Question-and-Answer Session
Operator
Thank you. (Operator Instructions) Our first question comes from the line of Bill Chappell with SunTrust. Please go ahead.
Bill Chappell – SunTrust
Good afternoon. I guess first question is on the first quarter guidance. We are two months into the quarter now. Have you seen the tightening of trade receivables in; I mean are they largely done with right sizing the inventory and you are seeing it get back to normal patterns or do you expect that to carry over at all to 2Q?
Myles McCormick
Hey Bill, it’s Myles. We have seen most of the significant changes to the inventories take place, both on a year-to-date basis and our expectation is for March, but yes, we would expect as we get into Q2, that we’ll begin to hit these normalized levels or these new normal levels, if you will.
Bill Chappell - SunTrust
I assume that there obviously is a big hit with SG&A margin on the lower volume, but are you seeing a pretty big hit on gross margin with lower volume or is it really all SG&A?
Myles McCormick
It’s really all SG&A from de-leveraging.
Bill Chappell – SunTrust
Okay, so that 70% plus gross margin is sustainable through this year?
Myles McCormick
Yes.
Bill Chappell - SunTrust
And then second, as you build this bigger and bigger cash warchest or however you want to look at it, I mean what do you do with the cash looking forward? Is its share repurchase, is it continued debt pay down, are there other things to do with it?
Myles McCormick
Well right now, we’re just focused on creating financial flexibility, i.e., building cash, and as we have a greater visibility on the year, we will revisit that capital structure question.
Bill Chappell - SunTrust
Okay and then in terms of just the competitive landscape, have there been any changes in terms of your listing placements at some of your key retailers and then can you talk about also international? I mean is it tough to kind of break through and see what like Sephora France is doing or how the UK operations are faring or Japan?
Leslie Blodgett
Based on our retailers is that what you were just asking?
Bill Chappell - SunTrust
Yes.
Leslie Blodgett
Our space is unchanged or even improving in our retailers. So, when we look at our business, we feel we have a very strong position there and in France, Eric do you want to answer that?
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