Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Michael Cox - Piper Jaffray
Michael Cox - Piper Jaffray
My question is on the margin side, I was just hoping you could comment on your inventory position, the flow through of higher cost inventory, how long should we expect that to continue from I guess a mismatch to where current selling prices are and then I have a follow-up on SG&A.
Willard Oberton
Well its getting better already but its not like its just a drop dead because you buy product and it sells off some of the slower moving product will still be in the system three, six, nine months from now because on the importing side where we’re really seeing at the fasteners, many of the slower moving parts we’ll buy, we only turn them one and a half to two times a year in a normal situation so, they will just continue to become less of a problem over the next three to six months and by the end of the year it should be pretty well normalized.
Michael Cox - Piper Jaffray
On the SG&A side, your comments around the sequential drop in SG&A that would imply a pretty significant year over year decline in SG&A dollars. I believe that you were about $22 million in the second quarter and your guidance would imply double that. I was hoping you could give a little more color of incremental cost test that you’re looking at.
Daniel Florness
It might be best to look at it from a sequential standpoint, as you recall last year in the third quarter we had a settlement in the number of about $10 million but if I look at it, if I ignore that and look at it from both either a sequential or year over year, the improvements you’re really seeing, if you look at the components of our operating expense, the biggest component it relates to labor costs. We’ve been able to manage labor, headcount quite well through this process.
There’s a fair amount of incentive compensation both at the store, district, region and national level component of our business and that as you can appreciate has contracted quite dramatically to help us manage through it. So a piece of the additional savings sequentially and year over year will be coming from that component, a meaningful piece, and if you look at the balance of our P&L we still have some benefits in the P&L from fuel.
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