Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Patrick Mckeever - Mkm Partners Llc.
Patrick Mckeever - Mkm Partners Llc
On the gross margin decline in the quarter, how did that compare to your internal expectations?
Jerry Shore
I will answer that first and then Bruce can comment. We did not anticipate the 90 basis points. It was more to be in the range that we experienced in the first quarter, but then the opposite to that was the favorable operating expenses that we were able to leverage with the higher sales.
Bruce Efird
Just to add a little additional comment, obviously the impact came from the inbound freight additional charges, the increase in LIFO, but predominantly in the mix shift and we continue to see the mix in our sales shift from higher margin apparel and some home categories into our lower margin consumables.
We are also experiencing the impact of accelerated cost increases as a result of higher commodity prices and as with other retailers we are seeing these price increases from major manufacturers in the range of 7 to 33%.
Some of the things that we are doing to mitigate that are we have accelerated our price checks to ensure that we are leveraging opportunities to move when the market allows us, as well as continuing to work with the manufacturer and make sure our merchants are being diligent on challenging any cost increase. Another point that I would make is that our team is delivering on our plan to better manage the inventory which will improve the margins as a result of less clearance markdowns and we anticipate that to continue.
We will continue to put emphasis on our own brands, which the penetration has significantly improved through the first half; we anticipate that to continue as the owned brand or private label carries a higher margin. Those are some of the initiatives that we have in place to improve our margins.
Patrick Mckeever - Mkm Partners Llc
It sounds like there has been sort of a negative delta on the gross margin line and sales are a little soft going into, I know there are some issues with the first of the month and the comparison, but a little soft going into the third quarter, so I’m just wondering on the guidance, I mean basically you are reaffirming your back half of the year ETS outlook. Are some of the cost savings associated with the store closings coming in favorable to your original plan?
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