The Bon-Ton Stores, Inc. F1Q09 (Qtr End 05/02/09) Earnings Call Transcript

May.21.09 | About: The Bon-Ton (BONT)

The Bon-Ton Stores, Inc. (NASDAQ:BONT)

F1Q09 Earnings Call

May 21, 2009 10:00 am ET

Executives

Jean Fontana - Investor Relations

Bud Bergren - President and Chief Executive Officer

Keith Plowman - Chief Financial Officer

Tony Buccina – President, Merchandising

Analysts

Grant Jordan - Wachovia

Emily Shanks - Barclays Capital

Karru Martinson - Deutsche Bank

Carla da Silva - JP Morgan

Colleen Burns – Oppenheimer

[Rishi Peret] – Sterne Agee

Karen Eldridge – Goldman Sachs

Ken Bann – Jefferies & Co.

Operator

Welcome to today’s Bon-Ton Stores Inc. first quarter 2009 earnings conference call. (Operator Instructions) Now I would like to turn the conference over to Mr. Joe [Segman].

Joe [Segman]

Welcome everybody to Bon-Ton’s first quarter 2009 conference call. Today Mr. Bud Bergren, President and CEO; Mr. Tony Buccina, Vice President, Chairman and President Merchandising and Mr. Keith Plowman, Executive Vice President, Chief Financial Officer and Principal Accounting Officer will host the call.

You may access a copy of the earnings release on the company’s website at www.bonton.com. You may also obtain a copy of the earning’s release by calling 203-682-8200.

For the Safe Harbor, the statements contained in this conference call which are not historical facts may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results might differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the company’s filings with the SEC.

Now I would like to turn the call over to Mr. Bud Bergren, President and CEO.

Bud Bergren

Good morning and thank you for joining us. I will begin with my comments on the first quarter and our outlook for the remainder of 2009. Keith will then provide details of the quarter’s financials and review the financial guidance and assumptions for 2009. Tony will outline the quarter’s merchandise results and discuss our merchandising initiatives for the remainder of the year. After that we will address your questions.

The first quarter results were towards the upper end of our expectations and in line with the full-year guidance we provided on March 11, 2009. We were able to achieve our internal gross margin and operating income projections reflecting strong inventory and expense management.

Some highlights from the quarter include; we had an improvement in our gross margin rate of 80 basis points to 34.8% reflecting disciplined inventory management. We realized a net reduction in our SG&A expenses during the first quarter of $18.9 million and remain on track to achieve our goal of $70 million in annual savings. There was a $1.9 million improvement in our operating loss for the first quarter. EBITDA increased $1 million in the first quarter compared with the prior year period.

Through disciplined management we reduced our comparable store inventories by approximately 11% at the end of the first quarter versus a year ago. Clearance levels decreased approximately 60% compared with the prior year period. Our excess borrowing capacity at the end of the first quarter 2009 remained well above the $75 million minimum availability covenant under our credit facility.

Regional sales results reflect strength in Western Pennsylvania, Minnesota, Iowa, Nebraska and out west. The best performing markets were York and Lancaster, Omaha, Indianapolis and Buffalo. Our worst performing regions were Eastern Pennsylvania and Ohio. Our E-commerce business increased beyond our expectations for the first quarter of 2009 and well above sales for the prior year period. Tony will talk more about the merchandise side of the equation which includes a discussion on the growth of our private and exclusive brands plus key item programs in E-commerce.

While we are pleased with our first quarter results, we remain cautious as we approach the second quarter and second half of 2009. We will continue to operate as we did in the first quarter with tight controls over the business and playing defense. The economy might be showing some signs of stabilization but the potential impact of increasing unemployment and duration of this recession is still unknown.

While these conditions remain in place our focus is on maintaining our capital structure and using our merchandise optimization initiative to manage the merchandise mix for our unique set of stores. Also driving gross margins with our private brand and key item initiatives. We will continue to control inventory and expenses and instituting a balanced marketing and media plan to deliver a strong message emphasizing our value oriented merchandise assortment.

We will also continue to leverage the equity on the local brand name plates. If there is any positive to come out of this recession for us it is the opportunity to build loyalty with our customers by understanding their needs during this tough time better than our competitors by delivering the merchandise and value they are looking for.

We are implementing the right initiatives for our company in the current environment. We are taking the steps to make this a stronger company in the future. I would now like to turn the call over to Keith who will go through the financials.

Keith Plowman

Thank you Bud. Good morning everyone. I will review the income statement and balance sheet for the first quarter fiscal 2009 and close with the fiscal 2009 full-year guidance. Before reviewing the financial details I want to discuss some key items. First, as previously announced on April 8, 2009 as part of our strategic initiative to reduce expenses we elected to reduce our commitment under our senior secured credit facility to $800 million from the previous $1 billion. The impact of this initiative is an annualized decrease in interest expense reflecting unused commitment fees of approximately $500,000 per year. The commitment reduction does not impact our excess borrowing capacity.

Second, we continue to implement key cost saving initiatives outlined for 2009 and during the first quarter have reduced our SG&A expenses by over 7% or $18.9 million from the prior year’s first quarter. We believe we are on track to realize the $70 million in annual savings. These cost savings which impact our SG&A expenses and gross margins combined with lower capital spending and inventory levels will benefit this year’s cash flow. We believe the implementation of our cost savings plan will further strengthen the company for the short-term and position us for the future.

Third, we continue to have good relationships with our vendors and our banks. Finally, in our May 7, 2009 press release we noted the excess borrowing capacity in April under our revolving credit facility was $165 million which is well above the required minimum. As a reminder, this does not reflect the estimated $30 million tax refund expected to be received in the second quarter of this year.

Moving to a discussion of first quarter 2009 financial results, the net loss was $45.4 million or $2.67 per diluted share compared with a net loss of $34.1 million or $2.03 per diluted share for the first quarter of fiscal 2008. Note that the tax benefit realized in 2009 will be less than 2008 approximately $14.7 million and to be clear on the impact of the taxes the pre-tax loss in 2009 improved by $3.3 million as compared to the 2008 pre-tax loss.

Comparable store sales decreased 8.6% compared with the prior year period. Total sales for the 13 weeks decreased 8% to $644.5 million compared with $700.2 million for the prior-year period. Other income in 2009 decreased $18.4 million compared with $22.8 million in the first quarter of fiscal 2008 reflecting the reduced sales volume and proprietary credit card income in the current period.

Gross margin dollars in fiscal 2009 decreased by $13.6 million attributable to the current year decrease in sales volumes compared with the first quarter of fiscal 2008. The first quarter gross margin rate increased 80 basis points to 34.8% of net sales compared with 34% of net sales in the first quarter of fiscal 2008 reflecting disciplined inventory controls which resulted in reduced mark downs.

SG&A expenses in 2009 decreased by $18.9 million or 7.4% to $236.8 million. This is compared to $255.8 million in the first quarter of fiscal 2008. Fiscal 2009 SG&A expense rate was 36.7% compared with 36.5% in the prior year period reflecting the reduced sales volume which was partially offset by the expense reductions in the first quarter of fiscal 2009.

EBITDA, defined as earnings before interest, taxes, depreciation and amortization including amortization of lease related interest increased $1 million in fiscal 2009 to $5.7 million compared with $4.7 million in the first quarter of fiscal 2008. EBITDA is a non-GAAP term. For a reconciliation of EBITDA to net loss please refer to our earnings press release.

Depreciation and amortization expense including amortization of lease related interest in 2009 decreased $900,000 to $29.3 million compared with $30.2 million in the first quarter of fiscal 2008. Interest expense net in 2009 decreased $1.4 million to $22.9 million compared with the first quarter of fiscal 2008 reflecting reduced interest rates and borrowing levels in the period.

The income tax benefit decreased $14.7 million to $1.1 million in fiscal 2009 compared with $15.8 million in the first quarter of fiscal 2008. The decrease reflects the establishment of a valuation allowance against virtually all deferred tax assets in the first quarter of fiscal 2009.

Moving to a review of some key ratios and balance sheet amounts, we believe we have a solid balance sheet and even in this difficult environment we expect to generate cash flow in 2009 to reduce long-term debt. Our working capital decreased to approximately $438 million compared with $464 million last year for a reduction of approximately $26 million. Merchandise inventories at cost decreased approximately $83 million or 10.7% compared with last year primarily reflecting inventory reductions in response to the macro economic environment. Retail inventory for comparable stores decreased approximately 11%.

Total debt including capital leases was $1.191 billion at May 2, 2009 compared with $1.2176 billion at the end of fiscal 2008, a reduction of $25.7 million or 2.1%. We have $100 million of swaps outstanding in our fixed debt and funded debt was approximately 78.8%. Book value per share was $4.86 this year versus $18.69 in the prior year. Our capital expenditures reduced by landlord contributions were approximately $3 million for the first quarter of fiscal 2009, a reduction from $22 million in the prior year.

Regarding our full-year fiscal 2009 guidance we are maintaining the guidance as provided in our fourth quarter earnings release conference call which is as follows: EBITDA in a range of $140-155 million; loss per diluted share in a range of $3.40-4.30 and cash flow in a range of $5-20 million. The underlying assumptions reflected in our fiscal 2009 guidance include; comparable store sales decrease in a range of 6.5-9%, gross margin rate of 35.5-36%, SG&A expense dollar decrease a minimum of $70 million, effective tax rate of 0%, capital expenditures of $40 million net of landlord contributions and estimated diluted weighted average shares outstanding of 17 million.

We recognize the current retail and macro economic environment continues to be difficult despite recent indicators of some stabilization. We remain cautious and are providing our best projected view with respect to 2009. We continue to manage our balance sheet for cash and liquidity while being mindful not to jeopardize long-term initiatives. Our form 10Q for the first quarter fiscal 2009 will be available by June 11.

At this time I would like to turn the call over to Tony.

Tony Buccina

Thank you Keith. Good morning. Overall we are pleased with the first quarter progress we made on the merchandise side, successfully navigating through a continually tough macro economic environment especially of the improvement we were able to achieve in our gross margin rate. We achieved an 80 basis point improvement in our gross margin rate. We did this through good management in our inventory to sales trend. We operated with less average inventory. We began first quarter with 11% less clearance and ended it with 16% less clearance which resulted in reduced net mark downs for the quarter.

We also increased our IMU, our initial mark up, with strength in private brands through better cost negotiations. We made a big move in our Incredible Value program with store wide key items throughout all families of business and we achieved better than planned sales growth on several higher margin businesses which helped our margin through the mix.

Let me cover some of the highlights of first quarter results. A big move that we made during the fourth quarter of 2008 was sensibly planning our better businesses down to sales trends for spring 2009 and adjusting our receipts to get more out of our moderate priced businesses in Missy sportswear, ladies shoes, handbags and Men’s sportswear as we listened to our customer. These areas not only grew faster than total store, they also improved our margin because of the mix. These moderate businesses carry higher margins than the total store.

Our franchise businesses exceeded sales plan and grew as a percent of total sales. Our best franchise businesses were moderate, updated Missy sportswear, cosmetics and petite sportswear. Ladies shoes and large size sportswear fell short of plan. In Men’s sportswear our biggest success was Men’s outdoor apparel achieving sales and margin plan driven by Ruff Hewn, Columbia, [Woolrich] and Timberland.

Our most disappointing businesses for the quarter were furniture, junior sportswear and better Missy sportswear. We advanced fall with our store wide key item initiative beating planned sales by plus 3.65% and a plus 1.9% increase over prior-year period which grew penetration by two points to 22.5% of total store without furniture.

The customer is really telling us she wants value and we are thrilled with the success of our IVP Incredible Value program which grew to 8% of total company sales without furniture, an increase of 301 basis points over the prior-year period. The IVP program is our most profitable key item program and the customer gets it. Product differentiation was 30.8% penetration. We fell 4/10 short of plan and 2/10 short of prior-year period. The shortfall came from our branded vendors.

However, we are really pleased with our private brand performance beating sales plan, producing a plus 1.65% comp increase on less inventory and growing in penetration by 190 basis points to 20% penetration without furniture. Private brand beat gross margin dollar and rate plan and prior year’s dollars and rate. Our best performing private brands were Living Quarters, Studio Works, Ruff Hewn, Cuddle Bear and Intimate Essentials.

Our E-commerce business also beat sales plan and although a small business and growing we will continue to invest in this important strategic initiative. In a few categories it has become the number one store in sales volume.

Lastly, another reason for improved margin performance and turnover in our Men’s and Kid’s area for first quarter is our merchandise optimization strategy. This initiative staffs up our planning and allocation organization to support the merchants by providing the analytics and tools. We rolled this out to Men’s and Kid’s in spring 2008 and got the first taste of success during our first quarter of 2009. We rolled this initiative out to center core during the first quarter and we will roll it out in the Home store during the second quarter. We expect this to continue to improve margin performance in these areas.

Here is what we are working on for the balance of 2009. First we are going to continue to focus on gross margin rate improvement through our disciplined management of receipts, keeping inventory fresh, lean and focused. Our inventory has never been fresher with our current clearance inventories down 23%.

We expect our gross margin rate to continue to improve in 2009 in line with our guidance. We sensibly planned our better businesses for fall to trend and shifted receipts to moderate price points that our customer is currently responding to. We will grow our franchise businesses faster than total store growth and we will grow the Men’s outdoor apparel focus business faster than total store.

We will continue to maximize our store wide key item programs to approximately 25% of store sales with emphasis on new key items and aggressively expand our IVP Incredible Value program to 9% of sales versus last year’s 6% at margins higher than the total store.

We will maintain our differentiated merchandise mix of 31.4%, same as prior year, with growth coming out of our private brands to 19.6% penetration from 18.7% in fall 2008. We also have aggressive sales growth planned for E-commerce, getting more vendors and SKU’s on our site. We will also aggressively pursue additional commerce hub vendors which are on our site and linked to their full assortments. They ship from their warehouse and therefore we don’t carry the inventory but benefit from the sales.

I cannot emphasize enough we will continue to strengthen and maintain our strong vendor relationships in all categories of our business. I couldn’t be more proud of our associates in merchandise; stores, marketing, finance and human resource who have all helped navigate successfully through challenging economic times. I am also very grateful to our vendor partners, understanding our merchandise strategy and supporting it and their continued confidence in us to execute it.

I will now turn the call back over to Bud.

Bud Bergren

Thanks Tony. We are pleased to be able to report our first quarter results and the progress we have made in 2009. We will continue to manage our business with an emphasis on maintaining cash flow and liquidity. This will be accomplished by driving profitable sales and expense control.

At this time we will open the discussion to questions.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of Grant Jordan – Wachovia.

Grant Jordan - Wachovia

Obviously you took inventory down a good bit in the first quarter relative to last year. I understand some of that was a reduction in the clearance inventory. Given what you are expecting for sales are you at the right level of inventory going forward?

Bud Bergren

We fell we are. We planned our inventory to the sales trend that we had in the fourth quarter for the spring season. We think the lack of clearance inventory may hurt sales but it will definitely improve our margin.

Grant Jordan – Wachovia

I appreciate the update on the guidance. As I kind of go through the guidance given interest rate assumptions, CapEx and then the cash tax refund combined with your EBITDA guidance I am coming up with a little bit higher free cash flow number than the $5-20 million you reference. Is there an assumption that working capital will be a use of cash this year? What is the driver behind that?

Keith Plowman

There is no assumption of any working capital in that $5-20 million. We are conservatively looking at it from the standpoint of what we see coming out on an EBITDA standpoint and comparing the year-over-year basis. We use a pretty simple formula as we defined in the press release that is essentially looking at what we would have in our EBITDA. We are then coming back and taking off the capital expenditures and taking off interest and letting the number net out that way. At this point it does not reflect any capital expenditures. We do feel we are being a little conservative and we are intentionally doing that.

Grant Jordan - Wachovia

What was the CapEx spent in the quarter?

Keith Plowman

CapEx spent in the quarter net of landlord contributions was about $3 million. With landlord contributions add back probably somewhere close to $4 million. That would compare to the prior year net of landlord contributions of about $22 million in round terms. If you add back landlord contributions you get somewhere around $25 million.

Operator

The next question comes from Emily Shanks - Barclays Capital.

Emily Shanks - Barclays Capital

You are always so good about calling this out but I wanted to make sure there weren’t any significant promotional hidden shifts either out of or into 1Q versus 2Q this year.

Bud Bergren

No there really was no change.

Emily Shanks - Barclays Capital

As we think about the $70 million of savings just to clarify as well the $18.9 million of lower SG&A you cite we can assume that is out of that $70 million bucket that you have achieved thus far correct?

Keith Plowman

That is correct.

Emily Shanks - Barclays Capital

Could you help us understand what are some of the remaining initiatives that you plan to implement from here on out to get to that number?

Keith Plowman

We will continue to look for new initiatives. I will tell you everything that was outlined as we discussed in our fourth quarter earnings release conference call has been implemented and is in place. Some of it wouldn’t have been in for day one but would have been put in place as of the first quarter and most of it very early in the first quarter so we expect to realize the run rate as we go forward. The only difficulty in taking the first quarter and saying, for example, we multiply it by four is first off obviously the expenses aren’t ratably between the quarters. Second, as you know last year we did realize significant savings in the fourth quarter. Our total reduction in SG&A I believe last year was in round terms $32-33 million and almost half of that came into place in the fourth quarter.

I expect we would realize significant savings as we go forward in accordance with what happened in the first quarter. The number will go up a little bit from that but it will also be against tougher comparisons. So I think you are going to see a number that doesn’t have as much incremental save on a year-over-year basis.

Operator

The next question comes from Karru Martinson - Deutsche Bank.

Karru Martinson - Deutsche Bank

Does the $5-20 million of positive free cash flow include the $30 million tax refund?

Keith Plowman

It does not.

Karru Martinson - Deutsche Bank

That will be on top of that?

Keith Plowman

That is correct.

Karru Martinson - Deutsche Bank

In terms of liquidity, certainly if we look at it year-over-year we are down here but are you still paying early and getting the discounts from some of your vendors and is that reflected in the number?

Keith Plowman

We definitely have some relationships out there where we are still exercising the intent to go forward. At that point and still in the future with the discounts. Right now we are trying to look at it financially and continue to look at what the advantages to the company in taking the benefit of the discount which is very advantageous with interest rates as low as they are and then also balancing that with what happens with our excess capacity. So we continue to review that as we go forward.

Karru Martinson - Deutsche Bank

The $30 million that should be in, that is a definite it will be in this quarter?

Keith Plowman

It will be in the second quarter yes. Based on everything we are doing, obviously there is nothing guaranteed in life. As we are doing it based on filing time and based upon what is the average response and all the preparation we are doing we are well positioned and expect to have that received in the second quarter.

Karru Martinson - Deutsche Bank

I think I ask this question on all the calls, are we seeing kind of a bottoming in the auto markets that you guys have with 11-12% of your sales?

Bud Bergren

I don’t think it is necessarily bottoming right now. A lot of things are still going on. It is about 12-13% of our sales. The difference is only running about 1 point less than our total company sales. So it is not off that much.

Operator

The next question comes from Carla da Silva - JP Morgan.

Carla da Silva - JP Morgan

A couple of housekeeping. Borrowing base, did you give the borrowing base for the quarter?

Keith Plowman

The borrowing base for the quarter do you mean the borrowings against?

Carla da Silva - JP Morgan

No, what the total borrowing base was. Was it greater than the total facility size of 800?

Keith Plowman

No. We reduced facility size down to 800 quite frankly because we have not with that facility in place ever gotten close to that number. The highest we have ever reached I will say in round terms is somewhere around possibly $700 million or somewhere in that range in our very peak season. That is why we thought it was prudent to pull it down. No, we are nowhere near that. I would say in round terms somewhere in the $350 million range or something like that is what we have borrowed against. The total availability we just add back the excess capacity and that will tell you the amount.

Carla da Silva - JP Morgan

Did you give the LC amount? Letters of credit?

Keith Plowman

Letters of credit were around $48 million, almost $49 million at the end of the first quarter.

Carla da Silva - JP Morgan

Then you do give some good color in terms of market strength and market weakness. When you look at those markets, either the markets that performed better or those that performed worse, was it pure market dynamics or were you gaining or losing market share?

Bud Bergren

I don’t think we were losing market share per se. The markets that actually did the best for us, the auto industry was 1% worse than our company trend but we do a lot of business in agricultural areas too which is about 18% of our business and that was actually up five points over the company’s trend. The markets that are doing well tend to be some of the markets that are more moderate merchandise oriented versus some of the better ones.

Carla da Silva - JP Morgan

Do you know what percentage of your receipts are factored? Your inventory with the vendors?

Tony Buccina

We really are not sure on that. We tried to explain that before and that came back to haunt me in my estimation so I’m just going to leave it that we are not positive. There are certain vendors who are with a factor and we don’t even know it and then there are certain ones that are with a factor. So it is hard for us to identify exactly what it was.

Operator

The next question comes from Colleen Burns – Oppenheimer.

Colleen Burns – Oppenheimer

Of the $70 million of savings have all the actions been taken to achieve those savings at this point?

Bud Bergren

Yes. They have been implemented in the first quarter of this year.

Colleen Burns – Oppenheimer

We have heard a lot of commentary recently that the sales environment seems to have stabilized. Would you say that you are seeing the same trends in your region?

Bud Bergren

I would say it is a little more predictable than it has been in the past. I think it is easier for us to forecast. We can forecast expenses very well and have a pretty good idea where our gross margin is going to come in but sales still do fluctuate quite a bit. So I can’t really say that it has hit bottom or anything. It is still the most difficult thing to forecast of any part of our income statement.

Colleen Burns – Oppenheimer

In terms of the competitive environment and in particular the My Macy’s program it seems to have been somewhat successful for them in their pilot region. Can you talk about if you are seeing anything there? If in fact you are starting to see some impact on that program or if there is any color you can provide?

Bud Bergren

We really haven’t seen anything that has affected us per se. I am not an expert on it but I think they made the comment it was helping them in the Pittsburgh area and we don’t compete with them in Pittsburgh. We don’t compete with them in all their markets. The ones we are in we haven’t seen a major effect either way.

Operator

The next question comes from [Rishi Peret] – Sterne Agee.

[Rishi Peret] – Sterne Agee

Going off of the previous question in terms of day’s payable given that it was around 34-35 days should we anticipate the trend from this quarter to continue through the rest of the year or do you anticipate this improving in terms of days payable?

Keith Plowman

I think a lot of that depends to be quite honest on where the markets are at and what happens with the macro environment. We have seen improvement from the end of the fourth quarter to the end of the first quarter if you look at where we were at the end of the fourth quarter and where we are today there has been quite a bit of improvement at the end of the first quarter. Certainly as we sit here it is one of those that is very difficult to predict based upon the macro environment where things will go. The other thing you have to watch for is seasonality changes in there. The other thing you have to be careful of is receipt of inventory depends on how you receive it towards the end of the month versus the beginning of the month. There is a lot of factors that really impact that and make it difficult to give a good prediction.

[Rishi Peret] – Sterne Agee

In the past you have stated you had about 7-8 stores that were probably cash flow negative and that this may have increased after Q4 of last year. Can you quantify the number of stores that are cash negative today and what your plans are for these stores?

Bud Bergren

We have about 20 stores that we continue to watch and we mentioned on the fourth quarter call because at that point we did have the numbers through the year. Based upon the performance in 2008 which was obviously lower than 2007, 2006 and so forth, our list grew from about 7-8 stores to 20 stores that we are looking at. We have recognized an impairment on those assets at those locations. We are continuing to take initiatives to try and improve performance at those locations. Part of it is just seeing whether in fact we are looking more at a macro trend that will have some improvements as we go forward versus do we think it is a trend within that market that won’t change.

Operator

The next question comes from Karen Eldridge – Goldman Sachs.

Karen Eldridge – Goldman Sachs

Can you just touch base for jewelry your department? They have been pretty up front about their desire to shift more zero support versus provided department store services. What is the status of that relationship? Do you expect it to continue and if not what is your back up plan?

Bud Bergren

Was the question on [Findlay]?

Karen Eldridge – Goldman Sachs

Yes.

Bud Bergren

[Findlay] will be in our stores for about 3-4 more months. Then we will be back in the fine jewelry business with another strategy.

Karen Eldridge – Goldman Sachs

You have the infrastructure and the people in place to carry that out?

Bud Bergren

We have four or five options right now. No matter which one we take we will be fine.

Operator

The next question comes from Ken Bann – Jefferies & Co.

Ken Bann – Jefferies & Co.

You mentioned that the IVP program the margins are quite good. Can you give us an idea of how much better they are? Are they significantly better on a gross margin basis than sales of other products?

Tony Buccina

Look, they are much better than the store and they are much better than the total key items margin but I am not going to tell you what that is. It is better.

Ken Bann – Jefferies & Co.

Significantly better?

Tony Buccina

Yes.

Ken Bann – Jefferies & Co.

At 8% of sales now I am surprised you are only taking it as going up to 9%. Is that being conservative?

Tony Buccina

I think that is being pretty aggressive. It has gone from 5% to 8% in the spring and you are going to be going another 300 basis points in the fall. It is a lot of effort to get that done through one, selecting the product that has real every day value and number two ensuring everything is in place to market it and make sure you come out on it. That is in my opinion that is an enormous move.

Ken Bann – Jefferies & Co.

Finally, on advertising expenditures were they significantly different in the quarter versus last year?

Keith Plowman

They were basically flat.

Ken Bann – Jefferies & Co.

Do you plan to keep it flat for the year-over-year?

Keith Plowman

The expenditure the rest of the year might be down a little bit because of the sales trends.

Operator

This concludes today’s question-and-answer session. At this time I would like to turn the call back over to Mr. Bud Bergren.

Bud Bergren

We appreciate your interest in Bon-Ton. We look forward to speaking with you about our second quarter results at our conference call in August. Thanks for joining us this morning.

Operator

That concludes today’s conference. Thank you for your participation.

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