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Cost Plus (NASDAQ:CPWM)

Q3 2011 Earnings Call

November 18, 2011 10:00 am ET

Executives

Charles Miltner - Controller

Jane L. Baughman - Chief Financial officer, Principal Accounting officer, Executive Vice President and Corporate Secretary

Barry J. Feld - Chief Executive Officer, President and Director

Analysts

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Anthony C. Chukumba - BB&T Capital Markets, Research Division

Braden Michael Leonard - BML Capital Management, LLC

Joan L. Bogucki-Storms - Wedbush Securities Inc., Research Division

Edward Nishan Antoian - Chartwell Investment Partners

TJ McConville

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 Cost Plus Inc. Earnings Conference Call. My name is Kim, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this call is being recorded. I will now turn the call over to host for today's conference, Mr. Barry Feld, CEO and President of Cost Plus. Please proceed, Mr. Feld.

Barry J. Feld

Thank you. Good morning, everyone, and thank you for joining us today to discuss our third quarter 2011 results, which should be considered in conjunction with the press release we issued this morning.

With me today are Jane Baughman, Executive Vice President and Chief Financial Officer; and Charlie Miltner, our Corporate Controller. Following my opening remarks, Jane will discuss our financial results in more detail. After which, I will make some concluding remarks, and then we will open up the call to questions.

Before beginning today's discussion, Charlie will read the company's Safe Harbor statement.

Charles Miltner

Certain comments made during this call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. It can be identified by the use of words such as may, will, expect, anticipate, believe and other similar words and phrases. The company's actual results or future financial conditions may differ materially from those expressed in any such forward-looking statements as a result of many factors that may be outside the company's control. Please refer to the company's current press release and SEC filings, including our annual report on Form 10-K, for a complete discussion of the major risks and uncertainties that may affect our business. Forward-looking statements made today or as of the date of this call, and we do not undertake any obligation to update our forward-looking statements.

Barry J. Feld

Thank you, Charlie. We are pleased with the consistent performance of our business as evidenced by the ongoing improvement in comps along with increased traffic to our stores. The third quarter results are in line with expectations and are consistent with the full year guidance we provided in March. Importantly, we continue to believe that the company is well positioned to compete on clear and recognizable value despite the challenging economy.

The third quarter represents our 7th consecutive quarter of positive comps and our 8th consecutive quarter of increases in customer count. For the third quarter of fiscal 2011, we delivered a 4% same-store sales increase, driven by increases in both customer count and the average ticket.

In September and October, we launched successful campaigns showcasing our dining furniture and occasional living furniture along with our Rug Caravan. Our merchants continue to raise the bar in providing high-quality, value-priced assortments with exclusive designs and aesthetics. We are pleased with the growing customer response in these higher price point categories, which positively impacted the average ticket for the quarter.

Halloween marked a strong finish to the close of the quarter, with Halloween decor and consumables delivering better sell-through at a higher-margin rate than last year.

Fiscal 2011 year-to-date, we delivered a 4.1% same-store sales increase and reduced our net loss from continuing operations by 21%. Additionally, we generated $4.1 million in EBITDA from continuing operations, representing an increase of 117% versus year-to-date period last year. We expect to generate approximately $50 million in EBITDA from continuing operations for the full year, which we plan to use for working capital purposes and to pay off the revolving credit facility in its entirety at year's end. As a reminder, the revolving credit facility is the only bank debt present on our balance sheet, enabling us to weather difficult retail periods because we are not heavily levered. We will be entering fiscal 2012 debt free.

On a trailing 12-month basis, the company has generated $224 sales per selling square foot, which is on track with our expectation to reach $230 per foot for the full year. We continue to make steady progress towards achieving our target of $270 per selling square foot in our existing store base. We also continue to improve and augment our e-commerce platform with the eventual goal of developing a $100-million-plus fully integrated Internet business. Recognizing the importance of this growth channel, we continue to make the requisite investment in human and capital resources.

During the quarter, we relocated one store in the Stockton, California market. Our new store opening program has resumed with 5 to 10 new locations planned for next year and increases in those targets planned in future years. Our primary focus is growth in existing markets where we have identified the potential for 100-plus locations based on our understanding of our core customer, as well as certain other selection criteria that correlate to successful sites. Over the longer term, we have potential for 500-plus high-quality stories in the domestic market.

As many of you are aware, our core competency in seasonal merchandise continues to attract a strong and loyal following even in difficult economic times. During the third quarter, our merchandising and store operations teams worked diligently to reset certain store quadrants to improve adjacencies and create additional shop-within-shop concepts. As we enter the holiday season, customers will benefit from the improved store layout and solution-based merchandising.

Our stores are filled with unique and affordable holiday decor, gifts and gift basket solutions, complemented with our international gourmet food and beverages to fulfill our customers' holiday entertaining needs.

I would now like to turn the call over to Jane. After which, I will make some concluding remarks.

Jane L. Baughman

Thank you, Barry. As a reminder, the income statement included in this morning's press release clearly breaks out our results from continuing and discontinued operations for both the current year and prior year period. The company's balance sheet presentation remains unchanged.

Net sales for the third quarter of fiscal 2011 were $201.9 million, a 3.7% increase from the third quarter of fiscal 2010. Same-store sales increased 4%, driven by a 1.2% increase in customer count and a 2.7% increase in the average ticket. The Eastern region and Western region both delivered positive same-store sales during the quarter. The California market delivered a same-store sales increase of 4% in the third quarter, which was in line with the chain.

The mix between home and consumables as a percentage of net sales was 63% and 37%, respectively, for the third quarter of 2011 versus 62% and 38%, respectively, for the third quarter of 2010. Both the home division and consumables division delivered a same-store sales increase for the quarter. The increase in home sales mix is the result of higher furniture sales as a percentage of total sales year-over-year.

Gross profit rate was 30.8% for the third quarter of fiscal 2011 versus 30.7% for the third quarter of last year. The 10 basis point increase in gross profit rate was due to lower occupancy cost offset by higher cost of sales. The increase in the cost of sales rate for the third quarter was primarily due to a shift within the home division towards higher dollar and lower merchandise margin rate furniture when compared to last year.

Selling, general and administrative expenses as a percentage of net sales for the third quarter of fiscal 2011 were 33.3% compared to 33.1% for the third quarter of last year. The increase in SG&A expenses as a percentage of net sales is largely due to higher store payable costs primarily related to merchandise resets, which did not occur last year, as well as higher advertising expenses.

The increase in third quarter advertising expense as compared to last year is timing related, and the company expects to end the year with total advertising expense flat year-over-year.

Net interest expense was $3.3 million for the third quarter of fiscal 2011 compared to $2.8 million for the third quarter of fiscal 2010. Included in net interest expense is interest related to the distribution center sale-leaseback obligations of $2.1 million for the third quarter of fiscal 2011 and 2010. It is important to note that the distribution center leaseback obligations are not bank debt.

Net loss from continuing operations for the third quarter of fiscal 2011 was $8.2 million or $0.37 per diluted share compared to a net loss of $7.4 million or $0.34 per diluted share for the third quarter of fiscal 2010. Year-to-date, the net loss from continuing operations of $19 million decreased by 21% compared to a net loss from continuing operations of $24.1 million for the same period last year.

For the third quarter of fiscal 2011, non-GAAP earnings before interest, taxes, depreciation and amortization from continuing operations was a loss of $900,000 compared to income of $400,000 for the third quarter of last year. Year-to-date, EBITDA from continuing operations was $4.1 million compared to $1.9 million for the same period last year.

The company reduced its borrowings from a year ago by $22.8 million and ended the quarter with $77 million in borrowings and $7.3 million in letters of credit outstanding under its asset-based credit facility, compared to $99.8 million in borrowings and $9.5 million in letters of credit at the end of the third quarter last year. The percentage utilization under the credit facility at the end of the third quarter of fiscal 2011 was 42% versus 58% at the end of the third quarter last year. The company expects to pay off its asset-based credit facility in its entirety at the end of this fiscal year. Going forward, the company will use its asset-based credit facility to fund working capital for inventory purchases and capital investments and will return to its practice of paying off the credit lines completely at each fiscal year end.

Capital expenditures for the first 9 months of 2011 were $6.6 million versus $3.1 million for the same period last year. Capital expenditures for the full year of fiscal 2011 are expected to be $10 million compared with $4.3 million in capital expenditures last year.

In this morning's press release, we have provided our outlook for the fourth quarter and full year of fiscal 2011. The company expects a same-store sales increase of 4% to 6% in the fourth quarter. Gross profit rate is expected to increase due to sales leverage on fixed occupancy expense and a higher merchandise margin rate than last year. The company is expecting net income from continuing operations in the fourth quarter to be in the range of $33 million to $35 million and net income per diluted share from continuing operations to be in the range of $1.40 to $1.48.

The company is increasing its full year 2011 bottom line guidance and now expects net income from continuing operations to be in the range of $14 million to $16 million for the full year. Net income per diluted share from continuing operations is now expected to be in the range of $0.62 to $0.68 versus $0.21 for fiscal 2010.

I will now turn the call back over to Barry for his concluding remarks.

Barry J. Feld

Thanks, Jane. In summary, we have been proactively moving forward with our long-term growth strategy, including sales per square foot productivity, the development of our store expansion plans and Internet infrastructure. We expect our future growth prospects to translate into significant operating leverage on the business over time, which we anticipate will result in a 6% operating margin and a 3% after-tax net margin.

World Market continues to demonstrate its ability to navigate in today's challenging economic times. This is reflected in our full year net income from continuing operations guidance, which projects a three-fold increase of net income year-over-year. We anticipate another solid performance this holiday season and are increasing our full year 2011 bottom line guidance.

The leadership team remains firmly committed to returning the company to its historic operating metrics and further building shareholder value. Concurrent with the release of our fourth quarter results, we will also provide a detailed review of our financial and operating objectives for fiscal 2012.

With that, I would like to turn the call back over to the operator for the Q&A portion of the call.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Brad Thomas with KeyBanc Capital Markets.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

I was hoping to just dig in a little bit more on the home side of the business, seemed to be a nice improvement after what had been a more challenging second quarter. Hope you could just share a little bit more color on your execution on the home side this third quarter.

Barry J. Feld

Sure. The -- while we move out of the summer period into the fall, we do move back into the living and dining season, in particular for us. As many folks who are on this call are familiar with and you can see graphically in the stores, we have been reengineering both our aesthetics, quality and price points as it relates to the home furnishing categories within our stores over the last 2 years, and this really -- this year represents the relaunching of both a redefined and new aesthetic for the customer as well as new price points. And we feel very, very good about the response that is happening and anticipate, because of the value positioning and the high quality and high-end aesthetics that we have been able to deliver the customer now, that we will be able to resume positive comps and progression in the sales performance of the living and dining categories even despite the challenging macros the we're participating in right now.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

And so Barry, if we think about your comp guidance for the fourth quarter, does that assume both home and consumables comp positively?

Barry J. Feld

Yes, that's correct. Now I think it is worth pointing out that as we move closer to the gifting period, as you know, we operate with our 4 strategic pillars, the first being seasonal and then gifting, home entertaining and home decorating. As we move closer to need, the gifting pillar overtakes the home decorating and the furniture areas of the strategic pillars, but we do anticipate, particularly in the month that we are in, still continue robust activity as it relates to the home furnishing side of the business.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Great. And with respect to trends in the quarter, it was an interesting quarter for consumer confidence as the period progressed. Was there anything that you saw differently from the beginning to the end of the quarter?

Jane L. Baughman

Brad, it's Jane. Yes, we certainly saw an improvement in both traffic and ticket as we progressed through the quarter. August was the softest month of the quarter, but we really got a nice response, as Barry mentioned, to the furniture campaign for the Rug Caravan that occurred in September and October. So it certainly gained momentum as we moved through the quarter.

Barry J. Feld

Additionally, Brad, I would add, as you know, our strongest strategic pillar, and which goes back really since the beginning of the founding of the company, is our Seasonal business is one that we always can count on. And as I pointed out in my opening remarks, once again, Halloween was really a terrific period for us, both on the home entertaining side, on the consumable side and again, even better sell-through than what we experienced in 2010, which was a terrific year for us and higher margins in that Halloween category. Halloween also is always a very sound litmus test for what our expectations could be regardless of the macros as we move through a Thanksgiving and a Christmas period, and so it gives us great confidence that we're off to a very, very solid holiday season performance.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

That's great. Just one last question on the balance sheet. I know that you all have done a good job of communicating with your auditors and getting the distribution center leaseback obligations really listed as that in your filings, rather than what they used to be called as long-term debt. I was just wondering if there's any more opportunity to change that level of disclosure to get it turned into operating leases or something like that where it doesn't show up where FactSet or Bloomberg is considering it long-term debt.

Jane L. Baughman

Unfortunately, the way the deals are structured, it does not qualify for sale leaseback accounting, so it will be -- continued to be represented on the balance sheet the way it is. I do believe we've made improvement in further clarifying that it is not bank debt. We'll look at the disclosure, the footnotes in the Q and the K to see if there's potentially some more robust lines which we could use to better clarify that for the investor.

Barry J. Feld

And Brad, this is such an important call out because, I mean, we've been living with this obviously for years and years, and it represents -- with our distribution centers, essentially you've got $8 million a year of interest expense associated with our distribution center leases, and outside of that, the only debt the company has is our seasonal inventory needs and the ABL that we use to address that. And as we've said many times -- and we'll finish this year debt free, and as Jane pointed out in her comments, we will, beginning next year, really situate, resume situational access for inventory needs, and we plan on a go-forward basis to always complete the year debt free and out of that ABL facility.

Operator

Your next question comes from the line of Budd Bugatch with Raymond James.

TJ McConville

It's TJ McConville, filling in for Budd. A couple of quick questions. Jane, you talked about the pull forward of the advertising expense. Can you give us a sense of where we are year-to-date or maybe what the implication is for fourth quarter advertising year-over-year?

Jane L. Baughman

Yes, and I think I addressed this on the last call as well. Basically, we are going to be spending more advertising dollars in the back half of the year versus the way we spent it in 2010, and that's really just an ongoing shift in terms of the changes in how we're -- the different types of media mix that we're using and really correlating with when we've got the high traffic levels in the store.

TJ McConville

Fair enough. And the implied maybe year-over-year dollar change in the fourth quarter, can you share any of that information?

Jane L. Baughman

It's not a meaningful number. We're still going to end at $50 million for the full year. You're talking another $1 million or so in the fourth quarter.

TJ McConville

Okay, that's very helpful. And if I look at the balance sheet where, obviously, a lot of the improvements have been making -- been made as has been referenced. If I look at your payables and your days payables, it looks like some significant improvements there. Is that just a timing issue? Or has there been some progress made with some of your vendors in that regard?

Jane L. Baughman

It's really a combination of both what's the primary factor is improvement with the vendors. The company's standard payment terms are 60 days. When we were in more difficult times, in some cases in order to provide comfort levels to some of our vendors, we accelerated our payment terms, but we are moving back to the company's standard payment terms.

TJ McConville

Okay, that's great to hear. On the gross margin guidance for the fourth quarter, I don't think I've heard a call so far this quarter that hasn't talked about promotional environment. What's embedded into that expectation? I know you talked about merchandise margin being up. How do you look at promotion this year versus last?

Jane L. Baughman

What really kind of ties into what Barry was talking about previously in terms of the penetration of the seasonal business in the fourth quarter, so the most promotional part of our business is furniture, and it really steps down in the fourth quarter by about 10 percentage points from where it runs in the other quarters during the year. And so we continue to be very successful with all of our seasonal businesses, Easter, Halloween and the strong momentum we have in Halloween gives us confidence that we're going to have similar experience in the fourth quarter with our seasonal decor and consumables items, which are much less promotional. And so we've guided to how we think the business is really going to perform, and in the third quarter, we talked about maybe having to be more promotional with the furniture side of the business based on kind of consumer sentiment as we were walking in, in August, and that played out differently with the furniture business really performing quite well and the need not to have to take additional promotional markdown. So we're very well positioned as we head into the fourth quarter to take advantage of the increase in the merchandise margin rates year-over-year.

TJ McConville

Great. And the last one for me. Barry, can we talk a little bit about the customer loyalty program in the file and World Market Explorer? Any data you can share around that would be great.

Barry J. Feld

Yes, TJ, that continues to be one of the most exciting elements of our marketing program. As you know first hand, it is just right around 2 years now that we began our World Market Explorer program, and what is so exciting for us is we enter this holiday season with the database of 5.6 million members now in our loyalty program. If you think about the shortness of time since the inception, 5.6 million customer database of loyal Cost Plus World Market followers and having a comprehensive understanding of the market basket behavior of each one of those explorers gives us tremendous opportunity to market to this database and to work on not just increasing the market basket size but also in continuing to improve on the frequency of purchase as we move to the holiday season. So it's now 5.6 million customers in our Explorer program, and our total customer database is now in excess of 7 million.

Operator

[Operator Instructions] Your next question comes from the line of Anthony Chumbako (sic) [ Anthony Chukumba] with BB&T Capital Markets.

Anthony C. Chukumba - BB&T Capital Markets, Research Division

It's Anthony Chukumba. Quick question on your store-within-a-store initiative. I mean, I know you have a fairly strict non-disclosure agreement with Bed Bath & Beyond, but so you maybe can't comment specifically on what's going on with them. But would just love to hear in terms of what your efforts are in terms of maybe expanding that to other retailers.

Barry J. Feld

Happy to do it. At this juncture, as you know, we really work hard to provide transparency to our valued shareholders and to our analyst community, but on the topic of the Bed Bath & Beyond relationship, we are under strict confidentiality parameters. That being said, I can say the following things: that the test continues. We're monitoring it very closely. We're watching it through the holiday season. We have opened an additional store in East Hanover, and so we'll watch out how that proceeds through the holiday season. Anthony, as you're aware, we do have other opportunities to expand tests beyond this one that's in Bed Bath, but I will also say given the performance of our core business, given the robust performance of our Internet activities and the investments we continue to make there, we are continuing to approach initiatives that are outside of our core brand very cautiously and monitor the metrics very closely. And so as we move into providing guidance and the relevancy of those relationships as it relates to our overall growth strategy in 2012, we'll once again try to provide as much granularity and transparency as we can.

Anthony C. Chukumba - BB&T Capital Markets, Research Division

Okay. But just to clarify, you said you opened -- you opened an additional store within a store.

Barry J. Feld

That's correct. In East Hanover, New Jersey.

Anthony C. Chukumba - BB&T Capital Markets, Research Division

Okay. So you're up to 4. Is that correct?

Barry J. Feld

That's correct.

Anthony C. Chukumba - BB&T Capital Markets, Research Division

Okay. And then just one -- you mentioned Internet, on the call, targeted gain to $100 million or more in sales. I was just wondering kind of where you are right now in terms of Internet sales?

Jane L. Baughman

Yes, this year -- yes, our projection is going to be kind of in the mid-$20 million for the full year.

Anthony C. Chukumba - BB&T Capital Markets, Research Division

Mid-20s.

Operator

Your next question comes from the line of Joan Storms with Wedbush.

Joan L. Bogucki-Storms - Wedbush Securities Inc., Research Division

To ask about the resets in the quarter and in the stores, you've been seeing a lot of good things. But I wanted, if you could specifically talk maybe about which categories and adjacencies, et cetera.

Barry J. Feld

Yes. Well, I'll keep my remarks weighted obviously towards what you as a customer would experience when you would be able to just see publicly when you go to the stores. But as we continue to reengineer the stores and reset and expand merchandising activity, we do that in conjunction with prioritizing the various strategic pillars that we're focused on. For example, if you look at the robust reset that took place over the course of the summer, we have a terrific gifting business. We put a lot of time, effort and attention into the gifting quadrant of the store. We are extremely well known for our capabilities in terms of creating gifts and building custom-made gift baskets. Today, we have a formal create-a-gift initiative within the stores. Also, our activities as it relates to the development of really unusual wrapping papers from around the world for giftwrap, resonates with our customer, so we really expanded that offering as well as our card program. We see out there, while so many people over time, Joan, have moved to electronic seasonal cards, electronic birthday cards, they're still for unique card offerings that like you would find in a papyrus store or any specialty paper store. There really still is quite an appetite for a handwritten card, and so we've, as you probably are seeing, dramatically expanded our card capability as well as the giftwrap capability, and it's really resonating quite well with the customer. Additionally, we've put a tremendous amount of work into our bath and personal care product category and expanded and added square foot to really improve that offering within that quadrant of the store. And then for the last several years, as you know, we've been working on reengineering our lamp business. That quadrant of the store, we put a tremendous amount of effort in, brought power into a portion of the store that didn't have power so these lamps could be lit. But I think the most relevant element to our lamp offering because our home decorating quadrant of our strategy is so robust that the lamp business right out of -- really right out of the gates is really resonating with the customer. And our buyers who are passionate world travelers have traveled the world for unique lamp bases and also to give the customer with a relative value price point, the ability to mix-and-match shades, which is a very hard thing to do in the retail environment. And so we're really very pleased with the enhancements we've made to our home decor and with particular emphasis on the lamp business. All of this, obviously, revolves around our overall methodology to return our stores to our historic $270 sales per square foot. As you know, last year, we finished at $213 per square foot. This year, we're moving nicely. We are now north of $224 a foot and plan on finishing the year at, at least $230 a foot. So we will continue to work on developing quadrants of the store where we feel we can get robust outcomes as it relates to the productivity of the merchandise in the square footage that it resides with the overarching methodology of returning to our historic sales per square foot, which as you know, will ultimately return us to the 8% EBITDA margins and 6% operating income margins that we had historically for many years.

Joan L. Bogucki-Storms - Wedbush Securities Inc., Research Division

Great. And just on a sort of as we go through the year, I mean, obviously you have different levels of SG&A. But have you been at comp expectation in order to lever SG&A? Or is that just a constant progress that's associated with the goal of increasing the sales per square foot?

Jane L. Baughman

So on a kind of status quo basis, based on the existing models, you need a low-single-digit positive comp to leverage SG&A recovery base. They are both expenses. However, that said, as the company goes forward and really starts to invest in some of the strategic initiatives in 2012 and beyond, you're going to have some increases in terms of expenses. We build back infrastructures to be able to support that. But on a normalized basis, yes, a low-single-digit positive comp will leverage.

Joan L. Bogucki-Storms - Wedbush Securities Inc., Research Division

Okay. And then any changes in -- I know you talked about the advertising, and so is there any changes in sort of promotional strategy heading into Black Friday this year? Or should be pretty similar when you have the circular with the Saturday promotion?

Barry J. Feld

Well, 2 things. Obviously, we were very early out with our announcement that we open at 7 a.m. We feel very, very strongly, and we were out with letters to employees long in advance of the fact that a lot of these retailers opening up at midnight or 10:00 were 24/7 retailers, but certainly, we wanted our employees to spend Thanksgiving and Christmas with their friends and family, and so we'll be opening up Black Friday, which is a terrific day for us. We open at 7 a.m. We provide breakfast, biscottis around the world, extraordinarily high-quality coffee, and then we always have really exciting innovative offers for Black Friday that we believe resonates very well with the customer. Now this year, we have an added benefit in that we have been able, as you know, when we were able to procure the relationship with Sony Pictures to do Eat Pray Love, we continue to move down the path of developing sophisticated partnerships. And this year, we're working with the release of Steven Spielberg's production of Tintin, and so what's exciting about Black Friday is we have an exclusive design on ornament, Joan, as you know, our customer loves the custom-made ornaments that we provide, and they view them as collectibles. And this year, we'll have an exclusive Tintin ornament. I don't know how familiar you are with Tintin, but it's resonated with Europeans for years. It's the Europe equivalent of Mickey Mouse essentially. And so the holiday movie Tintin comes out. We have an exclusive relationship with them, and we'll be providing some interesting Tintin products for Black Friday and through the holiday season.

Joan L. Bogucki-Storms - Wedbush Securities Inc., Research Division

That's great. And then finally, any insight you can give us into the store locations you talked about for next year as far as geography? I know you had said that you'd be maybe trying to backfill existing markets first but that would be helpful.

Barry J. Feld

For competitive reasons, I won't really provide a granular explanation of where our stores are going to open. Although, you're 100% accurate in that. We are focused on our existing markets. As you know, we edited out, over the last many years, poor performing markets. We are in a number of very, very strong, very healthy markets around the United States and in some cases, where we just don't have the critical store mass, and so our focus will be completely in opening stores for the next 24 months at least in existing markets to be able to complete the build-out programs that we embarked on a number of years ago.

Operator

Your next question comes from the line of Brad Leonard with BML Capital Management.

Braden Michael Leonard - BML Capital Management, LLC

Most of my questions have been answered. I guess, one, what kind of growth rate are we seeing in the e-commerce business right now?

Jane L. Baughman

So basically, it would have been worth about a point in comp for the quarter, and it's growing 50-plus percent.

Barry J. Feld

Brad, the other thing I would add to the e-commerce platform, as you know, for the last several years, we've been developing what we considered internally a beta e-commerce site, with what I would call a little bit better than basic functionality for the e-commerce platform. We don't have our entire inventory assortment on the Internet site, but we knew once we came to the turnaround for the exact reason that we stopped our store openings until the core business model was reestablished and profitable, and now that both the core business model is profitable and the Internet platform is profitable, our plans are now to really continue to add resource to scale. We have hired a new head who is deeply experienced in rapid development of large Internet platforms. We have brought him internally. We continue to develop the internal team and augment that team with additional professionals that we're bringing in, and we believe now as we have in our core store base to really accelerate over the next 24 months this baseline scalable platform that we've put into place.

Braden Michael Leonard - BML Capital Management, LLC

And then lastly, on your $270 per foot and kind of 6% EBIT margins, if you just kind of look at a 4% comp, that's 4 years to get to that level. I mean, does that seem reasonable? I mean, what would be a time frame for something like that? Do you think 4 to 5 years is reasonable?

Jane L. Baughman

Yes, I mean, we've kind of characterized it at 3 to 5 depending on the economy. The economy doesn't appear to be in any improving state, so yes, 4 to 5 is absolutely realistic.

Barry J. Feld

I would say, of course, I have -- I would be very disappointed if we can't execute against that metric within 36 months, Brad.

Operator

Your next question comes from the line of Ed Antoian with Chartwell Investment Partners.

Edward Nishan Antoian - Chartwell Investment Partners

Just to challenge you just a little bit, take it in the spirit I presented. On new store openings, between capital markets and financing and your balance sheet and still have some goals to achieve as far as store productivity, why would you wait another, I'll throw it, 12 months out before you start expanding?

Barry J. Feld

Well, Ed, I think that's a very good question in particularly in light of the fact that I'm the one that shuts -- completely shut down the store opening program when we embarked on the turnaround and said publicly, I will not be opening any stores until we return to profitability. I would answer this in 2 ways. Number one, we are very sensitive and very oriented to accretive growth. Believe me. We are very sensitive and very focused on continuing to strengthen our balance sheet. With that being said, we have a very valuable, very well-established franchise here, and when you look at the performance in our existing markets, where we even now from this period have deep positive history in both the relocation of stores and the opening of stores in existing markets, and I think that's the real key where we already have the field infrastructure and the advertising infrastructure in place, and we are going to be very methodical and very conservative until we continue to get great confidence that these stores are in fact performing to their plan, and they are accretive to the overall business model. But we have a number of markets. I must tell you where we started to enter, that we're doing extremely well in, and we're missing some very specific locations that are -- that really complement the existing strategy. And I will, to be illustrative, give you an example. When you look at the Orlando, Florida market, there is a quadrant of the market where we need to be operating. That is a very dark hole in the strategy. We should be in the Orlando market with at least 3 locations. We operate 2 highly successful locations there, and I mean, from competitive purposes, I'm not going to be illustrative in every market, obviously, but I think it is important to point this out, and we have been -- start studying and looking for years, awaiting for the right opportunity to go and add that strategic location within the market. We really want to get on a path to resume sort of a 15-plus store program over time, but we're just going to approach this very cautiously, very methodically and be 100% focused on our existing markets where we know the predictability threshold of success is very, very high.

Edward Nishan Antoian - Chartwell Investment Partners

Just 2 follow-on questions to that. First, the easy one, Orlando or any market where you reenter or where you add additional stores, is one of the layup factors here is that you get to leverage your advertising?

Barry J. Feld

That's correct.

Jane L. Baughman

It's likely.

Edward Nishan Antoian - Chartwell Investment Partners

So what is that advertising -- I don't know. Kind of 4-wall level represents what kind of percent of sales typically?

Jane L. Baughman

Advertising at the company level represents about 5% of sales.

Edward Nishan Antoian - Chartwell Investment Partners

But it is much higher in a market that's less dense? I mean that varies by market, so is it much higher in a market where you only have 2 stores versus 10?

Jane L. Baughman

Yes, that's correct.

Edward Nishan Antoian - Chartwell Investment Partners

So it's probably higher in Orlando than that?

Jane L. Baughman

They're all market-specific in terms of the rates and the leverage.

Edward Nishan Antoian - Chartwell Investment Partners

And the second question and I know you guys don't guys to want to talk about it. But it just begs the issue and that is I know one of the test stores with Bed Bath is in existing market, but the other 3 are not. They're in the Northeast where you don't have any stores, and you've just now come out and said -- not just now. You've often said your first expansions are going to be in markets where you already have stores and have presence. Does that at all guide this kind of store-in-store philosophy? Or are they completely separate issues?

Barry J. Feld

They're really completely separate issues. The store-in-store philosophy has a lot of dynamics as it relates to potential wholesale business models. Deeply exploring consumer response to certain product categories and markets where we don't operate in stores. It gives us great customer-facing research as it relates to the continued robust expansion of our Internet platform, so they're really -- I wouldn't -- I would really deeply separate those 2 issues with 1 proviso, and that is that again, in any test that we're doing, in any scalability that we're doing, we are going to be deeply mindful of the accretive behavior of these activities because our overriding strategic imperative is to return the business to an 8% EBITDA margin or 6% operating income margin, and we are not going to scale the pace that impedes our ability to achieve that.

Edward Nishan Antoian - Chartwell Investment Partners

My last question, are there products in your test that are not products that you're not currently marketing in your own stores or on the net?

Barry J. Feld

Yes.

Edward Nishan Antoian - Chartwell Investment Partners

So then, this costs money, right? Because you've got an outsourced particular product, developer product that are not at scale with only 4 stores. So is this fair to say that this test loses money?

Barry J. Feld

No, I think the only thing I would tell you is I really cannot comment. It's so small. The test and the platform of the test is so small, it's not even around in here as it relates to the aggregated concept. And I've said to all of our shareholders over time that what everybody needs to remain focused on is the core business, the mothership, our capabilities as it exist in building sales per square foot in our existing fleet of stores, our robust opportunities as it relates to adding at least another 100 stores in our existing markets and the scalability of our Internet platform. Management's primary strategic focus over the next 3 to 5 years really resides within those platforms, and anything additional to that at this juncture is exactly what it is. It's a merchandising test where we're learning and we're iterating, and it really doesn't affect or represent the overriding and overarching strategies of the core business platform.

Operator

There's no further questions at this time. I would now like to turn the call back over to Mr. Barry Feld for closing remarks.

Barry J. Feld

Again, thank you all for joining us today. I want to once again reiterate that we will provide a detailed review of our financial and operating objectives in March for fiscal 2012, and I just want to take this opportunity to wish all of you a safe and joyous holiday season and a terrific Thanksgiving next week. Again, thank you all for participating on the call with us today. Thank you, operator.

Operator

That does conclude today's conference. Thank you for your participation. You may now disconnect, and have a great day.

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