Operator: Matt McCall, BB&T Capital Markets.
Matthew McCall - BB&T Capital Markets: Gil, you’d snuck one in there at the end. You said that you saw some pretty good strength toward the end of the quarter and I think somebody earlier referenced, I think Robin, you might have referenced their performance as pretty good given weather. Given that we did see some bad weather, can you tell us about the progression through the quarter? What the trends looks like? It sounds like they got better late in the quarter, has that continued in April?
Gilbert L. Danielson - EVP and CFO: Yeah, Matt, it was like every weekend, we were ready to get rolling this for – we’d have weather hit us somewhere and many even hit us here pretty hard in Atlanta, Dallas, all throughout the North East and the Midwest. So I think it snowed in 48 states. So it seem like it means to hit every Friday and Saturday, which really are pretty critical growth dates, but March came back very, very, very strong and the trend line in April is better than last year. So we’re pretty pleased with the business climate.
Matthew McCall - BB&T Capital Markets: So the trend in April is up over last year. What about the trend in April versus what you saw exiting March?
R. Charles Loudermilk, Sr. - Chairman: Rob?
Robert C. Loudermilk, Jr. - President and CEO: It was good.
Matthew McCall - BB&T Capital Markets: Better. Okay. And in the past, you’ve provided some directional guidance into the same store sales number, and I know that number varies quarter-to-quarter. But it looks like you have an easier comp as we progress into Q2. We saw a nice increase in the average ticket in the quarter. What’s kind of your outlook as we hit these easier comps, and maybe some of these better trends, Ken is talking about, for same store sales?
Robert C. Loudermilk, Jr. - President and CEO: I think at the last conference call, I think, I said that we expected comps for the first quarter to be between 3.5% to 4% range. It came up 4.4%, so relative pretty accurate, and it improved a little bit. I would say in the second quarter, I would expect comps to be in the 3.5% to 5% range, a little bit, little – probably a little better than first quarter comps. And I remember in the first quarter, we had some – we’re up against a tremendous quarter a year ago. So, that’s how I see it. And I still say, I mean, this year, 2010, if we can do mid-single digit comps, 4% or 5%, something in that range, in that ball park, we don’t really precisely predict comps here. We don’t even project comps, I’m just kind of talking, I think, that it would certainly be a successful year.
Matthew McCall - BB&T Capital Markets: Okay, and then one more, I’ll hop off. Ken, you went through the taking Aaron’s Green initiative, two parts to this question. What are the investments you’re having to make there, and then what are the return or payback period looking like or what are the expected savings, you mentioned operating expenses?
William K. Butler - COO: Well, some of it’s low hanging fruits that don’t cost you anything. The recycling is pretty simple. We’re looking at some waste management companies to actually do some things that will put money on the bottom line, so I don’t want to go into that because it’s not done. Our factory, I don’t think really invested in anything other than just how efficient is it…
Robert C. Loudermilk, Jr. - President and CEO: Well…
William K. Butler - COO: Robin, you can speak maybe…
Robert C. Loudermilk, Jr. - President and CEO: Yeah. This is Robin. I will talk more about that. I think, we bought a $40,000 chipper all machine that grinds up the waste, but that was more than offset by the dumpster fees we save, by all of the things we dump. So as Gil – I mean, as Ken says kind of the stuff you look around, you think why haven’t we been doing that in the past? Well, the dumpster fees were low, and you just hauled everything to the dump. But now cardboards being bundled, we had a cardboard bundler, the foam is being packaged, we were already doing that. We’re just looking around, putting garbage cans for plastic, aluminum and paper, so as Ken said, I don’t know of any major investment…
William K. Butler - COO: Probably there are lighting systems…
R. Charles Loudermilk, Sr. - Chairman: Oh, lighting systems.
William K. Butler - COO: And I don’t have the amount.
Robert C. Loudermilk, Jr. - President and CEO: We’re looking at to reset the lighting in the stores…
William K. Butler - COO: But we do that on like remodeled up, as anyway we’re going to spending money anyway. So it’s not like we’re going to put in some large capital investment.
Robert C. Loudermilk, Jr. - President and CEO: The neat part about what we do is our leases are typically on five years, so you can recycle your image and your look pretty much every five years.
William K. Butler - COO: Yeah.
Robert C. Loudermilk, Jr. - President and CEO: We’re looking at some heating and air-conditioning improvements on the store front. So everything we are doing has a – we’re not doing unless it was positive for the earnings, now will if any earning is sky rocketing? No, but it will.
William K. Butler - COO: Right. No, it’s carpet recycling. We’ve had long-term deals.
Robert C. Loudermilk, Jr. - President and CEO: We had long-term deal. It won’t affect next quarter or the next quarter after that, and five years give us a call, I’ll tell you how it worked out.
Matthew McCall - BB&T Capital Markets: I’ll do it.
Operator: Budd Bugatch, Raymond James and Associates.
Budd Bugatch - Raymond James: Congratulations on your financial performance for the quarter and your outlook. A couple of questions, I think, the 840,000 company customers compared against like around 829,000 the last quarter, wonder if you have any commentary on the composition of that change in terms of new customers versus repeat customers versus those that may have not renewed?
Robert C. Loudermilk, Jr. - President and CEO: No. I don’t. I mean, we cannot just look at it. As long as it’s positive, that s good news, and we don’t analyze it every day or very definitively on the component make up of it, but we’re pleased with it. Any time you can gain 12% same store customer growth, that’s pretty darn good, and I know it’s been double digit here for probably four, five quarters, and that certainly tells you the strength of the business. I don’t have any more definitive information for you, Budd. One thing, to add to it, and I think, someone mentioned it a minute ago was our average income per customer has definitely leveled off.
William K. Butler - COO: It has.
Robert C. Loudermilk, Jr. - President and CEO: And we don’t think it’s going down.
William K. Butler - COO: That chart which keeps showing is that the average customer paid about $135 a month, and it’s about the same now. At the end of March, it was $136, so we have flattened out now a little bit as we’re sort of predicting, and we’ll have to watch a little bit in the next few quarters, but I think that decline from $152 a month average payment to $135 seems to have at least kind of run its course, but it’s certainly crawled down to a crawl decline now.
Budd Bugatch - Raymond James: Our calculated numbers is a little bit higher than that, but I’m sure that there is some stuff we can’t see. When you talk about the cash flow from operations being used of $26 million, it looks like inventory was something that grew pretty markedly in the quarter, can you comment on the purchases and what you saw on that this quarter?
Gilbert L. Danielson - EVP and CFO: Yeah. I mean, they were up, as you look at it quarter-to-quarter, I mean, our position to lease merchandise is almost $300 million in a quarter, up like 22% over the first quarter a year ago. But on a quarter-to-quarter basis, it’s really hard to predict those purchases as we’ve talked about it many times. If you look at the last six months, if not the last three months, the last six months compared to the six months prior to that, purchases were up about 9% in that six month period, pretty much similar to what the lease revenue was up during that time period. So, that tracks pretty close. We came out, our purchases were down in the summer of this year, a little bit. If you could recall and go back two years, two years ago last summer, in the summer of ‘08, the rebate checks, the government stimulus checks helped us in the business, and we had some pretty good momentum. As we went into ’09 kind of slowed down a little in middle of ’09, and at the end of ’09, as you all know, we came out, we introduced the new televisions around the 1st November, and all of a sudden we had a great Christmas season, and in that momentum had kind of continued on into the first quarter. So, it’s kind of a catch up, buying more product is kind of caught to where our revenue is growing, but it has varied quarter-to-quarter. I mean, that’s a good sign. I mean obviously, and it’s really the strong in March, so it’s good sign that probably it’s needed to fuel that annuity stream.
Budd Bugatch - Raymond James: I think, we have a lot of faith. I think, payoffs went up a little bit, and we replaced that with inventory.
Robert C. Loudermilk, Jr. - President and CEO: Yes, really payoffs were up about 20% for the quarter, I believe and so, again that was – when that happens to the product lease, you got to replace it so that’s added to that.
Budd Bugatch - Raymond James: That a high class problem.
Robert C. Loudermilk, Jr. - President and CEO: That’s a good thing.
Budd Bugatch - Raymond James: You talked about the office furniture plans, can you tell us, by when – if my math is right, I guess, maybe a $0.01 drag in the quarter?
Gilbert L. Danielson - EVP and CFO: It was about $0.015, I think. Well, a $0.015 before the splits. Yeah, you’re right, about a $0.01.
Matthew McCall - BB&T Capital Markets: When do you think that drag will – where your plans will be ameliorated?
Robert C. Loudermilk, Jr. - President and CEO: Well, this is Robin talking. Yeah, I’m kind of helping oversee and work with that directly. We’ve kind of got a 19 month plan, and frankly if you want to know the truth of that it’s a six month plan to kind of clean up some of the leftovers. As you remember, we sold the legacy division of which these stores were a part of to -
William K. Butler - COO: CORT.
Robert C. Loudermilk, Jr. - President and CEO: CORT. And so it left us with a lot of inventory and some real estate and some other opportunities that I call them. So the first kind of six months which started first of the year, we were be kind of cleaning up and close down a couple of stores, Memphis, Raleigh, a couple of markets that we thought that just weren’t efficient. The next six months, we’re going to really start tuning our programs and get our product back right. We’ll kind of – actually kind of clean through the mess in the next six months which will carry us I think through December of this year, and in the following six months, we will really focus on the profitability piece getting the rental line, getting the rental revenue back up. So I’ve got an 18-month program in my brain, as in annuity business it takes time. You’ve got to work on leases in real estate but we’re seeing some improvement. The losses are starting to stem some and at the end of day, I think we’ll end up with six very profitable good stores that we can build on from there. So, yes, we’ve done it before. It sounded like an acquisition. So we’ve had worked on rental stores before and we have a good feeling that we know what we’re doing. We’ll get it turned in the right direction. It did take a little time.
Matthew McCall - BB&T Capital Markets: Yeah. I think your program probably coincides with the turning of the overall office market, which –
Robert C. Loudermilk, Jr. - President and CEO: Yeah.
Matthew McCall - BB&T Capital Markets: - I think has stayed just about ready to do that.
Robert C. Loudermilk, Jr. - President and CEO: Right. I think that we’re going to really kind of wait till the fall when we’ll really start advertising because I don’t want to throw money at it yet and summer is kind of historically your slow month anyway in the office business. So probably you’ll see September-October, we’ll start doing some advertising drive and customer traffic to our stores and by that time, we will be ready to accept the customers and market the products. So I think we’ve got a pretty good plan in place.
Matthew McCall - BB&T Capital Markets: My last question, just a (knit) question, can you give me a number for the skips and stolens in the quarter?
Gilbert L. Danielson - EVP and CFO: Well, I’ll give you a number of the write-offs as a percentage of gross revenues and they were 2.5% in the quarter. Historically, it’s been between 2% and 3%, so sort of in the midpoint.
Operator: John Rowan, Sidoti & Company.
John Rowan - Sidoti & Company: Just one quick question or actually two, retail sales, they were down a little bit year-over-year yet, basically everything else is up. Why was that specific line down?
Gilbert L. Danielson - EVP and CFO: Well, they’ve been down for a few quarters now in the retail sales and it’s a very small number in the whole scheme of things.
Robert C. Loudermilk, Jr. - President and CEO: I think they bounced up a little bit when we did a rebate program year and a half ago and so we’ve (indiscernible) so to speak is kind of -.
Gilbert L. Danielson - EVP and CFO: It’s kind of an afterthought a little bit to the business. I mean you will have people that will come in and do some retail sales. But you really need to look at the lease revenue and fees as really the revenue stream that drives through them.
Robert C. Loudermilk, Jr. - President and CEO: Heck, I think all retail sales cross country is down pretty much.
Gilbert L. Danielson - EVP and CFO: (indiscernible).
John Rowan - Sidoti & Company: A lot of retailers have talked about higher tax refunds year-over-year. Did you see any benefit from that?
Gilbert L. Danielson - EVP and CFO: Well, we always get benefit in the first quarter from refunds as you know, and the early payouts being up 20% from last year, and last year was a big early payoff on planning, that certainly had a positive effect on our business.
Robert C. Loudermilk, Jr. - President and CEO: They were a little later this year.
Gilbert L. Danielson - EVP and CFO: A little bit later and you’re talking, week or 10 days or something for various reasons, but they’ve all pretty all run their course by the end of February, first week of March.
Robert C. Loudermilk, Jr. - President and CEO: It’s positive.
Gilbert L. Danielson - EVP and CFO: It’s pretty much as expected and it is a phenomenon that’s been in business since the beginning.
Robert C. Loudermilk, Jr. - President and CEO: (The key is we re-up when) they play out an agreement, so they don’t run off into defense, that I think we’ve accomplished that.
John Rowan - Sidoti & Company: Just one last question, how much deferred tax liability you’re going to run out this year?
Gilbert L. Danielson - EVP and CFO: Well, we are starting to pay both federal income taxes and state. In the first quarter, we paid $34 million in federal payments and $3 million in state payments. So we paid about $37 million. And I think we have – (capital) it will be in our 10-Q, how much we’re going to pay out. I don’t have that number. Yeah. I think, this year, we have paid $37 million so far this year in income tax payments, and the remaining nine months, this is based on our projected taxable income. We expect we’ll make another $85 million. So $85 million and $37 million is $120 million, $130 million sort of what we – and plus that we had same note we had in the 10-K.
Operator: Joel Havard, Hilliard Lyons.
Joel Havard - Hilliard Lyons: Ken, in the past, you’ve shared some ground numbers at least on the number of agreements both in Company and franchise. Do you happen to have that handy or should we wait for the Q?
William K. Butler - COO: Yeah, I’ve got it. At the end of the quarter, we had $1.8 million total agreements Company and franchise, and almost 1.2 corporate and 625 franchise agreements.
Joel Havard - Hilliard Lyons: That’s a little bit better than we had in the model and it gets to an earlier question about kind of average ticket. I seem to recall a few quarters ago, the world was caving in because of price deflation on flat panels. It seems like you guys are working your way through it, but is there anything particular to flat panel television with regard to size or some new technology that I am just too -?
Robert C. Loudermilk, Jr. - President and CEO: Well, I think we’ve mentioned this in the last call that we’ve been doing a lot of packaging particularly bedroom packages and bedroom packages that include televisions with furniture and it’s kind of cool. I think we were the first ones to do that and we’re starting to see retailers, pretty prominent ones, starting to do the same thing, but that seem to be pretty successful. I think we’ll continue to see bundling. We are putting in a larger TV that we finally got into our warehouse. Our customers like big. They like big at a value and so we’re putting a big, big TV into the line that really should help us in the big screen.
Joel Havard - Hilliard Lyons: That’s what I’m getting at. What’s the differential there? Where are going you to and from?
Robert C. Loudermilk, Jr. - President and CEO: We’ll, I can’t tell you everything right now, due to competitive reasons.
Joel Havard - Hilliard Lyons: Okay.
Robert C. Loudermilk, Jr. - President and CEO: This is Robin. We did have a LED TV come in for 42-inch kind of entry level size as big screen TVs that we -
Joel Havard - Hilliard Lyons: This really sounds like guys you’re really - it’s kind of the multi faceted approach to working your way through that challenge.
William K. Butler - COO: Yeah. We’ve got everything at the price point we want to be at, so if we get price degradation, what we do is, we just end up staying at the price points but our consumer gets more for the money. So an example of that, the 42-inch for long time was at the $99 price point, now as I point, really to include the Blu-Ray or one move to 46 inch at the price point. So we know what the sweet spot is for our customer base, and anything we include in that $99 price point is going to be a win.
Joel Havard - Hilliard Lyons: That’s perfect. All right. I think, most of you guys don’t actually have push buttons on my radio. One other question, Ken, your comments about the logistic changes at the DCs, what were you getting to, I didn’t catch it?
William K. Butler - COO: Well, we began – we have a lot of trucks, and they deliver to the stores full, we make darn sure of it, but when they run back to the DC, they are going back empty. So, we’ve really initiated a program over the last year and half that we’re contracting with other carriers and companies to do backhauling, and it just makes the whole thing work. You did head back with nothing on the truck, and that’s not very efficient at all.
Operator: Arvind Bhatia, Sterne, Agee.
Arvind Bhatia - Sterne, Agee: I just had a couple questions. One, you guys mentioned the mid single-digit comps, you’re expecting for the year. If you were to fast forward and we’re looking at the end of 2010. That 5% let’s call it, what would be the mix within that traffic versus pricing. In other words, what kind of pricing decline are you baking in, given the comparisons? That’s the first question. And then second, you margins, the gross margin on the rental product, as you continue to become bigger as a company, just wondering what sort of gross margin improvement we should continue to model say over the next 12 to 24 months?
R. Charles Loudermilk, Sr. - Chairman: Well, as far as same store revenues, I mean, that’s – Robin talked about that a little bit, and that’s about - and that’s pretty high level, but that’s about how we really kind of project, Arvind, we can’t really help you out on that. And then on margins, obviously, we try to get margin improvement. We’ve been working hard on it in the last few years, and I think, you will see margin improvement, but it will be gradual. And a lot of it is related to scale, the larger we get, the better buying power we have than just about any vendor we have. It’s a leverage business. More revenue we can generate in stores de-lever off the operating expenses, those will improve margins. So that’s really where the margin improvement comes from. I mean, we’re not – and we did, we talked about green initiatives and few things like that, that all will help profitability over the longer term, but in the short term, the goal is to continue to open stores, build revenues in existing stores, and work just on a day-to-day margin improvement thing. So no earth-shaking initiatives at all that I can really give you for guidance.
Arvind Bhatia - Sterne, Agee: All right. So it’s steady improvement over the next 24 months, got it. And one last question, we talked a little about the inventory being up on a six month basis and I think you said 9%. I’m just kind of normalizing it so given you revenue guidance, we would expect about high single digit type of increase in the inventory. Would that be fair by the end of the year 2010 versus 2009?
Robert C. Loudermilk, Jr. - President and CEO: Well, I think, again it could vary quarter-to-quarter, but whatever your revenue projection is for the year, I think, the purchases over that time period would pretty well attract those revenue increases now may vary dramatically from quarter to quarter but usually that’s the trend. Usually, if you go back years, usually the purchases actually grow a little bit faster than the revenue, because you have to buy the product first to get the annuity stream going.
Operator: Laura Champine, Cowen and Company.
Laura Champine - Cowen and Company: Sounds like everything’s gone well on the revenue line, you beat guidance by $10 million, comments so far trends these days are strong, but you didn’t raise your full year guidance. Is that being conservative or are there expense-related reasons that you felt comfortable raising EPS, but not necessarily revenue guidance here?
Gilbert L. Danielson - EVP and CFO: Well, we did raise the earnings guidance, as the press release says. On the revenue guidance, again this kind of we didn’t really see – it’s a $1.850 billion, didn’t really see any need to really move that much, and that’s approximization on the guidance and you kind of looked at the quarters. We did think that was $10 million better than the first quarter than we had our guidance, but again you’re just talking $10 million, $15 million for that whole year is not going to make much difference, especially a lot of it is the non-retail sales at very low margins.
Operator: John Baugh, Stifel Nicolaus.
John Baugh - Stifel Nicolaus: Most of my questions have been asked, but a couple of quick things, do you have a feel in the new corporate stores you’ll open this year, I think, it’s around 90, what the mix will be existing market versus new markets, and whether that makes much of a difference to your profitability?
William K. Butler - COO: Well, there are pretty much no new markets out there for say as far as areas. I mean, we’re in 48 states now, so it’s not like we’re entering many new foreign turfs, so most of the time it’s the next town over, it’s a wedge in between in the city that we’re moving to. So we’re really incented to the cannibalization, and we’re trying not to do that, but where we’re seeing opportunity, we’ll wedge one in.
John Baugh - Stifel Nicolaus: And have you started experimenting at all Ken with smaller formats stores in smaller areas?
William K. Butler - COO: Yeah, we’ve been doing that really for quite some time. Some by just following into it when we acquired the (indiscernible) Stores years ago, and it put us into some pretty small markets, and entered some other acquisitions of we’ve got a small model program, for the franchisees, which is a cut down version of the Master model that we typically do, and we’ve got a model for lower revenue, and we’ve got a lot of old towns across America, we’re making not big revenue, but we’re making reasonable profit. The key really is real estate costs.
John Baugh - Stifel Nicolaus: Could you comment on the mix at all, did you see anything – I assume, you’ve anniversaried the pricing on a longer term on products here, correct me if I’m wrong here, but I would love some color on mix?
William K. Butler - COO: I don’t think we’ve had any material change.
Robert C. Loudermilk, Jr. - President and CEO: We have anniversaried. That change in pricing on the terms on the merger was a couple of years ago now, so that’s all anniversaried. That’s one of the reasons we think the average monthly payments probably flat out a little bit.
William K. Butler - COO: It might be a reason why some of the payoffs lift up a little bit. But now, again, it’s the same old product mix that we’ve been dealing with for all these years.
Robert C. Loudermilk, Jr. - President and CEO: Same great product mix.
William K. Butler - COO: Yeah. I believe, it’s new product mix.
Robert C. Loudermilk, Jr. - President and CEO: Quality product mix.
Gilbert L. Danielson - EVP and CFO: Quality product mix.
Robert C. Loudermilk, Jr. - President and CEO: Great product quality, great product mix we’ve had.
John Baugh - Stifel Nicolaus: And then if you could just help me – and I know it’s kind of apples-to-orange comparison, as your comp is comprised over extended annuity, as your customer count, but if you took a 7.4% customer count growth in the quarter, your comp was 4.4, the difference being 3%, is that APU, is that number of agreements, is that deflation that’s causing the – help me sort of fill that gap.
Robert C. Loudermilk, Jr. - President and CEO: (indiscernible) such thing that we were going against a year ago related to last two years, so we think that will settle down. We think it already has settled down.
Operator: David Magee, SunTrust Robinson Humphrey.
David Magee - SunTrust Robinson Humphrey: Most of my questions have been answered already, just sort of a theoretical question though, Gil you had mentioned I think that the stores that you have in the areas that are the most economically depressed are doing well, and I’m sort of curious on the opposite of that just any areas of the country that you can identify as maybe recovering faster or showing better stabilization? Curious how your stores might be performing in those areas if there are any you can think of?
Gilbert L. Danielson - EVP and CFO: Well, that’s hard to read. I mean I’ve got unemployment by state in front of me, and David, it’s hard to see any one area that’s out just by seeing the mix, I mean it’s pretty standard.
David Magee - SunTrust Robinson Humphrey: I guess my point is that unemployment has risen so much in last couple of years, you guys have shown very steady numbers and I would think that the opposite would be even better for you all and unemployment is dropping and more people have jobs who can become customers?
Gilbert L. Danielson - EVP and CFO: Yeah. I would think so. But in Michigan, there’s some baffling numbers in here that don’t make any sense. Michigan has got a 14.1% unemployment rate and our same store revenue growth there is 10.8%. So if you follow that lead, that’s the highest unemployment in the country. People unemployed seem like it work, but that’s really can’t be true.
Robert C. Loudermilk, Jr. - President and CEO: Yes. Most areas are high in unemployment – most have high employment over 10%, and we are positive in almost all those states. The only one that’s actually flattened out a little bit is Texas with 8.2% of unemployment, but for the last two to three, four number of years, Texas was -
R. Charles Loudermilk, Sr. - Chairman: The more I hear about Texas, it’s just flat because of the oil production. It may not be in the oil industry, but there is a lot of industries that follow. It’s just flat.
Robert C. Loudermilk, Jr. - President and CEO: I personally – and nobody has the right answer, I personally feel that if unemployment would – or employment would improve a little bit that would probably be positive for our business. It certainly helps to have people have money coming in to on jobs.
R. Charles Loudermilk, Sr. - Chairman: Especially with credit staying tight.
Robert C. Loudermilk, Jr. - President and CEO: No, question about it.
R. Charles Loudermilk, Sr. - Chairman: Well, our requirement is, everyone must have a source of income which in most cases is a job. If jobs are down, then we could expect operating income to be a little down, when it recovers, I think we’re going to have a big jump.
Robert C. Loudermilk, Jr. - President and CEO: And especially as Robin said, credit tightened up, which you all know, I mean nobody is predicting that credit is going to come free and easy and even when credit was free and easy, from 2004 to 2007 whatever that timeframe was, we did very well.
Operator: There are currently no additional questions waiting from the phone line.
Robert C. Loudermilk, Jr. - President and CEO: Okay. Well, thank you very much for everybody who has joined us today.
R. Charles Loudermilk, Sr. - Chairman: Thank you.
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