Question-and-Answer Session
Operator
(Operator Instructions) We’ll take our first question from Jeff Klinefelter - Piper Jaffray.
Jeff Klinefelter - Piper Jaffray
On this guidance for Q2, given that your first quarter is coming in at a 45% gross margin and 39% SG&A, you’ve now reduced Q2 pretty significantly as well in terms of revenue. How so quickly can you anticipate getting back to the mid-50s gross margin and low-30s SG&A? How can you move that fast? And how much of it is the adjustment from the Canadian business?
Ronald R. Snyder
We feel that we’ve looked through our numbers and as we move into Q2 we’ve reforecast our sales in each region and our expenses, of course, and we feel very comfortable with the numbers that we’ve given.
It does help quite a bit, taking out a factory that we weren’t utilizing and had higher costs than any other factory that we had in the world. We’ll save in the range of over $5 million, $6 million for the quarter by taking out that factory and it could be a little bit more than that.
Jeff Klinefelter - Piper Jaffray
But the lower sales volume as well that you are experiencing, you’re still just by taking out the Canadian facility, you are able to cut the de-leverage to that extent within one quarter, is that right?
Ronald R. Snyder
Yes. We delayed the addition of heads relative to our plan that we had in-house, but we’ve also moved some of our capital expenditures, business improvement systems into later in the year and into 2009. So we feel comfortable with the guidance that we have now given for Q2 and the remainder of the year.
Jeff Klinefelter - Piper Jaffray
In terms of the inventory up 55 to 10%, that seems modest in comparison to the sales miss in Q1 and the forecasted sales miss in Q2 from prior guidance so can you give us some color on how you keeping it contained at that level. For example, what was the actual manufacturing that you did during Q1, new manufacturing? And/or any updates at all on your excess inventory disposition strategies, is it going out to any authorized channels or are you discounting any product at this point?
Ronald R. Snyder
We’re not really discounting any product at this point, except we sold a little bit of end of life product that’s not our standard. That’s not in any of our core style that we speak of, some old styles that we had from years past. We sold a little bit to TJ Maxx at the end of the quarter.
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