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Executives

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

Dennis R. Hernreich - Chief Financial Officer, Chief Operating 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.

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

Operator

Good day, ladies and gentlemen and welcome to your Casual Male Retail Group third quarter earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. If anyone should require assistance during the 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 David Levin, President and CEO of Casual Male, Dennis Hernreich, Executive Vice President, Chief Financial Officer and Chief Operating Officer.

I would like to read our forward-looking statements.

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

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

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

David Levin

Thank you, Jeff. Good morning and thank you for joining us on this morning’s call to discuss Casual Male Retail Groups’ earnings and sales results for Q3 2007. Today we announce that we intend to discontinue the Jared M. business either through an eventual sale or simply exiting the business. We have determined that the amount of resources required to make this a scalable business is not aligned with our strategic growth plans.

We acquired Jared M. in May, 2006, as an opportunity to build a high-end custom business. Subsequent to that acquisition, we created a model to grow our direct channel of business that had no capital requirements and costs that could be leveraged within our existing infrastructure. Jared M., on the other hand, required its own infrastructure and took CMRG’s management group from its core competency of operating retail concepts into trying to operate a custom manufacturing business. Therefore, we feel it is in CMRG’s best long-term interest to focus on expanding our core businesses and growing our recently launched B & T factory direct, LivingXL, and ShoesXL direct channels.

Consistent with our strategy to grow our direct business, in August, 2008, we will be launching our Casual Male and Rochester brands within the European Union. Initially in six countries on the web with expansion plans beyond 2008. CMRG intends to leverage its existing merchandising and resourcing strategies for the E.U.

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

We are optimistic about the opportunity based on the success of our London-based Rochester store. It is the second highest volume store in the company and continues to be one of our best comp stores year in and year out. Currently there is nothing in Europe that offers the marketplace the strength of brands and assortments that we carry today.

In regards to our third quarter performance, we struggled with our top line sales as a result of disappointing traffic in our stores and direct channels. After delivering fifteen 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 seasonable weather. The good news is that we are currently up 7% through quarter four, which is more consistent with our sales performance prior to the problematic third quarter.

Another positive factor that gives us confidence in our business is that the metrics that we monitor in the stores are on solid ground. Our customer conversions and average ticket out the door continue to improve compared to last year. We are confident that our product mix is resonating well with customers coming into our stores.

Our newest lifestyle brand, Oak Hill, has had an excellent first season launch. Oak Hill, which is the higher quality and higher retail than our traditional Harbor Bay brand has performed very well with our customers and we are planning to grow that brand significantly for 2008.

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

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

As I have discussed over the last several months, we are in a transition period with Rochester. We have been over-branded and over-sorted and we have been diligently trying to reposition Rochester for the future. We are experiencing some negative impact on the gross margins in this division through incremental markdowns as we reposition the product mix going into 2008.

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

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

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

LivingXL, our hard lines lifestyle product for men and women, is performing well and we continue to massage the circulation for better margin returns. As we continue to prospect for new customers, we are actually taking our circulation down in Q4 from our last forecast. We are more concerned with maintaining our margins than pushing the envelope for top line growth this year. We envision improved margins going forward as we are currently in the process of sourcing our top selling items direct which will improve our initial markups for Fall ’08.

Finally, our loyalty program continues to gain momentum. We now have over 1.3 million customers in the program and over 80% of our current transactions are by customers in the program.

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

Dennis Hernreich

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 impairment charge related to discontinuing the Jared M. business. During the nine months the Jared M. business has resulted in a $.03 per share operating losses.

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

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

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

Looking ahead, the company expects to produce sales for physical 2007 of now between $470 million and $475 million, down from the previous guidance range of $495 million to $500 million with full year earnings of 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 in the 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 the year, CMRG would need to produce a comparative sales increase of between 4% and 7% for the balance of the year. As David mentioned, during the first few weeks of quarter four, CMRG comparative sales increase has been 7.1%.

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

For the third quarter, sales which include our e-commerce and catalog businesses was $106.6 million, slightly down when compared with sales of $106.9 million for the third quarter of physical 2006. The sales trend in the third quarter, as I said before, is significantly less than the previous twelve months and was primarily driven by decreases among both our Casual Male and Rochester stores.

Similar to many in the retail industry, the third quarter proved to be a difficult environment with the unseasonably warm weather which slowed 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 the stores, customer spending per visit did increase slightly.

Comparable sales decreased 1.1% during the third quarter of which the retail channel decreased 4.8% and our direct channel increased 19.6%. Comparable sales from our core Casual Male and Rochester businesses, 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 $3.1 million.

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 last year. 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 new stores and three new Rochester stores, closed seven Casual Male stores and one Rochester store and also closed twelve Sears Canada locations and relocated four other Casual Male stores. In addition, we renovated 42 Casual Male stores during the previous nine months. At the end of the third quarter, total store count was 497 stores with 1,839,000 square feet of leased space.

For the balance of the year, the company is planning to open two Casual Male stores and close 11 Casual Male stores and finally relocate three other Casual Male stores. Targeted store count at the end of the year is 488 stores.

For the third quarter, the company’s gross margin rate inclusive of occupancy costs was 43.9% which excludes the Jared M. inventory impairment of $900,000 or 80 basis points as compared to a gross margin rate of 44% for the third quarter of 2006. Merchandise margins for the third quarter this year increased by 30 basis points over the prior year. This increase was offset by a 40 basis point increase caused by occupancy costs and deleveraging due to the lower sales.

The increase in merchandise margins is primarily due to improved initial margins related to our direct sourcing although the merchandise margin increase was somewhat muted by quarter three due to a higher than anticipated selling rates of our Spring-Summer 2007 clearance merchandise. With warm weather as an assist which drove markdowns higher than planned. The slight increase in occupancy costs as a percentage of sales was principally due to the new stores and lease option renewals.

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 gross margin rate of 44.4% for the first nine months of last year. The increase of 110 basis points was attributable to our improved merchandise margins of approximately 130 basis points, offset slightly by an increase in occupancy rates as a percent of sales of 20 basis points.

We anticipate that our gross margins for 2007 will continue to show improvement for the balance of the year, resulting in an overall increase of between 50 and 80 basis points for physical 2007 or between 46% and 46.3%, again excluding the Jared M. inventory impairment. We expect the 2007 gross margins drop by 100 basis points from previous guidance due primarily to the effect of occupancy deleveraging on a lesser sales base and to a lesser extent on anticipated somewhat higher markdowns during quarter four as we reposition the Rochester merchandising strategy.

Although we do not expect to have any significant seasonal inventory exposure at the end of the year, due to the better than expected selling of 2007 Spring and Summer clearance, the company is well-positioned to absorb 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 of 2007 was 42.4% of sales as compared to 39.4% for the third quarter of last year and for the nine months S G & A expenses were 40.1% of sales as compared with 37.8% for the first nine months of last year. Our S G & A rates as percentage of sales increased this past quarter due partly to our weak third quarter sales. The increase in S G & A of $2.8 million and $11.5 million for the third 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 extensions including Jared M. The balance of the S G & A increase for the nine months of 2007 were as anticipated and related primarily to sales buying related costs for the first nine months such as supporting payroll transaction and marketing expenses.

For the balance of 2007 we expect our S G & A levels to approximate last year’s levels inclusive of our new businesses and therefore we anticipate that our S G & A expense levels for the full year will approximately between $174 million and $175 million, excluding the Jared M. business and compared to $170.9 million of last year, of which approximately $7 million relates to our new businesses of LivingXL, ShoesXL and B & T Factory 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% from year ago levels is primarily related to CMRG’s inventory levels in its direct business to support its continued growth as well as inventory level increases to support ShoesXL, LivingXL and B & T Factory Direct new businesses and grew from year ago levels due to lower than expected sales in quarter three. Although we previously indicated that inventory levels would end the year approximately $15 million less than last year, due to a change in 2008 Spring receipt flow and shifting a portion of 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 levels throughout the Spring of 2008 and end quarter two in 2008 at the previously anticipated $10 million to $15 million less than quarter two 2007 inventory levels. Consequently free cash flow for the year should approximate between $20 million to $25 million for 2007.

Since the first quarter of 2006, we have repurchased a total of 5.7 million shares of our common stock at an aggregate cost of $64.1 million. We have funded our stock repurchased program with borrowings from our credit facility. As of the end of quarter three, we have $24.1 million available under the current stock repurchase program, pursuant to which we may repurchase additional shares through December 31, 2007. At the end of the third quarter, borrowings under its credit facility approximated $67 million. Without any further stock buy-back, the company’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 results and back to you, David.

David Levin

Thanks, Dennis. No doubt this was the most difficult quarter we have had in the last several years. We strongly believe our fundamentals are as sound as they were in the first half of the year. Traffic in our stores dropped dramatically for us and most apparel retailers in the last quarter, but we are pleased that our concept improved significantly in Q4 so far and I would say our stores look the best they have ever looked and we are well-positioned for the holiday season.

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

Question-and-Answer Session

Operator

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

Our first question comes from Betty Chen from Wedbush Morgan Securities.

Betty Chen - Wedbush Morgan Securities

Thank you. Good morning. I was wondering if you can help us maybe give some clarification on your guidance for the fourth quarter – or implied guidance – relative to the quarter to date trend. Has the improvement in terms of comps increasing 7.1% so far been primarily driven because of weather or has there been a change in your promotional cadence during this time frame and is that why you have mentioned that part of the Q4 and the full year change in 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 comp sales by market area, region of the country, it is very easy to see – even in November we have markets that are doing double-digit comps in markets that are flat based on the weather patterns that are going on. When we announced October 18, 2007, that our comp at that point was up .2 the last two week of October were probably the worst two weeks we have had in several years. It was also the warmest two weeks on record for the month of October.

What we are seeing (a come-back) is really driven by traffic in the stores from weather. Our promotional cadence is very consistent with last year in Casual Male. In fact, I punched it up – exactly Rochester we 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 accumulated over the last several quarters and get them repositioned, but we are watching our inventories very closely. On the seasonal 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 the fourth quarter. Again, we are up against a very weak December a year ago for us (one of the mildest Decembers on record), so if we get any kind of weather we think we will be able to maintain the comps that we are delivering right now.

Betty Chen - Wedbush Morgan Securities

Now, in terms of the repositioning for Rochester products, do you expect that to be mostly completed by the end of Q4 or at what point 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 at really another couple of quarters to reposition it the way we want to.

Betty Chen - Wedbush Morgan Securities

Thank you and good luck.

David Levin

Thank you.

Operator

The next question comes from Scott Krasik - CL King.

Scott Krasik - CL King

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

David Levin

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

Scott Krasik - CL King

So in December and January, I mean you might even - I don’t know if they are negative - but they are very, very easy comparisons?

David Levin

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

Scott Krasik - CL King

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

David Levin

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

Scott Krasik - CL King

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

David Levin

That’s all included in the write-off.

Scott Krasik - CL King

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

David Levin

B & T is doing well. It is making our forecasts. We have nurtured it very conservatively. We are not going out and mailing millions of catalogs to drive and drive sales and at the same time lose operating margin. It is doing well. We continue to move more of our marketing money into B & T because it has very good long term potential for us and again we are utilizing the existing inventory out of our 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 into B & T. Again, it is a very efficient operation for us to run.

Scott Krasik - CL King

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

David Levin

No. I think what it is is that we are trying not to cannibalize Casual Male. We don’t want to trade that customer down. We are not utilizing our full database with intent and we are trying to utilize customers that, for whatever reasons, are no longer shopping in Casual Male direct catalog business and we are doing some prospecting into that business. We are very aware not to grow that business at the expense of Casual Male.

Scott Krasik - CL King

Good. Dennis, your comment that you expect inventory to be down by the end of the second quarter next year – certainly admirable – so with the impact of all the new businesses ramping up is that just operating significantly less basic merchandise at your existing stores or how will that break down?

Dennis Hernreich

No. I think it is several factors – one of which is moderating the amount of basic merchandise that we carry as backup stock. The second piece is to get a bit more pruned on fashion merchandise. The third piece of this is to bring down Rochester’s inventory levels as we re-strategize the merchandise initiatives in the stores. Those three things together will help bring down the inventories offset partially by the new business pieces.

Scott Krasik - CL King

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

Operator

Our next question comes from Margaret Whitfield - Sterne Agee.

Margaret Whitfield - Sterne Agee

Good morning, everyone. Could you kindly repeat the contribution of the three new businesses in Q4 and the year and break them down by the individual units and discuss whether or not these units will break even or make money in those periods and give us an 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 million for the first nine months and third quarter was $3.1 million and that’s all we have 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 that down.

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 the new 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 that primarily because of increased marketing expenses and as we learn about the responses from our customers (both our existing customer base and prospecting activity) we are learning how to better moderate marketing spend versus what to expect 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?

Dennis Hernreich

Margaret, we are not giving out circulation numbers for competitive reasons. We are going to be increasing circulation for next year. We will be talking more about strategy next quarter.

Margaret Whitfield - Sterne Agee

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

David Levin

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

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

Margaret Whitfield - Sterne Agee

Do you see this as an opportunity that in the short term might lose money or break even? How would you define it for next year?

David Levin

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

The initial year we will kind of see. We will probably have more to say about what we expect in 2008 on our next call in March, but that’s the only trepidation we have 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 last year? The extra week?

David Levin

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

Margaret Whitfield - Sterne Agee

Ok. Thank you.

Operator

Our next question comes from Evren Kopelman - JP Morgan.

Evren Kopelman - JP Morgan

Thank you. Hi, guys.

David Levin

Hi.

Dennis Hernreich

Hi.

Evren Kopelman - JP Morgan

Two questions on your guidance: the first one you said for the year now your new sales expectations are $470 million to $475 million, so that’s about $20 million to $30 million lower than your previous expectations. I can see that half of that was due to sales being 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 I guess comes out of the fourth quarter, I am wondering why you are taking so much out of the fourth quarter given the strong start?

David Levin

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

Evren Kopelman - JP Morgan

And can you quantify that?

David Levin

That was about $6 million there.

Evren Kopelman - JP Morgan

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

David Levin

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

Evren Kopelman - JP Morgan

But it’s still coming down then?

David Levin

Oh, yes. Yes it is.

Evren Kopelman - JP Morgan

Why is that given the 7 comp in November?

David Levin

Well, we still have December and January to go.

Evren Kopelman - JP Morgan

Ok. Then, the second question 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 margin improvement 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 - JP Morgan

Ok.

David Levin

And then offset the other 40 or so basis points on occupancy.

Evren Kopelman - JP Morgan

I am curious why occupancy is deleveraging for the year because I think, given your comp guidance for the fourth quarter (4-7%), I am getting like a 3 comp for the year. I’m not sure why it is deleveraging then?

David Levin

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

Evren Kopelman - JP Morgan

Right.

David Levin

And so that’s working against us.

Evren Kopelman - JP Morgan

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 on occupancy or even just flat?

David Levin

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

Evren Kopelman - JP Morgan

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

David Levin

Yeah.

Evren Kopelman - JP Morgan

Does that include the new businesses?

David Levin

That includes new businesses, yes.

Evren Kopelman - JP Morgan

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

David Levin

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

Evren Kopelman - JP Morgan

Ok, great, thank you.

Operator

Our next question comes from Thomas Filandro - SIG.

Thomas Filandro - SIG

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

David Levin

Yes. What I am talking about is that the shoe business is growing in all channels. Our store business is growing in footwear because we’ve increased assortments. Our Casual Male and Rochester catalogs are growing in internet business in terms of footwear because we’ve put more pages in. What we are talking about is the ShoesXL entity. The website itself. 47% of the customers making purchases through the ShoesXL are new to file for us which is great because they 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 again gain new market share and now they are in our database of footwear, we can certainly mail them Rochester and Casual Male catalogs too. That works in our favor.

What was the second question?

Thomas Filandro - SIG

The question was on LivingXL, what type of experience are you seeing in terms of new to file shoppers?

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 of these women. They found us through the internet and this is our biggest challenge – how can we profitably prospect into the women’s market? That’s what we are working on diligently now. We have to find the right spots of prospecting to make it profitable for us, but the catalog is non-gender and we are selling as many products to women as men. If you go through the catalog, we have a lot of women models and now we are introducing a lot of product – it’s basically non-gender, but we are introducing a lot of products for women into next Spring and Summer.

Thomas Filandro - SIG

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

David Levin

Well, first of all what I was referring to was the new businesses circulation. I wasn’t referring to Casual Male or Rochester.

Thomas Filandro - SIG

Ok.

David Levin

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

Dennis Hernreich

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

Thomas Filandro - SIG

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

Dennis Hernreich

Yes, overall. We had some shifting, you know, Sears is less, Tom, not terribly significant, but part of certain numbers, obviously.

Thomas Filandro - SIG

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

Dennis Hernreich

Yeah, quarter four – I know overall our prospecting portion for Rochester Casual Male approximately is 25% to 30% - relatively consistent and there just might be that some of it was at the end of the third quarter versus 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 that cadence will also be managed to modest increases?

Dennis Hernreich

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

Thomas Filandro - SIG

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

David Levin

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

We didn’t buy enough of the product in the end, so we are pretty encouraged about that. 626 continues 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 there because we filled the pipeline quite well and there is no growth for that an again we are really not gearing towards that older customer like we did in the past because we are not going to get the growth we are getting out of the young men’s market.

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

As I said before, I believe Casual Male’s private label business will be approximately 80% of our business next year and in Rochester we 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 in terms of where you are in closings, where you are in remodels and relo’s not just for 2007, but for longer term view?

David Levin

Well, we’ve done a lot of cleaning up in the Casual Male portfolio. We are really just about at the end of store closings. The reality is that the stores that we were closing this year averaged $125 a square foot. We are just closing them and trying to move the traffic accordingly. We are still getting those very strong comps in our relocation program and new stores are performing the best that they have. We think that the store counts should stay relatively flat.

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

Dennis Hernreich

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

Rochester is just sort of a wait and see. We just opened up a lot of big Rochester stores and we need to see how they mature before proceeding on with any significant 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 and Harris.

Gary Giblen - Goldsmith and Harris

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

David Levin

That’s a question that is difficult for us to understand. We are cautious about the fourth quarter. That is why the numbers we are giving are somewhat cautious because we don’t know. If there is a macro issue, we will get impacted to some degree.

We believe our advantage is that we are just better positioned. Our stores look better than they did a year ago. Our operations are stronger than a year ago. Our store penetration of catalog sales are stronger than a year ago.

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

Gary Giblen - Goldsmith and Harris

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

David Levin

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

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

Gary Giblen - Goldsmith and Harris

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

David Levin

I beg to differ. I don’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 end through three weeks in November. The earnings are corresponding to that. I think we are trying to be as forth right as possible and predict as best we can based on what we know. I think our posture 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 next year.

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 are thinking about next year a little more cautiously than ….those lower numbers you would have had in your internal planning three months ago? I don’t mean to say conservative in the sense of too conservative, but just in terms of lower numbers in 2008 than whatever your 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 just the slight softness we are seeing perhaps related to macro-economic events that still 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 a significant management distraction that affected the rest of the business – in other words could that be a benefit that you have that behind you now?

David Levin

Well, certainly it had an impact on the management resources around here as we tried to capture and get the business on the right track. Certainly not having to focus on this, we can go back to focusing – not that we didn’t not focus on our other business, 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 - Midwood Capital

Hi, everybody.

David Levin

Morning.

David Cohen - Midwood Capital

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

David Levin

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

David Cohen - Midwood Capital

Yeah, I was getting at Q3 actually – what is your experience on 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’ve made great strides on that end, but certainly positive. Just didn’t sell enough of it as a mix in quarter three.

David Cohen - Midwood Capital

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

David Levin

S G & A is $7 million.

David Cohen - Midwood Capital

Ok.

David Levin

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

David Cohen - Midwood Capital

Ok.

David Levin

And there will be a slight loss as we previously spoke about.

David Cohen - Midwood Capital

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

David Levin

Oh, absolutely.

David Cohen - Midwood Capital

Ok.

David Levin

Absolutely.

David Cohen - Midwood Capital

Ok. I think that’s my questions. 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 the same time frame last year – what the same time period comp store sales were last 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 know if we can do this online, but if we could look at last year without Jared M.? That is to say without the sales, without the S G & A and therefore be able to model sort of apples-to-apples that would be very helpful. Could we do that or talk that through, certainly for fourth quarter?

David Levin

Jared, just so you know, last fourth quarter, generated sales of $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 international business? You have hired a third party provider (I guess you have a contractual relationship with them?) but you will own all the inventory and inventory merchandise in this country and after fill internationally, is that correct?

David Levin

Well, the merchandise will flow into Europe directly 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 Netherlands to be precise.

Richard Jaffe - Stifel Nicolaus

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 I wouldn’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 and reorders will be totally under your control, is that correct?

David Levin

Absolutely.

Richard Jaffe - Stifel Nicolaus

Ok. I guess the last question? Inventory is up now for the year over year over year. I understand the 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% of our 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 concerned about 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 rate which suggests….?

David Levin

Yes, now a lot of the increase, Richard, of those inventories 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 basis and 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 Rochester side which obviously needs to get moderated and we are in the process of doing that. A little bit in Casual Male, but not so much. It’s more on the direct side and obviously part of the direct side has to do with our growth in our business in both Rochester and Casual Male on direct side, but also LivingXL, ShoesXL and BT Factory.

Richard Jaffe - Stifel Nicolaus

Got it. And the Rochester inventory 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 receipts to help sell down the older inventory. We are continuing that posture into spring. We will be in a much better position as David said going into fall. As you know, it takes time in our turns to work through inventories to introduce new strategies. So, with that we are taking a cautious approach it.

Richard Jaffe - Stifel Nicolaus

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

David Levin

Yeah, definitely because overall at the range of sales we are talking about ($470 million to $475 million), you know the overall increase on sales for the year is a modest 2.5 from a year ago? That’s about – normally we will break even on the occupancy at that point, however this year we have opened a few more new stores, particularly in Rochester (higher occupancy costs as you know). Next year we do expect to leverage occupancy on a normal year at something better than a 2 point comp. So we 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 an additional 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 Rochester new stores on a fairly large base I wouldn’t think would move the needle on a corporate level.

David Levin

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

Richard Jaffe - Stifel Nicolaus

Right.

David Levin

Probably up to these high profile stores probably triple the rent.

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 in the presence of Rochester and tripled the rent to boot. And that’s helping 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 understand that Rochester growth may stand still next year or grow very slightly.

David Levin

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

Richard Jaffe - Stifel Nicolaus

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

Dennis Hernreich

Well, we definitely have one relo and we have one in right now – 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 12-14 new 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 six net 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 - Stanford Group.

Mark Bettinger - Stanford Group

Hey, guys. David, a couple of questions? Europe was Casual Male and Rochester or just 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 comfort level 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 on the promotional side of our activity and put more into branding the names that…but the discounting is based on the amount of purchase you make and that seems to be effective for us. Really next year we are only going to do probably one major price point promotion which will be over Thanksgiving. Outside of that, we are still doing much better showing off the product and offering the customer a price off if they spend so much money.

That seems to be our best and most profitable way to market. We are not going to be doing television. It’s nice to get your name out there, but it’s never been very efficient for us from a cost and reward prospect so we are going to cut that back and the good news for us is that the zero 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 more customers to mail to. That’s the most important driver of our business is dealing with our existing customers.

Mark Bettinger - Stanford Group

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

David Levin

Yes. I mean we got our big boost last year with the rebranding and that still has importance, but we got bang for our buck over the last several quarters. We are pleased, but it’s just that we understand 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 to shop and our focus has always been on making sure that the day he comes into the store he is going to spend more than he did historically and going after that younger customer – that customer does respond to shopping us more often. Strategically that is working well for us. We are getting that younger guy in there and that is the guy that we could certainly market to better in terms of responding and shopping more often than our traditional 50-year-old customer 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 to recap here, I think you said traffic was down about 6%. Do you have a number for conversion if that was up?

Dennis Hernreich

No. We just talked about that directionally, Mark.

Mark Bettinger - Stanford Group

Ok, but it would seem to indicate between the average ticket being up and the conversions being up that the merchandise is on target?

Dennis Hernreich

Yes. That’s what the…

Mark Bettinger - Stanford Group

That’s really what I’m getting at.

Dennis Hernreich

When they do come in they are shopping us like nothing happened.

Mark Bettinger - Stanford Group

Ok, fine. Then on the total 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 Jared for the first three quarters?

Dennis Hernreich

Well, there is a $.03…there is already baked into nine months 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’s included in the $.28 to $.33?

Dennis Hernreich

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

Mark Bettinger - Stanford Group

Ok, so from an operating basis we are really looking at 31 to 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 look at that? How much did you lose in Jared on 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 at the mid-point here even if I took 34 on 31, you would be up about 10% year over year 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 quarter four.

Mark Bettinger - Stanford Group

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

Dennis Hernreich

Yes.

Mark Bettinger - Stanford Group

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

Dennis Hernreich

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

Mark Bettinger - Stanford Group

I hear you. Best of luck. Thanks, guys.

Operator

Our next question comes from Eli Cantor - Weeden and Company.

Eli Cantor - Weeden and 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 Capital Partners.

Paula Kalandiak - Roth Capital Partners

Good morning, I’ll keep it quick. I just wanted to know do you have any timing in your mind about when you are going to make 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 Comfort Zone). Do you think that those customers are 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 are staying with Harbor Bay. There is a clear differentiation when you see the product in the stores between the two brands and we believe we got a commodity meat and potato customer who just wants the price and is not concerned about it. We certainly have a customer that is willing to trade up. Certainly in our Oak Hill pant is $15 more than our Harbor Bay comfort pant and customers are responding very well. Again, I’ve said this before, the average income of a Casual Male customer is $70,000. That’s average. So we certainly have customers that have the money to go out and trade up. It’s not all going to be incremental. We understand that, but if we can keep driving that average ticket up, that’s going to certainly help our business 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 - CL King

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

David Levin

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

Scott Krasik - CL King

And that would be both deleveraging on occupancy and the merchandise margins?

David Levin

No, more merchandise margin I am talking about.

Scott Krasik - CL King

Ok.

David Levin

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

Scott Krasik - CL King

And realistically, when you said Spring will look better but not as good as fall, that’s just because there is still too many brands? They are too over assorted?

David Levin

Yes.

Scott Krasik - CL King

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

David Levin

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

Scott Krasik - CL King

So, 2008 is really just the year you get the assortments and product right? The stores won’t be optimized for several years?

David Levin

No. That’s just more of a cosmetic thing. We are really re-styling the stores into Casual Male getting into more lifestyle presentations, building the branded departments up within that, so that’s an ongoing improvement that we are experiencing. The good news is that the holidays – the fall product that we’ve purchased under the new management merchandising group is performing quite well. That inventory is spinning. It’s kind of the 80-20 rule for us. The new product is driving the sales and the old product is the part that we are not getting the sell through so that’s why we have to accelerate the markdowns and it’s prevented us from bringing in as much new product as we would have liked to have had because of the carry over.

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

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

Scott Krasik - CL King

Ok, thanks guys.

Operator

Next question comes from Evren Kopelman - JP Morgan.

Evren Kopelman - JP Morgan

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

David Levin

In quarter three, Evren?

Evren Kopelman - JP Morgan

Yes.

David Levin

Fully by about 41 to 3.

Evren Kopelman - JP Morgan

Great, thank you.

David Levin

Ok.

Operator

I am not showing any further questions.

David Levin

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

Operator

Ladies and gentlemen, this does conclude today’s conference. You may now disconnect and have a wonderful day.

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Source: Casual Male Retail Group Q3 2007 Earnings Call Transcript
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