Question-and-Answer Session
(Operator instructions). Betty Chen, Wedbush Morgan.
Betty Chen – Wedbush Morgan
I was wondering if you can start off by maybe giving us a little bit more clarification; I and really appreciate all the details regarding the regulatory changes and how that is really impacting not only Q4 but certainly the first half. But in regard to the Q1 timeframe, it would be really helpful if you can maybe try to quantify like you did for the fourth quarter, where I think you detailed that roughly $6 million of write-off did hurt the gross margin in Q4, and if we can get some kind of guideline around that for the first quarter, that would be helpful. And then to clarify, did you mention that you also expected maybe half of the sales impacting Q1 was also due to the regulatory changes?
Matthew McCauley
Yes, that is right. So it was very easy for us to quantify the fourth quarter because those were simply write-offs of inventory. The first quarter is a little bit more challenging because it is an impact to sales. So I just want to kind of outline why it is so impactful to our sales. So if you look at the first, as I mentioned, that because we are all about outfits, when we have styles that drop out, the remaining styles that are matching counterparts get negatively impacted as well. Because we are all about the details, Gymboree is all about the details, many of those details were previously thought to need to come off until we had alternatives. And so a lot of those came off for lines in the first part of Q1, and that is impacting the remaining product in the stores as well.
Because a lot of those are on the girl’s product and the girl’s is the largest percentage of our sales, it is also negatively impacting us. And then in addition to – as we already mentioned, just simply the fact that we don't have the inventory of those items that we pulled. And so the reason that we're saying it is roughly half, we wish that we could give very detailed outline of exactly how much it is impacting. But because so many of these things kind of have a halo effect, it is very difficult to clarify how much of the economy is impacting the sales and how much is due to the regulatory changes. So that is why we said roughly half. But I think if we had more clarity on that, then we would feel comfortable guiding the whole year.
Betty Chen – Wedbush Morgan
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