Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from the line of David Lin with William Blair. Please go ahead.
David Lin - William Blair
Can you provide a little bit more color on the 140 basis point year over year gain inthe laundry operating margins? How much ofit came from the reductions in merchandise amortization, how much is coming from automation improvements atthe Kentucky plant, the rollout of handhelds, and how much can we expect this to continue throughout the balance of the fiscal year? Are we eventually going tosee the merchandise amortization reductions start to dissipate a little bit?
Steve Sintros
I think the bulk of that improvement was from the merchandise cost. There were some benefits with respect to production, payroll, and administrative payroll. Again, I think your reference is a good one to some of the automation. Butthe bulk ofit was from the merchandise. Some of this trend, I think we would expect will start to turn at some point during the year. At what point, it’s unclear. With the strong growth that we have, it is inevitable that garments will be going into service and that will start to ratchet back up again and that’s how things have gone over the last several years. It trends up and down and we’re at a good point right now.
I don’t think it’ll allgo away during the year. That really takes time for itto happen, so we probably maintained some of that benefit, but to what extent it’s tough to put our finger on. In addition, we anticipate that the fuel will become a little bit more of a factor as the year goes on. It really didn’t hurt us too much in the first quarter given our growth but we expect that to continue to be an uphill battle as the year goes on.
David Lin - William Blair
What is energy asa percent of revenues now, since you brought it up?
Steve Sintros
The fuel and natural gas together Is a little bit under 4%, David.
David Lin - William Blair
In the first quarter?
Steve Sintros
In the first quarter.
David Lin - William Blair
You guys mentioned that you’re still expecting inthe specialty garments division to hit your targets in fiscal 08. Does that mean that you expect margins in specialty garments to be higher than the 7.6% achieved in fiscal 2007?
Steve Sintros
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