Good day, everyone and welcome to the BJ's Wholesale Club Incorporated fourth quarter earnings results conference call. There will be formal remarks made by the company and then we will open up the call for questions. At this time I'd like to turn the call over to Ms. Cathy Maloney, Vice President of Investor Relations. Please go ahead.

Thank you, Melissa. With me this morning are Herb Zarkin, Chairman of the Board and CEO, Laura Sen, President and Chief Operating Officer and Frank Forward, Chief Financial Officer. Before we begin, let me remind everyone that the discussions we are having includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual results, events and our performance to differ materially from those indicated by such statements. The risks and uncertainties include but are not limited to, economic regulatory and weather conditions, competitions, litigations and other factors outlined in the company's annual and quarterly report which are filed with the SEC. While the company may elect to update its forward-looking statements, the company specifically disclaims any obligation to do so, even if the company's estimates change. During this call, we will be referring to non-GAAP financial measures. These measures are not prepared in accordance with generally accepted accounting principles. Reconciliation of these non-GAAP measures to most directly comparable GAAP measures is included in the earnings release we issued earlier this morning, a copy of which is posted on our website at www.bjsinvestor.com. And now I'll turn the call over to Frank Forward.

Good morning everyone and thank you for joining us this morning. For the 13 week fourth quarter, ended February 2nd, 2008, net income was $50.2 million or $0.80 per diluted share. Comparatively, last year's 14 week fourth quarter, ended February 3rd, 2007, net income was $11.9 million or $0.18 per diluted share. Last year's fourth quarter included unusual income and expense items, resulting in a net expense of $0.40 per diluted share. The unusual items were composed of $0.06 of income from the 53rd week, $0.02 of expense for discontinued operations related to ProFoods and various other expenses totaling $0.44, which include the following; $0.23 in closing costs for ProFoods Restaurant Supply, $0.08 for asset impairment charges, $0.07 for pharmacy closing costs and $0.04 for severance expense and $0.02 to increase our credit card claim reserve. On a non-GAAP basis, fourth quarter diluted EPS was $0.80 per share versus $0.58 per share last year, when you exclude the unusual items. This is an increase of about 38%. This EPS growth was driven by strong comp sales, strong increases in merchandise margins, due to cycling last year's unusually high level of merchandised markdowns, increased margins on gasoline sales, efficiencies in club payroll, a significant share buyback program and pre-opening expense that was about $0.03 per share, below our [line]. Fourth quarter 2007 diluted EPS of $0.80 per share exceeded our prior guidance of $0.70 to $0.74 per share. This favorable performance was mostly due to strong January sales, favorable merchandise margin rates, strong gasoline profitability and expenses coming in slightly lower than projected. For the 52 week ended February 2nd 2008, net income was a $122.9 million or $1.90 per diluted share. Comparatively for the 53 week year ended February 3rd 2007 net income was $72 million or $1.08 per share.…

Thank you, Frank and good morning everyone. I am very excited about the strength of our business in 2007. The momentum that we started to build during the first quarter just kept on growing. I would like to take a moment to recognize and thank BJ's team members for their contribution throughout the year. Their talent, experience and most of all hard work made these results possible. Congratulations on the job well done. As Frank mentioned, our solid comp sales increases during the fourth quarter were driven primarily by food and consumables. These results were consistent with the trends we saw throughout the year. On the general merchandise side we saw the strength in health and beauty aids, television, video games and we reversed a negative trends in the [power]. I should have mentioned that the improved results from our Holiday Trial Membership Program also contributed to our fourth quarter comp sales increase. Compared with last year we saw increases in trial related sales, trial memberships and paid memberships. We accomplished these results through a combination of improved direct mail-out reach and the efforts of our in-club member acquisition and retention managers or MARMs. Because we funded these initiatives with marketing resources that have been deployed from holiday, radio and television advertising, our marketing expense for the quarter was actually lower in 2007, than it was in 2006. Our 7% comps club sales growth in food reflected continued strength in perishables, which rose from approximately 8.4%, following an 8.3% rise in Q3, a 7.8% rise in Q2 and a 3.2% increase in Q1. Throughout the year, the main driver of our perishable businesses were fresh produce, fresh meat, prepared foods as well as frozen foods and dairy items. Comp Club sales and general merchandise were essentially flat for the fourth…

Thanks, Herb. For the fiscal year ended January 31, 2009, we are planning GAAP earnings in the range of $1.98 to $2.08 per diluted share. The comparable EPS amount in 2007 started with the GAAP EPS of $1.90 per diluted share and subtracted $0.10 per share of income from our unusual items which brings you to $1.80 per share. On a non-GAAP basis, if you compare the midpoint of our 2008 guidance, our $2.03 per diluted share, with the adjusted to $1.80 for 2007, you get an increase of approximately 13%. Because EPS growth will be significantly affected by the high level of share repurchases we made in late in 2006, 2007 we will also provide you with guidance for post tax net income dollars. In 2008, we planning GAAP net income to be in the range of $118 million to $123 million. For the comparable amount in 2007, start with the GAAP income of $122.9 million and back out the $6.5 million of income from unusual items. This leaves about $116.3 million. So, on a non-GAAP basis, if you compare the mid-point of our 2008 guidance of $120.5 million with the adjusted $116.3 million for 2007, you get an increase of approximately 3.6%. In summary, we are planning for strong comp sales, some of which will be inflation driven, slightly improved merchandise margins and slightly improved gasoline profitability. Offsetting this somewhat, is some expected inflation in the number of expense items. Compared to recent years, we expect utilities, medical, and repairs and maintenance expense to continue to grow at above the rates. In addition, for 2008, we are planning to make greater than usual investments in club payroll, club innovations and technology, all of which I will discuss momentarily. EPS will also be strongly enhanced by the benefit of…

Thanks, Frank. I'd like to make our comments on the earnings guidance for 2008. Frank gave you a pretty detailed plan of how we expect to achieve our sales and earnings target in 2008. I think it's important to add that there will be likely cost corrections and adjustments to that plan as we adapt to the changing conditions around us over the next four quarters. These are unusual times for retailers and no one really can predict how the consumer spending is going to be affected by inflation or any other economic forces between now and the end of the year. So we have to be very flexible, but we're very fortunate to have a terrific group of people and senior manager who have weathered turbulent times in the past and know how to react, and react quickly to changes in consumer demand. We are confident in our overall plans and I look forward to updating you as to the progress during the course of the year. Now, we'll open it up for questions.

(Operator Instructions) we'll go to Bob Drbul of Lehman Brothers.

Hi good morning.

Good morning

I guess the Herb the first question that I have is when you look at the macro and you look at your assumptions on the comp store sales, I mean, for the first quarter and for the year, can you elaborate a little bit in terms of your confidence on those numbers, general merchandise versus the food side and sort of how you think you'll get there, and tell us why you're so comfortable with those numbers?

It’s easier on the food side of the business, we actually embrace inflation at this particular organization. We actually look at modest amount of inflation as good for us. Tremendous amount of inflation isn’t very good for anybody but in reality the consumer has to come some place to shop and we are really a great value place for them to shop and that’s why I talk about turning up the volume to the outside world, letting them know and letting our own members know and continue to remind them just what good values we have. And so I think that once they come in on a consistent basis and we start to see the traffic pick up a little bit like we did in February, even with a terrible week in the third week of the month with snow storm our traffic was ahead in the month, driven as much as shopping in consumer part of business, a few discretionary dollar they do have, I think they will find the value that we have in the protocol called non-food items, we'll start to pick up and start to be appreciated just how great this value is. So we're pretty excited about this opportunity that is out there. As long as we don’t look it as a negative, we look at it as a positive and how we manage merchandise and promote our business. I think, we're pretty comfortable with this side, which were made up with regards to the sales line so far.

And then can you maybe just provide some more color on the member acquisition initiatives and sort of how you feel you guys are progressing on getting new people signed up.

There is a tremendous lag in a way we compute our membership numbers -- those aren't for a long period of time, but we have seen anecdotally in the fourth quarter and particularly in the month of January and particularly in February. So far we have seen really good solid results coming in from trial members being converted to paid members, with renewals coming along. So that up we feel much better that data-desk we put in to the marts and everything else over the past year is starting to pay off. And we will see it pay off over the course of this year or next year or in the years going down the road. We think we have a very strong team in the marketing department in the field, in the market department, in the office which creates our promotional material for us and develops our program as to where we should distribute. That is done an excellent job this past year and in the beginning stages we're really seeing its true value come to light.

Great, thank you. Good luck.

Thank you.

We'll go to Dan Binder of Jefferies and Company.

Hi good morning couple of questions for you first on the membership growth for Q1, it struck me as being a little bit on the low side, given you had some store openings since Q1 last year, so I am just kind of wonder you are assuming in terms of or what your assumptions are behind that growth rate? And then two, on the remodel and expansion activity will it be a significant remodel activity beyond the four major remodels you mentioned and it sounds like for now you are just considering existing market expansion at what point do you think new market expansion might make sense?

There's good news and bad news in terms of where we open the clubs and where we don’t open the clubs. The good news when we open the clubs, we get a lot of leverage, we get lot of benefit, a lot of efficiencies. It doesn't create a lot of new memberships like you would have if you want to brand new market where there is no memberships besides the BJ's right now, people at Shopper Club 30 miles away, now have a club nearby them. They don't buy a new memberships so they doesn't shoppers a new member. But with that said we are very pleased with that direction. Our plans in the long-term is to develop the models so that is somewhat down the road we feel good about us to have a strong healthy business, which we believe are on the road to doing and have at present time will improve down the road. It will go to naturally contiguous markets, you can't just leap frog broad in this business from East coast to the West coast because it's all driven by logistics, it's all driven by distribution techniques, it's all driven by getting enough plums to make a powerful statement. But there are a lot of stealth communities along East coast that we don't represent in, that over the next two years will start to look at of us going in and doing something in those marketplaces. But for today and for the next two or three years, we think we have enough clubs in the pipeline that we can open up -- a few .we are going to open up this year but we will get to seven to nine in the next two years out and then by that time we'll be feel pretty good about our business and we have a places we can go right distribution systems can. It will be very efficient and effective for us and so we're not really rushing go and leapfrog someplace, it would be a more of a natural evolutionary kind of movement away from one geographic area to another.

And then on the membership fee growth for Q1. What are your assumptions behind that?

The assumption is really what’s driving that is -- it just not opening up some clubs. We only open up four last year and sort of the timing of, over time how we opened up the clubs the year before, the timing of how we opened up the clubs this year. It's going to be some growth but our estimate I think is 0.5% to 1% in this first quarter. But it will pick up and get better for the full year.

Isn't that a housekeeping items can you give us a rough idea, of how many inner circle and business members you have at this point?

We've got about $8 million, give and take little bit in the annual report. I think it's about a 1% increase over last year on eligibles.

And then lastly on coupons.

It's almost $9 million, I am sorry.

The 1% increase?

And about 1% increase.

And then on the coupon books, I know you backed away from some of the coupon events this past year versus '06. In terms of the promotional posture for '08, what do you anticipate versus '07 higher or lower in line?

I'm going to let Laura answer that question.

Yes. We have rationalized a lot of -- how we directly speak to the members with offers and in fact there is a slight reduction in the number of pieces we're doing. We've cut down the number of journals to four a year. And then about on a monthly basis we go out with an offer to our members to really reward their loyalty and to go after acquisition. But I would just add to that, our goal is to have every day low prices that are added value to other channels who drug in math, whether it's EDLP or on sale, so that's our first goal and to be competitive obviously with that channel competitors. These -- the kind of offers that we send out to our members are really to inset their loyalty, to reward them for being good members, to speak to them about new items that they may not have seen. And, they seem to be responding well to that.

So if I think about the coming year versus '07, its sounds like the coupon books and the journals will be roughly the same as last year?

No, there will be less coupon. There will be less journals this year.

Okay, less journals.

We drove that down.

We drove that down. I think we have to move on to somebody else.

Thanks. Yeah.

Okay.

We'll go next to, Chuck Cerankosky of FTN Midwest Securities.

Good morning everyone. Nice quarter.

Thank you, Chuck.

Yeah. We heard of -- we can sort of talk about general merchandise, again you talked about the cross currents of the economy, and I guess this for you as well Laura. How are you looking at general merchandise in terms of categories where you can recover it, obviously, you said jewelry is one that isn't likely nor a furniture, but as your perishable comps improve and they seem to be driving traffic, how do you sort of capitalize on your traffic?

I mean, we don't win unless the members buy something either than just our consumables and perishables and grocery items. And what we have done really I think is, put the merchandise division and general merchandise back into mindset of what we call club type of item. So it would be a Spa or it would be an outdoor toy item like our teeter totter or something's that's more of a club item that sets us apart from the mass. Our patio set look alikes, which is finding a specialty store. It's not your K-Mart, Wal-Mart target type of stuff. SO I mean, we have to set ourselves apart and we see when we offer great value on these things, our members are very responsive regardless of the economy. So it's our job to make sure we're putting the right stuff out in front of them.

There are some items of the non-food business that as we defy inflation I mean, if we get Wiis or we have the right iPod or we have the televisions are hot, which these kind of products people find the money to buy them because this is an important part of their life. Our apparel business is improving, we have the duct down the road, that business will be much better and our apparel businesses has been -- took us a while to get it organized and get it into the right kind of position we want but we are pretty pleased with this year's coming assortment of apparels. So we think that non-foods broken down to a variety of different categories, but without it doubts the floor is 100% right, when you have a great value item that captures their imagination, they find the money to spend the money. And besides, most of our members really have some discretionary income, there is not, our customer is up a little higher end and every market will be competed and there are higher end people that live in that marketplace. So, if they were affected by all this inflation impact but not to the same extent that say a discounts for a shop would be our general consumer, lower income consumer would be.

And how about looking at some of the space in the clubs? It looks like tires increasingly has more compensation tougher being stock, what are you thinking about there, Herb?

Yeah, I'd like to say that we try to everything we could last year all at one-time and fix every single issue and every single problem. And in reality you can't -- no one can do that, no team can do that. We picked, choose and we thought out of which it was the important thing was due last year, we review every business, there is no business that we run that doesn't get a formal review whether it be sporting goods, whether it be tires or whether it be perishable business, we're currently looking to try to find a better way to offer the service to the member to get the member to spend more money with us to make them more happy with the product selection we had. So we're constant we're viewing this in the tire base and the tire business is no real exceptions in the other business that we're looking at. It will get more attention this year because we've kind of spend enough time on the perishable business although we had never done in fixing the perishable business, that business will never be completely the way we wanted to be, we'll always seek ways to improve it. There is always opportunities out there.

Great. And then last question, if we look at the trial, you talked about the membership building efforts in our last year. I wonder if you could be more specific on the trial membership coupons you resented out in the fourth quarter and what kind of paid conversion rates you've had?

I would love to be able to give you that information but I have to shoot you first, we're just not passing that, we're not giving that kind of information out. I am sorry Chuck.

Well, will you consider doing it again next year?

Pardon me?

Would you consider doing it again next Christmas season?

I could consider it by giving you information of doing different things.

Oh no, the same trial membership program?

I don't want to comment on what we're going to do at the back half, it's too rather competitive a business, I think our plans are our plans and as we get in to it we will be glad to let you know but will give you more information as what's going on as we go through the course of the year.

All right thank you.

Thank you.

We'll go to Neil Currie of UBS.

Good morning and thank you for taking the question. I just wondered you mentioned earlier about trying to improve retention rates of employees and store managers. How has the trend been in the last year compared to previous years in terms of retaining particularly, store managers and have some other questions to follow up?

When we - the first thing we focused on besides the merchandise was the better life quality of life, better store outage, better things, better payroll control, making our manager, club managers feel much more important, which they are and in terms of how they will operate the businesses. And in doing that we've seen a dramatic reduction in the turnover at the management level of the clubs. It's been very, very good. I think we are down, general rates are probably down substantially and I don't want to give you the exact number but it's down dramatically and part of that is because it's a much better place to work this year and they're feeling much about themselves and their contributions is much better. We are seeing the results payoff and all of the things at times we have been doing the past year. They are going to be celebrated pretty loud and clear when we have our general meeting at the end of this month in Orlando, with all of the field organization together, with all the home office organization together. And this year will be really a great celebration as everybody is very excited. Everybody's had a chance whether it’s the merchant or the field people, “they do their thing“ and they have all done it very, very well. So our retention rates are a very, very strong right now and we're pleased about that at every point. And you have a second question, you said.

Yeah if you don't mind. I wonder if you can give some comments on or some color on the trends you are seeing in the business segment versus the regular members and which are the stronger right now and what you feel about the business segments in down-turn?

We quietly have built up, quietly because we haven’t talked about it publicly with any great degree, but we brought back some people that had been with us before and knew how to reach out to the business consumer. And we've done a really good job in that area of the business was, as we talk about the inner circle member, the woman customer, the kids etcetera ,etcetera, in the real world there is a whole group people out there that we all talk about that, but not that much. And we want to satisfy their needs and so we had a sales force assault those for -- really banging down the doors and getting a lot more memberships from the business community. And we are very pleased with that progress we are been making and that’s helping us very much. I remind you everybody that the business member is very important because of the quality of the merchandise, that they do with this but they also usually buy memberships for there people have worked for them or they buy products for themselves at home. They becomes a very-very good member for us. So we have for you started begin get to that member in any shape or form. We just haven’t made a bigger deal about it probably, but it’s a great point part of our group.

And would you say the trends there are pretty similar to the inner circle member or..?

Yes, we've seen the trends get a little bit get better we think with time. So we think its growing at a nicer rate I think.

Okay. Thank you.

We'll go to Chuck Grom of J P Morgan.

Thanks. Good morning, nice quarter. Frank could you extract the absolute dollar amount of labor savings, that you were able to obtain from the condensed store hour operations in the fourth quarter and just remind me exactly when you used cycle, that initiative? I believe it was April or May?

Certainly, we've got a pretty good idea of it. Its some thing we are going to really talk about publicly. It really goes through a lot of different aspects certainly in the store hours out there, but we also sort of re-deploy that in a lot of different places, which for instance to; we talked about it early in the year about we were taking a lot of that labor and sort of put them back to the club with the perishable areas. So isolating one separate factor is how to do?

Okay. Fair enough. And then obviously '07 was kind of marked by a lot of operational and store changes from lowering the skew account getting out for instance adding HD feeds. Can you outline for us what you have actually in store beyond the four remodels for 2008. I want to know if there was any specific initiatives that may be Laura can speak to?

I think that the job is not down in the back of the club and in many shape of form. We dramatically moving forward in the areas of tried to make as Laura pointed our clearly the excitement of the non-food part of the business is a very important very important part for us. We got back into some business that we exited last year we're going to be into the toy business this spring which weren’t in last year. I exited the furniture business last year and it took us a while to get rid of that furniture business and I think you reported that really regularly than we were not making outlined numbers why we decided to go back into the furniture business on a lesser degree this year but not in a risk basis. We had the historically past, probably to be in good furniture items this year. It's a non-going kind of a situation. I think when you walk into the club, you'll see the changes, you'll see the front of the club, you'll see the merchandise changes that we're making, you'll see a continuation of that what it was. But the initiatives we basically put into place last year have to be continually built upon and to grow. Its not a one year fix. We think that there plenty of opportunity on those improvements, there are some things we are do on that how we merchandise the club and how we merchandise the amount in each aisle that helps us make the members shop a little bit easier and little better for us and little better for her, things like that. But I don't really want to go into the -- there is no huge new one, wow, this is the thing that is going to put us over the top. Its just made up of thousand different things. Some are little more important than others but everyone is equally important.

Okay, fair enough. One quick one. Just, could you us the actual number of SKUs roughly at sometimes there in the fourth quarter? I believe it was probably in the mid-2000 range?

We ended up in the low 7,000.

Low 7, okay. Any sort of -- are you comfortable with that level, operating in that level or should we expect other chunk to come out this year?

I think that as Laura has said historically, that the reduction in SKUs is for a variety of reasons, and we are looking at departments that have, obviously, I'll give one rest of that but jewelry department continues to make money. The jewelry department continues too have too many SKUs, so we could take probably a 100, 200 SKUs out of the jewelry department without blinking twice and we'll probably do something like that but there is no magic number, it's really what is the right for the category, what is right for the member.

Yeah, I want to jump in on that point, because really it's about the member's experience and one reason to reduce SKUs is really today as much more powerful visual image of what we're showing them. We want to reduce SKUs for the sake of efficiency, for tightening up our inventories but the real position that we take in any department or category is what's right for the member and may be more in some departments. We may want to build up the number of SKUs that we offer in a particular classification as we add refrigeration, but there may be areas where it's lessen too and I can tell you, 20 years ago, we had probably 10 SKUs and some are cameras. I mean now we have one and probably none some day. So, I mean, it just goes with the way the business is and the demand is.

Okay, thanks for the color.

We'll go to Chuck Ruff of Insight Investments.

Hi, most of my personal questions have been asked but I got a two numbers questions for you. In the fourth quarter, I don't know if I missed this, can you tell me how much of the same store sales increase was just food inflation?

Hey, it's tough to estimate where we would say something around one, one and a half, something like that.

Okay. And in Q1 fiscal '09, where do you expect depreciation and amortization to be?

It would be -- well we can call you afterwards. . Yeah, it will be up slightly from last year. I don't have it right in front of me.

Okay. And were you're assuming for fully diluted share account in this first quarter and in this fiscal year?

We don't give the exact numbers out but it will come down, it's because a lot of it will depend upon how much we end up and find back in stock in the current year. And we've got a plan for $100 million but that's going to be subject to as we generate cash and market conditions.

Okay.

We gave that -- I mean we gave you the net income numbers. So you can kind of back into a rough range.

Yeah, okay. Thanks

We'll go to Christine Augustine of Bear Stearns.

Thank you. I have two questions. The first is, are you seeing greater access to brands because of a lot of excess inventory that's out in various channels and I don't know if you want to talk about it specifically but if you could talk about, maybe just general categories where you might be seeing that opportunity? And then just second question is, for '07 what was the split between business and individual members? Thank you

We'll talk about the -- I'll let Laura answer your first question.

Yeah, there is no question that as business is weak in our channels, we can access the brands, can improve rest but I would say, first and foremost, whether the outside world is a stronger week, it is our merchants job to go out there and knock on the doors everyday, every season on a trade show or whatever other contacts they have to pursue the brands that we want on a direct basis. And if we can't buy brands on a direct basis, we find a way to access the right brands on an indirect basis. But I would say that, there has been a little bit more openness in the consumer electronics area due to what's going on in the macro world. I think maybe a little bit more in the apparel areas. But bottom line is good economy or bad economy that's our job, that's our job to go acquire the best brands that our members want and offer them great values on those brands.

Well on the membership question, we're up to almost 85% in the circle of members right now.

But the 15% business represents a bigger portion of the business.

Right, and say that's the members as supposed to say.

Right. Could you tell us what the sales split is, do you --

Sales is around 25% -- its just around 25%.

Yeah, 25 a little bit better than we did put up a little bit.

Thank you.

But I would make one comment when they are on that number, they buy for themselves we haven't spend exactly what the business sales are, where they buy from, the same membership buys for them personal things that's added to their value.

And they are kept included in business sales.

So it's a very good business group, a very good customer to have.

(Operator Instructions). We'll go to Todd Slater of Lazard Capital Markets.

Thanks a lot; you guys really deserve a bunch of credit.

Thank you, Todd.

Just one question, you've done a very good job articulating here, not long ago when you entered Ohio contiguously or you closed the clubs in those two markets and I am just curious what will have to happen now to make you guys feel more confident that clubs in -- you know in states where competitors may already be dominant make sense even if it's contiguously?

That's a good question Todd. We have we strengthened our business in Ohio in the existing markets in Ohio. We've seen a very nice growth rate in the greater Cleveland market on all the clubs that are there. We've put at a good management team in their for a year or two now that each one of the managers have done a really a good job, each and every manger have done a good job. We done some added things through marketing that we've done another places that seems to be helping us. So our growth rate in Ohio was very, very nice the last year or so. We just guided you through the same thing now and we seen some changes in Orlando marketplace over the last period of time those couple of markets we are seeing some improvement in our Carolina markets. We've been learning how to focus to do a better job in those places and it's a credit in our ability to make this clubs more profitable before we going to rush off to some other locations, you are right. But we've seen the improvement for the past year or so, and we think, they can continue, and they should continue at even a faster grows rate, which will make us feel, more comfortable when we go to other places.

So what would the profitability be that you want to get to in those other markets before you felt comfortable. Would it be 80% or close to the profitability of your other market?

I think if you want to see -- but I can't tell you the exact number I think you certainly want to see the clubs are growing and we have some top line sales kind of level and that your leveraging will bring them -- the profitability grows in the -- now every dollar you make there is a dollars as just a good deal of a dollars in the Queens New York club and it will show up, it shows up right in front before us, we identified it, but obviously the clubs have to be profitable before we're going to be brought against for some place else. But a lot of those clubs are profitable already, so we are very pleased with where we are going..

All the best.

Thank you.

We'll go to Gregory Melich of Morgan Stanley.

Hi, thanks everyone. A couple of question to follow up on the SKUs and another bit on gas margins and profitability. On SKUs can you give us an update on how many now you're actually keep. I think you got up to around 7,500 and now you're doing a job of taken that down. Just wonder where we are and where you want to go?

The last year we actually peak here-- for last year we actually peaked to the 8,400, so…

Yeah. I got it.

And now then we broke that record but -- the lowest point where are about 7200 right now 7000, 7200. There is no magic, I don't think it's going to grow much, I think it probably come down a little bit but look at here where it makes the most sense as we get down as we described before. As far what was your second question?

Second question is on gas margins how that play down specifically, hit this quarter in terms of gross margin? I was just noticing that you had a very different impact on the comp by region both in the quarter and the year. Can you just explain like how that is and what drives that?

Some regions don't have very many gasoline.

That's the straight forward data.

We have 103 gas as, what’s it? It is what it is. The issue really with the gasoline is -- when it goes straight up, its not profitable. When there is a variability in the pricing it can be reasonably profitable and when it plummets, it's extremely profitable. And last year of the 52 weeks we had probably five or six weeks that we were selling gas at cost, we were not very competitive when some amount pops right so we sold out the gas, as we sell out n the gas every day. But basically I don't want to sell it below cost. We try our best to be as competitive as we can be and it's not predictable number. It's very unpredictable and the prices goes up today they announce to rates, not necessary the time to gas actually gets in. Now it's a difficult thing to really guess but we think that a modest increase in profitability over last year is worthwhile. This particular quarter we're in and in the beginning of the quarter there was variability and dropping of pricing for a while from a brief moment of time. That helped us to make money even when the price skyrocketed up and we've made modest amount of money. So, as I say it's -- we all do is comment every quarter gas is better or gas is worst.

Although in the end I did some important understanding that certainly we have to -- while the variability in the quarter is generally over the course by the end of year, there is a fair amount of consistency there, the profitability of -- we are not going to go through the exact profitability of the gas but one can say is, I mean, year-to-year basis it's very consistent.

Okay. So if you look at the full year, while it hurts 20 bips in the quarter, if you would look at all last year it was --?

Yeah, it's about 20 or so. Again, it's affecting the percent not the dollars if you will, its just, all of a sudden get higher sales in the denominator but the numerator is the same in terms of the dollar profitability.

Great, great. And then last question was on the investments, $20 million or $30 million in your new systems. Is that all CapEx, is it --?

That the -- there is going to be some expense, we've built that into our guidance that would be mostly be for professional fees to start process, a lot of that you can't capitalize. Again, built into the guidance but the $20 million to $30 million would be all CapEx included in that $150 million to $170 million estimates of the full year.

Okay. So a few millions that might be extra, is not necessarily but it's just in your SG&A guidance?

Yeah, to crack in the $0.07 to $0.09 that we talked about for investments for the full year, which also include account payroll and renovations for the clubs, but we sort of grouped the three of them together, lumped them and are estimating net impact to be about $0.07 to $0.09.

That's great. Thanks guys.

Sure.

We'll go next to Peter Benedict of Wachovia.

Hi, thanks guys. Just I wanted to look in a little bit to the inflation impact on gross margin. Your ability to pass on some of the increases in price you are seeing you talked about and you can take pack size down to keep the price points. How does that net-net play out into the gross margin line?

I'll let Laura touch on it, you know as she does well.

I mean, there is, no retailer can lower the cost decreases that come across based on commodity pricing and other kinds of global forces that are driving pricing up. So our first objective is to be competitive because that's number one. Once you make sure that we've inline with our competition, we look at our secondary and tertiary items, make sure that we're still offering great value versus the food, drug and mass channels whatever we're competing in and set our retails accordingly. But I would say that, our retail setting practices and our margin management practices are really no different other than the fact that there is just such an accelerated rate of price increases that we're receiving that we have to spend more and managing and obviously, but being competitive is what we are about. I mean we have to offer our members a value or they will not come. So, I mean, I think that there is -- we're constantly managing it, it's more active right now than it has been in the past but it's not new to us.

Okay, that's helpful. Thank you. And then just one follow-up, the outlook for improved renewal rates in '08, is that just cycling some of the attrition that you saw from the $5 increase or is there something you're going to be doing on the acquisition front to try to --- what was that number?

Obviously it's the cycling of the $5 increase in SKU and there is just a slight natural increase that -- we're not going to be opening up as many clubs which we would like to see that help it even more but right now that increase is coming from the cycling through that $5 increase.

Great, thanks so much.

And we'll go next to Deborah Weinswig of Citi.

Good morning and congratulations on a great quarter.

Thank you, Deborah.

So, two questions. One, you know a lot of retailers are taking about kind of trading down and also trading in from the kind of restaurants. Can you just talk what are you seeing with regards to both of those kind of trends?

To the trading down question, I don't think that we have seen anything significant at this point. In terms of moving from say the national brands to a private label, at least I am not hearing about it from the merchants. In terms of the restaurants brands that we're offering and whether the casual guiding softness is helping us absolutely, those products have been extremely successful, our members really like the value of the quality. For the most part, it's the same favorite profiles as they are offering in the restaurant and can get a good position for us.

Are you seeing anything in new category in terms of trading down from kind of best cuts to better costs etcetera?

Yes, I would say that we -- it's also historical. We see that, and depending on economic times people will trade all their protein say from beef to chicken or chicken to ground meat or whatever it is, and that has been something we have seen in the last few months.

Okay. And the last question, and with regards to the technology roadmap, are you going to be using outside vendors or is that going to be done in-house?

A combination of both, Deborah.

Okay. And what -- I mean, the situation is obviously a very along timeframe, I mean what will be kind of approach first? How should we think about this in terms of what we might see in terms of any improvements and earnings etcetera?

The benefits are going to be slow to come. I think the, a lot of the changes are -- I mean, this first year is going to be spent just sort of mapping out that roadmap a little bit better, we've spent the last six months with some different consultants certainly doing things in-house, spending a lot of time trying to figure out what we think is the best thing. And it's that's pretty long time frame is one of; it's just too much to absorb in such short period of time. Not to mention, financially I think we need to blend it in over a period of time. But some of the focus right now was looking at how we're going to potentially changing some of our cash registers, what we call our reprocess systems in the club. We're going to be doing some pieces on the financial side. We might -- we're going to probably be changing our payroll system. So it's a system-by-system review. And again we are sort of in the process of mapping up exactly the timing of it over the course of the five-year period.

Okay. Great, thanks so much and congratulations again.

Thanks.

And that concludes the question-and-answer session. At this time, I'll turn the conference back to Mr. Zarkin for any additional remarks.

Thank you very much.