Question-and-Answer Session
Operator
(Operator Instructions) Your first question will go to the line of Budd Bugatch from Raymond James and Associates.
Analyst for Budd Bugatch - Raymond James and Associates
-- [McConville] filling in for Budd, who is traveling today. Kerry, Alex, the one question I had for you is in regard to the merchandise margin. I know in the release you talked about expectations for continued improvements on a year-over-year basis. I’m just trying to get a sense of maybe what we are looking at as far as comparison versus last year. Obviously the fourth quarter with all the necessary discounting, we saw the pressure there but when did we really start to see things taper off? Was it closer to the Lehman collapse or did it really push out into the fourth quarter last year? And give me a better basis for comparison.
Alex W. Smith
From the sales perspective, the sales started to tail off really kind of about now, mid-September, and then it deteriorated September, October, and then into December. The margin held up okay-ish in the third quarter but then of course the inventory was building and so we got to the -- through to the Christmas period and then had to start discounting to get our inventories in line by the end of the fourth quarter. So that fourth quarter you see for last year was extremely low and we certainly expect to beat that very substantially.
Analyst for Budd Bugatch - Raymond James and Associates
Gotcha, so maybe more easier to look at on a sequential basis is maybe the traditional 200-ish basis point improvement in 3Q versus 2Q, where we should be looking? Is that about what we would expect? I know you don’t want to quantify exactly but --
Alex W. Smith
No, I don’t want to quantify but I think it’s fair to say that all things being equal, the merchandise margin in quarter three should be a little higher than quarter two in absolute terms and the merchandise margin in quarter four, because it does include the winter sale, will be lower than quarter three. So I think you can go back and look at the pattern over the last few years -- you should see it pretty clearly.
Analyst for Budd Bugatch - Raymond James and Associates
Right. Okay, that was it, guys. Thanks for taking my question and excellent job this quarter.
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