Executives
Sally Kasaks - Chairman and CEO
Mike Henry - VP and Controller
Analysts
Jennifer Black - Jennifer Black Associates
Jeff Klinefelter - Piper Jaffray
John Morris - Wachovia
Liz Pierce - Roth Capital Partner
Oliver Chen - Citigroup
Janet Kloppenburg - JJK Research
Adrienne Tennant - FBR Capital Market
Liz Dunn - Thomas Weisel Partners
Dana Telsey - Telsey Advisor Group
Paul Lejuez - Credit Suisse
Jeff Van Sinderen - B. Riley
Mitch Kummetz - Robert Baird
Christine Chen - Needham & Company
Roxanne Meyer - CIBC
Pacific Sunwear of California Inc. (PSUN) Q3 2007 Earnings Call November 21, 2007 5:00 PM ET
Operator
Ladies and gentlemen, welcome to the Pacific Sunwear of California Conference Call announcing the company's Fiscal Third Quarter 2007 Financial Results. This call is being recorded, and the playback will be available starting today, approximately two hours after the call through midnight, November 27th, 2007. It can be accessed at 800-642-1687 or 706-645-9291, pass code 24025382. The call will also be archived on the PacSun website at www.pacsun.com through midnight, November 20th, 2008.
Your speakers today are Ms. Sally Kasaks, Chief Executive Officer and filling in for Mr. Gerry Chaney, Chief Financial Officer is Mr. Mike Henry, Vice President and Controller. Today's call will be limited to one hour, and questions will be limited to one per participant.
Before I turn the call over to Ms. Kasaks, I'd like to note that during this Earnings Call, certain statements and responses to questions may contain forward-looking information including forecasts of future financial performances and estimates of amounts not yet determinable, as well as our future prospects and proposed development or business strategy, including with respect to our Demo and One Thousand Steps concept.
Actual results could differ materially from those projected or reflected in our forward-looking statements and reported results could differ materially and should not be considered an indication of future performance. Pacific Sunwear's future financial condition and results should be considered an indication of future performance. Pacific Sunwear's future financial condition and results of operations, as well as any forward-looking statements are subject to change and no inherent known and unknown risks and uncertainties. Pacific Sunwear does not intend and undertakes no obligations to update forward-looking statements that reflect future events or circumstances. All forward-looking statements made in this conference call reflect Pacific Sunwear's current analysis of existing trends and information and represent Pacific Sunwear's judgment only as of today. You should not assume later in the quarter or the year that the comments Pacific Sunwear makes today are still valid.
Actual results may differ materially from current expectations based on a number of factors affecting Pacific Sunwear's businesses including: changes in consumer demands and preferences, lower than anticipated comparable store sales, higher than anticipated markdowns, competition from other retailers and uncertainties generally associated with apparel retailing. In particular, the timing and amount of actual changes and expenses relating to the company's demo and One Thousand Steps stores may differ from initial estimates as plans and activities are finalized. More information on factors that could affect Pacific Sunwear's business and financial results are included in its annual report on Form 10-K for the fiscal year ended February 3rd, 2007, and other public filings made with Securities and Exchange Commission.
In addition, please note that during this call today, additional references may be made to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as the reconciliation of these measures to the comparable GAAP results in our 8-K filed with the SEC today, a copy which of can be found on our website at www.pacsun.com.
This call, the webcast and its replay are the property of the Pacific Sunwear. It is not for rebroadcast or use by any other party without the prior written consent of Pacific Sunwear. If you do not agree to these terms, please disconnect now. By remaining on the line you agree to be bound by these terms. With that said, I will now turn the call over to Ms Kasaks.
Sally Kasaks
Thank you for joining us today for our third quarter conference call. This is Sally Frame Kasaks, Chief Executive Officer of Pacific Sunwear. Joining me today on our call is Mike Henry, Vice President and Controller, who is filling in for Jerry Chaney, our Chief Financial Officer.
This has been an eventful quarter for us. (inaudible) we have made significant strides in improving the performance of our PacSun business, as evidenced by the 7.7% increase we achieved in comparable store sales for the quarter. In addition, as I will address on this call, we are continuing to refine our strategies to enhance profitability and growth.
As you know, the quarter results was (inaudible) and our decision to seek strategic alternatives for our demo division and to exit our One Thousand Steps concept as soon as practical, which indicates that One Thousand Steps we currently believe will be by the end of the fiscal year.
We are presently engaged in these activities and have no additional information to share with you at this time. As a result, our commentary today will focus on our core PacSun division. When I came on Board just over a year ago, I outlined three key initiatives for the team. These were to reconnect with our customer, to improve our customers' in-store shopping experience and to drive comp store sales through our junior business. I believe that we are well on our way to accomplishing each of these goals.
First, reconnecting with our customer. We have been focused on reinforcing the connection between PacSun and our core customers through both our product, that is, having the right brands and the right merchandise, as well as through our marketing. A key component of this effort has been our sponsorship of the US Amateur Surf Team, which has been an excellent way for us to further integrate PacSun within the surf community, while providing in-store inventory that leads credibility to our board-sport heritage.
We are pleased with the success of this program and have now expanded upon this initiative to include sponsorship of the US Amateur Snowboard Team. Snowboard sports represent a new category for PacSun and we believe that this is a natural extension of our board-sport heritage.
In conjunction with this year's sponsorship, we have begun to carry a limited amount of snow brands, including Burton, which tested well in our stores last year and is off to a good start.
In terms of the in-store experience, we have continued to focus on enhancing the appeal and shopability of the PacSun stores. Our store refresh program has played a key role in this effort. This year we have refreshed or are in the process of refreshing 50 PacSun stores. We continue to be pleased with the results of these stores, and anticipate increasing the pace to 75 stores annually going forward.
Our objective has been to see a 15% sales lift, and I am pleased to report that, on average, we have been exceeding this target. As we anticipated, we are also achieving higher junior's penetration in these refresh stores. If you have not seen one of these locations in the refresh format, I would encourage you to do so.
Our new monthly floor set cadence has also contributed to a more positive shopping experience for our customers. As you may recall at the end of the third quarter last year, we initiated a strategy to reduce in-store inventory and to begin monthly floor sets. This new floor set cadence allows us to improve product flow and deliver merchandise newness and trend-right goods to our stores on a monthly basis. This has been especially important for our junior customer, who shops more frequently than our guy customer, so our guys business has benefited from this initiative as well.
This is a perfect transition to our third initiative, driving comp sales for juniors. We continue to be pleased with the performance of our junior apparel, which achieved close to a 30% comp sales increase for the quarter. Confirmed by our research, we believe that this girl is an incremental customer to our PacSun business. More fashion-focused than the historical PacSun junior, this girl is looking for trend-right products that go beyond T-shirts and fleece.
If back-to-school is any indication, we are off to an impressive start attracting this customer with our fashion focus assortments, which, by the way, includes a strong assortment of branded fashion-right fleece.
Within our juniors business, we see additional opportunity for our proprietary brands, as this customer seeks fashion tops and trend-right denim. Our big win this fall was the launch of our Bullhead girls denim brand in early June. Driven by new styles, fits and washes, we have achieved significant growth in denim.
The June launch provided good reads on styles and washes, which helped us into back-to-school. Additional reads have positioned us well for holiday selling.
Our tops business by the way also continues to grow primarily with our proprietary brands. We are pleased to see that our focus on juniors including our investment in designer stores and [talent] is beginning to payoff.
Turning to our guys business. The PacSun guys apparel business has continued to be a solid performer, achieving close to a 10% comp increase during the quarter. Our guys business continues to be driven by the leading board-sport inspired brands that are important to our customer.
Strength in branded fleece, and our branded T-shirt business was a leading sales contributor during the quarter. We also saw a significant strength in swim and shorts still in large part to a much more effective job transitioning these categories for a longer period of time versus last year.
Although denim was off to a slower start than we expected, we believe that this was due, in part to warmer weather, and guys tendency to shop for more wear-now products. As we have transitioned into more normalized weather patterns across the country, we are beginning to see our guys denim business improve with the addition of some new fits and washes.
Turning to our footwear business, I am pleased to say that we are beginning to see improvement in technical sneakers for both guys and girls. I would like to take a moment to talk about our footwear distributions strategy. After careful evaluation of the distribution of this category, we have concluded that it simply can not generate the returns we require in our bottom-tiered stores. We believe that these stores will be more productive with the addition of a broader apparel assortment; the process that we have started.
Turning to accessories. As you recall last yea,r at the end of the third quarter, we began exiting in number of under-performing accessory categories. We believe our go-forward categories, which are presented in our stores today, are better aligned with the trend-right classifications that appeal to our customers. Looking at our combined accessory and footwear business, it is our belief that these businesses should account for about a quarter of the total business.
In closing, we remain confident about the direction of PacSun business. Our initiatives are beginning to payoff, and we are starting to gain momentum with our merchandised assortments. As we exit our underperforming businesses, we have a renewed focus on improving the profitability of the PacSun on division. I would now like to turn the call over to Mike; he will discuss the third quarter financial results.
Mike Goldstein
Thank you, Sally. Before I begin I would like to re-emphasize that during this call references will be made to non-GAAP financial results and the investors are encouraged to review these non-GAAP financial measures, as well as the reconciliations of these measures to the comparable GAAP results contained in exhibit 99.2, to the company's Form 8-K filed with Securities and Exchange Commission earlier today, which is accessible through the Investor Relations page of our website at www.pacsun.com.
I'll begin with the review of the results on a GAAP basis, after which we'll factor out the results of the 74 demo stores we closed earlier this year, as well as the one time charges associated with demo and One Thousand Steps, to give you a better sense of year-over-year performance.
For the total company, sales for the third quarter, 13-week period of fiscal 2007 ended November 3, 2007 were $373.1 million, a slight decrease of 0.6% from total sales of $375.4 million for the third quarter, also a 13-week period of fiscal 2006, ended October 28, 2006.
Same store sales during the quarter for like weeks ended November 3, 2007, increased 5%. PacSun comps were up 7.7%, while demo comps were down 18.3%. For the quarter, total transactions for both total company and the PacSun division were up high single digits, partially offset by low single digit decreases in average unit retail and average items sold per transaction.
On a GAAP basis, total company gross margin including buying, distribution and occupancy cost increased 150 basis points in the third quarter to $111.1 million, or 29.8% of sales from $106.3 million, or 28.3% of sales in the third quarter last year.
Merchandise gross margins increased 200 basis points, primarily due to decreased markdowns and improved IMUs. Non-merchandised margin categories, which include buying, distribution and occupancy costs, were up 50 basis points. Buying costs accounted for 40 basis points of the increase, and occupancy accounted for 20 basis points. Distribution costs were down 10 basis points.
On a GAAP basis, SG&A expenses, including asset impairment charges associated with the company's 154 demo stores, increased 1,520 basis points during the third quarter to $148.8 million, or 39.9% of sales from $92.6 million, or 24.7% of sales in the third quarter last year.
Asset impairment and other write-off charges contributed approximately $51 million, or 1,370 basis points towards the SG&A increase. This amount includes a $49 million charge attributable to the impairment of the demo stores. The remaining $2 million in asset write-offs were primarily attributable to our ongoing store refresh program in PacSun.
General and administrative expenses were up 120 basis points, primarily due to strategic consulting expenses and planned increases in home office payroll and e-commerce expenses. The remaining 30 basis point increase in SG&A was primarily attributable to depreciation.
On a GAAP basis, our income tax rate for the quarter increased to 46.0%, and we currently expect our effective rate for the full fiscal year to be 43.8%. This increase was primarily due to lower net income for the year, due to the impairment charges incurred associated with demo.
On a GAAP basis, we incurred a net loss of $20 million for the third quarter, or $0.29 per diluted share, compared to net income of $9 million, or $0.13 per diluted share during our third quarter last year.
Now I'll discuss certain non-GAAP measures, for clear comparisons on our existing business. These measures exclude the financial impact to both the current and prior year of the 74 demo stores closed earlier this year, and also exclude the impairment charges associated with the remaining 154 demo stores and 9 One Thousand Steps stores. Operating results of the 154 demo stores and the 9 One Thousand Steps stores remain in the numbers for both the current and year ago periods for purposes of this discussion. Again, a reconciliation of these non-GAAP measures is included with today's earnings release and is accessible through the Investor Relations page of our website.
On a non-GAAP basis, net sales for the third quarter were $373.1 million, an increase of 2.8% over net sales of $363 million for the third quarter last year. Gross margins were $115.6 million for the third quarter this year, versus $103.6 million in the third quarter last year. As a percent of sales, gross margins improved 240 basis points to 31% of sales for the third quarter of this year, versus 28.6% in the third quarter, last year.
Merchandise margins increased 300 basis points, due to lower markdowns and higher IMUs. We also realized 10 basis points of freight savings due in part to our Olathe, Kansas distribution center. Offsetting this improvement were 40 basis points, attributable to occupancy, and 30 basis points attributable to buying costs
On a non-GAAP basis, SG&A expenses increased 230 basis points to $99.3 million, or 26.6% of sales for the third quarter this year, versus $88.4 million, or 24.3% of sales for the third quarter last year. General and administrative expenses were up 110 basis points, primarily due to strategic consulting expenses, and planned increases in home office payroll and e-commerce expenses.
80 basis points of the SG&A increase was due to asset write-offs and accelerated depreciation associated with our store refresh programs. 40 basis points of the SG&A increase was attributable to store payroll.
On a non-GAAP basis, our income tax rate for the third quarter was 34.3%, compared to 46% on a GAAP basis. We currently expect our effective rate for the full fiscal year to be 36.5% on a non-GAAP basis, compared to 43.8% on a GAAP basis. The lower non-GAAP tax rate are primarily attributable to the exclusion of the GAAP losses incurred associated with impairment and other reserve charges associated with demo and One Thousand Steps. On a non-GAAP basis, net income was $11.1 million, or $0.16 per diluted share for the third quarter, compared to $9.9 million, or $0.14 per diluted share during the third quarter last year.
For the PacSun business on a standalone basis, excluding all direct financial impacts associated with the demo and One Thousand Steps businesses, the company's net income for the third quarter would have been approximately $17.1 million, or $0.24 per diluted share, versus $11.4 million, or $0.17 per diluted share for the third quarter last year.
On the balance sheet, we ended the quarter with approximately $179 million in working capital, including $37 million in cash. Inventory per square foot was down 2%, versus the third quarter last year. Payables were $106 million, a 37% increase over last year, primarily due to significant holiday shipment near the end of the quarter, and reflecting the improved aging of our inventories versus last year.
Capital expenditures for the first three quarters of fiscal 2007 were $95 million and are expected to be approximately $100 million to $110 million for the full fiscal year. Depreciation was $58 million for the first three quarters, and is expected to be approximately $80 million for the full fiscal year.
During the quarter, we opened eight new stores and closed six stores. For the full year, we will open approximately 17 new stores and close approximately 105 to 115 stores, which includes the 74 general stores already closed, and the nine One Thousand Steps stores expected to be closed by the end of the fiscal year.
Now, turning to earnings guidance for the fourth quarter. On a GAAP basis, including the continuing operations of demo and One Thousand Steps, and assuming a flat to low single digit total company same-store sales result, the company expects fourth quarter earnings per share in the range of $0.26 to $0.29 per diluted share. This earnings range does not include any potential lease termination or other disposition related charges that may occur associated with demo or One Thousand Steps businesses at any time in the future.
As a result of the company's previously announced plans to explore strategic alternatives for it's demo stores and to close it's One Thousand Steps stores, and the uncertainty regarding the financial impact those plans may produce, the company is also providing non-GAAP earnings guidance associated with it's core PacSun business on a standalone basis.
Accordingly, assuming a low single digit increase in PacSun's same-store sales for the fourth quarter, the company expects fourth quarter non-GAAP earnings in the range of $0.32 to $0.35 per diluted share. This earnings range excludes all financial impacts associated with the company's demo and One Thousand Steps businesses.
I will now turn the call over to the operator for questions.
Question-and-Answer Session
Operator
(Operator Instructions). Your first question will come from Jennifer Black with Jennifer Black Associates.
Jennifer Black - Jennifer Black Associates
Good afternoon, and Sally, congratulations to you and your whole team, the stores look amazing.
Sally Kasaks
Thank you very much. And the team has done a tremendous job, I'm very proud of them.
Jennifer Black - Jennifer Black Associates
I have a question, just a follow-up on something that you said about the tops-to-bottoms ratio. And where they are now and what kind of opportunity you think you really have, both with guys and with girls, and I know, you were focused on the girls?
Sally Kasaks
We are both having a hard time here with our throat, this is some bug out here, I have no idea what it is. We continue to see, particularly in juniors, we see an opportunity in tops. But we feel pretty confident that there is a good balance in the guys’ business, particularly since our branded T-shirt business has started to really gain traction again. I think well, you do see some opportunity in the juniors. Typically you look for 2 2.5 3:1 ratio. The success of denim though has probably kept the ratio a little closer than you might typically see. But we still see a lot of opportunities on the upside in tops.
Jennifer Black - Jennifer Black Associates
So would it be fair to say that if you did get to three tops per bottom and your denim business is going great, that would be a drastic improvement?
Sally Kasaks
I think, it will be a continuing improvement because -- continuing improvement and I think that will continue to add to store productivity and just continue to help us drive our comp sales.
Jennifer Black - Jennifer Black Associates
Okay.
Sally Kasaks
I think the other part we need to include too, is we're really trying to continue to expand on the fashion top business totally in the junior rank, because it's really an important business driver.
Jennifer Black - Jennifer Black Associates
Okay, great. Good luck.
Sally Kasaks
Thank you very much, Jennifer.
Operator
Your next question will come from Jeff Klinefelter with Piper Jaffray.
Jeff Klinefelter - Piper Jaffray
Hi, yes. Just a couple of questions for you, as you consider sort of your brand strategy going forward, across both juniors and young men's. What are your thoughts for the ultimate balance of private label in those two categories? And then in terms of the growth of the business, how long do you think you need to wait ultimately to develop a new growth concept, granted it's a little soon given that you are getting out of these other two businesses, but have you thought about that in terms of your kind of three year to five year plan? And then just lastly, initial thoughts about '08, can we assume that your core PacSun business, should we look at a similar sort of growth rate into '08, on a year-over-year basis, as we're looking at in that Q4 guidance?
Sally Kasaks
Let me make sure I got all your questions, I should have been writing faster here. In terms of the mix of national brands to proprietary, I think we're fairly happy with our mix currently in the guys business, and we're finding our level in the juniors business.
But certainly, as I've stated before, though there are good brands, brands don't drive the junior business as much as the right fashion does quite honestly. So, that's why that's probably going to be a more fluid number, whereas in the guys business they are really pretty brand-loyal. As always we have the right brand, so that part of its pretty good. In terms of new concepts, it's just too premature. We really got to get this. We need a little bit more under our belt with the Pac brand and that's where our focus is right now.
Jeff Klinefelter - Piper Jaffray
Last question what's about '08?
Mike Henry
Yeah. Jeff, at this point we're in our budgeting process, for 2008. And we're not prepared to talk about any specifics for 2008. We're going quarter to quarter. At this point we have got one decent quarter behind us, we are working on the fourth quarter, and we will have some comments to make about 2008 guidance of any sort, when we announce our fourth quarter results in March.
Jeff Van Sinderen - B. Riley
Okay. And then just back on selling in the brands again, can you just remind me again maybe, you said this earlier in the call, but what currently, what are you looking at it by year end, would be your balance of private label versus brand and juniors and in the same --
Sally Kasaks
We don’t really give that kind of information. I think what you will be seeing as we go forward though, if you look at the junior business and the guys business as we go into spring it will be closer to 50-50, with the [exaggeration] of juniors. We don’t give out these percentages, but you can expect juniors to have more significant growth in some categories particularly the tops category in our proprietary brands.
Jeff Van Sinderen - B. Riley
Okay. And then just one last thing back on the growth of the core business: can you update us again on -- ultimately do you have a sense for the number of stores over the next year or two that you'd want to have in that core Pacs on the outlet business?
Sally Kasaks
I'll tell you right now Jeff we are really looking at our whole real estate portfolio. We are really looking through that, we have got some help on this, one of those strategic consulting things we are working on, because we have got a very large portfolio. And so, those are the kinds of things we are looking at right now, I think will be more -- we will have greater transparency probably as we get into that March, April time period, because we really do need to assess. And there are quite a few leases we have got to be looking at. So, I would say as we get into the March, April period, we would have much greater transparency and visibility on that.
Jeff Van Sinderen - B. Riley
Okay. Thank you.
Sally Kasaks
Thank you.
Operator
Your next question will come from Brian Tunick with J.P. Morgan. Brian your line is open.
Sally Kasaks
Hi, Brian.
Operator
I am guessing he is unavailable for question, we will move to the next questionnaire, and your next question will come from John Morris with Wachovia.
John Morris - Wachovia
Thanks. Sally, I think you mentioned in the prepared remarks regarding shoes that you were going to pulled that out of the underperforming stores, that category. How many of those will there be approximately?
Sally Kasaks
It's not a significant number, but it's in that 50 to 60 range, that's kind of what we are looking at. And then also slightly more contained assortment in the next tier of stores, which is about a 100, somewhere in that range. What we are trying to do is make sure that we deploy the inventory; we do have to the more highly productive stores.
John Morris - Wachovia
And then my follow-up is, with respect to the fourth quarter outlook, with respect to the PacSun standalone metrics that you were giving what kind of assumptions would we make for gross margin, would we expect to see gross margin up? And what is built in to your assumption for SG&A, would you have the leverage at a three comp?
Mike Henry
For the fourth quarter, I think one important thing to remember is that fourth quarter of last year is where we initiated the current cadence of markdowns that we are on now. . So, as you go Q4 versus Q4, it should be much more consistent and when it has been for the first three quarters so I'd expect on a Pac standalone basis that you might expect similar margins for the third quarter, with may be some slight improvement. But, I’d say it's zeroed up to a 100 basis points.
SG&A, I think you can expect that we will continue to see the same kind of de-leverage that we saw in the third quarter, because we still going to have the impact of the strategic consulting, which wasn't in fourth quarter last year to any significant extent. We still have the planned increases that we've had in home office payroll and the e-commerce expenses. So, we'd expect those things to continue to de-leverage probably in similar fashion to what they did in the third quarter.
John Morris - Wachovia
Okay very helpful. Good luck for holiday, thank you.
Mike Henry
Thank you.
Sally Kasaks
Thank you.
Operator
Your next question comes from Liz Pierce with Roth Capital Partner
Liz Pierce - Roth Capital Partner
Good afternoon and congratulations you guys on a nice quarter. Sally just back to the footwear, do I understand what you are saying, it's almost going to be like a tiered strategy, there will be 50 stores to 60 stores that won't have it, and then 100 or so that will have less of it, and then the remaining which is still a fairly sub-sizable?
Sally Kasaks
Sure.
Liz Pierce - Roth Capital Partner
Have the power kind of impact is that what you are -- is this because you can't get the footwear?
Sally Kasaks
No. I think what we've been trying to do is, as we look at the business and we looked at it from a lot of [weight lift] and though footwear is an important part of the business. When you look at what footwear and accessories, it was in excess of 35% of the business at one point. We've just decided that frankly it should be about 25, the two combined, so that we can really go after the margins, and the sales, and all that's required to support our apparel business.
So, we really are making our best on apparel with the strong footwear business in stores where we make money. And our team in footwear has been really aggressively doing the analysis and evaluation on this, and we see that as a way to really improve our business and better leverage our inventory.
Liz Pierce - Roth Capital Partner
Okay. So, I can't remember what it was last year between footwear and accessory, was it 35 and how long do you think it takes to get to 25?
Sally Kasaks
Yeah, it was in excess of 30, historically it had been higher, something around 32% in that range. So, what we are trying to do is bring it in. And by the way into key categories, that's the important thing. It wasn't just the matter of reducing SKUs, but making certain we are in the right-trend classification. So in guys you will see hats, and beanies, and backpacks and juniors is about jewelry, handbags. And then the footwear business there is a sneaker trend, we are very encouraged by what we are seeing there. And that's where our focus is essentially going to be in footwear.
Liz Pierce - Roth Capital Partner
But I would also presume just a quick follow-up. You are not going to obviously -- sandal flip-flops are still -- and is that something that all stores could carry, because it seems like that is something you think of in apparel?
Sally Kasaks
Yeah. And that would be easy enough, yeah. Again I still often when I think of footwear I know that the flip-flop phenomenon is real, but also it's good to see some of the sneaker business happening again, but you're absolutely right.
Liz Pierce - Roth Capital Partners
Okay, great. Thank you and good luck.
Sally Kasaks
Thank you, Liz.
Operator
Your next question will come from Kimberly Greenberger with Citigroup.
Oliver Chen - Citigroup
Hi, it's Oliver Chen for Kimberly Greenberger. We had a few questions. Could you give us any color on the month-to-date November sales trends and --
Sally Kasaks
We don't talk about sales trends mid-month. So good try, but we don't discuss those things, thank you.
Oliver Chen - Citigroup
And also: how many stores do you plan to exit the footwear business in and how do you expect this business to wind down?
Sally Kasaks
Which business are you talking about? In terms of the Pac stores, it's less than 60 stores.
Oliver Chen - Citigroup
Yeah.
Sally Kasaks
But if you're talking about winding down, it's just a normal course of business. So we're just decreasing the inventory. I assume you were talking about the Pac business.
Oliver Chen - Citigroup
That's right.
Sally Kasaks
Thank you.
Oliver Chen - Citigroup
In terms of footwear Pac.
Sally Kasaks
It's not a significant issue in the business, it's just really in the course of kind of normal business as usual, but going into spring is when you see it removed more specifically.
Oliver Chen - Citigroup
Okay. Thank you. And finally: we were just curious when will you be in a position to update us on the disposition of demo?
Sally Kasaks
There will be nothing, we're in process right now, we're working with an investment group, banking group, and I would imagine this process will go on for a period of time. We really don't have visibility on that at this point.
Oliver Chen - Citigroup
Thank you very much.
Sally Kasaks
Thank you.
Operator
Your next question will come from Janet Kloppenburg with JJK Research.
Janet Kloppenburg - JJK Research
Hi everyone and congratulations.
Sally Kasaks
Thank you, Janet.
Mike Henry
Thank you.
Janet Kloppenburg - JJK Research
A couple of questions, I think you, Sally, you talked about the estimates for the fourth quarter for PacSun being something like $0.32 to $0.35?
Mike Henry
Yeah.
Janet Kloppenburg - JJK Research
And I'm wondering: what is the comparison for last year? If I missed that I am sorry.
Mike Henry
Last year's fourth quarter, on a standalone, would be $0.32, so what we are calling for at this point is earnings of anywhere from flat to increase 10% versus last year.
Janet Kloppenburg - JJK Research
Okay. And that's based on a low single digit improvement for the Volcom, is that correct?
Mike Henry
Correct.
Janet Kloppenburg - JJK Research
So in that my question for Sally is now as you reduce your footwear and accessory exposure, as you bring that percentage down, does that mean that we might look for comps here to have movement, have a prolonged trend of negative comps there, because you are reducing inventory against higher levels in the year prior or how should we be thinking about comps in those businesses?
Sally Kasaks
Well, in the footwear business, that's really just starting and we are beginning to evaluate those numbers. I think we will have a better sense as we start going to the spring, certainly there will be some negative. You have to see assume, our assumptions are, there will be some negative comp. On the other hand, we have believed as the assortments get, we have better size-runs on some of that eventually. We will begin to see the top stores, top 250 stores hitting higher comp numbers. This is all very news, Janet, and though we have assumptions out there, our assumptions are it's somewhat neutral, but we haven't tested and validated that yet. We won't have a better sense for a period of time.
Janet Kloppenburg - JJK Research
Okay. So, should we look for those businesses to begin to improve in the fourth quarter or --?
Sally Kasaks
I think that the big wildcard there right now, Janet, is the sneaker assortment. As I said, we are beginning to get some good impact in that. We are beginning to see some really good numbers there. On the other hand, we still have good -- that we are trying liquidate, some of the small, those underperforming stores and we have had to drop some AURs and so forth. So I think we'll have a much better sense by the time we start getting into the back half of Q1 going in to Q2. We referred, we know what's the right decision from a margin point of view; we are not quite sure what the impact is ultimately going to be on the comps.
Janet Kloppenburg - JJK Research
Okay. And then, when you talked about bringing in more snow brands and for the stores and the test on Burton doing well, it sounds like on the men's side of the, perhaps the exposure to some national brands is on the up-tick. Is that a clear takeaway?
Sally Kasaks
Yeah I think so, on the guy's side in particular, yeah. We have had some good initial reads on the national brands related to the snow and I am sure that as the season goes on, we will get some really good reads in certain parts of the country too, (inaudible).
Janet Kloppenburg - JJK Research
Okay. But on the girls side, it still sounds like the emphasis is on fashion and that may take you to private label, and that may take you to brands, it all depends on who has what you need, is that --?
Sally Kasaks
It has to be the right looks, right, because we do have some Burton, we have some mixture out there in outerwear, but we are finding the fashion is what's driving that outerwear business.
Janet Kloppenburg - JJK Research
Okay. So when you look to the fourth quarter and earnings, perhaps on the upside of 35 versus 32, would you say that that would come from productivity gains or more from margin gains, Sally?
Sally Kasaks
At this point it's probably going to be a combination of both, a little bit here a little bit there. I think certainly, we're all eager to see how the season plays out, and I think that to me is, I think as we sit here and look at these numbers, that's the wildcard. So, I am not trying to blame external environment, but as much as we think, there may be some upside on numbers that external environment is what's making us remain fairly cautious.
Janet Kloppenburg - JJK Research
Okay. But if the excellent environment doesn't get --?
Sally Kasaks
I would hope it's the combination, Janet, because our inventories are in line. We are really very current in our goods and any little upside in sales will certainly drive the margin, as the business is a little bit slower, then at least we're covered on the margin for somewhat of the downside. So that's where I think, if you just look at our inventory levels, they've achieved a pretty well position. Couple of points and sales increase will give them higher margins. The downside is not that -- it's pretty well covered.
Janet Kloppenburg - JJK Research
Okay. Well I want to wish you a lot of luck for a great future.
Sally Kasaks
Thank you.
Mike Henry
Thank you.
Operator
Your next question will come from Adrienne Tennant with FBR Capital Market.
Adrienne Tennant - FBR Capital Market
Good afternoon. And let me add my congratulations on the stores at PacSun, they do look very, very sharp. My first question is on inventory, and if I missed this I apologize, but do you have it by division at the end of the quarter and then your plans at the end of the fourth quarter please?
Mike Henry
I do not have that with me now. On a total company basis, it was down 2% I don't have it by division real handy.
Adrienne Tennant - FBR Capital Market
How about for the fourth quarter?
Mike Henry
As of the end of the fourth quarter, we expect it to be down about 5% a mid-single percentage down.
Sally Kasaks
And may we just add, we did bring in a floor set on October, (inaudible) also includes that we accelerated the floor set at a year ago would come in the middle of November and brought it in the end of October. So there's a -- I'm not going to say a distortion, because the product was right and brand was right and so forth, that you should just understand that.
Adrienne Tennant - FBR Capital Market
Okay. So there is a timing difference at the end of the fourth quarter?
Sally Kasaks
Yeah. On a pure inventory basis there was a timing difference.
Adrienne Tennant - FBR Capital Market
Okay great. And then in terms of the margin differential, the merchandise margin differential, juniors versus guys. Can you give us some direction on that and then secondarily on apparel versus kind of footwear and accessories, if directionally?
Mike Henry
We don't usually go into that level of detail by product category or classification.
Sally Kasaks
Yeah. That's because we haven't given that information typically in the past there Adrienne at all.
Adrienne Tennant - FBR Capital Markets
Okay.
Sally Kasaks
It's a process just, we just have to blend these all, all the categories together and that's how we approach it.
Adrienne Tennant - FBR Capital Markets
Okay. Fair enough. Just a couple of clarifying questions: So, the guidance for the fourth quarter is 32 to 35, what would that had been compared to in the fourth quarter of last year? I know its $0.27 exclusive of the 74 closed demo stores, but just PacSun-to-PacSun?
Mike Henry
PacSun-to-PacSun, this year is 32 to 35 would be versus last year's 32, so we'd be expecting flat to up 10% earnings growth.
Adrienne Tennant - FBR Capital Markets
Okay. So, last year the 74 stores I thought were accretive by about $0.03, so are the 74 worse performing?
Mike Henry
All the details about what last year was is in the tables that we provided in the exhibit, that's attached to 8-K, I think, we provided a pretty exhausted amount of information in that.
Adrienne Tennant - FBR Capital Markets
Okay.
Mike Henry
I think if you review those, you'll find the detail that you're looking for.
Adrienne Tennant - FBR Capital Markets
Okay. And did in that 8-K, does it have a Q1 '08 and Q2 '08 sales and EPS [XMO], so we can…
Mike Henry
We have nothing about '08. We're not prepared to talk about '08.
Adrienne Tennant - FBR Capital Markets
I'm sorry I meant…
Sally Kasaks
'07?
Adrienne Tennant - FBR Capital Markets
'07. Exactly, so we can model '08 properly.
Mike Henry
Yes it does. Actually we have tables in there showing the Pac only result for each of the last seven quarters.
Adrienne Tennant - FBR Capital Markets
Fantastic. I really appreciate that.
Sally Kasaks
You can call in here if you want some help here.
Adrienne Tennant - FBR Capital Markets
I know. I have been waiting for this. This is great. It's like Christmas, early Christmas. And then my final question end of quarter fully diluted shares, please? For the basic and the loss?
Mike Henry
For the quarter, it would be 69,953,801 on a non-GAAP basis, obviously without the loss for the quarter, and for the year-to-date would be $69,94,305.
Adrienne Tennant - Friedman, Billings, Ramsey
Okay. Very good and good luck for the holidays.
Mike Henry
Thank you.
Sally Kasaks
Thank you, Adrienne.
Operator
Your next question will come from Liz Dunn with Thomas Weisel Partners.
Liz Dunn - Thomas Weisel Partners
Hi, good afternoon and you have my congratulations.
Sally Kasaks
Thanks Liz.
Liz Dunn - Thomas Weisel Partners
Can you talk a little bit more about IMU increases that I am assuming corresponded to your increase in private label product on the juniors’ side? How much additional opportunity is there in the IMU line? And then is there any way that you could provide some additional detail on the consulting fees that have impacted this year? And when we will start to see those slow down?
Sally Kasaks
Liz, let me just speak to that, there is always going to be a certain amount of these kinds of things in the business. Certainly they were some more significant last year, because of a lot of research we were doing, the deep dive we did in attempt to validate a number a points, but we do believe that last year's is higher then we would have on an non going basis. There'll always be some baked in, but I believe the number will be somewhere, I don’t know little over half, about half of that or somewhere in that range. So, there will be someone in there, because there are a lot of initiatives we are brining to the business, but they will be lower than last year.
Liz Dunn - Thomas Weisel Partners
In the fourth quarter?
Sally Kasaks
Yeah.
Mike Henry
And in terms of IMU, without getting into a lot of specifics, it largely as in terms of IMU improvement on the juniors business, but we have been making IMU improvements across all of our categories within the PacSun business. So, the IMU improvement that you see there is across all product categories. And junior is being the most significant component of this but we have been making progress in each core areas.
Liz Dunn - Thomas Weisel Partners
Okay. And then could you just update us, I think earlier in the year you articulated your strategy of going a bit narrower and deeper in certain categories of products: how is that proceeding?
Sally Kasaks
We are actually starting to look towards broadening some assortments. We brought focus to the product ads, so you may find, we have categories that are very tight. But you'll see some times with in classifications you may be trying to broaden a little bit as well.
So, by and large so you can see if you go in to our stores, you can see very clearly we are heavy on denim, which is where we want to be, very heavy on fleece, which is where we want to be those be, and heavy on T-shirts in the guys, the branded-Ts, which is where we want to be. In juniors you will see again heavy on denim, heavy on fashion fleece, which has been tremendous for us. The brands have been terrific on that area, as well as the range of tops.
So, probably you would see those, less depends on dresses now as we bring in outerwear, don't forget our stores are somewhat limited in size, let's say, our typical stores really I think what about 3,800 square feet. We have some smaller and some larger, so we don't, but only our floor sets can add the change in the new products, because we just don't have that much space to get much more assorted than we are today.
Liz Dunn - Thomas Weisel Partners
Okay. And then just one final one on the accessories business: when exactly did the access? -- and I apologize if you addressed it in the prepared remarks. But the access inventory came off the floor last year, because I think that’s the part of the problem, and you are negative accessories comps this year has been associated with just less inventory there, so when do we start to lap that?
Mike Henry
We initiated that right at the end of the third quarter and that clean up process kind of continued as we went through the four quarter, but we took the largest hit in terms of the dollars to the books in the third quarter last year.
Sally Kasaks
Certainly the sales we realized those -- it went into Q4 and even some them into Q1 realistically.
Mike Henry
Yeah.
Liz Dunn - Thomas Weisel Partners
Okay great. Thank you.
Sally Kasaks
Thank you.
Operator
Your next question will come from Dana Telsey with Telsey Advisor Group.
Dana Telsey - Telsey Advisor Group
Hi everyone, good afternoon.
Mike Henry
Hello.
Sally Kasaks
Hi, Dana.
Dana Telsey - Telsey Advisor Group
Can you talk a little bit about, has the profile of your customer changed, given the merchandised adjustments that you've made, what are you seeing? And also what are you seeing in your outlet stores in terms of their performance versus your mall-stores? Thank you.
Sally Kasaks
Thank you, Dana. Our guys’ customer has continued to build on what the core Pac guy has, as I mentioned in my comments just briefly. We are seeing the trends in the junior customers, probably where we've seen the bigger change in terms of how she looks, how she dresses and what her fashion expectations are.
In the old days you were basically of kind of about T-shirts, and jeans, and fleece. But today we see even within those categories a more of a stronger fashion component. In terms of outlet and in our-off mall locations versus the mall, that business has tended to be a little bit stronger than the mall business. Particularly in the more of the vacation destinations, and that continues to be a good point of business for us. But, it's been encouraging though to see is our junior business has started to kick in there too, there's been a concentrated effort and in that they are really responding.
Don't forget too our customer base is a little broader in the outlets, whereas in the mall we really are targeted towards the core teen customer. In the off-mall it tends to be, you get the teen, but you got a slightly younger, as well as an older customer there, and I think we benefit from that in the off-mall, particularly on vacation times, and in vacation locations.
Dana Telsey - Telsey Advisor Group
Thank you.
Sally Kasaks
Thanks. Bye-bye.
Operator
Your next question will come from Paul Lejuez with Credit Suisse.
Paul Lejuez - Credit Suisse
Hey guys, Paul Lejuez.
Sally Kasaks
Hi Paul.
Mike Henry
Hello.
Paul Lejuez - Credit Suisse
Hey. Okay. Out of the $48 million in charters that you took in the first three quarters, what's the cash versus non-cash breakdown?
Mike Henry
If you're referring to the asset impairments, all of those are non-cash.
Paul Lejuez - Credit Suisse
Was there any cash charge associated with the 74 demo closing?
Mike Henry
There were about $60 million in lease termination charges for those 74, and that would be the primary cash outlay.
Paul Lejuez - Credit Suisse
And what did you get for the inventory that was in those stores, cash in?
Mike Henry
What did we get for the --
Sally Kasaks
I don't understand the question, could you just expand on that, Paul?
Mike Henry
Are you looking for the sales that were generated out of the 74 stores?
Paul Lejuez - Credit Suisse
Well, didn't you sell-off the inventory in one big shot? There was a point where you sold that, just can't remember now.
Mike Henry
Each of the 74 stores went through a more promotional cadence of liquidating the inventory. Each store probably had a slightly different cadence depending on what the performance of the liquidation process was. It's a difficult question to answer on a global basis.
Paul Lejuez - Credit Suisse
Okay. Got you. And what's in the other current assets, other long-term assets on the balance sheet, both more than doubled versus last year. So just trying to understand that a bit better.
Mike Henry
The primary thing that's non-comparable to prior years in other current assets is, we have about $30 million income tax receivable at this point due to the significant losses on a GAAP basis that are sustained as a result of all the impairment charges that we took. And then the other long-term assets, that is where you see the investment in the industrial revenue bonds associated with our Olathe, Kansas, distribution center. That's about $23.3 million that's in that number, that would not have been there last year at this time.
Paul Lejuez - Credit Suisse
Got you. And then just lastly, you had a 7.7% comp in the Pac business in the third quarter. Why the slowdown for the fourth quarter, is it simply more difficult comparisons or is there something going on November to date that you can share?
Mike Henry
No, first we don't make comments mid-month about business again. But as Sally mentioned earlier, there is some caution out there, you see a lot of things coming out where people have concerns about the fourth quarter. We are trying to be cautious. We do have confidence on how our PacSun business is performing. We believe our inventories are trending right. We believe we are positioned well as we go in to fourth quarter, but we just don't want to get too far ahead of ourselves. We had solid back-to-school third quarter. We are happy with it. We are confident going into the fourth quarter, there is just a lot of noise out there and we just don't want to get too far ahead of ourselves.
Paul Lejuez - Credit Suisse
Okay, great. Thanks and good luck.
Mike Henry
Thank you.
Operator
Your next question will come from Jeff Van Sinderen with B. Riley.
Jeff Van Sinderen - B. Riley
Hi Mike, congratulations as well. Sally I wonder if you can give us any more color at Pac on how you are planning your promotional cadence and strategy for holiday and how that compares to last year? And then are you doing anything different in terms of the timing of floor sets for holiday this year? And also is there any color you can give us on, on maybe how your final floor set might differ in overall seasonal content?
Sally Kasaks
Hold up, your voice broke up just a little bit there, that last part about seasonal content.
Jeff Van Sinderen - B. Riley
Okay, sorry about that. Was just wondering if you can give any more color on how your final Q4 floor set might differ versus in terms of overall seasonal content versus last year?
Sally Kasaks
Well let me go back, in terms of the promotional cadence, they are going to be more targeted this year because and more planful. So essentially though they would be probably much equivalent to last year. There maybe an extra day of Pac Loot for example, but by and large everything is really anniversarying on a macro level. Certainly internally, we may make some adjustments as the next five weeks go on. We have got a very -- so the cadence is essentially the same. But we believe that it's a little bit more planful in terms of the content. Also our floor sets, well I think the next question was about the floor sets, are more targeted to certain particular categories. So for example last year, we were moving goods than earlier. We just had so many things influx. This year the floor sets are planned and we actually have mid-month updates that truly are updates. So you will see every two weeks some sort of update to drive a new merchandising issue and I think that will make the stores look exciting right up to the end, right before Christmas.
We've also got a lot of major plans for that last week in December. Certainly gift cards and kids being out, that's a really important week for us. So I think we are ready for that. In terms of the end of Q4, we really do plan on going into spring. We are very current good. A lot more wear now to some extent. We may has a been a little short last year for example in fleece spring [rate] fleece. So, we are trying to make sure that not only do we have the top and the bottom, but perhaps the layering fleece that would then go into the spring season.
So I believe in last year we were really just trying to get goods in, and it was not always as planful as it needed to be. I do think though, every two weeks you will see though some fresh idea to drive the business.
Jeff Van Sinderen - B. Riley
Okay great. By the way, I would concur that your stores look great right now.
Sally Kasaks
Thank you. Our team has done just a sensational job.
Jeff Van Sinderen - B. Riley
They sure have. And let me ask you so based on that, in terms of inventory, how should we be thinking about where you would end the quarter, assuming that you make your plan on a per square foot basis and what was inventory per square foot end of Q4?
Mike Henry
We are anticipating it will be down by about 5% at the end of the year per square foot.
Jeff Van Sinderen - B. Riley
Okay great. Thanks very much and good luck for the rest of the holiday.
Sally Kasaks
Thank you very much.
Mike Henry
Thank you.
Operator
Your next question will come from Mitch Kummetz with Robert Baird.
Mitch Kummetz - Robert Baird
Yeah thanks. I have got a few questions let me start just to clarify something. On a go forward basis, when you guys report your monthly sales. Are those sales numbers going to be on GAAP or non-GAAP basis, are they going to still include demo and Steps or just Pac?
Mike Henry
The total sales that we reported in terms of the sales dollars will be on a GAAP basis, they will include everything. We are going to focus our comp communication going forward however on just the Pac stores.
Mitch Kummetz - Robert Baird
Okay. So how are we going to know what the Pac sales are on a monthly basis if we're going to be modeling the business, Pac exclusively?
Mike Henry
We can break those out for you as we go forward.
Mitch Kummetz - Robert Baird
Okay. And then secondly, as I'm looking at the 8-K and the exhibits there, I calculated an operating margin on the Pac business trailing 12 months of about 6%. I am curious, Sally, if you could kind of speak to that and what are your targets for that business on a longer term basis and where would you see the lowest hanging fruit, is it all just a function of driving better margins off the comp or are there any other areas where you could see some improvement?
Sally Kasaks
Certainly we've said before our goal is somewhere around 12% in that range, the best is going to take a number of years. Certainly there is the product margin is one inventory controlled, higher IMU, faster terms, greater GMROI that aspect. But we are also looking at supply chain initiatives, technology initiatives, things that will help us do better macro merchandising at the store level to get those increased margins because if we just depend on sales which is critical, I think we recognized that the low-hanging fruit is sometimes on things that aren't as obvious. So I do think the comp sales, the productivity, is the results that we're seeing and refresh will be, some of them are obvious parts of our plan. But overtime, we do think the supply chain, just a range of initiatives that we can put to run the business smarter, will also add to those operating margins.
Mitch Kummetz - Robert Baird
And you mentioned the 12% comp overtime.
Sally Kasaks
Not comp, operating.
Mitch Kummetz - Robert Baird
I'm sorry. 12% margin overtime.
Sally Kasaks
Yeah.
Mitch Kummetz - Robert Baird
What would be a long-term target on the productivity of those stores. It looks like they are running about $360 a foot, trailing 12 months.
Sally Kasaks
Yeah. We said that, again that's overtime, and again I don't want to put a stake in the ground today, but our target would be to get closer to the $500 a square foot, $450 to 500, which is what our competitive set. Most of them were in excess of that, but that would be our objective sitting here today.
Mitch Kummetz - Robert Baird
Okay. And then one last question, it was mentioned for the fourth quarter that you would expect the SG&A to continue to de-leverage based on some of the expenses consulting fees and personnel, headcount. At what point do you anniversary that or at what point can you expect to get leverage on the SG&A on low to mid single-digit comp?
Mike Henry
Well, as we go forward, we've given you our fourth quarter result and we're not making any comments about go forward beyond as you go into '08 at this stage. But generally speaking, I think you'd say once we get into a mid single-digit comp, that's when you should start to see the G&A leverage under kind of a normal cadence of expenses.
Mitch Kummetz - Robert Baird
Okay. All right. Thank you.
Sally Kasaks
Thank you.
Operator
Your next question will come from Christine Chen with Needham & Company.
Christine Chen - Needham & Company
Hi, thank you.
Sally Kasaks
Hi Christine.
Christine Chen - Needham & Company
Hi. Wondering the timing of our floor sets this year for fourth quarter, how does that compare versus last year and can you give some sort of hint for us on the calendar shift how would that might affect the shift into November out of December?
Sally Kasaks
For us it was, if I understand your question. For us it would be deliberate this year to bring in the goods in October, the end of Q3 to ensure that we started off November with a solid strong assortment. Certainly there will be update, as I said, every other week. So there really wasn't a calendar shift that affected as us being more deliberate in our plan purchases by delivery cycle.
Christine Chen - Pacific Growth Equities
And then I guess my second question was, there is a big calendar shift because of the extra week, everybody is talking about how November comps are going to benefit and December comps are going to most likely be hurt, because of the calendar shift. Can you quantify how that might affect your comps?
Sally Kasaks
We basically, again and you are putting us in a position where we can't talk about comps right now. I mean, we were looking at this on a quarterly basis including trying to make sure we don't commingle that 53rd week as well. So, that's why I would prefer not to talk month-to-month, but we are looking at an entire quarter.
Mike Henry
Yeah if you keep the focus on the overall quarter and you look at the information that we have provided in the exhibits to our 8-K it's got very clear information there about what we are estimating the impact of the 53rd week would be, that needs to be pulled out of the prior year, so you can have kind of a clean fourth quarter last year to build off of and then we have given comp assumptions that we are building our earnings range off of. So, it should we able to kind of get to the numbers that we have got there in the press release with that information.
Christine Chen - Pacific Growth Equities
Okay, great. Thank you, good luck for the holidays.
Sally Kasaks
Thank you, Christine. Should we make this the last question, because I see we have gone a little over our allocated one hour.
Operator
Alright, your final question will come from Roxanne Meyer with CIBC.
Roxanne Meyer - CIBC
Thank you, and let me add my congratulations.
Sally Kasaks
Thank you, Roxanne.
Roxanne Meyer - CIBC
Just a few quick follow ups. On the snow and the new product, I was just wondering how big of an opportunity you think that is just knowing how bigger the category it is in the fourth quarter?
Sally Kasaks
Again, we have expanded it from last year's test based on that is the number of stores. I think we see it particularly in certain parts of the country. I mean [grand] people where Burton is the national brand. But I think this year, we have been able to get the product out there and we will begin to see the customer response just how high is that. I would have to believe though in certain parts of California, the Midwest, the Northeast, New England states in particular, we should be able to see some good results on this product.
Roxanne Meyer - CIBC
Okay. Great. So none of that relates to your private label brand in women's? I mean obviously bowhead has done terrific. How do you feel about private label in the tops business? You know what inning do you think you are in, in terms of getting the fashion to the right level that you want it to be?
Sally Kasaks
I think it's part of something we have been adding month by month. I mean we have been testing and trying things and our team there, I think has really done a very good job of positioning cut and sell materials to bring them in. So it's hard to say, the fashion part of the mid-top business is really going to be a critical part, particularly as we go into the spring season. Don't forget, I think our fleece and the hoodies are major part of our fall business as we get into spring. But I think you will see greater diversity, greater assortment and increasingly more fashion [right] tops in that area. So I think you will begin to see how that is evolving particularly, as we get into the spring season, the strongest fall (inaudible).
Roxanne Meyer - CIBC
Okay. Great. And then last, I just wanted to see if, you know, in reference to your strategic planning initiative and forming a longer term vision for PacSun, if there is anything else you can add at this point that points to whether it's the direction of the brand or what PacSun is going to stand for over time?
Sally Kasaks
We are still in that process and we will be probably more -- will see more forthcoming as we -- after our fourth quarter announcements and so forth in March. So I would hope starting between March, April, May, we could become more forthcoming in some of those longer term plans. Well right now, we are just trying to validate a lot of our assumptions.
Roxanne Meyer - CIBC
Okay. Well, looking forward to it and best of luck this holiday.
Sally Kasaks
Thank you. Happy Thanksgiving everybody.
Operator
All right. I would like to turn it back to management for any closing remarks.
Sally Kasaks
Well, thank you folks. As I said, hope you all have a wonderful Thanksgiving. We are all going to be out in stores this weekend. Appreciate any feedbacks you can give us and just wish all of us in the retail game, well over this weekend. Everyone in the group, got a lot riding on it. Thank you.
Operator
This concludes tonight's conference call. You may now disconnect.
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