Dress Barn Q2 Earnings Call Transcript

123jump.com Staff
15 Mar, 2010
New York City

The women

The Dress Barn, Inc. ((DBRN))
Q2 2010 Earnings Call Transcript
March 1, 2010 4:30 p.m. ET

Executives

David R. Jaffe – President, Chief Executive Officer and Director
Armand Correia – Senior Vice President and Chief Financial Officer

Analysts

Scott Krasik – BB&T Capital Markets
Edward Yruma – KeyBanc Capital Markets
Samantha Panella - Raymond James & Associates
Elizabeth Montgomery - Longbow Research LLC
Brian – SunTrust Robinson Humphrey
Joel Labowicz – The Dress Barn, Inc.

Presentation

Operator

Good afternoon, ladies and gentlemen and thank you for standing by. My name is Glen and I will be your conference facilitator today. Welcome to Dress Barn Inc.’s second quarter fiscal 2010 financial results conference call. At this time, all participants are in listen-only mode. Later the company will hold a question-and-answer session and instructions will follow at that time. As a reminder, this webcast and conference call is being recorded and will be available for replay later today. Information on how to access this replay is available in the financial results news release issued earlier today.

I would like to remind participants that remarks made by management during the course of this call may contain forward-looking statements about the company’s results and plans. These are subject to risks and uncertainties that could cause the actual results and implementation of the company’s plans to vary materially. These risks are referenced in today’s news release, as well as in the company’s SEC filings. Thank you.

And now, I would like to turn it over to Mr. David Jaffe, President and CEO. Please proceed.

David R. Jaffe

Good afternoon. Thank you for joining us to discuss our results for our second fiscal quarter ended January 23, 2010. With me today is Armand Correia, our CFO.

I am pleased to report we’ve had another strong quarter. We’ve done well financially as Armand will detail in a moment with solid earnings and a continued strong balance sheet. We’ve made progress operationally with good management of our working capital and the beginning of a thoughtful integration process for the Justice business.

Finally, we remained on a sound strategic path to grow our business and drive great value to consumers and therefore, to our shareholders.

Here are some of the highlights from the quarter. Revenues in the quarter were up 73% versus the prior year. This was driven by the Justice merger of course but also by 6% comp for dressbarn and a 5% comp at maurices.

Operating income on a non-GAAP basis in the second quarter was also strong growing to $47.8 million from a loss of $2.4 million in the prior year second quarter. Again, the drivers were the inclusion of the Justice business and continued strong contributions from the maurices business.

Earnings per share adjusting out a number of one-time charges for merger and debt extinguishment costs came in at $0.37 per share compared to a loss of $0.03 per share last year. This exceeds our expectations and we are very pleased with the financial performance of our business.

All in all this has been a very strong quarter for the company. While the overall retail environment is best described as stabilizing we’ve been pushing ahead. Our concepts are capturing market share by delivering great value to consumers.

I’d like to touch briefly on each of our three concepts. Dressbarn has continued to benefit from a trade on effect as consumers sought better price and value in the shop. At the end of the quarter, we were operating 837 dressbarn stores versus 834 at this time last year. Our unit economics continued to improve as a 6% comp increase we saw in the second quarter is above our tipping point for operating leverage.

Our average price per unit sold increased by 7% and this combined with a 1% increase in units per transaction increased our average transaction by 8% which offset our 2% decrease in sales transactions.

Our team at dressbarn has done a good job of satisfying the incremental customers we are attracting with an effective merchandise assortment. On the price side we saw strong growth in our key gift giving categories. We achieved record results in our accessories area fueled by cool leather items, fashion scarves, handbags and novelty jewelry, especially addressed to your styles.

Outerwear was a top-performing department with full leather jackets being the item of the season. Novelty knit tops with new details were a hot new trend. And finally, sweaters, our signature fall category performed well driven by fine new styles along with cardigans and new novelty items.

On the negative side, the woven top business continued to underperform mainly due to the strength of the knit and sweater categories.

Looking ahead, we are rolling out Jones Studio suit separates made exclusively for us by the Jones Apparel Group for the chain beginning this month.

Maurices is also performing well. Our merchandising has been effective and our small market focus continues to put us in a good competitive position. We have grown the store bases versus last year and at the end of the quarter we were operating 739 locations versus 697 at this time last year.

Similar at dressbarn our unit level economic performance has continued to improve. We are also getting good traction with 5% increase in average dollar sale coupled with a 4% increase in conversion which offset a 5% decline in traffic.

On the product side, within the core women’s collections we posted strong sales and increases in casual wovens, casual knit tops, suit separates and handbags. On the negative side, we had soft sales trends in the dressy collection, outerwear and jewelry.

The plus-size business continued to perform well generating a strong double digit comp increase in the quarter. Knit tops, sweaters, casual pants and denims were the key drivers within the plus collection.

For dressbarn and maurices, our marketing strategy remains focused on driving sales, customer acquisition and enhancing the customer experience to increase retention and market share.

With respect to Justice, we are very pleased with the strong rebound we are experiencing in comp store sales. As you know, this is a uniquely positioned concept and is really the only destination between girls and their moms. There were 899 Justice stores in operations at the end of the quarter.

From a unit level economic standpoint, our total sales transactions increased by 14% and our average selling price increased 7% which is offset by a 2% decrease in units per transaction. The Justice value proposition continues to resonate with our customers.

The merchandise is on the money with casual tops primarily cut and sewn woven shirts, active tees, footwear and accessories especially jewelry, all posted increases where ready to wear and lifestyles primarily Webkinz driven posted decreases.

The shopping experience is fun and energetic and our assortments are designed to respect the needs and wants of our girl. We are excited to sustain and leverage this good trend and results.

Our marketing strategy reinforces our value proposition and its success is evident as Justice continues to gain market share. For the fall season our direct mail circulation increased 28% over the prior year. And for spring, we are planning to mail nearly 37 million pieces to our customers, a 30% increase over the prior-year period. That is a large opportunity to touch our customers and deliver compelling marketing offers to their doorstep.

The integration work we are doing is proceeding nicely. As we said since we announced the deal this was not a transaction based on slash and costs. That having been said, we have already eliminated approximately five million of our done in costs in areas such as finance and of public company costs and we believe that we will identify more areas for streamlining and consolidation as we go forward in the areas such as sourcing, HRIS, CRM and certain financial functions.

This integration process is very good for our organization on a broader level. It is keeping us fresh, reinvigorating our various teams and thinking outside of the box of where our opportunities lie and how we can take advantage of them. We developed good collaboration and partnership structures where they are appropriate and we are working hard to build on our learning-oriented culture.

We have as a consolidated company incredible reach especially in the retail industry and we are reinforcing our organization’s ability to capitalize on both the depth and breadth of our presence.

Our balance sheet is even stronger now with the early retirement of our 2.5% convertible senior notes and our ability to generate cash has been enhanced by the Justice merger. We believe that we will continue to have a superior ability to drive value to our shareholders.

We are very grateful for the support of our key shareholders and the analysts who have been following our progress. We are hopeful that we will continue to demonstrate the kind of leadership and intention to value creation that we know is appreciated.

Thank you. And I will now turn the call over to Armand to discuss our financial results in more detail.

Armand Correia

Thank you, David, and welcome everyone. As David said we are pleased with our results which were better than expected, both sales and earnings. In addition, this year’s quarterly results include Justice for part of the quarter from the merger date of November 25th forward.

Comparisons to last year’s numbers are not meaningful as they only represent dressbarn and maurices results. We have provided in our quarterly news release a footnote highlighting the Justice numbers that are included in this year’s quarterly and six months statement of earnings as well as the balance sheet.

Our quarterly financial results also reflect certain items that we believe are not indicative of ongoing operations for purposes of comparisons to the prior-year period. I will comment on these during my prepared remarks. Accordingly, we have included a reconciliation of GAAP to non-GAAP measures in today’s news release announcing our results.

Net sales for our second quarter increased to $594 million,driving this overall increase was the inclusion of Justice sales which accounted for $221 million. In addition, we achieved a strong combined 10% comp sales increase. Our comp sales performance has shown consistency with four consecutive quarters of combined increases.

By division, dressbarn stores quarterly sales increased 7% to $209 million. The increase was primarily driven by the 6% comp sales increase.

Maurices stores sales increased 12% to $164 million with comp sales increasing 5% including other revenues from our recently launched e-commerce business, which is also exceeding expectations.

Justice quarterly sales of $221 million again represent part of the quarter. During this period, Justice translates strong 19% comp sales increase. It is worth noting however that comp sales for the same quarter last year decreased 23%. Justice sales also include revenues from its e-commerce business which also significantly exceeded expectations as well as last year’s results.

On a combined basis, gross profit dollars increased to $233 million versus $113 million last year. Of the total $120 million increase, Justice accounted for $95 million. Our overall gross profit rate increased 630 basis points to 39.1% versus last year’s 32.8%. This year’s rate was favorably impacted by Justice. However excluding this impact the combined dressbarn and maurices gross profit rate was 36.8%, an increase of 400 basis points primarily driven by merchandise margins and compared to last year’s comparable 32.8% rate.

Merchandising margins improvement were achieved at all three divisions primarily from the lower markdowns than a year ago. By division, the gross profit rate at dressbarn stores increased 440 basis points, a 34.6% versus last year’s 30.2%.

Maurices increased 330 basis points to 39.6% versus last year’s 36.3%. The gross profit rate for Justice for the partial quarter was 43.1%. However, if Justice were included for the full quarter, the rate would have been approximately 42%.

Total SG&A expenses for the second quarter were $171.7 million or 28.9% of sales compared to $103 million or 30% of sales last year. SG&A on a non-GAAP basis excluding $4.7 million, primarily merger expenses were $167 million or 28.1% of sales. The decrease of 190 basis points was due to good sales leverage.

Within SG&A, incentive costs at all three divisions increased due to better than expected earnings results. Quarterly incentive costs increased 118 basis points versus last year.

Depreciation expense came in at $17.7 million in the quarter approximately $5.5 million higher than our prior quarter. This increase represents Justice for the partial quarter. For modeling purposes, we anticipate total quarterly depreciation expense at approximately $20 million for each of the remaining two quarters.

Moving down the income statement, operating earnings on a GAAP basis increased to $43.1 million or 7.3% of sales. This compares to an operating loss of $2.4 million last year. On a non-GAAP basis, this year’s quarterly operating earnings increased to $47.8 million or 8.1% of sales versus last year’s operating loss of $2.4 million.

By division, dressbarn stores came in with an operating loss of $5.1 million compared to a loss of $11.8 million last year. It’s important to note the highly promotional holiday season has been traditionally the more challenging quarter for our dressbarn stores division.

Maurices operating earnings were $16.1 million or 9.8% of sales compared to $9.4 million or 6.4% of sales last year. Operating earnings at Justice during the partial quarter were $36.9 million or 16.7% of sales. If Justice were included for the full quarter, the operating earnings rate would have been approximately 11% of sales on a non-GAAP basis.

Interest expense was $2.7 million and was primarily made up of $2.1 million from our convertible debt and $400,000 from the mortgage on our Suffern, New York headquarters distribution center facility.

As a reminder, just after the close of the quarter we successfully retire 100% of our outstanding convertible notes with a cash payment of $117 million and the issuance of approximately 6.2 million shares of common stock. This will reduce the company’s interest expense for the back half of the fiscal year by approximately $4.2 million and will be accretive to earnings per share by approximately $0.03 and on an annualized basis $0.06 thereafter.

In addition, we eliminated the future potential dilution impact of the equity feature of the notes. As a result of this transaction we recognized a $5.8 million pre-tax accounting loss on the early retirement of the debt. This impact decreased diluted earnings per share by $0.05. Our quarterly effective income tax rate was 39.1%. We expect a slightly higher effective tax rate of 39.6% for both the third and fourth quarters.

Net earnings on a GAAP basis were $21.7 million or $0.28 per diluted share compared to last year’s net loss of $1.8 million or a loss of $0.03 per share. Net earnings on a non-GAAP basis excluding the non-recurring items increased to $21.8 million or $0.37 per diluted share.

Weighted average diluted shares were 76.4 million for the quarter. For modeling purposes, 80.5 million shares are more appropriate for use for the balance of the fiscal year.

Turning to the balance sheet which remained strong and nearly debt free with cash and investments ending the quarter at $404 million before the payoff of our convertible debt which settled just after the quarterly close. Taking this payoff into account, our cash and investments would still total $287 million.

Solidifying our cash position is our new full year $200 million ADR credit facility that we do not expect to use. Controlling inventories continues to be a tough priority at all three divisions. Total inventories ended the quarter at $242 million compared to $159.2 million last year. However, last year does not include Justice. Including Justice amount of $88.5 million to the last year’s total, inventories would have decreased 2%.

By division, dressbarn decreased 5% and 6% on an average store basis. Maurices’ inventory increased 3%, but decreased 3% on an average store basis. And Justice decreased 2% overall as well as on an average store basis.

We are pleased with the seasonal mix of our inventories. Clearance levels on an average store basis were down at all three divisions. We continue to be cautious on our outlook for the spring season. And our planning comp sales in the plus mid-single digits with appropriate levels of inventory.

We believe spring presents some opportunities with easier comp sales comparisons. By division, dressbarn spring comps are planned up mid-single digits compared to a 3% increase last year and a decrease of 6% in the prior year. Maurices comps are planned up low-single digits compared to flat last year and Justice comps are planned up high-single digits compared to a decrease of 18% last year. This coupled with cleaner inventories should help in achieving our results.

In addition, the spring period is traditionally dressbarn and maurices’ strongest sales and earnings season with Justice stronger in the fall season. Given our better than expected second quarter earnings performance and the favorable impact to earnings going forward from the payoff of our convertible debt, we have raised earnings per share guidance for fiscal 2010 to a range of $1.55 to $1.60 compared to our previous guidance of $1.40 to $1.50.

Thank you. Operator, we will now open it up to questions.

Question-and-Answer Session

Operator

Ladies and gentlemen, if you have a question, please press star followed by one on your phone. If your question has been answered or you would like to withdraw your question, please press star two. Questions will be taken in the order received. Please press star one to begin. Our first question comes from the line of Scott Krasik of BB&T Capital Markets. Please proceed.

Scott Krasik – BB&T Capital Markets

Hey, guys, how are you doing?

David R. Jaffe

Thanks, Scott.

Scott Krasik – BB&T Capital Markets

Congratulations. Wanted to know if you would give us some color in how the comps have trended? February, obviously had quite a bit of snow but it''s probably a less important month for you guys.

David R. Jaffe

Well, I would say if you look at it, we’ve actually finished our first week in March on an ink basis for all three divisions they are within a couple of points of each other. We are trending close to mid-single digits positive. That would be the four weeks of February and the first week of March so right now we are feeling okay given all the snow we’ve had that we have gone through in good shape.

Inventories haven’t really backed up yet and we are going to spring in very strong position.

Scott Krasik – BB&T Capital Markets

That''s very good. Then anything that you are seeing in terms of traffic to the strips as we come through the last couple of months, better or worse?

David R. Jaffe

I wish I could say that. I saw a strange thing. We really have not -- one interesting thing, especially now because we’ve got 2,500 stores in all sorts of formats. When we had that big storm a couple of weeks ago, Valentine’s weekend, we saw the mall stores do fairly well relative to the strip stores which got pummeled. So, it is kind of logical that when there is bad weather people will tend to go indoors and most malls provide indoor shopping, I mean indoor parking and shopping. So, as to be expected we saw that results paying with our three divisions.

Scott Krasik – BB&T Capital Markets

The plus five would suggest then that good weather would just be gravy.

David R. Jaffe

Well, we hope so.

Armand Correia

Scott, just to add on what David said, I think it is appropriate to note, not that we like to use weather as an excuse, but when you look at our northeast presence of number of stores we have got about 20% of the entire fleet in the northeast, which is close to 500 stores. So I think one could certainly discern that we had a break in weather, certainly I think our performance quarter to date would have probably been certainly better than what it is.

Scott Krasik – BB&T Capital Markets

Absolutely. Then just a little more color on the maurices’ gross margin, that was a very, very strong gross margin relative to what they''ve had in second quarters and past year, is that just the clean inventory position, was there something you did to get more full price selling.

David R. Jaffe

I think I’ll start and turn it to Armand. I think it is the combination of things, certainly having cleaner inventory was one. We put a different panel on some of the promotions we did that helped us quite a bit and I think frankly the fashion was a little bit more on the money this year and got more full price selling out of it.

Scott Krasik – BB&T Capital Markets

So that approach in terms of limiting the number of promotions that''s something that can carry forward.

David R. Jaffe

Well, I wouldn’t say limiting, all we did was change the handle on one in particular that brought our POS significantly. So we are continuing to look at different ways to appeal to our customers and still give the same value but see if we can maintain maybe a little bit more control on the POS rate and it worked well in the fall.

Scott Krasik – BB&T Capital Markets

Okay, great, guys, keep it up.

David R. Jaffe

Thanks, Scott.

Operator

Our next question comes from the line of Edward Yruma of KeyBanc. Please proceed.

Edward Yruma – KeyBanc Capital Markets

Thanks very much for taking my question. Hey, how are you guys? Congrats on a great quarter. Can you talk a little bit about your longer-term outlook for gross margin? Clearly, Justice is performing well but I''m more concerned or more interested in the opportunity at dressbarn given that I think you are still in the early stages of trying to figure out how to synergize with the sourcing operation. Thank you.

David R. Jaffe

I would tell you we do think there are some opportunities at dressbarn. We are really looking at all aspects of the business and some of the things that we’ve talked about before, for example trending down our suit business and increasing our suit separate business to Jones Studio business and I mentioned earlier that’s going to have an impact.

Some of the things we are doing now on our plan allocation side including our size optimization we think is going to help margin, totally different with the Justice merger. We are looking at different sourcing opportunities which over the long term we think could have positive implications. So, we are really looking at all aspects of the dressbarn business particularly if you look at the second quarter which is dressbarn’s weakest quarter, our fiscal quarter being the holiday quarter.

Dressbarn did better this quarter but still not what we would like it to do and frankly not what it has done historically. So, we are analyzing our merchandising mix during that period and have to think through the right way to appeal to our customers to get that business back on track during that season.

Edward Yruma – KeyBanc Capital Markets

Can you talk a little bit about the real estate portfolio at Justice now that you had a little bit of time to operate with them? Is there an opportunity for you to strengthen the store base? Thank you.

David R. Jaffe

Ed, as you stated out there is opportunity to do what?

Edward Yruma – KeyBanc Capital Markets

Strengthen some of the store base.

David R. Jaffe

We are looking at that very, very carefully. We got a great team there that set the right kind of test and analyses to compare the legacy limited to stores which are primarily small stores and the Justice stores which are more in the power centers or strips, many of which are nearer those malls and at this point we have learned a lot but we’ve also learned that in this environment the landlords aren’t anxious to see us walk away from the malls. We have been able to get attractive rents which have given us the opportunity to maintain our presence both in the mall and the surrounding strips.

So yes, we are certainly open to closing stores and we projected that we will be closing a few this year but as we look at it on a case by case I am not sure we are going to see long term significant number of closings. We will keep you posted on that but right now the results are, given the cutbacks and some of the rent, the occupancy expense, the results are very favorable.

Edward Yruma – KeyBanc Capital Markets

Thank you very much.

David R. Jaffe

Thanks, Ed.

Operator

Our next question comes from the line of Samantha Panella of Raymond James. Please proceed.

Samantha Panella - Raymond James & Associates

Good afternoon and congratulations, guys. With respect to -- with Justice, what stores just recently closed in November, what impact were you guys able to have this quarter and what are your first priorities as going forward here with Justice?

David R. Jaffe

Well, naturally you mean in terms of the impact, we’ve really just started the integration process as I mentioned and we are looking primarily for back office synergies and just sharing ideas about different ways we run our respective businesses.

In fact, the three leadership teams last week were off-site a few days to try and do just that. I think we made a lot of progress but there is nothing specific I would point to today to say oh yeah, look what we have been able to impact and we are saving this much money from this business but we do have a lot of initiatives underway and over time I think we are going to realize the kind of synergies that we realized with maurices if not more.

Samantha Panella - Raymond James & Associates

Okay. I guess I was thinking anything you are doing at the store level, like within the store operations is totally different from maybe how Justice ran previously or anything along those lines.

David R. Jaffe

No, not really Sam. They have got a great team over there and certainly we are learning as much from them as hopefully we are exchanging ideas with them but while there have been no significant changes that we have put on them at all.

Samantha Panella - Raymond James & Associates

Okay. And then Armand, I was wondering if you could update us on the operating margin, sort of by division, any guidance for the full year I believe you recently gave us an update. I am just wondering if there is any changes there given the change in guidance.

Armand Correia

Well, based on the latest guidance I can tell you that and then you can obviously take these numbers and model of spring and just add it to the year-to-date results. I have been looking at dressbarn’s operating margin for the spring season to be in the vicinity of -- in the 11% range, with maurices probably more like 14%, and Justice low single digits. Now, if you compare that to the prior year, dressbarn was coming off an operating margin in the spring season of approximately 9% with maurices turning in a very strong 13% and obviously Justice wasn’t really part of us last year. So, you can see that we are just moving the needle up a little for the spring season.

Samantha Panella - Raymond James & Associates

Okay. One last question, given Lisa Rhodes exit what are you doing, are you looking outside to hire somebody else or is the team in place. What decisions have you made there?

David R. Jaffe

Well, actually Sam we do have a search underway and we are looking both at internal and external candidates. We have got a terrific team in place so we are not concerned about the search process or about bringing someone in immediately. We want to take our time and find the right person but in the meantime, as I have said we’ve got a very strong team that’s doing a great job of keeping the business going so we are not particularly concerned about it.

Samantha Panella - Raymond James & Associates

Great, thanks, guys, and good luck.

David R. Jaffe

Thank you, Sam.

Operator

Our next question comes from the line of Elizabeth Montgom of Longbow Research. Please proceed.

Elizabeth Montgomery - Longbow Research LLC

Can you hear me? I''m sorry about the background noise.

David R. Jaffe

We can hear you.

Elizabeth Montgomery - Longbow Research LLC

Okay, congratulations on a really good quarter. I guess my question was on -- my remaining question is on maurices traffic. Did I hear correctly that it was down 5%?

David R. Jaffe

Correct.

Elizabeth Montgomery - Longbow Research LLC

What are you thinking; or it’s kind of driving that? Is it a competitive issue or could it be weather?

David R. Jaffe

I don’t think it is the competitive issue. Certainly in bigger markets there maybe something going on but on a macro basis we have seen this decrease in traffic for a few years now and we are working hard through primarily direct mail as well as local outreach program to try and reverse that trend but fortunately we have been able to make it up through conversion and the other metrics online that are out.

I think as we look forward though we are going to drive on this because we want to make sure that we don’t lose customers whether it is competition or (inaudible) shopping from the larger market. That’s why we have got a lot of fairly intense focus on our marketing program.

Elizabeth Montgomery - Longbow Research LLC

That makes sense to me, I guess. As a follow up, I think you said there was also some softness in the jewelry category at maurices.

David R. Jaffe

Yes.

Elizabeth Montgomery - Longbow Research LLC

How long has that been happening. Do you think there is a merchandise mix or do you think there is maybe too much story out there for the demands that exist currently?

David R. Jaffe

I think we are going to have to see it, watch it for a little longer. I don’t see it as a problem. I am sure it is a combination of the selection, the actual jewelry itself as well as crafts. The customer is more interested in other categories right now whereas at dressbarn we saw some strength in it. So I think it’s more of a fashion issue than a particularly competitive situation.

Elizabeth Montgomery - Longbow Research LLC

All right. That makes sense, all right, thanks guys and good job.

David R. Jaffe

Thanks, Beth.

Operator

Our next question comes from the line of Robin Murchison of SunTrust. Please proceed.

Brian – SunTrust Robinson Humphrey

Hey guys, this is Brian in for Robin today, congrats on a great quarter. I just wondered if you could update us on the previous operating margin goal of 9% to 11% that was outlined during the Investor Day.

David R. Jaffe

Well, we are tracking there. Armand will give a little more detail if you want to. We are tracking there but that’s not something that we are going to hit tomorrow. We think as we continue to get a little bit of leverage from comp sales above that, kind of 3% tipping point at dressbarn and maurices plus a very strong performance to bring the Justice business back, we continue and have a good year next year that’s possible but it is a multi-year process of rebuilding

Brian – SunTrust Robinson Humphrey

Okay, excellent. And then also, if you could just provide us the store opening and closing plans for the remainder of the year.

David R. Jaffe

You know what, maybe we can do that offline, Brian?

Brian – SunTrust Robinson Humphrey

Okay sure.

David R. Jaffe

We will dig it out. I will just give Armand a call and we will get it to you.

Brian – SunTrust Robinson Humphrey

Okay. Thanks, guys and best of luck.

David R. Jaffe

All right. Thank you, Brian.

Operator

Our next question comes from the line of Joel Labowicz of Dress Barn. Please proceed.

Joel Labowicz – The Dress Barn, Inc.

David, congratulations.

David R. Jaffe

Thank you.

Joel Labowicz – The Dress Barn, Inc.

It''s nice to see you doing so well with all three divisions. Excuse me. I''m curious, as the terms on goods, are you still getting such terms that you really need no cash to operate the business. What I''m saying are you turning, if you are getting 90 days extra dating are you turning the goods more often than you are paying for.

David R. Jaffe

Well, it is really dependent because many of the goods that we are buying we are buying directly. That is, it is our goods and we have to put our belt seats. It really depends on the goods that we are committing to. But in general we still are getting very good terms and our working capital is very strong.

Joel Labowicz – The Dress Barn, Inc.

You guys are heros, keep it up.

David R. Jaffe

Oh, that is very kind of you. Thank you.

Operator

Our next question is a follow up from the line of Scott Krasik of BB&T Capital Markets. Please proceed.

Scott Krasik – BB&T Capital Markets

Thanks. David, you said that the spring mailer for Justice would be up 30%.

David R. Jaffe

Yes, all of them, not just one.

Scott Krasik – BB&T Capital Markets

I mean is that just it was capital constraint last year, are these good leads-- how good a quality is the increase in distribution relative to what you have been mailing out.

David R. Jaffe

Well, I would tell you that the CRM program at Justice is very highly developed and the frequency and depth of mailing is something that they have modeled out pretty carefully. So, we believe that there is a strong ROI with all these mailers that we are going to be doing or else we wouldn’t be doing it and it is a function of both the depth at which we are able to get a positive ROI with the offer that we are giving on these catazines and postcards as well as our ability to get more customers on our mailing list.

Scott Krasik – BB&T Capital Markets

I guess is the increase more the stuff you were talking about that we have the capital that we can put it behind it and this is prospecting or this is the stuff that was missed because they were constrained in the past.

David R. Jaffe

Well, I think it’s less prospecting. It is really not about prospecting, it is about talking to our customers and as I said just talking a little more frequently and a little more depth now than last year. The CRM strategy has been evolving and now with just one brand, it is really the first year since the conversion last January began. They really figured out the right strategy that is resonating with the customers and it works in the fall and we are highly confident we think it is going to work in spring.

Scott Krasik – BB&T Capital Markets

Armand, just quickly, what''s the-- is this a good depreciation number to use for the quarters going forward, not just for Q3 and Q4 but for 2011 as well.

Armand Correia

At this point, until we look at, obviously our capital needs I would probably push it up just slightly.

Scott Krasik – BB&T Capital Markets

Okay. Thank you.

David R. Jaffe

Thanks, Scott.

Operator

There are no further questions at this time. I would now like to turn the call over to management for closing remarks.

David R. Jaffe

All right. Thank you all very much for your interest and we look forward to speaking to you at the end of our third quarter. I appreciate your interest.

Operator

Ladies and gentlemen, that concludes today’s conference, thank you for your participation. You may now disconnect. Have a great day.