Question-and-Answer Session
Operator
Thank you, Mr. Constable. Operator instructions. First up in the roster is Kristine Koerber, at JMP Securities. Please go ahead.
Q - Kristine Koerber, JMP Securities
A couple of questions. First of all, you talked about focusing in on particular categories and your core female customer. Are we going to see an elimination of categories? I guess my real question is around inventory. It’s at 40%. Are we going to see some markdowns to get rid of some of the excess inventory?
A – Ken Constable
In terms of the focus on core categories, we imagine as we tighten our focus on customers and recipients and on occasions that we will probably be getting into a more narrow assortment in terms of category. We don’t anticipate that we would be doing anything precipitous and so we would probably have a shift in mix as opposed to anything that would be dramatic.
Q - Kristine Koerber, JMP Securities
Then as far as inventory at 40%, can you talk about the quality of the inventory?
A – Ken Constable
We think that principally that inventory is concentrated in core items. Those are the things that we would continue to feature season after season. Certainly the inventory would be normalizing as we go through the next holiday season.
Q - Kristine Koerber, JMP Securities
As far as the merchandise margins, I know that’s one of the strategies to help drive profitability going forward. Where do you see merchandise margins going over the next year or two? In what percentage of your mix currently is being sourced overseas?
A – Ken Constable
We’re pretty pleased with our merchandise margin right now. We think, in terms of some of the margin enhancement that I talked about, that you’ll see a lot of that source from shipping margin in the sense that we offered some fairly significant shipping discounts last holiday season which we don’t intend to incur this year. That’s where you see the majority of the appreciations. What was the second part of the question?
Q - Kristine Koerber, JMP Securities
I guess, longer term I was just wondering where the margins are going to be, the overall gross margin.
A – Ken Constable
I think, you know, we are pretty pleased with where they are right now. We might see some marginal appreciations as we get past the dip that we took in FY06 as a result of that shipping discount. After we get out of that, I think you’ll see us reasonably constant.
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