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Donaldson, Lufkin & Jenrette competition. It will be expanding to Minneapolis, Milwaukee, and Central and Southern California this year. The first two have no current warehouse competition. The last two are deemed understored by COST management. Lower initial profits are expected from them. COST should be facing all of the leading warehouse competitors with at least one to two locations by the end of fiscal 1987. Risks COST, naturally, has all of the risks normally associated with young* companies that are growing explosively (overextension of supervision, distorted comparisons, maturing data and people systems, etc.). Still, we remain comfortable with the company in those respects because of its superior current systems capability, experienced and disciplined managernaent, and record of performance. To us, the key question is self-evident. Can COST maintain its rapid expansion and profit development in large numbers of new areas at the same time that competition sharply increases? We feel quite comfortable that it can do so during the forecast period (through fiscal 1988) because COST's market choices appear to be quite prudent in terms of limited competition, favorable population mixes, and prudent expense set-ups. Beyond that, it is reasonable to expect much heavier competition, particularly in the 1990s. Our long-term concerns, however, are somewhat assuaged by COST's proper warehouse methodologies, mentioned earlier, strong and early market positions, and low-cost structure. One topic keeps recurring in analytical discussion- the slower start of COST's Florida units. COST, while profitable elsewhere, is still unprofitable in its five warehouse Florida group. Some concern has been voiced about this and the supposed inconsistency of COST units overall. We admit that Florida wouldn't have been our choice for expansion, and we note that some of the' warehouses there are not operating anywhere near Optimum levels. Still, we think that the issue is overrated and not likely to stifle COST's growth. Closer analysis of the individual units shows one warehouse, Ft. Lauderdale, to have been by far the worst unit. Historically, it has represented the largest portion of Florida losses. Interestingly, Ft. Lauderdale is getting some of the company's best sales gains, today. It has the shortest lease term and could be closed with little aggravation if it doesn't begin to perform at least near expectations by year-end. Of the remaining four Florida units, Tampa and Clearwater also started slowly and have trailed corporate expectations, the former a bad -site selection, we think, and the latter now beginning to improve. We expect the Florida warehouses, as a group, to begin snaking a modest profit contribution next year, noting that they will represent only about 19% of footage by 1986's fiscal year-end. More important, COST's record of successful site selection is impressive. Of 21 current units, 17 are operating satisfactorily or above budget, with only one substantially deficient, a record of success almost all merchants would envy. 7