The Timberland Company (NYSE:TBL)
Q3 2008 Earnings Call
October 30, 2008 8:25 am ET
Jeffrey Swartz – President & CEO
John Crimmins – CFO
Karen Blomquist – Sr. Manager IR
Kate McShane – Citigroup
Mitch Kummetz – Robert W. Baird
John Shanley – Susquehanna Financial Group
Heather Boksen – Sidoti & Company
You are listening to the Timberland Company’s third quarter 2008 analyst conference call. (Operator Instructions) Now, for opening remarks I will turn the call to Karen Blomquist, Timberland’s Senior Manager of Investor Relations.
Good morning and welcome to Timberland’s third quarter 2008 conference call. Speaking today will be Jeffery Swartz, our President and Chief Executive Officer and John Crimmins, our Chief Financial Officer. John will be discussing our financial results for the quarter. Jeffrey will then discuss our performance within the context of our longer-term strategic direction.
This presentation includes and our responses to your questions may include forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are discussed in today’s press release and in the company’s filings with the SEC. Copies of our SEC reports are available upon request from Timberland.
This presentation also includes discussion of constant dollar revenue change, diluted EPS, and operating income excluding restructuring costs which are non-GAAP financial measures. As required by SEC rules we have provided a reconciliation of these measures and additional information on the Presentation tab found in the Investor Relations section of our website at www.timberland.com.
Now, I’ll turn the call over to John.
Thanks Karen, we ended the quarter with a very strong balance sheet and financial flexibility in a competitive marketplace with nearly $63 million of cash, $406 million of working capital, and no debt. Our results for the quarter reflect our continued commitment to improve cash management and control costs while staying on target to achieve our long-term goals.
Our cash flow and cash receipts continue to be strong and we reduced operating expenses by $15 million reflecting real benefit from our cost saving initiatives. Although I am encouraged by our results this quarter in our efforts to strengthen an already solid balance sheet the current economic environment has had an impact on our top line as we’ve seen continued softness in the global wholesale market and a pull back in retail sales.
In spite of the macro factors at hand, we remain committed to strengthening our brand and are well positioned to continue to invest in our business through consumer facing marking initiatives and take advantage of opportunities in areas that are critical to proving long-term growth.
Jeffrey will give you more detail on those investments in a minute, but first I’ll walk you through our financial performance for the quarter. Third quarter global revenues decreased 2% to $424 million as gains in foreign currency translation and strong gains in PRO and SmartWool products were offset by anticipated declines in Timberland brand apparel as well as declines in men’s casual and outdoor performance footwear.
For the quarter foreign exchange rate changes added about 2% to our global revenues. Global footwear revenues were flat compared to the prior year period with strong growth in PRO partially offset by declines in casual and outdoor performance footwear.
We saw encouraging signs during the quarter relative to our boot business particularly in men’s boots with a slight increase in revenue over the prior year driven by growth in Europe and Asia. Global apparel and accessory revenue declined 12% as a result of our transition to a licensing model for our North American wholesale apparel business partially offset by the continued strength in SmartWool where we saw double-digit growth for the quarter.
By channel global wholesale revenues were $341 million, flat compared to the prior year period reflecting continued softness in the wholesale markets. Global retail revenues decreased 7% to $83 million comparable store sales were down 6% on a global basis as declines in North America and Asia were partially offset by improvements in growth in Europe.
Benefits from foreign exchange partially offset a difficult worldwide retail environment and revenue declines associated with our decision to close certain underperforming retail stores. By the end of the quarter we had completed the closure of 41 of the approximately 50 specialty and outlet stores identified as part of our global retail restructuring program.
We now anticipate that three additional stores will be closed under the program prior to the end of the first half of 2009, and the remaining six stores will be kept open.
North America sales fell 9% as anticipated declines in Timberland brand apparel and declines in boots, casual and outdoor performance footwear offset strong growth in PRO and SmartWool. North American retail revenues were down 18% reflecting 15 fewer doors and a 14% decline in comp store sales.
Europe revenues increased 4% from the third quarter of 2007 but were flat on a constant dollar basis. Continued softness in the wholesale business was partially offset by 3% in growth in comparable stores sales. A difficult wholesale market across southern Europe, particularly Spain, Italy, and France was partially offset by growth in our distributor business in Eastern Europe and The Middle East and in our wholesale and retail businesses in the Benelux region, the UK, and Germany.
In Asia revenue was $39 million, flat compared to the prior year, but declined 5% in constant dollars as softness in our retail business combined with continued softness in wholesale markets, principally in Japan, offset growth in our distributor markets.
Retail sales in Asia declined as the benefit of changes in foreign exchange rates did not offset a 2% decline in comparable store sales and the impact of our decision to close certain retail locations.
Operating income for the third quarter was $53 million with an operating margin for the same period of 12.6%, an improvement of 230 basis points over the prior year. For the quarter earnings per share were $0.52 and remain $0.52 when adjusted to exclude restructuring charges.
These results compared to $0.42 or $0.49 excluding restructuring charges for the same period of 2007. Gross margin for the quarter was 46.5%, down 40 basis points from the prior year period as product cost increases and changes in channel mix partly related to store closures offset the benefit of stronger selling currencies.
Operating expenses fell 9% to $144 million reflecting an $8 million decrease in selling expense as well as a decrease $7 million in restructuring charges while general and administrative costs were essentially flat.
Included in operating expenses for the third quarter is approximately $6 million of incremental investment in our global consumer facing marketing initiatives demonstrating our continued commitment to strengthen our premium brand position and take advantage of opportunities that will provide long-term growth.
As I said earlier we ended the quarter with $63 million in cash and no debt. Inventory in the third quarter decreased 16% to $219 million. We’ve done a much better job at matching our supply and demand signals driving down excess and obsolete levels leaving us a much cleaner inventory then a year ago.
Accounts receivable in the quarter decreased 7% to $267 million. Capital spending for the quarter was $5 million. In the third quarter we repurchased 1.2 million shares under our current share repurchase program at a total cost of $20 million. Through the third quarter we have deployed approximately $45 million towards our share repurchase program and have 4.6 million shares remaining under our current share repurchase authorization.
While we face strong near-term headwinds given the current economic environment we are well prepared with a strong balance sheet and an increased focus on cash management, inventory levels, and receivable collection providing a solid footing upon which to build our long-term strategy.
For the full year we are still targeting mid single-digit revenue declines reflecting current market conditions and due in part to our decisions to close underperforming retail stores and to license our North America wholesale apparel business.
We expect that weaker consumer spending globally will result in additional margin pressure and now anticipate flat to modest declines in operating margins. We continue to expect an effective tax rate in the range of 40% in line with our third quarter rate.
Thank you, now I’ll pass the call over to Jeffrey.
Good morning, I’m going to cover two broad points this morning, first a few minutes outlining the strength of our balance sheet and reviewing the operating systems that deliver that strength, and then highlights of the progress we’re making against our strategy to rebuild brand heat and brand height in spite of the current challenging macroeconomic context.
John laid out for you the comparative strength of our balance sheet in financial terms. He described a brand that generates cash by tightly controlling inventories and the collection of receivables. He described a balance sheet with no long-term debt. I want to describe the operating systems that deliver these results even in the face of volatile market circumstances and soft top line performance.
Since the mid 1990s when we experienced the reality of being over leveraged and therefore exposed, I had insisted that our operating agenda include and obsession for cash management. All of our short and long-term incentive pay programs have since that time included cash for operating working capital measures along with growth in operating income measures.
We have capable teams and tested systems and processes that adjust inventory flows along the value chain monthly subject to strict open to buy constraints. We use our outlet stores and other market appropriate disposal strategies to identify and action slow moving inventory.
Our culture of maniacal cash management extends far beyond New Hampshire. Regionally we have adept credit collection teams with long standing relationships with our key customers. We offer competitive terms in our markets worldwide but we outperform many of our competitors in terms of day sales outstanding.
At the heart of our operations we measure and motivate our teams through asset management and that choice yields a real return. As a consequence of careful and consistent cash management we have been able to return to shareholders almost $1 billion over the last 10 years through our stock repurchase program.
So the strength of our balance sheet is not a coincidence; its an obsession and its one that serves us well especially in these volatile days. Having a strong balance sheet is [inaudible] that provides us confidence to go about the very hard work of restoring brand heat and brand height post the boot as adopted fashion phase of our brands’ history.
Despite the wild uncertainties in the broad consumer marketplace we’re steadfast about executing our brand building strategy. Our strategy is very focused. We’ve done the work be razor sharp about defining our brand and about our target consumer and we’re being iron disciplined about insisting on real consumer insight at the heart of our brand and product building process.
We are investing passionately to bring a small number of big ideas to market with product and marketing efforts unlike any in the history of our brand. I’ll share a few highlights and the progress that we’re making against these strategic efforts beginning with product.
Last quarter we discussed two big ideas, Earthkeepers, and city adventure. Earthkeepers is how we deliver handsome and beautiful footwear with an environment to the responsible store. Earthkeepers went to market in fall 2006, and is now sold in every major Timberland market globally for men and women, in footwear and in apparel.
City adventure is how we translate our outdoor credentials into footwear that works in the city and both ideas are evidence that we can reduce our SKU count and improve our retail presence at the same time by driving insight and innovation from concept through to execution.
But our portfolio of growth plans goes beyond Earthkeepers, beyond city adventure, beyond the re-launch of women’s in Italy in fall, 2009. In fall 2009 we’re introducing another very powerful idea, Timberland Mountain Athletics.
Mountain Athletics is concrete evidence that outdoor proven at Timberland is not a marketing phrase. It’s a reflection of 30 years of building innovative outdoor tested products that perform, from the America’s Cup blue water sail race, to the [inaudible] dog sled race in Alaska.
Mountain Athletics captures all the heritage of the last 30 years and seeks to serve outdoor adventures globally with footwear for men and women that delivers high performance and emotional value.
Practically Mountain Athletics delivers lighter, further, faster, benefit using technologies developed by our invention factory. The technology is soft against the ground, firm underfoot, and the wear tested performance testing results that we’ve seen with the mountain athletes we’ve been using with this platform indicate real innovation in action.
But we’re not going to build the Mountain Athletic brand on technical innovation alone, Mountain Athletics has a vibe that’s compelling, lighter, further, faster also sexy, infused with environmental sustainability. Sexy for those of you listening is a technical design term.
And based upon the response we’re hearing from global retailers who are partnering with us for the launch in fall, 2009, from [Xebio] in Japan to Dick’s in the US to Blacks in the UK, our investment and design genius is beginning to pay off. Likewise green is not just earnest do-gooder efforts to reduce our carbon footprint.
Its exciting, consumer relevant and compelling leadership from the nutrition label that appears on all our footwear to the green index on Mountain Athletics footwear, from careful manufacturing choices to killer new material choices. Green rubber is one such choice and is developed using a patented process that converts car tires into rubber soles and that technology will be exclusively available in fall, 2009 on Timberland products worldwide including Mountain Athletics.
And wait until you see the television ad that we’ve developed for Mountain Athletics, an ad that will air in key fortress cities globally in fall, 2009. The product is innovative and sexy, the marketing is compelling and emotional and the initial forecast for Mountain Athletics exceed our long range plan goals and all this during what is arguably the most volatile and complex macroeconomic market environment that many of us have ever experienced.
While on the subject of media and advertising we are well underway with Timberland’s largest ever marketing campaign. Last quarter we launched an integrated consumer facing campaign to a range of media channels including TV, film, PR, print, in-store, and online. We are excited about the early read we’re getting as a result of our recent efforts.
In the US following the podium ad which some of you saw during the Olympics, we experienced a 32% increase in our ecommerce site traffic compared to the prior four-week period. That bump in site traffic meant increased orders on our US site, up 23% from the four-week prior period before the advertising was launched.
Compared to national results with targets fortress cities which is where the media was concentrated and our other brand building investments are concentrated and the results we saw were even better then I just said. US ecommerce site traffic in those markets increased by roughly 45%. Similarly based on our international research of podium’s impact brand awareness is gaining in our more established markets, like the UK and Italy and in China where the brand is not yet well known, we’re also seeing positive lift.
Out of the gate we have more then achieved our initial goals of engaging consumers and reminding them what Timberland stands for. We will continue the campaigns rollout through 2008 and 2009.
Beyond marketing we’re working hard to strengthen our footprint in fortress cities like New York. After rebalancing our retail portfolio in 2007 we’re proud to announce the opening which we expect in the latter part of this year of a Timberland flagship store at 474 Broadway, south of [Brume] and SoHo, amplified by a powerful consumer facing advertising. In the fortress city of New York and SoHo we’re putting our best foot forward with segmented product merchandising featuring exclusive ideas such as Timberland Boot Company, the Abbington Collection, and the Founders Collection.
Our SoHo store is an integrated part of Timberland’s consumer access strategy which intends to engage both core consumers and consumers who traditionally have not thought of us for anything beyond yellow boots.
We are not naïve about how challenging the current marketplace is, nor are we unaware for a nanosecond of about how far we have to go to turn the kind of performance our shareholders deserve from a brand like ours.
We are not acting naively either. For the last 10 plus years we have not not been maniacal about cash management and can now point to our pristine balance sheet as evidence of the result of this focus.
Thanks for your attention, we are now ready for questions.
(Operator Instructions) Your first question comes from the line of Kate McShane – Citigroup
Kate McShane – Citigroup
Could you help quantify your reduction in the margin guidance for the rest of the year, how much is coming from higher product costs and deleveraging and how much is coming from potential markdowns?
I don’t know how specific we really want to get on our guidance. We try and keep that at a pretty high level. I think we’ve used the same language all year. I think that the news for this quarter is we’re seeing a very difficult retail environment and I think overall that puts pressure on both the wholesale and retail businesses and so with the update on outlook is a response to our view of the latest economic conditions, consumer confidence and how we expect that will impact our business in the fourth quarter.
Kate McShane – Citigroup
I assume the higher product costs you experienced in the third quarter, is there a chance that will be alleviated somewhat from the lower oil prices?
That’s a really good question, we certainly expect that there’s an opportunity if oil prices were to stabilize that the pressures may not be as great going into next year as we might have thought two or three months ago but I think there’s still a lot of water to go under the bridge on that one. I think its an extremely volatile market right now. We’ve said before that, we’ve said throughout this year that we’ve seen pressure on product costs this year and we see continued pressure next year. There is a bit of light of hope there that with current oil prices that maybe the pressures won’t be as significant as we have been anticipating.
The oil price point as you know, isn’t going to alleviate the labor question which is a big driver in Southeast Asia of some of the product cost pressures that brands like ours continue to face.
Your next question comes from the line of Mitch Kummetz – Robert W. Baird
Mitch Kummetz – Robert W. Baird
On international, particularly FX impact, I’m a little surprised that your full year sales outlook hasn’t come down just given what’s happened in Europe with currency there, is there something elsewhere within the business that you would expect to offset the negative impact of that that’s allowing you to keep the top line outlook where it was?
I think, obviously FX has been extremely volatile and we’ve seen the dollar strengthen recently. Our full year results end up getting translated at an average rate so its not quite as severe as the fluctuation that you seen on a daily basis. I think I’ll just stay with what we’ve said, there are a number of different factors that effect where we come out in our top line. Certainly FX is one of them so we have, you can see our results for the first three quarters. I’ve described what we see as impact of the current economic environment on the top line in the fourth quarter and certainly FX is another factor.
Mitch Kummetz – Robert W. Baird
Is it on the selling expense, I think you mentioned that consumer facing marketing was up $6 million but then your overall selling expense was down $8 million so that’s about a swing of $14 between those two pieces, so where are you taking costs out of the business and how much of the drop in selling expense year-over-year is related to the closing of retail stores and the shift of the apparel business to a license?
You have the large drivers well in hand. The shift of the apparel business was a big deal. The shift in the closure of retail stores is another big deal.
You can see our, included in our selling expenses are commissions which are related to our wholesale revenue so they flex up and down depending on our wholesale revenue. I think the point here is we’ve controlled elements of our cost, the ones that are within our control, and at the same time have invested where we believe its strategically important to invest so the choice to increase the consumer facing marketing spend was made possible by other choices that we’ve made to spend less money in other places.
Mitch Kummetz – Robert W. Baird
Regarding the boot performance in the quarter, you mentioned that it was up slightly, I want to recall that’s the first time I’ve heard you say that in awhile, how much of that is just anniversarying the distribution adjustments that you’ve made, maybe some consumer preference shifts, and how much of it is just better boot product in the market today versus what you’ve done over the last few years?
Improvement in the boot business we saw was largely Europe and Asia, large meaning only Europe and Asia and so it would be about, in your list it would be B and C meaning it would be cleaning up the market allows us to be clear about what we’re trying to sell to whom and then especially in Europe and Asia, its about the right kind of product because we said to you many times that the profile of the boot business in the US in terms of product that people were buying was distinct from the profile of the boot business being bought in Europe and Asia.
It remains distinct so while the boot revenue numbers in the US were down in the quarter I actually look at it, with granularity, and I think there’s really good signals from the boot business in the US even in the face of revenue declines in the quarter as reported specifically there are two sorts of cleanups.
One is wanting to be in the right doors, partly we got thrown out of the wrong ones, and partly we choose to be out of the wrong ones. So no credit, but that’s a fact. Second point is if you look at what’s being presented to the consumer its very consistent with the turmoil of the moment meaning what’s selling right now at retail from Timberland is as I’d suspect just what you’d imagine, authentic leadership stuff, iconic things, not retro stuff, not high fashion stuff; things that people can believe in.
So we have actually a very healthy boot business in what I call the basic boot business. You can measure it in terms of retail price, if you go out to retail and take a look at icon products and see what’s its retailing for, you’ll see prices $139.90 and up compare that to this period last year, that’s at least $10 higher at retail this year then it was last year, $10 higher right now is a counter intuitive notion.
It just says that if you’re focused on what you can defend and what you stand for you can be successful even in this climate so the boot business in Europe and Asia being successful, its more on hiking-esk product. The boot business in the United States not just stabilizing, I think actually getting pretty strong in the core business against the core consumer. To my eye that’s positive news.
Your next question comes from the line of John Shanley – Susquehanna Financial Group
John Shanley – Susquehanna Financial Group
On the boot business, I believe over the past two or three years you have seen roughly a $200 or $250 million reduction in sales in boots and I think particularly some of the emphasis has been on the 161 class, coming off your previous comments can you just give us an update as to where you are in that cycle. Its still a piece of your business, we see improvement in pricing at retail but your domestic boot business continues to be down. Just trying to get a handle on where you see yourself in the down cycle in that business and what maybe we can think about as we go into next year.
I think we’ve been consistent over time to say as the dislocation between our fashion and desired fashion, that dislocation has been experienced over the last couple of years, we’ve seen the deleveraging of our income statement as revenues come down etc. That story I think is well understood between us. I’ve said all along and I continue to say that at the heart of our franchise is a position of authenticity and leadership that I would say is undiminished.
By that I mean if you’re looking for a narrow presentation at retail in the United States where the consumer was young, middle aged, or old of what’s the best boot maker on earth, Timberland is on that shelf and is continuing to retail from that shelf against a range of core consumers successfully.
We have the ability to make the best boot and to deliver it with high margin and great result. The fashion fog that was around that proposition that allowed us to have a much bigger franchise with the consumer, clearly the fog has dissipated, that is to say, as much respect as we have for the retailer and the consumer we’ve been successful, we’ve not been successful in maintaining that kind of really torrid commercial result.
We continue to be very, very focused on wanting to serve youthful consumers of our brand and we’ve said to you through time that we’re going to demonstrate that the way to be successful at keeping our franchise young and keeping young consumers interested in our brand isn’t going to be the formula of crank an icon boot in another color. That, I took the hit for that, I took responsibility for that strategy wasn’t sophisticated enough, it wasn’t respectful enough.
And so instead we’ve done, we’ve made a huge investment in trying to design and develop product that is brand appropriate and youthful and I’ll give you a clear example of the progress we’re making, and we don’t talk about it a lot but, in the height and the heat of Timberland being successful in the boot business you never did find Timberland boots at Fred Siegel in Los Angeles. You just didn’t do it, you might have found it at a lot of other places but not there.
If you went to Fred Siegel right now, today, you’d see the presentation of a very limited collection of Timberland product aimed at youthful consumers called the Abbington Collection and you go to [Alife] some of the very, very sophisticated points of distribution, you could go online to places like [inaudible] and you could take a look and you could see Abbington as it represents an approach, a respectful, thoughtful, considerate brand appropriate approach, its not an old style in a new color, its thoughtful design of brand right equity translated against youthful consumers.
Although its not a huge commercial thing by any notion and its not intended to be, Abbington is intended to be a very elite small distribution, high buzz collection. It is having real success in reasserting to retailers and consumers that the old formula of how to address the consumer youth is tired and dated but Timberland has not given up by any stretch on the notion of wanting to serve youthful consumers and I believe we’re beginning to demonstrate both with the core business that’s selling and with this elite collection which is getting established that the full story of Timberland’s relationship to young consumers is by no means done.
John Shanley – Susquehanna Financial Group
As you continue to tweak the product offering and what’s out there in retail does that impair your ability to get back to over the longer term, back to your historical margin trends given how big and how important that classification of boot was to the business going back three or four years ago.
If you ask the Henry Ford in me would love to be able to make 10061 in yellow in size nine in the Dominican Republic and ship it on a quick response basis to everybody in the world twice a week because there’s nothing we’ve ever done in the history of the company that would be more profitable then that, manufacture it in our factories, we’ve only done that for 40 years. We’re pretty darn good at that. It starts with an initial margin, our goal is to have it always be twice my age and I’m almost 50 so we’re working, that was a very margin rich product. It still is. The problem is this darn consumer decided that first of all they have different size feet so they want not just size nine and they don’t want just yellow ones, they want black or brown ones too, its harder.
We talk about this internally all the time, we don’t want to get trapped in Springsteen’s version of Glory Days because that’s why if you articulate our financial model it says we understand that double-digit operating margins is our responsibility to deliver and yes, if the boot business came miraculously back onto the table it would help us, but if you look at our long range plan and you look at what we’re committed to do, the hard work over the next three years, no where in that plan do you see the gift from the heavens that says, the fashion wind completely turns around and what was will be.
And so we’re committed to delivering double-digit operating margins through time to earning that result, not through magic. It’s going to be, its much more of a ground game then it is a long ball game. If you said to me fashion switches around and all of a sudden people want to buy boots as hyper consumers again, we’re prepared to be respectful and responsive but we don’t count on it. We don’t plan on it. That’s not the way we’re going about trying to build a financial model that rewards our shareholders the way this brand ought to be doing.
John Shanley – Susquehanna Financial Group
Phil Van Heusen has mentioned that they are seeing what seems like good initial reads, [inaudible] Timberland apparel piece and I think they’ve incrementally increased their revenue projections for the year for that business, I was just wondering how you foresee that and how you foresee integrating that into your own retail business and just your thoughts on what’s going on on the apparel side, how we should look at that from a P&L perspective too?
In terms of retail, PVH, this was a smart choice to take a great brand and partner with a wildly competent apparel company is a better prescription for success then a great brand that’s trying really hard to be good at something that its not instinctively or historically good at [called] apparel. And so if you look a the product in our own retail stores, in the United States we’re more of an outlet store then we are a specialty store for the moment and so if you go to look at our outlet stores and you saw the apparel this year versus last year, if you look at the selling rates this year versus last year, and if you look at the margin this year versus last year, you’d say hey, the combination of a good brand in the same store with better execution which PVH has definitely delivered, its working.
If you go to Macy’s in Harold Square and you look at our presentation on the pad, it is coherent, it is well merchandised, its not simply a fresh coat of paint, it’s a much better presentation visually on the pad then you look at the apparel itself, its coherent, the price points are right, the quality is good.
I am encouraged that they’re encouraged by sell through because everybody knows this isn’t an easy time to be selling through anything and yet I hear from the Macy’s folks especially in the east that we are getting good results so the first point was what do I think about that?
I think the partnership is good and getting better. We collaborated on four marketing events called Dig by Day and Rock by Night, the theory was straightforward, which is part of our view is that this notion of environmental sustainability is not just topical but its deeply relevant.
I see many of our competitors racing to catch up to this train. Press releases from big guys, speeches from everybody saying green is the new black, terrific. We’ve told you for 20 years as part of our DNA and how we want to do business. When we have an event in San Francisco like we did last week where during the day we invite consumers, you go into the store at Macy’s in Union Square, you buy Earthkeepers stuff, you come out and you dig a hole in the ground and you plant a tree and the Mayor is there and everybody is excited about it and at night we have a little private concert with Pearl Jam and we say thank you for being concerned about earth keeping.
Consumers got a great product, they had an experience of changing their neighborhood and they had a great time at night, dig and rock we did in four cities, in Boston, New York, San Francisco, and LA, and PVH did that in partnership with us, they did the rock and roll stuff, we did the digging stuff. It was great.
And I think it got consumers excited. It’s a model that we can build from and its an indication to me of a partnership that’s working. So better apparel, at wholesale, better apparel in our outlet stores, and a partnership that has brand value in it including things like, to me it’s a prescription for a retrospective to say I think you made a smart choice to license the business to PVH.
John Shanley – Susquehanna Financial Group
On the P&L, how should we look at that?
I think you understand that we’ve moved from what was a wholesale business for us to a licensing model where we earn a royalty so very different top line impact obviously and we’re comfortable that over time with the potential that PVH will drive in this business, we’ll end up with a more attractive bottom line result.
Your next question comes from the line of Heather Boksen – Sidoti & Company
Heather Boksen – Sidoti & Company
What if any presence do you have in Mervin’s Shoe Pavilion, and some of the other guys who are not going to be around?
We’re sorry for the pain that their shareholders have gone through and I bet you there’s more stories like this to be written, those particular ones you referenced had no impact on us.
There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.
November 4th is coming, I wish everybody a good day.
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