Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Betty Chen – Wedbush Morgan.
Betty Chen – Wedbush Morgan
I was wondering if you can talk a little bit about the SG&A outlook that Blair just provided. I was curious on perhaps why we are looking for less of a leverage in Q3 and besides the marketing expense is there anything else that is coming incrementally and how we should think about that also, even for the holiday season.
Blair Lambert
Part of it is just the size of the number. You have a bigger quarter in Q3 so the same dollar savings that we may have incurred in corporate compensation, 401k expense, and incentive compensation, will provide less percentage relief as SG&A leverage as a percent of sales. It is as simple as that.
In addition to that, as you say, the marketing piece is really a push from Q2 into Q3. It's really a timing of one of the mailings. And in addition to that, the spend in the quarter is a little bit higher than in the prior year. Over and above that one item that's being pushed.
Betty Chen – Wedbush Morgan
If we could spend a minute on Crazy 8. It definitely sounds like during the second quarter we saw some very nice improvements on top of the progress we saw in Q1. What is changing with the story in Q3 that we can now expect break-even, other than the fact that I think, Matt, you have mentioned that sales and margins have exceeded expectations. Are we also starting to reach a position where we have enough scale and volume in the business that we could see it break-even in Q3 and profitability in Q4.
Matthew McCauley
There are really three things impacting it. The first is the scale. Yes, we are going to have more stores than we did in Q2 and on the year the average store volume will be higher and our margins are coming up, just naturally. As our purchases were growing last year for sales this year, our initial margins went up and we are seeing that translate to our net margins. So those things are really impacting the third quarter for us.
Betty Chen – Wedbush Morgan
Is it fair for us to think at this point that Crazy 8 could be accretive in 2010?
Matthew McCauley
When we guide 2010 we will comment on that but certainly we're on the right trajectory.
- To read the full transcript on Seeking Alpha, click here »
