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Creative Leisure News
306 Parker Circle
Lawrence, KS 66049
Phone: 785-760-5071
Email: mike@clnonline.com

 

 


Date: November 20, 2000
Vol. IV, No. 22

Printer Version

TABLE OF CONTENTS

bulletCommentary
bulletHANCOCK: MORE SALES, LESS INVENTORY
bulletJO-ANN'S MEETS (LOWER) EXPECTATIONS
bulletAMES TO CLOSE STORES, REVISES ESTIMATES
bulletWAL-MART BREAKS MORE RECORDS
bulletJO-ANN'S 4TH QUARTER OUTLOOK
bulletRAG SHOPS TOPS $100 MILLION
bulletADVICE ON TRADE SHOWS
bulletRANDOM NOTES, RANDOM THOUGHTS
bulletMISCELLANEOUS NEWS
bulletINTERNET AND E-COMMERCE UPDATE
bulletEMAIL: A VENDOR REACTS TO DUPEY LAWSUIT
bulletTHE CREATIVE NETWORK: JOB OPENINGS
bulletCREATIVE NETWORK: JOBS OF THE MONTH
bulletTHE CLN RETAIL INDEX
bulletCRAFT HUMOR

COMMENTARY

Note the "Calendar" section in the left-hand column. It has a listing of all of the major trade shows and events, complete with phone numbers and links to the sponsoring organizations that have web sites.

Also, at the top, just under the volumne number, it says "printer-friendly version". If you want a hard copy of this issue, click on that. You can print this version, but if you do, it will be very long and will include lots of blank space (because it prints room for that left hand column).

Finally, a word about your username and password. Feel free to give it out to your colleagues in your physical office. Giving it out to anyone else is a violation of my copyright. If everyone gives their username and password to their friends, and they give it to their friends, I'm out of business.

If friends are curious about the Creative Leisure News, tell them to come to the site and look around for themselves. Everything is free except the current issue. If they like what they see, they can sign up for two free issues.,
Once a company is a paid subscriber, out-of-office employees can subscribe for only $35. Considering how much money the industry loses to copyright violations by consumers, the least we can do is respect other people's copyrights.
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HANCOCK: MORE SALES, LESS INVENTORY

Sales for the third quarter ended October 29 rose only 1% to $99.9 million and same-store sales rose only 1.2%, but net earnings rose 24% to $3.1 million, or $.19/diluted share. For the first nine months of the fiscal year, earnings have more than doubled to $5.8 million.

CEO Larry Kirk said, "Sales and gross margins were higher while expenses, inventories, and bank debt were lower.

"We have closed 200 small low-potential stores," Kirk added, "assimilated two key acquisitions, remodeled over 75% of our stores, completed interior and exterior signage conversions, and made significant enhancements to our merchandise mix. As a result, asset productivity is increasing. The company is now doing more sales in fewer stores with considerably less inventory investment.

"Unit growth is a priority for the company," Kirk added. "We have the capacity to support considerably more stores with only minimal increases in G&A and distribution costs.

"At the same time, we are aggressively expanding our store-within-a-store concept for home decorating in an alliance with Waverly, the premier brand in decorative fabrics. Currently, the concept is installed in 22 stores, and customer response has been very positive. In addition, the home accents product line that was added in mid-1999 is proving to be a very good complement to our home decorating strategy and will be developed further." Kirk also expects enhancements in the quilting and special occasion categories next year.

During the quarter Hancock opened two stores and closed three. The store count is 447.
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JO-ANN'S MEETS (LOWER) EXPECTATIONS

Net income for the third quarter ended October 28 was $3.0 million ($0.16/diluted share), in line with the lowered expectations the company had communicated last month. The results include an equity loss of $1.1 million ($0.06/diluted share) related to Jo-Ann's minority investment in IdeaForest.com. Last year's third quarter net income was $8.3 million or $0.45 per diluted share.

Net sales for the quarter rose 4.4% to $362.5 million, but same-store sales dipped 0.4%. The quarterly operating profit was $14.4, down from $20.9 a year ago.

Chair/CEO Alan Rosskamm said, "As a result of our infrastructure investments and Internet joint venture, we had originally planned the earnings for the quarter to be less than the prior year. Due to several adverse factors, including out-of-stock issues caused by our SAP systems conversion and an apparent softness in the general retail environment, our actual results of $0.16/share for the quarter came in below our original plan, but in line with the revised guidelines we issued in early October."

During the first three quarters of the fiscal year, Jo-Ann's opened 13 superstores and two traditional stores, relocated five traditional stores, and closed 19 smaller or underperforming traditional stores. For the fourth quarter, the company expects to open three superstores and relocate one traditional store. The current store count is 967 traditional stores and 55 Jo-Ann etc superstores.
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AMES TO CLOSE STORES, REVISES ESTIMATES

Ames' stock plummeted 40% shortly after the company announced disappointing third-quarter results, store closings, and lower estimates for the fourth quarter and fiscal year. For the year the stock has fallen xx.x%.

Ames will close 32 of its 479 stores, 31 of which were former Hills Stores acquired in December, 1998. An Ames spokesperson said only minimal capital improvements had been made at a number of these locations. The closures will result in a remaining lease liability of five years or less for about half of the locations.

The closures will affect some 2,000 employees in 13 markets and will result in a restructuring charge of up to $140 million in the fourth quarter of this year.

"In a better retail climate, we could have given these stores more time to improve," said Ames' Chair/CEO, Joseph Ettore. "We feel, however, that it is in the company's best interest to put our efforts into proven stores and into promising new ones, such as those new urban locations doing so well in Chicago and Philadelphia."

Ames will limit its new store openings to five in 2001, and will reduce capital expenditures next year by nearly $100 million from this year's levels. The company also promises to cut selling and administrative costs, reduce inventory, and improve logistics. These efforts should reduce cash flow requirements by almost $150 million, officials say.

"We are taking prompt corrective action now so that we can be properly positioned for an improved year in 2001, despite the retail climate," Ettore said.

The action was taken after a disappointing earning report for the third quarter which ended October 28th. Net sales for the quarter rose 4.2% to $920.3 million, but same-store sales fell 2.7%. The result was an earnings loss of $37.2 million, or $1.27/share.

Officials also lowered their same-store sales estimates for the fourth quarter to "flat", which would result in fourth-quarter earnings to be $2.00/share and a loss of $1.00/share for the fiscal year which ends February 3rd.

"Our new estimates reflect the heavy impact on our customers of higher energy prices, rising interest rates, and tightening consumer credit that have both reduced their spending power and made them more conservative shoppers," Ettore explained.

(Comment: We learned from a former Ames' executive that at least part of the problem has been the different pricing philosophies of Ames and Hills. Hills' customers, our source told us, were accustomed to everyday low prices, while Ames operated on a higher-price-numerous-sales philosophy, which some Hills' customers apparently resisted.)

Despite the problems, Ettore remains hopeful. "Response has been particularly strong to our Toy Book sale," he said, "and we continue to build our customer base through our 55 Gold program, which targets older shoppers. Our inventories are well-positioned for the holidays with clean, fresh merchandise and we expect minimal clearance markdowns when the season ends."
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WAL-MART BREAKS MORE RECORDS

Sales for the third quarter ending October 31st rose 13% to a record $45.7 billion. Same-store sales rose 4.5%. Net income rose 5.8% to a record $1.369 billion, or $0.31 per share. The earnings met Wall Street expectations. The Wal-Mart Stores segment had sales of $29.2 billion, up 10.5% and operating profit rose $2.2 billion, up 12.8%.

President/CEO Lee Scott said, "We are pleased that in a difficult quarter we were able to achieve record sales and earnings. We gained market share and generated good earnings growth in a challenging retail environment. This is a tribute to our associates around the world who remain completely focused on serving the local needs of their customers."
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JO-ANN'S 4TH QUARTER OUTLOOK

In order to equal last year's fourth-quarter performance, officials said, Jo-Ann's needs to achieve a same-store sales gain of 4.3% -- and they are doubtful that will happen. "We are concerned about the overall economic environment and our ability to achieve our original sales target for the quarter," said Chair/CEO Alan Rosskamm.

"If recent sales trends, which are running below planned levels, were to continue, the company's ability to achieve the earnings estimate for the fourth quarter is unlikely," a press release said. "However, the company, at this time, does not possess enough information to set revised earnings expectations."

Yet Rosskamm sees progress with the company's internal problems. He said, "As we enter the important fourth quarter, we are in generally good shape on overall inventory levels and feel we have a compelling seasonal merchandise offering. The out-of-stock problems that plagued our third quarter performance have been isolated to our craft business as we enter the fourth quarter. Our internal team is working hard to correct remaining craft out-of- stocks as quickly as possible."

Officials said they will have a better idea of the fourth-quarter performance when it announces November sales figures on November 30th, which will include the important Thanksgiving holiday weekend.

Jo-Ann's also announced it will conform its fiscal year to the reporting calendar endorsed by the National Retail Federation, which recommends a fiscal year ending on the Saturday closest to January 31. As a result, the company will add a 53rd week to the current fiscal year and end the year on February 3, 2001.
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RAG SHOPS TOPS $100 MILLION

It was a significantly better year for Rag Shops. For the fiscal year ending September 2nd, net income jumped to $1.4 million, or $.29/share, compared to $402,000, or $.08/share the prior year. Total sales rose 5.7% to $100.2 million, a record. Same store sales increased 4.2%. However, sales include one additional week this fiscal year which amounted to $1.5 million. Without the additional week, sales increased 4.1% and same store sales rose 2.5%.

Officials attributed the improvements to higher same-store sales, better gross margins thanks to favorable inventory shrinkage results, better leveraging of operating expenses, the additional week of sales, and the cumulative effect of a change in accounting for merchandise inventories.

For the fourth quarter, sales rose 10.7% to $22.8 million. There was a net loss of $550,000, an improvement of almost 30%. The store count is 66, with plans to open at least four new stores and close three existing stores.

ADVICE ON TRADE SHOWS

The trade show season will soon be upon us again and given the cost of travel, hotels, booths, etc., it's incumbent on exhibitors to maximize their investments. Some suggestions:

1. The January issues of the trade magazines will be filled with photos and descriptions of new products -- regardless of whether you advertise. But space is limited and deadlines are right about now. Email the editors to see if there's still time to send material: CNA's Karen Ancona is anconak@epix.net; Craftrends' Bill Gardner is bgardner@primediasi.com.

2. The trade's January issues are the best read issues of the year. If you're going to advertise, now's the time. Ad deadlines are later than editorial, so there's time -- and the magazines will make the ads for you, if necessary. The editors can tell you who to call.

3. If a trade show such as HIA has a press room, send a press kit. You can't assume each member of the press will stop by your booth. When and where to send a press kit should be included in your exhibitor packet; otherwise, contact the show sponsor.

4. Don't assume buyers you want to see will stop, either. Call or email in advance to try to make an appointment. Use the pre-show appointment hours. Schedule breakfast, lunch, and dinner meetings. (Keep in mind that many companies do not allow their buyers to accept free meals, but many could join you for a meal and ask for separate checks.)

5. Send a postcard to important buyers telling them you have a new line, your booth number, etc.

6. Attend as many show functions as possible. Speeches, banquets, annual and sectional meetings, etc., are excellent places to meet people.

7. Keep your expectations realistic. You will not write a lot of orders. The success of your show will depend on your follow-up.

8. Don't lose valuable time attending to personal matters. Pack any medicine you might need. Wear comfortable shoes. (It's easy to spot women who are trade show rookies; they're wearing high heels.) Pack for the trip with the idea you're going to a marathon, because you are.
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RANDOM NOTES, RANDOM THOUGHTS

1. Sometimes the sale of a company is held up by, among other things, environmental concerns. We know of one company whose acquisition was all wrapped up, until government inspectors came in and found pollution on the land. Apparently the previous owner had dumped something or other on the land, before such inspections, and the company never knew it. Then it couldn't sell itself until it had cleaned up the land -- often an expensive task.

If there was a simple, hard-and-fast, national rule about all this, I'd report on it, but there isn't. Often it's a state-by-state issue regarding the land, asbestos, lead paint, etc.

So be warned, before you get actively involved in selling your business, learn the applicable laws, and perhaps pay for pre-sale inspections so you're not hit with expensive, last-minute surprises.

2. As we reported in our last issue, new SEC accounting guidelines are affecting comparative same-store sales figures. Ames officials said the chain recorded almost $37 million in layaways in October. Under the new rules, money will not be recorded as sales until November and December when customers pick up their merchandise.

3. Recently my wife met Raymond Bramucci, Assistant Secretary, U.S. Department of Labor. During the conversation, Bramucci called the economy "vicious" for the way investors punish companies who don't meet earnings expectations (realistic or not). That's certainly true the way stockholders have reacted (over-reacted?) to our industry's stocks.
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MISCELLANEOUS NEWS

ELECTION. Alan Rosskamm, Chair/CEO of Jo-Ann's, was re-elected president of the HIA board of directors. The other board officers will be elected in January.

HIA AWARDS. Bill Gardner (Craftrends) and volunteers for Creating For Life will receive a Special Recognition award at the Awards Banquet in January. Creating For Life, the annual auction held during the ACCI show has raised more than $225,000 for AIDS research and education ... The President's Award will be given to television personality Carol Duvall, and a posthumous President's Award will be given to the family of Wally Raley, founder of Delta ... Lifetime Member awards will go to retired craft retailer and HIA board member Pete Hickman and to Edna and the now deceased John Clapper, who founded Pack-O-Fun (kids craft) magazine and Clapper Communications in 1951.

MANAGERS WANTED. Exclusive needlework stores, one in the Northeast and one in Toronto, need store managers. Salaries in the $50K+ range. For more information, in complete confidence, call Mike Hartnett at 309-925-5593 or email mike@clnonline.com.

REGULATIONS. OSHA issued new ergonomic safety regulations which go into effect January 16th and include up to 90 days of employer-paid sick leave. This could be relevant for companies with employees spending extensive time at a computer or working in a warehouse.

HIA. Has postponed Press Day, which was to have been held next spring to concentrate on other consumer awareness efforts, such as the Crafts. Discover Life's Little Pleasures branding campaign.

LAWSUIT. Wal-Mart and some other major retailers are suing MasterCard and Visa for $8.1 billion, claiming the credit card companies are forcing retailers to accept all payment vehicles the card companies offer. Now the pair are accusing Wal-Mart of illegally destroying relevant evidence and want Wal-Mart dismissed from the case, the Wall Street Journal reported.

AWARDS. Beth Wheeler and Barbie Vasek received Designers with Heart award and Mary Strouse's design won the SCD award for the 2000 Seminar pin design ... Ken Tacony of Tacony Corp. won the 8th annual Schmetz Golden Needle award.

BANKS. As part of its restructuring (see article above) Ames received approval from its bank-lending group that permits a quarterly rather than a monthly test, as currently required, for Fixed Charge Coverage Ratio. There is no test limiting availability to the entire $650 million facility.

ROLODEX. Bill Neu and his Collaborative Opportunity Marketing moved to 6560 Hutton Ranch Rd., Flagstaff, AZ 86004. Phone/fax is 520-522-0388; email Bneu@neucom.com; www.neucom.org. Bill also leads the growing HomeDecorShowcase.com, where consumers can purchase completed works by some of our industry's best decorative painters and designers ... On November 30th Betty Christy and Christy Crafts moves to 2600 Finley Rd., #3208, Lombard, IL 60148. 630-889-9152; fax 630-889-9153. The P.O. address (Box 492, Hinsdale, IL 60521) remains the same.

JOB HUNTING? Midwest importer is looking for a senior level sales manager with experience in the craft and/or gift and/or floral industry. Salary will be tied to performance and experience and will be at the high end. For more, contact Mike Hartnett, in complete confidence, at 309-925-5593 or email mike@clnonline.com.

NEW BOOK. The book created to defray the costs of legal assistance to shut down the Internet sites illegally posting copyrighted needlework and craft projects is Celebration of Stitching. It will have projects from many of the industry's top designers and publishers. The 96-page book will be released February 1st and will retail for $16.95.

PEOPLE. Rag Shops added COO/President to Stanley Berenzweig's titles of Chair/CEO. Michael Aaronson resigned as president/coo effective last Friday.

REORGANIZE. The HIA board created a new position, Vice President/Member Services and Programs, and merged the Consumer Market Development and the Public Relations committees into the Consumer and Public Relations committee ... The board also decided to elect all its officers in the Fall beginning in 2001. Previously only the president was elected in the fall.

HONOR. Gail Czcech of The Creative Network was nominated and elected to the Leadership Development Board for the National Personnel Association.

MEDIA. Crafts and Decorating Showcase, the consumer magazine published by Meredith/Better Homes & Gardens Craft Division is now called Creative Home.

RATINGS. Last month Fitch lowered its rating on Shopko, owner of the Pamida chain, to Negative from Stable, and in mid-November Standard & Poor's placed Shopko's triple-'B'-minus corporate credit and senior unsecured debt ratings on "CreditWatch with negative implications." ... In early November Standard & Poor's lowered its corporate credit, senior secured debt, and senior unsecured debt ratings on Ames to single-'B' from single-'B'-plus.

WARNING. Duckwall-ALCO said it expects diluted earnings/share for the third quarter ended October 29 to be approximately $0.06, compared with $0.20 last year. Higher energy prices and warm weather hurting sales of cold-weather products were the causes, officials said.
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INTERNET AND E-COMMERCE UPDATE

SITES. Michaels has begun phase two of its Michaels.com site with full assortments of books, gifts, and arts and craft products, in addition to the wide variety of framed prints and posters currently available ... The site will begin a series of "celebrity chats" featuring relatively well known craft designers. The first is elinor peace bailey(TM) online for a free, moderated online chat December 4th at 7 pm EST.

COPYRIGHT. The Supreme Court agreed to review a lower court case and decide whether publishers may legally put the work of freelance writers in electronic databases without the authors' permission or additional payment.
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EMAIL: A VENDOR REACTS TO DUPEY LAWSUIT

In our last issue we reported that the creditors' committee in the MJDesigns' bankruptcy case had filed suit against former president Mike Dupey, charging him with personal extravagance before and after the bankruptcy filing. Here's a reaction emailed to us from a vendor:

"Under the heading Been There Done That', I didn't declare bankruptcy, but had to close a company once under rather unfavorable circumstances:

"I'm positive that Dupey knew the shape that his company was in. If he was off on a buying trip to NY and spending $15K on limos and $67K on diamond rings and asking companies to ship him, when inside his head he knew they had a real good chance of not getting paid, then he is one sick dude. He should have been putting those dollars to much better use.

"Taxis may have been $1K and a $67K cut in salary would have put another $81,000 in the pot for creditors. Do that a few times -- and let his brains outweigh his ego by getting out of the ridiculously overbuilt headquarters building, and many other people's businesses are better off.

"I say Let the dogs and lawyers loose' if they can show he wasted any dollars through extravagance at that time.

"Although I'm still bothered personally about my previous business, at least I know that I did all that I could to repay the creditors; from that standpoint my conscience is clear."

Note: The author, who requested his name not be listed, is referring to one of the charges that when Mike was on a buying trip in New York, he charged a $67,000 diamond ring to a company charge card. One of Mike's lawyers told us Mike wanted to buy the ring for his wife but his personal card did not have enough credit. When he returned home he reimbursed the company from his personal funds. And remember, the current MJDesigns, with stores in the Dallas area, is not affected by the bankruptcy or the creditors' lawsuit.
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THE CREATIVE NETWORK: JOB OPENINGS

The only personnel recruitment firm specializing in our industry has the following job openings. Call 360-834-0802; fax 360-834-0702; email jessica@creativenetworkinc.com; or check www.creativenetworkinc.com. CENTRAL: Design Dept. Mgr. (crafts) ... Marketing Mgr. (crafts).
MID ATLANTIC: Key Account Mgr. (craft, gift experience).
NEW ENGLAND: Dir. of Sales and Marketing (gift, novelty) ... Marketing Mgr. (soft goods) ... Sports Merchandise Mgr. (sporting goods).
NORTH CENTRAL: Book/Catalog Layout Artist ... CopyWriter ... Dir. of Product Development (home dec accessories/gifts) ... Product Development/Designers (gifts/collectibles) ... Sr. Product Development (w/licensing experience -- gifts/collectibles).
PACIFIC: Assistant Brand Mgr. (crafts) ... Brand Manager (craft/hobby) ... Dir. of Product Development (gifts/collectibles) ... Print Production Mgr. ... Product Mgr. (memory).
SOUTH CENTRAL: Marketing Communications (retail).
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CREATIVE NETWORK: JOBS OF THE MONTH

Position: Marketing Manager ... Location: New England ... Salary: $50-60K ... Description: Create innovative marketing plans; direct the development of a comprehensive product marketing cycle with other possible duties and responsibilities; manage an in-house design team to design products ... Qualifications: A strong understanding of trends and consumer thinking ( a definite plus if within the home decor and lifestyle product categories). Strong interpersonal skills and management experience.

Position: Key Account Manager ... Location: New Jersey ... Salary: $55-60K, + bonus ... Description: Develop and implement sales and account plans; maintain customer satisfaction; establish strategic alliances with key accounts; convey the company image of quality & market leadership; establish a positive rapport with company departments; manage administrative areas. ... Qualifications: Proven experience in sales, consumer products, and multiple trade channels (including the craft industry and distributors); a successful record evaluating and analyzing business situations; patience, integrity, and organizaion skills; be a big picture thinker, innovator, and risk taker; ability to work with a foreign parent and to travel 35-50%. B.A. is required, as well as 3-5 years experience.

For more about these positions, contact The Creative Network at 360-834-0802.
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THE CLN RETAIL INDEX

A. C. Moore (ACMR). Last*: 6 3/8 ... Change**: -1/4
Ames (AMES). Last*: 2 31/32 ... Change**: -1 3/4
Hancock Fabrics (HKF). Last*: 4 9/16 ... Change**: -1/16
Jo-Ann Stores (JAS.A) [a]. Last*: 6 1/2 ... Change**: -1/16
Michaels (MIKE). Last*: 28 3/4 ... Change**: -3/8
Rag Shops (RAGS). Last*: 2 9/32 ... Change**: +9/32
Wal-Mart (WMT). Last*: 48 9/16 ... Change**: +1 3/16
CLN Retail Index. Last*: 100.001 ... Change**: -0.03%
Dow Jones Index. Last*: 10,629.87 ... Change**: -1.8%

*Nov. 17 ** from Nov. 3 [a] voting share Note: Prices are exclusive of dividends
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CRAFT HUMOR


Craftopia.com, the large e-commerce site, has a section for craft jokes. Three examples:

Q: How many crafters does it take to change a light bulb?
A: None. They were too busy decorating the shade.

A young woman walks into a craft store and looks at the needlepoint kits.
"Do you have anything with a sentimental message?" she asks.
"Here's a lovely one: To the only man I ever loved,'" says the salesgirl.
"Great," the young woman replies. "I'll take six."

Crafts salesclerk: "This craft knife will do half your work for you."
Customer: "Good. I'll take two."

To read more, go to http://www.craftopia.com/shop/redirect.asp?emr=b83a4.

Note: Creative Leisure News is published on the first and third Mondays of each month. Your next issue will be Monday, December 4th.

Have any rumors you need checked? Company news or comments on industry issues? Call Mike Hartnett, in confidence, at 309-925-5593; fax 309-925-9068; or Email to mike@clnonline.com.

AND OUR VERY BEST WISHES FOR A HAPPY THANKSGIVING!

xxx

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