New York and Company—NWY—F4Q10 Earnings Call Transcript

Title: New York & Company F4Q 2010 Earnings Call Transcript

Symbol: NWY

Call Start: 16:30

Call End:

New York & Company, Inc. (NWY)

F4Q10 (Qtr End 1/29/2011) Earnings Call

March 17, 2011 4:30 pm ET

Executives

Greg Scott—Chief Executive Officer

Sheamus Toal—Executive Vice President and Chief Financial Officer

Suzanne Rosenberg—Director, Investor Relations

Analysts

Eric Beder—Brean Murray Carret & Co.

Janet Kloppenburg—JJK Research

Edward Yruma—KeyBanc Capital Markets

Christine Chen—Needham & Company

Pamela Quintiliano—Oppenheimer

Neely Tamminga—Piper Jaffray

Samantha Panella—Raymond James

Robin Murchison—SunTrust Robinson Humphrey

Presentation

Operator

Ladies and gentlemen, thank you very much for standing by and welcome to the New York & Company fourth quarter and fiscal year 2010 results call. Today’s call is being recorded. (Operator instructions) Now at this time I would like to turn things over to Miss Suzanne Rosenberg, Director of Investor Relations at New York & Company. Please go ahead, ma’am.

Suzanne Rosenberg

Good afternoon. Before we begin, I would like to remind you that some of the comments made on today’s call, either as part of our prepared remarks or in response to your questions, may contain forward-looking statements that are made pursuant to the Safe Harbor provision in the Private Securities and Litigation Reform Act of 1995. Actual results may differ from those projected in such forward-looking statements.

Such forward-looking statements are subject to risks and uncertainties as described in the company’s documents filed with the SEC, including the company’s fiscal year 2009 Form 10-K. Unless otherwise noted, the results of operations discussed are for the company’s continuing operations only as a New York & Company brand. With that, I’d like to turn the call over to New York & Company’s CEO, Greg Scott.

Greg Scott

Thank you, Suzanne. Good afternoon, everybody. Thank you for joining us to discuss the company’s fourth quarter and fiscal year 2010 results. On the call with me today is Executive Vice President and Chief Financial Officer, Sheamus Toal. For today’s call, I will provide some highlights of our fourth quarter results. Then I will outline our priorities as we enter 2011, and how we are continuing to build on our total strategy for New York & Company. Sheamus will then review our financial performance in more detail and provide you with our near-term financial outlook. Following my closing comments, we’ll turn the call over to the operator to take your questions.

Our fourth quarter results reflect a strong focus on controlling inventory and improving our margins. We were successful in driving both sales and merchandise margin from last year through an improved product assortment, strong in-store promotional events, and targeted direct marketing efforts. This, combined with leverage of our buying and occupancy costs, resulted in a significant improvement in our fourth quarter operating profit versus last year. Inventories were well controlled as we entered the fourth quarter and this certainly helped our margin.

As we outlined in our last conference call, we remain focused on tight inventory control, with less depth on major key items. During the fourth quarter, this discipline allowed us to mitigate our markdown risk and control the level of promotional activity. Importantly, our customers continue to find great values in our store. But it did not come at the expense of margin. As we enter the spring season and throughout 2011, we’ll continue to employ a disciplined approach to inventory management, which will help margin and at the same time allow us to expand our assortment in certain key categories, particularly tops and dresses.

In terms of merchandise during the fourth quarter, our customers responded positively to the novelty elements of our assortment, particularly in cardigans, woven tops and knit tops. We also saw particular strength in our jewelry business and strong product acceptance by our customers to our winter wear gift set. Testing continued to play an important role in the success during the fourth quarter, which allowed us to fund investments for stronger selling styles and led to increased sales and margins. We will continue to place a strong emphasis on testing for all major (sets) and key items, as evidenced by our early spring deliveries which build on key categories including modern wear-to-work (inaudible).

During the holiday season, we began adjusting our floor set (inaudible) to bring in new merchandise more frequently to excite our customers and encourage multiple shopping visits. This began with our update to holiday during the first week of December. While the early parts of January were driven by sales in clearance goods, we transitioned to our new early spring floor sector in the second week of January, and we are pleased with the strong product acceptance of our new goods. Customers are responding positively to a better flow of fresh merchandise which is enabling us to turn inventory faster, enhance margin and improve cash flow.

Our improved fourth quarter results were also driven by a more effective marketing program, which included a strong mix of in-store promotions, and targeted direct marketing efforts. We continue to shift from direct mail to a more targeted e-mail which generated higher AURs, slightly higher UPTs, and higher ADS versus last year, while reducing our expenditures to reach these customers and provide us with the flexibility to quickly respond to the current business environment.

As it relates to other channels of our business, our e-commerce business posted strong increases in the fourth quarter, with sales up 23.9% (inaudible) to our stores, e-commerce benefited from the increased load of new merchandise to the site. We were also pleased with the performance of our e-mail campaign and the new power out promotions which are high impact, limited deals which help drive traffic and conversion.

We continue to be encouraged by the early performance of our outlet stores from sales and margin perspective. During the quarter, we opened one additional location in this format and ended the year with 24 outlet stores in total.

As we enter 2011, we are focused on bringing consistency back to our business not only to our financial objective but to the planning and execution of our strategic initiatives which will drive our results and position New York & Company for sustained future growth.

2011 is a transition year for our company for several reasons. First, we’re rationalizing our promotional cadence. New York & Company is and will remain a promotional brand. However, we’ll be more targeted with our events. For example, our business will be less driven by major storewide promotions and become more product category driven. By rationalizing our promotional calendar, our goal is to lower our markdown level and improve our profitability over the longer term. In 2011, we’ll also begin to leverage the new members of our executive management team. And lastly, we are refocusing on our customer with improved product proposition. With that said, we are pleased with our positioning as we enter the year. Our strategies are generating their intended results and we expect to demonstrate continued progress as we focus on our key priorities.

In fiscal 2011, we are faced with the headwinds of rising raw material costs, labor, fuel, transportation and other inflationary pressures, as are all apparel companies. While we are implementing a series of strategies to help offset some of this impact, our greater opportunity this year is to increase merchandise margin as we deliver stronger selling product assortment and reduce markdown.

We are excited about our opportunities in 2011 and we remain focused on achieving modest comp store sales gains, improving our merchandise margin particularly in the first half of the year, a reduction in markdown and cash generation and preservation.

To achieve our objectives, we are focused on the flawless execution of our strategic initiatives. First, we are focused on increasing our sales productivity and increasing our merchandise margin with improved regular price selling. A key ingredient to achieving this objective is to know who the customer is. After much research and time spent in our stores and with our customers, I can say with confidence that we know who she is. This is validated by the strong product acceptance we are seeing with our current early spring assortment. Going forward, we will need to bring more customers into our brand but today we clearly know who she is and what she wants.

Sales productivity and margin improvement will also come from tight inventory control with less depth on major key items. While key items will continue to be an important part of our business, we’ll expand our assortments in categories such as tops, sweaters, and dresses. This will give our customers more of a choice when she comes to our stores.

We’ll also remain on track with our strategy of growing our top business while maintaining our strength in the important pant category.

In pants, pants testing practices will further drive improvements to sales and margins as we bring more intelligence into our analysis and deliver strong, on-trend fashion that our customers love. We’ve already begun implementing these strategies with our early spring assortment and I encourage each of you to visit our stores to see the changes that are taking place. As I mentioned earlier, the shift in our floor (inaudible) and our promotional calendar will allow us to better optimize our productivity.

Our second strategic initiative for fiscal 2011 is focused on taking advantage of our multi-channel growth opportunities and growing this segment of our business. Today’s consumers have access to more information than ever before, and they have a tremendous amount of choices in their shopping experience, whether it’s from the mobile phone, online or offline in a store. That said, we are very excited about the launch of our mobile-enabled e-commerce site which will happen during the second quarter. A good example of how we are leveraging all facets of our business is in our recently held pant event. This year, our pant event was strategically designed to highlight our great fitting pants and cover all the proportions that we offer. Comprehensive collateral materials were developed and utilized to reach all customer touch points, from store associate training materials, to windows, to in-store, to online, to social outlets such as Facebook with our pant event, this campaign was leveraged across all channels of our business and appropriately tailored to each environment.

Our third strategic initiative is ongoing, and the full benefits will be realized over the longer term, and that is the optimization of our real estate portfolio. As you can see in today’s press release, we closed 43 stores in fiscal 2010. We continue to analyze our store base, and we will close any unproductive locations when appropriate. Additionally, we continue to seek opportunities were we can reduce the size of our largest square footage stores. In terms of future expansion, outlets present a great opportunity to add to other off mall locations such as power centers.

Lastly, in 2011, we have a great opportunity to leverage the top talent we brought into our organization over the past several months, including Eran Cohen, EVP, Chief Marketing Officer, Michele Parsons, EVP, Merchandising, and David Witkewicz, EVP of Design. We are excited about the fresh perspective, insight, and creativity that will come from these leaders and the rest of our executive management team.

With that, I would now like to turn the call over to Sheamus who will review our results in more detail.

Sheamus Toal

Thank you, Greg. Good afternoon everyone. Net sales for the fourth quarter of fiscal year 2010 increased by 1.7% to $303.2 million as compared to $298 million for the prior year. The increase in net sales is primarily driven by a 1.7% increase in comparable store sales for the fourth quarter as compared to a decrease of 7.7% in the prior year. In the comparable store sales days, average dollar sales per transaction increased by 6.4%, while the number of transactions per average store decreased by 4.4% as compared to the same period last year.

Gross profit for the fourth quarter of fiscal year 2010 was $88.3 million or 29.1% of net sales as compared to $79.9 million or 26.8% of net sales in the prior year. The 230 basis point increase in gross profit as a percentage of net sales is due to a 150 basis point decrease in buying and occupancy costs as we have successfully improved our leverage by reducing our occupancy expenses while increasing sales. In addition, we achieved an 80 basis point increase in merchandise margins reflecting lower levels of promotional activity.

Selling, general and administrative expenses were $76 million or 25.1% of net sales for the fourth quarter as compared to $74.6 million or 25.1% of net sales for the prior year. The $1.4 million increase in selling, general and administrative expenses is primarily due to an increase in incentive compensation expenses resulting from improved operating profit and a $1 million charge related to two litigation matters. These increases were partially offset by a decrease in marketing expenses as we reduced our direct mail efforts and replaced it with the more cost effective e-mails.

Net income from continuing operations improved significantly for the fourth quarter with income of $14.9 million, or $0.24 per diluted share which includes an unusual tax benefit of $2.3 million, or $0.04 per diluted share. This compares to income of $2.5 million, or $0.04 per diluted share in the prior year which included a previously disclosed non operating loss of ($0.02) per diluted share relating to restructuring charges.

Moving to our year end balance sheet, inventory at cost was $82.1 million which was down by 5.7%. As of year end, our in-store inventory per average store was down 10% as we have experienced an increase in in-transit inventory. Our balance sheet included $77.4 million in cash and working capital of $42.8 million at January 29th, 2011.

Capital spending for fiscal year 2010 was $15.7 million as compared to $13.3 million last year. During fiscal year 2010, we opened 22 new stores, remodeled 8 stores, and closed 43 stores ending with 555 stores in operation, of which 24 are outlet locations. At year end, we had approximately 3 million selling square feet in operation.

In fiscal 2011, our goal is to generate and preserve cash as we focus on improving our core business. As a result, we do not expect to open additional stores this year. Capital expenditures for fiscal year 2011 are expected to be approximately flat to year ago levels. Regarding our expectations for the first quarter of fiscal year 2011, we are providing the following. Comparable store sales for the first quarter of fiscal 2011 are expected to be in the positive low-single digit range with 551 stores in operation at the end of the first quarter as compared to 579 stores in the prior year. Gross profit margins are expected to improve by 100 to 175 basis points versus the prior year’s rates. Selling, general and administrative expenses as a percentage of net sales are expected to be approximately flat from the prior year. Operating loss is expected to narrow from the loss incurred in the year ago period. We expect the effective tax rate for first quarter fiscal year 2011 to be 0% as compared to an effective tax rate of 45.3% in the prior year. Total inventory at the end of the first quarter is expected to be down approximately 10% as compared to the prior year with the inventory per average store declining approximately 5% due to lower store count. Capital expenditures are expected to be approximately $4.3 million for the first quarter of fiscal year 2011 as compared to $3.9 million in the prior year. Depreciation expense for the period is estimated at $10.2 million.

The company had no outstanding borrowings under its credit facility and does not anticipate the need to use the facility during the first half of 2011.

We expect to close four stores and remodel two existing locations ending the quarter with 551 stores including 24 outlet stores.

With that, I would like to turn the call over to the operator to begin the question and answer portion of the call.

Question-and-Answer Session

Operator

(Operator Instructions). And we’ll take our first question from Pamela Quintiliano with Oppenheimer.

Pamela Quintiliano – Oppenheimer

Thank you. Congratulations guys on a great quarter.

Greg Scott

Thank you.

Pamela Quintiliano – Oppenheimer

I just wanted to follow up on your thoughts on fabrics, and particularly the large exposure of synthetics, which everyone’s focused on cotton, but clearly synthetics are rising as well, and how you plan on positioning for that or countering it?

Greg Scott

Well, I would say that you are correct as cotton has gone up so has all other fabrics, and we have seen, as all retailers, increases obviously in raw materials. Also we’ve seen it in labor cost and we’ve seen it in transportation, resulting in increased cost. What I would say for us, as I’ve said before, we have the ability, we have a very strong sourcing team. We have made early decisions on the fabrics, especially for the Q2, Q3 period that has helped mitigate it somewhat. I would say though because our assortments have changed dramatically, meaning, we’ve gone from a very basic assortment to a much more novelty (inaudible) assortment. It has allowed us to have some price elasticity on our retail and it has enabled us to really offset some of these increases.

I would say, going back to the script remarks, we’re really focused on merchandise margin and we still see improvement there because of what we believe we have opportunity to reduce our markdowns overall.

Pamela Quintiliano – Oppenheimer

Great. Thanks so much. Best of luck.

Greg Scott

Thank you.

Operator

Moving on, we will take a question from Neely Tamminga from Piper Jaffray.

Neely Tamminga – Piper Jaffray

Hey, good afternoon. Let me add my congratulations.

Greg Scott

Thank you.

Neely Tamminga – Piper Jaffray

Maybe Sheamus if you could talk a little bit, I’ve got a question for you and one for Greg but, in terms of the gross margin outlook, I’m still a little unclear in terms of the increase for Q1. How much of that is merchandise margin versus leverage on occupancy? Did I miss that?

Sheamus Toal

We haven’t disclosed a split between that. We do still anticipate that we will have better leverage on our buying and occupancy expenses so as you may recall from the past what we’ve traditionally had as our leverage point for buying and occupancy expense is comped in the low single digits. We are continuing to push on occupancy reductions through a number of means and believe at this point we can obtain leverage on our buying and occupancy with comps in the flat to down low single-digit range. So that certainly is driving a piece of it. Also, as Greg had mentioned in some of his remarks, we are anticipating some merchandise margin improvement as well, so it’s a little bit of both.

Neely Tamminga – Piper Jaffray

Okay, but it just seems historically considering you were down last year as well that you have an opportunity maybe for some additional merchandise margin improvement through markdown. I mean you’re not anywhere near your historic low markdown rate, correct? For Q1.

Sheamus Toal

For Q1 the markdown rate last year was not all that bad as comparison to our historical averages. It’s really Q2 that I think you’re remembering where we had highly promotional business that was way outside of our norms. So Q1 last year was not all that different. It was a little bit higher, but not dramatically higher than our norm.

Neely Tamminga – Piper Jaffray

Yeah, that’s right. The infamous 9% gross margin. Well we’ll get to that next quarter and we’ll hope for better things there. Greg, just a little bit on the pants side of the business. We were very pleased with what we saw in our own store checks and just wondering how some of the learnings can be carried forward into the all too important back to school selling season and that fall selling season.

Greg Scott

What we did, our pant event we were pleased with it for two reasons. One, that we were able to change the promotion to not buy one get one free but to buy one get one ten which obviously improved our average dollar sale, AUR, and margin. At the same time, we saw really our wear-to-work pants have a very strong success and even with a raised, a more not as aggressive promotion, but I would say and like what I’ve talked about a lot which really drove our success during this event too was the tops along with the pants. So as pants maintained, tops grew, and she’s really responding to really the assortment we’re giving her in tops which is one of the initiatives we called out probably on my first quarter, the first time I spoke on a quarterly conference call. So we’re happy to see that progress which really began in early January and has continued through now.

Neely Tamminga – Piper Jaffray

OK, that’s great. And just one follow-up question. The percentage of the fleet that you are looking for a footprint reduction, is that any sort of meaningful number that we should be starting to think about? Am I asking it in the right way? I just noticed a handful of stores, locally as well as in other regions that we visited, there seems to be an interesting number of stores that are slated for relocations into smaller footprints. Just wondering if that’s a meaningful number this year or next year?

Sheamus Toal

It’s not a meaningful number this year, so I would not say it’s significant. It’s certainly more than it was last year, so we are going to shift a little bit of our capital expenditures from new stores last year, or new outlets last year, into some remodel activity this year. So while capital is about the same, there will be some shift on the real estate capital from new stores into remodels. But it’s not a huge number of remodels that we are expecting for the year.

Greg Scott

And I would say that as we are relocating and downsizing in Staten Island and as we are downsizing in Roosevelt Field, two very strong centers for us, that would be a really great gauge for us to see our ability to maintain the volume in a lower square footage, to really improve our productivity. So I’m very excited to see the results of those two stores. We’re in construction now on both of them. So that would be really good for us as a go-forward strategy.

Neely Tamminga – Piper Jaffray

Awesome. Best of luck you guys.

Greg Scott

Thank you.

Operator

Moving on, we have a question from Samantha Panella with Raymond James.

Samantha Panella – Raymond James

Good afternoon everyone. I have a follow-up on an earlier question. How many stores should we expect will close in 2011?

Sheamus Toal

We haven’t gotten close to discussing the full year expectation at this point. Obviously we’ve given guidance for the first quarter, so we do expect to close approximately four stores during the first quarter of this year. I can give you a sense, based upon some of our previous guidance, some parameters to roll into your models as far as closures as we move forward. As we commented several times and Greg talked about today, we are committed to ongoing analysis of our entire store portfolio. We’ll evaluate the performance of those stores and the economics of each individual store and decide upon closures or downsizes as appropriate based upon those circumstances. What we have communicated in the past, as you’ll recall, is we had a restructuring charge a couple of years ago relating to some anticipated store closures. At that time, we communicated that we had expected about 40 to 50 store closures as part of that restructuring activity. This past year, in addition to those stores, we did an impairment of another grouping of stores, I would say of similar size. We haven’t gotten into disclosing the specifics of that pool of stores because for those stores we haven’t made a definitive decision with respect to closure or ongoing operations. They were impaired, we’re monitoring them closely. So you have those two pools of stores, so in the 80 to 100 range of stores. Both of those groupings of stores to date we’ve probably closed about 25 to 30 of that pool. And the vast majority of that 25 to 30 probably 20 or so were from that original grouping of stores that we committed to close. So the 40 to 50 that we committed to close we’ve closed about half of those stores. So there are some anticipated closures in the future that we’re evaluating and do expect over time.

Samantha Panella – Raymond James

OK. And then with respect to the 43 stores that you closed in 2010, can you give us any sort of color around how much these stores were underperforming in terms of either sales or from a margin point of view?

Sheamus Toal

They were obviously our least productive stores, or certainly at the lower range of productivity from a sales productivity standpoint. In many instances, they were stores that were losing money from a cash flow standpoint or an EBITDA perspective. Not dramatic amounts of money, so I wouldn’t say they were large loss stores. They were marginally unprofitable. In some cases, they were marginally profitable stores. They just did not meet our long term return assumptions, and in many instances would have required us to either move off of reduced rent through co-tenancy violations or things like that, or sign up for a new lease in which case the economics of the deal wouldn’t work for us. So they were certainly our least productive stores or our lower productivity stores. But not huge losses, marginal losses to marginally profitable on a four wall basis.

Samantha Panella – Raymond James

OK. And then switching gears to E-commerce. Can you give us any sense what the penetration now is in terms of total sales and how you see this business growing?

Greg Scott

So I would say as I said during the prepared remarks, we were pleased with our Q4 results. They had major swing from our Q3 results. We really feel we have traction in this business. I am fully committed to the growth of E-commerce. It is, I believe, under penetrated as a penetration to our business. And we believe as we’ve seen continuing in our business strong growth in the future here. You know we have a lot of what I would call ‘low hanging fruit’ here to really go. We have a lot of opportunity with more online exclusives to grow our cross-channel shopper, meaning people that shop in our stores, and online and on mobile. The launch of mobile. There’s technology enhancements along the site, and as we move forward even into virtual inventories in our stores there is so much growth opportunity for us. And what we are pleased to say is we’re already seeing those results. And when we are providing more fashion content and we’re providing more fashionable styles that speak to our brand platform of modern wear-to-work we’re seeing great results. And I will say that I feel fully committed to the growth of this business. Eran is doing a fabulous job managing this and we’re currently seeking to hire a V.P. to run this business. So very exciting, the E-commerce channel for the company.

Samantha Panella – Raymond James

Great. Thank you and best of luck.

Operator

Moving on, we have a question from Edward Yruma with KeyBanc Capital Markets.

Edward Yruma – KeyBanc Capital Markets

Hi, thanks for taking my question. Greg, you’ve done a number of key additions to your management team over the past couple of months. At this point, are you complete with your additions to your executive team, or do you still have some open slots?

Greg Scott

Right now, I’ve fully hired the executive team, and I feel very good about that. Eran, who joined us in October is already making great strides as you can see from the pant event and what he did across all channels. We’ll really see the benefit of Michele probably in our early fall assortment, and then David into holiday, and then the full team next spring. So I think we have a lot of opportunity in the future with the new people joining the team.

Edward Yruma – KeyBanc Capital Markets

Great. And I know you’ve indicated that you’re not going to open new stores really in 2011. Does that also include outlet?

Greg Scott

At this point, it does. As I said, one of our strategies this year is to really focus on our core business, really to focus on what I consider to be a great opportunity which is our core business to improve the productivity, to improve the sales, improve the margins. At the same time, we’re incubating our 25 store outlets that are doing better than expectations. As we plan this year as a cash preservation and accumulation, hopefully in the future we can open outlets. But this year, I will say today that we are focused on our main brand and really focusing on the opportunities there.

Edward Yruma – KeyBanc Capital Markets

Great. And one final question. Thank you for your commentary on your changes in your promotional structure. Are you changing the intensity of the promotions? Or are you changing the frequency?

Greg Scott

It’s really the intensity. What would say is as we look into Q1 last year, we had two major store-wide promotions and I’m only planning to anniversary one. That is reflected in our guidance. What I would say is that promotions have changed in terms of we now are speaking to product categories and then we support that fashion message, product category message, with a promotion. Last year was more about price points, and not necessarily fashion message. So for instance right now, in March week two we launched modern wear-to-work, we are your destination, and it ‘s really buy one, get one 50% off great jackets, vests, pants, tops and skirts to build your new modern wear-to-work. And it’s really tying in the fashion with the message of the promotion, which we are seeing good success with. But from of TY/LY perspective, this year is about rationalizing the promotional calendar, trying to do away with those major, intense, store-wide promotions that drive a very low AUR, low ADS as we try to grow our AUR and ADS. So March week one last year we had New York is on sale, we had a clearance event, we actually skipped it and we’re only having one clearance event in the quarter, instead of two like last year. Unfortunately, TY/LY is very hard to say, because I’ve pretty much split the promotional calendar on its head this year.

Edward Yruma – KeyBanc Capital Markets

Great. Thank you very much.

Operator

Moving on, we have a question from Eric Beder with Brean Murray.

Eric Beder – Brean Murray Carret & Co.

Good afternoon and congrats on a great quarter.

Greg Scott

Thanks, Eric.

Eric Beder – Brean Murray Carret & Co

You talked a lot about changing product. I’m curious, in your surveys and meeting with your customers, what you thought about changing in terms of the store presentation and in terms of the service in the store levels.

Greg Scott

Good question, Eric. What we really found from our customer was that our value customer today, that she was satisfied, or more than satisfied, with our service level. There was improvement that could be done on the in-store environment. That was very clear. As we look forward, what she really wanted was more fashion windows, more mannequins that told her what to wear and how to wear it. I hope [what] you’re seeing are windows and our in-store mannequins really speaking to a much more cohesive collection. It’s all about modern wear-to-work right now. It’s all about safari. We’re showing that in the window. That was what we were hearing that the customers wanted.

I was surprised to hear that she was very happy with the service level, meaning surprised that she doesn’t want, really, a lot of service. She just wants to make sure someone’s there to help her. She really responds to what the mannequins look like, and she wants those mannequins to reflect how she could look.

Eric Beder – Brean Murray Carret & Co

Great. In terms of your accessories business, what is working there? What do you want to do with the accessories?

Greg Scott

Eric, as I said in our remarks, our jewelry business continues to be star in show. It is just a phenomenal business for us and a high margin, high penetration. We’re very happy with it. We have, and as I said for Q4, our giftware, our winter wear sets were very good. In the future, I expect to see a rebranding and a refocus on our shoes and handbag assortment. I will say that will probably be a 2012, mid-2012 initiative, not a 2011 initiative.

We are very happy with our jewelry business. And our auxiliary, our scarf business is good, our belt business is good, but really that meat-and-potatoes bag and shoe business has a lot of opportunity. But, I’m really looking at and pacing that as a 2012 opportunity.

Eric Beder – Brean Murray Carret & Co

Great. Thank you.

Greg Scott

Thank you.

Operator

Moving on, we’ll hear from Janet Kloppenburg with JJK Research.