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AT Cross Co. (NASDAQ:ATX)

Q1 2013 Earnings Conference Call

April 25, 2013 16:30 ET

Executives

David G. Whalen - President and CEO

Kevin F. Mahoney - SVP Finance, Treasurer and CFO

Analysts

Joseph Munda - Sidoti and Company

Andrew Burns - DA Davidson

Robert Meeder - UBS Financial

Alan Brochstein - AB Analytical Services

Operator

Good day ladies and gentlemen, and welcome to the AT Cross Company Reports First Quarter Results. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference may be recorded.

Before we begin, I'd like to take a moment to read the Safe Harbor statement. Statements contained on this call that are not historical facts, are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to the continued geographic and demographic expansion of the cost of brands; the continued penetration of the prescription market at Costa and the benefits brought about by Costa's on-site optical lab; the anticipated growth of Costa's apparel and accessory business continued or occurred in product development and expansion at Native; growth due to our investment in and attention to online sales and social media initiatives at COG; our expectations for growth as CAD's new products and fixturing efforts take hold; CAD's ability to grow within emerging markets, our ability to strategically leverage the Cross brands into CAD's various non-writing instrument segment; expected growth in CAD's online direct-to-consumer business and growth and development of our every-day pen business.

In addition, words such as "believes," "anticipates," "expects," and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including, but not limited to consumers' willingness to purchase discretionary items, particularly, in accordance with our historical, seasonal expectations, continued economic stabilization in Europe, overall changes in consumer confidence and/or preferences, the inability of COG to expand geographically or demographically, the inability of the native business to successfully achieved or closed, and national account presence; the inability of CAD to achieve continued expansion in emerging markets; the long-term impact of the OfficeMax and Office Depot merger on CAD sales, and the inability of CAD to increase its penetration in either of the value segment business; the adjacent categories business or via cross.com.

Additional discussion of factors that could cause actual results to differ materially from management's expectations are contained in the Company's filings under the Securities Exchange Act of 1934. Including, but not limited, to the annual report on Form 10-K for the year ended December 31, 2012, and other filings made periodically by the Company. The Company undertakes no obligation to update this forward-looking information.

I'd now like to turn the call over to Dave Whalen, President and Chief Executive Officer. Please go ahead.

David G. Whalen

Good afternoon, and thank you for joining us. With me on the call today is Kevin Mahoney, our Chief Financial Officer. Before I give you my perspective on our Q1 performance, I want to reiterate the statement that we made in our February press release, which communicated our Board's intent to review strategic alternatives for our Cross Accessory Division. Specifically, we will make no comment on the process until the Board has completed its review and made a decision. While I realize that this may be frustrating for some of you, we believe that in the end, this approach will result in the best outcome for our shareholders. Thank you for your patience.

In the first quarter, the Cross Optical Group continued to drive our business. The COG revenue increased 19% to $23.8 million, as both the Costa and Native brands delivered strong growth. Revenue performance resulted in 29% growth in COG's operating income. Our Optical business is firing on all cylinders, as we saw growth in all segments, including non-prescription sunglasses, performance apparel, and prescription eyewear. As we enter the peak sunglass season, our confidence in the Optical Group's business model and growth potential is extremely high, as our authentic brands and products attract new consumers every day.

Our Cross Accessory Division, CAD, declined 6% in the first quarter. Q1 is the smallest quarter of the year for this division, and we expect business to improve as we move forward. However, the decline was not the start that we wanted. Two-thirds of the decline or 4% can be explained by two items; the impact of the weakening Yen, and two, the fact that in Q1 2012, we sold a discontinued product to a customer and the order did not repeat this year. The reason it did not repeat, is that because of our improved forecasting efforts, we did not have enough discontinued product items to sell.

Beyond the yen and discontinued product factors however, there was softness in all regions, as distributors and retailers used the quarter to adjust inventory, as they came out of the peak season. For the full year, we expect our CAD business will grow modestly, as our new products and fixturing efforts take hold, and we strategically leverage the iconic Cross brand into a high potential adjacent category, such as reading glasses and small leather goods.

For the quarter, AT Cross' net income increased from almost $1.5 million to $1.6 million. Fully diluted earnings per share increased from $0.12 to $0.13. Kevin will take you through the key metrics for the quarter, there in the press release as well. My focus will be to briefly update you on the strategies that will drive our growth.

Our first strategic initiative is to grow the Cross Optical Group. Our growth plan calls for $95 million in revenue from our sunglass business in 2013, which implies 15% growth. With 19% first quarter growth in the books and continued momentum in April, we are now in-sight of achieving a $100 million annual revenue milestone for the sunglass business. Maybe a stretch to get there this year, but we will certainly surpass the $100 million next year.

Our sunglass business is a great business. Since 2003, when we entered the premium sunglass market, our business has grown top line at a compound annual rate in excess of 23% and operating income at a compound annual growth rate of 39%.

Optical revenue grew 19% in 2010, 20% in 2011, and 15% in 2012, years in which the premium sunglass market grew in the low single digits. In Q1 2013, the business was up 19%. The Cross Optical Group delivered this growth, utilizing -- delivered the annual growth, utilizing approximately $2 million of capital spending each year, and turned inventory more than three times per year. We call it a capita-wide business model and have consistently delivered the return of sales of greater than 15%.

How are we going to keep this growth going? Well, for our Costa brand, we will first expand geographically. We are currently in about 60 to 100 of the 10,000 retail doors, in which we will ultimately gain United States distribution. In 2012, Costa grew the number of doors in which it was distributed by more than 10%. We have a similar goal for 2013, and in the first quarter, Costa got off to a good start, by adding approximately 150 doors. Texas, the Mid-Atlantic states, and the Northeast, were the areas where the most progress was made. We will continue to drive into these areas this year, ultimately of course, we are striving to make Costa a national brand.

Second, we will continue to add demographically to our great core constituency of 25 to 35 year old male fishermen, by offering new products and programs targeted at college students and coastal lifestyle consumers. In this regards, for the eighth year running, our U. of Blue College Tour is again making its way across the south this spring, stopping at various universities, as we introduce our brand and products to a new group of potential consumers, each weekend. Some of the events are small, but others attract thousands of people. It's a great grassroots effort, that has helped to lower the average age of the Costa consumer.

Third, we will drive full price, full margin business on our website, costadelmar.com. Traffic to the site in Q1 was up 37% and revenue was up over 50%. We are again aggressively investing in the site this year.

Fourth, we will support our growing apparel and accessory business. Consumers have been vocal about wanting to proudly display the Costa brand on their hats and shirts, and with the growing support of our retailers, we will gladly accommodate them. 2012 sales of apparel and accessories were up over 60%, and sales of these lines nearly doubled in the first quarter of 2013, as our key accounts built on the success that they experienced last year.

Gifts, we are back with Kenny. Costa and Kenny Chesney teamed up in 2011 and 2012. We are going to do it again this year, as this spring and summer, Kenny plays at 48 stadium venues throughout the country. Once again, Kenny has designed limited edition Costas that we are selling online and at the concert. Costa video is being played at the concerts. Costa has a presence on Kenny's website. Last year, Costa gained over $35 million consumer impressions from our association with Kenny. Our research tells us that there is a great link between water sports and country music, and Costa is now part of that link.

Finally, and very importantly for the Costa brand, we will continue to penetrate the prescription sunglass market. We launched the Costa prescription program in March 2011 -- in 2011 and 2012, we built distribution, drove awareness of the program, and learned the best practices of the Optical channel of trade. We were so encouraged by our progress, that in August 2012, the Costa RX Lab opened. It's a state of the art, 10,000 square foot facility, located next door to Costa's main facility, in Daytona Beach, Florida, bringing lab work in-house has increased margins, improved service levels, and allowed the Costa RX team to better control product quality.

In Q1, our prescription business grew over 20%, and we expect that rate to continue throughout the year. We are very enthusiastic about the prospects for the Costa RX business. In the coming years, the Costa RX business will become a significant part of the Costa brand experience. Costa is a phenomenon and we intend to take advantage of its growing popularity to continue to expand our sunglass base.

The goal for our Native brand is to help grow sunglass sales in the mountain sport communities. While Costa revolves around the water, Native is being built on the mountain. Native showed solid growth in Q1, as we continue to focus on door growth and on expanding the brand into national accounts. Native increased its overall door account in 2012 by approximately 10%. Importantly, a portion of that growth came with large national accounts, including expanded tests with Bass pro shops, Dick's and Cabela's. Sell-through for the tests went well and Native is being expanded to more doors in these accounts during 2013. Native also has strong retail placement in REI, Gander Mountain, and Academy Sports stores.

On the product side, Native introduced a new lens technology in 2012 called the N3 lens, as well as a new line of technical frames called the Odyssey Series. The N3 is a highly impact resistant lens with excellent clarity, excellent color enhancement, and features industry-leading infrared protection. The Odyssey series with the N3 lens is well accepted by the trade, and consumers. We have added additional frame styles to the series for 2013, and the reception in Q1 was excellent. Native is off to a good start in 2013, and we expect a year of growth from the brand, as we move forward.

Our sunglass business is growing fast in a disciplined way, at a sustainable pace. It is gaining share that utilizes capital efficiency and has many avenues for growth. 2013 has started very well. We are excited about the potential of our Costa and Native brands, and we think investors should be as well.

Our second strategy is to grow scale in the Cross Accessory Division, in order to deliver a better return on capital for the business. The Cross brand declined 6% in the first quarter. However, when you take into account the impact of onetime items, such as the weakening yen, and the lack of the discontinued product order, the trend was down approximately 2%. Within the trend, was the impact of the Office Depot inventory reduction, while the long term impact of its merger with OfficeMax should benefit us, because we have a strong position in these stores. Short-term, Office Depot is reducing inventory, as they prepare to merge.

Importantly, in Q1, business within our European subsidiary market stabilized. After a difficult 2012, it appears that we will see growth in Europe this year. Overall, we expect that as the accessory business moves behind some of these onetime items discussed above, and towards this back half peak, it will begin to build momentum.

We will continue to focus on the growth drivers of this business. First, emerging markets; China, Russia, India, Mexico, which grew at a double digit rate in Q1, and should continue that pace throughout 2013. Two, our direct-to-consumer business, cross.com, which grew 10% in 2012, will continue its growth in 2013. In Q1, that business was up 8%. In the last two years, cross.com has grown to represent 4% of Accessory Division revenue, these are higher margin sales, as we capture full margin on products sold through the website.

Third, our continued move into accessories, like reading glasses and stationary products, inspired in part by our Q1 rollout of Cross Readers to over 800 Staples stores, that business will grow nicely in 2013. Sales of Cross Readers grew 22% in the first quarter, and we anticipate that momentum will build, for the Reader product line, as the year progresses.

Fourth, we are going to continue to penetrate the large value segment of the writing instrument market with the FranklinCovey brand. The line generated over $4 million of revenue last year, and we expect it to deliver over $5 million this year. Q1 growth for the FranklinCovey brand was 16%.

Finally, we will accelerate our licensing efforts. In the past, Cross has made efforts to extend the brand to adjacent categories, such as leather goods and time pieces, with product stores from third party suppliers. While the brand was successful, consistent product development proves a challenge. We focus our product offering, while continuing to leverage the brand, we are developing third party licensing arrangements. In 2012, we entered a license agreement with Hong Kong based Solar Time, to develop and sell Cross watches and cufflinks. The program started well, with over $1.5 million of revenue generated. Similarly, in Q1 of 2013, we signed a licensing deal with [Metropolis] Fashion of India, to license the Cross brand for leather goods. Looking forward, we believe that licensing revenue will be a successful, capital efficient and lucrative barrier, in which the Cross brand will compete.

Now I will turn the call over to Kevin.

Kevin F. Mahoney

Thanks Dave. Dave commented much of our first quarter financial performance in his comments, and so I will provide just a few additional details. In the first quarter, our revenue increased 5.9% and our operating income grew by 9.7%. As Dave mentioned, exclusive of costs associated with a strategic review of our Cross division, our operating income grew 20%.

Dave covered the first quarter revenue performance for each of our division in his remarks, and so I will provide just a few additional details on the financial performance for each of our segments. CAD Division's gross margins were 53.4% in the first quarter of this year, versus 54% in 2012. Our planned full year gross margin for the Cross Division remains at 53%. Our Cross Division's operating expenses totaled $12 million in this quarter, versus $12.3 million last year, and again, exclusive of the costs associated with the Cross Division's strategic review of operating expenses at Cross Division declined at 4% quarter-over-quarter.

Our Optical Group's gross margins were 58.5% unchanged from 2012. Our planned full year gross margins for the Optical Group was slightly more than 59%. Our Optical Group's operating expenses totaled $10.3 million versus $80.9 million last year, an increase of 15% versus our revenue increase of 19% for the Optical Group.

As for other 2013 earnings information, we continue to plan for an effective rate of 32% in 2013, and we plan for our weighted average shares to be 13 million for EPS purposes. As for our balance sheet, our receivables and inventory were in line with our revenue growth. Receivables grew 6%, inventory grew 5%.

Those are my comments, and I will turn the call back to David.

David G. Whalen

Thanks Kevin. We are looking forward to the balance of 2013. The 2013 EPS guidance that we provided in February is $0.78 to $0.82 per share. Given our start, we expect to achieve that guidance, and of course, we will review our position in July, once the peak sunglass season has concluded.

Thank you for listening and now, we will take questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. Our first question comes from [David Willard] from Kiely Asset Management. Your line is open.

Unidentified Analyst

Yes. Now entering the peak selling season for the sunglasses, can you give us some feel for how many doors you have, the glasses being sold at versus a year ago?

David G. Whalen

Well we -- versus a year ago, we picked up -- in 2012, we picked up about 600 doors, and then we picked up another 150 in the first quarter of 2013. So year-over-year it's probably between 600, 650 and 750. More doors for the Costa brand. Native is much smaller. Native would probably be, in that period of time, in approximately 100 more doors.

Unidentified Analyst

Okay. Thank you.

David G. Whalen

Welcome.

Operator

Our next question comes from Joe Munda with Sidoti. Your line is open.

Joseph Munda - Sidoti and Company

Good afternoon guys. Thanks for taking my question.

David G. Whalen

Hi Joe.

Joseph Munda - Sidoti and Company

Dave, first off, do we get a clean number on prescription, whether it'd be revenue or percentage of revenue for the quarter? I know you had mentioned it grew 20% in the first quarter, and you are expecting to continue at that rate, but I was wondering, can we get an idea of what percentage of revenue it was?

David G. Whalen

I don't have that in front of me, Joe, but last year, prescription was less than 5% of the total. So that's still (inaudible).

Joseph Munda - Sidoti and Company

Okay. Then as far as some of the initiatives that you spoke about -- I know in the past you had spoken about new launches of women, women's line of sunglasses. I just wanted to get a sense of how that's going? I know you had seen success on the mail side, I was just wondering if you could get some early indication on what you guys are seeing with the women's line?

David G. Whalen

I think we launched 12 new styles overall in the past several months, including the end of last year. Several of them are women styles, and they are doing well. They are doing well. They have little more color than some of our other lines, and I'd say they are outperforming the -- they are at the top of the new product list right now, near the top of our new product list. So there definitely seems to be a demand for it, and we will still not -- women probably represent 20% to 25% of our business, so it's not the majority, but still I mean, we are making inroads.

Joseph Munda - Sidoti and Company

Fair, and then on the Cross brand itself, you had mentioned that Office Depot, I mean, was that more of an impact, than with the weaker yen? I am just trying to get a sense of really, what -- how big of an impact really was the Office Depot issue?

Kevin F. Mahoney

Clearly, the yen had a bigger impact year-over-year, as did the lower amount of discontinued product sales, which is actually a positive. So year-over-year, you know, Dave has talked about -- what we are seeing with that consolidation with those customers, which we think results in a stronger channel for us. But year-over-year, I think the performance was negligible, versus the yen and the discontinued product sales.

Joseph Munda - Sidoti and Company

How much of sales were to Japan? Of the Accessory?

David G. Whalen

What you are asking is what's the year-over-year impact on revenue, because of the yen weakness, it was close to $0.5 million.

Joseph Munda - Sidoti and Company

Okay. And then I guess Dave, I know you had said -- you started off the call by not talking about what's going on with that division, as far as strategic alternatives. But would FranklinCovey -- the deal that you guys got with FranklinCovey, would that be included in any type of strategic transaction? How does that work?

David G. Whalen

Yes that's the -- FranklinCovey license is part of the Cross Accessory Division, so it's being reviewed as part of that strategic review as well.

Joseph Munda - Sidoti and Company

Okay. Okay. And then as far as CapEx is concerned, Kevin, what are we looking at? Something similar to year-over-year, axe out any strategic alternative?

Kevin F. Mahoney

Yeah, for the full year, I think we walked folks through that in our February call. As you know, our Cross Division CapEx generally runs around $3 million. Our Optical Group, as Dave said, is little less than $2 million. But in 2013 -- and actually towards the end of 2012, it was some funding that we did, and we had planned for in 2013, relating to some growth initiatives. So above and beyond the ordinary CapEx, we are planning for about $1.5 million of additional CapEx for some specific growth initiatives in our Office Super Store channel. We are also targeting a little more than $0.5 million to work some key comp initiatives, a good portion of which is directed at the Business Gift channel, and also we are earmarking and will spend a little over $600,000 on capital related to our everyday pen, which is late 2004 opportunity.

So we are investing more in our Cross division from a CapEx perspective this year, than we have in the past years. But all that is really associated with some growth initiatives that Dave reviewed.

Joseph Munda - Sidoti and Company

Great. Thank you. I will hop back in the queue.

Operator

[Operator Instructions]. Our next question comes from Andrew Burns with DA Davidson. Your line is open.

Andrew Burns - DA Davidson

Thanks. Hi Dave and Kevin. Congratulations on a great COG quarter there. I had a couple of CAD question follow-ups here. It's good to hear that Europe appears to be stabilizing, but I was hoping you could spend a little time talking about the profitability levels of that run rate? I guess I am trying to get a sensitivity -- earnings sensitivity in that division, sort of by region, given its tough to think that there is a sharp acceleration in Europe ahead?

David G. Whalen

I won't go through profitability by region in the CAD division, we haven't done that. I just don't have all of this at my fingertips. But let me say this, if the assumption is, some acceleration in growth in Europe, a substantial or a very substantial portion of the gross margin associated with that revenue growth, would fall to the bottom line. We have -- we are all familiar with the declines that we have experienced in Europe, over the last year and a half, and so clearly, this capacity available for our infrastructure in the Europe and EMA region, particularly Europe to support that growth.

So just like our total Cross business, incremental revenues and the margin expansion, operating margin expansion is attractive, and we protect that as best we can, when there is some contraction in that revenues, as you saw in the first quarter, we managed our spending quite well, but that upside is -- if you are trying to model out the impact of certain growth rates in Europe over the next few years, I think you could assume a substantial portion of that gross profit comes to the bottom line of the total business.

Andrew Burns - DA Davidson

Okay. Thanks that's helpful. And just to follow-up on the Office Depot-OfficeMax question. There is some inventory reduction. It seems to me that that would not necessarily be a one quarter phenomenon and the way we should be thinking about sales into those customers during those transition period is being muted, until we exit the other side. Is that a fair way to look at it?

David G. Whalen

That's going to run at least for another two quarters, I think probably not in the peak season. But it just seems to be -- the approach they are taking are [so out] at that account is up nicely -- was up nicely in the first quarter, year-on-year. But it was the different plans for inventory right now. So I would say, for the next couple of quarters, that is going to impact the business and I would expect fourth quarter -- I would expect to be back to where we need to be.

Andrew Burns - DA Davidson

Thanks and then last question, just a point of clarification. Within the US and the CAD Division, do you call it out, there is the lack of -- year-over-year there is the less discounted sales through better planning, and then there was the Office Depot-OfficeMax issue. Was there anything else that I'd perhaps missed, or you'd care to highlight from the prepared remarks?

David G. Whalen

Those were the two big impacts in that division. Everything else was pretty much where we thought it would be, and again, it is the smallest quarter of the year for that business. So you are doing kind of small numbers, but the Depot and the discontinued product story in the Americas, those were real and live and in significant numbers, so we need to call them out.

Andrew Burns - DA Davidson

Okay. Thank you. Good luck.

David G. Whalen

Thanks. Our next question comes from Bob Meeder with UBS Financial. Your line is open.

Robert Meeder - UBS Financial

First question is on the CAD business and you kind of adjust this perhaps with your recent remarks, but you said you had softness in the U.S. and Asia, and that those issues were being addressed. Could you give me a little clarity on the softness you saw in those markets, and what you are doing differently, or more to address those issues?

David G. Whalen

Sure Bob. In Asia, it's beyond the yen issue. Primarily, the issue was in our Taiwan market. Taiwan has been a very successful market for us, and beginning in the fourth quarter of last year, it began to get a little bit -- it got soft, and that continued in the first quarter of this year. So we are looking at -- market heavily dependent on our shop-in-shop volume, that is done through department stores. So we accelerated the launch of some new products into those shop-in-shop, as well as targeted promotions during the next couple of months to try to bring consumers back in that area.

In the U.S., it has been outside of the discontinued products and the Office Depot situation. Again for our carriage trade account, real small numbers, but we will promote well, and with the programs like Mother's Day, Fathers' Day, and Graduation, and as for our Business Gift accounts, we are looking at a new approach to try to open up new distribution in that area, with new business gift distributors, really in the next couple of quarters, in preparation for the peak, which is the fourth quarter for that business.

Robert Meeder - UBS Financial

Okay. As you lower price point and is that going to be targeted to the Business Gift market, or is that more just a box store, or a regular retailer offering?

David G. Whalen

The Business Gift would absolutely get access to that; because some of what the business gift market around the world is looking for Bob, is reducing their budgets and trying to deliver the same volume or the same number of gifts. So they are looking for the lower price point products, and fortunately we have it.

Robert Meeder - UBS Financial

We don't have any high point pens in this company, and we have some 50,000 employees. Finally, the Optical business is going great guns. Could you give me some feeling for the doors, the typical doors that Native is in? I know the national retailers are a significant portion of the Costa revenue. Is Native basically following Costa indoors? Are they different doors, and what kind of penetration are they getting in the national chains?

David G. Whalen

Key Native doors or key Native accounts, REI, Eastern Mountain Sports, L.L. Bean, so they are a little different than the Costa key accounts to start with. But then over the course of the last couple of years, with stores like that, Bass Pro, Cabela's, Dick's, which are very good Costa accounts, have been taking Native on. So it's becoming sort of the blend, and then the independent retailers, I think for the Native group, its more retailers around the mountain community, the independents around the mountain community, as opposed to Costa, which is the independents are based around the water. But the national accounts are managed by one team, and I think Native is beginning to get some penetration, small penetration, but some penetration in those Costa national accounts as well.

Robert Meeder - UBS Financial

You use the same sales reps for both brands?

David G. Whalen

No. Only at the national accounts. At the national account level, there is one manager for the overseas folks, both businesses; and even, within the businesses, there are specific people underneath the Senior Vice President, who is in charge of each brand. So it's a pretty separate selling process to different customers.

Robert Meeder - UBS Financial

What does it take to crack like Bass Pro or somebody like that for Costa Apparel? I mean, I can buy a Duck Dynasty t-shirt, when can I buy a Costa t-shirt?

David G. Whalen

Well we are trying, and we are trying, we are very successful in some of our -- certainly our other accounts with Costa Apparel, but Bass Pro has not taken it on yet, they are a terrific sunglass customer, but we just need to keep working at it.

Robert Meeder - UBS Financial

I think they do a great job on your sunglasses. Every store you go into has, more space than anybody else.

David G. Whalen

Yeah they are great. Great customer.

Robert Meeder - UBS Financial

All right. Thank you very much.

David G. Whalen

Thank you.

Operator

Our next question comes from Alan Brochstein from AB Analytical Services. Your line is open.

Alan Brochstein - AB Analytical Services

Hey guys.

David G. Whalen

Hi.

Alan Brochstein - AB Analytical Services

I got you on speaker. There you go. Sorry about that. Congratulations on the quarter. I just had two quick questions. First of all, I think you should -- online, you are able to get better margins, more full priced. I am curious what it is, that you are doing to drive that success? Because it seems a lot of what, just in general online, that tends to be more margin, where people are looking for deals more. How is it (inaudible) margin?

David G. Whalen

Well for the Costa brand, I think first of all, that's our policy except for a couple of sales a year. But for the Cross brand, I think we do a very good job of attracting consumers to the site, through emails, and affiliate programs, -- and email programs and affiliate programs. So getting consumers to the site is important. And I think once they get to the site frankly, I think -- we have invested in it. It's easy to use. It displays our entire product line, which is important, and you don't see that in a lot of places, and there are some very simple add-ons that people can do, like getting the product engraved and so forth, that I think appeal the people. So the real, like with any, I think, web-based business, the real job is to attract people to the site, and we do that through, as I said our email program. A list that we develop from product, repairs that we do, that adds to the email list and affiliate program, and work constantly to drive people to the site.

Alan Brochstein - AB Analytical Services

Got it. And then on the sunglass business, I just want to make sure I understand this correctly. I know one of your growth drivers is prescription, and you said that they grew -- basically, it's not like the same as non-prescription, but they are both up above 20%, did I understand that correctly?

David G. Whalen

That's right. That is about right.

Alan Brochstein - AB Analytical Services

So my question is -- the ASP must be higher on the prescription glasses or is it similar?

David G. Whalen

Oh no, it's higher.

Alan Brochstein - AB Analytical Services

It's higher. So over time as you -- if you are able to grow both products, that should be margin accretive, or is that not right?

David G. Whalen

On a dollar basis, yes. On a percentage basis, the margins are about the same, but on the dollar basis yes, you [win] with more prescription.

Alan Brochstein - AB Analytical Services

Okay. All right. Well thanks a lot and congratulations and good luck with this continued process that you are working on.

David G. Whalen

Thanks. Appreciate it.

Operator

And I am currently showing no further questions at this time. I will now turn the call back over to management, for closing remarks.

David G. Whalen

Thank you very much. We appreciate you listening to our conference call and asking questions, and we look forward to talking to you about our second quarter results at the end of July. Thank you.

Operator

Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and have a wonderful day.

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