O'Reilly Automotive, Inc.
Q2 2008 Earnings Call Transcript

Published: 23 Jul 2008

[Operator:]

Welcome everyone to the O’Reilly Auto Parts 2008 second quarter earnings release. (Operator Instructions) I would now like to turn the call over to Tom McFall, CFO.

[Tom McFall:]

Welcome to our conference call. Before I introduce Greg Henslee, our CEO, I’d like to read a brief statement. The company claims the protection of the Safe Harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by forward-looking words such as “expect,” “believe,” “anticipate,” “should,” “plan,” “intend,” “estimate,” “project,” “will,” or similar words. In addition, statements contained within this press release that are not historical facts are forward-looking statements such as statements discussing, among other things, expected growth, store development and expansion strategy, business strategies, future revenues, and future performance. These forward-looking statements are based on estimates, projections, beliefs, and assumptions that are not guarantees of future events and results. Such statements are subject to risks, uncertainties, and assumptions, including but not limited to, competition, product demand, the market for auto parts, the economy in general, inflation, consumer debt levels, governmental approvals, our ability to hire and retain qualified employees, risks associated with the integration of acquired businesses, weather, terrorist activities, war, in the threat of war. Actual results may materially differ from anticipated results described or implied in these forward-looking statements. Please refer to the Risk Factor section of the company’s Form 10-K for the year ended December 31, 2007 for more details. At this time, I’d like to introduce Greg Henslee.

[Greg Henslee:]

Participating on the call with me this morning is of course Tom McFall, our Chief Financial Officer; and Ted Wise, our Chief Operating Officer. Ted is currently in Phoenix at the CSK Headquarters that will be participating on the call remotely. David O’Reilly, our Executive Chairman is also present. Considering the continuation of the challenging economic environment we’ve experienced so far this year, we’re very pleased with our second quarter performance. Our team continues to focus on the fundamentals of providing the highest levels of customer service to both our professional customers and our do-it-yourself customers, and we’re very encouraged with the steadiness of our comparable-store sales growth throughout the second quarter resulting in a 3.4% increase. I’m also pleased to report that this steady comparable-store sales trend has continued into the third quarter. As our Company continues to aggressively expand, we’re very focused on gaining market share in our newer markets, as well as defending and growing our share of business in our more established markets. We’re extremely proud of the job are team is doing as we continue to grow the Company at a rapid pace and begin the integration of CSK Auto. Our ability to focus much of our Senior Management time and effort on the integration and conversion of CSK is only possible due to the outstanding store operations’ and distribution operations’ teams we have in our core markets, and I want to thank all the member of Team O’Reilly for their effort in insuring the continued success of our business and for the great levels of customer service we all work so hard to provide. While 3.4% comparable-store sales growth in the second quarter is a solid improvement over the first quarter, our core customers remain challenged economically due to inflationary pressures. We feel this continues to drive many of our customers to defer as much as vehicle maintenance as they reasonably can. However, as I said before, our business is very resilient to the consideration of deferment and the fact that new car sales has slowed bodes well for our business as families under economic pressure make the decision to keep, maintain, and drive their older cars as opposed to replacing them. Based on the performance of some of our discretionary categories, as well as the general feeling among our installer customers and our field sales force, we believe the mindset of our customers is starting to improve as people generally adjust to higher fuel costs. Our air conditioning parts business, which is a category that can be deferred and has performed relatively poorly over the past several quarters, while not performing as well as we would like, has shown significant improvement as is some other categories such as brakes, lubricants, filters, and other maintenance-related categories. It’s hard to predict future sales. But based on the steadiness of the comparable-store sales trend we experienced during the quarter, we feel the environment in our business is currently very stable. While there’s obviously no question that we had an economic headwind, we feel reasonably insulated due to consumer tendencies to defer purchasing new cars and maintain their cars better to maximize fuel mileage and also because of the non-discretionary nature of the majority of our business. With all this considered, we’re providing comparable-store sales guidance for the third quarter and the remainder of the year of 2% to 4% for the O’Reilly stores, excluding CSK. We feel the slightly more conservative guidance is warranted with the 4.3% comparisons we have from third quarter last year as well as the continued economic headwinds. Three weeks into the quarter, we’re currently well within that range. For some time to come, we’ll continue to report O’Reilly comparable-store sales standalone as well as our sales combined with the CSK stores we acquired on July 11th. Considering the comparable-store sales performance of the CSK stores, which has been running in the negative-1% to 3% range since they reported their first quarter results, we’re providing combined Company’s guidance as 0% to 2% comparable-store sales for the third quarter and for the year. As I think everyone would assume, much of our comparable-store sales performance in CSK depends on the pace at which we’re able to make modifications to their business model and proceed with the conversion process. Ted Wise will be talking about the detail and timing of our plan more in a moment, but I want to simply outline that we’re extremely excited about the opportunity we have with the acquisition of CSK. We feel very fortunate to have the opportunity to combine the complimentary business model to CSK and O’Reilly, and we’ll be working to put in place solutions to three primary areas that we feel will greatly enhance our performance in the CSK stores. One

[Ted Wise:]

I’ll quickly start with an update on our expansion for the year. We finished the quarter with a gain of 51 new stores, giving us 88 new stores for the first half of this year. Last quarter’s expansion pretty much mirrored the trend of the first quarter. Texas points again led with 10 new stores, putting us up to 18 Texas stores for this year [inaudible] Valley and the upper Midwest states were next in new store count. We had seven new stores in Ohio and five in Indiana. Both Ohio and Indiana are proving to be great expansion markets, and we have plenty of distribution capacity to handle this growth out of our Indianapolis DC. We installed four new stores in South Carolina and three stores in Georgia, three in Mississippi, and three in Virginia. The balance of the 51 stores last quarter were spread out in 11 more states, again giving us a good balance of growth within our markets in our distribution centers. As mentioned in our call last time, our new Lubbock, Texas, DC is scheduled to be opened in this fourth quarter. Lubbock will service a large group of existing O’Reilly stores in West Texas as well as the Texas and New Mexico Checker stores that we will be converting starting in December. We’re also starting to build out of our new distribution center in Greensboro, North Carolina. We have a goal of having it in operations during the second quarter of next year. The Greensboro Distribution Center will more efficiently service a number of stores currently be serviced out of our distribution centers in Knoxville and Atlanta, plus it will give us the ability to expand into markets in the Carolinas, Virginia, West Virginia, and the eastern part of Kentucky. Now in regard to relocation stores, we had two more stores moved last quarter bringing us to a total of 14 relocations for the year. In addition, our installation teams completed 20 store renovations for a total of 60 projects this year. Along with this, we completed another 60 interior upgrades, which gives us 145 for the year and just about finishes the storewide interior upgrade program we’ve been on for the last couple of years. Now to comment on the balance of the year

[Tom McFall:]

Moving on to the numbers, sales were up 9.5% to $704 million for the quarter, with a comparable-store sales increase of 3.4% for stores open greater than 12 months versus 2.0% comparable-store sales growth for the second quarter of 2007. Year-to-date sales increased 7.5% to $1.4 billion on comparable-store sales of 1.5% versus 4.3% in the prior year. Sales independent jobber, team members, and equipment sales, which are not included in our comparable store sales calculation, were $19.2 million for the second quarter of 2008, which was a decrease of $0.1 million in the same period last year. Year-to-date, these non-comp, non-store sales were $35.4 million, down $1.3 million from the prior year. Gross profit for the quarter was 45.0% of sales versus 44.7% in the prior year. For the year, gross profit was 44.8% of sales versus 44.3% in the prior year. The improvement was primarily due to the mix of product and improved acquisition costs. For the quarter, SG&A was 32.5% of sales versus 32.0% in the prior year. The deleverage was primarily the result of additional investments and store technology made in the third quarter of 2007, which is not anniversary, an increase in the cost of fuel relating to store level deliveries. For the year, SG&A was 32.8% of sales versus 31.7% in the prior year. The deleverage was the result of the higher depreciation expense, fuel costs, and decrease in the year-to-date comparable-store sales levels from 4.3% in 2007 to 1.5% in 2008. Operating income for the quarter was 12.5% of sales versus 12.7% in the prior year. Year-to-date, operating income was 12% of sales versus 12.6% in the prior year. Tax provision for the quarter was 37.4% of pretax income versus 37.0% in the prior year. The year-to-date tax rate was 37.3% of sales compared to 37.1% in the prior year. The increase is due to certain state tax law changes that occurred in mid 2007. Net income for the quarter $55.8 million versus $51.9 million in the prior year. The second quarter net income was 7.9% of sales as compared to 8.1% in the prior year. The year-to-date net income was $102 million, which was 7.6% of sales compared to 8.0% in the prior year. Diluted earnings per share for the quarter was $0.48 per share, which is an increase of $0.03 over the prior year. Second quarter EPS is based on 116.5 million shares as compared to 116.1 million shares in the prior year. The year-to-date EPS was $0.88 per share, which is a penny increase over the prior year. Moving on to the balance sheet, inventory was $904 million, up $51 million from June 2007. This represents a 6% increase over last year versus an 11% increase in store count over the same period. Total assets were $2.5 billion, a $278 million increase over June 2007. Accounts payable of $446 million was an increase of $52 million over June 2007, and AP to inventory increased from 46.2% to 49.3%, a strong 310 basis point improvement. The improvement was primarily driven by better vendor terms and improved leverage on inventory at the store level in the newer DCs. Debt levels were $75 million at June 2008 versus $101 at the end of June 2007. During the second quarter, our $25 million private placement notes bearing 7.72% interest were repaid with cash on hand. On July 7th, we entered into a $1.2 billion ABL led by Bank of America and Lehman Brothers to finance the CSK transaction. EBITDA for the quarter was $112 million, 15.9% of sales, versus the prior year $102 million 15.8% of sales. Now on to some other metrics

[Operator:]

(Operator Instructions) Your first question comes from David Cumberland – Robert W. Baird & Co.

[David Cumberland:]

Within your guidance of delusion this year, to what extent does that reflect incremental costs related to the integration?

[Tom Wise:]

We’re going to focus on their cost structure is a big opportunity we feel for us. That would include all the costs we expect to incur through the end of the year for integration. To talk about the specifics would probably be premature at this point.

[David Cumberland:]

Then on the timing of the three to four DCs that could add in the Western U.S., what is the potential timing for that rollout?

[Greg Henslee:]

David, we’re currently looking for real estate and, again, we haven’t got far enough to know even whether we’ll end up owning the real estate or leasing it. We have a couple of markets some good prospects, but we’ve got people today working on that, and I would estimate, and again it depends on the situation with the building that we get, but by the end of ‘010 we should be in a point that we would be open there, maybe mid ‘010, depending on the facility. It really depends a lot on the real estate and what work has to be done inside the building from a material handling and storage perspective, but hopefully by the end of ‘010 we would be in a real strong distribution position there.

[Operator:]

Your next question comes from Sharon Zackfia – William Blair & Company.

[Sharon Zackfia:]

I appreciate that you just closed on CSK so a lot of these things are probably influx, but I think Ted was talking about the inventory changes on the West Coast and the pricing strategy and that you’d do that line item by, or line-by-line as soon as you could. Is there a point where we can is it first quarter of next year where we would expect everything to be done? I understand it’s a transition, but is there something we can think of as a line in the sand where the West Coast is better priced and has a better inventory mix at least for the do-it-yourself segment?

[Greg Henslee:]

Well, Sharon, it happens in layers and a lot of it depends on decisions that have not yet been made relative to products that will be carried on the West Coast from a product line perspective. But let me say this and see if this maybe helps clarify what our general plan is and that is

[Sharon Zackfia:]

Then secondarily, it was encouraging to hear you talk about some of the more discretionary products picking up like the air conditioning and so on, is that still a drag on comp? I’m assuming it’s still helping at a less robust rate than the consolidated comp. Then secondarily, we’re not hearing a lot out there about consumers feeling better, so what is your anecdotal thought as to why you’re starting to see a pickup in some of these items that maybe could be differed a bit longer?

[Gary Henslee:]

Well, I think in for instance air conditioning where we ran negative as a category for some quarters, negative from comp-store sales perspective, and still if I was to speak specifically to air conditioning, I would tell you that it doesn’t, it’s not running as well as our overall comp and so it’s a little bit of a drag on comps, but it’s so much better than it was. My perception of that is that consumers have deferred things like air conditioning repair and maybe the economic stimulus package that Federal Government provided helped some, but we’ve seen an improvement there. Just the general attitude and comments by some of our star customers and our people in the field is that some of the things that they feel like have been deferred are now starting to come to fruition a little bit or they’re starting to make repairs and our maintenance categories. I mentioned brakes and lubricants and oils and things like that, those categories, while they weren’t performing as poorly maybe as air conditioning, but they’re performing better. Those are just indications to me that maybe we’re on the front end of many families adjusting to the higher price of fuel and maybe building it into their budgets a little bit better.

[Sharon Zackfia:]

Have you seen those improvements pretty broadly across your store portfolio?

[Greg Henslee:]

Yes, by category actually didn’t look at it as closely as I could have by region, I know our comparable-store sales by region, while it varies depending on the region and some of the things we’ve done there, for instance, some of our northern regions are doing real well right now as we’ve really gotten traction following our Midwest acquisition and the opening of our distribution center up there. Maybe some of the southern regions aren’t doing quite as good as we continue to deal with some of the changes that happen down there following the hurricanes from years back and just the general, maybe a more depressed economy in some of those markets. But I really don’t have any specific comment relative to categories by region.

[Operator:]

Your next question comes from Scott Ciccarelli – RBC Capital Markets.

[Scott Ciccarelli:]

Now that you have had CSK stores at least for a few days here and it sounds like Ted’s been out in the stores and some of the team, can you just give us your assessment regarding the CSK stores, the condition of them? They’ve been [inaudible] capital for a while, so I’m just wondering what you think of the store-base at this point?

[Greg Henslee:]

My assessment would be that the stores are in pretty good shape from a fixture standpoint and just the appearance of the store. There’s typically some minor things that we would do to maintain the stores being in a better capital position than maybe CSK has. The biggest issue from my perspective that impacts their business is that they, some of the stores, not all of the stores, but some of the stores are in a pretty good inventory position from a SKU count perspective. But many of the stores are not in as a competitive position as we would like from a SKU count perspective, some stores may just have say 12,000 to 14,000 SKUs and have an AutoZone across the street with 19,000 or 20,000. As I think Larry Mondry had spoke of, one of the things that he had done is the new CEO there was test it, putting more inventory in some of the stores to see what that would do to sales. Of course, it does positively affect sales as many of us that have been in the business for a long time have learned over the years. One of the things that we’ll be looking at first is making the correct inventory investments in those stores to drive sales. But if I was to speak of anything that I feel has been maybe neglected due to lack of capital, it would be the inventory.

[Ted Wise:]

Well just from a physical aspect, the stores look fine. Out front their merchandising plan, their well kept. They’re sharp looking retail stores. To Greg’s point, once you go behind the counter, you realize that in a majority of the stores that over time they pulled down the inventory on hard parts where they’re just not competitive from just an in-stock situation. Then obviously out front, their plan-o-grams, I think they look good, but they certainly need refreshing. So over time and as quick as possible, we’re going to improve the backroom. We’ll go through a total remerchandising out front. They’ve had a tendency I think to add in a lot of import stuff, containers of old just like little motorcycles and things like that for large ticket sales, so we’ll transition back to a more auto parts mix certainly in the backroom. From a stacking standpoint, again, I was really surprised with the tenure they have, folks that have been with the company forever out in the stores. Their staffing is lean right now because they’ve obviously with sales, they’ve shortened up their staffing to where their service levels, in talking with some in the field op people, they need to be enhanced and improved. So again, with the inventory with the better pricing and with staffing the stores to handle the business, we should really see some nice increase in store volume so…

[Scott Ciccarelli:]

Related to that, how quickly do you expect to rollout commercial sales desks to the CSK stores? Obviously, I forgot the percentage, but I know they only have commercial desks in I think a little over half of their stores.

[Ted Wise:]

Honestly where they have commercial sales desk and they’ve committed the inventory, they do a real nice volume with the installer business. So currently we’re evaluating, we’re having their field op people come back to us with prioritized where they feel like commercial sales should be rolled out. Again, the use of capital for them, it would take additional inventory, additional trucks and so they handcuffed themselves. They knew there was a number of markets that should have commercial sales, so we’ll address those first and then as time goes on and we get the inventories upgraded in the stores, we’ll be more aggressive at rolling out trucks. I don’t expect that in some of the metro markets they operate in, their stores are pretty close from a retail standpoint and they’ll be probably a percentage of stores that we may elect not to role commercial sales out because it just makes sense to have one big commercial store and then a couple retail stores around it. But again, that won’t be very many stores, so we hope to have commercial sales in the stores as we open up the distribution centers for sure, within the next year or two. But again, the priorities one, we’re going to make them our highest priority and address those in the next six to eight months at a minimum.

[Scott Ciccarelli:]

So just to be clear, the rollout of these desks will wind up mirroring the rollout of a DC network?

[Ted Wise:]

Not totally, again, we’ve prioritized the stores that we know are just absolutely great installer markets and we’ll address those within… We’ll we’re working on them right now, but we’d hope to have some additional commercial stores. They call them CAM Centers. We call them Installer Service Centers. We’ll have those out as soon as possible and then we’ll address all the stores in total as we roll out the distribution centers or increase the hub that can service the installer stores with availability of inventory.

[Operator:]

Your next question comes from Mike Baker – Deutsche Bank Securities.

[Michael Baker:]

Not to get too specific on the synergies, but I’m wondering if that includes any pay down of debt and therefore the interest expense will go up originally but then I presume you’ll be able to pay down some debt and then take down the interest expense run rate that CSK has been running with, if you could comment on that. So you’ve talked about potentially $285 to $300 million in CapEx this year because of some new DCs. How much does these three to four DCs, how much do each of them usually cost in terms of CapEx and then from that we can back into understanding that it could change, but what the going plan is for new DCs in 2008?

[Tom McFall:]

Yes, Mike, the synergies would be excluding interest. We’ll project interest based on our current deal. To your point, we will work very hard on reducing that amount and reducing the interest drag in our earnings.

[Greg Henslee:]

Mike, the DCs, it varies of course depending on the square footage and the condition of the distribution center and whether it’s a lease or buy, but somewhere in the $20 to $40 million range of DCs, something like that would be close. If they’re larger than that, it could be a little more than that, but that would be a range.

[Michael Baker:]

So within a $285 to $300 million CapEx plan, this year, is that about two of those DCs at that cost?

[Gary Henslee:]

We won’t be able to complete any DCs this year. It would be probably a cost of one. If we could fine two to buy, then we would have to fix. That’s what’s in our plan right now. One more comment on the DCs, the costs vary a lot depending on the location, but also the size. Our DCs range in size from a little over 100,000 to 500,000 square feet and how big they are is based on a formula we use as how many square feet we need per store, so that also drives the number.

[Operator:]

Your next question comes from Collin McGranahan.

[Colin McGranahan:]

I just wanted to follow-up a little bit on Mike’s question on CapEx and maybe approach it a little bit of a different way. It looks like the incremental CapEx this year is going to be in maybe in the range of $60 million. You were at $220/$230 before, now $285 to $300 and you’re going to be converting something like 200 stores through early March next year and working on some DCs so. If you take the incremental CapEx and divide by those stores, you work out at something like $270,000 per store all in conversion costs. So for the new store systems, the signage, and that portion of the stores’ DC. Does that make sense? Is that the way we should think about incremental CapEx going forward as you tackle the rest of the CSK store-base. Then additionally just on inventory per store, what’s the per unit… I know it varies dramatically by store, but on average, what do you think is a per unit investment in inventory will be?

[Tom McFall:]

On the CapEx, hard to say what to convert a store is. They’re across the board, depends on the layout of the store, what type of fixtures are in the store, how old the store is, but our estimate right now is that on a per store basis, the average cost to convert will be $100,000. On top of that, we have distribution costs as we expand the distribution and then we have IT infrastructure costs that also have to be born and in addition, we run our own trucks as opposed to CSK which outsources their DC to store deliveries, so those items are all in there. Your second question on the inventory, as you said, we look at the store-by-store and vehicle registrations and sales history by store. The best thing I can point to you is look at our average inventory per store and look at CSK’s average inventory pre store historically and that difference is probably what we need. Now that doesn’t all go in the store, some of that goes in the supporting distribution centers, but that should give you a general idea.

[Colin McGranahan:]

Just to clarify, the $100k is just the cost of the store, you’re saying the IT, the DC, and trucks is incremental to that $100k?

[Tom McFall:]

Correct, and your math on our previous guidance on 150 stores and our combined guidance is good math.

[Colin McGranahan:]

Then just more broadly and I was looking at the miles driven trend and it’s the worse trend we’ve seen probably since the 1970s. Your business seems pretty consistent. How do you reconcile those two and how do you think about miles driven today in terms of any leading indictor for where demand is going?

[Greg Henslee:]

Well, the information, we get, Colin, is a little bit delayed on miles driven. It’s been relatively soft this year and that obviously isn’t a macro driver for our business. For us, our attack in each market is to try and take as much market share as possibly can. The positive thinker of this is that the age of vehicles is increasing because of new car sales being down, so that creates more demand for each vehicle, for each mile it’s driven by these vehicles, so that’s a driver. As technology has changed on these vehicles, they’re as I mentioned before several times, these vehicles are able to be driven at very high mileages yet they require maintenance. Some of the maintenance at higher mileage while the drive trans and interiors and exteriors of the cars are good or emission systems and ignition systems which contain components that can be relatively expense, but once replaced, put the car in a good position to go a long way. So to me, I feel like that there’s some mitigating effect of the softness in the miles driven relative to the age of the vehicles and the fact that most consumers are driven to try and keep their cars in good running order to maximize their fuel mileage.

[Tom McFall:]

Colin, one follow-up answer to your CapEx is our incremental CapEx over previous guidance also includes maintenance CapEx for the CSK stores.

[Operator:]

Your next question comes from Alan Ritkin – Merrill Lynch.

[Alan Ritkin:]

You hit your numbers in the second quarter both with respect to earnings and comp, top line revenues are a little bit better than we expected and it looks like on a sequential basis, new [inaudible] productivity actually improved. You’re also saying that the performance of discretionary parts are getting better and even as we look at miles driven comparing let’s say April to March, while it’s not ideal, it certainly improved on a sequential basis. What exactly are you seeing going forward that’s causing you to be a little bit more cautious on the core O’Reilly stores in the second half of this year?

[Gary Henslee:]

Well, one is, as I mentioned, just the continued economic headwind that’s talked about so often, and we see it. I’m hopeful that that continues to improve or starts improving from some people’s perspective. Again, our prospective has been that there has been some improvement. Additionally, with the tougher comparison third quarter this year to last year was the 4.3% performance last year, those things combined, also just, and this is just a comment, but with our performance in the second quarter of 3.4% being in the middle of the 2% to 4% guidance, and that trend continuing, we just felt it was prudent to go ahead and maybe softness our guidance a little bit 2% to 4%. I can tell you right now, we’re well in that guidance. My hope is that we are being too conservative relative to our comparable-store sales guidance. But based on what we know today and the factories that I just stated, we feel like that’s the correct guidance at this time.

[Alan Ritkin:]

With respect to CSK, it certainly sounds like the first two phases obviously are going to be focused on stores that are currently supported by your existing DC infrastructure. Would you say at least for the next 12 months that the integration risks are probably less so than what is ahead of in the second half of ’09 and ‘010?

[Greg Henslee:]

To me, the integration risk for the overall company is present regardless of where we start first. I think the stores that we are going to convert right off the bat here, I think we’re really good at doing these types of conversions, these whole store conversions. Part of our expansion plan, Alan, has been to buy individual independent owned part stores. The teams that we have do this, know what they doing; they can do it very quickly and those are the teams that we’re going to have go out and convert these stores. Because we have distribution to these stores, our business model works perfectly for these stores. So yes, there’s a very low risk that we won’t be successful in converting those stores. Now on the other hand, when you look at let’s say 1,000 stores that are left on the West Coast to which we don’t have as solid a distribution as we would like, to me once we have that distribution in place, the risk of our ability to execute the business model is very low. We’ve done this for a long, long time and we do it today with over 1,900 stores and we’re very confident that the business model will work in those markets. It’s just a matter of getting us in a position to where we can execute it. Yes, it takes more time, so there’s more time involved in the conversions out there. But I think at the end of the day, what we’ll end up with is a store that is as supportive and operates exactly as the stores that will convert where currently have distribution rates.

[Alan Ritkin:]

Ted, we appreciate all the color that you gave on the integration, but is there any preliminary number that maybe you can shed some light on with respect to potential EBITDA margins at the CSK stores let’s say in 2010 relative to where they are now?

[Tom McFall:]

We’re not prepared to give 2010 guidance. As I mentioned earlier, we have a lot of work to do to finalize our integration plan and it’d be premature to give out that information, but I would like to answer a comment that was embedded in yours are new store productivity. Over the last three quarters, we’ve been somewhat uncertain why the community looked at our new store productivity with such a fluctuating variations on a quarter-to-quarter basis when we didn’t see it with all the detailed information. So we pulled a few of our analysts to look at their calculations and see why when we look at the actual detailed information, we’re not getting the same reading that you are. The two comments or the way it looks like most of the outside world is looking at our new store productivity is, one, square footage is not as good a measure to use as units. Although, our square footage does vary, especially when we take on existing space, the economics of having a slightly larger smaller store or a much larger store, if we find 14,000 square feet that are at the right rent rate to make our model work, don’t significantly change our operating cost, especially when you consider the biggest operating cost at a store level is payroll. So our first suggestion would be to use units. The second item would be to make sure that you’re excluding the non- store, non-comp sales, those team member independent jobber in equipment sales. When we look back historically, we started to disclose that middle of last year, so we’ll do a supplemental disclosure here in our upcoming queue is give you the information further back to look at and that although not a huge percentage of our overall company sales and that quarter of our company affects that non-comp number quite a bit. Especially if you look historically, when we bought Midwest, they have a tremendous amount of independent jobber business, which we’ve talked about that a third of it we bought the stores, a third of it we still service and a third of it elected to have somebody else servicing them who weren’t competing against them, so that historically has created quite a bit of variation in the numbers. But when we look back and we look at the detail, the heart of what I’m saying is, over the last three quarters, although it looks like a lot better this quarter from the way historically analysts have done it, it looks pretty consistence to us and again with the acceptable and historic ranges of what we see.

[Operator:]

We have reached the allotted time for today’s call.

[Greg Henslee:]

I would just like to thank everyone for their time and attendance on the call this morning. We’re very excited about this acquisition with CSK and the combination of the two companies. As we’ve outlined, we have some short-term plans and some longer term plans to make these conversions and integrations. As we proceed, we’ll be reporting on our success with that to the extent that we, as we get stores converted and we have enough time to start measuring the results, we’ll report the results of those stores that have been converted. So we can express our success with those conversions to help you in building your models and evaluating the potential for our Company into 2010 and beyond. So thank you very much, and we’ll look forward to talking to you following our third quarter performance.