A&P F4Q08 (Qtr End 2/28/09) Earnings Call Transcript

May.12.09 | About: The Great (GAP)

The Great Atlantic & Pacific Tea Company (GAP) F4Q08 Earnings Call May 12, 2009 11:00 AM ET

Executives

William Moss - Vice President, Treasurer

Christian W.E. Haub - Executive Chairman of the Board

Brenda M. Galgano - Chief Financial Officer, Senior Vice President

Eric Claus - President, Chief Executive Officer

Analysts

Karen Shore - FBR Capital Markets

John Heinbockel - Goldman Sachs

Meredith Adler - Barclays Capital

Bob Summers - Pali Capital

Simeon Gutman - Canaccord Adams

Operator

Good morning and welcome to the Great Atlantic and Pacific Tea Company’s conference call. (Operator Instructions) For your information, a webcast is available on A&P’s website at www.aptea.com. During today’s call will be Christian Haub, Executive Chairman. Also participating on today’s call will be Eric Claus, President and Chief Executive Officer; and Brenda Galgano, Senior Vice President and Chief Financial Officer.

I would now like to introduce Bill Moss, Vice President Treasurer, who will read A&P's Safe Harbor disclaimer. Mr. Moss.

William Moss

Thank you and good morning, everyone. This morning’s presentation may contain forward-looking statements about the future performance of the company and is based on management’s assumptions and beliefs in light of information currently available. The company assumes no obligation to update this information. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements, including but not limited to competitive practices and pricing in the food industry and particularly in the company’s principal markets, the company’s relationships with its employees, the terms of future collective bargaining agreements, the costs and other effects of lawsuits and administrative proceedings, the nature and extent of consolidation in the food industry, changes in financial markets which may affect the company’s cost of capital or the ability to access capital, supply or quality control problems with the company’s vendors, and changes in economic conditions which may affect the buying patterns of the company’s customers.

I will now turn the call over to our Executive Chairman, Christian Haub.

Christian W.E. Haub

Thank you, Bill. Good morning, everyone. Welcome to our fourth quarter conference call. The key themes emerging from our fourth quarter results are the following -- our core A&P business is continuing to make solid progress. The integration of Path Mark has been successfully completed and as planned, we have now achieved our synergy run-rate target.

We generated positive cash flow during the quarter and our liquidity position remains at sufficient levels. Although the Path Mark business is not yet performing at the level we expect, we are confident that with time it will achieve its potential.

The economic environment has markedly deteriorated and we are feeling the effects of a consumer who is concerned about rising unemployment and falling incomes.

Let me discuss these themes in some more detail -- our core A&P business continued to perform well. We continued to make solid progress in our core A&P business during the quarter, especially considering the difficult consumer environment we are operating in. Improvements in our fresh business were complemented by record results at Food Emporium in 2008, as well as continuing strong growth in our discount format, Food Basics. Our multi-format strategy, which we have been pursuing since 2005, continues to succeed in all of our Northeast markets. The integration of Path Mark is complete and we have now also achieved our synergy run-rate target. As we reported at the end of our third quarter, we completed the integration of Path Mark and we can now report that we have achieved the synergies as well.

We were able to realize the target of synergies in all key business areas, such as administration, store operations, cost of goods sold, logistics and advertising. From many perspectives, the acquisition has been a big success and we accomplished our goals on time and on budget just as we had planned.

I want to thank the entire team that has worked on this enormous project for the last two years for all their efforts and great results.

Now that we have achieved our target synergy run-rate of $150 million by the end of our fiscal year, we will no longer talk about the integration of synergies, as they are done. But as we have said right at the beginning of the acquisition, we will now embark on optimizing the entire business, which includes providing a more compelling price impact format to our customers.

The optimization activities will happen across many fronts in the company by implementing best practices, by accomplishing structural cost reductions, and by achieving industry performance metrics.

Let me now talk about Path Mark’s performance. We knew that when we bought Path Mark that the business had great assets and tremendous potential but we also knew that Path Mark had not been operated with a long-term perspective for quite some time, and therefore came with some issues and challenges that we had to address. Of course, we had not counted on a major recession occurring during the first year of the acquisition but we view the recession as being a challenge and an opportunity at the same time, as it requires us to address the issues at Path Mark more forcefully than under normal economic conditions, but it also provides an ideal environment for the strategic repositioning of the Path Mark brand as our price impact format.

In these very difficult times, our Path Mark customer is looking for good value for his or her money and to offer exactly that, we started at the beginning of the new fiscal year with an improved merchandising offering in our stores and in our weekly circulars, all combined with store layout improvements and better signage, helping our customers to save and to get the best value for their dollars.

The initial results of these activities are encouraging and Eric will speak to them in more detail. And at any rate, we are quite confident that we can right the business just as we have been able to do with the core A&P business during the last three years.

Turning now specifically to the economy, I have to say that what we are currently experiencing must be one of the toughest environments I have certainly ever experienced in my retail career in the U.S. Looking back, as is often the case, the rapid and large movement of purchasing prices in late spring and early summer of 2008 were the harbingers of an economic downturn. As this provided challenges and opportunities at the same time for us as a food retailer, we can now determine that we first encountered the impact of the financial crisis and the recession in our business in late September, which also coincided with the collapse of Lehman Brothers right here in New York.

While initially effects were pretty mild and the Thanksgiving holiday still turned out very strong, Christmas was relatively soft as consumers began to cut back and splurge less than in previous years. In January and February, this trend continued as consumers emptied their pantries and unemployment began to spike up dramatically in our markets, moving from below the national average to above the national average in just a few months.

Since then, business trends have not really improved, with the exception of a good Easter season. While we are generally fortunate to be in the food business, the last few months have proven that not even our business is immune to the trials of this particular recession, especially considering the number of challenges facing today’s consumers, like falling incomes, lack of job security and credit availability, coupled with declining home values and losses in personal and pension portfolios. So there’s no surprise that consumers are continuing to change their shopping behavior, including buying fewer items, buying cheaper alternatives, and buying more items on promotion.

Whether we will see deflation or inflation in 2009 is not yet decided amongst economists but we do see a differentiated picture in the various categories we sell, while many center store packaged goods, especially national brands, still experience inflation, many perimeter categories have become deflationary, especially produce, dairy, and meat. Consumers will react to those changes and shift in prices in a nimble way as the consumer needs to stay within their new budge constraints; consequently, we see more pressure on gross revenue dollars in the short-term.

Turning now to our outlook for 2009, it is clear that this will be a very challenging year as we face the full brunt of the economic headwinds in our industry. Notwithstanding the economy, we are now entering the next phase in our business development plan. We believe there is substantial potential to improve our business in several important areas and Eric will discuss our business optimization plan in more detail during his remarks. Let me just say that regardless of the recession, these initiatives have tremendous potential and are very much in our control to implement and accomplish. We believe that with the realization of these business optimization benefits, we will be able to achieve our 5% EBITDA objective in the next few years. Of course, it goes without saying that in the short-term, we anticipate the recession to put up a few hurdles that will impede our overall progress. As we being to realize benefits from this initiative, it will enable us to offset some of the more temporary economic impacts before we resume more sustained profit growth once the economy does recover.

All together, we expect that at the end of this next phase, we will have a much stronger company with many opportunities to grow and pursue further options to create shareholder value.

Let me also reiterate that through all of this, we remain focused on improving our balance sheet as well. We are committed to generating positive cash flow going forward and using it to reduce our leverage, which will only add to strengthening our company.

And with that, I will conclude my remarks and turn it over to Brenda.

Brenda M. Galgano

Thank you, Christian and good morning, everyone. Today we reported fourth quarter sales of $2.3 billion and a loss from continuing operations of $83.4 million. Comparable store sales were negative 1.3% in the quarter and as Christian mentioned, we continued to experience softness in sales into our fiscal 2009, especially as the rate of inflation declines.

Excluding non-operating items of $74.4 million, ongoing EBITDA was $84.7 million. The estimated EBITDA benefit from a 13th week is approximately $6 million. Fourth quarter 2007 EBITDA was $72.2 million. Schedules three and four of our press release detail the non-operating items for both years.

With respect to a couple of the more significant non-operating items, I would like to provide some additional detail. The real estate activity charge of $32.1 million represents mainly impairment charges related to eight store closures and an increase in the closed store reserve related primarily to a change in estimates due to fluctuations in real estate market conditions. These charges are non-cash during the quarter. I will discuss the closed store liability in more detail a little later.

In addition, we recorded a non-cash charge of $28.9 million to record a long-term liability rising from our decision to withdraw from one of the under-funded multi-employer pension funds. This amount will be paid over approximately six to seven years.

Related to this topic, and in response to a number inquiries we received, I would like to briefly comment on S&P’s release last week regarding multi-employer pension liabilities. Based on recent economic conditions, most of our 12 multi-employer pension funds are under-funded. Over the next several years, we believe the recently enacted pension protection act legislation will help to improve the funding status of these plans. Annual contributions to these funds are based upon negotiated collective bargaining agreements, although we do expect pension fund contributions to increase, we believe negotiation of other benefits within these agreements will mitigate these increases without a significant increase in our overall labor costs. This is similar to prior years where significant increases in healthcare costs were partially offset by a negotiated stable, if not lower, pension contributions.

In addition, the company has and continues to actively monitor our exposure in these funds and where advantageous, may withdraw from a fund to reduce ongoing cash contributions. For example, in fiscal 2008, we withdrew from three funds and for two of these funds, we merged our portion of the assets and liabilities of these funds into our company-sponsored pension plans.

This effectively monetized the over-funded status of our company-sponsored plans, which reduced both current and future cash contributions for these liabilities.

We have achieved $150 million targeted synergy savings as of the end of the fourth quarter, as we had expected. Given that we have now reached this milestone, after this quarter, we will no longer report synergy savings. We have estimated synergy savings of $34 million this quarter, as compared to $7 million for the same quarter last year. The $34 million of synergies is comprised of $18.5 million of administrative cost reductions, $10 million of cost of goods savings, and about $5.5 million of store operating cost savings.

Fourth quarter ongoing gross margin, excluding a LIFO provision of $3.6 million, increased 61 basis points to 31.07% for the quarter. The increase was primarily driven by the realization of lower net costs from the buying synergies.

Fourth quarter adjusted SG&A decreased by 12 points from 30.10% to 29.97%, driven by lower advertising, store supplies, and administrative costs, largely driven by the synergies, partially offset by higher utility expenses, 27 basis points, due to a colder winter and higher contractual rates.

Non-cash stock compensation expense for the fourth quarter was $2 million this year versus $1.7 million last year.

Capital spending totaled $30 million, including approximately $4 million of integration capital. Depreciation expense was about $60 million. This compares to $25 million of capital expenditures during last year’s fourth quarter with depreciation of $64 million.

During the quarter, we completed two fresh remodels and one A&P conversion. Our capital plan for fiscal 2009 is in the $100 million range, of which about $35 million is for maintenance CapEx. Most of the capital will be invested in the price impact and discount formats. We are also implementing a new signage package in all of our Path Mark stores to emphasize the savings offers, investing in energy efficient lighting to reduce energy usage, and installing additional security cameras to minimize stock losses and accident costs.

Turning to our balance sheet, we ended the quarter with net debt of $1.364 billion, including capital leases and real estate liabilities, and net of $74 million in excess cash, restricted cash, and short-term investments. For the quarter, free cash flow was $15 million, consisting of adjusted EBITDA of $85 million, net cash interest paid of $39 million, taxes of $1 million, and CapEx of $30 million. The $65 million decrease in net debt from last quarter resulted from the following: free cash flow of $15 million, plus real estate process of $20 million, plus working capital changes and other, $54 million, which includes an estimated $50 million of typical seasonal inventory sell-downs. This was offset by payments against the [Dark Store] liability of about $18 million and integration cash payments of about $6 million, which excludes the $4 million of integration CapEx. This includes approximately $1 million of severance and acquisition costs that were charged to good will.

To date, integration cash payments totaled approximately $91 million and are comprised of approximately $18 million of capital, $26 million of acquisition related costs charged to good will, which is primarily severance, and $47 million of costs charged to the P&L. The only integration cost payments remaining are severance payments of about $5.5 million to be paid out over fiscal 2009.

Revolver liquidity at the end of the quarter was about $163 million, comprised of borrowing base availability of about $96 million and excess cash on hand of $67 million.

Outstanding loans totaled $332 million and letters of credit totaled $206 million. During 2009, we project our borrowing base to gradually decrease from the roll off of the leasehold collateral, which will be offset by positive cash flow for the full 2009 year. We are closely monitoring our liquidity levels and have sufficient liquidity based on our current forecasts. That said, given the uncertain economic environment, we will seek means to further strengthen our liquidity.

Now a comment on our closed or dark store rent liabilities -- in addition to the charges in SG&A, during the quarter we reported $29.6 million of charges in discontinued operations primarily relating to increases in the closed store reserves based on changes and estimates. Give the weakened real estate market, especially in the Detroit, Michigan area, we believe it will either take longer to sub-lease properties or we will have to increase subsidies more than we originally assumed. Given the slow-down in sub-lease activity, we now estimate our 2009 dead rent payments will be in the range of $55 million to $60 million. As of the end of the fourth quarter, the closed door reserve was $206 million.

As of the end of the quarter, we had a net -- a tax net operating loss carry-forward of approximately $475 million to offset future tax profits, including operating profits and capital gains.

In conclusion, I would like to make the following comments -- I am happy with the progress we reported for the Discount Gourmet and fresh businesses, especially in this economic environment. Path Mark results have been our biggest challenge and, as Eric will discuss, we have now taken many steps to improve Path Mark's results with encouraging early results.

We have also successfully completed the Path Mark integration and have achieved our $150 million annual run-rate target this quarter, approximately six months earlier than originally planned. We have benefited from synergies during the quarter but did not realize full bottom line benefits due to rising costs in other areas, such as utilities, as well as pressured gross margins for the Path Mark business.

Also, very importantly and consistent with our guidance, we generated a strong positive cash flow. We continue to expect to be cash flow positive for fiscal 2009 and remain focused on reducing our leverage.

Lastly, with respect to our debt outstanding, none of our debt instruments have operating covenants and face no maturities until the middle of 2011.

I will now turn it over to Eric.

Eric Claus

Thank you, Brenda and thank you, Christian. Good morning to you all. Well, it seems like the last quarter was a lifetime away and as Christian pointed out, the times they are a challenging. That said, and all things considered, I think that we delivered a somewhat respectable quarter. Brenda and Christian have covered most of the key points so I will add a little bit of color and give you my perspective on things.

In the fourth quarter we focused on cost controls and liquidity. I am really pleased that as promised on previous calls, we did deliver positive cash flow in the fourth quarter. As Brenda mentioned, EBITDA came in at $85 million, a little light of the consensus number. The fourth quarter was the most -- in the fourth quarter was the most marked change in consumer behavior that we had felt in 2008. Our top line in the fourth quarter was weaker than our Q3 run-rate, with comp store sales coming in at negative 1.3%, which was against last year’s very strong plus 3% and plus 1.5% comps in A&P and Path Mark respectively.

The competitive activity intensified in the quarter as we all fight to keep a bigger piece of a much smaller pie. Additionally, I would point out that we were too media silent with no real presence on television and radio. We changed that very recently as we need to combat the natural tendency for consumers to gravitate to the perceived price leaders in each market.

Several of our major competitors were shouting louder than we were in the fourth quarter. Inflation slowed down a little bit, driven by deflation in certain categories such as dairy, produce, and meat, but not enough to offset the decline in units caused by the inflation and a cash strapped consumer.

We will actually cycle the deep spikes in inflation going into our third quarter. Margins held up nicely as we did not chase unprofitable sales. All in all, this has been a year and a quarter of much progress, having fully completed the Path Mark integration, achieved our targeted synergies, and completed the Path Mark strategic reset planning. With all of that behind us now, we can focus on what we do best, which is to be great retailers.

Fortunately, given the rapidly changing times, we are a lean and nimble team and have been tweaking our retail model to deliver more value in each of our formats in this highly recessionary environment. Consistent with our quest to keep us moving towards industry level EBITDA, we have commenced working on a multi-year business and optimization plan.

Of course, today’s economic environment is not working in our favor but most of these initiatives are structural in nature and should provide the needed benefits regardless of the economic environment. I will elaborate in a bit.

We cut back on our capital spending in fiscal 2008, given the poor economic environment that we are operating under. That said, we did complete 29 projects in fiscal ’08 and are keeping a tight leash on capital projects for 2009, unless of course there will be a surprising and unlikely economic recovery that would happen in this fiscal year. Our projects will mostly be directed to the conversion of conventional stores to Price Impact and/or new discount stores, all value driven projects.

As it pertains to warehousing and distribution, our contract and relationship with CNS is playing out well, as we work together to reduce costs and improve efficiencies. Service levels historically have been good at A&P and we are finally at good levels with Path Mark also.

Our private label initiative to harmonize labels in all formats is complete and initiatives are in place to grow this profitable part of our business.

Our Fresh business under the A&P, Waldown’s, and Super Fresh banners performed well in the quarter, growing both top and bottom line once again consistently now since 2005. Gourmet or Food Emporium continued its growth, despite the Wall Street job loss situation and delivered a record year of earnings. Food Basics, so well-positioned for the times, continued its double-digit growth and significant bottom line improvement. We are very pleased with the continued improved performance of these three formats that we have been working on for almost four years now.

Path Mark continued to struggle with negative comps and a deteriorated year-over-year bottom line. The Path Mark piece of our business is really the only drain on company performance. That said, I am extremely confident in our ability to fix it -- this team has a track record of fixing businesses. We have taken our Fresh, Gourmet, and discount stores to new heights and we have developed three models that are working and growing every quarter. We have a tremendous group of Path Mark managers, many with much tenure. These guys know what it was like when they were the best and they are on board 100% with this team, ready to make Path Mark and our price impact business the best again.

Although Path Mark results have been poor, we have been hard at work developing a strategic reset plan. We started to implement this plan in the first quarter, focusing on merchandising strategy, which includes private label expansion, promotional and media plans, store signing and look, and of course cost reductions.

For competitive reasons, I will not say more about the strategic reset but rest assured that it’s a concrete retail plan designed to bring Path Mark back to the forefront as a real value leader in the Northeast. We are very bullish on our Path Mark team and on the whole Price Impact strategy. Price Impact is a very key driver in our strategy that will bring the company closer to its longer term goal of attaining industry level EBITDA margins.

Let me say a few words now about the first quarter trends -- as unemployment grew, weaker sales trends continued into the first quarter, although Easter itself was positive year over year. That said, we have not been sitting back waiting for good news. We very recently launched the first of our new promotional events in Path Mark again as part of that strategic reset and have some very exciting promotional programs in the works from now through the balance of the year in both Path Mark and our Fresh format stores.

The initial sales lift generated by the first event was very positive, to say the least. We have also commenced the more all-encompassing price impact strategic reset in select markets about six weeks ago and the early indicators are quite favorable as we have now rolled this out across the chain. I look forward to giving you an update on the Path Mark progress on our next call.

Now a little on some of our longer term initiatives -- as I mentioned earlier, we have embarked upon a business optimization plan that is designed to bring us to industry-level EBITDA margin over the next few years. The plan focuses on four key areas -- the first being format optimization, meaning converting stores and/or growing new stores to specifically address the demographic make-up of a particular community. Growth of format will come mostly from the price impact on discount over the next few years.

Secondly, private label -- we have lofty targets and this strategy will allow us to further drive pricing down while maintaining healthy income levels.

The third, supply and logistics -- we will, through technology, new planning, and process tools, coupled with our new contract, drive the cost down.

Fourth, store operating improvements and cost reductions focusing on labor, productivity, stock loss, insurance expense, or customer and employee accidents, and also [occupancy]. These are multi-year projects that slowly commence in 2009 and we have specific plans, targets, and executive management sponsors for each.

Our project management tools and processes will be similar to those used for the Path Mark integration and synergy. These initiatives are very real and meaningful opportunities and we are confident that our financial objectives for each initiative are sound and bode well for the future.

In closing, yes, these are tough times but they will not last forever. We are focused on liquidity, EBITDA, and providing more value to our customers, growing that customer base and clearly fixing Path Mark. At the same time, and in parallel to this, we need to ensure that we meet our business optimization objectives in a timely manner. Yes, the recession impacts us but the long-term outlook has not changed. We are striving to bring this company to industry level EBITDA margins.

I would like to thank my team, our thousands of dedicated associates, Christian and our board of directors for their support in this past year and their contribution in a year of great progress, and especially for everyone’s commitment and can-do attitude in these difficult economic times.

With that, I will now pass it back to Christian. Thank you.

Christian W.E. Haub

Thank you, Eric. Let me close with a brief summary of what you have heard today -- we have completed the integration of Path Mark and we have achieved our synergy targets, all within 15 months of the acquisition. Going forward, we are now focused on our business optimization initiative. With this initiative, we will make many improvements that will protect and build the value of our franchise. The core A&P business is performing well and we will make further improvements at Path Mark until that business is performing at the level it should. Our format strategy remains very relevant and will serve us well in the future.

We are operating in one of the most difficult retail environments in decades and are facing many headwinds. During these more difficult times, our overarching objective will be to protect and secure the strategic value of A&P.

While the economy will slow down our progress for some time, I remain confident and committed to achieving industry level profitability at A&P once the economy recovers.

Thanks as always for listening and we are now pleased to take your questions, so Kelly, if you can start that process for us.

Question-and-Answer Session

Operator

(Operator Instructions) And we will take our first question from Karen Shore with FBR Capital Markets.

Karen Shore - FBR Capital Markets

A couple of things I just wanted to start with, looking at Path Mark, obviously you have shown progress in the rest of your divisions. Can we just -- can you just remind me and can I just clarify what the EBITDA was by quarter this year for Path Mark as reported? I know you gave the segment data but as it relates to modeling I just want to make sure that I have these numbers right -- $50 million in the first quarter for Path Mark --

Brenda M. Galgano

Karen, I don’t have those specific numbers in front of me but I can just walk you through how to derive the number. If you look in our 10-K that we filed earlier this morning within the segment note we provide both segment income as well as depreciation and amortization, so if you add those two for price impact, that will provide you with a price impact EBITDA for the full year.

Then if you go into our third quarter Q, you do the same thing --

Karen Shore - FBR Capital Markets

Yeah, I know how to calculate that number but the numbers aren’t matching, but okay, we can go no then.

Brenda M. Galgano

Well, let me just say one thing on that -- it will not be exact because we do, under the accounting rules, we are required to restate for stores that have been converted from another format to price impact, thought the effect of that is not significant. I believe it’s probably less than $1 million, but if it’s not matching exactly, that would be why. I can -- I would be happy to walk you through that after the call.

Karen Shore - FBR Capital Markets

Okay, so as it relates to this quarter’s comp, I mean, obviously Path Mark's comps have materially turned negative, I guess, by my estimate, at least minus 3%-ish. Can you maybe try to quantify traffic versus basket, in terms of the impact on your comp?

Eric Claus

The traffic was down also -- traffic was down in Path Mark and the comps certainly were more negative than what they were before and that’s exactly the issue that we have to address.

I think what happened also with Path Mark is that Path Mark, although the actual perception of Path Mark pricing is not that bad, the actual pricing in the company was significantly higher than what it needed to be to really be a value proposition. And in the normal course of business and normal times, you take a longer period of time to address that, just as we did with A&P for the last three years where we had significantly higher prices back in 2005 in A&P. Today we have a very competitive basket and we brought that down over time. I think that what you see now in this recession, we don’t have the luxury of that time and that’s why we started accelerating some of the things that we are doing and more specifically, the whole Path Mark strategic reset, in which part of that is design of a new pricing structure. So that’s -- in these times, people gravitate to the price leader. I think that’s hurt us and I think couple that with, like I mentioned, we were not -- we were kind of media silent and we actually wanted to fix more of our issues in Path Mark before we started shouting about it. So we’ve accelerated all of that and as you will see, it started in this quarter and I think by the next call, we’ll be able to report on the progress of that.

But that said, I think we know how to do this -- we’ve done it before and we are going to do it for Path Mark also.

Karen Shore - FBR Capital Markets

Okay, so it’s fair to say that sales trends at Path Mark have improved since you made some of the resets and the merchandising changes?

Eric Claus

Yes, definitely.

Karen Shore - FBR Capital Markets

Okay. And then just looking at I guess CapEx and liquidity, maybe can you, Brenda, just go over what your cash outflow will be this coming year for your dark store leases? And then looking at liquidity, is 30 -- I mean, you made a comment that you might seek to increase your liquidity, so I was wondering if you could elaborate on that and then maybe talk a little bit about your maintenance CapEx. Is $35 million the right number to think about for ongoing?

Brenda M. Galgano

Okay, so let me just address each of those -- with respect to the dark stores, as I mentioned earlier, we are now expecting that the dark store payments will be approximately $55 million to $60 million.

Karen Shore - FBR Capital Markets

Oh, sorry, I missed that. Okay.

Brenda M. Galgano

Yeah, and that’s due to we increased our -- we changed our estimates on that and we are finding that some leases will either take longer while obviously providing additional subsidies on the leases.

With respect to the comment around liquidity, I mean, we are always looking for means to further increase liquidity, both internally as well as externally. We are continuing to watch the capital markets and looking for opportunities that make sense. And internally, we believe that there are a number of opportunities, including continuing to monetize non-strategic assets, like we’ve done just in this quarter alone. This past quarter we brought in $20 million of proceeds. We continue to have targets on additional proceeds and believe that will be a source of cash for us this year.

And then I’m sorry, what was your last question?

Karen Shore - FBR Capital Markets

The maintenance CapEx that you gave, the $35 million -- that just seems lower than what I -- I mean, I always thought it was low but that’s even lower.

Brenda M. Galgano

Well, yeah, and the reason why is I think really how you define, one defines maintenance CapEx. The maintenance CapEx number that I talked about, the 35, is really store maintenance. In addition to that during a normal year, we have other CapEx such as IT and just other general things. So in general, we would view that to be in total about $50 million, of which $35 million would be maintenance for the stores.

Karen Shore - FBR Capital Markets

Okay. And then I guess maybe Eric, you know, I understand that Path Mark is a drain on your comp but your competitors have definitely been posting decent comp -- you know Stop-n-Shop, Village, and even [Weiss], and -- I mean, I guess I can’t -- the performance at A&P legacy has been good from a trajectory on the EBITDA, but can you maybe just help me understand what you think is going on with their comps versus yours?

Eric Claus

Well, I mean, I can’t comment so much on their comps. I just know that we are cycling pretty strong comps last year. We are north of 3% last year. I know that some of our competitors have gone like 15 quarters without positive comps, so we’ve been on strong comps. I -- again, I think that year over year, if you take the two-year comp, we’re still positive. That doesn’t make this situation, the whole situation good.

You have to look at different markets also. I mean, some of our competitors are experiencing stronger comps north and south of the markets that we are getting them in. We’re getting certain comp levels in certain parts of our markets that are very strong, lower in other areas. Overall Path Mark is the biggest decline in our comps, that’s for sure. And again, I think that that’s just that -- you know, we have to get the reality of our pricing to fix the image to meet the actual reality of what our concept is, which is price impact. And we’re in the process of fixing that and I think we’ll see that come around again.

Karen Shore - FBR Capital Markets

Okay, and I guess this last question -- can you maybe give us an update on they super Fresh conversions to the Path Mark save-a-center, how that’s going and how many stores have been converted?

Eric Claus

I think we have about eight or nine stores that we have converted. I want to say cautiously very optimistic. We don’t have a lot of experience on the P&Ls because we haven’t been at it that long but it looks like the mix is coming out the way we want it too. The sales are clearly significantly stronger, and I mean significantly, so it’s definitely the right direction to go and like I mentioned in our capital plan, or actually when I talked about our business optimization, the number one thing in business optimization is going to be to get the formats right within this company and I clearly view that as one of the most important things for this company over the next few years, as Real Fresh stores belong in very specific markets that are middle upper income to upper income markets and we still have a lot of stores that have not been renovated that are part of the old A&P portfolio that clearly are in markets that are much, much better suited to Price Impact. And again, it depends on the markets -- I mean, there’s a couple that we did in some very, very competitive markets south of the New York area that were successful. Then we did a few in some isolated markets that have a little less competition, or less kind of crazy competition going on and those are -- you know, the ideas are kind of off-the-charts good in those, so we are very, very pleased with that and -- you know, I mean, we still have to tweak it as we move along but I would say that generally speaking, we are quite optimistic with that and that’s certainly, like I said, a very, very important part of our strategy moving forward.

And the nice thing about that also, Karen, in terms of capital, is that to do a Fresh Store is significantly more expensive than to convert a conventional store to a Price Impact. So even with less capital, you can still effect a fair number of projects.

Karen Shore - FBR Capital Markets

Great. Okay, thanks, I’ll get back in the queue.

Operator

We’ll take our next question from John Heinbockel with Goldman Sachs.

John Heinbockel - Goldman Sachs

Eric, you know, it’s difficult to change perception obviously in a market that’s in flux, particularly with competition that seems to move the dial nicely on their price perception. When you think about timing and cost of say getting Path Mark back to a flat comp, how do you think about that? Because I think you are right -- where you are is not tenable but you can’t try to get it back in two quarters, you think it’s going to take a little while?

Eric Claus

The one thing about Path Mark is that it’s price reputation is still pretty decent. The reality is that it needs to get quite a bit better. We’ve started of late making some changes and I think one of the biggest things to help us in here is our private label. We have some very aggressive private label penetration plans that really -- and actually even in private label you actually decrease your prices in private label to make the spread between national brands and private label more meaningful, thereby significantly increasing our private label penetration, while at the same time still with reasonable margins allows us to be more price competitive on some of the national brands. And the recent ones that we have done have been quite successful. The mix looks like it is mixing out the way we want it to mix out. And I have to tell you that although it is Price Impact, it is not all that different to what we did in A&P.

The only unknown in this whole formula, in my opinion, is the recession -- does it get worse and how long does it last? Because other than that, I think that getting the fix done is going to be fairly quick. I think within a couple of quarters, we should be humming along where we’ve got Path Mark kind of set up the way we want it to. We’ve got a lot of plans there, so unless things really get markedly worse, I can only see improvement in the Path Mark piece of the business.

John Heinbockel - Goldman Sachs

One of the interesting things, most people have a bad price perception but the reality is good, but you have the opposite, so you sort of wonder, as you cut price initially will you give up gross and not get a response from the customer, because the perception is good, and then eventually down the road you’ll get the response you want?

Eric Claus

Well, I can tell you right out of the gate, we got the lift that completely compensated in terms of margin dollars for the erosion of the actual margin number in the ones that we’ve done so far. So I am optimistic about it.

And remember, John, these stores are mostly lower middle income to lower income where the pricing reality is, especially in times like these, that’s why I think Path Mark kind of went off the rails quicker or so so rapidly in terms of sales, is that with this economic recession, you can’t live on perception anymore. You’ve got to live on reality and I think that reality drove home a little quicker in that format, and that’s why we’ve also accelerated what we would normally have taken a longer period of time to do. We’ve actually really fast-tracked what we are doing with Path Mark.

Christian W.E. Haub

And let me answer that from my perspective -- obviously this is not a knee-jerk type of reaction we are trying to undertake here but this is very, very carefully planned and takes into consideration what the cost is of a lot of these actions and where we are going to offset it and how we are going to roll it out and measure it and make improvements and tweak it further and -- and I think what you talked about earlier, a good reputation gives Path Mark I think an advantage in terms of how quickly we can make improvements and how quickly the customer will pick up on that. And again, I am very encouraged by the early results here and I think there is a customer who wants to shop at Path Mark, who has a loyalty to Path Mark that we can I think re-establish much more quickly and much more sustainably than the challenges we faced at A&P several years ago, which had a bigger reputational issue over a longer period of time that didn’t create as quick of a reaction and an uptake that we will see here.

Eric Claus

And the last thing I would add on to that, John, is that we kind of turned off the electronic media tap for a while because we said look, we’re not going to shout something and then deliver a different experience when you get into the store. We got something to shout now and we are shouting it, so the tap is open again.

John Heinbockel - Goldman Sachs

With respect to that, so you are going to use electronic primarily versus direct mail, and the electronic, that will be kind of the same tag lines you’ve been using or do you come up with a new media thrust message entirely?

Eric Claus

There’s a new media thrust message specifically for Path Mark. There’s other plans for A&P but I won’t get into those for competitive reasons and I think you will see that they are pretty powerful and with what we started in the last couple of weeks, I mean, the initial results are really encouraging. And Path Mark has had a history of doing a lot of radio and TV. The consumer is used to that and I don’t think that we did ourselves a big service by turning it off but like I said, we didn’t want to shout about something that we weren’t -- you know, shout about something, in my opinion, anyways, if you want to be a good marketer, market something but when they come to the store, they’ve got to get the experience. You can’t market something and then deliver something else. I think then you lose customers in the long-term and we’ve always been the team that tried to do the right thing for the long-term, not just for the short-term.

John Heinbockel - Goldman Sachs

Just one final thing for me -- if you look at the synergy benefit you will get, kind of the tail benefit in ’09 in integration costs coming down, I mean, it looks like EBITDA can still grow even if comps were negative for the full year. Is that fair? Do you agree with that or no?

Eric Claus

No, we can’t make any -- you know, we don’t give guidance for the year. The only thing I would say, many people don’t take into account that you have fixed costs that go up in a year, so you’ve got to offset some of the gains with -- you know, we have contractual costs in labor, we have contractual costs in rent. So -- and again, we don’t know what’s going to happen with inflation because that obviously affects our costs also.

So I think it's really -- it’s a combination of a lot of things. You can’t just take one in isolation of the other.

Christian W.E. Haub

But the good thing is that we have a lot of good guys that give us a lot more flexibility to make some of the changes and fixes that we need to make. And I think the biggest unknown is just what is the recession and I think unemployment, where is that going and what impact is that going to have, because I think that’s the most correlated economic indicator that impacts our industry. And you know, we certainly take heart from the more positive news that seems to be emerging around when the recession is going to end and when we are going to see some sustained improvements. So it’s not like this terrible, falling off the cliff economic scenario anymore that we have to look at but it’s going to remain tough for the rest of the year, that’s for sure. But I think between what we’ve talked about and the business optimization potential and we have a number of positive things too to offset the negative impacts

Eric Claus

And I think when we talk about synergies, and of course, that’s one of the reasons that you do a transaction like this, but at some point, we have to get off the synergy bandwagon and talk about okay, where is the company going? As an overall company, where do we need pricing to be, where do we need margins to be to be a healthy company to deliver 5% EBITDA. And that’s not a one plus one equals two -- that’s kind of looking at your whole business and saying okay, where do we need to be strategically with Path Mark, by way of example, in terms of a pricing proposition to make that an effective retailer.

And that’s kind of the way that we are looking at it now, so we are trying to structure the whole company and also bring with this business optimization plan, bring the costs in line because all of Path Mark's woes don’t come from just the pricing. There are significant costs within Path Mark that are significantly higher than in our other business, which are structural in nature and which I won’t talk about too many of the specifics but things that really need to be fixed in the short-term and in the long-term and we are all over those.

John Heinbockel - Goldman Sachs

Okay. Thank you.

Operator

We’ll take our next question from Meredith Adler with Barclays Capital.

Meredith Adler - Barclays Capital

Thanks for taking my question. I would like to start by talking about gross profit dollars. There was a comment in the prepared remarks about inflation -- I should say lower inflation and deflation in perishable categories would lead to lower gross profit dollars. And I wasn’t sure if you said that that was because of the economy, customers were not going to come back to the items that they maybe gave up on when the prices were moving up -- that you get a volume lift but it won’t be as much as you would have --

Christian W.E. Haub

Let me just clarify -- that’s a question I had in my remarks and I was mentioning the gross revenue dollars, not gross margin dollars. Actually, we are seeing actually good margins and the disinflation environment is probably favorable from that perspective, even though your gross revenue dollars are coming down, I don’t think your gross profit dollars will be coming down and there might be an opportunity to increase that and then obviously private label, as we increase that, you know, also has a slightly negative impact on the gross revenue but a positive impact on the gross margin dollars.

Meredith Adler - Barclays Capital

That actually was what my next question was -- that not just looking at margin percent for private label, but the penny profit, is that higher for you for private label?

Eric Claus

Yes, definitely.

Meredith Adler - Barclays Capital

Okay, and then just -- I don’t know, somewhat maybe random questions but when you think about lower energy costs, obviously the biggest benefit comes to your supplier, distributor -- what kind of arrangement do you have with CNS so you get the benefit of lower energy costs?

Eric Claus

Well, with CNS, we have the ability with them to lock in prices on fuel but the biggest, the energy prices that we talk about have nothing to do with CNS. CNS costs are really in our distribution costs, so the fuel is in our warehousing and transportation --

Christian W.E. Haub

But if their fuel costs goes down, we benefit from that.

Eric Claus

Yes, absolutely -- so just by way of example, recently we locked in when oil was at $40 a barrel. We locked in for a period of time at that lower rate to benefit us going forward.

When it comes to utility though, as a company we benchmarked ourselves against the industry and we are higher than the industry, so -- and some of that was just the condition, the capital condition of the stores, which we’ve been -- you know, over the last couple of years have been fixing and we continue to put money into that. We’ve attacked -- we put in some really great programs that manage the lighting and air conditioning in all of our stores centrally, that they go on and off at certain times, and where we actually have the ability to sell back energy to the providers during peak periods. We’ve just embarked on a major relamping program for LED lights, which is a fraction of the cost of other lights, so we are doing a lot of proactive things when it comes to the whole energy piece to reduce costs.

And when you talked about fuel also, with the new contract, prior to the new contract, we had no incentive to actually maximize and cube out our trucks, or work the routing of the trucks. We have been working with CNS and our other transport suppliers on that over the last month and have been able to bring those costs down and I think we will see the benefit of that going forward also.

Meredith Adler - Barclays Capital

Okay. That’s very helpful. Maybe if you could just talk a moment about Food Basics and how you distinguish food basics from Path Mark -- you kept calling Path Mark Price Impact. That’s what I would have described Food Basics as, and where are the demographic differences?

Eric Claus

Food Basics is a -- it’s still a full shop store; however, the SKUs are significantly less. They are probably about -- I don’t know, somewhere between -- depending on the stores, between a third to a half of what a typical Path Mark would be. The reason being that everything is about efficiency in a Food Basics. So in a Food Basics, you have less SKUs, all of your fresh departments are counter ready, so there’s no service meat, there’s no service deli -- everything is completely counter ready. The less SKUs allow you to pack out a case, a case-and-a-half of the product, full cases on pop. So that significantly enhances the productivity in those stores, bringing down labor costs and allowing you to bring margins down.

So Food Basics, of all of our concepts, would definitely be the price leader. Path Mark is a little different in that a Path Mark would have less selection say than a Fresh Store, still emphasis on good fresh but much less SKUs. Where we really focus on special buys, not necessarily the most expensive vine-ripened tomatoes but where can we get a deal on tomatoes and we are looking more for commodities where we don’t lock in with a specific grower or a specific company to provide, for example, a tomato or a berry or whatever, and we focus where the sizing can be a little bit smaller than it would be in a fresh store, we focus on price point, we focus on more private label. We have a very different selection of private label in those stores, although we commonly share the America’s Choice. You’d find much more proliferation of our Smart Choice, which is our entry price point private label, in a Price Impact.

You’d also find a different demographic -- you asked that question, I believe. Most of the Food Basics, not all but most of them are much more ethnic markets. They are a smaller store. They are typically 35,000 square feet and we respond very, very well to the ethnic markets that we serve. So for example, if we were in Patterson, which is basically a Middle Eastern consumer, we would have the right types of rice, the right type of meat. We would have the produce if we were in an area where you’ve got a lot of people from the Caribbean, in produce you’ll find a lot of root vegetables.

So we are very, very flexible in how we merchandise our stores in those very specific little ethnic pockets, typically urban. And the Path Marks can be in urban markets but again, they are the big -- they are kind of the behemoth. They are the big store that does big volume, brings in a lot of people, services also very well the local population, but is also in outlying areas.

So one is -- you know, the price impact is really quite different from a discount.

Meredith Adler - Barclays Capital

Okay. I guess I will also get back into the queue, in case there’s somebody else who has questions.

Operator

We’ll take our next question from Bob Summers with Pali Capital.

Bob Summers - Pali Capital

Good morning, guys. Could you just talk about how sales or comps trended through the quarter? Because it sounds like they might have worsened sequentially.

Eric Claus

Yeah, Bob, they did -- they worsened towards the end of the quarter. That carried into the first quarter also and then the change that we have seen in the first quarter is just very recent and it’s primarily driven by some of the actions that we’ve taken on a promotional basis.

Bob Summers - Pali Capital

So then what’s the right way to think about the current quarter to date comp? I mean, is it worse than the 1.3 or --

Christian W.E. Haub

I think we’ve described that in the script that we provided. I think that’s on the same trend that we’ve seen before.

Bob Summers - Pali Capital

Okay, so the same trend as February?

Brenda M. Galgano

Yeah, I mean, the one thing to consider is as the rate of inflation declines, there is an impact there but at the same time, you do see some pick-up in units.

Bob Summers - Pali Capital

Okay. And then just a kind of a big picture discussion on the EBITDA. If we strip out the benefit from the extra week and then attempt to make an adjustment for the year-over-year improvement in the synergy savings, it gets you a number that suggests that core business ex those items was down close to $20 million. And from the discussion, it sounds like that’s primarily Path Mark which, based on this rough math, would mean that the EBITDA in Path Mark is down close to 50%. Is that the right way to think about it? And then if that’s the right way to think about it, I guess it’s got to be more than gross margin. I mean, I think that Eric talked about some cost issues -- maybe just walk through that a little bit.

Eric Claus

Yeah, Bob, you’re actually right on because the other three businesses, even through the fourth quarter, still performed admirably. They continued to grow both top line and bottom line. The miss is completely Path Mark.

We’ve made some progress on the merchandising income as we figured out some of the problems that we had through the last year that were mostly process driven and that kind of stuff.

We certainly have a labor number that is -- the productivity number is too low in Path Mark relative to its sales productivity. We needed to spend more money on the media and the television, which we did not do, obviously. We have utilities that were too high there and one big, big initiative that we have in Path Mark is stock loss. Stock losses are significantly higher than they are in A&P and we’ve got a full court press. And I’ll tell you, this isn’t new to us. When we took over Food Basics and we started as a team in 2005, we had stock losses in Food Basics that were north of 300 basis points and today they are less than a hundred basis points. So I have a lot of confidence that Paul and his team to bring those into line.

We’ve made some investments in technology to help us with the stock loss and it’s really, really become an issue. So we also have a warehousing and distribution situation, which is more expensive in Path Mark than it is in our other business. So there’s enough structural things that need to be fixed in the Path Mark business, coupled with the sales and merchandising income, that this will be a good business and you know, the way I look at this, Bob, is that I think we know how to fix the retail business as a team and this business has great locations, it’s got great managers, it’s got great people, they are used to being successful and we’ve just got to be hard asses to fix, to make it successful again. And it’s a great asset.

And you know, it might sound at this point like why did you guys do this if the other business is going so well? This makes us a much stronger company once we fix this and I think we are going to have a -- you know, we’ve got 140 plus boxes and there will be a lot more of them as we convert some other stores. I think we are going to have ourselves a successful strong business.

But like I said, we just have to get at it. We’re still new. We’ve had the business for about a year. We’ve spent the year integrating it, making some of our mistakes for sure, but integrating it and doing what needed to be done to bring the business into the fold. Now we understand all the pieces of the business and we’ll get at fixing them.

Bob Summers - Pali Capital

So merchandise income issues aside, because there’s some external factors going on there, of that remaining bucket, what’s the right way to think about it -- 50%, 70%, 100% is addressable over six, nine, 12 months? What’s the right way to think about how long it will take you to get your arms around it and get it resolved?

Eric Claus

I think that there’s -- you know, just like stock loss -- it doesn’t happen overnight. I think that we are going to make some progress in every one of those areas this year but we are not going to get to where we need to be with Path Mark this year. And I would say depending on the initiatives, some of them will take a little bit longer, some of them are much quicker but I would say that if you can get a quarter of the way there this year, and then get halfway there the next year and then by the third year, really have the place up and ticking, I think that -- and again, I’ve got to throw in the whole recession piece because how long does that last? Does it get worse? If it gets worse, of course it makes it more difficult because that I can’t control.

The controllable pieces I think between this year, next, and the year after, should not be a problem. And that’s not dissimilar to the A&P piece or to the Food Basics, or even to Food Emporium. Each one of those three formats over the last three years has had a significant improvement and I think it will be the same thing with Path Mark.

Bob Summers - Pali Capital

Okay. Thank you.

Operator

We do have time for one more question. We will take our last question from Simeon Gutman with Canaccord Adams.

Simeon Gutman - Canaccord Adams

Eric, I know this is tough to predict, but if the economy just stays the same and doesn’t get better, how much permanence can be created with the New York metro customer that seems to be pretty fickle, very circular driven right now. And then if you can talk about balancing merchandising versus -- and I guess merchandising is a traffic driver in and of itself but versus some of the traffic driving things that you are going to try to do as well.

Eric Claus

Well, I think first of all the metro area is probably our strongest area and without spreading out our, trying to give too much detail around comps but the metro area, we are positive and we are very, very strong. We’ve got great locations and that piece is not the piece that’s gotten hurt the most. I think some of the more outlying areas a little bit in the south where we needed to fix and also where some of our other formats, some of our Super Fresh stores have less relevance in some of those markets than they could. And I think -- I would say if the recession persists, that’s exactly what we are trying to adjust ourselves too, and if it gets better, that’s just bonus.

So all the things that we are doing are really -- the way in which we are planning, just so you know, is as the recession will continue. We don’t see an end to it and that’s the way we are running our business now, so a lot of focus on cost control, a lot of focus on liquidity. We absolutely need are, and will continue to execute that Path Mark reset strategy. And in parallel to all of that, the other business optimization plans are, regardless of what the economy is, those are structural things that you can fix that benefit the business.

So unless the world falls off a cliff, which I don’t think it will and it kind of looks like it has bottomed out, I think the things that we have done are right for the times and I think that we will see an up-tick in our business with what we are doing and I think that we will see -- you know, I don’t think we’ll see 2009 as a banner year. It’s going to be a tough year but I think it will be respectable.

Simeon Gutman - Canaccord Adams

But it sounds like in your plan, you are expecting a competitive response because it kind of feels that’s the way, at least in some of those periphery stores or in the more southern markets, that might be the pattern in which the customer is shopping right now.

Eric Claus

Yeah, but you know what, Simeon? The way I look at it is competitive response we get all the time anyway -- everyone throws everything they have at it every week, every period, and every month of every year that I have ever been in the business. And it’s how you go about doing things. So of late, we’ve been working on promotions where it’s really easy to give away the top branded products -- anybody can cut their price, any fool can give away a lot of product and make no money at it, and we are really focused at driving promotions, driving our business in a way that we can still bring in customers and sustain margins, and that’s why we took our time also in doing it. I mean, it’s very easy just to flick a switch and say okay, I am going to reduce Tide and Kraft Singles and a few other, Hellmann’s Mayonnaise and sell them under cost. Well, that's -- you’re just renting your customer like that. So we’re working on initiatives that are much more enduring than that and promotions that are bigger and more enduring than that that can still provide us some margins.

So we’ve really tried to take the approach that hey, this is the way the market is going to be, the recession is not going to go away for a while. Then we have to figure out a way that we don’t give up any market share, if anything that we pick some up and that can continue improving our business as we move forward, and I think we will.

Simeon Gutman - Canaccord Adams

And if you attribute maybe some of the permanence that you’ve created in the Fresh Stores to some of the capital investments you made, on the flip side, if you look at those periphery stores or the southern ones, is there enough capital? And I know you’ve suggested that you can remodel those for cheaper but do those -- should those doors deserve a little bit more? And if you had your druthers, would they get more in a year like ’09?

Eric Claus

I think in a year like ’09, what you are going to see is more conversions to Price Impact, so if you take your underperforming -- and this is kind of like a double whammy -- if you take your underperforming Fresh and convert to a Price Impact, and you take a store that was doing $250,000 a week and all of a sudden is doing significantly better, you’ve taken away a -- basically a negative contributor or a marginal contributor in what we call our fresh business, which enhances the fresh returns, and then it beefs up at the same time your Price Impact. So it’s kind of like a double effect.

That’s actually the philosophy behind Food Basics at the very beginning, was to take big money losing stores at A&P, stores that were doing $250,000 a week and flip them to stores that are today doing $400,000, $500,000, $600,000 a week -- that were losing $1 million, $2 million to a store that today is making $500,000, $600,000 in the store.

So it’s kind of the same thing with this conversion to Price Impact and that’s why I said that the conversion, the format conversion is probably the number one thing in our business optimization plan.

Simeon Gutman - Canaccord Adams

Okay, and then my last question, I don’t know for Brenda or for you, Eric, it gets to the question can EBITDA, or the margin expand or can there be growth -- what was the O&A if you take out some of the charges this quarter? I didn’t adjust the prior year as well. What was the O&A, the dollar year-over-year growth and then how much more can that go down? Is there a lot of opportunity to take cost out further?

Brenda M. Galgano

Yeah, there’s definitely opportunity to reduce our operating costs. Eric discussed that earlier. We have clearly the cycling of the synergies, so there’s opportunity there but on top of that, as we roll out our business optimization program, there’s other costs, some structural in nature, that we expect to achieve, both in the short-term, meaning ’09, as well as beyond.

Simeon Gutman - Canaccord Adams

Okay, and then the dollar growth I guess for the fourth quarter -- I mean, I don’t know if I stripped everything out but I got in the low single digits.

Brenda M. Galgano

Dollar growth for?

Simeon Gutman - Canaccord Adams

Expense dollar growth in the fourth quarter, year over year.

Brenda M. Galgano

Yes, that’s correct.

Simeon Gutman - Canaccord Adams

Okay. Thanks.

Operator

And that does conclude today’s question-and-answer session. At this time, I would like to turn the conference back over to Mr. Haub for any additional or closing comments.

Christian W.E. Haub

Great. Thank you very much for your participation and we look forward to speaking to you again at the end of our first quarter, which would be in July. Thank you very much.

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