Question-and-Answer Session
(Operator Instructions) Your first question comes from Budd Bugatch – Raymond James.
Budd Bugatch – Raymond James
I don’t know that there’s any questions to really ask about the current state, I think we all understand what’s going on. My real question goes to the outlook for the business or the structure of the business somewhat longer term. Whenever it is we come out of this what does the business look like in terms of its gross margin potential, SG&A, operating margin potential and returns on capital? I’m sure the board is looking at this, I would hope the board is looking at it longer term and saying, ?Okay what does it look like?? I think ultimately before you peaked out 25% or 26% or 27% gross margins and 12% or 13% op margins. What do we look for down the road?
Jeffery R. Scheffer
Bud, I think a couple of assumptions first of all. One, business we believe will come back, exactly when we’re clueless at this point but we believe it will come back. We’re not sure it will come back as typically as hard as it has in the past. We think this recovery is going to be probably slower than the ones we’ve been through prior. The actions we’re taking now are to structure our company not just for these times but also for those times when we come out.
We think historical gross margins are certainly possible. We would see SG&A in that 13%, 14% going forward. I don’t know, we’ve got a lot of moving parts right now, it’s tough to see too far down the road but we’re taking the actions now to return this company to where we have been in the past from a standpoint of profitability.
Budd Bugatch – Raymond James
And when you get there can you comment on the variability of cost versus the fixed nature of it historically?
Douglas I. Payne
Bud, I don’t know if we can break it down to that level of granularity for you but I think it’s safe to say that the actions that we’ve taken today already and those we announced last week will certainly reduce our fixed cost structure and will make, when the ultimate rebound does occur, will allow more of that to drop through to the bottom line.
I think the other thing you touched on was return on capital. I think clearly what we’re trying to do today, while we can’t give you precise guidance of where this is going, clearly I think from the board’s perspective and from us as a management team, we’re clearly not satisfied with breakeven profit performance and we’re trying to position the business to get back to double digit operating margins but for us to try and tell you when that’s going to happen would be a somewhat a fruitless exercise I think.
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