Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from Jeff Rosenberg - William Blair.
Jeff Rosenberg – William Blair & Company, L.L.C.
I guess there are several questions to ask about the European pricing issue. Obviously with the trend here in currencies going on for a while it sounds like the only thing that was different was the vendor’s pricing policy. Is this one vendor or was it across the board in the sense that your vendors as a whole couldn’t keep up with the pace of things? Could you maybe clarify a little bit about whether it’s a specific problem or more of a trend problem?
Michael L. Baur
Kind of the way we purchased and we have since we started there is we told the vendors early on that we wanted to buy in the local currency so that we can sell in local currency and so as a result every vendor has a European price list. However we have one vendor in particular that has always preferred that distributors and partners buy in dollars. We have not done that and we felt like that the risk of the currency was really the manufacturer’s responsibility and not distribution.
All of our vendors except one sell to us in local currency and they don’t allow other distributors to buy anything but local currency with the one exception of the UK where they do have local distributors there buying pound sterling. All of our vendors have consistently lowered the Euro price list in a coordinated effort with the weakening that we’ve seen with the pound.
With the dollar weakening as fast as it did last quarter and the pound weakening as fast as it did some of the vendors, and one in particular, did not move their Euro price list fast enough so essentially our inventory was overpriced in the market and by the time we figured out how big a deal it was, we had lost market share and lost gross profit margin significantly.
Jeff Rosenberg – William Blair & Company, L.L.C.
Why would it have been both? I completely understand why you would have lost market share because your product would have been mispriced but why did you also have to cut prices in such a way that it was your issue, not the vendors?
Michael L. Baur
Yes. So the vendor wasn’t able to give us the price that we needed fast enough and so that we didn’t have a total loss in that market share, we did take some very business at very low margins while we were arguing about what the new pricing should be and how much our inventory was overpriced. So the fact that the rate changed much faster in the last quarter, I’ll let Rich tell you what the numbers we looked at, it’s why it was more dramatic in the March quarter, the vendors would have to change their Euro prices several times during the quarter and they did not.
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