Kenneth Cole Productions. Q2 2010 Earnings Call Transcript

Aug. 4.10 | About: Kenneth Cole (KCP)

Kenneth Cole Productions (NYSE:KCP)

Q2 2010 Earnings Call

August 04, 2010 08:30 AM ET

Executives

Sam Kevin of ICR

Jill Granoff – Chief Executive Officer

David Edelman – Chief Financial Officer and Treasurer

Analyst

Jeff Van Sinderen – B. Riley

Sam Poser – Sterne, Agee

Janet Kloppenburg – JJK Research

Operator

Good Day Ladies and Gentlemen and welcome to the Second Quarter 2010 Kenneth Cole Earnings Conference Call. My name is Chris and I’ll be your operator for today. At this time all participants are in a listen only mode. Later we will conduct the question and answer session. [Operator Instruction]. As a reminder this conference is being recorded for replay purposes. I will now like to turn the conference over to your host for today’ call Sam Kevin of ICR [ph].Please proceed.

Sam Kevin

Good morning everyone. Before we get started, I’d just like to remind you of the company’s forward-looking statement disclosure. Statements made in today’s conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Actual future results might differ materially from those projected in such statements, due to a number of risks and uncertainties, including but not limited to, demand and competition for the company’s products; the ability to enter into new product license agreements or to renew or replace existing product license agreements; changes in consumer preferences or fashion trends; delays in anticipated store openings; and changes in the company’s relationship with retailers, licensees, vendors and other resources.

The forward-looking statements contained in today’s call are also subject to other risks and uncertainties that are described in the company’s reports and registration statements as filed with the Securities and Exchange Commission.

With that out of the way, I'd like to turn the call over to Jill Granoff, Chief Executive Officer.

Jill Granoff

Good morning and thank you for joining us to review our second quarter 2010 results. With me today is David Edelman, our Chief Financial Officer. We are please to report strong performance in the second quarter, as well as our fourth consecutive quarter of positive operating profit.

Our business has clearly turn the corner and is showing traction and positive momentum. Each segment delivered double-digit growth demonstrating that our brands remains strong and that our products are resonating with consumers.

We also increased gross margin and achieved continued expense leverage resulting in grater profitability. Here are a few highlight from the quarter. Total net revenues in the second quarter grew 15% to $108 million. Gross profit margin increased by 130 basis points to 43.7%.

SG&A expenses improve nearly 520 basis points. Earnings per share increased by $0.23 rising to a profit of $0.05 compared to a loss of $0.18 last year and for the first six months of the year earnings per share improved by $0.79 to a profit of $0.15 versus a lost of $0.64 in the same period last year. This represents an operating profits swing of nearly $20 million.

Our balance sheet also remained strong, cash at the end of the quarter with $79 million, up $21 million versus last year. Inventory was flat to the year as level even though we had a double-digit sales increase as we continue to operate with no long-term debt. The improvements we have made through out our organization are paying off. Our business performed well across categories, brands and operating segment. We believe this across the board performance reflects the trend product and compelling value we are providing to consumers. Also revenues grew by 13% in the second quarter, these results were driven by strong performance in several category, especially reaction men’s and women’s footwear.

Or enhanced sell-through not only help margin but also drove a 25% increase in EDI deliveries. This solid performance is largely due to Kenneth’s brand and product vision and our talented, creative and wholesale team.

Our designs assortment and campaign have been on the mark and we’re excited to be demonstrating our leadership position in our core wholesale categories. Our consumer direct business also showed impressive growth. Totaled sales were up 16% in the second quarter with a comparable store sales increase of 8.4%. The balance of the sales increase is generated by new store and continued double-digit growth in e-commerce. Apparel was our best performing category for both men and women. We are pleased to see about 4-5 stores and outlet comping well. Traffic continued to be down in both channels but our conversion was up. Our focus on head-to-toe looks seasonless product and versatile style from multiple wear occasions are resonating with consumers. While the outlets stores were slightly more promotional than we’d like to see, inventory is clean on both side of this business. The consumer direct segment continues to get healthier.

Finally our licensing business performed well again this quarter growing by 21% versus last year second quarter. Stand out performers win the categories of men’s dress shirts, men’s tailored clothing, watches, optical and small leather bag. We also saw continued growth in Canada and the U.K.

Well David would go through a second quarter results in greater detail and provide third quarter guidance in a few moments. I’d like to say a few words about our outlook in each segment. With respect to wholesale backlog is up double-digit and we are projecting continued momentum through out performing holiday season.

We are preparing for the upcoming launch of Reaction men’s sportswear in just over 200 Macy’s stores. We think we have the right designs and price value relationship to make a substantial launch very successful. Beyond the revenue that it will generate we're excited for the increase level of visibility it would provide to the brand. We will begin shipping toward the end of the third quarter and you should see the new product and fixturing program on the retail selling floors soon.

We're also excited to expand distribution for a Kenneth Cole New York 9 to 5 women’s footwear line. We will increase the wholesale door account and add more Nordstrom, as well as Bloomingdales and Von Maur. As we seek the appropriate balance between core and fashion style, we continue to keep our whole sale distribution exclusive for this line. This also helps drive traffic to our own Cole price stores.

Now with respect to our consumer direct outlook. We expect continued comp stores sale gains in both full price and outlet stores. We believe that traffic will remain a little soft but we are anticipating continued increases in conversion as a result of our targeted assortment planning efforts and our customer data captured initiatives.

We will also continue to transitional real estate. We expect to open 5or 6 new outlets in the second half, more simultaneously closing 5 to 10 unproductive stores by early next year. In addition our e-commerce business should continue to realize double-digit growth as we upgrade our photography, launch mobile commerce, and add a reaction micro site.

With respect to our licensing outlook, we are working on some strategic initiatives for both new territory and new product category. We are well down the path on a few of these projects and hope to share this specific detail soon.

Our domestic and international licensing business should continue to show growth even with topper short term comparison because of the elimination of the Le Tigre royalties from J. C. Penney. We are working on a new exciting strategy for this plan.

I’d now like to turn the call over to David Edelman, our Chief Financial Officer to go through the numbers in greater detail and provide our view of the third quarter.

David Edelman

Thank you, Jill. Good morning everyone. This morning the Company reported its results for the second quarter. As Jill mentioned our business was a little better than expected. Earning per share improved $0.23 to a profit of $0.05 per share compared to a loss of $0.18 last year. Net revenues was strong up 15% to a 108 million versus the year ago level of 93.9 million. This is driven by double-digit growth in all three other operating segments.

Wholesale sales in the quarter increased 12.8% to 52.1 million. However excluding business is exited in 2009 they were up 16%. Consumer direct sales in the quarter increased 16.2% to 44.8 million compared to 38.6 million in the second quarter of last year. This performance is driven by positive comp in both our full-price stores and outlet with an overall comp store sales increase to 8.4%.

We also saw double-digit increase in e-commerce and growth from the 8 net new stores opened since the end of the second quarter last year. I'll note that we opened one and close two stores in the second quarter. Additionally as Jill mentioned we continued to expect and open five stores in back half of 2010 and close between five and 10 underperforming full-price stores by early next year.

Licensing revenue increased at 21.1& during the second quarter driven by strength in several categories. More than three quarters of our licensee partners reported sales increases year-over-year. Gross margin rose 130 bases points to 43.7% versus 42.4% last year. This is driven primarily by better than expected wholesale margin due to strong sell-through and expected inventory management. I'll note that our maintained margins

have been more than strong enough to offset some pressure on initial markups that we are seeing from increased products and freight cost from Asia.

SG&A as a percentage of revenue improved 520 basis points to 42.7% from 47.9% a year ago. We've maintained that focus on expense management and on identifying opportunities to improve efficiencies. The slight increase in total SG&A dollars was the result of new stores and variable items including incentive compensation that we continued to return the profitability.

Pretax income in the second quarter grew by 6.2 million to 1.1 million versus a pretax loss of 5.1 million last year. Net income grew by approximately 4.2 million to a profit of $0.05 per share versus a year ago loss of $0.18 per share. I'll note that we continue to incur minimal tax expense due to the reversal of a portion the company to deferred tax valuation allowance. This is the only unusual item in the earnings calculation for the second quarter.

Turning to the balance sheet cash of the end of the second quarter increased 21.3 million versus last year to 79.2 million. Our credit facility remained undrawn and we continue to operate with no debt.

Inventory at the end of the second quarter was 35.2 million approximately flat to last years level. As I mentioned last quarter we expected drive sales with careful expansion of inventory in selected categories. That said, we've accelerated a turns, our inventories turns and we believe the levels are appropriate to our business plans.

As we look to the back half of the year well our business are clearly been improving, we remind for the very challenging economic environment, particularly as we looked to holiday and state tougher comparisons. That said, the third quarter we project consolidate revenues to increase between 10% and 12% and we do expect to see some limited improvements in both gross margins and SG&A as a percent of revenue.

Earnings per share is broadcasted to be in the range of $0.08 to $0.10 versus $0.01 last year. In addition as Jill mentioned you should note that beginning in the third quarter we'll no longer be receiving approximately $1 million per quarter of licensee royalties for the two base in J. C. Penney As a result we expect licensing revenues to grow mid single digit in the second half.

I'd also remind you that while we expect continued SG&A leverage our absolute expenses will increase as we anniversary last years streamline of efforts and as we accrue for a pay-for-performance plan.

We're also planning on the increase marketing expense to support expected sales growth, including of launch reaction men’s sportswear.

Thank you and I'll now turn the call back over to the Jill for some closing comments.

Jill Granoff

Thank you David. We are making good progress in our business and I am proud of our teams efforts. We exceeded our sales and profit expectations and delivered second quarter EPS ahead above 2009 and 2008. Our margins are up, our expenses as a percent of sales are down and our cash position is strong. We are now focus on two major areas. First, we will continue to manage the fundamentals, especially in light of the uncertain economic outlook. We will continue to monitor our expenses carefully and exercise discipline with regards to inventory and cash management. Our balance sheet is healthy and we intend to keep it that way.

Second we will continue to drive top line growth by focusing on the customer and leveraging the strength of our brands. We are fully aware that the market is challenging, consumer confidence is down and employment is high and the credit market is still tight. Even so we believe we can continue to do well and take market share from our competitors. We intend to do this through product innovations and engaging customers experience, our value prepositions and enhanced retail partnerships.

We now have four consecutive quarters of operating profitability under our belt and believe that this is only the beginning of a revitalized track record of performance. We are committed to realizing the co-potential of our brands and we’ll continue to explore all strategic avenues to maximize value for our stake holders.

I’d like to thank you all for your attention and support and we are now ready to answer question.

Question-and-Answer Session

Operator: (Operator Instructions) And our first question came from the line of Jeff Van Sinderen of B. Riley. Please proceed

Jeff Van Sinderen – B. Riley

Good morning. Let me say congratulations on the quarter and the improvement you guys are seeing. Can you talk a little bit more about where and how the improved sell-throughs our manifesting perhaps by retail channel and what you think that means for you business going forward for booking trends et cetera. And then also what you're hearing from your retailers in terms of how they are planning inventory and so forth?

Jill Granoff

Well, I mean, in terms of sell-through by channel, as I mentioned in wholesale we are seeing very good attraction especially in reaction ladies footwear and reaction men’s footwear those are you know the strongest categories that we have experienced through the spring season. And moving over to retail we are really doing well in every category but the stand up performers in retail were in a apparel where we had significant growth both in men’s and women’s apparel. And you know in licensing I believe as I mentioned as well we're seeing strong results especially in the dress up category where to work, we are seeing pick up in dress shirt and in tailored clothing, small leather goods and then we've had some nice increases also in watches with our innovative new touch screen technology.

Jeff Van Sinderen – B. Riley

Okay. And then it was great to see your retail comps up, can you give us some more cover on operating metrics between, maybe differential a little bit between your full-price retail stores and your outlet, I know mentioned your outlets were little more commercial then you know, but its seems like everybody promotional leases in the retail. Just wondering if there is any more color you can give us on that and then it’s all reduce to except those businesses to perform well in the second half with better conversion and maybe if you can just comment on how you think you're getting a better conversion?

Jill Granoff

Sure. So our comps were actually consistent this quarter between our full-price centre outlet stores you know, that we don’t breakout you know the detail. Traffic is down in both channel probably in the mid single digit but conversion is way up and that has been a focus for us since we installed you know, traffic counters. And so its really how do we maximize every customer that’s crossing the lease line and we are doing this by focusing on head to toe look, so you know co-coordinated, shoes and hand bags and apparel.

We're also doing this by offering more season list item and by offering product that can worn day to night, work to weekend because we believe value is not just in price point but value is often and how often do you wear the product. So you know, that has really been a big focus for us. And you know, in terms of the promotional environment, we’ve actually been the less promotional in our full-price stores but we have had be bit more promotional in the outlet channel.

Jeff Van Sinderen – B. Riley

Okay. And then finally maybe you can just give us your prospective on sourcing cost and how you see that unfolding in Asia, it seems like everyone is facing this similar challenges there, maybe give us a little more color on how you're addressing that with shipping and that you know, [inaudible] has got any delays or thing that nature?

David Edelman

We are stay in higher cost and labor fate and product cost and as you said its that industry wide event. I guess our backlog is a little bit lower and too much but our improved product and clean inventory potion is enabling us to actually came out with higher maintain gross margins and we’re forecasting that to continue for both Q3 and Q4.

Jill Granoff

Like – I just like to build on what David says Jeff, I mean, obviously we are seeing slightly higher cost as our all of our competitors but you know we do have an opportunity in foot wear and accessories to consolidate our vendor base and to really optimize our corporate volumes and we have a new Chief Supply Chain Officer and you know we are really looking, across our entire vendor base for opportunity’s to improve our costing through some consolidation. So hopefully that will offset some of the pricing increases. In addition to that especially in a payroll we are looking to rebalance geographically and our entire reaction forth were align with source outside of China and we really focused much more on India, Bangladesh and Indonesia. So we do have opportunities to mitigate some of the increases that we are seeing in raw material and labor costs.

Jeff Van Sinderen – B. Riley

Okay. That’s good to hear. Thanks very much and good luck this quarter.

Jill Granoff

Thanks Jeff.

David Edelman

Thank you.

Operator: Your next question comes from line of Sam Poser of Sterne, Agee. Please proceed

Sam Poser – Sterne, Agee

Good morning. I have a few questions. Number one, when you talk about your backlog the enough double-digits, I mean, does that mostly – is that being driven by the outerwears and footwear versus apparel, can you sort of give us some details on how that was?

David Edelman

Yeah, you know, we usually don’t comment on sub breaking up sub segments that are out of our business both footwear and apparel is up as well. Most of the apparel backlog is really a Q4 item that we're going to launch – make exactly sportswear of Q3 but most of the shipments go in early Q4.

Sam Poser – Sterne, Agee

And how does the apparel mix in wholesale effect the margins, I mean, that’s a fairly new business in a big way for you?

David Edelman

You know our margins all make all that difference between footwear and apparel, our maintain margin which we have slightly different structure than arrangement for a—coming out maintain margin are relatively consistent.

Sam Poser – Sterne, Agee

Okay. And then – thank you. And then in your guidance for $0.08 to &0.10 for Q3, what is – is that the assumption of zero tax rate again as it was in the second quarter?

David Edelman

Zero federal taxes, we still pay some state and local taxes, foreign taxes, I mean some FIN 48 items. The figure may be in terms of this gross dollars 150,000 to $200,000 of taxes.

Sam Poser – Sterne, Agee

But if we could – I mean, if we normalize it 39 % its still a normalize run rate?

David Edelman

39 % is what we historically ran.

Sam Poser – Sterne, Agee

And going into next year that’s something you would expect to go back to?

David Edelman

I am not sure we hat to – you know, and its technical accounting situation in a three year cumulative loss in the tax valuation allowances is something we'll look out with [inaudible] orders as of year end.

Sam Poser – Sterne, Agee

Okay. Thank you. On that with your retail, the retail stores which appear to be turning around, let me say you're going to close about 8 to 10 stores by the beginning of next year, is that the number you said?

Jill Granoff

We said five to 10

Sam Poser – Sterne, Agee

Five to ten. When we think about that, I mean, how many should we be thinking about in 2009, or 2010 excuse me emphasize, backing up a year, in 2010 how many should we be thinking about this year I mean, is there lot of river room in Q4 to Q1, I guess?

Jill Granoff

It’s really Q4 to Q1 and we're talking with our partners, landlord partners now. We do have some natural kicks coming up. So we think it makes sense to wait until those kicks so that we don’t incur liabilities. But we have a little bit of river room between the end of Q4 and the beginning of Q1.

Sam Poser – Sterne, Agee

Can you give some color on what that store opening and closing would be in Q3 though right now, I guess you probably see that pretty well?

Jill Granoff

We don’t intend to close any stores in Q3 obviously Q4 is the peak selling period, so we would want to really optimize all of the products sell-through and in terms of stores opening with the outlets I think probably two or three in Q3 and same in Q4, Obviously it would be very early in Q4 because we want optimize our black Friday and the holiday selling season again.

Sam Poser – Sterne, Agee

So the modeling purpose, that we said you're going to close six or – six or seven in the fourth quarter, would that be an accurate way to look at it?

Jill Granoff

I would have assumed that the closing occur at the end of the year and any benefit will approve in 2011.

Sam Poser – Sterne, Agee

Okay. Very good. Well thank you and continue success.

Jill Granoff

Thanks Sam

David Edelman

Thanks Sam.

Operator: And your next question comes from the line of Janet Kloppenburg of JJK Research. Please proceed.

Janet Kloppenburg – JJK Research

Good morning everyone. I was wondering if you could talk about your content during the month and if they were consistent or if they were some slow down at the end of the month that some retails experienced. Also I was wondering if you can quantify what you think the retail price increase might be on the reaction line next year given the IMU pressure and how well consumers have reacted to that. And lastly if there is any update on the Rockefeller Center lease? Thanks so much.

Jill Granoff

Okay. The first question on comps, we actually did not see a slow down on a month-to-months basis. If anything we saw it pick on the month-to-months basis with the calendar shift. July certainly has been a little bit tougher I think for all retailer with traffic down in consumer’s confidence down. But in the second quarter we actually had escalating comp from April through June.

In terms of Rock Center, as you know we are working very closely with Tishman to try to move out of that location. We think to great location but the store is too big. We hope to have some news to announce soon but we can’t share anything definitively until – and LOI has been signed. And now Janet what was your second question, I got the first and the third.

Janet Kloppenburg – JJK Research

I just was wondering what kind of price increases you expected this spring on the reactions to the line. Would it be you know 3%, 5% and how the retailers that you’ve talked with have reacted to that?

Jill Granoff

Right now we are really not planning any significant price increases. We really look at the value perception and we think that we will be for the most part able to hold our price point. There are some rising cost but as I had mentioned earlier we also think that we can mitigate most of that through private consolidation and looking at alternate geography. So right now the pricing you should be fairly consistent at least first spring.

Janet Kloppenburg – JJK Research

Well, that’s great and good luck.

Jill Granoff

Thanks Janet.

Operator: Your question comes from the line of [inaudible].Please proceed

Unidentified Analyst

Hey guys how are you doing?

Jill Granoff

Good. How are you?

Unidentified Analyst

Doing okay. Did you break down your segment income margins, could you?

David Edelman

We actually at this point we don’t usually talk about segment data, so we make the top up information forward when we're going to file our Q next week.

Unidentified Analyst

Okay. Okay or just may be directionally was there anything you know, better than expectation or lower than expectations?

David Edelman

I think Steve we're going to file that at each segment had actually improved operating margin, we don’t necessarily break that out in our typical disclosures.

Unidentified Analyst

Okay. Okay. And then on the savings on the five to 10 stores that you’ve planned to close next year, is there any sort of ballpark figure we can use as far as the loss on those stores just looking at your consumer direct segments?

David Edelman

Yeah I think what we said is that we're successful when we close all 10 will pay somewhere between 15 up to may be $0.20 this year share.

Unidentified Analyst

Okay and that I’m assuming includes the Rockefeller Center store in that five to 10?

David Edelman

It does and Rock Center is obviously the largest sales leading store at this time

Unidentified Analyst

Right, right. Okay. And any other information you can give us on the new strategic initiatives on the licensing side. You just kind of mentioned that quickly is it something that will be in a completely new area Kenneth Cole or just an expansion of the existing license?

Jill Granoff

Actually we are looking at both, there is one new product category that we are looking at which is very exciting and there is also some new territory that we are looking at which we think are exciting and then there are might be some changes existing license arrangement. So it’s really a combination and we would share those details as soon as the deals have been finalized but hopefully will be able to do that pretty soon

Unidentified Analyst

Okay great, great thanks. And incentive account in the quarter how much was it in compared to Q1?

Jill Granoff

Our Q1 comps in total were 5.6% and our second quarter comps were 8.4%

Unidentified Analyst

I’m sorry. I meant incentive comps, incentive compensation expense?

Jill Granoff

Oh sorry

Unidentified Analyst

Its okay. But those are good comps?

David Edelman

All right. I think he knows better than I do, we really can't talk about this specific comp amounts, its just not a productive conversation. I can’t say our entire bonus plan is based on a combination of taper performance on earnings per share and division of segment income and only those that achieved their goals get paid. And as example last year we lost money and no one earned the bonus. So have you return to profitability in extra difficult comparison but, we just can’t give the number out?

Jill Granoff

Okay. I think the other thing that’s important is that it self funded, so we will only pay out you know, it is self fund before we have the EPS target.

Unidentified Analyst

Was it up sequentially?

David Edelman

No, it’s fairly consistent.

Unidentified Analyst

Okay. And this is my last question on the last line in your press release Kenneth said that and you continue to explore all strategic avenues to maximize value for our share holders. How should we think about that it, is that from the line capital structure stand point, from additional expansion or just is there any additional comments on that>

Jill Granoff

I mean, I think the key thing is we're we looking at strategic alliances to get out Macy's is a perfect example of how were you know increasing our whole sale business. We are looking at new territories you know, as we talk about in the past we think that Asia is the huge opportunity for us and as we’ve also talked about there could be some new licensing opportunity. So you should think about it in the vein of you know, whether is product category, territories or different retail partnership.

Unidentified Analyst

Okay. All right. That’s all for me. Congratulations. thanks.

Operator: Your next question comes from the line of Hyder Boston [ph] of Sidoti & Company. Please proceed.

Unidentified Analyst

Good morning guys. Couple of additional question here. Just first, maybe how your guys explaining our inventory’s for the remainder of the year if given the back log in the Macy's launch maybe where we should be able to see this at the end of December?

David Edelman

Yeah, well over the last four quarter inventory controls is been the main focus of us – of ours and we’ve been actually lowering our inventories while increasing sales. I think we’ve hit an anniversary point where our inventories are going to go up slightly but there our goal is to continue to increase our turn so that full – inventories will increase that is slower pace than our sales increase.

Unidentified Analyst

Okay. It make sense. And in full price stores your [inaudible] I get that in the near term priority is to close the underperforming stores, but I guess as we look towards your late 2011 and beyond. How is the new store format a full priced store, is that you’re doing and is there any thoughts to you expanding those?

Jill Granoff

Well, Hyder we're going to wait until the end of the year and then we're going to evaluate the performance the full price stores you know and then we will make decisions on new store opening for the you know back half of '11 or beyond. We're very pleased with the conversion increases but its hard to say what the traffic parents are going to be for the back half of the year. We are some what concerns with you know consumer spending patterns, consumer confidence, et cetera.

So we’ll be able to share more details after the end of the year. But certainly you know we’ve apply the learning you know from the touch stores that we did last year and we do believe that is what's driving the positive comps that we've seen through the first six months of this year.

Unidentified Analyst

So those stores are still out performing in the group?

Jill Granoff

Those stores are among are best performing stores, yes.

Unidentified Analyst

One last question. On just your cash balance continues to grow here what are the priorities going forward for cash?

Jill Granoff

Well, basically you know when we look at our cash balance would be one, you know to our open new stores clearly which we’re doing on the outlet front and two to close some of our under performing store and then we know up enter in particularly we'll require some cash to get out of that and then the third would be some selected investments from an IT perspective and for example we are putting in place a new allocation system to help us with supply demand balancing in each store and we also be investing in the Internet, aside from that we think it is important to be prudent and to you know to preserve cash since the economic outlook is still some what uncertain.

Unidentified Analyst

All right. Thanks.

Operator

Again ladies and gentlemen (Operator Instruction) We have a follow up question from the line of Sam Poser of Sterne Agee. Please proceed.

Sam Poser – Sterne Agee

I just – can you just said it again Jill that regarding you know the sort of the atmosphere, the climate out in the market place right now and how would you compare what you're hearing and seeing out there now from this time of last year?

Jill Granoff

Well, I think this time of last year we were really projecting a pick up because we were anniversary the bad numbers from '08 when really the economic down cycle began. So I think people were feeling encouraged going into the fall season last year with using your comparisons. Now, of course we're up against the better performance in the back half of the year. And I think there is so much volatility in the stock market that consumer confidence is shaken, unemployment is so high. You know, we read the same report you do. So, I think there's just – a bit of uncertainty. You know, people talk about the pause and the recovery. So I think last year, we were feeling optimistic I think now, there is uncertainty.

Sam Poser – Sterne Agee

Well. If I make a follow up on that. I guess, the real thing is that, from everything else you said, you're very pleased with the improvements you've made in your retail stores and employments there, in the product mix in your apparel, in the head to tow, you know, and in a [inaudible] you're able to do and I first know your product is becoming sort of across the board. How much of your improvement I mean, how confidence you're improvement to yield to offset that because or how, or what kind of cloud does this but obviously, arguably your executing far better than you did a year ago at this time. But, incensing, more nervous about what's going on.

Jill Granoff

I think the big unknown stand in the traffic, so our focused has been controlled what you can control. The direction has been maximized, every customers transaction that we can. But you know, traffic which was down in the mid single digit, throughout Q2, we're seeing in July now some traffic declines down double-digit. So, the concern is really for traffic more than anything but, we're going to execute it effectively as we can with that our product and short pricing and coordinated look. But at the end of the day, traffic is the big unknown.

Sam Poser – Sterne Agee

Well. Thank you, and good luck.

Jill Granoff

Thanks, Sam.

David Edelman

Thank you.

Operator: And there are no further questions. At the this, I would to turn the call back over to Jill Granoff for a closing remarks.

Jill Granoff

Thank you. Kenneth and I sincerely appreciate the hard work and dedication of our associates as we said many times they are the foundation of our business. We also want to thank our customers for their ongoing loyalty and our shareholders for their ongoing support. Thank you again. And have a great day.

Operator:

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, you may now disconnect. Have a great day.

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