F3Q08 Earnings Call
November 29, 2007 8:30 am ET
Hal Pennington – Chairman of the Board,Chief Executive Officer
Robert Dennings – President, Chief OperatingOfficer, Director
James Gulmi – Chief Financial Officer,Senior Vice President – Finance
Jeff Klinefelter – Piper Jaffray
Scott Krasik – CL King
John Shanley - Susquehanna
Good day everyone and welcome to theGenesco third quarter fiscal year 2008 earnings release conference call. (Operator Instructions) Just a reminder today’s call is being recorded.
At this time, for opening remarks andintroductions, I would like to turn the call over to Mr. Hal Pennington,Chairman and Chief Executive Officer of Genesco. Please, go ahead sir.
Well, good morning and thank you forjoining us for our third quarter fiscal 2008 conference call. Participating with me on the call today areBob Dennings, our President and Chief Operating Officer, and Jim Gulmi, ourChief Financial Officer. As always wewill make some forward-looking statements in this call. They reflect our expectations as of today,but actual results could be materially different. We refer you to our earnings release and toour recent SEC filings including the 10K for the fiscal year 2007 and thesecond quarter 10Q for some of the factors that could cause differences fromour expectations. And, for thoselistening to the replay of this call on the Internet, some of these factors canbe read on the opening screen.
I want to remind you that my remarks todaywill focus on the business. They willnot address our pending merger or the litigation connected with it.
For the third quarter we reported a netsales increase of 2.3% to $372 million dollars. Earnings before interest, taxes, merger related costs and store closingcosts were $20 million dollars compared with $30.5 million dollars last year ora decrease of 34%.
Earnings per share were $0.23, whichincludes an estimated $0.16 in costs primarily related to the merger. And, Jim will have more to say about thenumbers in his portion of the call.
Journeys as well as Hat World andUnderground Station showed the affects of a difficult retail climate in thequarter by contrast both Johnston & Murphy and Dockers Footwear producedanother set of strong quarterly results.
And, now lets talk about each business inmore detail.
Comps for the Journeys Group were negative3% for the quarter and comps in the Journeys’ stores were down 3.4% compared toa 9% increase last year. This was animprovement over our second quarter performance but below our earlierexpectation of low single positive comps in the quarter.
While we saw a shift in back-to-school andsales tax holiday sales out of the second quarter and into the early part ofthe third quarter as we thought we would, this was more than off-set by generalweakness of retail. In particular, inthe footwear market and by problems with one particular brand namely Heelys.
We believe that there were several factorsthat affected Journeys Group’s business. First, tough economic conditions have had a negative impact on demand onthe mall. As you know, factors includingdisruptions in the housing market and high fuel prices are having an impact onconsumer confidence according to recently reported numbers.
Second, additional weakness specific tofootwear magnified the affects of general economic conditions. Throughout the Spring and Summer season, theindustry suffered from the absence of a fresh compelling product trend in themarket. There were simply no new, musthave products to draw customers to the stores.
In addition, an unusually warm Fall in muchof the country kept focus on sandals and other opened-up footwear and delayedthe consumers’ appetite for higher priced Fall products.
Finally, Heelys, which performed stronglyfor us last year were a significant problem in third quarter this year, duelargely to over distribution relevant to demand. First, they hurt comp sales, which we believewould have been slightly positive without them. In fact, our sales of Heelys were off $4.7 million dollars for thequarter year-over-year despite a higher inventory position.
Second, they hurt gross margins as we tookpermanent markdowns on most Heelys’ SKUs offsetting gross margin gains innon-Heelys inventory. Heelys hurtinitial margin by $2.4 million dollars and added $2.7 million dollars ofmarkdowns in the quarter this year.
To provide some sense of the magnitude ofthis change, our average sales price for Heelys dropped from about $72 in Q2 toabout $62 in Q3. The affect of Heelys onthis quarter was as dramatic as it was because of the strong positivecontribution of the brand for our results last year. While we will continue to comp against thisstrong performance in the first half of next year, our merchants reactedquickly and adjusted the Heelys’ order flow in the back half of this year.
As a result, we expect Heelys inventoriesto be inline by the end of this year. Even in a quarter with weaker top line performance than we expected,there were signs of a long term strength of the Journeys business. For example, even though our gross marginpercentage was hurt by Heelys underperformance, the Journeys Group’s grossmargins were still up from last year. Further illustrating the power of the Journeys concept even in a toughenvironment.
Furthermore, the trend and average sellingprice improved. For the Journeys’stores, footwear comp ASPs were down only 1.2% compared with a 5.3% drop in thesecond quarter. This improving trends inASPs has continued into the fourth quarter so far. Unit comps were down 4.6% inthe quarter compared to 3.6% decline in the previous quarter.
Now return to the unit comp increases we’reused to having, coupled with continuation of this improvement in ASPs wouldobviously be very positive for operating results.
Women’s casual shoes performed well in thequarter. On the men’s side, we continuedto do well with the skate brands. Sandals performed well for Journeys and sandal ASPs were up. Our mix of business changed of businesssomewhat with accessories rising to 12% of sales this year from 9% lastyear. Men’s footwear made up about 42%of the sales for the quarter and women’s was about 41%.
During the first nine-months of the year,we have opened a total of 36 new Journeys’ stores and ended the quarter with802 stores. Looking ahead, there’s stilla lack of visibility about how the consumer is going to respond to generaleconomic conditions in the current quarter.
We have heard, as you have, a range offeedback on the beginning of the holiday selling season and we frankly startedslower than we’d hoped over the weekend. But, we like Journeys’ product selection for the holiday season, whichwe’d remind you for Journeys includes significant gift card redemption inJanuary. And, we feel sure that we’llget our share of the dollars the consumer decides to spend on footwear.
Turning briefly to Shi by Journeys, whilewe continue to adjust to the seasonality, the category mix and the pricingrequirements of this business. We arepleased with the strong customer response and attractive gross margins in thesestores. Early reads on holiday productare good and we are confident about the prospects for this business. During the first nine-months of the year, wehave opened 28 Shi stores and ended the quarter with 40 Shi stores.
Our Journeys’ Kidz’s business had a strongcomp increase of 7% in the quarter compared to a 9% increase last year andincreased gross margin. Severalimportant brands contributed to these good results enabling us to more thanovercome the affects of the Heelys decline in the Kidz’s stores. For the first nine-months of the year, wehave opened 30 stores compared with 18 last year and ended the quarter with 103Journeys Kidz’s stores.
Turning now to Hat World. We had a 2% increase in comps for the quartercompared to a 1% decline last year. Thisreflected improvement both in Urban and regular doors. While comps in our Urban stores were stillnegative, this was their second consecutive quarterly improvement after astretch of very difficult quarters in that market.
From a product standpoint, Major LeagueBaseball remains our largest category. Core MLB product continues to be strong. On the fashion MLB side, we believe we have been successful in an effortto better match our inventory levels to the rate of sales, although we gave-upsome gross margin to achieve this during the quarter.
The branded category was also strong, onceagain, driven by branded action product. The NCAA category was challenging in the third quarter. Some of our historically strongest collegeteams have had a difficult football season, especially teams like Notre Dame, Texas and Michigan. And, as you know that impacts our business.
The NFL category was a little soft in thethird quarter despite the fact that teams with strong fan basis such as theSteelers, Packers and Cowboys have started the year strong. And the warm weather throughout the quarterreview sales of knit caps across all product categories.
During the first nine-months of the year,we opened a total of 82 new stores and ended the quarter with 856 stores in theHat World Group.
Turning to the Underground Station Group,comps declined 19% during the third quarter for the group, which was below ourearlier expectations compared to an 11% decline last year. We expected that this business was stillaffected by the difficult Nike comparison early in the quarter and by the factthat the new merchandising strategy was phasing in during the quarter.
Last year, Nike contributed approximately16% of sales in the second quarter. Approximately 17% of sales in the third quarter and only 4% of sales inthe fourth quarter. Gross marginimproved for the quarter in a nice reversal from the second quarter. ASPs continue to be under pressure as aresult of the loss of Nike price points and of general product mix.
Women’s footwear made-up about 30%Underground Station’s footwear sales in the third quarter this year comparedwith 24% last year. On average, thewomen’s footwear price points are lower, which impacts ASP. We ended the quarter with 215 stores in theUnderground Station Group and our previously announced program to close underperforming stores is preceding well.
We’re encouraged by some of the early readswe’re seeing from holiday products in our stores, but the Urban segment isstill difficult. We need to work our waythrough the quarter to get a better sense of how well the new product selectionis performing. The fourth quarter is thefirst quarterly comparison this year that will not be significantly scud byNike sales.
Additionally, overall fourth quartercomparisons become easier as fourth quarter costs were down 15% last year.
Now for Johnston & Murphy. Johnston & Murphy had another strongquarter showing improvements in sales, gross margin and operating income. The new initiatives launched to extend thenew Johnston & Murphy brand into other non-footwear categories arecontinuing to pay off. Operatingearnings were up 37% on a 4% increase in sales. Year-to-date sales are up 6% and operating earnings are up 47%.
Same-store sales increased approximately 3%in the Johnston & Murphy shops in the third quarter. On top of an increase of approximately 7%last year. Footwear comp ASPs for theJohnston & Murphy shops were up 5.2% with pairs down 4.2%. On all three footwear categories; dress,casual and dress casual, experienced increase in total ASPs along with fewermarkdowns, which helped drive the improved gross margins.
Accessory sales continue to increase andaccounted for 33% of sales compared to 31% last year. For the first nine-monthsof the year we have opened 10 stores; seven Johnston & Murphy Shops andthree Johnston & Murphy Factory Stores and we ended the quarter with 156stores. And, we continue to be veryexcited with the opportunity to grow the Johnston & Murphy brand.
Now turning to licensed brands where salesincreased 26% and operating income increased 73% in the quarter. The increase reflected another great quarterfor the Dockers’ footwear business, which grew sales 9%. They also reflected incremental sales fromthe initial roll-out of a new line of Chaps footwear that we’re sourcingexclusively for Kohl’s under a license agreement with Polo/Ralph Lauren.
The moderate men’s market that Dockers’targets, has some of the same challenges as other segments of the footwearmarket. Even in a very challengingretail environment, our target consumers are continuing to respond verypositively to the product’s styling, comfort and value found in Dockers’footwear. And, our retail customers arevery happy with the performance. And webelieve we are poised for continued success.
And, now I’ll ask Jim to take you throughthe financials for the quarter.
Thank you Hal. I will now run through the P&L for thequarter starting at the top. Thirdquarter sales increased 2% to$372 million dollars compared to $364 milliondollars last year. Comp store salesdecreased –3% in total.
Journeys Group sales increased 1% to $183million dollars and comps were down 3%.
Hat World Group sales rose 13% to $88million dollars and comps increased 2%.
The Underground Station Group sales weredown 23% to $27 million dollars with comps down 19%.
Johnston & Murphy Group sales increased4% to $46 million dollars. The Johnston& Murphy retail shops had a 3% comp increase. And, Johnston & Murphy wholesale salesare roughly equal to last year at higher levels of regular priced shipmentsthis year offset higher closeout sales last year.
Licensed brand sales increased 26% to $29million dollars on top of a 31% increase last year.
Dockers’ increase was 9% while theremaining increase was due to the introduction of the new Chaps product line weare sourcing for Kohls as Hal mentioned.
Now, turning to gross margin. Total gross margin for Genesco increased to50.5% from 49l8% last year. Thisimprovement was good to see especially after gross margin was down 50 basispoints in quarter two compared to last year. Gross margin rates increased across all the footwear businesses duringthe quarter.
Journeys Group gross margin increased 30basis points despite the previously discussed weakness with Heelys.
Underground Station Group gross marginincreased150 basis points in the quarter.
Hat World’s gross margin declined 130 basispoints due to shifts in the sales mix as well as more targeted markdowns andpromotional activity to clear slow moving inventory.
Johnston & Murphy Group’s gross marginwas, again up strongly. Increasing by390 basis points. This was driven bycontinued sourcing improvement and lower markdowns across all segments of thisbusiness.
License brands also posted a strongimprovement in gross margin of 250 basis points. Partially, due to the new product line Halmentioned earlier.
Now, turning to SG&A. Total SG&A as a percentage of salesincreased to 46.8% during the quarter compared to 41.4% last year. Included in this expense percent is about$6.1 million dollars or 165 basis points of costs associated with the FinishLine merger. Expense dollars excludingmerger costs were lower than our earlier internal forecast.
Much of the remaining increase in SG&Aas a percentage of sales reflects a lower than expected sales. The relatively fixed nature of SG&Aexpenses in our retail businesses and new and expanded growth.
Journeys overall dollar expenses were upslightly from our earlier expectations. Compared to last year, we were unable to leverage expenses due in-partto the negative comps and new and expanded store growth.
Expenses in the Hat World and UndergroundStation were down compared to our earlier expectations. But, we were not able to leverage in eitherbusiness due in-part to the comps and the case of Hat World, the new storeopenings.
The Johnston & Murphy Group SG&A asa percent of sales was up primarily due to additional advertising expenses.
Licensed brands was able to leverageSG&A through the strong sales growth and the introduction of the newproduct line with little and added expenses.
Operating income was 3.7% compared to 8.1%last year. Included here are $6.2million dollars of merger related charges and impairment charges thatnegatively impacted operating margin by 166 basis points. Last year’s impairment charges of $1.1million dollars impacted margin by 30 basis points.
Overall operating margin declined due tolower operating margins in Journeys, Hat World, and Underground Station. Partially, offset by higher operating marginsin Johnston & Murphy and license brands.
In addition, corporate expenses, excludinglitigation and merger related expenses were down as a percentage of sales.
Journeys’ operating margin was 8.4%. Hat World’s operating margin was 5.3%. Underground Station’s operating margin was–11%, which was an improvement over the second quarter’s operating margin. Johnston & Murphy’s operating margin wasup nicely once again to 9.4% from 7.2% due to increase sales and better grossmargin. License brand’s operating marginalso increased once again to a strong 14% from 10.2% due to gross marginexpansion and solid expense leverage influenced by the introduction of the newproduct line.
Net interest expense during the quarter was$3.5 million dollars compared with $2.9 million dollars last year. This increase was due in-part to increasedborrowings for the acquisition of Hat Shack late last year. And, borrowings necessary to support seasonalworking capital requirements.
Earnings report discontinued operations of$5.6 million dollars or $0.23 per diluted share compared with $0.62 lastyear. Included in this year’s earningsare merger and impairment charges of $6.2 million dollars pre-taxed at a highertax rate due primarily to the non-tax deductibility of merger related fees.
As Hal noted, we estimate that those itemsnegatively impact EPS by about $0.16. Last year EPS for the quarter included impairment charges of about $0.02per share.
As you know, we have announced a program toclosing up to 57 un-performing stores, which consist of 49 Underground Station,10 Journeys stores and 8 Hat World stores. For the past two quarters we have closed or converted two Hat Worldstores and six Underground Station and Journeys store from this group. We now expect to close or convert 31 of thesestores this fiscal year and the remaining stores in the following year.
Now turning to the balance sheet. We ended the quarter with $129 milliondollars in bank debt compared to $72 million dollars last year. This increase in bank debt is due to the HatShack acquisition, the impact of some accounts payable timing differences dueto the one week later account cutoff this year, lower earnings and our normalseasonal working capital cycle. Ourinventory levels increased 15% from the same period last year, which was inline with our 15% square footage increase.
Inventory per store is up slightly fromlast year. Also, in transit inventory isup this year, which we believe is due in-part to the later quarter endclosing. For all these reasons, we arecomfortable with our current inventory levels.
For the quarter, capital expenditures were$26 million dollars and depreciation was $11 million dollars. We ended the quarter with 2,172 storescompared with 1,925 stores last year. This represented a net new store increase of 247 or 13% year-over-year. For our total square footage increased 15% to3 million square feet. In the thirdquarter we opened 72 stores and closed 11. In the third quarter last year, we opened 66 stores and closed 11.
At current expectations for capitalexpenditures for the full year is in the $86 million dollar range. Depreciation for the full year is nowexpected to be about $45 million dollars.
To update you on how we are trackingagainst our plan with regard to the current forecast for new stores and FY08,we now plan to open about 42 Journeys’ stores and close two. We believe we’ll open about 42 Journeys’Kidz’s stores and about 35 Chi by Journeys’ stores.
Hat World expects to open about 98 storesand close all together 21 stores for the year. We expect to open two Underground Station stores and close about 24 andwe expect to close 12 Journeys’ stores and convert two to UndergroundStation. We expect to open eightJohnston & Murphy Shops and close three and open three Johnston &Murphy Factory stores and close one. Alltogether we expect to open about 230 stores and we estimate we will close 63stores this fiscal year.
Included in these store closings for thefull year are two Hat Worlds, 23 Underground Stations and six Journeys stores,which are part of the 57 store closing initiative we discussed earlier.
Now, I will return the call back to Hal forsome closing comments.
Thank you Jim. Having spent many years in a [audiodistortion] business influenced by external factors and product trends, I cansay that it never gets any easier to live through a down cycle. While short-term external factors do affectus, what is most important for the long term strengths of our individualbusinesses, some of which we tried to highlight on the call today. And, the strategic power within our portfolioof businesses. We also believe thatwe’ve taken appropriate action to be sure that we deal with current marketconditions and to maintain our prospects for long term growth.
Now, before we open the lines for Q&A,I need to remind you again, that we will focus on the business and that we willnot be able to address any questions about our pending merger or the litigationconnected with it. And, after that,let’s open it up for questions.
(Operator Instructions) And, our first question will come from Mr.Jeff Klinefelter with Piper Jaffray. Please go ahead.
JeffKlinefelter – Piper Jaffray
Yes. My questions, guys will focus on brand trend. You did discuss at length and it was helpfulon the Heelys’ performance and challenges, but could you talk about any otherbrand trends that kind of stands out from the positive or negative side? Some of your key contributors last year,Crocks, Ugg in the boot area, DC Rocket Dog that you can share with us on thetrend there? And, then in terms of yourcomps, you said that Black Friday weekend or the start of the season was alittle bit less than expected, if you’d give us a more specific guidance orthoughts as to where you would expect your comp trends for the third quarter inJourneys and Hat World?
I’ll address the product questionfirst. With regard to Journeys, thewomen’s fashion is performing well. Thewomen’s boot category, now that we have some cooler weather is showingpromise. Casuals in the suede or thatwith any fleece with it seems to be performing well. Wedges; I think the overall women’s casualproduct is showing some nice improvement.
In the men’s area, the casual category isnot as strong. The skate brands continueto perform well for us. The overallathletic category in itself continues to perform well, which skate being a bigpart of that.
Over in the Underground Station Group,there are some things such as you might expect, Echo, some of the Apple Bottomproduct, Polo is performing well there. Those are the few that come to mind.
The children’s category, there were severalbrands – some of those brands have just expanded their offering into moreavailable product for the younger kid, if you will. Some of the ones that you might expect, of coursePuma, the Nike and Converse area, those were the ones.
During the third quarter there was stillbecause of the extended warm weather pattern in most of the country, during thethird quarter canvas continued to be a big item and Crocks continue to be apart of our mix.
Anything else, Mr. Klinefelter?
JeffKlinefelter – Piper Jaffray
Yes. My second question was on the sales trends, Black Friday and then whatdo you expect going into the fourth quarter for comps?
Well, we’re really – in terms of going intothe fourth quarter on comps we’re really not going to give any guidance goingforward. We’re just giving guidance in relation to what Hal had saidearlier. I think over Black Friday…
This is Bob, Jeff. Black Friday was a little disappointing to usas Hal said, and we’re still trying to figure out what the rest of the industryseems to have seen. We think the storesare all set pretty well for holiday, and so, as you probably know, there’s alot of questions about exactly how well the consumer will shop. I think Hal said it well when he said, “wethink we’re well set to get our fair share of what the consumer spends.” So we think the stores are all properly set,it’s just a little hard to say just how robust the Christmas season will be.
JeffKlinefelter – Piper Jaffray
Okay. In terms of that Black Friday weekend, how did you approach itpromotionally this year versus last year? And, sounds like seasonal product did improve, I guess Hal referencedthe boot category, that sounds like that was the trend either was a door buster,some kind of a promotion that really converted most of that traffic. So, how did you think you compared to otherretailers in the mall with respect to your seasonal sell throughs or yourpromotions?
Well, in terms of promotions, Jeff, as youprobably know, we’re not – we don’t use price as a traffic builder. We’ll use price really only to clearmerchandise that we’re having trouble selling. In this instance that would have been Heelys. But, even with Heelys, we stayed at the highend at the of the pricing for that weekend. So, I thing year-over-year we were pretty consistent with maintainingsome pretty good price integrity and not getting overly aggressive in terms oftrying to meet what everybody else is doing in the marketplace.
JeffKlinefelter – Piper Jaffray
Okay. Thank you.
Moving on, our next question will come fromMr. Scott Krasik from CL King. Your lineis open, please go ahead.
ScottKrasik – CL King
Hi guys, thanks. Continuing to Journeys, I know you said thatthere’s no trends emerging, but what are you hearing from your product guys ona go forward basis? It seems like theremight be some new interesting things in technical athletic under cross-trainingor running side next year. Do you stillsee yourselves as primarily a skate outlet going into 2008?
We still take the position that ourathletic is fashion with a large part of that being skate. We don’t consider ourselves a destinationshop for the performance footwear. Wewill leave that to some others. But, oursis focused on that teen who is looking for fashion and we believe we are thedestination shop for that.
ScottKrasik – CL King
So for next Spring, is it same brand? Are you trying anything new or different?
There would be some new initiatives there Ithink as far as some styling and perhaps as testing of some other brands butthat I won’t go into.
ScottKrasik – CL King
Do you think any of the weakness on thecasual side, you went too far in the direction of your own house brand asopposed to keeping the branded product?
We did not go too far on our house brands,the casual product in that we have a low profile aspect of the casual productis not as strong as it has been and I think that’s pretty wildly know, but nowe do not believe that we have gone too far with our private brand, ourin-house brands or the smaller brands, if you will. We still consider ourselves a destinationshop for brands and we realize brands are important for our customer inJourneys.
ScottKrasik – CL King
Yes. Okay, and lastly Bob, I know you don’t want to give guidance, but justlooking at Hat World next year, you obviously having the Urban issues, theMajor League Baseball issues in the first half of the year. Is it better to use 2005 as a model in termsof profitability than 2006 for the first half of next year?
You’re absolutely correct that we’re notgiving guidance. There were a lot ofthings that went on with Hat World this year –a lot of things that went on theyear before, so this year one of the big things that did go on was a rotationout of that more hip-hop inspired fashion baseball and that gave us somepressure on margins. We’ve got thatinventory now right sized assuming that all of our inventories stay reasonablybalanced, that we don’t make another big adjustment you can anticipate somerecover on the margin line year-over-year.
ScottKrasik – CL King
And given the assortment of the mix youhave now, return to historical margins is not out of the question assuming youget some sales follow-through.
Well, there’s a bunch of mixed things goingon as well. When our college businesscame down we gave up margin because the college business is the most profitableof the large categories that we compete in, so in order to get all the way backto historical levels, I’d argue that we’d need the college business to becomemore important in the business again.
ScottKrasik – CL King
Okay, thanks guys.
Moving on, we will now hear fromSusquehanna’s John Shanley for our next question. Please go ahead.
JohnShanley - Susquehanna
Thank you. Good morning folks. Jim or Hal, I wonder if you could just clarify forus a little bit the operating margins on Journeys. Obviously, you went from 13.7 last year to8.4 in the third quarter of this year. But, the gross margin as you pointed outwas up 40 bips. Can you give up a sense, was this due to a de-leverage because of the 1% sales decline or the 3%comp decline or did the under-performance of the Heelys brand play an intricatepart of that overall operating margin decline for the Journeys’ business?
Well, John, of course Heelys played a partin it. We talked some about the effecton gross margin. We also talked aboutthe affect on sales. And, so thede-leveraging, and it is de-leveraging obviously, gross margins was slightlybetter. It was a combination of things,I think. One is the negative compcertainly hurt and we talked all along that we need a positive comp in order tobegin to leverage. And, with thatnegative comp it’s obvious, we’re just not able to.
And the second issue here is that we’reopening stores and so we have additional store growth and the productivity ofthe newer stores. And, we’ve talked manytimes about how in the Journeys’ stores themselves in the first year they doabout 75% of may be what the average does. So, I think it’s primarily a combination of the negative comps, plus thenew store growth.
If you look at the absolute dollars ofexpenses, there not far off what we thought they would be, so it’s more of aquestion of top line growth as being the issue and then also the new storegrowth is affecting the leveraging.
JohnShanley - Susquehanna
Was Heelys really wasn’t really anintricate part or was just a kind of corollary part?
No, no. It did have an impact because gross margin would have been betterwithout them. It would have had someaffect, but also sales were off, which we talked about, which had animpact. Obviously the top line had animpact on the leveraging factor.
JohnShanley - Susquehanna
Okay, I understand. The next question I have is really for you aswell. Litigation expenses are clearlybecoming a very significant costs factor for the company. Is there anyway that you can give us somesense in terms of how much litigation expenses with all the law firms thatyou’ve hired basically battling all the UBS and Finish Line law firms. What could the nut be going forward on thisthing, particularly in the fourth quarter? You must have a sense as to how much all these law firms are going to becharging you?
John, we not giving any forward-lookingcomments here and plus, who knows? Imean, I really don’t know at this point. We’re in the middle of all this and we just don’t know what’s going tobe.
JohnShanley - Susquehanna
Do you think it could be as much as it wasin the third quarter?
John, I don’t know.
JohnShanley - Susquehanna
Okay. Alright, it would be helpful, if you could try to give us some guidanceon that whenever you’re in a position to be able to do so.
All right. Thank you very much.
And, at this time Mr. Pennington, I wouldlike to turn the call back to you for any additional or closing remarks.
Very good. Well, thank you for joining us for our call today, and have a good restof the day.
Thank everyone for your participation andthat does conclude today’s conference. Thank you for your participation and have a great day.
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