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Pier 1 Imports Inc. (NYSE:PIR)

F3Q08 (Qtr End 12/01/07) EarningsCall

December 20, 2007 11:00 am ET

Executives

Nancy Benson - Director ofCorporate Finance and IR

Alex Smith - President and CEO

Cary Turner - EVP and CFO

Analysts

Lauren Levitan - Cowen &Company

Adrianne Shapira - Goldman Sachs

Brian Nagel - UBS

Budd Bugatch - Raymond James

Mary Kovac - KeyBanc CapitalMarkets

Sara Senatore - Sanford Bernstein

Operator

This is Pier 1 Imports’ quarterlyconference call. (Operator Instructions)

I would now like to introduce Ms.Nancy Benson, Director of Corporate Finance and Investor Relations for Pier 1Imports. Ms. Benson, you may begin.

Nancy Benson

Good morning, everyone, and thankyou for joining us this morning. Today, we will hear from our President andChief Executive Officer, Alex Smith; and Executive Vice President and Chief FinancialOfficer, Cary Turner.

The agenda for today's call willbe to hear opening remarks, followed by a brief discussion of the company's thirdquarter results, which were reported earlier today. We will also provide anupdate on our business and discuss opportunities for the balance of the year, followedby a question-and-answer period.

Before we begin, I would like toremind you that certain comments made during this call may containforward-looking statements within the meaning of Section 21-E of the SecuritiesExchange Act of 1934, and can be identified by the use of words such as may,will, expect, anticipate, believe, and other similar words and phrases. Thecompany's actual results and future financial condition may differ materiallyfrom those expressed in any such forward-looking statements as a result of manyfactors that may be outside the company's control. Please refer to the company'sSEC filings, including its annual report filed on Form 10-K for a completediscussion of the major risks and uncertainties that may affect our business.

The forward-looking statementsmade today are as of the date of this call, and the company does not undertakeany obligation to update its forward-looking statements. If you do not have acopy of this morning's press release, you may obtain one on the InvestorRelations' page of our website, located at pier1.com.

Now, I would like to turn thecall over to Alex.

Alex Smith

Thanks, Nancy. Good morning, everyone. I am pleasedto be here today to share with you the results of our third quarter. As weoutlined in today's press release, we are happy with the progress we are makingin returning our company to profitability and beyond.

During the quarter, weefficiently closed the Pier 1 Kids business. And so, we are now completelyfocused on the 1,000 plus Pier 1 Imports stores and making them great again; wehave nothing else to distract us.

During the quarter, we introducethousands of new SKUs; many in new merchandise categories. We are extremelyencouraged by the response of our customers and learning a lot to help usfurther develop our merchandise offering for next year. We are also very proudof our cost-cutting initiatives and the positive impact they are having on ourbottomline.

Having said that, this is justthe beginning. We know that our execution must be continually improved, and wewill use this year's experience as opportunities for improvement next year. Weare pleased with how far we have come in such a short time. We know there isstill a lot of work left to do.

After Cary discusses ourfinancial results for the quarter, I will provide some more color and detail onthe third quarter, give you a sense of what we are seeing during the holidayselling season, and what this means for us for the rest of the fiscal year.

So now, I'll turn it over to Cary to give you thenumbers.

Cary Turner

Thank you, Alex.

Earlier today, the company reportednet sales from continuing operations for the third quarter of $374.2 million, a7.1% decline from $402.7 million a year ago. The primary reason for the declinewas the closure of 98 stores since the end of the third quarter last year.

Comparable store sales, whichexclude Pier 1 Kids, clearance stores, and e-commerce, declined 1.7% for the thirdquarter. Comparable store sales declined 3.5% year-to-date for the first ninemonths. Pier 1 credit card sales in the third quarter were 25% of U.S. storesales, and were the same percentage as last year. Merchandise margins were 53%of sales in the third quarter, which historically yields the highest merchandisemargins during the year.

During the third quarter, wecompleted the aggressive liquidation of our Pier 1 Kids merchandise, and theimpact on reported margin was 130 basis points, indicating a margin of 54.3% inour Pier 1 stores. Store occupancy expense for the third quarter was $3 millionless than the third quarter of last year as a result of the closed stores. Overall,gross profit margins improved to 33.6% of sales, up from 30.9% last year. And evenwith approximately 100 less stores, gross profit dollars increased $1.3 millionover last year.

During the period, we continuedour efforts to reduce costs, and after taking into account the effects of thespecial charges in both years outlined in today's press release, third quarterSG&A expenses were $37.4 million less than the same period last year. Theprimary contributors to the decrease in ongoing costs were savings ofapproximately $21.2 million in marketing expense, $10.8 million in payroll, and$5.4 million in other G&A costs, when compared to the same period lastyear.

For the nine months, savingsadjusted for the special charges totaled $91 million, when compared to thefirst nine months of last year. For the third quarter, we reported an EBITDA, orearnings before interest, taxes, depreciation and amortization, of $2.9 million.And after adjusting for the $6.5 million in special charges, our adjusted EBITDAfor the period was $9.4 million.

Our cost saving efforts will beongoing. Currently, we now expect to realize at least $110 million in savingsby the end of this fiscal year, and we now estimate that on an ongoingannualized basis, the savings will be at least $160 million.

We ended the quarter withinventories of $432.8 million, up 10% compared to last year. As we stated atthe end of the second quarter, we expected inventory on a per square foot basisto increase to per square foot level similar to fiscal 2006. At the end of thequarter, inventory was $48 per square foot, compared to $41 per square foot inthe year ago period, and $46 per square foot in 2006.

Inventories at the end of thefourth quarter will be higher than previously planned by about $20 million-$30million. We have made a conscious decision to make an additional investment inthe inventory above our original plan to meet our merchandise strategy needs,including our concerted effort to increase our store inventories. Given this, insteadof being cash neutral for the year, we now expect to end the year with a lowercash balance in the beginning of the year by this investment in inventory.

During the quarter, capitalexpenditures were $2.9 million, bringing our year-to-date total to $5.6million, of which $4.3 million was invested in our stores. For the year,capital expenditures are still expected to be approximately $10 million, andwill continue to be primarily spent on existing stores.

During the quarter, we opened onenew Pier 1 store, and closed 30, including 27 Pier 1 Kids stores. Year-to-date,we have closed 72 stores, including 36 Pier 1 Kids stores. We ended the quarterwith 1,128 Pier 1 stores, with 1,045 stores in the USand 83 stores in Canada.For the full fiscal 2008 year, we still expect to close 90-100 total locationsby year-end. Taking into account these planned closings, we plan to haveapproximately 1,025 Pier 1 Imports stores in the US and 83 Canadian stores at theend of the year.

Now, I'd like to turn it backover to Alex.

Alex Smith

Thanks, Cary. During our second quarter conferencecall, we told you that our focus is achieving sales with sustainablemerchandise margins. It is clear in our results that our efforts are beginningto payoff in gross profit dollars.

Our comp store sales were, as youhave seen, slightly negative for the quarter. We consider this a good result,given how promotional we were last year. We could very easily have achievedpositive stores sales for the third quarter, had we elected to sacrifice margindollars on both sales for the use of costly promotions. Our approach is working,in terms of generating gross profit dollars.

We held our prices, we increasedconversion rates, we increased units per transaction, and we increased the averagesale. Since the end of November, the trends have continued to improve. Our Decembersales are very solid--not spectacular, but very solid. And I do expect us tohave a comparable sales increase for the month.

Traffic is still below last year,but the pattern is the same as we have seen in the recent past. I would, ofcourse, like to see more traffic today, but our margins are firm, and over time,traffic will improve as satisfied and happy customers return to our stores withmore frequency, and spread the news of our great new assortments.

Our strong merchandise marginsfor the quarter, which Carytalked about a few moments ago, are a result of more appealing merchandise,sharper price points, and a very strategic and closely monitored markdown strategythat I've referred to before. With every promotion on permanent markdown decision,our objective is to optimize the gross profit of every SKU.

One thing I would like toemphasize is, that POS promotions are not all bad. Our business model allows usto promote at reasonable cadence, clear out inventory we no longer want, andstill generate sound merchandise margins.

We continue to strengthen ourbuying team. We are now up to 24 buyers, compared to 12 when I started here, inFebruary. We have been able to attract talented buyers from a variety ofbackgrounds, and are building a team that, over time, will increasingly developcompelling merchandise assortments.

They've already made greatprogress. When I look at the store today and compare it to what I was seeinglast December, before I joined the company, I give us a very high mark forstrategic direction, but less high marks for consistent execution.

To repeat myself, we tried a lotof new things this year, with more SKUs, more categories, and more departments,and we're all moving in the same direction. But, it will take more time to beconsistent across the board. We look forward, in fiscal '09, to buying withmore precision and better execution.

Cary talked to you through the amounts ofselling G&A cost that we've been able to remove from our cost structure.Our entire organization has been focused on this effort and has done anoutstanding job. Along with stronger merchandise margin, the reduced SG&Acosts have helped us to achieve a positive EBITDA for the first time in sevenquarters.

Going forward, we have identifiedeven more opportunities for expense savings, and we will continue to diligentlymonitor costs and seek out those additional opportunities to cut costs out ofthe business. This is an important piece of our return to profitability, but it'sby no means the only one. We know that to be successful in the long-term, wehave to drive sales. But, our reduced cost base puts us in a great position tobetter leverage gross profit and sales improvements.

Let me talk a little aboutmarketing. We have saved $44 million since the start of this fiscal year byredirecting our marketing dollars into more cost effective advertising.Specifically, we have redirected dollars that were spent on catalogs and televisioninto more frequent and targeted retail mailers and newspaper inserts, and wesupport these efforts with an e-mail marketing campaign.

The results of our extensiveanalysis tell us that we have seen an increasing response rate to our retail mailersas we move through the year, including strong improvements from previouslyinactive customer segments. In addition, we will continue to partner with Chase,the provider of our Pier 1 preferred credit card.

Our relationship with one of thelargest consumer credit card banks allows us to reach out to new and formercustomers. This partnership also provides great insights into shopping patternsand new marketing opportunities, with their extensiveness to credit cardholders. Our total marketing spend going forward will remain at approximately4%-5% of sales.

Moving on to real estate, as Caryhas told you, by the end of this year we expect to have about 1000 locationsthroughout the United States, which I believe is a very strong competitiveadvantage. Let me remind you that 70% of our targeted customers live within aneasy drive of a Pier 1 store. We will, of course, continue to monitor theperformance of all our stores, and we will make decisions concerning theclosing and opening of locations strategically, with both long- and short-termgoals in mind.

We are still in the process ofreviewing all our options related to our home office facility. However, giventhe current real estate market and our lack of need for capital, we feel it isin the company's best interest to be judicious concerning any irreversibledecisions concerning the headquarters; we can only sell the building once.

So, what about the balance of theyear? From the 26th of December we will start the Pier 1 sale. This event willfocus on clearing out seasonal merchandise, so that we can start shipping ournew spring merchandise. Clearly, the markdown is needed to ensure we start the newfiscal year clean and fresh; it will reduce our fourth quarter margins belowthe third quarter. But the fourth quarter margins will still be significantlybetter than last year.

I know that the big concern formany of you is the overall economic environment that we are facing. I wouldprefer tailwinds to headwinds, but cannot control them. Our job is to focus onthose things that we can control--providing great merchandise and a greatshopping experience for our customers. If we execute our business model well,and are more compelling than we have been for the last several years, we willgain market share.

In closing, let me reiterate,again, how pleased we are with our third quarter results.

It is clear to me that our hardwork is being rewarded. Our goal is returning the company to profitability andbeyond. We know we still have a lot to do to get us where we want to be, butI'm confident we will get there.

Before we open it up forquestions, I want to let you know that we will be issuing a press releasediscussing our December trading results on January the 10th. Thank you forallowing us to speak to you today. And now, I'd like to open up the call forquestions.

Are you there, Janice? Hello?

Question-and-Answer Session

Operator

(Operator Instructions). Yourfirst question comes from the line of Lauren Levitan with Cowen & Company.

Alex Smith

Good morning, Lauren.

Lauren Levitan - Cowen & Company

Good morning. Thank you. Alex,could you tell us a bit more on the marketing front? Now that you've seen howyou've been able to draw customers back in with these reduced marketing budget,can you give us some sense as to how much additional room you think there is inmarketing? What we should be watching for going forward, and maybe give us somesense of which of the marketing devices have been generating the positiveresults that you have seen? Thank you.

Alex Smith

Thanks, Lauren. Well, firstly, Ijust want to just remind everyone that the spend--that we are going forward,with 4%-5% of sales--is the historical sweet spot for Pier 1 Imports. And whathad happened in the last couple of years or so to our company, really, thewhole marketing spend had really got out of whack.

So, how do we spend? We think 4%-5%is the right number, and most of the spend this year went on the retailmailers; that is why we do the books, which vary between sort of 24 and sort of42 pages, which we mail to a combination of existing customers, both active anddormant, and some outside list that we buy in. We have supplemented that in thesecond half of the year, predominant in the fourth quarter, with newspaperinserts. And they have increased in frequency as we move into holiday.

We track the results of thesebooks very carefully, and we are really very pleased with the response that weare getting from them. The surprise, I think, for us is that we have got betterthan expected results from the newspaper inserts. So, moving into next year,where we are starting to finalize the marketing approach for next year. I thinkyou all going to see a continuation of mailers, and probably an increasedfrequency of newspapers inserts.

Lauren Levitan - Cowen & Company

So, is there some other area thathas allowed you to identify additional annual cost savings, beyond marketing,that you could give us some insights in to this morning?

Alex Smith

Do you mean the extra $10 million--?

Lauren Levitan - Cowen & Company

Yes. Is there any particular areathat's coming from, or is that just a continuation of all the initiativesacross all of the --?

Alex Smith

That's in continuation. We lookin every closet and clear out everything, and it's a surprise what you find inthose dusty corners.

Lauren Levitan - Cowen & Company

Great. Thank you, and good luckfor the rest of holiday.

Alex Smith

Thanks.

Operator

Your next question comes from theline of Adrianne Shapira with Goldman Sachs.

Alex Smith

Hi, Adrianne.

Adrianne Shapira - GoldmanSachs

Hi, Alex, how are you?

Alex Smith

I am great. Thanks.

Adrianne Shapira - Goldman Sachs

Great. A question on theinventory—just, if you can help, perhaps, provide some color, in terms of thedecision to increase that by $20 million to $30 million, perhaps show us whatis that, and why the decision? It clearly doesn't seem as if it's seasonalinventory. And just to clarify, Cary,would have been cash flow breakeven had you not opted to make that decision oninventory?

Cary Turner

Okay. Adrianne, thanks. Well, Ithink the first thing I want to say is, that we're absolutely sure that we needmore inventory in the stores than we have had for the last couple of years. Wehave increased the store inventory quite substantially this fall. And that isone of the reasons that we're getting the sales goings that we are currentlyseeing.

Behind that, of course, is the DCinventory and the inventory that is on the water, because--don't forget, theway our business model works, once the merchandisers has left the port, it goesonto our books.

Now, when we're more efficientwith our supply chain going forward, we will be out to reduce the amount ofinventory that's on the water, and the amount of the inventory that's on theDCs. But frankly, we are not that efficient yet. And so, we have got what Iwould call, regal room bought in to that DC inventory. And that's the reasonwhy you see that $30 million, or whatever it is that we've talked about.

So, it's absolutely necessary toincrease the store inventories. And because we are not as slick as we shouldbe, we have to back that out with more than we would have in a perfect world inthe DCs and on the water.

Does that answer your question?

Adrianne Shapira - Goldman Sachs

Yes, that definitely helps. And Iam just wondering if you perhaps show with us, should we expect continued buildtill the first half of '08 until you anniversary this and get this store-levelinventory where you'd like it to be?

Alex Smith

No. I don't think so. I thinkwe're kind of all thereabout.

Adrianne Shapira - Goldman Sachs

Okay. And just, Cary, if you could talk to…would you havebeen cash flow breakeven had you not opted for this inventory investment?

Cary Turner

Yes, we would have been. And justto clarify, we went back further than 2006, we went back to fiscal 2003 and2004. And when we take a look, our range at the end of third quarter in termsof inventory per square foot was $48-$51. So, we feel very comfortable with thisamount.

Adrianne Shapira - Goldman Sachs

Okay. That's very helpful. Andthen, Alex, you just referenced the opportunities on the supply chain. I knowthat was a source of opportunity. Could you just share with us progress thereand perhaps even in the early days what you've identified in terms ofopportunities?

Alex Smith

I mean it's a little bitanecdotal at this stage. Our head of supply chain actually has just this weekgot back from an extended trip to China, which he took also our headof IT. So we're looking, for example, at the way we consolidate goods in China.

Currently, we do a lot ofconsolidation in Hong Kong, which takes a lotof time and is very expensive. We think there is a good opportunity for us tomove that process up into the Chinese ports. We're increasing the number ofports that we ship from, so that we minimize the cross-country costs within China.So that's the top end of the supply chain.

The other end of the supply chain,in terms of our distribution costs, the guys have really made very goodprogress this year in reducing the on-cost that we have to add to ourlanded/FOB cost--and that's in the margin. Part of the reason the margin hasimproved is because we have reduced our transportation and handling costs.

But I could go on and on all dayabout this. I mean, we have a lot of things we're looking at. And like allthese things, its many, many dozens of relatively small initiatives add up tobe a huge number of dollars.

Adrianne Shapira - Goldman Sachs

Alex, maybe any quantification interm of the huge amount of dollars?

Alex Smith

No.

Cary Turner

Not at this point.

Alex Smith

But as they come through,Adrianne, I'm certainly happy to talk to it going forward, in terms of theimpact that it's having on the gross profit.

Adrianne Shapira - Goldman Sachs

Great. Best of luck.

Alex Smith

Okay. Thanks.

Operator

Your next question comes from theline of Brian Nagel with UBS.

Alex Smith

Morning, Brian. Okay. Do we haveBrian?

Operator

Yes, sir. One moment, please. Mr.Nagel, your line is open. Mr. Nagel?

Alex Smith

Shall we move on to the next one?

Operator

Your next question comes from theline of Colin McGranahan with Sanford Bernstein.

Alex Smith

Hi, Colin.

Operator

One moment, sir, we are havingtechnical difficulty.

Alex Smith

Yeah

Operator

One moment, sir. Okay. Onemoment, sir. Okay. Mr. Nagel, your line is open at this time, sir.

Brian Nagel - UBS

Okay, thanks. Can you guys hearme now?

Alex Smith

Yeah, we can.

Brian Nagel - UBS

Okay, great. First off,congratulations on a very nice quarter.

Alex Smith

Thank you.

Brian Nagel - UBS

A couple of questions. If we lookat the sales line, particularly the comps, would there be a way to look atcomps, say, "X" furniture, realizing that the furniture is probablymore hurt in this economic environment, and try to isolate some of theperformance of your newer categories with the lower ticket, like impulsepurchases, that you've introduced in the stores?

Alex Smith

Yeah. I mean, clearly, we do thateveryday. Well, I think what I'd say about that is, we've talked a lot aboutthe way we're going to drive sales is not by getting rid of furniture, but bydeemphasizing it. And the way we're going to deemphasize it is to grow theassortments of the impulse on pickup items. And that's what we did, and thatabsolutely is what's driving the sales.

So I don't whether that helps. Imean, furniture as a percentage of our total sales for the third quarter wascertainly lower a percent than it was the previous year. And in December, thatis true to an even greater degree.

Brian Nagel - UBS

Going forward, should we thinkabout furniture becoming less and less as a share of your total sales?

Alex Smith

You can think of furniture beingless as a share of our sales, but don't think about furniture as being less importantto us, in the sense that we're not throwing things out, it's all about layeringon top, rather than discontinuing.

Brian Nagel - UBS

That's helpful. The secondquestion, I know it's early on, but as you look at the data you get from yourcredit card, have you seen any trend, yet, in customers that may have not shoppedat your stores for a while coming back to the stores, or any trend in howconsumers look at your promotions?

Alex Smith

Well, where we have seen it, andI alluded to it when I was talking about marketing, because we track theresults of our retail mailers very carefully, and we segment the list who wesend the books to, very carefully. And we are really very pleased that we're gettinga good response from customers who we consider technically dormant. So, yeah,we are seeing an uptick, and old Pier 1 customers, customers who shoppedhistorically are returning to the store.

Brian Nagel - UBS

Very good. Congratulations andgood luck for the balance of the year.

Alex Smith

Thanks.

Operator

Your next question comes from theline of Budd Bugatch.

Alex Smith

Are you there Budd?

Budd Bugatch - Raymond James

Can you hear me?

Alex Smith

Yeah, loud and clear.

Budd Bugatch - Raymond James

Alright, very good. Can you giveus any color on conversion rate and average ticket--I know you said they are up,and can you give us any numerical help on that?

Alex Smith

Not really, Budd. No. Except justto say all those key performance indicators are nicely in the positive.

Budd Bugatch - Raymond James

Cary, you had said in the past, I think, that100 basis points of conversion rate increase equated to a 400 basis points ofcomps. Is that still the range we're in?

Cary Turner

It's still the range.

Budd Bugatch - Raymond James

Okay. Alex, you said in yourremarks that you expect gross margin and the fourth quarter merchandise marginto be down from the third quarter, beginning the Pier 1 sale on the 26th.Do I take it as that half of the 54.3% number should be an adjusted number,excluding Pier 1 Kids clearance, or is it half of the 53%.

Alex Smith

Half of both of those.

Budd Bugatch - Raymond James

Yes. But, we're going to see the54% on the statement; which one will you be able to talk about? I'm not sure, Iunderstand your answer.

Alex Smith

I'm not sure, I understand thequestion. But I mean, what we're seeing is, we go in to last week of Decemberand into Jan, then clearly will be putting the seasonal merchandise on the saleand clearing out the old inventory, and that's going to drag the merchandisemargin for the fourth quarter below the merchandise for the third quarter. Imean, it really doesn't matter which of those two third quarter numbers youtake; it will be less than both of those.

Budd Bugatch - Raymond James

Okay. That's helpful. The leasetermination cost in the third quarter--will there be any additional ones in thefourth? Or any additional called out items in the fourth quarter?

Cary Turner

They won't be significant, atleast at this point, but…

Budd Bugatch - Raymond James

Okay. Payroll savings, can youshare anything about what Sharon's program might be, and will there be anyimpact on the fourth quarter in store payroll or overall payroll?

Cary Turner

I think the trends that you'veseen in the first nine months will continue.

Budd Bugatch - Raymond James

Okay. Alright, thank you verymuch. Congratulations.

Nancy Benson

Thanks.

Operator

Your next question comes fromline of [Mary Kovac] with KeyBanc Capital Markets.

Mary Kovac - KeyBanc Capital Markets

Hi guys, great job on thequarter.

Alex Smith

Thanks, Mary.

Mary Kovac - KeyBanc Capital Markets

Couple of questions for you, Iknow during the quarter you guys made a decision to increase the seasonalproduct--I think it was about 10%. I'm just curious, I know the stores aremostly seasonal right now, but how those products are doing and maybe aninsight into spring, as to what kind of learnings you're taking from thisseason into next season, and then when we could start seeing that newmerchandise show up in the stores?

Alex Smith

Thanks, Mary. Well, actually theamount that we increased our holiday and seasonal merchandise in the storesthis year was very much greater than 10%. I'm not quite sure where that numbercame from.

Mary Kovac - KeyBanc Capital Markets

Okay.

Alex Smith

And that's one of the reasons whywe are having a reasonably good time at the moment. So, we're happy with that.In terms of new merchandise, we'll start to flow those goods into store, Iguess, at the backend of January, and early February.

During that sort of clearancemonth, we want the stores focused on the sale and clearing out the oldmerchandise. So, I think if you went into stores mid-February, you'd start tosee a good representation of new spring.

Mary Kovac - KeyBanc Capital Markets

Okay. And then, just quickly, I'mcurious how some of the new lines that you guys are starting to rollout, youknow--like the new spa line you guys have done, and bringing in the a couple ofmore toys--how that's going, and if we can expect those to continue?

Alex Smith

You can certainly expect bothtoys and spa to be part of our assortments going forward, yes.

Mary Kovac - KeyBanc Capital Markets

Okay, Excellent. Thank you verymuch.

Alex Smith

You're welcome. Okay. I thinkthis is the last question, Janice, please?

Operator

Your last question comes from theline of Colin McGranahan with Sanford Bernstein.

Alex Smith

Hi, Colin.

Sara Senatore - SanfordBernstein

Hi. This is Sara Senatore onbehalf of Colin. How are you?

Alex Smith

Fine.

Sara Senatore - SanfordBernstein

Good. My congratulations on thequarter. Most of my questions have been asked, but I wanted to see if you couldmaybe comment, generally, on some industry trends we're seeing; some storeclosings, bankruptcies?

Does that benefit you? Does itservice the drag, maybe even some of the liquidation is initially happening,and then help to support comps--or are you sort of too small a piece of thegeneral industry to see a material impact?

Alex Smith

Well, I think as we have said afew times, Sara, our share of the home market is really relatively small. Andwe can do all we need to do in terms of growing our business and returning toprofitability by just taking market share from thousands and thousands of otherdifferent retailers.

We really don't see the impact ofanyone individual retailer on us. It just doesn't come on right our screenfrankly.

Sara Senatore - SanfordBernstein

Okay. Thank you. And then justone company-specific question. You mentioned that you executed less thanperfectly, as I think could be expected in initial stages. But is there anythingin particularly your point--that you could address going forward, besidesmerchandising or store operations, anything that you could give a little colorwhere there might be opportunity?

Alex Smith

Well, I think we have opportunityeverywhere. And we have a long laundry list of things that we want to address.And when we all get back fresh and rested after the holidays, we will besitting down and having our strategy meetings for next fiscal year, and we'llbake all our learnings and thinking into next year's plans.

Sara Senatore - SanfordBernstein

Okay. Thank you.

Alex Smith

Okay. All right. I think that'sit. Thank you very much everybody. And I'd just like to thank all ourassociates who've worked very hard this year to help to return our company toprofitability. Thanks very much.

Operator

Ladies and gentlemen, thisconcludes today's conference call. You may now disconnect.

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