Welcome to the Signet Jewelers Third Quarter Fiscal 2014 Results Conference Call. My name is Cliff, and I'll be your operator today. [Operator Instructions] I'd now like to turn the call over to Mr. James Grant, Vice President of Investor Relations. Sir, you may begin.

Good morning, and welcome to our third quarter fiscal 2014 earnings call. On our call today are Mike Barnes, CEO; and Ron Ristau, CFO. The presentation deck we will be referencing is available under the Investor section of our website, signetjewelers.com. During today's presentation, we will, in places, discuss Signet's business outlook and make certain forward-looking statements. Any statements that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. We urge you to read the risk factors, cautionary language and other disclosures in the annual report on Form 10-K that was filed with the SEC on March 28, 2013. We also draw your attention to Slide #2 in today's presentation, and I'll now turn the call over to Mike.

Thanks, James, and good morning, everyone. We're pleased with our third quarter results driven by the excellent execution of our strategy. This team has done a great job on delivering results. Now we remain focused on our important fourth quarter holiday selling season. We are very pleased with the start of the fourth quarter during the first 3 weeks. We continue to feel well prepared, and we're looking forward to a good Holiday Season. Of course, not withstanding any type of negative macro events as the largest part of Holiday is still in front of us. But again, we are very pleased with our start to date. Turning back for a little color now on the third quarter. Our third quarter comps at Signet increased by 3.2%. U.S. division comps grew by 4.2% compared to a 1.2% increase last year, while U.K. comps declined by 0.9%. eCommerce sales were up 16.3%, and that's an impressive growth rate considering the U.S. anniversary-ed its website relaunch of last year. This all led to operating income of $51.6 million and earnings per share of $0.42. Excluding Ultra, our diluted earnings per share were $0.45. Now let's break this down starting with the U.S. division performance. U.S. total sales were $632.1 million, and that was up $56.5 million or 9.8%. U.S. same-store sales increased by 4.2% in the third quarter. Kay comps led the way with a 5.8% increase, while Jared increased by 3%. The success in both concepts was driven by particular strength in bridal, color diamonds and watches. And U.S. eCommerce performed well with sales up $1.7 million to $16.2 million, an increase of 11.7%. The eCommerce team was not only up against the Kay and Jared website relaunches in prior year but also incremental marketing support to drive those relaunches. The…

Thanks, Mike, and good morning, everyone. I'll start by explaining sales in more detail. For the quarter, total sales for Signet increased 7.7% to $771.4 million compared to $716.2 million last year. Same-store sales increased 3.2% compared to 1.4% growth last year. In the U.S., our total sales increased 9.8% or $56.5 million to $632.1 million, which included a same-store sales increase of 4.2%. Our non-same-store sales were up 5.6%, which includes a 4.8% increase due to Ultra, and a 0.8% increase for the U.S., excluding Ultra. The U.S. sales increases were driven by particular strength in bridal, color diamonds and watches. Both Kay and Jared experienced increases in transaction counts and average transaction value. In the U.K., total sales decreased 0.9% or $1.3 million to $139.3 million. Comp store sales decreased by 0.9%. Bridal and diamond sales increased in the third quarter. And in our concepts, the number of transactions increased, while the average transaction value declined, with Ernest Jones particularly impacted from Rolex being offered in fewer stores. Watches, however, were strong in Ernest Jones when we exclude the impact of Rolex. As Mike mentioned, Signet eCommerce sales were $22.8 million, up $3.2 million or 16.3% for the quarter. Now let's review the components of operating income. Signet gross margin was $239.2 million, an increase of $3.8 million. The gross margin rate was 31%, down 190 basis points. The inclusion of the results for Ultra decreased the consolidated gross margin rate by 60 basis points and the U.S. gross margin rate by 80 basis points. In the U.S., gross margin dollars increased $6 million compared to the third quarter of fiscal 2013, reflecting higher sales offset by a gross margin rate decrease of 220 basis points. The lower U.S. gross margin rate was primarily attributed to the following:…

Thanks, Ron. And in conclusion, I'd like to once again thank the Signet team worldwide for their contributions to a successful quarter. And now,, I'd be pleased to take any questions that you might have.

[Operator Instructions] Our first question comes from Ike Boruchow from Sterne Agee. Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division: I guess, Mike, you talked about being very pleased quarter-to-date even though a lot of the heavy lifting is ahead of you. Can you just talk about some of the trends you're seeing with your off-mall and your mall, Kay and Jared locations, as mall traffic seems like it's been pretty choppy lately? And then also any commentary on Kay with a 6% comp, Jared with a 3%? Any differences you're seeing there from your customers or any reason why Kay should continue to outperform Jared? Just, any high-level thoughts there?

Yes. Yes, I'll give you a few high level thoughts. Obviously we give our official guidance that Ron just went through, and we just give a little bit of a directional outlook of how the quarter has a started. And like I said, we're very pleased with the way the first 3 weeks have gone. We think that we're well prepared to have a full, very good Holiday Season notwithstanding events that could happen out there. Kay just led the way with a really strong comp number of 5.8%. Powerful, that the business was great. Jared was still very good, and it's still well within the guidance that we gave it at 3%, and it's doing extremely well also. We think that both of the concepts could have a great Holiday Season for us going forward. There's a couple of things, Ike, that really are driving this business. One of them happens to be unbelievably great merchandise offerings. And a lot of this, as I mentioned in prepared remarks, really just got set in the third quarter. And so we feel like we're well prepared to drive those merchandise offerings into the fourth quarter. We mentioned without going into too much detail for obvious competitive reasons, bridal continues to be extremely strong for us. Color diamonds are really hot right now. And our watch business has been good also. And we've got some unbelievable offerings coming in there. Now to support those offerings, this is the first year that we've actually moved our advertising back and started advertising in October. I think that the additional advertising and marketing that we have done, the team has done a fantastic job of driving it. We have a lot of brand-new ads out there. You're probably seeing a lot of them already. Any of you guys out there that are football fans certainly have seen some. And a lot of the most popular network TV shows we're on. So we have very high-quality advertising supporting unbelievable merchandise offerings. I think that's what's driving the business, and I think that there is very good opportunity for us to continue to drive that business strongly for the fourth quarter, and quite frankly, we're looking forward to Holiday.

Our next question comes from Dorothy Lakner from Topeka Capital Markets.

Just tagging onto that question, I have seen a number of Kay ads. I haven't seen Jared ads. I wonder if there were any differences in the schedule of rolling those ads out as Jared is more skewed towards the fourth quarter versus the third. And then just any comments you might have about the overall environment that you're seeing heading into the Holiday Season?

Hi Dorothy, this is Mike. Honestly, I think it's just a matter of the timing of when you have been watching because we've got a lot of Jared ads out there as well. Now we do have more impressions for Kay than we do Jared. So there is a better chance that you would see Kay ads. But we do have Jared. We started them at the same time, and we have some new ads for Jared as well as Kay, and so, they're both out there pretty strongly right now.

Our next question comes from Lorraine Hutchinson from Bank of America.

I just wanted to follow up on Ultra. You had originally guided the dilution flat to a negative $0.02 and you came in at minus $0.03. Can you just give us some update on how that business is doing versus your expectations, and if you still think that will be accretive in the fourth quarter?

Yes. I think the Ultra integration has been going extremely well. All of the operational aspects are that have gone very smoothly. In the last call, what I estimated it would be $0 to a couple of pennies loss and it came in at negative $0.03. The reason for the slightly lower number is that we have seen some slight disruption as we've changed the product mix and the selling methodologies and the discount structure in the -- what was the old Ultra chain into Kay. Some of those stores are struggling a bit with sales. We expect that this will all turn around with additional training exposure to our systems, and we do expect that Ultra will definitely be accretive in the fourth quarter. So what I would say is that probably just a little bit of, I would call it, growing pains in the third quarter. About $0.01 off where we thought we might come out. It would be very strong into the fourth quarter, and our total outlet business, as Mike indicated, has just been terrific. So the conversion -- Ultra in a sense, will no longer exist. It now exists as Kay. Our Kay outlet strategy go-forward is very powerful, very strong. A lot of the learnings that we've learned from the Ultra integration has been applied to our core organic Kay stores, which are doing terrific. And I would say that as we move into next year, it's going to be a very powerful business. We'll put behind us all of the one-time transitional and disruptive costs that we incurred this year, and we should be all systems go as we move into 2015.

Great. And then the fourth quarter guidance, you spoke about flat gross margins versus down close to 190 basis points in the third quarter. What are the key factors that will help you get to flat in the fourth quarter?

Yes. I think that's a good question. Number one, in our fourth quarter, it's often much higher than our third quarter, primarily driven by leverage on sales. But we've also taken a very thoughtful look at our promotional pricing, our fourth quarter product mix, and our expectations importantly, for increasingly favorable commodity costs. Because in the third quarter, part of what we witnessed was that through our average system our commodity costs improved, but they didn't improve in the third quarter because of the low sales volume and slower turn that we experienced. It will get much more dramatic into the fourth quarter given the change in some of the commodities that have moved, and so for all those reasons together, we're very confident that our margins will expand. I say at least flat by the way. I didn't say flat. I said, at least flat.

Our next question comes from Brian Tunick from JPMorgan. Brian J. Tunick - JP Morgan Chase & Co, Research Division: Two questions. First, I guess Mike, if you think about the consumer out there, can you talk about sort of where the price points are shaking out at Kay right now? Can you talk about what you're seeing at different price point ranges? And then Ron, I missed it for the fourth quarter, on your comp guidance, did you say what you expected the U.K. business to perform at? And just what kind of changes are you making in the U.K. business from what you've seen through the first 9 months?

Thanks, Brian. As far as the pricing with the consumer out there, we're continuing to see, really, a very good mix of price and units driving our increases out there. So it's really a pretty good balance. We are seeing continued AUR improvements. I think that that's a very positive note for us. But we're also seeing unit improvements, and we like to see that balance because we want to drive both, quite frankly. I'll let Ron maybe provide a little bit more color if we have more detail on how much that has changed. The one thing I would comment on, I made this comment in the prepared remarks as well on the U.K., is that the fourth quarter is far and away, not only is it the strongest quarter for all of us but especially in the U.K. And that's really where they turn highly profitable. So we are well positioned in the U.K. as well, and we hope to have a strong Holiday Season. It's still been tougher over there. We had a slight negative comp, very slight at 0.9%. But we believe that we are in good position, and we are looking forward to the Holiday Season there as well. Ron, do you have any other color on the AURs or the price?

Of what we have experienced in the fourth quarter? No, I don't think I -- because I went through that in the third quarter.

Yes, third quarter.

As I indicated in both -- in both of the U.S. concepts, we experienced increases in both transaction counts and average price into the third quarter, and we would expect it in the fourth quarter that the mix would remain similar, that we would get both increases in transaction and some pricing benefit as we move forward. There's nothing in the fourth quarter that's substantially different than anything we have experienced all year long as I guess what I would say. To your question on the U.K., beyond what Mike has said, we essentially came in relatively flat in the third quarter. We would hope to get -- I would think we'd hope to get slightly positive, but we don't break it out separately as far as guidance for U.S. and U.K., so I couldn't go beyond that. Brian J. Tunick - JP Morgan Chase & Co, Research Division: Okay. If I could just throw in one more about the 53rd week. Can you just make some comments, remind us sort of how much [indiscernible] before earnings in that?

Sure, sure. I have that exact impact. It was $0.02 in operating income, so it was $56 million in sales. It was an operating loss of $2.7 million, so that's pretax. And then on an after-tax basis, it had an impact of about a $0.02 loss in the 2013 year.

Our next question comes from David Wu from Telsey Advisory Group.

First, in the U.K., obviously it looks like conditions softened a bit through the quarter given that you previously talked about it being positive in the first 3 weeks of August, and you had to become a little bit more promotional, which clearly impacted the gross margin. Can you elaborate more sort of on what you're seeing there, and if you expect promotions to remain high during the holiday season?

Yes, David. Thank you. In the U.K., again, it was a touch soft with a very slight negative comp, almost flat, 0.9%. We are very cognizant of the competitive landscape over there, and we watch our competitors very closely. And so we did drive promotion a little bit heavier to help drive sales and garner the business in that market, and I believe it's certainly the right thing to do because we need to grow our business. And it is working out okay for us. We improved the losses in the U.K. year-over-year by $1.1 million, which was a very positive. So obviously, a lot of the other initiatives that we have tackled in the U.K. have worked out for us, and we're making a lot of progress. The management team is extremely motivated over there. We had a great sales conference. We are working together more and more with our U.S. teams, and we're working to find more and more best practices and take a lot of successes that we see over here in the U.S. and be able to drive those more in the U.K. We're driving the brands harder in the U.K. We're looking at the merchandise offerings with a much keener eye than we ever have, and we're looking at the marketing activities and how we can continue to drive that business. It's going to take some time, and we knew that. But I feel like that we are making progress, and that we will see a lot more progress in the future there. Again the Holiday quarter is so important in that market, and we feel like we are definitely well positioned. The merchandise is in the stores. We've got much-improved windows in our stores compared to prior years, and we're looking forward to Holiday there. So I think that we have a big opportunity to continue to turn that business around, and we still believe we can drive it up to the double-digit operating income over time.

And it was encouraging at least to see that you were able to really tightly manage expenses in the U.K. during the quarter. And I was wondering if you could talk about sort of the cost cuts that are happening there, if we should expect a similar level of benefits of SG&A in the fourth quarter?

We should expect that we're going to stay tight on the spending, Dave. We've been very careful with the costs there, but we also understand that we can't save our way to prosperity in the U.K. division. It's helpful. We think we did a good job in cost management. But you should see -- you'll see it be very tightly managed without being specific about how much more, but we'll be tightly managing it. But what I'd love to do is actually find ways to find -- spend a little more money in advertising and programs that will be effective there. But that won't be for this year. That'll be for the future.

I think that's an important point. Let me just add on to that. Ron clicked on an important point. We do want to drive our business through marketing and advertising there. We're also -- because of the strength of our company and our balance sheet, we are continuing to invest in all the important initiatives in the U.K. We continue to remodel stores that we need to. We are expanding as we see fit. We're continuing to build our shop-in-shops, especially in the watch areas. So we're tackling a lot of initiatives over there in a very positive way, and we're looking at the long term and the future of that market. As the market leader, having the largest market share in that market, it's important for us to continue to grow that business and expand our leadership model.

Great. And then just lastly, on the Ultra acquisition. Can you perhaps talk about the introduction of the in-house credit program and the differentiated merchandise into the Ultra Stores, and if you've so far, you've seen a noticeable step up in sales performance?

Yes, what we're seeing is, as we have converted, we have of course put in our credit programs and changed the product mix. So right now what we've seen is, the credit mix is getting traction there. The credit penetrations are in the mid-40s versus our chain, which was in -- seasonal in the third quarter at or around a little over 60. So it was in the mid-40s, so that was very good and very helpful. And the product mix is a 2-edged sword. We think that the product mix will become much better accepted over time. However, there has been some, as I've indicated, mix issues as we've been working through the older inventory and -- because we didn't just replace all the inventory. We've been doing it on a -- perhaps a more gradual basis. So I believe that the product mix will become more favorable with some short-term disruption, as I've indicated because of the fact that, in some of those stores, we have a higher percentage of older inventory that needs to be worked through, which should correct itself as we move through the fourth quarter. But overall, the total outlet program is just terrific, as I said, with some small glitches of conversion and so on but nothing that is in any way strategic. The strategic view of it is that it's fantastic.

Yes, David. I'll just add on to that a little bit. Ron mentioned that we were in the 40s in our credit mix. That jumped from the low 30s, when they were...

It was 20s.

I'm sorry, it jumped from the high 20s when they were Ultra Stores, and that happened pretty quickly, as we've rebranded those as Kay, we are also seeing on the merchandise side, Ron mentioned that a little bit. Now that we have got a full outlet strategy, we've got a team behind this, and we are really focused on how to drive the outlook business as a separate channel and how to get the right mixture of closeout products, made-for products, some full-priced products, especially in the brands. We're really excited about the opportunity that we have to drive that business. And as Ron said, we're still working through a lot of the inventories that they had when we took them over. And again, we're so excited about this outlet opportunity. We've been through 3 quarters. Now we've gone through our first year. Now we have annualized Ultra starting with this quarter, and I think the progress that we've made in one short year is just pretty remarkable, and it's going to be a growth driver and a profit driver for us for the future.

Absolutely, yes.

Our next question comes from Rick Patel from Stephens, Inc.

This is Sal Adamo filling in for Rick Patel. My question is on, can you update us on which inning you are in for your real estate strategy in the U.K.? Can you give us an update on how many store closures we can expect next year across both of your concepts?

I'm sorry. I'm not sure I understood the question.

Which inning we're in on our rationalization of U.K. real estate?

Oh, which inning? I would guess that we're in the top of the fourth somewhere, okay. Because we're closing the stores, and as we've indicated, we have not seen that we would be buying out of any leases or anything of that nature because the economics are not favorable. And so most of these leases will close on lease expiration. We have indicated that there were probably another 75 or so stores to close -- 75 or 100 stores to close in the U.K. ultimately. I don't have the exact numbers for next year yet. Round numbers, I would guess 30 to 40, but I wouldn't hold me to it. And we'll update that as we go through our budgets over the next couple of weeks and months. And to have more to say about that probably by the time we get into the ICR conferences after Christmas. But you can expect to see more closures and -- because it's very important for us to stay focused in the malls in the U.K. where the consumers are gravitating and to reduce the nonproductive real estate of which there is too much. I hope that answers your question.

Our next question comes from Oliver Chen from Citigroup.

Regarding the environment, could you update us on traffic and volatility and what you're seeing with that in the marketplace with respect to department store competition? And also, how you could evolve your pricing and average unit retail? Also from a longer term perspective, if you could just update us on your developments in terms of purchasing the diamond polishing business and the longer term view for the strategic logic there?

Well I'll take the first part of it and then Mike will take the second part on the strategic policy. But relative to traffic, I mean, all I can say is that what we've seen is that traffic in our stores is positive and trends are positive, and we feel we're well positioned for a very good holiday season. That's the best way I could think about it. As it relates to pricing over the long term, our pricing depends upon the quality of the products that we introduce and the targets that we achieve relative to the products. So we've had a record of slowly increasing our average unit retails, and I would guess that, that would somewhat continue.

I'll add a little bit more on the AURs. It's not just a matter of raising prices. We are also driving -- part of driving higher AURs is the fact that we're providing our customers with more and better choices at higher price points. A lot of the brands that we sell have higher AURs than some of the core nonbranded product. The customer is gravitating more and more toward that branded environment. I think it's going to continue to become more important, not less important. I mean, Oliver, you follow a lot of brands, so you know how important branding is, not only in our business but overall in the marketplace. So I believe that we will continue to see that drive our businesses. Some of the great brands that we have, have higher AURs, the new Neil Lane's in the bridal aspect, the fantastic Le Vian brand that we carry in the fashion realm. So I think that we'll continue to see that for the foreseeable future. How much, I wouldn't try to guess, but I think it's an important part of our business going forward. Let me take the second question that you had regarding the strategic diamond sourcing. What we have done is, we have purchased this polishing -- cutting and polishing factory in Gaborone, Botswana, Africa, and it is very strategic for us, Oliver. We buy a tremendous amount of diamonds. In the U.S., 75% of our products are diamond related. It's very important for us to work for the long term to have a more secure supply of diamonds. There are not -- diamond supply is not growing in the mines, but the demand will continue to grow, and we believe that we need to get closer and closer to our supply chain. Now…

Our next question comes from Simeon Siegel from Nomura Securities.

So just another on Ultra, if I can. Can you just contextualize the Q3 Ultra operating loss? How much of that was one-time integration related? And are there any location or structural differences between the converted Ultra Stores and the other Kay outlets that would keep them at different operating metrics at this point?

Well, I wouldn't say that there were too many one-times other than the fact that the primary reason for the loss in the third quarter was, it was sales related. Okay? So in other words, it's just overall lower sales as we made the conversion to the new product mix. So it's not like a one-time cost. So it's one-time, but not a one-time cost, if that makes sense. From a structural perspective, the stores are similar. We don't see if there is any major differences in the stores. When we looked at the real estate portfolio, initially, we were very pleased with it. There's always a few stores that we would have said, "Gee, we wouldn't have done that store." But it's not really significant in the overall mix of things. So I wouldn't say there's any structural problems. There is good and bad malls. There is malls that are stronger and malls that are less strong within the outlet world as there are within any world, whether it is A, B and C malls. But other than that, I wouldn't say -- I mean, Mike, do you have any different opinion on this?

No, I think, when it comes to the outlets that what we have done is done nothing but strengthen us. Certainly to Ron's point, there are certain malls where we have issues that we need to work on, but that's going to happen in anything. But the important thing is, the majority of the acquisition of the Ultra Stores has just been a huge boom to our outlet business, and it has really popped us up into a leadership role within that channel of distribution, which is something that we sorely lacked before we did this. And it sped up the process tremendously, and they're doing terrific. We are always going to have -- in any portfolio, you're going to have the bottom 20% of your stores that you got to deal with and work on. And it's the same with that as it is with any other real estate portfolio.

The other thing I think is fair to mention, and I think it is that you should know if you're thinking about this is, there were about a little better than 30 stores that we did not convert to Ultra -- did not convert to Kay outlet, I'm sorry, that we left with the Ultra nameplate. And what we have seen is those stores were in malls where there were 2 stores. So we didn't want to have 2 Kays so that we left it a Kay outlet and an Ultra in about 35 locations. And the retailers [ph] say that those stores are not doing too good because those stores have to now compete against the Kay outlet. So we have seen some lower than we hoped for performance in the stores that stayed Ultra, and we've got some plans to address it going forward. But I think that's probably a fair call-out and also contributed a little bit to what we saw in the third quarter.

And did you -- have you guys spoken to what your plans would be for those 30 stores?

Now we were thinking [indiscernible] what they're doing today, not real estate...

We got the plans to address it, but we wouldn't discuss it on the call.

Our next question comes from Jeff Stein from Northcoast Research.

Two quick questions, one for Ron. What does the manufacturing facility that you just acquired, the polishing facility, add to the supply chain in terms of dollar inventory?

Well, it added, in total -- the total amount of inventory in the third quarter incrementally was about $19 million. The total inventory was about 50 -- Oh, sorry, give the number.

$52 million.

$52 million of total inventory in loose inventory that we purchased that we wouldn't purchase if we were not in the rough manufacturing business. But we started doing that a year ago, so it's $52 million in total, $19 million in [ph] the incremental impact in the third quarter.

Yes, it's important to note that we have been buying rough diamonds for some time now. We just purchased the factory recently, but we had already had inventories of rough. So the incremental is not as much. It's only $19 million.

I see. Okay, good. And as far as -- can you talk a little bit about the sequential trend in your business during the third quarter in the U.S.? And specifically, any regional call-outs? Any effect that you could measure from the government shutdown at all?

No, not that I could think of, Jeff, that we could see or find or point to and say it was the government did this or that. I would say that, from our perspective, it didn't seem to have a lot of impact on our business. We have seen, of course, some improvement in the Northeast, which last year did experience the impact from the Superstorm Sandy. But other than that, I don't know that there is any other regional call-outs that are significant enough that we would make them on the call.

Yes. I mean, there are little differences here and there and there is, obviously, some regions that are a little bit stronger than others. But really, when you look at it in the aggregate, we have pretty consistent results across the portfolio, across the United States. There are no particular regions that are so weak that you would want to call those out or so much stronger than other regions that you call those out as well.

Got it. And sequentially, month-by-month, any notable change within the quarter?

Within the third quarter?

Third quarter.

Yes, within the third quarter. In other words, when you look at...

We generally don't get into month-by-month trends. I think that -- I don't think there is anything significant that we would call out.

Our next question comes from Andrew Hughes from UBS.

One of the things you've alluded earlier on the gross margin to at least flat in Q4, could you [Technical Difficulty]

Sorry. Andy, there is a backup noise that's coming through. It seems like someone's talking in the background. We just couldn't understand. I'm sorry.

I'll try again. Talking about the price margin in Q4 [indiscernible] you mentioned that you think it's going to be at least flat. Does that include any currency hedges, and then just what's a patented role after all -- of the gold hedges...

No, it includes -- that includes the impact of gold hedges, of course, and what we will be seeing in the fourth quarter is we'll be still having this impact from gold hedges being written off. But what will happen is that the average costing system will have greater impact in the fourth quarter than it did in the third and that will be more of an offset or more benefits realized in the core -- let's call it the core buying process. So we'll still be left with the problem of writing off for these gold hedges over a period of time, but the other activity will offset it, and therefore, it should be a net positive, we believe, in the fourth quarter -- I mean, for the first and second quarters next year, by the way.

So all other things being equal, you'd expect the reported gross margin into Q1, Q2 be -- for the next year?

Well, I think -- well, what I'm saying is, I think that the -- right now, provided there is no changes, we should start to see some favorable -- more favorable commodity costs rolling forward. That's correct.

Just secondly, on the impact of Ultra as well I think you mentioned that...

The impact of Ultra.

Well the impact with Ultra as we go forward, since we annualize against Ultra from the fourth quarter of last year, we made the purchase. It no longer will have the distortive impact that it did throughout the first 3 quarters of this year where it was essentially non-comp. So as we move forward into the fourth quarter and all of next year, we probably would not be calling that out any further because it's no longer macro-distortive to the overall margin rate of the company.

Would you expect -- I mean, that bumps [ph] the store, so, from here you would expect to make a profit in every quarter. Is that....

Will Ultra be profitable each quarter next year?

Will it be profitable every quarter of next year? I don't know if we are profitable every quarter of next year. The outlet business is a bit seasonal. We're trying to make it more like our Kay store so it will become very -- it won't lose a lot of money like it did this year because this year, the first and second quarter were driven by about $0.09 of one-time costs and our total loss was almost $0.09. So it was very similar toward the one-time cost. So it should do better than breakeven. But it's going to be accretive in the fourth quarter, and we'll have more to say about how the total outlet business develops. We will no longer be addressing Ultra. Ultra, again, is only a subcomponent of our total outlet business, and our total outlet business will be profitable each quarter of next year.

Yes. And as we said -- yes. I mean, really, it is an outlet business, and it's been consolidated now. So going forward, you'll be hearing us talk about our 160-store outlet chain in terms of any directional comments that we give about it, and our outlet business in aggregate is doing fantastic for us. The organic Kay stores that we had opened were doing well before we made the acquisition. They continue to do well. And the ones that we converted to Kay, which is the majority of those Ultra Stores, also are doing very well. The ones that are left as regional stores are a little bit more difficult. But we have plans to address that and we believe some very good plans to address it. So in total, our outlet business is extremely strong; it's a big growth driver for us; and it's a big profit driver for us. And so we have an opportunity to continue to grow real estate in that channel of distribution, grow sales and grow profits.

Yes, I think, in the future, we just need to -- we'll be trying to change the dialogue to reflect that and less focus on Ultra, which no longer exists.

Our final question comes from Bill Armstrong from CL King & Associates. William R. Armstrong - CL King & Associates, Inc., Research Division: So on Ultra, I mean, it sounds like other than some of these lingering inventory transition issues, your integration process is pretty much complete. Is that fair to say?

I would say that the integration process is a slam dunk. It's been done with excellence and operational excellence, and hats off to our team that worked on it. We are very pleased with every single aspect of that conversion. And now we just have to work out the residual operational details so that they are no longer with us.

And we look forward to a very good year next year with it.

We have no further questions at this time. I'll now turn the call back over to Mr. Barnes.

Thank you. And thank you, all, for taking part in this call. We really appreciate your interest and your support. Our next scheduled call is on January 9, and there, we will review our Holiday sales results. So with that, I wish you all a very happy Thanksgiving and happy holidays. And we will look forward to speaking to you early next year. Thank you.

Thank you, all. Bye-bye.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.