Question-and-Answer Session
Operator
Thank you. (Operator Instructions). Your first question comes from the line of Charles Grom with JPMorgan.
Charles Grom – JPMorgan
Hi Richard. Good morning everybody. Can you when you look at the second quarter the 57 basis points of core margin erosion I know you're not going to give us a back half EPS, but for terms of modeling purposes do you that's a good proxy or do you think it could be a little bit better? And then also on the I think you walk through all the components except the 19 basis points of ancillary margin compression in the quarter, could you just kind of flush that out for us?
Richard A. Galanti
I would hope that the plans 57 was better recognizing it includes seasonal markdowns which were higher than planned, but for a good reason to do, it included that "aggressive pricing", which as I don't know if I mentioned on this call but when we did that and we did as you call we did a little bit at the end of the end of Q1 as well in November, what we did is we comps were starting to weaken, we felt very strongly we wanted to drive sales in the right directions. We saw commodity prices starting to come down and knew there was a matter of weeks not months where many of the underlying procurement costs would come down and we did what we are good at. We try to drive sales and ate some of that margin. So, given that you never know what's going to happen tomorrow in terms of sales, I think as I mentioned, we are prepared to sacrifice margin, if comps are going on the wrong direction, at least for the last couple of months they have been going in the right direction. So, based on that I would hope that it’s a little better than that. Again we will have to wait and see each quarter. In terms of the ancillary business margin down 19%, that is basically gas.
Charles Grom – JPMorgan
Okay.
Richard A. Galanti
That could be up or down. Our underlying margins in the various ancillary business is photo, one-hour photo is probably the weakest as people, even though we are getting a lot of business and lot of specialty printing with the books and all the things you can do online and then some pick up at Costco for the most part, people are storing more things on their computer and not printing out lot of copies until they want to print out what they want. So, that's a business that's a challenge in the industry. The Pharmacy is despite its challenges with $4 prescriptions and Medicare, Medicare Part D and everything else going on out there, we see to be doing pretty well in the pharmacy. Food court is strong, we cycled it was year ago, I think we were anecdotally talking about holding prices despite huge increases and things like cheese. I think one of the national pizza chains actually had a cheese surcharge price surcharge for a period of good time back then. But that has reversed itself now with a procurement cost, and within the food court we see strength in take home items like the food court pizza, which is quite strong right now. Again I think the fact that people are eating out less and eating in more in home.
- To read the full transcript on Seeking Alpha, click here »
