Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Grant Jordan – Wachovia.
Grant Jordan - Wachovia
On your capex, it looks like you have clearly cut it back a good bit for next year. That $40.0 million, is that kind of a maintenance capex? Or what’s incorporated in that number?
Keith Plowman
That is a maintenance capex.
Grant Jordan - Wachovia
You talked about how on your payables you increased some of those to support some of your vendors. What kind of impact was that? When I look at the payables days it’s about flat to last year, given the lower level of cost of goods sold.
Keith Plowman
As you look back to the second quarter, if you remember, we actually had better AP support because we’re turning our inventory faster and effectively have it more current. We are getting the older goods out and that gives us better AP support. That didn’t hold through to the third quarter, essentially because we are paying out a little faster. If we gave a round number we would say 50% to 75% of that decrease in the excess capacity is what we have from the standpoint of supporting vendors and taking accelerated terms. And you will see some benefit of that in our gross margin in the fourth quarter.
Grant Jordan - Wachovia
As we look at the gross margin, you guys did a great job improving the gross margin in this quarter. Is there anything in the fourth quarter we should keep in mind as we think about forecasting gross margin?
Keith Plowman
As I go through the numbers, essentially it’s a 35% to 38% that says we will continue to be about 3/10 below where we performed last year because for the full year we were at 36.1%. And that really says that we will be down slightly, maybe up to about 50 basis points compared to the prior year in our fourth quarter gross margin rate, realizing that it is a very promotional area and time and everyone is going to be out there driving to bring the consumer into their store.
But we do have some favorable items. We talked a little about the discounts that will come to benefit us as we sell through the merchandise in the fourth quarter. The levels of our inventory being down where they are, 9% on a comp basis, whereas last year we were up about 4% on a comp basis when we ended the third quarter.
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