From today’s conference call (via SeekingAlpha) an interesting exchange on the state of the appliance business and the end of government stimulus:
Brian Nagel – Oppenheimer
Hi, good morning. Thank you. The first question I have is on the appliance category. In your prepared remarks, the commentary around appliances seemed relatively upbeat, and that seems at odds with what we’ve heard from a number of the appliance manufacturers as well as some retailers lately. So I guess the question I have there is maybe you can help quantify what you saw in the appliance category through the quarter; and then help to kind of sort of, say, bridge the gap with some of this other weaker data we’ve seen recently.
Brian, this is Bob. I’ll take kind of the first piece of it. As we talked about in the first half of the year, we bought a lot of appliances, so for us to get our appliance inventory back inline we had to slow our appliance purchases. So that’s what you see in conflict with some of the manufacturers, is our purchases from them would have been skewed towards the first half of the year. As we worked to get our inventory back in line, we would have moderated our purchases which would have been a negative for them. Our appliance inventory is in great shape. We feel good about where we are today, but our appliance inventory has moderated from the first half of the year.
Brian Nagel – Oppenheimer
OK, so a follow-up to that, did we see any lumpiness with the government stimulus early in this year and then obviously the expiration of that later? What type of effect did that transition have on your sales trends?
Brian, this is Robert. Yeah, we talked earlier in the year we had strong double digit positive comps in appliances through the first half of the year heavily driven by the stimulus program, the cash for appliances program. As we saw the early indications on a state-by-state basis, those appliance sales, we did some opportunistic buys because we were concerned how much production capacity would be out there. We secured that inventory from a major manufacturer which then provided us the inventory to be able to sell through. But even without the cash for appliances program, we still would have seen very strong comps over the first half of the year. Now, we did expect that to soften some in the third quarter, and that was part of the reason when we gave our guidance from second quarter going to third quarter of the increase that we thought we would see on gross margin, it was because of the impact – mix from very strong double digit appliance comps in the quarter negatively impacted our margin. We expected them to soften but still run above the Company average in the third quarter, which then improved them. From a mix standpoint, we didn’t have that drag on gross margin that we had in the second quarter. I suppose it kind of rebalanced. And then we’re still expecting from our plans to have strong appliance sales in the fourth quarter. We still expect appliances to lead our overall comp guidance for the fourth quarter.
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