Question-and-Answer Session
Operator
Your first question comes from Shaun Smolarz from Sidoti and Company.
Shaun Smolarz – Sidoti and Company
Hi, good afternoon everyone.
Darrell Webb
Hi
Shaun Smolarz – Sidoti and Company
Hi, my first question is how does the operating margin of the internet business compare with the retail stores?
Darrell Webb
The bottom line operating margin will help us out slightly. I mentioned in the prepared remarks that the gross margin is lower and the SG&A is actually better but incrementally there is a lot of fixed cost that we don’t need to incur because we can leverage the infrastructure we have here, so we expected to help our operating margin.
Shaun Smolarz – Sidoti and Company
That’s the internet business is accretive to the operating margin.
Darrell Webb
Yes, as we said when we made the acquisition we expected it to be accretive in fiscal 2009 and as we have the year planned we still expect that.
Shaun Smolarz – Sidoti and Company
And on the gross margin line do you think that the internet business eventually can have gross margins that is equal to the retail stores?
Jim Kerr
We think we can improve the gross margin and we generate today on the internet business but based on the structure of that industry where you also have the shipping costs, I don’t anticipate that we will ever have internet business match the retail store gross margins.
Shaun Smolarz – Sidoti and Company
And could you elaborate on the spread between the gross margin levels?
Darrell Webb
We’re probably not going to get into the detail of that on an ongoing basis. At this point no, we are not going to talk about it.
Shaun Smolarz – Sidoti and Company
Okay and can you elaborate on how craft retailers have performed well in the past recessionary periods.
Darrell Webb
Actually Richardson has generated some reports on that performance and as I recall 2001 and 1991 were the last two years of recession that she references and actually in those two years retailers in the craft and sewing business had better same-store sales increase than the prior and the following years. So, clearly I am not suggesting that we are going to expect some big benefits from our recession, but I do think this industry as a segment of retail is a little bit insulated from the overall down turn compared to other retailers.
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