Question-and-Answer Session
Operator
(Operator Instructions) Our first question is from Matthew Fassler from Goldman Sachs, your question please.
Matthew Fassler-Goldman Sachs
Good afternoon and I appreciate your comments on capital allocation. Two questions, I'd like to ask you first about that, did you talk about the kind of store count you'd be getting two and 2009. And related to that as you pull back CapEx presumably your free cash flow will increase and how would you consider redeploying that?
Philip Francis
Matt? Hey Matt, this is, Phil is going to take the first one and I'll take the second one.
Matthew Fassler-Goldman Sachs
Great.
Philip Francis
A hundred for this year, I believe I said about 20%, 20% of 104 is 21, 104 of 21 is 83 so we're not there yet but the over under for '09 as we sit quite a ways away from it would be 80 or 83 stores would be the new store count for '09.
Robert Moran
Matt on the free cash flow, yes it's obvious as we put constraints around the CapEx we'll have more free cash flow to utilize, if we can't find ways to invest that in the business, which we will limit through our CapEx restrictions, the next natural place for us is to give it back to our shareholders in the form of either share buy backs and/or dividends.
Matthew Fassler-Goldman Sachs
And then this question I'd like to ask relates to sort of elements of the cost structure, particularly the impact that some of the fixed costs, rent and others are having on your gross margin. Given that the comp was actually up and the retailers out there that are comping negatively to a sever degree right now, it kind of feels like the impact, the negative leverage that you're getting on warehouse and on rent is pretty sharp. So are their step-up clauses in your leases that are leading to escalating rents or anything like that that puts kind of an undue burden on you from a cost structure perspective?
Philip Francis
Matt, this is Phil. All of our rents are what I would call very, very mainstream and I'll give you an example. The lease accounting that we do requires us to straight-line whatever rents are, so as an example we might have to sign a 15 year lease and the way the cash really works is we might pay $13 for the first five years, $14 for the second five years and $15 for the third five years. The way the accounting rules work in that example, we have to charge our P&L $14 or the average of the 15 years beginning in year one. But you can here in times past people with really strange leases of five bucks for a while and 30 bucks at the end. Ours are very much kind of one dollar in the second five, one dollar more the third five years but the accounting rules for two or three years have been you straight-line it anyway and so there's nothing weird going on with straight-lines. Our leases the way we account for them actually don't step up, it's year one and for 15 years it's a flat number on rent per foot.
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