Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Matt Fassler – Goldman Sachs
Matt Fassler – Goldman Sachs
As you look at the drags on gross margin, the offsets to the progress that you made, I presume that you delivered them in the order of their impact but if you could quantify in particular the impact of occupancy de-leverage on gross margin that’d be very helpful.
Mark Bierley
Occupancy de-leverage was a little bit north of 100 basis points in the fourth quarter.
Matt Fassler – Goldman Sachs
On the promotional front, as you look at your revenues and you look at your grosses, clearly you’re doing some things differently. Could you go into some more detail on some of the steps you’re taking to presumably drive gross profit dollars through that effort and just give us a sense as to how far along you are on those efforts? In other words, at what point do you cycle some of the things that you’ve already started to do.
Mark Bierley
Ron described it well. In the fourth quarter, I think we talked about this at the end of our third quarter, we launched a series of stepping back and looking at some of those in store promotions that we’ve run over a number of years and really tested out what that return on investment was. We literally went table by table through the store and were able to determine, basically the return characteristics of each of these promotions. As Ron said, we like the results; we saw a nice bump in overall gross margins. We executed that at the end of January after we saw a good amount of results come through the fourth quarter.
It really is all about the next significant investment that we’ve made in terms of promotional discounting which is our Rewards program. I’ll let Ron talk a little bit about that as well. I would tell you that that is an area that we’re going to continue to look at in terms of a couple key things. One, the way in which we communicate with those segments of customers. We have 18 segments and we want to get to being able to communicate more on the content side, talk about authors that they may like as well as other value or content messages versus just a discount. I would say that that is probably the single largest next opportunity that we’re focused on.
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