Volcom, Inc. Q2 2009 Earnings Call Transcript

Jul.31.09 | About: Volcom, Inc. (VLCM)

Volcom, Inc. (NASDAQ:VLCM)

Q2 2009 Earnings Call

July 30, 2009 at 4:30 pm ET

Executives

Hoby Darling - SVP of Strategic Development, General Counsel

Richard Woolcott - Chairman and CEO

Jason Steris - President and COO

Doug Collier - CFO

Analysts

Mitch Kummetz - Robert W. Baird

Jeff Mintz - Wedbush

Jim Duffy - Thomas Weisel Partners

Christine Chen - Needham & Co.

Jeff Van Sinderen - B. Riley

Operator

Good afternoon. My name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the Volcom 2009 second quarter financial results conference call. (Operator Instructions)

I would now turn the call over to Mr. Hoby Darling. You may begin.

Hoby Darling

Thank you, Melissa. Good afternoon, everyone and thank you for joining us today to discuss Volcom’s 2009 second quarter financial results.

Joining me on the call today are, Richard Woolcott, Volcom’s Chairman and Chief Executive Officer; Jason Steris, Volcom’s President and Chief Operating Officer; and Doug Collier, Volcom’s Chief Financial Officer.

First, some housekeeping items before we begin. If you would like to be added to Volcom’s e-mail distribution list to receive company information or if you would like to change your contact information, please contact Evan Pondel at PondelWilkinson, at 310-279-5973.

In addition, please be advised that this conference call is being broadcast live on the Internet at volcom.com, as well as earnings.com. A playback of this call will be available for one year and may be accessed on the Internet at both websites.

Please note that all information discussed on today’s call is covered under the Safe Harbor provisions of Litigation Reform Act. The Company’s discussion today will include forward-looking information reflecting management’s current forecast of certain aspects of our future. In particular, statements about the future regarding our guidance, outlook for future business, margins, financial performance, customer demand, growth and profitability all constitute forward-looking statements.

These forward-looking statements are based on management's current expectation but involve a number of risks and uncertainties. Actual results could differ materially from those stated or implied by these forward-looking statements. The Company disclaims any intent or obligation to update these forward-looking statements except as required by law.

With that said, it is my pleasure to turn the call over to Richard Woolcott, our Chairman and CEO. Richard?

Richard Woolcott

Well, thank you, Hoby, and good afternoon, everyone. The retail environment is still challenging but through it all, our brand has continued to garner strength with recent industry reports identifying Volcom as the number one brand in actions sports. This is great news because it demonstrates our brand's momentum even with the economic headwinds that our industry has faced for a number of quarters now.

It is also motivating for our team as we continue to focus on improving all aspects of our business. We were facing many new realities in this economic environment and for Volcom, it has been our time to look inward and begin the building back process. The rules have changed and we are adjusting and adapting to a new chapter not only for us but for the entire action sports industry.

Retailers and consumers are more conservative and cautious with their buying habits and we have to factor that into every aspect of our Company. On today's call, I would like to provide an update on some of the areas that we continue to focus on as well as discuss some new initiatives that we believe will enable us to capture market share and increase brands strength.

We are not exactly a month into the third quarter and as expected, it is still tough out there. Like the rest of the retail industry, we are ready for economic conditions to improve and are indeed bumping along at what we believe is the bottom but there is a positive heartbeat out there and instead of waiting for change, we are proactively making the necessary adjustments to ensure our brands stays number one and the quality and appeal of our product is the best it has ever been.

With back to school just right around the corner, it is all systems go for our marketing and branding efforts. Our product, athlete programs, contest, our initiatives, music and films are all aligned to support the brand and effectively communicate the Volcom message to our consumers. We recently implemented our road test to denim campaign in which our athletes and bands are wearing our denim in the environment where they work and perform.

Denim has become the strong foundation for Volcom and we want to continue to deliver designs that are forward thinking and adaptable to an active lifestyle. Our road test to denim program is smaller after the Proving Grounds, one of the most successful marketing campaigns we have recently implemented which focused on our dynamic line of high quality boardshorts.

We have seen very positive results when we actively focused on our core category and believe we are witnessing this again with our increased focus on denim. We are also excited about our new Creedlers footwear line up which has been tied into the Proving Grounds Campaign. We have been prelining the new collection now for several weeks and the reaction has been very good. The product was fantastic and our efforts to successfully break into the sandal market are paying off.

Additionally, we are focusing more attention on our t-shirt and printable category. This is one of our core offerings and we have enhanced our design team and strategy to maximize our potential in this area in the near future. Now, let us discuss our marketing for a moment.

Our marketing teams have been busy this summer with a number of projects, tours and events whether it is the Left the Kids Ride Free Contest, Stone your Dot TV, our new Surf Movie DS or our five Speed Fever 2010 Swim Fashion Show and Rollout, our marketing attack has been in an all time high. We are ramping up our advertising and fine tuning all of our branding efforts to make sure our product messaging and our connection with our consumer is as strong as possible.

There are a number of exciting happenings going on right now and I encourage all of you to take a moment and check out our website at Volcom.com for the latest marketing news. Another priority we have talked about is maintaining healthy distribution. Our retail partners have been on the front lines in this economic downturn and understanding their needs as well as communicating hours is absolutely necessary during these times. From the core to specialty retail to department stores, we are constantly monitoring our distribution channels to keep our product top of mind and sell through strong.

Our core retail continue to feel the pressure from several quarters of winning consumer confidence but their spirit is cautiously upbeat and their interest in our brand is evident by the in-store real estate we have gained over the years. Just recently, Volcom was ranked the number one brand in both men's and women's apparel for core market share by Action Watch and Volcom was rated the top brand in both men's and women's apparel in the latest Ford track report of top selling brands.

To maintain this momentum, we are helping our core retailers by offering exclusive product called Stone Age as well as assisting and setting up floral displays, windows and in-store promotional events. The fact is even though some core retailers are experiencing a decline in sales, customers have not drastically changed their lifestyles and they are still visiting their local shop to check out the latest and greatest gear or simply to buy some surf flats or t-shirt.

Outside of the core, we continue to cultivate strong relationships with all of our specialty retailers. As Doug will discuss later, many of our larger retailers have been hit hard by the recession and our business has also suffered in this very promotional environment but we are working hard with these retailers to understand how their business is changing so that we can adjust our business with them to support their growth objectives. This initiative includes everything from a more focused advertising and marketing attack to making sure we have the right product offerings at the right price points.

Maximizing our potential at this specialty level of distribution is the top priority right now and all of our teams involved are moving full speed ahead. Department stores are also an important channel for Volcom and our relationships remain strong. Macy's recently underwent some changes and we are now settling in with their new structure. There are ample amount of opportunities with Macy's and other department stores and we are tweaking the way we do business with them to ensure long term success.

Let us now spend a little time catching up on some of our growth initiatives. First, let us turn to Europe. Our team in Europe hit the ground running from day one and that is evident in their ability to navigate an economic environment at somewhat mere as what we are seeing here. Stores throughout Europe were generally reporting lower sales when compared with last year and with the rising unemployment, the environment continues to be challenging.

However, we have made up for some of that weakness in the region by adding new accounts for fall 2009. As a whole, the action sports industry in Europe is deeply in trenched throughout the territory and our brand is front and center to take advantage of this opportunity. France and Germany are our biggest territories and Germany, Switzerland and Scandinavia are standing out in suite spot for our business during these difficult times.

The retail landscape in Europe is different than it is here in the states. Each country has its personality in terms of consumer trend and for brand like Volcom, the region bodes well because of our appeal to a broad range of action sport. Right now, we are one of the top selling brands in our core distribution. T-shirts, fleece and denim are definitely bestseller so far but sales of walk shorts and boardshorts are coming in close and really picked up in Q2. We continue to drill down with our management team in Europe coming up with advance and introducing new marketing campaign that we believe will help us grow through the region.

Specifically, programs like Stone Age represent an important opportunity for us. We are also beginning to focus more attention outside of our core distribution with specialty retailers such as Sport 2000. Now, looking at the UK, the territory has been hit hard by the economy but with the better pricing strategy, a bigger push in marketing and strong new infrastructure, we are very optimistic about our progress in the country. Overall, we believe our efforts are paying off in Europe and will continue to do so especially once economic conditions improve.

Now, let us talk about Asia Pacific. Our Company has made some important transition moves in Japan and our management team is now getting systems and procedures dialed in. We are encouraged by the success of our takeover of the territory and believe there are many opportunities for Volcom in the future. Boardshorts and denim have a lot of untapped potential throughout the region and Japan is an idea hub to introduce new product and marketing campaigns which have proven to resonate well in this part of the world.

Australia also continues to present enticing potential and we are working closely with our licensee there and expect to focus even more attention in the years ahead. Another territory we are starting to take a closer look at is Latin America. There are a lot of board sport enthusiasts throughout the region and our brand is beginning to become part of the fabric. It is a growing market and we believe there is a lot of untapped potential for Volcom.

We have a solid team of reps and distributors throughout the territory and are now in the process of ramping up our sales and branding assets.

I would now like to discuss Electric. Like Volcom, the electric brand has also ranked very strong in a number of recent action sports industry report. We have always known that Electric posses that special magic and we believe we can gain more market share over time. There are a lot of distribution opportunities for Electric and now that our teams are working more closely together, we can attack this more methodically. Electric's current distribution is limited in many geographic regions and in certain channels especially in Canada and Europe.

We are now going after these opportunities and should see an increase and new door openings in the coming months. Along with its strong presentation of glasses and the new goggle offerings for this fall, Electric soft incline is really beginning to take shape. It is a tight package of t-shirts, sweatshirts, hats, beanies, bags and accessories. We just completed our spring sales meeting around the apparel and the reps are now on the road selling the new offering.

One of the biggest standouts of the current line are the bags and the luggage. We are already seeing solid sell through at retail and we intend to build on this category in the coming season. We continue to work closely with the Electric team and we, as this economy turns around, Electric will be well positioned for new growth and increased demand in the future.

Before turning the call over to Doug, I would like to articulate our Company's vision with respect to the economic conditions and how we are adapting to the new reality of doing business. Until we see a substantial improvement in the business environment, we are looking within our Company to leverage our own talents to build a stronger foundation and once the tide turns, we will then be able to harness this new four to five foundation and continue to broaden Volcom's reach.

In the near term, we intend to focus on the following. One, manage our expense. Keeping a tight lit on expenses is mandatory although we will make some prudent investments that will support the brand long term and provide the tools necessary to drive sales. We also have a very strong balance sheet and we want to keep it that way.

Number two, to execute effective marketing and advertising campaigns worldwide. Our brand is stronger than ever and that momentum will be key to broadening our reach once we see shifts in economic condition.

Number three, maintain healthy distribution, whether it is the core, specialty retail or department stores, we are staying on top of our relationship ensuring we respond to our retailer's need above and beyond what is expected.

Number four, to continue to cultivate our growth initiative. While we not plant to aggressively expand our growth initiatives in the near future, it is imperative that we meticulously manage each area of our business. This is the time to find tune and prepare ourselves for the growth that lies ahead and number five, to innovate, create and continue to build great product that excites our consumers. It is fundamental to what makes Volcom a special brand and a leader in the action sports industry.

The second half of the year represents an exciting time for our Company and we are moving forward with the confidence and the motivation necessary to succeed in the near future. This recession has made us more focused and disciplined company and there is no doubt in my mind that our foundation is the strongest as ever been. We are fine tuning every department and tweaking every initiative for maximum output which game on Volcom and all of our teams are fired up.

As always, I would like to thank the entire Volcom family, our athletes, retailers and shareholders for their continued support and commitment. With that, I would like to turn the call over to Doug to review our financial results for the second quarter. Doug?

Doug Collier

Thanks, Richard, and good afternoon, everyone. Our Q2 results exceeded the guidance we provided last April. Better than expected revenue across all the business segment, offset gross margin pressure in our Europe and Electric segment. The higher revenue was also offset by increased bad debt expense in the US and Electric segment.

As compared to last year, we are reminded at how different the business environment has become. While we are not pleased with the year-over-year comparisons, we are not overly focused on the past. We believe that the business environment will eventually improve but we do not anticipate that in the near future, it will return to what it was prior to the recession. Things will be different and we are focused on thriving in the new emerging retail landscape.

Volcom is positioned with the resources to take advantage of the new landscape. First and foremost, we have the iconic Stone logo in the Volcom brand which has an authentic emotional connection to the customers. Second, we produced industry leading product. Third, we are armed with a rock solid balance sheet clash with over $96 million in cash and short term investment and we have no long term debt.

We continue to globally diversify and strategically increase our international footprint with recent brand control initiatives in Europe, Japan and the UK. Additionally, we have a long term vision and are executing a strategic plan that we believe will increase marking share, build earnings and increase long term share holder value. We intend to be prepared to take market share and grow Volcom as we emerge from the recession.

I will now review some the financial result for the second quarter ended June 30th, 2009. Total consolidated revenue decreased 25% to $54.2 million, compared with $72.5 million in the second quarter of 2008.

Let me now break down our second quarter revenue by each of our three business segments; the US, Europe and Electric. First, let us look at the US segment, which includes revenue from the US, Canada, Japan and most other international territories outside Europe, as well as our domestic Volcom branded and LS&S retail stores.

Total revenue from our US segment, including royalties, for the second quarter decreased 28% to $43.6 million, compared with $60.2 million in Q2 of 2008.

A breakdown of the US segment product revenue in Q2 by category is as follows. Our men’s product revenues decreased 31% to $23.8 million for Q2, compared with $34.4 million in the second quarter of 2008. Our girl’s product revenue decreased 27% to $12.1 million versus $16.6 million in the second quarter of last year.

Boy’s revenue, which includes our kids line, decreased 19% to $4.3 million, compared with $5.3 million in Q2 of 2008. Revenue from our Creedlers footwear line decreased 5% to $927,000 versus $973,000 the 2008 first quarter. Revenue from our girls swim line decreased 27% to $1.2 million versus $1.7 million in Q2 of last year.

International product revenue, which is recorded as part of our US segment and consists primarily of sales in Canada and Japan and does not include licensing revenue, was $12.5 million, or 29% of our US segment product revenue for the quarter, compared with $12.3 million, or 21% for the comparable period in 2008.

Looking at our revenue by distribution channel, revenue from our five largest accounts decreased 43% to $15.6 million in the 2009 second quarter, representing 36% of US segment product sales. In Q1 of 2008, revenue from our five largest accounts was $27.5 million and represented 46% of US segment product sales. Revenue from PacSun, our largest customer, decreased 43% to $8.9 million for the quarter or 21% of the US segment product revenue, compared with $5.4 million, or 27% of our US segment product revenue for the comparable period in 2008.

This decrease was in our plan and reflected in our guidance. Taking into account the 22% increase in the first quarter, our PacSun business for the first half of the year was down approximately 24%. Excluding PacSunm revenue from our next four largest accounts also decreased 43% for the quarter. We see changes in our how our major accounts are positioning themselves in this new environment. Also, some of these accounts had some Volcom inventory remaining from Q4 2008 which restrained by for spring and summer.

Additionally, our girl's business has been difficult with some of our larger accounts. We believe these comparisons to last year are not an indication of Volcom's brand strength or potential in the marketplace, rather we believe these comparisons reflect the current difficult retail environment. We continue to work with these accounts to present the right product selection at the appropriate price points with great in-store merchandising and some increase advertising.

Recent sell through reports and surveys indicate that Volcom is an important brand for these accounts and we see an opportunity to increase this business moving forward. In Q2, revenue from account outside our five largest accounts which represented 64% of total US segment product revenue for the quarter decreased 14% to $27.6 million. In the second quarter of 2008, revenue from the same group was $32.1 million representing 54% of total US segment product revenue.

Now, let us look at revenue from the Europe segment.

Revenue from Europe was $5.9 million in the second quarter of 2009, on par with the second quarter of 2008. In constant dollars, revenue increased 16% for the quarter. This level of revenue was expected at the action sports apparel business in Europe is highly seasonal with revenue concentrated primarily in Q1 and Q3.

In Q2, the revenue by category in Europe is as follows; Men’s decreased 13% to $4.1 million, compared with $4.7 million in Q2 of 2008. Girls increased 44% to $1.5 million, compared with $1 million last year. Year-to-date, girl is down 4% in the segment. Boys was $124,000, compared with $108,000 last year. Footwear was 69%, versus $107,000 last year.

Finally, revenue from our third business segment, Electric, decreased 27% to $4.7 million for the 2009 second quarter, compared with $6.4 million in Q2 of 2008. The sunglass category with higher priced SKUs continues to be significantly impacted by the tough retail selling environment.

Turning to the gross margin, on a consolidated basis, Q2 gross profit as a percentage of total revenue was 48.6%, compared with 48% in the same period in 2008. In our US segment, Q2 gross profit on product was 48.2%, compared with 45.6% in Q2 of 2008. This was mainly due to our strategy to limit discounts despite the poor economic time. We believe this will help our margin once we emerge to better times and protect our brand so that we compete on brand and product strength instead of price.

Also contributing to the stronger gross margin was better inventory planning resulting in less season and liquidation sales. In our Europe segment, gross margin was 44.8% versus 57.6% last year. This decrease primarily reflects currency fluctuations related to the strengthening of the US dollars to the euro compared to Q2 of 2008 and to a lesser extent, the continued weakening of the UK pound compared to the Europe. Also some additional discounts were granted during the quarter due to the difficult retail environment.

Gross margin in the Electric segment was 52.8%, compared with 56.8% in Q2 of 2008. Electric gross margin in the second quarter was lower than previous quarters, primarily due to the higher inventory liquidation and the more promotional selling environment during the quarter.

Selling, general and administrative expenses on a consolidated basis were $25.9 million in the second quarter of 2009 versus $27.9 million for the same period in 2008. As a percentage of sales, consolidated SG&A expenses were approximately 47.7% of total revenue for the second quarter of 2009, compared with 38.5% for the same period in 2008.

For the US segment, total SG&A expenses were $17.9 million, compared to $18.5 million in Q2 of last year. The slight decrease in total SG&A was achieved by our previously discussed plans to lower overall expenses to better align with current revenues and lower commission expense due to lower sales volumes. These decreases in SG&A were partially offset by incremental expenses incurred in connection with the recently acquired distributor in Japan, two additional Volcom branded retail stores and two LS&S retail stores, as well as increased bad debt expense.

For the Europe segment, SG&A expenses in Q2 decreased 14% to $4.8 million, compared with $5.6 million in Q2 of last year. On a constant dollar basis, SG&A in Europe decreased 2%. This decrease is primarily due to expense cuts partially offset by incremental expense associated with the UK subsidiary and the London retail store.

In our Electric segment, SG&A expenses decreased to $3.1 million for the second quarter of 2009, compared with $3.7 million in the same period last year. Electric acquisition related amortization expense was $72,000 in Q2 of this year compared to $509,000 last year. Consolidated operating income for the second quarter was $504,000, compared with $6.9 million in Q2 of 2008. This represents an operating margin of 1% in the most recent quarter versus 9.5% in the second quarter of 2008.

US segment operating income for the second quarter was $3.3 million versus $9.2 million last year, primarily reflecting the lower level of revenue in the quarter. Europe segment operating loss for the second quarter was $2.2 million, compared with a $2.2 million loss in the second quarter of 2008. Again, please keep in mind that European revenue is seasonal and concentrated primarily in Q1 and Q3 while the run rate of expenses is relatively even throughout the year.

Electric segment operating loss in the second quarter was $593,000, compared with $90,000 last year. On a consolidated basis, the Company recorded a provision for income taxes for the second quarter of this year using a 34% annual effective tax rate. Consolidated net income for the second quarter of 2009 was $872,000, or $0.04 per diluted share, compared with net income of $4.8 million, or $0.20 per diluted share in the second quarter of 2008.

Let me now take a minute to discuss the strength of Volcom’s balance sheet. At June 30, 2009, the Company had approximately $96.2 million in cash and short-term investments. As presented on the consolidated statement of cash flows, the Company generated $10.3 million in cash from operations in the second quarter of 2009. In the first six months of 2009, we generated a total of $16.3 million in cash from operation. We have no long-term debt, stockholders equity of 199 million and a current ratio of 6 to 1.

Consolidated accounts receivable decreased 20% to $48.5 million at the end of Q2, compared with $60.9 million at June 30, 2008. The consolidated accounts receivable balance at June 30, 2009 represents day sales outstanding of 71 days, compared with 72 days at the end of the second quarter of 2008.

Consolidated inventory decreased 18% to $30.2 million compared to $36.9 million a year before. On a consolidated basis, the inventory turn rate calculates the 4.3 times per year or once every 85 days. While this is down somewhat from prior quarters, historically our lowest turn rates occur at the end of Q2. Inventory turns calculated to 5.3 times per year at the end of Q2 2008.

At the end of Q2 this year, our inventory turns were affected by, one, less SMU business with some of our larger accounts due to our sales with these accounts having decreased; two, Electric inventory as the eyewear industry does require available Patel inventory as a significant part of revenue is generated through replenishment business and three, we have a men's line for summer this year which we did not offer last year whereby we are carrying newer in-season summer inventory. Overall, we are comfortable with our inventory levels as they appear appropriate based on our plan.

I’ll now turn to our financial outlook. Forecasting revenue in this economic climate continues to be challenging. We continue to see retailers being cautious, reducing pre books, relying more on in-season and out one business and pushing order delivery closer to when they actually need product. With this in mind, consolidated 2009 third quarter revenue is expected to be between approximately $82 million and $85 million, a decrease of approximately 24% to 26% compared to the third quarter of 2008.

This includes anticipated revenue of approximately $51 million to $54 million from the US segment, approximately $25 million from our Europe segment and approximately $6 million from Electric. In Q3, we project revenue from PacSun to decrease approximately 65% to $6.5 million, compared with $18.8 million in Q3 of last year. We project our PacSun business to be significantly decreased for a few reasons.

First, PacSun has converted a significant number of whole price stores and the value doors and Volcom has chosen to be selective with categories and inventory levels in the value doors. Second, PacSun outlets are no longer purchasing whole price products from Volcom. Third, PacSun spoken publicly about significantly reducing inventory levels. Based on these factors, we project to be down approximately 44% in Q4 and down approximately 42% for 2009 equaling annual revenue of about $30 million with PacSun down from approximately $52 million in 2008.

Volcom continues to sell well for PacSun and holds its position as a top brand. The product assortment in the stores is solid and our relationships with PacSun personnel at all levels of the Company are strong.

Consolidated EPS for Q3 of 2009 is anticipated to be approximately in the range of $0.35 to $0.38. We expect the Q3 tax rate to be approximately 34%. We continue to project 2009 total consolidated SG&A to be less than 2008. Fully diluted shares outstanding for the third quarter are expected to be approximately $24.4 million.

In putting forth this outlook, we want to remind everyone of the complexity of accurately assessing future earnings and revenue growth given the challenging economic and credit environment, the difficulty in predicting sales of our products by key retailers, including PacSun, changes in fashion trends and consumer preferences, and sourcing costs.

The current economic climate continues to create a difficult short term business environment for all of us. However, Volcom with its worldwide brand strength, quality product, enviable cash position and dedicated team of employees, athletes, sales reps and distributors around the globe is positioned to steer through this downturn and emerge from it with a distinct competitive advantage.

With that, we will open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Mitch Kummetz - Robert Baird.

Mitch Kummetz - Robert W. Baird

Let us see a few questions then we can get Jason involve in the call but first question, any relates on back to school yet? I know it is early but I was just curious to know if you have been hearing anything out there from many of your customers.

Jason Steris

Jason here. Just last week, we had the agenda show over here in Huntington. We spend a lot of time with or retailers. There is a good group of retailers up from East Coast so we had a pretty good sampling of our account base since grade and it is the beginning of back to school and there is some excitement around the new product mix out there and the overall kind of, the read that we got walking away from that show was there is optimism. It was early but there were signs of things getting a little bit better and overall, I would say it was upbeat kind of just, each conversation and, it is a little bit stronger on the East Coast I would say. Some of the strengths over there and then you got your California and some of your, Hawaii has been a little tougher but just with some of the products out there.

We did not see in some of our stores just with the new product mix out there, all collection even just early start on some of the, as warm as it is. Flannel start to kind of check a little bit, some of the denim collections moving through. So, overall I would say it was pretty optimistic.

Richard Woolcott

Yes, Mitch. This is Richard here. I talked to one of our sales managers this morning and he was saying just in the last two to three weeks, he is seeing some AO orders coming in and seeing a better feel kind of a two-fold like kind of like in the summer business happening right now and he things that slowly going to trickle into that back to school and he was thinking that maybe in about another week, we should start to get it better back to school read.

But business has been up in the last two to three weeks and he seemed, we see the upbeat and optimistic and really put a lot of emphasis on the next 30 days on how important the next 30 days are for retail and particularly mentioned, if we can have healthy retail out there with a less promotional environment in the next 30 days, that is really going to set kind of the foundation for this second half of the year not only going into back to school but going into holiday too. So, so far so good but I think the next 30 days, we definitely want to keep our eye on it.

Mitch Kummetz - Robert W. Baird

And then any feedback coming out agenda on what retailers are thinking for spring 2010? I know we are early in the trade show season and I am not so much asking the question as to what do you think they are going to do in terms of others but in terms of how they are looking at product and your brand and I know there were some buzz coming out of agenda on your girl's swim business so maybe just talk a little bit about kind of the feedback that you were getting on spring 2010?

Jason Steris

Absolutely. Definitely one of the most exciting I would say most well rounded lines that we have had to date, the week before that we had our sales meeting which set the tone and kind of kick off the new collection so from the boardshort line and the men's and the girl's swim, that create the lines to just I think each category. We have really as Richard mentioned in his prepared remarks to really looked within to strengthen our existing products or existing infrastructure or existing business and by doing so, we have gone right into every category that we had been offering for the past years and find tune them from our pricing structure to our merchandising to what they are going to look like in the stores to the marketing campaigns specifically over the Proving Grounds that we did in spring for boardshorts. We will carry that into next year and just build on that and we have brought in the Creedlers program, wrap that around the Proving Grounds Campaign as well to kind of get the tie in there with the surf leveraging that marketing campaign.

With the girl swim, we just did a big fashion show here at headquarters. It is all about the five Speed Fever campaign and it is a really nice line and real great packaging of the artwork of the overall collection rounded out real nicely with the show that we had. So, just taking everything that we have got right here and elevating it because in this environment as we all know, I mean it is about taking market share and being aggressive with our existing categories and so the reaction I would say sitting down over the accounts last week was super positive and I would say for sure we got the best line up that we have to date and that is across the board.

Mitch Kummetz - Robert W. Baird

Alright and then lastly, a question for Doug on the gross margin, US gross margin was up nicely as you mentioned for the quarter and you attribute it to a couple of things, limiting discounts then fewer liquidations. I am guessing that your policy on discounts is going to continue for the balance of the year and then it seems like you are in a pretty good inventory position so I would think that you are probably assuming that liquidation is probably are down from a year ago and I would think you would also have maybe a tailwind on the cost side as well. How are you thinking about gross margins for Q3? I just gone over the balance of the year but it seems like the pick of this on the second quarter should carry forward.

Doug Collier

Yes, Mitch and I think you are right on it and that is what we are going to try to do, all those things at the same time. There are going to be cases where we are going to try to work with our accounts, not refreshing inventory on a case by case basis but if we have done a good job in planning our inventories and not having to off price a lot and really like we said, try to really much more compete on product and on brand and really trying to get in their battle of price has been what we are focused on.

Operator

Your next question comes from the line of Jeff Klinefelter - Piper Jaffray.

Jeff Klinefelter - Piper Jaffray

A couple of quick questions for you. One, you talked a lot about your branding campaigns, your marketing campaigns, it sounds like you are being really creative and attempting to drive that brand and I am just curios if there is anyway to sort of measure, what are you doing if you are marketing budget dollars year over year and more importantly than that, do you have any way to measure what sort of touch points you are getting, your communication points you are getting with the consumers? I know there is a big difference between running advertising print or online versus getting out and doing these direct hit marketing events with customers.

Richard Woolcott

This is Richard. I think it is really across the board. I mean, I talked a little bit in my remarks about we are increasing our advertising a little bit in certain areas, something I would like to mention but I did not mention on the call is that the x games are this weekend and we are going to be preparing for the first time ever our denim program, our road tested denim. We are going to have some skateboard ads that will be playing during the event. I think it is during divert finals and then during the big airs.

So, something new we have not done but again, using that as an example how that ties right back in specifically to our product initiatives that is happening right now in fall and then that blends right in to what is happening with all of our print and our in store. So, I would say from our branding efforts, just drilling down and getting more focused on it where it crosses all touch points like you were saying whether it is in print, whether it is on the web, whether in our in store all the way down to how the product is packaged.

So, just going through a recession like this has given us the opportunity to dive back into our business and really find tune and just better prepare ourselves for the future. So, we are looking at every avenue whether it be the social networking through the internet, through what we are doing on our website, what we are doing with our retailers through print. As we mentioned, we just had a big fashion here. We flew a lot of people in from New York. There are huge reactions from our swim show out here and really went the extra mile to kind of heightened what we are doing from a product perspective with our swim and we got a great reaction.

So, kind of every area that we have control of, we are really going the extra mile and in terms of your point of, "Well, hey how do you see it paying off?" I think the best example is the boardshort campaign. We really pushed hard with the Proving Ground and not only in the print and in the media but with the product and our boardshort sell through an attention that we are seeing at retail. I mean it is by leaps and bounds the best that we have ever done and we have seen great sell through and it is coming out in these reports that we have gained more market share in boardshorts.

So, we are being able to kind of see the actual result when we put this type of effort into a category. So we are going to continue to do that.

Jeff Klinefelter - Piper Jaffray

Okay and the dollars year over year, are they running about the same?

Doug Collier

There is a little bit of increase here and there but we really not specifically doing anything drastic this year. If we have a new program in place, we will let everybody know about it but pretty much trying work with the dollars that we have for the most part.

Jeff Klinefelter - Piper Jaffray

In terms of distribution, I know you guys are always looking at that and working hard on cultivating the appropriate distribution balance with PacSun's reduction or your reduction on some of their low lying stores, I know you have been working hard with some of your department stores on having unique positioning in those stores, lots of opportunity to expand there. Any updated thoughts on the timing of that? How would you like to see that rollout with additional distribution?

Jason Steris

It is Jason here to give you a little overview on our distribution kind of outside the PacSun. Kind of specifically your Macy's question, I mean where we are right now within those accounts and that accounts for about 21 months now and we are in 105 at the doors, the action sports doors for men and boys and really kind of be trenching for one with the new management structure. I am working with those teams and matching well with the team in New York and really just trying to focus on the sales and profitability of our brand stores and existing door count and to maximize sort or that footprint for that type of a customer from our in store.

A lot of the marketing initiatives that we have been talking about from the that scheme's commercial and just the consumer awareness from the product, the pricing, the marketing and in the in store, just making sure that we have the wining formula before we roll it out too far and get into some of the maybe territories that are not 100% ready but I think we are definitely making momentum and we are heading in the right direction. I think all of the step that we are talking about is in place and there is momentum right now getting reports in the last couple of days, t-shirt sell through and just some really positive results coming out in the most recent sell through reports.

So, we are heading in the right direction and when the timing is right, we will add doors selectively and start to grow. I think there is approximately, do not put me on, maybe check on list but I think there is about maybe 400 or so action sports door but you might want to double check those numbers but that is kind of what we are hearing from the buyers. They can see the potential there. It is huge and then I think on the junior side has been a little more difficult for us but again, we are going back to the product, to the overall presentation in there and just trying to figure out what our strength is going to be and the bright spot right now would be the men and the boys and the kids business for sure.

And then outside of the Macy's I know you have got your dealer which we are doing decent end. Again, kind of the same formula of just, it was to make sure we got the right product, the right presentation and we are driving the consumer and they are looking for the product and all that stuff, it is definitely confident that we got everything in the right place right now. We are heading in the right direction. So, it is in a working process but our teams are on it and we feel good about moving forward.

Jeff Klinefelter - Piper Jaffray

Okay, one last question Richard, in terms of the women's business and I know it has been challenging for a lot of different brands and the retailers in this cycle, have you ever consider whether or not going out and acquiring a brand in that space would make some sense in order to ramp it up a little bit faster and potentially deal with little bit less risk in terms of impacting your core brand or do you still feel like that it should be a very strong balance little gender single brand?

Richard Woolcott

Yes, Jeff at this time, I think it is still for us to have both the Volcom girls and men's brand out there I think is good for us. I think we have got a solid foundation out there with our juniors business. It just gotten hit really hard but there is core following and I think it is okay for our brand in terms of, from a branding perspective. I do not think it is deteriorating on the coolness of Volcom or anything like that and I am okay having it all wrapped under one roof. We have shown that we can exist both as a men's and women's brand and I think we just got to get through this time period and continued to support and believe in our juniors business and I actually had a meeting with our sales manager for juniors this morning and even though it is difficult out there, we still got great pieces and we are actually diving in and drilling down on where we see opportunities and where we might not be a strong, where we can improve and from a cross board and particularly the excitement that we just saw with that swim launch for next year.

So, I think that right now, we are focused both on men's and women's under the Volcom label and we do not have any plans at this time to go acquire another women's label.

Operator

Your next question comes from the line of Jeff Mintz - Wedbush.

Jeff Mintz - Wedbush

Doug, I guess a question for you. In looking at the SG&A numbers, I mean you were down in the first half, about 3% and that is with revenue down about close to 20, I am wondering if you are seeing more areas to do more cutting or at this point, you think you have kind of cut as much as you can and it is just a matter of waiting out the cycle on the revenue side.

Doug Collier

Yes, Jeff I think at this point, we went it and we did, the cost at the beginning of the year and I think at this point, we will always continue to look at it and if there is areas where there things that we are doing that are not paying off, we will always take a look at that but in general, I think we are looking for opportunities and we want to keep our Company strong. We continue to be profitable and to generate cash and we are just getting pretty careful really not to damage our infrastructure as we go forward.

So, we are always looking at that kind of stuff but I think we are as far as an overall and the big expense reductions, I do not think that, at least at this rate of business we are doing, I think we are probably okay for now.

Jeff Mintz - Wedbush

Okay great and then I do not know if you wan to take this or Jason wants to talk about it but have you guys gone through any process of kind of cutting initial price points in terms of season over season have some of the initial price points come down as oppose to discounting given the consumer value vent at this point.

Jason Steris

I will take that. That is a really good question and I think with everything going out there, there has definitely been the need for that a little bit sharper price point and that is kind of what you are getting at, right?

Jeff Mintz - Wedbush

Exactly.

Jason Steris

Yes and on our end, we have always really participated in that kind of that mid tier price to sort of that higher premium. We always kind of say there was three tiers, the entry level, that mid tier and that kind of higher price premium and we have really participated a lot the majority of our years in that mid tier and pushed it up and in this environment and on account base changing, we definitely address the need to sharpen our price points in key categories whether it be the denim, the boardshorts, the walk short. So almost kind in all your basic categories where you go to one or two or three skews kind of that entry level with that sort of your foundation later and then continue with the mid tier and then continue with the premium at all time as well and just kind of have a little more of a well rounded package and as we have gone through the last probably I would say six to ten months, that has been a hot topic for us and we have implemented stuff earlier on to where as we are getting out there with our spring ten line right now. We have addressed it and I think we have got some really good opportunity and there to take some market share that just we did not have before in the past.

So, I think that is a spot on observation and something that we have addressed but definitely have not taken away from anywhere else to any major extent. I think it is just a little bit more of a, it is a two part need from your distribution growing and then also with the sort of the recession and all that and just the need out there for sharper price points. So this kind of serves us two purposes for us and I think as we move forward.

Operator

Your next question comes from the line of Jim Duffy - Thomas Weisel Partners.

Jim Duffy - Thomas Weisel Partners

A couple of questions for you; so coming out of the first quarter, you had characterized it as destalking was largely over with. Were there inventories looking like at retail coming out of summer?

Jason Steris

It is Jason. What was the first part on Q1? I am sorry.

Jim Duffy - Thomas Weisel Partners

Well, so coming out of the first quarter, you guys had characterized inventory that retail as having good through the destalking phase.

Jason Steris

Okay, got it, the destalking phase.

Jim Duffy - Thomas Weisel Partners

Yes, it just felt like destalking was over with. I am just wondering whether you are still confident in that or whether there is going to change an inventory positions as you have gone through kind of another season.

Jason Steris

Yes, I mean, we always going to walk through the beginning, I mean the kind of what we saw was if we still inventory in spring get into summer going who, I mean they are going to cancel some of the spring stuff or maybe path on some of your summer products probably got enough to get me through the first half kind of stuff but through that process with that timing, I think there was probably enough information visibility so to speak for the retailers when their booking fall to probably get their inventories a little bit more in line as we are going into Q3. So, I would say with spring and summer, you kind of got a look at them as the Q1 and Q2 is together of how they transition through their inventory levels.

Some accounts might have carried more spring, some accounts might have cut back on spring and found in a little more summer but overall, I think the amounts were definitely filed a little bit higher on the Q1 side and then slowly coming down for Q2 but I think they are probably much more in line for Q3 right now as we go into back to school and if that helps, we can continue to see a little bit of these up ticks. We can get a little more reorder business.

Richard Woolcott

Yes, Jim, this is Richard here. Well probably there will be at some point that inflection point where you will have the reverse half and you might start to find areas where you might need to increase your inventory in terms of the AO business and we have actually seen, three people calling back, "Hey I need some more of this," or "Hey, do you have some more of that stuff? I'm out of it." I think you will see that happen in a little bit of different spot and then eventually as things begin to turn around, people will have to start building back their inventories a little bit more and it is all going to depend on where the consumers' minds at in terms of walking to the store and buying products.

So, I think as Jason said, we will probably in that area of where inventories are starting to balance out with what the consumer demand is and then eventually as that demand increases, we are going to again have to adjust inventories to meet that demand over the other end. So, we are keeping a close watch on that and I think there probably are number one priority right now is whatever demand is out there, we want to fulfill it but we also do not want to be stuck with the bunch of inventory where we have to dump it and then we got a margin erosion. So, I think we have done a good job with the inventories so far and we just got our eyes on it.

Jim Duffy - Thomas Weisel Partners

It sounds like there has been a big change in the order of process even clearly from your guidance, retailers are being more cautious on inventory position. It seems like they are pushing for a lot more at one as oppose to open the buy commitment. How are you guys going to match that inventory balance? Does that position you for a potential upside in the third quarter or the sell through at retail materializes?

Jason Steris

It is definitely, it is a little different across the board. I mean you definitely got conservative free books. You have got the retail I think and okay, how am I going to book my tees in that six months out and how do I feel about booking season with the information I have today and how am I looking at this and I think the one thing that we have now that we did not have before is just what is the acceptable inventory level like getting inside the consumers' mind of understanding. Was it, do I bring it down 10% or do I bring it down 30%? Every accounts got their levels so it feels like now what I was trying to get across was that I think each retailer now knows what their appropriate levels are at least to layer in their needs so that they are not getting caught with too much inventory like we had back in Q4 and then at the beginning of the Q1 where it was just a panic of this too much inventory and everything was promotional.

So, I think there is a level of inventory at reasonable level of what they expectations are now as they are going in booking seasons so we are still getting, the majority of our business is pre book. It is just we are definitely seeing the retailers, they are being more cautious and they are probably not placing their entire orders like they used to and they are waiting to see what is going to happen and a lot of it is just going to wait and see how the next couple of weeks play out where we kind of have the same conversation back in Q2 and Easter, it only lasted about a week. It was quick. It was out, we got minimal of the orders so it really comes down to the consumer and what that demand transpires to above and beyond those initial orders but we have to operate our business from majority as a free book and then in terms of capturing opportunities, t-shirts and core codex that we always talk about and we are ready to maximize that window but yes, I would not get the impression that we are stuck in the warehouse and people are not pre booking.

It is clearly not the case if you will look at our order file for Q3. I mean the majority of it for us is pre book and then you got Electric which is out ones business. So that is different and you have got Europe which is almost all pre book and then you have got a retail stores and all that that obviously as the consumers buy it. So, it is a little bit of a cat and mouse scheme wit the inventory levels and all that but as you can see in our gross margins, I mean we are very focused on it and with our sales coming down this year, we said, hey let us focus on our inventories and let us make sure that we can be as profitable as possible.

Richard Woolcott

Yes, and Jim what we have seen is a little bit different. It is just the retailers, the mindset and kind of goes back to, what we all get in our mindset is business is just it is just is shifting closer to when that actually that season is happening. It is kind of like, I discussed early on the call where right now the mindset is summer business and then as you get closer to back to school, it will be that back to school business. So, I think the days of having a season begin way before it actually happened. Those times are changing because people are more conservative and cautious to bring that type of good for that type of season in super early. They want to kind of play within the actual season and so there is AO business but there is also closer to season business and just trying to be better prepared for actually when summer hits, you got summer goods. You want the consumer comes in and want the t-shirt and a boardshort like okay, I got them for you and in the past, maybe summer would be over. You would have fall product in when at the hottest months of the year and I do not think that the consumer is not thinking that way right now. The consumers go and, "I do not want to buy goods for winter right now. I want to buy goods…I'm going to beach today."

We are kind of note to seeing a little shift in that mentally too and I think you got a hone in on that and make sure you have the right product that is in the store for where the mindset is with the consumer too. So, we are seeing kind of something that I think is going to play maybe a better role as we move forward just having a right product or what the environment is at that time.

Jim Duffy - Thomas Weisel Partners

Okay. That makes a lot of sense. Just to complete the thought, are you guys compete in the a crowded category? What do you see from other vendors, are they taking more aggressive inventory position then do you think there is a loss of market share from others who are willing to take more risks in you?

Richard Woolcott

Well, I cannot really speak for others I think that the mindset for most is to be careful with inventory right now and to plan accordingly and that is about kind of would be my opinion on there. Jason, do you have another thought on that?

Jason Steris

I would agree with that.

Operator

Your next question comes from the line of Christine Chen - Needham & Co.

Christine Chen - Needham & Co.

I wanted to ask, we have been hearing a lot about sourcing cost coming down even as early as the back half of this year. Just wondering what you are seeing for your product on the apparel side for this year and for maybe 2010, and did I hear you correctly that your non-top five business was down to 14%?

Jason Steris

Hi Christine, it is Jason here. All I answer to sourcing question for you. First, for us with our development teams and our resourcing teams were always working on bettering our cost over there and I do not have any specific percentages to tell you what things are coming down and we are always negotiating and always levering opportunities with our international subsidiaries and all that.

But I think what we are seeing over there is there is definitely with the business coming down overall in the apparel industry. They got vendors over there. They got to keep their businesses intact and they are sharpening that vendor a little bit and just get in some of that business that maybe in the hay day they were able to have higher prices and so on and so forth.

With some network always focused on our teams wherever that constantly and we got the great vendors supply stores that we constantly work with and I think we are getting some of the best most competitive prices. And your second question…

Richard Woolcott

Yes. Christine, that was correct. Outside the top five accounts both for Q2 and year-to-date that is down only 14%.

Christine Chen - Needham & Co.

And I guess why do you attribute that big discrepancy to just that the majors are being maybe over they conservative with inventory just because there is more targeted audience in the non-top five accounts?

Richard Woolcott

Yes. I think that is a good question. I think what kind we are seeing there is, I talked a little bit about it in the inventory. Some of those accounts that we had better in that top four, we had in the inventory issue is going into Q1 and going into even Q2 or might have passed on some or all together full back on spring a little bit where a lot of our Q4 holiday inventories sort of our core programs whether it is denim or pants, walk shorts where they just had enough inventory in terms of be in the buying more products so it is kind of like, “Hey guys, I’ve got enough inventory right now. Let me work through what I had. I’ll sprinkle in so many of your stuff,” like we did not flush step out right at the end of Q4 and like a clean starting point we have really been in this first half or been through a lot of these older inventories with some of these software accounts.

I think the area of just you have got if it is different environment, it is challenging. It changed from what it is. Retailers are trying new saying, testing other. You might have certain groups in there that might be doing better in footwear versus apparel. There is a couple of different various reasons within different account basis.

I think what we are seeing which is the most encouraging is just the brand strengthening our sell-through with the product that we have in there and the continued support with those accounts and to see them moving forward with our new products and we are not springing with some of our top four guidance. I am just seeing opportunities to continue to kind of once we figure those appropriate inventory level of just moving forward and maximizing each category.

So, it is a little bit across the Broad and I think the account base kind in that first half still trying to figure out, hey what is my appropriate inventory level and what do I need and I think people are starting to settle in now. I think that is sort of telling the score a little bit of just like the first half would be Volcanic. I think for everyone is just “Oh, how much inventory do I need and what’s the right balance by brand?” And in the other hand, they are going to point out is the junior’s business for that particular top for dress, add them all it has been probably most challenging and I think that is sort of just some across the Board and offer those accounts.

Christine Chen - Needham & Co.

And then I guess my last question, long term, you have had a very strong relationship with P-Sun up to this point and certainly their strategy is changing in long term. What do think the impact on your brand is with their strategy changed?

Richard Woolcott

Hi Christine, this is Richard here. First of all, a good question, we have had a changed in management and we are actually needing with their new CEO next week and I think time hotel what we feel we have got a really strong brand without a great customer base and a great consumer base out there and have we seen with all the reports and we have got a very strong relationship with PacSun right now and we hope to be an important brand to them in the future as a strategized with where they are going in the future and I think now would have changed in management. We are going to sit down and see kind of where Volcom fits in that new thinking.

So, I think in the next couple of calls, we will be able to give some more color on where we are going and specifically with PacSun but they were encouraged to buy it and so far our business is being good with them and good relationship with their buyers and get good sell-through and as long as they are focused on brands, we are excited to be a part of their business. So, we will be interesting to see everything grows out with them, with the change in management and how they want to line with themselves looking forward with our brand like Volcom.

Operator

Your next question comes from the line of Jeff Van Sinderen - B. Riley.

Jeff Van Sinderen - B. Riley

Sort of follow up question to the discussion on ones business and I am just wondering if you have changed any further and how your dealing with short lead time product to kind of stuff that you can sort of order without waiting months to get and then shift it quickly?

Jason Steris

Hi Jeff, it is Jason here. I would see that one year that we are the most focused on right now would be our T-Shirt business and as Richard mentioned that we added some resources to there just recently on the design merchandising sort to SMU part of the business and that is stuff that we do vocally and we see that being an opportunity for Volcom to grow that category and then outside of that we have really identified our Team Sports product within each category, within men, women, boys and kids and I think that foundation alone from the denim to the walk shorts, to the board shorts, to the accessories and then you wrap in the T-Shirts. There is an enough products in there for us to bring stock in and if they do not go and we do not get the reorders they carry into the next season and that is really our strategy. We have got opportunities to do that with some of our more of timeless margin builder styles for accounts so there is an incentive to buy and that is really being our strategy. In terms of our lead times and shortening them and all, we do not have a full blown strategy for that and I think it is definitely to be looking at as to move forward and to get ways to always improve that. But we have got a lot of programs on pretty tight shortly times right now and we have been chasing the business for a lot of years with some of our bigger accounts with SMUs and all that to do so. I think we are setup pretty well.

Jeff Van Sinderen - B. Riley

Okay, good. And then anymore color you can give us on regular seeing in your own retail stores, maybe update us on trends there that you have seen recently.

Richard Woolcott

Hi Jeff, this is Richard here. Definitely we look at those reports every day and I can say for the month of July, we have seen from week-to-week on a consolidation basis, all of our stores combined together and these are the 10 Volcom branded retail stores then we have two LS&S stores. We have seen this business improving week-to-week over the last four weeks and yes it is encouraging to read for us because it is top straight in to the retail environment and also to the Volcom consumers, somebody who is actually going in and buying Volcom product and a little bit of encouragement out there. It was interesting, it started right, during and after July 4th weekend so right when we went into summer and we have had one of our strongest month with our branded stores and we definitely going to keep an eye on that on how that trend going into back to school and the product assortment is out there, kind of how I said when I mentioned earlier, it is like we have a mixture of that kind of current product which would be your summer product and we also have fall product in there which is good to help with freshening up the assortment but you got to make sure you got product in your stores on the floor for right now and for summer because the people are going in, they want to buy summer goods.

And then you got to cross over, "Hey, I am going to start to need to build my wardrobe for back to school," so you got to have the right product assortment. It is definitely what we have been working on right now. We are definitely seeing an up tick particularly since July 4th that weekend all the way through every weeks that is a little bit better than the last week which is really encouraging.

Jeff Van Sinderen - B. Riley

Okay, that is great to hear and then the other issue I wanted to address, I am hopeful this is not an issue for you guys and for most of your customers but I just wanted to touch on CIT if we could for a minute and just any impact that might come from that.

Doug Collier

This is Doug. No, we really have not seen much impact at all from CIT. Obviously, we are not factored. Several years ago, we were factored so we are really familiar with how that works and it sounds like CIT has got some short term funding. There is other people that are jumping in. This is probably a fact I would imagine smaller manufacturers like we. That is really the only kind of financing you can get but I have not heard like there has been they have been able to deliver product and so retailers are shifting to other accounts so we can read a lot about it but we have not really seen much impact at this point in our industry.

Operator

We have reached the allotted amount of time for questions. I will turn it back to management for closing remark.

Richard Woolcott

Okay, I just want to say thank you to everybody for being on the call and the continued support with Volcom and we look forward to getting back at you on our next call. So thank you and have a great day.

Operator

Thank you for participating in today's conference call. You may now disconnect.

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