Question-and-Answer Session
Operator
(Operator instructions) Your first question comes from John Shanley – Susquehanna International.
John Shanley – Susquehanna International
I wondered if you could give us a little bit further clarification in terms of the 380 basis point decline in Journeys operating income. Was it due to primarily the falloff in the Heelys business or the reduction in inventory that the company or the division may have taken during the period or are there declining product margins overall in terms of Journeys merchandise mix and is that something that’s likely to be an ongoing issue?
Bob Dennis
It was a combination of things. First, as you know, we wanted to bring their inventory levels down so on some of their older products they got more promotional in order to make sure we moved that down to the levels that we needed to get to. With respect to Heelys, year over year we are a lot weaker in Heelys, the average price is down. And so that contributed to a softer comp.
And then as you know in Journeys when you can’t achieve the kind of positive comps that we’d like to see, you lose leverage. So it really is related to more to sales which is connected to Heelys and then margin as it is related to markdowns. But we think our overall product mix is strong.
Jim Gulmi
As Bob said it really is markdowns and leverage. If you look at the IMO in Journeys I believe the IMO is flat or essentially up or down a little bit. So there was not really major variation on IMO, it’s in markdowns and it was in leverage.
John Shanley – Susquehanna International
Are you expecting a substantial improvement in Journeys margins as we get into the back half of the year and you basically complete the anniversary of the Heelys downtick in terms of operating margins?
Bob Dennis
Certainly. It’s driven first by Heelys and then again, even in a normal year, we get better margins in Journeys in the back half of the year because we leverage on sales, we get back to school and we get Christmas.
And given the fixed cost nature of our business, that causes a pretty big expansion of operating margin even in an ordinary time and then you can pile on to that the fact that we will anniversary some very difficult Heelys numbers from last year where we essentially were making no or very little margin on the product we bought and we won’t have that going flowing this year.
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