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Elizabeth Arden, Inc. (NASDAQ:RDEN)

F4Q 2013 Earnings Conference Call

August 8, 2013 09:30 ET

Executives

Allison Malkin - ICR

Scott Beattie - Chairman and Chief Executive Officer

Joel Ronkin - Executive Vice President, North America

Kathy Widmer - Executive Vice President and Chief Marketing Officer

Steve Smith - Executive Vice President and Chief Financial Officer

Marcey Becker - Senior Vice President, Finance

Analysts

Arnie Ursaner - CJS Securities

Bill Chappell - SunTrust

Joe Altobello - Oppenheimer

Linda Bolton Weiser - B. Riley & Company

Connie Maneaty - BMO Capital

Joe Lachky - Wells Fargo

David Wu - Telsey Advisory Group

Operator

Greetings, and welcome to the Elizabeth Arden’s Fourth Quarter and Fiscal Year 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Allison Malkin of ICR. Thank you. Ms. Malkin, you may begin.

Allison Malkin - ICR

Good morning. Thank you for joining us. Before we begin, I would like to remind you that some of the comments made on this call as either prepared remarks or in response to your questions may contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995. Such information is subject to risks and uncertainties that could cause actual results to differ materially from the statements as described in the press release and in Elizabeth Arden’s most recent Annual Report on Form 10-K filed with the SEC. If non-GAAP financial information is provided on this call, a reconciliation of the non-GAAP information to the most comparable GAAP financial measure is available in our press release.

I would now like to turn the call over to Scott Beattie, Chairman and CEO of Elizabeth Arden. Scott, please go ahead.

Scott Beattie - Chairman and Chief Executive Officer

Thank you very much, and welcome everyone to our fiscal year end 2013 conference call. Today joining me is Joel Ronkin, our Executive Vice President of our North American business; Kathy Widmer, our Executive Vice President and Chief Marketing Officer; Steve Smith, our Executive Vice President and Chief Financial Officer; and Marcey Becker, our Senior Vice President of Finance.

In terms of the agenda today, I would like to begin with an overview of our fiscal 2013 performance, including a review of our key corporate initiatives, the Elizabeth Arden brand repositioning and the development of our European fragrance business. I will follow with a detailed review of our international business, and finally I will provide an overview of fiscal 2014. I will then introduce Kathy Widmer, who will provide a detailed review of the Elizabeth Arden brand repositioning, including the performance to-date of our flagship doors and our key Elizabeth Arden brand initiatives for skin care, color and fragrance as we move into 2014. Kathy will also provide a review of our strategic fragrance brands and their global performance for fiscal 2013. Following Kathy, Joel will provide a detailed review of our North American prestige and mass business, including our direct-to-consumer business. Joel is also now working in an oversight role with the Red Door Spa executives and will provide a brief summary of its key initiatives with the Red Door Spa business. And finally, Steve will provide a detailed review of our key financial metrics for fiscal 2013 and our forward guidance for fiscal 2014.

I would like to begin our 2013 fiscal year review by apologizing to our shareholders and analysts and certainly my colleagues at Elizabeth Arden for the poor execution and performance this year. Despite the fact the organization has worked tirelessly to integrate and launch new innovation, including the Elizabeth Arden brand repositioning and many new fragrance launches, the results were inconsistent and below both our budgets and external guidance. I take full responsibility as the CEO of Elizabeth Arden to address the deficiencies in our execution, particularly the predictability and consistency of our business execution.

In this regard, we have already begun several initiatives to address these issues. The first initiative is that we have reduced our guidance for 2014 to more adequately reflect the continued uncertainty and the global economic and competitive environment and to reflect the learnings of 2013 with regard to the EA brand repositioning, our Western European fragrance initiative, and our other growth initiatives throughout international and North America, including our China, Brazil and Germany startups.

Secondly, we are laser focused on our key initiatives this year. Those key initiatives are the Elizabeth Arden brand repositioning and our growth of our fragrance portfolio international. We are focusing in a very, very intense way against our largest markets and our largest brands. We have reallocated our spent and our best people to drive the pillars of growth, and that’s essentially to make our biggest brands bigger in the largest, fastest growing markets. These initiatives will be regularly reviewed and measured by myself and our senior management team.

Finally, I’m committed as they did with our business process reengineering initiatives in 2007 to make the necessary organizational changes to ensure that we have the best people in the most important jobs and that we have adequate management capabilities and competency to execute with consistency, predictability and excellence. We all understand we have to regain the confidence of our shareholders and provide more systematic consistent growth.

We also understand that the operating leverage in our business model and the value creation opportunity if we succeed is significant. On that note, I would like to provide a detailed review of our fourth quarter and fiscal 2013 performance. Firstly, I would like to address what caused the shortfall in revenues and earnings during 2013 and the fourth quarter. There are three key drivers. And in order of importance they are, one, and as we’ve discussed throughout the year, our largest mass retail account in the U.S. has experienced negative retail sales trend, and even worse replenishment trends. The replenishment trends actually accelerated during the fourth quarter despite improvement in retail trends.

This is not a unique situation to us or to our category. This is not a brand issue, it’s not a fragrance category issue, as we’ve actually build market share in this key account. And we expect to, in fact exceed, sorry excuse me but during 2013, as we have mentioned in previous calls and as of the year end, we actually had a very successful year in the remainder of our mass retail accounts. And we continue to expect improvement in the remainder of our mass retail accounts during the 2014. The second issue is that we were too optimistic in our expectations for the EA brand repositioning. Despite the fact that this time last year and consistently in all of our conference calls I emphasized the fact that we are in a transitional year and there were many, many moving parts in terms of the brand repositioning that were difficult to project and difficult to quantify across all of the markets and all of the SKUs within the brand. We in fact budgeted the brand growth too aggressively. We had budgeted growth for the EA brand at 4% and this year it grew less than 1%. This business is our highest gross margin business and our most significant brand in international. And as a result, this had a disproportionate impact on particularly gross margin and profit in our international affiliate – our international division.

The reasons for the delta between growth – our budgeted growth rates and our actual growth rates are mostly transitional in nature. They include the timing of inventory to replenishment based on existing inventory or old inventory at point of sale. The effects of returns and exchange of the inventory across the business and the negative impact of taking a third of our total skincare SKUs out of the mix and replacing it with a more streamlined assortment that was better merchandised and easier to shop. All of these initiatives we’ve quantified, we fully understand the impact of them. We have taken that into account in terms of our restructuring charges for both this year and the restructuring charges we have identified for ‘14. We have analyzed this in immense granularity, and we have learned extensively from our flagship accounts on what works and how we can accelerate the growth of the Elizabeth Arden brand. We are convinced as Kathy will discuss in more detail, we are on the right track. Our flagships and our key spa accounts are growing consistently in double-digits. And our challenge now is to expand that success to a broader group of accounts and to the brand globally. We are confident as I say that we are on the correct track with the EA repositioning and Kathy will go into more detail about the plan.

The third and final impact that had the significant negative performance both on gross margin and profitability was the performance of the intensively competitive UK business. It is our largest foreign affiliate and therefore has a disproportional impact on our international business results. The UK is also a very strong market for us, both in fragrance and the EA brand. We actually have our strongest market shares for the EA brand and our strongest fragrance market shares in international in the UK market. It is also a very price competitive market and has experienced intense competition and is based on a weak economy. And as a result, we had protected our market share throughout the year by having heavy promotion and discounting to meet those competitive pressures from our other large fragrance and beauty counter competitors. This resulted in gross margin and earnings shortfalls for the UK and international. Each of these issues has been addressed intensively by our management team. And we have developed specific, tactical and long-term strategic plans to improve performance. These plans have been incorporated into our 2014 budget and into our forward guidance. And as I have mentioned earlier, we have specific governance and review and reporting metrics against each of these initiatives.

I would now like to provide a more detailed review of our international performance for fiscal 2013 and the fourth quarter specifically. Despite the inconsistency of performance in our international business during fiscal 2013, we have accomplished significant improvement against many of our key initiatives. I would like to highlight a few of those improvements. Our Western European fragrance initiative for fiscal 2013, we in fact grew our fragrance business in Europe by 26% despite having negative double-digit performance in Italy and France, both very weak economies.

Our distributor market business throughout Europe has tremendous momentum and is up 83% for the year and the growth rate is in fact accelerating as we move into 2014 and that’s been driven by the success of both our fragrance brands and Elizabeth Arden brands in Russia, Poland and Eastern Europe. Second, success despite a weak start to the year on travel, retail, and distributor markets, for the year, those businesses grew 14%, Greater China grew 5.5% despite a very weak start for the year and 24% for the fourth quarter and the Asia-Pacific grew 7% for the year and 11% for the fourth quarter.

The startup of our Brazilian and German affiliates this year are both tracking above budget in sales, but obviously are not accretive to earnings or margins this year. Both of these initiatives are critical to the future growth as both have opportunity for increased fragrance, penetration in growth, and introduction and growth of the Elizabeth Arden brand. And specifically in Brazil, we have had tremendous success with the Britney Spears fragrance, although we started our Brazilian affiliate in May – March of this year and we are tracking well, well above budget and we have the Britney Spears fragrance brand is tracking extremely well in the Brazilian market.

Europe in general was very inconsistent throughout the year. We ended up 6.4% up for the year, but down 18% for the fourth quarter. The weakness was almost all driven by intense price pressure and promotions on the fragrance category, particularly in the UK many of which we did not meet the competitive price reductions and as a result lost sales.

In summary, I’m generally pleased with the progress we have made in our international business. As I previously stated, looking forward to fiscal 2014 we are extremely focused on our largest brands in our largest fastest-growing markets, so that we can smooth out the volatility and inconsistency of execution in our international results.

I would now like to turn the call over the Kathy Widmer, our Chief Marketing Officer.

Kathy Widmer - Executive Vice President and Chief Marketing Officer

Good morning. I’ll begin by sharing performance across the Elizabeth Arden brand followed by fragrance. While revenue growth across global Elizabeth Arden was disappointing and essentially flat for this fiscal year, factors underlying this performance are mixed. There are strengths to report as well as opportunity areas.

We are pleased with performance across the following areas. Our flagship doors, where we fully renovated the brand’s presence continue to perform at expectations, delivering 20% growth since launch in North America and 17% growth in international. This performance served as a signal to the potential for the overall brand. Our intensification doors a broader set in North America, where we’ve extended flagship door learnings and approach have also continued to perform favorably, well exceeding category average growth since launch.

Our significant initiative in transforming a broad and complex assortment of legacy items into a streamlined offering of products under the visible different sub-brand, a significant overhaul at every point of purchase on a SKU by SKU basis over the past year has been well executed with new visible difference delivering a much stronger performance than the original assortment of SKUs. PREVAGE, our most science driven and efficacious skincare sub-brand delivered 13% growth for the year through strategic focus on the hair serum products, as well as the launch of our Lash product.

And Red Door, our pillar fragrance originally launched in 1979, delivered 21% growth behind renewed marketing and emphasis of retail. There are also opportunity in the areas with regard to the brand repositioning, most of which we have been managing all along, but a few which have surfaced during execution. Unlike some other prestige beauty brands which have reinvented and modernized themselves by exiting the category, reworking the brand and reentering with a fully fresh approach. We are transforming the brand with all the associated complexities, while remaining focused on the growth articulated in our five-year plan.

The long-term growth prospects for Elizabeth Arden are significantly enhanced by the repositioning. However, we believe we were somewhat aggressive with our growth projections for fiscal year 2013, given the high level of transition underway. Key to growth of the brand is acquisition of new consumers. Through our flagship approach and thorough analysis of those doors, we have a clear understanding of which levers work. The speed with which we broadly roll these levers out is a function of the speed with which we are generating increased investment among several initiatives spending efficiency efforts, price and mix improvements, cost of goods management, overall dilution reduction and prioritization among markets and channels. Some of these initiatives have been underway since the launch of the repositioning and a few others have surfaced recently as further opportunities to accelerate the pace of the project.

In summary, for the year Arden’s Skin Care was up 1% driven by the new visible difference assortment and PREVAGE offset by declines across legacy products, which were in process of discontinuation throughout the year. Color was down 5%, driven by upgraded eye shadow, lip gloss and brush offset by foundation launch timing in international, which converted to the upgraded Flawless Finish sponge-on foundation in the fourth quarter. And fragrance was up 1% as strong performance in Red Door was offset by Fifth Avenue declines. While all repositioning product upgrades were focused on skincare and color since the launch of the repositioning. I am pleased to share that we are in the early weeks of launch of a new global fragrance pillar called UNTOLD, which has been developed with a global sensibility and a view toward capturing demand from new consumers. Early indications for this launch are quite positive.

Finally, for Arden, I would like to share some exciting news regarding our partnership with Red Door Spas. Red Door Spa is our competitive point of difference in a growing channel of distribution, where we uniquely capture our core consumer. We have been collaborating with our spa partners more closely this year and in conjunction with the Arden repositioning effort. Red Door Spa is undertaking a similar flagship approach in a subset of spa locations with the objective of increasing spa service revenues and driving retail product penetration. At these key locations, retail growth of product sale is up 14% year-to-date, which is significant given the initiative began in earnest in February.

Additionally, we are preparing to unveil our new forward-thinking concept beauty destination spa and retail store in Union Square in New York City later this fall. Our goals in the concept spa are to capitalize on the affiliation between the Arden Spa and retail product businesses and to acquire new consumers too and refresh the overall image of both brands. There will be a strong focus on driving overall product sales and in developing a successful concept which can be rolled out to additional locations over time.

Moving on to fragrance, excluding Arden fragrance, our overall fragrance portfolio delivered 16% growth for the year, driven by 22% growth in our owned portfolio offset by decline in distributed and expanded brands. Brands driving fragrance growth include Justin Bieber, Nicki Minaj, Ed Hardy, Juicy Couture, Taylor Swift, and John Varvatos offset by declines on Britney, Mariah Carey, and various tail brands. We are very pleased with the continued strong performance of our Juicy Couture brand, which grew 17% for the year driven by continued strategic focus on the Viva La Juicy pillar fragrance which grew 26% and now accounts for 61% of brand sales. The total Taylor Swift brand grew 74% for the fiscal year driven by the launch of her second fragrance Enchanted by Taylor Swift as well as growth in U.S. mass behind both Wonderstruck and Enchanted. We are currently in early stages of launch for her third fragrance called Taylor by Taylor Swift, which is supported by a strong digital marketing plan, as well as sponsorship of her current Red Tour global concert series.

The Justin Bieber brand delivered strong performance for the year. Growth was driven by the global launch of his second fragrance, Girlfriend by Justin Bieber as well as growth in U.S. mass. We are currently in launch of Justin’s third fragrance brand called Justin Bieber, The Key, which is likewise supported by a strong digital marketing plan. The Ed Hardy brand delivered strong growth of 69% following the full year impact of the acquisition and is now one of the company’s largest global brands, primarily focused in U.S. prestige and U.S. mass. We are working to restore the original and unique heritage of the brand in order to provide a platform for future growth.

The Britney Spears fragrance brand declined by 5% for the year driven by soft performance in Europe offset by growth in U.S. mass retail and travel retail. We continue to focus against the core pillar fragrance, Fantasy, which now accounts for 80% of the Britney fragrance house. Additionally, we have been very pleased with the recent performance of the brand in Brazil, where Fantasy has quickly achieved strong market share and ranking. And finally, our John Varvatos fragrance brand continued its consistent pattern of steady performance delivering 21% growth in net sales for the fiscal year on the strength of the original collection series of fragrances offset by declines in the Star USA brand. This concludes the marketing update.

I’ll now turn over to Joel.

Joel Ronkin - Executive Vice President, North America

Thank you, Kathy. I am going to discuss the performance of our North America business, including an overview of our sales performance, retail sales trends, the status of some of our key initiatives, and our outlook for the holiday season. The North America business comprises about two-thirds of total company net sales and includes all sales of our products in the prestige and mass channels in North America, as well as our company-owned outlet stores and our global e-commerce business.

Fourth quarter net sales from North America were up 2% compared to last year, reflecting growth in the mass channel and a slight decline in the prestige channel. For the full fiscal year of 2013, net sales for North America increased 10% with growth in both the prestige and mass channels. Focusing first on the mass channel, net sales in Q4 increased by 4%, while full year net sales were up 5%, category retail sales were down low-single digits for the fiscal year and down mid-single digits for the quarter, while our retail sales were slightly better flat for the fiscal year. As a result we picked up 130 basis points of market share this year, which is on a pretty big base.

Retail sales strength among our retailers continued to vary considerably as we have mentioned in our last couple of earnings calls. While most of our mass retailers have continued strong retail performances, achieving or exceeding our expectations overall, trends in some other retailers and in particular at one key mass retailer remained weak. At that retailer, the variance between retail sales and replenishment orders grew, particularly as we moved into June. In fact, replenishment rates at that account were roughly half the rate of retail sales during the end of the quarter.

Turning now to the prestige business, net sales increased 25% for the fiscal year with growth in fragrances largely related to the new launches and also in the Arden counter business, where we continue the Arden repositioning. Also our direct to consumer business achieved strong net sales growth of 25% for both the quarter and the fiscal year. Category retail sales in the prestige channel were up 7% for the fiscal year, our retail sales grew double that rate at 14% and as a result we gained 40 basis points of market share for the fiscal year.

As Kathy mentioned, the Arden brand repositioning continues to go well with retail sales growth of 20% in our flagship doors in North America since the reset. Also, as we discussed previously, we’ve expanded our Arden repositioning efforts to additional doors, 130 of which are in North America in the second half of this past fiscal year, and as Kathy mentioned, we’re seeing stronger retail sales at those doors as well. As Scott and Kathy both alluded to earlier, we are also working closely with our partners at the Red Door Spa business to integrate that business with our Arden brand repositioning efforts. To add-in, we’ve worked with them to update their product offerings to the newly repositioned products, we’ve helped to support their training effort with our own people, so we’ve trained their product sales people, they have increased staffing in a number of their spas to greatly increase sales of the Arden products, and while at still early, the initial product sales at these spas are encouraging.

Now, keep in mind that the retail sales of our products in the Spas are not captured in our results. In terms of key initiatives, our Arden repositioning activities will continue to be our priority this fall with significant counter renovations planned for the U.S. and Canada, including the all important Macy’s flagship in New York City as well as we’ll improve fixturing, upgrade our visual elements and enhance in-store sales support. We will also continue to rollout additional intensification doors in North America as well as in other parts of the world.

In e-commerce, following up our strong double-digit sales growth in the U.S. business, we are working towards selective expansion internationally. In addition, we’ll also open three new outlet stores this year, bringing our total to 17 stores by fiscal year-end. Every year on this call, I typically provide comments on the upcoming holiday season. The overall economic outlook is somewhat more constructive this year in North America than the past couple of years. We’re well positioned to take advantage of any improvement given the Arden repositioning, the strength of our new product introductions including the launch of the One Direction fragrance here in the U.S. and Canada, as well as the very innovative marketing programs being run in the mass channel. Shipments of our holiday promotional sets are expected to be relatively flat overall, which is the positive considering the significant number of launches into U.S. department stores last holiday season.

And with that, I would like to turn the call over to Steve Smith.

Steve Smith - Executive Vice President and Chief Financial Officer

Thank you, Joel. I will discuss our fourth quarter and full year financial results, working capital cash flow and balance sheet metrics and non-recurring items. I will also provide comments regarding our outlook for fiscal 2014. Our net sales increased 8.6% or 9.6% in constant rates for fiscal 2013. Gross margins, after adjusting for the acquisition and non-recurring Elizabeth Arden repositioning costs, were essentially flat to prior year which was in line with the guidance provided in May. This year’s gross margins were negatively impacted by the mix of sales as we had a higher percentage of sales of fragrances than higher margin Elizabeth Arden brand of products as compared to the prior year. Gross margins were also impacted by a higher level of promotional and discount activity in fragrance sales in Europe, particularly the UK. And this phenomenon is not unique to our company given the current market dynamics there.

For the year, recurring SG&A expenses increased by 6.6%, or $32 million, as compared to last year due to higher advertising and sales expenses to support all the acquired brands and fragrance launch activity as well as marketing costs related to the Elizabeth Arden brand repositioning. At the same time, as a percentage of net sales, fiscal year recurring overhead expenses were lower as compared to prior year, as a result of improved operating leverage. Overhead expenses decreased by 5.2%, or $12 million to 16.2% of net sales from 17.7%. The increase in depreciation and amortization and interest expense for the fourth quarter and fiscal year versus the prior year periods is due to the incremental amortization expense and higher borrowings for the acquisitions we completed in the fourth quarter of fiscal 2012. We expect depreciation and amortization to be higher in fiscal 2014 by $3 million to $4 million and for interest expense to be slightly lower. The adjusted tax rate for the full year was 24.4% and we anticipate that tax rate for fiscal 2014 to be in the 24% to 25% range.

Turning to the balance sheet and cash flow metrics, we ended the fiscal year with inventory of $311 million. This reflects product discontinuation charge of pre-repositioned non-finished goods inventory of $10 million, which is a charge we took in the fourth fiscal quarter and resulted from a strategic decision not to incur additional costs to create additional finished goods inventory related to our older Elizabeth Arden skincare and color SKUs. This strategic decision was made in order to accelerate the execution of the Elizabeth Arden brand repositioning which should enable systematic improvement in our gross margins in future periods. The increase in inventory versus prior year is due to investment in the new fragrance brands and inventory buildup to the Elizabeth Arden brand repositioning. We expect inventory at the end of this fiscal 2014 to be flat to fiscal 2013. Accounts receivable increased 13% as compared to the end of fiscal 2012 reflecting sales increases and increases in sales to international customers, where terms are generally longer than in the U.S. As such, DSOs increased by two days.

Full fiscal year cash flow from operations was $62 million as compared to $59 million in the prior fiscal year. For fiscal 2014, we expect a 10% to 15% increase in cash flow from operations. Short-term debt, net of cash was $26.3 million at fiscal year end, slightly lower than the net debt position at the end of the prior year of $30.1 million. The priorities for cash remain for working capital, investment behind the EA brand repositioning, acquisitions, and share repurchases. Under the current share buyback program, we have repurchased $80 million at an average price of $18.32 and have $40 million remaining under the share repurchase program, which we will continue to use to repurchase shares opportunistically.

Capital expenditures this year totaled $40.5 million. The increase versus the prior year is primarily for increased investment in the Elizabeth Arden brand repositioning. We also expended $7.6 million in fiscal 2013 towards the minority investment in the Red Door salons and expect to invest the remaining amount for that investment of $2.1 million in fiscal 2014.

In fiscal 2014, we are also implementing the final phase of the Oracle Enterprise System. This is expected to result in a capital outlay in fiscal 2014 of approximately $10 million. In addition, as part of the Elizabeth Arden repositioning, we are expending approximately $6 million to construct the new 5th Avenue Red Door Spa prototype in New York that Kathy previously discussed. As a result, capital expenditures for this year are estimated to be between $45 million and $50 million. And of that amount, approximately $25 million is for the Elizabeth Arden brand repositioning and therefore is more discretionary in nature.

As for our sales and earnings guidance, our forward guidance reflects more modest expectations regarding the Elizabeth Arden brand re-launch, uncertain economic conditions globally and the quarterly variability of our growth initiatives, which are across businesses and geography. These initiatives to drive future sales growth and market share, including the initiatives in Brazil, China, and the activities associated with the Red Door Spa, and to focus on high potential markets and channels of distribution are expected to enable accelerated growth and operating leverage, as we move beyond fiscal 2014, but will not necessarily be accretive to earnings in the fiscal 2014.

For fiscal 2014, net sales are expected to increase by 3% to 5% over fiscal 2013 at GAAP rates, including a negative impact to sales growth of approximately 1% from foreign currency. Recall, we are anniversarying an unprecedented number of new launches in the first and second fiscal quarters, where net sales growth last year was 13% and 9% respectively. The EPS guidance is for a range of $2.15 to $2.30 a share. The EPS guidance is before non-recurring expenses related to the Elizabeth Arden brand repositioning and includes a negative impact from foreign currency translation of approximately $0.19 per share assuming current rates as compared to rates in effect in the prior fiscal year.

For the first quarter, net sales are expected to be flat to down 1% as compared to the first quarter of the prior fiscal year with currency expected to negatively impact sales by about 90 basis points and the earnings per share is between $0.13 to $0.18 per share. The negative impact from foreign currency translation for Q1 is approximately $0.02 per share. Because we’re anniversarying a significant number of launches in the first half of last year, which included a pipeline of basic products with higher margins, we are projecting gross margins to be flat for Q1 and we should expect to see improvement in gross margins beginning in the second half of the year. Additionally, the on counter dates for the launches that are early – are earlier this year versus last year, which results in the selling activity starting earlier. As a result, we are seeing a shift of selling and marketing costs from Q2 last year to Q1 this year. And then finally many of the activities I mentioned earlier that drive longer term growth will actually be dilutive in earnings in the first quarter as the run rate on revenues from these initiatives have not yet caught up with the costs we’re incurring.

The guidance excludes the final amount of Elizabeth Arden repositioning costs. As Kathy discussed, in fiscal 2014, we expect to complete the rollout of the new Elizabeth Arden branded products. We expect to incur $11 million to $16 million of expenses related to Elizabeth Arden repositioning, approximately $7.5 million of which is expected to be incurred in the first quarter. The Elizabeth Arden repositioning costs primarily relate to product changeover charges and exiting unprofitable doors. Additionally, in order to improve efficiencies in our North American department store fragrance sales organization and in our overall indirect overhead structure, we are incurring severance costs of approximately $5 million, primarily to eliminate sales and indirect overhead positions of which $3.5 million is expected to be incurred in Q1. And as we transition away from the integration of the acquisitions in fiscal 2013 and take the key drivers of our success from the Elizabeth Arden repositioning project and broaden them to a larger segment of the business, we plan to show systematic improvement in key financial metrics including gross margin, operating cash flow, EBITDA margin and a return on invested capital.

And with that, I’ll turn it back to Scott.

Scott Beattie - Chairman and Chief Executive Officer

Thank you very much, Steve. I’d like to open it up now for the questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Arnie Ursaner with CJS Securities. Please proceed with your question.

Arnie Ursaner - CJS Securities

Hi. Good morning. Obviously, you highlighted the three major areas that need attention. So, I will try to pick on one of them for my questions. On international, you mentioned it was down 18% in the fourth quarter. You highlighted the UK and the brand, that the UK and the Elizabeth Arden brand is most significant internationally and you indicated you wouldn’t meet competitive price pressures, I guess I’m a little unclear. You have a branded product, it’s not a commodity where the retailers just not willing to take the Elizabeth Arden brand internationally?

Scott Beattie

Well, there is a few inaccuracies there, Arnie. Our total international business for the fourth quarter was flat. In Asia-Pacific, we were up 11%, Greater China, we were up 24%, travel retail and distributor markets were up 23%. The weakness was in Europe. And we were down 18% and that was primarily driven by the price pressures that you have identified. Now, we do have branded product, but the price pressures were particularly harsh in the UK, and they are particularly in fragrance. And they were from other branded prestige fragrance products, and they were specific promotions, temporary price reductions etcetera at discount levels that we decided not to match. And as a result, we lost sales in the fourth quarter as a result of not matching those, but to be clear, they were other prestige fragrance brands that were creating that pricing and discount pressure.

Arnie Ursaner - CJS Securities

Okay. And my final follow-up question if I can, on the EA brand, you had mentioned in your remarks, you had budgeted 4%, but it only grew 1% for the year, how far down did it decline in Q4 and what is embedded in your guidance for the upcoming year for the EA brand?

Scott Beattie

For the EA brand, it was down 4% for the quarter and again that was primarily driven by Europe, China it was up 18%, our distributor and travel retail markets were up 6%, and North America was up 8%. We were down 23% in Europe. And again, that was primarily driven by the fragrance side of the business. And the second part of your question was?

Arnie Ursaner - CJS Securities

What do you have embedded in your guidance for the EA brand for the upcoming year?

Scott Beattie

Lower number than 4%.

Arnie Ursaner - CJS Securities

Positive.

Scott Beattie

Yes.

Arnie Ursaner - CJS Securities

Okay, thank you.

Operator

And our next question comes from the line of Bill Chappell with SunTrust. Please proceed with your question.

Bill Chappell - SunTrust

Good morning. Just trying to understand kind of I guess how this all played out over the past kind of three, six months, and in particular, I mean the fourth quarter is typically a seasonally small quarter. So, I guess I think the surprise is that you saw such volatility in the last three months. Is that due mainly to the replenishment that just really has a bigger impact on the fourth quarter, or is it due to some structural change, again I mean I know it’s not been a perfect year to start with, but just trying to understand why it really came to a head in this quarter?

Scott Beattie

Well, the fourth quarter isn’t – it’s our second largest quarter in terms of both revenue and earnings, and so it isn’t an insignificant quarter. The key elements of that is, we were, as I identified, really driven by that replenishment in our U.S. mass retailer. That was a surprise. I think that we have a clear plan and partnership with that retailer to address it. It’s not a lack of commitment to the category. And as we said, it’s not unique to our category or us as a vendor. It’s something that other vendors across categories have experienced as well. And that was the primary driver that and the weakness in our fragrance business in Europe and replenishment, where there were just promotions and specific initiatives in our European fragrance market that we were very aggressive that from other prestige fragrance players that we just did not want to compete with and match. And as a result we walked away from a significant amount of orders. Joel, did you have a comment?

Joel Ronkin

I just wanted to mention one thing about the mass retailer, Bill. What was not a surprise was really the retail trends at that account, it was pretty consistent with what we forecasted. It was really that we did not expect the significant drop off in replenishment particularly in the month of June that ended up happening, and it was as Scott said, across more than just our category.

Bill Chappell - SunTrust

Okay, that helps. And then kind of as the follow-up on that customer, I mean, clearly I mean if you walk in the stores, you can see the out of stock. So, I mean, they are running where, you’re not capitalizing on sales, but the thought being as you’re going into the holidays, they want to be fully stocked. Are you assuming that replenishment gets a catch up in your ‘14 guidance or are you assuming we kind of stay at these levels until we hear further?

Steve Smith

Well, what we’ve tried to do here is to be as conservative as we can in our guidance. I don’t want to carve out specific accounts or specific circumstances. Clearly, no mass retailer wants to be out of stock or continue to lose market share during the important Christmas season, but we’ve – we’re trying to be as conservative as we can until we see a sustained consistent improvement in the kind of metrics that we’ve described. Joel?

Joel Ronkin

And what’s important to know is this retailer is in the business to win and recognizes that a many of our other accounts did win this past year. As Scott mentioned earlier, we really had a very good year with our mass accounts which also include mid-tier department stores like Kohl’s and Sears and we had strong results at a number of – many of our mass accounts. And so, our account want – this account wants to win. And so, I don’t think it’s a lack of dedication to the category.

Scott Beattie

Yeah, and they – they’ve made their own management changes and approaches in terms of merchandising to the category as well.

Bill Chappell - SunTrust

But until the order comes in, you’re not putting any guidance?

Scott Beattie

No.

Bill Chappell - SunTrust

Perfect. Okay, thank you.

Operator

Our next question comes from the line of Joe Altobello with Oppenheimer. Please proceed with your question.

Joe Altobello - Oppenheimer

Thanks. Good morning, guys. First question, I guess, I’ll turn back to the UK, you mentioned that was sort of a problem spot in Europe this year but most importantly or most impactfully in the fourth quarter, why do you think that the fourth quarter things really came to a head there, was it that you just decided to walk away from those sales in the June quarter?

Scott Beattie

I think it’s a combination of the economic environment, the concentration with – in terms of the number of retailers in that marketplace. The importance of the business in the UK for all the Prestige retailers, I mean, those are important accounts for all of our competitors and the – many of our competitors have much bigger and stronger European businesses than we have, and I think have felt the lackluster sort of retail trends in the rest of Europe and we are pushing hard to drive additional revenues by discounts and promotions. And obviously for us, our operating leverage and the level of profitability in our European business is very susceptible to changes in gross margin and so on, and we made a decision at that time that there was a point in which we weren’t willing to meet that kind of competition in pricing.

Joe Altobello - Oppenheimer

Okay. So, it sounds like things just came to a head in the fourth quarter essentially?

Scott Beattie

Well, as I say I don’t – what I tried to do is identify the three major initiatives – the three major drivers of our performance throughout 2013. We were reviewing our transcripts and discussions for each of the quarters, and I have reviewed it in terms of the overall operating performance, and we’ve consistently expressed a concern in terms of the competitive nature of the UK business and price discounting and promotions, and it’s not something that wasn’t an issue for the entire year. Those three callouts that I had represent all of the shortfall in revenue and earnings for our business.

Joe Altobello - Oppenheimer

No, understood. I’m just looking at your international business. It was up 10% in the December quarter, up 12% in the March quarter and down 1% in the June quarter, so clearly something happened in that trend. So, that’s all I was trying to kind of tease out there, but I guess moving on to the EA brand, you mentioned the flagship door is still doing very well. The intensification door is performing favorably. On the last call, you mentioned Australia and Korea were weak. So, I guess number one could you give us an update on Australia and Korea? And number two, are you seeing that halo effect in the non-reformatted doors that you guys were hoping for? It sounds like you are not, but I just want to make sure that’s sort of where the issue is. Thanks.

Scott Beattie

Yes, I mean, in terms of the performance of our, and I outlined it in our international discussion, our Asia-Pacific business, excluding China was up 6.7% for the year, but up 11% for the quarter, and as I stated that represented a very weak beginning of the year in Australia and Korea and so on. China was up 5.4% for the year, but up 24% for the quarter, again starting very weak for the year and has been building in momentum. And then our travel retail business and distributor markets, was 14% for the year, but 23% for the quarter. So, when we look at international, in many of those markets we are seeing an acceleration of performance. And so that’s positive for us generally and obviously we want to see a consistent sustainable systematic improvement in that, but the last couple of quarters, we have seen improvement over the yearly trend.

Our European fragrance initiative as I said across all of the markets, including Eastern Europe was as I mentioned in my remarks was up 26% for the year. So, the issues that we have across our business are twofold, one, there are a few big markets and a few big customers that are not operating as we had planned and have a disproportional impact on revenue and earnings. And when you combine that with the operating leverage of our business, it can have, as all of you know, a very accelerated impact on EPS and EBITDA margins, but it can have a very negative deceleration when it’s not moving in the right direction. There is so much operating leverage in our business model that it creates this volatility. How we are addressing that this year is that again what I mentioned in my remarks is that we have created a laser like focus on our biggest brands, including the Arden brand in our biggest markets with our biggest customers. We have got to systematically focus our fuel spend, our personnel and financial resources on the biggest initiatives that can drive impactful improvement on our business. And it sounds very straightforward, and in some ways it is, but it’s – we have organized cross-functionally from supply chain to marketing to our commercial teams, to our finance teams, and we have created teams to track those key initiatives that will have the largest impact on our business as we move forward.

And by doing that, we are very hopeful that what will happen is we’ll start to have more systemic increase in the Arden brand. We will be able to extend the learnings of our flagships and to our biggest accounts in our biggest markets. And we’ll have more systemic improvement in revenue, gross margin, EBITDA margin etcetera, just as we have for the last four years. And as I mentioned again, I don’t want to ramble on this, but this is a transitional year for us and shame on us for having guidance that was – didn’t properly reflected all of the moving parts and the transition that we had to experience. I think we are through the vast majority of that now. We have identified what additional things that we would want to do from a restructuring and a repositioning point of view. We brought our guidance down. And now it’s about regaining the confidence of our investors and providing a more systematic improvement in the performance of the business.

Joe Altobello - Oppenheimer

Okay, got it. Thank you.

Operator

And our next question comes from the line of Linda Bolton Weiser with B. Riley & Company. Please proceed with your question.

Linda Bolton Weiser - B. Riley & Company

Hi. I am trying to get my arms around this idea of the swap out of the old Elizabeth Arden inventory, and how that’s impacting the shipment growth. I know it’s hard to have good data on the POS growth, but if you had to take a stab out at it, for the Elizabeth Arden counters in North America and in Europe, what do you think roughly the POS growth was in the quarter, so we can sort of think about that relative to your shipment growth?

Scott Beattie

Joel, any idea? The best market to talk about really is North America, because it’s really the key, it’s the market that we have really predictable retail sellout numbers. And this one general issue that Kathy addressed in her remarks that was fundamental to our, the delta between our flat Arden growth and our budgeted 4%. And again she addressed it clearly in her remarks, but the impact that negative impact we’ve had on the performance of the legacy skin care products that we took out of the new repositioned brand. As I mentioned we took approximately a third of the SKUs out of the Elizabeth Arden brand and those were skin care products that strategically were not as productive as they should be at a SKU level and were inconsistent with the positioning of each of the pillars, Ceramide, PREVAGE and Visible Difference.

Despite that, there were loyal customers and there were high margin revenue numbers across our business and taking that out of our mix, discontinuing that, and replacing it with fewer SKUs and rebuilding that customer base to the Visible Difference platform or the Ceramide platform or the PREVAGE platform was one of the key drivers of the delta between the 1% growth and the 4% growth. A third of that SKUs in our skincare line and we had not properly accounted for the reduction in revenue and margin particularly of those SKUs and the timing of replacing that volume with Visible Difference. Joel, would you like to comment on North America a little bit?

Joel Ronkin

Yeah, I think the rough increase in retail sales for the spring season that’s January through June would be about 4% of retail, if that answers your question.

Scott Beattie

That’s in North America, prestige department store retail.

Joel Ronkin

Then, and incidentally, if you would include our other channels including our e-commerce and the sales at our Red Door spas of our products, that would be up even more than that, and we don’t capture that in that number.

Scott Beattie

I think that’s also an important fact for people to understand is that the confidence of the repositioning of the brand doesn’t just come from our flagship doors in our department store distribution. We are seeing tremendous growth in our skincare business through our digital platform, not just our own captive digital platform but some of our customers’ digital platforms. And the – as Kathy mentioned our Red Door Spa, we have 31 Red Door Spas in the U.S., each of those doors is on average much greater than our average beauty counter door at prestige retail. As we initiated the re-launch of the Arden brand in February at the Spas and we’re seeing some really strong growth traction 15%, but on a much higher base of business, those customers are our customers. We can interact with them. We have CRM systems that bring them into the overall Elizabeth Arden experience. And they are very loyal customers and our margins in that channel and distribution are very strong. So, when you look across not just the department store re-launch, but all of the platforms in which we are re-launching and creating more of an Omni channel, particularly in the U.S. market for our Elizabeth Arden customers. We are seeing some very encouraging results. Now, as Joel mentioned, we don’t account for the spa business in our results.

Linda Bolton Weiser - B. Riley & Company

So, what quarter do you expect the elimination of the pre-repositioned product inventory for Elizabeth Arden brand to be completely gone, where that inventory has been completely eliminated and we won’t hear about it anymore?

Scott Beattie

I think the vast majority of that will be done after this quarter. As Steve laid out in the – and then part of the reason why we have taken the charge on at the end of this fiscal year, as Steve mentioned is that we had an option. We had an option of building out that old legacy inventory and selling it out at a loss through our outlet stores or whatever or writing it off and moving ahead. And the reality is it would have continued to be dilutive to our margins and to our business and more importantly to the strategic repositioning of the brand and rather than continue to talk about it for the next year or two on what impact that had as we bled that through our outlet stores or the impact that it had on getting out of non-profitable doors or taking inventory back and finalizing the repositioning, we decided to take these charges to front-end load, the issues that are affecting both the growth of the Arden brand and our systematic improvement in gross margin and profitability. And I think in the long run it’s a much more productive way to focus our energy is to get this problem behind us.

Joel Ronkin

There are also a couple of retailers where we, based on the strength of the Arden repositioning and the improvement of our competitive positioning, where we mentioned about a year ago there were certain doors, we would prefer not to be in with Arden that now they are actually allowing us to close a few of the underperforming doors, and that’s also included in those numbers and that s something a year ago that we couldn’t get done with those accounts, but they see based on our positioning and what kind of our importance to them in other doors, they are allowing us now to do that and that’s affecting a few key major retailers. And that’s all a positive for the Arden brand.

Steve Smith

I just want to clarify one minor thing that Scott said that, if we had chosen to build up a product, we sell it through the retail outlet channels. It’s not that it would have been sold at a loss it would have been sold at margins lower than our normal skincare margins. So, this is not inventory that is bad inventory it’s just inventory that doesn’t, not strategically make sense for us to sell through anymore?

Linda Bolton Weiser - B. Riley & Company

So, Scott, given that we are going to have two years here of pretty low Elizabeth Arden brand sales growth, do you still think that you can double the sales in three to five years, can you catch up later, is it a catch up process or does this kind of reduce that ultimate growth?

Scott Beattie

Well, I think it would be foolish of me to take kind of commit to that without showing sustained improvement. And in terms of again the absolute dollar numbers that we are talking about here, it’s something given the global platform and the potential of the business that’s very doable, but this is not the time for us to start putting out objectives that we haven’t been able to deliver against. I think once we get very much improved sustainable improvement in the Arden brand, which I expect will systematically improve through this fiscal year, then we can do that with more confidence and credibility.

Linda Bolton Weiser - B. Riley & Company

So, in terms of the 4% to 6% local currency sales growth guidance for FY ‘14, it will be low in the first quarter, and I guess I would expect lowest in the second quarter based on what you said about fragrance holiday plans. So, what is going to result in the big acceleration in growth in the second half? I know your comparison is pretty – easier, the third quarter comparison is not that easy, the fourth quarter is, what’s going to make that sales growth accelerate? Can you name just a couple of things that you can really say with high confidence, so that it can accelerate in the second half?

Scott Beattie

I think, it’s really against core initiatives that we have described the Arden brand in China, the UK, and the U.S. We have got great momentum on the Arden brand in China right now and that’s the big enough market and substantial enough and we are coming off very weak comps against that business, because we have been closing doors and reducing distribution. And there is a turning point at which you start accelerating growth. Our distribution and travel retail business, our business with distributors and travel retail, again I have shown we have started very weak this past fiscal year and we are that growth is accelerating. We are very successful in Poland, Russia, and the rest of the distributor markets in the East. We have got accelerated growth with distributors in the Middle East and Asia this year. We are also seeing – we started our Brazilian business in February, March. We are seeing good results there well in excess of our budgets. And so we see that contributing as we move forward. So, and the third quarter is a very weak quarter for us generally, and so the incremental improvement in that quarter year-over-year is not from a dollar point of view not a strain for the business.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Connie Maneaty with BMO Capital. Please proceed with your question.

Connie Maneaty - BMO Capital

Good morning. Just a housekeeping question first and then my real ones, what percentage of sales does the UK represent? And then my questions are these, on the flagship stores sales of Elizabeth Arden, well the growth is good, it’s been decelerating since you started to talk about it. So, I guess in the December quarter you said Elizabeth Arden sales in the flagship stores were up 24%, last quarter it was 22%, this quarter it’s 20%. So, I am wondering what the growth of Elizabeth Arden sales is now in the first set of stores that were reset to give us the sense of what a good run rate is? And then could you also comment on the reason for Dirk Trappmann’s departure? Thanks.

Kathy Widmer

Connie, I can address your first question about the phasing of the growth in the flagship doors. We consider that growth to be very consistent. It’s been between 20% and 24% for the duration. We are coming up on into this October we will represent a full year of transition as doors were fully renovated and then they also – we used those as concept doors to drive out the activities that are required across a broader set of doors to drive growth for the overall brand. When you see variability from one quarter to another it’s left to do with a deceleration in the effectiveness of the renovation efforts than it is, innovation, timings, and pipeline shipments that are variable quarter-to-quarter, but we are very satisfied with the consistency of those doors as well as the intensification doors, which have been approached very similarly to the flagship doors and although there it’s a broader set of doors that the level of investment is a little, a bit more modest, but those are performing ahead of the category and very consistently out of the category.

Connie Maneaty - BMO Capital

In terms of your housekeeping question, the UK is about 6% of our total business?

Scott Beattie

It does have a disproportionate impact on our international platform and in terms of growth in Europe and profitability in Europe.

Operator

Thank you. And our next question…

Scott Beattie

In terms of Dirk Trappmann, as I said before there is that mutual agreement from Dirk to leave and pursue other interests. And it’s not appropriate to talk in any more detail.

Operator

Thank you. Our next question comes from the line of Joe Lachky with Wells Fargo. Please proceed with your question.

Joe Lachky - Wells Fargo

Hi, thank you. First of all, just a clarification on the first quarter, I guess, you are saying sales flat to down 1% and gross margin flat, but it looks like EPS will be down – adjusted EPS will be down roughly 65%. So, what am I missing there, I guess is what’s getting you from the top line to the bottom line if gross margin is flat? I guess the main question then on your EPS guidance, obviously it will be down significantly in the first quarter, obviously. And that’s a very seasonally material quarter. And accelerating pretty significantly in the second quarter through the fourth quarter I am assuming. I think in Linda’s question you kind of went over some of the drivers of that, but it seemed like some of those drivers were not necessarily material or as material. It seems like there needs to be an acceleration in the core business itself, specifically in the second quarter in order for you guys to hit even the low end of your earnings guidance. So, maybe if you could comment on that?

Steve Smith

Alright. In terms of the first quarter, and as I said in my remarks earlier, we have a number of activities that we are incurring costs of investments behind that the revenues haven’t caught up with the costs we are incurring, specifically we have retail outlet doors opening up, we have the investment in the prototype spa door at Union Square, investments we are making to open up affiliates around the world, such as in Brazil and Germany. So, that’s one aspect. Secondly, the variability in the anniversarying of launch activity this year versus last year, we actually launched some of that earlier in the year – this year than last year. So, the selling and marketing that drives sell-through is happening this quarter versus the second quarter of last year. Then we also had a currency impact in Q1 of this year versus last year. In total, SG&A is expected to up this quarter, but it will be down next quarter.

Joe Lachky - Wells Fargo

And then comment (Technical Difficulty) in earnings and the beginning in the second quarter essentially?

Scott Beattie

Well, again I have gone through exactly what the big drivers of initiatives for us. It’s the focus on the Elizabeth Arden brand in China in our distributor markets and the U.S. and the UK and travel retail. In terms of the systematic improvement in that business, they have – obviously if there is a second quarter and beyond, I think we have got the right spend and the right budgets for our U.S. mass fragrance business, which is extremely profitable driver of our business this year. So, we right-sized I think the fuel spend with the expectations for our large mass accounts, which will allow us to deliver a more consistent gross margin and profitability number, particularly in the very important second quarter, and then the rest of the initiatives that I described to Linda in third and fourth quarter.

Operator

Thank you. Our next question comes from the line of David Wu with Telsey Advisory Group. Please proceed with your question.

David Wu - Telsey Advisory Group

Thanks. Hi, good morning. On the international business, how much growth are you assuming in your full year sales guidance? And can you perhaps talk about the progress that you have made in getting new distribution such as Justin Bieber in Sephora France and whether or not you have a target in mind for the number of new doors or accounts that you plan to expand into in FY ‘14?

Scott Beattie

Well, I think the only, I mean, in terms of Justin Bieber and the rest of our portfolio, again the distribution of that will continue to be expanded in our distributor markets. We have got a series of new launches and introductions of brands in places like Brazil and Germany, which will be future drivers of revenue and earnings growth for us. And the first part of your question, I am sorry was what?

David Wu - Telsey Advisory Group

How much International growth are you assuming in your full year sales guidance?

Scott Beattie

It’s a double-digit growth in international for this coming year.

David Wu - Telsey Advisory Group

Okay. And is that on constant currency or actual basis or both?

Scott Beattie

Both.

David Wu - Telsey Advisory Group

Got it. And aside from finding a replacement for Dirk, do you think your local sales infrastructure internationally is adequate enough or are you planning to make any key hires there to really beef up the sales force this fiscal year?

Scott Beattie

Alright, we have fantastic people at the local level, and we can’t underestimate the challenge. It’s, we are building from very small base of business and we are building account relationships and both in fragrance and Arden and many of these markets. And so many of these businesses are start-ups and they have to be managed very, very cautiously and prudently, but it’s a balancing act for us to drive consistent executable performance against a business that’s generating a $1.4 billion, both on a revenue basis, a margin basis, and then an earnings basis. And at the same time invest in the Arden repositioning and also invest on where our future growth is going to come from, which is places like China, like Western Europe, and particularly Germany and Latin America, and particularly Brazil.

And then you overlay that with the operating leverage of our business, the fact that a few million dollars can be $0.20, $0.30 a share in earnings, have a very significant impact on the business. It’s a very volatile and leveraged business model. And I think all of you analysts kind of fully understand that and investors fully understand that. It works in our favor when there is consistent predictable growth, but it can work against us when there isn’t. And I can assure you that we will get back on to that consistent executable growth. The underlying health and execution and management of this business is extremely healthy. And so well we have made the corrective action and we will continue to do other corrective things as we move into 2014 to ensure that we get back to a more systematic improvement.

Operator

Thank you. It seems there are no further questions at this time. I would like to turn the floor back over to Scott Beattie for closing remarks.

Scott Beattie - Chairman and Chief Executive Officer

Thank you everyone for joining us on this end of year conference call.

Operator

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.

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