarter, certainly not all but most are based on social type of events and we do not get a lot of forward lead time and therefore being able to determine the cadence as it will develop for the quarter. They tend to be a couple of week advance type reservations, so I can’t really opine to what that means for us but I did say as you’ll recall that that business is subject to macroeconomic conditions and it could be soft for us in the fourth quarter, but fortunately the fourth quarter is not as a meaningful event and period for us in terms of rental revenues as it is in the other quarters.

Operator

Thank you. Our next question is from the line of Betty Chen with Wedbush Morgan.

Betty Chen - Wedbush Morgan

Neill, just a follow-up on that question about tux in the fourth quarter -- as you mentioned, Q1 and Q4 are the seasonally low periods and therefore the fixed costs will outweigh the sales volume in that business. How should we think about that for 2009? Are there opportunities to reduce any of the costs so that we could see less of a drag next year than I think the $0.20 you alluded to for Q4?

Neill P. Davis

Yes, there are some costs, fixed cost components but we are continuing -- I mean, we still haven’t fully finalized what those are and the timing related to them but there are opportunities but let me be candid with you -- they are not significant opportunities. When we affected the acquisition of After Hours formalwear, a fair amount of the infrastructure and cost savings that we were going to be able to achieve with the combination of the two companies were done within the first year of the operation, so anything we are able to do on a go-forward basis year two and beyond will take time as we learn to better and more efficiently manage the infrastructure support for the rental business. But to answer your question directly, there are some and it would more likely than not impact fourth quarter of next year as it relates to our timing and ability to get to those opportunities.

Operator

Thank you. Our next question is from the line of Janet Kloppenburg with JJK Research.

Janet Kloppenburg - JJK Research

I’m sorry, I didn’t realize I had to ask all my questions up front but with respect to the sale event, and you may have talked about this, George or Neill, you always have this sale in January and I’m wondering in your guidance what sort of expectations you had for the sale in January or what you will be doing about that sale. And also, George, I think that you have probably seen that one of your competitors, as soon as you started your sales, stepped up their promotional activity and discounting levels and I’m wondering if you guys have any contingency plans to perhaps get more aggressive if you need to as the quarter unfolds. Thank you.

George A. Zimmer

You’re welcome. Well, as we said in our remarks, we are promoting now and we don’t know how much of future business is being pulled forward. This promotion, buy one get one free ends at the end of the month and then our January sale will go on as normal. It’s going to be, we hope, as aggressive as the market requires. I’d rather not discuss the details on the call. And to answer the other question, your last question about the competitive posture, we view our number one market share as our most valuable asset and we will do whatever it takes to maintain our number one share.

Operator

Thank you. Our next question is from the line of Richard Jaffe with Stifel Nicolaus.

Richard Jaffe - Stifel Nicolaus

Thanks very much. Just a follow-on question -- with this sale ending at the end of the month of November, the January sale, will that begin -- I think it starts the 24th usually. Will it start again on that same timing or will it start earlier this year?

George A. Zimmer

It actually has already been moved up for the last year or two to start closer to the middle of December, which is when it’s going to start this year, mid-December.

Operator

(Operator Instructions) Our next question is from the line of Brian Tunick with J.P. Morgan.

Brian Tunick - J.P. Morgan

Okay, thanks. Neill, I wasn’t sure but I thought you talked about potential real estate opportunities, maybe for adding on to the core business. Correct me if I’m wrong but on the flip side, I was curious about store closing opportunities, either at the core or at the MW Tux freestanding stores, either proactively or if you have lease expirations. So maybe you could just talk about some of your real estate thoughts.

Neill P. Davis

There’s no question that opportunities exist in the entire occupancy arena but let me be clear -- we are very happy with the store level profitability of our core businesses and don’t believe that we have any issues dealing with store closures, other than when we potentially find an opportunity for a better location, we’ll end up trying to relocate so we can maximize our business in those particular markets. And as you know and as everyone else on this call knows, rental rates are under great pressure on the part of landlords, given the rapid exodus of doors that are beginning to develop, which will probably continue to develop into next year, and we will be making sure that we are paying and incurring appropriate market levels of rent as we go forward into next year and that’s a part of our overall planning process and again, that would be premature for me to talk to you in any specific details at this juncture.

George A. Zimmer

We have, just to keep in mind, about 200 store leases that come up for renewal each year, so that means that there are 400 stores coming up for renewal in less than 24 months.

Operator

Thank you. At this time, we have no further questions. I would like to turn it back to management for any closing remarks.

Neill P. Davis

We appreciate everyone’s interest on the call today and we look forward to talking to you again at the -- reporting our fourth quarter numbers and a happy holiday to everyone during that time frame and be safe. Thank you.

George A. Zimmer

Keep a smile on your face -- it’s not that bad.

Operator

Thank you, sir. Ladies and gentlemen, if you would like to listen to a replay of today’s conference, please dial 303-590-3000 using the access code of 11120945, followed by the pound key. ACT would like to thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!