The Fresh Market Management Presents Bank of America Merrill Lynch Consumer and Retail Conference (Transcript)

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The Fresh Market (NASDAQ:TFM)

Bank of America Merrill Lynch Consumer and Retail Conference

March 13, 2013 10:30 AM ET

Executives

Craig Carlock - President & CEO

Analysts

Kelly Bania - Bank of America Merrill Lynch

Operator

Kelly Bania - Bank of America Merrill Lynch

I think we’re going to Kelly Bania, I’m a Food Reselling Analyst here at the BOA Merrill Lynch and then please to have the pleasure of introducing The Fresh Market who is back again with us this year. Just going to go ahead and hand it over Craig Carlock, the CEO and President of Fresh Market for brief presentation and then we will follow it up with Q&A.

Craig Carlock

Thank you Kelly, thank you BOA, thank you for having us. We’re glad to be here today, first thing I would like to do is just remind everybody that what we will talk about today is subject to our traditional safe harbor statement. I’m going to talk for about 10 minutes. I want to talk about the company and introduce it perhaps to some of you talk about our history of growth a little bit and then we will talk about the quarter and then we will go to some questions from you all. So in about 10 minute’s introductory and prepared remarks. Now the first point that I want to make and it's more of an industry point is that our company is setup to benefit from demographics and industry trends right now. So as customers are making choices, they are making healthy eating choices, they are looking for more fresh offerings, high quality offerings, they are interested in regional products, locally sourced products and we’re the kind of the company they turn to for answers when they have questions of that nature and a lot of those products and choices revolve around perishable food and I think Kelly did some research that said perishable sales food sales have been growing twice the rate of non-perishable and I would say that fits us very well for us, 2/3rds of our business is perishable food sales 1/3rd will be non-perishable for a conventional grocery store that would be the opposite. They would be 1/3rd perishable, 2/3rd so we’re heavily concentrated in the perishable categories and those are categories were customers are more and more interested.

Second point we want to make is that our store is setup so you have what we carry but how we set up the store it's a very friendly atmosphere within the store, it provides a shopping experience so we don’t believe you can find anywhere else and as customers consider shopping experiences to consider the offering and the kind of environment they are looking for. The kind of environment that we have seems to be more and more appealing and really the kind of environment a lot of specialty grocers have it's more and more appealing than the conventional environment.

We got our store it will be very pleasing to the senses so when you walk in your greeted with the aroma freshly baked bread in the bakery or coffee and coffee can be sampled. We set up our floor and gift department in the front entrance so you opt in or greet it. Our store boxes are only about 20,000 square feet on average so it's convenient, easy to get in, easy to get out and then if you have a large load of groceries or (inaudible) we hope that we can carry your groceries to a cart and then once you start to talk about the food, if you’re not familiar with the company or the food we sell we emphasize high quality perishable food. We carefully select our food products from around the nation and in some cases around the world. We source locally when it's appropriate, when it's the right quality, cost and scale and we prepare quite a bit of food in the store and where that’s baking bread or baking cookies or cutting beef, a lot of preparation within the store. We generate positive word of mouth publicity and that’s how we build our business. We believe that when people come in and they have a great experience shopping and then I go home and have a great experience eating that they will tell people and they want to come back and that’s how we build our business.

And the last point on the business relates to private label products, our private label program is intended to drive traffic to the store, we appreciate the private label product offer a chance for a higher margin perhaps but our motivation is that people will find products they enjoy, want to buy them from us and make a special trip to the store. So that some comments about you know the company, the offering let’s talk about our growth and history of growth. There is really no doubt about the growth that the company has achieved, really since it was founded in 1982 and we have got slides for the last five years here for sales in the last three years of the public company for earnings per share but you can see we’ve grown the top line sales 13% per year and I will point that that’s accelerating and that includes a couple of pretty rough years in 2008 and 2009, 20% sales last year got us to a 1.3 billion, we have got earnings listed here we have two years of growth of the public company. Each of those years have exceeded 20%.

So sales compounding nicely 13% over the 5 years 20% for last year, three consecutive years of 5% or better comp sales and then the profit growth has been really good, the profit growth has been faster than the sales which is something we strive for. The white space maybe the most exciting part of our company and our prospects you know we have great opportunities before us with 20,000 square foot box we’re able to go into a lot of different markets and a lot of different we will take configuration and take advantage of what’s there, so you have really two phenomenon that we want to point out the first is in general there is white space, we have a 130 stores, we think that the country could easily support 500 stores and then the second point is that when we go to take advantage of that white space the configuration and the store size are very convenient flexible, veritable and I want to point out and I imagine people familiar with this that we opened in California last year and we have five more stores we’re talking about for in the next couple of years or more and then we have the entry into Texas.

So we’re expanding in the nation’s most popular states, we’re very excited about that and in here you see a record of building unit growth and how we’re ramping we slow down during the recession in 2009 you can see a growth rate drop to 7%. We little bit faster in 2010 at 9% and then 13% in 2011 and 14% last year in 2012 so we’re accelerating our growth.

As we think about the white space and the real estate the other point we would make is that our customer exist across the nation and this is something that we have tried to point out before but we can go into a small town. Next week we will open Aiken in South Carolina. I imagine some of you haven't heard of Aiken, South Carolina the small zone town about 40 minutes from Augusta Georgia and we will do very well and a town like that there won't be many specialty competitors if any and so I will jokingly say we will be heroes there but we will have the best food by far. We can also go into Westchester County where there is great heroes. We’re not heroes in Westchester County but it's a big market and we can get our share of the pie and it's sound I hope you like that.

So we feel there is great flexibility with our customer, the people who enjoy and appreciate food are all around the country and the people who enjoy and appreciate fresh food and high quality food that’s only growing. That’s how we’re thinking of the white space and our ability to grow.

Okay couple of summary points on the year and some summary points on our guidance for next year. I mentioned we had 20% of sales growth we had a 5.7% comps, the fourth quarter was slower than the other three quarter so we’re guiding conservatively, prudently, appropriately to a 2% to 4% for next year. Our margins improved handsomely last year, we improved our gross margin on operating margin. We’re anticipating slight margin improvement again this year, our EPS was up 24% last year we’re forecasting to a $51 to a $58 which is a range of 14% to 19% for this year, last year we had 16 new stores on one remodel, next year we’re talking about 19 to 22 stores, three to five remodels and a growth rate there on new stores is implied of a 15% to 17% so that’s a faster there and we have been growing a lot of couple years and we have talked about the cost implications of that I imagine we will get to that soon in the Q&A.

Capital expenditures were $80 million last year, it's quite a bit higher this year as they open stores, what I would say about the capital spending because this number I think is a dramatic change but I think it's a good change. What we’re saying is we’re going to open more stores, we’re going to remodel three to five and this capital number provides for five. We’re also opening more stores earlier in 2014 than we’re in 2013 so at least the money spent in 2013 and stores that will open in 2014 and then we have a higher proportion of as these deals cost a little bit more than the build to suit deals. It doesn’t mean the economics have changed at all of our new store model when we have as is the typically trade capital for rent and I think the important that was if you look at our capital spending the returns that we’re expecting have not changed, our model that we use in our office to make our real estate decisions hasn’t changed, their expectations has changed so this just reflects kind of the timing of some things and more frankly.

And because we put some information on fiscal year 2010 and we will just kind of provide this posted but this is a slide that reconciles for there is a quite a bit of complexity related to the IPO in 2010 and this reconciliation will be available online if you need it.

So those are my prepared remarks and I will move over back to Kelly.

Question-and-Answer Session

Kelly Bania - Bank of America Merrill Lynch

I will just take it off with a question and then move it to the audience. So, Craig you mentioned the past you know three years of that comp of 5% or better and this year the guidance is for 2% to 4% maybe you can just kind of walk us through your thought process there. It sounds like it may be conservative following the fourth quarter results. So just any color kind of why you’re thinking that and how you feel about store execution at the store level.

Craig Carlock

Okay so we came in to the fourth quarter with 7% year-to-date comp, so an awful lot of momentum. We had 8% – 8.2% the first two quarters of the year then we had a mid-five in the third quarter and we thought a change and the pattern. We delivered a 1.9 in the fourth quarter so as we come into this year while we’re excited about the 5.7 and 3 years of 5 so we said we’re going to work more at the momentum that we had in the fourth quarter as we put together a guidance and so that’s how we’re approaching it. I think that well I would say it's conservative in a sense that we look very closely at the fourth quarter but I wouldn’t I think I should have probably have prudence and with the right number I don’t want to suggest to worry about the changing.

Kelly Bania - Bank of America Merrill Lynch

Got it and on the flip side you know the 15% square (inaudible) growth is that what we should expect over the next couple of years or should we expect that to settle back down to 15 after this year.

Craig Carlock

Our goal is 15, so we did better than that this year. Our 2013 we’re projecting to do better but I think a planning number, a stable number over a period of time will be 15%, I think getting store units is not hard but we’re committed to disciplined growth profitable growth, growth that hits our economic hurdles and so we rather be 15 and be really confident and feel good about the pipeline and be 17 or 18 and introduce uncertainty.

Kelly Bania - Bank of America Merrill Lynch

Good.

Unidentified Analyst

I was just curious have you ever thought about rotating you have a pretty large candy section, you ever thought about rotating that out for maybe something that’s more higher priced, higher AUR?

Craig Carlock

Yes we consider the store productivity and the department productivity all of the time and what I would say about candy or book (ph) or coffee is that a couple of things, one is what’s the capital involved? One is what’s the gross margin and one is what’s the labor? When you look at the economics of low capital, low labor, high gross margin that department is probably more productivity than you might think. So for us the question isn’t always more, isn’t candy yes or not it's more could we get the same sales that use less space. So that’s the question, we have tested that, we are back to if we were to go to a couple of stores, we have tried to make that department a little bit smaller. And so that’s how we would approach that. I think in general we want to make sure that we’re adding space for departments that are growing like prepare foods, produce, departments like that and if that comes at a expense or candy or book (ph) or coffee that would be fine but we want to make sure that the productivity of the items we make room for is as good or better than the productivity of the items we’re shrinking.

Unidentified Analyst

I had a question about turn over and about comps, so you’re presentation is focused very much on the opportunities and that you’re a high growth company, so it's a little reflecting why the high level of turnover of senior people so if you can talk about that and what’s the level of turnover underneath that for which you don’t have to put out disclosures.

Craig Carlock

Okay so the turnover you’re probably referring to Lisa Klinger the CFO resigned in November and then we did a press release Monday night that Randy Kelley had a real estate just resigned. I think you know have a couple of things going on and I appreciate that the optics are unfavorable that we have a couple of people leave at the same time that accounts for a sales slowdown but I think individual decisions they want I did an IPO for the Fresh Market and I like to go do another one because this was professionally fun, there is a level of adrenalin there and then in Randy’s case he is going from a very demanding job and a lot of responsibility away from home to a job where he can live where he wants and he is going to start a firm and be in business with two other people and have a lot more flexibility and so I personally feel those are unrelated. I think our senior management and our board will carefully consider the pay this is offer, should the things we should do to make sure we’re retaining everyone and so I think that will be a good discussion and it's not that it hasn’t happened in the past.

Turnover that you don’t see, turnover in our stores is actually shrinking the economic environment is such that people aren’t leaving their jobs at the store level, at the same rate they were before. The fact of the matter what that does is it creates a little bit of pressure on your wages because when people leave at the store he said it will replace at the bottom end with the pay scale and they will work their up but if they are not leaving so that’s factor into our plans but anyway it's actually so little turnover that we’re actually surprised by it.

Unidentified Analyst

Thank you and if you were to look at comps in other level given you’re high growth I would say that you have a fair amount of comp growth or comp contribution from store maturation. So is anything changed in terms of that contribution for maturation or if you look at your stories you know that are 5 to 10 years old what the level of comps they are versus the average. Has there been any widening of the spreads, thank you.

Craig Carlock

Our sense of things is that stores entering in the comp sales, generally that provides a tail wind, some stores enter very positively and some might even enter negatively but in general the group of stores would add a slightly tail into comps. The phenomenon was on the fourth quarter, I think it's not related to have competitors or comp store vantage that kind of thing. We really want the store traffic and number of people that came into the store and I was fairly consistent change in patter across the whole network.

So I don’t feel like our store growth curve is changing.

Unidentified Analyst

You spoke about the opportunity in the white space and I guess one of the thing to be me is a little bit confusing as what competitive advantages you have over other stores outside of the South-East and why you will necessarily be successful in California or elsewhere in the lot of competitors.

Craig Carlock

Well I think that we would acknowledge there is a number of specialty competitors but I would just say those specialty competitors are carving out their own distinct product offering and niches if you will. So Trader Joe’s is headquartered in California, a lot of stores especially competitor but they are more complimentary we’re still meat, seafood, bakery and their franchise is in frozen private label beer, wine and so you could almost put us next to them, as a complimentary concept.

Whole food, says 60 or 70 stores out there and we compete with them in the South-East, we will compete with them there, our products are geared towards fresh tasting, convenience there is this organic natural (inaudible) so we’re each carving out distinct places I would also say we compete in some pretty compete markets now Chicago, Atlanta parts of Mid-Atlantic and North East, Washington DC area, so I don’t know that we will see that much more competition than we see in places where we already compete and then the last point is that if you look, one of the measures we look pretty closely is grocery density is the amount of grocery square footage per capita and while there are a lot of specialty competitors and conventional competitors in California, the amount of grocery square footage per person is actually less than California than in lot of markets in the South-East we’re very successful.

Unidentified Analyst

I just wondered if you check my logic here a little bit, I mean in terms of same store sales you have some tough comps then you have inflation that’s moderating a bit, it's impacting this year, as moving into 2014 those shouldn’t be factored. As we move into 2014 you will have opened more stores and those should be more beneficial on all in sales basis, so it seems like we could get some acceleration, I mean as a base case it seems like we should anticipate some acceleration and sales overall in 2014 and then the pre-opening cost or the cost associated with the new store openings should be more normal as opposed to a ramp up in 2014 so that should mean sort of more normal type margin expansion as well. I mean is there anything that I’m missing in terms of I mean it seems like 2013 is kind of “investment year” and we should have more sort of historical like last three years that growth is moving into mid-14.

Craig Carlock

I think we wanted to without giving guidance we wanted to send the message is consistent with what you’ve described that is that you should have more normalized opening and that we will have easier comparisons frankly, right now we have harder comparison so we will have easier comparisons. We will have more stores as a percentage entering the comp sets so that’s a slight tail on it (inaudible) it's helpful. So I think I would agree with your assessment. Without saying I can’t give a projection or give numbers.

I would say as far as 2013 being an investment their elements of ramping to a higher level of growth from the 13% or 14% so the 155 to 17%, so you add people who are faster rate than you have been adding on the past. But I would also say nothing about the quarter changed to my view is the long term outlook for the company, people still purchase fresh food, yes, the economy returns of our stores is still very, very high, yes are they getting better? As we improve our margins economic returns initial could get better. So we feel very optimistic about the economy model, the affordability of the concept, the returns in the stores, the franchise we’re building and the real estate market place and so yes customers got skittish for a quarter true, factual or we feel it. I can hold that thought and I can simultaneously hold the second thought which is you know our concept seems to work wherever we go, people enjoy fresh foods service, short line all the things we provide and nothing about the quarter changed that.

Unidentified Analyst

I just thought you could clarify a little bit as well it seems like on the conference call that there were some uncertainty about what was driving a little bit of weakness in the consumer. I mean do you sense that there is as you enter new markets that the pricing your pricing relative to your peers is not as good or is that there were any, I mean have you had some time to be able to better see the part maybe what was driving some consumer issues you encountered.

Craig Carlock

The point I was trying to make on the conference call is we have very good, very, very good information about what happened. We know when, where, what day, I mean all of that as you would expect. What I was cautious about saying is I know why and so the best that we wanted to suggest is we had a change in trend in early part of the quarter so think about a hurricane and then an election, the stock market dropped 700 points in the first 5 to 7 trading days after the election it's top of the fiscal cliff came about marginal tax rates going up. We sell to middle age and older, we sell to middle income and higher and I think there was a tax rate the potential of that discussion is what altered our trends but that is me now speculating a little bit about what happened but I think it's pretty informed speculation. We also say there are enough trends improved in January and so it was got into January though there was certainty about taxes in the fiscal cliff and I was moving behind and so we said things improved. So those are the points we wanted to make, we didn’t make them as completely directly as we could have because we were being cautious about you know knowing things when in fact we’re using our very best judgment.

Unidentified Analyst

Craig is your competing with likes of Whole Foods, are you, have you made any merchandising changes over the last year or so that you think are working very well in the markets that you compete with them, are you reacting or following anything that they do that you see them having success with.

Craig Carlock

Well I think that we feel like that there are some things that our competitors do whether it's whole foods or others that are we could learn from, one of the things and it was on the slide, I don’t think I mentioned it, is some of our competitors are more getting more information to their customers more regularly, more obviously, something on my in-store signage, email, banners, flyers we have typically wanted the food to speak for itself I mean the heritage of our company is you know no signs, we want you to look at those apples and say my gosh those apples look great, I got have one of those, looking at the meat departments have you ever seen a stake like that before. That sort of a heritage and what we said we had to communicate better to customers about our food and it's attributes, the food attributes are becoming more important and there are times we want to communicate very clearly about our prices and our prices we think are extremely competitive in fact so what we have learned might be to take a good look at marketing messages, we’re a sort of a merchandising company, buying, pricing, running ads, selecting great food and we’re starting to say what we need to merchandising and marketing and so those are the kinds of questions we’re going to ask ourselves are the kinds of things we’re trying to learn.

If I could go back to the question on prices, we monitor our prices very carefully and we have a great systems to do so and if people who spend a fair amount of time doing this but if you’re wondering we’re comps off because of prices let me just give you a couple of example. So we carry the same not the same but a very, very similar turkey as Whole Foods does, it's antibiotic free, it's all vegetable diet, it's fresh, it's never frozen, the attributes are largely identical, ours are still 2.29 a pound there is 2.49 a pound so we’re about 10% cheaper on turkey that’s been the number one item in Thanksgiving.

Go to Christmas holidays and New Year’s and (inaudible) big item for December, we had a 7.99 or 8.99 for our top choice. They were around 5.99 a pound so we were not quite half with much less expenses, so we’re monitoring our prices and I appreciate the investments they are making both I think what we think we need to do just is have a great fair prices and we would not have not reached the conclusion that we need to lower than.

Unidentified Analyst

Then actually just separate question I want to ask you before I turn the mike back over, can you just remind us there was a lot of volatility in commodity prices in the fresh food area in 2012, you know it had impacts and maybe benefits to your gross margin. Can you just sort of walk us through simplistically you know what 2012 produce costs you know did for your gross margin and how we should think about that in 2013 as we anniversary it.

Craig Carlock

Well produce cost were tough and are tough right now. One of the produce is probably the highest shrink (ph) department and so for us there is two ways to try to preserve the margin, there is paying more charge more, the other ways to be smarter about what’s on display and what’s on ad and reduce the shrink and so that’s where we have put an awful lot of effort. We have setup tools that review and monitor our store level ordering and we’ve algorithms that kind of kick out orders that look pretty off trend and so there is a store has a right amount of product in it and this was the point that I think is perhaps underestimated. Having the right amount of perishable food in the right store on the right day of the week is very difficult and we have made a lot of investments to improve it and produce last year. So the costs are high and that doesn’t necessarily dampen our margin and produce department, we had a good year and we’ve done a lot with getting the right amount of food the right store the right day particularly in produce which is highly perishable.

Unidentified Analyst

Thank you I got two questions one I promise you have never had before, just to my (inaudible) if we were to go back to a consumer, consumer environment that was in the first half of ’12 and you’re competitors and you’re traditional competitors are all reporting similar rates of growth as they were in the first half of 2012, is there any reason why you wouldn’t be back to mid to high single digit comp?

Craig Carlock

Well the reason would just be don’t have a history a long history of mid to high single I mean so that was a great period of I think we’re in some ads that were very effective we introduced the (inaudible) program. We had great weather, we’re happy to give credit to others we had great weather there was nothing on that competitive environment that’s particularly striking it was just a very, very good period. So I’m reluctant to say that well 3% to 5% I think is different than high single I’m just trying not to sign up for 8 to 9s, so the 3 to 5s were very comfortable.

Unidentified Analyst

Okay and is there any think to think about in your business and your cost if the U.S. were to get comprehensive immigration reform given that over 50% of produce is picked by legal immigrants, 80% are in the higher more fresh food category.

Craig Carlock

I don’t how that would affect the cost, I’m reluctant to say well.

Unidentified Analyst

It's not something that you’re concerned (inaudible).

Craig Carlock

I think the things that we were about most are we executing well, well people go into the store are they having a good experience. So the store is about the experience both shopping and then the cooking, so hey is our food fresher today than the other those kind of questions. Are we getting the right amount of food to the right place those kinds of questions. Are people better trained or worse trained and the law of the land whether it's healthcare or immigration reform we would play by the rules whatever they are.

Unidentified Analyst

I’ve a question regarding your traffic and the gap between you guys and Whole Foods, if Whole Foods continues to comp if their traffic continues to be let’s 1 to 2 points better than yours, do you think that’s because they have a (inaudible) that you don’t have that will put you out structural traffic gap would then and if that’s the case have you thought of maybe testing two or three stores where you kind of put in some potential to test on how that would affect comp.

Craig Carlock

Well I don’t know if the reason the difference is because of seating, one of the things that we have found in our analysis is that our stores open 80% to 90% of final productivity levels and their stores open at a lower productivity level so they comp better for that reason but I would tell we have tested seating their stores where you can sit down now in the chain. Part of seating though is having the products ready to be eaten and so we are adding more prepared foods but we don’t have the quantity of prepared foods that Whole Foods has, why don’t we have the quantity, well we don’t make the big capital investment that they make and then the big store level labor investment that they make. So, I would just say seating is not a standalone decision, you’re paying rent, you’re buying capital, you’re hiring chefs, there is a whole sequence of things that have to happen for that seating to make sense, Trader Joe’s doesn’t have seating but some do, some don’t, we have tried a little bit and I think I’m more interested in having great prepared food, the people say I want to go get a lunch there or dinner there and let the seating to me is secondary to having great food, the people want to buy when they want to prepare meal or some prepared items.

Kelly Bania - Bank of America Merrill Lynch

I guess I’m trying to reconcile what seems to be a temporary perhaps weather or macro slowdown in your comps for the fourth quarter was the very truthful answers you have given on things like in-store presentation and signage and perhaps looking at pricing. Was this something going on underlying the business trends even when comps were strong that’s making you think you need to move things up a bit or you know is it just new competition et cetera.

Craig Carlock

Well what do you mean by move things up a bit?

Kelly Bania - Bank of America Merrill Lynch

Well I guess in terms of you know a very low price formula, no signage et cetera and in response to other questions you have alluded to looking at the signage in-store, looking at communicating more with the customers and also monitoring your pricing and I guess I’m wondering you know if that was just one quarter…

Craig Carlock

Well what I’m getting at is I do think there was a transitory nature to the November, December period, so I want to agree with you but that’s our judgment, that particular period was particularly tough. The second point on the signage and I’m absolutely willing to acknowledge if we want to be a humble company we want to earn from others and one of the places you know rather what we learn from others, one of the things we learn is they do a great job communicating to customers and only do they do a great job we have a history of not even wanting to. We have a history people just wanting to look how the product looks great and so we’re asking ourselves is that let me give you an example, we introduced about a year ago antibiotic free chicken in the meat department. It's an important product attribute to a lot of people. That product costs us more we raised our chicken prices and we sold more chicken pounds that’s dollar that’s easy but pounds we sold more pounds of chicken, so we communicated effectively though we had a new chicken, we communicated effectively that it was antibiotic free and we raised the price so do you want to lower your price, I’m like not really, I mean we need to find a reason for the prices to be whatever they are and I think our team did a pretty good job of getting that pretty close to right most of the time and so in that category we raised the prices but we sold more because we had a better product, a product more appealing to people. Now we also tried our natural beef because financial you don’t want chicken let’s try beef and beef is still going at 50s and chicken is going at $0.50 a pound and a $1 a pound and beef it's $5 or $6 of pound well at that point all natural or not that’s just too expensive I’m not buying that and so we look at each category, we look at the attributes and we try to match attributes, quality and price and so that’s how we approach it.

Kelly Bania - Bank of America Merrill Lynch

Okay can I just ask about your post to promotional planning, how are you planning it for 2013? Is it different from 2012? You mentioned the Tuesday programs and a lot of ads, was it a little bit higher than maybe you would effective last year.

Craig Carlock

The Tuesday programs were successful in terms of didn’t cannibalize when the (inaudible) didn’t borrow from Saturday prior Saturday or Sunday which are bigger days, we mention additional promotions in the fourth quarter and those were I think things we don’t at this point want to intend to repeat because those were driven by hey we have bought the food, we own the food, we got to sell it or we own the gift basket so we got to sell them, so there was an element of you know of preserving margin by getting you know when traffic will fall and so. I would say in general we will continue to do this, we have been experimenting with Saturday’s the fourth quarter was probably a little higher than normal but no dramatic change.

Kelly Bania - Bank of America Merrill Lynch

And how did you with those expert promotions? Did you end up in the same place year-over-year in promotions in the fourth quarter despite extra promotions?

Craig Carlock

Well the I would say in both cases its importance but not a significant driver of activity so in my view we were kind of in the same place. So we ran the basket on sales 10% off, it's not because if we change the meat program or the chicken or the holiday beef program and how to promote that differently.

Kelly Bania - Bank of America Merrill Lynch

Because may be one more if we can squeeze in real quick.

Unidentified Analyst

Will you talk about the overall economics and the payback period?

Craig Carlock

The economics of the stores are it continue to be very favorable, I mean if we go into if we’re going to open next in Aiken, South Carolina we have great negotiating leverage and place like that we get a really good deal, we got a more expensive markets, if we don’t leverage there we don’t but this part-time this many people, so you get your economics there based on the volume. The economics of our store I don’t recall the last public comment was made about paybacks I’m reluctant give a number in this environment without referring what we said before but it hasn’t changed. I mean it has gotten a little bit better.

Unidentified Analyst

What’s the initial net cash investment?

Craig Carlock

Well if it's a build to sue which means the landlord does the floor and the exterior walls and the roof it's about 3.5 million to 4 million and if it's an as in deal you know the capital can be 4.5 million to 5 million and the inventory is $400,000.

Kelly Bania - Bank of America Merrill Lynch

Great. I think we have to wrap it up, thanks for great presentation.

Craig Carlock

Well thank you all for coming.

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