Charming Shoppes, Inc. Q3 2009 Earnings Call Transcript

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Charming Shoppes, Inc. (NASDAQ:CHRS)

Q3 2009 Earnings Call

December 2, 2009 9:15 am ET


Jim Fogerty – President & CEO

Eric Specter – EVP & CFO

Gayle Coolick – VP IR


Scott Krasik - C.L. King & Associates

Jeffery Stein - Soleil - Stein Research

Arnold Brief – Goldsmith & Harris

Gary Giblen – Quint Miller & Co.

Tom Filandro – Susquehanna International



Greetings and welcome to the Charming Shoppes third quarter fiscal year 2009 earnings conference call. (Operator Instructions) With us today are Jim Fogarty, President and CEO of Charming Shoppes, and Eric Specter, CFO and Executive Vice President. I would now like to turn the call over to your host, Gayle Coolick, VP of Investor Relations for Charming Shoppes, Inc. Thank you, Ms. Coolick; you may begin.

Gayle Coolick

Good morning, today's discussion will contain certain forward-looking statements concerning the company's operations, performance and financial conditions, including sales, expenses, gross margins, capital expenditures, earnings per share, store openings and closings, and other matters.

Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those indicated. Information regarding risks and uncertainties are detailed in the company's filings with the SEC, including the company's Annual Report on Form 10-K for the fiscal year ended January 31, 2009, our report on Form 8-K dated June 19, 2009, our quarterly reports on Form 10-Q and other company filings with the SEC. Our complete safe harbor statement and today's prepared remarks are available at

Our quarterly income statement along with our balance sheet and cash flow statement are provided with today's press release. With us today are Jim Fogarty, our President and CEO, and Eric Specter, CFO of Charming Shoppes.

Jim Fogerty

Good morning, thanks for joining us today. In my remarks, remember my style is to be transparent, not spin, and tell it like it is. I remain very positive about opportunities here at Charming. During the quarter, we completed our transaction with Alliance Data, significantly bolstering our liquidity and leverage profile.

At the end of the quarter our liquidity was $421 million and our leverage reflected net debt, or debt net of cash and investments of only $14 million. In his remarks, Eric will provide the details of the transaction as well as the flow through in our financial statements.

Now on to the quarter, our third quarter consolidated revenue declined $93 million or 17%. The 17% decline reflected 115 net store closings over the last 12 months, a comp store sales decline of 13%, and a 6% increase in ecommerce sales.

Our comparable store sales decline of 13% improved modestly from our second quarter comp store sales decline of 14%. A few comments on earning power, our adjusted EBITDA for the quarter was $6 million or 1.4% of revenues compared to negative EBITDA of $19 million or 3.4% of revenue in the prior year which was a $25 million improvement year over year in our EBITDA.

Our LTM adjusted EBITDA was $45 million or 2.1% of LTM revenues. Our year to date adjusted EBITDA was $63 million compared to prior year adjusted EBITDA of $48 million. Doing the math between LTM and year to date, we obviously lost $18 million in EBITDA in the fourth quarter of last year and we are striving to improve that performance and staying focused on profitable revenue and expense management.

GAAP to non-GAAP reconciliations are available on our website. Whatever measure one utilizes while we are pleased with the progress we are making on EBITDA or the core earning power of Charming, we remain disappointed with the absolute level of our profitable revenue and our earning power.

So now continuing, recall our key priorities are number one, focus on the customer. Number two, stabilize and begin to grow profitable revenue. Number three, increase EBITDA. Number four, increase cash flow and employee empowerment with accountability.

Our focus on growing profitable revenue, increasing EBITDA and cash flow, was apparent in our $25 million EBITDA improvement in the quarter. I was asked a number of times during the quarter whether I wanted us to drive revenue. We could have had more revenue with less gross profit dollars in the quarter, but we remained focused on profitable revenue.

While pleased with this forward momentum in our earning power, we did fall short on our focus on the customer. We improved our quality of sale, but we should have delivered more profitable revenue. With regard to our assortments, our merchandise assortments, we had relative strength in accessories and intimates, but we did not provide our customer with a strong enough core tops and bottoms assortment.

In addition, in the context of substantial reductions and markdowns on our selling floor and the current difficult economic environment, we did not have a strong enough entry priced assortment. Finally our bottoms assortment did not have sufficient depth in sizing and alternative lengths. We are listening more closely to our customer and are better aligning our assortments as we work into spring 2010 and beyond and I’ll tell you more as we move through our brands.

So on to results by brand, Lane Bryant in the quarter, Lane Bryant delivered $218 million of revenue and operating income before interest and taxes of $15 million or 7.1% of revenue. Revenue declined 14% on a comp stores basis compared to a 13% comp decline in the second quarter.

Our outlet stores represented 13% of the Lane Bryant brand’s revenue in the quarter. Total Lane Bryant operating income declined $1.8 million or 10.5% to $15 million compared to a year ago. The operating margin improved 40 basis points to 7.1% driven by the improved quality of sale, an increase in the gross margin, but that improvement was offset by the negative leverage on our comp sales decreases.

The Lane Bryant team continued to have compelling product on the floor as reflected by our success with items featured in our monthly magalogues. Our Lane Bryant business has significant mall presence and we did experience weak traffic during the quarter. We did drive a much better quality of sale with a significantly lower markdown business but net net we did not deliver more profitable revenue and EBITDA in the quarter at LB.

Our Cacique Intimates program continued with relative strength and we had success in driving a stronger accessories and jewelry business. However we believe we underperformed our potential for one main reason; we did not yet sufficiently listen to our Lane Bryant customer.

We are introducing rigor into our customer insights process across our brands to better inform our teams and particularly our merchandise assortments. For our Lane Bryant customer priority number one and in effect the price of entry is product that fits and second, in a styling and at a value that works for her.

In our bottoms assortment we did not have sufficient depth in sizing and alternative lengths, i.e. we did not fit her. Nor did we yet provide appropriate styling in our bottoms assortment. We had some strength in the fashion denim we added to our bottoms assortment but it was not enough and for clarity, bottoms meaning pants.

Our core legacy right fit bottoms program was poorly architected as it was extremely SKU intensive and it did not allow our teams to smoothly transition to newer trends. Our organization historically attempted to work within these constraints and as a result pulled back on depth in precisely what the customers needs; that is appropriate fit and sizing.

As an example the SKU intensity kept us from carrying an appropriate assortment of petite or short lengths. We are working to substantially reinvent our bottoms program while leveraging the strength of our fit heritage at Lane Bryant and Charming generally.

Finally with respect to our general assortment, while we greatly reduced the amount of markdowns available to our customer, we did not have a strong enough core assortment to meet both her styling and entry price point needs.

With our spring and summer 2010 assortments, we will have a stronger core assortment and we will improve our value proposition through both lower average ticket prices, and an increase in planned targeted product promotions.

Now on to Fashion Bug, in the quarter Fashion Bug delivered $155 million of revenue and an operating loss of $12 million or 7.9% of revenue. Revenue declined 14% on a comparable stores basis, an improving trend compared to our 18% decline in the second quarter. For the quarter the largest quarterly earnings improvement in our portfolio, came at Fashion Bug.

Operating income improved $15 million or 56% to an operating loss of $12 million versus our prior year operating loss of $28 million. As previously discussed the Fashion Bug business has been in substantial transition this year. We have repositioned the brand, replacing dated house labels with new Fashion Bug branding.

We exited juniors, girls, and a number of missy sizes, re-merchandised the floor to present plus and remaining missy sizes together in a lifestyle format, and have moved away from extreme high low pricing. To strengthen our value approach we lowered initial markups to achieve a stronger price point focus and took a one-style one-price approach for a size range from six to 30. We also commenced wind down of our priced-just-right program to present the floor with a simplified pricing message.

Our pricing now represents a much more competitive day-in day-out position while maintaining some markup to drive product led and item of the week style promotions. While pleased with our earnings progress we were not pleased with our same store sales comp nor our operating loss.

Similar to Lane Bryant, Fashion Bug displayed relative strength in accessories, jewelry, and footwear while being held back by the poorly architected legacy right fit program, particularly in the denim program. Further, our Fashion Bug intimates business is underperforming and remains an opportunity for us.

Fashion Bug was ultimately not able to generate enough revenue to offset discontinued juniors and kids volume and the reduced markdown business from a year ago. We will continue to focus on profitable revenue at Fashion Bug and better listening to our customers’ need for fit, styling and value.

At to Catherines, in the quarter Catherines delivered $71 million of revenue and operating income of $0.6 million or 0.8% of revenue. Revenues declined 5% on a comp stores basis, the best comp sales performance of our three brands and showed nice improvement compared to a 9% comp decline in the second quarter.

Catherines had reduced markdown business and a weak right fit program but was better able to offset with non-right fit pants, accessories, a stronger sportswear tops business and an improving intimates business.

Listening to the customer we had some success in our pants program with secret slimmer solution oriented pants. Operating income improved by $2 million to $0.6 million versus last year as the operating margin improved 310 basis points.

We remain focused on stabilizing revenue and delivering improved earnings at Catherines. Next, Figi’s, our Figi’s team is focused on delivering its most important and profitable period of the year, the fourth quarter.

Our catalogues are in-home or hitting homes timely. We are in stock and our seasonal staffing is positioned. With just about three weeks left until Christmas, make sure you visit us at to finish your holiday gift shopping.

Next an update on our key initiatives, so first on revenue, as a reminder in our business we are approximately 41 weeks out from conceptualizing a season and its assortment to being in store with that assortment.

That doesn’t mean things can’t be effected closer in, they can, but broad strategic positioning is tougher to change and reposition on the fly. As an example, the assortments that hit our Lane Bryant floor this week were conceptualized in about February of this year. I became CEO in April of this year.

In addition with new leaders in our main brands, there are learnings that come along the way. No excuses, just framing our collective pursuit of improving the core business. With regard to our assortments, as I’ve said, efforts are underway on a refocused assortment which delivers first and improving focus on depth of sizing and fit.

Through recent research and probably research for a number of years, our customers telling us that as a plus-sized woman her first priority is to find her size and she needs to have it fit. That’s critical to her. Style and value are not unimportant, but they are secondary considerations to the table stakes of size and fit.

Second, a much stronger pants business leveraging the strength of our right fit equity while reinventing it and addressing weakness in our overall bottoms programs architecture and third, a generally better architected broad assortment.

We will offer her a balance of basic fashions and trendy fashions and appropriate value price points to help her continue to buy in this tough economy. Value of course won’t mean we’ll return to huge markdowns or extreme promotions, it means a well architected merchandise assortment with appropriate price points and an appropriate promotional approach, but more aggressive.

During August we launched new websites at,, and Our internet revenue across our three brands for the quarter was $21.7 million reflecting a 6% increase compared to $20.5 million in the year ago period.

We remained focused on growing profitable revenue in our internet business across all of our brands. Now a few comments on earning power focus as we talked a number of times, global sourcing. We have said we would remain focused on savings initiatives and that cost of goods sold would be an opportunity.

We believe we can improve our business model to deliver our customers’ need for compelling value while better capitalizing on our total Charming scale i.e. getting better prices for like for like product. We recently announced that we have strengthened our global sourcing organization through the addition of four brand level sourcing executives to the organization.

Each of our new brand sourcing execs are hard at work developing a brand appropriate sourcing strategy and will work together with our head of global sourcing and our brand teams to execute these strategies and optimize and leverage our vendor base.

Next thing I want to talk about is our store base, we continue to study our store base. We began this year with 2,301 stores and year to date we have closed 83 stores or 4% of our store base including 50 Fashion Bug, 21 Lane Bryant, seven Petite Sophisticate Outlet stores, and five Catherines stores.

Year to date we opened nine previously committed stores. We expect to close an additional 79 stores by the end of the fourth quarter for a full year total of 162 closings, or 7% of our beginning store base. In addition to store closures, we have partnered with many of our landlords to better align store economics.

As we work to stabilize and grow our brands we will continue to be vigilant about optimizing our store footprint. A few comments on our conversion of Petite Sophisticate Outlet stores to Catherines stores, during the third quarter we decided to close the PSO or Petite Sophisticate Outlet, stores and convert the space to Catherines Outlet locations. Five stores have already been converted and we expect an additional 28 stores to be converted to Catherines Outlet locations by February of 2010.

These conversions allow us to sensibly repurpose our lease liability while allowing our Catherines brand to grow in new venues. So these and other changes we have made will upgrade and enhance our organization and support our key priorities which remain one, focus on the customer. Number two, stabilize and begin to grow profitable revenue.

Number three, increase EBITDA. Number four, increase cash flow and number five, employee empowerment with accountability. With that, I will turn it over to Eric.

Eric Specter

Thank you Jim and good morning everyone. Just as a reminder as we noted last quarter, we have made some changes to our financial presentation. We are now reporting cost of goods sold, occupancy and buying, and depreciation and amortization separately.

In our Form 10-Q for the second quarter ended August 1, 2009 we restated our quarterly results for last fiscal year to conform to this new presentation. Now on to a little more color on the quarter, net sales for the quarter were $460.2 million, a decrease of $92.8 million versus a year ago.

Our comparable store sales declined 13% while inventory declined 17% on a same store basis. By brand, comp sales declined by 14% at Lane Bryant, and comp inventory declined 15%. At Fashion Bug comp sales declined 14% while comp inventory was down 28%. At Catherines comp sales declined by 5% and comp inventory was also down 5%.

Gross profit was $236.8 million in the quarter, a decrease of $17.1 million or 6.7%. The gross margin rate improved by 560 basis points to 51.5% of sales compared to 45.9% of sales for the year ago period. This increase was driven by an improved merchandise margin and reduced markdowns at each of our brands.

Total operating expenses excluding restructuring and one-time charges decreased $47.3 million or 16%. Occupancy and buying expense decreased $11.5 million or 10.8% related to the operation of fewer stores and rent reductions released to lease renegotiations.

SG&A expense decreased $30.8 million or 18.6% to $135.5 million in the third quarter compared to $166.3 million in the same quarter last year primarily related to our previously announced expense reduction initiatives and the closing of underperforming stores.

I would note that the total operating expenses excluding certain items year to date were down $126.2 million or 13.9% incorporating the $125 million expense reduction plan we had previously discussed. We recorded restructuring charges of $14.7 million in the quarter primarily for lease termination charges and accelerated depreciation on discontinued or divested catalogue businesses and costs related to our transformational initiatives.

We also recorded a one-time non-recurring charge as a result of the sale of the proprietary credit card receivables program in the amount of $13.4 million primarily related to contract termination costs and transaction related costs, severance and retention costs.

Our loss from operations excluding those charges was $11.9 million, a 72% improvement compared to a loss from operations of $42.2 million in the year ago period. In summary for the quarter, gross profit declined 7% and total operating expenses declined 16% which allowed us to increase EBITDA by $25 million to $6 million.

Jim’s comments included detail on profitability by brand, in summary we experienced year over year profit improvement at our Fashion Bug and Catherines brands while our results at Lane Bryant were slightly below last year’s performance.

As we are committed to providing increased levels of transparency for our brands’ results, these performance metrics are more fully detailed in our 10-Q which we expect to file later today. Our balance sheet remains strong and our total liquidity increased to $421 million at the end of the quarter.

Our liquidity includes $224 million in cash and net availability of $197 million on our fully committed and undrawn line of credit. During the third quarter we repurchased $17.5 million of our convertible notes for a cash purchase price of $12.7 million or 73% of par.

Although our notes are reflected in our financial statements in the amount of $157.8 million, net of unamortized discount, the economic reality is that as of the end of the third quarter we have a liability or the principal amount of $205.8 million in convertible notes which represents the original $275 million issuance less the $69.2 million face value that we have repurchased from the beginning of the year through the end of the third quarter.

Subsequent to the end of the quarter we repurchased an additional $16.1 million face value of the convertible notes at a cost of $11.3 million. Year to date as the end of November we have repurchased notes with an aggregate principal amount of $85.4 million for an aggregate purchase price of $50.6 million and we have reduced the principal amount of the convertible notes from $275 million to $190 million.

The total contribution from our credit program for the third quarter increased to $15.7 million compared to $11.5 million last year as a result of decreased operating expenses for the program. I’d now like to provide additional comments on our balance sheet, liquidity, and the financial statement impact from the sale of our credit card file.

Changes to our consolidated balance sheet related to the sale of our credit card receivables program include the monetization of investment in asset backed securities, an increase in cash and a decrease in prepayments and other.

We have no further financing obligations with respect to the credit card program subsequent to the sale to Alliance Data. We also entered into a 10-year operating agreement with Alliance Data for the servicing of our brands private label credit card programs. Based on credit sales generated by the retail brands private label credit card program, on a go forward basis we will receive ongoing payments from Alliance Data.

These payments are expected to substantially replace the net credit contribution related to our credit card business on a trailing 12 month basis as of our second quarter and will be recorded as a reduction to our SG&A expense.

During the third quarter we received a federal income tax refund in the amount of $27.7 million which was previously recorded as an income tax refund receivable under prepayments and other on our consolidated balance sheet. This tax refund is related to the company’s carry back of net operating losses from the prior fiscal year.

Our income tax provision for the fiscal 2009 third quarter was $4.9 million as compared to a tax benefit of $11.9 million for the fiscal 2008 third quarter. We continue to have evaluation allowance recorded against our net deferred tax assets and as such, the income tax provision for the fiscal 2009 third quarter was primarily a result of state income tax payable as well as required deferred taxes and a net increase in our liability of unrecognized tax benefits.

I’d like to recap our increase in cash for the quarter, the major components that result in our $170 million increase in cash include the sale of the credit card receivables program, the reclassification of cash which was previously held in prepayments and other, to satisfy requirements related to the operations of our former credit card bank and a federal income tax refund received during the quarter somewhat offset by net inventory net of accounts payable, meaning the seasonal increases in working capital that we typically have during the third quarter and repurchases of the company notes.

We have updated our estimates for capital expenditures for the fiscal year ending January 30, 2010, we have projected net capital expenditures of approximately $28 million representing a 43% reduction to the $49.4 million in net capital expenditures for the fiscal year ended January 31, 2009.

We remain vigilant in the management of our inventories and operating expenses and continue to take a conservative planning approach during this difficult economic environment. And at this point we’ll open the call up for a Q&A period.

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Scott Krasik - C.L. King & Associates

Scott Krasik - C.L. King & Associates

Let’s talk about Fashion Bug if you will, obviously you’re losing a lot of money there. You started at low levels of productivity but negative comps are driving that down further, what sort of return metrics are you now using for that to determine whether you should be devoting any capital at all to Fashion Bug going forward.

Jim Fogerty

So maybe just stepping back on capital allocation generally, obviously liquidity is not our issue and now we have to be incredibly smart about how we allocate capital throughout our business. So on Fashion Bug obviously they made a lot of earnings improvement year over year. Fashion Bug is a very, if you look at the flow of the earning power of the business, it’s a strong casual business as you know.

And in the second quarter it makes not enough money, but it makes more money in the second quarter then it makes in other quarters. So when we look at the, we’re obviously looking at it from a full year standpoint when we’re thinking about the business but on a full year basis, we are as an overall chain, from an EBITDA standpoint we’re bouncing around.

When we take into account the income we make on credit earnings, we’re making just kind of a little bit of EBITDA here. Where we stand we’re not making much EBITDA on the entire chain. So that’s as it stand, that of course isn’t a good place to have the capital but we of course are not intending to sort of stay there, we’re intending to have the business grow and we are working hard on driving, which Jay and his team, driving the assortment so that we can have more throughput through each of the boxes.

So its not a static answer but as to where we sit today, we are going to be, my comments on the store base we are going to be pretty, now that the business model as we move into the early part of next year is sort of stabilizing a little bit. We know where we stand a little bit. We’re going to be disciplined about the store base and pushing for rent reductions and breaking leases where we’re going to get an ROI on those break leases.

Scott Krasik - C.L. King & Associates

I would think without if you could quantify it maybe talk about how many bad stores there are left. I would think you probably closed the majority of them and without that benefit you would need significant productivity in the store to comp on comp to get it to a meaningful level of contribution. When do you decide not to putter along at breakeven.

Jim Fogerty

So just to make sure the math is clear to everybody, the way is to be very clear about how we think about the math. When we think about a break lease there is an investment, its not always free, there’s an investment. We’re going to have to pay something to somebody to get out of that store. The return on that of course is, so its not just simply look at the negative EBITDAs and kind of, sort of take care of negative EBITDAs.

Its how much does it cost us to get out which is the break lease, how much from a investment return standpoint that would include both the EBITDA burn that we would avoid, and any net inventory proceeds net of payables that we get through a GOB process. So when we’re looking at that, those mathematics, we’re going to probably, we called out 70 some odd stores being closed, I think 80 stores being closed in the fourth quarter.

And we’re going to keep looking at it so, but we’re also at the same time there’s lots of opportunities in the Fashion Bug chain the way the business was being run and we’ve got a lot of negative EBITDA stores as a for instance in the southeast, in Florida in particular, but we were sending them sweaters when it was hot and these kinds of things.

We don’t want to sort of overshoot, trust me, I know how to close stores and we will do that as we need to in a balanced way and I’m hoping you won’t all think we’re, puttering, I don’t want to be puttering. It’s a great question and we have this same conversation with our Board and I think we are going to, the business is improving, so the earning power isn’t where it needs to be but its improving.

Now so based on where we think that level of earnings can be next year in a very, in a practical sense of the level of the earnings at each of the stores, we’re going to take a hard look and keep optimizing the portfolio but it isn’t just simply whack the negative EBITDAs, we’ve got to think about, we’re also studying our real estate portfolio a little more closely.

We’ve got a consultant working with our real estate team. There are smart ways to close stores and be thoughtful about transferring volume, if we have three stores in a market there might be one store that may have to close and have some transference to the other two, so we’re getting at it. Hopefully you won’t think we’re puttering over the next couple of quarters.

Scott Krasik - C.L. King & Associates

Just on Lane Bryant, do you have traffic counters there, do you have a sense of, is your conversion declining because they’re coming in the store and not finding the sizes, how do you know that, or maybe they’re just not coming in the store, what’s your sense there.

Jim Fogerty

So we had historically had about 20%, 25% of our overall Charming chain covered by traffic counters. We are actually in the process of kicking that up to more like 75% of the chain. So that would be Lane Bryant as well. So we are getting to a point where we’ll be able to be very actionable by store, but as to your consolidated question we have not seen a change in the conversion rate, its actually improved a little bit here in terms of the conversion rate at Lane Bryant year over year for the stores that we have traffic counters.

But the way to think about, it’s a little complicated of an answer, but the way to think about 100 people entering our stores, the portion of those people that enter our stores that are existing customers tend to convert better because they’re directed, they’re directed there by our magalogues and our marketing pieces and they go into the store and they buy.

And the conversion rate for that set of people tends to be strong and then for the walk-by traffic, people who are not really marketing, just kind of checking it out, the conversion generally is a little lower. So what’s happening a little bit is the mix of the former is increasing and the latter is decreasing.

So I think the absolute level against our existing customer is not, probably has weakened but because of the mix the overall consolidated answer is still where it was. Long story short, if you didn’t follow the math, basically the existing customer is not converting as strongly as they were and I think it has, we believe it has to do because we’ve researched it and we’ve asked, it has to do with our lack of depth of sizes and styling, sizes and fit in our bottoms program and just depth of sizing throughout and the way we’re going to solve that is to put sizing in and part of accomplishing that is narrowing the breadth of the assortment to allow us to carry more depth and also reducing the fashion part of the assortment and increasing the core and updated core parts of the assortment so that we can have, we can be in stock on their most basic need which is to find something that is the right size and fit.

So we think when we do that we’ll reverse that negative trend with our existing customer on conversion.

Scott Krasik - C.L. King & Associates

And then just two for Eric, I missed what your same store or average store inventory was down at Lane Bryant, at the end of the quarter.

Eric Specter

It was down 15%.

Scott Krasik - C.L. King & Associates

And then you mentioned a tax refund, I’ve gotten some questions about the Business Assistance Act of 2009 that Obama signed that seems to allow companies, or they made money between 2004 and 2007 to recapture a large portion of that against losses in 2008 and 2009.

Eric Specter

Yes, that is correct and we are evaluating, that just was signed into, signed by the President in the fourth quarter. We’re evaluating now the implications to us which is positive, so just as a reminder the refund we received was obviously under the old tax laws allowing us only to carry back two years. The expanded legislation now allows us to carry back five years, meaning that we can go in as you’re suggesting, go into the years where we were a tax payer and we’re now evaluating the balance of our NOL that we were unable to carry back two years, we will be able to reach back in those three preceding years to recapture some of the remaining NOL carry forward.

And that’s now being evaluated here in the fourth quarter. So there’ll clearly be an additional refund and we will take advantage of this new legislation.

Jim Fogerty

Just to clarify, that the absolute level of the opportunity may not be the sort of historic NOL people have been seeing because the credit deal will actually utilize—

Eric Specter

Yes, I will, what I’ll comment on is we had a NOL carry forward into this fiscal year of approximately $80 to $85 million. We will significantly use that up by the income that the sale of the credit transaction generated but we still will have a piece of that NOL that we will have left on a net basis and that’s what we’ll be able to monetize through this new legislation.

Scott Krasik - C.L. King & Associates

So just trying to do the math in my head, I’m coming up with maybe $0.40 or $0.50, you’re saying its not going to be that much, per share, sort of.

Eric Specter

No, it would not be that much. It would be, actually just for directionally it would be comparable to the refund, a little bit less than the refund that we received here in the third quarter.


Your next question comes from the line of Jeffery Stein - Soleil - Stein Research

Jeffery Stein - Soleil - Stein Research

Just a little bit confused here on kind of the strategic direction now of Lane Bryant, it seemed earlier the story was this customer really does care about fashion, and now you’re kind of saying, well the customer cares about more, cares more about sizing and fit then fashion so you’re going to reduce the amount of fashion in the store. If that’s the case, is this customer going to, I mean is this customer going to, does this customer spend as much of her budget on apparel as the kind of the junior and misses customer.

Jim Fogerty

Let me be clear, just it gets complicated, people get hung up on the semantics here even when we talk about it internal for our own company, I don’t mean, so just because its, so when the merchant thinks about their assortment, they think about let’s just call it core and updated core as a grouping and then fashion.

The items that are in core and updated core, don’t, it doesn’t mean they are not fashionable, its fashionable product, its just not sort of as trendy or fashion forward as the other piece. And so in general its all about balance so I think this year the overall mix in the assortment and I’m going to talk spring and summer, so basically spring and summer, Lane Bryant assortments for 2010 versus spring summer versus, that we just went through in 2009.

In spring summer 2009 we had of that fashionable piece, or the incrementally more fashionable or trendy piece, we had 30% of the business up there and where we’re heading in fiscal 2010 is we’ll have 20%. So there’ll be a 10% reduction in that piece. But we still, Lane Bryant customers, don’t get me wrong, still cares about having stylish clothing that is not really, really basic but its about the balance and while we are modifying the assortment in that mix, the other really important thing that we’re doing is the average unit, the average unit that’s receipted on to our floor in this coming spring summer fiscal 2010 period, versus fiscal 2009 is going to be down 10%.

So the average ticket on our product is going to be down 10%. That doesn’t mean its not fashionable product, that simply means we are reworking it, we’re working our vendor base hard and we’re also frankly we had moved up beyond where we think where our customer is today in terms of the average price point in the assortment.

So that’s going to come down 10% and to make it real, the conversation Brian and I have about it is that at the end of the day product that is ticketed at under $50 this year was about 60% of the assortment and in 2010 its going to be 80% of the assortment. So we’re going to move that overall ticket down and on top of it, we’re going to have more planned product promotions and really try to take credit for more of it, from a price point standpoint because our price points are not terrible.

We just don’t do a good job making sure the customer understands because we’re on deal. We’re a high low operation at Lane Bryant and when the deal is out there they don’t, we don’t do a good enough job getting credit for the actual delivered price point at the end of the day. So long winded answer, I don’t want to sound like, I would tell you we have learned, the pendulum swung a little bit too far from an average unit price point, it swung a little bit too far on how much of that kicked up fashionable piece was in the assortment.

So its about balance, its not like its all of a sudden going to like the Wal-Mart merchandise assortment. That’s not what we’re talking about here, we’re talking about still very fashionable trend right product in the overall assortment but the sort of really, the kicked up piece is going to come down. Its not going to disappear, its going to come down from 30% to 20% and the more important thing is that our value, our price point not wild promotions and wild discounts kind of stuff, but just the day in and day out price point that’s in the assortment is going to be coming down about 10% and our under $50 piece is going to go up.

Jeffery Stein - Soleil - Stein Research

Two real quick follow-up questions on that, one will you be able to maintain your margin structure with the 10% lower AUR and number two, it sounds to me like its going to require you to drive a lot more footsteps into the store and that’s the one thing you haven’t been able to do this year, what is your strategy for driving traffic in 2010.

Jim Fogerty

So on the first question on the margin we’re absolutely, we absolutely believe we, the way we think about the customer base now is we have these different customer profiles that help us design into which is the, and in general, is the somewhat more conservative customer and the somewhat more trendy customer but then we’re also segmenting probably, as importantly from a value standpoint there is that existing customer in Lane Bryant who are able to deliver these better price points and better margins to go with, but then there’s this other segment that we have not been performing well with which is the folks that are, they just can’t afford to get too carried on how much they’re spending each time they’re with us.

Or if they’re just walking by, so we think that part, there’s a lot of opportunity to get, to kind of play to both of those pieces in the way we’ll design the assortment and so by doing that, traffic is, as you know, traffic is not you know, we joke, the traffic man doesn’t just show up and there’s no control of the traffic man, it really is that the assortment itself creates the traffic and so.

There’s an overall kind of traffic to the mall and an overall trafficing inside the strip centers but at the end of the day the traffic that we talk about is what did we get right, so in some sense, some people get hung up on too much on what the average is. The point is you can get a lot of it if you have a really good, a good value and assortment positioning. So I kind of jumped around a little bit on you there, but that’s how I’m thinking about playing, getting the traffic.

Then in terms of marketing, we continue to work the magalogs piece. I think that continues to cause our customer to respond but frankly that customer can respond better as well if we’re a little more careful on how much we’re talking about value with that customer, we have to do, we have to talk about price points and we have to talk about value and we have to reinforce the, frankly the fit message and the sizing message as we go into next year to our existing customer.

And then we have a huge opportunity with customers who have left us, reactivating them. But we’ve got to get these other things fundamentally right while we do that. We have to, they want the same things, these customers that have left us and become inactive and the overall active customer base has dropped in Lane Bryant and there are these folks that have lapsed and become inactive that we have to sense, we know who they are and now we have to sensibly market to them and in a very targeted way.

And I think that’s the biggest parts of the opportunity. Yes, there’s this other customer who doesn’t know Lane Bryant and hopefully over time we get them to know Lane Bryant. Yes, but that’s expensive to get at. We’re going to be cautious in thinking about that. We think we can do some of that but the most important thing is to keep the frequency up with our active customer file and keep people from lapsing and when they lapse, reactivate them and I would tell you the reactivation piece, we have, we may have talked about this, we’ve adjusted our, frankly our analytical approach to it and we, we’re now taking into account, when they were running it historically here, they didn’t take into account the lifetime value of the customer.

So they tried to make all the pieces work, the marketing pieces work, from a reactivation standpoint. They had to get enough margin then and there to pay for the piece versus a control group. Our team has now introduced the notion that at the end of the day its about yes, when you reactivate them, its about yet getting the margin from that visit, but you, some portion of those customers you bring back in for another trial will become a permanent customer and we have to take into account some of that value and again we’re back to the earlier question, putting that all within the overall ROI rubric of how we’re managing the company and make sure we get good ROI on that.

Jeffery Stein - Soleil - Stein Research

The margin, again the first question, the margin, the margin structure for spring, will it produce the same maintaining margin on a lower AUR.

Jim Fogerty

Yes. That was shorter, I should have started with short there.


Your next question comes from the line of Arnold Brief – Goldsmith & Harris

Arnold Brief – Goldsmith & Harris

Could you give me some idea of whether the competitive landscape is in your category large sizes has changed over the last two or three years and if so, what that impact has been on you.

Jim Fogerty

I would tell you we, so we think about, we watch the overall obviously the overall retail space and then within retail we watch the overall women’s apparel space and then we torture ourselves, is the missy customer coming back faster than the plus customer and all the rest. I’d say we’re an important part of the overall business so we have to make sure we give enough vale and enough reason to get the plus customer shopping again and coming back.

It feels a little slower with the plus customer but that’s sort of doesn’t matter, we just have to make it not slower. We have to make that customer have a reason to spend. Because its self fulfilling if the assortment is too expensive or isn’t giving them enough of a reason to replace something in the wardrobe, you’ll have the plus customer won’t react and we’re as the biggest specialty player in the space, we should be the leading edge on making that happen. Did I answer that question.

Arnold Brief – Goldsmith & Harris

Has the competition that has entered the field been more fashion oriented.

Jim Fogerty

Okay so, well here, so from competition standpoint its kind of that same conversation from a value standpoint there is no question that we are not doing a good enough job against the Kohl’s and the Penney’s of the world and frankly even our other specialty competitors, but the guys who are really strong on value have been winning in this economy.

Relative to their own businesses, they’re probably doing even better on things beyond apparel, the electronics and the other pieces, but head to head with us, we have to compete, we can’t walk away from that growing customer base that cares even more about value in the current economy and I think that’s to some degree we have done that.

We’ve done that in Lane Bryant, Fashion Bug should have been along the way here winning big time in the value space and its getting better positioned now. It didn’t have a strong enough price point to play in the space against Wal-Mart and Kohl’s and so forth so that’s getting stronger. So there’s no question, the competition has gotten stronger. Macy’s is very strong competition for Lane Bryant and we’re, and a value is a critical part of this.

But also the sizing message, when we’ve asked our, in our research, when we’ve asked a customer why they choose somebody else other than us as their favorite retailer finding my size tends to be the first thing they mention. So they know us, they know Lane Bryant but they go choose somebody else as their favorite retailer because we haven’t had, the other guys has done a better job having the size.

So we’re focused on the size and the value, those are really big things for us. They sound simple but they’re important.

Arnold Brief – Goldsmith & Harris

Maybe you could flesh out a little bit, its not clear in my mind to what extent the shortfall in revenues in the third quarter is due to, how can I put it, mistakes in merchandising and to what extent it was due to the fact that your merchandise mix is still in the stage of transition. You’ve given the fact, the lead times that you talked about, etc.

Jim Fogerty

So if I look at the overall drop in comp revenue for the quarter of what it is, $80 million some odd, $90 million, that overall drop in revenue, we dropped a big chunk of markdown business quarter over quarter in the zip code of $30 million. We dropped a big chunk of pants revenue, quarter over quarter $10 million. We dropped a big chunk of juniors and kids and businesses which was about $20 million.

So that’s $60 of that $80 some odd so the, so to answer your question the pants piece, we should be selling pants. We should have a stronger pants business. We should have that pants revenue. We should, the markdowns, we walked away from the markdowns which is part of why the margin rate improved so that was kind of purposeful, of course walking away from those markdowns, but we should have offset it elsewhere in the assortments.

We should have had the value to be on the receiving end of that, of those markdowns that we walked away from. And then on the juniors and kids piece which is a Fashion Bug specific piece, we need to have offset that with other growth in that business which we haven’t done yet. I would tell you one piece of that is, we are exploring together with Jay is whether we’re actually still in the junior’s business.

In other words we do have clothing that is junior’s aspirational meaning it may not be specifically junior’s business but it is junior’s trend like and so we are working very hard on thinking about can we play to that junior’s aspiration inside of our overall assortment because the folks that actually used to buy the junior business in Fashion Bug were actually older folks.

They weren’t necessarily really young, I don’t mean old, I mean older, they weren’t really that junior’s age folks, they were folks that in many instances wanted to look a little younger or look sort of trendier and so forth. So that gives you a little bit of a sense, there’s some big hunks of revenue that we’re looking at and then from a profit standpoint, the profit, the pants, right fit pant profit year over year in the quarter cost us something like $9 million and so we offset it by $3 million or so of profit in other non-right fit pants.

But so, so call it $7 million so that pant thing is like, an awful performance year over year in our pants or bottoms program. So that, we’re on that like a laser to make sure we get that fixed both from a top line standpoint but more importantly frankly from a profitability standpoint. So long winded answer but those are some of the big chunks.

So on the positive side, our accessories as I said very strong. Our intimates businesses, which is our Cacique business inside Lane Bryant is a very strong business. And sportswear is coming along. Its these other, its just not coming along enough to sort of be on the receiving end of these reductions and markdowns and be on the receiving end of walking away from juniors and kids and so forth.

Arnold Brief – Goldsmith & Harris

Has there ever been any thought to segmenting the market by price, by your different venues, in other words have one of your operations go more value, one go more fashion, that kind of thing.

Jim Fogerty

Absolutely in fact the way I talk about our portfolio we sort of in effect have a good, better, best where in Fashion Bug is our good level positioning from a value standpoint as a strip center brand and then Catherines is better and also a strip center brand and Lane Bryant relative to us is our best and it plays in both malls and strip centers.

Arnold Brief – Goldsmith & Harris

Is there a lot of overlap in the locations, in other words if I went to a mall would I find all three stores in the same mall.

Jim Fogerty

No. Again Lane Bryant is the only one that’s in a mall. Strip centers would have the three of them, but they overlap in some instances. If you don’t mind we’re going to move on, but Gayle Coolick, if you want, she can get you up the learning curve.


Your next question comes from the line of Gary Giblen – Quint Miller & Co.

Gary Giblen – Quint Miller & Co.

I think we all appreciate the candor that you showed in admitting merchandising and executional flaws, so I guess the question is do you think that the overall market for better adult plus size at Lane Bryant and then also for the Fashion Bug customer, has the market not improved in the last three or four months, or is it just that your own moving parts have obscured the improvement in the underlying customer demand.

Jim Fogerty

I think the plus market has improved. NPD is on a trailing basis, so NPD is always a, just based on a my reading of [Dress Barn’s] results and looking at Cato’s results and these other folks that have, they have a combo of plus and missy but my general read is that they’re plus business is not what our, from top line standpoint I haven’t studied their profit picture frankly that closely, but from a top line standpoint they’re not comping as negatively as we are.

Now I don’t know, I’d tell you, so those big chunks of business, I’m sure they didn’t drop all that pants business that we dropped and they didn’t, I don’t know what their markdown business looks like year over year but we didn’t offset that so I’d say yes, we have not, we have done a good job on profit and driving profit I believe, but we could have done better and net net on the assortments we, it feels to me like we underperformed relative to the competition which actually is an opportunity, we’ll just, we’ve got a new team including myself and its, we’re going to have some learnings and more important, so its my style to be transparent and show candor. At the end of the day if I don’t get to a place where we fix it, then it’s a bunch of nothing.

So I’m all over making sure we fix it and drive the EBITDA of the business.

Gary Giblen – Quint Miller & Co.

And just on the Fashion Bug side, with junior, missy, has that environment improved but again you have moving parts that obscure it or is that less of a clear pick up in the external environment.

Jim Fogerty

Well I think it’s the same answer for them in terms of the external environment. The answer is, like Cato plays down in that space and they’re comps look fine. We have improved though too, we went, its just we’re improving from terrible levels, we went from a down 18 to a down 14 second quarter to third quarter in Fashion Bug.

So we’re, and we’re walking away from junior’s and these kinds of things but, so we have a lot of work to do to get where the competition is.


Your next question comes from the line of Tom Filandro – Susquehanna International

Tom Filandro – Susquehanna International

Couple of questions, can you first just give us a better understanding of what percentage of the business is in bottoms, what did right fit represent in the quarter versus last year and then I’m a little bit confused I thought back in the spring that you highlighted in the pant area specifically in right fit that you wanted customers to go to the web for sizes and you were going to be less SKU intensive in stores, is there a reversal to that thought process.

Jim Fogerty

In terms of the total pant business, on right fit, the right fit program what I’m reading here in the prior year period directionally was about a $42 million and in the third quarter we did about $29 million or something like that for about just shy of a 30% reduction in the right fit volume in the business and then even more of a reduction on the profit line in the business which is that sort of $9 million number I called out on the profit line.

So that’s on right fit. So good question, this is the notion we carry red, yellow, and blue. We carry a straight, a moderately curvy and a curvy fit, historically in the right fit program and when I call it a poorly architected program as our merchants have tried to work with this program, the number of SKUs that’s in the program, I think somebody called it out to me is about 260 choices, if I’m getting that number correct in the program.

So a lot of SKU complexity and what the team then tried to so is say, okay my answer to the complexity is I’m going to zero in and just carry one of those fits in the store while moving the other two fits to online as sort of a general approach and I think part of that was, it’s a well intended but we have to, whether it’s the person with the yellow fit or the blue fit, we have to be realistic that when they come into the store we can’t just have the answer be, we’ll get it for you off the internet.

The way, probably the best example is, having been at Levi Strauss or some of these other stores they do not carry all fits in all styles. They will carry, but they’ll make sure that if you’re a certain fit they got at least one style in the store for you. So the problem is we just got sort of tied into this our over SKUed program and it wasn’t easy to be nimble with it.

So without getting into a lot of detail we have got to take the number of choice down in that overall program from that 250 some odd, narrowed it up, but the transition is incredibly difficult so we’re trying to transition to a new place and bring in more fashionable denim and wear to work pants that aren’t tied in, so I don’t have a complete answer for you on what that’s going to look like.

We’re working on it. We do have new styles coming in in both fashion denim and wear to work pants but we have to kind of redo how this right fit, because what happens is some portion of the program is right fit and some portion doesn’t even mention right in terms of our overall pants program.

So we just have to, we’re taking a step back and we’re going to figure out a new way to play right fit while not losing that customer that wants to have, wants to find their fit and wants to find their size and the other thing we’ve been talking about size and sort of fit being sort of the hip, sort of the hip part of the fit, and on top of that though there is also the length part and we got so over SKUed in the basic program, that, think about Hispanic women and around the perimeter of the country, they want petite lengths.

We can say to them, just buy the regular and get it hemmed, or what have you. That of course costs money so we found ourselves so constrained on inventory in the pants program that people weren’t doing the right thing which was bringing into their pants program these alternative lengths to play to a big market opportunity. So long winded answer and you’re right, we probably didn’t play it right when we brought those two fits back to internet and didn’t have enough of a choice for them on their fit in the store.

Tom Filandro – Susquehanna International

How does this play into your inventory planning heading into I would guess the spring and fall of next year. Obviously you said lower, I’m assuming you’re indicating earlier that you’re going to see lower AUC given that you’ve taken ticket down 10% though on a unit side, how should we think about inventories. Because it sounds like you need to rebuild some of the inventory commitments for this category and maybe some other bottom category.

Jim Fogerty

So it’s a phenomenal question, I think historically we’re actually working through how we do transitions in the business because you have transitions all the time in these programs whether its, but in terms of the bra program, so an old bra style leaves and a new one comes in or pants leave and new pants come in, and I think the way we’ve historically run it, is the parts of the program that are kind of exiting stage left, leaving the program we will run down the in-stocks so that its cleaned up and then the new stuff arrives.

So we’re actually figuring out whether there’s a better, because what it does is over like a three month period, you’re not satisfying the customer so, and that’s when you’re trying to manage to an overall sort of capped level of inventory. Liquidity is not our problem in this company so we may want to, we’re still working through it, but we may want to be adding a little bit more inventory, this isn’t big numbers by the way, don’t get carried away, but in thinking about these individual programs, add some inventory in so that we can keep satisfying the customer on the old styles while the new one, and have sort of a harder cut over and you know what, if we have some extra business to create some value with and some markdowns or price point promotions on the old styles of pants, there’s nothing wrong with that either.

And so, but, I don’t want to scare you, we want to do it carefully on inventory management, but we probably, we can’t have these hard caps which keep us from satisfying the customer.

Eric Specter

Just to, I know where you’re going with this in that there’s a lot of moving parts in this transition. Clearly the entire core pant program, and predominantly Jim’s comments are referring to Fashion Bug and Lane Bryant, we were much leaner at the Catherines brand, but as it relates to Lane Bryant and Fashion Bug its completely being re-strategized including how do you still, we want to keep that right fit equity.

We want to address the demand that we believe we walked away from relative to because of the SKU intensity, walked away from lengths. We have a very significant petite length business in all the brands and to some degree compromises and decisions had to be made otherwise the SKUs would even be more proliferated.

But the point I want to make is part, we are not going to walk, you know right now there’s, we would have preferred in the third quarter if we could have, is had a lot less core right fit denim program and a lot more of what was selling early in the third quarter particularly at Lane Bryant, the boyfriend jean, the skinny jean, the premium 7 7 jean, all which sold out.

Our problem was we didn’t have enough and what you’re going to see as you go to the stores, as we turn into December, January, is that, the other part of the pant program which is where the consumer has moved, is going to be replenished and that’s where we’re headed. Though transition our right fit as Jim’s mentioning we are working with the brands, the brands are strategizing to get out of the current remaining inventory which is dramatically less than where we were when we called it out in the spring.

They will get out of it profitably and they’ll have a brand new denim as well as wear to work pant assortment prepared and ready to go for the next fall season.

Tom Filandro – Susquehanna International

Fashion Bug, I was surprised the performance wasn’t a little better given what I thought were some interesting marketing initiatives put into that brand fall season, so I was just wondering, maybe you can give us an assessment on how you felt the marketing initiatives that they did put in place faired and maybe it was just because the economic environment was more challenging or merchandising issues. How did you feel about their overall marketing push for the fall season.

Jim Fogerty

So I think the item of the week promotion has driven some new interest in the brand. We’ve run some newspaper inserts that’s driven some new interest in the brand. So I think if we had not done those things it would have been worse. I think though that kind of fundamentally though we did walk away from, the Fashion Bug business is down in the zip code of $40 million and we did walk, half of that was walking away from business, walking away from juniors and kids business.

And so we’re thinking about that, is there ways aspirationally to play back against some of that junior business. We did walk away, now we walked away to sort of narrow and get focused and there’s been some real strength in doing that. So we’re just trying to, we’re trying to have our cake and eat it too and figure out ways to, because to keep segmenting the pieces of the business.

We sell to two different customer profiles in Fashion Bug today, kind of the main floor is what we call playing to Felicia, which is kind of the main persona, but then there’s actually a corner in Fashion Bug called Essentials which is another profile, Maggie, the more kind of conservative women. So that corner, we’ve been able to segment and pull that off so we’re continuing to think about how to evolve that.

And then we did, we walked away from a lot of markdowns year over year so its hard to, that’s the good thing. One of the reasons that the profit went up $15 million year over year in Fashion Bug is because we moved away from those businesses that were heavily marked down and extremely promotional last year.

So we ran a better, obviously a better operating profit picture. So I think the marketing piece has helped drive it but fundamentally I think we also, I didn’t mention it, we also as we go into our spring and summer assortments in Fashion Bug we will be bringing that ticket, and this is not all like for like, this is kind of architecting the assortment, but we’ll be bringing that ticket down another average six or seven points of ticket reduction will be happening in Fashion Bug because, they’re right in the heart, ground zero in the value space.

And we have to be very [tidy] position. The other thing, we are being more thoughtful there on how we, with Jay and the team and how we’re thinking about playing the hard marks and maybe we wait a little too long and can we do a hard mark a little earlier in the cycle and yet have a net better, at the end of the day a better out the door. Its all about you start off and you sort of bring down the price over time and you’re trying to optimize.

And so we’re playing that optimization curve a little bit there. And then we are getting a little bit better at it, but item of the week, these planned product promotions and really getting credit for our strong price points, we’re going to try to get even more harder hitting there so, Fashion Bug has improved. It ain’t enough, and I would agree, I would have liked to have seen it be more improvement here but we got some fundamental things to figure out in their pants business and our intimates business there was not where it needs to be.

We did have some strength in accessories there so and there are, there is a new team there in terms of what color the product is and the style of the product and we’re not totally humming there yet either.

Tom Filandro – Susquehanna International

Can you give us a quick update on the icon collection, how the customer received that, how many stores its in and what your thought process is there and then on the ecommerce increase of 6%, can you specifically tell us what happened by brand.

Jim Fogerty

So on the icon collection, I actually think we think it’s a nice collection to have. Its in 100 stores. It gives a little bit of umbrella to the brand, makes us, gives a little cache. It doesn’t, obviously we’re not losing money there. We’re making a little bit of money. Its additive. Its trying to increase the throughput on the more expensive mall stores. That’s really what its trying to do is making the economics work in the more expensive mall stores is tough.

But I would actually say to you I think in general its been a nice, it’s a nice focus but our most important focus is what I talked about earlier, getting those entry price points right, getting the core assortments right, and that’s where we’ve got, we’re going to keep moving the icon piece. We’ll try to keep that progress moving but its all hands on deck to really do the other piece well.

And then in terms of ecom, the total was up I guess 6%, Eric do you have the pieces there.

Eric Specter

Yes, directionally we were up about 5% at Lane Bryant, of course Lane Bryant continues to still be the more significant part of the whole ecommerce business. Its over 60% of the ecommerce business and then in Fashion Bug it was slightly up. At Catherines it was up nicely. So we were pleased with some of the early reads. Again we launched those sites in August as you know all, whenever you’re switching over to a brand new platform, you’re going to have some transitional issues.

They were worked through pretty well and we felt considering the weakness in the bricks and mortar business for third quarter that we are moving in the right direction with ecommerce and overall ecommerce represented about 5%, penetration of our total sales and of course we have longer-term, medium term to longer term initiatives to significantly increase that penetration.

Jim Fogerty

So basically Lane Bryant as Eric said is the bigger part of the business and that’s important to keep that moving. We did have two new folks get placed into Fashion Bug and Catherines and so we think there’s big opportunity to grow those ecom businesses. Within Catherines thinking about that customer segment which is the normal plus sizes but also the much larger sizes are also carried in the Catherines brand, and that customer in particular as we study it, there’s a piece of that customer base that really likes to shop from home online.

And we are, we’re seeing those numbers, at least in that quarter we saw some successes there with some focus on it with Catherines. And then we think Fashion Bug is also a big opportunity online. We think there’s, no different than any other segment in America, they want to be shopping online and we have to play the strengths, the value strength, the Fashion Bug value with styling strengths of Fashion Bug online.

So I think they’re both opportunities for us to kind of move those things forward over time.


There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Jim Fogerty

Great, I think we hit what we wanted to hit there. I had some, like last time, if I wasn’t asked the questions, I had a couple of things prepared, but people asked me the questions this time and so I don’t have anything incremental to add.

I do want to just kind of restate, you know Gayle kind of nudges me in this things and she says I sounded flat in my presentation so I just wanted to, she’s getting mad at me, so I just want to say I continue to be excited by the opportunity here.

Quick story if I could, at American Italian Pasta Company when I was CEO there, we had had a sort of a stabilization and things had started to come around and we had our liquidity in place and we’d taken a deep breadth and then the price of Durham which was 60% of our cost of goods went to the moon and so we had a pro forma business that was making $70 million of EBITDA that all of a sudden was going to lose $60 million.

So it went from making $70 to losing $60 and we had to, so I actually enjoy the adversity and Eric and Brian, and Jay and Carol and [Mary Ellen] and the rest of the team, we’re working hard on dealing with the adversity and making it work for us. So stay tuned but I’m still, the point I wanted to make is I’m still positive and we’re going to make this a great success.

That’s it. Thank you everybody.

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