Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Oliver Wintermantel – Morgan Stanley
Oliver Wintermantel – Morgan Stanley
Regarding your gross margin, can you break down your gross margin performance in more detail for example how much of the decline was due occupancy and what was the gross margin in core Staples business excluding Corporate Express?
John Mahoney
There are a lot of moving parts here including some of the impact of our synergies coming from the Corporate Express transactions so I’m going to talk in purely broad terms. In the NAD business as we mentioned the Corporate Express margin is generally slightly lower than Staples and so if you take a look at the gross margin performance you would have seen an improvement in our core and about a third of the difference relates to the lower rate in Corporate Express.
In our Retail business there are a couple things in play. First of all as we’ve seen a little bit better mix of our office supply items we’ve seen an improvement that comes from that because the tech mix is slightly lower with lower margins. At the same time we’ll continue to see relatively stable pricing so we’ve maintained margins on most of our core items at the same levels that we’ve seen historically.
The majority of the reduction in gross margin in North American Retail really comes from the de-leveraging that comes with rent and some of the other fixed expenses and distribution for example.
Oliver Wintermantel – Morgan Stanley
Regarding your North American Retail stores have you reached a minimum store label levels yet or do you have more room to cut costs if you have to.
Demos Parneros
The label line is one that we manage very very closely I would say week to week and with the lower sales per store we do have large percentage of stores at that minimum. The thing that I’m pleased with is our ability to reduce a lot of the unnecessary work and tasks that are really not needed at this point. We’ve focused a lot more on the elimination of those types of things versus labor hours that are customer facing.
We continue to have pressure obviously as sales are tough but I think overall we balance customer service numbers very nicely in fact are delivering record customer service numbers this year once again above last years. We’re taking a very careful close look, week to week, and its working out well.
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