Question-and-Answer Session
Operator
(Operator instructions) We’ll go first to Budd Bugatch with Raymond James & Associates.
Budd Bugatch – Raymond James & Associates
Good morning.
Sharon McCollam
Hi Budd.
Budd Bugatch – Raymond James & Associates
Sharon, maybe you could kind of give us a feel as you look out a little bit longer term as to the fixed the variable nature now of the businesses as you try to deal with this new real – new economy that we seem to be in and give us a feel of when leverage starts to come back to SG&A and what maybe the gross margin aspect looks like going forward if we have to stay more competitive for a longer period of time?
Sharon McCollam
I think that when you – that is a great question and when we released our Q4 earnings we will give you more specific guidance for 2009 but I think there are some advantages that we have in this company that are not shared by other retailers and the largest of those is the fact that 40% of our business comes form the direct-to-customer channel and with catalog circulation we have more flexibility than a retailer who is sitting with bricks and mortar. So, one of the things that we of course are continuing to look at, is the expansion of our catalog circulation optimization strategy and you’ve noticed that in Howard’s commitments for 2009 that he went through in his prepared remarks that he said that we expect SG&A next year to be down $75 million and a piece of that of course is coming from ad cost. It is also coming from employment and other areas and that’s just where we are getting started. On the store side, I will let Howard speak to the fixed cost but we do have some opportunities from a real estate point of view that will be coming up. We have a distribution center that has got a lease expiring in the next 24 months, that’s a large one, and we are working on getting out of that. We also have an office building in San Francisco in 2010 that is expiring. So, we’ve got some good fixed things that we will talk more about at the time that we actually give guidance for next year but I would like to turn it over to Howard to talk about the real estate strategy and what they are doing now with our landlords.
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