Casual Male Retail Group Q3 2007 Earnings Call Transcript

Nov.27.07 | About: Destination XL (DXLG)

Casual Male Retail Group, Inc. (CMRG) Q3 2007 Earnings Call November 27, 2007 9:00 AM ET

Executives

David A. Levin - President, Chief Executive Officer,Director

Dennis R. Hernreich - Chief Financial Officer, ChiefOperating Officer, Executive Vice President

Jeff Unger - IR

Analysts

Betty Chen - Wedbush Morgan Securities

Scott Krasik - CL King

Gary Giblen - Goldsmith and Harris

Thomas Filandro - SIG.

Evren Kopelman - JP Morgan.

Margaret Whitfield - Sterne Agee

Paula Kalandiak – Roth Capital Partners

Eli Cantor - Weeden and Company.

Mark Bettinger - Stanford Group.

Richard Jaffe - Stifel Nicolaus.

David Cohen - Midwood Capital.

Operator

Good day, ladies and gentlemen and welcome to your CasualMale Retail Group third quarter earnings conference call. At this time all participants are in alisten-only mode. Later we will conducta question-and-answer session and instructions will be given at that time. If anyone should require assistance duringthe conference, you may press star then zero on your touch tone telephone.

I will now turn the conference over to Mr. Jeff Unger. You may begin.

Jeff Unger

Hi. Good morning,everyone. On today’s call we have DavidLevin, President and CEO of Casual Male, Dennis Hernreich, Executive VicePresident, Chief Financial Officer and Chief Operating Officer.

I would like to read our forward-looking statements.

Today’s discussion will contain certain forward-lookingstatements concerning the company’s operations, performance, and financialconditions, including sales, expenses, gross margin, capital expenditures,earnings per share, store openings and closings and other matters. Such forward-looking statements are subjectto various risks and uncertainties that could cause actual results to differmaterially from those assumptions mentioned today due to a variety of factorsaffecting the company.

Information regarding risks and uncertainties are detailedin the company’s filings with the Securities and Exchange Commission. Our complete Safe Harbor statement can be found atCasualMaleXL.com.

Now I would like to turn the call over to David Levin,President and CEO of Casual Male.

David Levin

Thank you, Jeff. Goodmorning and thank you for joining us on this morning’s call to discuss CasualMale Retail Groups’ earnings and sales results for Q3 2007. Today we announce that we intend todiscontinue the Jared M. business either through an eventual sale or simplyexiting the business. We have determinedthat the amount of resources required to make this a scalable business is notaligned with our strategic growth plans.

We acquired Jared M. in May, 2006, as an opportunity to builda high-end custom business. Subsequentto that acquisition, we created a model to grow our direct channel of businessthat had no capital requirements and costs that could be leveraged within ourexisting infrastructure. Jared M., onthe other hand, required its own infrastructure and took CMRG’s managementgroup from its core competency of operating retail concepts into trying tooperate a custom manufacturing business. Therefore, we feel it is in CMRG’s best long-term interest to focus onexpanding our core businesses and growing our recently launched B & Tfactory direct, LivingXL, and ShoesXL direct channels.

Consistent with our strategy to grow our direct business, in August, 2008, wewill be launching our Casual Male and Rochesterbrands within the European Union. Initially in six countries on the web with expansion plans beyond2008. CMRG intends to leverage itsexisting merchandising and resourcing strategies for the E.U.

Our operating partner is GSI Commerce, the premier thirdparty operator of direct marketing fulfillment in the U.S.and in Europe. They will oversee our web fulfillment and call center operations and weview this venture as an extension of our existing direct business and we willmanage the division within our own merchandising team.

We are optimistic about the opportunity based on the successof our London-based Rochesterstore. It is the second highest volumestore in the company and continues to be one of our best comp stores year inand year out. Currently there is nothingin Europe that offers the marketplace the strength ofbrands and assortments that we carry today.

In regards to our third quarter performance, we struggledwith our top line sales as a result of disappointing traffic in our stores anddirect channels. After deliveringfifteen consecutive quarters of comp sales increases, we came in at a -1.1%.

We strongly believe that the unseasonably warm weather,especially in October, was the significant factor in the slow-down. We know the historical pattern of our customers buying is tied to seasonableweather. The good news is that we arecurrently up 7% through quarter four, which is more consistent with our salesperformance prior to the problematic third quarter.

Another positive factor that gives us confidence in ourbusiness is that the metrics that we monitor in the stores are on solidground. Our customer conversions andaverage ticket out the door continue to improve compared to last year. We are confident that our product mix isresonating well with customers coming into our stores.

Our newest lifestyle brand, Oak Hill, has had an excellentfirst season launch. Oak Hill, which isthe higher quality and higher retail than our traditional Harbor Bay brand has performed very wellwith our customers and we are planning to grow that brand significantly for2008.

We also continue to see growth coming out of our young men’sbusiness, being led by our own 626 blue label.

Most important, at this time we don’t believe we have aninventory issue with our seasonal weather-related products. The warm weather actually accelerated ourability to clear Spring-Summer clearance to where today it is less than 6% ofour inventory. Our fall holiday seasonalproduct is at a manageable level where we don’t see any major marginimplications for the fourth quarter.

As I have discussed over the last several months, we are ina transition period with Rochester. We have been over-branded and over-sorted andwe have been diligently trying to reposition Rochesterfor the future. We are experiencing somenegative impact on the gross margins in this division through incrementalmarkdowns as we reposition the product mix going into 2008.

As we have found tremendous success in bringing in a youngercustomer to Casual Male we are now finding the same success in Rochester. In the third quarter we introduced aselection of premium denim jeans and more fashionable tops and they aredelivering the highest sell-throughs in the division. Going forward, we will be increasing ourpenetration into a broader assortment of young men’s products for the Rochesterdivision.

In terms of our direct business, we are pleased that thethree launches this year, B & T Factory Direct, LivingXL and ShoesXL, showpromise as viable long-term business opportunities for CMRG. As almost all of the expense in thesebusinesses is marketing, mainly driven by catalog circulation, we continue tofine-tune how to grow these concepts profitably. We are monitoring the circulation veryclosely to ensure we ramp up the startup businesses without negatively impactingthe bottom line.

ShoesXL which launched in Q3 has given the companyconfidence that there is an opportunity to grow our market share infootwear. Although on a relatively smallbase, we have doubled footwear as a percent of total sales from 4% to 8% in ourdirect channels. Also encouraging isthat 47% of our footwear sales through ShoesXL have come from customers whohaven’t purchased from either Casual Male or Rochester.

LivingXL, our hard lines lifestyle product for men andwomen, is performing well and we continue to massage the circulation for bettermargin returns. As we continue toprospect for new customers, we are actually taking our circulation down in Q4from our last forecast. We are more concerned with maintaining ourmargins than pushing the envelope for top line growth this year. We envision improved margins going forward aswe are currently in the process of sourcing our top selling items direct whichwill improve our initial markups for Fall ’08.

Finally, our loyalty program continues to gainmomentum. We now have over 1.3 millioncustomers in the program and over 80% of our current transactions are bycustomers in the program.

Dennis Hernreich will now review with you the financialperformances for the third quarter and outlook for the rest of the year.

DennisHernreich

Thank you, David, and good morning, everybody. During the third quarter, as David mentioned,the company reported a $2.6 million or $.04 per share of a non cash impairmentcharge related to discontinuing the Jared M. business. During the nine months the Jared M. businesshas resulted in a $.03 per share operating losses.

Approximately $900,000 portion of the charge is related toinventory and reflected within gross margin and the balance or $1.7 million isrelated to other Jared M. asset impairments and shown within total expenses.

The company’s operating performance was greatly impacted bythe significant downturn in sales during the third quarter. Comparative sales for the third quarter wasdown 1.1%. The third quarter sales trendis a departure from the prior rolling twelve month trend of 8% comparativesales going into Q3: a difference of over 900 basis points.

Customer traffic in the stores was down by 6% during thethird quarter, partially offset by an improvement in conversion and averageticket. Consequently, $12 million to $13million less in sales than anticipated, CMRG generated a loss of $.05 per sharefrom its operations during the third quarter.

Looking ahead, the company expects to produce sales forphysical 2007 of now between $470 million and $475 million, down from theprevious guidance range of $495 million to $500 million with full year earningsof between $.28 and $.33 per share for 2007, excluding impairment charges of$.04 per share for the Jared M. business and any operating income or losses inthe Jared M. business in the fourth quarter which would represent a 25% to 50%improvement in fourth quarter earnings compared to a year ago.

To achieve this $.28 to $.33 earnings per share for theyear, CMRG would need to produce a comparative sales increase of between 4% and7% for the balance of the year. As Davidmentioned, during the first few weeks of quarter four, CMRG comparative salesincrease has been 7.1%.

We will go over the underlying assumptions of gross marginsand S G & A as well as go over the components that comprised the company’searnings performance for the third quarter and nine months of 2007.

For the third quarter, sales which include our e-commerceand catalog businesses was $106.6 million, slightly down when compared withsales of $106.9 million for the third quarter of physical 2006. The sales trend in the third quarter, as Isaid before, is significantly less than the previous twelve months and wasprimarily driven by decreases among both our Casual Male and Rochesterstores.

Similar to many in the retail industry, the third quarterproved to be a difficult environment with the unseasonably warm weather whichslowed sales of our fall and winter merchandise an overall economic factors,both having a negative 6% impact upon customer traffic in our store channel. Although, when our customer did visit thestores, customer spending per visit did increase slightly.

Comparable sales decreased 1.1% during the third quarter ofwhich the retail channel decreased 4.8% and our direct channel increased19.6%. Comparable sales from our coreCasual Male and Rochesterbusinesses, excluding the new businesses, had a decrease of approximately 3.4%. For the third quarter, our new businesses,which include LivingXL, ShoesXL and B & T Factory Direct, had sales of $3.1million.

Total sales for the first nine months of 2007 increased 3.3%to $332.1 million as compared to $321.5 for the first nine months of lastyear. Comparable sales increased 3%during the first nine months of this year of which the retail channel increased.7% and our direct channel increased 16.9%. Comparable sales from our core businesses generated an increase of 1.6%and our new businesses generated $5 million during the first nine months.

So far this year, CMRG opened with six Casual Male newstores and three new Rochesterstores, closed seven Casual Male stores and one Rochesterstore and also closed twelve Sears Canada locations and relocated four otherCasual Male stores. In addition, werenovated 42 Casual Male stores during the previous nine months. At the end of the third quarter, total storecount was 497 stores with 1,839,000 square feet of leased space.

For the balance of the year, the company is planning to opentwo Casual Male stores and close 11 Casual Male stores and finally relocatethree other Casual Male stores. Targetedstore count at the end of the year is 488stores.

For the third quarter, the company’s gross margin rateinclusive of occupancy costs was 43.9% which excludes the Jared M. inventoryimpairment of $900,000 or 80 basis points as compared to a gross margin rate of44% for the third quarter of 2006. Merchandise margins for the third quarter this year increased by 30basis points over the prior year. Thisincrease was offset by a 40 basis point increase caused by occupancy costs anddeleveraging due to the lower sales.

The increase in merchandise margins is primarily due toimproved initial margins related to our direct sourcing although themerchandise margin increase was somewhat muted by quarter three due to a higherthan anticipated selling rates of our Spring-Summer 2007 clearancemerchandise. With warm weather as anassist which drove markdowns higher than planned. The slight increase in occupancy costs as apercentage of sales was principally due to the new stores and lease optionrenewals.

Gross margin for the first nine months of 2007 was 45.5%which was an increase of 110 basis points, again excluding the Jared M.inventory impairment of $900,000 or 30 basis points as compared to a grossmargin rate of 44.4% for the first nine months of last year. The increase of 110 basis points wasattributable to our improved merchandise margins of approximately 130 basispoints, offset slightly by an increase in occupancy rates as a percent of salesof 20 basis points.

We anticipate that our gross margins for 2007 will continueto show improvement for the balance of the year, resulting in an overallincrease of between 50 and 80 basis points for physical 2007 or between 46% and46.3%, again excluding the Jared M. inventory impairment. We expect the 2007 gross margins drop by 100basis points from previous guidance due primarily to the effect of occupancydeleveraging on a lesser sales base and to a lesser extent on anticipatedsomewhat higher markdowns during quarter four as we reposition the Rochestermerchandising strategy.

Although we do not expect to have any significant seasonalinventory exposure at the end of the year, due to the better than expectedselling of 2007 Spring and Summer clearance, the company is well-positioned toabsorb any expected 2007 Fall-Winter clearance merchandise as we move into 2008.

Selling general and administrative expenses as a percentage of sales for the third quarter of2007 was 42.4% of sales as compared to 39.4% for the third quarter of last yearand for the nine months S G & A expenses were 40.1% of sales as compared with37.8% for the first nine months of last year. Our S G & A rates as percentage of sales increased this past quarterdue partly to our weak third quarter sales. The increase in S G & A of $2.8 million and $11.5 million for thethird quarter and first nine months of 2007 respectively is partially due to$2.7 million and $5.7 million respectively related to our new businesses and product extensionsincluding Jared M. The balance of the SG & A increase for the nine months of 2007 were as anticipated and relatedprimarily to sales buying related costs for the first nine months such assupporting payroll transaction and marketing expenses.

For the balance of 2007 we expect our S G & A levels toapproximate last year’s levels inclusive of our new businesses and therefore weanticipate that our S G & A expense levels for the full year willapproximately between $174 million and $175 million, excluding the Jared M.business and compared to $170.9 million of last year, of which approximately $7million relates to our new businesses of LivingXL, ShoesXL and B & TFactory Direct.

Inventory levels at the end of third quarter approximate$139 million compared to $115 million at the end of last year and compared to$124 million at the end of the third quarter of 2006. The increase in inventory levels by 12% fromyear ago levels is primarily related to CMRG’s inventory levels in its directbusiness to support its continued growth as well as inventory level increasesto support ShoesXL, LivingXL and B & T Factory Direct new businesses andgrew from year ago levels due to lower than expected sales in quarterthree. Although we previously indicatedthat inventory levels would end the year approximately $15 million less thanlast year, due to a change in 2008 Spring receipt flow and shifting a portionof these receipts into January,inventories are expected to end the year at approximately last year’s levels.

Inventory should remain relatively flat to year ago levelsthroughout the Spring of 2008 and end quarter two in 2008 at the previouslyanticipated $10 million to $15 million less than quarter two 2007 inventorylevels. Consequently free cash flow forthe year should approximate between $20 million to $25 million for 2007.

Since the first quarter of 2006, we have repurchased a totalof 5.7 million shares of our common stock at an aggregate cost of $64.1million. We have funded our stockrepurchased program with borrowings from our credit facility. As of the end of quarter three, we have $24.1million available under the currentstock repurchase program, pursuant to which we may repurchase additional sharesthrough December 31, 2007. At the end of the third quarter, borrowingsunder its credit facility approximated $67 million. Without any further stock buy-back, thecompany’s revolving facility balance is expected to approximate $25 million to$30 million at the end of the year.

This concludes my remarks about the third quarter resultsand back to you, David.

David Levin

Thanks, Dennis. Nodoubt this was the most difficult quarter we have had in the last severalyears. We strongly believe ourfundamentals are as sound as they were in the first half of the year. Traffic in our stores dropped dramaticallyfor us and most apparel retailers in the last quarter, but we are pleased thatour concept improved significantly in Q4 so far and I would say our stores lookthe best they have ever looked and we are well-positioned for the holidayseason.

I thank you for that and now we will turn over the webcastto the Q and A portion.

Question-and-AnswerSession

Operator

Thank you. Ladies andgentlemen, if you have a question at this time please press the 1 key on yourtouch tone telephone. If your questionhas been answered or you wish to remove yourself from the queue, you may pressthe # key.

Our first question comes from Betty Chen from Wedbush MorganSecurities.

Betty Chen - WedbushMorgan Securities

Thank you. Good morning. I was wondering if you can help us maybe give some clarification on yourguidance for the fourth quarter – or implied guidance – relative to the quarterto date trend. Has the improvement interms of comps increasing 7.1% so far been primarily driven because of weatheror has there been a change in your promotional cadence during this time frameand is that why you have mentioned that part of the Q4 and the full year changein guidance is reflecting some anticipated higher markdowns?

Thank you.

David Levin

For us, our perspective, it was clearly weather. If we really start to break down our compsales by market area, region of the country, it is very easy to see – even inNovember we have markets that are doing double-digit comps in markets that areflat based on the weather patterns that are going on. When we announced October 18, 2007, that ourcomp at that point was up .2 the lasttwo week of October were probably the worst two weeks we have had in severalyears. It was also the warmest two weekson record for the month of October.

What we are seeing (a come-back) is really driven by trafficin the stores from weather. Ourpromotional cadence is very consistent with last year in Casual Male. In fact, I punched it up – exactly Rochesterwe did run a Thanksgiving weekend promotion which was very positive.

Getting back to the anticipated markdowns: it is really coming out of Rochester- we need to accelerate clearing up some problem inventory that has accumulatedover the last several quarters and get them repositioned, but we are watchingour inventories very closely. On theseasonal product, certainly in Casual Male where the bulk of our inventory is,and we are comfortable that we are going to have good sell-throughs through thefourth quarter. Again, we are up againsta very weak December a year ago for us (one of the mildest Decembers onrecord), so if we get any kind of weather we think we will be able to maintainthe comps that we are delivering right now.

Betty Chen - WedbushMorgan Securities

Now, in terms of the repositioning for Rochesterproducts, do you expect that to be mostly completed by the end of Q4 or at whatpoint do you expect that to diminish in terms of impact?

David Levin

We are really focused on Fall ’08. We will be in much better shape for Spring’08, but not the way we would really want to see it, so we are looking atreally another couple of quarters to reposition it the way we want to.

Betty Chen - WedbushMorgan Securities

Thank you and good luck.

David Levin

Thank you.

Operator

The next question comes from Scott Krasik - CL King.

Scott Krasik - CLKing

Hey, David. Hey,Dennis. Just to go back to the comp, Ithink you had said publicly that going into December of last year that you wererunning a double-digit positive comp a year ago?

David Levin

What I said was that coming out of Q3, which was thestrongest quarter we have ever had, we were at a 13 comp and Q2 we were at a 10comp and we were running pretty well until mid-November and then the compsstarted to deteriorate on us. We diddeliver a 7, but we were expecting to continue at around a 12% at that time, sothe hurdle rate we had in Q3 was the highest we’ve had, so we feel that thereis a strong opportunity in Q4 to get back to our trend line of certainly themid-single comps.

Scott Krasik - CLKing

So in December and January, I mean you might even - I don’tknow if they are negative - but they are very, very easy comparisons?

David Levin

Well, for us they are the easiest comparisons we’ve had inthe last few years.

Scott Krasik - CLKing

Yeah. Ok, good. Then, where did the thinking change? All fall you said, “Look, Jared M., if itloses a million and a half bucks in the grand scheme of things it is not a bigdeal because of the opportunities.” Whatcrystallized in your mind to make you think that the opportunities weren’treally there?

David Levin

I think we were out of our core competency. I think we are good retailers. We have a management team here thatunderstands it. We have brought in tremendous talent and oncewe got our arms around Jared, we were all out of what we do well and we were boggeddown in tremendous amounts of logistics in trying to operate this business andat the same time we saw the potential growth isn’t going to be where we want itto be. Again, for us, if we don’t see along term business of let’s say $40 million to $50 million we don’t need toallocate our resources to the degree we were. We were putting a lot of horses behind Jared M. to make it work and weare realistic and big boys about this and we saw that we weren’t going to liveup to what our expectations were. It wasbetter to cut our losses now and move on. The good news is that we have had three otherlaunches this year that fit very well into our strategic plan and don’t takethe amount of resources and certainly no capital required to operate. We believe we did the right thing.

Scott Krasik - CLKing

Are there some cash costs to get out of the showroom leaseor to pay severance or anything?

David Levin

That’s all included in the write-off.

Scott Krasik - CLKing

That’s all in there? Ok. Good. Then just give us an idea – you sort oflumped all the new stuff together – what’s going on with B & T (that’sreally the low end consumer)? Are theypressured more than some of your other customers and what does the opportunitylook like for the next six or nine months there?

David Levin

B & T is doing well. It is making our forecasts. Wehave nurtured it very conservatively. Weare not going out and mailing millions of catalogs to drive and drive sales andat the same time lose operating margin. It is doing well. We continue tomove more of our marketing money into B & T because it has very good longterm potential for us and again we are utilizing the existing inventory out ofour outlets, so it makes sense.

We are not saying we are going to grow it to $25 million to$50 million over night, but we are going to continue to build our sales plan intoB & T. Again, it is a very efficientoperation for us to run.

Scott Krasik - CLKing

What do you see there? Are people ordering fewer items? Are people just ordering less often?

David Levin

No. I think what itis is that we are trying not to cannibalize Casual Male. We don’t want to trade that customerdown. We are not utilizing our fulldatabase with intent and we are trying to utilize customers that, for whateverreasons, are no longer shopping in Casual Male direct catalog business and weare doing some prospecting into that business. We are very aware not to grow that business at the expense of CasualMale.

Scott Krasik - CLKing

Good. Dennis, yourcomment that you expect inventory to be down by the end of the second quarternext year – certainly admirable – so with the impact of all the new businessesramping up is that just operating significantly less basic merchandise at yourexisting stores or how will that break down?

DennisHernreich

No. I think it isseveral factors – one of which is moderating the amount of basic merchandisethat we carry as backup stock. Thesecond piece is to get a bit more pruned on fashion merchandise. The third piece of this is to bring down Rochester’sinventory levels as we re-strategize the merchandise initiatives in thestores. Those three things together willhelp bring down the inventories offset partially by the new business pieces.

Scott Krasik - CLKing

Right. Ok. Thanks, guys. I will jump back in queue.

Operator

Our next question comes from Margaret Whitfield - SterneAgee.

Margaret Whitfield -Sterne Agee

Good morning, everyone. Could you kindly repeat the contribution of the three new businesses inQ4 and the year and break them down by the individual units and discuss whetheror not these units will break even or make money in those periods and give usan outlook for next year?

David Levin

No the only thing that we are discussing separately,Margaret, is the fact that the sales from these new businesses was $5 millionfor the first nine months and third quarter was $3.1 million and that’s all wehave said and would like to say about the new businesses.

Margaret Whitfield -Sterne Agee

Did you say something about the new businesses contributing$6 million or $7 million? I wrote thatdown.

David Levin

S G & A related to the new businesses is $7 million –anticipated to be $7 million for the year.

Margaret Whitfield -Sterne Agee

Ok. Previously thenew businesses were thought to be break-even. Can you state whether or not that is still your goal for the year?

David Levin

It has always been our goal for the year. We are probably sliding a bit off of thatprimarily because of increased marketing expenses and as we learn about theresponses from our customers (both our existing customer base and prospectingactivity) we are learning how to better moderate marketing spend versus what toexpect on the top line.

Margaret Whitfield -Sterne Agee

And I think you were going to moderate the circulation –could you discuss what the circulation plans are for Q4 and next year?

DennisHernreich

Margaret, we are not giving out circulation numbers forcompetitive reasons. We are going to beincreasing circulation for next year. Wewill be talking more about strategy next quarter.

Margaret Whitfield -Sterne Agee

And the move into Europe: could you discuss the size of theB & T market, the competitive issues and what that business might looklike?

David Levin

Well, we have got reams of information on Europe. First of all, the obesity issues and the sizeissues of Europe are an incredible opportunity. The rates are increasing there – actuallyhigher rates than are currently happening in the United States. It’s just a very real world. Wehave obesity rates by country and size and height by country, so there is awide open opportunity for us. Again, ourRochester London store is just doing phenomenal for us. In terms of the competition, as far asinternet, there is really nothing out there anything like what we have in termsof scale. There is some small operatorsout there. There is one relatively smallchain in that market, but this fits right up our sweet spot.

This is just a continuation of our growth into internet andcatalog that we’ll start with internet and we anticipate that once we build thebusiness we can move into catalog. Longterm our intent is to put some brick-and-mortar stores in those countries, butwe are doing it in the most prudent way and efficient way and GFI is a greatpartner and this project has been going on for several months. We are just announcing it today, but we havebeen working on it for quite a long time.

Margaret Whitfield -Sterne Agee

Do you see this as an opportunity that in the short termmight lose money or break even? Howwould you define it for next year?

David Levin

First, there is no capital expenditure related withthis. I think it is a break even at avery low volume level and so it should be nothing like – obviously - Jared M., but it has a lot of potential andcan quickly turn profitable with some volume growth that we do anticipate. I think that, Margaret, with the initial yearwill be difficult to see because it will take some marketing expenditure on thewebsites to help make people known about what Casual Male and Rochesteris. The only difficulty in entering thismarket is that we are relatively unknown other than the Rochesterstore in London.

The initial year we will kind of see. We will probably have more to say about whatwe expect in 2008 on our next call in March, but that’s the only trepidation wehave I think going into this is what happens in the first year.

Margaret Whitfield -Sterne Agee

Another quick one? What was the impact of the 53rd week on results lastyear? The extra week?

David Levin

Well, the generated expenses of close to $4 million and Ibelieve the operating income level was positively impacted by some million anda half to two million dollars.

Margaret Whitfield -Sterne Agee

Ok. Thank you.

Operator

Our next question comes from EvrenKopelman - JP Morgan.

Evren Kopelman - JP Morgan

Thank you. Hi, guys.

David Levin

Hi.

DennisHernreich

Hi.

Evren Kopelman - JP Morgan

Two questions on your guidance: the first one you said for the year now yournew sales expectations are $470 million to $475 million, so that’s about $20million to $30 million lower than your previous expectations. I can see that half of that was due to salesbeing lower than planned in the third quarter.

David Levin

Yeah.

Evren Kopelman - JP Morgan

So, the remaining kind of $12 million to $13 million that Iguess comes out of the fourth quarter, I am wondering why you are taking so much out of the fourth quarter given the strongstart?

David Levin

Well, part of it, Evren, is that we pulled Jared M. out ofthe $470 million to $475 million where it was in previously at the $495 millionto $500 million.

Evren Kopelman - JPMorgan

And can you quantify that?

David Levin

That was about $6 million there.

Evren Kopelman - JPMorgan

$6 million for the fourth quarter or for the whole year?

David Levin

For the whole year, but that would help explain – in otherwords, quarter four isn’t coming down as much as you are computing.

Evren Kopelman - JPMorgan

But it’s still coming down then?

David Levin

Oh, yes. Yes it is.

Evren Kopelman - JPMorgan

Why is that given the 7 comp in November?

David Levin

Well, we still have December and January to go.

Evren Kopelman - JPMorgan

Ok. Then, the secondquestion is on the gross margin guidance. I think you said 50 to 80 basis points of improvement this year? How much of that is merchandise marginimprovement and how much do you expect from occupancy?

David Levin

Merchandise margin is expected to improve – one quick second– by about 100 basis point, Evren.

Evren Kopelman - JPMorgan

Ok.

David Levin

And then offset the other 40 or so basis points onoccupancy.

Evren Kopelman - JPMorgan

I am curious why occupancy is deleveraging for the yearbecause I think, given your comp guidance for the fourth quarter (4-7%), I amgetting like a 3 comp for the year. I’mnot sure why it is deleveraging then?

David Levin

Well, occupancy costs have increased and that is causingsome of that. We do have newstores. As you know it does take somenew stores several years to mature.

Evren Kopelman - JPMorgan

Right.

David Levin

And so that’s working against us.

Evren Kopelman - JPMorgan

I was asking for modeling purposes for 2008 if on a three(or a low to mid-single-digit comp then) do you not expect leverage onoccupancy or even just flat?

David Levin

Well, we have always said we expect S G & A leverage of2 points or better and occupancy obviously this year it is better than 2 – butusually 2 to 2.5 is usually what we need or so to leverage out occupancy. But, this year we did open three major Rochesterstores which I think is working against us from that point of view this year.

Evren Kopelman - JPMorgan

Ok, and a final clarification? You said the direct channel is up 19.6% inthe third quarter?

David Levin

Yeah.

Evren Kopelman - JPMorgan

Does that include the new businesses?

David Levin

That includes new businesses, yes.

Evren Kopelman - JPMorgan

What’s the gross for just the Rochesterand Casual Male direct business then?

David Levin

That was up about direct business around 13% to 14%, Evren.

Evren Kopelman - JPMorgan

Ok, great, thank you.

Operator

Our next question comes from Thomas Filandro - SIG.

Thomas Filandro - SIG

Hey, guys, thanks. Couple of questions? First, DavidI think you mentioned that the shoe business you saw like a 47% of thosecustomers were new to file? If that’scorrect, I have two questions: one, canyou tell us also in the LivingXL how many customers are new to file and whatare you doing with those names in terms of prospecting and then I have a follow-up?

David Levin

Yes. What I amtalking about is that the shoe business is growing in all channels. Our store business is growing in footwearbecause we’ve increased assortments. Our Casual Male and Rochestercatalogs are growing in internet business in terms of footwear because we’veput more pages in. What we are talkingabout is the ShoesXL entity. The websiteitself. 47% of the customers makingpurchases through the ShoesXL are new to file for us which is great becausethey don’t shop Casual Male Rochester. They happen to be surfing the internet looking for large sized shoes.

That gives us a lot of optimism about the future to againgain new market share and now they are in our database of footwear, we cancertainly mail them Rochester andCasual Male catalogs too. That works inour favor.

What was the second question?

Thomas Filandro - SIG

The question was on LivingXL, what type of experience areyou seeing in terms of new to fileshoppers?

David Levin

The same type of situation is happening there. Here we are getting a lot of women in. Obviously we didn’t prospect into a lot ofthese women. They found us through theinternet and this is our biggest challenge – how can we profitably prospectinto the women’s market? That’s what weare working on diligently now. We have to find the right spots of prospectingto make it profitable for us, but the catalog is non-gender and we are sellingas many products to women as men. If yougo through the catalog, we have a lot of women models and now we areintroducing a lot of product – it’s basically non-gender, but we areintroducing a lot of products for women into next Spring and Summer.

Thomas Filandro - SIG

I think, David, you mentioned that the circulation for thefourth quarter will come down at CMXL or maybe both CMXL and Rochester? I know you don’t give numbers, but can yougive magnitude of the circulation? Is ita decline, is it an increase? How shouldwe view circulation of the two major businesses heading into 2008?

David Levin

Well, first of all what I was referring to was the newbusinesses circulation. I wasn’treferring to Casual Male or Rochester.

Thomas Filandro - SIG

Ok.

David Levin

Again, as our internet business continues to grow at a muchfaster rate we have new vehicles to prospect to versus the catalog which has moreexpense to it, but Dennis I think, what would you say about circulation rightnow for….

DennisHernreich

In everywhere else it hasn’t changed as planned – slightlyup. The house file has obviously grownover the past year, so no changes there.

Thomas Filandro - SIG

So, Dennis, up slightly for the fourth quarter in terms ofcirculation for the core?

DennisHernreich

Yes, overall. We hadsome shifting, you know, Sears is less, Tom, not terribly significant, but partof certain numbers, obviously.

Thomas Filandro - SIG

And then that slight increase – is that percentage dedicatedto prospecting or is this just maintaining the house file at this point?

DennisHernreich

Yeah, quarter four – I know overall our prospecting portionfor Rochester Casual Male approximately is 25% to 30% - relatively consistentand there just might be that some of it was at the end of the third quarterversus early fourth quarter, Tom, but we haven’t changed our (inaudible)cadence really in our core businesses at all.

Thomas Filandro - SIG

And is it fair to assume that as we head into 2008 that thatcadence will also be managed to modest increases?

DennisHernreich

We are certainly going to keep up with our house file andwe’ll just determine what prospecting level we will continue with.

Thomas Filandro - SIG

Ok, great. One finalquestion, David, just more broadly speaking as we head into 2008 from amerchandise point of view, can you kind of give us a sense of where we canexpect to see expansion of private label, maybe some scaling back or any newopportunities to garner greater market share?

David Levin

Casual Male, just through natural growth. Our private label continues to outperform ourbrands which is phenomenal opportunity for us so we continue to move along those lines. The Oak Hill launch that we did in thirdquarter – like any launch – we have to be prudent in how we launch it so wewent in with limited assortments in a limited number of stores, but we did putproduct throughout the chain to make sure it’s a chain brand and it’s got atremendous opportunity for us.

We didn’t buy enough of the product in the end, so we arepretty encouraged about that. 626continues to develop the denim business. The fashion denim business is very strong for us.

Where our weakness is right now is in the old hard-core Harbor Bay basic business. We have had losses coming in through therebecause we filled the pipeline quite well and there is no growth for that anagain we are really not gearing towards that older customer like we did in thepast because we are not going to get the growth we are getting out of the youngmen’s market.

In terms of Rochester,again very good success with the two brands that we’ve had and where we areseeing success there is in the young men’s business. It’s wide open for us – there is nothing likeit at those prices points and the customer is responding quite well.

As I said before, I believe Casual Male’s private labelbusiness will be approximately 80% of our business next year and in Rochesterwe say we are going to grow it to 20% of our business.

Thomas Filandro - SIG

One final and please if I can. Just an update on the overall store base interms of where you are in closings, where you are in remodels and relo’s notjust for 2007, but for longer term view?

David Levin

Well, we’ve done a lot of cleaning up in the Casual Maleportfolio. We are really just about atthe end of store closings. The realityis that the stores that we were closing this year averaged $125 a squarefoot. We are just closing them andtrying to move the traffic accordingly. We are still getting those very strong comps in our relocation programand new stores are performing the best that they have. We think that the store counts should stayrelatively flat.

We are planning on Casual Male will open more stores nextyear than we will probably close.

DennisHernreich

That’s definitely what we are planning. I think much of the store closing part ofthings, Tom, will moderate from where it’s been. There will always be a handful, but we areaccelerating our new store openings as we get more comfortable in what worksand what doesn’t. As David said, our newstores are performing better than they have in the past. We are pleased about that.

Rochester isjust sort of a wait and see. We justopened up a lot of big Rochesterstores and we need to see how they mature before proceeding on with anysignificant store growth there.

Thomas Filandro - SIG

Ok, well thank you all very much and best of luck.

Operator

Our next question comes from Gary Giblen - Goldsmith andHarris.

Gary Giblen -Goldsmith and Harris

Hi, good morning everybody. I haven’t heard any attribution of sales weakness of the third quarterto macro condition and that is consistent with what you have been saying thatyou are not too much affected by macro, but is there any percentage of theweakness that would stem from the economic pressures on the consumer?

David Levin

That’s a question that is difficult for us tounderstand. We are cautious about thefourth quarter. That is why the numberswe are giving are somewhat cautious because we don’t know. If there is a macro issue, we will getimpacted to some degree.

We believe our advantage is that we are just betterpositioned. Our stores look better thanthey did a year ago. Our operations arestronger than a year ago. Our storepenetration of catalog sales are stronger than a year ago.

So we think we could offset some of those macro issues outthere, but I think – if we said we weren’t concerned, that wouldn’t be a great statement for us tomake. Of course, we are concerned withthe traffic out there. We sense there isa little macro business affecting us. Our outlets stores which have been very strong for us – the traffic inthe outlet stores is weaker than is in our anchor stores which is the exactopposite of what it’s been for the last two years.

Gary Giblen -Goldsmith and Harris

Ok. Is there anythingspecific that causes you to be – I mean you are being quite cautious on thefourth quarter just based on the strong comp to date and the lower expectationimplied for the rest of the fourth quarter so is that specific or generalcautiousness on the environment?

David Levin

It’s general, but here’s a good example. You hear a lot about the softness in the Floridamarket, for example. We are experiencingthe same softness. That has got to be alocalized macro issue, but we are feeling it too. Our Floridastores have been underperforming for the last several months and they havehistorically been one of our strongest markets, so there is something there andwe don’t know how wide-spread that may become.

We haven’t felt it in the Californiamarket like other retailers have spoken to. I think for us that is anotheroperational issue. We are much stronger operationallyin that market than we were a year ago.

Gary Giblen -Goldsmith and Harris

Ok, and then realizing that you haven’t given 2008 guidanceat all, are you thinking more cautiously internally about 2008 than you hadbeen a few months ago or…?

David Levin

I beg to differ. Idon’t think we are being cautious at all, Gary. I think that we gave a range of 4% to 7%comp. We are performing at the upper endthrough three weeks in November. Theearnings are corresponding to that. Ithink we are trying to be as forth right as possible and predict as best we canbased on what we know. I think ourposture into 2008 is no different than that posture.

Gary Giblen -Goldsmith and Harris

Yeah, now that is what I’m trying to get at in terms of nextyear.

David Levin

I don’t think it’s cautious. I think we are being realistic about our business.

Gary Giblen -Goldsmith and Harris

Ok, in other words, because of the environment you arethinking about next year a little more cautiously than ….those lower numbersyou would have had in your internal planning three months ago? I don’t mean to say conservative in the senseof too conservative, but just in terms of lower numbers in 2008 than whateveryour internal planning was a few months ago is that a correct understanding?

David Levin

Well, we certainly have tweaked it down a notch. It is still going to be extremely positive,but obviously we are taking into account not so much quarter three, but justthe slight softness we are seeing perhaps related to macro-economic events thatstill have not come to fruition, but seem to exist.

Gary Giblen -Goldsmith and Harris

Ok, last quick one: was the attempt to get Jared going on all cylinders, was that asignificant management distraction that affected the rest of the business – inother words could that be a benefit that you have that behind you now?

David Levin

Well, certainly it had an impact on the management resourcesaround here as we tried to capture and get the business on the righttrack. Certainly not having to focus onthis, we can go back to focusing – not that we didn’t not focus on our otherbusiness, we will just have a little more time to do that.

Gary Giblen -Goldsmith and Harris

Ok.

David Levin

I think that’s part of where the decision emanated from.

Gary Giblen -Goldsmith and Harris

Sure, understood. Ok. Thank you. Good luck for the holidays.

Operator

Our next question comes from David Cohen - Midwood Capital.

David Cohen - MidwoodCapital

Hi, everybody.

David Levin

Morning.

David Cohen - MidwoodCapital

I think you said that the merchandise margin improvement inthe third quarter was mitigated by sell through of Spring-Summermerchandise. Can you isolate on yourFall holiday merchandise what kind of merchandise margin you had on a year overyear basis or is that too difficult to do?

David Levin

Well, we like to talk about that as we get through thequarter. We are expecting improvement inour merchandise margins for the fourth quarter inherent in our guidance for theyear. Certainly, and we’ve said thisbefore, not at rates that we have seen in the past, but we still areforecasting improvement in our merchandise margins in quarter four.

David Cohen - MidwoodCapital

Yeah, I was getting at Q3 actually – what is your experienceon Fall merchandise?

David Levin

Fall, yeah. Fall,again consistent with quarter four thinking. What I just said. Positive. Not as much as it’s been, just because we’vemade great strides on that end, but certainly positive. Just didn’t sell enough of it as a mix inquarter three.

David Cohen - MidwoodCapital

Ok. And just wantedto clarify the comments on the new businesses with my benchmark being the priorelements of guidance begin $19 million of sales for the full year, but $11.5million of S G & A and an operating loss of $1.3 million. I think you said that baked in to $19 millionwas $6 million of Jared M., but now that Jared M. is out of there, what arethose components of the P & L for that set of new businesses…what is thatpiece of your new ’07 expectations? Iassume $13 million of sales from the other three new businesses. What is the S G & A, what’s the operatingprofit or loss on that?

David Levin

S G & A is $7 million.

David Cohen - MidwoodCapital

Ok.

David Levin

The sales are slightly less for the year from that $13million you are indicating.

David Cohen - MidwoodCapital

Ok.

David Levin

And there will be a slight loss as we previously spokeabout.

David Cohen - MidwoodCapital

Ok, but is it fair to say that a disproportionate share ofthe loss was Jared M.?

David Levin

Oh, absolutely.

David Cohen - MidwoodCapital

Ok.

David Levin

Absolutely.

David Cohen - MidwoodCapital

Ok. I think that’s myquestions. Thanks.

David Levin

Ok, thank you, David.

Operator

Our next question comes from Richard Jaffe - Stifel Nicolaus.

Richard Jaffe -Stifel Nicolaus

Thanks very much, guys. I guess a couple of questions? You provided a 7% comp quarter to date, could you compare that to thesame time frame last year – what the same time period comp store sales werelast year for those first three weeks of November?

David Levin

It was slightly less than that, Richard. Not significantly. It was in the 5-6 range.

Richard Jaffe -Stifel Nicolaus

Got it. I don’t knowif we can do this online, but if we could look at last year without JaredM.? That is to say without the sales,without the S G & A and therefore be able to model sort of apples-to-applesthat would be very helpful. Could we dothat or talk that through, certainly for fourth quarter?

David Levin

Jared, just so you know, last fourth quarter, generated salesof $1.3 million, had expenses of $900,000 and lost $400,000.

Richard Jaffe -Stifel Nicolaus

On an operating basis?

David Levin

On an operating basis. Shouldn’t throw your model off too far.

Richard Jaffe -Stifel Nicolaus

No, but that’s helpful, thank you. I am curious about the internationalbusiness? You have hired a third partyprovider (I guess you have a contractual relationship with them?) but you willown all the inventory and inventory merchandise in this country and after fillinternationally, is that correct?

David Levin

Well, the merchandise will flow into Europedirectly and not touch the U.S.

Richard Jaffe -Stifel Nicolaus

So you will have a DC and …

David Levin

We will have a contracted DC.

Richard Jaffe -Stifel Nicolaus

In continental Europe?

David Levin

In continental Europe – the Netherlandsto be precise.

Richard Jaffe - StifelNicolaus

And the size or the cost of that inventory investment?

David Levin

You know, relatively modest at first, Richard.

Richard Jaffe -Stifel Nicolaus

Ok.

David Levin

Probably we are still working through the assortments, but Iwouldn’t think more than $1 million to $1.5 million at cost?

Richard Jaffe -Stifel Nicolaus

And that will remain under your control so markdowns andreorders will be totally under yourcontrol, is that correct?

David Levin

Absolutely.

Richard Jaffe -Stifel Nicolaus

Ok. I guess the lastquestion? Inventory is up now for theyear over year over year. I understandthe quality of the inventory is better this year that you don’t have a lot of carry over?

David Levin

No. To be exact 5% ofour inventory is of an age/nature about the same as it was a year ago.

Richard Jaffe -Stifel Nicolaus

Right, I’m not concerned about the aging, but just concernedabout the absolute level on a per square foot basis. My estimate it is up 13% per square foot –last year it was up 12.5% and yet sales aren’t growing anywhere near that ratewhich suggests….?

David Levin

Yes, now a lot of the increase, Richard, of thoseinventories is in our direct side of our business. Some of it is in stores,yes, but a good portion of the increase is here in our own warehouse.

Richard Jaffe -Stifel Nicolaus

Can you tease that apart for me? I tried to do it on a sales weighted basisand clearly that doesn’t sound like I’ve done it well.

David Levin

Well, of our $15 million year over year increased level…

Richard Jaffe -Stifel Nicolaus

Yep

David Levin

Two-thirds of it is on the direct side. Probably much of the balance is on the Rochesterside which obviously needs to get moderated and we are in the process of doingthat. A little bit in Casual Male, butnot so much. It’s more on the directside and obviously part of the direct side has to do with our growth in ourbusiness in both Rochester and Casual Male on direct side, but also LivingXL,ShoesXL and BT Factory.

Richard Jaffe -Stifel Nicolaus

Got it. And the Rochesterinventory is not going to be resolved in 4Q? That’s a Spring-Second quarter kind of ….

David Levin

Well, we have been addressing it all year. We’ve somewhat reduced our current receiptsto help sell down the older inventory. We are continuing that posture into spring. We will be in a much better position as Davidsaid going into fall. As you know, ittakes time in our turns to work through inventories to introduce newstrategies. So, with that we are takinga cautious approach it.

Richard Jaffe -Stifel Nicolaus

Got it. I guess thelast point – you mentioned lack of leverage on occupancy at a 4% comp. At what point do you start to leverageoccupancy or do you anticipate being able to leverage your occupancycosts? At what sales level?

David Levin

Yeah, definitely because overall at the range of sales weare talking about ($470 million to $475 million), you know the overall increaseon sales for the year is a modest 2.5 from a year ago? That’s about – normally we will break even onthe occupancy at that point, however this year we have opened a few more newstores, particularly in Rochester(higher occupancy costs as you know). Next year we do expect to leverage occupancy on a normal year atsomething better than a 2 point comp. Sowe do expect to leverage occupancy next year.

Richard Jaffe -Stifel Nicolaus

I will fool around with the math. I guess as you renovate stores there is anadditional expense in there as well and that’s….

David Levin

Only if we expand the store, Richard.

Richard Jaffe -Stifel Nicolaus

The square foot expansion was so small year over year….

David Levin

Oh, yes.

Richard Jaffe -Stifel Nicolaus

And that – and Rochesternew stores on a fairly large base I wouldn’t think would move the needle on acorporate level.

David Levin

Well, opening three stores is tantamount to opening on asquare footage basis almost nine Casual Male stores.

Richard Jaffe -Stifel Nicolaus

Right.

David Levin

Probably up to these high profile stores probably triple therent.

Richard Jaffe -Stifel Nicolaus

Right.

David Levin

When you do the multiple on that, you know we traded out(closed) three Casual Male stores, opened in effect nine Casual Male stores inthe presence of Rochester andtripled the rent to boot. And that’shelping to cause what everybody is feeling on the occupancy side. Now we don’t do that every year.

Richard Jaffe -Stifel Nicolaus

No, no. I understandthat Rochester growth may standstill next year or grow very slightly.

David Levin

Right, and the Rochesterstores, as they mature, should start to help leverage their own rent.

Richard Jaffe -Stifel Nicolaus

Sure, so for ’08 we should assume essentially zero newstores at Rochester?

Dennis Hernreich

Well, we definitely have one relo and we have one in rightnow – one new store for right now.

Richard Jaffe -Stifel Nicolaus

Planned for ’08?

David Levin

That’s correct.

Richard Jaffe -Stifel Nicolaus

And then for Casual Male you were talking about….

David Levin

As we are formulating our plans we are thinking like 12-14new Casual Male stores and probably closing like a half a dozen or so, Richard.

Richard Jaffe -Stifel Nicolaus

So net eight?

David Levin

Net eight, yep.

Richard Jaffe -Stifel Nicolaus

While we are there, on the outlet side?

Dennis Hernreich

That’s inclusive.

David Levin

Yeah, that’s inclusive.

Richard Jaffe -Stifel Nicolaus

The eight is part of the …ok. Should we assume a couple of outlets and sixnet Casual Male? Is that…

David Levin

Yep, that’s fair.

Richard Jaffe -Stifel Nicolaus

Ok. Thanks very much.

David Levin

Thanks, Richard.

Operator

Our next question comes from Mark Bettinger - StanfordGroup.

Mark Bettinger -Stanford Group

Hey, guys. David, acouple of questions? Europewas Casual Male and Rochester orjust Rochester?

David Levin

Well, we are going to put both brands on them.

Mark Bettinger -Stanford Group

Both. Ok. And, with respect to the marketing. Can you give your impression of your comfortlevel with the effectiveness of the marketing and the attraction you have been getting? Are you happy with it?

David Levin

Yeah, again, strategically we have cut dramatically back onthe promotional side of our activity and put more into branding the namesthat…but the discounting is based on the amount of purchase you make and thatseems to be effective for us. Reallynext year we are only going to do probably one major price point promotionwhich will be over Thanksgiving. Outsideof that, we are still doing much better showing off the product and offeringthe customer a price off if they spend so much money.

That seems to be our best and most profitable way tomarket. We are not going to be doingtelevision. It’s nice to get your nameout there, but it’s never been very efficient for us from a cost and rewardprospect so we are going to cut that back and the good news for us is that thezero to twelve file (those customers who shopped with us in the last year)continues to grow, so every time we do a mailing next year, we have morecustomers to mail to. That’s the most importantdriver of our business is dealing with our existing customers.

Mark Bettinger -Stanford Group

Ok, but I am saying I guess more qualitatively in terms ofreaching the customer and having that brand imaging of Casual Male XL and so onand all the other things that you have been doing, do you think you are gettingthe kind of response that you would hope to get?

David Levin

Yes. I mean we gotour big boost last year with the rebranding and that still has importance, butwe got bang for our buck over the last several quarters. We are pleased, but it’s just that weunderstand our customer pretty well. It’s very hard for us to motivate him to shop. He is still going to shop when he’s ready toshop and our focus has always been on making sure that the day he comes intothe store he is going to spend more than he did historically and going afterthat younger customer – that customer does respond to shopping us moreoften. Strategically that is workingwell for us. We are getting that youngerguy in there and that is the guy that we could certainly market to better interms of responding and shopping more often than our traditional 50-year-oldcustomer who comes in twice a year and spends $75 both times he comes in.

Mark Bettinger -Stanford Group

Ok. And Dennis,just on some of the numbers just torecap here, I think you said traffic was down about 6%. Do you have a number for conversion if thatwas up?

Dennis Hernreich

No. We just talkedabout that directionally, Mark.

Mark Bettinger -Stanford Group

Ok, but it would seemto indicate between the average ticket being up and the conversions being upthat the merchandise is on target?

Dennis Hernreich

Yes. That’s what the…

Mark Bettinger - StanfordGroup

That’s really what I’m getting at.

Dennis Hernreich

When they do come in they are shopping us like nothinghappened.

Mark Bettinger -Stanford Group

Ok, fine. Then on thetotal sales, you’ve got $470 million to $475 million this year and you said S G& A would be about $174 million to $175 million for the year?

Dennis Hernreich

Yes.

Mark Bettinger -Stanford Group

Ok, for modeling purposes. Ok, and then the $.28 to $.33, that’s going to include how much of Jaredfor the first three quarters?

Dennis Hernreich

Well, there is a $.03…there is already baked into ninemonths a $.03 operating loss related to Jared M.

Mark Bettinger -Stanford Group

Ok, that is what I wanted to know. So you have a $.03 loss from Jared that’sincluded in the $.28 to $.33?

Dennis Hernreich

That’s right, but it does exclude the $.04 impairment and itdoes exclude anything else good or bad that happens with Jared M. in quarterfour.

Mark Bettinger -Stanford Group

Ok, so from an operating basis we are really looking at 31to 36 for the year?

Dennis Hernreich

On an operating basis, yes, without Jared, you mean?

Mark Bettinger -Stanford Group

Ok. Yeah, right. And now compared to ’06, how should we lookat that? How much did you lose in Jaredon an EPS basis.

Dennis Hernreich

In ’06?

Mark Bettinger -Stanford Group

Yep.

Dennis Hernreich

It’s probably…one second…it’s probably $.02. Almost the two cents mark.

Mark Bettinger -Stanford Group

Ok. So just really atthe mid-point here even if I took 34 on 31, you would be up about 10% year overyear on an earnings per share – apples-to-apples?

Dennis Hernreich

Approximately right, yeah. Much of that is going to happen – expected to happen in quarter four –as I said we are expecting our operating earnings to improve by 25% to 50%depending upon where we fall out in that range compared to last year’s quarterfour.

Mark Bettinger -Stanford Group

Right, ok, and that’s why I’m just taking mid-points anddoing it on the year because the 25 you said was referring to the fourth quarter.

Dennis Hernreich

Yes.

Mark Bettinger - StanfordGroup

Alright, well, if you are up 10% for the year in this marketthen congratulations.

Dennis Hernreich

It’s not what we bargained for, but we will move forward andstrive towards 2008.

Mark Bettinger -Stanford Group

I hear you. Best ofluck. Thanks, guys.

Operator

Our next question comes from Eli Cantor - Weeden andCompany.

Eli Cantor - Weedenand Company

Hey, good morning guys. Thanks for all the information. Actually, all my questions have been answered.

David Levin

Well, thank you.

Operator

Our next question comes from Paula Kalandiak – Roth CapitalPartners.

Paula Kalandiak -Roth Capital Partners

Good morning, I’ll keep it quick. I justwanted to know do you have any timing in your mind about when you are going tomake a decision about selling Jared M. or just closing it down?

David Levin

That will occur during this quarter that we are in.

Paula Kalandiak -Roth Capital Partners

Ok. And then, with regards to Oak Hill(that’s a little bit higher price point than both Harbor Bay and ComfortZone). Do you think that those customersare trading up to Oak Hill or is it just a different customer?

David Levin

I think we are bifurcating some of those customers. Some of them are trading up and some arestaying with Harbor Bay. There is a clear differentiation when you seethe product in the stores between the two brands and we believe we got acommodity meat and potato customer who just wants the price and is notconcerned about it. We certainly have acustomer that is willing to trade up. Certainly in our Oak Hill pant is $15 more than our Harbor Bay comfort pant and customers areresponding very well. Again, I’ve saidthis before, the average income of a Casual Male customer is $70,000. That’s average. So we certainly have customers that have themoney to go out and trade up. It’s notall going to be incremental. Weunderstand that, but if we can keep driving that average ticket up, that’s going to certainly help ourbusiness going forward.

Paula Kalandiak -Roth Capital Partners

Thanks and good luck.

David Levin

Thank you, Paula.

Operator

Our next question comes from Scott Krasik - CL King.

Scott Krasik - CLKing

Thanks – just one quick one. On the Rochester grossmargins. What was the negative impact inthe quarter and sort of the outlook. Isit going to continue on the gross margins?

David Levin

Well, Rochester’simpact in quarter three has been probably around 25 or 30 basis points.

Scott Krasik - CLKing

And that would be both deleveraging on occupancy and themerchandise margins?

David Levin

No, more merchandise margin I am talking about.

Scott Krasik - CLKing

Ok.

David Levin

And that probably – that kind of magnitude will carry oninto quarter four.

Scott Krasik - CLKing

And realistically, when you said Spring will look better butnot as good as fall, that’s just because there is still too many brands? They are too over assorted?

David Levin

Yes.

Scott Krasik - CLKing

Ok, and then the build out in terms of building on shop andshop for Polo is that all done at Rochester?

David Levin

No, no. That’s a longterm project for us. That’s an expensiveproposition and we are certainly watching our capital expenditures. All new stores get the Polo shop and we willbe very prudent about retrofitting Polo stores – certainly the higher volumestores will get that attention, but that’s a long term project.

Scott Krasik - CLKing

So, 2008 is really just the year you get the assortments andproduct right? The stores won’t beoptimized for several years?

David Levin

No. That’s just moreof a cosmetic thing. We are reallyre-styling the stores into Casual Male getting into more lifestylepresentations, building the branded departments up within that, so that’s anongoing improvement that we are experiencing. The good news is that the holidays – the fall product that we’vepurchased under the new management merchandising group is performing quitewell. That inventory is spinning. It’s kind of the 80-20 rule for us. The new product is driving the sales and theold product is the part that we are not getting the sell through so that’s whywe have to accelerate the markdowns and it’s prevented us from bringing in asmuch new product as we would have liked to have had because of the carryover.

What we believe is that by Fall ’08 it will all be freshproduct. We won’t have the carry overand that is when we will be running on all cylinders.

It’s just going to take us that amount of time to have thestores where we want to position them. Certainly better Q1, Q2 will be better than Q1, but really Fall ’08 isreally when we should be where we want to be.

Scott Krasik - CLKing

Ok, thanks guys.

Operator

Next question comes from Evren Kopelman - JP Morgan.

Evren Kopelman - JPMorgan

Hi, just a quick follow-up. What was the diluted share count exiting the quarter?

David Levin

In quarter three, Evren?

Evren Kopelman - JPMorgan

Yes.

David Levin

Fully by about 41 to 3.

Evren Kopelman - JPMorgan

Great, thank you.

David Levin

Ok.

Operator

I am not showing any further questions.

David Levin

Ok. Well, thank youfor joining us today. I hope we could keep up the current trends we have forthe rest of the quarter and we will get back to you in a few months with moreupdates. Thank you very much.

Operator

Ladies and gentlemen, this does conclude today’sconference. You may now disconnect andhave a wonderful day.

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