Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Jeffrey S. Stein – Soleil Group.
Jeffrey S. Stein – Soleil Group
A couple of questions, first of all a question for Jim, looking at the sequential improvement you saw in last year’s gross margin from Q2 to Q3, it went from 47.6% to 49%, is there something about the sequential shift in quarters that causes the gross margin to rise or was it just better markdown management last year?
James Kerr
Q2 is typically when we have our [POG] markdown so when we reached that merchandise category we have markdowns in the second quarter where we don’t have that as much in the third quarter. That would be one of the reasons.
Jeffrey S. Stein – Soleil Group
So in terms of the margin trend year-on-year it sounds to me like you would expect your gross margins in Q3 to be up. Would you see them being up possibly as much as they were in Q2 year-over-year?
James Kerr
We’re not going to comment specifically on Q3 gross margin improvement. We’ll say that we do expect improvement in gross margin rate in Q3 but we’re not going to specify to what extent.
Jeffrey S. Stein – Soleil Group
You mentioned the fact that you’re going to be accruing for incentive compensation this year, was there any accrual booked in second quarter? Can you tell us which quarters in the back half of the year we might expect an accrual?
James Kerr
We would have booked incentive comp both in the first and second quarter of this year so that’s included in the results we’ve issued. Then, our forecast includes an estimate to be booked in the third and fourth quarters where as last year based on what happened with results in the third and fourth quarter we didn’t have to provide for any incentive comp in the back half of last year.
Jeffrey S. Stein – Soleil Group
Did you provide for incentive comp in the first half of last year?
James Kerr
Some, yes.
Jeffrey S. Stein – Soleil Group
So your expenses were only up 0.9%, you’ve talked in the past about a 2% leverage point. It sounds to me like you’ve made some, I wouldn’t call them permanent, but there have been changes in your model, it sounds like store payroll and distribution payroll that might be sustainable over the intermediate term. So, should we expect some year-over-year growth in SG&A to be more in line with what we saw in the first half of the year or certainly the second quarter?
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