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Iconix Brand Group Inc. (NASDAQ:ICON)

Q1 2009 Earnings Call

May 5, 2009 10:00 am ET

Executives

Neil Cole - Chairman and Chief Executive Officer

Warren Clamen - Chief Financial Officer

Analysts

Todd Slater - Lazard Capital Markets

Spencer Hill - Credit Suisse

Jeff Klinefelter - Piper Jaffray

Eric Beder - Brean Murray

John Connery - Barclays Capital

Mimi Bartow - Telsey Advisory Group

Jim Chartier - Monness, Crespi, and Hardt

Operator

Good day, ladies and gentlemen, and welcome to Iconix Brand group’s first quarter 2009 Earnings Call. On the call today, we have Neil Cole, Chairman and Chief Executive of Iconix, and Warren Clamen, Chief Financial Officer.

Before we begin, I would like to read the Safe Harbor. The statements that are not historical facts contained in this conference call are forward-looking statements that involve a number of risks, uncertainties, and other factors, all of which are difficult or impossible to predict, and many of which are beyond the control of the company. This may cause the actual results, performance, or achievements of the company to be materially different from the results, performance, or achievements expressed or implied by such forward-looking statements.

The word believes, anticipates, expects, confident, and similar expressions identify forward-looking statements. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

I would now like to turn the call over to Mr. Warren Clamen, Chief Financial Officer. Please proceed, sir.

Warren Clamen

Good morning, everyone, and welcome to the Iconix Brand Group first quarter 2009 earnings conference call. Following a tough holiday season, sales trends improved in February and March, and several of our brands ended up exceeding our expectations, which translated into better than expected earnings in the quarter.

At the beginning of this year, we implemented an initiative to reduce our overhead cost structure. And as a result, our first quarter EBITDA margins increased to approximately 72%. We expect similar results for the entire year and are forecasting 2009 EBITDA margins to be similar to this quarter.

Total net cost savings for the full-year compared to the full-year of 2008 should be approximately $14 million before taxes and approximately 60% of those savings will come from SG&A and the balance 40% will be related to interests.

Reviewing our results for the first quarter ended March 31, 2009, revenue was approximately $50.5 million, a 9% decrease as compared to approximately $55.7 million in the prior-year quarter. As we stated on our last earnings call, this decline primarily relates to our Mudd brand, which has been, for the most part, taken out of the market for the first half of 2009 as we transition it into an exclusive direct-to-retail brand at Kohl’s.

EBITDA in the first quarter was approximately $36.3 million, a 6% decrease as compared to $38.8 million in the prior-year quarter. Our EBITDA margin improvement of approximately 230 basis points to 72%, reflects a 16% quarter-over-quarter decline in overall SG&A expense, which is a direct result of our cost-cutting initiatives, and demonstrates our ability to leverage our existing infrastructure.

On a non-GAAP basis, which excludes non-cash interest related to the adoption of the new accounting treatment for convertible debt, net income declined 4% to approximately $17.6 million as compared to $18.2 million in the prior-year quarter.

Diluted non-GAAP earnings per share, for the first quarter was $0.29, $0.03 higher than the consensus for the company of $0.26. And the prior year’s quarter non-GAAP EPS comparison was $0.30.

Our GAAP net income, which includes the adoption of the new convertible debt accounting treatment for all periods reported, declined 5% to $15.6 million compared to $16.5 million in the prior-year quarter. And GAAP diluted EPS was $0.26 compared to $0.27 in the prior-year quarter.

Free cash flow for the quarter was approximately $29.8 million compared to $32.6 million in the prior-year quarter. Free cash flow per diluted share for the first quarter was $0.49 per share. The three largest components of the cash add-back were non-cash taxes of approximately 6 million; non-cash interest expense, primarily related to the new convertible debt accounting treatment of $3.1 million, non-cash comp expense of approximately 1.6 million and depreciation and amortization of approximately $2.1 million. These items are all reoccurring cash benefits and total approximately 50 to $55 million annually in add-backs to our GAAP net income to arrive at our free cash flow.

EBITDA, free cash flow, non-GAAP net income, and non-GAAP diluted earnings per share are all non-GAAP metrics, and reconciliation tables for each can be found in the press release sent earlier this morning or on our website, iconixbrand.com.

The company ended the quarter with approximately $43 million of cash and as of today, has a cash balance of $50.3 million. I would like to highlight that in the first quarter of 2009, we made a total of $44 million in principal payments, $39 million under our term loan and the balance under our asset-backed securitization. The next payment for our term loan facility will not be until the first quarter of 2010.

In addition, during the first quarter, we repurchased 200,000 of our shares at a weighted average stock price of $7.28 for a total of approximately $1.5 million. We continue to evaluate our options regarding our use of cash, and make decisions based on what we believe is in the best interest of the company and its shareholders.

The current face value of our debt related to our debt facilities at the end of the quarter was approximately $619 million, and the earliest maturity of any debt is not until 2012. The company’s weighted average cash interest rate on all debt in the first quarter was 3.8% and will decrease to 3.7% in the second quarter. Our trailing 12 months net debt to EBITDA is below four times, and we are comfortable with these levels, given the controlled risk profile of our model and our strong free cash flows.

I will now turn the call over to Iconix’s Chairman and CEO, Neil Cole.

Neil Cole

Thank you, Warren. Good morning, everyone. I'm pleased with our performance this quarter, and believe our ability to deliver solid results speaks to the viability of our business model and the strength of our brands. Even in the current economic environment, many of our brands have gained market share, as we continue to provide great marketing support and partner with leading retailers and wholesale licensees that have the capacity to drive significant volume.

Iconix is now recognized as the second largest licensing company in the world by Global License Magazine, as our brands generated over 6.5 billion in annual retail sales in 2008. We anticipate our sales at retail to increase to approximately $8 billion in 2009 as we rollout new programs at retailers such as Wal-Mart, Kohl’s, and Costco.

We continue to be optimistic about our direct-to-retail partnerships. These win-win relationships provide the retailer with the ability to leverage national brands at great economics. And in return, our brands receive premium shelf space, signage and placement, and marketing materials. We recently signed our 15th direct-to-retail agreement with Costco for our Charisma brand, and will continue to look to partner our brands with the best-of-breed and retailers around the world.

We are excited about the progress we are making with our three direct-to-retail brands at Wal-Mart, Danskin Now, Starter, and OP. Danskin Now was featured in the hotspot of the four in January for Fitness Month, prompting a dramatic increase in sales, and we are pleased to say the momentum has continued throughout April.

The transition of the Men’s athletic pants at Starter began in February, and additional categories such as hosiery and shoes will be converted to Starter throughout the year. As the anchor athletic brands at Wal-Mart, which is crossing over 140 million customers a week, we expect that Starter and Danskin could each exceed the $1 billion in annual retail sales in the next couple of years.

In addition to the exposure these brands receive from the distribution at Wal-Mart, we have also been supporting them with exciting marketing initiatives such as the Tony Romo campaign for Starter, and the Starter banner featured in numerous stadiums across the country, including the new Yankee Stadium. We're also working on a Tony Romo branded collection for select Wal-Mart doors, along with a Tony Romo television spot for the fall.

We recently announced our new celebrity marketing campaign for Op, featuring young Hollywood personalities, which will debut this month in fashion, lifestyle, and entertainment magazines, as well as our in-store signage at Wal-Mart. After Op’s successful initial launch last spring, this past Friday, Op rolled out to all doors, and was given the premier hotspot when you enter Wal-Mart.

We truly encourage all of our investors to go check out our new in-store presentations, as we believe Wal-Mart has done a tremendous job in displaying and selling our brands.

The entire Junior and Young Men’s swim business has converted to Op and we continue to evaluate new category opportunities within the store. We are working to bring the Op brand to bicycles, beachwear, umbrellas, pool accessories and towels, and some of which will be in-store this summer, and we expect the excitement to continue into fall with an Op Back-to-College campaign.

Another bright spot in the quarter was our Candie’s brand. During the quarter, we launched a new Britney Spears campaign that in just two days received over 1 billion free impressions, with buzz from the campaign hitting a variety of media channels, including television, magazine, and online.

There are great synergies between our Candie’s girls and Britney’s fan base, and the timing could not have been better, as the campaign launched with her debut of her new tour, which allowed us to integrate the Candie’s brand into all promotional activities.

Kohl’s has been extremely supportive with the latest campaign. They also featured Candie’s and Britney on the cover of their Easter circular. Kohl’s has been a great partner, and we're excited to work with them on a second direct-to-retail brand for our Mudd brand, which will be launching exclusively at Kohl’s for Back-to-School in a variety of product categories. However, since Mudd will not hit Kohl’s stores until July, we expect it to continue to have a negative impact on our revenue in the second quarter versus last year’s prior quarter.

In the home space we signed a new non-exclusive direct-to-retail deal with Costco for our Charisma brand. This is our first partnership with Costco, and we believe a great time to be entering the Warehouse Club business. Charisma products will begin rolling out this fall in a number of core home categories. We believe Charisma is a great addition to Costco and we anticipate new category opportunities in the future. We don’t expect this deal to materially impact our ‘09 revenue guidance, but it will provide upside in 2010. Charisma will also continue to be sold in the better channels.

In April, we also kicked off the big launch of Cannon at Kmart and Sears. Cannon was featured in both Kmart and Sears television commercials as part of an overall campaign that promotes their top brands, and has also received full page spreads in their weekly circulars. The new Cannon bedding, which just launched this April, is doing phenomenal, and we expect to expand into additional categories, such as kitchen textiles, later in the year.

Mossimo is slightly off from last year’s performance, as were our other Target brands. However, as the economy recovers, we believe that Target is well-positioned to follow that trend. We’re encouraged by the performance of our traditional licensing brands at Macy’s, with strong sales of Rocawear, Rampage, and London Fog. We're also excited about the progress we're making internationally. Specifically, I want to highlight two areas, our China joint venture and the opportunity to take our brands global with Wal-Mart.

Last week, we announced our second deal in China for our London Fog brand with [Do-Right] Fashions, a retail operator throughout China. We believe that Do-Right experiences and the strong retail network they have will successfully develop our London Fog brand. Do-Right will begin distribution of London Fog men’s and women’s products in the fall of 2009, and plans to open more than 180 London Fog shop-in-shops and stores by the end of 2011.

Our first deal in China for our Rampage brand, which we signed in December, is off to a strong start with impressive catalog and online sales. Mecox, our operating partner for Rampage, has begun rolling out stores and is on track to have 50 stores opened by the end of this year.

We believe these two deals are just the beginning of a much larger opportunity to grow our entire portfolio of brands throughout China. We have other potential partners in the pipeline and expect to sign additional deals in the next 12 months.

We believe that Wal-Mart International could also be a very big opportunity for us. Today, Wal-Mart operates in 15 countries outside the U.S. and has over 3,500 international stores. We have been meeting with many of Wal-Mart International’s territories to discuss the opportunity for our three Wal-Mart brands.

Op has already successfully launched in Wal-Mart Canada and Mexico, and will be expanding into Wal-Mart Argentina this fall. As International is such a large growth focus for Wal-Mart, we're hopeful that our success in the U.S. will be leveraged by their global platform.

Today, we announced that we made $17 million investment, 9 million cash and 8 million stock, for 50% of Hardy Way, the company that owns the Ed Hardy IP. Our partner, Don Ed Hardy and his artwork date back to 1967, when he transformed the tattoo business into an artistic medium. He began licensing his name and artwork for apparel in 2003, and today, Ed Hardy is the world’s preeminent brand in tattoo inspired lifestyle products.

Over the past five years, Ed Hardy has developed into a global consumer product sold in over 58 countries and 50 different product categories. There is tremendous following for the brands with celebrities such as Madonna, Britney Spears, and Kanye West, each frequently seen wearing Ed Hardy’s designs.

For the full year 2009, Hardy Way expects to generate approximately 10 million in royalty revenue, which imply a 3.4 times royalty revenue multiple for our 50% interest. This investment will be approximately $0.02 accretive this year; however, we expect future upside, as the brand continues to rollout around the world. Any earnings from this investment will be recorded as an equity pickup, similar to our other joint ventures.

Further on the acquisition front, we are seeing more and more interesting opportunities, including some very large deals that we feel could be actionable this year. We used our existing cash to partially fund Ed Hardy, but with the capital markets improving, we are seeing more liquidity options for our company and believe we have the ability to finance a larger transaction.

Now I would like to take you through our 2009 outlook. Based on the strong performance of our brands in the first quarter and our Ed Hardy investment, we are raising our non-GAAP diluted EPS guidance range to a range of $1.30 to $1.35 from $1.20 to $1.30, and our GAAP EPS guidance to a range of $1.16 to $1.21 from $1.06 to $1.16. We are raising our 2009 revenue guidance to be between 218 million and 225 million, compared to our prior guidance of 210 million to 220 million.

We also want to clarify that our Ed Hardy investment and our Latin American joint venture will be recorded as equity pickups; but if they were recorded as top line in ‘09, it would represent an initial 5 million in additional revenue or approximately $8 million on a pro forma basis.

We expect to continue to generate strong free cash flow, and are forecasting free cash flow to be approximately 121 to $128 million this year, which translate to free cash flow per share of over $2 a share. This guidance relates to the existing portfolio only and assumes no acquisitions.

In closing, this is a very exciting time for Iconix. Over the past few years, we have built a foundation comprised of Iconix brands, great direct-to-retail and international partnerships, innovative marketing campaigns, and strong banking relationships. We believe as the economy begins to recover, and we have seen signs of this already, Iconix is ideally positioned for both organic and acquisition growth. As we have demonstrated in the first quarter, our infrastructure can be leveraged further to support more brands and we look forward to continuing to deliver strong results.

With that, I’d like to thank all of you for listening this morning and turn it over to questions and answers. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Todd Slater with Lazard Capital Markets. Please proceed.

Todd Slater - Lazard Capital Markets

I was wondering if you could just talk about the environment to finance larger transactions, because right now your cost of debt is under 4%, so how high can that go for a large deal to make financial sense?

Warren Clamen

Hi, Todd, it’s Warren. I think we’re seeing improvements in the markets. I mean, deals are getting done and improved pricing over the last 30, 60 days, even in the last two weeks. Deals are getting done at all levels from B to AAA and different areas of the markets are opening. So we think that we could get deals done. We’re looking at different ways. We’re looking at all different venues from the capital markets, but we do feel confident.

Neil Cole

And also, I’m going to just add, the lower matrixes in purchase price we think will more than offset the higher interest rates, where it will definitely be higher than the three or four, but we believe that economics are still going to be pretty strong.

Todd Slater - Lazard Capital Markets

Okay. Well, that’s a good segue way to the Ed Hardy deal, which kind of breaks tradition a little bit in that you’re only buying half of it and the business is still quite robust, and typically you’ve bought brands sort of on the downturn. And it’s a lower multiple, obviously, than you’ve paid. Can you just talk a little bit more about how your acquisition strategy is evolving and why you only put one leg in the water here?

Neil Cole

It was the opportunity that was presented to us. We’re working with the original founder, Don Ed Hardy, the owner of the mark who licensed it to the Christian Audigier Company. Ed was looking to diversify and he had numerous partners that wanted to sell half the business. Looked at the business; obviously, we would have loved to own 100%, but we also think keeping Ed around will help us possibly with other branding opportunities and helping to exploit the brand further. So, while it was only half – 50%, we just thought it was a great mix and a great brand to add to the portfolio.

Todd Slater - Lazard Capital Markets

Okay. You said you see Danskin and Starter exceeding $1 billion. Was that this year, number one? And does that assume that it extends into the other Wal-Mart countries?

Warren Clamen

Yes.

Todd Slater - Lazard Capital Markets

How have the other properties performed at Wal-Mart relative to plan?

Warren Clamen

We said basically over the next couple of years, not this year. What’s a little unique about both Danskin and Starter, today, they’re both one gender, where Danskin now handles the female side and Starter handles the male side. So we see that taking a couple of years and in a lot of countries. And we’re starting to expand. We’re in discussions with pretty much most of the countries worldwide with Wal-Mart about expanding all three brands. Op is definitely ahead internationally than Starter and Danskin Now.

But some of the other exciting things that have happened with Wal-Mart is we’re getting a lot of category expansion. For instance, Starter is going to be going into inflatable balls and Op has got beach bikes and beach chairs and towels. Danskin Now has a wide range of fitness equipment. So we’re starting to leverage the brand across different areas of the store, so we’re pretty excited. Also, last week, Op rolled out the hot spot when you walk into a Wal-Mart and it’s really incredible. So I encourage everyone to go check it out. But we’re really excited about how Wal-Mart has executed all three brands. Great value and the way they’ve displays, it’s pretty exciting.

Todd Slater - Lazard Capital Markets

Have the three been hitting or beating plan?

Neil Cole

Yes, all three have been exceeding our expectations.

Operator

Your next question comes from the line of Omar Saad with Credit Suisse. Please proceed.

Spencer Hill - Credit Suisse

Hi everyone. This is Spencer Hill at Credit Suisse on Omar Saad’s team. Good morning.

Neil Cole

Good morning.

Spencer Hill - Credit Suisse

We were hoping to discuss any plans or opportunities to expand this Ed Hardy distribution, both domestically and internationally and any potential new licenses on the category side?

Neil Cole

Two new. We have to definitely talk to Christian and his team and look at all the different opportunities with Ed. And I think it’s going to take us a couple of months to get up to speed on the brand and before we could evaluate the future.

Spencer Hill - Credit Suisse

Great, thanks. And then with regards to just ad spend, the 1 billion free impressions on the Candie’s campaign is great. Could you talk just about the dollar ad spend and how that trended during the quarter?

Neil Cole

Pretty much to last year, we’re pretty much – I think the quarters will come in pretty even with the ad spend that we did last year. But what’s wonderful also about – when you get a star like Britney Spears, those 1 billion impressions were on all the blogs and the Internet. And there’s this whole new way of marketing where you can make your dollars go really far by getting great celebrities and this viral marketing. And that’s something I think you’ll see that we do with all our brands.

Also we great partnerships with the stores, Kohl’s, the cover of the Kohl’s catalog gets hundreds of millions of impressions also as it hits every newspaper across this country. So, by working with the stores and by doing viral marketing, we’re leveraging our ad campaign, which is, I think we estimate around $25 million.

Operator

Your next question comes from the line of Jeff Klinefelter with Piper Jaffray. Please proceed.

Jeff Klinefelter - Piper Jaffray

Hi, just a couple of quick questions guys. First on Ed Hardy. Interesting investment or acquisition, I was just curious what the licensing revenues were last year? Like what is forecast to be performance wise ‘09 versus ‘08.

And then also just, Neil, in terms of future growth opportunities, the value that you guys are bringing, is it additional channels of distribution for the product? Is it a different way of marketing it? How do you see the partnership working?

Neil Cole

The brand grew pretty strong last year I think it's somewhere around between 10 and 20% and we are hoping that growth continues. The first quarter was about 25% from last year. And once again, a little too early, need to get involved and understand the brands and look at what Ed Hardy himself and Christian and the plans going forward before I can opine on future direction.

Jeff Klinefelter - Piper Jaffray

Okay. And then one other question on your expenses. What are the thoughts in terms of the sort of sustainable run rate now of the expense reductions that you put in place, I mean, how much of this is temporary or volume based? How much of it’s going to ramp back up again as the retail environment improves?

Warren Clamen

Hey, it’s Warren Clamen. No, I think that it’s pretty sustainable. We're projecting our EBITDA margins to sustain. I don’t think anything in the expense categories are going to ramp up. I think you can take Q1 as our barometer for the rest of the year.

Jeff Klinefelter - Piper Jaffray

So in terms of advertising, can you remind us again what percent of your SG&A is advertising costs, this year in Q1 versus last year and Q1 and I think you started ramping that up last year starting the second quarter. And how are we going to annualize those increases?

Warren Clamen

Advertising is about a third of our SG&A. Usually Q2 and Q3 are slightly higher than Q1, but overall, it’s about 50/50 first half, second half.

Operator

Your next question comes from the line of Eric Beder with Brean Murray. Please proceed.

Eric Beder - Brean Murray

Could you talk a little bit about how Rocawear is doing?

Neil Cole

Rocawear is doing really, really well. Number one brand at Macy's by far double digits sales increase to both planned and last year. Somewhat miraculously, [Jay] and his team have really hit it right on the product. And they're definitely leading the path by far in that street wear business.

Eric Beder - Brean Murray

Okay. You've given kind of the thoughts about changing the revenue numbers. What are the drivers this year in terms of you raising your guidance for revenue this year?

Neil Cole

It's really the three Wal-Mart brands are a key part. Also Candie’s. Candie’s organically we thought was going to be planned down and what happen when Britney came around, Kohl’s got really energize and quite honestly, before Britney we’re trading to be up already this year, had a really good last four to six weeks and our plan to be very strong in the fall. So it’s a combination of Wal-Mart and Candie’s and the three Macy's brands are all ahead of plan, Rocawear, Rampage, and London Fog.

Operator

The next question comes from the line of [John Connery] with Barclays Capital. Please proceed.

John Connery - Barclays Capital

Hey, just a couple of quick questions. Trying to reconcile the EPS and the net income, what share count are you guys using for the full-year?

Warren Clamen

About 62 million for the full year weighted average.

John Connery - Barclays Capital

62 for the full year? Okay.

Warren Clamen

Yes.

John Connery - Barclays Capital

And the other question was do you have an updated door count for the three Wal-Mart brands, any general numbers been drawn on that?

Neil Cole

It’s all doors, all three brands in USA and now we have with Op all doors in both Mexico and Canada. And we're starting to move into Argentina and there's Starter product in Canada so far.

John Connery - Barclays Capital

Actually the last one was, do you have any plans at Costco, are there any plans for expansion into any new categories?

Neil Cole

Yes, well, Charisma, we're pretty excited about that deal to be doing business with Costco. I think, just big opportunity and they're pretty much doing it throughout the home business. So there's a big potential there. But it’s great to finally be doing it direct-to-retail with one of the strong players in the club business.

Operator

Your next question comes from the line of Mimi Bartow with Telsey Advisory Group. Please proceed.

Mimi Bartow - Telsey Advisory Group

Hey, guys, thanks. Great quarter. A couple of questions, I know you talked about the upside on the revenues. Are you still modeling kind of five to 10% down across even the majority of the other brands and does that include Rocawear at down 10% still?

Neil Cole

No. We’ve adjusted with what happened in the first quarter and trends that are happening throughout April. Where, as I mentioned Candie’s is now – we're planning to be up for the year based on what’s happening there with Kohl's and the same thing with a lot of the Macy’s brands that are sold in that channel. So we readjusted the guidance and to readjust to the new guidance that we put out this morning.

Mimi Bartow - Telsey Advisory Group

Okay. And then so the other brands, excluding those that would fall under that umbrella, does that assume that kind of similar decline then?

Neil Cole

Sure. I mean, when we looked at what was happening in the market, studied the brands and studied trends and how they trend each quarters and that’s how we did our new guidance.

Mimi Bartow - Telsey Advisory Group

Okay. And then in terms of SG&A, the 14 million that I think Warren mentioned, is that – I'm recalling from the fourth quarter that it was 16 million, I'm just wondering what that 2 million delta is because I'm assuming the 4 million in interest expense is the same?

Neil Cole

I am not sure. It might have additional cost cutting, Warren?

Warren Clamen

Yes, it was the cost cutting. I mean, we had implemented right at the beginning of the year, and we ended up coming in at a lower SG&A than we had anticipated. That’s why the margins are 72%, Mimi.

Operator

Your next question comes from the line of Jim Chartier with Monness, Crespi, and Hardt. Please proceed.

Jim Chartier - Monness, Crespi, and Hardt

Hi. It sounds like you guys are going to a lot of categories at Wal-Mart, are you seeing more categories than you originally expected for your Wal-Mart brands when you initially signed the deals?

Neil Cole

Yes, we are. What's happened is we started [coring to] the apparel business, and we just gotten a great reaction throughout the store, in various meeting with some of the other merchants, which is led by the Wal-Mart Apparel Group as far as expanding the brands. So all these new categories are really a plus and they're happening a little quicker than we even thought they would.

Jim Chartier - Monness, Crespi, and Hardt

Will most of the new categories be happening for fall of this year or are they more of a 2010 rollout?

Neil Cole

Some for this fall and some for 2010.

Jim Chartier - Monness, Crespi, and Hardt

Okay. And then anything going on internationally, excluding the joint ventures in Wal-Mart?

Neil Cole

Internationally as far as –

Jim Chartier - Monness, Crespi, and Hardt

New license agreements and --

Neil Cole

Yes, we are doing deals across the world, but nothing – a couple of million here and there, just in the normal course of business. But we’re really excited about what’s happening in China. We think that’s going to be an incredible long-term opportunity and start monetizing in – probably about two years from now, we'll start getting hopefully, some big chunks of profit coming from China with our strategy. And also it's happening in South America. And the rest of the world, we have a really nice business in the Middle East, starting to rollout chain – Rocawear has got a chain of stores there and Rampage has a chain of stores, but no large chunks of revenue that is significant.

Jim Chartier - Monness, Crespi, and Hardt

Okay. And then, can you give us an idea of what the retail sales of the Ed Hardy brand are today?

Neil Cole

I don’t think we're going to give that number out, yet.

Jim Chartier - Monness, Crespi, and Hardt

Okay, great. Thanks a lot.

Neil Cole

All right, thanks, Jim.

Operator

With no further questions in the queue, I’d like to turn the call back over to Mr. Neil Cole for any closing remarks. Sir?

Neil Cole

Okay. We’ll thank you everybody for your interest. And I'd also like to thank all my employees and everyone here that’s working very hard to make all these good things happen and also to the shareholders. We’ll talk to you next quarter. Thank you.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.

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