Pacific Sunwear of California Q3 2007 Earnings Call Transcript

Nov.20.07 | About: Pacific Sunwear (PSUN)

Pacific Sunwear of California Inc. (NASDAQ:PSUN)

Q3 2007 Earnings Call

November 21, 2007 5:00 pm ET

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

Operator

Ladies and gentlemen, welcome to the Pacific Sunwear ofCalifornia Conference Call announcing the company's Fiscal Third Quarter 2007 FinancialResults. This call is being recorded, and the playback will be availablestarting today, approximately two hours after the call through midnight, November27th, 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 throughmidnight, November 20th, 2008.

Your speakers today are Ms. Sally Kasaks, Chief ExecutiveOfficer 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 onehour, and questions will be limited to one per participant.

Before I turn the call over to Ms. Kasaks, I'd like to notethat during this Earnings Call, certain statements and responses to questionsmay contain forward-looking information including forecasts of future financialperformances and estimates of amounts not yet determinable, as well as ourfuture prospects and proposed development or business strategy, including withrespect to our Demo and One Thousand Steps concept.

Actual results could differ materially from those projected orreflected in our forward-looking statements and reported results could differ materiallyand should not be considered an indication of future performance. PacificSunwear's future financial condition and results should be considered anindication of future performance. Pacific Sunwear's future financial conditionand results of operations, as well as any forward-looking statements are subjectto change and no inherent known and unknown risks and uncertainties. PacificSunwear does not intend and undertakes no obligations to update forward-lookingstatements that reflect future events or circumstances. All forward-lookingstatements made in this conference call reflect Pacific Sunwear's currentanalysis of existing trends and information and represent Pacific Sunwear'sjudgment only as of today. You should not assume later in the quarter or the yearthat the comments Pacific Sunwear makes today are still valid.

Actual results may differ materially from currentexpectations based on a number of factors affecting Pacific Sunwear'sbusinesses including: changes in consumer demands and preferences, lower thananticipated comparable store sales, higher than anticipated markdowns,competition from other retailers and uncertainties generally associated withapparel retailing. In particular, the timing and amount of actual changes andexpenses relating to the company's demo and One Thousand Steps stores maydiffer from initial estimates as plans and activities are finalized. Moreinformation on factors that could affect Pacific Sunwear's business andfinancial results are included in its annual report on Form 10-K for the fiscalyear ended February 3rd, 2007, and other public filings made with Securitiesand Exchange Commission.

In addition, please note that during this call today,additional references may be made to non-GAAP financial results. Investors areencouraged to review these non-GAAP financial measures as well as thereconciliation of these measures to the comparable GAAP results in our 8-Kfiled with the SEC today, a copy which of can be found on our website atwww.pacsun.com.

This call, the webcast and its replay are the property ofthe Pacific Sunwear. It is not for rebroadcast or use by any other partywithout the prior written consent of Pacific Sunwear. If you do not agree tothese terms, please disconnect now. By remaining on the line you agree to bebound by these terms. With that said, I will now turn the call over to MsKasaks.

Sally Kasaks

Thank you for joining us today for our third quarterconference call. This is Sally Frame Kasaks, Chief Executive Officer of PacificSunwear. Joining me today on our call is Mike Henry, Vice President andController, who is filling in for Jerry Chaney, our Chief Financial Officer.

This has been an eventful quarter for us. (inaudible) wehave made significant strides in improving the performance of our PacSunbusiness, as evidenced by the 7.7% increase we achieved in comparable storesales for the quarter. In addition, as I will address on this call, we arecontinuing to refine our strategies to enhance profitability and growth.

As you know, the quarter results was (inaudible) and ourdecision to seek strategic alternatives for our demo division and to exit ourOne Thousand Steps concept as soon as practical, which indicates that OneThousand Steps we currently believe will be by the end of the fiscal year.

We are presently engaged in these activities and have noadditional information to share with you at this time. As a result, ourcommentary today will focus on our core PacSun division. When I came on Boardjust over a year ago, I outlined three key initiatives for the team. These wereto reconnect with our customer, to improve our customers' in-store shoppingexperience and to drive comp store sales through our junior business. I believethat we are well on our way to accomplishing each of these goals.

First, reconnecting with our customer. We have been focusedon reinforcing the connection between PacSun and our core customers throughboth 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 oursponsorship of the US Amateur Surf Team, which has been an excellent way for usto further integrate PacSun within the surf community, while providing in-storeinventory that leads credibility to our board-sport heritage.

We are pleased with the success of this program and have nowexpanded upon this initiative to include sponsorship of the US Amateur SnowboardTeam. Snowboard sports represent a new category for PacSun and we believe thatthis is a natural extension of our board-sport heritage.

In conjunction with this year's sponsorship, we have begunto carry a limited amount of snow brands, including Burton, which tested well in our stores lastyear and is off to a good start.

In terms of the in-store experience, we have continued tofocus on enhancing the appeal and shopability of the PacSun stores. Our storerefresh program has played a key role in this effort. This year we haverefreshed or are in the process of refreshing 50 PacSun stores. We continue tobe pleased with the results of these stores, and anticipate increasing the paceto 75 stores annually going forward.

Our objective has been to see a 15% sales lift, and I ampleased to report that, on average, we have been exceeding this target. As weanticipated, we are also achieving higher junior's penetration in these refreshstores. If you have not seen one of these locations in the refresh format, Iwould encourage you to do so.

Our new monthly floor set cadence has also contributed to amore positive shopping experience for our customers. As you may recall at theend of the third quarter last year, we initiated a strategy to reduce in-storeinventory and to begin monthly floor sets. This new floor set cadence allows usto improve product flow and deliver merchandise newness and trend-right goodsto our stores on a monthly basis. This has been especially important for ourjunior customer, who shops more frequently than our guy customer, so our guysbusiness 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 performanceof our junior apparel, which achieved close to a 30% comp sales increase forthe quarter. Confirmed by our research, we believe that this girl is anincremental customer to our PacSun business. More fashion-focused than thehistorical PacSun junior, this girl is looking for trend-right products that gobeyond T-shirts and fleece.

If back-to-school is any indication, we are off to animpressive start attracting this customer with our fashion focus assortments,which, by the way, includes a strong assortment of branded fashion-rightfleece.

Within our juniors business, we see additional opportunityfor our proprietary brands, as this customer seeks fashion tops and trend-rightdenim. Our big win this fall was the launch of our Bullhead girls denim brandin early June. Driven by new styles, fits and washes, we have achievedsignificant 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 wellfor holiday selling.

Our tops business by the way also continues to growprimarily with our proprietary brands. We are pleased to see that our focus onjuniors including our investment in designer stores and [talent] is beginningto payoff.

Turning to our guys business. The PacSun guys apparelbusiness has continued to be a solid performer, achieving close to a 10% compincrease during the quarter. Our guys business continues to be driven by theleading board-sport inspired brands that are important to our customer.

Strength in branded fleece, and our branded T-shirt businesswas a leading sales contributor during the quarter. We also saw a significantstrength in swim and shorts still in large part to a much more effective jobtransitioning 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 toshop for more wear-now products. As we have transitioned into more normalizedweather patterns across the country, we are beginning to see our guys denimbusiness improve with the addition of some new fits and washes.

Turning to our footwear business, I am pleased to say thatwe are beginning to see improvement in technical sneakers for both guys andgirls. I would like to take a moment to talk about our footwear distributionsstrategy. After careful evaluation of the distribution of this category, wehave concluded that it simply can not generate the returns we require in ourbottom-tiered stores. We believe that these stores will be more productive withthe addition of a broader apparel assortment; the process that we have started.

Turning to accessories. As you recall last yea,r at the endof the third quarter, we began exiting in number of under-performing accessorycategories. We believe our go-forward categories, which are presented in ourstores today, are better aligned with the trend-right classifications thatappeal to our customers. Looking at our combined accessory and footwearbusiness, it is our belief that these businesses should account for about aquarter of the total business.

In closing, we remain confident about the direction of PacSunbusiness. Our initiatives are beginning to payoff, and we are starting to gainmomentum with our merchandised assortments. As we exit our underperformingbusinesses, we have a renewed focus on improving the profitability of the PacSunon division. I would now like to turn the call over to Mike; he will discussthe third quarter financial results.

Mike Goldstein

Thank you, Sally. Before I begin I would like tore-emphasize that during this call references will be made to non-GAAPfinancial results and the investors are encouraged to review these non-GAAPfinancial measures, as well as the reconciliations of these measures to thecomparable GAAP results contained in exhibit 99.2, to the company's Form 8-Kfiled with Securities and Exchange Commission earlier today, which isaccessible 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 closedearlier this year, as well as the one time charges associated with demo and OneThousand Steps, to give you a better sense of year-over-year performance.

For the total company, sales for the third quarter, 13-weekperiod of fiscal 2007 ended November 3, 2007 were $373.1 million, a slightdecrease of 0.6% from total sales of $375.4 million for the third quarter, alsoa 13-week period of fiscal 2006, ended October 28, 2006.

Same store sales during the quarter for like weeks endedNovember 3, 2007, increased 5%. PacSun comps were up 7.7%, while demo compswere down 18.3%. For the quarter, total transactions for both total company andthe PacSun division were up high single digits, partially offset by low singledigit decreases in average unit retail and average items sold per transaction.

On a GAAP basis, total company gross margin includingbuying, distribution and occupancy cost increased 150 basis points in the thirdquarter to $111.1 million, or 29.8% of sales from $106.3 million, or 28.3% ofsales in the third quarter last year.

Merchandise gross margins increased 200 basis points,primarily due to decreased markdowns and improved IMUs. Non-merchandised margincategories, which include buying, distribution and occupancy costs, were up 50basis points. Buying costs accounted for 40 basis points of the increase, andoccupancy accounted for 20 basis points. Distribution costs were down 10 basispoints.

On a GAAP basis, SG&A expenses, including assetimpairment charges associated with the company's 154 demo stores, increased1,520 basis points during the third quarter to $148.8 million, or 39.9% ofsales from $92.6 million, or 24.7% of sales in the third quarter last year.

Asset impairment and other write-off charges contributedapproximately $51 million, or 1,370 basis points towards the SG&A increase.This amount includes a $49 million charge attributable to the impairment of thedemo stores. The remaining $2 million in asset write-offs were primarilyattributable 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 homeoffice payroll and e-commerce expenses. The remaining 30 basis point increasein SG&A was primarily attributable to depreciation.

On a GAAP basis, our income tax rate for the quarterincreased to 46.0%, and we currently expect our effective rate for the fullfiscal year to be 43.8%. This increase was primarily due to lower net incomefor the year, due to the impairment charges incurred associated with demo.

On a GAAP basis, we incurred a net loss of $20 million forthe third quarter, or $0.29 per diluted share, compared to net income of $9million, or $0.13 per diluted share during our third quarter last year.

Now I'll discuss certain non-GAAP measures, for clearcomparisons on our existing business. These measures exclude the financialimpact to both the current and prior year of the 74 demo stores closed earlierthis year, and also exclude the impairment charges associated with theremaining 154 demo stores and 9 One Thousand Steps stores. Operating results ofthe 154 demo stores and the 9 One Thousand Steps stores remain in the numbersfor both the current and year ago periods for purposes of this discussion.Again, a reconciliation of these non-GAAP measures is included with today'searnings release and is accessible through the Investor Relations page of ourwebsite.

On a non-GAAP basis, net sales for the third quarter were $373.1million, an increase of 2.8% over net sales of $363 million for the thirdquarter last year. Gross margins were $115.6 million for the third quarter thisyear, versus $103.6 million in the third quarter last year. As a percent ofsales, gross margins improved 240 basis points to 31% of sales for the third quarterof this year, versus 28.6% in the third quarter, last year.

Merchandise margins increased 300 basis points, due to lowermarkdowns and higher IMUs. We also realized 10 basis points of freight savingsdue in part to our Olathe, Kansas distribution center. Offsetting thisimprovement were 40 basis points, attributable to occupancy, and 30 basispoints attributable to buying costs

On a non-GAAP basis, SG&A expenses increased 230 basispoints 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 tostrategic consulting expenses, and planned increases in home office payroll ande-commerce expenses.

80 basis points of the SG&A increase was due to assetwrite-offs and accelerated depreciation associated with our store refreshprograms. 40 basis points of the SG&A increase was attributable to storepayroll.

On a non-GAAP basis, our income tax rate for the thirdquarter was 34.3%, compared to 46% on a GAAP basis. We currently expect oureffective 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 primarilyattributable to the exclusion of the GAAP losses incurred associated withimpairment and other reserve charges associated with demo and One ThousandSteps. On a non-GAAP basis, net income was $11.1 million, or $0.16 per dilutedshare for the third quarter, compared to $9.9 million, or $0.14 per dilutedshare during the third quarter last year.

For the PacSun business on a standalone basis, excluding alldirect financial impacts associated with the demo and One Thousand Stepsbusinesses, the company's net income for the third quarter would have beenapproximately $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 withapproximately $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 tosignificant holiday shipment near the end of the quarter, and reflecting theimproved aging of our inventories versus last year.

Capital expenditures for the first three quarters of fiscal2007 were $95 million and are expected to be approximately $100 million to $110million for the full fiscal year. Depreciation was $58 million for the firstthree quarters, and is expected to be approximately $80 million for the fullfiscal year.

During the quarter, we opened eight new stores and closedsix stores. For the full year, we will open approximately 17 new stores andclose approximately 105 to 115 stores, which includes the 74 general storesalready closed, and the nine One Thousand Steps stores expected to be closed bythe end of the fiscal year.

Now, turning to earnings guidance for the fourth quarter. Ona GAAP basis, including the continuing operations of demo and One ThousandSteps, and assuming a flat to low single digit total company same-store salesresult, 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 anypotential lease termination or other disposition related charges that may occurassociated with demo or One Thousand Steps businesses at any time in thefuture.

As a result of the company's previously announced plans toexplore strategic alternatives for it's demo stores and to close it's OneThousand Steps stores, and the uncertainty regarding the financial impact thoseplans may produce, the company is also providing non-GAAP earnings guidanceassociated with it's core PacSun business on a standalone basis.

Accordingly, assuming a low single digit increase in PacSun'ssame-store sales for the fourth quarter, the company expects fourth quarternon-GAAP earnings in the range of $0.32 to $0.35 per diluted share. Thisearnings range excludes all financial impacts associated with the company'sdemo 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 fromJennifer Black with Jennifer Black Associates.

Jennifer Black -Jennifer Black Associates

Good afternoon, and Sally, congratulations to you and yourwhole 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 yousaid about the tops-to-bottoms ratio. And where they are now and what kind ofopportunity you think you really have, both with guys and with girls, and Iknow, you were focused on the girls?

Sally Kasaks

We are both having a hard time here with our throat, this issome bug out here, I have no idea what it is. We continue to see, particularlyin juniors, we see an opportunity in tops. But we feel pretty confident thatthere is a good balance in the guys’ business, particularly since our brandedT-shirt business has started to really gain traction again. I think well, youdo 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 thanyou might typically see. But we still see a lot of opportunities on the upsidein tops.

Jennifer Black -Jennifer Black Associates

So would it be fair to say that if you did get to three topsper bottom and your denim business is going great, that would be a drasticimprovement?

Sally Kasaks

I think, it will be a continuing improvement because --continuing improvement and I think that will continue to add to storeproductivity 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'rereally trying to continue to expand on the fashion top business totally in thejunior rank, because it's really an important business driver.

Jennifer Black - JenniferBlack 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 considersort 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 twocategories? And then in terms of the growth of the business, how long do youthink you need to wait ultimately to develop a new growth concept, granted it'sa little soon given that you are getting out of these other two businesses, buthave you thought about that in terms of your kind of three year to five yearplan? And then just lastly, initial thoughts about '08, can we assume that yourcore 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 havebeen writing faster here. In terms of the mix of national brands toproprietary, I think we're fairly happy with our mix currently in the guysbusiness, and we're finding our level in the juniors business.

But certainly, as I've stated before, though there are goodbrands, brands don't drive the junior business as much as the right fashiondoes quite honestly. So, that's why that's probably going to be a more fluidnumber, whereas in the guys business they are really pretty brand-loyal. Asalways we have the right brand, so that part of its pretty good. In terms ofnew concepts, it's just too premature. We really got to get this. We need alittle bit more under our belt with the Pac brand and that's where our focus isright 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'regoing quarter to quarter. At this point we have got one decent quarter behindus, we are working on the fourth quarter, and we will have some comments tomake about 2008 guidance of any sort, when we announce our fourth quarterresults in March.

Jeff Van Sinderen - B. Riley

Okay. Andthen 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 yourbalance of private label versus brand and juniors and in the same --

Sally Kasaks

We don’t really give that kind of information. I think whatyou will be seeing as we go forward though, if you look at the junior businessand 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 canexpect juniors to have more significant growth in some categories particularlythe tops category in our proprietary brands.

Jeff Van Sinderen - B. Riley

Okay. Andthen just one last thing back on the growth of the core business: can youupdate us again on -- ultimately do you have a sense for the number of storesover the next year or two that you'd want to have in that core Pacs on theoutlet business?

Sally Kasaks

I'll tell you right now Jeff we are really looking at ourwhole real estate portfolio. We are really looking through that, we have gotsome 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 ofthings we are looking at right now, I think will be more -- we will havegreater 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 havegot 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. Thankyou.

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 moveto the next questionnaire, and your next question will come from John Morriswith Wachovia.

John Morris -Wachovia

Thanks. Sally, I think you mentioned in the prepared remarksregarding shoes that you were going to pulled that out of the underperformingstores, 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 60range, that's kind of what we are looking at. And then also slightly morecontained 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 deploythe inventory; we do have to the more highly productive stores.

John Morris - Wachovia

And then my follow-up is, with respect to the fourth quarteroutlook, with respect to the PacSun standalone metrics that you were givingwhat kind of assumptions would we make for gross margin, would we expect to seegross margin up? And what is built in to your assumption for SG&A, wouldyou have the leverage at a three comp?

Mike Henry

For the fourth quarter, I think one important thing toremember is that fourth quarter of last year is where we initiated the currentcadence of markdowns that we are on now. . So, asyou go Q4 versus Q4, it should be much more consistent and when it has been forthe first three quarters so I'd expect on a Pac standalone basis that you mightexpect 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 tosee the same kind of de-leverage that we saw in the third quarter, because westill going to have the impact of the strategic consulting, which wasn't infourth quarter last year to any significant extent. We still have the plannedincreases 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 similarfashion 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 CapitalPartner

Liz Pierce - RothCapital Partner

Good afternoon and congratulations you guys on a nicequarter. 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 60stores that won't have it, and then 100 or so that will have less of it, andthen the remaining which is still a fairly sub-sizable?

Sally Kasaks

Sure.

Liz Pierce - RothCapital Partner

Have the power kind of impact is that what you are -- isthis because you can't get the footwear?

Sally Kasaks

No. I think what we've been trying to do is, as we look atthe business and we looked at it from a lot of [weight lift] andthough footwear is an important part of the business. When you look at whatfootwear 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, sothat we can really go after the margins, and the sales, and all that's requiredto support our apparel business.

So, we really are making our best on apparel with the strongfootwear business in stores where we make money. And our team in footwear hasbeen really aggressively doing the analysis and evaluation on this, and we seethat as a way to really improve our business and better leverage our inventory.

Liz Pierce - RothCapital Partner

Okay. So, I can't remember what it was last year betweenfootwear and accessory, was it 35 and how long do you think it takes to get to25?

Sally Kasaks

Yeah, it was in excess of 30, historically it had beenhigher, something around 32% in that range. So, what we are trying to do isbring it in. And by the way into key categories, that's the important thing. Itwasn't just the matter of reducing SKUs, but making certain we are in theright-trend classification. So in guys you will see hats, and beanies, andbackpacks and juniors is about jewelry, handbags. And then the footwearbusiness there is a sneaker trend, we are very encouraged by what we are seeingthere. And that's where our focus is essentially going to be in footwear.

Liz Pierce - RothCapital Partner

But I would also presume just a quick follow-up. You are notgoing to obviously -- sandal flip-flops are still -- and is that something thatall stores could carry, because it seems like that is something you think of inapparel?

Sally Kasaks

Yeah. And that would be easy enough, yeah. Again I stilloften 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, butyou're absolutely right.

Liz Pierce - RothCapital 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 fewquestions. Could you give us any color on the month-to-date November salestrends and --

Sally Kasaks

We don't talk about sales trends mid-month. So good try, butwe don't discuss those things, thank you.

Oliver Chen -Citigroup

And also: how many stores do you plan to exit the footwearbusiness in and how do you expect this business to wind down?

Sally Kasaks

Which business are you talking about? In terms of the Pacstores, it's less than 60 stores.

Oliver Chen -Citigroup

Yeah.

Sally Kasaks

But if you're talking about winding down, it's just a normalcourse of business. So we're just decreasing the inventory. I assume you weretalking 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 justreally in the course of kind of normal business as usual, but going into springis when you see it removed more specifically.

Oliver Chen -Citigroup

Okay. Thank you. And finally: we were just curious when willyou 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'reworking with an investment group, banking group, and I would imagine thisprocess will go on for a period of time. We really don't have visibility onthat at this point.

Oliver Chen -Citigroup

Thank you very much.

Sally Kasaks

Thank you.

Operator

Your next question will come from Janet Kloppenburg with JJKResearch.

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 aboutthe 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? IfI 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 toincrease 10% versus last year.

Janet Kloppenburg -JJK Research

Okay. And that's based on a low single digit improvement forthe Volcom, is that correct?

Mike Henry

Correct.

Janet Kloppenburg -JJK Research

So in that my question for Sally is now as you reduce yourfootwear and accessory exposure, as you bring that percentage down, does thatmean that we might look for comps here to have movement, have a prolonged trendof negative comps there, because you are reducing inventory against higherlevels in the year prior or how should we be thinking about comps in thosebusinesses?

Sally Kasaks

Well, in the footwear business, that's really just startingand we are beginning to evaluate those numbers. I think we will have a bettersense 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 bettersize-runs on some of that eventually. We will begin to see the top stores, top250 stores hitting higher comp numbers. This is all very news, Janet, and thoughwe have assumptions out there, our assumptions are it's somewhat neutral, butwe haven't tested and validated that yet. We won't have a better sense for aperiod of time.

Janet Kloppenburg -JJK Research

Okay. So, should we look for those businesses to begin toimprove in the fourth quarter or --?

Sally Kasaks

I think that the big wildcard there right now, Janet, is thesneaker assortment. As I said, we are beginning to get some good impact inthat. We are beginning to see some really good numbers there. On the otherhand, 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. SoI think we'll have a much better sense by the time we start getting into the backhalf of Q1 going in to Q2. We referred, we know what's the right decision froma margin point of view; we are not quite sure what the impact is ultimatelygoing to be on the comps.

Janet Kloppenburg -JJK Research

Okay. And then, when you talked about bringing in more snowbrands and for the stores and the test on Burtondoing well, it sounds like on the men's side of the, perhaps the exposure tosome 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. Wehave had some good initial reads on the national brands related to the snow andI am sure that as the season goes on, we will get some really good reads incertain parts of the country too, (inaudible).

Janet Kloppenburg - JJKResearch

Okay. But on the girls side, it still sounds like theemphasis is on fashion and that may take you to private label, and that maytake 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 someBurton, we havesome mixture out there in outerwear, but we are finding the fashion is what'sdriving 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 fromproductivity gains or more from margin gains, Sally?

Sally Kasaks

At this point it's probably going to be a combination ofboth, a little bit here a little bit there. I think certainly, we're all eagerto see how the season plays out, and I think that to me is, I think as we sithere and look at these numbers, that's the wildcard. So, I am not trying toblame external environment, but as much as we think, there may be some upsideon numbers that external environment is what's making us remain fairlycautious.

Janet Kloppenburg -JJK Research

Okay. But if the excellent environment doesn't get --?

Sally Kasaks

I would hope it's the combination, Janet, because ourinventories are in line. We are really very current in our goods and any littleupside in sales will certainly drive the margin, as the business is a littlebit slower, then at least we're covered on the margin for somewhat of thedownside. 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 increasewill give them higher margins. The downside is not that -- it's pretty wellcovered.

Janet Kloppenburg -JJK Research

Okay. Well I want to wish you a lot of luck for a greatfuture.

Sally Kasaks

Thank you.

Mike Henry

Thank you.

Operator

Your next question will come from AdrienneTennant with FBR Capital Market.

AdrienneTennant - FBR Capital Market

Good afternoon. And let me add mycongratulations on the stores at PacSun, they do look very, very sharp. Myfirst question is on inventory, and if I missed this I apologize, but do youhave it by division at the end of the quarter and then your plans at the end ofthe fourth quarter please?

Mike Henry

I do not have that with me now. On a total company basis, itwas down 2% I don't have it by division real handy.

AdrienneTennant - FBR Capital Market

How about for the fourth quarter?

Mike Henry

As of the end of the fourth quarter, we expect it to be downabout 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 wouldcome in the middle of November and brought it in the end of October. So there'sa -- I'm not going to say a distortion, because the product was right and brandwas right and so forth, that you should just understand that.

AdrienneTennant - FBR Capital Market

Okay. So there is a timing difference at the end of thefourth quarter?

Sally Kasaks

Yeah. On a pure inventory basis there was a timingdifference.

AdrienneTennant - FBR Capital Market

Okay great. And then in terms of the margin differential,the merchandise margin differential, juniors versus guys. Can you give us somedirection on that and then secondarily on apparel versus kind of footwear andaccessories, if directionally?

Mike Henry

We don't usually go into that level of detail by productcategory or classification.

Sally Kasaks

Yeah. That's because we haven't given that informationtypically in the past there Adrienne at all.

Adrienne Tennant - FBRCapital Markets

Okay.

Sally Kasaks

It's a process just, we just have to blend these all, allthe categories together and that's how we approach it.

Adrienne Tennant - FBRCapital 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 beencompared to in the fourth quarter of last year? I know its $0.27 exclusive ofthe 74 closed demo stores, but just PacSun-to-PacSun?

Mike Henry

PacSun-to-PacSun, this year is 32 to 35 would be versus lastyear's 32, so we'd be expecting flat to up 10% earnings growth.

Adrienne Tennant - FBRCapital Markets

Okay. So, last year the 74 stores I thought were accretiveby about $0.03, so are the 74 worse performing?

Mike Henry

All the details about what last year was is in the tablesthat we provided in the exhibit, that's attached to 8-K, I think, we provided apretty exhausted amount of information in that.

Adrienne Tennant - FBRCapital Markets

Okay.

Mike Henry

I think if you review those, you'll find the detail thatyou're looking for.

Adrienne Tennant - FBRCapital Markets

Okay. And did in that 8-K, does it have a Q1 '08 and Q2 '08sales and EPS [XMO], so we can…

Mike Henry

We have nothing about '08. We're not prepared to talk about'08.

Adrienne Tennant - FBRCapital Markets

I'm sorry I meant…

Sally Kasaks

'07?

Adrienne Tennant - FBRCapital Markets

'07. Exactly, so we can model '08 properly.

Mike Henry

Yes it does. Actually we have tables in there showing thePac only result for each of the last seven quarters.

Adrienne Tennant - FBRCapital Markets

Fantastic. I really appreciate that.

Sally Kasaks

You can call in here if you want some help here.

Adrienne Tennant - FBRCapital Markets

I know. I have been waiting for this. This is great. It'slike Christmas, early Christmas. And then my final question end of quarterfully 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 ThomasWeisel Partners.

Liz Dunn - ThomasWeisel Partners

Hi, good afternoon and you have my congratulations.

Sally Kasaks

Thanks Liz.

Liz Dunn - ThomasWeisel Partners

Can you talk a little bit more about IMU increases that I amassuming corresponded to your increase in private label product on the juniors’side? How much additional opportunity is there in the IMU line? And then isthere any way that you could provide some additional detail on the consultingfees that have impacted this year? And when we will start to see those slowdown?

Sally Kasaks

Liz, let me just speak to that, there is always going to bea certain amount of these kinds of things in the business. Certainly they weresome 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 dobelieve 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, Idon’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 arebrining to the business, but they will be lower than last year.

Liz Dunn - ThomasWeisel Partners

In the fourth quarter?

Sally Kasaks

Yeah.

Mike Henry

And in terms of IMU, without getting into a lot ofspecifics, it largely as in terms of IMU improvement on the juniors business,but we have been making IMU improvements across all of our categories withinthe PacSun business. So, the IMU improvement that you see there is across allproduct categories. And junior is being the most significant component of thisbut we have been making progress in each core areas.

Liz Dunn - Thomas Weisel Partners

Okay. Andthen could you just update us, I think earlier in the year you articulated yourstrategy 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 someassortments. We brought focus to the product ads, so you may find, we havecategories that are very tight. But you'll see some times with in classifications you may be trying to broaden alittle 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 onT-shirts in the guys, the branded-Ts, which is where we want to be. In juniorsyou will see again heavy on denim, heavy on fashion fleece, which has beentremendous for us. The brands have been terrific on that area, as well as therange of tops.

So, probably you would see those, less depends on dressesnow as we bring in outerwear, don't forget our stores are somewhat limited insize, let's say, our typical stores really I think what about 3,800 squarefeet. We have some smaller and some larger, so we don't, but only our floorsets can add the change in the new products, because we just don't have thatmuch space to get much more assorted than we are today.

Liz Dunn - Thomas Weisel Partners

Okay. Andthen just one final one on the accessories business: when exactly did theaccess? -- and I apologize if you addressed it in the prepared remarks. But theaccess inventory came off the floor last year, because I think that’s the partof the problem, and you are negative accessories comps this year has beenassociated 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 andthat 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 thirdquarter last year.

Sally Kasaks

Certainly the sales we realized those -- it went into Q4 andeven some them into Q1 realistically.

Mike Henry

Yeah.

Liz Dunn - ThomasWeisel Partners

Okay great. Thank you.

Sally Kasaks

Thank you.

Operator

Your next question will come from Dana Telsey with TelseyAdvisor Group.

Dana Telsey - TelseyAdvisor Group

Hi everyone, good afternoon.

Mike Henry

Hello.

Sally Kasaks

Hi, Dana.

Dana Telsey - TelseyAdvisor Group

Can you talk a little bit about, has the profile of yourcustomer changed, given the merchandised adjustments that you've made, what areyou seeing? And also what are you seeing in your outlet stores in terms oftheir performance versus your mall-stores? Thank you.

Sally Kasaks

Thank you, Dana. Our guys’ customer has continued to buildon what the core Pac guy has, as I mentioned in my comments just briefly. Weare seeing the trends in the junior customers, probably where we've seen thebigger change in terms of how she looks, how she dresses and what her fashionexpectations are.

In the old days you were basically of kind of aboutT-shirts, and jeans, and fleece. But today we see even within those categoriesa more of a stronger fashion component. In terms of outlet and in our-off malllocations versus the mall, that business has tended to be a little bit strongerthan 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 beenencouraging though to see is our junior business has started to kick in theretoo, there's been a concentrated effort and in that they are really responding.

Don't forget too our customer base is a little broader inthe outlets, whereas in the mall we really are targeted towards the core teencustomer. In the off-mall it tends to be, you get the teen, but you got aslightly younger, as well as an older customer there, and I think we benefitfrom that in the off-mall, particularly on vacation times, and in vacationlocations.

Dana Telsey - TelseyAdvisor Group

Thank you.

Sally Kasaks

Thanks. Bye-bye.

Operator

Your next question will come from Paul Lejuez with CreditSuisse.

Paul Lejuez - CreditSuisse

Hey guys, Paul Lejuez.

Sally Kasaks

Hi Paul.

Mike Henry

Hello.

Paul Lejuez - CreditSuisse

Hey. Okay. Out of the $48 million in charters that you tookin the first three quarters, what's the cash versus non-cash breakdown?

Mike Henry

If you're referring to the asset impairments, all of thoseare non-cash.

Paul Lejuez - CreditSuisse

Was there any cash charge associated with the 74 democlosing?

Mike Henry

There were about $60 million in lease termination chargesfor those 74, and that would be the primary cash outlay.

Paul Lejuez - CreditSuisse

And what did you get for the inventory that was in thosestores, cash in?

Mike Henry

What did we get for the --

Sally Kasaks

I don't understand the question, could you just expand onthat, Paul?

Mike Henry

Are you looking for the sales that were generated out of the74 stores?

Paul Lejuez - CreditSuisse

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 promotionalcadence of liquidating the inventory. Each store probably had a slightlydifferent cadence depending on what the performance of the liquidation processwas. It's a difficult question to answer on a global basis.

Paul Lejuez - CreditSuisse

Okay. Got you. And what's in the other current assets, otherlong-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 inother current assets is, we have about $30 million income tax receivable atthis point due to the significant losses on a GAAP basis that are sustained asa result of all the impairment charges that we took. And then the otherlong-term assets, that is where you see the investment in the industrialrevenue bonds associated with our Olathe, Kansas, distribution center.That's about $23.3 million that's in that number, that would not have been therelast year at this time.

Paul Lejuez - CreditSuisse

Got you. And then just lastly, you had a 7.7% comp in thePac business in the third quarter. Why the slowdown for the fourth quarter, isit simply more difficult comparisons or is there something going on November todate that you can share?

Mike Henry

No, first we don't make comments mid-month about businessagain. But as Sally mentioned earlier, there is some caution out there, you seea 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 businessis performing. We believe our inventories are trending right. We believe we arepositioned well as we go in to fourth quarter, but we just don't want to get toofar ahead of ourselves. We had solid back-to-school third quarter. We are happywith it. We are confident going into the fourth quarter, there is just a lot ofnoise out there and we just don't want to get too far ahead of ourselves.

Paul Lejuez - CreditSuisse

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 cangive us any more color at Pac on how you are planning your promotional cadenceand strategy for holiday and how that compares to last year? And then are youdoing anything different in terms of the timing of floor sets for holiday thisyear? And also is there any color you can give us on, on maybe how your finalfloor set might differ in overall seasonal content?

Sally Kasaks

Hold up, your voice broke up just a little bit there, thatlast part about seasonal content.

Jeff Van Sinderen -B. Riley

Okay, sorry about that. Was just wondering if you can giveany more color on how your final Q4 floor set might differ versus in terms ofoverall 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. Soessentially though they would be probably much equivalent to last year. Theremaybe an extra day of Pac Loot for example, but by and large everything isreally anniversarying on a macro level. Certainly internally, we may make someadjustments as the next five weeks go on. We have got a very -- so the cadenceis essentially the same. But we believe that it's a little bit more planful interms of the content. Also our floor sets, well I think the next question wasabout the floor sets, are more targeted to certain particular categories. Sofor example last year, we were moving goods than earlier. We just had so manythings influx. This year the floor sets are planned and we actually havemid-month updates that truly are updates. So you will see every two weeks somesort of update to drive a new merchandising issue and I think that will makethe stores look exciting right up to the end, right before Christmas.

We've also got a lot of major plans for that last week inDecember. Certainly gift cards and kids being out, that's a really importantweek for us. So I think we are ready for that. In terms of the end of Q4, wereally do plan on going into spring. We are very current good. A lot more wearnow to some extent. We may has a been a little short last year for example infleece spring [rate] fleece. So, we are trying to make sure that not only do wehave the top and the bottom, but perhaps the layering fleece that would then gointo the spring season.

So I believe in last year we were really just trying to getgoods in, and it was not always as planful as it needed to be. I do thinkthough, every two weeks you will see though some fresh idea to drive thebusiness.

Jeff Van Sinderen -B. Riley

Okay great. By the way, I would concur that your stores lookgreat 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, interms of inventory, how should we be thinking about where you would end thequarter, assuming that you make your plan on a per square foot basis and whatwas inventory per square foot end of Q4?

Mike Henry

We are anticipating it will be down by about 5% at the endof the year per square foot.

Jeff Van Sinderen -B. Riley

Okay great. Thanks very much and good luck for the rest ofthe holiday.

Sally Kasaks

Thank you very much.

Mike Henry

Thank you.

Operator

Your next question will come from MitchKummetz with Robert Baird.

MitchKummetz - Robert Baird

Yeah thanks. I have got a few questions let me start just toclarify something. On a go forward basis, when you guys report your monthlysales. Are those sales numbers going to be on GAAP or non-GAAP basis, are theygoing to still include demo and Steps or just Pac?

Mike Henry

The total sales that we reported in terms of the salesdollars will be on a GAAP basis, they will include everything. We are going tofocus our comp communication going forward however on just the Pac stores.

MitchKummetz - Robert Baird

Okay. So how are we going to know what the Pac sales are ona 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.

MitchKummetz - Robert Baird

Okay. And then secondly, as I'm looking at the 8-K and theexhibits there, I calculated an operating margin on the Pac business trailing12 months of about 6%. I am curious, Sally, if you could kind of speak to thatand what are your targets for that business on a longer term basis and wherewould you see the lowest hanging fruit, is it all just a function of drivingbetter margins off the comp or are there any other areas where you could seesome 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 isthe 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 merchandisingat the store level to get those increased margins because if we just depend onsales which is critical, I think we recognized that the low-hanging fruit issometimes on things that aren't as obvious. So I do think the comp sales, theproductivity, is the results that we're seeing and refresh will be, some ofthem 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, willalso 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 ofthose stores. It looks like they are running about $360 a foot, trailing 12months.

Sally Kasaks

Yeah. We said that, again that's overtime, and again I don'twant to put a stake in the ground today, but our target would be to get closerto the $500 a square foot, $450 to 500, which is what our competitive set. Mostof them were in excess of that, but that would be our objective sitting heretoday.

Mitch Kummetz - Robert Baird

Okay. And then one last question, it was mentioned for thefourth quarter that you would expect the SG&A to continue to de-leveragebased on some of the expenses consulting fees and personnel, headcount. At whatpoint do you anniversary that or at what point can you expect to get leverageon the SG&A on low to mid single-digit comp?

Mike Henry

Well, as we go forward, we've given you our fourth quarterresult 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 amid single-digit comp, that's when you should start to see the G&A leverageunder 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 forfourth quarter, how does that compare versus last year and can you give somesort of hint for us on the calendar shift how would that might affect the shiftinto November out of December?

Sally Kasaks

For us it was, if I understand your question. For us itwould be deliberate this year to bring in the goods in October, the end of Q3to 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'ta calendar shift that affected as us being more deliberate in our planpurchases by delivery cycle.

Christine Chen -Pacific Growth Equities

And then I guess my second question was, there is a bigcalendar shift because of the extra week, everybody is talking about howNovember comps are going to benefit and December comps are going to most likelybe hurt, because of the calendar shift. Can you quantify how that might affectyour comps?

Sally Kasaks

We basically, again and you are putting us in a positionwhere we can't talk about comps right now. I mean, we were looking at this on aquarterly basis including trying to make sure we don't commingle that 53rd weekas well. So, that's why I would prefer not to talk month-to-month, but we arelooking at an entire quarter.

Mike Henry

Yeah if you keep the focus on the overall quarter and youlook at the information that we have provided in the exhibits to our 8-K it'sgot very clear information there about what we are estimating the impact of the53rd week would be, that needs to be pulled out of the prior year, so you canhave kind of a clean fourth quarter last year to build off of and then we havegiven comp assumptions that we are building our earnings range off of. So, itshould we able to kind of get to the numbers that we have got there in thepress 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 Meyerwith 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 newproduct, I was just wondering how big of an opportunity you think that is justknowing how bigger the category it is in the fourth quarter?

Sally Kasaks

Again, we have expanded it from last year's test based onthat is the number of stores. I think we see it particularly in certain partsof the country. I mean [grand] people where Burton is the national brand. But I thinkthis year, we have been able to get the product out there and we will begin tosee the customer response just how high is that. I would have to believe thoughin certain parts of California, the Midwest,the Northeast, New England states inparticular, 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 labelbrand in women's? I mean obviously bowhead has done terrific. How do you feelabout private label in the tops business? You know what inning do you think youare in, in terms of getting the fashion to the right level that you want it tobe?

Sally Kasaks

I think it's part of something we have been adding month bymonth. I mean we have been testing and trying things and our team there, Ithink has really done a very good job of positioning cut and sell materials tobring them in. So it's hard to say, the fashion part of the mid-top business isreally going to be a critical part, particularly as we go into the springseason. Don't forget, I think our fleece and the hoodies are major part of ourfall business as we get into spring. But I think you will see greaterdiversity, greater assortment and increasingly more fashion [right] tops inthat 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, youknow, in reference to your strategic planning initiative and forming a longerterm vision for PacSun, if there is anything else you can add at this pointthat points to whether it's the direction of the brand or what PacSun is goingto 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 andso forth in March. So I would hope starting between March, April, May, we couldbecome more forthcoming in some of those longer term plans. Well right now, weare just trying to validate a lot of our assumptions.

Roxanne Meyer - CIBC

Okay. Well, looking forward to it and best of luck thisholiday.

Sally Kasaks

Thank you. Happy Thanksgiving everybody.

Operator

All right. I would like to turn it back to management forany closing remarks.

Sally Kasaks

Well, thank you folks. As I said, hope you all have awonderful 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 retailgame, 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 nowdisconnect.

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