Family Dollar Stores Inc. Presents at Barclay's Americas Select Franchise Conference, May-21-2013 02:30 PM

| About: Family Dollar (FDO)

Family Dollar Stores Inc. (NYSE:FDO)

May 21, 2013 9:30 am ET


Mary A. Winston - Chief Financial Officer, Chief Accounting Officer and Executive Vice President


Meredith Adler - Barclays Capital, Research Division

Meredith Adler - Barclays Capital, Research Division

Excuse me, we'd like to get started. Welcome, everybody to the presentation and I think probably quite a few of you were here for CBS but as a welcome again, and it is my great pleasure to introduce Mary Winston, who is the new CFO at Family Dollar's. She's been with the company about a year. Prior to that, she worked with Giant Eagle, which is a big private grocery chain based in Pittsburgh. And before that, she worked for Scholastic Magazine, still based in New York?

Mary A. Winston


Meredith Adler - Barclays Capital, Research Division

So she's going to walk you through a little bit about the company. I don't think there's anything quite comparable to Family Dollar in the U.K. or Europe and then we will open it up to question.

So Mary?

Mary A. Winston

Good afternoon, everybody. Can everybody hear me at this side? Good. Okay, great, and thanks a lot Meredith for that wonderful introduction, and thanks to all of you for being here with us today. This is a special day for Family Dollar. It's our first ever investor presentation outside the U.S. We've come a long way in our 53-year history as a small format retailer and today is another important step in that evolution, as we bring our story to Europe.

I'm not sure how many of you have had the opportunity to shop in our stores. But I'd like to take some time at the beginning of the presentation to provide a brief overview of our business and then we'll talk about our long-term financial goals and how we think about delivering consistent, long-term growth for our shareholders.

Before I begin the presentation, I'd like to call your attention to the cautionary statements on the screen. Today is Tuesday, May 21, 2013, and my comments today will include forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act. I would remind you that a number of factors could cause these actual results -- our actual results to differ from these forward-looking statements and I'll refer you to the cautionary statements included in our recent SEC filing. This presentation is being webcast and the slides will be available in the Investor section of our website at

Family Dollar was founded in 1959 by Leon Levine, the father of our current CEO, Howard Levine with the opening of our first store in Charlotte, North Carolina. Our strategy from the beginning was to be a low-cost retailer that could deliver great values and easy convenience for customers. Our initial merchandise focus was on closeouts and irregulars from local textile mills in the Carolinas.

Our chain has evolved and grown considerably over the years and the video that you're about to see next does a great job of describing our Fam -- what Family Dollar is today.


So hopefully that gives you some of the key facts about the business. And now just to reiterate some of those key points from the video. Today, Family Dollar is a chain of neighborhood stores providing value and convenience to a variety of budget-conscious customers. Our stores generate an average of $1.3 million in sales and average about 7,200 square-foot of selling space. We offer about 7,500 SKUs everyday and provide a quick fill-in shopping trip.

Our average customer transaction is about $10 and generally includes 4 to 5 items. When we opened our first store back in 1959, everything in the store was $2 or less. As we've grown and enhanced our assortment, we have evolved to a multi-price point retailer. Today, about 30% of our items are priced at $1 or less, but we also sell merchandise like Tide and TYLENOL at prices much greater than $1.

With our first few openings, our initial geographic focus was in the Southeast of the United States. And over the years, we've gradually moved North and Westward. Today, we operate more than 7,700 stores in urban, rural and suburban locations in 45 states.

We carry a variety of consumable merchandise, which represents about 72% of our sales. At Family Dollar, this mostly include: Food, health, beauty and personal care items, household products, pet supplies and tobacco. We carry national brands like Clorox and Pepsi, as well as quality private brands like Family Gourmet and Family Pet.

We also sell more Discretionary merchandise, including apparel, home decor and seasonal items.

Let me provide a little bit more color about our customers, who they are and some of the key statistics. 68% of our customers regularly use coupons. 58% are very brand loyal, 50% rely on some kind of government assistance, 46% are over the age of 55, 44% on a smartphone and 31% of our customers have kids under the age of 18.

Our core customer continues to rely on us to help her stretch her budget. Middle-income families also appreciate the savings we offer on the items they use everyday.

Our customer base is evolving. And throughout the most recent economic downturn, we have gained a lot of new customers.

Since 2008, we have grown our customer base by 2.5 million households and nearly 40% of these households earn more than $70,000 a year. As our customer base broaden and we attract more middle- and upper-income customers, our market opportunity will continue to grow.

As our customers have evolved, so has our competition. Today, we compete with a variety of small box and large box retailers, who also serve lower-income consumers. Our focus on value and convenience differentiates the shopping experience at Family Dollar. Our values are superior to drug and grocery. And our small-box convenience allows us to compete effectively against the big-box operators.

As our unique combination of value and convenience has resonated with more customers, we've seen consistently strong sales growth. Today, we're a Fortune 300 company and sales this year are expected to exceed $10 billion.

The combination of strong top line sales and expanding profit margins has delivered strong earnings growth.

And while we're focused on growing earnings, we're equally focused on improving the returns on our invested capital. Our first priority when deploying capital is to invest back in the business, as we believe reinvesting is the best way to generate returns to shareholders. And even as we increased our level of investment in the business over the last few years, our returns have continued to improve. Looking forward, we believe, we have a tremendous opportunity to serve more customers and deliver our financial returns that are even higher.

Over the last few years, the impact of higher unemployment and the contraction of household income have increased the importance of value and convenience for many families. Over the last few years, retailers who offer customers both value and convenience have gained share.

Given the growth in our customer base and the increase in appeal of value and convenience, we believe we have a significant opportunity to expand our business and our share of wallets. As we pursue this opportunity, we want to make sure that we continue to deliver strong returns per shareholder while also maintaining an efficient capital structure.

While there may be a quarter-to-quarter fluctuations as the economic climate remains challenging, over the next 3 to 5 years, our goal is to deliver 5% to 7% net new store growth, mid-single digit comp sales growth, operating margin expansion, double-digit EPS growth and to maintain an investment-grade credit rating.

As we continue to attract new customers and as our store productivity metrics continue to improve, our small footprint provides us significant new store growth opportunities.

We believe we can effectively manage and sustain annual net new store growth of 5% to 7% in the 5% to 7% range. Between 2006 and 2010, we slowed new store growth and accelerated capability building investment.

With this foundation in place, we began reaccelerating growth in fiscal 2011 and expect to continue this rate of growth for at least the next few years.

To deliver consistent, long-term growth, we believe that it is important to balance new store growth with sales growth from existing stores. As we look to drive comp store sales growth, our focus is on improving the shopping experience and becoming more relevant to our customers.

2 years ago, we launched a multi-year store renovation effort. Our goals are to create a more consistent customer experience across the chain, improve our competitiveness and establish a foundation for future assortment and productivity growth.

We've improved the navigation and shopability to make it easier for customers to find what they need quickly. And we've improved our in-stock level to make sure that we can satisfy their needs better.

We have an expanded Coke cooler selection, improved interior signage and branding and an enhanced to checkout to improve customer flow. Both customer satisfaction and team member engagement are strong in renovated stores and we continue to be pleased with the sales growth and financial return.

By fiscal 2016, we expect that most of our stores will have our new refreshed format.

In addition to improving the in-store shopping experience, we are intensely focused on capturing more of our customers' trip. We have made significant changes in our assortment over the last 2 years to become more relevant and to capture more of our customers' wallets and these investments are delivering results.

While we still have a very small percentage of our customers' annual spend, we're increasing our share significantly.

Food, Household products and Health & Beauty Aids are our customers' most frequent trip drivers and we made a number of significant investments in these categories over the last few years.

Food is the most frequent trip driver for our customers. And to improve our relevance, we've increased our food assortment by about 40%. We've introduced new national brands, expanded our in-line and cooler assortments and established a strategic partnership with McLane Company, a leading provider of grocery, tobacco and food service supply chain solution.

We have also increased our HBA assortment by about 40%, with a focus on beauty, over-the-counter and personal care.

Our customer research indicates that our customers' over index in 18 of the top 20 ailments affecting the U.S. population. Many of our customers don't have health insurance. So our expanded assortment provides them with more affordable solutions to take care of themselves and their families.

While in May -- finally in May of last year, we began adding tobacco to our stores. And today, about 7,000 stores carry tobacco products.

This assortment expansions have delivered strong results. Over the last 10 quarters, we've driven double-digit consumables sales growth and our market share has seen double-digit growth over the last 12, 24 and 52 weeks. The strong sales momentum speaks to the compelling value we offer on basic items that we all need everyday.

Over the same period however, our discretionary businesses have been pressured. Macroeconomic factors have certainly impacted our customers' willingness and ability to splurge on new clothes and home decor.

But we also have reduced space in our stores for these more discretionary category and have expanded space for trip-driving consumable categories.

While we expect that the near-term economic environment will remain challenging for our consumers, longer term, we believe that discretionary category will play an important role in our business. These categories differentiate the shopping experience and drive higher gross margins and we're working diligently to improve their performance.

While we're investing to drive sales growth, we're also focused on leverage to expand gross profit margins and leverage our expenses. Our 2 primary initiatives to enhance gross margin are global sourcing and private brands.

Today, about 30% of our total purchases are manufactured outside of the U.S. and our approach is mostly through agents and domestic importers. We believe that we have a significant opportunity to reduce our cost by expanding our direct-to-factory purchases.

In fiscal 2011, we opened our first overseas office in Shenzhen and Hong Kong. And last year, we opened an office in Shanghai. And most recently, we opened an office in Bangkok, Thailand.

At the end of last year, about 4% of our total purchases came directly from overseas factories. We believe we can increase that penetration to 13% by 2015 and expect this to result in significant savings as we move to a more efficient, direct model.

Our second major margin expansion opportunity is to expand our sale of private brand consumables. We have invested significantly in our private brand organization and capabilities over the last 3 years. As a result, we have significantly improved our merchandise quality and have more than doubled our assortment of private brand consumables.

Our customers have noticed, sales of private brand consumables increased 16% last year and we're on track to reach $2 billion in sales by 2015.

While we're focused on enhancing gross margin to drive continued profitability, we're also working to improve our core processes to increase workforce productivity. We rely on small teams to manage our small stores. And over the last 2 years, we've introduced a lot of change as we have expanded our Consumables assortment and renovated our stores. Moving forward, we're focused on simplifying store-level processes to make it easier for our store teams to execute for customers. And we believe this focus will help to stabilize our workforce, improve execution and reduce inventory shrink.

To wrap up my presentation today, I'll quickly discuss how we think about our capital allocation. Our business generates high returns on invested capital. In this chart, you'll notice I'm showing CapEx on a net basis to reflect the impact of our fee development program and our sale-leaseback transaction. This program is an alternative to our typical build-to-suit model. In this program, we fund the development of new stores and own the building and the land at the end of the process. Once again, a critical mass of stores will then execute a sale-leaseback transaction. The resulting effect is leasing stores at a lower cap rate than our traditional build-to-suit model.

Our next priority is to fund our consistent dividend program. We've raised our dividend to 37 consecutive years, and this is a record we're extremely proud of.

To further show our commitment to shareholders, in January, our Board of Directors approved a 24% increase in our regular quarterly dividend.

Our third priority, when deploying capital, is share repurchases. And we will continue to do share repurchases opportunistically as a way to lower our cost of capital.

The guard rails for our capital allocation strategy are to preserve our investment grade rating, which is very important to us. It gives us more attractive access to bank credit market and provides us with efficient access to high-grade, debt capital market. It also helps us manage an efficient and cost-effective real estate leasing program.

Last year, our lease suggested EBITDA was 3.2x. Ideally, we want to manage this metric within the range of 3x to 3.3x.

We've implemented a lot of change over the last years to position the organization for long-term growth, sustainable growth and we're seeing tangible results.

We're growing our store base, gaining market share, improving the shopping experience and delivering higher markups from our margin drivers.

As we look forward, our focus is on refining these efforts and driving higher returns from these investments. This focus, combined with our efforts to improve efficiency and productivity while reducing cost, should enable us to drive the business to higher levels of profitability.

In closing, while the operating environment remains uncertain, we have made significant improvements to increase our relevancy to the customer and improve the shopping experience. These investments position us well to deliver returns, in both challenging and improving environments. While many of you may think that we only benefit from economic downturns, history would prove that theory wrong. Family Dollar has a strong record of delivering financial returns to shareholders in weak economic periods and in recovery.

While more people are focused on value during recessionary times. During recovery, our core customers have more money to spend on discretionary purchases.

Family Dollar remains a great investment in good times and in bad times and we're very excited about the opportunities ahead. And now I'm happy to take your questions.

Question-and-Answer Session

Meredith Adler - Barclays Capital, Research Division

Can you provide a bit more color on the current trends that you see on the consumer? I mean, we have heard from other players like Walmart that the low-end side of the consumers that you have remains very pressured. A bit more color on that side? And if you can geographically that would be helpful, if you see any major difference in spending patterns?

Mary A. Winston

I would say we're seeing some of the same trends that you're hearing from others and if you read our comments in our last couple of quarters, we also talked about seeing pressure on our specific customer segment and seeing that translate into pressure in terms of our Discretionary sales. So I think we are seeing those same trends. Now that says, when you start to look at the economic data in the U.S., you do start to see signs of improvement. Unemployment has improved. Housing is starting to pick up at certain levels in the market. But I think when you look under that data, at the layers of exactly where that's happening, the averages are misleading when it comes to the lower income consumer and particularly our consumer population. I think there continues to be pressure on that consumer. I think that consumer segment tends to lag in terms of improvement as recovery occurs. So while unemployment is improving, it's still very high for that segment. So I think we -- our expectation is that there's going to continue to be pressure on that customer. They're going to continue to focus on buying the things that they need because they do live on a fixed budget and as fluctuations occur and the economy or unexpected things happen like payroll tax increases or whatever, that causes them to spend less on more Discretionary items. We've certainly seen that in our business and I think other retailers have as well. I don't but there's any huge geographic disparity. I think when we went into the recession, there were certain markets, certainly from a real estate standpoint, that were more impacted than others. And if you look state-by-state, in terms of unemployment, there were some differences. As we see ourselves coming out of that, I think it's relatively even. But I think the states that were hit the hardest are probably still the ones that are trying the most to recover, but that's what we're seeing. Again, we're in 45 states. So our business is pretty far flung and pretty insulated from isolated activity across the country.

Unknown Analyst

When you think about the comps, in terms of new customers versus wallet share, can you talk about what you see is more important of those 2. And then in terms of the source and greatest threat to your market share gains you talk about that a little bit?

Mary A. Winston

Yes, okay, in terms of comps, if you have been following the company or maybe you haven't so I'll just say, this year, we have certainly had some challenges. Our comp expectation for the back half of this year is 2% to 4%, which is lower than what our initial aspiration was when we started out the year. That's reflective of the challenges we've seen on the discretionary side of the business and I showed you some of the numbers on Consumables and we're expecting continued strong growth on Consumables. But given the economic backdrop I just talked about, we are expecting continued pressure on the discretionary side of the business. So for the year overall, we're looking in that 3% to 4% range. When we look out beyond that, we continue to look for comp growth mid-single digit is generally what we're looking for. And your second question was?

Unknown Analyst

The first question in terms of new customer per wallet share, which of those are you seeing more focus on?

Mary A. Winston

Actually we're focused on both. We are.

Meredith Adler - Barclays Capital, Research Division

Can you repeat the question?

Mary A. Winston

Okay, the question was, are we looking at share of wallet and are we looking at new customer growth and which we are more focused on. And my answer to that would be that we are focused on both. We're focused on driving traffic in the stores, whether that be from new customers or from more trips from our existing customers, and that's been the premise behind our focus on Consumables all along because we think with a strong consumable assortment, we can do both. We can attract new customers to our channel and our stores and we can drive more trips with the customers that we already have.

Unknown Analyst

[indiscernible] the greatest [indiscernible] that's threatening the gain share?

Mary A. Winston

If you look up -- the question was, what do I see is the greatest stores -- the greatest threat and opportunity as it relates to growing share. I think if you look at our channel overall, the share of wallet is very low. So I think we have lots of opportunities. There's no question about that. So I think the key to succeeding and continuing to grow our share, wallet and grow our market share is going to be relevancy to the customer. To be very attuned to what the customer wants, what the customer needs, what they're going to buy, strengthening our merchandising capability, whether it'd be in Consumables or discretionary and being attuned to what the customer wants. So that is our biggest focus, is staying close to what the customer wants, giving the customer what they want, responding when we think we've got it right and responding quickly when we don't think we've got it right. We recognize that within retail, while we've had some challenges with the growth in the last couple of quarters, still the dollar channel is the growing spot within retail. And so, of course, that's caused competition to take a look at our channel. And so are there threats from competition? Yes. But are these new? No. We've always competed with back big-box retailers. We've always competed with grocery. And I think it's that unique combination of value and convenience that has caused us to be successful and I think we will continue to be.

Unknown Analyst

You talked about your store expansion program. The other dollar stores are also planning a quite aggressive expansion, does, does this mean you have to be careful about it or is -- you're planning to [indiscernible] to grow quickly?

Mary A. Winston

I would say yes, and yes. So we obviously have to be very careful about it because we are making a significant investment. Last year, we opened 475 stores. This year, we're opening 500 new stores. And we foresee ourselves growing square footage over the next 3 to 5 years at 5% to 7% a year. So that would say, about that same number of stores or even a few more as the chain grows. But clearly we have to do that in a very planned-full way. Because as you point out, our competitors have similar aspirations in terms of the number of stores that they're opening. I think it's our small box size. And therefore, our narrow trading area for each individual store that allows us to have lots of opportunities. So you saw on that chart up there that we think for our store in particular, we have another 11,000 stores that we could open up. Some of that is looking at geography. If you look at where we are geographically, we're very concentrated still on the eastern part of the country and we have lots of opportunity on the West. But we are looking at urban opportunities, rural opportunities, suburban opportunities. And with our narrow trading area, we are still adding stores in urban markets that we've been in for a very long time, and you think that works for us? That the return we're getting on our new stores would warrant that investment? But we're comfortable with it.

Meredith Adler - Barclays Capital, Research Division

I have a couple of questions please. First of all, generally your stores are regarded as the beneficiary of downtrading. Just your comments on that. And also on an impact that the payroll tax might have had. And the second question was, a company which I know is not directly comparable to you, like TJX, went through a tremendous process of making their stores nicer places to be and I just wonder if you could talk about that a bit?

Mary A. Winston

Okay. So first let me talk about the trade -- the benefit from trading down and whatnot. And as I've said in my more prepared remarks. I do think we have been benefited from that. There's no question. I think, as the economic climate in the U.S. has been challenged, I think we've seen more and more people, for various reasons, either their income drops in, in a level where they have to be much more conscious of value or just in tight economic times, people are more worried about the certainty of their jobs and what's coming through in their paycheck and they become much more conscious of value and then convenience has always been a strong point for us. So it is true. Yes, we benefit from customers who are trading down into our space. That links to your second question though about renovating the stores, changing the customer experience that you compared it to TJX. But that's been a big part of our strategy to also -- as those customers come in to our stores and if they make a higher income level or they're accustomed to shopping in a different channel, they generally come with different expectations around the assortment that's going to be available in the store, the level of customer service and many other things. And so, as we have attracted new customers, we're making sure we keep those customers, and that's a lot of the premise behind renovating our chain, focusing on our team members with customer service training and things like that. And so we are focused on -- once we get those customers, we want them to like what they see in our stores, be happy with the assortment, be happy with the shopping experience and stay with us even as times -- economic times improve, and then the other factor that we expect that as economic times improve is our core customer who've shopped with us all along will have more money and can buy more of those discretionary items that for us have a higher margin.

Unknown Analyst

[indiscernible] okay? Does that have an impact?

Mary A. Winston

It does have an impact and I would say, everything has an impact. The majority of our customers make less than $40,000 a year and they live on a fixed budget. And so, they may or may not be living paycheck to paycheck, but the fix reality is they certainly have a certain amount of money that they're going to spend. And a 2% payroll increase just simply takes money out of their wallet and they have less money to spend. How we've seen that play out in our business is -- they're continuing to buy the consumable items that they need. So they're continuing to buy milk, bread, diapers, things that they need but they may forego of those more discretionary items, like buying a new top to buying a new set of gym clothes or whatever those more discretionary items are, that they can delay and purchase later. But we've seen the payroll tax have an impact on that and things like the weather variation. That dramatically change our Apparel sales in terms of how quickly and how willing people were to start buying spring clothing when it was still very cold. So all our customers are very sensitive to all those things.

Unknown Analyst

You talked about improving diligently some of your -- I think you were referring to your discretionary offering? If I'm correct, can you give us some practical examples of what you're doing. You talked about driving the cost expense a down by -- I guess buying direct I assume, follow that is for discretionary, what else are you doing?

Mary A. Winston

Yes, so a lot of that is discretionary, so you're right, that initiatives does will help markups on our discretionary business. We're also taking a look at the assortment in discretionary. Quite honestly in over the past year, a year and a half, we've been very focused on consumables. We've been very focused on that assortment. We've expanded the assortment 40%. We've changed the team there. And just from the top of the house, all the way down, very focused on driving Consumables. We've been really successful at that. I think the downside of that is, maybe not as much focused as we should have placed on. So some of it is the basic blocking and tackling. Staying close to what the customer is looking for, making sure we understand the trends, making sure we're focused on what our customers come to us for, which is more basic items, socks, underwear and basic fashion items and making sure we have those items right, both from an assortment perspective, a color and trends perspective and a cost perspective. So we're refining that. We will -- we've made some changes on our discretionary merchandising teams. We'll start to see the impact of that as we go into the fall season when we change our head of Apparel about a year ago and we've made some changes on discretionary overall. And so, those -- the new strategies coming from that team will be rolling out in the coming months and so we'll see that. So I think those are the probably the main things. I think the other thing that has impacted that business, as I mentioned in my remarks, is the amount of square footage that's devoted to it. As we increased our Consumable assortment by 40%, we had to increase the space in the store. We haven't made our stores any bigger. So the space had to come from somewhere in it and it came from Apparel and Home. So the more discretionary categories. So I think that has impacted the business as well. So we're looking at our store format, thinking about making some tweaks there, not necessarily increasing space, but maybe the positioning in the store, in some cases. So those are tangible examples of things we're looking at.

Unknown Analyst

Could you describe the economics of [indiscernible] please, how does this impact your margins?

Mary A. Winston

Yes, I can describe it in general terms. We definitely not get into specificity about any one business deal. But McLane -- the deal with McLane works for us for a lot of different reasons. The primary driver for that deal was the ability to improve and consolidate our supply chain around refrigerated and frozen foods. McLane is the leader in distribution in this area, in the U.S. And again, with the 7,700 store chain, we had a very fragmented infrastructure in that regard. So we had 50 to 60 different distributors delivering to our stores, different delivery frequencies, different price points, different assortment across the chain, out of stock issues because of some of the deliveries schedules that we had. So we wanted to improve that entire picture and really put a focus on growing that frozen and refrigerated business. We've done that. We're very happy with the results of that sales and that business and great. Our out of stock levels are down significantly. We've got consistent delivery now. We've got a much broader assortment, McLane has purchasing power so even our pricing is better in some cases. So that has been a positive for us. The other component of that deal is tobacco. They're also our distributor for tobacco. And tobacco comes in to play because: # 1, our customers' over index with smoking. So if the product that we knew would work with our customers that from a distribution standpoint is also a product that works from a financial standpoint with McLane because it increases their delivery size to our stores. And so that allows the numbers to work. So overall, we're happy with the arrangement with McLane. It's been accretive to our bottom line. It's been a positive all around.

Meredith Adler - Barclays Capital, Research Division

Maybe I'll just throw 1 or 2 questions in.

Mary A. Winston

You're allowed.

Meredith Adler - Barclays Capital, Research Division

There's -- I've got a lot of questions and I'm sure you have too, about inventory. Because inventory's been growing faster than sales. Can you talk a little bit about why that is and whether we should be concerned about the quality of the inventory?

Mary A. Winston

Yes, you should not be concerned. You knew I was going to say that, but yes, inventory have grown at a rate that outpaced the sales. And we've seen that for a number of quarters in a row. It was not unexpected from our standpoint, in the sense that we increased our Consumables assortment by 40%. We had to build inventory in order to support that. We've started building inventory before we started making some of the big changes, and we've seen that inventory level continue to be high, as it relates to Consumables. If we look underneath that, all of the inventory growth has been Consumables. Our discretionary inventory is actually well controlled. We have -- and given the challenges we've had in that business from a sales standpoint, we've been controlling receipts. So we've cut receipts this year to make sure we don't have any excess inventory, as well as markdown risks. We managed our markdowns effectively earlier in the year. So we think we have it under control and we think it's reflective of the changes that we've made in the business. What we expect to see going forward, as we get into the back half of the year and by the time we get to the end of the year, we expect to see inventory growth more in line with sales.

Meredith Adler - Barclays Capital, Research Division

I have another question. There's a question, go ahead.

Unknown Analyst

In terms of your priorities, you've been with the company now for about 12 months or a little over, if I'm not mistaken. Can you comment what are sort of your key priorities be, on the working capital side, tax optimization, capital structure? You as the CFO of the company, what are you tackling as your priorities at this point?

Mary A. Winston

Okay, I think my priority is I would say, fall into 3 buckets. The first has been to partner with our CEO, Howard Levine and our President Mike Bloom and the rest of our Senior Management team to help us evaluate the financial implications of initiatives that we might be looking at going forward. So to really think about -- we have just an endless list of possibilities, in terms of things that we could do in the business, to help us get a really good hand along what's the financial impact of that, what has the greatest return, where should we be making our investment? So tightening up our capital allocation decisions and our understanding of returns and using that as a vehicle for making -- helping us make decisions as we go forward. I'd probably say, that's a big priority. Looking at our capital structure, looking at maintaining our investment grade rating, but also looking at an environment where the capital market, the cost of debt is relatively low. So just looking at that whole mix of things and making sure that we're comfortable with that. And then I would say the third priority is within my own financial shop, looking at our financial infrastructure, our financial systems platform, so we're upgrading our systems platform, strengthening our talent in the finance organization, showing up our forecasting processes and capabilities. So all of those kind of tactical within the finance shop infrastructure thing.

Meredith Adler - Barclays Capital, Research Division

I think we're out of time actually. Thank you, all very much. Thank you, Mary.

Mary A. Winston

Okay. Thank you, all.

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