Tuesday Morning F1Q08 (Qtr End 9/30/07) Earnings Call Transcript

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Tuesday Morning (NASDAQ:TUES) F1Q08 Earnings Call October 31, 2007 5:00 PM ET

Executives

Laurey Peat - IR

Kathleen Mason – President, CEO

Elizabeth Schroeder – CFO

Mike Marchetti – EVP, COO

Analysts

Laura Richardson - BB&T Capital Markets

Neely Tamminga - Piper Jaffray

Jeff Stein - KeyBanc Capital Markets

Tracy Kogan - Credit Suisse

Lauren Levitan - Cowen and Company

Robin Murchison - SunTrust Robinson Humphrey

Laura Champine - Morgan Keegan

Dave Weiner - Deutsche Bank

Timmeny Wallace - Friedman, Billings,Ramsey

Operator

Welcome to Tuesday Morning Corporation first quarter fiscalyear 2008 earnings conference call. (Operator Instructions) At this time foropening remarks, I would like to turn the conference over to Laurey Peat withLaurey Peat & Associates. Please go ahead, Laurey.

Laurey Peat

Thank you for joiningus. I would like to welcome you all to the Tuesday Morning Corporation firstquarter fiscal year 2008 conference call. Today, you will hear from TuesdayMorning President and Chief Executive Officer Kathleen Mason; Executive VicePresident and Chief Financial Officer Elizabeth Schroeder; and Executive VicePresident and Chief Operating Officer Mike Marchetti.

We are here to discuss the company's first quarter results,which were reported this morning. If you have not yet received a copy of pressrelease, please call Laurey Peat & Associates at 214.871.8787.

This morning's call will begin with formal remarks by managementand when they concluded, a question-and-answer period will follow. The operatorwill instruct you on the procedure at that time.

I would also like to remind participants that remarks madeby management during the course of this conference call may contain certainforward-looking statements within the meaning of the Federal Securities Law andthe Private Securities Litigation Reform Act of 1995, which are based onmanagement's current expectations, estimates and projections.

Words such as expect, anticipate, intend, plans, believe,estimate, and variation of such words and similar expressions are intended toidentify such forward-looking statements. Forward-looking statements are subjectto risks and uncertainties which could cause actual results to differmaterially from those projected or implied in forward-looking statements.

Such risks and uncertainties include: the success of new storeopenings, competitive factors, access to merchandise and unanticipated changesin consumer demand and economic trends, as well as other risks detailed in thecompany's filings with the Securities and Exchange Commission including Forms 8-K,10-Q and 10-K.

We will first start with Kathleen Mason's overall commentson the quarter and year-to-date results and then move to Elizabeth Schroederfor more financial details and finally we will open the call for yourquestions. Mike will address any distribution or systems questions.

Kathleen, please begin.

Kathleen Mason

Thank you for joining us today. Net sales for the firstquarter ended September 30, 2007were $201.7 million compared to $194.4 million in 2006, an increase of 3.7% or$7.2 million. Comparable store sales for the quarter decreased 1.5%. Net incomefor the first quarter of fiscal 2008 was $1.2 million or $0.03 per dilutedshares compared to $3.2 million or $0.08 for the same quarter last year. Theseresults represent the 33rd consecutive quarter of positive net income andearnings per share.

Gross profit margins remain relatively consistent year over year,despite a shift in consumer preference to commodity items which produce a lowerprofit margin than decorative categories.

SG&A expense increased from 34.6% of sales for the quarterending September 2006 to 36% of sales for the same quarter ending Septemberthis year. The primary reason for the increased was expense related to theshift in merchandise receipts from the October/December quarter last year tothe July/September quarter this year. We expect these expenses to reverse nextquarter.

As of September 30th, we operated 813 stores in 47 states.During the first quarter of fiscal year 2008, we opened a net of three newstores, six new openings, and three store closures. We also relocated eightexisting stores and expanded seven existing stores during the quarter. Webelieve relocating and expanding stores in our existing store base will benefitthe company on a long-term basis by maximizing the operating results of thatbase. We expect improvement in sales to offset the increase in rent.

We ended the first quarter with a total inventory of $346million compared to a total inventory of $302.5 million at September 30, 2006. We have made opportunisticbuys on seasonal assortments and have delivered these assortments a quarterearlier than last year. We are pleased that this category is performing toplan. We feel that due to our opportunistic inventory purchases, we are well-positionedfor the upcoming holiday selling season.

Based on our projections, we expect our inventory positionat December 31st, both in total and on a per-store basis, to be on plan.

Net sales for the fiscal year 2008 July 1, 2007 through June 30, 2008 are projected to be$987 million to $997 million. Diluted earnings per share for the same periodare projected to be $0.85 to $0.90 with the assumption that comparable storesales are flat to positive 1.5%.

I will now turn the call over to Elizabeth who will discussour financial results in more detail.

Elizabeth Schroeder

Thanks, Kathleen and good morning, everyone. This morning, Iwill discuss the financial results for the first quarter of fiscal 2008 as wellas guidance. Our 2008 first quarter sales were $201.7 million compared to$194.4 million for the same quarter last year for an increased of 3.7%. The increasein first quarter sales is primarily due to a $13.8 million increased in salesfrom non-comparable stores offset by decreased in comp store sales of 1.5%. Thecomp store sales result was comprised of a 0.7% decrease in traffic and a 0.8%decrease in average ticket.

Gross profit for the first quarter was $75.7 million, andgross margin was 37.5% compared to gross profit of $73.1 million and a grossmargin of 37.6% in 2006. SG&A expense for the quarter was $72.5 million or36% of sales versus $67.3 million or 34.6% of sales last year. Expenses relatedto the shift in merchandise received and fixed store-related expenses accountfor the majority of the increase. On anaverage per-store base SG&A expense increased 1.7% year over year.

Our operating income for the quarter was $3.2 millioncompared to $5.7 million in the prior year with operating margins of 1.6% and2.9% for 2007 and 2006 respectively.

Net interest expense increased $895,000 to $1.7 million dueto higher average borrowings under our revolving credit facility in 2007.Income tax expense for the quarter ended September 30th decreased $1.2 millionto $701,000 due to lower pre-tax income and a slight decreased in our effectivetax rate from 38.1% in 2006 to 37.7% in 2007.

Reported net income for the quarter was $1.2 millioncompared to $3.2 million last year and diluted earnings per share for thisperiod were $0.03 compared to $0.08 one year ago.

Inventory as of September 30th was $346 million versus$302.5 million at the same time last year. Our inventory levels on a per-storebasis increased 8.7% year over year, representing opportunistic buys of theseasonal and utilitarian merchandise and the timing of their receipt.

We had $104 million outstanding under the revolving creditfacility with $74 million classified a short term due to cling down provisionunder the revolving credit agreement. As of September 30, 2007, we had borrowing availability of $87.1million, and outstanding letters of credit of $8.9 million primarily forinsurance programs.

On our cash flow statement, cash from operating activitiesresults within a net cash use of $45.8 million for the quarter ended September 30, 2007 compared to $18.8million used in the quarter ended September 30, 2006. The change in cash flow used in operations is dueprimarily to the change in accounts payable as a result of the timing ofinventory receipts and the related payments to vendors and there has been nomaterial change in our payment policy to vendors. During the quarter, weinvested $3.3 million in capital expenditures and borrowed a net of $47.5million in revolving credit during the period.

For the full year fiscal 2008, we are projecting thefollowing results: net sales in the range of $987 million to $997 million;comparable store sales flat to positive 1.5%; and diluted earnings per share inthe range of $0.85 to $0.90.

We expect to open 50 net new stores, expand approximately 25existing stores and relocate approximately 15 existing stores, none of whichwill require a lease buyout. Capital expenditures are projected to beapproximately $16 million, and we anticipate that all borrowings under ourcredit facility will be repaid by December 31, 2007.

For the full year fiscal 2008, we expect to generatepositive operating cash flow sufficient to cover capital expenditures, debtservice and an annual dividend payment.

At this point, I will turn the call back over to Kathleen.

Kathleen Mason

Thank you Elizabeth.Even though the environment has continued to challenge home furnishings focusedretailers, we are positioned to meet our goal to profitably grow sales andproduce positive operating cash flow in the second quarter.

Now, I would like to open the call for questions.

Question-and-AnswerSession

Operator

Your first question comes from Laura Richardson - BB&T.

Laura Richardson - BB&T Capital Markets

I just wanted to try to get a little more color that's goingto help in my Q2 estimates, although you guys are still not doing specificquarterly guidance at this point, right?

Kathleen Mason

Correct.

Laura Richardson - BB&T Capital Markets

Didn't you say there was extra SG&A in September quarterfor early receipt of merchandise? So, the implication is some of that should bea relief in the December quarter?

Kathleen Mason

Yes.

Laura Richardson - BB&T Capital Markets

Any hints on how muchor do you plan to receive early for the '08 merchandise in December quarter?

Mike Marchetti

We expect to be on inventory plan at the end of the quarter.We expect all of the expenses that we incurred extra in the quarter that justpass to be reversed.

Laura Richardson - BB&T Capital Markets

Did Elizabethspecifically call out those expenses or just say it was a factor in that bigSG&A increase?

Elizabeth Schroeder

It was a factor inthe increase.

Laura Richardson - BB&T Capital Markets

Excuse my ignorance, but should I know what the inventoryplan is for the end of Q2?

Kathleen Mason

Our plan is slightlyhigher than last year, but in keepingwith the sales that we expect to generate for fourth quarter. So, it's not upsubstantially but it's up slightly from last year.

Laura Richardson - BB&T Capital Markets

That helps. Can you talk specifically about the seasonalcomponent of the buy? I think over the last couple of years you have beenbasically buying less per store. Is that true and is that continuing this year?

At least in my stores, there is still some '06 seasonal onthe shelves being sold really cheap. So, how prevalent is that and how do youvalue that?

Kathleen Mason

I don't know what store you are in, but we really have whatwe see as no '06 merchandise on the shelf in terms of seasonal. I don't know ifthey found the box somewhere or what. But that really is not a factor in ourinventory at this point in time. Seasonal was, don't forget, we wereopportunistic.

We had opportunities to bring in some seasonal buys that wefelt would give us a little better indication on the season, earlier. So, we movedthose receipts forward and we had quite a few opportunities in this environmentto do so. So it was a multi-category seasonal buy. It was a conscious decisionto then go out and get as much seasonal as we could to get a longer period ofsell through on it.

Because we are in the closeout world, usually it comes laterrather than earlier. This year, it came earlier. That was actually a bit of abonus for us. But it did require obviously extra handling all the way around toset up the stores for the seasonal component of the business.

Laura Richardson - BB&T Capital Markets

So it sounds like if that continues then, December thisyear, seasonal as a percentage of sales could be higher than last year?

Kathleen Mason

It's pretty much inkeeping. I guess it's really on the back end that you just get better sell-throughso you have less liability.

Laura Richardson - BB&T Capital Markets

Right. Earlier isalways better.

Kathleen Mason

That's right. Exactly. Earlier is always better.

Laura Richardson - BB&T Capital Markets

I think Elizabethmight have said something about this but I missed it. It sounded like you saidyou're happy with seasonal based on what you saw in the September quarter.

Kathleen Mason

Yes. We are happywith our sell-through. Again, the seasonal inventory is performing to our plan.We don't see it as a huge over last year, but it is performing according to ourplan. We are planning this very cautiously for good reason.

Laura Richardson - BB&T Capital Markets

Did you comment on anything or would you comment on anythingthat was not in plan in the last quarter?

Kathleen Mason

Toys.

Laura Richardson - BB&T Capital Markets

There should be a lotof deals on some of the lead-paint related stuff, I would think.

Kathleen Mason

No thank you. Wedodged a bullet on the toys in terms of the volume of recalls, et cetera. Ithink the consumer in general is a little afraid of everything in toys. Theyhear the word "toys" and they assume lead paint. We aren't going outand buying lead paint toys.

Operator

Your next question comes from the line of Neely Tamminga - PiperJaffray.

Neely Tamminga - Piper Jaffray

I was just wondering in terms of the inventory currency. Ifyou are saying that the aged inventory levels are on plan as expected, down, aswe are thinking through the 14% increase?

Kathleen Mason

On plan as expected.

Neely Tamminga - Piper Jaffray

On plan as expected. Theplan for the next quarter is, you said up slightly over last year. Again,that's on a per store basis?

Kathleen Mason

We are not talkingabout aged inventory.

Neely Tamminga - Piper Jaffray

Overall inventory, Kathleen.

Kathleen Mason

Yes, overallinventory is up slightly but on plan.

Neely Tamminga - Piper Jaffray

As I'm thinking about the 0.8% decline in the averageticket, maybe you mentioned this and Imight have missed it, but is this mixed shift related or is this taking down a little bit more markdowns thanyou anticipated?

The gross margins honestly came in a little better than whatwe were looking for, but I'm just trying to get a sense of what the triggerspositive or pressures to comp are over the next couple of quarters.

Kathleen Mason

Well, the consumerhas shifted interest to more commodity items, as I said. So that is reallyactually lower margin. It is a very promotional environment out there, so weare going to respond appropriately to whatever promotional pressure is outthere to try to proactively keep traffic in the stores without blowing ourmargins.

But we see a definite consumer preference to items that aremore replacement items such as textiles which tend to have a lower margins orelectrics which have a lower margin. But within those categories we are tryingto maintain our overall margins as best we can.

Neely Tamminga - Piper Jaffray

Would you characterize your margin performance as beingbetter than you has expected or on plan?

Kathleen Mason

On plan.

Neely Tamminga - Piper Jaffray

Maybe I'm lacking a little historical perspective on this,but can you walk through with me what happens in the scenario of pricingincreases coming from factories out of Chinabecause of raw material, input costs, et cetera. How does that flow through? Isthere a lag effect that will eventually catch up to your concept’s buyingpower? Or is it that because you are so opportunistic it's a whole differentmarket and you don't typically see those pricing increases? Can you walkthrough that a little bit for me?

Kathleen Mason

Obviously, we negotiate with the vendors for product thathas already been in the chain and we really negotiate for what the demand inpricing is from the consumers. So in other words, it may filter down but we arecomparing our pricing to the other pricing that is out there in the channel.So, it's consistent against what is available out there currently.

Neely Tamminga - Piper Jaffray

A little bit insulated, not so much of a direct impact.

Operator

Your next question comes from the line of Jeff Stein - KeyBanc.

Jeff Stein - KeyBanc Capital Markets

First of all, the SG&A shift, how many basis points didthat account for in that 36% against the 34.6% last year.

Mike Marchetti

It accounted for most of the shift. I expect that all ofthat could happen to be reversed in the quarter that we are in right now.

Jeff Stein - KeyBanc Capital Markets

So essentially without that shift, your SG&A as apercent of sales would have been about roughly flat even with a 1.5% compdecreased?

Mike Marchetti

It would have beenvery close to that, yes.

Jeff Stein - KeyBanc Capital Markets

As far as the gross margin is concerned, I guess I'm alittle bit confused. You are saying you are a little bit more promotional. Thecustomer is preferring more utilitarian items which are lower margin. You had a1.5% comp. I'm just a little confused asto how you are able to hold gross margins roughly flat under thosecircumstances.

Kathleen Mason

We were just managingacross all categories of business. We have been consistent, you know, for thepast seven years that I have been here. We have been very consistent inmanaging our margins. We do have that formula down fairly well. But obviouslyit is a very pressured environment and we have been managing to try to sustainour margins while competing in a promotional environment and giving thecustomer what they are asking for.

Jeff Stein - KeyBanc Capital Markets

So we shouldn’texpect your cadence in terms of taking markdowns and recognizing markdowns,that has not changed.

Kathleen Mason

No, absolutely not.

Jeff Stein - KeyBanc Capital Markets

Comp store sales, you are looking for flat to up slightlyfor the year and obviously you started at minus 1.5%. Could we assume thatyou're expecting comps to turn positive in the second quarter?

Kathleen Mason

Again, we are managingall components of the business. There is a sacrifice of trying to drive as muchpromotional business as possible. It's sort of a balance again betweenmaintaining the margin and driving traffic and we are really managing thatpretty much on a weekly basis as we read the tea leaves in terms of what'shappening with the consumer. So stay tuned.

Jeff Stein - KeyBanc Capital Markets

In your last couple of circulars I have noticed that inaddition to the regular items you had weekend specials, kind of a small insertinside your regular insert. I am wondering strategically if this is producingthe incremental traffic on weekends that you have expected?

Kathleen Mason

What you lose on the swings, you pick up on the merry-go-round.We are just trying to drive traffic, you know, at every opportunity that wecan. Obviously, we are appealing to as much of our customer base as we can andgiving them an opportunity to shop when they need to shop rather than trying todrive everybody in on Tuesday. But it is a balancing act it to how much trafficyou get from Tuesday through Friday versus weekend traffic. So it's very much abalancing act for us.

Jeff Stein - KeyBanc Capital Markets

I'm kind of curious because obviously if you are running aweekend special, that means you are not putting the items out on Tuesday. So,are you incurring incremental labor costs, I presume you are incurringincremental labor costs to get the stores kind of reset for Saturdays. When youlook at it at the end of the day are you making money on this additional minievent?

Kathleen Mason

Well, one wouldassume that you would incur additional labor costs, except we have ouroperations pretty tight. Pretty ratcheted down. So, we manage to do that also.

Jeff Stein - KeyBanc Capital Markets

Could we could assume then that this is incrementallyprofitable for you?

Kathleen Mason

Yes.

Operator

Your next question comes from Tracy Kogan- Credit Suisse.

Tracy Kogan - Credit Suisse

First, can you talk about any regional differences andperformance specifically how is the comp during the quarter in Floridaand California? Secondly can youtalk a little bit about the trend in the expanded stores?

Mike Marchetti

From a geographical standpoint the company continues to do betterin the southeast, southwest and west coast. We did have a little bit ofimprovement in our comps in the east coast or the northeast in the pastquarter. Florida and California, we have struggled there in recentquarters but they still have very strong performance.

With respect to the relos and expansion, when compared withthe overall chain, these locations are running up just over double-digits. Weexpect the locations to be more profitable, both on a percentage basis and atotal dollar basis as well. So they are off to a fairly good start.

Operator

Your next question comes from Lauren Levitan - Cowen &Co.

Lauren Levitan - Cowen & Co.

A clarification on what Mike just said. Mike, when you saidthat the remodel or the expanded stores are up double-digits, are you saying ona comp basis? Or double-digits including the incremental square feet that someof them are getting?

Mike Marchetti

On a comp basis.

Lauren Levitan - Cowen & Co.

How many stores do you still think are candidates for thatkind of a move?

Mike Marchetti

It's probably 100 to150 stores that are still candidates.

Lauren Levitan - Cowen & Co.

Kathleen, you clearly implied in your full year guidance asothers have pointed out is the expectation of comps to improve relative to Q1.I'm curious if you could give us some insights into marketing strategy to drivethat comp, given we are already seeing highly promotional messages from manycompetitors including Wal-Mart saying today that they are going to get down anddirty on Black Friday pricing immediately.So given that kind of noise in the environment, I'm curious if you could giveus some sense of what the marketing strategy message, if you could give us anycolor on that, that would be very helpful. Thank you.

Kathleen Mason

Our planned spend is consistent with last year, but we dohave a set aside with some concentration on some targeted television and inaddition to adding [brads] to our green card. So we have the flexibility toperhaps add additional pages to our green cards.

Lauren Levitan - Cowen & Co.

Related to that, I know you have additional room toaccelerate some things. Are you with the trend you have seen, you know, withthe early seasonal reads, is there any reason, do you think there will be anyadjustments to overall inventory approach or message?

I guess your comment around the consumable piece of it wasinteresting. Should we look for you to be driving traffic with that kind of amessage and then hoping that they buy some the higher margin goods?

Kathleen Mason

Well, hope hasnothing to do with it. All we do is read the tea leaves every week in terms of thecustomers' response. I mean this is an exercise in responding to whatever theconsumer tells us on a weekly basis. We are flexible enough to do that. Thishas been a long siege in home furnishings as you well know, and I do believe atthis point we are getting a little bit better at understanding where theconsumer is responding and how they are responding and where to flexappropriately.

Lauren Levitan - Cowen & Co.

Lastly, since you give us full year guidance which you obviouslyreiterated today, but we don't have quarterly guidance. I'm just curious if theQ1 results that you reported today, if those ended roughly consistent on thetop and bottom line with what you are beginning of year plans were, so we havea sense of the way you were seasonally planning the business.

Kathleen Mason

As we look at comp store sales, it was in the range that we expected and the grossprofit margin was within the range. We did make the shift in expenses becausewe brought that seasonal inventory in earlier. So, our SG&A, expense tosell and our operating profit margin was down slightly to what we hadoriginally forecasted. We felt like it was in the company's best interest tobring that merchandise in sooner.

So again, we are going to have the flip in expenses from thefirst quarter to the second quarter and the full year will still be on plan.

Operator

Your next question comes from Robin Murchison - SunTrustRobinson Humphrey.

Robin Murchison - SunTrust Robinson Humphrey

So the changes to the marketing program for the balance ofthe calendar year I think has been addressed. I wanted to ask you about the newinsert or the new green card that is hitting homes for the Tuesday event. It sortof immediately goes into toys and is that a program or a planned response towhat we are hearing in the environment out there particularly from Wal-Mart.

Kathleen Mason

In terms of the toybusiness?

Robin Murchison - SunTrust Robinson Humphrey

Right.

Kathleen Mason

Yes. If you look atthe offerings that we have there, a lot of it is, you know, pointed away fromthe lead paint categories. So, we are trying to just drive any additional toybusiness that we possibly can.

Robin Murchison - SunTrust Robinson Humphrey

Secondly, the weekend specials, the post card that was inthis green card, weekend specials -- and correct me if I'm wrong, but they arenot really new. You have always done them, but your form of communicating themI think historically was newspaper ROP, but more recently you have beenenclosing these post cards in the green cards. Isn't that correct?

Kathleen Mason

Well, to some degree.I mean, we have done newspaper in the past which we had diminishing in returnson that form of advertising. We move to incorporate them into the green card togive the customer more of an opportunity. The same customer a feeling thatthere was additional time or more of an opportunity to shop just beyond the specificTuesday.

Robin Murchison - SunTrust Robinson Humphrey

Right, so you haveexperience with productivity generated from such and expenses associated withsuch.

Kathleen Mason

Correct.

Robin Murchison - SunTrust Robinson Humphrey

Elizabeth, just touching on the SG&A, it sounds likewhat I'm hearing is except for these additional SG&A expenses you basicallywould have been on plan in terms of EPS.

Elizabeth Schroeder

Yes, correct.

Robin Murchison - SunTrust Robinson Humphrey

So you would have been high single-digits versus the $0.03.

Elizabeth Schroeder

Correct.

Operator

Your next question comes from Laura Champine - MorganKeegan.

Laura Champine - Morgan Keegan

You used to give guidance weighted by the half of the yearor effectively because your fiscal year was different we used to get Q4guidance. Is there anything you could do to help with us that all-importantDecember quarter by perhaps giving us the percentage of earnings accounted forin the back half of this fiscal year versus the first half?

Elizabeth Schroeder

No, Laura. Historicallydon't give quarterly guidance and just because we have the shift in the year wehaven't changed our method of giving guidance.

Laura Champine - Morgan Keegan

I did hear Kathleen says that you expect to end the year onplan with inventories, but I'm not sure what your plan is. Maybe you couldcomment and give us more detail on where you expect inventories to end thecalendar year.

Elizabeth Schroeder

That plan is on a per store basis will be higher, slightlyhigher than we ended the year 12-31-06.

Operator

Your next question comes from Dave Weiner - Deutsche Bank.

Dave Weiner - Deutsche Bank

I want to make sure I understand the reloads and expansions,what is running double-digits? Are we saying that the comps are running double-digitsfor those stores?

Mike Marchetti

That's correct.

Dave Weiner - Deutsche Bank

And that there are100 to 150 suitable candidates over time?

Mike Marchetti

That's correct.

Dave Weiner - Deutsche Bank

For your full year comp plan of zero to flat to 150 basis points, what percentage ofthat you expect to come from the relos and expanded stores, as I think thoseare being included in the comps?

Mike Marchetti

In aggregate, only a small percentage of it given that thereis only going to be 50 or 60 stores that will be included in that out of850-odd stores.

Dave Weiner - Deutsche Bank

In the realm of 10 to 20 basis points?

Mike Marchetti

In that range.

Operator

Your next question comes from Timmeny Wallace - Friedman, Billings,Ramsey. Please proceed.

Timmeny Wallace - Friedman, Billings, Ramsey

Regarding the expansions and relos, to expand on that alittle bit, when will you be done with the 50 relos and 25 expansions that havebeen announced?

Mike Marchetti

We expect to be done ona three-year plan. But, you know, there will always be candidates just will bea lower rate. We have always had some of these done every year but we havetaken a position to try to accelerate and be aggressive on it until we getthrough the bulk of what the candidate list is. So, it's going to be anothertwo to three years before we are finished.

Timmeny Wallace - Friedman, Billings, Ramsey

So, the 50relocations and 25 store expansions, that's not for the fiscal year '08?

Mike Marchetti

It is.

Timmeny Wallace - Friedman, Billings, Ramsey

When will those be completed? You mean you were going tostart them in the year but not finished them for a couple years? I am confused.

Mike Marchetti

They will be finished by June of 2008.

Timmeny Wallace - Friedman, Billings, Ramsey

What will be the progression of those? Will it be equal perquarter or weighted towards the back half after the holiday?

Mike Marchetti

We have several more to do during this quarter. The rest ofthem will be done next year. Probably it will be spread over the entire period.

Timmeny Wallace - Friedman, Billings, Ramsey

I guess you are roughly one-quarter to one-third of the waythrough in the first quarter. What was the contribution of those stores to thesame store sales result? Can you break that out?

Mike Marchetti

I don't have thatexact amount, but it was a small percentage.

Operator

There are no furtherquestions at this time. I will now turn the call over to Kathleen Mason.

Kathleen Mason

Thank you all for participating and Happy Halloween,everyone.

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