SHW_Call_Transcript_06032008

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SHW - The Sherwin-Williams Company Updates 2008 Sales and
Earnings Expectations
Event Date/Time: Jun. 03. 2008 / 11:00AM ET

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Jun. 03. 2008 / 11:00AM, SHW - The Sherwin-Williams Company Updates 2008 Sales and Earnings Expectations

CORPORATE PARTICIPANTS
Bob Wells
Sherwin-Williams Co. - VP Corp. Communications & Public Affairs
Chris Connor
Sherwin-Williams Co. - Chairman, CEO
Sean Hennessy
Sherwin-Williams Co. - SVP Finance, CFO

CONFERENCE CALL PARTICIPANTS
Chuck Cerankosky
FTN Midwest Research - Analyst
Ivy Zelman
Zelman & Associates - Analyst
Steven Eisman
FrontPoint Partners - Analyst
Saul Ludwig
KeyBanc Capital Markets - Analyst
Eric Bosshard
Cleveland Research Company - Analyst
Robert Felice
Gabelli & Company - Analyst
Sergey Vasnetsov
Lehman Brothers - Analyst
Amy Zhang
Goldman Sachs - Analyst
Michael Boam
BlueBay Asset Management - Analyst
Don Carson
Merrill Lynch - Analyst

PRESENTATION
Operator
Good morning. Thank you for joining us this morning for the Sherwin-Williams Co. updated sales and earnings expectations
for the second quarter and full year 2008. With us on the call this morning are Chris Connor, Chairman and Chief Executive
Officer; Sean Hennessy, Senior Vice President-Finance and Chief Financial Officer; John Ault, Vice President-Controller; and Bob
Wells, Vice President-Corporate Communications.

I will now turn the call over to Bob Wells.

Bob Wells - Sherwin-Williams Co. - VP Corp. Communications & Public Affairs
Thank you, Claudia. Good morning, everyone. This conference call is being webcast simultaneously in listen-only mode by the
call via our Web site at Sherwin-Williams.com. An archived replay of this webcast will be available at Sherwin.com beginning

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approximately two hours after this conference call concludes and will be available until Friday, June 20, 2008 at 5 PM Eastern
time.

This conference call will include certain forward-looking statements as defined under U.S. federal securities laws with respect
to sales, earnings and other matters. Any forward-looking statements speak only as of the date on which such statement is
made, and the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. A full declaration regarding forward-looking statements is provided in the Company's
earnings release transmitted earlier this morning.

I'm going to turn the call over to Chris Connor, who will provide a brief review of the Company's updated sales and earnings
expectations. Then we'll open this session to questions. Chris?

Chris Connor - Sherwin-Williams Co. - Chairman, CEO
Thanks, Bob, and good morning, everyone. Thanks for joining us today.

This morning, we updated our sales and earnings per share expectations for the second quarter and full year 2008 and revised
down our previously announced guidance from April 22 earlier this year.

Obviously, we're very disappointed to find ourselves in this position and have been unable to weather the significant storm of
economic headwinds facing our industry. To help you understand the timing and magnitude of this changing guidance, let me
take a few moments to highlight the dramatic changes in market conditions that have occurred over just the past two months.

In March of 2008 when we last revised our earnings expectations for the year, oil was trading for an average of $105 per barrel.
By May, the average price per barrel had risen to almost $126, and peaked above $135 during the month.

Similarly, natural gas rose from an average of $9.59 per million BTUs in March to $1.38 in May. Because a portion of the raw
materials commonly used in feed and coatings are sensitive to changes in (technical difficulty) energy inputs, raw material cost
pressures on the industry have been significant, and we expect this trend to continue and possibly intensify in the months
ahead. This expectation was validated by recent price increases and surcharge announcements from several of our large chemical
suppliers.

When you add in the rapid rise in diesel fuel on our distribution efforts and electricity on our manufacturing operations, the
impact on our gross margin and SG&A is significant. While the Company has taken appropriate pricing actions in the market,
the severity of the cost increases and the lag in price implementation will ensure a decline in our company's gross margin
performance for 2008.

Perhaps an even more difficult environment than rapid cost increase for us to manage through is the significant fall-off in
demand for paint and coatings in the United States. The changes in the demand outlook over the past few months have been
as equally dramatic as the changes in raw material input costs. McGraw-Hill Spring 2008 construction market forecast, published
in February, calls for a 10% decline in total square footage of new construction this year. Specifically, new residential construction
was expected to decline 12% and nonresidential to decline 7%, clearly a weak outlook, particularly following an estimated 19%
decline in total new construction in 2007.

But compare these Spring '08 forecasts with actual new construction activity year-to-date. Total construction in square footage
through April was down 35% from the same period in '07. Non-residential is down 22%, and residential is down 42%, both more
than three times their forecasted rate of decline.


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We often cite existing home turnover as a more important driver of architectural coatings demand. Year-to-date, existing home
sales volume is off nearly 23% compared to 2007 and the median price of existing homes is down more than 7% from a year
ago. Spiraling energy costs and the imploding housing market has had a profound impact on consumer confidence. In May,
the Conference Board Index stood at a 16 year low of 57.2, down from 84 in January and an index of over 100 just one year ago.

The changes we've seen over the past two months will have a significant impact on our Paint Stores group and Consumer group
results for the remainder of the year.

In our Paint Stores group, we expect eroding market demand to continue to press comp-store sales volume. Although a few
segments of the professional painter market, mainly the property management and industrial maintenance, have held up fairly
well, painters who specialize in the commercial and residential construction markets have fared considerably worse than
anticipated. DIY sales for the industry and through our stores are also off significantly.

We have frequently commented on the Company's ability to generate profit leverage through our Paint Stores group in a flat
cost environment with modest volume growth in the low single digit range. With domestic industry demand firmly in the
negative category and the cost environment anything but flat, we are actually experiencing negative earnings leverage in this
segment this year.

The DIY demand scenario is similar in our Consumer group, where we continue to see very soft out-the-door sales at many of
our larger retail customers.

Our Global Group should continue to perform in line with our expectations of high single digit to low double-digit sales growth,
although we acknowledge that continued weakness in the domestic economy and the U.S. dollar pose some risks to the demand
for foreign-produced goods.

The effect of rapidly declining sales volume in our Paint Stores group and lower external volume sales by Consumer group,
combined with shrinking manufacturing margins from rising raw material costs and lower production volumes, will significantly
reduce profit from our store segment and consumer segment over the balance of the year. Clearly, this is an extremely difficult
environment for forecasting results, given the demand nature of both the costs and demand side of our business model. Rather
than take this opportunity to suspend guidance, we will continue to soldier on and provided the best, most transparent, accurate
assessment we can offer for the Company's results for the coming quarter and year.

Based on our outlook for the second quarter, we now expect consolidated net sales to be flat to up slightly compared to the
second quarter of 2007. Our previous expectation had been for a low single-digit percentage increase.

We expect diluted net income per common share for the quarter to be in the range of $1.40 to $1.50 per share, compared to
the $1.45 to $1.60 per share guidance we provided in April. As a reminder, the Company reported $1.52 per share in the second
quarter of 2007.

For the full year 2008, we anticipate consolidated net sales will be slightly lower than in 2007. We have previously expected a
low single-digit percentage increase over 2007.

We anticipate diluted net income per common share for 2008 will be in the range of $3.60 to $4.10 per share. The earnings per
share guidance we provided in March for '08 was in the range of $4.70 to $4.85 per share. As a reminder, the Company reported
diluted net income per common share of $4.70 for the full year of 2007. This updated guidance reflects our best estimate as of
today with continued cost and demand inputs remaining at current levels for the remainder of the year.

On the positive side, the Company continues to generate significant cash and remains committed to using this cash to continue
our thirty-year track record of increased dividend payments to shareholders. Prudent investments this year in new stores,


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research and development and training will ensure the Company comes out of the current cycle prepared for growth and
progress in the years and decades to come.

With these brief introductory comments behind us, we are now happy to answer your questions.

QUESTIONS AND ANSWERS
Operator
Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (OPERATOR INSTRUCTIONS).
Chuck Cerankosky, FTN Midwest.

Chuck Cerankosky - FTN Midwest Research - Analyst
Good morning, everyone. If we can take a step back and move away from the near-term impact, Chris, what's your strategic
perspective? Obviously, all of your competitors, those with strong and weak balance sheets are getting hit with all of this weak
demand and higher raws. What does that mean in terms of the acquisition market, the ability of Sherwin to go after market
share and related issues?

I think, from a strategic standpoint, Chuck, we remain very committed to the programs that have helped The company through
the last 142 years get to where we are at. We are continuing to open stores, as you know, in this environment. We continue to
believe in the overall strength of the painting contractor market going forward and clearly have to get through this cycle before
we start to see some of those things come back.

From an acquisition standpoint, I think we've commented that, domestically, given the fact that our competitors are experiencing
the same softness, it's probably a period of time where we won't see a lot of opportunities. However, we continue to look outside
the United States and will probably see some of those as the year goes on.

Why wouldn't you be acquiring in the U.S.? (inaudible) sellers go on and sell at these prices?

Correct.

Operator
Ivy Zelman, Zelman & Associates.

Ivy Zelman - Zelman & Associates - Analyst
Good morning, guys. Realizing it's a very unfortunate outlook and that the times are so tough, just looking at the I guess
expectations that you are using for demand going forward, I think, Chris, you said that you're expecting things to pretty much


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remain status quo. Does that mean that the year-over-year declines for new construction and DIY and non-res remain at the
current run rates you are using, or are you forecasting something else going forward?

No, our best guess right now, Ivy, is to use the current run rates that they are operating at.

Chris, realizing that paint is such a low ticket item from a discretionary standpoint, you expect it to be less impacted by the
consumer. Do you think it's a function of where you are positioned within the consumer market, or do you think this is something
much more persuasive and people just don't want to paint their homes and put more money into a deflating asset? Then on a
more positive note, as foreclosures become significantly more prevalent in the resale market, don't you think that people will
-- or even investors buying foreclosures need to paint them, don't want that to be an offsetting positive, potentially?

Yes. To your first question, Ivy, I don't think (inaudible) where we are in the coatings market that is causing this. We participate
literally across the entire spectrum of customers who are retailing partners as well as our own stores and the painting contractor,
as you know. So, I think it's more systemic than just us specifically.

To your second point regarding the foreclosure market, absolutely as those homes fall into the hands of others, they will be
maintained and decorated more in keeping with the way that market has moved, but having a significant number of unoccupied
homes in foreclosures right now is not good for the industry.

Great. Thank you very much, Chris.

Operator
Jeff Zekauskas, JPMorgan.

Unidentified Participant
Good morning. This is (inaudible) for Jeff. How are you? (multiple speakers)

Can you remind us again what pricing actions you have taken so far, and how much price increase you expect for the year? I
think the last (inaudible) the last thing you reported is that you increased price. The price increases were announced in December
of 2007 of 3.5% to 6.5%. Is that still what you're planning to get for the year or can you -- do you have to ask for more? What is
the raw material cost inflation outlook? I think initially during the last conference call you said you were looking for 6% to 8%.
What are you looking for now?

Sean Hennessy - Sherwin-Williams Co. - SVP Finance, CFO
This is Sean Hennessy. Let me just us a per couple of these questions.


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The pricing actions that we took in late December across the segments, we took between 3% and 6.5%. Of that, 4.5% was in
our Stores group, and since then, we have also announced in the first week of May we increased our selling prices in the Stores
group another 4%.

In the other segments, we continue to look and have game plans for future price increases, but as our policy, we talk other
customers first and then the minute we do, we will give you an update on that. But when you take a look at the effect on this,
our (inaudible) as you mentioned for the full year we expect that 3.5% to 6.5% that eventually -- I mean over a twelve-month
period, we will get about 80% to 85%. We will get slightly below that on the 4% that we went out with in May 1, so you can do
the math and see what the effect would be plus any other actions that we are continuing to go with.

On the raw material side, we did say 4% to 8%, and we did say that we believe that at the end of the conference call, it would
be at the high side. We've continued to look at it but we have not updated that for the industry. As you know, we continually
talk about the basket of goods but right now we are not prepared to give you an update on what we think the basket of raw
materials would be for the year.

Unidentified Participant
If I can ask like a follow-up to that, you said there were some surcharges that were announced. Is that in acrylic polymers? Is
that on the -- or is it in solvents? Where are squeezes coming from? What are like the materials that have risen most significantly
over the past few weeks?

Yes, I think, from the surcharge, there was one large chemical company that passed that on; I think it was based on all those
factors. It was not limited to any one particular input costs but rather a whole host things that were going into that, as well as
other suppliers taking similar actions based on feedstock, on oil, energy costs, specific raw materials, etc.

I think these are all so current right now that to your question on the guidance on the industry raw material impact, we would
update that per Sean's comment and my expectations would be, at the end of our second-quarter call, we would comment on
that again at that time.

Operator
Steven Eisman, FrontPoint Partners.

Steven Eisman - FrontPoint Partners - Analyst
Thank you for doing this call and taking my question. I have two questions. You reported earnings on April 23, and you reaffirmed
whatever guidance you had at that time. I would just like to understand what has changed so rapidly since that time that has
caused you to lower your guidance so much. In the context, could you please comment on the fairly significant insider selling
that has taken place since April 23?

On what has changed, if you take a look at between April 23 and today, it's really the raws, two pieces, the raws. We take a look
at our pricing actions and the timing of our pricing and the rapid escalation, a lot of the raw material actions that were taken
by suppliers in general really happened between April 28 and last week. When we saw the indexes of where we were on April
21 and the morning of the 22 versus the 28, versus last week, versus yesterday, it's changed dramatically.


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So the input costs have already driven up dramatically. We had already run out on May 1 and when we go out on May 1, we
had already determined what the price increase would be in May 1 and started to communicate that with our customers in late
March. So, put a little handcuff (inaudible) on how quickly we could respond to their actions on April 28 and beyond.

Secondly is really the demand. We've taken a look at where we were at the end of March, and you look at mid-April, and again,
where we think the market has continued to deteriorate to, it's really we think that the market is deteriorating dramatically from
April 22. But when you go down there, when you look at the SG&A and (inaudible) Chris mentioned, the SG&A actions that we
took and looked to what we believe SG&A will be at are fairly consistent. It's really the raws and the volume.

Steven, let me comment on the insider selling activities since I am the predominate one in that space, although there have been
the number of other executives as well. These are typically long-held options that are nearing the end of their cycle. In my
particular case, I use that exercise of option as an ability to add to my direct ownership. At the end of 2007, I held somewhere
in the neighborhood of 150,000 shares directly. At the end of '08, I will hold 220,000 shares directly, so I am continuing to add
substantially to my direct ownership of the Company. All of our executives and officers are well in excess of the corporate
guidelines for stock ownership and continue to add to their presence.

Steven Eisman - FrontPoint Partners - Analyst
Okay, thank you.

Operator
Saul Ludwig, KeyBanc.

Saul Ludwig - KeyBanc Capital Markets - Analyst
Embedded in your new guidance, what is your thinking about comp-store sales dollars? Are we thinking something in the down
6% to 8% range, or less than that or more than that? Where are you thinking that, given the new guidance that you've provided?

We think that there's a couple of things happening with our comp stores, but we believe, for the full year, you're going to see
some interesting things. In the second quarter, we think it will be below that 6.5%.

You mean not as bad?

Not as bad, but in the third and fourth quarter, it will be higher. It's driven really by the increase of comp stores driven by the
acquisitions. During the third and fourth quarter, the stores will annualize and will become comp stores. And so when you take
a look at the business mix that they had and what's happening to those comp stores, those will drive the number to at 6.5%
and back to the 6.5% on a full-year basis.


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So that's (inaudible) about 6.5% on the full year?

Yes.

With regard to bad debts, I remember last year, after you bought MAB, there was a lot of adjustments (inaudible) -- you wrote
off a lot of bad debts that you had bought with that company and you ostensibly won't have them this year. What's your
experience that you are having this year with regard to collection of receivables?

I would say that the collection of receivables has been very challenging, but I would tell you the results (inaudible) the DSO has
not expanded greatly. I think our DSO is up less than a half a day, but -- and also our bad debt, our bad debt is slightly higher
this year. When we do a go against the history of those bad debts that did occur in the third quarter, we probably, in the third
quarter, will have some actually improvement in our bad debt, but for the full year, we believe that we're still going to be at or
below our typical run rate of 0.5 of (inaudible) sales.

Chris, Sherwin has had this long history of roughly 28% of earnings being paid out in dividend. Given the fact that your earnings
are going to be down this year, what will be your recommendation to the Board with regard to the dividend? If you maintain
the 28% payout, that obviously would imply a suggested reduction in the dividend in 2009.

It would be our recommendation to the Board to continue to increase the dividends all through this cycle. As a reminder, in
2001, we experienced a down EPS year that year as well. Our policy was amended; we raised the dividend to about 36% of EPS
to keep the dividend streak going.

Looking at the cash generation for the Company, both for the remainder of '08 and well into the future, we don't see any problem
continuing that track record of increasing the dividend.

Finally, Sean, will you consume or generate cash and working capital this year? If so, how much?

We think it be a slight -- it will definitely -- it will generate, by the end of the year, it will generate and it will be slightly (inaudible)
just with dependent on the receivables, but payables will show improvement and -- because you remember, at the end of last
year, we put that new payable system in, so we will have that taken care of, but it will generate a slight amount of cash.


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Operator
Eric Bosshard, Cleveland Research Company.

Eric Bosshard - Cleveland Research Company - Analyst
A couple of questions for you -- first of all, the year-over-year earnings contraction is much more severe in the second half than
what happens in the second quarter. Can you just explain again why it looks so much worse in the second half?

I think I agree with what you're saying. In the first quarter, we were down $0.19 and versus last year, if you take a look at the
midpoint or you take a look at the -- we were at $1.52. $1.40 would tell you that would be a high of $1.31 and $1.50 of 21, so
let's call it 26 in the middle. And if you take the midpoint of $3.85 in our new guidance, you are talking about $0.85, so that
would tell you that it's going to be around $0.60 in the second half. It's really just volume, volume and gross margin. When you
take a look at our gross margins in the first quarter and you take a look at the gross margin in the first quarter, we did have, in
our forecast, improvement in that gross margin for the full year and we've reduced that because of gross margin. So, the gross
margin in the second half of the year and also the volume, we had -- we believe that our volume is going to be lower in the
second half in the comp stores than in the first half.

Plus we're taking costs right now, Eric, as we've commented on surcharges and other things that are impacting us, with probably
not an ability to put more pricing in until later in the year.

Then secondly, the guidance range for the year of $3.60 to $4.10 is a pretty wide range. I understand the comments of the
difficulty of giving guidance in such an environment. But can you give a little bit of perspective on what the variables that would
determine if you come in at that low end or high end of the range?

Well, the variables really are volume and costs, and depending on where -- you know, it's hard to just pick up one correlated
input cost or one thing in new housing or housing turnover to say, if this is X or Y, but we've thought about how to answer that
question, Eric, but really those are -- the best we can come up with is that's the answer. It's really volume and it's input costs,
and we think that we will have -- we do have some selling price increases in there besides the one we put in the stores in the
month of May. But that's really -- it's the wide range of the volume and the cost.

We believe our SG&A, for the most part, because of the SG&A reductions we did during the calendar year of 2007 and are
annualizing. We are annualizing seven acquisitions, plus we do have income in there, plus we do have Becker in there. So we
feel pretty good about knowing exactly that range of our SG&A. It's really all a function of volume, price and input costs.

You don't feel the ability right now to, as your suppliers have done to you, for you to turn to your customers and say quot;Our costs
are up significantly; here's what we need to doquot;?


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Well, I think what we were just saying -- we prefer to do that relationship with the customers first before we make any public
announcement. But we are evaluating what's going to happen with selling prices the remainder of the year.

Okay. Then lastly, Sean, can you just talk about CapEx for the year and if you're thinking any differently about -- obviously you've
done some things on the SG&A side. Are you doing anything different on the capital side?

Yes, I would say, on the CapEx side, the CapEx especially, we are still doing maintenance, we're doing 100 new stores this year,
and we are still investing globally. But when you look inside the United States, we basically reduced a lot of the CapEx, I would
think, for capacity as well as systems for the remainder of the year.

Do you have a full-year CapEx number you can talk about?

I would say we are probably -- at the end of the second quarter, we will have a better forecast for you. I would prefer to give it
to you then.

Right on. Thank you.

Operator
Robert Felice, Gabelli & Company.

Robert Felice - Gabelli & Company - Analyst
Most of my questions have been answered -- just a couple more.

Given how weak the consumer is right now, are you seeing greater price elasticity of demand than perhaps you would have
previously expected? I guess, to that end, given the magnitude of raw material cost pressures you are facing, what would prevent
you from going out in the market with additional pricing?

I think the price elasticity is a difficult thing to measure in the environment with such a falloff in demand. It's obviously something
that we are concerned about, and I think, as we've commented, the pricing actions that the Company has taken, both in the
beginning of the year as well as the second price increase that we announced through our Stores organization in May, that


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those pricing activities are going in through the market at kind of the historic run rate that we are able to get pricing in. So I
don't think there is anything particularly different about this particular cycle.

Again, back to the pricing, going forward, as we've commented, we will consider appropriate actions. Once we've announced
them to our customers, we will be happy to comment to the investment community.

Does your new guidance range factor in any additional pricing?

Yes.

Okay, it does? Then I guess the magnitude of the decline in the guidance is very large. I'm trying to get my hands around what
portion of that is price cost versus the further deterioration in demand.

I would tell you it is probably 50-50 when we look at it because, as the leveraging that Chris mentioned in his comments,
opening comments, the SG&A is really fairly fixed from here on out. When you look at the volume and the price, when you take
a look at the guidance of $4.70 to $4.85 to the $3.60 to $4.10, then it's approximately just a hair over -- probably volume is a
little larger, 55/45, but it's right in that 50-50 area.

Great. Thanks for taking my question.

Operator
Sergey Vasnetsov, Lehman Brothers.

Sergey Vasnetsov - Lehman Brothers - Analyst
Just to clarify, out of the four components that I could think about that would change high energy prices (inaudible) supplies
to push it through, your ability to push prices and also (inaudible), it seems to me that what's changed your views the most was
the (inaudible) price increase of 20%, and also low volumes that you expect for the rest of the year. Would that be fair to say?

Yes.


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Okay, and then the focus point (inaudible) very positively, actually, I would say for such a significant decline in earnings only to
push them down. Is it fair to assume that the market essentially is saying that those troubles are limited to 2008 and 2009, the
stock will get back to the EPS trend that you have enjoyed in the past?

Again, that's for you guys to determine, not us. I don't know the answer to that.

Okay. Lastly, do you (inaudible) kind of how you see the environment at least approximately in '09 on the fundamental front?

Sergey, it's been our practiced to give guidance for the subsequent year on our year-end conference call and we're not going
to deviate from that practice, particularly in this environment. We think would be inappropriate for us to attempt to forecast
market conditions and our results this far out.

Okay, it makes sense. Thank you.

Operator
Amy Zhang, Goldman Sachs.

Amy Zhang - Goldman Sachs - Analyst
My first question is really to the demand in the U.S. paint industry. Other paint producers (inaudible) is selling to 8% year-over-year
domestic clients for '08. I am curious about your view there. Obviously, with more (inaudible) from the housing sector and now
you lower your guidance.

We tried to get preliminary numbers for the Department of Commerce for first-quarter paint volume in the industry, and they
are just not available yet. So '07 was down in the mid 7% range. It feels like '08 is down that much again.

Okay. My second question is do you have any update on the progress you have made in the cost reduction initiative that you
highlighted in the beginning of the year, including the headcount cut and also closing redundant stores? How much of the
incremental benefit do you expect to realize for the year from those initiatives?


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I think, again, with the SG&A and where we are with the forecast of SG&A, you look at the cuts, we are well on our way to hit
the SG&A cuts that we had in our forecast. I would tell you that, between the plants, the plant reductions are going well, the
shift changes that we've implemented in our plants are doing well, and the redundant stores are moving forward and right on
the pace we believe. So I'd say we're going to be 95% of what we wanted to get, we are going to have.

Okay. Then (inaudible) question (inaudible) what's the oil price assumption behind your new guidance?

Our guidance is based on oil being kind of in the range that it's in today, the $125 to $135 range.

Okay. Then my last question is I understand that the whole paint industry is facing a very tough demand environment (inaudible)
limited in your pricing power, but are you using your (inaudible) alternative mechanisms like whatever your suppliers have
been trying to do, such as implementing surcharges or something like that?

Again, I think we would comment that all of those opportunities are available; we are considering all of them. When we take
pricing activity to our customers, we will announce it to the investment community.

Operator
Michael Boam, BlueBay Asset Management.

Michael Boam - BlueBay Asset Management - Analyst
I just wondered. On the demand side, can you talk about how much maybe volumes are down on a same-store basis year-on-year?
Also, can you just talk about the last couple of months? I assume that things are deteriorating on every side of the business, it
sounds like, going through the second quarter. Is that fair?

I would say the only thing we've commented is, in the first quarter, our comp stores were down 6.5%. We did have some price
in there, and that caused us to be slightly higher than that in the volume. When you look at the demand side in the Stores group,
if you look at the year-to-date number for March where (inaudible) is, yes, we're forecasting that (inaudible) will be slightly down
for the full year compared to the first quarter.

Michael Boam - BlueBay Asset Management - Analyst
Okay. Thank you.


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Operator
Don Carson, Merrill Lynch.

Don Carson - Merrill Lynch - Analyst
Yes, thank you. Chris, can you just talk a bit about the regional outlook? Because the previous thesis seemed to be that the first
part of the year would be particularly weak, given that housing is even weaker in the sell (inaudible) but you thought maybe
you would get a recovery or at least somewhat better numbers than [North]. So is that basically not playing out? Because
obviously you always knew you would have these comps that you would annualize as you got in the second half of the year.

Then just a financial question -- any plans to change the rate of share repurchase, given that your working capital requirements
as a percentage of sales will now be much higher?

Okay, fine, Don. On the regional outlook, I think we've commented on every one of our quarterly calls, based on our four
geographic areas, in terms of which ones were performing at the best and which ones were performing at the bottom of that
list. As expected, those regions of ours that are in the southern part of the United States in the Sunbelt where the new residential
market has been the hardest hit have been lagging and that trend certainly is continuing. We are seeing some of the new
housing lag now move into areas that previously had not been experiencing some softness, like the Pacific Northwest for
example.

It stands to reason that some of the commercial construction market that follows the housing market to build strip centers and
fill in behind there is starting to catch up to that lag and we're seeing softness pretty much in the same geographies for the
commercial construction market now as we have been seeing in the residential for the last year or so.

I think, sequentially, as you commented, that we thought, as the year went on, we would start to see some pick-up in the back
half. Certainly, all of these experts that had been opining on the housing market and the construction market had indicated
that would be the case. As we sit here today, we don't see that happening. We are predicting that '08 will continue to be soft
at the current run rates that we're seeing right now and that will be pretty much across the board in the country.

Regarding the shares repurchased, I will turn it over to Sean to make a few comments.

Right. When you take a look at the history prior to two years ago, we were always in that 6.5 million to 7 million. We went up to
13.2 million as you look at two years together, the number of shares that we repurchased. We did purchase 4.1 million in the
first quarter.

When we take the look at the revision and you think about our sales, we are saying our sales are going to be down slightly
compared to up. That means that, when we take a look at the cash and we consistently talk about driving our net operating
cash from around 10% of sales, sales are down and net operating cash would be down. We think our CapEx will be down and
we will give you a better forecast. But we think we will buy more shares than what we bought in the first quarter. The way
acquisitions are going and we're watching, we still think our net debt will be in that $950 to $975 million by year-end. Share
buyback we will watch, but we will probably -- we are probably 60%, 70% of the way through the amount of shares that we will
buy for the year.


FINAL TRANSCRIPT

Finally, Chris, will you use this current weakness? Will you accelerate any of your store closures? I know you still want to open
100 new stores. You talked about maybe accelerating and closing 60 this year. Is that number going to rise?

We've been giving guidance that we expect to close between 60 and 80 redundant store locations, and those plans are well
underway.

But no change in those plans?

That's correct.

Operator
(OPERATOR INSTRUCTIONS). Chuck Cerankosky, FTN Midwest.

Those questions have been answered. Thank you.

Operator
Gentlemen, it appears we have no further questions. I'd like to turn the floor back over to management for any closing comments.

Thank you, Claudia. I would like to thank everyone for joining us on the call this morning. As a reminder, on June 24, we are
hosting our annual financial community presentation here in Cleveland. Please contact me if you have not received an invitation
and would like to attend. You can register online and I will provide that information for you. We look forward to giving you
further commentary on our ongoing earnings expectations on July 17, which will be our second-quarter earnings call. And
again, I will be here for most of the rest of the day into late afternoon. If you have any follow-up calls, I would be happy to take
them. Thank you.

Operator
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for
your participation.


FINAL TRANSCRIPT

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