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Francesca's Holdings Corporation (NASDAQ:FRAN)

Q2 2012 Earnings Call

September 4, 2012 4:30 p.m. ET

Executives

Jean Fontana - Investor Relations, ICR, Inc.

John De Meritt - President and Chief Executive Officer

Theresa Backes - Chief Operating Officer

Neill Davis - President

Cindy Thomassee - Interim Chief Financial Officer

Analysts

Howard Tubin - RBC Capital Markets

Simon Segal - JP Morgan

Amanda Seguin - Jefferies

Edward Yruma - Keybanc Capital Markets

Richard Jaffe - Stifel Nicolaus

Betty Chen - Wedbush Securities

Janet Kloppenburg - JJK Research

Mark Montagna - Avondale Partners

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Francesca’s Collections Corporate Second Quarter Fiscal 2012 Earnings Conference. As a reminder today's call is being recorded. At this time all participants are in a listen-only mode. Following today's presentation we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to Ms. Jean Fontana, Investor Relations with ICR. Please go ahead.

Jean Fontana

Thank you. Good afternoon, everyone. Thank you for joining us this afternoon for Francesca’s Collections second quarter fiscal 2012 results conference call. On the call today are John De Meritt, Chief Executive Officer; Neill Davis, President; Cindy Thomassee, Interim Financial Officer; and Theresa Backes, Chief Operating Officer.

Before we begin, I would like to remind you that certain statements in this conference call constitute forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations or beliefs concerning future events and are subject to various risks and uncertainties that may cause actual results to differ materially from those that were expected. For a discussion of these and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to the risk factors in our Annual Report filed with the SEC.

We undertake no obligation to publicly update or revise any forward-looking statements. This information may also be accessed by visiting www.francescascollections.com, under the section entitles investor relations.

With that I will turn the call over to John De Meritt.

John De Meritt

Thank you, Jean, and thank you all for joining us today. Before I discuss our Q2 results, I would like to comment on the leadership transition. After spending more than a decade helping grow the company, I decided that the time is right for me to hand over the reins so that I can focus on other interests. As outlined in the release, Neill will be appointed CEO and Theresa will be appointed President effective January 2013.

I have enjoyed building a great company and it was important for me to lead the organization to appoint where I felt comfortable transitioning the leadership to others. I had a number of goals that I felt needed to be accomplished for that to happen and I feel confident that those goals have been achieved. First, I wanted to recruit a highly qualified senior management team and I feel that I have done so. I have had the pleasure of working beside Neill and Theresa over the past five years and know that they along with the balance of the team are more than capable of continuing to lead Francesca’s success.

Second, I wanted to build a strong balance sheet. During the third quarter we plan to pay off the remaining $2 million balance on our revolving credit facility and the company will be debt free. So I feel that I have accomplished that goal as well. Third, I wanted to build an infrastructure that could support the company's growth plan. Putting in place the processes and controls to be a public company, the new corporate office and distribution center, the rollout of the JDA platform and the launch of the ecommerce site provides the company a solid foundation.

Lastly, I wanted to deliver significant value to our investor base. Since going public the company has delivered very strong result and from the guidance we are providing today, you can see that we expect those results to continue. I am very proud of these accomplishments and have enjoyed the past six years tremendously. Since we are about to begin next year’s budgeting cycle, I thought that allowing Theresa and Neill to lead that process it was important. I am confident that this leadership transition is another step, another right step in continuing to execute on our well defined strategy of growing our boutique base, driving same store sales, and improving our infrastructure to support that growth.

Before I turn to the second quarter, Neill would like to comment on the transition as well.

Neill Davis

Thanks, John, and good afternoon everyone. I have worked with John over the last five years as a member of the company's board of directors and I do share his vision for Francesca’s. Francesca’s has a very strong connection with its target customer and is able to adjust changing market conditions very effectively. I believe that exploiting our core competitive competencies that are inherent in our merchandizing and real estate strategies, as well as selectively further leveraging the Francesca’s brand, will drive our strategy in the near-term.

Building on our domestic presence is our higher priority. Moving from today's base of 357 boutiques to a market potential of 900. I also believe there are tremendous market share to be gained in the digital sales channel. Our volume of visits in the digits channel, while approximately less than 2% penetrated today, is growing at a three year compounded annual growth rate of 60%. Achieving penetration rates in excess of 10% are in my forward view.

Lastly, I want to say that I am fortunate to be able to partner with Theresa in her role as President, as well as the current senior leadership team at Francesca’s. They and their teams are clearly the drivers of results that we are reporting today and that will drive our future opportunities. I will turn the call back now to John for the second quarter.

John De Meritt

Thanks, Neill. I am very proud to share the second quarter results and we will get into that now. Our second quarter earnings were $0.28 per diluted share, which was $0.05 per share above the upper end of our guidance. This performance was a result of comparable boutique sales of 20.7%, marking our thirteenth consecutive quarter of positive comps. Customer response was strong across all merchandise categories with growth in the jewelry category being the strongest. This performance was also achieved across all geographic regions and real estate types, which contributed to better than planned sales.

As with previous quarters, the increase in comp sales was driven primarily by increased transactions. We also opened 30 boutiques in the quarter which was a similar pace to the prior year period, and since quarter end we opened an additional two boutiques, bringing our current year-to-date openings to 76 and a total boutique count of 359. We have one more left open next month for a total fiscal year opening of 77 new boutiques including the one outlet.

As noted in the release, we are planning for a similar pace next year and have 62 leases either signed or in final negotiations. The boutiques for 2013 are shaping up to be approximately 50% mall and 50% non-mall, at the same average volume and the same expected ROI of our current boutique base. In Q2 our ecommerce sales were up 69% over the prior year and it exceeded our internal sales plans as well. We continue to enhance the functionality of this side by adding gift cards as a payment option as well as the ability for online tracking of gift card balances.

In the second half of this year, we will upgrade our ecommerce which will include enhanced search and navigation features, dynamic single page checkout, new product views, a store locator and social media interfaces. Our commitment to supporting our growth with sound investments in our infrastructure continues as well. Our new corporate office and distribution center is ready for move-in which will happen in the next few weeks. We have built a best in class network utilizing cloud computing and significant security and safety measures for our onsite system.

We are also continuing the rollout of our JDA based point of sale software to our boutiques. We have converted 15 stores last month without any business disruption and plan to convert another 50 during the third fiscal quarter and the remaining stores after the holidays. So as you can see, we had a very successful second quarter, and as Cindy will share with you now, we are planning for a continuation of those trends.

With that, I will turn it over to Cindy.

Cindy Thomassee

Thanks, John. Total sales increased 49.1% or $25.1 million to $76.4 million over the prior year period. 64% of the increase was attributable to non-comping boutiques, 35% to comparable boutiques and the balance to internet sales. The increase in comparable boutique sales of 20.7% was on top of last year’s growth rate of 5.4%. Comp performance was driven primarily by increased average transaction per boutique as well as higher average dollar sales per transaction. Our gross profit of the quarter grew 54.9% to $41.8 million compared to $27 million in the same period last year.

Gross margin for the quarter increased 205 basis points to 54.76% from 52.71% in the comparable prior year period. This year-over-year increase was primarily due to leveraging of occupancy costs. Selling, general and administrative expense increased 45.4% to $20.9 million compared to $14.4 million in the same period last year. This increase was primarily due to higher payroll and payroll related costs to support our current and expected growth. As a percentage of sales, selling, general and administrative expenses decreased 69 basis points to 27.41%. This is a diminished rate of expense leveraged than that achieved in the first quarter of this year which is due to increased accruals for legal reserves in the second quarter.

Income from operations increased 65.7% to $20.9 million from $12.6 million in the comparable period and as a percent of sales increase to 27.35% from 24.61% primarily as a result of strong comparable store sales creating leverage in both gross margin and operating costs.

Now turning to the balance sheet. Inventory per boutique was up 11.5% which is below overall sales per boutique productivity which increased by 16.5% in the second quarter. Borrowings under the company's credit facility were $5 million at quarter end. We have paid an additional $3 million since the end of the quarter reducing the outstanding balance to $2 million. As John previously mentioned, we anticipate paying off the remaining outstanding principle balance by the end of the third quarter at this year.

Now let's move to our outlook for the third quarter. Please note, my outlook to you today will be to our adjusted current year expected results and adjusted prior year actuals. Details of those adjustments are outlined in detail in our press release issued earlier today. We expect third quarter net sales of $70.5 million to $71.5 million assuming a low double-digit increase in comparable boutique sales following last year’s 6.5% increase.

Adjusted earnings per diluted share are expected to be in the range of $0.21 to $0.22. This is an increase of 50% to 57% over the prior year period adjusted earnings per diluted share of $0.14. This assumes an effective tax rate of 40% and fully diluted shares outstanding of $44.9 million. For the full year, we are raising our guidance of net sales in adjusted diluted earnings per share. We expect net sales of $290 million to $292 million assuming a low double-digit comparable boutique sales increase and the opening of 77 new boutiques. We use the National Retail Federation Calendar therefore fiscal year 2012 will be a 53-week year. We estimate that the additional week will contribute approximately $3 million in net sales and $0.02 in incremental diluted earnings per share.

For the full year, adjusted earnings per diluted share are expected to be in the range of $0.96 to $0.98. This is an increase of 66% to 69% over the prior year period adjusted earnings per diluted share at $0.58. This assumes weighted average shares outstanding of $44.9 million and effective tax rate of 40%. Capital expenditures are planned at approximately $20 million to $21 million.

With that we will open the call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) We will take our first quarter from Howard Tubin with RBC Capital.

Howard Tubin - RBC Capital Markets

John, sorry to – I guess good for you, sorry for us to see you leave, and Neill congrats. So I guess my question to you Neill would be, anything you see that you would like to change? You know any current strategies in place that you maybe don’t agree with or a different direction you want to take the company or anything like that?

Neill Davis

Hi, Howard. Absolutely not. I think the one word that describes my focus along with the rest of the team is exploitation. The real estate plans are plans in trying to drive the incremental business on the internet. I think we have got a great merchandising model and the focus is to continue to expand the market presence.

Howard Tubin - RBC Capital Markets

Got it. So in terms of 75 stores a year, that year on board with 75 stores you are going forward, sticking to quick turn merchandising strategy, all current things you are on board with?

Neill Davis

All the above.

John De Meritt

Yes.

Operator

Our next question will come from [Adrian Tenant with JNA Capital Markets]

Unidentified Analyst

Congratulations on a wonderful quarter. My first question -- John, can you talk about sort of the fall cadence for your target market, young contemporary. You know the teen shops in August, the missy factor starts to shop sort of later September, October. I was wondering if you can give us any color on how August is going given sort of the rising tide backdrop that we have seen. For Neill or Theresa, can you give us the longer-term goals for DTC and perhaps what timeframe that might be in? And also, just the org structure. You know when you bring on a new CFO, how you are going to work with the three different management roles. Thank you very much.

John De Meritt

So I will jump in there first and as far as the fall is shaping up, it’s been fairly similar to years past. I will say there was probably about three to four years ago, about the same time when we started preparing to go public and maybe even a couple of years before that when I took the help of Francesca’s, which was shift towards back to school season coming a little bit later than before. I think a lot of with the fast fashion and particularly with the internet sales a lot of the younger customers wanted to kind of see what was in trend, what was in fashion before they went out and made their purchases.

So we saw that. We experienced that. I think we may have been a bigger beneficiary of that in that we certainly carry a lot of wear now product and we try to stay very in season and very obviously on trend. And so we saw that as we have in years past. I think it was probably a little bit more pronounced this year than in years past. But I think that’s going to be something that I think you are going to see a continuation of going forward.

Operator

Our next question will come from Simon Segal with JPMorgan.

Simon Segal - JPMorgan

Congrats on the quarter. So I apologize if I am missing something simple. I am just trying to get to your guidance for the positive low double-digit comps. I am falling up slightly short. I am just wondering, are your new stores opening stronger than they have been previously. I know you guys mentioned that 16.5% improvement in sales productivity per boutique. So are the 2012 stores higher volume (inaudible)?

John De Meritt

Simon, this is John. You know, I think it would depend on what timeframe you are looking at. So you have to go back pretty far because the cadence of the store opening, particularly with the mix of mall versus non-mall that we have opened really for the last three years, three fiscal years, has been fairly consistent. They are opening probably a little bit stronger this year than in years past, but I don’t think that’s the big lead. I think the big lead is just the amount of transactions that are occurring versus the strength of the new stores.

Simon Segal - JPMorgan

Great. And then just quickly, you guys spoke to that strong [deal] on the gross margin line related to the occupancy. What was the merged margin impact in the quarter? And I know as your gross margin compares do get a little more difficult in the back half because you guys didn’t really get hurt by comp in last year. What's the right way to think about the opportunity going forward?

Neill Davis

Merchandising margin is fairly consistent from one quarter to the next. What's happening here clearly is a leveraging of that fixed occupancy cost and that’s how we would suggest you think as you move forward. Let met come back to the question about our same store sales increase in the third quarter, not making it work for you. One of the other things happening is we had higher SG&A costs that are in the third and fourth quarter, that are payroll and stock comp related. So it’s just a reflection of continuing to invest in the business and so that’s coming in at the timing of its impact in your sequential movements.

Operator

Our next question will come from Randy Konik with Jefferies.

Amanda Seguin - Jefferies

Hi, this is Amanda Seguin on for Randy. Could you please provide some color on how the comp progressed throughout the second quarter? And then also I know you don’t typically breakout the exact comp drivers but is there any color you can give us around traffic and conversion and also what was driving the higher AUR? Thanks.

John De Meritt

Yeah. So we don’t break out the comp throughout the quarter either, but I can tell you it was very consistent throughout the quarter. And I think just as I mentioned in my script I think one of the key takeaways that you can take from Q2 is the consistency. So one of the things I mentioned was, it was consistent across the different vintages, so I think I have mentioned across the different vintages but it’s also across the different regions across the different types of real estate and then it was also very consistent across merchandize categories. Jewelry was a standout, so we like to call that out and make sure that everyone knows that one was outperforming the others but all of them comped positively.

From the primary driver of it, as I mentioned in my script, is just increased transaction. That’s really been the driver for us for the past few quarters. And so in the last call, last quarter, we had some questions around that and I mentioned that we do not have traffic counters so I can't tell you with empirical data that it is from an increased conversion. But anecdotally, I will tell you that that’s certainly feels to be the case. So what we see happening in the stores is a fairly consistent amount of traffic but our product offering just being very well received from the consumer and that resulting in the strong comps that you saw resulting in the 20.7% increase. Did I answer all your question?

Amanda Seguin - Jefferies

Yes, thank you.

Operator

We will move on to Edward Yruma with Keybanc Capital Markets.

Edward Yruma - Keybanc Capital Markets

John best of luck to you. As I relates to SG&A, I think you guys cited some litigation expense as one of the reasons for the lower amount of leverage. How should we think about SG&A ex some of the litigation expenses?

Neill Davis

This is Neill. I would tell you that as you look to the third and fourth quarter, you will see us return to a more consistent trend line of leveraging SG&A. It’s somewhat similar to the first quarter. And of course it really depends on the strength of the comp sales number. But these events are one time in nature and don’t expect to see them recur.

Edward Yruma - Keybanc Capital Markets

Got you. And you had slightly higher percentage of on mall opening versus off mall in recent years which was a shift I know in strategy. And it sounds like you are going to back to 50:50, I guess kind of maybe the thought process behind that, if you wouldn’t mind?

John De Meritt

Yeah. You know what we do each year is we update our three year strategy. And so we updated that, we do that on a recurring basis. But obviously to execute for 2013 we have to be significantly into that pipeline and so we are 62 or so stores into that pipeline and that’s the way it is shaping up and that’s the way that we would on our three year strategy execute kind of going forward more towards a 50:50 balance. And again, being that there are say 450 or so buyable mall locations out there, there is probably significantly more than that. Whether it’s 600 or so non-mall locations, it would depend on who you ask.

But given the fact that we are now into 3.5 going on 4 years of executing on the mall strategy, you are seeing it now get more towards a balanced approach. And we have always been very thoughtful on making sure that we have laid that out for the next coming year. So again on a three year basis, so that we can accurately forecast and know what's coming down the pipeline and that we don’t cherry pick all the best locations in one particular year or one particular three-year strategy and then lower performing units going forward.

So we have been very thoughtful in that. There is still a lot of great real estate out there that we haven’t penetrated yet and there is lots of opportunities that we are discovering each and every time we open, whether it’s in a different venue or in a different street location that is showing us a lot of success as well.

Operator

We will take our next question from Richard Jaffe with Stifel Nicolaus.

Richard Jaffe - Stifel Nicolaus

Thanks very much and congratulations to John, Neill and Theresa. I guess my surprise is the ecommerce and I guess we are all waiting for the new distribution center and seeing that business start to pull its own weight. I am wondering if that’s going to be a bigger priority for you Neill or shall I put it as a bigger opportunity? And then if you could talk about the visibility you have for new stores, the next 75 and the 75 after that as well, and whether that’s going to be coming out of malls, outlets or some sort of hybrid? Thanks very much.

Neill Davis

Hi, Richard, it’s Neill. As it concerns the direct to customer dynamic, I see it as a clearly greater opportunity from where we are today. When I consider others in the industry and their penetration rates in the 15 % to 20% range, going from slightly less than 2%, is rather robust opportunity. And we are clearly going to focus in on that over the next several years and make the appropriate investments where we need to so we can capitalize on that opportunity. You know grow on the store base at 75 plus a year has been one that’s kept a lot in the company busy. So we are going back to make the investments in the cadence at an appropriate pace. But that clearly is an opportunity now as John talked about the real estate flow.

John De Meritt

Yeah. You know, Richard, it’s going to look pretty much the same as you have seen in the last three years or so. I would tell you that again with the balance shifting a little bit more to a 50:50 approach. There is still plenty of opportunity out there. As I just mentioned on the last question, we set that strategy in three year increments. And so we have identified all the way through to specific locations not just general areas. And obviously we have to wait for the right, particular store front to open in that local. But just to give you an example of a location that we should be in and that we will be in, but King of Prussia obviously being a very very high performing mall, that’s an example of us being very disciplined. We have been offered numerous positions within that mall. But we want to make sure that it’s the right position for us.

So that just being an example. But as we course through and look at the strategy, it really does in each times that I am in committee, the committee that Theresa and Neill have recently attended. They pretty much look the same as they have in years past. So that will continue going forward.

Operator

We will take our next question from Betty Chen with Wedbush Securities.

Betty Chen - Wedbush Securities

Congratulations everyone and welcome Neill. I was wondering John if you can talk a little bit about the outlet business. I know there has only been one store but curious what your initial learnings have been and how many stores do you think that could be over time. And if you could remind us again the product or the pricing strategy for outlet versus retail. And then I was wondering, Neill, if you can talk a little bit more about the online business. I know you have already answered some of the prior questions. But going forward, should we expect the online business to maintain this philosophy of scarcity to help further support the store. And have there been any learnings that you have been seeing from the online customer differently than the retail customer?

And then lastly, my question for Theresa. In terms of products are there any sort of extensions or additional product categories that we could see you add in the second half of this year. Thank you.

John De Meritt

Thanks, Betty. So on the outlet given that we have such a short historical perspective on that, I can tell you it’s certainly meeting our expectation. An outlet obviously is a little bit of a different animal, even though you are seeing more and more and we are experiencing it. They behave a bit more like frontline stores and non-outlet performers. So what obviously happened about a decade ago or so, a lot of retailers ran out of growth opportunities in the traditional format. They certainly didn’t have as flexible of a box that we have or the opportunities that we have going forward. So they started growing in the outlet malls.

Well, we have I think a considerable more amount of runway than would a traditional retailer. But that being said, we wanted to experiment with the outlet, see in our own backyard. We had a great position that came available in cap. And that unit is performing well for us. How many can be in the future? I am not certain. You know that’s still left to be decided. As we course through at least one fiscal year of operating results from that outlet unit. But I would tell you that the 900 count that we have shared with the Street is not inclusive of any additional units that we would add from an outlet strategy.

Neill Davis

Hi, Betty, it’s Neill. As for the question relative to our online business and maintaining a scarcity type concept piece of the brick and mortar. One of the things you should know is that our online customer, we experience a higher average in our retail. You don’t see her buying a lot of $6 and $9 earrings. So as you get a more robust transaction value. And we believe with the chain right now growing or the internet side growing close to 60%, we believe that there is an appropriate balance that we can achieve. Maintain the uniqueness of our brick and mortar and also push on the online side.

John De Meritt

Yeah. I will just add a little bit to that. So we have then been very successful in product offerings online that don’t necessarily lend itself to the brick and mortar. An example of that given our small box size would be in the shoe category which falls within our accessories. So obviously you can carry a much broader and a much deeper assortment online, particularly in a category like shoes which take up a lot of physical space. And that’s something that we just have a small small offering in stores. But it’s leveraging our brand and our customer base and the trend right spotting that our merchants achieve online.

And so it will be things of that nature that I think you will see early on that will lead the online growth and then continue on from there.

Theresa Backes

And then regarding Q4 sales, what we are looking really is to see -- you were asking about line extensions, not any line extensions particularly but some refinement in the product offerings. For example we introduced fragrance earlier this year, we will introduce some fragrance gift sets under the Francesca’s brand which we believe will do very well for us. As we always look for in Q4, gift is going to be dominant category and jewelry will be as well. Similar to the positive results that we saw in Q2 of this year.

Operator

We will take our next question from Janet Kloppenburg with JJK Research.

Janet Kloppenburg - JJK Research

Just one question on gross margin. I was curious with jewelry leading the way, I might have thought that would have helped leverage merchandize margins. And I am just wondering if maybe there isn’t a difference in merchandize margin between your accessory and your apparel, traditionally there has been so. And for Neill and Theresa, I was just curious as to how you will be breaking down responsibilities and Neill who your direct report would be and so forth. For instance, I am not sure is merchandizing reporting in to Theresa or in to you. So if you could help me in that regard it would be great. Thank you.

John De Meritt

So I will answer the merchandize question. So what we publicly shared is that jewelry is our highest merchandize margin category and gift is our lowest. And what we have also shared is that you will see in any given quarter some shift throughout those categories whether it be a few basis points or more. And that was similar to what you would see in this most recent quarter. So when we call out that merchandize was our strongest comping category, it’s important to note that we are talking about from a comparable standpoint.

So although it is our highest merchandize margin category and you do see some shift between the various categories, it wasn’t significant enough that it would have any meaningful impact.

Neill Davis

As to your question on reporting relationships, Theresa, myself and John will be working closely over the next couple of months to make changes and adjustments where we believe they are necessary. But we don’t see a lot of change, but before we start articulating what that is we need to work through that. And I think about this time on our next call we will be in a better position to outline those things for you.

Operator

We will hear next from Mark Montagna with Avondale Partners.

Mark Montagna - Avondale Partners

Hi, a follow-up question on the outlet stores. Is the merchandise currently in that one outlet store, is it the same exact stuff that you have? And is the whole outlet strategy, if you actually go to more outlet stores, is that all on the table in terms of either being the same stuff in the stores or possibly a lower introductory price point.

Theresa Backes

This is Theresa, I will take that. So in our current outlets, what we see the customer gravitating to -- which I am actually pleased to see, is she is equally excited by newness as she is by value. So whereas our jewelry, nearly all the jewelry in the outlet is marked down merchandize. She responds well to that. But we do have a nice mix of new arrivals in apparel and accessories. Gift does very well as well. We have a nice mix of great price and some marked down gift merchandize.

So for that, that early read on outlets that we are getting is giving us some great information on how we want to position ourselves should we grow in the outlet venue. And that’s really work that we are doing now. So our initial work was to get into the space to see the size that we want and the mix. And we have gotten some good initial reads and we will really take that into consideration as we plan the years going forward.

Mark Montagna - Avondale Partners

Okay. So of the fuller price merchandize, is that at lower price point than what you have in the regular stores, or is it the exact same (inaudible)?

Theresa Backes

No, actually the regular price merchandize sells at the same retail as the main line stores.

Mark Montagna - Avondale Partners

Okay. And then just regarding obviously the month of August, with your comp guidance, clearly August was very strong. Can you tell us whether comps accelerated throughout the month? Because that’s the thing that I am hearing repeatedly from other retailers?

Neill Davis

We haven’t reported our August results and we report on a quarterly basis so we will give you some color on that at that the time that we release our full numbers for the quarter.

Mark Montagna - Avondale Partners

Okay. And then you mentioned something about the JDA conversion, I missed that. Is that dealing with merchandising, can you just give a quick review of that? And that is it.

Theresa Backes

It’s Theresa, I will take that one. We, as you know last year we rolled out our inventory management system and some of our allocation software. We then went into design and have begun delivery of the POS portion. So as John said, we have 14 stores that have rolled out POS, very delighted that it has been with no business disruption and we have probably about 50 more that we will do before we get into the blackout, fourth quarter of this year. We are getting ready to launch a light, the JDA planning light module. We will do that in the back half of the year. And then we will really kind of tie it all together in Q1 of next year finishing the JDA rollout of POS and really that will complete our enterprise wide delivery of that software solution.

Mark Montagna - Avondale Partners

Okay. And what about -- are you including a new warehouse distribution system or is that part of...?

Theresa Backes

Not at this time. We are certainly not doing that at this time.

Operator

Now I would like to turn the conference back over to John De Meritt for any additional or closing remarks.

John De Meritt

As I said before, thank you all for calling in. We are going to be at the Goldman Sachs conference for the next couple of days. I know that I will see many of you there. And to the extent that we don’t see you there, we are certainly going to be available by phone for any follow up questions. Thank you all. Look forward to talking to you again soon.

Operator

Again, this does conclude today's conference. Thank you all for your participation.

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