Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Matt for Jeetil Patel – Deutsche Bank.
Matt for Jeetil Patel – Deutsche Bank
I wanted to start out with a discussion about the gross margin profile of the business. As I understand it the recent e-commerce acquisition has had an impact on the margins until you’re able to transition their model to yours. How much of that gross margin impact do you think you can recover over time through that transition and just generally what you think the drivers of the gross margin pressure in the quarter were?
John Mueller
Let me start with the last part first. Gross margins declined about 3% from prior year’s third quarter which was about 81% down to about 78%. Of that, about 1% was related to just the change in mix of revenue in the quarter and 2% was an actual decline in the actual gross margin, the majority of which could be associated with the acquisition of that e-commerce company as well as we had a number of promotions in our e-commerce business where we reduced shipping costs and in some cases due to back orders of certain items had to do split shipments.
In order to improve customer service we had to pick up shipping costs in that regard and some of that relates to not having enough through put to handle the demand on a quickly enough basis to satisfy our customers’ service requirements.
The second part of the question in terms of how long do you think it will take us to essentially go from a drop ship business model with this acquisition to a more direct business model to incorporate a lot of our shipping directly to customers rather than to other providers and we have already started the process.
We put in place some new equipment already that will enable us to do that and I think, I’d be hesitant to guess on the timing to convert everything over, but I would think our goal would probably be to get 80% of it done over the next 12 to 18 months.
Matt for Jeetil Patel – Deutsche Bank
On the national side of the business, perhaps you could give us more insight into the major changes that took place between the second quarter where we saw a nice little rebound which proved to be temporary in the national business to the current condition today. Did you retain your advertisers or are we seeing just more cautious spend across the board from existing advertisers.
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