Question-and-Answer Session
Operator
(Operator instructions) Your first question comes from Dan Binder – Jefferies & Co.
Dan Binder – Jefferies & Co.
The question was based on the fact that you haven’t signed all of your vendor contracts just yet, which hopefully will give you more flexibility year over year given the environment, what progress do you think you’ll make on vendor dollars, vendor support this year, will it be a down year or do you think as a percentage of sales it will be flat to up?
Dick Gochnauer
You’re correct that we’re about where we normally are at this time of year in our negotiations with suppliers. And clearly we always have the opportunity and we have been making progress year over year when we outlined specifically all the various components that we have in terms of objective supplier by supplier and that continues on and I think we think that that will continue to be positive in terms of how we work with our vendors.
With regard to the full year, the difficulty in answering that question is one of mix and forecast. The vendor allowances have always been tied to the higher margins discretionary products and the first quarter was as we commented, impacted by lower sales of those higher margin products and therefore vendor allowances and margin were both impacted by that.
So to answer your question on the full year, it partly depends on what happens there. If in fact we see some growth there, then I think it’s safe to say that we’ll come out positive for the year. On the other hand, that’s not what we’re seeing so far and if this trend continues, it will be difficult to come out on the positive side. So it’s difficult to answer that question specifically.
Vicki Reich
Dan I would add in terms of gross margin outlook for the year, I think we see some of the similar pressures and opportunities that we saw in the first quarter, although I would note specifically that the allowance challenges from the inventory reduction we experienced in the first quarter should be behind us. Some of the opportunities we see in regard to gross margin for the latter part of the year include product cost inflation adjustments. We do see more suppliers queuing up price increases for later in the year.
WOW programs have been very focused on some of the margin elements for good reason. Examples, fuel costs and doing our best to offset fuel cost inflation and then lastly in allowances I would note that we’re always working with suppliers on opportunities for new marketing programs, for example, in new channels where we are experiencing some very strong growth.
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