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Executives

Jean Fontana - ICR, Investor Relations

Brendan Hoffman - President and Chief Executive Officer

Keith Plowman - Chief Financial Officer and Executive Vice President - Finance

Analysts

Mary Gilbert - Imperial Capital

Karru Martinson - Deutsche Bank

Jonathan Hart - Buckingham Research

Edward Yruma - KeyBanc Capital Markets

Carla Casella - JPMorgan

Hale Holden - Barclays

The Bon-Ton Stores, Inc. (BONT) Q1 2013 Earnings Conference Call May 23, 2013 10:00 AM ET

Operator

Good day and welcome to The Bon-Ton Stores, Incorporated First Quarter Fiscal 2013 Results Conference Call. Today’s conference is being recorded. There will be a Q&A session during today’s call. (Operator Instructions)

At this time, I’d like to turn the conference over to Jean Fontana. Please go ahead.

Jean Fontana

Thank you. Good morning, and welcome to The Bon-Ton’s first quarter fiscal 2013 conference call. Hosting the call today are Mr. Brendan Hoffman, President and CEO and Mr. Keith Plowman, Executive Vice President and CFO. 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 earnings release by calling 203-682-8200.

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 including those set forth in the cautionary note in the earnings release and all of which are described in the company’s filings with the SEC.

I would now like to turn the call over to Mr. Brendan Hoffman.

Brendan Hoffman

Good morning and thank you for joining us today.

Our first quarter financial results demonstrate meaningful progress on our strategic initiatives. Our comparable store sales increased 1.2% despite the challenges caused by the inclement weather that forced us to have an abnormal amount of store closings. We achieved 57 basis points of gross margin expansion thanks to a better balanced merchandise mix in a more effective markdown strategy.

Our actual retail gross margin showed greater improvement, its way down by the fulfillment costs from our online business in the way these costs are accounted for. In addition, we reduced costs all of which enabled us to triple EBITDA to over $15 million. Additionally, one week ago today, we issued a press release announcing the pricing of our upsized offering of $350 million of second lien senior secured notes due in 2021 at 8%.

And now, I briefly like to discuss the first quarter. We continued to fine-tune our merchandise assortment to achieve a better balance for our core customer who leans towards our traditionally styling and vendor offerings. While developing our updated resources to try and attract the younger customer. We are pleased with the continued improved performance our ladies apparel division let by renewed emphasis in dresses along with a recovery of the moderate and plus size businesses that we have misaligned at this time last year.

We also started the process of reengineering our junior business to broaden its appeal to a young contemporary customer. This includes testing of repositioning of the department on the selling floor by moving it adjacent to the rest of the ready-to-wear area, currently is segregated off in a different floor.

Other strong performance for the quarter included ladies handbags and fine jewelry as well as men’s furnishing and tailored clothing. We continued to reallocate floor space on a store-by-store basis to emphasize our growing businesses as well as our growing brand including Calvin Klein, Ralph Lauren, Michael Kors, Coach and (inaudible).

Our eCommerce business continues to show outsized growth driven by improvements to the site, vendor additions, assortment changes and increased investments in digital marketing. We previously spoke about how much we are accounting on the web business to drive our comp store growth and we are pleased with how productivity this site has become.

We are seeing a tremendous growth in traffic compared to a year ago when the increase was minimal. We are now on the right track and confident that this remains a huge growth opportunity over the next few years. We saw increased penetration of our proprietary credit card sales due to concentrated efforts to drive this business. Sales penetration reached 47.4% compared with 42.9% in the first quarter of fiscal 2012.

As a reminder, we transitioned our PLCC over to Alliance Data last July. They have been a tremendous partner, and we saw immediate results which had continued into 2013. We expect to see penetration continue to increase with the support of ADS. In addition, we believe our Your Rewards customer loyalty program that was recently launched is just beginning to benefit sales on our proprietary credit card.

One of my priorities since joining the Bon-Ton has been improving our clearance and liquidation strategy, and I’m pleased with the progress and results that we achieved in the quarter. The added flexibility we have given our merchants and planners to more efficiently allocate their markdown dollars during our Yellow Dot sale period resulting in increased gross margin.

In addition, we opened up our first standalone clearance center in April. This is the progression of our new clearance store strategy that we launched in the fall with the initial 7 locations being clearance floors within existing underperforming full-line stores.

Early results are very promising, and we believe that we will ultimately have a combination of a few freestanding clearance stores combined with some clearance floors that will allows us to get the highest salvage value for our final liquidation merchandise. We have already seen that it provides a better return than our previous strategy of liquidating carryover merchandise in the full-line selling floor.

We also continued to make progress on driving down our inventory levels. We have a renewed focus on reducing our inventory, particularly in our smaller stores as we know this practice reduces end-of-season markdowns and improves our profitability.

At the end of Q1, our inventory levels were 1.8% higher than last year, very much in line with our expected sales trend. As we look towards summer and the fall, we will build upon the strategies we have laid out. We will continue to diversify our customer base as we embrace our core customer while extending our reach to the younger updated customer.

We will remain focused on driving our eCommerce business as we evolve our digital media strategy and add more nationally recognized brands to the site. We believe eCommerce can ultimately reach 10% of sales. We also will have a new inventory order management system in place to ultimately better serve our customer in-store and online.

We will continue to enhance our marketing, tailoring communication by channel, region, and customer profile. Our proprietary card with reinforcement of Your Rewards loyalty program will be a key factor in driving more frequent customer trips and higher spending.

Last time I spoke about needing to better understand and localize our assortments given the wide variety stores and customers that we serve. We pride ourselves in being the hometown store; in order to live up to that, we need to understand the town we are servicing. We have not been doing a good enough job differentiating our marketing, merchandising, and store presentation as a reminder in the not too distant past, our 7 banners at 7 buying offices from Des Moines to St. Cloud to Chicago to York. This past quarter, we started making the investment in developing the technology and processes that will allow us to think locally, while continuing to have a centralized corporate office. We believe this will be the key to unlocking store-for-store growth over the long-term as well as giving us the knowledge to open up new underserved markets. We are only at the beginning of the process, but we are pleased with the baby steps we have taken and the partners that we have engaged to help us figure this out. And finally, we will continue to improve operating efficiency and reduce costs including using IT to increase efficiencies and improve processes.

In summary, we are an omni-channel retailer on track to achieve significant growth from 2013 and beyond. We have already seen tangible evidence to the progress we have made on both near-term and long-term initiatives. The results of our efforts are evidenced by our financial performance, which we believe will continue over time. Our focus is to drive profitable sales, EBITDA dollars, and reduce our leverage.

And with that, I would like to turn the call over to Keith to review the financials.

Keith Plowman

Thank you, Brendan and good morning everyone.

A few highlights for the first quarter. Comp store sales increased 1.2% and our gross margin rate increased approximately 57 basis points to 34.8%. Our operating loss decreased $11.4 million to $7.1 million compared to an operating loss of $18.5 million in the first quarter of last year.

Adjusted EBITDA defined as earnings before interest, income taxes, depreciation, and amortization, including amortization of lease-related interests and loss on extinguishment of debt increased $10.4 million to $15.2 million as compared with $4.8 million in last year’s first quarter. For a reconciliation of adjusted EBITDA to net loss, please refer to our earnings press release.

Reminding everyone that we redeemed $65 million of our 2014 notes in the first quarter, at the end of the first quarter, our excess borrowing capacity under our revolving credit facility was approximately $425 million. Our proprietary credit card partnership as Brendan mentioned continues to perform very well delivering increased card usage, high renewal account approval rates, and excellent customer service, and credit sales as a percent of total sales grew 450 basis points in the first quarter of 2013 compared with the first quarter of 2012.

Details of our first quarter which ended May 4, 2013, include the following; total sales increased 1% to $646.9 million compared with $640.8 million in the prior period. Gross margin dollars increased to $5.8 million to $225.3 million and our gross margin rate increased to 34.8% of net sales compared with 34.3% in the prior year period. The increase in the first quarter margin rate is largely attributable to a reduction in the markdown rate and to an increase in the cumulative markup percentage.

SG&A expense decreased $3.1 million to $225.1 million compared with $228.2 million in the prior year period. The SG&A expense rate improved to 34.8% of net sales compared with 35.6% in the prior year period. And our net loss totaled $26.6 million or $1.41 per diluted share compared with a net loss of $40.8 million or $2.23 per diluted share for the first quarter of fiscal 2012.

Moving to balance sheet items, our balance sheet inventory at the end of the first quarter increased 1.8% compared with the prior year this reflects a directional improvement as of the end of the year, our inventory was up about 8 plus percent compared to the prior year period.

First quarter fiscal 2013 capital expenditures before netting external contributions were $13.3 million compared with $14.3 million for the prior year. Our 2013 capital expenditures include investments in information technology, visual, minor remodels at new stores.

Components of our debt at the end of the first quarter fiscal 2013 reflect the following. Senior notes due 2014, $69 million, senior secured notes due 2017, $330 million and we anticipate these components changing significantly in the second quarter.

Revolving credit facility $239 million, the CMBS mortgage facility $223 million and mortgage notes capital leases and other about $57 million for a total debt of $918 million as compared to $940 million in the prior year.

We are reaffirming our fiscal 2013 guidance for adjusted EBITDA in a range of $180 million to $200 million, for earnings per diluted share in a range of $0.40 to $1 per share and for cash flow and we reference you back to Note II in our press release in a range of $20 million to $40 million. With no changes to the underlying assumptions which were provided last quarter. Our Form 10-Q for the first quarter of fiscal 2013 will be available by June 13.

And at this time, I would like to turn the call back to Brendan.

Brendan Hoffman

Thank you, Keith. We’d now be happy to entertain any questions.

Question-and-Answer Session

Operator

(Operator Instructions) And we’ll take our first question from William Reuter with Bank of America Merrill Lynch.

Unidentified Analyst

This is actually Spencer in for Bill. I appreciate you guys taking my questions.

Brendan Hoffman

Sure Spencer.

Unidentified Analyst

I was wondering if you guys could talk broadly about the benefit that you get from -- in salvage value from the clearance centers and then your plans to maybe open more this year?

Brendan Hoffman

Directionally, it’s clearly beneficial compared to the old methodology and practice where we were really just having a fire sale for a couple weeks of the mid-season. It’s still a little too early to say exactly what that benefit would be, because we’re still kind of in an experimental phase. As I mentioned during my remarks, we opened up our first standalone clearance center about six weeks ago, and we are thrilled with the results especially as we benchmarked that against what we can do within a store model. So, I think, we’ll probably accelerate opening up one or two more during the fall season and really figure out what the optimal level is to best – it’s really a cost avoidance , so to salvage as much value as we can with this old merchandise.

Unidentified Analyst

Okay, great. And then I was also wondering, if you could maybe talk about the same-store sales cadence during this quarter, a lot of other retailers have mentioned that same-store sales have trended more positively as weather kind of turned, just wondering if you guys have experienced that same trend?

Brendan Hoffman

Yeah. We are not going to give any guidance how the cadence went. It was obviously skewed by the freak snowstorms we were having at the end of April in Minnesota and Colorado, which are heavy markets for us. But I think that when you negate those, the quarter pretty much went as we forecasted.

Unidentified Analyst

Okay, great. That’s it from me. Thanks guys.

Keith Plowman

Thank you.

Operator

We will take our next question from Mary Gilbert with Imperial Capital.

Mary Gilbert - Imperial Capital

Seeing what percent of the eCom -- what percent of sales does eCom represent on an LTM basis through the first quarter?

Keith Plowman

It still will be close to 3% that we had last year. Mary. There would be some uptick in it, but with the first quarter not being substantial in sales, I think you will get yourself in a range of looking at somewhere between 3% and 3.5%, but the majority of that would come in the fourth quarter of this year.

Mary Gilbert - Imperial Capital

Okay. And then can you discuss any differentiation in comp performance by type of store or geography if any, like for example, did some of the stores located in more rural markets face the competition, how did they perform relative to the total?

Brendan Hoffman

It was so skewed based on the weather that I don’t even want to get into those details. We have so many stores that just got clobbered with these later snowstorms and just lost so many hours being closed down, not even counting in just the fact that it was colder, but just the snowstorms themselves. So, as I said in my remarks and as I said in the past, this is obviously a big focus for us over the long term to better understand our individual stores by location and region, but I think in terms of Q1, that progress hasn’t been made yet, I mean the initiatives really haven’t been executed and then it was so skewed by weather.

Mary Gilbert - Imperial Capital

Okay. And then I wondered if you – what you’re seeing whether it’s in the first quarter or currently as J.C. Penney is resuming promotional activity plus the addition of the new attraction in their stores, are you seeing any impact, is it soon?

Brendan Hoffman

We’re not going to comment on anything we’re seeing this quarter, and obviously it really didn’t affect last quarter too much. As I said in the past, I think the performance we’ve had up against J.C. Penney, which is about 55% of our malls, 80% of our markets have been very inconsistent over the last 12 months. And I expected it to stay that way. In a lot of instances we in malls where it us and J.C. Penney’s in a very high vacancy rate, and we’re actually looking forward and hoping that they can bring back that traffic to the malls as we think we’re in much better position to benefit from that. So, we’ll have to see how that plays out.

Mary Gilbert - Imperial Capital

Great. And then one last final, on the composition of the debt, could you give us what’s the pro forma balances are, so for example with the upsize of the issue, does that mean that the amount outstanding on the 10.625 is really going to be closer to 57 rather than 107?

Keith Plowman

Yeah, I think when you look at it, Mary, what we’ll have is, we’ll use the proceeds net of the expenses for the offering. Once everything closes out, we will take out the 2014 notes and residual that would go against the 2017, and I’d certainly think you are in a ballpark as to what you estimated there, yes.

Mary Gilbert - Imperial Capital

Okay, perfect. Thank you very much.

Keith Plowman

You’re welcome.

Operator

We’ll take our next question from Karru Martinson with Deutsche Bank.

Karru Martinson - Deutsche Bank

Well, I mean, if you could ballpark kind of what the headwinds that you face from the weather in terms of your comp sales this quarter, what do you feel it would have been without that?

Keith Plowman

I mean, we try to look at a couple of different ways to triangulate to a number and we definitely feel that we would have had between 1 and 2 percentage points of impact based upon stores that could not open that had hours that were cut or could not open for the offerings to the customer. So, we feel it was substantial impact as Brendan said that hit our numbers for the first quarter, provided a lot of noise and really we’re going to have to continue to watch how things go here as we go forward.

Karru Martinson - Deutsche Bank

Okay. And in terms of the clearance centers that you opened one in April maybe one or two in the fall here coming, what’s the cost associated with the CapEx on that front?

Keith Plowman

They are very minimal. We don't put a lot of capital into it. At this stage, the facility we opened on 27th street, which I just had the opportunity to see last week was a great facility, really was pretty right for us to move in with some touch up and improvements and some additional fixturing with it. So, it’s not an intensive capital expenditure.

Karru Martinson - Deutsche Bank

All right. And when we talk about making the investments in technology so that you can use the phrase, think locally, while having a centralized office, is that built into your kind of CapEx assumptions here for 2013 or is it something that’s going to be above and beyond, or potentially going for a longer period of time?

Brendan Hoffman

No, it’s built into our assumptions. Fortunately, the infrastructure for the technology was in place, and I’m speaking specifically right now about tools for our merchants and planning organization as well as the stores. We had the gusts of the information there. We just had no front-end process to allow them to access it easily. So, literally, we would take a day on Monday trying to [cover] (ph) all these reports into something that we think in the future can take just a few minutes and reallocate hours or the way we are utilizing hours. So, again, it is actually a fairly low cost to kind to take this over the finish line.

Karru Martinson - Deutsche Bank

Okay. And now you’ve been there a while, I mean have you thought about the name plates, having seven name plates here, does it still make sense to you to keep those or would you look at consolidating some of those down the road?

Brendan Hoffman

No, I mean at a high level, as I have got enough to see almost 200 of the stores at this point, I have a real appreciation for what these names mean to these local communities, Younkers in Iowa and Nebraska, Herberger’s in Minnesota for example. So I don't see any benefit on the top-line to changing them to let’s say Carson’s. I don't think that name would be known well in those locations, and we’d actually take a step back in addition to having to over advertise and spend capital to rebrand it.

So, I think for the time being, we’re going to stay pretty much with the different banner names we have especially as we talk more about localizing the assortment. The only caveat to that is where we’ve had some markets, some advertising markets where there might be an overlap of names, we have tried to rationalize those and clean those up. Michigan for example, we had some of those issues, and we had the rights to the Parisian name based from the sale in those six, but we lost those this past season. So, we’ve transitioned those stores over to Carson’s. We’re actually co-branding and those will go completely to Carson’s over the next few months, but for the bulk of the stores, we think the names are a competitive advantage at this point.

Karru Martinson - Deutsche Bank

Thanks very much guys. I appreciate it.

Keith Plowman

Thank you.

Operator

We’ll take our next question from Jonathan Hart with Buckingham Research Group. Mr. Hart, your line is open. You may want to de-press mute function.

Jonathan Hart - Buckingham Research

Can you guys hear me?

Brendan Hoffman

Yes, Jon and good morning.

Jonathan Hart - Buckingham Research

Great. Good morning. Congrats to the team on getting through a tough spring season.

Brendan Hoffman

Thank you.

Jonathan Hart - Buckingham Research

Question for Brendan. Just a follow up on your inventory initiatives, it seems this is tremendous opportunity here when I look at some of the metrics, gross margin and inventory turnover compared to your peers. So, I was just wondering what is the strategy that attacked this initiative, and how much low hanging fruit is really there on the markdown rate that could potentially benefit gross margins? And just a follow-up to Keith, I was wondering why you guys didn’t update the EPS and free cash flow guidance to reflect the debt refinancing? Thanks.

Keith Plowman

Hi. I’ll take your last question first, Jonathan and jumping through the EPS and what we did there. In the guidance we have, we don't see significant impact in 2013 to the transaction. There is going to be cost associated with the notes that were retiring, that would be written off and additionally there is some tender cost that would impact this year. So, it could be a couple of cents up to like maybe $0.04 or $0.05 per share of impact that nothing substantial. Just to could go forward that obviously we will have more significant benefit as we look forward, you’re going to have about 250 basis points on a weighted basis of a benefit in the interest cost and that net of the fees associated with it will have a material impact somewhere in the range of around $8 million a year on a pretax basis.

Brendan Hoffman

Okay. And on the inventory yeah, I mean I think we’ve recognized that to clean our smaller stores, we just left the inventories below over the last few years as we try to find a formula there. And as I talked about now a few times whereas investing and trying to find the right formula by localizing these stores and that does not necessarily mean more inventory just means the right inventory. And as we’re taking our time to figure that out, we know that we can cut back on the inventory that we would grow over the last few years particularly in these smaller stores. And not sacrifice sales but not have as much to liquidate at the end of the year.

So, as Keith mentioned that at the end of the fourth quarter, our inventories were up about 8%, there are some reasons for that but there were still higher than what we would like, we got them below 2%. I think as Keith mentioned where our comp store expectations would have been for the quarter without the snowstorms, so we would had been in a – even a better situation. But we’re going to stop here, the merchants have very definite targets and goals and where we expect to see the inventory levels at the end of each quarter. Because we know that will mean less carryover our backward inventory as we enter the new season. So, we are really pleased with the progress we made but it’s something that is really on top of mind for us on a monthly basis.

Jonathan Hart - Buckingham Research

Okay. Thanks guys. Thanks a lot.

Keith Plowman

Thank you.

Operator

We’ll take our next question from Edward Yruma with KeyBanc Capital Markets.

Edward Yruma - KeyBanc Capital Markets

Hi, guys. Thanks for taking my question and congrats on a good quarter.

Brendan Hoffman

Thanks Ed.

Edward Yruma - KeyBanc Capital Markets

Brendan, I knew in the past, you discussed some of the must moves you are making and some key classifications and clearly some of that is really working for you guys. I guess as you look forward and think about areas that you can continue to reconfigure. How do you feel about particular issues and accessories and is there more square footage as you can get those businesses.

Brendan Hoffman

Well, I mean, we’re going to continue to see that over time. I mean we are pleased with the shoe business this quarter although I think the weather hampered some of that growth. Handbags as I mentioned in my remarks had a terrific quarter. I’ve mentioned in my remarks about moving around juniors or young contemporary as we call it. So, I think it’s going to be a constant reshuffling to try and come up with a proper formula and as I’ve been saying we’re going to try to do that by store as we move forward.

So, I think it’s a never ending process to try and optimize your floor space and obviously it continuous to change as business and the customer changes. But, I think that the company is now much more proactive about understanding the need and the importance of doing this and that’s going to be true whether it comes from corporate or whether as we give the stores more flexibility and freedom who make the moves. And I think that will just benefit us by keeping us more current and going after growth areas.

Edward Yruma - KeyBanc Capital Markets

Got it. I know you mentioned obviously some of the continued changes you are doing with some of these clearance stores. But, I guess, for the quarter, how do you feel about your inventory levels and quality of inventory for some of the seasonal merchandise that obviously was negatively impacted by the cold weather?

Brendan Hoffman

As I mentioned a few minutes ago, we feel really good about the direction of our inventory and what the merchants have done to get that in line and we will continue to do. It’s a little early to give up in the category like sunglasses which often it gets returned anyway. So, I don’t think the seasonality impact is nearly a severe in the spring as it is in the fall, when we talk about weather. So, clearly there is work to do. And we are expecting that when the weather gets consistently warm that will unlock some business in those categories. But again, looking at my inventory as a whole and where it’s tracking towards in the spring versus last year. We feel very good about its composition.

Edward Yruma - KeyBanc Capital Markets

Got it. Thanks and best of luck.

Brendan Hoffman

Thank you.

Operator

We will take our next question from Carla Casella with JPMorgan.

Carla Casella - JPMorgan

Hi. Now that you have done a bunch of your refinancing, can you give us any thoughts and might have towards 2016 mortgage facilities whether you can get this just rolled into another facility or you may look to do that with a broader capital structure decision?

Keith Plowman

I think we have several opportunities that we can investigate in the next few years. There is a prepayment with it. So it’s something that will address as we get to 2016, it’s not something like revolver that you – for the senior notes that you turn and you refinance substantially early because of the prepayment penalty.

But, when you look at the way that was constructed back in 2006, the assets that underlie that which there is 23 stores and a distribution center and a price value of $325 million. And the loan to value for that was at 80%, so it’s turned $60 million. Essentially that loan has worked down at the end of 2012, so it’s about $225 million and we project by the time that this facility matures in 2016, it will be at or slightly below $200 million. So the loan to value at that time will be closer to about 60%.

We are continuing to work with some partners and watch what’s happening in the markets. There have been movements there. We know there is loans that are occurring in that market loan to value somewhere in that 70% range. So we are continuing to watch what develops there. We think we have opportunities to go over as you stated or some other ways we could do it because there is very good collateral scantly behind that facility. Those 23 stores and distribution center are very good location and we believe they have some pretty strong value. So, it’s something we will continue to watch as we go forward here. But, I think we have several options we can investigate.

Carla Casella - JPMorgan

Okay, great. And then one question, it sounds like the J.C. Penney – any improvement might actually improve profit at some of the malls where you are? Do you think that some of the weakness last year might have just been the J.C. Penney not promoting?

Brendan Hoffman

You are saying of our weakness?

Carla Casella - JPMorgan

Yes.

Brendan Hoffman

Well, I think again, if there is certainly a subset of our stores that lack traffic to these somewhat vacant malls definitely hurt us. But, I can’t blame them, I mean particularly in the first half of the year, our merchandise assortment was misaligned and our promotional strategy was off base. It showed improvement in the back half of the year and our results started to pick up. And we feel like we continue to make progress over there. But, I don’t want to blame them for our missteps. I think we – the blame lies squarely with us. And that’s what we are working on, of course, correct them.

Carla Casella - JPMorgan

Okay, great. And can you just how many of yours stores are in-malls, where the vacancy rates are below a certain percentage or give us any parameters to give an idea?

Brendan Hoffman

No, I don’t have that. And again, sometimes those numbers can be suspicious in terms of how they – how the malls themselves to find vacancies because they can have the stores filled but with names you have never heard of. So, they don’t do much to drive traffic for us. But – this has been something that’s been happening over the last few years, it’s not new. And again, as we strengthen our position, we have an opportunity to drive traffic ourselves because we are – we have compelling offers and compelling promotions.

Carla Casella - JPMorgan

Okay, great. Thank you.

Operator

We will take our next question from Hale Holden with Barclays.

Hale Holden - Barclays

Hi. Thanks. Just had a couple of quick ones. Can you talk about the junior floor move and potential lift from that obviously when you change the shoe department created a decent amount of lift? Is that something we could see in the back-to-school season?

Brendan Hoffman

I won’t go that far. I mean these (inaudible) compared to shoes from two different points of view juniors has been a business that has been deteriorating, I think for all department stores over the last few years, I have certainly heard our peer group mention it as well. I think as the specialty stores have come in done such a great job going after that customer.

So, we are looking for ways to stabilize that business and as I walk the stores and it was apparent that these floors were segregated from the rest of our apparel, they were clothes and assortment in there that I think appeal to older than juniors’ customer. 20 or 30 something customer beyond who thinks younger. Yet again, we weren’t making that shopping experience seamless for her because she would have to go to a different floor. And then when she walked in, we were basically advertising that this wasn’t a place for her to buy the music we were choosing to play over the loudspeaker and some of the ways we were sorting it.

So we think by – testing moving it adjacent to the area, to the ready wear department just having been an extension of the updated classification. We will expand the age group we can play in and hopefully allow us to stabilize this business. But, it’s definitely coming at us from a different reason than we are going after shoes which has been a growing business and we are just trying to exploit that growth.

Hale Holden - Barclays

Great. And then you mentioned on a long-term localization effort, you are working potentially with outside advisers, can you tell us who you’re working with?

Brendan Hoffman

No, I don’t think they like it too. So, we have a couple of different partners in here attacking different angles from this. And right now, just lot of information gathering but we have given them the – we have given them the goal that kind of validated this as a realistic opportunity assumption and now they are just helping us figure out how to get to it.

Hale Holden - Barclays

Okay. And then last question for me, any cost on the current state of consumer better or worse or the same, as we roll another summer and a fall?

Brendan Hoffman

Again, we are not going to give any color on anything we are currently seeing or go forward other than saying as Keith said that we are holding all aspects of our annual guidance.

Hale Holden - Barclays

Okay. Thank you very much.

Operator

And we will take our next question from Mary Gilbert with Imperial Capital.

Mary Gilbert - Imperial Capital

When I look at the first quarter in 2011 and I look at the EBITDA level there it was around – looks like around $23 million, $24 million. And so what I was trying to figure out and looking at this quarter and the gross margin rate by the way it too was, looks like it was about 35.5%. So I was trying to figure out, how we would look at this quarter relative to that quarter in terms of, is it the weather, is it initiatives that you are not exactly where you need to be to get there. How shall I look at that?

Brendan Hoffman

Well, I mean, I think you are left decide for yourself. But, I think that as we talked about gross margin rate, it’s negatively impacted over the last two years by the growth of the eCommerce and I mentioned that in my remarks. This has been a turnaround and we are showing progress but we recognized we have a long way to go and some of our past results show that the size of the opportunities. So we look at that and say look how much more we can do. But, we still have to prove we can get there and this quarter showed progress. But with ways to go, which I think is what you are pointing out.

Mary Gilbert - Imperial Capital

Right and is that --

Keith Plowman

When you compare the components of it Mary as you look at things, really other income is driving a better percentage now as we are moving forward and we see opportunity there. SG&A cost continue to be leveraged and controlled and we are looking to make investments going into the future and are spending money additionally this year to do so. So really is the balance of the sales and the gross margin of quality and driving that business forward. And as Brendan mentioned as all retailers are saying the eCommerce piece does impact that gross margin rate. But also drives the sales dollars and we are looking to drive the EBITDA dollars and gross margin dollars for the company.

Mary Gilbert - Imperial Capital

Okay. Is that, do you think that’s possible next year?

Keith Plowman

I think that’s possible.

Mary Gilbert - Imperial Capital

Being able to achieve what we achieved in the first quarter of 2011?

Keith Plowman

Mary, we are not going to talk to anything beyond the guidance we have given for 2013.

Mary Gilbert - Imperial Capital

Got it. Thank you. That’s very helpful. Thank you.

Keith Plowman

Thank you.

Operator

And with no further questions, we will turn the call back to Mr. Hoffman for any additional and closing remarks.

Brendan Hoffman

Great. Thank you all for your questions and your interest in Bon-Ton. We look forward to speaking with you about the financial results of our second quarter 2013 on our conference call in August. Thanks again for joining us this morning.

Operator

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

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