The Bon-Ton Stores CEO Discusses Q3 2010 Results – Earnings Call Transcript

| About: The Bon-Ton (BONT)

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

Q3 2010 Earnings Call Transcript

November 18, 2010 10:00 am ET

Executives

Joe Teklits – IR

Bud Bergren – President and CEO

Keith Plowman – EVP, CFO and Principal Accounting Officer

Tony Buccina – Vice Chairman and President, Merchandising

Analysts

Edward Yruma – KeyBanc

Michael Exstein – Credit Suisse

Grant Jordan – Wells Fargo

Karru Martinson – Deutsche Bank

Carla Casella – JP Morgan

Emily Shanks – Barclays Capital

Ronald Philip [ph] – FBR Capital

Janet Elbridge [ph] – Goldman Sachs

Leah Hartman – CRT Capital

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's Bon-Ton Stores third quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. As a reminder, today’s conference is being recorded. And now it is my pleasure to turn the conference over to Joe Teklits. Please go ahead, sir.

Joe Teklits

Thanks. Good morning, everybody. Welcome to Bon-Ton's third quarter 2010 conference call. Today Mr. Bud Bergren, President and CEO; Tony Buccina, Vice Chairman and President of Merchandising; and Keith Plowman, Executive Vice President, Chief Financial Officer and Principal Accounting Officer, will host the call. You can access a copy of the company's earnings release on its website at www.bonton.com, and you can also obtain the earnings release by calling 203-682-8200.

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

With that, I’ll turn the call over to the company’s CEO, Bud Bergren.

Bud Bergren

Good morning, and thank you for joining us. I'll begin with some general comments on the third quarter of 2010. Keith will then provide details of the financial results and update you on our financial guidance and assumptions for 2010. Tony will discuss merchandise results and trends and offer our thoughts on what we see happening in retail in the upcoming holiday season. After that, we will be available to address your questions.

Let me give you some highlights from the third quarter. I believe we executed well in the quarter of our unseasonable warm weather impacted our sales. We delivered a 60 basis point increase in our gross margin rate, an increase in gross margin dollars, and a 9% in clearance inventory at period end. In addition, our excess borrowing capacity under our revolving credit facility was approximately $462 million, up from $246 million a year ago, plus we increased our operating income by $3.2 million.

For the quarter, our best performing markets were Detroit, Minneapolis, Milwaukee, and Buffalo. Our softest regions were Des Moines, Omaha, and Harrisburg, Pennsylvania. We delivered on our merchandise initiatives in the third quarter with franchise businesses, private brands, key items, and incredible value items, generating gains over the prior year period. Another growth vehicle that continues to be strong is our ecommerce business, which posted a significant increase of 74% in the third quarter compared with the prior year.

During the third quarter, we announced two strategic alliances, which further differentiate Bon-Ton from our competition; Casual Male, the largest specialty retailer of big and tall men’s apparel, is providing this merchandise to our customers through our ecommerce website and beginning in the spring of 2011 in certain of our stores. Casual Male’s dominant position in this important niche market allows us to offer our customers hard to find sizes in a wide selection for the male customer. This is a good balance to our already strong women’s size business.

We also announced the signing of a claimed fashion designer, John Bartlett, for an exclusive for an exclusive private label collection of men’s apparel and accessories. We believe John’s collection is a great complement to our extensive portfolio of exclusive private and national brands, offering our customers continue to appreciate. We are very excited about this opportunity that both of these agreements provide.

Looking ahead, we believe we are well positioned for the holiday season with the right merchandise assortment in a strong marketing program that will effectively convey our quality and value message. During the fourth quarter, we are focused on inventory management and the fresh flow of goods, merchandise assortments that deliver quality and outstanding values by also providing margin opportunities for the company, marketing efforts that will target our loyal customers while attracting new ones, and maximizing our ecommerce initiatives. Year-to-date we are up 75% to the prior year period. We are confident we can execute to our plan and deliver our 2010 goals.

At this time, I’d like to turn the call over to Keith to review the financials. Keith?

Keith Plowman

Thank you, Bud. And good morning, everyone. I’ll review a few notable accomplishments in the third quarter of 2010, and I will touch upon certain income statement and balance sheet components, as well as our 2010 guidance. Our comp store sales decreased 30 basis points in the third quarter while our gross margin rate increased 60 basis points, which yielded a net increase in gross margin dollars of approximately $2.7 million.

Our income from operations was $22.7 million compared to $19.6 million in the third quarter of 2009, and our EBITDA, defined as earnings before interest, taxes, depreciation and amortization, including amortization of lease-related interests, was $48.7 million compared to $48.8 million in the prior year period. For a reconciliation of EBITDA to net loss, please refer to our earnings press release.

As Bud mentioned, our excess capacity at the end of the third quarter of 2010 was up approximately $216 million as compared to the third quarter of 2009, and our total debt levels are $118 million or 9.6% below the prior year levels.

Moving to the details of our third quarter, comparable store sales decreased 0.3% from the prior year period, and total sales for the 13 weeks decreased 0.5%. Other income in the third quarter decreased to $16.4 million compared with $18.7 million in the third quarter of 2009. The current year decrease primarily reflects reduced leased department income, the result of the conversion in late 2009 of fine jewelry to an owned department.

Gross margin dollars in the third quarter increased $2.7 million to $267.7 million. Our third quarter gross margin rate increased 60 basis points to 38.2% compared with 37.6% in the prior year period, primarily reflecting reduced net markdowns due to the company’s inventory management efforts.

SG&A expenses increased $600,000 to $235.4 million compared with $234.8 million in the third quarter of fiscal 2009, primarily reflecting increased expenses to support advertising and the growth of ecommerce, partially offset by reduced expenses. The SG&A expense rate for the third quarter of fiscal 2010 was 33.6% compared with 33.4% in the prior year period.

Depreciation and amortization expense, including amortization of lease-related interests, decreased $3.3 million to $25.9 million compared with $29.2 million in the third quarter of 2009. Interest expense net increased $5.1 million to $28.3 million compared with $23.2 million in the third quarter of 2009. The increase reflects increased borrowing rates as a result of our amended and new credit facilities, which will partially offset by reduced net borrowings.

We recorded an income tax provision of $700,000 in the third quarter of fiscal 2010. This compares with an income tax provision of $500,000 in the third quarter of fiscal 2009. And our net loss for the third quarter was $6.3 million or $0.36 per share versus $4.2 million of a loss in the prior year period or $0.24 per share.

For the nine months ended October 30, 2010, comparable store sales increased 0.9%. Total sales increased 0.7% to $1,970.5 million compared with $1,957.7 million for the first nine months of the prior year. Our year-to-date gross margin rate improved approximately 130 basis points to 37.9% compared with 36.5% in the prior year period.

SG&A expenses for the first nine months decreased $7.1 million compared with the prior year period, the result of cost control efforts, partially offset by current year incentive compensation accruals. Year-to-date operating income improved $36.6 million to $22 million compared with an operating loss in the prior year of $14.7 million.

EBITDA for the first nine months ended October 30, 2010 increased $29.1 million to $102.9 million compared with $73.8 million in the prior year period, and our year-to-date net loss was $63.5 million or $3.60 per diluted share compared to a net loss of $84.4 million or $4.96 per diluted share in 2009.

Looking at some key balance sheet amounts and cash flow activity, our balance sheet inventory at the end of the third quarter increased 2.2% compared to the prior year. This reflects increases in both on-hand and in-transit inventory. On-hand inventories are considerably fresher than the prior year and the in-transit inventory will further update merchandise assortments with new goods. Our accounts payable increased $51 million, reflecting increased vendor support, and our letters of credit were $5.4 million at the end of the third quarter. Comparatively, they were approximately $64 million at October 31, 2009.

Total debt, including capital leases, was $1.110 billion at October 30, 2010 compared with $1.228 billion at October 31, 2009, a reduction of 9.6% or $118 million. Third quarter capital expenditures not reduced by third-quarter contributions were $15.9 million compared with $9.2 million for the prior year period. Year-to-date capital expenditures not reduced by third-party contributions were $36 million compared with $22.2 million for the prior year period.

Moving to our full year fiscal 2010 guidance, we are reiterating our guidance as follows. EBITDA in the range of $235 million to $245 million, and income per diluted share in the range of $0.80 to $1.35. Additionally, our estimate for cash flow, as defined in Note 2 of our press release, remain in a range of $80 million to $90 million.

Assumptions reflected in our full year guidance are comparable store sales in a range of 1.0% to 1.5% increase; gross margin rate of 37.7%; reduction of $15 million to $20 million in SG&A expenses; an effective tax rate flat; capital expenditures not to exceed $50 million, net of external contributions; and an estimated 18.5 million to 19.0 million shares average outstanding.

We will continue our focus on controlling expenses and managing inventories, balancing this with initiatives and actions to benefit sales. Our Form 10-Q for the fiscal third quarter of 2010 will be available around December 10.

And at this time, I’d like to turn the call over to Tony.

Tony Buccina

Thank you, Keith. During the third quarter, sales were difficult in August and October, in large part due to unseasonably warm weather across most of our market. Last September showed the strength of our new fall merchandise with solid 5.9% comp stores sales increase.

For the third quarter, our comparable store sales decreased three-tenths of a percent. And to put this effect of the warm weather in perspective, decreased sales of cold weather merchandise such as outerwear, gloves, scarves, sweaters, flannel sheets accounted for the entire drop of comp store sales decline in the period. By contrast, sales for the quarter in non-cold weather related merchandise increased approximately 2% on a comp store basis.

Our third quarter transactions and average retail per transaction both decrease slightly compared with the prior year period. These numbers were unfavorably impacted by the drop in sales of cold weather merchandise, especially outerwear. Our comp store inventory at the end of October increased 4.4% over last year, as we build our inventories with fresh merchandise for fourth quarter selling.

Most of the increase was to support two key merchandising strategies; ecommerce and private brand. We are also driving businesses with extra inventory in shoes, cosmetics, and watches that show strong strength in sales all season. Our clearance inventory ended down 9%. We are well positioned with fresh merchandise for the holiday season and our inventory has never been fresher.

We are pleased with our margin performance in the third quarter. Gross margin dollars increased $2.7 million over the last year, and margin rate improved 60 basis points, which was a record high margin rate for the third quarter.

We achieved our margin rate with several merchandising initiatives. First, our higher margin private brands were faster than the total stores. Private brand gross margin was significantly above the company average. Two, we increased penetration in the incredible value program also at higher margins than the total company. Three, reductions in clearance inventory and throughout the third quarter. And four, continued improvement in the age of our inventory, our merchandise assortment continues to be fresher than the prior year.

Looking at our sales performance by category, our best-performing categories for the third quarter were shoes, cosmetics, missy better sportswear, men’s better sportswear, and hard home. The separate areas were ladies’ and men’s coats, missy moderate sportswear, juniors and petite. Our private brand was 20.7% of sales in Q3 compared to the prior year penetration of 20.5%.

The best performing brands in the third quarter were Ruff Hewn, Kenneth Roberts, Relativity Career, Relativity Intimate, Intimate Essentials, and Paradise Collection. Private brand is an important driver of our overall gross margin, delivering margin several hundred basis points above branded merchandise. Franchise businesses exceeded sales and gross margin versus the prior year. The best franchise businesses in the third quarter were ladies’ shoes, moderate updated sportswear, and cosmetics.

Our storewide key item initiative is still a very important part of our merchandise strategies. Penetration of total key items grew over 200 basis points in the third quarter. And within our key item initiatives, customers continue to appreciate the value in our Incredible Value Program. Penetration in IVP merchandise in Q3 grew to 9.9% of sales versus 9.7% last year.

Overall, product differentiation was 33% for the third quarter, flat to last year. Private brand accounted for 61% of our differentiated merchandise. Our ecommerce business continues to perform well with an increase of 74% for the quarter. And finally, we are happy with the progress of our fine jewelry business having net sales and margin plan for the third quarter. We took over this business in October last year, and it continues to improve.

Looking ahead is the fourth quarter. We expect positive comp sales in the low-single digits. Our existing merchandising strategies are performing well, and we will maintain our focus on our strategies in next quarter to drive sales. We expect private brand will lead the company and sales growth. We have expanded the existing brands into additional stores. We expect positive comp sales in the low-single digits.

Our existing merchandise and strategies are performing well, and we will maintain our focus on our strategy in question to drive sales. We expect private brand will lead the company and sales growth. We have accepted an existing products and to additional stores. We expect large growth in our Kenneth Roberts line in men’s sportswear and men’s furnishings.

New product categories were added to existing brands and ramped up for boys. LivingQuarters Loft in home, Laura Ashley weekend wear and ready-to-wear, and Ruff Hewn in infants and Ruff Hewn in men’s cold weather. We have increased our marketing efforts of private brand to drive the business, especially in direct mail.

The additional marketing supports our expanded merchandise offerings as well as reinforces the lifestyle and value message to our private brand customers. We expect private brand margins to continue to be higher than the company by several hundred basis points. We expect our franchise businesses to grow faster than the total company; cosmetics, ladies’ shoes, especially boots, and our moderate update sportswear will be the strongest franchise businesses in the fourth quarter.

Our storewide key item initiative will be over a third of our total sales in the fourth quarter and significantly increased from prior year period. The Incredible Value Program should be close to 9% of total sales, which is also up over last year’s Q4. Unique merchandise will account for a third of our total sales, and private brand will be the significant portion of differentiated merchandise.

We expect dramatic growth from ecommerce during the holiday season on top of the growth we experienced in 2009. We have added more vendors and more items to our site. Our point-of-sale system in our stores is now integrated with our website. The integration gives our associates the ability to better our customers by offering current expanded assortment from our website were actually shopping in our stores.

We also completed the move to a new IBM WebSphere Commerce platform from our website to our website that has increased its speed, enhanced the graphics, and improved the shopping card process. Distribution centers increased space to handle the expected volume from increased sales during holiday season. In addition, as I previously mentioned, we increased receipts in October to build the ecommerce inventory. This was a learning from last year.

We expect our fourth quarter sales in ecommerce to be close to double last year. And in fine jewelry, we will build upon the solid results we have in the first nine months of the year. We are ready for the fourth quarter with our product assortment, pricing, marketing and people. We have a significant opportunity in holiday shopping season, as conversions started at the end of October last year.

Several marketing changes will help drive sales in the fourth quarter. We increased target marketing to our credit card customers and did additional prospecting that has been successful in getting new credit card customers. Also, broadcast marketing has been increased versus last year to drive new customers into our stores. As Bud mentioned, we are very excited about the business opportunities afford to us by the strategic alliances with Casual Male and John Bartlett, which further differentiate Bon-Ton from our competition.

We are confident that our merchandise strategies and execution will deliver profitable top-line sales growth for holidays. We have the right inventory to take advantage of opportunities in the fourth quarter. Our assortments are packed with plenty of value, fashion, quality and excitement, so we will exceed the customers’ expectations and drive the fourth quarter results. I will now turn the call back to Bud.

Bud Bergren

Thank you, Tony. As Keith mentioned, we have reiterated our fiscal 2010 guidance as we are able to deliver quality sales in the third quarter. We believe we are well positioned for the holiday season and are confident we have the right merchandise assortments and a strong marketing program that would effectively convey our quality and value manage.

With that, we will be happy to open the lines for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We will go first to Edward Yruma with KeyBanc.

Edward Yruma – KeyBanc

Thank you very much for taking my question. There has obviously been a lot of commentary from the apparel vendors on inflation for as early to mid-part of next year due to commodities and due to higher labor costs. Can you talk about orders that you’ve been placing and how it’s going to impact your business, both with their private brand as well as on your private label?

Bud Bergren

Well, let me address the private label first. We’ve had no increases this fall of Ken, and spring has gone up and about 10% of our merchandise that we buy in private brands has gone up about 5% to 8% depending on the items. And it’s mostly costume-related, cotton-related that gave us about a 2% impact in total of our private brand for strength. For fall, we are hearing about price increases. There is lots of drama that changes on a weekly basis. We’ve got big swings and costing mostly time. And again, apparel prices appear to be going up as well as textiles.

We’ve had a lot of our overseas vendors here in the first week of October to partner with us specifically with taxes issues about how we take cost out and help mitigate the cost increases. We then had our agents corner here actually the second week of November, it falls a lot specifically to address this issue. Part of the thing that we do is about 40% of our private brand is produced in China, 12% in Vietnam, 17% in Jordan, and 12% in India, but we have been moving away from China where most of the issue is. And we actually have 25% of our merchandise is produced in duty-free countries of Jordan, Africa, and Nicaragua. Now, that’s the private brand season today. From the domestic market, we haven’t really seen the big increases for spring, and we really won’t be placing the fall businesses until the first quarter. The only thing I can really comment about is our own private brand that from the market, we are hearing the same job of prices going up.

Edward Yruma – KeyBanc

No. Well, I know it’s still kind of early to tell, but conceptually, do you think you will be able to take up your retails to make this a margin neutral event?

Bud Bergren

I think that on the basic commodities that are difficult right now, I don’t think the customer will pay more for those same basic commodities. So I think it’s really attacking more of the fashion, the quality, the newness aspects of that business so you could get a better price that’s really worth – that a better retail that’s worth the value. The value, it still has to be a good value.

Edward Yruma – KeyBanc

Got you. I know that you had indicated that outerwear sales or cold weather sales are quite challenging during the warmer months. How comfortable are you with your inventory quality in some of those more pressured classifications?

Bud Bergren

Okay. Let me give you a whole story on that because I knew that that would come up. Okay? If you – last year in October, it was very cold here. It was unseasonably cold. So our cold weather categories exploded and gave us a big comp in the month of October. As that warmed up in the month of November, and cold weather, which becomes an even bigger piece of our business in the fourth quarter, actually had a very difficult November as well as December. So we’re feeling the quality of the inventory. I mean, we’re just starting to see the gear-up for the cold weather businesses right now. I mean, the – and if you were to look at the outerwear business, the men’s cold weather and ladies’ cold weather, gloves, hats, scarves, if you look at the flannel sheet sets, there has been a dramatic turnaround in November versus the October business as well as the third quarter season to date. The only businesses in cold weather that still remain a little difficult are the sweater category and the fleece category. But overall in the month of October, those businesses month-to-date are comping, plus.

Edward Yruma – KeyBanc

Okay. Great. And my final question, I believe your second lien term loan is callable either today or shortly thereafter. How do we think about your deleveraging strategy going forward? Thank you.

Keith Plowman

We’re looking at the components of our debt structure as it is today. And certainly, taking into account that we’re in the largest quarter and the most profitable quarter, we are balancing the actions and initiatives that we believe we can take to benefit the company long-term versus what’s happening here in the immediate.

Edward Yruma – KeyBanc

Great. Thank you.

Bud Bergren

Thank you.

Operator

Our next question comes from Michael Exstein with Credit Suisse.

Michael Exstein – Credit Suisse

Good morning, everyone. A couple questions for –

Bud Bergren

Good morning.

Michael Exstein – Credit Suisse

Good morning. A couple questions for Keith. Can you just sort of talk a little bit more about SG&A dollars in terms of what the trend is going to be going forward? They were a little bit more than I would have expected in the third quarter, which is the investments in advertising and ecommerce. Where do you think that they trend out for the balance of this year? First question. If you took out the disappointing performance in cold weather stuff, what do you think the inventories would have ended up as in terms of growth rate at the end of the quarter? And any update on further store closings, how you’re looking at the closing businesses, your ecommerce business ramps up? Thank you very much.

Keith Plowman

I’ll take the first and third and then change back to Tony for the second one of the inventory levels and based upon cold weather. For the SG&A, remember, Michael, we’ve talked about through the first couple of quarters that we are accruing incentive compensation as well as retirement benefits that last year because of our performance, we didn’t accrue until late in the year. So there will be some offset here as we pull dollars in earlier throughout the periods that will benefit us. We still feel good with our $15 million to $20 million of guidance as a reduction year-over-year in our SG&A performance. We feel that we are in pretty good shape as to where we sit.

Bud Bergren

Tony, you’re not adding any extra incremental advertising in the fourth quarter or anything like that?

Tony Buccina

That would be included, Michael, as to where we see the numbers – where we see the numbers are at, we still believe we will be in the $15 million to $20 million reduction based upon the promotional cadence encountered that we are set.

Michael Exstein – Credit Suisse

Okay, great.

Bud Bergren

Tony?

Michael Exstein – Credit Suisse

And what about store closings?

Tony Buccina

Store closings, we don’t have anything else planned out there at this point. We’ve made announcements of several store locations. I think you know that we have Centerville and Frederick at the end of this year. We’ve had a couple we’ve closed earlier this year. Michael, it’s the same as it has been. We’re going to continue to take a look at them as we see opportunities to move out of them, whether from a cost standpoint or from a performance sales standpoint, we will continue to do that and it's definitely a strategies initiative as we go forward.

Bud Bergren

Michael, on the inventory of cold weather, we would have basically been on plan for – actually we are in planet total for the quarter. And cold weather was about 1% of inventory over last year if you look at our total.

Michael Exstein – Credit Suisse

Very helpful. Thank you very much.

Bud Bergren

Thank you, Michael.

Tony Buccina

Thank you, Michael.

Operator

Our next question comes from Grant Jordan with Wells Fargo.

Grant Jordan – Wells Fargo

Good morning. Thanks for taking the questions.

Bud Bergren

Good morning, Grant.

Grant Jordan – Wells Fargo

My first question, appreciated the guidance and obviously you guys have been really conservative with your guidance and outlook, but whenever you combine kind of the comments about November sales? You thought you might be on the conservative side as you’re looking at Q4 or do you feel like you are still kind of waiting to see on December results.

Bud Bergren

We think we’re going to be in that 1% to 3% comp range, and hopefully we’ll do a little better. Grant, as you look at the guidance that we’ve given there, we do have some room certainly on the gross margin. You can calculate it out and see that we have some rooms sitting there. But we feel it’s important – Tony has put an investment in some key items in inventory that have shown accelerated trend that he is looking to drive sales as we go the fourth quarter. We are definitely paying attention to the top line and look to grow those sales volumes. And as you look at it, you can see that that gives some pressure on the gross margin rate as we go through the fourth quarter. So we feel good about our guidance. We feel we definitely are within that range. And we’re going to drive to perform that level.

Grant Jordan – Wells Fargo

Okay. That’s helpful. And then my next question, it looks likes on your accounts payable, you got really good leverage during the quarter. Was there any sort of timing issue that affected that?

Keith Plowman

No. Really when you look at year-over-year basis in-transit inventory runs pretty close year-over-year as where we ended in the third quarter. So that always can benefit as you look at the numbers. Really what is coming down to, as you can see the decrease in both our letter of credits as well as the increase in accounts payable, the continued support in the market for the company.

Grant Jordan – Wells Fargo

Okay. So, you thought you’re kind of at a new normal or it’s still too early to tell?

Keith Plowman

Well, I think the only thing we have to watch is I believe the normal from the standpoint of where we would be in this fourth quarter – excuse me, going into the fourth quarter, Grant, certainly as we go through the year, the AP support levels drop, as do our inventory levels, but I think proportionately the AP levels inventory represents pretty much more the norm as where we’re used to be before the 2008-2009 recession.

Grant Jordan – Wells Fargo

Okay, great. Thanks.

Keith Plowman

Thanks, Grant.

Operator

Karru Martinson with Deutsche Bank has our next question.

Karru Martinson – Deutsche Bank

Good morning. As you guys have started here the fourth quarter, how you are looking at the competitive landscape versus the prior year?

Bud Bergren

I think competitively I don’t see a lot of difference. The only thing we are seeing right now is the day after Thanksgiving everyone started to open their stores about an hour earlier. We moved it up an hour, so did the goals in Macy’s. So I think that’s the only major difference.

Karru Martinson – Deutsche Bank

Okay. And in terms of your store base, I saw that you are closing one store recently. What’s the outlook for your store base in the kind of CapEx expenditures for the upcoming year?

Bud Bergren

We don’t really give guidance into the next year and so forth. But I will tell you we are going to continue to do investments that we think will return for the company. There is no question the store base as well as the store touches, keeping the stores current and fresh-looking, all as part of our capital expenditure plan as we go forward here, we know it’s very important to our consumer.

Karru Martinson – Deutsche Bank

And then just so I’m clear, on November comps, you said kind of you had a strong pickup with the cold weather sales. Do you feel that that all flows through in November that what you missed in October or are part of those sales just kind of gone forever?

Bud Bergren

November has started out okay. We are comfortable with it, but we still have a huge amount to go today. The last week of November was the – after Thanksgiving sale, it is a huge percent of the business. So it’s too early to really call right now, but we’re comfortable with the way it’s starting out especially with cold weather merchandise.

Karru Martinson – Deutsche Bank

Thank you very much, guys.

Joe Teklits

Thank you.

Operator

We’ll move next to Carla Casella with JP Morgan.

Carla Casella – JP Morgan

Hi. A little bit on the same tone in terms of the competitive environment, any change in the amount of inventory that you are planning for your Black Friday promotions or any shift in the mix from – it sounds like you are still pushing – or promoting some of the value offerings. But would you say the mix shift is at all other than that?

Bud Bergren

No. I would tell you, what we’ve done is we have – we found that really after – the day after Thanksgiving is really driven with most of the business in the morning done off the door busters, and we really increased the amount of those that we have, and we have marketed that to it. There are also some other categories that I really don’t want to talk about, that we’ve taken a bigger position on, that have showed strength throughout the fall and historically on this day that we feel we have an opportunity for.

Keith Plowman

The only other thing, we have changed the mix in advertising a little better. We really have cut back on newspaper imprints, and we are doing more with broadcast and digital media. But it isn’t the mix of the change of the media mix.

Carla Casella – JP Morgan

Okay. And then on the credit card income, have you given any guidance or are you comfortable yet to give guidance out how that can change for 2011?

Keith Plowman

I don’t think we are at a stage we can say at this point, Carla. We have to continue to watch. As you know, the CARD Act just went into effect the regulations in August and a lot of the changes that are being input by companies for that or coming later in this year. So we’re really starting to understand that magnitude. I think we have ways to go yet.

Carla Casella – JP Morgan

Okay, great. Thank you.

Keith Plowman

Thank you.

Operator

Emily Shanks with Barclays Capital has our next question.

Emily Shanks – Barclays Capital

Good morning, everybody. I had a quick question around next year’s CapEx planned. I know that is very early, but in terms of as it relates to new store growth, can we assume kind of the 50-ish million range that we saw or hope to see this year, or should there be one-timers that we should start thinking about for next year?

Keith Plowman

I’m sorry. At this point, we’re really not talking about 2011 or giving any specifics on that. We’re really focused just on 2010.

Emily Shanks – Barclays Capital

Okay. Can you say if you are locked into any particular store openings at this point?

Bud Bergren

Really can’t address to that. Certainly if there was something that we could announce, we would put it over there. But at this point, really can’t say much.

Emily Shanks – Barclays Capital

Okay. And then I had a follow-up question to one of the first questions. Tony gave some helpful information around sourcing and so forth. I was just curious as you try to estimate what the overall supply chain cost inflationary prices are, what would you put it at in terms of growth? Is it kind of single-digit levels? That’s what we’ve been hearing from a lot of other guys. Just curious about your perspective.

Bud Bergren

Well, as I said, on our own private brands what I can address is that for the spring season, we’re really actually in the low-single digit. Okay? I really can’t talk about – I really don’t know what the impact will be on our fall for our own private brand. And from the manufacturers, we don’t really have numbers from them yet. As we really have inflation although we hear a lot of drama about it going up, and it’s mostly about costs.

Emily Shanks – Barclays Capital

Okay, great. Thanks for the follow-up.

Operator

Our next question comes from Ronald Philip [ph] with FBR capital.

Ronald Philip – FBR Capital

Hi, thank you. It seems a bit challenging for most folks to get their hands around the store base given the location versus where most of the investors do business. I recently went to Elder-Beerman in alliance. And of course, we’ve hard for years, the stories about deferred CapEx on and so forth. And joining that store was great that was bright, it was new, the customer service was great, especially this fragment area was really great. And then I went to Newburgh, New York. And we went back to the shoe section, which was totally dismantled. The housewares section was dismantled. And then we saw really quite the opposite, torn carpet, correct tiles, correct walls, blemished walls, product on the floors, product at a place, and then we found something that we wanted to buy, and we had to go to one, two, three locations; checkout counters to check out. And then as we pass three locations, we saw what appeared to be most of the store in the back (inaudible) store base.

Bud Bergren

If there was a question, I missed the question. Is it –

Ronald Philip – FBR Capital

The question is, in going to two different stores, you see two different things in terms of presentation and in terms of customer service. So what’s the remainder of the store base look like? Is it more like a remodel of Elder-Beerman or is it more like a Newburgh store?

Bud Bergren

Well, I think if you look across all of our stores – first of all, thanks for the compliment on alliance and the opportunity at Newburgh. If you look at our total store base, the average age for remodel is about 14 years. Obviously with that, we do have a spectrum of new ones and some old ones. We had been a company that’s grown through acquisitions. And so you see different things in different areas. One of our goals is to become more consistent across all of our stores. I think we’ve accomplished that in the alliance, and obviously we have an opportunity to develop that in Newburgh.

We definitely do have a few stores that need some upgrades. We shouldn’t have found though any torn carpet arena or that kind of stuff. That is a deficiency in our part. That’s something that shouldn’t be happening. We are not holding back capital and making those kind of improvements. So that’s something I definitely will look into, but we will take that into grant. But you should see more consistency across all our stores than what you saw in Newburgh. At anytime you want to visit our stores, we’ll be glad to walk through with you also.

Operator

And our next question comes from Janet Elbridge [ph] with Goldman Sachs.

Janet Elbridge – Goldman Sachs

Thank you. With regards to ecommerce, how are you finding that that customer compared to your traditional customer? Is it someone that you are gaining greater market share with?

Bud Bergren

Yes, we feel very good about the market share we are growing in the ecommerce. We are only in 23 states, but ecommerce enables us to give customers from all 50 states. So we feel that is a plus. And some of the assortment we’ve put online are stuffs that were not carried in our stores. So that also reaches the new customer. So I think there is a plus to the business there.

Janet Elbridge – Goldman Sachs

So what percentage of sales are actually from non-retail states, so to speak?

Keith Plowman

On direct shipments that we – I don’t know if I’m answering your question right, but from direct shipments to merchandise that we don’t really carry in our stores were about 20%.

Bud Bergren

And about 20% of things we don’t carry to our stores, but I don’t – do you know the number from state adapt – we will have to get back to you on the percent from other states. I’m actually not sure.

Janet Elbridge – Goldman Sachs

And how much can you grow this business before you have to make investments in the infrastructure?

Keith Plowman

We can grow at about another $100 million and then we will have to make some more investments.

Janet Elbridge – Goldman Sachs

And final question, maybe could you tell us how furniture has been trending for?

Bud Bergren

Actually, furniture through the third quarter actually beat its plan and it was almost flat. And that is a change from the trend that we’ve seen. And actually in the month of November it’s simpler. It’s basically flat.

Janet Elbridge – Goldman Sachs

Great. Thank you very much.

Operator

Our next question comes from Leah Hartman with CRT Capital.

Leah Hartman – CRT Capital

Good morning, gentlemen. Thanks for taking the questions. Just a few housekeeping and then I want to move to merchandising. What was the share-based comp for the quarter, please?

Keith Plowman

Our share-based comp per quarter is a little over a million, $0.5 million, and $0.75 million.

Leah Hartman – CRT Capital

Okay. And could we move to the share count at the quarter-end?

Keith Plowman

Share count, quarter-end, off of the top of my head is about 17.6 million shares around terms.

Leah Hartman – CRT Capital

Okay. And then – I’m sorry, as we look to your full year guidance, you’re looking at 18.5 million to 19.0 million shares.

Keith Plowman

Right. What you run into is at the end of the third quarter and year-to-date, because the company is in a loss position, you have common stock equivalent that you cannot include the share because of the anti-dilutive. When you get to the year-end with a profit, those shares all get it out in back end. So we will be somewhere around 18.5 million to 19.0 million.

Leah Hartman – CRT Capital

Okay, got it. And then I wanted to focus a little bit on the cash on the relationship and personally I’m a fan of special sizes. So, congratulations on that relationship. It sounds like initially and hopefully this fourth quarter that we’ll be – it is ecommerce. And could you talk about how you’re marketing the Casual Male to your customers, or what the plans are?

Bud Bergren

Obviously we are obviously marketed on our website very strongly. But we’re also targeted into our circular impressions that we are doing there. So we’re reaching the customer from two aspects.

Leah Hartman – CRT Capital

Okay. And then turning to the ladies special sizes, I believe in the prepared comments that petites were a bit softer. Anything in particular, is that just the warm season?

Bud Bergren

Well, it’s really a couple of things. A lot of our petite merchandises really gear to that moderate traditional customer, and the moderate traditional customer is very difficult right now throughout all of the areas, whether it’s moderate traditional men’s or ladies’ as well as the better traditional customers. So there is more business going into the updated area and we are not positioned there well right now. The other categories of petite and large sizes are still difficult, really were the cold weather merchandise. Sweaters and fleece were difficult in the third quarter. That has improved in November, but you’ve got two things working against us in petites. One is the moderate traditional business, which is highly penetrated in petite, as well as the cold weather categories of sweaters and fleece.

Leah Hartman – CRT Capital

Okay. And then working into the maintenance CapEx, I believe in the past you’ve suggested that on the store base size that the maintenance CapEx is less than $40 million. Is that accurate?

Keith Plowman

That is correct, yes.

Leah Hartman – CRT Capital

Thank you very much. Best wishes for the holiday selling season.

Bud Bergren

Thank you.

Operator

We’ll take a follow-up question from Carla Casella with JP Morgan.

Carla Casella – JP Morgan

Hi. I don’t – as you said, I was looking back and can find these signs [ph] on the borrowing base, the size of the borrowing base or the actual revolver amount outstanding.

Keith Plowman

The revolver amount outstanding was $208 million. Of course, the senior notes are 5, 10, and the second lien was $75 million. And then the CMBS mortgage facility is about $239 million.

Carla Casella – JP Morgan

Great. Okay, thanks.

Keith Plowman

You’re welcome.

Operator

And that does conclude our question-and-answer session. I will turn the call back over to our speakers for any additional or closing remarks.

Bud Bergren

Thank you for your questions and your interest in our progress and accomplishments in the third quarter of 2010. We look forward to speaking with you about the fourth quarter and full year of 2010 financial results on our conference call in March. Thank you again for your interest in Bon-Ton. Have a great day.

Operator

Thank you. And with that, we will conclude today’s conference. Thank you for your participation. You may now disconnect.

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